Ecolab Inc. (NYSE: ECL):
2011 FOURTH QUARTER
HIGHLIGHTS:
- Reported diluted EPS $0.34
- Record adjusted EPS $0.70, +17%
excluding special gains and charges, discrete tax items and Nalco
merger impact
- Record sales: reported sales +17% to
$1.8 billion. Fixed currency sales adjusted for special charges,
Nalco and all other acquisitions +4%
- Strong results by Food &
Beverage and Kay operations worldwide, as well as the Latin America
region, led the quarter
Fourth Quarter Ended
December 31
(unaudited) ReportedFourth Quarter % Adjusted*Fourth
Quarter % (Millions, except per share)
2011
2010
change
2011
2010
change
Net Sales $ 1,845.3 $ 1,575.5 17 % $ 1,681.5 $ 1,575.5 7 %
Operating Income 164.2 203.6 -19 % 246.6 212.1 16 % Net Income
Attributable to Ecolab
$ 88.7
$ 131.3 -32 %
$
163.4 $ 141.6 15 %
Diluted Net Income Per Share $ 0.34 $ 0.56 -39 % $ 0.70 $ 0.60 17 %
*
These non-GAAP measures are adjusted for
special gains and charges and discrete tax items and exclude the
Nalco merger impact.
Ecolab delivered strong fourth quarter results as adjusted
earnings per share increased 17% over last year. Results were led
by its Food & Beverage and Kay operations worldwide and the
Latin America region.
Ecolab's reported sales rose 17% to a record $1.8 billion in the
fourth quarter of 2011. Ecolab sales, as measured in fixed
currencies and adjusted for special charges, Nalco and all other
acquisitions, rose 4%. Reported net income attributable to Ecolab
declined 32% to $89 million, representing $0.34 per diluted share,
primarily reflecting charges associated with the Nalco merger which
closed December 1, 2011. Fourth quarter 2011 and 2010 results
included special gains and charges and discrete tax items.
Excluding those items and the impact of the Nalco merger, Ecolab’s
adjusted fourth quarter 2011 net income attributable to Ecolab rose
15% to $163 million. Adjusted diluted earnings per share increased
17% to $0.70. Fourth quarter 2010 adjusted diluted earnings per
share were $0.60. Currency translation had no impact on reported
and adjusted diluted earnings per share in the fourth quarter of
2011.
Segment reviewFourth quarter
2011 sales for Ecolab's U.S. Cleaning & Sanitizing operations
rose 8% to $733 million. Adjusted for acquisitions, sales increased
5%. Food & Beverage led the growth, with continued good
Institutional gains in the quarter. Ecolab's U.S. Cleaning &
Sanitizing operating income increased 27% to $144 million compared
to the year ago period when unfavorable mix and a customer charge
reduced income. Adjusted for acquisitions, U.S. Cleaning &
Sanitizing operating income increased 19%.
U.S. Other Services sales increased 2% to $114 million in the
fourth quarter. Operating income was off 2% at $18 million.
Sales for Ecolab's International operations, when measured at
fixed currency rates, grew 6% to $816 million in the fourth
quarter. Adjusted for acquisitions and divestitures, fixed currency
sales increased 4% led by strong Latin America growth. Fixed
currency operating income increased 6% to $88 million in the fourth
quarter. When measured at public currency rates, International
sales increased 7% and operating income rose 6%.
Sales from Nalco’s U.S. Water, Paper and Energy businesses
totaled $193 million for the month following the December 1 close
of the merger. Operating income from these businesses was $35
million.
The Corporate segment includes special gains and charges. As
previously announced, special gains and charges for the fourth
quarter 2011 of approximately $100 million ($65 million after-tax)
primarily consisted of Nalco merger transaction and integration
costs and a charge related to the modification of a long-term
customer agreement that was part of a previous water-related
acquisition. Special gains and charges for the fourth quarter 2010
included $9 million ($7 million after tax) of expense to optimize
Ecolab’s business structure. The Corporate segment also includes
investments in the development of business systems and other
corporate investments we are making as part of our ongoing efforts
to improve our efficiency and returns, as well as Nalco expenses of
$21 million which include asset step-up amortization specifically
related to the Nalco merger.
