Ecolab's Nalco deal adds up to revenue gain

  • Article by: SUSAN FEYDER , Star Tribune
  • Updated: May 1, 2012 - 9:47 PM

Although revenue soared 85 percent, costs of the acquisition cut into St. Paul company's profit.

Last year's acquisition of water management giant Nalco paid off big for Ecolab Inc. in its first quarter.

The St. Paul-based company Tuesday posted an 85 percent gain in sales to $2.8 billion, getting an especially large boost from Nalco's fast-growing energy business.

The results beat analysts' revenue estimates of $2.72 billion. In addition to Nalco, Ecolab said healthy gains in its core health care, institutional and food and beverage segments contributed to the higher sales.

Jeff Windau, an analyst at Edward Jones in St. Louis, said he was impressed with the even geographic distribution of Ecolab's sales growth in the quarter. "Overall it looked like a very good first step since bringing Nalco into the fold," he said.

Charges related to the acquisition affected Ecolab's overall profits for the quarter. Ecolab's net income declined 47 percent to $50 million or 17 cents a share. Excluding special charges and benefits, Ecolab's profit was up 40 percent to $150 million. Adjusted earnings per share were 50 cents, beating analysts' estimates of 48 cents a share.

Wall Street reacted favorably, sending Ecolab shares up about 1 percent to a 12-month high of $64.34. The stock price has increased about 11 percent so far this year.

"The 'new' Ecolab is off to an excellent start," said CEO Douglas Baker. The process of integrating the two businesses, which began months before the $8.3 billion deal was completed last December, is on track, he said.

Ecolab traditionally has been known for its sanitizing and pest elimination products for hospitals, hotels, restaurants, schools, car wash and laundry services. The acquisition of Nalco, a world leader in industrial water services, has put Ecolab into new markets like paper making, oil exploration and refining.

Baker noted that the company's new global energy division had a had a "standout quarter." That segment grew 29 percent to $537 million.

Results for its new paper segment were much weaker, with sales rising just 2 percent. "Paper is a good business," said Baker when asked by an analyst on a conference call if it was "a long-term keeper in the portfolio." Baker said it's too soon to evaluate paper's future role but added that Nalco's water and energy segments were the primary reasons for the acquisition.

"I don't think they have their minds up yet, but I think it's something they definitely will take a hard look at," said Windau of the paper segment. Windau noted that Ecolab typically conducts its strategic planning in the fall.

Ecolab maintained its 2012 earnings forecast in the range of $2.95 to $3.05 per share for the year. Baker said profit margins should improve in the second half of the year.

Staff writer Wendy Lee contributed to this report. Susan Feyder • 612-673-1723

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