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1601 W. Diehl Road
Naperville, IL 60563-1198
630-305-1000  Phone

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Sugar Land, TX 77478.
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Nalco Reports Strong Third Quarter 2010 Financial Results

Nalco (NYSE: NLC) generated sales that were the second highest third-quarter revenues in Company history, as the Company moved toward full recovery from recession impacts.

For the quarter ended September 30, 2010, revenue increased 14 percent, 13 percent organically, to $1.09 billion, with double digit organic growth rates achieved in all three segments. Diluted earnings per share (EPS) were 42 cents – on net earnings of $59 million – and more than double the year-ago 20 cents. Adjusted EPS was 42 cents in the third quarter of 2010 compared to 31 cents in the prior-year third quarter after adding back unusual items. Adjusted EBITDA was $196 million compared with $190 million in the third quarter of 2009. Current year adjusted EBITDA results benefited from growth, productivity programs and an incentive adjustment, while the third quarter of 2009 included substantial onetime savings not repeated in 2010.

“Our strong top-line growth is more evidence that we remain on track toward delivering a sustainable revenue growth rate of 6-8 percent by continuing to invest in growth strategies like BRIC+ and new technology,” said Chairman and Chief Executive Officer Erik Fyrwald.

Energy, Paper and Water Services segments increased sales organically by 18, 11, and 10 percent, respectively. By industry, revenue growth was strongest in Upstream Energy, Paper, Chemical, Power, Primary Metals, and Mining.

Geographically, respective nominal and organic percentage sales growth were as follows: North America (+18, +17), Asia (+18, +12), Latin America (+14 +9), and Europe, Africa and Middle East (+3, +8). BRIC+ growth was more than 40 percent nominally, reflecting continued benefits from the Company’s aggressive growth strategy for these key markets.

Maintaining that growth going into 2011 and beyond has required higher levels of investment in field staffing and other operating costs, dampening current period profitability.

Gross profit margin of 44.7 percent, down from 47.2 percent in third quarter 2009, reflects the combination of weak economic recovery in mature markets and competitive pressures which limited price recovery of raw material costs.

Free Cash Flow was $66 million in the quarter, reflecting improved cash earnings and continued focus on working capital. The third-quarter tax rate of 38 percent contributes to a full-year tax rate expectation of 36 to 37 percent on an adjusted basis.

Year-to-date Results and 2010 Expectations

Year-to-date revenues increased 14 percent (11 percent organically) to $3.1 billion, with organic sales in Energy, Paper and Water up 18, 9 and 7 percent, respectively. Excluding dispersants, Energy Services organic sales were up 9 percent and total Company sales increased 8 percent organically. Year-to-date EPS is $1.01 compared to the year-ago 16 cents. Adjusted EPS – adding back restructuring and unusual items – is $1.15 per share from the year-earlier 61 cents per share. Adjusted EBITDA is up 19 percent year-to-date to $559 million, gross profit margin is up 10 basis points to 45.4 percent, and Free Cash Flow stands at $111 million.

Given these results, Nalco increased its earnings outlook for 2010. Adjusted EBITDA and adjusted EPS are now expected to exceed $740 million and $1.50, up from $735 million and $1.40, respectively. The Company continues to expect Free Cash Flow to exceed $150 million.

“We are pleased with the progress we are making in BRIC+ and other target geographies and market segments while working to maintain the proper balance of profitability and growth,” Fyrwald said. “We will continue to build on our aggressive Water and Energy Services strategies and remain committed to delivering profitable growth and solid Free Cash Flow.”