Ecolab Inc.

Greetings!

Welcome to Ecolab's 4th Quarter 2025 Earnings Release Conference Call.

We're entering 2026 with strong momentum and are very well positioned to deliver continued high performance with confidence. In Q4, we delivered 15% adjusted EPS growth, with quarterly growth strengthening throughout the year. This was driven by accelerating underlying sales growth and continued strong ROI margin expansion. Organic sales grew 3%, driven by 3% value pricing and positive volume growth. Volume actually was stronger than it appeared, with performance improving across most of our businesses. Food and beverage accelerated to 5%. Pest elimination and life sciences both accelerated to 7%. And specialty continued to drive significant share gains, growing 7% as well. Institutional underlying sales growth was consistent with prior quarters, excluding the unexpected short-term impact from lower distributor inventories. We also maintain strong double-digit growth in global high-tech and Ecolab digital. And taken together, this strong momentum lifted Ecolab's underlying volume growth to 2%, driving mid-single-digit underlying organic sales growth when we exclude impact from basic industries, paper, and these lower distributor inventories. In other words, our core businesses and our growth engines are doing very well. We expect the distributor impact to largely normalize in the first quarter of 2026. We also continue to anticipate basic industries and papers performance to progressively improve in 2026. Combined with strong new business wins and continued momentum across our growth engines, we expect volume growth to get back to 1% as we exit the first quarter, with growth accelerating further as the year progresses. Our strengthening underlying sales drove organic operating income growth of 12% and expanded our organic operating income margin by 140 basis points to 18.5%. This resulted in a full year operating income margin of 18% of 150 basis points versus last year. We're confident we can continue to expand our OI margin well beyond the 20%. Now, before I move into our 2026 outlook, I want to take a moment to acknowledge current events in Minnesota. Ecolab has customers in more than 170 countries, but Minnesota has been our home for more than a century. It is where our headquarters sit and where thousands of our colleagues, customers, and communities count on us every single day. In recent weeks, Ecolab, along with other business leaders across the state, have come together to call for de-escalation and a constructive path forward. As a company that has always believed in doing well by doing good, we stepped in early to help rally business leadership and support the efforts underway. I'm proud of the progress we're seeing and encouraged by the positive momentum. As expressed in an open letter signed by 60 Minnesota-based CEOs, the business community has an important role in supporting stability, strengthening local businesses, and helping build a brighter future for Minnesota. We will continue to work together to help ensure Minnesota remains a strong and resilient place to live, work, and grow. Now, looking ahead to 2026, our priorities are very clear. First, it's rapidly grow total value delivered to customers across our core businesses. Second, it's to accelerate our One Ecolab growth initiative. And third, it's to fuel our growth engines. We expect 3 to 4% organic sales growth this year, with growth accelerating as the year progresses, driven by strengthening volume gains and continued 2 to 3% value price. Total reported sales, including the Avivo Electronics acquisition, is expected to grow upper single digits in 2026. And with this strong growth, ROI margin is anticipated to expand 100 to 150 basis points to more than 19%. resulting in an OI growth of 14% to 16%. Altogether, this is expected to drive strong EPS growth of 12% to 15%, which includes the headwind of additional non-cash amortization from the Avivo acquisition. Our first priority is to rapidly grow total value delivered, or as we call it, TVD. Across our core businesses, TVD is our formal framework for measuring the business outcomes, operational performance, and environmental impact we deliver to customers. When we deliver measurable value across these three dimensions, it not only drives share gains, but it earns the ability to value price. And with a strong customer value pipeline heading into 2026, we remain very confident in delivering 2% to 3% pricing this year. What makes our value model so powerful is our best-in-class approach. With our scale, digital intelligence, and global service, Ecolab partners with customers to define what best-in-class looks like and scale it across their operations, helping them achieve peak performance. This is how we consistently help customers lower costs, reduce risk, and improve performance across their entire enterprise. Innovation is also essential to our best-in-class value model, and our 2026 lineup is strong and keeps getting stronger. In global high-tech, we're launching direct-to-chip cooling as a service to the data center market. This brings liquid cooling right where it's needed the most, the chip. By combining our CDO platform with Ecolab 3D Tracer real-time monitoring, advanced cooling technology, and on-site service, we improve uptime, lower cooling costs, and allow more power to be put towards compute. In food and beverage, we're launching CIPIQ, an AI-enabled digital solution that uses real-time analytics for a smarter way to optimize cleaning place. It increases capacity, reduces water and energy use, and improves quality control and product safety, helping customers run more efficiently at a time when every hour of production matters. Early interest is strong, and we're looking forward to a healthier rollout in 2026. In institutional specialty, we focused on scaling our IQ suite. DishIQ, AquaIQ, KitchenIQ, and BeverageIQ. These solutions directly address labor shortages, guest satisfaction, and rising operating costs, giving operators smarter, more automated ways to run their kitchens and