Ecolab Inc. (ECL) Q1 2014 Earnings Report, Transcript and Summary

Welcome and thank you for standing by. At this time all participants are in a listen-only mode (Operator Instructions). Welcome to the Ecolab First Quarter 2014 Earnings Release Conference Call. After the presentation we will conduct the question-and-answer session (Operator Instructions). This call is being recorded. If you have any objections, you may disconnect at this time. Now, I’d 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 first 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 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 discussed in the section of our most recent Form 10-K under Item 1A, Risk Factors, in our first 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 from the first quarter. We leveraged solid sales volume growth, pricing and our synergy and cost efficiency work to substantially improve our acquisition adjusted operating margins and produce a very strong adjusted earnings per share increase. Looking ahead, we expect to continue to outperform our market and show outstanding 16% to 21% earnings gains in the second quarter. And strong upper teens EPS growth for the full year as good sales growth, appropriate pricing, innovation, synergies and margin leverage more than offset mixed markets. Moving to some highlights from the first quarter and as discussed in our press release, reported first quarter earnings per share were $0.62, on an adjusted basis, excluding special gains and charges and discrete tax items for both years, first quarter 2014 earnings per share increased a very strong 23% to a record $0.74. The adjusted earnings per share growth was driven by volume and pricing, new products, account gains, synergies, cost savings actions and the…

Thank you. We’ll now being the question-and-answer portion. (Operator Instructions) Our first question comes from Nate Brochmann from William Blair & Company. Your line is now open. Nate Brochmann – William Blair & Company L.L.C.: Good afternoon, everyone. I was wondering – I know you hit on it briefly and I know that end markets are pretty mixed across the board, but I was wondering if you could give us a little bit more of a regional update in terms of some specifics, in terms of what you are seeing, in terms of traffic or improvement in Europe, North America and it was nice for you guys to mention too Asia picking up a little bit? Just wondering if you could tell us a little bit more in terms of what you are seeing there and where the trends are.

Yes, Nate, this is Doug. I guess you are referring to restaurant traffic? Nate Brochmann – William Blair & Company L.L.C.: For the most part, yes.

I would say, our business – traffic still is somewhat impaired in the U.S. Our business, if you look at underlying business in the U.S. Institutional field sales is in the 5% range, which is pretty consistent with how it's been running last few quarters. We continue to do a very good job driving new business. : Asia is getting better. Latin America continues to be very solid and strong. So I would say the economy this year is predicted to improve. We still feel that’s true. I think the first quarter was a little tough to read particularly in the U.S. because of the weather. Nate Brochmann – William Blair & Company L.L.C.: Okay. Then just a follow-up on that in terms of the improvement over in Europe. Is part of that now your ability to be able to focus a little bit more on the top line and growth as we have some of the transformational projects kind of behind us or do you think that is just the overall economic improvement coming off the bottom?

: : Nate Brochmann – William Blair & Company L.L.C.: That’s great. Thank you very much.

Okay.

Our next question comes from Gary Bisbee of RBC Capital. Your line is now open. Gary E. Bisbee – RBC Capital Markets, LLC: Coming out of the fourth quarter fall, all of the commentary was very positive about new business wins and pipeline and all of that type of stuff and then we saw the growth rates slow quite a bit in the industrial and institutional businesses. Can you do two things? Number one, quantify weather impact if that is possible? And number two, just give us some more color on you talked about account wins here in Europe being good and you talked about it in the back half of last year overall. But when do we start seeing that flow through into better revenue growth? Thank you.

