Ecolab Inc.

Greetings and welcome to Ecolab first quarter 2020 earnings release conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference today, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan. Thank you, Mr. Monahan. You may now begin.

Thank you. Hello, everyone, and welcome to Ecolab's first quarter conference call. With me today is Doug Baker, Ecolab's chairman and CEO, Christoph Fack, our chief operating officer, and Dan Schmeckel, our chief financial officer. A discussion of our results, along with our earnings release and the slides referencing the quarter's results and our outlook, are available on Ecolab's website at ecolab.com slash investor. Please take a moment to read the cautionary statements in these materials, stating that this teleconference and the associated supplemental materials 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 under Risk Factors section in our most recent form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with an overview of the results, adjusted earnings per share grew 10%, reaching the upper end of our forecast range. Results reflected good underlying sales growth, pricing, and cost controls, which yielded the first quarter's earnings increase. COVID-19 netted to a modestly negative impact on sales, but a minor benefit to earnings from cost controls. Acquisition-adjusted fixed currency sales increased 2%. The institutional and healthcare and life sciences segments showed good sales growth, which more than offset a 3% decline in upstream energy. Excluding the upstream energy segment, Ecolab's acquisition-adjusted fixed currency sales increased 3%. Adjusted fixed currency operating income rose 12% with operating margins expanding 110 basis points. Pricing, improved volume growth, and cost savings initiatives more than offset investments in the business and other selling-related expenses during the quarter. Progress continues on the separation of our ChampionX business. We continue to expect the transaction to be completed by the end of the second quarter. Ecolab's leading capabilities in food safety, clean water, and healthy environments have positioned us well as an effective partner in this world crisis, and we've responded aggressively to the pandemic. As more fully outlined in our March 25th COVID-19 webcast, we have taken a broad range of actions to protect our people and further bolstered our already strong financial position in cash flows. At the same time, we're working aggressively to safely assist our customers, providing them important product, service, and consulting support that they need to keep their operations safe and functional for the present and have them well prepared for when they reopen. We are also preparing growth plans to aggressively drive new business gains as the recovery develops. As previously communicated, the uncertain outlook regarding the full extent of the pandemic's impact on the global economy and its longevity do not provide an adequate basis for us to provide either quarterly or annual earnings forecasts. As a result, our forward-looking guidance remains suspended. 2020 represents an anomalous period of unprecedented proportions. As the world navigates the challenges from COVID-19, our food safety, water management, and infection protection positioning have become even more relevant. Our long-term growth opportunity remains robust, driven by our leading market positions, our focus on providing our strong customer base with improved results while lowering their water, energy, and other operating costs, and our huge remaining market opportunity. Further, our financial position is strong with ample liquidity and resilient free cash flow. We believe looking beyond the near-term uncertainty and focusing on these sustainable long-term business drivers will yield superior long-term performance for Ecolab and for our investors. And now here's Doug Baker with some comments.

Thanks, Mike, and good day to everybody. So I'll just offer some comments on Q1 and a bit of perspective on 2020. So our Q1 adjusted EPS results were better than expected. As we realize, expected business acceleration versus Q4, but COVID-19 impacts were different than we anticipated. COVID-19 did negatively impact sales, but it also drove lower expense in T&E, benefits, and other costs, which more than offset the sales impact. But this is not a pattern we see going forward. We know the coming COVID-19 period will be more adverse. But importantly, we enter this period in a position of strength. The business and company are in very good shape. We've got a great, very experienced team that's been through crises before. We've got a resilient business model that generates cash regularly. And we have a strong balance sheet and cash reserves. So all of this is important as we expect the COVID-19 period to extend into 2021, and we believe the recovery will be shaped more like a U than a V. Finally, we also believe that COVID will have a significant impact on our business. Short-term, quite negative, but longer-term, quite positive. So our guiding principle is really manage the short-term in a way that positions us for maximum long-term benefit. That's where the value is. So we've already taken a number of steps to do this. We created a cash reserve backstop, we cut expenses, we put in hiring freezes, eliminated merit increases, et cetera. We've also cut capital by 50% versus our budget, but preserved digital antimicrobial and hygiene tech investments as they were. Now, these are detailed examples of steps we've taken in how our approach of managing the year to maximize our post COVID potential shows up. But let me offer some perspective on the year in the future. So first 2020. Like it seems everything is with COVID, the outcomes are going to be asymmetrical. We have businesses having record years or that we expect to have record years like F&B, food retail, healthcare, and life sciences. But we also have businesses competing in markets that have been virtually shut down, like institutional with restaurants, hotels, cruise lines, et cetera, really not in business in a material way. So in total, the net impact of the pluses and minuses of these groups of businesses will be negative for the year on both top and bottom lines, and we've signaled that previously. The timing impact over the course of the year, though, is going to be imbalanced, too. Q2, we believe, is going to be the most impacted quarter as we realize both the full effects of COVID-19 volume declines driven by these temporary closures in key markets. Plus, we're also going to be realizing channel D stocking at the same time. However, we expect Q3 and Q4 to start showing sequential recovery from Q2. This recovery during the second half will be driven certainly in part by reopenings, but also by expected increased demand for hygiene programs. Now, we're already seeing this across industries like F&B, food retail, and even in traditional industrial settings where we hadn't had this type of demand before. The recovery will be further driven by a number of our own initiatives that we already have underway. Look, we're feeding and fueling segments of Momentum, F&B, FRS, healthcare and life sciences, We're adding people, investing in capital, doing all the things that we need to do to build on that momentum. We're launching new offerings, particularly in hand care and sanitizer categories, and we're developing new applications for a powerful BioQOL system. Three, we're maintaining growth investments in animal health and data centers, which we had seen as great growth opportunities before COVID, and they remain great growth opportunities. And finally, we're actively pursuing new strategic customers. This is a great time to continue to talk about the benefits that we bring in good and difficult times. Now, all of this represents what we call the early-stage development for the world after COVID. Our business will certainly be pressured this year, but we'll continue to generate positive cash flow and gain share throughout the year. We believe our clear leadership in hygiene, antimicrobial, digital technology, Lowest use cost delivery, environmental offerings will be even more valued after the pandemic has passed. And a number of important factors we believe will remain true. We will still chase a huge market. We will still have a sizable competitive advantage. One might argue that our competitive advantage will be improved. We're in better shape than most of our competitors to handle a situation like this. We will have great customer relationships as we demonstrate we're the right partner particularly when the going gets tough. And we will have answers for water scarcity, which will still be a huge issue. And finally, our ESG advantages will remain significant and important. But we also believe that there's going to be new transformational opportunities as customers' and communities' expectations evolve. And this is where we will put extraordinary time and effort as we move through this year. We see building an even broader and more robust set of annuity businesses as the highest priority for the year. This is what we've got to use this time to do. It's why we so firmly believe that managing through the short term in a way that positions us for maximum long-term benefit is the right play. So with that, I'll hand it back to Mike.