Nalco quarterly profit climbs, but misses view

NEW YORK, Oct 28 (Reuters) - Nalco Holding Co (NLC.N: Quote, Profile, Research, Stock Buzz) on Tuesday posted a higher quarterly profit that fell just short of expectations, as strong sales of water treatment systems to industrial customers were partly offset by weak results from its paper business. In light of the global economic slowdown and the strengthening U.S. dollar, Nalco also cautioned that it faces an uphill battle in trying to meet an earnings target for 2008 that it established earlier this year. The company is targeting adjusted earnings before interest, taxes, depreciation and amortization of $764 million, up 8 percent from the year-ago level. "Right now, we are at 4 percent EBITDA growth year-to-date, so we would have to have a very big fourth quarter to make that target," said Chief Executive Officer Erik Fyrwald, in an interview with Reuters. "We were progressing well because of price increases, but now it looks very challenging." The company's improved third-quarter profit was largely driven by gains in its industrial and institutional services business, which sells water and waste treatment systems to a range of sectors, including the manufacturing, chemical, pharmaceutical, mining and food industries. However, gains from that business were pared by weak results from its paper services business. The paper industry in North America and Europe has been plagued by rising costs, weak demand and overcapacity issues. Fyrwald said Nalco has been hurt by the numerous plant closures in the paper industry and added it had also been affected by plant delays in Asia. Net income in the quarter was $57.4 million, or 41 cents a share, compared with a year-ago profit of $36.5 million, or 25 cents a share. Excluding items, the company posted earnings of 30 cents a share, up from a year-ago profit of 25 cents a share, but shy of the consensus view of 31 cents. Quarterly revenue rose 11.8 percent to $1.12 billion, with the bulk of the gains coming from higher pricing and increased shipment volumes. Analysts on average had forecast revenue of $1.07 billion, according to Reuters Estimates. Earlier this month, Nalco had warned that Hurricanes Gustav and Ike would lower pretax income by about $10 million and $2 million in the third and fourth quarters, respectively. IMPROVEMENT IN EUROPE The Naperville, Illinois-based company's quarterly results showed improvement in its European region sales, which have lagged due to operational issues. "We've had four years of declining organic growth in Europe until now," said Fyrwald. "This year, we have been working very hard at strengthening our leadership team and fixing some back-office issues that we had." Fyrwald joined Nalco in February, after moving from DuPont Co (DD.N: Quote, Profile, Research, Stock Buzz), where he headed the agriculture and nutrition unit. "With the global slowdown there will be reduced growth in our I&IS business. This will be because new plants will be delayed and some plants will be closed for periods of time," said Fyrwald. "But, on the other hand we don't have as much exposure as many businesses, because if a plant site goes from 100 percent of capacity to 70 percent of capacity, they still use the same amount of our water treatment products." The company was also optimistic that the strong growth in its energy services business would continue despite the sharp decline in the price of crude oil. Going forward Nalco expects lower raw material costs to offset the negative impact that a strong U.S. dollar will have on its results, said Fyrwald. Shares of Nalco, which have fallen almost 50 percent over the last three months, rallied with the rest of the market on Tuesday and closed 8.5 percent higher at $11.89 on the New York Stock Exchange.