Ecolab Inc. (ECL) Q2 2013 Earnings Report, Transcript and Summary

Welcome to the Ecolab Second Quarter 2013 Earnings Release Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time. Now I would like to turn the call over to Mr. Michael Monahan, Senior Vice President, External Relations. Sir, you may begin.

Thank you. Hello, everyone, and welcome to Ecolab's Second 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 this 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, including 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 described in the section of our most recent Form 10-K under Item 1A, Risk Factors, in our second 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, we delivered very strong earnings results in the second quarter, $0.01 above our forecasted range despite continuing economic headwinds. We leveraged improved sales volume growth, pricing and our synergy and cost efficiency work, as well as better-than-expected performance by our recent Champion acquisition and a lower tax rate to produce yet another double-digit increase in our adjusted earnings per share. Looking ahead, we expect to continue to outperform our markets and show double-digit earnings gains again in the third quarter and the full year, as good sales growth, appropriate pricing, innovation, synergies and margin leverage, as well as acquisitions, more than offset investments in the business. Moving to some highlights from the second quarter, and as discussed in our press release, reported second quarter earnings per share were $0.69. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, second quarter 2013 earnings per share increased an outstanding 19% to $0.86. The adjusted earnings per share growth was driven by volume and pricing gains, new products and new accounts, synergies, cost savings actions and the Champion acquisition. We enjoyed double-digit acquisition adjusted gains in our Global Energy segment and strong growth in our Global Specialty business. These and other gains were leveraged by good margin expansion. Our newly-acquired Champion business also showed strong growth, and its outperformance versus our expectations led to EPS exceeding our forecast in the second quarter. We continue to be aggressive, focusing on top line growth. We are emphasizing our innovative product and service strengths, as well as our range of solutions to help customers get better results at lower costs, and through these, drive new account acquisition across all of our customer segments. We also continue to implement appropriate price increases to help offset higher costs and investments in our business. We remain focused on expanding our margins, emphasizing productivity and efficiency improvements to help increase profitability, 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 target for our Nalco cost and growth synergy targets, and the Champion integration is underway and going well. Looking ahead, while economic trends present ongoing challenges, we continue to look for the third quarter to show further attractive sales gains and strong margin improvement. Third quarter adjusted EPS is expected to increase 15% to 21% to the $1 to $1.05 range and compare against adjusted EPS of $0.87, as business growth and the benefits from synergies and cost reductions more than offset soft economies and business investments. We raised our earnings forecast for the full year 2013 and now expect them to be in a $3.48 to $3.56 range, representing 17% to 19% growth. In summary, we expect the third quarter to show another strong double-digit earnings growth performance by Ecolab, as we also make key investments to drive superior results in this year, as well as for the years ahead. Slide 4 shows our second quarter results, both as reported and with adjustments for special gains and charges, while Slide 5 shows sales growth detail. Ecolab's consolidated fixed currency sales for the second quarter increased 14%. Acquisition adjusted fixed currency sales rose 6%. Looking at the growth components, volume and mix increased 4%, pricing rose 1%, acquisitions and divestitures were 8%, and currency was a negative 1%, rounding accounts for the difference in the total. Reported fixed currency sales for the Global Industrial segment rose 4%. Adjusted for acquisitions, Global Industrial sales increased 3%. Reported fixed currency Global Food & Beverage sales increased 6%. Acquisition adjusted second quarter fixed currency sales grew 3%. Growth was led by beverage and brewing, dairy, food and agri, which more than offset modestly lower sales in the weak protein market. Regionally, we enjoyed strong results in Latin America, with moderate growth led by share gains in the other regions. Global Food & Beverage continues to benefit from its Total Plant Assurance approach to customers, in which we combine our industry-leading Cleaning & 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 key global customers and offset sluggish conditions in some of our regional markets. Looking ahead, we expect steady sales growth in the third quarter, and for the balance of the year, as we see further benefits from our innovation pipeline, better customer penetration and new business development. Fixed currency Global Water sales increased 3% versus last year. Excluding the impact of mining and the de-emphasized businesses, Global Water sales to the heavy and light industry markets were up 5%. Gains were led by Asia Pacific and Latin America, with moderate growth in North America and slightly lower sales in EMEA. We continue to drive market penetration, with innovative solutions to optimize water usage using 3D TRASAR platform technologies, new commercial solutions for water recycling and reuse and applications for wastewater. We are focused on corporate account management, growth synergies, business capture, product innovation and continued market share gains to build growth, along with the ongoing work to improve the profitability of our account base. We expect Global Water sales to show a moderate sales increase in the third quarter, as continued growth in our core heavy and light markets is partially offset by unfavorable mining industry trends and our ongoing de-emphasis of nonstrategic business. Fixed currency global sales for Paper increased 2%. Strong growth in Asia Pacific and solid gains in Latin America benefited from increased technology penetration and a return to more normal inventory levels. This growth was partially offset by a modest sales gain in EMEA, a modest decline in North America, resulting from continued low plant utilization. We expect third quarter Global Paper sales to rise moderately, led by Latin America and Asia Pacific, reflecting new business and technology penetration. Fixed currency sales for the Global Institutional segment rose 3%. Fixed currency sales for the Global Institutional business rose -- 2% in the second quarter. Institutional's end markets continue to show mixed results, with modest growth in global lodging room demand and still challenging food service foot traffic across North America and Europe. Looking at regional sales trends, North America and Asia Pacific sales increased modestly, Europe declined modestly and Latin America continued to post strong sales growth. Sales initiatives targeting new accounts in effective product and service programs continue to lead our results. To drive our future growth and improve on our industry leadership, we remain focused on executing global sales initiatives and on new products that deliver increased value and reduce labor, water and energy costs for customers in our restaurant, hospitality and long-term care markets. Reflecting that innovation focus, we launched a new antimicrobial fruit and vegetable treatment in the second quarter, and it has been well received in the marketplace. We also continue to increase our customer focus and service intimacy on a global basis through sales force investments and talent development and in standardizing our global service protocols. We are also making further investments in field technology to help drive service efficiency and have better aligned our sales team efforts. Longer term, our new Global Institutional structure will accelerate global deployment of our innovation and technology, which we expect will help improve growth by driving better market penetration and new account gains. We look for third quarter Global Institutional business sales to improve as the global sales initiatives progress, and continue aggressive efforts to outperform challenging markets, yield improving growth in the third quarter and over the balance of the year. Second quarter sales for Global Specialty, which is