: First, if you look at Energy, Energy activity, new business activity picked up particularly in the fourth quarter moving to first quarter. That takes several months at minimum to start showing up which is why as Mike mentioned in his formal remarks at front reflect confidence, that Energy well it’s going to run at high single-digits in the first half, is going to run double-digits in the second half, and our math suggests right now end the year at double-digits. : So we feel confident. Energy is on track doing what it needs to do and will be in a range of what we’ve always talked about which is for the double-digit business. The other businesses, the institutional businesses, the industrial businesses are all forecasting across the board, stronger growth as we go through the year. And if you look at underneath all of these, they are strengthening. We had a record first quarter new business. The quarter was plus 20% versus the prior two quarters in terms of net new business sold. So it was a quite dramatic increase in terms of productivity from new business and we know that translates into sales. So for the year we feel pretty confident that we will be accelerating, picking up and hanging in the 6% to 8% organic growth rate that we talk about in total. : So we feel confident. Energy is on track doing what it needs to do and will be in a range of what we’ve always talked about which is for the double-digit business. The other businesses, the institutional businesses, the industrial businesses are all forecasting across the board, stronger growth as we go through the year. And if you look at underneath all of these, they are strengthening. We had a record first quarter…

Our next question comes from John McNulty of Suisse. Your line is now open. John P. McNulty – Credit Suisse Securities LLC: Yes. Good afternoon. Thanks for taking my question. So, it sounds like you’re looking have a relatively large launch on 3D TRASAR side in an F&B and some other parts of the business that haven’t seen it before. I guess, how should we be thinking about what that may do to the growth, looking out over the next year or two?

We’ve been in test for a while, we’re now rolling. Industrial launches always take a bit longer, i.e. to get to the peak average sales that we look for. I would say our early results, particularly in the industrial area has been very, very strong. And so, I don’t think we’re going to have any challenge meeting our internal targets for 3D TRASAR, particularly in CIP, which is what we’re doing in Food & Beverage. In terms of solids, solid CIP 3D TRASAR is our targeted lodging effort. It’s going to be lodging and hospitals. There we’re also having a lot of success that’s just rolling out. We see incremental sales in the $70 million range from that, but that should take several years to generate as well, but I would say, all those things will continue to drive our vitality index and gross margin expansion. John P. McNulty – Credit Suisse Securities LLC: Okay. Fair enough. And then just one last question. It sounds like LATAM was an area of relative strength for you, which is I guess hearing some of your peers throughout the quarter, that wasn’t necessarily the case for everyone in the industry. So I guess I'm wondering what's driving that. What specific areas in the Industrial segment are you really seeing that strength?

Well, we had strength across the board. We were strong in F&B. We were strong in Water, we were strong in Energy and Institutional had a good quarter too. So I would just say our positioning of clean water, food, energy and healthy environment plays well in Latin America. It plays well frankly in all the emerging markets. So we saw very strong growth across the board in our emerging markets, not just Latin America. China was double digits. EMEA is going to start showing underlying strength as well as we get moving. We’re starting to do, I think, the right things in Eastern Europe and that will get moving in the direction as well. So, I think it’s just right businesses and good execution. John P. McNulty – Credit Suisse Securities LLC: Great. Thanks very much.

Our next question comes from Mike Ritzenthaler of Piper Jaffray. Your line is now open. Mike Ritzenthaler – Piper Jaffray & Co: Yes. Good afternoon. So we’ve heard that the rent prices on offshore rigs that they have been declining modestly month-over-month for the past few months. Can you describe how that influences your outlook seeing as it runs a little bit counter to that in the Energy segment and especially since Ecolab has a little bit higher customer intimacy on the offshore side of things?

: Mike Ritzenthaler – Piper Jaffray & Co: Of course.

So I just look at it this way. I think the underlying trends that we’ve spoken about for the last few years in Energy are still the prevailing trends and that is new oil replacing old oil, new oil commanding significantly more of our technology than old oil. Therefore, you’ve just got natural inherent growth even at a relatively flat overall oil demand, which is not what we’re actually seeing and you got gas on top. So, I think our trends and what we see in that industry still feel very strong. Mike Ritzenthaler – Piper Jaffray & Co: And then as a follow-up on beverage in particular, it seemed quite strong in 1Q as Mike had detailed in the prepared comments. Is there a way to delineate things like new products from other drivers like enterprise selling in markets like beverage? Is one a better contributor than another?

