藝康 (ECL) 2014 Q4 法說會逐字稿

Welcome to the Ecolab fourth-quarter 2015 earnings release conference call. (Operator Instructions). This call is being recorded. If you have any objections you may disconnect at this time. Now I'd like to turn over the call to Mr. Michael Monahan, Senior Vice President External Relations. Sir, you may begin.

Hello, everyone, and welcome to the Ecolab's fourth-quarter conference call. With me today is Doug Baker, Ecolab's Chairman and CEO. A copy of our earnings release and the accompanying slides referenced in the teleconference are available on Ecolab's website at Ecolab.com/investor.

Please take a moment to read the cautionary statements on slide 2 stating that this teleconference and the slides include estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected.

Factors that could cause actual results to differ are discussed in the section of the most recent Forms 10-K and 10-Q under Item 1A Risk Factors, in our fourth-quarter earnings release and on slide 2. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with an overview on slide 3, strong new account growth and new product introductions drove a solid sales increase in the fourth quarter. We leveraged that growth, along with pricing and our synergy and cost efficiency work, to substantially increase our adjusted operating margins and produce a very strong adjusted earnings per share increase.

Looking ahead we expect to produce another year of superior growth despite 2015's mixed macroeconomic and market trends, as well a substantial currency exchange and pension headwinds. Lower oil prices should benefit our consumer-related customers and our delivered product costs while slowing growth in our Energy segment.

Net, we expect the positives and negatives to about offset each other and we look for strong growth from operations before currency effects. We expect currency exchange and pension will represent a headwind of about $0.35 per share in 2015.

In this environment we expect to continue to outperform our end markets and show 5% to 12% adjusted earnings gains in the first quarter and 8% to 12% EPS growth for the full year as continued good fixed currency sales growth, appropriate pricing, innovation, synergies and deliberate product cost savings more than offset the challenges.

Moving to some highlights from the fourth quarter, and as discussed in our press release, reported fourth-quarter earnings per share were $1.10. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, fourth-quarter 2014 earnings per share increased a very strong 15% to a record $1.20 despite a $0.04 headwind from currencies.

The adjusted earnings per share growth was driven by volume and pricing, new products, account gains, synergies, cost savings actions and the benefit from the passage of the R&D tax credit.

Our fixed currency acquisition adjusted sales growth rate remained strong, rising 6%, and was led by our Energy and Specialty businesses. Latin America led the regional growth. We expanded our adjusted fixed currency operating margins 110 basis points in the quarter as we continue to emphasize productivity and efficiency improvements as well as drive merger synergies.

We also continue to make investments in key growth businesses to sustain our technology and sales and service leadership. We remain on plan for achieving our Nalco and Champion synergy targets and our Europe margins are on track for further strong expansion again this year.

Looking ahead, energy markets in some regional economies represent challenges in 2015 along with an expected $0.35 per share headwind from currency exchange and pension. However, we also see favorable tailwinds for our more consumer facing customers and in our raw materials.

In this mixed environment we will drive new business gains and lower costs as we maximize the benefits and minimize the challenges. We will once again use our product innovation and service strengths to help customers get better results and lower operating costs and through these drive new account gains across all of our customer segments.

Also as announced in our press release, as our balance sheet leverage ratios return to our preferred range, and with our strong free cash flow, we intend to repurchase $1 billion of our stock. We expect to complete the repurchase by mid-2016.

We look for the first quarter 2015 to show solid fixed currency sales gain and margin improvement. First-quarter adjusted EPS is expected to increase 5% to 12% to the $0.78 to $0.83 range and compare with last year's very strong first quarter when adjusted EPS grew 23% and was $0.74 per share.

For the full year 2015 we look for an 8% to 12% adjusted EPS increase to the $4.50 to $4.70 range with that wider than normal range reflecting the dynamic currency and commodity markets.

In summary, our fourth quarter performed very well. We expect 2015 to also show strong operating performance for the Company despite the challenges in energy and more than offset the significant drag on EPS growth from currencies and pension. We remain confident in our business, our markets, our people, as well as our capacities to meet our aggressive growth objectives over the coming years while also delivering attractive returns for 2015.

Slide 4 shows our fourth-quarter results both as reported and with adjustments for special gains and charges, while slide 5 shows our sales growth detail. Ecolab's consolidated fixed currency sales for the fourth quarter increased 6%. Acquisition adjusted fixed currency sales also rose 6%.

Looking at the growth components, volume and mix increased 5% and pricing rose 1%. Currency was a negative 3% and acquisitions and divestitures were not significant. Reported fixed currency sales for the Global Industrial segment rose 4%. Adjusted for acquisitions and divestiture sales increased 2%.

Fourth-quarter fixed currency global food and beverage sales increased 2%. We enjoyed good growth in agri and modest sales gains in dairy, food and beverage. Regionally, Asia-Pacific and Latin America led results with modest gains in North America and a modest decline in Europe. Food and beverage growth was primarily driven by share gains and we used them to more than offset ongoing customer plant closures and generally weak volume.

Food and beverage continues to benefit from its total plan assurance approach to customers in which we combine our industry-leading cleaning and sanitizing, water treatment and pest elimination capabilities to deliver improved food safety results, lower operating costs and better product quality assurance for customers. This has enabled us to win business with key global customers and offset difficult conditions in our North America and Europe markets where lower volumes as well as customer capacity reductions and plant closures have impacted sales.

Looking ahead we expect improved organic sales growth in the first quarter. We look for further benefits from growth synergies, better customer penetration and new business capture as well as leverage from our innovation pipeline including 3D TRASAR for clean in place systems in food and beverage plants to more than offset continued tough industry conditions.

Fixed currency water sales grew 7%. Adjusted for acquisitions water sales grew 5%. Fixed currency core water sales grew a very strong 8%, widely outperforming its end markets. Reported fixed currency mining sales rose 8%. Adjusted for acquisitions fixed currency mining sales were off slightly.