comprised of KAY's global quick service, food retail and related businesses, grew 9% in fixed currencies. Global quick service sales increased mid-single digits, as we enjoyed steady growth from both large and small customers. New accounts, along with increased solutions for customers to drive operational efficiency and food safety, leveraged generally modest industry trends. Regionally, Asia Pacific sales benefited from good quick service foot traffic growth, while the U.S. and Latin America recorded solid gains, and Europe saw modest growth. The food retail business showed double-digit sales growth in the quarter, benefiting from customer additions, new products and increased penetration. We look for similar good sales growth in the third quarter, as Global Specialty works to deliver another solid performance in 2013. Fixed currency Global Healthcare sales decreased 1%, as soft U.S. and European healthcare markets continue to impact results. Good growth in temperature management was offset by lower instrument reprocessing product sales and the impact of exiting low-margin business. As part of our focus on account profitability, we also eliminated certain less profitable distributor programs, which resulted in shifting some distributor sales to later quarters. In total, these actions to improve long-term profitability hurt second quarter sales growth by about 3 percentage points. To grow sales in this challenging environment, we have increased our focus on corporate accounts, raised our already-strong service levels and continue to strategically broaden our product lines. We expect Global Healthcare sales to show better results in the third quarter, as improved account gains in both North America and Europe, combined with the annualization of business we exited, lead to improved growth for the third quarter. Reported fixed currency Energy segment sales grew 64%. As expected, acquisition adjusted Global Energy fixed currency sales returned to their lower double-digit growth trends in the second quarter, increasing 14%. Our upstream business saw a further double-digit growth in the second quarter, resulting from share gains and our continued focus on higher-growth energy production sources, including very strong growth in deepwater, shale and oil sands. The downstream business sales grew nicely, resulting from a pickup in North America refining and the strong market share gains. As mentioned earlier, the Champion business enjoyed a strong performance in the quarter. The integration of the Energy and Champion businesses is going very well, and we are on plan with our integration targets. One result of this rapid and full integration of the businesses, including their sales functions, is that going forward, we will not be able to separate financials by entity, since they are now operating as one single business. Looking ahead, we expect acquisition adjusted Energy segment sales to continue showing strong growth over the balance of the year, driven by shale, continued strength in the deepwater and oil sands business and steady growth in downstream as new Middle East capacity begins production. We expect third quarter acquisition adjusted sales growth will be in the low double digits as Energy goes up against tough comparisons last year, when sales grew a very strong 20%. Sales for the Other segment declined 5%. When adjusted for the Vehicle Care divestiture, sales rose 5% in the second quarter. Fixed currency Global Pest sales increased 5% in the second quarter compared with 2012. We enjoyed good growth in food and beverage, health care, full-service restaurants and quick-service restaurants. Regionally, we saw good growth in Latin America, Asia Pacific and North America. Europe grew modestly, reflecting the continued challenging conditions in that region. We continue to drive market penetration, with innovative service offerings and technologies, including the global protect programs, Bed Bug Assurance, STEALTH Fly Station, STEALTH Fusion and expanding solution offerings. We expect Global Pest sales to show further good growth in the third quarter, with strong gains in the Americas and Asia and modest growth in Europe. Sales for Equipment Care, the business formerly known as GCS, showed improved growth in the second quarter, rising 7%. New account sales, better penetration and improved technician productivity drove strong growth in the service revenues, while parts sales also showed good gains. We continue to see good results from chain account relationships and also, as we drive sales through their regional and franchise organizations. We expect Equipment Care to show further gains in the third quarter, as continued good service trends, improved parts sales and streamlined operations benefit results. Slide 6 of our presentation shows selected income statement items. Second quarter gross margins were 45.2%. Adjusted for acquisitions and special charges, second quarter 2013 gross margins increased 50 basis points versus a year ago. The improvement primarily reflected the benefits of volume and pricing gains, as well as merger synergies and cost efficiencies offsetting the business mix of higher Energy sales. SG&A expenses represented 32.5% of second quarter sales, an improvement of 70 basis points versus last year. The favorable mix of Energy and Champion, as well as sales gains and cost savings efforts, including merger synergies, led the improvement. Fixed currency operating income for Global Industrial increased 17%, with margins up 150 basis points. Pricing and cost synergies and efficiencies led the gain. Margins also improved, as we focused on more profitable areas of the business. Fixed currency operating income for Global Institutional increased 7%, with margins up 80 basis points. Pricing, volume gains and cost efficiencies drove the increase. Reported Global Energy fixed currency operating income increased 66%. Acquisition adjusted Global Energy operating income increased 28% in fixed currencies, led by the strong volume gains, synergies, operating leverage and pricing. Fixed currency operating income for the Other segment declined 4%. Adjusted for the sale of Vehicle Care, operating income grew 12%, with improved results from Pest and Equipment Care. The Corporate segment and tax rate are discussed in the press release. We repurchased 1.8 million shares during the second quarter. The net of this performance is that Ecolab reported second quarter diluted earnings per share of $0.69 compared with $0.62 reported a year ago. When adjusted for special gains and charges and discrete tax items in both years, adjusted earnings increased 19% to $0.86 when compared with $0.72 earned a year ago. Turning to Slide 7, and looking at Ecolab's balance sheet, total debt to total capital was 53% at June 30, the same as a year ago. Our net debt to total capital was 51%. First half cash flow reflects the normal seasonal pattern, where we typically see lower income and smaller cash flow in the first half, with both of them stronger in the second half. Looking ahead, and as outlined in Slide 8, we continue to take aggressive actions to drive both our top and bottom lines, expanding our market share and customer penetration among major accounts, leveraging our positions in key growth markets in food, water, energy and healthcare as we work to offset generally soft global conditions. We expect to show good acquisition adjusted sales growth and margin expansion again in the third quarter, driven by innovation, pricing, merger synergies and better operating efficiencies. We expect to deliver on these aggressive goals while building growth for the future. We expect adjusted earnings per share for 2013 diluted earnings per share to increase 15% to 21% to $1 to $1.05 range, compared with the adjusted earnings per share of $0.87 earned last year. We raised our outlook for the full year 2013 and now look for adjusted earnings per share in a range of $3.48 to $3.56, representing a very strong 17% to 19% growth. In summary, we once again delivered on our forecast in the second quarter, while offsetting the weaker economy and further investing in our future. We look for further solid acquisition adjusted sales growth and continued double-digit profit gains in the third quarter, as well as for the full year 2013, as we drive to produce yet another strong year and build for our future. That concludes my formal remarks. As a reminder, before we start the Q&A, we plan to hold our 2013 Investor Day in St. Paul on September 12. Space will be limited and is filling up fast, so if you have any interest in attending or have questions, please contact us. And now here's Doug Baker with his comments on the quarter.

