Michael Monahan - SVP, External Relations Doug Baker - CEO.

Mike Ritzenthaler - Piper Jaffray Nate Brochmann - William Blair David Begleiter - Deutsche Bank Gary Bisbee - RBC Capital Markets David Ridley-Lane - Bank of America Merrill Lynch John Quealy - Canaccord Genuity Dmitry Silversteyn - Longbow Research Manav Patnaik - Barclays Mike Harrison - First Analysis George D'Angelo - Jefferies Scott Schneeberger - Oppenheimer John Roberts - UBS Bob Koort - Goldman Sachs P.J.

Juvekar - Citi Shlomo Rosenbaum - Stifel Rosemarie Morbelli - Gabelli & Company Justin Hauke - Robert Baird.

Welcome to the Ecolab Fourth Quarter 2014 Earnings Release Conference Call. At this time all participants are in a listen only mode. After the presentation, we will conduct a 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 over the call to Mr. Michael Monahan, Senior Vice President, External Relations. Sir, you may begin..

Hello everyone. And welcome to Ecolab’s Fourth 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 Forms 10-K and 10-Q item under Item 1A, Risk Factors, in our fourth quarter release and on slide 2. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with an overview on Slide 3, strong new account growth and new product introductions drove a solid sales increase in the fourth quarter. We leveraged that growth along with pricing and our synergy and cost efficiency work to substantially increase our adjusted operating margins and produce a very strong adjusted earnings per share increase.

Looking ahead, we expect to produce another year of superior growth despite 2015's mixed macro-economic and market trends, as well as substantial currency exchange and pension headwinds. Lower oil prices should benefit our consumer related customers and our delivered product costs, while slowing growth in our Energy segment.

Net we expect the positives and negative to about offset each other and we look for strong growth from operations before currency effects. We expect currency exchange and pension will represent a headwind of about $0.35 per share in 2015.

In this environment we expect to continue to outperform our end markets and show 5% to 12% adjusted earnings gains in the first quarter and 8% to 12% EPS growth for the full year as continued good fixed currency sales growth, appropriate pricing, innovation synergies and delivered product savings more than offset the challenges.

Moving to some highlights from the fourth quarter, and as discussed on our press release, reported fourth quarter earnings per share were $1.10.

On an adjusted basis excluding special gains and charges in discreet tax items from both years, fourth quarter 2014 earnings per share increased a very strong 15% to a record $1.20 despite a $0.04 headwind from currencies.

The adjusted earnings per share growth was driven by volume and pricing, new products, account gains, synergies, cost savings actions, and the benefit from the passage of the R&D tax credit. Our fixed currency acquisition adjusted sales growth rate remains strong, rising 6% and was led by our Energy and Specialty businesses.

Latin America led the regional growth. We expanded our adjusted fixed currency operating margins 110 basis points in the quarter as we continue to emphasize productivity and efficiency improvements as well as drive merger synergies. We also continue to make investments in key growth businesses to sustain our technology in sales and service leadership.

We remain on plan for achieving our outgoing Champion synergy targets and our Europe margins are on track for further strong expansion again this year. Looking ahead, energy markets and some regional economies will present challenges in 2015 along with an expected $0.35 per share headwind from currency exchange and pension.

However we also see favorable tailwinds for our more consumer facing customers and in our raw materials. In this mixed environment, we will drive new business gains and lower costs as we maximize the benefits and minimize the challenges.

We will once again use our product innovation in service strengths to help customers get better results and lower operating cost and through these drive new account gains across all of our customer segments.

Also as announced in our press release, as our balance sheet leverage ratio is returning to our preferred range and with our strong free cash flow, we intend to repurchase $1 billion of our stock. We expect to complete the repurchase by mid-2016. We look for the first quarter 2015 to show solid fixed currency sales gains and margin improvement.

First quarter adjusted EPS is expected to increase 5% to 12% to the $0.78 to $0.83 range and compare with last year's very strong first quarter when adjusted EPS grew 23% and was $0.74 per share.

For the full year 2015, we look for an 8% to 12% adjusted EPS increase to the $4.50 to $4.70 range with that wider than normal range reflecting the dynamic currency and commodity markets. In summary, our fourth quarter performed very well.

We expect 2015 to also show strong operating performance for the Company despite the challenges in energy and more than offset the significant drag on EPS growth from currencies and pension.

We remain confident in our business, our markets, our people as well as our capacities to meet our aggressive growth objectives over the coming years while also delivering attractive returns for 2015.

Slide 4 shows our fourth quarter results both as reported and with adjustments for special gains and charges, while Slide 5 shows our sales growth detail. Ecolab’s consolidated fixed-currency sales for the fourth quarter increased 6%. Acquisition-adjusted fixed-currency sales also rose 6%. Looking at the growth components.

Volume and mix increased 5%; and pricing rose 1%. Currency was a negative 3% and acquisitions and divestitures were not significant. Reported fixed-currency sales for the Global Industrial segment rose 4%. Adjusted for acquisitions and divestitures, sales increased 2%. Fourth quarter fixed-currency global Food & Beverage sales increased 2%.

We enjoy good growth in agri and moderate sales gains in dairy, food and beverage. Regionally Asia-Pacific and Latin America led results with the modest gains in North America and a modest decline in Europe.

Food & Beverage growth was primarily driven by share gains and we used them to more than offset ongoing customer plant closures and generally weak volumes.

Food & Beverage continues to benefit from its Total Plant Assurance approach to customers, in which we combine our industry-leading Cleaning & Sanitizing, Water Treatment and Pest Elimination capabilities to deliver improved food safety results, lower operating costs and better product quality assurance for customers.

This has enabled us to win business with key global customers and offset difficult conditions in our North America and Europe market, where lower volumes, as well as customer capacity reduction and plant closures have impacted sales. Looking ahead, we expect improved organic sales growth in the first quarter.

We look for further benefits from growth synergies, better customer penetration and new business capture, as well as leverage from our innovation pipeline, including 3D TRASAR for cleaning plate systems in food and beverage plants to more than offset continued tough industry conditions. Fixed-currency water sales grew 7%.