Regionally we saw strong growth in Latin America, good growth in North America and EMEA and flat Asia-Pacific growth. The introduction of 3D TRASAR for hotel and other institutional cooling systems utilizing solid chemistry and advanced dispensing is going well. We also continue to drive better penetration in our other water markets using our innovative solutions to optimize water usage.

We remain focused on building our corporate account and enterprise sales team, delivering our growth synergies and improving product innovation to drive revenues. We expect to show improving growth in 2015 as market share gains drive our heavy and light businesses to outperform soft end markets.

Acquisition adjusted fourth-quarter fixed currency paper sales declined 3%. Latin America recorded double-digit growth. Elsewhere we saw sales decline resulting from continued low customer plant utilization and extended customer shutdowns and slowdowns. We expect paper to rebound to modest growth in 2015 as we drive new business and technology penetration to offset the difficult paper market conditions.

Fixed currency sales for the Global Institutional segment rose 6%. Turning to the businesses that make up the segment, fixed currency sales growth for the Institutional business improved in the fourth quarter rising 5%. Institutional's end market remained mixed with continued good growth in global lodging demand, positive signs in North America foodservice but still challenging foot traffic across Asia-Pacific and Latin America.

Looking at our regional sales, we continue to outperform our markets. Latin America once again posted strong sales growth while North America and Asia-Pacific turned in solid sales gains, improving over their third-quarter growth rates. And ongoing EMEA sales rose modestly.

Sales initiatives targeting new customers along with effective product and service programs around our core markets continue to drive our results. We also continue to broaden the our leading technology across our global regions.

To drive our future growth and improve on our industry leadership position we remain focused on standardizing and executing global sales initiatives, globalizing our core competencies and introducing product innovation that delivers increased customer value with solutions that reduce their water, energy and labor costs.

We are also making further investments in steel technology to enhance execution and efficiency in sales and service and working on other areas to improve better customer value and, through that, improve our sales growth. We expect Institutional to show continued good fixed currency growth in the first quarter and the full-year as we make further progress on our global sales initiatives and continue our aggressive sales efforts.

Fourth-quarter sales for Specialty grew 8% in fixed currencies. Quick service sales were solid as we enjoyed steady growth from most customers. New accounts along with increased service coverage and additional solutions for customers to drive their operating efficiency in food safety leveraged generally modest industry trends.

Regionally, the US and Europe saw good growth from new accounts and additional customer solutions while Asia-Pacific benefited from good quick service foot traffic growth. Food retail business showed continued good sales momentum in the fourth quarter benefiting from customer additions, new products and increased penetration. We look for good sales growth to continue in the first quarter as Specialty works to deliver another solid performance in 2015.

Fixed currency global healthcare sales increased 4%. Growth was driven by new accounts, better penetration and new product introductions. We continued our work to strengthen our corporate accounts approach and our integrated value proposition, as well as improve and leverage our product portfolio. We believe we are on the right track and look for global healthcare sales growth to improve in the first quarter.

Fixed currency Energy segment sales grew 11%. Our upstream business saw robust growth in the fourth quarter led by a strong international performance and good North America results. Downstream business sales also saw a solid increase also led by strong international performance and share gains in North America.

The drop in oil prices will yield slowing Energy segment results through 2015. However, we believe our business model, which is heavily weighted to the more recurring revenue production refining businesses, will moderate much of that impact.

Looking ahead we expect Energy segment sales for the full year 2015 to show flat to low-single-digit growth. First-quarter Energy sales should be up in the mid-single-digit range reflecting momentum from the prior year.

We expect quarterly growth to ease through the year, show modest first half growth and a softer second half as new business resulting from ongoing share gains is offset by declining rig count and some modest pricing decreases. We remain confident in Energy's long-term growth prospects and expect it to emerge from this unprecedented period in stronger shape and return to double-digit growth once again.

Sales for our Other segment increased 5%. Fixed currency global pest sales increased 6% in the fourth quarter. Adjusted for acquisitions, fixed currency sales grew 5%. Food and beverage and restaurant led the growth. Regionally we enjoyed double-digit growth in Latin America and Asia-Pacific and solid growth in EMEA and North America.

We continued to drive market penetration with innovative service offerings and technologies and made progress in globalizing our market focused capabilities and field technologies. We expect global pest sales to show further good growth in the first quarter led by gains in all markets.

Equipment Care sales grew 3% in the quarter. New customer additions continued at a solid rate and productivity improvements from our technology investments and strengthened execution work continue to pay off. However, fourth-quarter sales growth was impacted as we exited some low margin accounts.

Because of the continued strong underlying business growth trends we expect Equipment Care to return to upper-single-digit growth in the first quarter and to see that growth improve over the balance of the year.

Slide 6 of our presentation shows selected income statement items. Fourth-quarter gross margins were 46.2%. When adjusted for special charges fourth-quarter 2014 gross margins were 46.4% and rose 50 basis points above last year.

Volume and pricing gains as well as merger synergies and cost efficiencies more than offset higher cost inputs and the business mix impact of higher Energy sales, which on average, have a lower gross margin when compared with our other businesses.

SG&A expenses represented 31.0% of fourth-quarter sales. The SG&A ratio improved 60 basis points versus last year. The improvement reflected sales gains, merger synergies and cost savings efforts as well as the mix of higher Energy sales, which on average, have lower SG&A ratio when compared with our other businesses.

Consolidated operating income margins were 14.1%. Adjusted for special charges fixed currency, operating income margins were 15.4%, rising 110 basis points over last year's comparable margin. Fixed currency operating income for the Global Industrial segment increased 9%. Acquisition adjusted operating income grew 7% and margins rose 70 basis points. Good improvements in water led the gain.

Fixed currency operating income for Global Institutional increased 13% and margins expanded 130 basis points. Results benefitted from pricing, volume gains and cost efficiencies, which more than offset higher delivered product costs and investments in the business.

Fixed currency Global Energy operating income increased 13% and margins expanded 20 basis points. Volume gains, operating leverage, synergies and pricing more than offset investments in the business and other costs.

Fixed currency operating income for the Other segment increased 22% and margins expanded 240 basis points. Improved operating results more than offset investments in the business and other higher costs.

