Ecolab Inc.

Greetings, and welcome to the Ecolab first quarter 2024 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 anybody today 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 your host, Andy Hedberg, Vice President and Investor Relations for Ecolab. Mr. Hedberg, you may now begin your presentation.

Thank you, and hello, everyone, and 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 the 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 on 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 and release. With that, I'd like to turn the call over to Christoph Beck for his comments.

Thank you so much, Andy, and welcome to everyone on the call. We're really pleased to report that Ecolab is off to a strong start in 2024 with first quarter organic sales growth of 5% and organic operating income margin expansion of 400 basis points, driving adjusted earnings per share up 52%. We remain firmly on our long-term 12% to 15% earnings growth trajectory with our exceptional growth in the first quarter being the result of strong execution on fundamentals and the additional benefit of lower delivered product costs. This strong performance is a testament to the excellent dedication and execution of the entire Ecolab team, and I'm so proud of this team. We're encouraged by the current pace and momentum of our business. Our efforts resulted in the delivery of 3% pricing, which included new pricing implemented during the quarter and a modest carryover benefit from last year's pricing action and brought us slightly above our two percentage point plus long-term run rate. This delivery, along with continued positive volume growth, is possible because of our customer value proposition. Because of the value we provide, the spend with Ecolab is a benefit and not a cost. This good top-line growth, combined with the anticipated easing of delivered product costs, continued the strong organic operating income margin expansion across the majority of our businesses of our business segments and geographical regions. We're very pleased with the margin expansion we have delivered and remain focused on achieving our 20% operating income margin target over the next few years. As we continue to execute against this target, gross margin is expected to continue on its positive trajectory. At the same time, we are now reinvesting some of these gains back into our business to fuel our long-term growth. Importantly, our underlying productivity remains strong. and we see opportunities to further improve by leveraging our leading digital capabilities. Looking across our segments, institutional specialty continued to perform exceptionally well. This team delivered double-digit sales growth and a very attractive operating income margin, as our labor savings value proposition continued to resonate with our customers. Going forward, we expect the rate of organic sales growth for institutional specialty to moderate somewhat as we lap last year's strong pricing delivery. Industrial made a good underlying progress, improving its volume trajectory in a volatile global environment. Excluding continued soft near-term paper industry demand, industrial volume grew, a nice improvement from the second half of last year. Healthcare and life sciences remained relatively flattish, but life sciences sales grew modestly, which I consider constructive news given the continued short-term soft industry trends. We therefore expect trends to progressively improve during the second half of the year. As promised, we continue to take the action needed to transform our healthcare business. A year ago, we took the first step in our journey by adjusting our cost structure to a more competitive level. Then, in the third quarter of last year, we took our second step by bifurcating our North American healthcare business into two separate businesses, surgical and infection prevention. We made further progress by announcing an agreement to sell our surgical drapes business to Medline. Once and if this transaction closes after regulatory clearance, we will have renewed focus on the instrument reprocessing portion of the remaining healthcare business. This business has the core elements of the classic Ecolab business model that combines an anchor platform with consumables, personal service, and digital solutions. Well, there's more to be done. I'm proud of the progress we've made to create a more sustainable, profitable healthcare business that delivers for our important hospital customers. Finally, pest elimination, which is now a standalone segment due to its relevance and promising performance, continued to execute very well. Sales grew upper single digits with double-digit organic operating income growth, benefiting from a circle-the-customer, circle-the-grope cross-selling strategy. Looking ahead, the confidence we have in our 2024 performance continues to strengthen. We expect organic sales growth to remain relatively stable, driving 2 to 3% price and 1 to 2% volume growth. We're increasing our outlook for full year 2024 adjusted EPS to the range of 640 to 670, up 23% to 29% versus last year, as we now anticipate delivered product cost to ease through the third quarter. though the magnitude of cost favorability is expected to gradually diminish. This, along with continued pricing and volume growth, are expected to more than offset the estimated $15 million per quarter OI headwind from the diversity tier of our surgical healthcare business once the transaction closes. As a result, we anticipate quarterly adjusted diluted earnings per share growth in the second half of 2024 to progressively normalize towards the upper end of Ecolab's long-term 12% to 15% target as short-term benefits from lower delivered product costs ease. As always, we will remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. With great business momentum and cash flows, our balance sheet is in a very strong position. This provides us with many options to allocate capital to growth opportunities that will generate continued strong returns for shareholders. Ecolab's future has never looked brighter. Our leading customer value proposition, where our technologies help customers improve their operating performance while reducing the water and energy use, is proving to be increasingly relevant and continues to fuel our growth, pricing, and margin expansion. Backed by the most talented team, leading technology innovation and global capabilities, our strategic positioning enables us to consistently expand our market share within the vast and high-quality 152 billion market we serve. We therefore remain confident in delivering superior performance for our customers and for our shareholders for the years to come. Thank you for your continued support and investment in Ecolab. I look forward to your questions.