Ecolab Inc.

Greetings and welcome to the Ecolab second 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 today's conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to introduce your host, Mike Monahan, Senior Vice President, External Relations. Mr. Monahan, you may now begin.

Thank you. Hello, everyone, and welcome to Ecolab's second quarter conference call. With me today is Doug Baker, Ecolab's chairman and CEO, Christoph Beck, our chief operating officer, and Dan Schmeichel, 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 the 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 a brief overview, second quarter results reflected the impact from COVID-19 on our businesses and were generally consistent with our expectations. Sales and earnings were strong for our life sciences, healthcare, and specialty businesses as they benefited from favorable fundamental trends and our increased cleaning and sanitizing demand. Our industrial segment saw a modest sales decline but strong earnings growth, while our institutional and pest elimination businesses experienced significant sales and profit declines due to the substantial negative impact on restaurants, hotels, and entertainment facilities as they felt the brunt of the March-April global shutdown in travel and dining. Second quarter adjusted earnings per share from continuing operations were $0.65 compared with $1.27 a year ago. Results reflected the COVID-related volume declines and negative operating leverage, as well as certain COVID-related impacts, including second quarter equipment lease billing suspensions of approximately $0.10 per share to support customers, a $0.06 per share reduction in institutional distributor inventories, and increased bad debt expense of 7 cents per share. Looking ahead, we believe we are in a strong position to manage through COVID-19 and are confident we will emerge from 2020 in a stronger competitive position with a more robust offering. Our focus remains squarely on maximizing our post-COVID traction to drive growth. While we have near-term challenges that we are addressing within our institutional business, we continue to have substantial opportunities in all of our businesses and the right strategies to achieve them. Clearly, Ecolab's leading capabilities in food safety, clean water, and healthy environments is more important than ever, and they have positioned us well as an important and effective partner in this world crisis and beyond. As a significant part of this, we have continued to work aggressively to partner with our customers to solve their problems, and in doing so, further improve our customer penetration and new business wins by providing the critical product service and consulting support our customers need to ensure their operations are safe and functioning effectively as COVID restrictions evolve and their operations adapt to the new sanitation requirements. As a result of these actions and our new sales initiatives, we have one new business and along with gradually improving markets, we have seen sales across our businesses, including institutional, improve since their lows early in the quarter. While COVID-19 creates a short-term challenge, It also creates long-term opportunities. In a world challenged by COVID, our food safety, clean water, and healthy environments positioning has become even more important. We believe that our long-term growth opportunities remain robust, driven by our huge remaining market opportunity, our leading global market positions, our focus on providing our strong customer base with improved results while lowering their water, energy, and other operating costs, and our strong financial position with 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 our investors. And now here's Doug Baker with some comments.

Thanks, Mike, and hello, everyone. So just a couple of overview comments on Q2. We'll turn it back to Mike and then to Q&A. So our Q2 results were obviously significantly impacted by COVID-19. They were, though, in line with our expectations going in, which is probably a minor miracle because it's a very difficult environment to predict. The impacts were most acutely felt in our institutional business, as the balance of our businesses collectively grew both sales and income during the period. Healthcare and life sciences had record growth. Our industrial businesses had extremely strong margin performance, driving strong income gains. And our specialty portion of our institutional reporting segment also realized strong growth. Our institutional division, though, was directly impacted by the COVID-19 shutdown of travel and dining early in the quarter. This was a one-off event in the history. Now, this event was further exacerbated by the resultant distributor inventory reductions and a decision we made to suspend Q2 dish machine lease payments as a means of supporting the food service industry during this incredibly traumatic period. In total, these two items hit sales by $82 million in Q2 and OI by roughly $60 million. Importantly, we spent no time or effort postponing pain or managing Q2 for optics. Trade inventories fell and we let them. The dish machine market needed support and we gave it. reserves and inventory we took our full dose, team size we maintained, and investments we actually increased through the quarter. This is what we said we would do, and we feel it's a smart play. We will manage through the near-term pain in a way that maximizes our potential long-term. While the pain will continue, we believe Q2 was the low point. So while the short-term pain from COVID-19 is obvious, The long term impact is becoming clear hygiene standards will increase in every market we serve they have industrial healthcare life sciences institutional and specialty. New opportunities are presenting themselves every day in large space disinfecting and hand care and water safety in clean rooms and data centers etc we chase the hundred and $130 billion market at the end of 2019 and it will be bigger going forward. and we're even better advantaged to get after it. We've been out investing our competition for years and are clearly this year. Our digital and antimicrobial investments in innovation give us significant advantages. Customers' water, food safety, safe environment, and operating efficiency needs are only growing in importance, and our cleaner, safer, healthier positioning is spot on. Probably most importantly, Our team has never so clearly felt the power of our mission and is doing a great job supporting customers, jumping on opportunities, and rebuilding momentum. So with that, I'll turn it to Mike, who will open up Q&A.