The Corporate segment and tax rate are discussed in the press release. We repurchased approximately 720,000 shares during the fourth quarter. The net of this performance is that Ecolab reported fourth-quarter diluted earnings per share of $1.10 compared with $0.93 reported a year ago.

When adjusted for special gains and charges and discrete tax items in both years adjusted earnings increased 15% to $1.20 when compared with $1.04 earned a year ago.

Turning to slide 7 and looking at Ecolab's balance sheet, net debt to total capital was 46% with net debt to adjusted EBITDA at 2.2 times.

Looking ahead and as outlined on slide 8, we will take aggressive actions in 2015 to drive with our top and bottom lines. We will work to leverage the benefits and offset the challenges of lower oil prices as we capture the lower raw material costs, leverage the expected consumer spending tailwind and gain share in the energy markets.

We will also continue to drive organic growth through further corporate account wins, stepped up innovation work and improved field productivity. We will ramp up our acquisition work targeting bolt-on acquisitions to strengthen our offerings. And we will continue to deliver on the business improvements we are making in our healthcare and Europe businesses.

Slide 9 shows an EPS bridge for the first quarter and the full year 2015 that details our outlook. We expect improving fixed currency sales growth combined with good margin improvement developed through new products, better productivity, cost efficiency work and raw material savings, will yield strong fixed currency earnings growth from our Institutional, Industrial and Other segments.

We look for the Energy segment to show slower sales and profit growth and 2015 as it outpaces its end markets. Combined over businesses should deliver the strong operating performance shown here.

An expected slightly lower tax rate, lower interest cost and share repurchase will add to the robust operating performance to yield upper teens growth. However, the strong dollar and higher pension cost will provide significant headwinds for us in 2015. We expect that combined impact will be $0.35 per share. As a result for EPS to be in the $4.50 to $4.70 range for 2015, up 8% to 12%.

We expect our first quarter to show good fixed currency sales growth with currency negatively impacting reported sales by about 5 percentage points. We look for our first-quarter earnings to increase 5% to 12% to the $0.78 to $0.83 range. Further, the first quarter will also compare against a very strong period last year when adjusted earnings per share rose 23% to $0.74.

In summary, we once again delivered on our forecast in the fourth quarter with a solid sales gain and continued margin improvement while offsetting market challenges and investing in our future. We have our work cut out for us in 2015 but we are well-positioned and well-prepared to outperform once again and deliver another superior performance for shareholders this year and for the years ahead. Now here is Doug Baker with some comments.

Thanks, Mike. A couple comments on 2014 and also on 2015 and then we will open it up for Q&A. So 2014 was obviously another very strong year for the Company with annual EPS up 18%. The good news is the business accelerated throughout the year from second half excluding M&A was plus 6%. OI margins expanded another 120 basis points for the year.

We are on track on all of our Nalco and Champion Synergy commitments. We're also on track in Europe where margins expanded 110 basis points for the year. This is our fourth year in a row of expansion; we are no up cumulatively 440 basis points in Europe from our low point. We are also poised to increase margins again in 2015 and sales are accelerating in Europe.

Perhaps most importantly the momentum I talked about, the 6% in the second half, was really built by outstanding corporate account sales and new program and product launches. This is the underlying trend that we look for, it is the best, best sign we have of the health of the business and it was exceedingly strong. So we did our part.

And I guess I would also point out that the world seems to have done its part which leads to 2015. Obviously the big news is oil price and FX and to a lesser extent pension. So first let me touch on oil.

So during our third-quarter call oil was also the top conversation topic and at the time oil was trading at $86 a barrel. So we discussed ramifications, implications and the principles discussed I would say remain true. Energy services will be hurt and the rest of the business, which represents 70% of sales, will benefit. The degrees of the plus and minus are much different than they were in Q3, but let me give you our view today.

So first of all in energy services, we expect flat sales for the year, could be modest growth but let's just say flat. Synergies though and raw material savings in energy services will enable us to have modest OI growth in the business in spite of the very difficult oil market. The raw material savings though will also positively impact the rest of our businesses and roughly offset the lost energy services OI versus what we would have expected in a non-oil price distressed market.

So the good news is our team has gotten on the raw material savings opportunity early, we have made significant progress and we believe we have got clear line of sight about what we are going to see during the year.

So while oil has created a real turbulence in the business, by itself it would not cause us to miss our rival city or time, i.e., the net impacts on one side of the business are pretty much offset on the other side of the business. And really it is not the main story in our earnings picture for 2015.

The second issue has an impact though too and that is FX and pension. So combined they represent an 8% EPS hit for the year. Obviously we are not the only company impacted by FX and pension. We have heard many companies talk about this. We are doing all the smart things, we believe. We are using the pressure internally to challenge spending and inefficiencies which is how we typically manage.

The team rallies well around this. But importantly, we are not cutting long-term investments in R&D, in field technology, in systems, in talent development, safety or security. Those are going to remain as planned, they are important to our long-term effectiveness and we have got to make sure we protect them and the team is all over this.

Our focus though is really to run the businesses quite well and to use the market turmoil to our advantage. So we are all over share gain in energy services. Our goal is to use this year to come out of this thing with a bigger sale and a better position to get after the upcoming turnaround in the oil price.

Additionally, M&A outside of the US, given the strong dollar, is also once more attractive. All I know about FX is it goes up and it goes down. I can't tell you exactly when, but I have now seen FX trade -- or the euro trade at 0.88 and at 1.45. So we do the stuff moves around. We have an opportunity right now to capitalize on the strong dollar. We are going to see if we can make that happen.

We are also going to leverage stronger markets in US and Europe. So we are seeing the impacts of more I guess change in the pockets of consumers. And we want to make sure that we fully capitalize on that, our teams are excited about it, all over it as well. And then finally, the same tried and true program that we always run, drive new business, leverage innovation, do that everywhere, keep driving the businesses as we always do.

So, in closing I would just say we are on it. The challenges are real, but we believe they are manageable. We expect another very good year in 2015. So let me turn it back to Mike.

