Ecolab posted third-quarter adjusted profits that met Wall Street expectations Monday, but it also suffered sales declines, foreign currency woes and a $125 million charge related to the messy devaluation of Venezuela's currency and Ecolab's remaining business there.
In facing the Venezuelan currency woes head on, Ecolab becomes the latest U.S. company to take a large hit to asset valuations there. It joins Kimberly Clark, Ford Motor Co. and Brink's Co. in taking large charges associated with doing business in the inflationary country.
Venezuela aside, it proved a mixed quarter for Ecolab, the St. Paul-based cleaning chemicals firm that caters to hotels, restaurants, hospitals and oil and gas companies.
Third quarter sales fell 7 percent to $3.4 billion. Analysts expected sales of $3.54 billion. While sales to food, beverage, industrial and institutional customers did well during the quarter, sales from oil and gas customers did not, experiencing a double-digit percentage decline.
Total net profit fell 29 percent to $258 million, or 86 cents a share, for the quarter ended Sept. 30.
Excluding one-time items for Venezuela, currency translations, pension costs and higher income-tax rate, adjusted earnings rose 4 percent to $384 million, or $1.28 per share, in line with analysts' estimates.
Ecolab downgraded its full-year 2015 forecast reflecting unfavorable currency exchanges, Venezuela and lower income from its energy division, which provides separation and anti-corrosion chemicals to oil and gas drilling, processing and handling firms.
While energy prices and spending are down worldwide, Ecolab CEO Doug Baker told analysts Monday that the depressed environment may present an opportunity to make small strategic acquisitions in the sector.
Still Ecolab curtailed its forecast for the year. It now expects full-year net income of $4.35 to $4.45 per share, down from the prior guidance of $4.45 to $4.60 per share.
Ecolab stock ended Monday at $117.99, down 2 percent or $2.36.
Analysts noted that many investors were not aware Ecolab had a sizable exposure in Venezuela and so may have reacted negatively to the initial news.
"I never thought it was that significant a portion of your Latin American business," said Longbow senior research analyst Dmitry Silversteyn.
But he and other analysts also acknowledged that Ecolab was not alone in its Venezuelan woes. Earlier this year, Ford Motor wrote off $800 million and Kimberly Clark wrote off $462 million related to operations there.
For Ecolab, Baker said remeasuring currency exchange rates in Venezuela meant a charge of about $125 illion for the third quarter.
Even with the decline in energy and emerging markets, Ecolab expects "our fourth quarter will represent our strongest business results in 2015," Baker said.
But the improvements will not be enough to completely overcome the "worsening currency headwinds [that include] the devaluation of our Venezuelan Energy Bolivar business and a short term unfavorable impact from acquisitions," he said.
For the fourth quarter, Ecolab expects earnings of $1.10 per share, which includes special charges and items equalling 10 cents a share.