Ecolab Inc. (ECL) Q3 2013 Earnings Report, Transcript and Summary

Welcome to the Ecolab Third 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 Third Quarter Conference Call. With me today is Doug Baker, Ecolab's Chairman and CEO. A copy of our earnings release and 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 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 described in the section of our most recent Form 10-K under the item 1A, Risk Factors, in our third 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 in Slide 3, we delivered strong results in the third quarter despite continuing global economic headwinds. We leveraged solid sales volume growth, pricing and our synergy and efficiency work to substantially improve operating margins and produce a very strong adjusted earnings per share increase. Looking ahead, we expect to continue to outperform our markets and show further double-digit earnings gains in the fourth quarter and the full year as good sales growth, appropriate pricing, innovation, synergies and margin leverage, as well as acquisitions, more than offset slow markets and investments in the business. Moving to some highlights from the third quarter, and as discussed in our press release, reported third quarter earnings per share were $1. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, third quarter 2013 earnings per share increased an outstanding 20% to $1.04. The adjusted earnings per share growth was driven by volume and pricing gains, new products and new accounts, synergies, cost-savings actions and the…

Thanks, Mike. I appreciate the attention. I would sum up the position in this way: Our team and business, I believe, are performing quite well. We're on track to deliver another outstanding year, with a forecasted EPS growth of 18% to 19%. And just as importantly, we're building momentum in the back half of this year heading into next year, setting ourselves up for continued strong results in 2014. Turning to the third quarter, we had a very strong quarter. The P&L was solid, top to bottom, so reported sales, plus 15%, 5% adjusting for acquisition and FX. Our read on the underlying performance is that it's a bit stronger than the 5%, more like 6%, as we continue to refine our portfolio, on Water in Europe, in particular, to improve growth going forward. We're driving momentum here. We had our best new business quarter, from a productivity standpoint in Q3, and we're off to a very strong start from a new business standpoint in Q4. Gross margin was solid, with a solid improvement of 50 basis points if you exclude the mix of Champion, that impact. OI was up over 100 basis points if you adjust for Champion, and all of our major initiatives are on track. Renaissance. Europe margin program delivered 290-basis-point improvement in the quarter. We do not expect that much of an improvement going forward. So it was a bit of an anomaly, but it does indicate that we continue to gain traction here. We continue to expect 150 basis points for the year. Nalco growth and cost synergies remain on track. And Champion, while still very early, is also on track and off to a very strong start. But obviously, we have plenty to do in Champion since we're only 6 months into it. Going forward, we certainly have a lot to do, but there's a lot of upside remaining from a top line growth standpoint. There's a lot of business to be gained. There's a lot of margin to be grown as well. So all in all, we feel very good about where we are and about the future, and I'm quite proud of the team's performance all year, including in Q3.

Thanks, Doug. Operator, would you please begin the question-and-answer period?

[Operator Instructions] And our first question comes from David Begleiter from Deutsche Bank.

Doug, just on the Institutional business, in terms of acceleration for this business, what are your thoughts on this business picking up steam heading into 2014? What do you need to see here?

Institutional, I would say, is a little bit masked by Europe. And there's a lot going on in the European Institutional business. I would say underlying metrics there are improving. If you take that out, we really have had very strong performance in Institutional. U.S. reported, I think, a 6% growth in Q3. I would say it's more like a 5% and -- a day adjusted, if you take it down, but continued solid performance. If you take Europe out, they have improved from 4% to 5% -- or 3% to 4% to 5% in the last 3 quarters. And so they continue to strengthen quite a bit in their underlying performance. They've had very solid new business productivity. Europe, we expect, will start lapping and improving from a sales growth standpoint. It has been improving fairly dramatically from an OI standpoint, where we expect to see both top and bottom line improvement next year, which again, will quit masking, I think, the overall good performance that you see in Institutional in the balance of the world.

And just on Paper, how is Paper profitability in the quarter and looking ahead into Q4?

Yes, Paper continues to be quite strong. I mean, Paper was up 3% on the top line, and it was up, OI, over 35%. So they're doing exactly what we wanted them to do, they're doing a good job.

