News Details

Reported diluted EPS $062; adjusted EPS +23% to $0.74
2014 full-year adjusted EPS forecast remains $4.10 to $4.20, +16% to 19%

ST. PAUL, Minn.--(BUSINESS WIRE)--Ecolab Inc. (NYSE:ECL):

2014 FIRST QUARTER HIGHLIGHTS:

• Reported sales +16%; acquisition adjusted fixed currency sales +5% led by the Specialty, Energy, Food & Beverage businesses and the Latin America and Asia Pacific regions
• Reported diluted EPS $0.62, +17%
• Record adjusted EPS $0.74, +23%, excluding special gains and charges and discrete tax items, driven by solid sales gains, cost efficiency programs and synergies

Ecolab Inc. delivered strong first quarter earnings as continued solid sales growth and operating margin gains led to a 23% adjusted earnings per share increase over last year.

CEO comment

Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s chairman and chief executive officer said, “First quarter results were in line with our expectations, as our team delivered solid organic sales growth and strong earnings gains, more than offsetting unfavorable currencies.

“We continue to expect a strong year in 2014. Global economies remain choppy, so we continue to focus on driving sales growth through our strong value proposition – providing the leading products and on-site service that deliver the best results and lowest operating costs for customers – while also generating improved cost efficiencies and synergies to further accelerate earnings growth. We are in a terrific position, with major growth opportunities in all of our markets. We are committed to delivering superior results for our customers and shareholders in 2014, and continue to invest in the best opportunities for future growth.”

Quarter overview

Ecolab's reported sales rose 16% to a record $3.3 billion in the first quarter of 2014. Fixed currency sales rose 18%. First quarter 2014 acquisition adjusted fixed currency sales rose 5%.

Acquisition adjusted growth rates generally exclude the results of any acquired business for the first twelve months post acquisition and exclude the results of any divested businesses for the twelve months prior to divestiture. Champion is an exception. Due to the rapid pace at which the business is being fully integrated within our Global Energy segment, including all customer selling activity, discrete financial data specific to the legacy Champion business is not readily available post acquisition. As such, to allow for the most meaningful period-over-period comparison, specific to the Champion transaction, Champion’s results for the comparable period of the prior year have been included for purposes of providing acquisition adjusted growth rates.

First quarter 2014 reported operating income increased 34% to $351 million. Both reported first quarter 2014 and 2013 results include special gains and charges. Excluding special gains and charges, first quarter 2014 adjusted operating income of $387 million increased 23% compared with first quarter 2013 adjusted operating income. Excluding special gains and charges and at fixed currency rates, first quarter 2014 adjusted fixed currency operating income of $384 million increased 27% when compared with first quarter 2013 adjusted fixed currency operating income. First quarter 2014 adjusted fixed currency operating income, adjusted for acquisitions, increased 17%.

First quarter 2014 reported net income attributable to Ecolab increased 20% to $191 million and reported diluted earnings per share increased 17% to $0.62. Excluding special gains and charges and discrete tax items, first quarter 2014 adjusted net income rose 26% to $228 million, and adjusted diluted earnings per share increased 23% to $0.74, when compared with first quarter 2013 adjusted diluted earnings per share of $0.60. Currency translation had a negative impact of $0.02 per share on reported and adjusted diluted earnings per share in the first quarter of 2014.

Segment review

Effective in the first quarter of 2014, Ecolab made immaterial changes to its reportable segments, including the movement of certain customers between reportable segments and updates to the internal allocations of certain supply chain and SG&A expenses related to our centralized functions. These changes had no impact on Ecolab’s consolidated sales or operating income. Results for 2013 have been revised to conform to the current year presentation and are reflected in the following commentary for both 2013 and 2014 results.

First quarter 2014 sales for the Global Industrial segment, when measured at fixed currency rates, rose 3% to $1,138 million, led by Food & Beverage and Water. Fixed currency operating income increased 7% to $120 million compared with the year ago period. Regionally, Asia Pacific and Latin America enjoyed good sales growth, with modest gains in North America and a modest decline in EMEA. When measured at public currency rates, Global Industrial segment sales were $1,148 million and operating income was $121 million.

First quarter 2014 sales for the Global Institutional segment, when measured at fixed currency rates, rose 3% to $993 million, led by strong Specialty sales growth. Fixed currency operating income increased to $156 million, up 7% compared with last year. Sales for the segment showed strong growth in Latin America, with good gains in North America and Asia Pacific, and a modest increase in EMEA. When measured at public currency rates, Global Institutional segment sales were $999 million and operating income was $156 million.

