ST. PAUL, Minn.--(BUSINESS WIRE)--
HIGHLIGHTS:
Third Quarter Ended
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(unaudited) | ||||||||||||||||
Reported | Adjusted* | |||||||||||||||
Third Quarter | % | Third Quarter | % | |||||||||||||
(Millions, except per share) |
2015
|
2014
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change
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2015
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2014
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change
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||||||||||
Net Sales | $ | 3,446.4 | $ | 3,694.9 | -7% | $ | 3,446.4 | $ | 3,694.9 | -7% | ||||||
Operating Income | 413.0 | 571.4 | -28% | 579.5 | 579.2 | 0% | ||||||||||
Net Income Attributable to |
257.8 | 364.9 | -29% | 384.0 | 368.7 | 4% | ||||||||||
Diluted Net Income Per Share | $ | 0.86 | $ | 1.19 | -28% | $ | 1.28 | $ | 1.21 | 6% |
* Operating income is adjusted for special gains and charges; net income and diluted net income per share are adjusted for special gains and charges and discrete tax items.
CEO comment
"In spite of the current currency noise, our business continues to deliver and our opportunities remain abundant. We are a leader in the huge and essential global markets for food, water, energy and healthcare, all of which offer compelling long term growth potential. We have great technology and a great culture that emphasizes growth and customer service. We continue to aggressively drive our business, making the right investments for long term growth, and remain committed to our long term financial goals of 15% adjusted EPS growth, 20% operating margins and 20% ROIC. This year has held many external challenges, but our focus on the fundamentals enabled us to deliver very strong underlying results again in 2015. As we move towards 2016 we will continue to refine our plans to deliver even better results next year."
Quarter overview
Third Quarter Ended
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(unaudited) | ||||||||||||||||
Reported | % | Adjusted Fixed Currency* | % | |||||||||||||
(Millions) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||
Net Sales | $ | 3,446.4 | $ | 3,694.9 | -7% | $ | 3,535.9 | $ | 3,517.3 | 1% | ||||||
Operating Income | 413.0 | 571.4 | -28% | 591.4 | 554.7 | 7% | ||||||||||
* Operating income is adjusted for special gains and charges
Third quarter 2015 reported operating income decreased 28% to
Third quarter 2015 reported net income attributable to
Our third quarter 2015 Consolidated Balance Sheet reflects the remeasurement of our Venezuelan Food & Beverage and Institutional net assets and the bolivar portion of our Venezuelan Energy net assets at the floating Marginal Currency System (SIMADI) exchange rate. As of the end of the third quarter of 2015, we believe that the SIMADI rate better represents the economics of our bolivar operations in
The impact of reflecting the third quarter 2015 bolivar income earned at SIMADI was not material to our Food & Beverage, Institutional and Energy operating units. We expect a
Segment review
Third quarter 2015 sales for the
Third quarter 2015 sales for the Global Institutional segment, when measured at fixed currency rates, rose 5% to
Global Energy segment sales, when measured at fixed currency rates, decreased 12% to
Other segment sales, when measured at fixed currency rates, increased 5% to
The Corporate segment includes amortization expense of
The reported income tax rate for the third quarter 2015 was 29.6%, compared with the reported rate of 27.3% in the third quarter 2014. Excluding the tax rate impact of special gains and charges and discrete tax items, the adjusted tax rate was 25.8% in the third quarter 2015, compared with 27.7% for the same period last year. The improved adjusted tax rate was the result of global tax planning strategies and favorable geographic income mix.
Business Outlook
2015
When compared with our 2014 performance, we expect mid-single digit fixed currency sales growth with improved growth in our Global Institutional,
Net, we expect modest fixed currency sales growth driven by good new business gains, product innovation, raw material and other cost efficiency savings, merger synergies, lower variable compensation, and a lower tax rate and share count to yield attractive growth, more than offsetting impacts from substantially unfavorable currency exchange and pension expense, and produce another superior full-year adjusted earnings per share increase in 2015. Please note our tax rate forecast for the full year assumes passage of the R&D tax credit before year end.
