Nalco Holdin (NLC)
Q1 2010 Earnings Call
April 28, 2010 10:00 am ET
Bradley Bell - Chief Financial Officer, Executive Vice President and Treasurer
J. Fyrwald - Chairman, Chief Executive Officer and President
Mike Bushman - Investor Relations
Richard Hoss - Roth Capital Partners, LLC
Anthony Pettinari - Citi
Bill Hoffman - UBS
Michael Harrison - First Analysis
Mark Gulley - Soleil Securities Group, Inc.
David Rose - Wedbush Securities Inc.
Chip Moore - Canaccord Adams
Brian Drab - William Blair & Company L.L.C.
Richard Eastman - Robert W. Baird & Co. Incorporated
Laurence Alexander - Jefferies & Company, Inc.
Previous Statements by NLC
» Nalco Holding Company Q4 2009 Earnings Call Transcript
» Nalco Holding Q3 2009 Earnings Call Transcript
» Nalco Holding Q2 2009 Earnings Transcript
Good day, everyone, and welcome to the First Quarter 2010 Earnings Call hosted by Nalco Company.[Operator Instructions] At this time, I would like to turn the call over to the division Vice President for Communications and Investor Relations of Nalco, Mr. Mike Bushman.
Good morning. Thank you for joining us for our conference call to discuss the first quarter of 2010 results. Speaking today will be Chairman and CEO, Eric Fyrwald; and Executive VP and, CFO Brad Bell. Some of the information discussed today constitutes forward-looking statements that are subject to risks and uncertainties. Our statements describing the risks associated with forward-looking information is found on our website and on our press release which may also be found at nalco.com. Further background on our risks is available on our 10-K.
The information discussed today will include data that does not conform to Generally Accepted Accounting Principles. Management believes the presentation of non-GAAP measures such as EBITDA, adjusted EBITDA, adjusted EPS and adjusted effective income tax rate and free cash flow provide investors with additional insights into the ongoing performance of our operations. I would point out that the current definition of adjusted EBITDA contains fewer adjustments than what we've previously reported as adjusted EBITDA. A five-year historical view of our new narrower definition of adjusted EBITDA is contained in the financial fact book available through the Investor Relations reports section of our website.
The company schedules for reconciliation of non-GAAP measures used in our first quarter earnings to the closest GAAP equivalent have been provided as attachments to our earnings release. After comments from Mr. Fyrwald and Mr. Bell, we will open the call to questions. In order to allow for as many participants as possible to ask questions, we will ask that participants restrict themselves to one question with a clarification follow up if necessary. We'll then ask participants requeue in order to ask additional questions. And we'll start with Mr. Fyrwald.
Thanks, Mike. After the financial crisis challenges of 2009, it feels good to start to see the recovery taking hold in many markets; and combined with the impact of our growth strategies, see Nalco return to growth. I also believe that there is potential for continued flow of end market improvement as we go through the year that will add opportunities to our ongoing business challenges and help us increase growth.
Several market trends continue to line up with our business strategy. First, stressed water resources in many parts of the world will be further strained as industrial demand recovers. Our world-leading water expertise makes us a focal point in helping industry increase water recycle rates, a key capability since the most water-stressed regions of the world are now delivering the fastest economic growth.
As energy costs rise, Nalco's ability to support oil and gas production increases in value as energy customers pursue harder-to-reach resources. We expect continued good growth in deep water, oil sands and other difficult oil and gas productions.
Now other environmental challenges, such as climate change and water quality, will return to the forefront in the coming years as economies turn up increased attention to quality of life concerns. Heading into the difficult environment we faced in 2009, it was clear that we needed to accelerate Nalco's productivity. We did this, putting in place capability to deliver ongoing efficiency improvements and generated $122 million in permanent productivity savings and $38 million in one time savings. We set a $100 million permanent productivity target this year and are off to a good start with $28 million achieved in the first quarter.
This step change in our ability to drive productivity allowed us to invest in growth in the right places through last year. We added 180 people in China and India as part of our BRIC+ strategy. We continue to improve our technical training and add it to our R&D investment. We knew this was the right thing to do and we continue to add resources in growth areas again this year, and our efforts are beginning to deliver a solid first quarter performance.
First quarter sales increased 10% nominally compared to the first quarter of 2009 including 4% organic growth and a 1% sales increase due to acquisition. The remaining improvement was due to year-on-year currency effect. All three segments delivered organic revenue increases. In the BRIC+ countries, our nominal growth was more than 40%, clearly showing the benefits of our growth strategy.
Paper Services led our growth with organic sales up 8% behind rapid growth in Asia and near double-digit increases in North America. Our PARETO mixing technology that saves energy and water is just one of the programs attracting new business.
Water Services overcame a steep drop in the Air Protection business related to regulatory lapses in the U.S. to increase total global sales 4% organically on significant recovery in mining, primary metals and manufacturing markets, and ongoing performance improvement in food and beverage. Solid growth in Asia, Europe and Latin America was partially offset by continued weakness in North America that was due to the air protection decline.