First quarter 2014 sales for the Global Energy segment, when measured at fixed currency rates, grew 78% to $1,005 million in the first quarter 2014, due in large part to the Champion acquisition. Fixed currency operating income increased 83% to $132 million. Acquisition adjusted fixed currency sales grew 8% reflecting good growth in the upstream and downstream markets; acquisition adjusted fixed currency operating income increased 36%. When measured at public currency rates, Global Energy segment sales were $1,016 million and operating income was $133 million.

Other segment sales, when measured at fixed currency rates, increased 4% to $173 million in the first quarter. Fixed currency operating income increased 2% to $22 million. When measured at public currency rates, Other segment reported sales were $173 million and reported operating income was $22 million.

The Corporate segment includes amortization from the Nalco merger intangible assets, and certain integration costs for both the Nalco and Champion transactions in 2013. The Corporate segment also includes special gains and charges. Special gains and charges for the first quarter of 2014 were a net charge of $36 million ($27 million after-tax) and primarily consisted of restructuring charges and Champion integration costs. Special gains and charges for the first quarter 2013 were a net charge of $53 million ($36 million after-tax).

The reported tax rate in the first quarter 2014 was 31.9% and compared with 19.6% in the first quarter 2013. Excluding the tax rate impact of special gains and charges and discrete tax items, the adjusted tax rate was 27.9% in the first quarter 2014 and compared with 28.2% in the same period last year. The improved adjusted tax rate was the result of favorable geographic income mix which more than offset the expired U.S. Research & Development tax credit.

Ecolab reacquired 2 million shares of its common stock during the first quarter.

Business Outlook

2014

Ecolab continues to expect 2014 full-year adjusted earnings per share forecast in the $4.10 to $4.20 range, representing a 16% to 19% increase over the prior year. When compared with the 2013 performance, we expect further solid fixed currency sales growth, improved adjusted gross margin and selling, general and administrative (SG&A) ratios to sales, lower interest expense and a lower adjusted tax rate. We look for unfavorable currency exchange to offset favorable pension expense. We expect these factors, combined with improved efficiency, cost savings and merger synergies, to yield a very strong adjusted earnings per share performance. Please note our tax rate forecast for the full year assumes passage of the R&D tax credit in the fourth quarter.

Effective in the first quarter of 2014, certain employee-related costs from our recently acquired businesses that were historically presented within cost of sales were revised and reclassified to SG&A. These immaterial revisions were made to conform to how management views the respective costs within the global organizational model. Results for 2013 have been revised to conform to the current year presentation. The reclassification had no impact on net earnings, financial position or cash flows.

We continue to expect special gains and charges for the full-year 2014 to be approximately a $0.25 per share net charge, primarily driven by restructuring charges and integration costs. Amounts do not reflect the impact of a potential Venezuela currency devaluation or discrete tax items for 2014 that are not currently quantifiable.

2014 – Second Quarter

Ecolab expects second quarter adjusted earnings per share in the $1.00 to $1.04 range, representing a 16% to 21% increase versus a very strong year-ago period, when adjusted earnings per share rose 19% to $0.86.

We expect second quarter 2014 special gains and charges, including restructuring charges and integration costs, to be less than $0.05 per share. Amounts do not reflect the impact of a potential Venezuela currency devaluation or discrete tax items for 2014 that are not currently quantifiable.

Reported second quarter 2013 diluted earnings per share of $0.69 included special gains and charges and discrete tax items. Excluding these items, second quarter 2013 adjusted diluted earnings per share were $0.86.

About Ecolab

A trusted partner at more than one million customer locations, Ecolab (ECL) is the global leader in water, hygiene and energy technologies and services that protect people and vital resources. With 2013 sales of $13 billion and 45,000 associates, Ecolab delivers comprehensive solutions and on-site service to promote safe food, maintain clean environments, optimize water and energy use and improve operational efficiencies for customers in the food, healthcare, energy, hospitality and industrial markets in more than 170 countries around the world. For more Ecolab news and information, visit www.ecolab.com.

Ecolab will host a live webcast to review the first quarter earnings announcement and earnings guidance 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. Listening to the webcast requires Internet access, the Windows Media Player or other compatible streaming media player.

