ST. PAUL, Minn - Ecolab reported net sales declined 8% to $1.3 billion in the first quarter of 2009; excluding the impact of a change in distributor incentive programs, fixed currency sales were flat to the prior year. Net income attributable to shareholders decreased 44% to $57 million. Reported diluted earnings per share declined 41% to $0.24.
First quarter 2009 and 2008 results included special charges and discrete tax items. Excluding those items, pro forma first quarter 2009 diluted earnings per share were $0.33, a 15% decrease from pro forma first quarter 2008 diluted earnings per share of $0.39. Currency translation had a negative impact on pro forma diluted earnings per share of approximately $0.03 per share in the first quarter of 2009. First quarter 2009 also included a change in distributor incentive programs that reduced first quarter earnings by approximately $0.03 per share; however, this effect should be reversed this year.
Segment review
First quarter 2009 sales for Ecolab's United States Cleaning & Sanitizing operations declined 5% to $623 million. Kay and Healthcare led sales results with strong gains. A change in the Institutional distributor incentive program reduced United States Cleaning & Sanitizing sales by 3%. Ecolab's United States Cleaning & Sanitizing operating income declined 3% to $103 million. Adjusted for the change in distributor incentives, operating income increased approximately 9%.
United States Other Services sales declined 3% to $107 million in the first quarter. However, operating income increased 89% to $13 million as cost reductions improved profitability over last year.
Sales of Ecolab's International operations, when measured at fixed currency rates, rose 3% to $625 million in the first quarter. Latin America and Canada enjoyed strong sales growth while Asia Pacific and Europe/Middle East/Africa recorded modest sales gains. Fixed currency operating income declined 52% to $22 million as delivered product and other operating cost increases outpaced pricing in the quarter, particularly in Europe. When measured at public currency rates, International sales declined 11% and operating income decreased 62%.
The Corporate segment includes special charges, which are reported as a separate line item in the income statement. Special charges for the first quarter 2009 of $34 million included a restructuring charge of $33 million ($21 million after tax) for actions primarily taken to optimize our workforce, as well as other non-recurring costs to optimize our business structure. The Corporate segment also includes investments in the development of business systems and other corporate investments we are making as part of our ongoing efforts to improve our efficiency and returns.
The reported income tax rate for the first quarter 2009 was 29.4% compared to the reported tax rate of 29.3% for the first quarter 2008. Excluding the tax rate impact of special charges and discrete tax items, the adjusted effective income tax rate for the first quarter 2009 was 31.3% compared with 32.8% for the same period last year. The decrease in the adjusted first quarter effective tax rate was due primarily to tax planning efforts as well as global rate reductions.
CEO comment
Commenting on the quarter, Douglas M. Baker, Jr., Ecolab's Chairman, President and Chief Executive Officer said, "We performed well in the face of a very difficult global economy and results netted out where we expected. Our team did a great job delivering on key market share, pricing and cost savings objectives, and I am proud of their performance.
"2009 will continue to be a tough year and demand aggressive actions from all of us at Ecolab. Fortunately, we have large markets with a lot of room to expand our share and the industry's leading sales and service force to help customers realize better results at lower costs. The majority of our businesses serve markets that are expected to grow in 2009, and we have been early and aggressive in taking actions to reduce our costs. Further, our balance sheet and cash flow remain strong, and we will use them to make key growth investments and improve returns into the future. The challenges are significant, but our growth opportunities are greater. We expect to once again deliver better results for our customers, improve our returns and position Ecolab for an even better future."
Source: Ecolab.com