10-QPeriod: Q3 FY2008

ECOLAB INC. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 31, 2008For Securities:ECL

Summary

Ecolab Inc. (ECL) reported a strong third quarter and nine-month performance for 2008, demonstrating robust sales growth driven by both volume and pricing strategies, alongside strategic acquisitions. Consolidated net sales increased by 15% year-over-year for both the quarter and the year-to-date period. The company effectively managed higher input costs through pricing adjustments and cost-saving initiatives, leading to an 18% increase in operating income for the quarter. Net income also saw a significant rise of 11% for the quarter, with diluted EPS growing by 9% to $0.50. The company continued its strategic acquisition approach, notably with the integration of Ecovation, Inc., which contributed to sales growth despite impacting gross profit margins due to its different business model. Despite challenging economic conditions and increased raw material costs, Ecolab maintained a strong financial position. Total assets grew to $5.1 billion, supported by acquisitions and increased accounts receivable. Debt levels remained manageable, with a debt-to-capitalization ratio of 32%. The company's liquidity is supported by strong operating cash flow, existing cash reserves, and a significant credit facility. Ecolab's management expressed confidence in their ability to navigate market volatility and continue delivering growth through their focus on sales, cost control, and strategic investments.

Financial Highlights

29 data points
Beta

Revenue

$1.63B

48.7% Gross Margin

Net Income

$126.20M

7.8% Net Margin

EPS (Diluted)

$0.50

Cash & Equivalents

$102.10M

Free Cash Flow

$101.50M

Financial Statements
Beta
Revenue$1.63B
Cost of Revenue$834.30M
Gross Profit$792.00M
SG&A Expenses$578.80M
Operating Income$201.40M
Net Income$126.20M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)247.50M
Shares Outstanding (Diluted)251.80M

Key Highlights

  • 1Consolidated net sales increased by 15% to $1.6 billion in Q3 2008, with 3% attributed to acquisitions.
  • 2Operating income grew by 18% to $202 million in Q3 2008, indicating effective cost management and pricing strategies.
  • 3Net income rose 11% to $126 million in Q3 2008, with diluted EPS up 9% to $0.50.
  • 4Acquisition of Ecovation, Inc. contributed to sales growth, though it lowered gross profit margins due to its business model.
  • 5International sales showed strong performance, with double-digit growth in Latin America and Asia Pacific.
  • 6The company has a solid financial position with $5.1 billion in total assets and a debt-to-capitalization ratio of 32%.
  • 7Ecolab maintains access to credit markets and has significant borrowing capacity, including a $600 million credit facility, despite global credit market volatility.

Frequently Asked Questions

Ecolab's sales growth in Q3 2008 was driven by a combination of factors including volume growth (4%), price increases (3%), the impact of foreign currency exchange (5%), and acquisitions (3%). The U.S. Cleaning & Sanitizing segment saw strong performance, particularly in Institutional and Food & Beverage, while International operations, especially in Latin America and Asia Pacific, reported double-digit growth.

Ecolab actively managed rising input costs through a combination of securing appropriate pricing to reflect increases and implementing cost-saving initiatives. While these actions helped offset higher delivered product costs, the gross profit margin saw a decline compared to the prior year, partly due to the impact of recent acquisitions (Microtek and Ecovation) which operate at lower gross profit margins.

Ecolab expressed confidence in its ability to navigate the challenging global credit markets. They maintain access to the commercial paper market and have a strong liquidity position supported by $102 million in cash on hand, expected strong operating cash flow, a $600 million credit facility (of which $132 million was backing commercial paper), and additional uncommitted credit lines. The company believes it has sufficient borrowing capacity for foreseeable needs.

Yes, for the third quarter of 2008, Ecolab reported pre-tax special charges of $11.8 million related to business structure optimization, including costs for establishing a European headquarters in Zurich. For the nine-month period, there was a net pre-tax gain of $5.6 million, which included gains from asset sales partially offset by optimization costs.