Feb 11, 2010
Executives
Douglas Baker – President & CEO Michael Monahan – VP External Relations
Analysts
Laurence Alexander – Jefferies & Co. David Begleiter – Deutsche Bank John McNulty – Credit Suisse Amy Zhang – Goldman Sachs Ed Yang – Oppenheimer & Company Mike Harrison – First Analysis Gary Bisbee – Barclays Capital Mark Gulley – Soleil Securities Nate Brockmann – William Blair PJ Juvekar – Citi Rosemarie Morbelli – Ingalls & Snyder David Ridley-Lane – BofA Merrill Lynch Justin Hawke – Robert W.
Baird Dmitry Silversteyn – Longbow Research John Roberts – Buckingham Research Jeff Zekauskas – JPMorgan
Operator
Welcome to the Ecolab fourth quarter 2009 earnings release conference call. (Operator instructions) Now, I’d like to turn the call over to Mr.
Michael Monahan, Vice President, External Relations.
Michael Monahan
Hello everyone and welcome to Ecolab's fourth quarter conference call. With me today is Douglas Baker, Ecolab's Chairman, President and CEO.
A copy of our earnings release and the slides referenced in this teleconference are available on Ecolab's website at www.ecolab.com/investor. Please take a moment to read the cautionary statement on slide two stating 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-Q under item 1A Risk Factors, in our fourth quarter earnings release and in slide two.
We also refer you to the supplemental diluted earnings per share information that is also in the release. Starting with slides three and four, we delivered strong earnings results in the fourth quarter despite continued challenging market conditions as we aggressively drove new account gains, sales of new products, cost reductions, and pricing to recover margins.
We also benefited from our change in distributor incentives from the first quarter of the year. Looking ahead we expect to continue to outperform our markets and deliver superior growth once again in 2010.
Starting with some highlights from the quarter, reported fourth quarter 2009 earnings per share were up 45% to $0.48. On an adjusted basis, excluding special gains and charges and discrete tax items from both years, fourth quarter 2009 earnings per share were $0.55 compared with $0.45 last year, an increase of 22%.
The adjusted earnings per share growth was driven by new products, new account gains, pricing, favorable delivered product costs and cost savings which more than offset soft volume, higher compensation costs and key investments in our strategic growth areas. Fourth quarter 2009 results also benefited from the change in our distributor program which benefited both reported and adjusted EPS by approximately $0.03.
To drive results in this challenging environment we have continued to be aggressive focusing on top line growth as we emphasize our innovative products, that provide customers with labor, energy, and water savings, and our unmatched personal service. We are using our product and service strengths to help drive core business, market share growth, and deliver new account acquisitions among our national, regional and independent prospects.
And we are making significant investments in key growth businesses and adding sales and service firepower to build future growth. We’ve also focused on cost savings emphasizing productivity and efficiency improvements to help increase margins.
Looking ahead while there has been stabilization in our major markets, we have not yet seen an upturn and we continue to look for slow recovery over the near-term. We expect we will need to continue to work hard to drive sales, invest smart, and closely manage our costs to deliver our forecasted EPS growth this year.
And if the markets are stronger we will clearly benefit from our extra efforts. We expect adjusted EPS for the first quarter to increase 9% to 21% to the $0.36 to $0.40 range compared with adjusted EPS of $0.33 in the first quarter of 2009.
We look for 2010 adjusted EPS to be in the range of $2.17 to $2.25 per share representing a 9% to 13% gain over last year. Please note these estimates for the first quarter and full year do not include the impact from the Venezuelan devaluation which we will speak to later.
In summary we expect 2010 to reflect yet another strong performance by Ecolab in the continuing challenging environment as strong sales efforts to gain new accounts and achieve better sales penetration along with focused investments in our growth drivers, along with improved efficiency and cost savings enable us to again deliver attractive growth and shareholder returns. Returning to the details, as shown on slide five, Ecolab’s reported consolidated sales for the fourth quarter increased 5%.
Looking at the components volume and mix declined 1%, pricing was up 2%, and currency benefited sales by 3%. The change in distributor incentive programs increased reported sales growth by 1%.
Slide six includes sales growth by segment and division, sales for the US cleaning and sanitizing operations grew 4%. Excluding the distributor change sales increased 2%.
Reported institutional sales were up 2%. New account gains, new products, pricing and the impact from the change in the way we implemented our distributor incentive program, benefited fourth quarter sales.
Excluding the effects of the distributor change sales were off 1%. We continue to outperform lower demand from our lodging and foodservice customers in the fourth quarter.
And while the rate of decline in foot traffic and hotel room demand eased moderately during the fourth quarter, we expect only gradual improvement in these end markets in 2010. As a result we continue to remain focused on driving sales and gaining share using innovative products like our Apex Warewashing program, Wash and Walk and a new laundry program that provides superior performance while delivering demonstrable water, energy, and labor savings as customers look for cost savings and efficiency in this tight economy.