When compared with our prior forecast, we expect unfavorable impacts to adjusted earnings per share from currency exchange of
Our detailed outlook for the full year 2015 is as follows:
Adjusted Gross Margin, excluding special gains and charges | approx. 47% | |||
SG&A % of Sales | approx. 32% | |||
Interest expense, net | ||||
Adjusted tax rate | approx. 26% | |||
Adjusted EPS, excluding special gains and charges | ||||
Diluted shares | approx. 301 million | |||
We expect special gains and charges and quantifiable discrete tax items for the full-year 2015 to be a net charge of approximately
2015 - Fourth Quarter
As mentioned in the full year outlook, when compared with our previous expectations, we expect fourth quarter forecasted adjusted earnings per share to be unfavorably impacted by currency (including transaction losses and the Venezuelan devaluation impact to adjusted earnings per share) and initial dilution from acquisitions.
Our detailed outlook for the fourth quarter 2015 is as follows:
Adjusted Gross Margin, excluding special gains and charges | 47% - 48% | |||
SG&A % of Sales | approx. 31% | |||
Interest expense, net | approx. |
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Adjusted tax rate | approx. 25% | |||
Adjusted EPS, excluding special gains and charges | ||||
Diluted shares | approx. 300 million | |||
We expect special gains and charges and quantifiable discrete tax items for the fourth quarter of 2015 to be a net charge of approximately
Reported fourth quarter 2014 diluted earnings per share of
About
A trusted partner at more than one million customer locations,
Cautionary Statements Regarding Forward-Looking Information
This communication contains certain statements relating to future events and our intentions, beliefs, expectations and predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "we believe," "we expect," "estimate," "project," "may," "will," "intend," "plan," "believe," "target," "forecast" (including the negative or variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our financial and business performance and prospects, including 2016 adjusted EPS, forecasted 2015 fourth quarter and full-year financial and business results, including sales growth, adjusted gross margin, SG&A ratios to sales, interest expense, adjusted tax rate, adjusted earnings per share and diluted shares outstanding; pension expense; impact from oil prices; foreign currency translation and the transaction impact of foreign currency; the Venezuelan bolivar exchange rate; initial dilution from acquisitions including the Swisher acquisition; special gains and charges, including restructuring charges, integration costs and quantifiable discrete tax items; raw material and other cost savings; merger synergies; and variable compensation. These statements are based on the current expectations of management of the company. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication. In particular, the ultimate results of any restructuring, integration and business improvement actions, including cost synergies, depend on a number of factors, including the development of final plans, the impact of local regulatory requirements regarding employee terminations, the time necessary to develop and implement the restructuring and other business improvement initiatives and the level of success achieved through such actions in improving competitiveness, efficiency and effectiveness.
Additional risks and uncertainties that may affect operating results and business performance are set forth under Item 1A of our most recent Form 10-K, and our other public filings with the
Non-GAAP Financial Information
This news release and certain of the accompanying tables include financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S. (GAAP). These non-GAAP financial measures include fixed currency sales, acquisition adjusted fixed currency sales, adjusted gross margins, fixed currency operating income, adjusted operating income, adjusted fixed currency operating income, adjusted tax rate, adjusted net income and adjusted diluted earnings per share.
We provide these measures as additional information regarding our operating results. We use these non-GAAP measures internally to evaluate our performance and in making financial and operational decisions, including with respect to incentive compensation. We believe that our presentation of these measures provides investors with greater transparency with respect to our results of operations and that these measures are useful for period-to-period comparison of results.
We include in special gains and charges items that are unusual in nature, and significant in amount. In order to better allow investors to compare underlying business performance period-to-period, we provide adjusted gross margin, adjusted operating income, adjusted fixed currency operating income, adjusted net income and adjusted diluted earnings per share, which excludes special gains and charges and discrete tax items.
The adjusted effective tax rate measure promotes period-to-period comparability of the underlying effective tax rate because it excludes the tax rate impact of special gains and charges and discrete tax items which do not necessarily reflect costs associated with historical trends or expected future results.
We evaluate the performance of our international operations based on fixed currency rates of foreign exchange. Fixed currency sales, acquisition adjusted fixed currency sales, fixed currency operating income and adjusted fixed currency operating income measures eliminate the impact of exchange rate fluctuations on our international sales, acquisition adjusted sales, operating income and adjusted operating income, respectively, and promote a better understanding of our sales and operating income trends from underlying business performance. Fixed currency amounts included in this release are based on translation into U.S. dollars at the fixed foreign currency exchange rates established by management at the beginning of 2015.
Acquisition adjusted growth rates generally exclude the results of any acquired business from the first twelve months post acquisition and exclude the results of divested businesses from the previous twelve months prior to divestiture.
These non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and may be different from non-GAAP measures used by other companies. Investors should not rely on any single financial measure when evaluating our business. We recommend that investors view these measures in conjunction with the GAAP measures included in this news release. A reconciliation of reported diluted earnings per share to adjusted diluted earnings per share is provided in the table "Supplemental Diluted Earnings per Share Information" included in this news release.
