Ecolab Inc.

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

Thank you. Hello, everyone, and welcome to Ecolab's fourth quarter conference call. With me today are Christoph Beck, Ecolab's CEO, and Scott Kirkland, our new 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, the strong fourth quarter sales were driven by accelerated pricing, business wins, and product innovation with double-digit gains in our institutional specialty and other segments, as well as continued strong growth in the industrial segment. These were partially offset by negative COVID-related effects on business activity and an unprecedented estimated 20% increase in year-on-year delivered product cost and supply constraints in the quarter. We closed out a challenging year in 2021 in which we invested in key business drivers and aggressively drove pricing, innovation, and productivity. We also successfully managed through substantial supply constraints and cost increases to deliver the strong full-year earnings increase. Looking ahead, recent programs, including Ecolab Science Certified and Net Zero, have further differentiated Ecolab's value proposition and enable us to create better customer outcomes and reduce environmental impact, all while simultaneously reducing their costs. Our new business winds and innovation pipelines are at record levels, and new market focus areas are well-positioned to drive growth and our leading digital capabilities continue to add competitive advantage. We expect to leverage these drivers to once again drive strong sales volume and pricing gains, and along with productivity and cost reduction actions, more than offset the higher costs to yield another year of double-digit earnings growth. Our strong business momentum, along with our enhanced value proposition and favorable macro trends, position us well to leverage the post-COVID environment and deliver further superior long-term shareholder returns. And now here's Christophe back with his comments.

Thank you so much, Mike, and good afternoon, everyone. The fourth quarter showed once again that the global environment remains very dynamic, presenting new challenges that we've learned to turn into long-term opportunities. Our top-line momentum reached 10% or 9% organic in a constrained environment. Institutional specialty grew 19%, pest elimination 10%, and industrial remains strong, growing 8% in the quarter, and our new business and innovation pipelines remain really strong. At the same time, COVID came back during the fall, especially in North America and in Europe. Well, as we all know, inflation kept rising substantially. And still, the pipeline gained momentum, including pricing, which accelerated to 4% as we exited the quarter. This was required to compensate for significant incremental costs from supply constraints, and much higher inflation pressure on our raw material and freight costs. This cost spiked close to 20% in the fourth quarter, nearly double the rate we saw in the third, and easing close to a total of $1 per share unfavorable impact for the full year, with almost half of that in Q4 alone. So once again, our team demonstrated our commitment to protect our customers' operations at all times, and in any condition to ensure food, power, water, and healthcare supply are protected while we also keep enhancing our margins for the long run. We now enter 2022 with confidence and well aware that the environment might change, but we will keep doing our very best to stay ahead. We expect the global economy to remain strong, even if not as a perfect straight line. The exact timing for the end of COVID's impact remains hard to predict, but we expect it to be mostly behind us by the middle of this year. We also expect inflation to remain at the high level, at least for the first half of the year, while we expect it to ease during the second half, and we're getting ready for this too. We will keep driving growth by fueling the institutional recovery, which is going really well, by generating strong new business, by investing in our new growth engines like life sciences, data centers, or microelectronics, and by making sure we remain one of the very best places to work for the most promising and diverse global talent. We keep addressing inflation by further enhancing our productivity through digital automation, as we've done over the past few years, by leveraging high-margin innovation, and naturally, by accelerating our value pricing. For the full year 2022, we expect raw materials and freight costs to further increase, with inflation remaining high before it eases during the second half of the year. Our full year pricing expectation for 2022 is expected to be in the 5% to 6% range, which combined with our steady productivity work is expected to get ahead of inflation dollar in the first half and enhanced margins in the second half of the year and certainly beyond as the Ecolab model has proven many times. All these actions should lead to a strong 2022 with strong top line and adjusted earnings growth in the low teens for the full year and a first quarter with very healthy sales growth and a platy GPS as pricing keeps building fast. Finally, as we've done throughout the pandemic and against major market disruptions, we will remain focused on the future. For us, it's all about delivering long-term value to our customers and to our shareholders while managing the short term. Our mission of protecting people and the resources vital to life is as important as it's ever been. Our opportunity has never been larger as we chase a global market that's today greater than $150 billion and growing fast. We're therefore confident that we will look back on this period and truly feel we did the right things the right way, by protecting our teams and our customers when they needed us the most and by protecting our company in ways that made Ecolab even stronger and more relevant. As the infection prevention company, helping customers protect their customers and their businesses with Ecolab Science Certified, and as the sustainability company helping our customers progress on the net zero journey, all of which leading to strong top line and consistent, reliable double digit EPS growth, and ultimately getting us back on our pre-COVID earnings trajectory. I look forward to your questions.