The reported income tax rate for the fourth quarter 2011 was
31.6% and compared with the reported rate of 30.5% in the fourth
quarter 2010. Excluding the tax rate impact of special gains and
charges and discrete tax items and the impact of Nalco, the
adjusted effective income tax rate in the fourth quarter 2011 was
29.3% compared with 28.3% for the same period last year. The fourth
quarter 2010 adjusted effective tax rate reflected higher benefits
in 2010 from the domestic manufacturing deduction in the U.S. and
extension of U.S. R&D tax credits in the fourth quarter.
CEO commentCommenting on the
quarter, Douglas M. Baker, Jr., Ecolab’s Chairman and Chief
Executive Officer said, “We are very pleased with our fourth
quarter results. Our team delivered our strongest adjusted EPS
growth quarter of the year, delivering another double-digit
increase. This also completed another strong year, which
represented our ninth year of adjusted double-digit earnings per
share growth out of the last ten years, all achieved while we
continued to invest in the future and managed the Nalco merger
close and integration.
“We are excited about our prospects for 2012. While we face
headwinds due to unfavorable currency and higher pension and raw
material costs, we also enter the year with our businesses on the
right trajectory, a strengthened management team, an excellent
innovation pipeline, and leadership positions in terrific
businesses: food safety, water and energy. Our legacy Ecolab
businesses are showing solid trends, and the legacy Nalco
businesses we acquired are poised for another year of strong
growth. Further, the integration process is progressing well, and
we are well-positioned to take advantage of the strong growth and
cost synergies arising from our combination which we expect to
build throughout the year. As a result, we are confident 2012 will
be another year of superior growth for our company and lead to
another year of improved shareholder value.”
Business Outlook2012Ecolab continues to expect 2012 full-year
adjusted earnings per share in a $2.95 to $3.05 range, representing
a 16% to 20% increase over the prior year.
As previously announced, special gains and charges for 2012 are
expected to approximate a $0.60 per share net charge, primarily
driven by restructuring charges and Nalco merger and integration
costs. Future amounts related to discrete tax items for 2012, if
any, are not currently quantifiable.
2012 – First QuarterEcolab expects
first quarter adjusted earnings per share in a $0.46 to $0.49 range
compared with an adjusted $0.45 earned by legacy Ecolab a year ago.
The underlying business growth is projected to be strong when
compared with the combined companies’ pro forma first quarter 2011
performance; we look for upper single-digit sales growth, similar
gross margins, an improved SG&A ratio to sales, and a lower
effective tax rate to drive a very good underlying income
performance in the first quarter.
Because the first quarter is our seasonally lowest sales
quarter, this otherwise strong performance is disproportionately
impacted by Nalco merger-related fixed depreciation and
amortization, interest expense and shares, which is expected to
have an unfavorable impact of approximately $0.40 per share in each
quarter of 2012. We expect the quarterly earnings growth rate to
improve through the balance of 2012 as our strong underlying
business growth, rising synergy and cost reduction benefits, and
seasonally higher revenues offset the effects of the fixed higher
depreciation and amortization, interest expense and shares.
Our detailed outlook for the first quarter 2012, which includes
the impact of the Nalco merger, is as follows:
Adjusted Gross Margins, excluding
special gains and charges
approx. 46%
SG&A % of Sales, including impact of purchase accounting
35%-36% Interest expense, net
$65-$70 million
Effective tax rate 30% - 31% Adjusted EPS, excluding special gains
and charges
$0.46 - $0.49
Shares
approx. 297 million
We expect first quarter 2012 special gains and charges,
including restructuring charges, to be a net charge of
approximately $0.30 per share, which will be primarily merger and
integration charges related to the Nalco transaction.
Reported first quarter 2011 legacy Ecolab earnings per share of
$0.40 included special gains and charges and discrete tax items.
Excluding these items, first quarter 2011 legacy Ecolab adjusted
diluted earnings per share were $0.45.
About EcolabWith 2011 pro forma sales of $11 billion and
more than 40,000 employees, Ecolab Inc. (NYSE: ECL) is the global
leader in water, hygiene and energy technologies and services that
provide and protect clean water, safe food, abundant energy and
healthy environments. Ecolab delivers comprehensive programs and
services to the food, energy, healthcare, industrial and
hospitality markets in more than 160 countries. For more Ecolab
news and information, visit www.ecolab.com.
