10-QPeriod: Q1 FY2017

ECOLAB INC. Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 4, 2017For Securities:ECL

Summary

Ecolab Inc. (ECL) reported solid financial results for the first quarter of 2017, demonstrating resilience and strategic progress. Net sales increased by 2% to $3,161.6 million compared to the prior year's first quarter, driven by a 1% increase in volume and a 2% price change, with foreign currency translation having a minor negative impact. The company successfully completed the significant acquisition of Anios for $798.5 million, which contributed to a notable increase in goodwill and intangible assets, bolstering its global hygiene and disinfection offerings, particularly in the healthcare sector. Profitability metrics showed mixed performance. Operating income remained relatively flat year-over-year at $373.3 million, but adjusted operating income saw a 1% increase. Net income attributable to Ecolab grew by 10% to $253.5 million, and diluted EPS increased by 12% to $0.86. This growth was aided by a lower effective tax rate primarily due to the adoption of new accounting standards for share-based compensation, leading to significant excess tax benefits. Despite a slight decrease in gross margin due to higher delivered product costs, the company maintained a strong financial position, supported by robust operating cash flow and strategic investments.

Financial Highlights

55 data points
Beta

Revenue

$3.16B

41.7% Gross Margin

Net Income

$254.00M

8.0% Net Margin

EPS (Diluted)

$0.86

Total Assets

$19.22B

Cash & Equivalents

$212.10M

Free Cash Flow

$258.20M

Financial Statements
Beta
Revenue$3.16B
Cost of Revenue$1.84B
Gross Profit$1.32B
SG&A Expenses$956.10M
Operating Income$357.20M
Interest Expense$66.60M
Net Income$254.00M
EPS (Basic)$0.87
EPS (Diluted)$0.86
Shares Outstanding (Basic)290.60M
Shares Outstanding (Diluted)295.00M

Key Highlights

  • 1Net sales increased by 2% to $3,161.6 million in Q1 2017 compared to Q1 2016, driven by volume and pricing.
  • 2Completed the acquisition of Anios for $798.5 million, strengthening the company's hygiene and disinfection product portfolio, particularly in healthcare.
  • 3Net income attributable to Ecolab rose by 10% to $253.5 million, and diluted EPS increased by 12% to $0.86 year-over-year.
  • 4Operating income was $373.3 million, largely flat compared to the prior year, but adjusted operating income increased by 1%.
  • 5The effective tax rate decreased to 17.4% from 24.0% in the prior year, largely due to new accounting for share-based payments leading to excess tax benefits.
  • 6Investments in the business were significant, with cash used in investing activities increasing substantially due to the Anios acquisition.
  • 7Ecolab maintained a strong liquidity position with $212.1 million in cash and cash equivalents and a $2.0 billion credit facility.

Frequently Asked Questions

The acquisition of Anios for $798.5 million was a major event in Q1 2017. It significantly increased goodwill by $530.4 million and intangible assets, contributing to the growth in total assets. The acquisition also generated $6.3 million in acquisition and integration costs and a $1.5 million inventory fair value step-up recorded in cost of sales. The acquired business was integrated into the Global Institutional segment.

The effective tax rate decreased significantly from 24.0% in Q1 2016 to 17.4% in Q1 2017. This was primarily driven by the adoption of new accounting standards related to share-based compensation, which resulted in the recognition of $16.0 million in excess tax benefits. This adoption and the resulting tax benefits, along with some release of reserves for uncertain tax positions, contributed to the lower reported tax rate.

In Q1 2017, Global Industrial net sales increased by 3% on a fixed currency basis, driven by Paper and Food & Beverage. Global Institutional sales grew by 4% (3% acquisition-adjusted fixed currency), led by Specialty and Healthcare. Global Energy sales saw a 2% decrease on a fixed currency basis, due to declines in upstream businesses, while Other segment sales increased by 5%, primarily from Pest Elimination. Overall, consolidated net sales increased by 2%.

Ecolab expects to fund its cash requirements for the next twelve months, including debt repayments, investments, share repurchases, dividends, and potential acquisitions, through operating cash flow and additional borrowings. As of March 31, 2017, the company had $212.1 million in cash and cash equivalents, with $197.4 million held internationally. It also maintained a $2.0 billion credit facility, supporting its commercial paper programs, and was in compliance with its debt covenants, indicating a strong liquidity position.