Adjusted for acquisitions water sales grew 5%. Fixed-currency core water sales grew a very strong 8%, widely outperforming in its end markets. Reported fixed-currency mining sales rose 8%. Adjusted for acquisitions fixed-currency mining sales were off slightly.

Regionally, we saw good growth in Latin America, good growth in North America and EMEA and flat Asia-Pacific growth. The introduction of 3D TRASAR for hotel and other institutional cooling systems, utilizing solid chemistry and advanced dispensing is going well.

We also continue to drive better penetration in our other water markets, using our innovative solutions to optimize water usage. We remain focused on building our corporate account and enterprise sales teams, delivering our growth synergies and improving product innovation to drive revenues.

We expect to show further improving growth in 2015 as market share gains drive our heavy and light businesses to outperform soft end-markets. Acquisition-adjusted fourth quarter fixed-currency paper sales declined 3%. Latin America recorded double-digit growth.

Elsewhere we saw a sales decline resulting from continued low customer plant utilization and extended customer shutdowns and slowdowns. We expect Paper to rebound to a modest growth in 2015 as we drive new business and technology penetration to offset the difficult paper market conditions.

Fixed-currency sales for the Global Institutional segment rose 6%. Turning to the businesses that make up the segment, fixed-currency sales growth for the Institutional business improved in the fourth quarter rising 5%.

Institutional’s end markets remain mixed with continued good growth in global lodging demand, positive signs in North America food service but still challenging foot traffic across Asia-Pacific and Latin America. Looking at our regional sales, we continue to outperform our markets.

Latin America once again posted strong sales growth, while North America and Asia-Pacific turned in solid sales gains improving over their third quarter growth rate and ongoing EMEA sales rose modestly. Sales initiatives targeting new customers along with effective product and service programs around our core markets continue to drive our results.

We also continue to broaden leading technology across our global regions.

To drive our future growth and improve on our industry leadership position, we remain focused on standardizing and executing global sales initiatives, globalizing our core competencies and introducing product innovation that delivers increased customer value with solutions that reduce their water, energy and labor cost.

We’re also making further investments in field technology to enhance execution and efficiency in sales and service and working on other areas to improve better customer value and through that improve our sales growth.

We expect Institutional to show continued good fixed-currency growth in the first quarter and the full year as we make further progress on our global sales initiatives and continue our aggressive sales efforts. Fourth quarter sales for Specialty grew 8% in fixed currencies.

Quick service sales were solid as we enjoyed steady growth from most customers. New accounts, along with increased service coverage and additional solutions for customers to drive their operating efficiency and food safety, leveraged generally modest industry trends. Regionally, the U.S.

and Europe saw a good growth from new accounts and additional customer solutions, while Asia-Pacific benefited from good quick service foot traffic growth. Food retail business showed continued good sales momentum in the fourth quarter, benefiting from customer addition, new products and increased penetration.

We look for good sales growth to continue in the first quarter, especially works to deliver another solid performance in 2015. Fixed currency global healthcare sales increased 4%. Growth was driven by new accounts, better penetration and new product introductions.

We continued our work to strengthen our corporate accounts approach and our integrated value proposition, as well as improve and leverage our product portfolio. We believe we are on the right track and look for global healthcare sales growth to improve in the first quarter. Fixed-currency Energy segment sales grew 11%.

Our upstream business saw a robust growth in the fourth quarter led by a strong international performance and good North America results. Downstream business sales also saw a solid increase, also led by strong international performance and share gains in North America.

The drop in oil prices will yield slowing energy segment results through 2015, however we believe our business model, which is heavily weighted to the more recurring revenue production and refining businesses will moderate much of that impact. Looking ahead we expect energy segment sales for the full year 2015 to show flat to low single digit growth.

First quarter energy sales should be up in the mid-single digit range, reflecting momentum from the prior year. We expect quarterly growth to ease through the year and show modest first half growth and a softer second half as new business resulting from ongoing share gains is offset by declining rig count and some modest pricing decreases.

We remain confident in Energy’s long term growth prospects and expect it to emerge from this unprecedented period in stronger shape and return to double digit growth once again. Sales for our other segment increased 5%. Fixed-currency Global Pest sales increased 6% in the fourth quarter. Adjusted for acquisitions, fixed currency sales grew 5%.

Food & Beverage and restaurants led the growth. Regionally, we enjoyed double-digit growth in Latin America and Asia-Pacific and solid growth in EMEA and North America. We continue to drive market penetration with innovative service offerings and technologies and make progress in globalizing our market-focused capabilities and field technology.

We expect Global Pest sales to show further good growth in the first quarter led by gains in all markets. Equipment Care sales grew 3% in the fourth quarter. New customer additions continued at a solid rate and productivity improvements from our technology investments and strengthened execution work continue to pay off.

However, fourth quarter sales growth was impacted as we exited some low margin accounts. Because of the continued strong underlying business growth trends, we expect equipment care to return to upper single digit growth in the first quarter and to see that growth improve over the balance of the year.

Slide 6 of our presentation shows selected income statement items. Fourth quarter gross margins were 46.2%. When adjusted for special charges, fourth quarter 2014 gross margins were 46.4% and rose 50 basis points above last year.

Volume and pricing gains, as well as merger synergies and cost efficiencies more than offset higher cost inputs and the business mix impact of higher energy sales, which on average have a lower gross margin when compared with our other businesses. SG&A expenses represented 31% of fourth quarter sales.

The SG&A ratio improved 60 basis points versus last year. The improvement reflected sales gains, merger synergies and cost savings efforts, as well as the mix of higher energy sales, which on average have lower SG&A ratio when compared with our other businesses. Consolidated operating income margins were 14.1%.

Adjusted for special charges, fixed-currency operating income margins were 15.4%, rising 110 basis points over last year’s comparable margin. Fixed-currency operating income for the Global Industrial segment increased 9%. Acquisition adjusted operating income grew 7%, and margins rose 70 basis points. Good improvements in Water led the gain.