And our next question comes from Nate Brochmann with William Blair. Nathan Brochmann - William Blair & Company L.L.C., Research Division: I wanted to tackle a similar question, just shifting over to the general Industrial segment. Doug, you kind of hit on the Water business a little bit, and I know that those trends kind of are in line with the sluggish kind of global growth you have been seeing and trending pretty much similar to the previous quarters. But what do we need to see there kind of getting going? I thought kind of coming out of last quarter, we maybe felt a little bit more of a positive vibe in some of those end markets, and I kind of feel like we're coming down to maybe things still being a little bit weak and doing what we can. Was wondering if you could go through that a little bit and see where we could see some of acceleration there.

Yes, I would say there's a couple of components, obviously, in the Industrial segment, but the 2 large ones are WPS, Water, Paper business, and also our Food & Beverage business. So we just talk Paper. Paper has been sequentially stronger from a top line standpoint. And a lot of what's happening is we're starting to lap, if you will, the contract deletions and renegotiations that we went through starting last year in Q3. But what you see is now strengthening top line and continued very strong performance on the bottom line. I think we expect to see modest growth continue in Paper and still strong OI performance moving forward. On Water, if you get -- again, if we walk through and look at our core business and take out Mining for a minute and also the de-emphasized business, we're in very much the same range. That moved up from a very low level in first quarter, to 4% to 5% range in the second quarter, and that's exactly where we remained in the third quarter, and frankly, expect to be in the fourth quarter. We believe that business will continue to improve, as we continue to concentrate on driving the business that's most important to us long term. So the business has increased resources, in particularly the light part of that business, it's going to take a little time for that to manifest itself into sales growth, but we like what that team's doing, and we've got high expectations and expect the Water business to continue to improve going forward. But right now, we would call the 4% to 5% range on the bulk and the important part of the business for our future. And then F&B, F&B has been, I think, a very good story. They've been improving throughout the year. They've been doing a great job in securing new business. That business has got very good top line momentum, and it's a business where you can count on top line ultimately accruing to good bottom line momentum. So we're pretty comfortable with what's going on in the F&B business as well. So I think that sector will take care of itself as we move forward. So we like the fundamentals, and we like the stuff underneath, which is important, the leading indicators, i.e., new business productivity, et cetera, which indicates that we continue to plan on increasing momentum.

And our next question comes from Mike Ritzenthaler with Piper Jaffray.

Just trying to drill into the Energy results a little bit more. On gross margins, I think the mix was a bit unfavorable, but that mix component did not necessarily filter into OI. I was wondering if you could elaborate a bit more about the relative importance of pricing and volume versus synergies as that mix drops to the OI line.

Yes, I would say a couple of things on Energy. One, when we go through and look at the overlying business, we would say it's growing much more to 12% rate, is our estimated rate. And if you want the parts -- and then I'll get into some of the other, because I think it's important just to lay this out. Our oilchem business is growing around 11%; our OFC business, on a consolidated, was growing around 13%; and our downstream business was growing at 7% in the third quarter. And all those numbers, we think, are very much in line with what we expect everything else. Now they were masked, in part, by the Gulf -- the Deepwater Gulf business went offline faster than we had predicted. This is a result of the DOJ ruling, if you will. So it happened a quarter earlier than we anticipated. Not a big deal in the enterprise history, but it does have impacts on the quarter. And then we have a onetime business that comes and goes, which is dispersants and also gas plant products. And those products were much lower this quarter versus last year same quarter. That will come back, and it's episodic. Gross margin, frankly, was quite strong in this business. The underlying base gross margin, if you take out synergies and the impact of some other things, was up over 1 point. So our gross profit in this business, we think, feels pretty good, and the team's doing a good job there. Our OI was obviously fairly strong, particularly when you adjust, if you will, last year for Champion, we own it, and the depreciation that you have to put on the business. And so our OI, overall, was up 1.5 points, 150 basis points. And so we think we like this business, we think it's doing quite well, and we think, when you look underneath, the performance is quite solid in the third quarter.

Okay. Yes, that frames it up nicely. Switching to Specialty. It sounds like from the prepared comments that we're starting to -- it almost sounds like we're starting to see an early peek at the synergies between Food & Beverage and Specialty that you outlined on the Analyst Day versus new customer wins. Clearly, both are important, but is that -- are we starting to see some of those synergies, and is that a fair characterization, and does that give you more confidence in that strategy?

