10-QPeriod: Q1 FY2018

ECOLAB INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 3, 2018For Securities:ECL

Summary

Ecolab Inc. reported its first quarter 2018 results, showcasing a 10% increase in reported net sales to $3.47 billion, driven by broad-based growth across its Global Industrial, Institutional, and Energy segments. While reported operating income saw a slight decrease of 1% to $354.3 million, this was largely due to "special charges" totaling $26.0 million, including a significant $25.2 million commitment to the Ecolab Foundation. Excluding these charges and discrete tax items, adjusted operating income grew 4% and adjusted diluted EPS increased by 14% to $0.91, indicating underlying business strength. The company also highlighted a strong operating cash flow of $487.2 million, demonstrating its ability to fund operations, investments, and shareholder returns. Despite a challenging year-over-year comparison for net income attributable to Ecolab (down 3% to $247.3 million) and diluted EPS (down 2% to $0.84), primarily due to a higher effective tax rate and the aforementioned special charges, the underlying performance metrics suggest resilience and continued strategic execution. Investors should note the company's ongoing efforts to streamline operations and strategic acquisitions that are contributing to top-line growth.

Financial Highlights

54 data points
Beta

Revenue

$3.47B

40.3% Gross Margin

Net Income

$247.30M

7.1% Net Margin

EPS (Diluted)

$0.84

Total Assets

$20.18B

Cash & Equivalents

$175.50M

Free Cash Flow

$283.90M

Financial Statements
Beta
Revenue$3.47B
Cost of Revenue$2.07B
Gross Profit$1.40B
SG&A Expenses$1.02B
Operating Income$354.30M
Interest Expense$61.00M
Net Income$247.30M
EPS (Basic)$0.86
EPS (Diluted)$0.84
Shares Outstanding (Basic)288.60M
Shares Outstanding (Diluted)292.70M

Key Highlights

  • 1Reported net sales increased by 10% to $3.47 billion compared to the prior year's first quarter.
  • 2Operating income decreased by 1% to $354.3 million, impacted by $26.0 million in "special charges," including a $25.2 million commitment to the Ecolab Foundation.
  • 3Adjusted diluted EPS increased by 14% to $0.91, excluding special charges and discrete tax items.
  • 4Generated strong operating cash flow of $487.2 million, an increase from $425.7 million in the prior year's first quarter.
  • 5The effective tax rate increased to 21.8% in Q1 2018 from 17.4% in Q1 2017, partly due to the Tax Cuts and Jobs Act.
  • 6The company continued to manage its capital structure, with $7.24 billion in net debt as of March 31, 2018.
  • 7Investments in capital expenditures totaled $203.3 million, supporting long-term growth initiatives.

Frequently Asked Questions

Ecolab's net sales increased by 10% to $3.47 billion, driven by a 5% increase in volume and price changes. This growth was broadly supported across its Global Industrial, Institutional, and Energy segments, with strong contributions from Water, Food & Beverage, Specialty, and Healthcare businesses. Acquisition-adjusted fixed currency sales also saw positive growth, indicating continued expansion and integration of acquired businesses.

The reported net income attributable to Ecolab decreased by 3% to $247.3 million, and diluted EPS decreased by 2% to $0.84. This was primarily due to $26.0 million in 'special charges,' notably a $25.2 million commitment to the Ecolab Foundation, and an increase in the effective tax rate to 21.8% from 17.4% in the prior year, influenced by the Tax Cuts and Jobs Act. Excluding these items, adjusted net income and adjusted diluted EPS showed significant increases, highlighting the underlying operational improvements.

Ecolab generated robust operating cash flow of $487.2 million, which is being used to fund operations, investments, and shareholder returns. The company maintained a strong liquidity position with $175.5 million in cash and cash equivalents and a $2.0 billion credit facility. Total debt remained manageable, with net debt to EBITDA at 2.4x and net debt to adjusted EBITDA at 2.4x. Ecolab also repaid $300.6 million in long-term debt and continued its share repurchase program, demonstrating a commitment to optimizing its capital structure.

Ecolab adopted new accounting standards for Revenue from Contracts with Customers (ASC 606) and Presentation of Net Periodic Pension Cost (ASC 715) effective January 1, 2018. The adoption of the revenue standard involved reclassifying certain costs and led to a $29.3 million reduction in opening retained earnings. The pension standard changed the presentation of pension costs, moving non-service cost components to 'other (income) expense.' These adoptions were applied retrospectively and impact comparability with prior periods that did not reflect these standards.