(ECL-E)
CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||||||
THIRD QUARTER & NINE MONTHS ENDED |
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(unaudited) | ||||||||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||||||
% | % | |||||||||||||||||||
(millions, except per share) | 2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||
Net sales | $ | 3,446.4 | $ | 3,694.9 | -7% | $ | 10,133.1 | $ | 10,599.7 | -4% | ||||||||||
Cost of sales (1) | 1,820.0 | 1,970.6 | -8% | 5,391.8 | 5,699.2 | -5% | ||||||||||||||
Selling, general and administrative expenses | 1,070.7 | 1,145.9 | -7% | 3,286.7 | 3,435.5 | -4% | ||||||||||||||
Special (gains) and charges (1) | 142.7 | 7.0 | 216.1 | 30.5 | ||||||||||||||||
Operating income | 413.0 | 571.4 | -28% | 1,238.5 | 1,434.5 | -14% | ||||||||||||||
Interest expense, net | 57.6 | 63.3 | -9% | 181.3 | 194.6 | -7% | ||||||||||||||
Income before income taxes | 355.4 | 508.1 | -30% | 1,057.2 | 1,239.9 | -15% | ||||||||||||||
Provision for income taxes | 105.3 | 138.7 | -24% | 262.9 | 361.0 | -27% | ||||||||||||||
Net income including noncontrolling interest | 250.1 | 369.4 | -32% | 794.3 | 878.9 | -10% | ||||||||||||||
Less: Net income attributable to noncontrolling interest | (7.7 | ) | 4.5 | 1.1 | 11.6 | |||||||||||||||
Net income attributable to |
$ | 257.8 | $ | 364.9 | -29% | $ | 793.2 | $ | 867.3 | -9% | ||||||||||
Earnings attributable to |
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Basic | $ | 0.87 | $ | 1.22 | -29% | $ | 2.67 | $ | 2.89 | -8% | ||||||||||
Diluted | $ | 0.86 | $ | 1.19 | -28% | $ | 2.63 | $ | 2.83 | -7% | ||||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||
Basic | 295.2 | 300.0 | -2% | 296.5 | 300.1 | -1% | ||||||||||||||
Diluted | 300.0 | 305.7 | -2% | 301.5 | 306.0 | -1% | ||||||||||||||
(1) Special (gains) and charges in the Consolidated Statement of Income above include the following: | ||||||||||||||||||||
(millions) | 2015 | 2014 | 2015 | 2014 | ||||||||||||||||
Cost of sales | ||||||||||||||||||||
Restructuring charges | $ | - | $ | 0.4 | $ | 2.2 | $ | 7.5 | ||||||||||||
Recognition of inventory fair value step-up | - | 0.4 | - | 0.4 | ||||||||||||||||
23.8 | - | 33.2 | - | |||||||||||||||||
Subtotal | 23.8 | 0.8 | 35.4 | 7.9 | ||||||||||||||||
Special (gains) and charges | ||||||||||||||||||||
Restructuring charges | 12.1 | 6.3 | 33.1 | 34.9 | ||||||||||||||||
Champion acquisition and integration costs | 3.9 | 4.1 | 13.4 | 15.8 | ||||||||||||||||
Nalco merger and integration costs | 0.8 | 2.0 | 1.5 | 4.8 | ||||||||||||||||
111.9 | - | 132.7 | - | |||||||||||||||||
Loss on sale of business, litigation related charges and other settlements | 14.0 | (5.4 | ) | 35.4 | (25.0 | ) | ||||||||||||||
Subtotal | 142.7 | 7.0 | 216.1 | 30.5 | ||||||||||||||||
Operating income subtotal | 166.5 | 7.8 | 251.5 | 38.4 | ||||||||||||||||
Net income attributable to noncontrolling interest | ||||||||||||||||||||
(11.1 | ) | - | (11.1 | ) | - | |||||||||||||||
Total special (gains) and charges | $ | 155.4 | $ | 7.8 | $ | 240.4 | $ | 38.4 | ||||||||||||
REPORTABLE SEGMENT INFORMATION | ||||||||||||||||||||||
THIRD QUARTER & NINE MONTHS ENDED |
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(unaudited) | ||||||||||||||||||||||
Third Quarter Ended | Nine Months Ended | |||||||||||||||||||||
(millions) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||||||||||||
Net Sales | ||||||||||||||||||||||
$ | 1,268.0 | $ | 1,183.9 | 7% | $ | 3,593.1 | $ | 3,408.5 | 5% | |||||||||||||