Cautionary Statements Regarding Forward-Looking Information

This communication contains certain statements relating to future events and our intentions, beliefs, expectations and predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project,” “may,” “will,” “intend,” “plan,” “believe,” “target,” “forecast” (including the negative or variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our financial and business performance and prospects, including forecasted 2014 second quarter and full-year business results, including sales growth, adjusted gross margin, SG&A ratios to sales, interest expense, adjusted effective tax rate, adjusted earnings per share and diluted shares outstanding; special gains and charges, including restructuring charges and integration costs; market conditions; cost savings; merger synergies; currency exchange; and pension expense. These statements are based on the current expectations of management of the company. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication. In particular, the ultimate results of any restructuring, integration 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. In addition, as it relates to the Nalco and Champion transactions, these risks and uncertainties include problems that may arise in successfully integrating the businesses of the company and Nalco Champion, which may result in the combined business not operating as effectively and efficiently as expected.

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 the vitality of the markets we serve; the impact of economic factors such as the worldwide economy, capital flows, interest rates and foreign currency risk, including a potential currency devaluation in Venezuela; our ability to integrate the Nalco and Champion transactions and to realize the anticipated benefits of these transactions; our ability to attract and retain high caliber management talent to lead our business; our ability to execute key business initiatives; potential information technology infrastructure failures; exposure to global economic, political and legal risks related to our international operations, including with respect to our operations in Russia; the costs and effects of complying with laws and regulations, including those relating to the environment and to the manufacture, storage, distribution, sale and use of our products; the occurrence of litigation or claims, including related to the Deepwater Horizon oil spill; our ability to compete with respect to value, innovation and customer support; difficulty in procuring raw materials or fluctuations in raw material costs; our substantial indebtedness; our 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; potential chemical spill or release; potential class action lawsuits; uncertainty of customer performance, including with respect to our joint venture operations in Kazakhstan; the loss or insolvency of a major customer or distributor; acts of war or terrorism; natural or man-made disasters; water shortages; severe weather conditions; and other uncertainties or risks reported from time to time in our reports to the Securities and Exchange Commission. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this communication may not occur. 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.

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 fixed currency sales, acquisition adjusted fixed currency sales, adjusted gross margins, fixed currency operating income, adjusted operating income, adjusted fixed currency operating income, adjusted fixed currency operating income adjusted for acquisitions, adjusted tax rate, adjusted net income 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, and significant in amount. In order to better allow investors to compare underlying business performance period-to-period, we provide adjusted gross margin, adjusted operating income, adjusted net income attributable to Ecolab and adjusted diluted earnings per share, which excludes special gains and charges and discrete tax items.

The adjusted effective tax rate measure promotes period-to-period comparability of the underlying effective tax rate because the amounts excluded do not necessarily reflect costs associated with historical trends or expected future results.

We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency sales, acquisition adjusted fixed currency sales, fixed currency operating income, adjusted fixed currency operating income and adjusted fixed currency operating income adjusted for acquisitions measures eliminate the impact of exchange rate fluctuations on our international sales, acquisition adjusted sales, operating income, adjusted operating income and acquisition adjusted 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 2014.

Acquisition adjusted growth rates generally exclude the results of any acquired business for the first twelve months post acquisition and exclude the results of any divested businesses for the previous twelve months prior to divestiture. Champion is an exception. Due to the rapid pace at which the business is being fully integrated within our Global Energy segment, including all customer selling activity, discrete financial data specific to the legacy Champion business is not readily available post acquisition. As such, to allow for the most meaningful period-over-period comparison, specific to the Champion transaction, Champion’s results for the comparable period of the prior year have been included for purposes of providing acquisition adjusted growth rates.

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)

Note:

Effective in the first quarter of 2014, Ecolab made immaterial changes to its reportable segments, including the movement of certain customers between reportable segments and updates to the internal allocations of certain supply chain and SG&A expenses related to our centralized functions. Results for 2013 have been revised to conform to the current year presentation and are reflected in the above table for both 2013 and 2014 results.

The Corporate segment includes amortization from the Nalco merger intangible assets and in 2013 certain integration costs for both the Nalco and Champion transactions. The Corporate segment also includes special (gains) and charges reported on the Consolidated Statement of Income.

Contacts

Ecolab Inc.
Michael J. Monahan, 651-293-2809
Lisa L. Curran, 651-293-2185