Thanks, Mike. Hello, everyone. So clearly, it was a very good quarter, and I will just highlight a couple of points. First of all, our underlying business sales growth accelerated from Q1, which was one of our top priorities, and it was driven by excellent new business efforts, we continue to go out and secure new customers while also driving new innovation, both in our existing base and also using it to leverage our new customer efforts. Margins also improved. Certainly, volume and pricing were major contributors, but also the synergy and renaissance programs are also doing their part, and both those programs remain on track. So the Nalco integration continues to progress well, and the European renaissance program also is making a difference. The latest acquisition, obviously Champion, was off to a very strong start. It had stronger sales than we had forecast moving in, which was -- is always good news. And so going forward, we see, I guess, a continuation of the improvement that we saw across the business. We believe we're well positioned. We like the businesses. We are focused on execution and believe that our efforts will continue to enable us to overcome a difficult economic situation, which we do not forecast changing dramatically second half from first half. Neither getting better nor deteriorating significantly, so we see more of the same. Hence, we've raised our guidance, which Mike just talked about, which indicates a 17% to 19% EPS increase year-on-year. So I guess we like where we sit right now. And if the team continues to execute, we feel we are in position to deliver a very good year, and we're confident we will do just that, execute. So with that, I'll turn it back over for Q&A.

Operator, please begin the Q&A session.

[Operator Instructions] The first question does come from Mike Ritzenthaler with Piper Jaffray.

On revenue synergies, I guess, first, on Nalco, I'd be interested in how things are progressing versus the $75 million in growth synergies outlined and whether -- maybe you could add some context with some success stories or something that gives you the confidence that, that target is achievable this year. And I guess, secondly, on Champion, are we in a place yet where you can say that growth synergies will be north of 0 yet?

Well, I'll start with the first question. Yes, so we're on target for the $75 million for the year. We had roughly $20 million in Q2. So if I was going to take the over or under on the $75 million for the year, I'd probably take the over. I think the teams are doing quite well. We talked about it last call, that we're seeing a number of big enterprise-wide deals, probably earlier than we had anticipated, so that remains on track. Regarding the ambitious target we've laid out for growth synergies on the Champion deal at 0, we're holding. So I would say we've had this for a couple of months. It's going to be very difficult to measure. Mostly what you're going to see is the ability to leverage Champion Technologies in the historic Nalco Energy Services base and vice versa. And that is already happening, and so we will see that. That would be revenue synergy. But at the end of the day, I think the guidance we've given is expect double-digit growth from the combined enterprise on a pro forma basis. And within that number is the revenue synergies we expect we're going to achieve.

All right. And just as a brief follow-up, how much do moves impact your thoughts on raw materials, Doug. Oil prices are up, but certain intermediates and derivatives are modestly weaker. Does that change your previous view of being roughly flat? And how do those raws kind of influence Ecolab's ability to capture price in this challenging environment?

Yes. Our view on raws, look, everything's changed within the basket, but in total, it really didn't change. So we still see raws as really not much of a story for the year. It was a modest negative first quarter, modest positive second quarter, but I'm talking very modest. And for the year, we anticipate it's going to be a very modest negative. So raws are pretty benign. They're not moving much in total. Certainly, higher raw moves enable us to justify more price, particularly in certain markets. So it does have an impact on our ability to price some places. But in all instances, we are out every year working to secure price, because raws are not our only cost that is inflated. We have people cost, which is, by far, our largest cost in the business, given our investment in sales and service, and people costs go up every year. So we are out there working to secure pricing year in, year out. We don't sit back and just wait for large raw moves anymore, which I'd say was more of a pattern in the early 2000s, when you're in a very benign period for a long period of time. So we're out working to secure it. This year, pricing is going to be below last year, simply because you don't have the tail of a large move. But we still anticipate securing north of 1 point globally.

