Q4 2019 Earnings Call
Greetings welcome to the Ecolab fourth quarter 2019 earnings release Conference call.
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A question answer session will follow the presentation.
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As a reminder, this conference is being recorded.
At this time and it's now my pleasure to introduce Mike Monahan Senior Vice President Investor Relations. Thank.
Thank you Mr. money handy, we now forget.
Thank you Hello, everyone and welcome to Ecolabs fourth quarter Conference call with me today as Doug Baker, He loves Chairman and CEO, Chris talked back our Chief operating Officer, Dan Schmechel, Our Chief Financial Officer.
Discussion of our results along with our earnings release and the slides referencing the quarter's results and our outlook are available on Ecolabs website at <unk> Dot Com Slash investor. Please take a moment to read the cautionary statements embodies material, stating that this teleconference. Any 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 then or post materials. We also refer you to supplemental diluted earnings per share information in the release.
Starting with a brief overview the results pricing new business gains and product innovation led fourth quarter acquisition adjusted fixed currency sales and operating income growth, which along with lower delivered product costs and cost efficiency actions yielded the fourth quarter's earnings increase.
Looking at some highlights from the quarter and as discussed in our press release acquisition adjusted fixed currency sales increased 1% as the industrial institutional and other segments showed steady sales gains and more than offset a decline in energy.
Excluding the champion ECS business Ecolabs acquisition, adjusted fixed currency sales rose 3%.
Adjusted fixed currency operating income margins increased 60 basis points continuing their steady improvement the growth was led by double digit gains in the industrial and energy segments.
Adjusted earnings per share increased 8% to $1.66 and were up 10%, excluding the health care recall.
[noise] progress continues on the separation of our champion ECS business. We continue to expect the transaction to be completed by mid 2020.
Looking ahead, our work to drive sales momentum showed improvement in the fourth quarter with ongoing business volumes up 1%, excluding champing that's on the recall.
We are driving new business wins, focusing on our innovative products cell surface expertise and our value proposition a best results at the lowest total operating costs were customers. We also continue driving productivity and cost efficiencies.
Our fourth quarter slides, an earnings discussion, including earnings bridge for 2020.
As shown we expect strong operating earnings growth for the full year of 12% to 15%. However, we will also faced some headwinds in 2020, including eight cents from the impact of lower interest rates on a pension plan four cents from an unfavorable currency exchange.
And the impact from the Corona virus outbreak, which we estimate will cost us five cents in the first quarter with the remainder of the aired not estimated are forecasted that this time.
None of this we look for 2020 adjusted diluted earnings per share to rise, 9% to 12% to the $6.33. A 653 cents range as improving volume and further pricing gains along with cost efficiency benefits more than offset the impact of business investments and the headwinds just mentioned.
First quarter adjusted diluted earnings per share are expected to be in the dollar five to dollar 13 range up to the 10%, including an estimated unfavorable five cents per share impact from the Corona virus outbreak.
In summary, we expect improving top line momentum in our business in 2020, and along with our ongoing work to expand margins, we look for 9% to 12% adjusted earnings per share growth. We continue to make the right investments in the key areas of differentiation, including product innovation and digital investments to develop superior growth for this year and the future.
And now here's Doug Baker with some comments.
Thanks, Mike and then how all good data everybody, so I'm going to touch on three subjects.
First Q4 and for your 2019 I'll touch on the health care recall, and then finally, our 2020 outlook, including Corona virus. So first Q4 in 2019.
I'd characterize 19 as a very productive been successful year for us and we realized very important outcomes in Q4, specifically.
So we dramatically de risk the business, we position it for even better future growth and we delivered double digit adjusted EPS growth and strong cash flow growth for the four year.
We de risk by moving from a 45 plus year old ERP system in the U.S. Dare I say Pete this is never pain free and much of the field execution load trouble in early Q4, but our team did a great job managing that the lion's share now the cost and risk is behind us and in the base.
Second we successfully separated the upstream business. It is now operating as a standalone with its own supply chain and ERP systems. This is a huge amount of work also but the right work and again is behind us and in our base.
Also we continue to make the talent innovation in digital investments needed for future success.
We talked in Q3 about our gear shift from price the new business to new business. Then price is the priority order. This to the shift it's been quite successful, we're continuing to realized price gains and importantly, because we had huge quarters in terms of new business wins in both Q3 in Q4.
