Ecolab Reports 4Q Sales and European Restructuring

Ecolab’s reported net sales rose 1% to $1.6 billion in the fourth quarter of 2010; measured in fixed currencies, sales rose 2%. Net income attributable to shareholders increased 13% to a record $131 million, with reported diluted earnings per share up 17%, the company said.

Following the recent implementation of new business systems in Europe, Ecolab has undertaken a comprehensive plan to substantially improve the efficiency and effectiveness of its Europe business, sharpen its competitiveness and accelerate its growth and profitability. As a part of this effort, Ecolab is developing plans for an accelerated restructure of its European operations in order to more quickly realize the benefits. Ecolab will work with its various works councils in Europe to develop and finalize implementation plans. As part of the restructuring, approximately 900 positions are expected to be eliminated.

The restructuring and other cost savings actions are expected to result in more than $120 million ($100 million after tax) in annualized cost savings when fully realized, with approximately $4 million to $6 million ($3 million to $5 million after tax) realized in 2011.

Ecolab expects to incur a pretax restructuring charge of approximately $150 million over the next three years, beginning in the first quarter of 2011, as the restructuring is rolled out. Approximately $50 million to $70 million of that charge is expected to occur in 2011.

According to Ecolab, these actions will better align business and functional support by leveraging the new systems.Major initiatives under development include:

• Supply chain – significant realignment of the supply chain, including repositioning of the warehousing networks, better leveraged purchasing capabilities, formula and packaging simplification, manufacturing consolidation and streamlined support functions.

• G&A – shared and outsourced services, centralization of business functions, marketing channel optimization, simplification and automation of manual tasks.

• Division – streamlined marketing, business simplification, channel optimization, sales productivity and office consolidation.

Fourth quarter 2010 sales for Ecolab’s U.S. Cleaning & Sanitizing operations rose 1% to $681 million. Adjusted for acquisitions, sales declined 1% as distributor inventory changes negatively impacted the Institutional business; however, total shipments (direct and distributor) to Institutional end-customers increased during the quarter and sequentially throughout the year, the company said.

Ecolab’s U.S. Cleaning & Sanitizing operating income declined 10% to $113 million, primarily reflecting the lower distributor inventories, unfavorable business mix for the quarter, higher delivered product costs and the write-off of a customer receivable.

U.S. Other Services fourth quarter sales increased 2% to $111 million, led by GCS. Operating income grew 17% to $18 million.

Sales for Ecolab’s International operations, when measured at fixed currency rates, grew 3% to $791 million in the fourth quarter. Fixed currency operating income increased 13% to $82 million when compared with last year, with improvements from all regions. Volume gains, favorable delivered product costs and customer rebate adjustments, and cost savings more than offset higher costs from Europe systems and pensions. When measured at public currency rates, International sales were flat and operating income was up 13%.

Commenting on the quarter, Douglas M. Baker, Jr., Ecolab’s chairman, president and CEO said, “Good growth in our global lodging and food & beverage businesses, along with stronger results from our services and international operations, offset the still-challenging U.S. foodservice environment. We delivered another solid earnings gain in the fourth quarter and another double-digit gain for the year.”

“Importantly, we see improving conditions ahead,” Baker continued. “Our plans to improve our European business competitiveness and performance, and the Europe restructuring plans that we are developing, reflect the confidence we have that we can accelerate the benefits that were foreseen as part of our systems investment. We fully expect the next several years will be a period of significant development and improvement in Europe results as we drive process change and better efficiency. We look for approximately 100 basis points of operating margin improvement in our EMEA region in 2011, and at least double that in each of 2012 and 2013. Most exciting, we expect these actions will improve our ability to meet or exceed our customers’ product and service expectations.”