The next question comes from David Begleiter with Deutsche Bank.

Doug, just on Institutional, can you talk about your confidence in getting some acceleration in top line in the back half of the year?

Yes. I think Institutional improved from first quarter to second quarter. We've got -- if you peel it apart, I mean, clearly, the Institutional business in Europe has been the most impacted, if you will, by the economy. And it reduced its shrink from quarter-to-quarter and is anticipated to be flattish to modestly up in the second half. So that alone, because it's not a small piece of that business, is going to impact the overall growth rate. But Institutional around the world has got significant opportunities. They're on it. We've got a great Corporate account team, a very robust innovation pipeline. They've delivering against it. So we expect Institutional to continue to improve throughout this year and likely going into next year.

And, Doug, just in the U.S., any change in the competitive intensity from the usual suspects?

Well, I mean, not -- I would say, overall, no. I mean, certainly, there's been shifts. So some of our competitors have been severely impacted by events, many of them of their own doing. And others are talking about aggressively rebuilding a program in the U.S. I would say on balance, I think the competitive environment is much more similar versus dissimilar to what we've seen historically. The way people typically try to attack us, if they're going to do it on a national basis, is try to undercut us on price. And that's been true since I've been here, and I'm about to enter my 25th year. So I would expect that's going to be the norm going forward. I think we manage against that challenge well, and I would expect that we will do so going forward. So we certainly haven't seen any share erosion. If anything, given the markets and the difficulty in food service, we've been gaining share, not shrinking, over the last few years, and I would expect that to continue.

The next question comes from David Ridley-Lane with Bank of America Merrill Lynch.

There's been a couple of areas of pruning of either service lines or customers in Paper, Water and Health. I mean, one question is, would collectively, these actions amount to a point or 2 of revenue? And then as a follow-up, should we expect further actions in 2014 or has 2013 been a year of unusual portfolio management?

Yes, I would say they can be material within a given business, but they don't reach a level of 1 point of growth by any means over the entire enterprise. So yes, certainly, I think -- certainly, in Water, we are working to use this year, if you will, to sharpen our focus on the areas where we believe we've got the greatest right to succeed. And as a result, there's some areas that we're de-emphasizing. This is not a sea change. This is, I think, managing well around the edges and doing things that are going to position us for even better growth going forward. We have some of the same opportunities in Healthcare. There's, I would call, minor pruning going on in many of the businesses. We think this is a smart year to do it. It's -- we are managing for, positioning ourselves for maximum growth going forward, for maximum profitable growth going forward. And so these are just steps we're taking. I do not expect that it's going to go deep into '14, if it goes into '14 at all. But again, I think on a global basis across the enterprise, it's not going to be a dramatic change in terms of what its impact is on overall sales growth.

The next question comes from Nate Brochmann with William Blair. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Wanted to talk, Doug, a little bit more specifically about Europe in terms of the renaissance program. Obviously, I know that you've accelerated some things there in order to get the margin benefits. Can you talk about how much you're really accelerating there and a little bit more specifically what you're doing and what the legs are to that to keep going into next year?

Yes, year-on-year and kind of a light way that we've talked about it with the investment community in the past, our margin in the second quarter increased about 160 basis points in Europe, which is in line, maybe a little better than we've talked. We mentioned that we thought we were going to be 100, maybe north of 100. That obviously feels pretty secure sitting here halfway through the year, well on target to do that. So we're going to likely be in the 150, a little better than we've said we would be overall on Europe margin improvement for the year. What's driving it? It's very similar, Nate, to the conversations we have had before. So we made significant investments in consolidating ERP systems, which enabled us to consolidate back office, which means, ultimately, you have the chance to do cost takeout as you move from 30 to several. We have set up centers in East Europe, which enables us to shift some work and have further labor arbitrage on the remaining work. We're also leveraging field technology, which improves our ability to drive improvement in our performance in the field around productivity metrics. So it's a number of things. The brave new world going into '14 is going to be increased focus on supply chain and making sure that we do the right things around product lines, leveraging the new innovations and the like. And that's where we'll start seeing, I would say, follow-on efforts, because remember, we're still pretty early in this process. We talked about 1,000 points as the ultimate goal. We're going to end this year north of 300 in total for the first 3 years. But that still means there's double that in front of us, and so we still have a lot of work, a lot of opportunity there. We're going to stick to it, and we feel good about our ability to continue this path for the next several years. Nathan Brochmann - William Blair & Company L.L.C., Research Division: And just kind of along those lines, Doug, I mean, you guys have done a great job, obviously, internally. And again, even this year, to get up to 160, that's outstanding. How far can you get to before you need the economy and the volume to start coming back to really then leverage the new infrastructure over there as opposed to how much more can you keep doing on your own even without a whole lot of robust growth in Europe?

