Nalco Holdin (NLC)

Q3 2010 Earnings Call

October 27, 2010 10:00 am ET

Executives

Lisa Curran -

Bradley Bell -

J. Fyrwald - Chairman and Chief Executive Officer

Analysts

Richard Eastman - Robert W. Baird & Co. Incorporated

Mark Gulley - Soleil Securities Group, Inc.

Richard Hoss - Roth Capital Partners, LLC

Robert Koort - Goldman Sachs Group Inc.

John McNulty - Crédit Suisse AG

Michael Harrison - First Analysis

David Rose - Wedbush Securities Inc.

John Quealy - Canaccord Genuity

Brian Drab - William Blair & Company L.L.C.

Laurence Alexander - Jefferies & Company, Inc.

P.J. Juvekar - Citigroup Inc

Presentation

Operator

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Previous Statements by NLC
» Nalco Holdin Q2 2010 Earnings Call Transcript
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Good day, everyone, and welcome to the Third Quarter 2010 Earnings Call hosted by Nalco Company.

Operator Instructions At this time, I would like to turn the call over to the Nalco Division Vice President Investor Relations and Innovation Office, Ms. Lisa Curran. Please go ahead, ma'am.

Lisa Curran

Good morning and thank you for joining us for our conference call to discuss third quarter 2010 results. Speaking today will be Chairman and CEO, Erik Fyrwald; and Executive Vice President and CFO, Brad Bell.

Some of the information discussed today constitutes forward-looking statements that are subject to certain risks and uncertainties. Our statement describing the risks associated with forward-looking information is found on our website and on our press release, which may also be found at www.nalco.com. Further background on the risk is available in our 10-K. The information discussed today will include data that does not conform to generally accepted accounting principles. Management believes that the presentation of non-GAAP measures, such as EBITDA, adjusted EBITDA, adjusted EPS and free cash flow provide investors with additional insight into the ongoing performance of our operations.

I would point out that the current definition of adjusted EBITDA contains fewer adjustments than what we 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 Financial Reports section of our website. Accompanying schedule for reconciliation of all non-GAAP measures used in our third quarter earnings to the closest GAAP equivalent have been provided as attachment to our earnings release.

After comments from Erik and Brad, we will open up the call to questions. In order to allow for as many participants as possible to ask questions, we will restrict participants to one question with a clarification follow up, if necessary. We will then ask participants to re-queue in order to ask any additional questions.

With that, Erik, can you start, please?

J. Fyrwald

Thank you, Lisa, and good morning, everyone. We are pleased to report this morning a solid third quarter and an increase to our 2010 earnings outlook. For the quarter ended September 30, diluted earnings per share were $0.42 on net earnings of $59 million. That's more than double the year ago of $0.20. Adjusted EPS was $0.42 compared to the $0.31 in the prior year third-quarter, after adding back unusual items. The soft spot of our results was that adjusted EBITDA was up only 3% to $196 million compared with the $190 million in the third quarter of 2009, as the beneficial impacts of increased sales and the productivity gains this quarter were largely offset by continued aggressive growth investments and raw material cost headwinds versus the year-ago period.

As we continue recovering from the global economic recession and execute our strategy, we were able to deliver solid revenue growth and generate good cash flow from operations while setting the stage through growth investments for sustainable, profitable growth.

So let me give you some highlights of key elements of that strategy. Our investments in growth platforms are paying off. For example, BRIC+ market's continued sales growth at better than 40%. 3D TRASAR automation unit sales continued to be strong with year-to-date global unit sales for cooling and boiling systems both over 60%. And we have increased the rate of adoption of Nalco 360 remote monitoring by over 50%.

We continue to ramp up sales, technology capability and support in growth areas. Year-to-date, we've added over 700 new employees, with the majority in BRIC+ markets and the overwhelming majority in Asia.

Also we have completed our India headquarters move from Calcutta to the more strategic location of Pune. On August 26 we opened a new corporate office and research and development facility in Pune that serves as the headquarter for sales, marketing and supply chain operations for Nalco India, and will be one of our major hubs for Water and Energy technology innovation. Its immediate focus is to provide technical support to our energy upstream and downstream customers throughout the eastern hemisphere, including the Asia-Pacific region, the Caspian, Middle East and West Africa. The Pune center will also focus on water applications research by leveraging leading edge research done in our Naperville center in order to develop water sustainability solutions for our India and global customers. The center will be an integral part of our innovation network, and will collaborate, not only with Nalco Laboratories of Naperville and Sugarland in the United States, but also with our Shanghai innovation center. And we continue to increase our global technology spend investment.

Also earlier this month, we co-sponsored a global water stewardship forum in Chicago, along with the World Wildlife Fund that brought together sustainability and business leaders from large NGOs and global companies to drive water use best practices.

We also completed the acquisition of an engineering company that complements our TIORCO business model, which focuses on providing comprehensive enhanced oil recovery solutions to our customers. Now less sexy, but also important, we are in the middle of a project to centralize our Europe operations, with the move of our senior leadership to offices outside of Geneva, Switzerland. We expect this to finalize by the end of the first quarter of 2011, and should start to see some savings benefit in the second half of 2011. This will help our continued efforts to streamline internal operations to better support growth.

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