Price hikes, new business help overcome rising costs in Ecolab's quarter

Price increases and new business helped Ecolab overcome rising freight costs and unfavorable currency exchanges to increase profits 5% in the second quarter.

The St. Paul-based cleaning chemicals and water-filtration giant on Tuesday reported net earnings of $369 million, or $1.26 per share, for the quarter ending June 30.

Excluding one-time items — such as the $58 million special charges associated with both an efficiency initiative and the planned separation of Ecolab's $2.4 billion "upstream energy" oil-drilling chemicals business — adjusted earnings were $1.42 a share for the quarter, a penny better than analysts expected on average.

Sales rose 2% to $3.76 billion, missing analysts' revenue estimates by $30 million.

Ecolab's stock price rose $5.06 to close at $205.68 per share Tuesday. The stock has been trading of late near its 52-week high range of $209.

In speaking with analysts via conference call Tuesday, CEO Douglas Baker praised results.

"Second-quarter results were as expected, with continued strong gains in our industrial and 'other' segments and improved growth in the institutional segment," he said.

As for the rest of Ecolab's businesses, strong pricing and new business helped drive growth during the quarter.

Ecolab Senior Vice President Mike Monahan said Tuesday that Ecolab's digital services also contributed to results as more customers are opting for the company's enhanced monitoring and data systems. The automated digital services use data to spot problems early and prevent large and costly water wasting, machine malfunctions and chemical buildup, he said.

For the quarter, Ecolab's largest business, Global Industrial, saw sales jump 8% on a same currency basis to $1.39 billion as water filtration and processing demand grew in the unit that serves manufacturers from paper to food and pharmaceutical firms.

Sales for Ecolab's second-largest business — serving institutional clients such as restaurants, hotels, nursing homes and military bases — saw sales jump 4% to $1.32 billion during the quarter as demand rose for cleaning chemicals and services.

In contrast, sales of Ecolab's energy business rose just 1% to $840 million. While Ecolab plans to spin off its upstream energy business next year, it will retain its "downstream" energy business, which serves refineries and petrochemical plants.

Ecolab's second-quarter results differed significantly from several industrial peers.

3M Co., DowDuPont, H.B. Fuller and Graco all saw lackluster sales growth or falling profits during their second quarters.

Several U.S.-based industrial giants reported problems with spiraling trade-tariff costs, unfavorable currency exchanges and slowing demand in transportation, consumer electronics, adhesives and retail sectors.

Ecolab was not affected by the U.S. trade war with China and didn't see the pinched demand that many multinationals are beginning to suffer as global growth slows, Monahan said. "We just felt we had a pretty darn good performance," he said.

Monahan added that Ecolab has largely avoided trade tariff woes because it mostly has manufacturing operations in each country where customers are.

Looking ahead, however, the company is starting to see possible signs of slowing in Europe and in the paper/pulp and auto industries in China and Asia, he said.