Our Apex Warewashing system which enables us to help customers reduce total [dish room] cost and lower their environmental impact continues to show strong growth and helped lead sales for new accounts. Further Ecolab’s customer support plan for H1N1 flu resulted in some additional sales of infection prevention products such as disinfectants, personal hygiene, and hand care products.
We are also targeting independent accounts and regional chains with additional redeployed sales people and programs. This includes additional sales people in corporate accounts, regional sales, and specialization sales people in the field as well as more sales tools to make them more productive.
These actions have resulted in good new account activity that offsets soft market trends and we’re continuing our efforts to drive more sales and margin gains. We expect these aggressive sales efforts, investments in our sales team and new account gains to help us to continue to outperform our markets in the first quarter and the year.
Kay’s fourth quarter results grew 13% led by strong growth from both QSR and food retail. The food retail business continued to show strong growth with a double-digit gain as it benefited from new account growth.
New products and programs like the introduction of Solids for QSR, along with customer wins bolstered Kay’s results. We expect these initiatives along with continued good new account growth to help drive strong gains in Kay’s 2010.
Textile care sales increased 1% as customer gains, a focus on new markets and pricing offset depressed industry conditions. Customers have shown increased interest in the operational savings textile care’s products and services can deliver in this tough economy.
We look for modest growth in the first quarter as business gains and new products continue to offset lower industry volumes. Healthcare sales rose 14% benefiting from H1N1 demand and a small acquisition.
Excluding the H1N1 impact and the acquisition, sales increased 5%. Continued solid growth in our infection barrier business and skincare products led results.
We have launched several new products in 2010 including a new line of central sterile solid products, as well as new programs for patient room cleaning. Looking ahead first quarter sales are expected to show a moderate gain as continued good growth in our base is offset by a lower demand for hand sanitizers as H1N1 fears decline.
Food and beverage sales were flat. Sales grew in the beverage and food market as corporate account wins and new products offset soft results in dairy, agri, and meat and poultry.
In the first quarter of 2010 food and beverage will continue to focus on new account acquisition, and new product sales. However the slow markets and softer pricing when compared to last year are expected to yield flat to modestly higher sales.
Vehicle care sales decreased 3%. The division remains focused on pricing, and new more sustainable products and operational cost efficiency programs to gain new accounts and drive sales.
However these efforts were more than offset by continued weak market demand. We expect the first quarter will continue to be a challenging environment and we look for sales to be flat or slightly lower.
Sales for US other services decreased 3% in the fourth quarter. Pest elimination sales were off 3% in the quarter as gains in the fast food and food and beverage plant markets were offset by soft conditions in restaurants and lodging.
We continue to develop new products and program solutions to better serve customer needs in the current environment. For example, we recently introduced a new bedbug program that reduces room down time for treatment cycles and thereby helps to lower customers’ total costs.
We also recently introduced Ecolab Contact Formula CR, our first EPA exempt pesticide which poses a minimum risk to humans and the environment. It still provides an average kill time for common cockroaches of less than five minutes compared with eight hours for other liquid applications.
We are working on other programs to provide improved service, efficacy and efficiency. We also continue to target specific growth markets like food and beverage processing, improve our service delivery and are working to build contract growth.
However we expect the continued soft economy will result in slow sales in the first quarter. GCS sales decreased 6% in the quarter, however profitability once again substantially improved over a year ago.
Service and parts sales remained soft but appear to be stabilizing. The sales pipeline and chain customer interest in the value proposition remains good.
However new account sales were more than offset by the impact of slower foodservice business conditions and some lower profit business that we exited and by general market weakness especially among independent accounts. Despite the lower sales volume GCS profitability was substantially better compared with the fourth quarter of last year as we continue to see productivity and efficiency improvements.
We are using some of this improvement to invest in sales force additions to drive future growth. Looking to the first quarter we expect sales to be flattish compared to the prior year but we expect GCS will again report significantly improved profitability over the prior year period.
Measured in fixed currencies international sales increased 1%. Europe, Middle East and Africa sales declined 3% in the fourth quarter at fixed currency rates as most divisions experienced lower sales in the quarter.
Europe’s institutional sales were off, foodservice and lodging trends appear to have stabilized but as in the US we have not yet seen a return to growth. Focused sales efforts targeting new business with the regional local customers and new products that offer customers cost savings helped to drive new account gains in the soft economy.
Food and beverage sales declined primarily reflecting lower equipment purchases due to the uncertain economy. The business continues to focus on winning new customers by emphasizing cost savings benefits of our leading products like [DryX] and water care.
Textile care sales were lower reflecting reduced lodging and uniform volumes. Europe’s healthcare sales increased benefiting from H1N1 sanitizer demand.
Europe’s pest elimination sales were lower however we’ve continued to improve both operations and profitability. Europe’s business information system’s platform work continues to move forward.
We have successfully implemented a system in half of our European business. We will continue to roll out another seven countries in the first half of 2010.