I don’t have that here. We can of course look at that. I’d say two things. I mean we do have a bunch of new technology going to the beverage market, but we’ve also had a lot of significant success with large players in that industry and we’re gaining share. So it’s a combination of both and obviously technology helps you drive share. So even if you separate out the numbers, I’m not sure that’s the complete story because technology begets new business and so it’s all related. Mike Ritzenthaler – Piper Jaffray & Co: All right. Thanks, Doug.

Our next question comes from John Roberts from UBS. Your line is now open. John E. Roberts – UBS Securities LLC: Good afternoon. As you roll out 3D TRASAR into Food & Beverage, how is that going to play out? Is that going to free the field force to be more active prospecting new business or is it going to just lower cost initially in existing business? How are you going to utilize it?

I think it just dramatically further improves our ability to be best-in-class with customers and this has got several impacts. One, it will give better usage rates, you are going to have equal to better efficacy. You are going to reduce water and energy usage considerably because you don’t have to overshoot all the time and it also has a very tie in impact in terms of our ability to manage a water process at the back end of the operation. So this is important data that they need to collect anyway. It is now automated. I wouldn’t say that it dramatically changes our field sales productivity measures, but it does gives us a very important tool to go out and solidify new business and up sell existing accounts. That’s really where we’re going to focus on driving that. John E. Roberts – UBS Securities LLC: And I just wanted to clarify how you are going to handle the US R&D tax credit. So it’s not in your Q1 results or Q2 or Q3 expectations, but in the fourth quarter you expect to take a full-year catch up, which we’re actively in the fourth quarter for the year?

Yes. That’s exactly how have we have it in the plan. John E. Roberts – UBS Securities LLC: Okay. Thank you.

You bet.

Our next question comes from David Ridley Lane of Bank of America Merrill Lynch. Your line is now open.

Sure. Have you completed cycling through the deemphasized business in water or is that a drag in the first quarter and if so, when would you expect to completely cycle through that? – Bank of America Merrill Lynch: Sure. Have you completed cycling through the deemphasized business in water or is that a drag in the first quarter and if so, when would you expect to completely cycle through that?

We’ll be through most of it by the end of this year, but you’re going to see it even in Q3 and very small in Q4.

Okay. And then was paper OIs for picking up despite the declines in North America and EMEA volumes? – Bank of America Merrill Lynch: Okay. And then was paper OIs for picking up despite the declines in North America and EMEA volumes?

Yes, paper OI was up – volume for the exact number was single-digit. Paper was up – it was slightly up, but yes, it was up.

Let me squeeze one more in. Could you give some details around sort of the globalization of sales initiatives you have particularly in the institutional business. Thanks. – Bank of America Merrill Lynch: Let me squeeze one more in. Could you give some details around sort of the globalization of sales initiatives you have particularly in the institutional business. Thanks.

Like talk about the initiatives, well yes, we have the right global product line and it makes sure that we can get new solid Apex across the globe. Right now we have not add the capability to manufacture around the world. We have developed what I’ll call a much lower capital manufacturing process, which will enable expansion of that program i.e. with localize manufacturing in a much faster manners than it would have, if we had not figured it out how to do this. Two, we are driving Global 360, which is the field technology tool that enables highly productivity, better service, better ability to capture information, which is an important way so to merchandize with particularly large enterprise account while what we are doing, what we see and what we can see suggest, they do to improve their operation which many times involve more of our technology and products and service. The other is just how do you operate the sales and service team and taking some of our know-how and spreading it across the globe. So it’s in all those dimensions. So it’s certainly higher-end product lines, it is the field technology tools and what I would call the general management know-how that we are driving right now. We work last year very aggressively on corporate account efforts in the like and you are starting to see that bear fruit.