Global Institutional | 1,139.4 | 1,085.9 | 5% | 3,257.0 | 3,080.3 | 6% | ||||||||||||||||
Global Energy | 926.8 | 1,055.7 | -12% | 2,873.5 | 3,043.5 | -6% | ||||||||||||||||
Other | 201.7 | 191.8 | 5% | 575.2 | 546.2 | 5% | ||||||||||||||||
Subtotal at fixed currency rates | 3,535.9 | 3,517.3 | 1% | 10,298.8 | 10,078.5 | 2% | ||||||||||||||||
Currency impact | (89.5 | ) | 177.6 | (165.7 | ) | 521.2 | ||||||||||||||||
Consolidated | $ | 3,446.4 | $ | 3,694.9 | -7% | $ | 10,133.1 | $ | 10,599.7 | -4% | ||||||||||||
Operating Income | ||||||||||||||||||||||
$ | 200.5 | $ | 165.3 | 21% | $ | 483.6 | $ | 429.7 | 13% | |||||||||||||
Global Institutional | 263.5 | 231.7 | 14% | 667.7 | 577.7 | 16% | ||||||||||||||||
Global Energy | 133.4 | 168.8 | -21% | 396.7 | 448.8 | -12% | ||||||||||||||||
Other | 38.1 | 32.8 | 16% | 94.5 | 83.9 | 13% | ||||||||||||||||
Corporate | (210.6 | ) | (51.7 | ) | (383.6 | ) | (170.2 | ) | ||||||||||||||
Subtotal at fixed currency rates | 424.9 | 546.9 | -22% | 1,258.9 | 1,369.9 | -8% | ||||||||||||||||
Currency impact | (11.9 | ) | 24.5 | (20.4 | ) | 64.6 | ||||||||||||||||
Consolidated | $ | 413.0 | $ | 571.4 | -28% | $ | 1,238.5 | $ | 1,434.5 | -14% | ||||||||||||
Note:
The Corporate segment includes amortization from the Nalco merger intangible assets.
The Corporate segment also includes special (gains) and charges reported on the Consolidated Statement of Income.
We evaluate the performance of our international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. The difference between the fixed currency exchange rates and the actual currency exchange rates is reported as "currency impact" in the above tables.
CONSOLIDATED BALANCE SHEET | ||||||||||||
(unaudited) | ||||||||||||
(millions) | 2015 | 2014 | 2014 | |||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 184.8 | $ | 209.6 | $ | 197.8 | ||||||
Accounts receivable, net | 2,450.0 | 2,626.7 | 2,694.4 | |||||||||
Inventories | 1,439.2 | 1,466.9 | 1,464.4 | |||||||||
Deferred income taxes | 235.0 | 183.2 | 166.1 | |||||||||
Other current assets | 333.4 | 366.6 | 349.1 | |||||||||
Total current assets | 4,642.4 | 4,853.0 | 4,871.8 | |||||||||
Property, plant and equipment, net | 3,212.2 | 3,050.6 | 2,978.5 | |||||||||
6,499.2 | 6,717.0 | 6,849.1 | ||||||||||
Other intangible assets, net | 4,172.4 | 4,456.8 | 4,583.1 | |||||||||
Other assets | 357.1 | 350.0 | 380.4 | |||||||||
Total assets | $ | 18,883.3 | $ | 19,427.4 | $ | 19,662.9 | ||||||
Liabilities and Equity | ||||||||||||
Current liabilities | ||||||||||||
Short-term debt | $ | 1,009.1 | $ | 1,704.8 | $ | 1,921.7 | ||||||
Accounts payable | 1,034.5 | 1,162.4 | 1,047.3 | |||||||||
Compensation and benefits | 465.1 | 560.4 | 547.1 | |||||||||
Income taxes | 103.6 | 88.6 | 81.9 | |||||||||
Other current liabilities | 944.3 | 851.7 | 855.9 | |||||||||
Total current liabilities | 3,556.6 | 4,367.9 | 4,453.9 | |||||||||
Long-term debt | 5,753.7 | 4,843.4 | 4,852.2 | |||||||||
Postretirement health care and pension benefits | 1,146.8 | 1,188.5 | 785.0 | |||||||||
Other liabilities | 1,583.6 | 1,645.5 | 1,805.5 | |||||||||
Total liabilities | 12,040.7 | 12,045.3 | 11,896.6 | |||||||||
Equity | ||||||||||||
Common stock | 349.5 | 347.7 | 347.2 | |||||||||
Additional paid-in capital | 5,022.8 | 4,874.5 | 4,832.6 | |||||||||
Retained earnings | 6,055.0 | 5,555.1 | 5,318.7 | |||||||||
Accumulated other comprehensive loss | (1,404.6 | ) | (951.9 | ) | (377.3 | ) | ||||||
