10-QPeriod: Q1 FY2010

ECOLAB INC. Quarterly Report for Q1 Ended Mar 31, 2010

Filed May 6, 2010For Securities:ECL

Summary

Ecolab Inc. reported a strong first quarter for 2010, with net sales increasing by 6% to $1.43 billion compared to the prior year. This growth was driven by a 2% increase in fixed currency sales, with notable performance in the U.S. Cleaning & Sanitizing segment, particularly from the Kay division, and solid growth in international markets like Asia Pacific, Canada, and Latin America. The company also saw a significant improvement in operating income, which rose 58% to $153.8 million, reflecting benefits from cost savings initiatives, favorable product costs, and a reduction in special charges compared to the previous year. Diluted earnings per share saw a substantial increase of 67% to $0.40. Financially, Ecolab demonstrated improved cash flow from operations, which surged to $135.4 million in Q1 2010, a significant jump from $27.4 million in Q1 2009, partly due to lower pension contributions. The company also actively managed its capital structure, with increased short-term debt to fund operations and share repurchases. Despite a slight increase in the debt-to-capitalization ratio, Ecolab remains compliant with debt covenants and has ample liquidity through its credit facilities and commercial paper programs. The company's focus on cost management and strategic investments appears to be paying off, positioning it well amidst ongoing market challenges.

Financial Highlights

53 data points
Beta

Revenue

$1.43B

50.0% Gross Margin

Net Income

$95.70M

6.7% Net Margin

EPS (Diluted)

$0.40

Total Assets

$4.77B

Cash & Equivalents

$85.30M

Free Cash Flow

$84.40M

Financial Statements
Beta
Revenue$1.43B
Cost of Revenue$716.70M
Gross Profit$715.40M
SG&A Expenses$558.10M
Operating Income$153.80M
Interest Expense$16.30M
Net Income$95.70M
EPS (Basic)$0.41
EPS (Diluted)$0.40
Shares Outstanding (Basic)235.40M
Shares Outstanding (Diluted)239.00M

Key Highlights

  • 1Consolidated net sales increased 6% to $1.43 billion, with fixed currency sales up 2%.
  • 2Operating income surged 58% to $153.8 million, driven by cost savings and reduced special charges.
  • 3Diluted earnings per share (EPS) increased 67% to $0.40.
  • 4Cash flow from operating activities significantly improved, reaching $135.4 million compared to $27.4 million in the prior year period.
  • 5U.S. Cleaning & Sanitizing segment showed growth, led by Kay's 13% sales increase.
  • 6International sales grew 2% in fixed currency rates, with strong performance in Asia Pacific, Canada, and Latin America.
  • 7The company repurchased 3.3 million shares of common stock for $145 million in Q1 2010.

Frequently Asked Questions

Ecolab's sales growth was primarily driven by a 6% increase in consolidated net sales, reaching $1.43 billion. This growth was supported by a 2% increase in fixed currency sales, with notable performance from the U.S. Cleaning & Sanitizing segment, particularly the Kay division which saw 13% growth. International sales also contributed, increasing by 2% in fixed currency, with strong results from Asia Pacific, Canada, and Latin America. Pricing and volume also played a role in the overall sales increase.

Profitability saw a significant improvement. Operating income increased by 58% to $153.8 million, benefiting from cost savings initiatives, favorable delivered product costs, and a reduction in special charges (e.g., restructuring charges) compared to the prior year. Net income attributable to Ecolab increased by 66% to $95.5 million, and diluted EPS rose by 67% to $0.40. The gross profit margin also expanded to 50.0% from 47.5%.

Ecolab maintained a solid financial position. Total assets were $4.8 billion, with a decrease from the prior year-end primarily due to foreign currency exchange rate impacts. Cash flow from operations was strong, significantly increasing to $135.4 million. The company utilized increased short-term debt and had $168 million in outstanding U.S. commercial paper, supported by a $600 million credit facility. While the debt-to-capitalization ratio increased slightly to 36%, Ecolab was in compliance with debt covenants and believed it had sufficient borrowing capacity for its foreseeable needs.

Yes, there were special charges, though significantly less than in the prior year. In Q1 2010, special charges totaled $3.5 million, primarily related to a Venezuela currency devaluation ($4.2 million charge partially offset by other smaller items). In contrast, Q1 2009 had $26.5 million in special charges, including substantial restructuring charges. These special charges are noted as impacting year-over-year comparisons, but the company also provided 'adjusted' non-GAAP measures to better reflect underlying performance.