Yes, a lot of what's happened -- I would say a couple of things are showing up in the Specialty number. One, continued very strong success in new business acquisition, and that's been a driver. So big businesses in that segment are our QSR business, our Food Retail business and Pest business are the largest. And then you also have GCS. I would say Pest and GCS continue to improve, particularly in the top line. And absolutely, that's the result of enterprise selling. And they're also benefiting, if you will, from our approach, both with Water and F&B together. We're bringing a lot of Pest business in, as we talked about in our Investor Day. So certainly, that's having an impact there. And I guess I would just say -- you brought up enterprise selling. Yes, I would say since the Investor Day, September, we've continued to have very good success there, we've continued to have a couple of other very major wins, and so we continue to feel quite bullish about that strategy and its ability to continue to impact our top line positively.

And our next question comes from John McNulty with Crédit Suisse. John McNulty - Crédit Suisse AG, Research Division: Just a quick question on -- with regard to your Cleaning & Sanitizing business in general, have you seen any change in approach from any of your competitors in any kind of geographies at all?

Well, John, I would say it's more the same, more like past practice, than I would say, highly different. But certainly over the history, there's different tactics in different geographies, but I wouldn't say that there's a clear new pattern taking hold. I would say that the typical approach remains, selling price and trying to price underneath us. I'd say most important is this metric, we look at, in particular, the Corporate account arena, wins, losses versus all key competitors in every one of our businesses: Institutional, F&B, Water, Paper, Energy. And in no instance are we losing more than we're taking, i.e., we're taking share in every case against every major competitor that we monitor against. And so I guess we want to continue to focus, be aggressive, go after new business, leverage our new innovation, leverage our strength in the field. We think we've got key competitive advantage, and we want to make sure it translates into top line success. So far, so good. John McNulty - Crédit Suisse AG, Research Division: Great. And then just as a follow-up, I know when -- I believe when you made the Champion acquisition, you had targeted to -- in a relatively short form, to get your share count back to kind of pre-acquisition levels. Is that something we can expect by, say, the end of '14? Or how should we be thinking about share repurchases going forward?

Yes. We won't -- we announced after -- shortly after the Nalco announcement that we would do a $1 billion buyback, and we -- basically, we asserted that we plan to complete that by year end, which we're mostly there, but have a little to do in the fourth quarter. But by and far -- by and large, we're done. That was the share buyback commitment. I think what we have said is our use of cash going forward for the near term is going to be a little different in that we're going to have some debt payment, which normally is in our cash use, and it will probably slow down share repurchase, but we still expect share repurchase to offset dilution in '14 and '15, at minimum.

And our next question comes from John Quealy from Canaccord Genuity.

First, more broadly, a very respectable organic growth number at 5%, yet guidance gets tweaked a little bit from the bottom end of EPS guidance rather than expanding the top. Can you comment, just the puts and takes on why you decided to do that?

Well, I mean, the short answer is it best reflects what we believe we will deliver in the fourth quarter, and we work very hard to guide to what we actually think we're going to go do. So then you ask why more from the bottom than the top? I would say it's good news. I think what's happening is we're firming up, and obviously, we've moved the mean up considerably versus our original guidance by moving the bottom up 3, and I think, taking the top down 1. So I think it's just confidence that we are going to deliver where we expected to deliver. So top line, I would say we continue to do well. I think we've seen a number of things from EPS come through. We made some decisions in the third quarter, which we liked, which we're, frankly, taking some risks off the table. We didn't know we'd be taking these risks off the table in Q3. It's smart long term, but we start reflecting the fact that we've already done this in our forecast because we really didn't know if they're going to happen in Q3, Q4, Q1 or Q2 previously. So it's all those things. So I think that's the best estimate we have right now of where we're going to deliver, and we're into the quarter and feel pretty good.

Okay. And then just quickly, an unrelated follow-up, if I could. You talked at the Analyst Day about moving 3D TRASAR into the clean-in-place market with Food & Beverage. Can you just comment on, under the Water line, how that progress is going and if we should see some tangible market impacts in the '14 or '15 timeframe?

Yes, we remain in -- we would call that in test phase right now. It's going quite well. We're learning a lot. We have a lot of customer interest. The launch plan is next year, so we'll have some impact on '14. But typically, our launches really -- the volume really develops in year 2 and 3 of launches, not necessarily in year 1. So I would expect more of the outsize impact in '15 and '16 versus '14.