With the continuing weak market trends we look for Europe’s first quarter fixed currency sales to be similar to those of last year. Asia Pacific sales grew 7% in fixed currencies as they more than offset the impact of economic uncertainty and low levels of business travel and tourism in the region.
Institutional sales grew modestly due to the recession’s impact on hotel occupancy as well as the reduced catering business in the high-end hotels. Food and beverage sales showed strong growth.
Both the beverage and brewing sectors continued to grow benefiting from increased product penetration and account gains. Looking ahead Asia Pacific expects good sales growth in the first quarter reflecting recent account wins and stabilization of the markets.
Fourth quarter sales for Ecolab’s Canadian operations increased 9% over last year in fixed currencies. Institutional rose moderately as we leveraged our strengthened distributor partnerships.
Food and beverage, healthcare, vehicle care, and pest elimination all recorded strong sales driven by new account gains. Latin America reported a solid sales gain rising 6% in fixed currencies as all divisions increased.
Institutional growth was driven by new accounts, increased product penetration, and continued success with global and regional accounts. Food and beverage sales reflected good demand in the beverage and brewing markets as well as the benefits of new accounts.
And pest elimination showed continued good growth. Overall we expect attractive growth trends to continue in Latin America with another solid gain in the first quarter.
Turning to margins on the income statement and slide seven of our presentation, fourth quarter gross margins continue their recovery increasing 200 basis points to 50.1% compared with 48.1% last year. The quarter’s gain was driven by pricing, improved delivered product costs, and costs savings.
SG&A expenses were 36.9% of sales, 40 basis points above last year. The increase in the SG&A ratio was due to accelerated investments in people and systems, prior year variable compensation reductions, and other cost increases which more than offset pricing leverage and savings from our recent restructuring.
Operating income for Ecolab US cleaning and sanitizing segment increased 29%. Excluding the impact of the change in the institutional distributor incentive program, operating income grew 19% and margins expanded by 250 basis points.
The increase was driven by pricing, favorable delivered product costs, and cost savings. Operating income for US other services grew 14%.
Margins expanded by 220 basis points over last year driven by pricing and cost savings actions. International fixed currency operating income increased 5%.
Pricing gains, the cost savings efforts, and favorable delivered product costs more than offset continued investments in our systems, people, and other critical areas of the business. Corporate segment includes special gains and charges which are detailed in the press release.
Ecolab’s reported fourth quarter consolidated tax rate was 35.6% compared with last year’s reported 35.5%. Excluding discrete tax items and the tax impact of special gains and charges the adjusted effective income tax rate for the fourth quarter 2009 was 31.9% and compared with 30.5% in the fourth quarter of 2008.
The increase in the adjusted fourth quarter 2009 effective rate was primarily due to lower tax benefits from our international operations. We also repurchased 1.2 million shares during the fourth quarter.
The net of this performance is that Ecolab’s reported first quarter diluted net income per share was $0.48 compared with $0.33 reported a year ago. When adjusted for special gains and charges and discrete tax items in both years, adjusted earnings increased 22% to $0.55 when compared with $0.45 earned a year ago.
Turning to slide eight, Ecolab’s balance sheet and cash flow remain strong. Total debt to capital was 32% at December 31, compared with 42% reported a year ago.
Our net debt at December 31 was 30%. We also made a voluntary cash contribution to our pension plan of $100 million in December, bringing our total 2009 voluntary US pension plan contribution to $225 million.
Looking ahead slide nine shows forecast for our end markets in 2010 based on various industry sources and our internal estimates. As shown these forecasts call for a return to growth albeit slow growth, with gradual quarterly improvement in our key end markets though US foodservice is expected to be soft.
Against that backdrop we continue to take appropriate actions to drive both our top and bottom lines in 2010. As outlined in slide 10 we continue to drive new account and market share growth using our product and service strengths that combine to help customers reduce their costs and improve their efficiency.
We will invest in growth businesses like healthcare, global pest, China, and Latin America as well as new products and acquisitions to accelerate the top line. And we’ve planned to hire more than 600 sales and service associates in 2010 and to invest in field technology to make them more productive.
We expect fixed currency sales to rise in the low to mid single-digit range in 2010 and look for gross margins to show continued good improvement. SG&A will reflect the investments we are making in our sales force and systems, and the SG&A ratio should rise slightly relative to sales.
Corporate expense is expected to be slightly less than 2009’s $24 million, as we near completion of the systems implementation in Europe. Interest expense is expected to be comparable to 2009 and a tax rate is forecasted to decline to the 30% to 31% range.
Shares are expected to be about the same as 2009. As a result we look for full year adjusted diluted earnings per share to increase 9% to 13% and be in the $2.17 to $2.25 range in 2010.
As noted in the press release this estimate and that for the first quarter does not include an unfavorable $0.02 per share related to the devaluation of the Venezuelan currency in the first quarter. Slide 11 shows an EPS bridge for the first quarter and the full year 2010.
As indicated we expect volume growth to improve through the year. At the same time the benefit from delivered product costs is expected to ease as should foreign currency translation.