Cautionary Statements Regarding Forward-Looking
Information
This news release contains various "Forward-Looking Statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. These include statements concerning our financial and
business prospects, including forecasted 2012 first quarter and
full year business results, including sales, adjusted gross margin,
selling, general and administrative expense, corporate segment,
depreciation and amortization, interest expense, effective tax
rate, special gains and charges and adjusted diluted earnings per
share; pension and raw material costs; innovation pipeline;
business trends; shareholder value; growth; earnings growth rate
trends; pricing; shares; investments; Nalco merger synergies;
restructuring activities and charges; cost savings initiatives;
delivered product costs; and currency. These statements, which
represent Ecolab's expectations or beliefs concerning various
future events, are based on current expectations that involve a
number of risks and uncertainties that could cause actual results
to differ materially from those of such Forward-Looking Statements.
In particular, the ultimate results of any restructuring and
business improvement actions, including cost synergies, depend on a
number of factors, including the development of final plans, the
impact of local regulatory requirements regarding employee
terminations, the time necessary to develop and implement the
restructuring and other business improvement initiatives and the
level of success achieved through such actions in improving
competitiveness, efficiency and effectiveness. We caution that
undue reliance should not be placed on Forward-Looking Statements,
which speak only as of the date made. Ecolab does not undertake,
and expressly disclaims, any duty to update any forward-looking
statement whether as a result of new information, future events or
changes in expectations, except as required by law.
Additional risks and uncertainties that may affect operating
results and business performance are set forth under Item 1A of our
most recent Form 10-K and include our ability to integrate Nalco
and realize the anticipated benefits of the merger; our ability to
attract and retain high caliber management talent to lead our
business; difficulty in procuring raw materials or fluctuations in
raw material costs; our ability to execute key business
initiatives; vitality of the markets we serve; the impact of
worldwide economic factors such as the worldwide economy, credit
markets, interest rates and foreign currency risk; exposure to
economic, political and legal risks related to our international
operations; the costs and effects of complying with laws and
regulations relating to the environment and to the manufacture,
storage, distribution, sale and use of our products; changes in
laws, regulations or accounting standards; our ability to develop
competitive advantages through innovation; our substantial
indebtedness; information technology systems failures; the ability
to acquire complementary businesses and to effectively integrate
such businesses; restraints on pricing flexibility due to
contractual obligations; pressure on operations from consolidation
of customers, vendors or competitors; public health epidemics;
potential losses arising from the impairment of goodwill or other
assets; potential loss of deferred tax assets; the occurrence of
litigation or claims, including related to the Deepwater Horizon
oil spill; acts of war, terrorism, severe weather or natural or
man-made disasters; the loss or insolvency of a major customer,
supplier or distributor; and other uncertainties or risks reported
from time to time in our reports to the Securities and Exchange
Commission.
Non-GAAP Financial Information
This news release and certain of the accompanying tables include
financial measures that have not been calculated in accordance with
accounting principles generally accepted in the U.S. (GAAP). These
non-GAAP financial measures include adjusted net sales, fixed
currency sales, fixed currency operating income, adjusted operating
income, adjusted effective tax rate, adjusted net income
attributable to shareholders and adjusted diluted earnings per
share. We provide these measures as additional information
regarding our operating results. We use these non-GAAP measures
internally to evaluate our performance and in making financial and
operational decisions, including with respect to incentive
compensation. We believe that our presentation of these measures
provides investors with greater transparency with respect to our
results of operations and that these measures are useful for
period-to-period comparison of results.
We include in special gains and charges items that are unusual
in nature, significant in amount and important to an understanding
of underlying business performance. In order to better allow
investors to compare underlying business performance
period-to-period, we provide adjusted net sales, adjusted operating
income, adjusted net income attributable to shareholders and
adjusted diluted earnings per share, which excludes special gains
and charges and discrete tax items. In addition, to allow for a
more meaningful comparison against 2010 results, where applicable,
we have excluded the impact of Nalco’s post-merger results in our
2011 non-GAAP measures.
The adjusted effective tax rate measure promotes
period-to-period comparability of the underlying effective tax rate
because the amount excludes the tax rate impact of special gains
and charges and discrete tax items which do not necessarily reflect
costs associated with historical trends or expected future
costs.