Fixed currency operating income for Global Institutional increased 13%; and margins expanded 130 basis points. Results benefited from pricing, volume gains and cost efficiencies, which more than offset higher delivered product costs and investments in the business.

Fixed-currency Global Energy operating income increased 13% and margins expanded 20 basis points. Volume gains, operating leverage, synergies and pricing more than offset investments in the business and other costs. Fixed-currency operating income for the other segment increased 22% and margins expanded 240 basis points.

Improved operating results more than offset investments in the business and other higher costs. The Corporate segment and tax rate are discussed in the press release. We repurchased approximately 720,000 shares during the fourth quarter.

The net of this performance is that Ecolab reported fourth quarter diluted earnings per share of $1.10 compared with $0.93 reported a year ago. When adjusted for special gains and charges and discrete tax items in both years, adjusted earnings increased 15% to $1.20 when compared with $1.04 earned a year ago.

Turning to Slide 7 and looking at Ecolab’s balance sheet, net debt to total capital was 46% with net debt to adjusted EBITDA at 2.2 times. Looking ahead, and as outlined in Slide 8 we will take aggressive actions in 2015 to drive both our top and bottom lines.

We will work to leverage the benefits and offset the challenges of lower oil prices as we capture the lower raw material cost, leverage the expected consumer spending tailwind and gain share in the Energy markets.

We will also continue to drive organic growth through further cooperate account wins, depth [ph] up innovation work and improve field productivity.

We will ramp up our acquisition work targeting bolt on acquisitions that strengthen our offerings and we will continue to deliver on the business improvements we are making in our healthcare and Europe businesses. Slide 9 shows an EPS bridge for the first quarter and the full year 2015 that details our outlook.

We expect improving fixed currency sales growth combined with good margin improvement developed through new products, better productivity, cost efficiency work and raw material savings will yield strong fixed currency earnings growth from our institutional, industrial and other segments.

We look forward to the energy's segment to show slower sales and profit growth in 2015, as it outpaces its end market.

Combined our businesses should deliver a strong operating performance shown here, and expect that slightly lower tax rate, lower interest cost and share repurchase will add to the robust operating performance to yield upper teens growth. However the strong dollar and higher pension cost will provide significant headwinds for us in 2015.

We expect that combined impact will be $0.35 per share. As a result we look for EPS to be in the $4.50 to $4.70 range for 2015, up 8% to 12%. We expect our first quarter to show good fixed currency sales growth with currency negatively impacting reported sales by about 5 percentage points.

We look for our first quarter earnings to increase 5% to 12% to the $0.78 to $0.83 range. Further the first quarter will also compare against a very strong period last year when adjusted earnings per share rose 23% to $0.74.

In summary, we once again delivered on our forecast in the fourth quarter with a solid sales gain and continued margin improvement while offsetting market challenges and investing in our future.

We have our work cut out for us in 2015, but we are well positioned and well prepared to outperform once again and deliver another superior performance for shareholders this year and for the years ahead. And now here is Doug Baker with some comments..

Thanks Mike. A couple of comments on 2014 and also 2015, and then we will open it up for Q&A. So 2014 was obviously very strong year for the Company with annual EPS up 18%. The good news is the business accelerated throughout the year. Our second half excluding M&A was plus 6%. OI margins expanded another 120 basis points for the year.

We're on track on all of our Nalco and Champion synergy commitments. We're also on track in Europe where margins expanded 110 basis points for the year. This is our fourth year in a row of expansion. We're now up cumulatively 440 basis points in Europe from our low point.

We're also poised to increase margins again in 2015 as sales are accelerating in Europe. Perhaps most importantly, the momentum I talked about, the 6% in the second half was really built by outstanding cooperate account sales and new program and product launches. This is the underlying trend that we look for.

It is the best, best sign we have of the health of the business and it was exceedingly strong. So we did our part. Now I guess I'd also point out that world seems to have done its part, which leads to 2015. Obviously the big news is oil price and FX and to a lesser extent pension. So first let me touch on oil.

So during our third quarter call, oil was also the top conversation topic and at the time oil was trading $86 a barrel. So we discussed ramifications, implications and the principles discussed, I would say remain true. Energy services will be hurt and the rest of the business represent 70% of sales will benefit.

The degree of the plus and minus are much different than they were in Q3. So let me give you our view today. So first of all in energy services, we expect flat sales for the year, could be modest growth. But let's just say flat.

Synergies though and raw material savings in energy services will enable us to have modest OI growth in the business, in spite of the very difficult oil market.

The raw material savings though will also positively impact the rest of our businesses and roughly offset the lost energy services OI versus what we would have expected in a non-oil price distressed market. So the good news is our team has gotten on the raw materials savings opportunity release.

We've made significant progress and we believe we've got clear line of sight about what we're going to see during the year. So while oil has a created real turbulence in the business, by itself it would not cause us to miss our rival city or time, i.e.

the net impact on one side of the business are pretty much offset on the other side of the business and really it is not the main story in our earnings picture for 2015. The second issue has an impact though too, and that’s FX and pension. So combined, they represent an 8% EPS hit for the year.

Obviously we're not the only company impacted by FX and pension. We've heard many companies talk about this. We are doing all the smart things we believe. We're using the pressure internally to challenge spending and in efficiencies which is how we typically manage.

The team rallies well around this, but importantly we're not cutting long-term investments in R&D, in field technology, in systems, in talent developments, safety or security. Those are going to remain as planned. They are important to our long-term effectiveness and we have got to make sure we protect them when the team is all over this.

Our focus though is really to run the businesses quite well and to use the market turmoil to our advantage. So we are all over share gain in energy services. Our goal is to use this year to come out of this thing with a bigger sale and a better position to get after the upcoming turnaround in the oil price.

Additionally M&A outside of the U.S., given the strong dollar also looks more attractive. All I know about FX is it goes up and it goes down. I can't tell you exactly when but I have now seen FX rate or the Euro trade at 0.88 and at 1.45. So we know this stuff moves around. We have an opportunity right now to capitalize on the strong dollar.