Yes, I don't think we ever anticipated robust growth in Europe because we haven't experienced it. I would say, certainly, as I've mentioned before, I mean, this year, we were going to do this on pretty flat sales, right? Down in the first and improving. Some of it was, as we told you, onetime issues. But we're going to have very strong profit growth, and as a result, very strong EBIT or OI improvement in terms of margin. But we can do it for a while without a lot of tailwind from Europe. Certainly, it's going to be very difficult to get 1,000. So if you're going to tell me Europe doesn't improve one bit from here over the next 7 years, I may tell you it may take us a little longer to get the remaining 700 basis points. I don't think that's really our view. We don't need dramatic improvement, but we do feel like Europe has seen probably the bottom at this point in time, or at least this bottom. And feel we are in a position where we can drive modest sales growth, which is really all it takes for us to realize much of the margin we're talking about.

The next question comes from Dmitry Silversteyn with Longbow Research.

Just a couple of questions, if I may. When you provide growth by segments in fixed currencies, you have the overall 1% contribution from foreign exchange. Are there any outliers in the segments, where it would be significantly different from 1% that's for the overall company, outside of the Equipment Care business, where it's probably going to be 0 or less.

No, I'm -- yes, but the only would be Other, which is principally a U.S. or almost principally a U.S. business. They would have less non-U.S. sales in Other. The rest, it's more or less similar mix geographically. So I wouldn't say it was dramatically different, no.

Fair enough. Second question, we've talked in the past, and I think you mentioned it in this call as well, the challenges that the Healthcare segment continues to face. I understand that this is not going to be a short turnaround or there's not an inflection point necessarily coming in sort of a long-term customer education and market penetration story. So just so that we don't focus on this every quarter, how much patience should we have with this business before expecting to see results that are better than low-single digits, excluding the business shedding -- or single-digit declines, including the business shedding? I mean, at what point is it going to be delivering the growth that justifies your getting into this business 5 years ago in such a meaningful way?

Yes, well, I guess I'd just say at this context, since we "got into it in a meaningful way", I think the 5-year top line CAGR of 7%, 8%, and its double-digit OI growth over that period of time. So it's performed. And that, of course, includes '08, '09 and all kinds of noise. So it's performed decently at -- I would say. This year and this quarter, yes, this isn't our best quarter. I'd also say we don't believe this quarter is indicative of how the business is performing. We believe this business will show improved single-digit -- modest single-digit growth for the balance of the year, improved profitability. And I think the team is doing exactly the things it needs to do to set itself up to continue the type of performance we've seen over the last 5 years. So we see Healthcare as a very important part of our business. We believe it's going to have at least Corporate, if not better than Corporate average growth, both on top and bottom line. We see it as an important contributor long term. And also, the work we do in Healthcare is leverageable in other parts of our business. So there's many reasons we like this business, performance being one of the primary ones. And I'd say, Dmitry, we're not going to ask for a lot of patience. I don't think we've really cashed in a lot of patient points to date, to use a double entendre, but as we move forward, I think you'll see this business get back to its historic norms of 8% top line, double-digit bottom line.

Very good. And then final question, your balance sheet after the acquisition is obviously a little stretched at north of 50% debt-to-capital. Your share count has gone up. You had some commitments about share repurchases prior to making the Champion deal. So as we look forward to the balance of 2013 and into 2014, how should we think about the use of cash between share repurchases and debt pay-down sort of not -- ignoring for the moment the opportunistic M&A that may come along?

So our use of cash priorities remain dividends, there is debt pay-down now for the near term, opportunistic M&A, much more in historic keeping of how we used to execute M&A bolt-ons, et cetera. We did say we're going to finish the $280 million that was remaining from the $1 billion share buyback. We're going to execute that by year end. That's still the plan. Going forward in '14 and '15, I guess our best estimate, and we think for modeling, you should assume that we offset dilution and are able to execute that type of share repurchase program. So we're going to end the year around 307 million shares, and that's probably what you should use for your modeling, certainly for '14.

So it sounds like dividends and debt pay-down is going to be the primary use of cash outside of serendipitous acquisitions?

Yes, dividends have always been priority one, and we are -- for a short period of time, we said that we want to get our EBITDA metric down 2 and below, below 2, and that's going to take a couple hundred million bucks of debt repurchase, which we plan to do over the next 18 months or so.

The next question comes from Edward Yang with Oppenheimer. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Piggybacking on some of the earlier questions, in Healthcare, are you seeing any acquisition opportunities or better multiples now that it's a slower environment there?

Yes, I would say we continue to have a number of opportunities that we look at in Healthcare. The multiple conversation is, it's hard for us to give any kind of -- or see any kind of average multiple move because we may look at a very small technology, small business that has what appears to be a very large multiple because we have the leverage for it, and they've invested a lot of money getting through regulatory and everything else. So it's a tough conversation. I would say I think it'd probably take a little more time before the average multiple goes down. It tends to -- they go up faster than they come down, because of people's expectations, and especially if it's in private equity's hands and they bought it. You go back 5 years, they still have some expensive goods on their hands, and they're hoping for high prices coming out. We're not going to be doing that. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Okay. And Doug, you mentioned that the competitive environment in Institutional hasn't changed much. And one of your larger competitors had said they want to reenter the U.S. business. Have you seen any indication of that? Or if they were to actually move forward with that, how long would that process take, you think?

Well, I guess I'd make 2 points. Yes, I mean, we've heard the same comments. They never completely left the U.S. market, so there's a little bit of a misnomer there. And so their plan to rebuild in the U.S. wouldn't be surprising. I bet they've got a plan to rebuild in every -- to build their business in every region, including the U.S. And I would say we respect our competitors. We respect diversity, which we're all alluding to here. And we fared quite well before they pulled out of the U.S., we've fared well since they pulled out of the U.S. We think it'll be incumbent on us to continue to perform regardless of what they do. We can't have our competitors' decisions dictate our fortunes, and we don't plan to put ourselves in that position.