(3,239.5 | ) | (2,509.5 | ) | (2,423.3 | ) | |||||||
Total |
6,783.2 | 7,315.9 | 7,697.9 | |||||||||
Noncontrolling interest | 59.4 | 66.2 | 68.4 | |||||||||
Total equity | 6,842.6 | 7,382.1 | 7,766.3 | |||||||||
Total liabilities and equity | $ | 18,883.3 | $ | 19,427.4 | $ | 19,662.9 | ||||||
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Note:
During the first quarter of 2015, we changed our accounting policy for presenting derivatives subject to master netting arrangements with the same counterparties within our Consolidated Balance Sheet. We previously presented all derivative positions on a gross basis and began presenting derivatives subject to master netting arrangements with the same counterparties on a net basis during the first quarter of 2015. We reclassified the presentation of derivatives subject to master netting arrangements with the same counterparty as of
During the third quarter of 2015, we early-adopted the updated accounting guidance related to simplifying the presentation of debt issue costs, using the retrospective application method. We updated our Consolidated Balance Sheet for prior periods to reflect the changes, resulting in reductions as of
SUPPLEMENTAL DILUTED EARNINGS PER SHARE INFORMATION | ||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
The table below provides a reconciliation of diluted earnings per share, as reported, to the non-GAAP measure of adjusted diluted earnings per share.
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First | Second | Six | Third | Nine | Fourth | |||||||||||||||||||||
Quarter | Quarter | Months | Quarter | Months | Quarter | Year | ||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2014 | 2014 | 2014 | ||||||||||||||||||||
Diluted earnings per share, as reported (U.S. GAAP)
|
$ | 0.62 | $ | 1.02 | $ | 1.64 | $ | 1.19 | $ | 2.83 | $ | 1.10 | $ | 3.93 | ||||||||||||
Adjustments: | ||||||||||||||||||||||||||
Special (gains) and charges (1) | 0.09 | (0.02 | ) | 0.07 | 0.02 | 0.09 | 0.11 | 0.20 | ||||||||||||||||||
Tax expense (benefits) (2) | 0.03 | 0.03 | 0.06 | (0.01 | ) | 0.05 | (0.01 | ) | 0.04 | |||||||||||||||||
Adjusted diluted earnings per share (Non-GAAP)
|
$ | 0.74 | $ | 1.03 | $ | 1.77 | $ | 1.21 | $ | 2.98 | $ | 1.20 | $ | 4.18 | ||||||||||||
First | Second | Six | Third | Nine | Fourth | |||||||||||||||||||||
Quarter | Quarter | Months | Quarter | Months | Quarter | Year | ||||||||||||||||||||
Ended | Ended | Ended | Ended | Ended | Ended | Ended | ||||||||||||||||||||
2015 | 2015 | 2015 | 2015 | 2015 | 2015 | 2015 | ||||||||||||||||||||
Diluted earnings per share, as reported (U.S. GAAP)
|
$ | 0.77 | $ | 1.00 | $ | 1.77 | $ | 0.86 | $ | 2.63 | ||||||||||||||||
Adjustments: | ||||||||||||||||||||||||||
Special (gains) and charges (3) | 0.02 | 0.20 | 0.22 | 0.48 | 0.70 | |||||||||||||||||||||
Tax expense (benefits) (4) | 0.01 | (0.13 | ) | (0.12 | ) | (0.06 | ) | (0.19 | ) | |||||||||||||||||
Adjusted diluted earnings per share (Non-GAAP)
|
$ | 0.80 | $ | 1.08 | $ | 1.87 | $ | 1.28 | $ | 3.15 | ||||||||||||||||
Per share amounts do not necessarily sum due to changes in shares outstanding and rounding. | ||||||||||||||||||||||||||
(1) Special (gains) and charges for 2014 include restructuring charges of
(2) The first quarter 2014 discrete tax net expense of
(3) Special (gains) and charges for 2015 include restructuring charges of
(4) The first quarter 2015 discrete tax net expense of
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