Thank you very much. – Bank of America Merrill Lynch: Thank you very much.

Our next question comes from John Quealy from Canaccord Genuity. Your line is now open. John S. Quealy – Canaccord Genuity, Inc.: Hi good afternoon. By healthcare I know it’s a relatively small and promising area, but can you give us an update in terms of your satisfaction with results, I’m not necessarily talking about the quarter, but mid-term platform expansion opportunity including external M&A there?

Yes, from an M&A front I would say, with the promising property has been increasing and that's not only in healthcare, but that's across the board, as we started I would say re-emphasizing bolt-on acquisitions, be it geographic expansion, newer share play or new technology. And certainly our healthcare lift has benefited too from getting back on the focus which is I think, it’s a natural stage of where we are. Come to healthcare, but we don’t like the results that we are seeing, we understand many of the drivers. The business is working hard at how improve their ability to go drive new business impact. So fundamentally in the U.S. in many of the areas that we compete, we’ve had same store sales equivalent challenges. This isn’t unique to us. It’s pretty much across the board in many parts of the healthcare industry. We’ve seen this in many environments before and we overcome it by selling through it, and right now our sales efforts aren’t significant enough to overcome negative same-store sales. I mean it is about as simple as that. So our business is sticky, we are keeping it. There is a lot of the metrics that we like, but we are really if you will, in the shop working on, how do we drive that forward and work on it. Now I will say that's a competency that we have in this company, we are good at this and we are quite confident, we’ll get this move in the right direction and the healthcare teams are all over it, but it’s not going to be an overnight success. So we are not going to start seeing the sixth to eighth, high single-digit collectively for a number of quarters and so we’ve got a so ramping-up sales, which we believe we’ll start seeing, but we are not going to be where, we are comfortable for the several quarters. John S. Quealy – Canaccord Genuity, Inc.: Okay, and then a quick follow-up on Global Energy in terms of the guidance in the back-half of the year, was some acceleration in growth. I would assume that’s still more geared towards upstream and offshore than downstream relatively incremental benefits in the back-half of the year?

Absolutely. John S. Quealy – Canaccord Genuity, Inc.: Okay, great thank you.

Our next question comes from P.J. Juvekar of Citi. Your line is now open. Eric B. Petrie – Citigroup Global Markets Inc.: Yes, Hi Doug, this is Eric Petrie in for P.J. Just a question in terms of your Global Energy margins, it looks like some of your segment adjustments led to a total of advice lower 13 margin as 13.4% from 14.2% first quarter it was at 13.1%. How do you see the trajectory of the margins going forward this year?

Yes, I think, the only change was happy corporate allocations I wouldn’t, the underlying business margins in Energy has been improving steadily and its forecast improve fairly, significantly this year. Eric B. Petrie – Citigroup Global Markets Inc.: Okay. And then could us also talk a little bit about your sales growth in Europe in Institutional, and if you’re seeing in terms of operating margin improvement of your 100 basis points, is there any attrition of that what you now focusing on top line growth?

No our forecast in Europe for margin growth this year was 100 basis points plus and we see that as achievable obviously we’ve had to execute the rest of the year. Our first quarter margins in Europe were up several hundred basis points, it was a very strong start, stronger than forecast initially in fact. But these margins come in lumps at times, so it’s not this moved 100 every quarter, so we don’t expect it was north of 250, we didn’t expect to see that every quarter. So it was a good start. We do not see the focus shift if you will externally impacting our ability to drive the 100 margin point. What we do see is, as we start seeing top line, solidifying and growing which is what we saw in the first quarter. Solidifying, we expect to start to see growth as we move throughout the year. You are going to see a lot more leverage on all of that margin we put in over the last two years. Eric B. Petrie – Citigroup Global Markets Inc.: Okay, and then lastly if I could as you rollout 3D TRASAR into the light, industries and water can you just remind us your light, heavy, mining sales right now?

