Ecolab’s burgeoning energy business helped the company post a solid second quarter that beat expectations Tuesday as the newly acquired Champion Technologies business reported double-digit returns amid growth in the oil refinery and drilling sectors.
Encouraged, Ecolab boosted its outlook for the full year.
Total sales for the St. Paul-based sanitizing, food safety and water treatment company rose 13 percent to $3.34 billion for the quarter. Excluding one-time acquisition and related expenses, adjusted earnings rose 24 percent to $265 billion or 86 cents a share. That’s 2 cents better than analysts expected on average.
“Clearly, it was a very good quarter,” CEO Doug Baker told analysts during a conference call.
Investors were equally pleased as Ecolab’s shares rose 1.8 percent to close at $93.75, up $1.65.
Edward Yang, research analyst for Oppenheimer & Co., said congratulations were in order, while other analysts peppered executives with questions about Ecolab’s business units.
Baker noted that the quarter experienced “better than expected results from Champion,” the oil additives and treatment firm Ecolab bought in April. But Baker also credited “strong” sales growth, new customers, and improved margins in addition to the newly acquired energy businesses — Nalco and Champion.
The additions took Ecolab in a new direction and doubled its size to $12 billion in annual revenues.
Once known mainly for providing sanitizing and cleaning chemicals to hotels, restaurants, dairies, schools and hospitals, Ecolab jumped into the energy-services sector in a big way. Buying Nalco in December 2011 and Champion this April has given Ecolab the ability to filter out corrosive water during oil drilling and to treat lumpy oil in refineries.
Once seen as a big gamble, the acquisitions appear to be paying off, analysts said.
The new global energy division grew 67 percent to $901 million during the quarter, while profits rose 66 percent to $131 million. Mike Monahan, Ecolab senior vice president, told analysts that energy sales benefited from a spike in deepwater, shale and oil-sands drilling. The growth is expected to continue in the latter half of the year due to continued growth in North America and the Middle East, he said.
Ecolab’s largest business, industrial, saw sales rise 4 percent to $1.2 billion during the quarter amid contributions from water-filtration and sanitation services for food and beverage, factory and paper pulp-making customers.
Ecolab’s institutional business reported a 3 percent sales jump to $1.055 billion as orders inched upward from restaurant, hotel, school and office customers. Health care sales dipped slightly as the company exited low-margin niche products. Sales were also slightly affected by last year’s sale of Ecolab’s vehicle care business.
Ecolab reported $89 million in special charges for the quarter, most related to the Nalco and Champion acquisition, integration and restructuring costs. That’s up from $45 million for the same quarter one year ago.
Baker said that the Nalco and Champion integration efforts were on track — Nalco helped cut $20 million in duplicative costs during the quarter, which should help Ecolab achieve the $75 million goal for the year. Champion is expected to deliver $150 million in cost cuts and 50 cents a share toward earnings by 2016, Baker said.
Baker increased Ecolab’s guidance for the full year 2013, saying earnings should reach $3.48 to $3.56 per share. That’s up from the prior guidance of $3.45 to $3.55 per share and is a 17 percent increase from 2012 results.