The next question comes from John McNulty with Crédit Suisse. John P. McNulty - Crédit Suisse AG, Research Division: Just a question with regard to capital intensity. When we take a look at your CapEx as a percent of sales, Ecolab on its own used to be very low. It spiked up a bit with Nalco, and I think you admitted earlier on that Nalco needed some serious investment. I guess how deep through that phase are we on the reinvestment side? How does it compare with how we should think about Champion? And when can we see your capital intensity start to drop down a little bit?

Yes, John, I would say, yes, there was just -- there was a few things that needed to be done, i.e., we're building a plant in Singapore and doing some other things that you would have said maybe should have been done a few years earlier. But there's not a long list. I would say the list is, we are well within moving and marching against that list. On a go-forward basis, the businesses that we acquired as part of the Nalco deal are less capital intensive than, if you will, the legacy businesses, roughly a point of sales if you want to look at it as a multiple of sales. So we don't believe we've at all increased our capital intensity as a company. We probably decreased it on a run rate, plus, going forward, we've got more, if you will, plant capacity than we did pre-deal. So there will be investments that we probably would have made if we hadn't done this, that would have happened earlier than they will now because we've got other capacity that we'll absorb before we have to go build new facilities, other places. So I think we're well through that bubble. I think when you start seeing '14 on, I think you're going to see pretty normal-type capital and the type of run rate that we would expect going forward.

The next question comes from Laurence Alexander with Jefferies.

This is Jeff Schnell on for Laurence. Can you help us bridge the global oil production estimates to your 12% to 13% volume growth in Energy? And more specifically, can you talk about what you're expecting for EOR growth?

Yes, well, look, I think we've spent time talking about this. One, it's not -- the 12% is not all volume. There's, obviously, price in there, too, as we go forward. I mean, that's what drives our sales growth. It's both, not just pure volume. Number two, as we go through, there's a change in terms of mix within the oil business. As old wells go off and are replaced by new wells, the intensity or usage of our type of services increases fairly dramatically, simply because the oil that's coming on is harder to deal with. It's nastier, more corrosive, usually has a higher water content, so it takes more of our type of services and chemistry to treat, both from an anticorrosion standpoint, from a separation, from a cleaning, from a treatment standpoint. And so as a result, if you just look at that mix change, that pretty flat oil, you're going to see mid- to upper-single-digit type growth in our market. If you start growing the business on top of that, you will see even faster market growth in that. That's the component that excited us about the business. That's the component that really led Nalco premerger, to identify, if you want to call it new oil, as the primary objective because it is such -- it's much more intensive in terms of its need for the type of chemistries and services that we provide. And so that's the underlying, if you will, story that's driving the business forward. And it will be true in a flat oil environment or in a growth environment, obviously, gets accentuated. Certainly, if you have destruction of oil volume over a period of time, it's going to negate some of that benefit, but it's hard to get to a 0 growth story in oil as far as our chemistry is concerned.

The next question comes from John Quealy with Canaccord.

First, in terms of the integration of Champion, now that we're calling it same-store sales, if you will, what else should we look for from you folks in terms of metrics, in terms of integration besides dollars? Are we going to hear about different strategies, different activities that you're doing to integrate that business?

I think what we've laid out to-date is expected combined sales growth. We've talked about $150 million in cost synergies, all combining to deliver $0.50 of accretion by -- in 2016. All right? I mean, that's the story. And those 2 pieces, the sales growth, right, on an increased base and the cost savings, are what enable us to deliver or talk about $0.50 of accretion. We will certainly routinely report out on how this business does, so we will talk about its performance, in its own segment, if you will, moving forward. So we will give specific information on how we're doing against cost synergies, obviously, what the sales growth is. We usually add color, is that being driven by innovation, new business, et cetera. So I would expect that you'll hear all those things going forward, much like you do on our other businesses.

And as a follow-up, assuming Keystone, the pipeline, gets approved and installed at some point in the next several years, do you need to do anything from a customer face, especially upstream, to help those customers deal with increased flows? Or is it just not material given the scale of your Energy business now?

Yes. No, we would be for the Keystone pipeline, but it's not because it's going to have a dramatic impact on our business one way or another, but it's probably the right thing, we think, for the country and for our customers. So I would not -- there's no calculation to put in for Keystone for our business.

The next question comes from Mike Harrison with First Analysis.

Ashland announced that they are seeking strategic alternatives for their water technologies business. Can you talk a little bit about how much more consolidation is needed in the paper chemicals business, particularly in Europe? And what would be your appetite to be a consolidator?

Yes, I guess Ashland announced they're looking at strategic alternatives, which is probably a public statement of what everybody does every day in their business. I guess it's code for we should expect something to happen, but nothing's happened yet. You know what, Mike, I guess what we've said repeatedly on the Paper business, look, I'm quite pleased with how the Paper team and our business has performed. They've done, I think, a very admirable job in difficult market conditions. They've grown -- they've found a way, I think, to get that business focused on the areas where we have the right to compete. They've driven very strong mix improvement, very strong gross profit improvement as a result, and delivered double-digit OI last year and are in a position to do it again this year for the full year. So we said going in that if we were looking at Nalco, and they were separating the businesses, we would have bought water alone, we would have bought energy alone, we probably wouldn't have bought paper alone. And we've also said publicly, and you've heard it, that we aren't the likely consolidators in this business also. So nothing's changed. Will others consolidate the business? I don't know. It's been bandied around quite a bit for the last 5 years. So far, there's a lot of talk, very little action, and I don't know if that's going to change going forward or not. These things are always harder to do than in actuality than they seem on paper. So I guess we'll see. We don't believe we're going to end up impaired from a competitive position. We go to market a little differently. We have a different niche than most people. And honestly, I think we've got a -- as paper businesses go, a darn good one.

