Nalco Reports First Quarter 2011 Financial Results
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o Strong top line growth - record first-quarter sales up 11 percent, 9 percent organic
o Successful divestiture of two non-strategic businesses generated 60 cents earnings per share
o Reaffirmed 2011 Guidance despite challenging environment
o Pricing gains picking up momentum and, combined with productivity efforts, support full recovery of raw material and freight headwinds in second half
o BRIC+ strategy continues to deliver profitable growth
NAPERVILLE, Ill., April 26, 2011 - Nalco (NYSE: NLC), providing essential expertise for water, energy and air, reported results for the first quarter ending March 31, 2011.
Highlights
o Record first-quarter sales of $1.1 billion, an 11 percent growth rate versus prior year. The increase reflects substantial volume growth and moderate pricing gains with higher sales across all segments, particularly in Energy Services based on new account growth in the upstream markets.
o Net earnings of $117 million includes an $84 million after-tax gain on sale of two non-core businesses driving a 66-cent increase in diluted earnings per share (EPS) to 84 cents, compared to $25 million or 18 cents per share in the prior year. Without the gains from the divestitures, diluted EPS would have been 24 cents. After adjusting for the divestitures, restructuring expenses and other unusual items, Adjusted EPS was 26 cents per share compared to 31 cents in 2010 (See Attachment 8).
o Adjusted EBITDA of $148 million (See Attachment 4) compares to 2010 adjusted EBITDA of $164 million and reflects margin pressure as productivity improvements and pricing actions only partially offset continued raw material and freight headwinds and prior year growth investment through new hires.
o BRIC+ sales increased 19 percent to $195 million
"Nalco grew first-quarter revenues nicely year-over-year and sales were nearly flat sequentially, despite the 1st quarter being our lightest seasonal quarter," said Chairman and Chief Executive Officer Erik Fyrwald. "The actions we are taking to offset lower margins due to accelerated increases in raw material costs support our unchanged 2011 profit expectations."
Energy Services: Americas upstream markets drove 16 percent Energy Services sales growth to $421 million with especially strong growth in North America shale gas and continued success in deep-water areas of the Gulf of Mexico and West Africa. Direct contribution margin of 19.6 percent was down 260 basis points reflecting higher raw material costs, increased investment in headcount to support growth, and business disruptions. However, Energy Services delivered 2 percent direct contribution earnings growth despite the severe raw material and freight cost increase pressure.
Paper Services: Sales grew to $197 million led by continued double-digit growth in Latin America and Asia Pacific. Direct contribution declined modestly reflecting a 200 basis point margin decline due to higher raw material costs only partially offset by decreased operating expenses.
Water Services: Sales of $443 million reflected low double-digit growth in the Americas with strong growth in mining and the heavy industry market still outperforming light markets. Substantially higher raw material costs and increased investment in headcount to support growth depressed direct contribution earnings by nearly 14 percent and margin by 370 basis points.
"Each of our business units must keep driving price capture of raw material cost inflation and company-wide productivity efforts to restore margins," Fyrwald said. "I am confident in our ability to fully recover price if raws stabilize and I'm pleased with our progress in the 1st quarter that will have increasing impact in the upcoming quarters."
Free Cash Flow was negative in the quarter due to seasonality of cash flows with a higher outflow compared to prior year due to higher profit sharing and incentive payments and increased capital expenditures partially offset by an improvement in working capital. Although not included in the first quarter Free Cash Flow calculation, the $198.5 million in net proceeds from the divestitures were used to pay down debt. The effective tax rate in the quarter was 37.5 percent. Excluding the impact of divestitures, restructuring expenses and other unusual items the Adjusted Effective Tax Rate was 35.0 percent (See Attachment 9).
2011 Expectations
"Our growth investments are paying off with strong volume increases and record first-quarter sales," Fyrwald said. "As pricing and further penetration of our high-value technologies and services continue to ramp up, margins will improve and drive solid EBITDA growth."
Following first-quarter results, Nalco reaffirmed its outlook for 2011 performance. The Company continues to expect Adjusted EBITDA of $735 million and Adjusted EPS of roughly $1.65. The effective tax rate for the year is still expected to be approximately 35 percent. We expect $175 million in Free Cash Flow, excluding the impact from divestitures and the $35 million of atypically high rent and profit sharing payments.
Conference Call/Webcast
Nalco will discuss first-quarter 2011 results in a conference call and audio-only Webcast to be held on Wednesday, April 27 at 10 a.m. ET. Information on the conference call and Webcast is available on our website at www.nalco.com/investors.
About Nalco
Nalco is the world's largest sustainability services company focused on industrial water, energy and air applications; delivering significant environmental, social and economic performance benefits to our customers. We help our customers reduce energy, water and other natural resource consumption, enhance air quality, minimize environmental releases and improve productivity and end products while boosting the bottom line. Together our comprehensive solutions contribute to the sustainable development of customer operations. Nalco is a member of the Dow Jones Sustainability World and North America Indexes. More than 12,000 Nalco employees operate in 150 countries supported by a comprehensive network of manufacturing facilities, sales offices and research centers to serve a broad range of end markets. In 2010, Nalco achieved sales of $4.25 billion. For more information visit www.nalco.com.
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CONTACT: Media, Charlie Pajor, +1-630-305-1556, cpajor@nalco.com, or Investors, Lisa Curran, +1-630-305-1475, llcurran@nalco.com, both of Nalco Company