And our next question comes from Gary Bisbee with RBC Capital Markets.

So I guess 2 questions. The first one, just when we plug in the aggregate Nalco and Champion cost savings into our models, it would seem to indicate potential for another year in 2014 well above the 15% long-term EPS growth target. What factors should we be thinking about at this point that could be counterbalancing negatives or things that might be slowing the growth a little bit? For instance, this year, you had quite a bit bigger year-over-year pension contribution. Is that something -- pension expense. Is that something that could happen next year and other than just the macroeconomic stuff, which we all understand? Any other factors we might think about at this point?

Yes. Well, we're in the middle of planning, so -- I mean, we've got our scoreboard, and it's not unusual every year. It's -- the other factors that are somewhat out of control that could impact anybody's ability to deliver, including ours, FX and what are people's view, raw materials, though we don't believe that's in place now, but that always seems to show itself late. And then just we're going to continue to invest in our infrastructure and make sure we're doing the smart things during this time period. But we did that this year, and we plan to continue doing that in the next few years, but it's going to be important that we get that right to expect to be, ultimately, a $20 billion business and larger. And we want to make sure we've got the right systems in place to manage at that level. So I would say it's those factors. You've got the underlying business, you're right, we still have synergies positively impacting the business, not only this year but next year, and we'll continue to manage this business wisely. We're doing what we need to do to assure that the business has got the right momentum, and that's the smartest thing that we can do right now, drive top line and do the things underneath that we know drive value long term.

And then just a follow-up, can you give us a sense how in Europe or the EMEA region has done, overall, on a revenue basis? I guess, with the new segment reporting, you're not specifically putting in your PowerPoint the different regions. But is the 2% volume growth needed to allow that margin to flow through the next couple years still the case? Have you done that year to date? And how are you thinking about that trending?

Well, this year, I would say a couple things. So when we break Europe out and split it from Middle East/Africa, Europe this year is bouncing around negative 1%, 1.5% for the year, I believe, is about what the top line's going to be, is our guess. So it's been about what it is so far this year. It's gotten a little better. First quarter is our worst quarter. I would say we are comfortable with what's happening in Europe right now. But obviously, we can't sustain negative 1%, 1.5% sales growth long term and continue to expand margins. It just doesn't work. So certainly, going forward, that needs to move to the positive side. As I've always said, we don't need magical growth in Europe to drive margin, we just can't have negative growth. So this year, even with the sales forecast I talked about, part because we're managing some of this, we do expect to see 150-basis-points improvement. We've talked going forward to expect 100 basis points per year. We still think that's the right expectation to have. But certainly, it's predicated on our confidence that we're going to flip that from negative to positive next year, albeit fairly modest growth next year.

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

What Energy end markets would you expect to generate the most growth for you over the next 2 or 3 years? I'm thinking among, say, the oil sands, shale gas, deepwater exploration, those sorts of markets.

Yes, unconventional oil, broadly, but certainly, deepwater, which has been a focus area for that business for a number of years, and still have a number of large platforms installations coming onboard. But other unconventional is actually a positive, too. By and large, we make more money per BTU in oil than we do in gas. The gas is additive, and so certainly, the gas exploration, the frac-ing, the water treatment requirements, all that is on top of what we think is strong fundamental characteristics coming from the unconventional oil.

Great. And then as an unrelated follow-up, can you go into some of the details on the sales realignment in the Institutional business?

The sales realignment is -- I don't know, I would call this evolutionary, not revolutionary. And a lot of what's been going on in North America is just making sure we continue to have the right focus on the opportunities that we have to consolidate some sales management positions so that we can add more sales positions, right? This goes back and forth and ebbs and flows over time, so I wouldn't -- I don't think this is necessarily a headline. Let's call it continual refinement. We get a little fat in that area, we try to be sure that we understand it, and we want to make sure that we've got enough feet on the street to get after the opportunities. The North American business has been steadily improving, they have momentum, and they've got a number of opportunities they've identified that we want to get after.

And our next question comes from Dmitry Silversteyn with Longbow Research.

Just wanted to follow up on a couple of questions, if I may. You talked about the Paper, operating income in the Paper division being up, I think, 35% and about 3% growth in volumes or growth in sales. So is that a function of the restructuring actions you've taken? Or is that lower raw material costs? Or what's driving such a strong leverage from a 3% volume growth?

