10-QPeriod: Q2 FY2012

ECOLAB INC. Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 2, 2012For Securities:ECL

Summary

Ecolab Inc.'s (ECL) second quarter and first six months of 2012 report significant year-over-year growth, largely driven by the impactful acquisition of Nalco Holding Company completed in December 2011. Reported net sales for the second quarter increased by 74% and for the first six months by 79%, reflecting the full integration of Nalco's operations. While reported operating income also saw substantial increases, the company emphasizes the importance of pro forma and adjusted figures for a more meaningful comparison due to the merger. The company continues to execute on its restructuring plans, with ongoing charges related to both the 2011 Restructuring Plan and the Merger Restructuring Plan, aimed at improving efficiency. Despite these charges and increased interest expense related to financing the Nalco acquisition, Ecolab demonstrated strong operational performance, with adjusted diluted earnings per share showing a healthy increase of 13% for the quarter. The company also highlighted continued strategic investments in its global segments, particularly Global Energy and Global Water, which are showing robust growth.

Financial Highlights

54 data points
Beta

Revenue

$2.96B

45.6% Gross Margin

Net Income

$184.50M

6.2% Net Margin

EPS (Diluted)

$0.62

Total Assets

$16.47B

Cash & Equivalents

$304.90M

Free Cash Flow

-$29.70M

Financial Statements
Beta
Revenue$2.96B
Cost of Revenue$1.61B
Gross Profit$1.35B
SG&A Expenses$981.70M
Operating Income$326.50M
Interest Expense$66.10M
Net Income$184.50M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)291.90M
Shares Outstanding (Diluted)298.20M

Key Highlights

  • 1Significant revenue growth driven by the Nalco acquisition, with reported net sales up 74% for Q2 and 79% for the first six months of 2012 compared to the prior year periods.
  • 2Operating income saw a substantial increase of 65% in Q2 and 41% in the first six months, though comparisons are best understood using pro forma and adjusted figures due to the Nalco merger.
  • 3The company incurred significant special charges and restructuring costs related to the Nalco merger integration and ongoing efficiency programs, impacting reported net income and earnings per share.
  • 4Adjusted diluted EPS showed a 13% increase in Q2 and 12% for the first six months, indicating underlying operational strength despite merger-related charges.
  • 5Balance sheet reflects a decrease in cash and a reduction in total debt primarily due to the redemption of Nalco's senior notes, with total debt decreasing from $7.6 billion to $6.3 billion.
  • 6Strong performance in the Global Energy segment, with fixed currency sales up 19% in Q2, and Global Water also showing positive growth.
  • 7Ecolab is actively managing its debt, with a reduced debt-to-capitalization ratio, and maintains sufficient borrowing capacity for foreseeable needs.

Frequently Asked Questions

The acquisition of Nalco Holding Company, completed in December 2011, was the primary driver of Ecolab's significant financial growth in the second quarter and first six months of 2012. Reported net sales and operating income showed substantial increases compared to the prior year due to the full integration of Nalco's operations. However, the company also incurred merger and integration costs, and a loss on extinguishment of Nalco's debt, which impacted reported earnings.

Special (gains) and charges are costs or gains that are unusual in nature, significant in amount, and important to understanding underlying business performance. In this report, they include restructuring charges related to ongoing efficiency plans and merger integration costs from the Nalco acquisition. These charges negatively impact reported net income and earnings per share but are often excluded when analyzing the company's core operational performance (as shown in the 'adjusted' figures).

Ecolab significantly reduced its total debt from $7.6 billion at the end of 2011 to $6.3 billion by June 30, 2012, largely due to the redemption of $1.7 billion of Nalco's senior notes in January 2012. This reduction improved the company's debt-to-capitalization ratio. Ecolab states it is in compliance with debt covenants and has sufficient borrowing capacity.

The company reported strong fixed currency sales growth in its Global Energy segment (19% in Q2) driven by upstream business volume and market share gains. The Global Water segment also showed positive fixed currency sales growth (1% in Q2), with positive contributions from power and food & beverage businesses, though partially offset by reductions in primary metals. These segments appear to be performing well and are key areas of focus.