Ecolab (ECL)

Q3 2011 Earnings Call

October 25, 2011 1:00 pm ET


Michael Monahan - Vice President of External Relations

Douglas M. Baker - Chairman, Chief Executive Officer and President


David L. Begleiter - Deutsche Bank AG, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Nathan Brochmann - William Blair & Company L.L.C., Research Division

John E. Roberts - Buckingham Research Group, Inc.

Mark R. Gulley - Ticonderoga Securities LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Rosemarie J. Morbelli - Gabelli & Company, Inc.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

David Ridley-Lane - BofA Merrill Lynch, Research Division

Dmitry Silversteyn - Longbow Research LLC



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Welcome to the Ecolab Third Quarter 2011 Earnings Release Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. Now I would like to turn the call over to Mr. Michael Monahan, Senior Vice President, External Relations. Sir, you may begin.

Michael Monahan

Thank you. Hello everyone and welcome to Ecolab's Third Quarter Conference Call. With me today are Doug Baker, Ecolab's Chairman, President and CEO; and Steve Fritze, Ecolab's Chief Financial Officer. A copy of our earnings release and accompanying slides referenced in the teleconference are available on Ecolab's website at Please take a moment to read the cautionary statements on Slides 2 and 3 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 third quarter earnings release and in our recent amended registration statement on S-4 for the Nalco merger announcement and on Slide 2.

We also refer you to Slide 3, which describes additional merger information and where to find it, as well as participants in this merger. This conference call does not constitute an offer to sell or a solicitation of an offer to buy any securities. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with slides 4 and 5, we delivered strong results once again in the third quarter. We leveraged the sales volume and pricing growth, along with excellent acquisition performances to offset significantly higher raw -- delivered raw material cost and leveraged our cost efficiency work, especially in Europe to produce another double-digit increase in our adjusted earnings per share. Looking ahead, we expect to continue outperforming our markets and show continued strong earnings gains in the fourth quarter and the full year as better sales growth, pricing, innovation and margin leverage more than offset easing delivered product costs and work to deliver double-digit adjusted EPS growth once again in 2011.

Further, we believe our continued strong growth prospects, along with the additional growth opportunities from the Nalco merger will lead to better EPS growth for Ecolab in the years ahead.

Moving on to some highlights from the quarter and as discussed in our press release, reported third quarter earnings per share declined 12% to $0.65. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, third quarter 2011 earnings per share increased 14% to $0.75, which was at the top end of our forecasted range. The adjusted earnings per share growth was driven by volume and pricing gains, new products and new accounts, which along with strong performance from acquisitions and cost savings actions, more than offset higher delivered product costs. We enjoyed strong sales growth in our food and beverage business in nearly all regions. Geographically, our Latin America, Canada and Asia-Pacific operations also saw robust gains. And our acquisition performed very well in the quarter. Our U.S. Cleaning & Sanitizing sales continued to show steady growth, but were impacted by prior period product and customer rollouts. We expect stronger reported results in the fourth quarter. We continue to be aggressive, focusing on accelerating our top line growth as we emphasize our innovative product and service strengths to help drive increased market share in our core of businesses and new account acquisition across all of our customer segments. We're also continuing to implement appropriate price increases to help offset higher delivered product costs. We remain focused on expanding our margins, emphasizing productivity and efficiency improvements to help increase profitability. We're also achieving excellent progress in our actions to improve profitability in our Europe business. We have seen the benefits of these actions in our results, although as we outlined in our last call, Europe's third quarter also reflected the impact of significantly higher raw material costs. We continue to expect strong margin improvement in the fourth quarter and for the full year in 2011, with much more significant contributions over the next several years. And we continue to make significant investments in key growth businesses and acquisitions to build further growth.

This includes our pending merger with Nalco, which we believe will significantly bolster our opportunity set for our customers and position us as the leader in additional high-growth markets that leverage our mutual core strengths in product technology and sales and service execution. We look for the fourth quarter to show a strong sales performance as organic sales growth accelerates. Adjusted EPS is expected to increase 15% to 18% to the $0.69 to $0.71 range, compared with adjusted EPS of $0.60 in the fourth quarter 2010. For the full year 2011, we look for adjusted EPS to be in the range of $2.53 to $2.55 per share, showing a 13% to 14% gain over last year. That full year EPS gain would represent the ninth year in the last 10 of adjusted double-digit EPS growth.

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