All right. And then on the Food & Beverage business, we've been hearing you talk about weakness in the protein market for some time now. Can you give us some additional details about what's going on there and whether that weakness is going to continue or what could cause it to improve?

Yes, protein goes through its cycles. You had really high corn last year and the last few years. I mean, feed costs are a huge issue in the protein market, and they start taking out, culling herds very quickly when it's too expensive to feed them, right, because they're not going to get it in terms of the growth of the animal. And so we've got small -- you've got a business that's being rebuilt. Now corn prices are way down this year versus last year. It's a boom crop. So the protein business will get rebuilt and will become healthy again over the next couple years. I mean, we've seen this cycle over time. I mean, people shift, make different choices within the protein business based on price. So I guess we don't look at this as any real strategic issue for us per se. It's part of the business. It's part of what we go through. So the Food & Beverage business per se, in total, is not cyclical, but there are elements within it that are cyclical. And you have shifts. And so I think the protein story is a temporary story. And in a couple years, we'll be talking about how healthy that business is and what we're doing there.

The next question comes from Andy Wittmann with Robert W. Baird. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: I just want to dig in a little bit. It seemed like pretty consistent commentary from some of your emerging markets that they're an area of strength in the quarter. I was just hoping you could give a little bit of color as to -- maybe some more regional -- more specific regional commentary there, and really, what's driving that in the face of really some pretty shaky second quarter growth. Is it share gains or were your end markets maybe not seeing that kind of wiggles in the economic environment in the emerging markets?

Yes, well, we've worked -- we don't think about the emerging markets as like we have a mono strategy that we're applying to them all. We have, I'd say, a more nuanced view, so it's market-specific. Russia is -- primarily, but not exclusively, it's an energy story first, and I would say water story second, and those are the focus areas. Our Russian business continues to progress well as a result. Brazil, our focus is Energy and more on the food side, the Food & Beverage side. Both those businesses have progressed very well. Institutional around it is also doing pretty well as a result. GDP figures are not always a great indicator of how our business is going to perform, because GDP is made up of a whole bunch of areas that don't impact us. We are much more -- we pay much more attention to industrial production, to food production, to rooms sold, to restaurants visited, et cetera. I mean, those and the energy story, we already talked about in an earlier story. India had double-digit growth. That's a market that we're investing in. I would say happy to reinvest our profits from India into that business for the foreseeable future. In China, we've made a number of outsized investments and are seeing a larger business emerge. That business, in total, was just under double digits for the second quarter, and really, that was driven principally by energy weakness in the downstream market, where they just got overbuilt, and then they usually radically adjust production when they get into that situation there. But the core Ecolab businesses in China have recovered very well, are growing at -- handily in the double-digit range. Water business is improving. Paper business is improving there. So some of that is because last year, the industrial production in China was way off and much worse than GDP would have indicated. So in a lot of ways, we saw the bottom last year from an IP standpoint. While this year isn't great, I think in comparison to last year, it's modestly better, just the underlying market conditions there. So that's a quick walk around the world. I think in total, those businesses continue to outpace our other businesses, which you would expect. We think we're positioned well, and we think we've got strategies that work there, pretty much independent of GDP, obviously, not completely independent.

The next question comes from Robert Koort with Goldman Sachs.

This is actually Angel on for Bob. I was wondering if you could just give me a little bit of detail around your Champion or your Energy performance and maybe how much of that is actually due to share gains versus just existing customers and synergies. Yes, just that.

Well, I would say we probably have a better handle on the Energy Services business, to peel apart the business. I think if you went back, we would say we believe that market -- half that growth was from market, half that growth was from own efforts. The team, for the last several years, has identified new oil as its primary focus. We want disproportionate share of new oil, because the consumption's much higher there. And that strategy is a strategy that continues to pay dividends as we move forward. Champion had strong growth, too. I think if you look at Champion and Energy Services separately, it's the last quarter we have any ability to do this. So we really don't have a great ability to do it now because we merged the businesses. They're going against very different bases. Last year, Energy grew -- Energy Services business grew around 20%, and Champion grew at about 13% in 2012. And so if you do a 2-year growth rate, they're almost exactly on top of each other as you look at this thing. So I think both businesses have done smart things. The combination, we think, is going to prove very beneficial. And now it's up to us to go execute, and while we're integrating the businesses and putting them together, not muck up the top line momentum. And that's always, right, goal #1, and that's the challenge that we're making sure we keep front and center.

Great. And just one other small question, just regarding your Global Water. It seems like mining maybe has improved a little bit there just -- or it's less of a headwind. So I was just wondering if you could give us a little bit of color around what you're seeing in that end market.

Yes, I mean, mining, as we talked in the first quarter, was down. It was negative growth, single digits, and this quarter, it was flat to up modestly, up 1 point. And so it certainly improved, and a lot of that is a real credit to the team. Our team has done a very good job continuing to drive its new customer efforts in the face of, obviously, a difficult market condition. And so this is kind of play 101 out of the playbook, and they're running it very, very well. And so I'm quite pleased with how the mining team's reacting to difficult market conditions. We expect the mining business to continue to improve throughout the year, but at a fairly modest rate, because we don't think the underlying conditions are going to change dramatically by the end of the year.

