Ecolab Inc.

Greetings, and welcome to the Ecolab second quarter 2022 earnings release conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations.

Mr. Hedberg, you may now begin. Thank you. Thank you, and hello, everyone, and welcome to Ecolab's second quarter conference call. With me today are Christoph Beck, Ecolab's chairman and CEO, and Scott Kirkland, our CFO. A discussion of our results, along with earnings released in 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 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 in the risk factor section of our most recent form 10-K and in our posted materials. We refer you to the supplemental diluted earnings per share information in release. With that, I'd like to turn the call over to Christophe Beck for his comments.

Thank you so much, Andy, and welcome to everyone to our conference call. And, Andy, welcome to your new role as head of investor relations after 15 years in the industry and six years alongside Mike Monaghan. In 37 years, Mike has built a legacy of trust, transparency, and simple messages. He's built trusted relationship with all of you on the call by listening to you, by addressing your concerns, and by building on your ideas in good and in more challenging times. He shared openly with you what we were seeing, what we were doing about it, and where we were going to keep winning. And in a world that feels like it's getting more complicated by the day, he kept describing our performance, our opportunities, our concerns in simple and clear ways to make your life as investors as simple as it could be and none of that will change so under your leadership andy we will simply build further on mike's great legacy now to our results the second quarter concluded as expected while facing 30 percent delivered product cost inflation and increased headwinds from fx translation our global team managed to deliver once again sustained double-digit organic growth by driving new business and by accelerating pricing. Both create signs of the real value we create for our customers and our emerging growth potential. We almost doubled our total pricing from 5% in the first quarter to 9% in the second as we further strengthened our structural pricing and executed our first ever global energy surcharge with customers around the world in all our businesses in 172 countries in an extraordinarily short period of time. We're now exiting the quarter with double-digit sales growth and pricing momentum that's now ahead of delivered product cost inflation. Most importantly, with gross margins that have now turned a corner. In other words, we expect to see easing year-over-year margin pressure over the next two quarters. We're now in a fortunate position where our number one strategic priority over the past 12 months has been addressed, getting ahead of inflation. This will now help us fully recover our gross margin over time and expand them even further in the long run. With margins getting on the right track, the time has now come to shift our primary focus to offense. With an environment that keeps getting more complicated, we do not expect the world economy to accelerate. We're therefore getting ready for that too. Our new business is strong and innovation pipelines are at record levels. Our customer retention has remained largely unchanged still north of 90%, with the industry's largest and best-trained sales force, with the resources and the capabilities to get the job done and serve our customers better than ever, with a business model with over 90% consumable revenue, with innovative technologies and services that are helping customers reduce their total operating costs when they need it most, like right now, and a growing 152 billion market opportunity that will remain huge no matter what happens to the world economy. We therefore enter the second half of the year in a position of strength, with strong growth momentum and growing share across the board, with inflation and energy costs that seem to keep getting higher, especially natural gas in Europe and in the US, with the right pricing momentum to stay ahead of inflation and the right mechanism, if I may say, with the energy surcharges to mitigate spikes of energy costs over time. The shift from focusing primarily on pricing to major share gains will naturally take some time. But as we've demonstrated in the past, it will also lead to strong results down the road. We therefore expect overall performance to improve sequentially in the quarters to come. Q3 earnings will therefore continue to be driven by strong top-line growth, easing year-over-year margin pressure, supported by solid pricing, but in the short term will also be impacted by unfavorable currency translation and potentially softer volume growth as the teams shift their focus to major share gains. As a result, we expect Q3 to show a sequentially narrowing decline in year-over-year adjusted earnings per share, including the impact of at least 10 cents of FX headwinds. Now, with the total pricing already at low double-digit levels, new business generation to drive share gains, breakthrough innovation and productivity benefits to drive margins, We expect fourth quarter to show accelerated adjusted earnings per share growth, resulting in modest growth in full year 2022 adjusted earnings per share. Now, let me conclude my remarks on a more personal note. I love growth, and I hate just as much as you do low earnings growth. This is not who we are and certainly not who I am, except when it's because we've done the right thing the right way for our future. like keeping our global team and capabilities intact at a very high cost during the COVID lockdowns, like managing pricing in a way that protected long-term customer retention, like maintaining growth investments in new products, digital technologies, and new high-growth businesses to gain market share and significantly increase our opportunities. As intense as it is right now, our near-term momentum keeps building, and our long-term opportunities have never been greater. That's why I've never been more bullish about the future of this company. Our 152 billion market opportunity keeps getting bigger. When infection risk keeps rising, with pandemics, with hospital-acquired infection, and with food safety challenges like we've seen lately in baby food production, we're here to help our customers. With water scarcity and a warming climate that's hurting businesses and people, we're here to help our customers reduce their total water and carbon footprint while reducing their total operating cost. helping to deliver superior long-term performance for them and for our shareholders, which is why I firmly believe that we see Collab the best is still yet to come. I look forward to your questions.