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Source: Nalco Holding Co.
Nalco reported higher fourth quarter earnings due in large part to one-time tax credits.
Nalco shares rebound some after Wednesday’s tumble on 2011 outlook
by Gillian Holmes
Feb 03, 2011
The Naperville-based company said earnings in the quarter ended Dec. 31 rose 43 percent to $55.4 million, or 40 cents per diluted share, compared with $38.5 million, or 28 cents per diluted share, in the same period last year. Analysts surveyed by Bloomberg had expected earnings of 42 cents.
Earnings were also boosted by a one-time windfall in tax credits, analysts noted.
Revenues for the quarter rose 11 percent to $1.12 billion from $1.01 billion in the year-ago quarter.
Nalco’s lower profit estimates for 2011 largely overshadowed its fourth-quarter earnings. The company estimated earnings per share of $1.65, compared with the analysts’ consensus of $1.84, according to Yahoo Finance. Rising commodities prices will lower profit margins by 3 to 4 percentage points, Nalco said.
“All I can tell you is that we have been hit pretty hard by raw materials in the fourth quarter in 2010,” CEO Erik Fyrwald said in a conference call. “We’re expecting that to continue at least through the first half of this year, [it] could very well be beyond that. And so we’re taking price actions to offset that.”
Analysts were split on the outlook for Nalco in light of cost pressures.
“The earnings release says little about raw material costs and also doesn’t provide any indication of how much price increases have been able to offset higher costs,” said analyst Christopher Shaw of Monness Crespi Hardt & Co., in a research note. Shaw has Nalco rated as a “sell”.
David Rose of Wedbush Securities Inc. wrote that he believes the increase in the prices Nalco charges will mitigate raw materials costs by the second half of the year. Rose maintained his buy recommendation on the company in a research note.
Jeremy Hellman, analyst at Divine Capital Markets, also sees promising long-term growth for Nalco because of its burgeoning sales in emerging markets such as Brazil, India and China.
“All of the fastest growing economies have strained water resources,” Hellman said. “And [Nalco is] not dealing with state municipal budgets in the U.S. or red tape.”
Nalco also acts as a “hidden supplier” to the oil industry and will benefit from rising oil prices, he added. "Nalco sells products that help oil companies get that last percentage of resource out of the ground.”
For the year, Nalco posted a profit of $196.2 million, or $1.42 per share, more than three times 2009 earnings of $60.5 million, or 44 cents per share. The earnings jump was aided by BP PLC’s purchase of oil dispersants in the second and third quarters, following the Deepwater Horizon oil spill.
Revenues in 2010 rose 13.4 percent to $4.25 billion from $3.75 billion in 2009.
Nalco stock closed at $27.78 Thursday, up 69 cents, or 2.5 percent.
