10-QPeriod: Q3 FY2018

ECOLAB INC. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 1, 2018For Securities:ECL

Summary

Ecolab Inc. (ECL) reported solid financial results for the third quarter and first nine months of 2018, demonstrating year-over-year growth in net sales and net income. Net sales increased by 5% to $3.7 billion for the third quarter and 7% to $10.9 billion for the first nine months, driven by volume gains and pricing strategies across its Global Industrial, Institutional, and Energy segments. The company also initiated a significant restructuring plan, 'Accelerate 2020', aimed at achieving cost savings and driving future efficiencies, though this plan incurred substantial charges in the current period. Despite a reported decrease in operating income due to these restructuring charges, Ecolab's adjusted operating income saw an increase, highlighting the underlying operational strength. Diluted EPS also showed growth, reflecting the company's ability to manage profitability. Ecolab maintained a strong balance sheet with well-managed debt levels and continued to return capital to shareholders through dividends and share repurchases, underscoring its commitment to shareholder value.

Financial Highlights

54 data points
Beta

Revenue

$3.75B

41.5% Gross Margin

Net Income

$435.40M

11.6% Net Margin

EPS (Diluted)

$1.48

Total Assets

$19.96B

Cash & Equivalents

$203.60M

Free Cash Flow

$443.10M

Financial Statements
Beta
Revenue$3.75B
Cost of Revenue$2.19B
Gross Profit$1.56B
SG&A Expenses$964.70M
Operating Income$516.20M
Interest Expense$58.30M
Net Income$435.40M
EPS (Basic)$1.51
EPS (Diluted)$1.48
Shares Outstanding (Basic)288.80M
Shares Outstanding (Diluted)293.40M

Key Highlights

  • 1Net sales increased by 5% to $3.7 billion in Q3 2018 and 7% to $10.9 billion in the first nine months of 2018, compared to the prior year periods.
  • 2Operating income decreased by 8% in Q3 2018 due to significant restructuring charges ($79.2 million), but adjusted operating income increased by 5% year-over-year.
  • 3Net income attributable to Ecolab increased by 11% to $435.4 million in Q3 2018 and by 10% to $1,034.0 million in the first nine months of 2018.
  • 4Diluted EPS grew by 10% to $1.48 in Q3 2018 and by 10% to $3.53 in the first nine months of 2018.
  • 5The company launched 'Accelerate 2020', a restructuring plan expected to incur $170 million in costs over three years, aiming for $200 million in annual savings by 2021.
  • 6Total debt decreased to $7.1 billion from $7.3 billion at the end of 2017, indicating effective debt management.
  • 7Cash provided by operating activities remained strong at $1.45 billion for the first nine months of 2018, supporting ongoing investments and shareholder returns.

Frequently Asked Questions

Ecolab initiated the 'Accelerate 2020' plan in Q3 2018, expecting total costs of $170 million over three years, aimed at achieving $200 million in annual savings by 2021. In Q3 2018, the company recorded $79.4 million ($60.5 million after-tax) in restructuring charges related to this plan, which impacted reported operating income and net income. Despite these charges, adjusted operating income and net income showed growth, indicating the underlying business strength.

All major segments demonstrated growth. Global Industrial sales increased by 8% (fixed currency), Global Institutional by 6% (fixed currency), and Global Energy by 9% (fixed currency) in Q3 2018 compared to the prior year. The 'Other' segment saw a decrease of 6% (fixed currency), primarily due to the divestiture of the Equipment Care business in 2017, but acquisition-adjusted fixed currency sales increased by 8%.

Ecolab maintained a strong liquidity position with $203.6 million in cash and cash equivalents as of September 30, 2018. Total debt decreased to $7.1 billion from $7.3 billion at the end of 2017. The company has a $2.0 billion credit facility and continues to generate robust operating cash flow, which it uses to fund operations, investments, and shareholder returns, while also managing its debt levels.

Ecolab's reported tax rate decreased significantly to 9.0% in Q3 2018 and 17.2% for the first nine months of 2018, compared to 24.6% and 21.7% in the respective prior-year periods. This reduction was primarily driven by the lower U.S. corporate tax rate enacted by the Tax Cuts and Jobs Act, beneficial discrete tax items, and tax planning initiatives. The company is still assessing the full impact of the Tax Act, particularly regarding GILTI.