The bridge also shows our focus on accelerating to line growth as we will invest in growth drivers like our sales and service force, field technology, and systems. Pension costs will rise somewhat in 2010.
The all other category reflects our actions to drive cost savings and a lower rate that will help to fund investments in the business. Looking at the 2010 first quarter we expect modest year on year fixed currency sales increase as new account gains more than offset continued challenging conditions.
We look for international sales to be similar to last year at fixed currency rates as good growth from Canada, Latin America, and Asia Pacific are offset by trends in Europe. Gross margins should increase.
We will kick start the growth investments in our sales firepower and technology in the first quarter and that will be reflected in the higher SG&A ratio. SG&A will also compare against the first quarter of last year when we aggressively cut costs and implemented restructuring that significantly reduced that quarter’s SG&A expense.
The press release includes these line items of our first quarter P&L. Net we expect adjusted diluted earnings per share for the first quarter excluding special gains and charges as well as the unfavorable $0.02 impact from the Venezuelan currency devaluation and discrete tax items to increase 9% to 21% to $0.36 to $0.40 range compared with the adjusted earnings per share of $0.33 earned a year ago.
In summary as noted on slide 12 we performed effectively in the fourth quarter against very tough conditions and delivered on our forecast as we invested in our future. And despite the expected challenges from continued weak markets we continue to look for a solid first quarter gain and expect to deliver a very attractive performance for the full year of 2010.
And now here’s Douglas Baker with some closing comments.
Douglas Baker
Thank you Michael, the first point I’d make is we made a clear shift back to offense and beginning in Q4 and offense is where we belong. And in total I feel very good about how we managed 2009 and most importantly how we left the year.
We left the year a much stronger company. We made great progress on our key initiatives.
Our emerging market investments are paying off; China, India, and Brazil. Our healthcare business continues to strengthen.
We’ve got a much stronger team. We continue to add to the portfolio.
Water, waste, we’ve added significant talent there as well. And our focus is sharpening and we are starting to see results already.
European restructure, we have the final of the four waves of countries going live in the second quarter of this year and we are going to have that work then behind us and then start shifting to harvesting if you will, the benefits as a result of these investments. The margin upside that we have discovered as we’ve gone through this is real and if anything, it’s a lot bigger than we anticipated.
Core technology, we made great progress here particularly in our anchor technology and did a great job retooling our raw material flows so that we are less exposed to some inflationary pressures as we go forward. We’ve also added share in our core businesses.
We’ve added a corporate account sales heads that we talked about throughout the year. We’ve picked up new business momentum and I anticipate the first quarter of this year to have record new business productivity.
So 2010 we anticipate will be another successful year though we don’t predict any market miracles, meaning we believe the market has bottomed but we don’t see a V recovery particularly in the US or Europe. So while we remain bullish on the long-term we’re watchful over the nearer-term but we are confident in our situation.
We still chase $50 billion-plus of opportunity, we’re doing a great job on locking that potential. We still have lots of margin upside and have clear priorities to get after it and anticipate better OI margin in 2010 versus 2009.
We’re well positioned in terms of M&A. We’ve got the capacity to take it on both management and financial and there is significant opportunity out there that’s starting to appear.
Net, our objective is double-digit EPS done the right way in 2010 and what I mean by that is we have got to be very clearly focused on building sales volume growth which is exactly how we aim to drive this because that’s going to give us sustainable growth moving out of the year. And we will also do it while maintaining progress in our key growth initiatives.
So we are on it, feel good about our plans, and feel good about our progress. So with that I’m going to turn it back to Michael.
Michael Monahan
Thanks Douglas, a [inaudible] of upcoming Ecolab events, we plan to hold a tour of our booth that the National Restaurant Association Show in Chicago on May 24. We will have more details as we get closer.
In the meantime if you have any questions, please contact me or Nicole in my office. That concludes our remarks.
This conference call and the available slides will be available for replay on our website. We are now ready for the question-and-answer period.
Operator
(Operator Instructions) Your first question comes from the line of Laurence Alexander – Jefferies & Co.
Laurence Alexander – Jefferies & Co.
I guess the first question about productivity, how much are you increasing your sales force in 2010 compared to 2009 and given all of the investments that you have been making, continue to make in sales force productivity what should that translate into in top line momentum in 2011 and 2012.
Douglas Baker
The first question, we plan to add 3% to 4% in terms of number of sales people in 2010 versus 2009. And we anticipate that volume this year I would call it probably a net equal in terms of volume productivity this year as we start adding the sales team.
We’ve always said that there’s a lag in terms of reaching full productivity. But the anticipation is that we continue to build volume throughout the year and the sight line is clearly 2011 and 2012 because its going to be critical to do that so that we can have sustained double-digit EPS going forward.
Operator
Your next question comes from the line of David Begleiter – Deutsche Bank
David Begleiter – Deutsche Bank
In a flattish market, how much harder is it to gain volume than when the market is growing as it was prior to this downturn.