Thanks, Doug. A final (inaudible) before we start Q&A. We plan to hold our annual tour of our booth at the National Restaurant Association show in Chicago on May 18. And looking further ahead we also plan to hold our 2015 Investor Day in St. Paul on September 10. If you have any questions please contact our office.

That concludes our formal remarks. Operator, would you please begin the question-and-answer period?

(Operator Instructions). Mike Ritzenthaler, Piper Jaffray.

Doug, 2014, quite a record for new business wins there. I'm curious about how difficult year-on-year comparables influence your decisions on investments in sales and R&D and things like that, particularly within Specialty and Institutional where end markets at least in North America seem much healthier.

Yes, that is what I was really alluding to, Mike, in my opening comments. I mean we have got sort of a tale of two cities here. And we also have just core investments that we know are fundamental to driving this business year in and year out.

We work very hard not to, I would say, cut into those investments. And I gave you a laundry list of them, but it is certainly R&D, talent development, safety, a bunch of training issues that we have ongoing, systems investment.

We want to make sure that we protect those and we continue to make those investments because I'm going to be here a year from now talking about 2015 and giving a preview of 2016. And the only way that we can ensure that we continue on this virtuous cycle is to make these core investments.

And so, we are absolutely committed to it, they are in our earnings view as you look out over this year. And the businesses you touched on, it will be a better year for Institutional, they are going to have to make the investments they need to secure and to continue to drive that growth and that is in the plan.

Okay, thanks. And then on Energy, how do you feel about visibility into the 2Q through 4Q earnings on slide 9 there, basically flat given all the moving parts including synergies. Compared to kind of this time last year, how does that visibility compare?

Well, it is certainly more volatile this year. And I would say last year was an easier year to forecast for the Energy business in particular. And I would say that is really where forecasting is more challenging this year than in previous years.

This is -- with what we know and I'd say we have a very experienced team, this isn't the first oil price cycle that the team has been through. We have got all the data, we have been through it. I think we have got a good handle on it and we have narrowed this down to we do not have a bunch of what I would say tough to forecast areas at this point in time.

We have worked hard on raw materials. I think we've got a much better handle on that at this point in time simply because we got on it early, the team has done a good job, and there has been a lot of analytics here. So I think in total that is a very good forecast, things can change. But I would also say things can change on other parts of the ledger that may offset it.

Fair enough. Thanks, Doug.

Nate Brochmann, William Blair.

Hey, Doug, just following up on that question, I recall back in like 2008 when you guys issued guidance with the Henkel deal and you came smack dab in the middle of that despite one of the most volatile periods ever in 2009.

I was wondering like if you could give us a little bit of sense of how you and your team kind of go through those puts and the takes as you look at your business in terms of the confidence that we have to kind of deliver those results And kind of a volatile energy period with moving pieces of FX, pension and whatnot.

Just wonder if you could kind of give us a little bit either a look back on history of how that came to be during that period or how you kind of look at it during this period.

Well, I think there is two sides to this. One is, look, we work hard to try to understand what the variables are and then we try to get into a 50-50 position where if you have multiple variables, which you always do -- I mean you've got FX, you've got investment decisions, you've got business and markets, regions of the world.

And we just try to get in the middle on a number of these things and understand what we believe are the likelihood that it gets better or worse from there and try to balance it.

I would say 2008 was a much more difficult -- much more difficult challenge in terms of forecasting than it is today. And simply because you had more variables and really frankly nobody knew how the world was going to shake out at the end of the financial crisis.

I would say here what we have is an unsettled oil market which is probably the most dramatic impact that we have right now. It is sort of a single variable. I think it has shown its hand at this point in time.

And the last piece I would say is we work very hard then to make our forecast come true. And so, it is not as simple as just predicting the business, we also try to meet forecasts that we give; our team rallies around these efforts. We are all over new business and driving, leveraging innovation and doing all the things you would hope we would do.

I mentioned earlier we are a Company now that has been through several years of very strong earnings results. And I always get nervous during these periods because I know there is inefficiencies being built up in the business as a consequence of having strong earnings. And so, we look at this as an opportunity to go find those pockets and get after them. And the team is doing that quite successfully.

So I think we have got a good forecast here. We have proven to be a Company who can pretty much predict how we are going to perform. A lot of it has to do with our business model, it's mostly consumables. And except for energy I think it is pretty straightforward, energy is a bit of a wildcard but we've done a lot of work there we have some offsets if energy softens. I think we are in good shape.

Okay, thanks for that. And then just one quick follow up, a little bit more of a bookkeeping thing. But can you just give us an update on where we are in terms of synergies realized through the Champion Nalco deals? And what we have left to go? And if there is any pockets here or there that you have identified as additional opportunities?

Yes, we are on track by the end of this year to have [125] booked and we'll have another 25 year after that. So we believe we are going to hit our [150] target.

Okay, thank you very much.

David Begleiter, Deutsche Bank.

Doug, on the energy piece of the business, how much will drilling be down in 2015? Could that be down by half year over year?

Yes, we don't get into the specific forecasting. But I guess the business that's going to be most impacted here is our WellChem portion of the energy services business. WellChem in 2014 represented 17% of the business. We think that business may be down 30%. So that is the single largest impact and it assumes drilling as a result would be down in the 35%, 40% range.

And looking into 2016, Doug, as drilling declines and production declines can you grow this business double-digits do you think in 2016 at current oil prices and current drilling rates?

You know here is what I would say. Our going in assumption right now, and you have got to pick one, is that oil prices remain around this level through much of 2016. I would say let's assume they remain at this level all the way through 2016.

Once we lap the oil price decline you are going to have a much steadier state and you will start seeing I would say a steady-state of drilling, steady-state of production, we would expect to continue to drive share.

And you can't forget that the underlying news here is old wells come off and are replaced by new wells, which you are going to have to do under any oil price scenario, that the new oil commands a lot more of our technology than the old oil. And that fact will start taking or having an impact again once you lap this significant decline.

So if they stayed through 2016 at this level we would expect to show positive sales growth in 2016. I doubt it would be a double-digit, but I think it would be strong single-digits. And we would move forward from there.