Yes, I would say it's several things. I mean, fundamental, the Paper business, for a number of years, and we're continuing to invest. It has done a great job creating innovation that matters to its customers. This innovation commands better margins. I think our focus in Paper has been drive and leverage the most advantaged innovation, make sure you get favorable mix, get the pricing you need to sustain this business long term and be smart. And if you end up in contracts with customers that creates an unsustainable economic environment, don't worry about the optics of top line, do the right thing from a business standpoint. So all those things have driven, if you will, this leverage that we've created, 3% and 35%-plus over time. And obviously, you're not going to get, see a 3% and 35% for 5 years running. I mean, sooner or later, you'll run into your base, and you end up continuing to improve OI, but not at a 35-plus percent clip. But that business, I think, and that team has done a very good job managing in a very difficult environment, and they will continue to do it.

That's helpful. And then if you can just talk about a couple of things. First of all, the, sort of the difference in performance of Pest Elimination in North America versus your international businesses, and then just a general comment on sort of the mining trends that you're seeing that impacted your Industrial business in the quarter. Is that getting any better or worse in any particular region and sort of what's your outlook as -- for 2014?

Yes. Well, I'll do mining first. I mean, mining started off like 7% down in the first quarter. And then second and third quarter has been relatively flat, plus/minus 1 point or 2. We expect it to improve starting in the fourth quarter going forward. But obviously, mining as an industry isn't in full recovery yet. It's just getting -- we just think we found the bottom, and we'll start building back from here. That team, through this whole cycle, has done exactly what teams need to do when you have downturns, they have been on major share acquisition, and they have done a very good job securing new business. So as that business recovers, we expect to see outsize growth as a result of their work. So I think the mining team has managed the situation exactly as we would have them do. So Pest, the Pest business, I would say North America and global are about the same numbers. The real difference in the Pest business, they're growing about 6% in North America. That's a steady improvement over the last few years. You recall 4 or 5 years ago, we were stuck in the 1% to 2% range. And so we've gotten a breakout, for several years now, we're in the mid-single digits. Our expectation for that business remains the same, we expect that business to be a double-digit growth business. We believe they're building the programs, driving the training, doing all the things that we know create that situation. So that's the focus on that team right now. We expect the business to continue to strengthen from a top line, and ultimately, the bottom line follows.

And our next question comes from Edward Yang with Oppenheimer. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Maybe, Doug, a clarification on the European Renaissance. That seems to be going well. But a 290-basis-points year-over-year margin improvement in 3Q, that was better than the 160 basis points last quarter, but you expect that to moderate for the rest of the year. So what drove the upside in the third quarter?

Yes, some of it is just our base in OI year-on-year and where some charges fall. So I think the second half is going to be right on top of the 150 basis points. Fourth quarter's probably going to be fairly even on margin. It's simply just how the chips fell this year versus last, and we don't look at it, there's no real drama to the story. We feel very good about the underlying performance of that business. We have changed the economic equation in Europe. It's better. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Okay. And just a follow-up on Global Specialty, strong growth this quarter, up 14%, you expect that -- I think Mike mentioned up high single digits in the fourth quarter. And it's been kind of alternating between mid-teens and high single digits. And what accounts for the lumpiness there? Is it just -- I mean, you mentioned new customer wins, but are the size of the customers so significant relative to the overall size of the business that accounts for that lumpiness?

Yes, our -- the 2 businesses that are -- the 2 markets that we serve that are really comprised of giants would be our Specialty business, our QSR and FRS business and our Energy business. And so yes, they're big customers. They have outsized impact. So the lumpiness comes when you start comparing against a prior year rollout, where you have to basically move in, put your product in the channel. You've got outsized sales in a given quarter for a given customer as you prepare for a rollout. When you start lapping against that, you start moving from teens to single digits. But what we really look at is consumption, what's going on in the business. All in all, that business is doing very well, remains very healthy, but their growth is going to be predicated on their continued success acquiring new business, plain and simple. And they got a great team to do it, and we're confident they will continue to do it, but that's what's going to determine future success.

And our next question comes from John Roberts with -- from UBS.

