Ecolab announces post-merger restructuring, elimination of 500 positions globally; company also revises outlook, revises adjusted EPS results at 14% growth in 2011, 16% to 20% growth in 2012
ST. PAUL, Minnesota
January 19, 2012
2011 adjusted EPS, excluding impact from Nalco merger, expected to reach $2.54, +14%
2012 adjusted EPS range set at $2.95 - $3.05, +16% to +20%
Restructuring and other special charges expected to be as follows:
2011 fourth quarter charges of approximately $100 million
2012 charges of approximately $230 million
2013 charges of approximately $150 million
Ongoing annual synergy cost savings benefit forecast raised to approximately $250 million from $150 million
2012 synergy cost savings forecast raised to approximately $75 million from $35 million, which will help overcome unfavorable currency movements, raw materials and pension costs
Ecolab Inc. announced that it plans to undertake restructuring and other cost-saving actions to help enable and enhance realization of its merger-related cost synergies as well as streamline and strengthen its global business. These actions, along with merger-related costs, will result in restructuring and other special charges in the fourth quarter of 2011 and in 2012 and 2013. Total merger-related restructuring costs over the period are expected to be approximately $180 million, with other special charges approximately $300 million. It is expected that the restructuring will be completed by the end of 2013.
Douglas M. Baker, Jr., Ecolab's Chairman and Chief Executive Officer, commented on the announcement, saying, "We are making excellent progress in our work to integrate our businesses. Our teams have come together quickly. Our similar business approach and cultures have made the merger process very smooth and productive, and our work to develop synergies has developed better than expected, resulting in our higher cost synergies forecast. The restructuring and special charges we announced today are designed to enable us to more quickly realize and increase the merger-related cost synergies and improve the efficiency and effectiveness of our global business.
"The larger 2012 synergies and the previously announced share buyback will help us offset the very significant unfavorable currency movements, raw material costs and pension expense, which cumulatively represent nearly $100 million of negative 2012 operating income impact since our initial earnings forecast made six months ago. As a result, our outlook remains strong. 2011 adjusted EPS results are expected to show 14% growth and be in the middle of our forecasted range, and our 2012 adjusted EPS outlook is for even stronger growth of 16% to 20%.
"We believe our exceptional products and outstanding sales and service team, along with our broadened business platform, provide us the critical tools that will enable us to succeed in 2012's challenging environment and provide superior growth for the years to come. We have already begun to work with customers to offer them the broader range of integrated and effective solutions that are now available as a result of this merger. These conversations have gone very well. We have a strong and experienced team ready to drive our business forward, and we are confident in our outlook and our growth prospects."
2011 and 2012 Cost Synergy Actions and Benefits
Actions associated with the merger to improve the effectiveness and efficiency of the company include the following:
A reduction of the combined company's current global workforce by approximately 500 positions, primarily in corporate G&A. A number of these reductions are expected to be achieved through open positions and attrition. Those whose jobs are eliminated will be offered severance and outplacement as appropriate. As previously announced, none of the positions affected will be in sales or R&D.
Procurement savings from the company's larger scale.
Preparation work to simplify the combined company's global supply chain.
Significant cost and capability leverage within IT and other global functions through our Shared Services approach.
As a result, Ecolab has increased its cost synergy target for 2012 to approximately $75 million from the previous forecast of $35 million.
Future Cost Synergy Actions and Benefits
Additional actions beyond 2012 include:
Supply chain plant and warehouse rationalization to create a lower cost, leaner and more efficient infrastructure. This will include the reduction of plant and distribution center locations, as well as the rationalization of sales offices and other redundant facilities.
These and additional productivity and efficiency actions are expected to reduce the need for future position additions by approximately 1,500 over the next several years.
These result in the annual merger cost synergy target being raised to $250 million from the prior $150 million objective. We expect this synergy run rate to be achieved by the end of 2014.
2011 Fourth Quarter Special Charges
Ecolab expects to record pretax special charges in the fourth quarter of 2011 of approximately $100 million ($60 million after tax, or approximately $0.25 per share) that will include approximately $50 million for transaction and integration costs, $10 million for merger-related restructuring and severance, and $30 million related to the modification of a long-term customer agreement that was part of a previous water-related acquisition. In addition, fourth quarter special charges will include approximately $10 million primarily related to the previously announced Europe restructuring.
2012 Special Charges
In 2012, Ecolab expects to incur pretax special charges of approximately $230 million ($170 million after tax, or approximately $0.60 per share), including approximately $60 million non-cash charges for the fair value step up of Nalco inventory, Nalco merger-related restructuring charges of approximately $50 million, approximately $20 million in Nalco debt breakage costs and approximately $20 million for merger integration costs. Approximately $70 million of the 2012 special charge is part of the previously announced restructuring primarily related to Europe.
2013 Special Charges
In 2013, Ecolab expects to incur pretax special charges of approximately $150 million ($85 million after tax, or approximately $0.35 per share), including Nalco merger-related restructuring charges of approximately $120 million and approximately $30 million as part of the previously announced restructuring primarily related to Europe.
Ecolab expects adjusted diluted earnings per share, excluding the impact of the Nalco merger, to rise 14% to $2.54 for the year ended December 31, 2011. Ecolab had previously forecast 2011 adjusted earnings per share, excluding the impact of the Nalco merger, in a $2.53 - $2.55 range. Fourth quarter 2011 adjusted earnings per share, excluding the impact of the Nalco merger, are expected to be $0.70, a 17% increase over the prior year.
Ecolab expects 2012 sales before acquisitions and divestitures to show strong volume growth and appropriate pricing moderated by continued weakness in several key economies and unfavorable foreign exchange. Adjusted gross margins are expected to decline versus 2011 due to the Nalco merger but are expected to increase compared with the combined companies' prior year gross margin, reflecting the benefits of pricing and efficiency initiatives which should offset moderating increases in delivered product cost increases. The SG&A ratio should improve (excluding the impact of purchase accounting) from 2011 levels and approximate the combined companies' prior year levels reflecting the synergies, which are expected to more than offset continued investment in the business and higher pension expense. The tax rate is expected to improve from both 2011 and the combined companies' prior year levels due to tax benefits from integration projects.
Ecolab continues to expect adjusted diluted earnings per share, excluding special gains and charges and discrete tax items, for the year ending December 31, 2012 of approximately $3.00 per share, and has established a forecast range of $2.95 - $3.05 per diluted share. This would represent a 16% to 20% increase over expected 2011 adjusted earnings per share (which exclude the impact of the Nalco merger).
The quarterly earnings growth rate is expected to improve throughout 2012 as the benefits of synergies and cost reductions take effect, and as higher depreciation and amortization expense is offset by seasonally higher revenues.
Ecolab's detailed outlook for the full year 2012, adjusted for special gains and charges and discrete tax items, is as follows:
47% - 48%
SG&A % of sales (excl. Purchase Acctg. and Corp. Seg.)
32% - 33%
Purchase Accounting impact in Depr. & Amort. approx. $170 million
Corporate Segment (excl. Purchase Accounting) approx. $50 million
Interest expense, net approx. $255 million
Effective tax rate
29% - 30%
Minority Interest approx. $10 million
Adjusted EPS, excluding special gains and charges
$2.95 - $3.05
Diluted Shares outstanding approx. 295 million
Depreciation (inclusive of Purchase Accounting) approx. $535 million
Amortization (inclusive of Purchase Accounting) approx. $225 million