Currency translation effects reduced reported sales by 8.3%, with divestitures accounting for the remaining 1.2% decline.
The stronger US dollar had a similarly negative impact on earnings. Organic net income increased 18%.
EBITDA margins held flat as EBITDA declined 2.6% organically from the $156 million earned in the prior year quarter. Currency further reduced nominal first quarter 2009 EBITDA to $136 million. Earnings reflect $18 million in unfavorable volume variances in the company’s plants, reflecting both the organic sales decline and production curtailments to reduce inventory levels.
Free Cash Flow for the period, $146 million, rose significantly from year-ago first quarter results of $43 million, benefitting from programs to reduce receivables and inventory. Results were ahead of full year 2008 Free Cash Flow of $142 million.
Sales were again led by Energy Services, which delivered 4.9% organic growth consisting of 10% improvement in oil field services, modest gains with downstream customers and a decline in the Adomite well-service business that was less steep than rig count declines. Direct contribution of $80 million was just under the prior year quarter’s $82 million, as currency impacts offset operational gains. Margins ended flat to last year.
Water Services growth in Latin America was more than offset by declines in North America, Asia and Europe, leading to an overall organic sales decrease of 4.5%. Manufacturing and mining sales were among the hardest hit sectors in Water Services, although plant closings hurt sales in several other markets as well. Growth efforts will be supported the remainder of the year by the mid-March introduction of 3D TRASAR Boiler Technology, which drives energy, water, maintenance and other savings for customers. The Nalco Mobotec air protection technologies business led first quarter growth efforts in the segment, expanding 44%. The business is expected to continue to grow even while facing delays in some projects as air pollution control rules are adjusted in the United States. Water Services direct contribution of $70 million was down $18 million from the comparable 2008 period on lower sales, currency, and divestiture of the Finishing Technologies business. Direct contribution margins declined 0.7 percentage points.
A steep decline in paper end markets led to decreased Paper Services segment sales. Organic sales fell 16.9%, including a 25.7% decline in the hard-hit European paper market. Latin America, however, grew 6.8% even in tough market conditions. Direct contribution also was lower by $12 million to a total of $23 million on reduced sales and a 2.5 percentage point margin decline from the prior year. However, direct contribution margins improved sequentially from the fourth quarter of 2008, benefiting in part from recent restructuring activities.
Regionally, Latin America organic sales grew sharply across all segments, up 13.6%. Organic revenues dropped 3.2% in Asia, 3.6% in North America and 9.2% in Europe, Africa and the Middle East (EAME).
Given what can only be described as extraordinarily challenging economic conditions, the business and our global team performed well. After a weak start to the year driven by extensive customer plant closures that reduced water treatment sales and production declines that hurt process-oriented revenues, we began seeing some improvement in Water Services end markets late in the quarter, stated J. Erik Fyrwald, chairman, president and chief executive officer.
Still, this likely will be a very challenging year and one with more volatility likely to come. We are pushing aggressively on productivity to help offset the impacts of weaker end markets. We generated very good progress on this front in the first quarter and remain on path — at $27 million in the first quarter — to exceed our $100 million savings commitment. Given that we had averaged $11 million in first quarter savings over the past three years, I am very pleased with these early results, added Fyrwald.
Working capital reductions were a key contributor to first quarter Free Cash Flow, and the Company expects to deliver further performance improvements into 2010. As we improve our demand planning and order-to-cash processes, we will be better positioned to manage inventory, receivable and accounts payable positions going forward, stated Fyrwald.
In late March 2009, Nalco acquired Crossbow Water, a regional high-purity water and water pre-treatment company. The Crossbow acquisition expands the range of pre-treatment technologies and services that Nalco sales engineers can offer to customers, initially focused on the US Midwest. Crossbow generated 2008 sales of $14 million.