As you begin your planning here for 2014, how are you thinking about acquisition activity? So in 6 months, we'll kind of roll off. We won't have these acquisition/divestment adjustment changes. Are we going to go back to a bunch of -- a series of bolt-ons across the company? You used to have a nice steady stream of bolt-on type acquisitions across the Global Institutional segment, and that sort of paused. I don't know if we're going to go back. And now with a bigger portfolio, there are a lot more things to -- of small size that can bolt on a lot more places now.

Yes, John, I would say, yes, back to our historical pattern of a number of smaller bolt-on acquisitions is what you should expect to see, small being anywhere from, I don't know, make it up, $30 million to a couple hundred million dollars. And we have a, I think, rich list of opportunities. We have a number, as you might expect, ready to go, can't even keep track of where they all are in announcement cycle, quite candidly. We've already announced several this year, and we will expect to continue to announce those going forward. So do not expect any outsized deals from us in the next several years. One, we don't see anything on the horizon that we think makes a lot of sense for our company. And two, we want to take this time, as I mentioned earlier, to get our systems right, to do all the other things that we know need to be done to get to the next level of margin enhancement. And so that's going to be the work that we're going to be doing.

We should expect that M&A line then on Slide 5 to maybe be like a 2%, 3% kind of number on a more continuing basis?

Yes, it's probably back to our old back-of-the-napkin 6% to 8% organic, 2 to 3 extra points from acquisition, and 50 to 75 basis points of margin expansion. So that, yes, we'll be back to that formula.

And our next question comes from Mike Harrison with First Analysis.

A question on the F&B business. Mexico is one of the largest per capita consumers of soda. There is a proposal to tax soda consumption there. How much of an impact do you think that could have on the FEMSA business that you recently purchased?

I don't have a great answer for you. I mean, from a -- I would say you're right, that could negatively impact us in the Beverage business in Mexico. I would say that would be, in total, a relatively small impact, corporate-wide or even F&B-wide. But you're right, it's not one that we're tracking, but I will take the time to go look at it.

Not keeping you up at night then. At your Analyst Day, you had some new floor care products that you were showcasing. As you think about trying to unseat a competitor that has a very strong floor care position, can you talk about whether you're seeing traction with some of the bigger customers with those new products? And then if you do take the floor care business, how likely is it that you win other Cleaning & Sanitizing business as well?

I'd say in floor care, it'd be like trying to unseat anybody in any industry, you're going to need a significant innovation to take a person in a lead position out. It can't be 5% better, it needs to be dramatically better. I think we have some innovation in that camp. We're somewhat liberated in this area simply because we don't have an entrenched position. So we can innovate in a way that can also be harmful to the category, which is always difficult for companies to do when they have a leadership position. We're not in that position in floor care. So does other business come with it? Yes, but it's not guaranteed, simply because we have many instances where I would say we have the rest of the business and not the floor care business. So I think those businesses typically have to be earned separately, and that's our assumption going in.

And our next question comes from Shlomo Rosenbaum from Stifel. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: I just have some kind of technical questions. Just in terms of getting back to Europe and the improvement to 290 basis points, can you talk a little bit more on specifics? Were there some particular cost takeout that you guys had done that were in the progression that you were working towards last quarter that hit all of a sudden this quarter? Can you just give us a little bit more detail?

No, they'd be in the run rate. I would say that's -- the benefits are coming both in the gross profit line and the SG&A line. The gross profit and SG&A benefits are fairly steady. They increase over time as we continue to reduce the number of people it takes to operate the business and become more efficient. You get lumpiness in an OI line for other reasons. This is a classic -- I just don't want to overcommit and get everybody excited that this 290 is some new magical run rate. It's not. I have other numbers that I'd say look a little worse than they are. I think our 5 is more like a 6 on the sales line. And I would tell you I think this 290 is more in line with our 150 on a going line. It's just favorable for a number of base reasons and onetime reasons. Not bad news anywhere, it just it happens to be how these things fall. The quarters are 13-week periods. So funny things happen, they're not that big, and so you can get some outsize response as a result. For the half, think 150. And I think that run rate for the year, that's really what this business is doing right now, it's good, and we expect to continue that trend, at least at the 100-basis-point level next year. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: Okay, fair. And then just a little bit more detail in Paper. The last couple quarters, you had -- it looks like you're starting to get a decent growth trajectory started over there over last year, it had been kind of bouncing around, some of the quarters were negative. Is it really that you're lapping on the comps, where you had to get out of some of those bad contracts or is there something more specific to that? Did you -- you talked a little bit about innovation. Can you talk just a little bit about the specific points that are driving growth over the last 2 quarters?