The next question comes from P.J. Juvekar with Citi.

This is Eric Petrie in for P.J. Just quickly on Champion, what was the contribution to sales and EBIT in second quarter of '12?

Champion in '12?

Yes, Champion in '12. Just looking for a mix and then how, in your best guess, would that have changed this quarter.

Sorry, I'm really not -- you're looking at, what, Champion year-on-year?

Yes, so Champion year-on-year.

Yes. I don't think -- one, we're not -- here's one, it gets hard to completely take apart this year and attribute, what am I going to attribute to Champion, what am I going to attribute to Nalco in terms of even the synergies, some of the sales and customers we've already put together, so it's not very easy for us to do a very clean dissection, number one. What we would say is if you take out the deal D&A, depreciation and amortization, we know that the business on a pro forma basis improved top and bottom line. If you had owned the businesses last year during the same time period, that margins increased and sales obviously grew. What was the big contributor? Well, volume is going to be a big one because you had pretty strong volume growth. But all the other efforts, synergy efforts and all -- and making sure that we offset raw materials, and all the rest were going to be contributors.

Okay. And then any outlook on second half Energy margins, as well as any impact on top line from higher WTI prices?

Yes, the price of oil, unless it's significantly out of, what we've called this $80 to $120 band, and it's got to be significantly out of it, and it's got to be for a long period of time, really, doesn't have a material impact on our business. So whether it's trading at $83 or $108, it isn't going to have a big impact on our volume or the production. So the WTI move, it's really they're able to move the product and meet market demand more so as you're seeing a more natural, I'd say, delta between WTI and Brent now, because of the cost of moving it up to the East Coast, the $3 to $5 delta that you historically saw. We'd expect that to remain the same. It's not an impact on our business.

And then anything on margins? I know you commented tough comps in second half last year.

Yes, I think we aren't really signaling that there's any big news in Energy margins, if we continue to grow the way that we expect to grow in that business and deliver against the synergies, we will have margin improvement in that business, which we're going to need, because we got to offset the cost of the deal, right? So it's taken on D&A from the deal. It's taken on -- we got interest rates that don't show up in that business, right, cost of money to do the deal. So we expect margins, stripped out of D&A, to continue to improve as we go forward, driven by volume and synergies, if nothing else.

The last question comes from Rosemarie Morbelli with Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Just looking at Water, Doug, you talked about share gain. Could you give us a better feel for which areas you are focusing on? And then I am presuming you are gaining share there. And still within Water, there are talk about 3 new mines opening some time between now and the end of this year. Is that going to help or are those mines that you -- that Nalco is not involved in?

Yes, Rosemarie, there's been what I would call minus -- minor, excuse me, shift in emphasis. But as I said earlier, it isn't a sea change. It is de-emphasizing large-cap, low-margin work that was a bit in the sphere of focus previously. Getting rid of that, increasing focus on probably the light side of the business, where we probably have enhanced reasons to believe that we can succeed there. The Institutional market, hospitals, hotels, as well as light industry, which has always been a focus for the Water business. Where are we seeing the gains right now? Probably mostly in the traditional areas. We've had very strong gains in power. We've had very strong gains in other industrial areas. The team is doing a good job, I think remaining focused on the businesses that we think are going to matter most long term. Paper has had a number of new business wins. Mining has had a number of new business wins. Otherwise, there's no way we would have had flat sales this quarter. So we'll go after, right, the markets that we've talked about historically. So I don't think in the sweet spot of the business that there is a dramatic change. We are continuing to drive 3D TRASAR. We're continuing to drive other new innovation. If anything, we're upping Corporate account investments in terms of manpower and doing other things because we think there is more room to grow and pursue in terms of the largest customers in the industries we go after. That's the focus, and I think it's going to work. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay, no, that is very helpful. And then lastly, if I may, on Healthcare, could you give us a feel for the areas you have de-emphasized? I mean, is it low margin? I think you had bedsheets or bedcovers. Is that the kind of businesses you are getting out of? And is some of the weakness in Healthcare also linked to a certain degree to ObamaCare?

Yes. The decisions we made to get out of pieces of the business, and they've been pretty discrete products that are almost -- they're OEM in nature in terms of the contracts we have. They weren't what we -- they were not in areas that we wanted to invest in, in terms of capabilities long term. And we didn't believe we were going to be the people to compete for that business over the next 5 or 10 years, there weren't great margins as a result of our lack of investment in terms of capability. So it's stuff that we inherited when we bought some businesses. And so it's just clean it up, make clear decisions. We're at a point where we're either going to have to invest or get out. And on some of these, the better choice, we believe, was to get out of the business. It was not specifically related to ObamaCare or any other regulatory move per se. It was much more just a pure business decision, would have happened with or without ObamaCare. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And just one last one. Equipment Care, was it profitable this quarter?

Why, thank you, Rosemarie. It was profitable this quarter. I figured this is the only time I'd never get a darn GCS question. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Anything I can help -- I can do to help.

I appreciate it. And as a follow-on question, yes, that's the second quarter in a row that it made money. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And it will make -- and can you give us a feel for the dollar amount for the full year?

It'll be in the millions. How's that? Well, at least I gave you the number of commas. All right, that's a start. So that's our forecasting accuracy right now for -- but that team has done a very good job. That business is growing. They made a lot of smart moves. It's making money. So it's good news, and congrats to the team.

I would now like to go ahead and turn the call back over to Mr. Monahan for closing comments.

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

Thank you for your participation in today's conference call. The call has concluded. You may go ahead and disconnect at this time.