We're going to see if we can make that happen. We're also going to leverage our stronger markets in U.S and Europe. So we are seeing the impacts of more I guess change in the pockets of consumers, and we want to make sure that we fully capitalize on that. Our teams are excited about it, all over it as well.

And then finally the same tried and true program that we always run, drive new business, leverage innovation, do that everywhere, keep driving the businesses as we always do. So closing I would just say we are on it. The challenges are real but we believe they are manageable. We expect another very good year in 2015. So let me turn it back to Mike. .

Thanks, Doug. A final note before we start Q&A. We plan to hold our annual tour of our booth at the National Restaurant Association Show in Chicago on May 18th. And looking further ahead, we also plan to hold our 2015 Investor Day in Saint Paul on September 10th. If any questions, please contact our office. That concludes our formal remarks.

Operator, would you please begin the question and answer period..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question come from Mike Ritzenthaler with Piper Jaffray. .

Doug. 2014 quite a record for new business wins there.

I'm curious about how difficult year-on-year comparables influenced your decisions on investments in sales and R&D and things like that, particularly within specialty and institutional where end markets at least in North America seemed much healthier?.

Yes, that's what I was really alluding to Mike in my opening comments. We have got sort of a tale of two cities here and we also have just core investments that we know are fundamental to driving this business year in and year out. We worked very hard not to I would say cut into those investments.

And I gave you a laundry list of them, but it's certainly R&D, talent development, safety, a bunch of training issues that we have on ongoing systems investments. We want to make sure that we protect those and we continue to make those investments, because I'm going to be here a year from now talking about 2015 and giving a preview of 2016.

And the only way that we can ensure that we continue on this virtuous cycle is to make these core investments. And so we're absolutely committed to it. They are in our earnings view as you look out over this year and the businesses you touched on, it will be a better year for Institutional.

They are going to have make the investments they need on the secure and continue to drive that growth and that's in the plan..

Okay. Thanks and then on energy, how do you feel about visibility into the 2Q through 4Q earnings on the Slide 9 there? Basically flat, given all the moving parts including synergies.

Compared to kind of this time last year, how does that visibility compare?.

Well, it's certainly more volatile this year. And I would say last year was an easier year to forecast for the Energy business in particular but I would say that's really where forecasting is more challenging this year than in previous years.

This is with -- what we know and I'd say we have a very experienced team, this is isn't the first oil price cycle that the team has been through. We've got all the data, we have been through it. I think we've got a handle on it and we've narrowed this down to we do not have a bunch of what I would say tough to forecast areas at this point in time.

We've worked hard on raw materials. I think we've got a much better handle on that at this point in time, simply because we got on it early and the team has done a good job. There has been a lot of analytics here.

So I think it totals -- that's a very good forecast, things can change but I would also say things can change in other parts of the ledger that may offset..

Next question comes from Nate Brochmann with William Blair..

Hey Doug, just following-up on that question, I recall back in like 2008 when you guys issued guidance with the Henkel deal, and you came smack dab in the middle of that despite one of the most volatile periods ever in 2009.

I was wondering like if you could give us a little bit of sense of how you and your team kind of go through those puts and the takes as you look at your business in terms of the confidence that we have to kind of deliver those results in kind of a volatile energy period, with moving pieces of FX, pension and what not.

Just wondering if you could kind of give us a little bit of either look back on history of how that came to be during that period of how you kind of look at it during this period?.

Well, I think there's two sides to this.

One is look, we work hard to try to understand what the variables are and then we try to again do a 50-50 position, where if you have multiple variables, which you always do, you have FX, you've got investment decisions, you’ve got business and markets, regions of the world and we just try to get in the middle on a number of these things and understand what we believe is a likelihood that it gets better or worse from there and try to balance it.

I would say '08 was a much more difficult challenge in terms of forecasting than it is today. And simply because you add more variables and really frankly nobody knew how the world was going to shake out at the end of the financial crisis.

I would say here what we have is an unsettled oil market, which is probably the most dramatic impact that we have right now. It’s sort of single variable. I think it’s shown its hand at this point in time. Last piece I would say is we work very hard then to make our forecast come true and so it’s not a simple way of just predicting the business.

We also try to meet forecasts that we give. Our team rallies around these efforts. We are all over new business and driving, leveraging innovation and doing all the things hopefully we'd do.

I mentioned earlier we’re a company now that’s been through several years of very strong earnings results, and I always get nervous during these periods because I know there is inefficiencies being built up in the business as a consequence of having strong earnings. And so we look at this as an opportunity to go find those pockets and get after them.

And the team is doing that quite successfully. So I think we’ve got a good forecast here. We’ve proven to be a company who can pretty much predict how we’re going to perform. A lot of it has to do with our business model, mostly consumables. And then for energy I think it’s pretty straight forward.

Energy is a bit of a wild card but we’ve done a lot of work there. We have some offsets if energy softens. I think we’re in good shape..

And then just one quick follow up, a little bit more of a bookkeeping thing.

But could you just give us an update on where we are in terms of synergies realized through the Champion Nalco deals and what we have left to go and if there is any pockets here or there that you’ve identified as additional opportunities?.

Yes. We’re on track by the end of this year to have 125 booked and we’ll have another 25 year after that, so we believe we’re going to hit our 150 target..

Next question comes from David Begleiter with Deutsche Bank..

Doug on the energy piece with business how much will drilling be down in 2015? Because it’s actually down half year-over-year.

We don’t get into the specific forecast but I guess the business that’s going to be most impacted here is our WellChem portion of the energy services business. WellChem in 2014 represented 17% of the business. We think that business maybe down 30%.

So that’s the single largest impact and it assumes drilling as a result would be down in the 35%, 40% range..

And looking into 2016 Doug, as drilling declines and product declines, can you grow this business double digits do you think '16 at current oil prices and current drilling rates?.

Here's what I would say. Our going in assumption right now and you’ve got to pick one, is that oil prices remain around this level through much of 2016. I’d say let’s assume they remain at this level all the way through 2016.