Yes. Well, certainly, I'd say all those things came to bear. But if you wanted to boil it down to 3 points, it would be, yes, the base got easier; yes, some start-ups came online, particularly in China, that had been postponed but finally came online, so there is net new business in there as well, i.e., more plants consuming; and certainly, innovation continues to play a role, but its role is larger on the gross profit line than it is necessarily on the top line. Shlomo H. Rosenbaum - Stifel, Nicolaus & Co., Inc., Research Division: What do you mean by that?

Well, innovation is one of the ways we've been driving favorable mix, and so its outsize impact is it could be neutral if we flip one technology off for another, on the top line, but it drives a much more favorable gross profit. Your GP in that business is up several hundred basis points.

And our next question comes from P.J. Juvekar with Citi.

This is Eric Petrie in for P.J. Just a question on your Energy margins. Could you provide a little color going into fourth quarter and 2014, and now, considering that you've moved amortization expense to Global Energy from Corporate?

Yes. Well, I guess I mentioned earlier, first of all, on the amortization, our practice is when a business buys another business, the amortization that came with the business that was bought goes into that segment. We -- frankly, we just made a mistake putting it in Corporate in the second quarter. That's not our normal policy. And we want more transparency for all of our investors. And frankly, the depreciation and amortization of that deal belongs in the Energy segment. Otherwise, I show you an unrealistically favorable view, right, you get all the synergies, but you don't have any of cost of the deal. It's not a smart way to look at a business. So this is our past practice. So we just righted a wrong. We made a mistake, and we fixed it early. In terms of the margin expectations, I think if you get down to the fundamentals, and we've talked about $150 million of synergy expectation, on top of continued strong top line growth, we would have good margin improvement if we had 0 synergies, plain and simple. Simply as volume overwhelms inflation and normal growth costs, you are going to see margin expansion on OI just as a consequence of double-digit growth. When you add on the $150 million, I think that's what you're seeing here. And when we talk about, we think, a fair year-on-year comparison is a 12.2% margin last year, when we -- last year, with both Champion and the D&A. And this year, we're at 13.7%. So it's 150 basis points. We don't think that's going to be unusual performance, while we're realizing these synergies over the next couple years. So my expectation next year is the same kind of top line and margin performance that we'd come to expect.

Okay. And then just housecleaning. Is the $14 million kind of similar to what it was last quarter and on a go-forward basis? And then second, your Energy operating income has been running at 2x top line. How sustainable is that?

Yes, that -- what you should expect for depreciation going forward is $19 million a quarter. It was $14 million in Q2 because it was a partial quarter, because we didn't close on the business at the beginning of the quarter. So $19 million -- I think it's $18.9 million if you want to get really precise -- is the amortization rate by quarter going forward.

And our next question comes from Rosemarie Morbelli with Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Going back to Europe, Doug, are the improvements and the growth on the top line mainly -- solely because of your own doing or are you beginning to see some change in the markets you are serving? And can you give us a feel for what is happening in the underlying markets there?

Rosemarie, you broke up in the early part of that question. Was that regarding Europe? Rosemarie J. Morbelli - Gabelli & Company, Inc.: Yes, yes, the -- what is happening in the market versus what you are doing in terms of helping yourself.

Yes, I would say in Europe 2 things. We typically -- when downturns come, we go down late. And when upturns occur, we go up late. We aren't the early guy in these cycles, typically -- just for a reminder, because we always have to remind ourselves. And I would say, so that's one. So the markets feel like they've been stabilizing. I hear a lot of conversation with both customers and other people I know running businesses in Europe who talk about an improving environment. It would -- it is very typical for us to hear this conversation before we feel it, number one. We have not -- we did not feel it yet in Q3. With that said, why is our business down? Some areas we are focusing on, the areas that we believe are the highest priority, we see better traction there than in other areas. Certainly, Equipment businesses, we have seen more negative impact as a result of the downturn in Europe than we have seen in our annuity-related businesses as we go forward. That's not to be -- that's not unexpected. It's what we've seen in the past. But I'd characterize Europe -- I think the best case you can make is we would deserve like a flat to 1% growth, so it's not dramatically different than what we're seeing. What really is happening and needs to happen is we are shifting our focus to top line now. We are increasing the number of Corporate account people. We are increasing the efforts to get after the large customers there. It is early days, but starting to bear fruit because this pipeline has been worked on for months now. And so our expectation is that our efforts are going to start increasing and that we will start seeing better results in the top line going forward, and we need to. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And does top line growth -- can the margin improvement of 100 basis points annually increase because of the top line and all of the steps you have taken?