Thanks a lot.

Gary Bisbee, RBC Capital Markets.

I'll just follow up on that last one for the first question. How would you think about the phasing in of the benefit from lower raw materials? Does that take a couple quarters to really kick in? And I guess would you likely think you are still going to be getting benefits in 2016 from lower raws assuming that same scenario you discussed which sort of flattish oil throughout (technical difficulty).

Yes, I mean, look, if oil stays at the same place you are not going to have the same delta in 2016 as you are in 2015 in terms of raw material impact. But I guess as I just shared with David, at the same time we wouldn't have the same impact on the energy services business. We would expect that to be more accretive in 2016 versus 2015 even if oil stayed at this price level.

To answer your first question, do raw materials -- yes, they take some time to come on. I would say more like a quarter, so we are going to see some impact in the first quarter but not necessarily at the run rate that we would expect for the full year.

You have got two different conventions globally in terms of how you handle inventory and how fast they show up in US versus non-US FIFO LIFO. So some of that has an impact. So we would expect second-quarter/third-quarter to have a higher positive impact from raws than the first.

Great. And then just a follow up. Mike, in your comments on all the sub businesses, you mentioned -- it sounded like an awful lot of them you expect better growth in Q1 than Q4. Just any broad commentary on why. Is that just mostly the new business or are there some other things that you are seeing going on to drive somewhat better -- and I'm talking about sales growth that quarter versus this quarter. Thank you.

Yes, no, I would say in almost every instance you are going to have stronger sales performance in Q1 versus Q4 with the exception of energy. And what is driving it is the strong corporate account growth that we saw last year which was up dramatically from a very strong year in 2013. And we had a great innovation pipeline last year. Typically these things are leading indicators and so we are expecting forecasting stronger growth nearly across-the-board from our other businesses.

David Ridley-Lane, Bank of America-Merrill Lynch.

Just wondering how much of a benefit you are baking into the 2015 guidance on the consumer facing side of the business from the lower oil prices?

Yes, it would be hard to pull out. I would say that is one of the contributions to why you are seeing stronger institutional growth in particular. So US Institutional in the fourth quarter was -- and I would say -- actually the underlying is as strong as this, it was a reported 7% growth, which is faster than we have seen for quite a while.

I would think about the first quarter probably the only exception it may be a little lighter because you also have some inventory stuff going on in there. But that business has been accelerating steadily for a number of quarters and will have a real benefit from consumer uptick in spending particularly in full-service restaurants and casual dining which we are seeing.

Okay, great. And then just as a sort of a numbers question. Should I take the EPS impact on -- from FX and apply sort of an average margin to get the revenue impact? Or do you have sort of a revenue headwind from FX in 2015 offhand?

Yes, revenue impact from FX in 2015 is expected to be 5% to 6%.

All right, thank you very much.

John Quealy, Canaccord Genuity.

Congratulations on the strong performance. First question, in terms of Energy, can you talk about concentration? Some of your larger customers that perhaps have deeper resources and better cost profiles, are they becoming a bigger part of the mix in the 2015 timeframe? If you could give us a little bit of perspective.

Well, I would say throughout 2014 we had a lot of success increasing our position with the major producers. So that will carry forward. I would say -- I don't know if that is going to be -- so I think that is all good news, we will continue to do that, as I mentioned in my opening comments, turmoil creates opportunity.

We have got a very experienced energy services management team, they are great. They are all over this, it is not the first time they have seen this. I think they know how to effectively leverage this opportunity and I think they are making very smart trades out there.

With that said, you have got a funny environment. We are going to see much stronger sales in the energy business outside of the US than you do in the US. And a lot of that is a function of a lot of the business outside of the US is controlled in one way or another by governments. And when oil price goes down they pump more. And they do because they have got a bill to pay.

And in North America it is not the situation and it much more reacts to the market. And so we are going to see I'd say a much earlier slow down in North America as a consequence of this as we go through, which is exactly what we are forecasting and foreshadowing for all of you. But that would probably be the more interesting dynamic in the energy business.

Okay, thanks. And as a follow-up unrelated, in the Specialty business, it continues to outperform. Can you dive in a little bit more in terms of details? Is it customer capture, is it price, is it transactions, what exactly is Specialty doing the last few quarters? Thank you, folks.

Yes, well, in the Specialty business, which is principally our QSR fast food business and food retail business there are a couple things. They continue to capture new accounts, that is always critical in driving that business. We have also, through realignment of some programs, increased their ability to get into a number of customers.

And as a consequence they are able to help those customers do a better job in a number of areas and we are able to trade out one product for another, i.e., competitors for ours, and we are growing the business as a result. So increased coverage, increased new customers.

Dmitry Silversteyn, Longbow Research.

Just -- most of my questions have been answered, but I'd like to touch base on a couple of things. In your Other business you had pretty good growth in the Pest Elimination business. Was there a big difference between international and domestic Pest Elimination performance?

Not dramatic. The big business remains the US pest business. And it has been steadily improving. We made a number of investments in that business starting two years ago, we are going to continue them I would say kind of the heavy investment status going into 2015, it has been paying off and accelerating sales.

I would also say there is a number of other metrics that continue to improve in that business. So that is the biggest piece of the pest business. Equipment Care I think Mike mentioned had a softer sales performance in Q4, a lot of that was planned and our own doing and we expect Equipment Care to come out and have a stronger first quarter in terms of sales performance.

But I would point out Equipment Care made like $8 million last year, which is dramatically better than the losses that we had just a couple of years ago. So that team has done a good job.

Sure, sure. Then to follow up on sort of your outlook for revenues and foreign-exchange headwinds in 2015. In the past, at least in the water treatment side of the business, going back before you guys owned the business but just going back a decade or more one when there was the last time there was a serious deflation in international currencies, the water treatment businesses moved quickly to raise pricing to offset that, particularly in the emerging markets where currencies were particularly volatile.

Are you seeing the ability to do the same thing in 2015? Or have the markets matured since then where it is not as easy to get pricing when currencies tumble?

