Nalco acquisition boosts Ecolab

  • Article by: DEE DEPASS , Star Tribune
  • Updated: July 31, 2012 - 8:57 PM

Sales rose 74 percent, based largely on what Nalco brought to Ecolab's table, but shares dropped on a lower year-end outlook.

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Ecolab’s products are used in sanitizing and pest elimination in hospitals, schools, hotels and restaurants.

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Judging by Ecolab's second-quarter results, its recent acquisition of water-management giant Nalco continues to be awash in success.

The St. Paul-based company said Tuesday that its second-quarter sales jumped 74 percent to $3 billion, thanks largely to contributions from the deal. Net income rose to $184.5 million, or 62 cents a share, up from $125.9 million, or 53 cents a share.

Excluding restructuring charges, net income rose to $215 million, or 72 cents a share, which met analysts' estimates.

CEO Doug Baker touted the benefits of the acquisition Tuesday, predicting the combined company will provide $250 million in cost savings, up from $150 million a year ago.

"Synergies from the underlying businesses are hanging in there and doing quite well," Baker said during a conference call with analysts. "We have confidence in what we are forecasting, which is a very good year."

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

The combined company mainly reaped the benefits from Ecolab's food and beverage and health care units. Nalco's global energy business also helped results. Global paper sales fell during the quarter due to soft packaging sales in North America and Asia, officials said.

Baker also warned of headwinds for the company, citing the negative impact of foreign currency exchange rates. He lowered Ecolab's 2012 forecast to a range of $2.95 to $3.02 a share, down from the earlier forecast of $2.95 to $3.05.

Ecolab shares stumbled on the news, and closed Tuesday at $65.45, down $2.70.

During the conference call, analysts questioned the exchange rates, the difficulties integrating two very different companies and the cyclical nature of Nalco's energy, paper and industrial water businesses.

J.P. Morgan analyst Jeff Zekauskas was concerned the quarter may have been driven by returns gained from the Ecolab side of the company.

Gabelli & Co. research analyst Rosemarie Morbelli asked Baker whether he was disappointed by some of Nalco's results or concerned that the company would not produce predictable results. "Predictability is what everyone was worried about at the onset" of this merger, she said.

Baker insisted he is pleased with the company's plan, integration pace and forecast. Nalco offered no surprises except on the positive side, Baker said, adding that the business is only slightly more cyclical than Ecolab's.

Ecolab quarterly results by unit are as follows:

U.S. cleaning and sanitation sales rose 1 percent to $761 million. Sales of U.S. pest elimination, car care and other U.S. products rose 4 percent to $122 million.

Sales from the international cleaning, sanitizing and other services unit rose 3 percent to $796 million. Global energy sales jumped 19 percent to $548 million.

Combined global water sales rose only 1 percent to $510 million as tepid demand in Europe and Asia offset strong results from North America and Latin America. Global paper sales fell 1 percent to $201 million due to soft packaging sales in North America and Asia.

Dee DePass • 612-673-7725

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