We evaluate the performance of our international operations
based on fixed currency rates of foreign exchange. Fixed currency
sales and fixed currency operating income measures eliminate the
impact of exchange rate fluctuations on our international sales and
operating income, respectively, and promote a better understanding
of our sales and operating income trends from underlying business
performance. Fixed currency amounts included in this release are
based on translation into U.S. dollars at the fixed foreign
currency exchange rates established by management at the beginning
of 2011.
These non-GAAP financial measures are not in accordance with, or
an alternative to, GAAP, and may be different from non-GAAP
measures used by other companies. Investors should not rely on any
single financial measure when evaluating our business. We recommend
that investors view these measures in conjunction with the GAAP
measures included in this news release. A reconciliation of
reported diluted earnings per share to adjusted diluted earnings
per share is provided in the table "Supplemental Diluted Earnings
per Share Information" included in this news release.
(ECL-E)
ECOLAB INC.CONSOLIDATED STATEMENT OF
INCOMEFOURTH QUARTER & TWELVE MONTHS ENDED DECEMBER 31,
2011(unaudited)
Fourth Quarter EndedDecember 31 % Twelve Months EndedDecember 31 %
(millions, except per share)
2011 2010
Change
2011 2010
Change
Net sales (1)
$ 1,845.3 $ 1,575.5 17 %
$ 6,798.5 $ 6,089.7 12 % Cost of sales (1)
966.5 783.7 23 %
3,475.6 3,013.8 15 % Selling,
general and administrative expenses
651.6 579.7 12 %
2,438.1 2,261.6 8 % Special (gains) and charges (1)
63.0 8.5
131.0 7.5
Operating income
164.2 203.6 -19 %
753.8 806.8
-7 % Interest expense, net (1)
34.4
14.2 142 %
74.2 59.1 26 %
Income before income taxes
129.8 189.4 -31 %
679.6
747.7 -9 % Provision for income taxes
41.0
57.8 -29 %
216.3 216.6 0
% Net income including noncontrolling interest
88.8
131.6 -33 %
463.3 531.1 -13 %
Less: Net income attributable to
noncontrolling interest
0.1 0.3
0.8 0.8
Net income attributable to Ecolab
$
88.7 $ 131.3 -32 %
$ 462.5 $ 530.3
-13 % Earnings attributable to Ecolab per common
share Basic
$ 0.35 $ 0.57 -39 %
$ 1.95
$ 2.27 -14 % Diluted
$ 0.34 $ 0.56 -39 %
$
1.91 $ 2.23 -14 % Weighted-average common shares
outstanding Basic
252.2 232.1 9 %
236.9 233.4 1 %
Diluted
257.5 236.4 9 %
242.1 237.6 2 %
(1) Amounts include the following special gains and charges: Fourth
Quarter EndedDecember 31 Twelve Months EndedDecember 31 (millions)
2011 2010
2011 2010 Net sales Customer
agreement modification
$ 29.6 $
- $ 29.6 $ - Subtotal net
sales
29.6 - 29.6 - Cost of
sales Restructuring
- - 5.3 -
Recognition of Nalco inventory step-up
3.6
- 3.6 - Subtotal
cost of sales
3.6 - 8.9 -
Special (gains) and charges Restructuring
16.2 -
69.0
- Business structure and optimization
(0.3 ) 8.5
0.9 10.9 Nalco merger and integration costs
47.4 -
57.7 - Cleantec acquisition integration charges
(0.3
) -
3.4 - Gain on sale of investment
- -
- (5.9 ) Venezuela currency devaluation
- -
-
4.2 Other items
- -
-
(1.7 ) Subtotal special (gains) and charges
63.0 8.5
131.0 7.5 Interest expense, net Nalco merger credit
facility fees
1.5 -
1.5 - Subtotal interest expense, net
1.5 - 1.5 -
Total special (gains) and charges
$ 97.7 $ 8.5
$ 171.0 $ 7.5
ECOLAB INC.OPERATING SEGMENT
