Ecolab Inc.

Greetings and welcome to the Ecolab second quarter 2026 earnings release conference call. At this time, all participants are in 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 second quarter conference call. With me today are Christophe 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 deluge earnings per share information in the release. With that, I'd like to turn the call for Christophe Beck for his comments.

Thank you so much, Andy, and welcome to everyone joining us today. While we delivered another strong quarter with accelerating performance across our business, Adjusted EPS grew 11%, driven by accelerating organic sales growth of 5%, stable organic gross margin, and continued strong productivity. This performance reflects the strength of our growth model, and most importantly, the power of our global team to deliver for our customers every day in any environment. Last quarter, we talked about the second quarter being a short transition period. We entered the quarter with commodity costs increasing and the expectation that they would remain high through the year. We started the quarter with very little surcharge pricing, but expected benefits from the surcharge would progressively build through the quarter. That's exactly what happened. We moved quickly to implement the global energy surcharge backed by incremental customer value, as we always do. As a result, pricing strengthened to 4% in the second quarter, and we expect the second half to be in our targeted 5% to 6% range. This is allowing us to offset the impact of rising commodity costs on our margins and EPS this year. Our global team executed extremely well through this transition period. In just one quarter, we absorbed increasing commodity costs, continued to win new business, grew volumes, Stabilized Organic Gross Margin and Delivered Double-Digit EPS Growth. Importantly, momentum continues to strengthen across the portfolio. Volumes grew 1% despite a nearly 1% headwind from customer operations disrupted by the conflict in the Middle East. Excluding this, underlying volume growth accelerated from the first quarter. Growth in our core businesses strengthened, with food and beverage accelerating to 7% growth. Institutional specialty growing 4% and growth in light water improving, all supported by strong new business from our One Ecolab Growth Initiative. At the same time, performance in heavy water and paper improved. Our growth continues to show strong momentum, delivering strong double-digit growth. Life sciences accelerated to 15% growth, driven by very strong share gains in bioprocessing and pharma and personal care and improved performance in purification. We have been investing in talent, capabilities, capacity, and breakthrough innovation for years in this high-growth business, and those investments now are clearly paying off. In bioprocessing, we continue to take market share with the innovative resin technologies we've launched over the last few years. As a result, our business continues to rapidly scale as customers move their drugs into commercial manufacturing. Life Sciences' margin performance was exceptional this quarter, delivering a mid-20% operating income margin, giving a strong indication of the high margin profile this business has. During the quarter, we benefited from very strong sales growth and a spike in bioprocessing. While underlying operating income margin is expected to remain in the mid-20s, reported margin in the third quarter is expected to be in the high teens as we continue to invest in this high-growth, high-margin business. Ecolab Digital grew 27%, reflecting strong adoption of software and connected solutions that help customers optimize performance in real time. Recent launches of solutions like DishIQ, AquaIQ, KitchenIQ and CIPIQ are performing very well and are expected to continue to help drive long-term growth of more than 20% for Ecolab Digital. Best Elimination also delivered a strong quarter with 7% growth. driven by ShareGain from our One eCollab growth initiative and continued expansion of our Pest Intelligence platform. We've deployed nearly 800,000 connected devices at customer sites and continue to expect to reach 1 million connected devices by year-end. With the unique insights from Pest Intelligence, we aim to deliver nearly 99% pest-free environments for customers on the platform. And growth in global high-tech accelerated to 29%. reflecting very strong demand across both microelectronics and data centers, driven by the rapid build-out of AI infrastructure. We further strengthened our position in this market with the acquisition of Cool IT systems, which closed on July 2nd. Cool IT is off to a very strong start, with year-to-date sales growth prior to acquisition of more than 100%. With this addition, global high-tech is now approaching $1.5 billion in sales, annualized sales up from approximately 150 million in 2021. This reflects the strength of our strategy and sustained investments to capture the long-term opportunity in advanced computing. At the heart of AI is water. Water is required to produce, to power, and to cool chips. We are now the only company with integrated solutions across that value chain. And with all the talks around data centers and AI infrastructure, The world truly needs companies that can help build data centers the right way. We're one of them, and we're committed to lead that journey. Together with Avivo and Cool IT, our global high-tech platform is expected to grow more than 25% annually, reaching $4 billion in sales by 2030 with an operating income margin of 25%. These targets represent an increase from our previous expectations of more than 20% growth and 20% ROI margin, reflecting the acceleration we're seeing in this business. Global high tech is now our largest growth engine. On a pro forma basis, including Avivo and Cool IT, our sales growth would have been approximately 7% in the second quarter, demonstrating already the two points of incremental growth these businesses will add to the overall company. The rapid growth of global high tech and our other growth engines continues to shift Ecolab's portfolio to higher growth, higher margin businesses. In 2025, our core businesses represented about 70% of our sales, growing low single digits with OI margins just above 20%. Our growth engines were approximately 15% of sales, growing low double digits with OI margins of nearly 20%. and our underperforming businesses represented about 15% of sales with low single-digit sales declines and OI margins in the mid-teens. In 2026, performance has strengthened across all three groups. Our core businesses are now growing mid-single digits with OI margins getting further above 20%. Our growth engines are growing in the low teens. with OI margin of nearly 20% as we continue to invest heavily behind these attractive high growth opportunities. At the same time, our underperforming businesses are stabilized while maintaining operating income margins in the mid-teens. What is the most encouraging is that all parts of the portfolio are moving in the right direction. Our core is performing well, our growth engines are scaling faster, and our underperforming businesses are improving. As a result, The mix of our business continues to shift toward faster growing, higher margin markets. Looking ahead to 2027, we expect this trend to accelerate further. Our core businesses should continue to deliver strong performance while our growth engines, which are expected to approach 25% of Ecolab's sales, continue to compound at double digit rates and play an increasingly important role in driving growth and margin expansion for Ecolab. The future is already taking shape today. We're preparing to introduce a breakthrough innovation at Super Compute, a new integrated end-to-end cooling platform combining Cool IT's liquid cooling technologies with Ecolab 3D Tracer digital capabilities to optimize water, power, and compute performance at scale. We will be hosting an investor day at Super Compute in Chicago on November 17th, where we will share more about the growth opportunities ahead and how they will strengthen our long-term performance. As we move into the second half, we expect continued momentum. Pricing is anticipated to strengthen to the 5% to 6% range as energy surcharge benefits are fully realized. Volumes are expected to continue to grow as strong new business wins more than offset ongoing disruption in the Middle East. As a result, We expect organic sales growth of 6% to 7%, helping drive an adjusted operating income margin of 19% in the second half, keeping us on track to deliver our 20% ROI margin next year. With this momentum, we're increasing our outlook for 2026, where we now expect EPS in the range of 8.05% to 8.25%, rising 7% to 10% versus last year. This range reflects strong underlying performance and a short-term impact from non-cash amortization and financing costs from the Cool IT acquisition. Beyond this year, we continue to expect adjusted EPS growth, including Cool IT, to accelerate to a strong 12% to 15% growth trajectory. In closing, our business continues to strengthen with the core improving and growth engine scaling. With this, our portfolio is shifting faster toward higher growth, higher margin and markets. Just as importantly, our team continues to execute at a very high level to deliver for our customers every single day. We've never been better positioned to deliver long-term organic sales growth of 5% to 7%, expand operating income margins well beyond 20%, and continue strengthening our EPS growth algorithm. So thank you for your continued trust and investment in Ecolab. I'll now turn it back to Andy for Q&A.