Once we lap the oil price decline, you're going to have a much steadier state, and you will start seeing I would say steady state of drilling, steady state of production.

We would expect to continue to drive share and you can’t forget that the underlying new series old wells come off and are replaced by new wells which we're going to have to do under any oil price scenario, that the new oil commands a lot more of our technology than the old oil and that fact will start taking or having an impact again once you lap this significant decline.

So if they stayed through ’16 at this level we would expect to show positive sales growth in 2016. I doubt it would be a double digit but I think it’d be strong single digits and we would move forward from there..

Next question comes from Gary Bisbee with RBC Capital Markets..

I'll just follow up on that last one.

For the first question how would you think about the phasing in of the benefit from lower raw materials? Does that take a couple of quarters to really pick in and I guess would you likely think you’re still going to be getting benefits in 2016 from lower rods assuming that same scenario you discussed which is sort of flattish oil through the year?.

Yes, I mean if oil stays at the same place, you're not going to have the same delta in 2016 as you are in 2015 in terms of raw material impact. But I guess as I just shared with David, at the same time we wouldn’t have the same impact on the energy services business.

We would respect that to be more accretive in '16 versus '15, even if oil stayed at this price level. To answer your first question, yes, they take some time to come on. I would say more like a quarter. So we're going to see some impact in the first quarter but not necessarily at the run rate that we would expect for the full year.

You've got two different conventions globally in terms of how you handle inventory and how fast they show up in U.S versus non-U.S FIFO, LIFO. So some of that has an impact. So we would expect second quarter, third quarter to have a higher positive impact from raws than the first..

And then just a follow up. Mike, in your comments on all the sub-businesses, you mentioned -- it sounded like an awful lot of them, you expect better growth in Q1 than Q4.

Just any broad commentary on why? Is that just mostly the new business or are there some other things that you're seeing going on to drive somewhat better -- and I'm talking about sales growth next quarter versus this quarter..

Yes, I would say in almost every instance you're going to have stronger sales performance of Q1 versus Q4 with the exception of energy. And what's driving it is the strong cooperate account growth that saw last year which was up dramatically from a very strong year in 2013, and we had a great innovation pipeline last year.

Typically these things are leading indicators, and so we are expecting forecasting stronger growth nearly across the board from our other businesses..

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

Sure just wondering how much of the benefit you are baking into the 2015 guidance on the consumer facing side of the business from the lower oil prices?.

Yes, it would be hard to pull out. I would say that is one of the contribution as to why you're seeing stronger institutional growth in particular. So U.S institutional in the fourth quarter was -- and I would say actually the underlying is as strong as this. There was reported 7% growth, which is faster than we've seen for quite a while.

I would think that the first quarter probably, the only exception is maybe a little lighter because you also have some inventory stuff going on in there.

But that business has been accelerating steadily for a number of quarters and will have a real benefit from consumer uptick and spending particularly in full service restaurants and casual dining which we're seeing..

And then just as a sort of numbers questions.

Should I take the EPS impact from FX and apply sort of an average margin to get the revenue impact or do you have a sort of a revenue headwind from FX in '15 off hand?.

Yes revenue impact form FX in '15 is expected to be 5% to 6%..

Next question comes from John Quealy with Canaccord Genuity..

First question, in terms of energy can you talk about concentration? Some of your larger customers that perhaps have deeper resources and better cost profiles, are they becoming a bigger part of the mix in the '15 time frame? If you could give us a little bit of perspective?.

I would say throughout 2014 we had a lot of success increasing our position with the major producers. So that will carry forward. I would say -- I don’t know if that’s going to be -- so I think that’s all good news. We'll continue to do that as I mentioned in my opening comments. Term oil creates opportunity.

We've got a very experience energy services management team. They're great. They are all over this. It's not the first time they've seen this. I think they know how to effectively leverage this opportunity, and I think they're making very smart trades out there. With that said, you've got a funny environment.

We're going see much stronger sales in the energy business outside of the U.S than we do in the U.S and a lot of that’s a function of -- a lot the business outside of the U.S is controlled in one way or another by governments, and when oil price goes down, they pump more, and they do it because they got a bill to pay.

And in North America, it's not the situation and it much more reacts to the market. And so we're going see I'd say a much earlier slowdown in North America as a consequence of this as we go through, which is exactly what we're forecasting and foreshadowing for all of you. But that would probably be a more interesting dynamic in the energy business..

And as a follow up, unrelated, in the specialty business, it continues to outperform.

Can you dive in a little bit more in terms of details? Is it customer capture? Is it price is it transactions? What exactly is specialty doing in the last few quarters?.

Yes, well on the Specialty business, which is principally our QSR fast food business and food retail business, there are a couple of things. They continue to capture new accounts. That's always critical in driving that business.

We've also through realignment of some programs increased their ability to get into a number of customers, and as a consequence they are able to help those customers do a better job in a number of areas and we are able to trade out one product for another, i.e. competitors for ours and we're growing the business as a result.

So increased coverage, increased new customers..

Next question comes from Dmitry Silversteyn with Longbow Research. .

Most of my questions have been answered, but I would like to touch base on a couple of things. In year other business, you had pretty good growth in the pest elimination business.

Was there a big difference between international and domestic pest elimination performance?.

Not dramatic. The big business remains the U.S pest business and it has been steadily improving. We made a number of investments in that business starting two years ago. We're going to continue them. I would say kind of the heavy investment status going into 2015 has been paying off and accelerating sales.

I would also say there's a number of other metrics that continue to improve in that business. So that is the biggest piece of the pest business. Equipment care, I think Mike mentioned had a softer sales performance in Q4.

A lot of that was planned and our own doing, and we expect equipment care to come out and have a stronger first quarter in terms of sales performance. But I would point out equipment care made like $8 million last year, which is dramatically better than the losses that we had just a couple of years ago. So that team has done a good job. .

Sure.