INFORMATIONFOURTH QUARTER & TWELVE MONTHS ENDED DECEMBER
31, 2011(unaudited)
Fourth Quarter
EndedDecember 31 % Twelve Months EndedDecember 31 % (millions)
2011 2010 Change
2011 2010 Change Net Sales
Legacy Ecolab United States Cleaning & Sanitizing
$
733.3 $ 681.4 8 %
$ 2,930.3 $ 2,721.9 8 %
Other Services
113.8 111.3 2 %
457.1 448.5 2 % Total
847.1 792.7 7 %
3,387.4 3,170.4 7 % International
816.4 769.2 6 %
3,110.7 2,932.2 6 % Subtotal at fixed
currency rates
1,663.5 1,561.9 7 %
6,498.1 6,102.6 6
% Effect of foreign currency translation
18.0
13.6
136.6 (12.9 ) Ecolab
Subtotal
1,681.5 1,575.5 7 %
6,634.7 6,089.7 9 %
Legacy Nalco Water Services
67.2 -
67.2 - Paper
Services
33.9 -
33.9 - Energy Services
92.3 -
92.3
- Nalco subtotal
193.4 -
193.4 -
Corporate
(29.6 ) -
(29.6 ) -
Consolidated
$ 1,845.3
$ 1,575.5 17 %
$ 6,798.5
$ 6,089.7 12 % Operating Income Legacy
Ecolab United States Cleaning & Sanitizing
$
144.1 $ 113.3 27 %
$ 556.7 $ 513.9 8 % Other
Services
18.2 18.5 -2 %
69.7 71.4 -2 % Total
162.3 131.8
23 %
626.4 585.3 7 % International
88.3
83.4 6 %
292.5 260.6
12 % Subtotal at fixed currency rates
250.6 215.2 16
%
918.9 845.9 9 % Effect of foreign currency translation
0.6 0.5
11.6
(8.6 ) Ecolab Subtotal
251.2
215.7 16 %
930.5 837.3
11 % Legacy Nalco Water Services
11.0 -
11.0 - Paper Services
6.2 -
6.2 - Energy
Services
17.7 -
17.7 - Nalco subtotal
34.9 - 34.9
- Corporate
(121.9
) (12.1 )
(211.6 ) (30.5
) Consolidated
$ 164.2
$ 203.6 -19 %
$ 753.8
$ 806.8 -7 %
Note: The Corporate segment
includes special (gains) and charges reported on the Consolidated
Statement of Income as well as investments in the development of
business systems and other business efficiency investments.
Starting in December 2011, effective with the Nalco merger, asset
step-up amortization specifically related to Nalco assets is also
included in the corporate segment.
ECOLAB INC.CONSOLIDATED BALANCE
SHEET(unaudited) (millions)
December
312011 December 312010
Assets Current
assets Cash and cash equivalents
$ 1,843.6 $ 242.3
Accounts receivable, net
2,095.3 999.6 Inventories
1,069.6 447.6 Deferred income taxes
164.0 78.9 Other
current assets
223.5 101.5 Total
current assets
5,396.0 1,869.9 Property, plant and
equipment, net
2,295.4 1,148.3 Goodwill
5,855.3
1,329.3 Other intangible assets, net
4,275.2 282.5 Other
assets
418.9 242.2 Total
assets
$ 18,240.8 $ 4,872.2
Liabilities and Equity Current liabilities Short-term debt
$ 1,023.0 $ 189.2 Accounts payable
815.7 349.3
Compensation and benefits
497.2 308.1 Income taxes
81.7 36.7 Other current liabilities
748.7
441.5 Total current liabilities
3,166.3
1,324.8 Long-term debt
6,613.2 656.4 Postretirement
health care and pension benefits
1,173.4 565.8 Other
liabilities
1,546.8 192.2 Equity Common stock
336.1 333.1 Additional paid-in capital
3,980.8
1,310.2 Retained earnings
3,559.9 3,279.1 Accumulated other
comprehensive loss
(344.9 ) (271.9 ) Treasury stock
(1,865.2 ) (2,521.3 ) Total Ecolab
shareholders' equity
5,666.7 2,129.2 Noncontrolling interest
74.4 3.8 Total equity
5,741.1 2,133.0 Total liabilities and equity
$
18,240.8 $ 4,872.2
ECOLAB
INC.SUPPLEMENTAL DILUTED EARNINGS PER SHARE
INFORMATION(unaudited)
The table below provides a reconciliation
of diluted earnings per share, as reported, to the non-GAAP measure
of adjusted diluted earnings per share.
