10-QPeriod: Q2 FY2016

ECOLAB INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 4, 2016For Securities:ECL

Summary

Ecolab Inc. reported financial results for the second quarter and the first six months ended June 30, 2016. Net sales for the second quarter decreased by 2% to $3,317.2 million, and by 4% for the six-month period to $6,414.6 million, impacted by foreign currency translation. However, on a fixed currency basis, sales grew by 1% for the quarter and 1% for the six-month period. Net income attributable to Ecolab for the second quarter decreased by 14% to $258.4 million, and by 9% for the six-month period to $489.2 million, primarily due to higher special charges and a less favorable tax rate. Diluted Earnings Per Share (EPS) declined by 13% to $0.87 for the quarter and by 7% to $1.64 for the six-month period. The company experienced significant "special charges" impacting profitability, particularly related to energy sector challenges and restructuring activities. Excluding these items and discrete tax impacts, adjusted net income decreased slightly by 1% for the quarter and 3% for the six months, while adjusted diluted EPS was flat for the quarter and decreased 1% for the six months. The Global Industrial and Global Institutional segments showed steady growth, while the Global Energy segment faced significant headwinds. The company also continued its share repurchase program and maintained its credit facility, demonstrating a focus on financial stability amidst operational challenges.

Financial Highlights

55 data points
Beta

Revenue

$3.32B

46.2% Gross Margin

Net Income

$258.40M

7.8% Net Margin

EPS (Diluted)

$0.87

Total Assets

$18.22B

Cash & Equivalents

$167.40M

Free Cash Flow

$238.70M

Financial Statements
Beta
Revenue$3.32B
Cost of Revenue$1.79B
Gross Profit$1.53B
SG&A Expenses$1.09B
Operating Income$412.50M
Interest Expense$71.50M
Net Income$258.40M
EPS (Basic)$0.88
EPS (Diluted)$0.87
Shares Outstanding (Basic)292.40M
Shares Outstanding (Diluted)296.50M

Key Highlights

  • 1Net sales for Q2 2016 decreased 2% to $3,317.2 million; fixed currency sales increased 1%.
  • 2Net income attributable to Ecolab for Q2 2016 decreased 14% to $258.4 million, impacted by special charges.
  • 3Diluted EPS for Q2 2016 decreased 13% to $0.87.
  • 4The Global Energy segment sales decreased 13% on a fixed currency basis due to continued depressed oil industry activity.
  • 5Significant "special charges" totaling $88.1 million were recorded in Q2 2016, primarily related to energy-related charges and impairments.
  • 6The company completed its $1.0 billion share repurchase program during Q2 2016.
  • 7Subsequent to the quarter, Ecolab announced a binding offer to acquire Laboratoires Anios, a European hygiene and disinfection products manufacturer.

Frequently Asked Questions

The decrease in net sales was primarily due to unfavorable foreign currency translation. Net income was significantly impacted by higher "special charges", particularly related to the depressed energy market (energy-related charges, inventory write-downs, fixed asset impairments) and restructuring activities. A less favorable tax rate compared to the prior year also contributed to the decline.

The Global Energy segment experienced a significant decline, with fixed currency sales down 13% in the second quarter and 14% for the six-month period. This was driven by depressed oil industry activity, affecting upstream businesses more than downstream. Despite these challenges, the company noted that its global footprint and business portfolio offer resilience and expressed confidence in the long-term prospects of the segment, also benefiting from lower raw material costs due to lower oil prices.

Special charges are identified as items that are unusual in nature and significant in amount, impacting the comparability of operating results. In this quarter, these charges included energy-related issues (inventory write-downs, asset impairments, headcount reductions), restructuring activities, and litigation-related expenses. These charges reduced operating income and net income by $88.1 million and $57.0 million after-tax, respectively, for the second quarter.

Ecolab maintained a strong liquidity position. As of June 30, 2016, the company had $167.4 million in cash and cash equivalents and an undrawn $2.0 billion credit facility. Management expects operating cash flow to remain strong and anticipates sufficient resources to fund operations, debt repayments, investments, and shareholder returns for the next twelve months.