Nalco earnings per share for first quarter falls more than expected

Nalco Holding Co. posted a 21 percent decrease in directly attributable first-quarter earnings, due to negative impacts from the stronger U.S. dollar and pressures from the worldwide economic crisis. But the company’s shares advanced 8.85 percent Wednesday in Wall Street trading on strong cash flow for the quarter. Naperville-based Nalco, on Tuesday, reported earnings of $23.2 million, or 17 cents per diluted share for the period ended March 31, compared with earnings of $29.2 million, or 20 cents per diluted share, for the year-earlier period. Securities analysts had expected Nalco to have a profit of 19 cents per diluted share, according to Zack’s Investment Research Inc. Sales revenues for Nalco dipped 13 percent to $868.4 million for the quarter from $999.7 million in the first quarter of 2008. Nalco’s energy services segment led its segment sales for the quarter, dipping about 3 percent to $338.3 million from last year’s $347.4 million. Paper services had the largest decline in net sales of Nalco’s sectors, with a drop of 23 percent to $153.7 million from $200.7 million. The company attributed a steep decline in paper end markets, including a 26 percent decline in the European paper market, partially offset by growth of 7 percent in Latin America. It was followed by water services which were down 17 percent in the first quarter. Sales from its water services were down to $373.5 million from $450.6 million last year, with Latin American growth also helping to offset declines in other regions. Decreasing manufacturing and mining sales due to plant closings also impacted Nalco’s sales in the water services sector. “After a weak start to the year driven by extensive customer plant closures that reduced water treatment sales and production declines that hurt process-oriented revenues, we began seeing some improvement in Water Services end markets late in the quarter,” said Nalco chairman, president and CEO J. Erik Fyrwald, in a press release. The water treatment and process-improvement company said it was strengthened by strong free cash flow of $146 million, a rise from first-quarter results of $43 million a year ago. Nalco’s free cash flow for the full year of 2008 was $142 million. The company attributes the first quarter to programs that reduced receivables and inventory. “Their free cash flow was better than for all of 2008,” said Brian Drab, analyst for Chicago-based William Blair & Co. In a Wednesday interview, he said, “They beat their 2008 benchmark in one quarter and here we’re starting to see some signs of improvement in some end markets.” Drab said he is maintaining his stock rating of “outperform.” He characterized Nalco’s first-quarter results as mixed, with a relatively solid top line for a challenging operating environment, but earnings falling below expectations. f For the rest of 2009, Drab said he would be looking for Nalco to improve its gross margin because of lower raw materials costs, and to successfully refinance its 2010 term loan debt. Morningstar Inc. analyst Annie Sorich noted Nalco’s organic sales dip of 3.6 percent in her decision to maintain a fair value estimate for Nalco, after the first-quarter earnings release. “All things considered, they weren’t that bad,” Sorich said Wednesday. “We haven’t seen many revenues that have only had a 3 percent decline.” She said the company’s cost savings initiatives would begin showing effects over the next several quarters, especially with any easing of the financial crisis. Nalco stock closed Wednesday at $15.86, up $1.29 compared with the previous day’s closing price of $14.57. source：news.medill.northwestern.edu