Ecolab Inc.

Greetings and welcome to the Ecolab third quarter 2024 earnings release conference call. At this time, all participants are in listen only mode. 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's now my pleasure at this time to introduce your host, Andy Hedberg, Vice President Investor Relations. Mr. Hedberg, you may now begin.

Thank you, and hello, everyone, and welcome to Ecolab's third 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 under the risk factor 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.

Christophe Beck Thank you so much, Andy, and welcome to everyone on the call. And let me start by thanking our incredible team for their hard work and seamless execution this quarter again. It's because of our team's endless dedication to our customers and commitment to our goals that I have the pleasure of sharing another excellent quarter, delivering broad-based performance across our businesses and markets and geographies. Our company has never been as healthy as it is today, and I'm proud to lead such a talented team with such a great future. Moving to the specifics of our performance, our third quarter was highlighted by strengthening volume growth, continued strong value pricing, and robust operating income margin expansion. These all combine to deliver 19% growth in adjusted earnings. With this strong momentum, we are increasing once again the midpoint of our full year earnings guidance range. As expected, organic sales grew 4% with very healthy growth across our businesses. Importantly, volume growth improved to 2% driven by strong business wins and breakthrough innovation. The Ecolab team also delivered solid value pricing at the same time in our targeted 2% to 3% range in a quarter where carryover pricing is at zero and new pricing for 2025 is not in yet. In a world that remains hard to predict, our solutions are more essential than ever to our customers. Backed by our reliable supply and global expertise, our unique technologies are recognized to dramatically enhance productivity while significantly reducing water and energy usage. This solid top-line growth helped to further increase our gross margin 220 basis points to 43.5%. Our SG&E productivity also improved, consistent with our long-term trends. In 2017, our SG&E ratio was over 29%, and today it's around 27%. This year, we expect it will further improve from 28% in the first half to 26% in the second half, even after gross investments in frontline firepower, digital technologies, and service capabilities. And on a side note, third quarter SG&A also benefited from FX, which we expect will reverse next quarter. With this, we anticipate fourth quarter's SG&A ratio to be flattish versus last year's fourth quarter, While long-term trends, we keep improving 20 to 30 basis points per year. Overall, our operating income grew 22%. NOI margin expanded by 260 basis points to 17.9%, which is very close to a record third quarter margin for Ecolab. For the full year 2024, we expect an NOI margin of around 16.5%. 50 basis points better than our early commitment and 260 basis points better than last year. With our strong margin expansion momentum, my confidence in consistently delivering 12 to 15% long-term EPS growth has only strengthened. This will position Ecolab to reach our 20% operating income margin target over the next three years. Now I'd like to transition our attention from Q3 to what our teams are focused on to fuel long-term growth and margin expansion. Our growth engines in cleantech, high-tech, and biotech are showing strength and momentum, even if each are at a different stage of development. In the cleantech area, institutional specialty, as well as pest elimination, are both delivering strong performance, growing 7% and 8%, respectively, with operating income margins north of 20%. Global high tech, which includes data center cooling and water for microelectronics, is growing at strong double digits. And in biotech, our life sciences business remains ahead of the curve in what we believe will be a huge long-term growth opportunity. Our innovation pipeline also continues to build as we shift our focus from renovation to breakthrough innovation. With nearly $1.5 billion, our 2024 pipeline is at record levels and laser focused on the biggest opportunities across our clean tech, high tech, and biotech platforms. Finally, our OneEcolab growth initiative, which seeks to leverage our digital technologies to deliver best-in-class business outcomes, operational performance, and environmental impact at every customer location around the world, is progressing very well. Over the next few years, OneEcolab looks to more quickly unlock our current 55 billion penetration opportunity. Our early focus on our largest and fastest-growing 35 customers is showing promising results with significant total value delivered for our customers and a great growth opportunity for Ecolab. With strong long-term business momentum, record-free cash flow, and the proceeds from the sale of the surgical drapes business, our balance sheet is in a very healthy position. This provides us with many options to allocate capital to organic and inorganic growth opportunities. On organic growth, we are well positioned to scale unique customer solutions like our AI dish machine program for QSR and circular water systems for data centers and microelectronic manufacturers. On the acquisition front, we are now in a unique position to enhance our focus on the core fields of water, digital, and life sciences to generate strong returns for shareholders. In closing, I say this every quarter, and I'll say it again today. Ecolab's future has never looked brighter. Our leading customer value proposition, where our technologies help customers improve their operating performance while reducing their water and energy usage, is increasingly relevant, especially in unpredictable times and continues to fuel our growth and margin expansion. Simply put, we remain very well positioned to consistently drive 12% to 15% growth in adjusted diluted earnings per share in 2025 and in the years to come. So thanks again for your continued support and, naturally, your investment in our company. I look forward to your questions.