Douglas Baker
Well clearly its tougher, you would rather be rolling a canoe in a river flowing the same way you’re paddling. Yes, I would say, look we’ve got a pretty good track record of rebuilding volume momentum which is really what we’ve focused on.
We’re going to continue to make sure that we get the right price but we have got to have underlying volume growth as well to go build the type of top line momentum and generate the kind of income that we know we can generate. I would say we are seeing progress in our sales line as we go through this.
It never moves as fast as everybody wants it. Its clearly an environment that we expect to be not as favorable as I would say the most optimistic forecast might suggest.
Again we hope we’re wrong in terms of our forecast but what we’ve got built in here is really a pretty flat recovery in both US and Europe. AP and LA we have clearly seen, LA skipped this whole recession as far as we can tell and AP probably bottomed in the second quarter where we really didn’t see the bottom in the US until the third quarter and Europe not until the fourth quarter.
Operator
Your next question comes from the line of John McNulty – Credit Suisse
John McNulty – Credit Suisse
Just two quick questions, one on the balance sheet your net debt to cap is now getting to a pretty reasonable if not low level and when we look at your stock right now, its probably the cheapest I can recall it trading since I’ve been covering this space, so I’m wondering what your thoughts are in terms of maybe putting the balance sheet to work in buying back stock, and if its not going to go there, where should we think about cash going, going forward.
Douglas Baker
I would say our priorities are attractive M&A targets first and share repurchase would be certainly secondary to that. As I mentioned in my comments, we’ve worked to be patient.
There are a number of what I would say properties that we’re interested in. Obviously we’re going to buy them if it makes sense for the business, at the price that they’re going to go for.
But I’m pretty confident that we’ll have a successful M&A year this year. If we don’t clearly share repurchase is something we’ve done in the past and we would likely consider if we don’t have success in M&A.
Operator
Your next question comes from the line of Amy Zhang – Goldman Sachs
Amy Zhang – Goldman Sachs
My question is related to raw materials outlook and as we know there is a lot of discussions from the specialty chemical companies about raw materials inflation, I’m wondering your outlook for that and also your sales guidance on your slides, how much of the pricing gains you’ve baked in and any guided range.
Douglas Baker
First raw materials we are forecasting that they will be modestly favorable year on year. We clearly keep a weary eye on the raw material markets as we go forward.
It typically takes awhile for these to flow through our P&L even when they start moving and we’ve successfully mitigated it for a period of time in the past. So I think we’ve got a good handle on that but clearly raw materials is always one of the risks or potentially opportunities in any of our plans year on year.
In terms of pricing, we anticipate that we will continue to see increased pricing in total around the globe. Probably back to more historic norms of around one point percent.
So we don’t anticipate price erosion which has been a frequent question. In fact we anticipate that we’ll continue to be able to drive very modest price increases.
Operator
Your next question comes from the line of Ed Yang – Oppenheimer & Company
Ed Yang – Oppenheimer & Company
Two questions, during the analyst day you spoke about 1000 points of leverage and now you’re investing a little bit more on the sales forces for volume, two different buckets, but why not dial up the leverage in terms of getting greater efficiency so that you could still reinvest in the business while maintaining SG&A leverage.
Douglas Baker
What I would say is I think that is what we’re doing. If you look at 2009 we were up OI margin 90 basis points when you take adjusted versus adjusted 2008 and our anticipation in 2010 is that you’re going to see an additional increase in OI leverage as well around 50 to 75 points range that we talk about over time.
So, I think we’re doing exactly what you say which is we are driving efficiencies in the business, we are taking a portion of it and reinvesting back in the business particularly with an eye on driving volume growth, and we’re also letting some of it flow through down to the bottom. That’s the formula.
Operator
Your next question comes from the line of Mike Harrison – First Analysis
Mike Harrison – First Analysis
You referred to moving squarely back to offense in terms of your sales strategy, obviously when the economy was in decline the sales strategy shifted more toward new account generation and now as we start to look at a bottoming and gradual recovery I was wondering if you could maybe give some more detail about exactly what you mean when you say you’re switching back to offense and what that means in terms of your sales strategy.
Douglas Baker
We never sent a note out to our sales team to say get off offense but I think what we’re seeing is while we added corporate account heads throughout 2009, we started heavying up some of the core investments in the growth areas that we’ve consistently talked about like water and waste, healthcare, even expansion of some of our programs in emerging market businesses where we’ve added talent, significant talent, over the second half both in headcount and just other managerial plays. So that stuff I would just say we’ve started pushing more aggressively late in the second half of last year because we started becoming more confident that we had seen the bottom and we had a better idea of what the environment was going to be going forward.
So that’s what we’re referring to. We never went completely in a turtle posture but I would also say no doubt if you go back a year ago, there was a heck of a lot of uncertainty and there was a lot of defensive play going on to make sure we had the right amount of cash that you could protect your balance sheet, to protect the business franchise et al.
I think we played that quite well. But then we also had to get shifted back on getting the sales growth moving.
