Ecolab finds growing niche in grime

A St. Paul company that specializes in cleaning products and related services continues to post record earnings.

By GENE WALDEN

March 9, 2008 at 12:35AM

It's a dirty world -- and that's just fine with Ecolab, the 85-year-old St. Paul manufacturer that specializes in cleaning up messes.

But "profit" is not a dirty word at Ecolab. With sales of about $5.5 billion a year, Ecolab is the largest manufacturer of commercial-level cleaning products and related supplies and services in the world. Its leading markets include the hospitality, food service, health care and industrial sectors.

Filth has proved to be a steady growth industry for Ecolab. Since 1992, the company has posted record earnings every year except 2001.

Stock growth has followed suit with earnings and revenue growth. Although its share price (recently about $46) is down about 13 percent from its 52-week high, it is still up about 160 percent over the past 10 years. The company also raises its dividend each year, with the yield now about 1.1 percent.

One of the keys to Ecolab's growth has been its international expansion. Ecolab has uncovered pay dirt in markets in every corner of the globe and is now in more than 160 countries. About 47 percent of its revenue comes from outside North America. About half of its 26,000 employees also work overseas where many of its manufacturing plants are located.

"We find that it's more efficient to make our products close to consumption," said CEO Doug Baker.

The company makes cleaning and sanitizing supplies as well as pest-elimination products. It also offers maintenance and repair services. Its leading clients include restaurants, hotels, health care and educational facilities, quick service operators, such as fast-food restaurants and convenience stores, grocery stores, laundries, industrial plants, dairy farms, food and beverage processors, and vehicle wash centers.

The company's biggest segment is its institutional division, which sells specialized cleaners and sanitizers for washing dishes, glassware, utensils and kitchen equipment, and for general housekeeping. It also sells food-safety products and equipment, dishwasher racks, water filters and related kitchen items. And it supplies pool and spa treatment products for commercial customers.

Maintaining the growth

Baker cites several reasons for the company's sustained growth. "We serve stable growth markets, and we're focused on the fastest-growing parts of these markets -- the larger players." More important, the company's ability to react to changes has kept its bottom line growing.

"There are always challenges and they never seem to be exactly what we predict -- like the price of oil, the price of raw materials, customer demand in a given region, and currency exchange rates. You're almost certain to be wrong on this mix so you have to react in a way that preserves your core strategy and your core investment while still delivering financially."

While Ecolab faces competition, it's far from hand-to-hand combat. Most of its business comes from the big multinational corporations that also have businesses worldwide, such as Nestle, General Mills, Kraft, Campbell's Soup, Marriot, Denny's, Cargill and McDonald's.

Surprisingly, the company's largest global competitor is right next door in Wisconsin -- JohnsonDiversey in Sturtevant, Wis.

As countries around the world become more industrialized, demand for Ecolab's products continues to rise. Baker is confident the firm's steady growth will continue for as long as it maintains its focus on the leading growth areas.

"The single market with the biggest absolute growth potential continues to be North America," says Baker. "China should be the biggest break-out market, but that comes from a small base. We also have to win in Europe -- with an emphasis on Eastern Europe -- and in Brazil."

In terms of sector growth, Baker thinks the health care market, which currently accounts for about 15 percent of revenue, has the biggest upside potential. Its recent acquisition of Microtech Medical has helped Ecolab build a stronger base in the surgical suites and central sterile markets.

The other key, Baker says, is that the company must continue to do more than simply push products.

"We're more than just the cleaning guys; we're the food-safety experts and the infection-control experts. We need to continue to have people on the ground who can provide training and service. That's the part of Ecolab that delivers value."

The recession may slow Ecolab's growth, but Baker doesn't expect the momentum to stop.

"No one is recession-proof, but we're recession-resistant if we can execute," he said.

about the writer

about the writer

GENE WALDEN

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