Just to follow-up on the sort of your outlook for revenues and foreign exchange headwinds in 2015, in the past, at least on the water treatment side of the business, going back before you guys owned the business but just going back a decade or more when there was the last time there was a serious deflation in international currencies, the water treatment businesses moved quickly to raise pricing to offset that, particularly in the emerging markets where currencies were particularly volatile.

Are you seeing the ability to do the same thing in 2015 or have the markets matured since then where it's not as easy to get pricing when currencies tumble?.

Yes, I would say two things. One, our strategy is to make or resell as much as we can, because we want to have currencies not be a strategic issue but to be a translation issue only.

Meaning if you are a complete exporter right now in U.S dollar, obviously you got a problem because your stuff just got a lot more expensive and your competitiveness just weakened significantly. That's not the situation we find ourselves in broadly, but there are pockets.

With that said, where you have significant devaluation, we have strong inflation as a result in new business which is the situation in a number of countries. You have to go after pricing. I think we're all well-schooled in this. We've been doing it collectively as a business for over 50 years. I think our team is all over this.

That is both on the WPS side as well as the institutional F&B et cetera. So they are cognitive of the impacts. Where we do have what I would say export situations, we try to understand the market impact as well as the margin impact. We don't like to drive ourselves out of business by losing share through too aggressive pricing.

We don't think it makes sense for the long-term. We would rather get after the cost problem and fix it if that's the issue and it's basically self-inflicted..

Next question comes from Manav Patnaik with Barclays..

So firstly on Energy, just to touch on the remaining I guess 80% of the business, so you had 11% growth this year.

You are forecasting I guess flat -- if you assume that 30% decline on the WellChem business as you said, I guess just talking about 6% growth for the rest of the businesses, I was wondering if you'd help understand how that compared to the growth in 2014 and how much of the modest price decreases that you referred to play a role in that slowdown?.

Yes, what I would say if you did a lock through, then you've have got as I mentioned earlier WellChem, 17% of the business down, call it a third. You've got OFC which is just under 60% of the business.

Here we would expect in the mid-single digits this year and certainly some of the impact is -- about a third of that business is in a cost plus relationship. So you're going to have some modest price decline across that business as a result.

But importantly, as oil comes back or raw materials come back, it will also be reflected in increased pricing in that business. And downstream we would expect to react next year much like this year, which is high single-digits. So that’s probably that fast walk through of how we see sales performing this year.

Okay, and just in the context of -- I understand the moving pieces here, but would you say that your first take at these numbers, you've erred more on the conservative side of things?.

I'm giving you our best forecast. So I would call it a 50-50 forecast is what we do when we go out. It’s exactly the approach that we’ve taken for the last I don’t know 20 years and it’s the approach that’s worked quite well for us because we tried to make sure we understand what the different inputs are and we take them all into account.

We try to pick the midpoint, understand the plus minus on either side of that thing and work our forecast there..

Okay, and then just if I could lastly on Healthcare, it seemed it had a good sort of end to the year.

Like what sort of milestones should we be looking forward to as you've sort of been trying really grow that business in the next couple of years?.

Well, I think the most important milestone, we’ve said a year ago during this call that we really said expect Healthcare really not to get better until the end of the year, and you should start seeing better sales performance in Q4, Q1. That is showing up and coming through. What’s happening is we strengthened our programs.

It’s leading to new customer sales. There were a number of significant customer sales in the second half in healthcare. It's the only way we can grow sales is by selling more stuff to more people. And so we’ve got to find a way to grow share there, which is what we’re doing successfully. So the team I think used the time wisely.

The business is in better shape than it was a year ago and we expect the acceleration to continue in the first quarter..

Next question comes from Mike Harrison with First Analysis..

Doug, you mentioned that within the Water business there was strength in the mining side of the market. Is that just recovery against a weak comp? Are you seeing some share gains or were there are new minefields in there? I just think it’s a little unexpected to see the strength there given that commodity prices are not great.

So trying to understand the sustainability..

Well, you’re right. So the number in mining I believe was 8%, but that included the impact of a recent acquisition. Without that it was basically flat in the quarter. And so you’re theory is right. Mining is in a difficult patch right now, but we expect it to improve throughout the year, in the year..

And then was the dust control acquisition you were referring to?.

Yes..

Okay, and then on the institutional side, I think the view of most of us was that you guys stood the benefit from potential consolidation in the food service distributor market.

Does your forecast assume that that big merger does or does not happen? And would it be a disappointment if it didn’t?.

Well, it'd probably certainly be a disappointment for two of our major customers, U.S. Foods and Cisco. So I guess I’ll share their disappointment. But I would say two things. We have had a long and healthy relationship with Cisco. We’ve also had a long and healthy relationship with U.S.

Foods as well as other providers in the market which is unique to us. I think we work and partner very well with customers, and I guess the way we view this is this is clearly out of our control. I think our teams done a very good job developing plans.

Certainly as if it closes and if there's unforeseen things we’ll manage through that I think quite successfully..

Next question comes from Laurence Alexander with Jefferies..

This is George D'Angelo on for Laurence. In your slide there is a line about doing M&A in distressed markets.

Is that a reference to oil or more certain geographies?.

Both. I would say certainly if there are providers of technology and/or geographic moves to be made in energy services, we would certainly use this as an opportunity to do it.

But also more broadly, either in water, institutional, healthcare, F&B, pick it, in certain geographies where you’ve got some currency imbalances, we would look for opportunities too..

And then as you guys look at the margin levers that you’re pulling this year, to what extent are you pulling margin improvement forward for the next few years? And then if demand recovers, will there be any offset in terms of margin expansion?.

No, I don’t even -- I don’t know that we know how to do that and it certainly isn’t in our plan. So no I wouldn’t expect any negative rebound as a consequence of actions we’re taking this year..

Okay, and just one last quick one.

What percentage of sales in the energy segment are to governments and are there any governments that are particularly large percentage of sales?.

Well, it’s not directly to governments per se in all cases. It could be state owned enterprises and others. I don’t know that I have number at hand here. 63% of that business is in North America. So you so and start whittling down from there..

Next question comes from Scott Schneeberger with Oppenheimer..