front-of-the-house operations. We expect strong growth from the suite in 2026 as well. And in pest elimination. We're expanding beyond our rodent-focused smart devices with a new smart solution for cockroaches, extending the reach and impact of our pest intelligence platforms. Moving into our second priority in 2026, expanding the OneEcolab growth initiative. We've demonstrated immense success over the last year. We've aligned our global resources to better serve our top 35 global customers, where there is a 3.5 billion growth opportunity. In 2025, sales growth with this group outpaced total company by approximately two percentage points. Each year, we're expanding this model to our largest regional customers around the world, leveraging the tools, processes, and sales structures built for our top 35 customers. Within OneEcoLab, we've also delivered more than 100 million in SG&E savings as of year-end 2025. We achieved this by consolidating functional work into our global centers of excellence and deploying a number of agentic AI applications as one of the most advanced companies. As we shared at Invest Today, our initial OneEcoLab rollout exceeded expectations, allowing us to increase our savings target from $140 million to $225 million by 2027. And today, we're increasing our savings target again to $325 million by the same year, 2027, due to the continued success of the overall program. Finally, looking at our growth engines, they now represent about 20% of our portfolio, including Avivo Electronics, which closed earlier than expected. Together, our growth engines have very attractive long-term OI margin profiles, and in 2026, we expect them to collectively grow double digits, lifting Ecolab's sales cross. When we look at what's fueling that trajectory, global high-tech is leading the way, as AI expands and every part of its value chain depends on water. The fabs that make the chips, the power plants that fuel the chips, and the data centers that run and cool them. Ecolab is uniquely positioned in all these markets to help enable the AI build-out. With Avivo Electronics now part of Ecolab, we provide the ultra-fueled water essential for semiconductor manufacturing, supporting the fabs producing the world's most advanced chips. As we bring our unmatched capabilities together, we're building a unique circular water offering for the fast-growing microelectronics sector. And Avivo is off to a strong start in 2026, as we have already secured several new fabs where our leading ultra-pure water technologies will be deployed. On the data center side, the industry expects unprecedented demand for AI to continue to rapidly expand. Higher rack densities and rising cheap heat make liquid cooling mission critical. Our directed chip cooling platform, including integrated 3D tracer monitoring and onsite service, positions us to help data centers improve cooling asset performance, reduce the power required to cool, and return more power to compute. And as the industry increasingly turns to water to cool next generation chips, like NVIDIA's Vera Rebin platform, we're very well positioned. backed by more than a century of experience managing cooling and water systems in complex environments at scale. As strong as that momentum is, it's only part of our growth engine story. Another major contributor is pest elimination. Nearly every Ecolab customer today uses some form of pest elimination. With our one Ecolab selling strategy, we are unlocking a 3 billion cross-sell opportunity by delivering the most compelling outcomes in the industry. targeting 99% best relocation to our digital connected past intelligence platform. We lead us in deploying digital technologies to this commercial market and expect to have more than 1 million smart devices in the field in 2026. This technology not only drives best-in-class outcomes for our customers, but it also frees our team to spend more time driving strong sales growth while continuing to expand margins. We're also seeing exceptional progress in life sciences. We delivered our best year yet in bioprocessing. We saved up nearly 75% in 2025. Life sciences has the potential to be one of Ecolab's highest margin businesses, where we target long-term operating margins of 30%. We're investing behind this attractive and significant long-term opportunity with breakthrough biopharma purification innovations, new digital solutions, and capacity expansion. That includes the capacity expansion of our life sciences industrial water purification business, which is expected to begin production in the second half of this year, removing the constraints that created the drug in 2025 and positioning us for strong growth in the years ahead. And a fourth engine powering our growth is Ecolab Digital. We've grown this business to only 400 million in annual sales, increasing more than 20% in 2025, and we're still in the very early days. We're investing heavily to bring market-leading digital solutions to our customers across our portfolio. In 2025, more than 25% of our innovation pipeline was digital, which has grown significantly over the last few years. The strength of Ecolab Digital comes from its focus on solving critical customer challenges and increasing the total value delivered to our customers. With all of this, we're into 2026 confident in our ability to deliver continued strong performance and we're off to a strong start in the first quarter. For the year, we expect reported sales growth of 7% to 9%, and organic sales growth of 3% to 4%, with organic growth accelerating as the year progresses, driven by strengthening volume growth. And with 100 to 150 basis points of OI margin expansion, we expect 14% to 16% OI growth, and EPS growth of 12% to 15%, including the impact of Avivo. I'll end where I often do. The best of Ecolab is yet to come. Our ability to improve customers' business outcomes, operational performance, and environmental impact is more relevant than ever. And it's powering consistent double-digit EPS growth. So thanks so much for your interest and your investment in Ecolab. I look forward to your questions.