Ecolab Q2 2010 Earnings Call Transcript

Ecolab Q2 2010 Earnings Call Transcript
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Ecolab (ECL)

Q2 2010 Earnings Call

July 27, 2010 1:00 pm ET


Douglas Baker - Chairman, Chief Executive Officer and President

Michael Monahan - VP of External Relations


Mark Gulley - Soleil Securities Group, Inc.

Steven McNeil

Rosemarie Morbelli - Ingalls & Snyder LLC

David Ridley-Lane - BofA Merrill Lynch

Robert Koort - Goldman Sachs Group Inc.

John McNulty - Crédit Suisse AG

Michael Harrison - First Analysis

Richard O'Reilly - S&P Equity Research

Edward Yang - Oppenheimer & Co. Inc.

John Roberts - Buckingham Research Associations

Laurence Alexander - Jefferies & Company, Inc.

Nathan Brochmann - William Blair & Company L.L.C.

Gary Bisbee - Barclays Capital

Dmitry Silversteyn - Longbow Research LLC

P.J. Juvekar - Citigroup Inc



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Welcome to the Ecolab Second Quarter 2010 Earnings Release Conference Call. [Operator Instructions] Now I would like to turn the call over to Mr. Michael Monahan, Vice President, External Relations. Sir, you may begin.

Michael Monahan

Thank you. Hello, everyone, and welcome to Ecolab's second quarter conference call. With me today is Doug Baker, Ecolab's Chairman, President and CEO. A copy of our earnings release and the slides referenced on this teleconference are available at Ecolab's website at

Please take a moment to read the cautionary statement in Slide 2, stating this teleconference and the slides include estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected. Factors that could cause actual results to differ are described in the section of our most recent Form 10-K under item 1A, Risk Factors, in our second quarter earnings release and in Slide 2. We also refer you to the supplemental diluted earnings per share information that is also in the release.

Starting with Slides 3 and 4, we continue to deliver strong earnings results in the second quarter despite mixed conditions in our end markets. The sales gain was fueled by aggressive actions to gain new accounts using our innovative new products and industry-leading service force. Margins improved on the better volume and benefited from favorable delivered product costs and cost-reduction actions. Looking ahead, we expect to continue outperforming our gradually improving markets and deliver superior growth once again in 2010.

Starting with some highlights from the quarter. Reported second quarter earnings per share were up 32% to $0.54. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, second quarter 2010 earnings per share increased 12% to $0.56. The adjusted earnings per share growth was driven by better volume, new products, new account gains, pricing, favorable delivered product costs and cost savings, which more than offset higher operating costs and continued investments in our business.

Our U.S. and European Foodservice markets remained soft but are stabilizing. Lodging room demand has increased and is showing good trends worldwide. The Food & Beverage and Healthcare markets remained steady, and we continue to see good growth across all market segments in our Asia-Pacific and Latin America businesses. We continue to be aggressive, focusing on top line growth as we emphasize our innovative products and service strengths to help drive market share growth in our core businesses and deliver new account acquisitions among our national, regional and independent prospects. We're also making significant investments in key growth businesses to build future growth. We also remained focused on cost savings, emphasizing productivity and efficiency improvement to help increase margins.

Looking ahead, we expect third quarter adjusted EPS to increase 5% to 8% to the $0.64 to $0.66 range, compared with adjusted EPS of $0.61 in the third quarter 2009, reflecting comparison against strong results last year, easing raw material cost benefits and unfavorable currency trends. Despite the uncertain economy and fluctuating currency exchange rates, we continue to look for double-digit EPS growth with adjusted EPS of $2.21 to $2.26 per share for the full year 2010, representing an 11% to 14% gain over last year. That would represent another year in our decade-long performance of fixed currency sales growth, our ninth consecutive year of adjusted EPS growth and eight double-digit EPS gain in the last 10 years.

In summary, we expect 2010 to reflect yet another strong performance by Ecolab, as we use aggressively sales efforts to gain new accounts and achieve better sales penetration, along with improved efficiency and cost savings to once again deliver attractive growth and shareholder returns.

Turning to the details as shown on Slide 5, Ecolab's reported consolidated sales for the second quarter increased 5%. Looking at the components, volume and mix increased 2%, pricing was up 1% and currency benefited sales by 2%.

Slide 6 includes sales growth by segment and division. Sales for the U.S. Cleaning & Sanitizing operations rose 3%. Institutional sales rose 2%. New account gains, new products and the comparison to weaker distributor shipments last year benefited second quarter sales. We continue to outperform mixed market trends with continued soft food service foot traffic and strengthening lodging room demand in the second quarter. We remain focused on driving sales growth using innovative products in ware washing, laundry and housekeeping that provides superior performance while delivering water, energy and labor savings for our customers. We're also targeting new accounts with additional and redeployed sales people in program. These actions have resulted in good new account gains, and we're continuing our efforts to drive more sales at margin growth. We expect these gains, investments in our sales team and new accounts to help Institutional continue to outperform its markets in the third quarter and the year.

Case second quarter sales grew 6%, led by strong growth from new account wins and Food Retail. We also enjoyed good demand from existing and new Fast Food chain accounts. New products and programs like the introduction of Scrub-N-Go, the floor cleaner for QSR restaurants, benefited case results. We expect these initiative, along with continued good new account growth, to help drive strong gains in case third quarter.

Textile Care sales were up 3%, as customer gains, new program launches and the additional sales within existing customers offset continued challenging industry conditions. Ecolab is focused on innovative products and services, operational savings and service excellence to bolster results. With textile industry conditions remaining difficult, we look for sales to be flattish in the third quarter.

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