Which we will realize over the next few quarters.
Well all the above was planned we had an unfortunate unplanned event in Q4, two and that's the European health care product recall.
Just had a significant impact on our health care sales and on Q4 EPS.
The plant health care plans in question has now been to contaminated and it's been producing again since mid December.
I'll be some residual cost, but the big cost pain is behind us and the team is in full recovery mode, and making very good progress.
So as we enter 2020, we do so with a clear focus on growth are you just see p. an upstream separation projects are largely behind us healthcare Europe is back producing and selling we enter with very strong sales momentum as a result of our new business wins talked about earlier, so even with a challenging environment, we expect a strong year end.
2020.
We expect our sales to strengthen throughout the year. We expect continued gross profit improvement continued pricing efforts and a modestly improved raw material environment.
Expect or new digital innovation to also continuing bear fruit and we have a strong M&A pipeline and recently announced the acquisition of see ideal lines, a leading provider of animal health technology.
Not even with a challenging backdrop, we feel well position. We're forecasting continued strong cash flow and double digit adjusted EPS for the year at the midpoint of our range. This includes a negative eight cents from pension and a negative four cents from FX for the year. It also includes a five cents hit in the first quarter.
Her from Corona virus, but does not include any potential impact in Q2 through Q4, because at this point, it's impossible to estimate.
With that said, we're assuming that the global economy avoids recession in 2020 net we feel very good about where we stand as a business you're quite optimistic that we can outperform again in 2020. So then I'll turn it back to Mike.
Thanks, Doug that concludes our formal remarks, operator would you. Please begin the question and answer period.
Thank you.
We'll now be conducting a question answer session.
We ask you please limit yourself to one question and one brief follow up question for callers the others will have a chance to participate.
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One moment, please so we pull for questions.
Thank you first question this from Tim Mulrooney with William Blair. Please proceed with your question.
Yes, good afternoon.
So.
The champion ECS business, how much wasn't down on the fourth quarter and what is the performance spend through the first half of the first quarter.
Yes, the sales were down 6%, but operating income was pretty strong and what we've really been focusing on in that business is making sure that we're doing the right things from a margin.
On focusing on profitable growth importantly, if you break apart the upstream business, you've got welcome which is closer to the wellhead and you've got our traditional legacy business in New York see business, which is by far the larger of the two continues to do quite well.
Okay. Thanks, Doug so organic growth.
Remainco Ecolab was up 3% excluding champion and I'm wondering if you could provide that for operating margin operating margin was up 60 basis points. In total I think is what you said, but what would that have been up excluding champion acts.
In fourth quarter.
Yes in the fourth quarter yet.
Yeah, we're working its way up a little bit.
Okay. All right. It's also up about 60 basis points.
Okay.
All right out of a neutral impact well it was because he had you had the health care recall.
Right as well in the fourth quarter, which really impacts the remain coal business negatively.
Understood. Thank you very much.
Our next questions from the line of Christopher Parkinson from Credit Suisse. Please proceed with your question.
Great. Thank you.
Industrial chemical and power applications.
Sure a little sluggish almost on a relative basis versus your best performance Hawaii B.
Yes, good simply subject to macroeconomic factors, there's something else sorry can you repeat.
Can you repeat the question is coming so according bustled.
Oh I apologize.
So in industrial chemical and power applications built here sluggish on a relative basis, Albert's underperformance in light and SMB.
And I was asking it simply subject you macro factors is there something else on the new products front, we should be looking for as we had net 2020.
Well, Chris what I am hearing as you're asking why was chemical and power a softer for water.
Yes in what you can do that MACRA again, primarily macro that need to drive the improvement or something else you can do to improve our days sales outstanding performance power, primarily reflected the shift towards natural gas in the U.S., where natural gas requires less than coal.
And the chemical I think was probably somewhat.
Industry trends and.
And just I think timing of some new business.
Yes, there is nothing fundamental boy and the heavy business other than the big transition, we just talked about and clearly industrial right performance levels broadly are going to have some impact on that business too.
Got it.
And then just a.
A quick follow up when you talk about enterprise selling efforts within FNB and light water.
And then we think about your presence in pest elimination.
