01—Abstract
Summary
Summary of the 10-Q filed May 3, 2018. Cited figures are marked; the original filing is the authoritative source.
Ecolab Inc. reported its first quarter 2018 results, showcasing a 10% increase in reported net sales to $3.47 billiona, 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 millionb, 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 millionc) 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.
02—Key points
Key Highlights
- Reported net sales increased by 10% to $3.47 billion compared to the prior year's first quarter.
- Operating 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.
- Adjusted diluted EPS increased by 14% to $0.91, excluding special charges and discrete tax items.
- Generated strong operating cash flow of $487.2 million, an increase from $425.7 million in the prior year's first quarter.
- The 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.
- The company continued to manage its capital structure, with $7.24 billion in net debt as of March 31, 2018.
- Investments in capital expenditures totaled $203.3 million, supporting long-term growth initiatives.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, Ecolab Inc. kept $0.07.
- Revenue$3.47B100.0%
- Cost of revenue−$2.07B59.7%
- Gross profit$1.40B40.3%
- Operating costs−$1.04B30.1%
- Operating income$354.3M10.2%
- Interest, other & tax−$107.0M3.1%
- Net income$247.3M7.1%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed May 3, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $3.47B$3.16B | +9.8% |
| Cost of Revenue | $2.07B$1.84B | +12.4% |
| Gross Profit | $1.40B$1.32B | +6.1% |
| SG&A Expenses | $1.02B$956.10M | +6.5% |
| Operating Income | $354.30M$357.20M | −0.8% |
| Interest Expense | $61.00M$66.60M | −8.4% |
| Net Income | $247.30M$254.00M | −2.6% |
| EPS (Basic) | $0.86$0.87 | −1.1% |
| EPS (Diluted) | $0.84$0.86 | −2.3% |
| Shares Outstanding (Basic) | 288.60M290.60M | −0.7% |
| Shares Outstanding (Diluted) | 292.70M295.00M | −0.8% |
05—Questions
Frequently Asked Questions
What drove the increase in net sales for Ecolab in the first quarter of 2018?
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.
Why did net income and diluted EPS decrease year-over-year despite strong sales growth?
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.
How is Ecolab managing its debt and liquidity?
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.
What are the key impacts of new accounting standards adopted by Ecolab?
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.
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