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Ecolab Second Quarter Reported Diluted EPS $1.20; Adjusted Diluted EPS $1.27, +13%; Full Year 2018 Adjusted Diluted EPS Forecast $5.30 to $5.50 +13%-18%

July 31, 2018

ST. PAUL, Minn.--(BUSINESS WIRE)--Jul 31, 2018--Ecolab Inc. (NYSE:ECL):

SECOND QUARTER HIGHLIGHTS :

Reported diluted EPS $1.20, +20%. Adjusted diluted EPS $1.27, +13%, excluding special gains and charges and discrete tax items. Reported sales +7%. Acquisition adjusted fixed currency sales +5% with solid growth in all segments. Strong sales gains, pricing, new product innovation and cost savings more than offset higher delivered product costs and investments in the business. Lower taxes also benefited the adjusted EPS gain.

2018 FORECAST :

2018 adjusted diluted EPS forecast remains $5.30 to $5.50, +13% to 18%, as improving volume and pricing growth in all segments are expected to more than offset higher delivered product costs to drive the strong earnings gain.

EFFICIENCY INITIATIVE ANNOUNCED:

Expected to realize $200 million of run rate cost savings by 2021.

New business gains, better pricing, product innovation and cost efficiencies more than offset higher delivered product costs and investments in the business, and along with a lower tax rate, yielded a 13% increase in second quarter 2018 adjusted diluted earnings per share.

CEO comment

Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s chairman and chief executive officer said, “Our business continues to improve. We achieved another solid quarter, as strong sales actions and accelerated pricing drove top line growth, delivering 5% acquisition adjusted fixed currency growth. These attractive gains, along with cost efficiencies and a reduced tax rate, more than offset continued rising delivered product costs and yielded the 13% adjusted earnings per share growth.

“We expect these strong trends to continue in the second half, where we anticipate fixed currency sales and margins to continue to strengthen and deliver strong earnings per share growth. As our pricing and volumes continue to accelerate, we expect to fully offset the higher delivered product costs and unfavorable currency exchange that have developed since our first quarter earnings report. This should drive margin leverage versus last year, demonstrating the strength of our innovation and the value our products and services create for our customers.

“In addition, following the last several years’ investments in enterprise systems and technology platforms, we are undertaking a program to deliver $200 million of SG&A savings by 2021. This program leverages our more than $600 million investment in technology, and will streamline our organization, reduce complexity and improve our business processes to help drive our future growth and margin expansion. Internal teams will work through the balance of this year to develop final plans for our global business structure and resource improvement. This program will give us another important set of tools in addition to pricing to protect and expand margins in an environment where we expect cost inflation to remain a headwind for the foreseeable future. These efforts will be the primary focus of and source for our cost savings activities over the next several years as we reallocate our resources to pursuing them.

“We continue to expect strong results for the full year 2018 as we work to deliver attractive sales and earnings per share growth across all segments while also investing for better growth in our future. We have enhanced our industry leadership positions, building on our product and service strengths, to improve customer results. We are also rapidly developing our digital platforms that will bring our customers new insights and predictivity to their operations, as well as improve our service levels for them. We are excited about our opportunities, both over the near and long term, and are determined to continue delivering superior shareholder value.”

Adoption of New Accounting Standards

Beginning in 2018, Ecolab adopted the new FASB revenue recognition and pension accounting standards. We reclassified certain costs, primarily compensation, from selling, general, and administrative (SG&A) expenses to cost of sales (COS), to align with the costs of providing newly classified service revenue upon adoption of the new revenue standard. Adoption of the new revenue recognition standard reduced 2017 adjusted diluted earnings per share by $0.01.

We also adopted the new pension accounting standard beginning in 2018, recording the employee compensation cost of pension expense (the service component) in COS and SG&A, while all other non-service components of pension income are recorded below operating income in other (income)/expense. We adopted the new standards retrospectively and revised the 2016 and 2017 financial information to reflect the adoption of the standards.

Second Quarter 2018 Consolidated Results

Ecolab’s second quarter reported sales increased 7% and fixed currency sales increased 4%. Acquisition and divestiture adjusted fixed currency sales increased 5% when compared to the prior year.

Second quarter 2018 reported operating income increased 18%, fixed currency operating income increased 15%, and adjusted and acquisition adjusted fixed currency operating income both increased 3%. Pricing, volume growth and cost savings initiatives more than offset the impact of higher delivered product costs and investments in the business during the quarter.

Other income, which primarily consists of the return on pension assets and other costs of our pension obligations, increased 17% reflecting our expected return on increased pension assets.

Reported net interest expense decreased in the quarter primarily reflecting lower interest rate debt.

The reported income tax rate for the second quarter of 2018 was 22.8% compared with the reported rate of 21.4% in the second quarter of 2017. Excluding special gains and charges and discrete tax items, the adjusted tax rate was 20.3% in the second quarter of 2018 compared with 24.2% for the same period last year. The decrease in our adjusted tax rate was primarily driven by changes in the U.S. tax law and global tax planning strategies.