FirstQuarterEndedMar.
312010 SecondQuarterEndedJune
302010 SixMonthsEndedJune
302010 ThirdQuarterEndedSept.
302010 NineMonthsEndedSept.
302010 FourthQuarterEndedDec.
312010 YearEndedDec. 312010
Diluted earnings per share, as reported
(U.S. GAAP)
$ 0.40 $ 0.54 $ 0.94 $ 0.74 $ 1.68 $ 0.56 $ 2.23
Adjustments: Special (gains) and charges (1) 0.02 0.00 0.02 (0.02 )
(0.00 ) 0.03 0.03 Tax expense (benefits) (2) (0.00 ) 0.01 0.01
(0.05 ) (0.05 ) 0.01 (0.03 )
Adjusted diluted earnings per share
(Non-GAAP)
$ 0.41 $ 0.56 $ 0.97 $ 0.66 $ 1.63
$ 0.60 $ 2.23
FirstQuarterEndedMar. 312011
SecondQuarterEndedJune 302011
SixMonthsEndedJune 302011
ThirdQuarterEndedSept. 302011
NineMonthsEndedSept. 302011
FourthQuarterEndedDec. 312011
YearEndedDec. 312011
Diluted earnings per share, as reported
(U.S. GAAP)
$ 0.40 $ 0.53 $ 0.93 $ 0.65 $ 1.58 $ 0.34 $ 1.91
Adjustments: Special (gains) and charges (3) 0.05 0.11 0.16 0.10
0.26 0.25 0.52 Tax expense (benefits) (4) 0.00 (0.01 ) (0.00 )
(0.00 ) (0.01 ) 0.03 0.03 Nalco merger impact (5) 0.07 0.08
Adjusted diluted earnings per share
(Non-GAAP)
$ 0.45 $ 0.64 $ 1.09 $ 0.75 $ 1.84
$ 0.70 $ 2.54
Per share amounts do
not necessarily sum due to changes in shares outstanding and
rounding.
(1) Special (gains) and charges for 2010
include a $4.4 million charge, net of tax, related to currency
devaluation in Venezuela recorded in the first quarter, a $5.9
million gain, net of tax, on the sale of an investment in the third
quarter, and a $7.5 million charge, net of tax, for business
optimization costs in the fourth quarter, as well as other items,
net of tax.
(2) First quarter 2010 tax benefits
include discrete tax benefits related to a tax audit settlement in
Germany, partially offset by discrete tax expense related to the
impact of a change in Medicare prescription drug benefit tax
deductions. Second quarter 2010 discrete tax expense primarily
includes the impact of international tax costs from optimizing our
business structure. Third quarter 2010 tax benefits primarily
include discrete tax impacts of recognizing settlements and
adjustments related to prior year tax returns. Fourth quarter 2010
net discrete tax expense primarily includes adjustments related to
prior year tax returns.
(3) Special (gains) and charges for 2011
include restructuring charges of $9.0 million, $25.2 million, $14.8
million and $8.9 million, net of tax, in the first, second, third
and fourth quarters, respectively. Special (gains) and charges for
2011 also include $8.5 million and $37.1 million, net of tax, in
the third and fourth quarters, respectively for Nalco merger and
integration costs. Special (gains) and charges also include $18.4
million, net of tax, in the fourth quarter related to the
modification of a customer agreement and Cleantec acquisition and
integration costs of $2.9 million, net of tax, recorded in the
first quarter, as well as other items, net of tax.
(4) First quarter 2011 discrete tax
expense primarily includes the impact of a change in our blended
U.S. state tax rate, partially offset by a discrete tax benefit
related to a state refund claim. Second quarter 2011 discrete tax
benefits primarily include discrete tax impacts of recognizing
settlements and adjustments related to prior year tax returns.
Third quarter 2011 discrete tax benefits primarily relate to net
benefits from filing our 2010 U.S. federal and other International
income tax returns and settlements and adjustments related to prior
year tax returns. Fourth quarter discrete tax expense primarily
includes a charge related to the realizablity of foreign net
operating loss carryforwards.
(5) The Nalco merger impact primarily
relates to shares issued as consideration for the equity portion of
the merger.
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