Michael Monahan
Just to be clear last year we were also making targeted investments in selected areas, China, Latin America, healthcare, etc. so it was one which was very mindful of where the opportunities were and continue to drive those.
Operator
Your next question comes from the line of Gary Bisbee – Barclays Capital
Gary Bisbee – Barclays Capital
I think you said that the margin benefit from the new operating systems in Europe, you’re more confident now that they’re real and if anything were better than maybe you’d previously expected, I think you said that referring to the systems. Can you give us a sense I guess how you’re confident in that and then what level of savings we should expect and over what time period you’d really achieve that.
Is that over a couple of years.
Douglas Baker
I think the best way to think of it is that way. So where are they?
There’s significant savings in supply chain and warehousing and distribution. We also think ultimately in raw material procurement.
This was very much divided and we were running individual country operations even in the supply chain arena. So we weren’t fully capitalizing on the billion and a half dollar leverage that we had built over time in SG&A particularly in the G&A side.
We’ve got back offices, multiple, even within a country much less throughout the region. We know that there’s significant opportunity there.
And we’re not talking about anything that hasn’t been done by a number of companies in the past so we’re very confident in our ability to go after this. I think what we’ve learned going through this process is just how fragmented that business really was when you start peeling back the onion and so as a result it was more complicated to get the system in place than we had anticipated.
The flipside to that is that the richer environment in terms of seeing margin. How its going to come, is we’ve always said you’ll start seeing the big benefits in 2011 but we are as I mentioned before going to have the rollout behind us in the second quarter of this year so we’ll be shifting very aggressively in the second half to starting to get after first product supply, and leveraging those savings and then G&A savings as we move into 2011.
But it’ll take us a few years to get fully realized and rebuild this back to a, or build this to a 13%, 14% OI player.
Operator
Your next question comes from the line of Mark Gulley – Soleil Securities
Mark Gulley – Soleil Securities
Thanks for the market guidance slide that you provided, on page nine. I’m struck by the difference in the trends that the forecasters are seeing for the lodging side versus foodservice side, can you help us understand why those trends are so different and its pretty much across regions too, particularly in the US and Europe.
Douglas Baker
I think what we’re, lodging is on a path to recover much quicker than foodservice. A big part of it is because business spending in terms of travel is looking to tick up this year versus last year, and a lot of, lodgings exposure is more on business than say foodservices in total.
Foodservice is predominantly a consumer spend item and the consumer spend areas are still we anticipate to be under real pressure particularly in the US and also in Europe.
Operator
Your next question comes from the line of Nate Brockmann – William Blair
Nate Brockmann – William Blair
Just wanted to dive into a little bit into the acquisition strategy, I assume that that to be in a lot of your key areas of focus in terms of water, healthcare, merging markets, one, I wanted to see if that is indeed true in terms of some of the M&A opportunities out there or what’s on the horizon this year and then also to dive a little bit more into the healthcare opportunity for 2010 in terms of maybe some new product goals or where you’d like to take that business this year.
Douglas Baker
First of all you’re largely right on M&A opportunities, I would obviously add healthcare in there. And the other piece is we are open to what I would call kind of pure bolt on acquisitions and core businesses where they make financial sense given where some of the smaller players are at this point in time.
In terms of healthcare our focus, we recently announced we are rolling out our HAIC or the infection control portion of our program, the protect system as we move forward right now. We’re going to continue to build out that program and there is some technologies that we are interested in adding, some we will do through internal R&D but we’ve also been looking at licensing and acquiring technology in the market.
We had a few such acquisitions in the fourth quarter, some of these we took on and paid fairly large licensing fees as one-time payments even in the fourth quarter because it was the best way from an economic situation to pay for these even though it was inconvenient if you will from a quarter to quarter statement. So we are very aggressive and the healthcare team is all over this.
Our anticipation is another very successful year for the healthcare business in terms of continuing to drive top line but also bottom line improvement even while investing in this business. So I think that team is on the right course and we feel very good about that investment.
Operator
Your next question comes from the line of PJ Juvekar – Citi
PJ Juvekar – Citi
Kay sales grew 13% can you break that down between QSR and food retail and my second question is that food retail has been growing for a couple of years, how much market share is left to gain there.
Douglas Baker
You’re going to drive me to put my glasses on, so food retail was the largest growth driver but even the QSR side was near double-digits. And I would say in the food retail side I think there’s significant share still to be had and we anticipate that food retail is going to continue to be a very strong growth engine this year based on new business activity that they’ve already got under their belts.
Long-term food retail had a lot of upside, we’re starting to have success in Europe. This is a proposition that we’re expanding globally i.e.
the focused position on helping retailers manage food safety as they move into increasingly prepared food. So we like the food retail business.
I think its still pretty early in its growth story.
Operator
Your next question comes from the line of Rosemarie Morbelli – Ingalls & Snyder
Rosemarie Morbelli – Ingalls & Snyder
Could you talk about your new account, whenever we listen to your conference calls there is always new account gain in all categories. If you eliminate the new accounts how much was the decline in the existing one because in the end your top line grew only 1%.