Yes, in terms of percentage of sales in each? Eric B. Petrie – Citigroup Global Markets Inc.: Yes.

Yes, it’s roughly, yes, just give us a second. Like 40% – yes, so light about 40%, heavy is about 25% and mining is 10% to 15%? Eric B. Petrie – Citigroup Global Markets Inc.: Great, thank you.

Our next question comes from Mike Harrison from First Analysis. Your line is now open.

Yes, I think that adds up to 80 but close enough I guess.

Yes, we just got the same number?

Was wondering if you could talk a little bit about Apex. If memory serves, you guys never really rolled out the Apex1 platform in Europe the way that you had initially expected. So can you talk a little bit about the Apex2 rollout and how meaningful that could be for the European institutional business?

Yes. I know we do not do Apex1, we skipped right to Apex2 was in the process of being rolled out right now in Europe.

Right, but I mean in terms of how beneficial it could be, I mean this is sort of as you say, skipping a generation and really bringing a value creating platform to a set of customers that has been kind of behind the times. So how important is that to growing going forward?

Well, as I mentioned earlier, we had a number of very large new customer wins in the first quarter in Europe institutional. And certainly, Apex is critical and at least two of those. So it’s going to do a number of things, right it gives you a tool to go after entrenched business, because it is by far the most advanced technology in that industry. And so we know we have been handicapped for a while in Europe without the latest technology and without some of the tools, so we deployed another geographies. So this is one of the ways that we are going to start turning around negative sales growth to positive sales growth. I think if we look at institutional, we were positive for the first quarter. It’s the first time we’ve been positive there in a long time, and we don’t even have yet the benefit of the new businesses we sold, because that’s really being rolled in Q2, as we speak right now. So without getting into specifics, we need to get Europe as I’ve always said, our expectation of Europe will not be in the six to eight. But we do believe it needs to start getting in the 2% to 3% to 4% range, and it’s going to rollout technology getting their, the right field tools and driving the sales performance the way we drive it everywhere else, are they keys to doing that. That’s the agenda, we are on now. The P&L is much more rights than wrong, at this point in time in terms of balance of investments and cost structure. So that the good work that the new business will actually accrue the profit. At this point in time, given the structure of the business and so that’s what we’re on. And new technology is the key part of it.

And then just a quick one on energy. Are you seeing any disruption in the Black Sea related to the situation with Crimea and Russia, Ukraine?

No, it’s not the drama. If there are issues as a result of that I don’t think that’s how we’ll see it.

All right, thanks very much.

Our next question comes from Andrew Wittmann of Robert W. Baird. Your line is now open. Andrew J. Wittmann – Robert W. Baird & Co., Inc.: Hey, guys. Thanks for taking my questions. Just a couple here on guidance. I noticed you tweaked the gross margin guidance here for the year from 46% to 47%. Can you just talk about what’s behind that? Was it accounting thing where you moved an immaterial amount of cost from cost of goods to SG&A or were there other things there?

Yes, mostly Andrew, it was one rounded down and all rounded up. We’re probably indicating more precision than we meant to as we went through this. I’d say from a GP standpoint for the year, we feel we are in good shape, was up, if you do apples and apples 50 basis points Q1 versus last year. We expect that spread to widen as we go throughout the year. And so I think, we were taking the steps we need to do to make sure that happens. So it’s going to be a positive contributor but we were trying to indicate that it’s going to be 100 basis points better than we have indicated last call. Andrew J. Wittmann – Robert W. Baird & Co., Inc.: Can you just talk in maybe a little bit of detail on kind of the raw material environment that you experienced in the quarter, and how that outlook shapes up and factors in that gross margin number?

