ST. PAUL, Minn., October 23, 2008: Steady gains from the U.S. business along with double-digit growth from Latin America and Asia Pacific operations led Ecolab's third quarter results to record levels for the period ended September 30, 2008.
Ecolab's consolidated sales increased 15% to a record $1.6 billion in the third quarter of 2008; measured in fixed currencies, sales rose 10%. Fixed currency sales increased 7% excluding acquisitions and divestitures. Net income increased 11% to a record $126 million. Reported diluted earnings per share were up 9% to a record $0.50.
Third quarter 2008 and 2007 results included discrete tax items and Special Gains and Charges. Excluding those items, pro forma third quarter 2008 diluted earnings per share were $0.55, a 12% increase over pro forma third quarter 2007 diluted earnings per share of $0.49.
Commenting on the quarter, Douglas M. Baker, Jr., Ecolab's Chairman, President and Chief Executive Officer said, "Our third quarter performance was on target as we successfully offset challenging market conditions. It was a tough environment but our team performed well and delivered strong results.
"We head into the fourth quarter facing softening end markets, currency headwinds and higher raw material costs than a year ago. Fortunately, we are prepared for the challenge. We are on offense, using our industry-leading product and service solutions to help win new accounts and improve customer penetration, as well as targeting additional market segments to bolster our sales growth. We have the right innovative products that help customers get improved cleaning results while using less energy and water. We have multiple initiatives underway to improve our efficiency and lower our operating costs. And we are securing appropriate pricing to reflect the significant increases in our input costs. We expect these actions to increase our market share, improve product penetration and further distance us from the competition while also providing the foundation for continued future growth and attractive shareholder returns."
Third quarter 2008 sales for Ecolab's United States Cleaning & Sanitizing operations rose 15% to $696 million. Excluding acquisitions, sales rose 8%, with double-digit gains from Kay and strong growth from Institutional and Food & Beverage. Ecolab's United States Cleaning & Sanitizing operating income rose 9% to $121 million. Excluding acquisitions, operating income rose 11%.
United States Other Services sales increased 5% to $125 million in the third quarter benefiting from good Pest Elimination gains. Operating income increased 38% to $18 million.
Sales of Ecolab's International operations, when measured at fixed currency rates, rose 6% to $767 million in the third quarter. Latin America and Asia Pacific enjoyed double-digit sales increases. Europe/Middle East/Africa recorded moderate sales growth. Fixed currency operating income declined 9% to $78 million. When measured at public currency rates, International sales increased 17% and operating income rose 2%. Currency translation had a favorable impact on net income growth of approximately $6 million for the third quarter of 2008.
The Corporate segment includes Special Gains and Charges, which are reported as a separate line item in the income statement. Special Gains and Charges for the third quarter 2008 included non-recurring costs to optimize our business structure, including the establishment of our European headquarters in Zurich, Switzerland. Special Gains and Charges for the third quarter 2007 included a charge for an arbitration settlement. The Corporate segment also includes investments in the development of business systems and other corporate investments we are making as part of our ongoing effort to improve our efficiency and returns.
The reported income tax rate for the third quarter 2008 was 32.0% compared to the reported tax rate of 28.2% for the third quarter 2007. Excluding the tax rate impact of Special Gains and Charges and discrete tax items, the adjusted effective income tax rate for the third quarter 2008 was 30.4% compared with 34.4% for the same period last year. The decrease in the adjusted third quarter effective tax rate was due primarily to the timing of actions associated with tax planning efforts as well as international rate reductions. The estimated effective tax rate for the full year 2008, excluding the impact of Special Gains and Charges and discrete tax items, is expected to be 31%-32%.
2008 - Full Year
Ecolab expects to show continued strong earnings per share growth for the full year ending December 31, 2008. We reduced the top end of our outlook by $0.01 due to unfavorable currency trends and uncertain market conditions, and expect pro forma diluted earnings per share, which exclude Special Gains and Charges and discrete tax items, in the $1.85-$1.87 range.
Reported 2007 earnings per share of $1.70 included discrete tax benefits and special gains and charges; excluding those items, pro forma 2007 earnings per share were $1.66.
2008 - Fourth Quarter
Ecolab expects sales for both domestic and international operations (in fixed currencies) to increase in the fourth quarter 2008 over the fourth quarter 2007. Overall, currency translation should have an unfavorable impact on fourth quarter earnings. Our outlook for the fourth quarter of 2008 is as follows:
Reported fourth quarter 2007 earnings per share of $0.45 included discrete tax benefits and special gains and charges; excluding those items, pro forma fourth quarter 2007 earnings per share were $0.40.
With sales of $5.5 billion and more than 26,000 associates, Ecolab Inc. (NYSE: ECL) is the global leader in cleaning, sanitizing, food safety and infection prevention products and services. Ecolab delivers comprehensive programs and services to the foodservice, food and beverage processing, healthcare, and hospitality markets in more than 160 countries. More news and information is available at www.ecolab.com.
Ecolab will host a live webcast to review the third quarter earnings announcement today at 1:00 p.m. Eastern Time. The webcast, along with related presentation slides, will be available to the public on Ecolab's website at www.ecolab.com/investor. A replay of the webcast and related materials will be available at that site through November 7, 2008.
Listening to the webcast requires Internet access, the Windows Media Player, Real Player or other compatible streaming media player.
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 2008 fourth quarter and full year financial and business prospects, including estimated sales, gross margins, selling, general and administrative expense, interest expense, and effective tax rates; currency translation; and pro forma diluted earnings per share. 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. We caution that undue reliance should not be placed on Forward-Looking Statements, which speak only as of the date made.
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 the vitality of the markets we serve; our ability to develop competitive advantages through innovation; restraints on pricing flexibility due to contractual obligations; pressure on operations from consolidation of customers, vendors or competitors; fluctuations in raw material costs; the impact of acquisitions, divestitures and investments to develop business systems or to optimize our business structure; 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 regulations or accounting standards; the impact of economic factors such as the worldwide economy, interest rates and foreign currency exposure; the occurrence of litigation or claims, acts of war, terrorism, severe weather or public health epidemics; the loss or insolvency of a major customer, supplier or distributor; our ability to attract and retain high caliber management talent; and other uncertainties or risks reported from time to time in our reports to the Securities and Exchange Commission.
Except as may be required under applicable law, we undertake no duty to update our Forward-Looking Statements.
Michael J. Monahan