Yes, I think top line just works to better leverage the reduction in fixed expense that we've created in Europe. So certainly, yes, I would expect a good piece of fall through, which is what we see in the rest of the world when we have volume. Unfortunately, in Europe, we had created just too high of a fixed overhead scenario, where volume didn't translate into much leverage, can't tune up. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And then lastly, if I may, could you give us a little more detail as to what you are doing in terms of what you refer to as field technology investments? What are you giving your guys, so they become more efficient than they already are with their tablets and everything you already have in place?

Yes, we're doing a whole host of things. I mean, one, we're pushing on what I would call lower-cost, higher-performance field technology products, i.e., we could buy iPads at list and be better off than amortizing laptops over a 3-year period. So one, we're changing out the technology which requires us to change how we basically manage the technology, i.e., cloud versus in-unit. So we're doing a host of things. I would say, simultaneously, we're rolling out in Institutional what we call our Global 360 program, which we plan to globalize over the next 18 months. That will be a big benefit for us as we start seeing the benefits that we've realized in the U.S. over the years and the other geographies as well. We have enhanced technology that we're rolling out in WPS, enhanced technology in Pest, enhanced technology in Food & Beverage. So all of those have similar stories in terms of making it easier for our people to gather the information they need, for us to collate the information, for them to place orders, track shipments, do all that stuff, which, frankly, takes too long today.

And our final question comes from Andrew Wittmann from Baird. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: This actually builds a little bit on Rosemarie's question. Doug, in the next, what, 3 years, you've got a commitment for another $163 million of pretax cost savings, and that's all pretty visible because you've kind of scoped that out. But I'm starting to hear you talk more about the $20 billion company and the preparation to have the systems in place to get at that. Can you give us a texture as to what those out-year investments in the systems can do for your margins after you get these kind of discrete programs out of the way? What's your view in terms of what the margins look like in that timeframe?

Well, Andrew, I'm not ready to give a forecast for 2014, but I'll be liberated and give you one for 2018. Here's what I would say, I think we feel -- one, these investments, many of these are thinking about how we're investing today and repurposing the investment to make sure that we get even more leverage out of it. So I'm not trying to signal some kind of monster ramp-up in spending by any means. What we're really going to do is start channeling the spending. We have a different scale today than we have in the past, and so certainly, what we're going to be able to do is get much more leverage out of the spend that we make in terms of infrastructure. So this is the advantage of the size we are today. So you don't need to start penciling in monsterly different capital expenditures or anything else. We think the numbers we've given in the past are going to be the best indicator of what we're going to do going forward. In terms of benefit, when I was asked earlier about what to expect in terms of acquisitions, do we expect bolt-ons and sort of the traditional Ecolab model, and I said yes, it also referred to the back-of-the-napkin equation that we've had for a long time, which is a 6% to 8% organic, plus 2 to 3 additional growth points from M&A and 50 to 75 basis points a year and just underlying performance improvement in terms of OI and NI, ultimately, margin improvement. That really comes from leveraging these innovations and everything else. So it's not in addition to that, it's how we deliver that. And I think what we're doing is saying, "Yes, we got a runway. We see a lot of this stuff, and we're also starting now to make sure that we've got and continue the virtuous cycle beyond the synergy period and continue to perform at the level that we expect from ourselves, and frankly, our investors expect from us," which is we have a 15% EPS target. As we've told you, we don't manage to cap it at 15%, as this year would indicate. And when we have outsize earnings potential because of synergies and other things, we won't be afraid to have that accrue to the benefit of our investors. At the same time, we know we got to make sure we're doing the right things to prepare when synergies aren't there to give us the extra lift. So that's how we're thinking about it.

I'll now turn the call back over to Mr. Monahan for closing remarks.

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

And this concludes today's conference. Thank you for participating. You may disconnect at this time.