Curious, with regard to some of your more upstream areas in energy and well completion, anecdotally what are you hearing from customers on the volume, on the price side? We obviously see the guidance and how it progresses through the year.

But are you sensing aggressive behavior from your customers there, just anecdotally what’s you’re seeing and hearing from your [indiscernible]..

I think what we've seen is fairly dramatic cut back in terms of exploration capital and drilling activity. In terms of production I would say we're seeing some markets where production is up quite dramatically because they're trying to offset the negative impact of lower price, because they've got I would say some bills to pay.

And in others areas, obviously ultimately we think production will get more in line with demand and I guess we forecast our belief right now is that may be well into 2016. But this is a very different energy situation than was '08 - '09 where really you had very dramatic demand disruption. This is much more oversupply situation. .

And following upon that, internally would we see any material change in CapEx over the course of 2015, may be into '16 with regard to energy just on the commodity prices..

Our own capital spending or our….

Yes..

Yes. Certainly a fair -- for deploying less new business for a period of time they'll see less capital deployed there. I would also say some of the things you might have to do from a volume capacity situation might be delayed six months or a couple quarters simply because of the forecast we just gave you on sales. .

Nothing that will take you too much off your historical total company CapEx to revenue relationship..

No, because sales are down also in energy. So I think you can use the historic numbers that you've been using as you go forward model..

Next question comes from John Roberts with UBS. .

I'm looking at Slide 9 and we've got 5% to 12% growth in the first quarter and then higher growth in the remaining three quarters of the year, 8% to 13%. I would have guessed that the comps are going be more challenging in either the second quarter because of currency or maybe the third quarter because of energy.

But is that fair to say that, that 8% to 13% for the second, third and fourth quarter, one of those quarters is going to be your toughest comparison of the year. .

Well, I'd say two things. Our toughest FX quarter in 2014 was the fourth. And as you go forward, because it really started moving then.

The biggest driver, and I think if you go down below embedded in those numbers we've tried to call out that the raw material moved, you're seeing a nipple in first quarter and averaging $0.10 in the next three quarters. That’s probably the single biggest rate change..

And then could I get an update on some of the new products. There are three I'm thinking of, but maybe you could comment on something different.

I'd like an update on new Clean-in-Place using 3D TRASAR, the new solids water treatment for commercial buildings and I don’t know whether the energy drop has stalled the shale water recycling effort you had..

The CIP I would say continues progress well bit we've I think tried to say that that thing is going be a slow build over a period of time. And so while it's doing what we expect it to do, it's not a big volume driver yet. What I would call it is it's very important in continuing to build our relationships and attract new customers.

So in '15 we would expect that to be like little over a $1.5 million. In terms of solids for water, that one is -- uptake is much faster. We would expect $12 million in revenue next year, off a much smaller base and then APAC Europe is about $30 million.

We are rolling out what I call our generation that we've been selling in the U.S with some tweaks for formulation in Europe. We're having great success there. That’s going quite well. Those would probably being the big early drivers in terms of what you would expect to see from innovation..

Next question comes from Bob Koort with Goldman Sachs..

Doug, I think you mentioned that you expect the most pronounced energy weakness in the WellChem business. Have you seen any deviation by geography on-shore, off-shore, regionally around the world or do you expect it to be pretty consistent and broad based..

No it I think what we're going to see is a much more dramatic impact in North America. I mean, you want a big generalization. Because really there's a bunch of private companies reacting to a market.

And when you get outside of the U.S, it's not completely true, but in many instances you've got different factors driving pumping decisions if you will, in terms of -- I think in the fourth quarter, it was announced that Russia had record oil production. So it certainly wasn't a price trigger. It was they need to feed Russia.

And so if you are going to offset a decline in price, you're going to do it through more volume and so they're not alone in that. You see that in other countries. So it's a consequence. You're going to see a more dramatic fall I think and probably bounce back in North America..

Do you suspect there could be any issues around credit profiles of your customer base and concerns there as you go forward with this dramatic step change?.

I would say there's always -- you never say never on questions like that. But I'd say is there is no material concentration in terms of how the business is spread. You also typically -- we're also selling to intermediaries who are taking some of that risk, and at the end of the day they've got a great backing, which is they hold the oil..

And my last comment, I think you mentioned you'd be willing to buy some distressed stuff.

I'm wondering specifically within the energy portfolio, do you feel like there are product applications, chemistries products that you lack today that keep you out of certain customers and service deals or are these really going to be very narrow tuck-ins and not really things that are filling a dire need to have a broader portfolio?.

Yes, I don't think we feel at all impaired in our ability to go, serve and do what we've been doing, but there are opportunities if you will to have -- I guess stretch our capabilities and create new opportunities and those would be the areas that we would be looking at it.

So it would be somewhat similar technology but in a new area that would allow us to play and expand our footprint. .

Next question comes from P.J. Juvekar with Citi..

Doug, healthcare was seen as a major growth driver prior to your entry into Energy.

And Energy slows down, would you look at healthcare again as an area to invest in?.

Yes P.J., I guess I would say, we never really lost our interest and our belief in healthcare even as a consequence of energy's very stellar run. So I guess we're clearly steadfast. What we did say last year is we were quote unquote putting it in the shop because we had some work to do on the offering. I think that time has been well spent.

It's not like we love 4% growth in the fourth quarter. It's just better than 1% growth. But it's the step you have got to take if you want to get back to high single-digits and ideally hopefully back to double-digits.

So I'd say healthcare remains a great area, we believe for us to play and we remain very interested in continuing to build that business..

Okay. And then a financial question. You your net debt to EBITDA is about 2.2 times. You announced $1 billion buyback. You also said that you want to ramp up M&A with a strong dollar here.

So when you -- if you take actions on both of those, where do you think your leverage ratio will stabilize?.

Yes not much different from where it is now maybe marginally lower like 2 1. .

But if you do those you are saying that you can fund those both through your free cash flow and then pay down some debt to bring it down?.

Yes. We expect to make more money this year. That's part of the equation. But yes we've certainly done the math here. .

