Ecolab Inc.

Greetings and welcome to Ecolab fourth quarter 2024 earnings release conference call. At this time all participants are in listen only mode. The question and answer session will follow today's formal presentation. If anyone 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, Investor Relations. Thank you 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 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 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, Andy, and welcome to everyone on the call. As we wrap up another incredible year at Ecolab, I wanted to take a moment to acknowledge the hard work and dedication of our exceptional team. Their unwavering commitment to our mission has been instrumental in delivering unmatched value and best-in-class outcomes for our customers, driving Ecolab's record performance. It's a true privilege to lead such a talented group, and I'm proud of what we've achieved together over the last few years. 2024 was another record year for us, with record sales, record earnings, record margins, and record-free cash flow. all supported by the exceptional total value we delivered to our customers. As we look ahead to 2025 and beyond, our results position us well to continue delivering superior performance for both our customers and our shareholders. In Q4, our organic sales growth was solid and steady at 4%, driven by consistent volume growth and value pricing. Regionally, our performance continues to be led by the United States. where organic sales grew mid-single digits. The United States makes up more than half of Ecolab's sales and is our most profitable region. We expect this region to strengthen further in 2025, fueling continued strong performance for Ecolab. Sales across the rest of the world grew low single digits, driven by resilient demand for our leading solutions, good new business wins, and value pricing. which more than offset the uneven macroeconomic trends in these regions. Our organic operating income margin in the fourth quarter increased a robust 150 basis points. This underscores our commitment to driving margins higher while making continued critical investments in sales firepower, capabilities, and capacity to fuel our future growth. For the full year, our organic operating income margin was 16.8%, up 290 basis points on top of 140 basis points delivered in 2023. With all of this, my confidence in reaching our 20% operating income margin target over the next three years continues to strengthen. As we move into 2025, I'm confident in Ecolab's ability to drive continued solid organic sales growth and 12 to 15% earnings growth. Our strategy centers on capturing market share through our one Ecolab initiative and accelerating momentum in our new growth engines, specifically in data centers, microelectronics, life sciences, and our newest offerings from Ecolab Digital. Externally, currency translation is expected to have an approximate 3% unfavorable impact on Ecolab's 2025 reported sales growth and an approximate 4% unfavorable impact on adjusted EPS growth. We plan to mitigate the earnings impact in two ways. One, through stronger value pricing, which is expected to be slightly higher than 2024's pricing as the total value delivered to customers continues to expand. And two, through slightly faster than expected warning collapse savings. As a result, we look for continued superior performance in 2025 with adjusted diluted earnings per share expected to increase 12% to 15%, even with organic sales growth improving slightly from the 4% we delivered in 2024. With a solid growth formula in place to deliver again in 2025, we also plan to build and invest in our business to feel continued strong performance for the years ahead. Two of these critical areas include Ecolab's global high-tech business and Ecolab Digital. Our global high-tech business operates in the rapidly growing multi-billion dollar data center and microelectronics industries. Sales in this business have reached over 300 million, and we expect strong growth to continue in the coming years with OI margins well above 20%. The rise of AI is prompting data centers to rethink their cooling strategies, leading to a shift from air-cooled to liquid-cooled servers. This transition presents Ecolab with a significant opportunity to apply our extensive expertise in fluid management, microbiome control, and naturally high-performance cooling, which is one of our core competencies to help our customers optimize their operations, maximize uptime, and protect their substantial investments. Our new business pipeline in these markets is very strong, driven by robust demand for a breakthrough innovation focused on high-performance cooling for data centers and water circularity for microelectronic fabs. We're well positioned to leverage these innovations along with our leading digital applications and global sales and service expertise to serve the world's largest technology companies. Ecolab Digital will also add to our momentum by leveraging the power of our extensive digital and AI capabilities to identify insights and deliver best-in-class performance across the 40 industries we serve. Ecolab Digital manages more than 100,000 customer systems around the world today. Last year alone, we captured more than 120 billion proprietary data points across the systems. This data was used to identify ways to deliver improved operation performance and profitability for our customers' global enterprises. We're monetizing this enhanced customer value through patented device leases, application subscriptions, and digital content consumption, all of which is supported by Ecolab's global sales and service organization to make it work. As previously indicated, we'll begin to report our digital sales in 2025 to provide even greater transparency to this high-growth, high-margin opportunity. To support these efforts and our other growth engines, we will continue to accelerate smart organic and inorganic investments. With this, We expect our capex to sales to be around 7% in 2025 as we continue to expand digitally connected systems like our Ecolab 3D Cloud, 3D Tracer, AI Dish Machine Program, and Pest Intelligence. With our record-free cash flows and very healthy balance sheet, we are also in a unique position to take advantage of inorganic opportunities in water, digital, and life sciences to deliver even more value to customers and attractive returns for shareholders. With these initiatives, we remain focused on further enhancing shareholder returns through increased dividends and share buybacks. In December, Ecolab's board declared a 14% increase in our quarterly cash dividend. And in 2024, we bought back $1 billion of Ecolab stock at very attractive prices. All signs of confidence in our team and in our future. Overall, I firmly believe the best of Ecolab is yet to come. Our ability to deliver innovative solutions that improve our customers' operational performance while reducing the water and energy use is increasingly relevant in today's micro landscape. We will position to deliver another stronger in 2025 and beyond. So thanks again for your continuous support and your investment in Ecolab. I look forward to your questions.