And then if you could follow-up with giving us some details as to what you call independent accounts, is that different from national accounts or is there something in addition that you need to add to that and as we are going into, pursuing new accounts, could you give us some detail as to what the new technology that you are investing for the new sales force to translate into, is it better profitability, it is more accounts, could you just help me put my arms around this new account statement that you’re always make.
Douglas Baker
The reason we make this new account statement is because that’s really how we drive growth so it is very core to our strategy. We are going to grow by selling more stuff to more people.
And every time we lose sight on that we are going to have a fundamental problem, so the heart of your question, number one, what would our business look like without new growth. Well clearly let’s pick on institutional businesses, we have two factors.
You had closures throughout the last couple of years and you also had just fundamentally lower consumption in these units as a result of reduced traffic and reduced check size even when traffic existed. What would that have been?
Three to 4% down quite easily if we didn’t get after it. And so we know that the new account productivity had enabled us to offset a lot of that decline as we move forward.
We expect that the market has bottomed meaning we aren’t going to have negatives to go against so we’ve got firmer ground upon which to build so the new accounts that we start adding now are going to be additive versus just filling a hole that’s created by a market situation. Number on the street side, first of all I would say when we look at the global chain or corporate account multinational player opportunity it remains, it is a very sizable opportunity.
We do not have the same share of that opportunity in all regions. And so we have been investing in talent, we’ve been exporting talent and building up our corporate account teams around the world so that we can do a much better job capturing that particularly in the fast growth regions and we are successfully doing just that.
So that still remains a very rich growth area for us as a company. If you get down to independents, last year we had very good success particularly in institutional if you want to talk street accounts, partnering with Cisco, US Foods, other players, around both US and even increasingly in Europe and we talked about a program we had with Cisco in particular called Juggernaut where we added over 20,000 new accounts principally street or independent accounts which generated sizable business opportunity.
This has led us to have conversations with Cisco about how to further enhance the growth opportunities just as we do with other distributor partners, we learned a lot last year that we know we can apply even more effectively moving forward. In terms of productivity and sales tools, which I think was the third part of the question, we rolled out what we call, for lack of a better term, laptop technology built in laptop so our field sales teams first in the US.
Last year we continued to deploy that throughout Latin America, throughout Europe, and throughout Asia in spite of the economic downturn and while it was a sizable commitment in capital, an expenditure we knew it was important because it does several things. Certainly it drives productivity and we have seen that and that’s one of the reasons that we have continued to increase the OI margin in the US is because of that technology.
But its even more importantly it increases our professionalism and ability to sell new business, to capture the value that we create for chains, or for large food and beverage enterprises and the ability to merchandize that at the headquarters and demonstrate how we are doing in terms of saving them water, saving them energy, really get to the heart of our value equation. That’s the secret of the field technology play.
So I think all three of those things are moving in the right direction. We don’t get into naming chains and naming other things but we feel very good about where we are.
We’re building momentum in this area and as I said I think the first quarter is all set to be a record quarter because of a few key deals.
Operator
Your next question comes from the line of David Ridley-Lane – BofA Merrill Lynch
David Ridley-Lane – BofA Merrill Lynch
It looks like both pension expense and the growth investments are more heavily weighted towards first quarter in 2010, what other costs are going to fall more heavily in the first quarter than the other quarters.
Douglas Baker
The investments, they are a little smoother than they were, but what happens is they start running into the second half when we started heavying up investments in 2009 which is why there’s a lower impact if you will on average in the last three quarters versus the first quarter.
Michael Monahan
In pension area, as we will have a little bit higher pension costs as we showed, pension benefits in total is about $0.06 so you’re seeing that kick up and its simply on a year on year basis is the reason for it being a little bit heavier in the first quarter.
Operator
Your next question comes from the line of Justin Hawke – Robert W. Baird
Justin Hawke – Robert W. Baird
One more question on the G&A expense and in your guidance I understand that its going to be up year over year in the first quarter just because of some of the things you cut out first quarter of 2009, but I guess when we’re thinking about for the full year and the savings you’ve realized so far, maybe you could give us, quantify what the savings from your restructuring has been in 2009 and what the G&A should be going forward. Is it actually going to be down year over year as a percentage of sales.
Douglas Baker
Well first of all what we realized is we spent about $74 million. We realized $53 million in 2009 and anticipate another $20 million-plus to be realized year on year in 2010 as a result of this.
The lion share, those savings don’t include things like discretionary travel cutbacks, and the like, those are structural changes. The vast majority of those are going to be forever built into the business because we were closing facilities, consolidating operations, doing a number of things that have tangible ongoing benefits.
In terms of investments this year, yes, clearly when you get into first quarter, first quarter last year we basically had people frozen to their desks. So we’re going to have more travel if you will in the first quarter than we did last year because it was basically a net zero.
I’m being a little extreme but it was very, very much shut down and getting after customers takes some modest investment in T&E unfortunately. But that’s the thing we’ve learned over the years.