Next question comes from Shlomo Rosenbaum with Stifel..

Hey Doug, on the institutional side, are you already seeing some benefit from the lower oil prices, putting more money in the consumer's pockets? I am hearing the restaurant [ph], it's not quantified and hospitality also not quantified but people are talking about core on the margins.

Are you clients telling you it's having more of an impact on them?.

I guess, I cited a number earlier that Institutional had a particularly strong quarter in North America, Q4 up 7 and I wouldn't take that and roll 7 forward for the next 12 years, because then there was probably some inventory build. But with that said, I guess we attribute that to of course our own great execution.

But no doubt the market has gotten a little better. I think in the fourth quarter it was the first time and I don't remember four or five years that we saw an uptick in old service restaurant foot traffic. And I don't think it's coincidental. I think it's as a result of more dollars in consumer's pockets.

And what’s your broadly -- or if you won’t talk about specific geographies, what should we think about in terms of the sales outlook for Europe, talking about continuing to get the margin expansion? Are you going to get any -- are you expecting to get some additional benefit from the top line or is it despite not a lot of benefit in to the top line?.

It’s going to be more muted because it’s Europe but no, we would expect that we are going to have improved sales in 2015. I would say all the signs that we see, the business steadily, if you looked underneath, got better throughout the year. It was modestly positive in 2014 if you’re all in. We see pretty good start to the business in 2015.

We’d expect to have a couple of points of sales growth which is going to be critical because it’s going to be a real driver now going forward of margin expansion. And if we see that we think we’re going to have another very, very positive year in terms of margin expansion..

And then just thinking about free cash flow for 2015, should I think of it on a free cash flow basis, not necessarily EBITDA but free cash flow.

Should I think of that growing in line with EPS growth?.

Yes..

Next question comes from Rosemarie Morbelli with Gabelli & Company..

And just Doug following up on the 2% growth in European sales, that is I presume before FX isn’t it? Or are you including the negative impact from FX?.

Thank you, Rosemarie. No, that is a fixed currency yield..

Okay, so now I have a question on Energy. Would you expect to be flat? If I remember correctly your earlier comments, at the end of the third quarter what you said was that if oil remain between $81 and $91, so let’s call it $85, your revenues in that segment would be up 10%. If oil came down to $75 it would be up 5%.

So you are losing 5% of growth with $10 difference.

Now oil is at let’s call it 50 and shouldn’t it be down 10% versus last year as opposed to being flat and what am I missing?.

Well, really it’s -- the volume is -- at the end of the day, we’re mostly in the production phase and we’re also in the refining phase and that’s going to be mostly driven by demand. Demand of oil year-on-year is going to be slightly up is the forecast, very slightly. But you’re not having a huge degradation in volume of oil produced around the world.

Well, you’re going to have produce but not a consumed. And so we’ll take some production hit on this thing but you also have to understand underneath there as old comes on and new comes on, we have a significant step up in the amount of stuff consumed in the new wells. So taking a linear drive on this across the enterprise.

This is not going to work and it’s not just price. We’re not stuck on the price..

And then lastly, if I may, can you give us approximately the number of sales force addition for the year and whether you expect to add the same amount more or less in 2015?.

Certainly in total it’s going to be around 2%. Obviously the mix is going to be somewhat different. We’re not going to see the same adds obviously in energy services and you'll probably see a little more in institutional as a consequence of the strength there..

Our final question comes from Justin Hauke with Robert Baird..

So I don’t see in the interim on the loss, but I guess if we could just get a little bit more color on specifically what raws you see benefiting because when you look at refined product prices, it really hasn't moved a whole lot. So maybe just the magnitude of that. And then I know raws are roughly 50% of your cost of goods sold.

What's embedded in the guidance in terms of a percentage decline in your raws?.

Well, I think if you go to Page 9 we gave you what the embedded raw material savings are and EPS. You know the number of shares. You can get into it. We’re trying to make this clear. I would say a lot of these -- half of that benefit and this is the way it falls, because energy buys more oil based or oil derived raw materials than our other businesses.

And they will see the most benefit. Some of that will be given back in the form of cost relief to customers as a consequence of our cost plus contracts. We have other businesses where really they do not a dramatic change in raw materials.

Institutional as some savings, fairly modest, because you also have a lot of caustic and other materials that they buy which are not going to be impacted by the price of oil. I would say across the enterprise what's often lost when we have this discussion is what are the inflation drivers in our business? It's rarely, really raw materials.

We spend a lot more on people then we do on raw materials and our people costs go up every year, both in terms of salary or what we pay them and benefits. And that is the number one inflation driver and certainly will be an inflation driver this year, even for those businesses, seeing material raw material savings.

They will still net have inflation, i.e. the costs will be higher. How do we offset that productivity gains, really driven by implementation, new technology, we work to do a number of things, reformulation of products. So we can give a better product at a lower raw material cost.

But this trade is also got to be favorable for customers where ultimately you start cashing in your good will over time which is a bad thing to do if you want to be share leader for an extended period of time. So I don’t know that helps but I would look at Page 9. I think a lot of answers are there.

Or if you have model questions, you can certainly Mike or Lisa..

Yes. No thanks. I didn’t see that online. And then on last question, this more of a clarification.

On the $0.20 special charges in '15, is there anything that’s incremental in that restructuring? Because if we go back and look at what's been disclosed in the Ks for the restructuring cost related to Nalco and Champion, you would thought it would have been maybe half of that.

So is there anything that's new you just have some numbers messed up there..

Yes, what I mentioned earlier, we went and challenged our businesses to go relook at where synergies would likely exist, and maybe we didn’t find them at the rate we expected, that we have gone after and re looked at opportunities both in regional costs and some corporate cost, as well as within some divisions where we had some I would say natural synergies as well, say WPS, where we folded in the historic Ecolab business into the WPS business and in those areas.

So certainly we use the opportunity that FX pressure has bought to challenge our team to get after and take another look..

We'll turn the call back over to Monahan for closing comments..

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

Thank you for your participation in today’s conference. Please disconnect at this time..