Second quarter 2018 reported net income attributable to Ecolab increased 19%. Excluding the impact of special gains and charges and discrete tax items, adjusted net income attributable to Ecolab increased 13%.

Diluted earnings per share increased 20%. Adjusted diluted earnings per share rose 13% when compared against second quarter 2017. Currency translation had a $0.03 favorable impact on second quarter 2018 adjusted diluted earnings per share.

Ecolab did not engage in open market repurchases of its common stock during the second quarter of 2018.

Second Quarter 2018 Segment Review

Global Industrial acquisition adjusted fixed currency sales rose 5% led by Water, Food & Beverage and Life Sciences. All regions showed good sales growth. Acquisition adjusted fixed currency operating income decreased 2% as improved pricing and sales volume gains were more than offset by higher delivered product costs and investments in the business.

Global Institutional acquisition adjusted fixed currency sales grew 3% led by Specialty. Sales for the segment showed good growth in North America and Asia Pacific. Acquisition adjusted fixed currency operating income declined 2% as pricing and sales volume gains were more than offset by investments in the business and higher delivered product costs.

Global Energy acquisition adjusted fixed currency sales increased 6% reflecting strong growth in the well stimulation business and moderate gains in production and downstream. Acquisition adjusted fixed currency operating income increased 29% as higher delivered product costs were more than offset by volume gains, pricing, a favorable product mix and a relatively favorable comparison to the year ago period; underlying operating income growth is trending in the mid-teens.

Other segment acquisition adjusted fixed currency sales increased 8% as Pest Elimination enjoyed strong growth, led by North America. Acquisition and divestiture adjusted fixed currency operating income increased 17% as pricing and sales volume gains more than offset increased field-related costs. The Equipment Care business was sold on November 1, 2017.

Corporate

The corporate segment expense includes amortization expense of $43 million in the second quarter of 2018 and $43 million in the second quarter of 2017 related to the Nalco merger intangible assets. Corporate segment operating income also includes net special charges of $12 million ($9 million after tax) primarily related to restructuring activities.

Special gains and charges for the second quarter of 2017 were a net charge of $61 million ($46 million after tax).

Efficiency Initiative

Ecolab has undertaken a comprehensive plan to leverage its recent technology and systems investments and organizational changes in order to streamline operations, improve sales growth and increase operating efficiency while delivering better customer outcomes.

Internal teams will work through the balance of this year to develop final plans for global resource and business structure improvement, to be implemented in 2019 and 2020. Our plans will leverage technology and structural improvements to simplify and automate processes and tasks, reduce complexity and management layers, consolidate facilities and focus on key long-term growth areas, thereby creating a leaner, more productive and more empowered business structure.

The efficiency initiative and other cost savings actions are expected to be completed by the end of 2020 and are expected to result in approximately $200 million of SG&A savings by 2021.

In connection with these actions, Ecolab expects to incur pre-tax charges of $170 million ($130 million after tax) over the next 3 years, beginning with $10 million of charges in the second quarter of 2018. The charges are expected to be primarily related to team reorganizations and some facility closures.

Business Outlook

2018

Ecolab continues to expect full year 2018 adjusted diluted earnings per share in the $5.30 to $5.50 range, representing a 13% to 18% increase over 2017.

When compared with our 2017 performance, we expect improved acquisition adjusted fixed currency sales growth in all of our segments. Versus the comparable measures last year, we anticipate slightly lower adjusted gross margin as volume gains, pricing and cost efficiency actions nearly offset higher delivered product costs (which are expected to show somewhat moderating increases in the fourth quarter), with a lower SG&A ratio to sales, higher other income, and lower interest expense and a lower adjusted tax rate versus 2017 reflecting the impact of the recently enacted U.S. Tax Cuts and Jobs Act and tax planning.

We expect special charges in 2018 to be $0.30 to $0.40 per share principally related to the charges for the efficiency initiative, a previously announced $25 million funding commitment to the Ecolab Foundation, as well as integration of previously announced acquisitions. In addition, the discrete tax item related to excess tax benefits on share-based compensation is expected to be favorable. Other than this discrete tax item and special gains and charges noted above, other such amounts are not currently quantifiable.

At current rates of exchange, we expect foreign currency translation to have an approximate $0.02 benefit to diluted earnings per share versus the previously expected $0.10 benefit.

Our detailed outlook for the full year of 2018 (which reflects adoption of the new accounting standards) is as follows:

Reported 2017 diluted earnings per share of $5.12 included special gains and charges and discrete tax items. Excluding these items, 2017 adjusted diluted earnings per share were $4.68.

2018 — Third Quarter

Ecolab expects third quarter 2018 adjusted diluted earnings per share in the $1.49 to $1.57 range, rising 8% to 14% compared with adjusted diluted earnings per share of $1.38 a year ago.

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