Ecolab Inc.

Greetings and welcome to the Ecolab first quarter 2023 earnings release conference call. At this time, all participants are on 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 your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Mr. Hedberg. You may begin.

Thank you, and hello, everyone. Welcome to Ecolab's first 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 the slides referencing this quarter 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 in the risk factor section in our most recent form 10-K and in our poster 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.

Christophe Beck Thank you so much, Andy, and welcome to everyone. Look, our team delivered another strong quarter. Once again, even slightly better than I would have predicted. Top line was very strong. Volume trends remained stable. Margins expanded. Operating income growth got even stronger. And adjusted EPS growth kept improving as we promised. All as promised as we continued to face some real headwinds in foreign exchange and interest. Most importantly, our shift to offense showed some real encouraging signs of progress. Organic sales improved from 12% in the fourth quarter to 13% in the first, with strong performance across all segments. Our net new business pipeline once again reached new records in the first quarter as what we have to offer, water, energy, and labor savings, while delivering the best and safest outcome in the industries we serve, continues to grow in importance for our customers. We also maintain very strong pricing at 13%, which we believe will be the peak as we will begin to lap against last year's strong acceleration. Our approach to pricing, and it's important to state that, is responsible and respectful, allowing our customers to absorb long-term increases in a progressive manner. This is backed by true EROI value, the Ecolab way, as we help them reduce their overall operating costs, usage of natural resources, and their environmental impact. Delivered product costs continue to increase versus last year, but the rate of inflation began to ease. This, along with strong pricing execution, allowed us to drive modest gross margin expansion a bit earlier than expected. That being said, our margin recovery journey has only just begun. Despite our expectation that inflation remains stubbornly high, we remain fully committed to recovering our margin over time. Done the right way, one that builds further customer loyalty as we continue to deliver more value. The repositioning of our institutional business, which is a big priority for us, is progressing well, as demonstrated by strong sales growth and margin leverage within that segment. Healthcare and life sciences organic sales growth strengthened, while operating income remained under pressure, near-term at least, as we continue to invest in growth and transformation. There are two very different businesses and stories within that segment. In healthcare, we continue to take actions to improve profitability. Whereas in life sciences, we're making further investments as we add capacity and capabilities in pure light to capitalize on very attractive and profitable long-term growth opportunities. While we continued investing in our long-term capabilities and in digital technology, we also continued to make solid progress in SG&A productivity. The combination of improved gross margins and better operational productivity led to strong organic operating income growth of 19%, up from 10% in the fourth quarter last year. Our adjusted earnings per share growth improved to 7%, which includes a 13% headwind from FX and interest. In summary, we started the year exactly the way we wanted, with strong top and bottom line momentum, despite a challenging environment. Looking ahead, we anticipate inflation to remain high for the foreseeable future, interest rates to have a strong impact on global demand, and continued geopolitical tensions. Although none of this is new, the good news is that we are very well positioned to win in this environment. Over the last few years, our expertise grew as we focused on supporting our team and developing innovative solutions. Our customer retention rates remained high as we protected them from supply shortages. Our margins started to recover and our organic operating income accelerated as we drove pricing in thoughtful ways while increasing customer value. And now, As macro trends are softening, we will continue to accelerate our shift to offense by accelerating new business, by executing extremely well, and by driving productivity improvements and continuing to invest in our major growth engines to drive profitable growth. This will ensure we deliver stronger sequential earnings performance, exactly as we've indicated during our previous calls. With this, we expect adjusted earnings growth in the second quarter to be in the plus 5 to plus 14% range, and to end the year, as expected, with adjusted earnings growth in the fourth quarter that reaches low double digits. And finally, we will 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 were prepared to grow our share of this high-quality 152 billion gross market I believe our future has never looked brighter. I look forward to your questions. Thanks, Christoph.