Yes, I would say two things. One, our strategy is to make where we sell as much as we can because we want to have currencies not be a strategic issue but to be a translation issue only. Meaning if you are a complete exporter right now in US dollar obviously you have got a problem because your stuff just got a lot more expensive and your competitiveness just weakened significantly. That is not the situation we find ourselves in broadly. But there are pockets.

With that said, where you have significant devaluation and you have strong inflation as a result in your business, which is the situation in a number of countries, you have to go after pricing. I think we are all well schooled in this. We have been doing it collectively as a business for over 50 years. I think our team is all over this. That is both in the WPS side as well as the institutional F&B, etc.

So they are cognizant of the impacts. Where we do have what I would say export situations we try to understand the market impact as well as the margin impact. We don't like to drive ourselves out of business by losing share through too aggressive pricing. We don't think it makes sense long-term. We would rather get after the cost problem and fix it if that is the issue and it is frankly self-inflicted.

Got it. And if I could follow up with one more question. Actually no, that question has been answered. I am all done. Thank you.

Manav Patnaik, Barclays.

So firstly on Energy, just to touch on the remaining I guess 80% of the business. So you had the 11% growth this year, you are forecasting I guess flat. If you assume that 30% decline on the WellChem business, as you said, I guess you are talking about 6% growth for the rest of the businesses.

I was wondering if you would help understand how that compared to the growth in 2014. And how much of the modest price decreases that you referred to play a role in that slowdown?

Well, I would say if you did a walk-through then, you have got, as I mentioned earlier, WellChem 17% of the business down call it a third. You have got OFC, which is just under 60% of the business. We would expect in the mid-single-digits this year. And certainly some of the impact is about a third of that business is in a cost plus relationship. So you are going to have some modest price decline across that business as a result.

But importantly is, as oil comes back or raw materials come back it will also be reflected in increased pricing in that business. And downstream we would expect to react next year much like this year which is high-single-digits. So that is probably the fast walk-through of how we see sales performing this year.

Okay, and just in the context of I understand the moving pieces here, but would you say that your first take at these numbers you have erred more on the conservative side of things?

Well, I'm giving you our best forecast. So I would call it a 50-50 forecast is what we do when we go out. It is exactly the approach that we have taken for the last I don't know 20 years. And it is the approach that has worked quite well for us because we try to make sure we understand what the different inputs are and we take them all into account. We try to pick the midpoint, understand the plus/minus on either side of that thing and work our forecast there.

Okay and then just if I could, lastly on healthcare, I mean it seemed like it had a good sort of end to the year. What -- like what sort of milestone should we be looking forward to as you sort of -- in trying really grow that business in the next couple of years?

Well, I think the most important milestone -- we said a year ago during this call that we really said expect healthcare really not to get better until the end of the year and you should start seeing better sales performance in Q4 or Q1. That is showing up and coming through.

What is happening is we strengthened our programs, it is leading to new customer sales. There were a number of significant customer sales in the second half in healthcare. The only we can grow sales is by selling more stuff to more people. And so we have got to find a way to grow share there which is what we are doing successfully.

So the team I think used the time wisely, the business is in better shape than it was a year ago. And we expect the acceleration to continue in the first quarter.

All right. Thanks a lot, guys.

Mike Harrison, First Analysis.

Doug, you mentioned that the within the water business there was strength in the mining side of the market. Is that just recovery against a weak comp? Are you seeing some share gains or were there new mine fills in there? I just think it is a little unexpected to see the strength there given that commodity prices are not great, so trying to understand the sustainability.

Yes. No, well, you are right. So the number in mining I believe was 8% but that included the impact of a recent acquisition. And without that it was basically flat in the quarter. And so your theory is right, mining is in a difficult patch right now, but we expect it to improve throughout the year -- late in the year.

And that was the dust control acquisition you are referring to?

Yes.

Okay. And then on the institutional side, I think the view of most of us was that you guys stood to benefit from potential consolidation in the foodservice distributor market. Does your forecast assume that that big merger does or does not happen and would it be a disappointment if it didn't?

Well, I mean it would probably certainly be a disappointment for two of our major customers, US Foods and Sysco. So I guess I'll share their disappointment. But I would say two things. We have had a long and healthy relationship with Sysco. We have also had a long and healthy relationship with US Foods as well as other providers in the market, which isn't unique to us.

I think we work and partner very well with customers and I guess the way we view this is this is clearly out of our control. I think our team has done a very good job developing plans. Certainly as if it closes and if there is some unforeseen thing we will manage through that I think quite successfully.

All right, thanks very much.

Laurence Alexander, Jefferies.

Hi, this is George D'Angelo on for Laurence. In your slides there is a line about doing M&A in distressed markets. Is that a reference to oil or more certain geographies?

Well, I would say certainly if there are providers of technology and/or geographic moves to be made in energy services we would certainly use this as an opportunity to do it. But also more broadly either in water, institutional, healthcare, F&B, pick it. And in certain geographies where you have got some currency imbalances we would look for opportunities too.

Okay, thanks. And then as you guys look at the margin levers that you are pulling this year, to what extent are you pulling margin improvement forward for the next few years? And then of demand recovers will there be any offset in terms of margin expansion?

No, I don't even -- I don't know that we know how to do that and it certainly isn't in our plan. So, no, I wouldn't expect any negative rebound as a consequence to actions we are taking this year.

Okay, and just one last quick one. What percentage of sales in the Energy segment are to governments? And are there any governments that are a particularly large percentage of sales?

Well, it is not directly to government per se in all cases. It could be state owned enterprises and others. I don't know that I have a number at hand here. 63% of that business is in North America. So you can start whittling down from there.

Thanks.

Scott Schneeberger, Oppenheimer.

Curious, with regard to some of your more upstream areas in energy and well completion, anecdotally what are you hearing from customers on the volume on the price side? We obviously see the guidance and how it progresses through the year. But are you sensing aggressive behavior from your customers there? Just anecdotally what you are seeing and hearing from your (inaudible). Thanks.