Yes, raws are pretty benign as we look at it. So we do not expect raw materials to be a big conversation point this year, I mean their plus, minus and on the amount we buy it’s pretty very, very small. Pricing will certainly – pricing is going to be near what it was last year and in a benign raw market, it’s one of the key drivers that increased GP. Andrew J. Wittmann – Robert W. Baird & Co., Inc.: Got it, great. And just maybe final question on cash flow; do you still feel kind of like the $1 billion plus number is the right way to think about the year with the start that we have and where we are here so far in 2Q?

Yes, we do. We think we are on track on cash flow. Andrew J. Wittmann – Robert W. Baird & Co., Inc.: Thank you very much.

Our next question comes from Dmitry Silversteyn of Longbow Research. Your line is now open. Dmitry Silversteyn – Longbow Research LLC: Good afternoon, guys. Thanks for taking my call. A couple of things in terms of the food and beverage market. I think the one area that we consistently keep hearing about weaknesses in the protein market. Is there anything taking place that would reverse or alleviate that issue? Or maybe you can talk a little bit about what the issues are and how you are dealing with them?

: : : Dmitry Silversteyn – Longbow Research LLC: So this has nothing to do with changing diets or changing population dynamics or anything like that.

If anything long-term, we think protein is going to be moving forward not backwards as diets change in the emerging markets. Dmitry Silversteyn – Longbow Research LLC: Okay. And then on the Nalco/Champion integration and the process you are making there, can you update us on what the cost synergies to-date realized were and where do you think you are going to be by the end of 2014 and 2015?

Yes, well this is on the Champion – on the Champion side, as you guys, I don’t know what – so on Champion, we had $25 million last year, we’re forecasting $80 million this. We were about $18 million in the first quarter and $130 million year after. Dmitry Silversteyn – Longbow Research LLC: Thanks, very good. Then the last question on – there was a question about the situation in Latin America and you answered it nicely as far as what you are doing to sort of offset the issues there. But the other thing that other companies have been complaining about besides sort of economic condition is currency devaluation. I haven't heard you mention that as a problem. So is that not impacting you or is it you are just dealing with it in terms of getting pricing up or just weathering through it?

Yes, I know as you are aware, we have business in Venezuela, Argentina and the other countries in Brazil. But Venezuela, I mean, we’re pricing to recover, where we’ve already had devaluation. It will fight for normal cycle that we’ve all lived through in the past and so we’re on the other end of that, but certainly there is still risk improvement evaluation in that market, which we talked about in our releases. So it’s an issue. So Venezuela is about 1 percentage sales. So it doesn't seem like the thing to focus on. Dmitry Silversteyn – Longbow Research LLC: Got it. Thank you, Doug.

This is the operator. I just wanted to remind everyone that you’re allowed to give two questions, one main question and a follow-up question. Our next question comes from Rosemarie Morbelli with Gabelli & Company. Your line is now open. Rosemarie J. Morbelli – Gabelli & Company: Good afternoon, all. Doug, you talked about the lack of impact from the issues in Russia and Ukraine on the energy side. Could you talk about what it could do to the institutional side as tourism may come down. So we are talking about restaurants, hotels. What size is your business in that particular neck of the woods?

: Rosemarie J. Morbelli – Gabelli & Company: Okay. That is helpful, thank you. You talked about several large new accounts in Europe. Was the first quarter helped by filling up a pipeline or is it a question of those particular accounts showing revenues over the course of the year as opposed to one big lump in one quarter and then stop until they need more products?

Yes, I don’t think we shift anything to any of those accounts in the first quarter. And if we had, there are sometimes a small pipeline at front, but it's not that dramatic. It’s principally an annuity business. And so as the business comes on, it starts consuming product, but at a fairly gradual pace, it’s not a big lump, big spike and then a downward trend, it's an upward trend. Rosemarie J. Morbelli – Gabelli & Company: If you put them all together can you give us a feel for how much they could generate incrementally?

Yes, we don’t typically name names or disclose size. How about this? They’re big enough to mention. Rosemarie J. Morbelli – Gabelli & Company: Okay.

