Ecolab Inc.

Greetings and welcome to the Ecolab second quarter 2021 earnings release conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce to you your host, Mr. Mike Monaghan, Senior Vice President, External Relations. Thank you, sir. You may begin.

Thank you. Hello, everyone, and welcome to Ecolab's second quarter conference call. With me today are Christoph Beck, Ecolab's CEO, and Dan Schmechel, our CFO. A discussion of our results along with our earnings release and the slides referencing the quarter's results are available on Ecolab's website at ecolab.com slash investor. Please take a moment to read the cautionary statements in these materials, which state 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, strong second quarter results reflected significant year-on-year sales and earnings growth driven by recovering markets, accelerating pricing, and new business wins, which more than offset increased delivered product costs and the slower pace of reopenings outside the U.S. We have implemented aggressive pricing actions to offset increased delivered product costs, leveraging the strong product and service value we deliver to customers. When combined with our strong new business wins, we expect to once again successfully manage the current inflation challenges and uneven global economic recovery to deliver very strong sales earnings growth in 2021. Our position as leader in food safety, clean water, and healthy environments has become even more important in the last 18 months. We believe this position, along with our strong 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 through that, our ability to help them meet their growing ESG ambitions. We believe that these sustainable long-term business drivers will continue to yield superior long-term performance for Ecolab and our investors. And now, here's Christophe Peck with his comments.

Thank you so much, Mike, and thanks to all of you for joining us today. As expected, Q2 was indeed a very strong quarter for our company. Acquisition adjusted sales rose 12%, driven by the U.S. and China, with the reopening of Europe and the rest of the world expected to follow progressively. Adjusted earnings per share ended up a strong 88% for the last year. U.S. institutional sales more than doubled in the second quarter versus the same quarter in 2020, clearly outperforming the industry. The number of restaurants we serve, as well as the number of solutions they buy from us, ended up almost back to 2019 levels and are growing fast. Those are strong signs of how much business we've gained during the pandemic and the growth potential we have as markets reopen. Industrial accelerated to 3% in Q2, driven by strong new business generated during the pandemic and accelerated pricing. Water sales were up 7%, with light industries up 12%, driven by strong momentum in new segments like data centers, which, by the way, grew 53% in the quarter. Paper was up 10%, driven by strong demand for our innovative solutions in board and packaging, while food and beverage kept improving. Downstream remains a big challenge in the quarter that repositions itself from a focus on operational efficiency toward new promising sustainability offerings. Husky and Life Sciences also had very strong and consistent underlying sales growth in Q2, with mid-single and double-digit growth respectively. Reported sales were only down as they respectively compared to exceptional growth of 13% and 53% in 2020, largely driven by unusual high demand and one-timers during the pandemic. And finally, the other segments grew 23%, driven by continued strength of pest elimination, which was up 21% in the quarter, benefiting from further market reopening and very strong new business. On the margin front, things progressed very well too, with overall margins improving 420 basis points. Beyond the U.S. institutional recovery, our continued progress benefited from accelerated investment made in digital technology during the pandemic, as well as overall pricing that accelerated to 2% in the second quarter. With this backdrop and for the full year, we remain confident of our ability to deliver adjusted earnings that are better than 2019, excluding the Texas raise. How much better is the only question, considering the Delta variant, the timing of your opening in Europe and in the rest of the world, as well as the speed and amplitude of the rise of inflation. More broadly, our longer-term outlook has never been stronger. Our new business and innovation pipelines are at record levels. Our new growth engines like life sciences, healthcare, high-tech, and data centers are all very well positioned to drive incremental growth. And our digital capabilities continue to increase customer value, field productivity, and customer experience. Our main focus right now will be to leverage this positive pricing environment to protect and strengthen our margins and do so while further enhancing value for our customers. This is something we've accomplished many times in the past and expect to successfully accomplish once again. Therefore, we've now embarked on a third round of price increases, which will progressively cover the new rapid rise of input costs that we've seen in Q2, with the biggest impact to be seen in Q4 when we expect pricing to reach 4%. Overall, we feel good about our ability to deliver the second half of 2021, even if the pacing between the next two quarters will be slightly different than initially anticipated. We now expect attractive sequential improvement in the third quarter and a more significant one in the fourth, as pricing actions will hit the P&M. And finally, global trends in people health, like infection prevention and food safety, as well as planet health, like water and carbon emissions, are becoming front and center for every business leader. And there's no one position to help customers on both fronts better than Ecolab, while helping them ensure strong and long-term business health. In other words, we're strengthening our global position as the natural sustainability partner for our customers. All this, combined with a strengthened, highly innovative portfolio, strong business momentum, terrific new wins, accelerated pricing, and unique digital capabilities should position us with great momentum for 2022 and will contribute to drive continued strong digital double-digit earnings growth for the years to come. With that, I look forward to your questions.