Yes. No, I think what we have seen is a fairly dramatic cutback in terms of exploration capital and drilling activity. In terms of production, I would say we are seeing some markets where production is up quite dramatically because we are trying to offset the negative impact of lower price because they have got I would say some bills to pay.

And in other areas obviously ultimately we think production will get more in line with demand. And I guess we forecast that our belief right now is that may be well into 2016. But this is a very different energy situation than was 2008-2009 where really you had very dramatic demand disruption. This is much more oversupply situation.

Thanks. And following up on that, internally will we see any material change in CapEx over the course of 2015 maybe into 2016 with regard to Energy just on the commodity prices?

Our own capital spending or --?

Yes.

Well yes, I mean certainly if they're -- if we are deploying in less new business for a period of time you will see less capital deployed there. I would also say some of the things you might have to do from a volume capacity situation might be delayed six months or a couple of quarters simply because of the forecast we just gave you on sales.

Nothing that will take you too much off your historical total Company CapEx to revenue relationship?

No, I would continue -- no, because sales are down also in Energy. So I think you can use the historic numbers that you have been using as a go forward model.

Great, thanks.

John Roberts, UBS.

I am looking at slide 9 and we've got 5% to 12% growth in the first quarter and then higher growth in the remaining three quarters of the year, 8% to 13%. I would've guessed that the comps are going to be more challenging in either the second quarter because of currency or maybe the third quarter because of energy.

But is that fair to say, that that 8% to 13% for the second, third and fourth quarter -- one of this quarters is going to be your toughest comparison of the year?

Well, I would say two things. Our toughest FX quarter in 2014 was the fourth. And I mean, as you go forward, because it really started moving then. I mean the biggest driver and I think if you go down below embedded in those numbers we try to call out that the raw material move you are only -- you are seeing a nickel in first quarter and averaging $0.10 in the next three quarters, that is probably the single biggest change.

Okay. And then could I get an update on some of the new products -- the three I am thinking of but maybe you could comment on something different? I would like an update on the new Clean-in-Place using 3D TRASAR, the new solids water treatment for commercial buildings, and I don't know whether the energy drop has stalled the shale water recycling effort you had?

Yes. Well, the CIP I would say continues to progress well, but we have I think tried to say that that thing is going to be a slow build over a period of time. And so while it is doing what we expect it to do it is not a big volume driver yet. What I would call it is it's very important in continuing to build our relationships and attract new customers. So in 2015 we would expect that to be like a little over $1.5 million.

In terms of solids for water, that one is uptake is much faster, we would expect $12 million in revenue next year off a much smaller base. And then APAC, Europe is about a $30 million we are rolling out what I call our generation that we have been selling in the US with some tweaks for formulation in Europe. We're having great success there, that is going quite well. Those would probably be the big early drivers in terms of what you would expect to see from innovation.

Thank you.

Bob Koort, Goldman Sachs.

Doug, I think you mentioned that you expect the most pronounced energy weakness in the WellChem business. Have you seen any deviation by geography onshore/offshore regionally around the world? Or do you expect it to be pretty consistent and broad-based?

No, I think what we are going to see is a much more dramatic impact in North America. I mean just if you want a big generalization. Because really there is a bunch of private companies reacting to a market. And when you get outside of the US it is not completely true, but in many instances you have got different factors driving pumping decisions, if you will, in terms of -- I mean I think in the fourth quarter it was announced that Russia had record oil production.

So it certainly wasn't a price trigger, it was they need to feed Russia. And so, if you are going to offset a declining price you are going to do it through more volume. So they're not alone in that; you see that in other countries. So as a consequence you are going to see a more dramatic fall I think and probably bounce back in North America.

Do you suspect there could be any issues around credit profiles of your customer base and concerns there as you go forward with this dramatic step change?

I would say there is always -- you never say never on questions like that. But what I would say is there is no material concentration in terms of how the business is spread. You also typically -- we are also selling to intermediaries who are taking some of that risk. At the end of the day they have got a great backing which is they hold the oil.

And my last one, I think you mentioned you would be willing to buy some distressed stuff. I am wondering specifically within the energy portfolio do feel like there are product applications, chemistries, products that you lack today that keep you out of certain customers and certain fields. Or are these really going to be very narrow tuck-ins and not really things that are filling a dire need to have a broader portfolio?

Yes, I don't think we feel at all impaired in our ability to go serve and do what we have been doing. But there are opportunities, if you will, to have -- I guess stretch our capabilities and create new opportunities. And those would be the areas that we would be looking at. So it would be somewhat similar technology but in a new area that would allow us to play and expand our footprint.

Thanks so much.

P.J. Juvekar, Citi.

Doug, healthcare was seen as a major growth driver prior to your entry into Energy. As Energy slows down would you look at healthcare again as an area to invest in?

Yes, P.J., I guess I would say we never really lost our interest and our belief in healthcare even as a consequence of Energy's very stellar run. So I guess we are fairly steadfast. What we did say last year is we were, unquote/unquote, putting it in the shop because we had some work to do on the offering. But I think that time has been well spent. You saw it's not like we'd love 4% growth in the fourth quarter, it's just better than 1% growth.

But it's the step you have got to take if you want to get back to high-single-digits and ideally hopefully back to double-digits. So I would say healthcare remains a great area we believe for us to play and we remain very interested in continuing to build that business.

Okay, thank you. And then a financial question. Your net debt to EBITDA is about 2.2 times. You announced $1 billion on the buyback. You also said that you want to ramp up M&A with the strong dollar here. So when you -- it you take actions on both of those, where do you think your leverage ratio will settle at?

Yes, not much different from where it is now, maybe marginally lower like 2.1%.

But if you do those you are saying that you can fund those both through your free cash flow and then pay down some debt to bring it down?

Yes. We expect to make more money this year, that is part of the equation. But, yes, I mean we've certainly done the math here.

Okay, thank you. I will follow up later. Thanks.

Shlomo Rosenbaum, Stifel.

Doug, on the institutional side, are you already seeing some benefit from the lower oil prices putting more money into consumers' pockets? I'm here in the restaurant and it is not quantified and hospitality also not quantified. But people are talking about it more on the margins. Are your clients telling you it is having more of an impact than that?