In terms of where SG&A is going to be for the year, we anticipate it that its going to be very close to last year, maybe modestly up as we go through, but I’d say the ratio is going to be close to in line to a year ago.
Operator
Your next question comes from the line of Dmitry Silversteyn – Longbow Research
Dmitry Silversteyn – Longbow Research
Just wanted to follow-up on the comments that you made about the GCS business and the profitability improvements there, my understanding is that it still lost money in the fourth quarter just not as much.
Douglas Baker
Yes you’re right, it lost 2.5 in the fourth quarter, that was versus a $5 million loss the year before. I guess what I’d point out on GCS is a couple of things, we are seeing a bottoming in terms of sales pressure.
We’re not completely there but we’re very close, we’re probably there as we talk. We are also, have moved this business to cash positive both last year and forecasted its going to be cash positive this year as well.
So we’re just fundamentally in a different position on this business than we were previously.
Operator
Your next question comes from the line of John Roberts – Buckingham Research
John Roberts – Buckingham Research
I’m looking at slide nine, and the European market outlook for 2010 looks to be moderately up, foodservice is down 1% everything else is flat or up, it sounded like you were expecting Ecolab to be flat or even maybe down a little bit in Europe in 2010.
Douglas Baker
I think that was, I think what we were talking about this forecast that you’re looking at is an annual forecast for the year. Even that forecasted ramp up for the quarter and I think what you’re referring to is the sales forecast we talked about for Europe was for the first quarter.
We anticipate Europe to be positive year on year in sales for the year.
Operator
Your next question comes from the line of Jeff Zekauskas – JPMorgan
Jeff Zekauskas – JPMorgan
Just a couple of questions, what are the factors that you think would lead to a much better year in 2010 in US institutional and what are the factors that might lead to a tougher year.
Douglas Baker
US institutional, I would say if new business activity proves to come on even faster than we anticipate some of this is already what I would say in the bag. That could lead us to have a healthier top line in that business, that translates quite quickly into healthier OI.
That would probably be the single biggest improvement factor. I would say on the downside, I guess if the US economy deteriorates versus holds or improves you would argue that that business would suffer but I would probably characterize that as a single biggest risk in that business and while I don’t want to take it completely off the table, we’ve tried to, we’ve conservatively estimated the economic rebound.
Operator
Your next question is a follow-up from the line of David Begleiter – Deutsche Bank
David Begleiter – Deutsche Bank
Just on GCS what did it lose in 2009 and I know its cash positive but what will it lose on a book basis in 2010.
Douglas Baker
It lost $9 million in 2009 and we anticipate modest improvement roughly a $6, $7 million loss in 2010.
Operator
Your next question is a follow-up from the line of Mark Gulley – Soleil Securities
Mark Gulley – Soleil Securities
As you were going through some of your outlook statements in your prepared remarks I couldn’t quite get the constant currency or volume growth that you were looking for for this year 2010.
Michael Monahan
We said low to mid single-digits on fixed currency.
Operator
Your next question is a follow-up from the line of Dmitry Silversteyn – Longbow Research
Dmitry Silversteyn – Longbow Research
Just wanted to follow-up on the healthcare growth excluding the H1N1 and the acquisition it was only about 4% in the quarter which I think is the lowest we’ve seen in several quarters, is that business maturing for you, are we getting to kind of large numbers there or can we still expect kind of high single-digit, double-digit growth out of that going forward and there was some abnormal things taking place in the fourth quarter which exclusive of H1N1 saw the growth slow down to 4%.
Douglas Baker
I guess first of all we’re taking a pretty severe accounting when we start giving these, its like what’s the growth rate after we take away every thing that we know. First of all I would say we don’t feel that business is either suffering from the law of large numbers.
We hope it does some day but that’s a couple of zeros away frankly. The business I guess our anticipation is next year that this business borders [inaudible] as we rebuild double-digit growth type business and we think it can maintain that type of growth as we go forward.
Michael Monahan
And for the full year healthcare was up 11%, a little bit of that was H1N1. By the way excluding H1N1 it was still up around the double-digit level.
So I think you can’t take one quarter and extrapolate too much from that.
Operator
Your final question is a follow-up from the line of John Roberts – Buckingham Research
John Roberts – Buckingham Research
In food and beverage you cited several weak markets, dairy, meat and poultry, and some other agricultural areas, what’s going on there because food consumption isn’t down I don’t think.
Douglas Baker
Well there’s always, there’s a couple of things. There’s always shifts in terms of food consumption patterns that occur and in part you’ve got some shifts in terms of there are plant consolidations within a number of these industries as they retool for what they anticipate to be future growth.
We typically go through these shake out periods during economic downturns and I think we’ve again seen that in the F&B area.
Michael Monahan
But I would say that if you look at food and beverage, meat and poultry and production is actually down throughout the year. Dairy is down as well I believe.
So you actually have seen some decline in production.
Operator
There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.
Michael Monahan
Thank everyone for your participation today and have a terrific day. Thank you.