It’s going to be meaningful, and I think you should expect to be able to see it in the P&L, in the sales trends, in Europe as we move forward. Rosemarie J. Morbelli – Gabelli & Company: Okay. Thanks.

Our next question comes from Shlomo Rosenbaum of Stifel. Your line is now open. Shlomo H. Rosenbaum – Stifel, Nicolaus & Co., Inc: Hi, thank you very much for taking my questions. Doug, I just wanted to ask you a longer-term kind of holistic question. When you bought Nalco, the cost synergies were supposed to run through 2014 and we’re in 2014 now and you’re going to have some benefit from Champion in 2015. It looks like about 30 basis points for the margin. Can you just talk holistically about the levers you are going to be going after to get the 50 to 100 basis point margin expansion when you don’t have as much benefit from acquisition synergies?

Well, I guess, first I would say this. When we announced the Nalco deal, we first talked about $150 million and then we update months later the $250 million in total synergies and that was through 2015, right. The sale synergies of $500 million were through. With that said, they still ultimately come to an end, which I think is the heart of you second part of your question and I’d say two things. Our underlying business and we believe confidently we’ve grown this 6% to 8% range. We have four decades driven margin expansion and we will continue to do that. Plus we will be adding two historic, but relatively there will new tools, because they’ve been on the blocks for a while, which is – we’re back in the share buyback business. So we’re going to be back in the bolt-on M&A business as we move forward. And share has been negative for the last few years, not a positive. But as we stop debt paydown, which is really only remaining of this year, we’re out of the debt paydown business. Going forward several steps that comes off, but it’s kind of natural occurrence and we’re going to have cash utilized for its M&A, which is accretive typically, and then second for some share buyback. And so, you take all those together. I think we’re quite confident that we can play in the 15% EPS range post synergy. Shlomo H. Rosenbaum – Stifel, Nicolaus & Co., Inc: But is the 50 to 100 basis points on the operating margin still the way that you think about it or is there going to be more share buybacks than we had been thinking about before?

No, I think the roughly 75 basis point operating margin is how we think about it. Shlomo H. Rosenbaum – Stifel, Nicolaus & Co., Inc: Okay. And if I can just sneak in just the tone last quarter sounded like Europe was starting to get better at least it felt that way. Would you say that you are incrementally feeling better about Europe or just kind of reiterating what you said last quarter? And I’ll leave it after that.

Starting at the same trend. Yes, we’re a quarter further in and I would say that, yes, we think Europe is showing improvement, our business in Europe in particular.

Our next question comes from Edward Yang of Oppenheimer. Your line is now open. Edward H. Yang – Oppenheimer & Co., Inc.: Hey, Doug. Hey, Mike. The large new customer wins in European institutional, I was curious, was that from one of your larger competitors or how was that distributed in terms of competitive wins? And what are you seeing in terms of price competition from some of your competitors there?

When I would say broadly on price competition, I’d say we still see a lot of the same activity we’ve seen for a long time, which is typically the way our competition is. In many cases it got after our businesses by promising significant price reductions and so unfortunately that hasn’t changed, but we’ve looked at that. I mean, it’s almost 25 years and we’ve seen after 25 years. So it probably won’t change anytime soon. In terms of who is the business from, we won’t get into the institutional business. It was large customers in Europe. Edward H. Yang – Oppenheimer & Co., Inc.: Got you. And pest elimination, that moderated a bit, it grew 3% and had been running at 5%. Is there anything to read into that? Was there weather impact or was that just kind of lumpiness?

Yes, it was hopefully in Europe and France, where we had delayed service and we only do offer the service when it’s performed. So we see catch-up there. So ultimately we’ll be fine. Edward H. Yang – Oppenheimer & Co., Inc.: Thank you.

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

Well, that concludes our call for the day. Thank you very much everyone. We appreciate your time and attention and have a good rest of the day. Thank you.

Thank you for your participation in today’s call, you may now disconnect.