Ecolab Inc.

Greetings and welcome to the Ecolab fourth quarter 2022 earnings release conference call. This time all participants are in listen-only mode. Any 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. It's now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Mr. Hedberg, you may now begin.

Thank you, and hello, everyone, and welcome to Ecolab's fourth 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 our earnings release and 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 material from those projected. Factors that could cause actual results to differ are described in 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. 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. Our team delivered a strong fourth quarter, and honestly, even slightly better than I would have predicted. The milder winter in Europe certainly helped, but most importantly, our team executed very well in a macro environment that was far from ideal. Organic sales grew 12%, with good momentum across all segments. Industrial grew 14%, institutional specialty grew 11%, healthcare and life sciences got back to growth, delivering 7% organic, and pest elimination remained very strong, growing 10%. Volumes outside Europe remained stable year over year, while our total pricing continued to accelerate from 12% in the third quarter to 13% in the fourth quarter. All this contributed to a strong 14% adjusted fixed currency operating income growth, even as we experienced the expected peak in delivered product cost inflation, which reached 43% over the last two years in the fourth quarter. This led to adjusted EPS getting very close to last year's 128 EPS, while mitigating 10 cents of currency headwinds or 8% year-over-year headwinds to adjusted EPS growth. Since the initial impact from the war in Europe, we have delivered consistent operating performance improvement quarter after quarter, and as mentioned during the last earnings call, this is the path we expected to stay on for the quarters to come. Mentoring 23 with a reasonable level of confidence, While we would have lost most of our 1.3 billion of earnings in 2022 to cost inflation, we have rebuilt almost all of it within the same year. This demonstrates the true earnings power of our value proposition and the strong momentum we have in margin rebuild. Most importantly, our shift to offense, which is where Ecolab is at its best, is also showing some very encouraging signs of progress. Our net new business pipeline reached record high at the end of last year as what we offer water, energy, and labor savings while delivering the best and safest outcomes in the industries we serve around the world continues to grow in importance to our customers. And we expect this trend to continue to strengthen. On the other hand, our view on the macro environment remains unchanged. We still expect inflation to remain high well into the year, interest rates to move higher, and have an increasing impact and demand in most markets and geopolitics in Europe, China, and now in the Middle East to remain unpredictable. Nevertheless, we feel ready. In 2023, we therefore expect to deliver double-digit adjusted operating income growth and adjusted earnings growth that keeps accelerating toward our low double-digit historical performance. This includes an approximate 7% year-over-year unfavorable earnings headwind from higher interest expense and FX in 2023. For the first quarter, we feel even more confident and are ready to resume quarterly guidance. We expect our strong top-light momentum to continue and to deliver adjusted earnings per share to be in the range of 82 to 90 cents compared to 82 cents a year ago. This includes an approximate 15% year-over-year earnings headwind from higher interest expense and FX. And finally, while this is a period of caution, we have a positive outlook on where we're heading. Over the last two years, our expertise grew as we focused on supporting our team and on developing strong new innovation. Our retention rates remained high as we protected our customers from supply shortages. Our margins started to recover as we drove pricing in thoughtful ways, while increasing customer value, helping to drive a strong acceleration in operating income. We remain prepared for softening market trends in Europe by accelerating the productivity improvements we had planned for future years. We are adjusting institutional to winning the new reality, and we're beginning to reposition healthcare for profitable growth, as we promised. We will also keep investing in our major engines of high profitable growth like water that delivered 14% organic sales growth in the last quarter, and life sciences that accelerated to 18% in Q4. Additionally, PureLight restarted its expansion exactly as expected with new capacity coming online, helping to drive a very strong acceleration in sales with operating income margins north of 30%. We remain good stewards of capital by continuing to invest in the business, increasing our dividend, reducing our leverage, and returning cash to shareholders as we've always done. And most importantly, with the best team, science, and capabilities in the industry, We're ready to grow our share of a high-quality $152 billion market, and our future has never looked brighter. I look forward to your questions.