Well, I guess I cited a number earlier that institutional had a particularly strong quarter in North America Q4 up 7. And I wouldn't take that and roll 7 forward for the next 12 years because in there was probably some inventory build. But with that said I guess we attribute that to of course our own great execution. But no doubt the market has gotten a little better.

I think in the fourth quarter it was the first time in I don't remember -- four or five years that we saw an uptick in full-service restaurant foot traffic. And I don't think it is coincidental, I think it is as a result of more dollars in consumers' pockets.

And what is your broadly -- or if you want to talk about specific geographies, what should we think about in terms of the sales outlook for Europe? Talking about continuing to get the margin expansion, are you going to get any -- are you expecting to get some additional benefit from the top line or is it despite not a lot a benefit from the top line?

Yes, I mean it is going to be more muted because it is Europe. But, no, we would expect that we are going to have improved sales in 2015. I would say all the signs that we see, the business steadily if you looked underneath got better throughout the year. I mean it was modestly positive in 2014 if you are all in.

We see a pretty good start to the business in 2015, would expect to have a couple points of sales growth, which is going to be critical because it is going to be a real driver now going forward of margin expansion. And if we see that we think we are going to have another very, very positive year in terms of margin expansion.

Okay, great. And then just thinking about free cash flow for 2015, should I think of it on a free cash flow basis, not necessarily EBITDA, but free cash flow. Should I think that growing in line with EPS growth?

Yes.

Okay, great. Thanks so much.

Rosemarie Morbelli, Gabelli & Company.

And just, Doug, following up on the 2% growth in European sales, that is I presume before FX isn't it? Or are you including the negative impact from FX?

No, no, yes, thank you, Rosemarie. Yes, no, that is fixed currency (multiple speakers).

Okay.

Yes.

Okay, so now I have a question on Energy, which you expect to be flat if I remember correctly your earlier comment. At the end of the third quarter what you said was that if oil remained between $81 and $91, so let's call it $85, you -- your revenues in that segment would be up 10%.

If oil came down to $75 it would be up 5%. So you are losing 5% of growth with a $10 difference. Now oil is at let's call it $50 and shouldn't it be down 10% versus last year as opposed to being flat? And what am I missing?

Yes, well really the volume is -- I mean at the end of the day we are mostly in the production phase and we are also in the refining phase. And that is going to be mostly driven by demand. Demand of oil year on year is going to be slightly up is the forecast, very slightly. But you are not having huge degradation in volume of oil produced around the world -- well you are going to have produced but not of consumed.

And so, we will take some production hit on this thing. But you also have to understand underneath there as old comes on and new comes on we have a significant step up in the amount of stuff consumed in the new wells. Taking a linear drive on this across the enterprise this is not going to work and it is not just price, we are not stuck on the price.

Okay, no, that is helpful. And then lastly if I may, can you give us approximately the number of sales force additions for the year and whether you expect to add the same amount more or less in 2015?

Yes, certainly. In total it's going to be around 2%, obviously the mix is going to be somewhat different. We are not going to see the same adds obviously in Energy Services and you'll probably see a little more in Institutional as a consequence of the strength there.

Okay, thank you.

Justin Hauke, Robert Baird.

I don't see the hammer on the raws, but I guess if we could just get a little bit more color on specifically what raws you see benefiting because when you look at refined product prices, it really hasn't moved a whole lot. So maybe just magnitude of that. And then I know raws are roughly 50% of your cost of goods sold. What is embedded in the guidance in terms of the percentage decline in your raws?

Well, I think if you go to page 9 we gave you what the embedded raw material savings are in EPS, you know the number of shares. I mean you can get into it; we are trying to make this clear. I would say a lot of these, half of this benefit, and this is the way it falls because Energy buys more oil-based or oil derived raw materials than our other businesses.

And they will see the most benefit, some of that will be given back in the form of cost relief to customers as a consequence of our cost-plus contracts. We have other businesses where really they do not have a dramatic change in raw materials, Institutional has some savings, it is fairly modest. Because you also have a lot of caustic and other materials that they buy which are not going to be impacted by the price of oil.

I would say across the enterprise what's often lost when we have this discussion is what are the inflation drivers in our business. It is rarely really raw materials. We spent a lot more on people than we do on raw materials. And our people costs go up every year, both in terms of salary or what we pay them and benefits.

And that is the number one inflation driver and certainly will be an inflation driver this year even for those businesses seeing material raw material savings. They will still [net] have inflation, i.e. the cost will be higher.

How do we offset that? Productivity [grains] really driven by implementation, new technology, we work to do a number of things, reformulation of products so we can give a better product at a lower raw material cost. But this trade has also got to be favorable for customers or ultimately you start cashing in your goodwill over time which is a bad thing to do if you want to be share leader for an extended period of time.

So I don't know if that helps, but I would look at page 9, I think a lot of the answers are there. Or if you have model questions you can certainly call Mike or Lisa.

Yes, no, thanks. I didn't see that on 9. I guess my last question, this is more of a clarification. On the $0.20 of special charges in 2015 is there anything that is incremental and that restructuring? Because if we go back and look at what has been disclosed on in the K's for the restructuring cost related to Nalco and Champion you would've thought it would have been half of that. So is there anything that is new or do we just have some numbers messed up there?

Yes. When I mentioned earlier we went and challenged our businesses to go relook at where synergies would likely exist and maybe we didn't find them at the rate we expected, that we have gone after and relooked at opportunities both in regional costs and some corporate costs. As well as within some divisions where we had some I would say natural synergies as well.

Say, WPS where we folded in the historic Ecolab business into the WPS business and in those areas. So certainly we use the opportunity that the FX pressure has brought to challenge the team to get after and take another look.

Got it. Thanks a lot.

Thank you. I will turn the call back over to Mr. Monahan for closing comments.

Thanks, everyone. That wraps up our fourth-quarter conference call. This conference call and the associated slides will be available for replay on our website. Thanks for your time and participation. And our best wishes for the rest of the day to you.

Thank you for your participation in today's conference. Please disconnect at this time.