You just comment as to which geography are driving benefits and whether or not you will still need to broaden your global Brad on the wider I you touched on the nation to replicate the benefits assuming the bulk of the momentum driving in the U.S. Thank you.
Yes, we we've combined a lot of the way we go to market in the food and beverage space, combining the water business and the up and be traditional business and then often bring in past to the FNB and water businesses are truly global the pes business is not as glow.
Mobile we have good presence in Europe, obviously cover all of North America, and then we have a few businesses in Asia, and Latin America, but do not cover all those markets with that said we've had a lot of success driving if you will enterprise selling efforts, particularly in food and beverage where we focus first.
Past comes along quite often quite frequently but the pets business gains are gonna be most frequently found in Europe and you asked just because that's a large presence.
Thank you very much.
The next questions from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Doug looking at institutional division the entire segment.
What do you think that can grow in 2020 and what's the progression from early till late over the course the year.
Yeah. So when we talk about institutional layoffs, we talked about we expected at the end at a run rate of 4% and if you look at underlying sales, particularly in the U.S.. We got very close to that number if your round up the expectation for that business is it will continue to strength.
Since sequentially.
What it's going to report as is going to be a little different given corona virus and some of the other impacts but the underlying business. We expect to continue to strengthen we expect the year to be in the four ish range, which means can be a little less than the beginning and probably a little more at the end as we go throughout the year, we of course, our chief.
Allergan the team to do better than that but I would say I think the fundamentals in the institutional business are getting better. We wish you are getting better faster, but that's always our perspective, but they are moving in the right direction.
And during the same bent.
You discussed come ANC any competitor compared dynamics. These are the diversity over the last few months here.
No there hasn't been any big change order activity in the last few months.
I think theres still.
They've had some change in their business, we haven't seen any.
Difference and direction as a consequence of that so no I wouldn't really say I don't think thats going to be really the fundamental change for us.
Thank you very much.
Thank you. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.
Hi, This is chairman gross Mark I'm for Vincent Thanks for taking my question.
Wanted to start off on the cost savings program I think it's.
325 million you guys to 80 million in that last year I'm, just wondering how much incremental you have baked in for 2029 to on the follow up.
We have 130 million incremental baked into the plan this year.
Okay got it and then just thinking about.
Free cash flow for the year.
Maybe just your thoughts on the outlook.
Any thoughts on working capital on Capex and thank you, yeah, I'll hand that to Dan.
Yes. Thank you so.
Maybe we'll just start with a quick recap of 2019 as Doug referenced upfront.
We had very strong cash flow throughout the year and finished the year as strong as well. So we got a voluntary pension contribution of 120 million in 2019, and if you exclude that our free cash flow was up about 20% with 109% conversion rate so behind that number was improvement in inventory.
We've commented during the year that one of the consequences of having the supply chain. So focused on the safety go live was maybe not pushing quite as hard as inventory reductions and in fact building. Some finished good inventory. So looking ahead to 2020, I guess I would steer you toward what what fundamentally the way is that we think about.
Got it which is that we will continue to see very strong cash flow and strong cash flow conversion, which we anticipate to be in the range again of 100% maybe slightly north of reported net income so.
2020 will be another strong free cash flow year for equal.
Thank you are next.
Our next question. This from the line of John Mcnulty with BMO capital markets. Please proceed with your question.
Yes, thanks for taking my question.
With regard to the areas that you're starting to see kind of the increased volume from from the shift maybe a little bit away from price in more into the volume front can you can you articulate a little bit as to which areas you're seeing the kind of early traction the early wins and how we should be thinking about how that progress throughout the year.
Yes, John I'll, just I'll just add I mean, you have Christophe answer this I'd been Christophe early got the team very focused on this shift middle of last year, which is why you started seeing the results in Q3 Q4, and it was a very important shift for US we know pricing ultimately given.
Inflation and other things is going to carry you forever and we had to get volume growth moving again, we saw 50 point improvement in volume if you adjust for the health care recall from third quarter to fourth we expect to see more Chris I'll ask you to give a little color on where we expect to see it.
Thank you Doug it's been a very collective effort.
Starting to become really strong some mid of 2019, which has really generated so record new business generation. During the second half of 2019, we've seen that mostly.
In the industrial businesses at the beginning where we had so strong that momentum and Thats why you've seen as well water in SMB have been up 5% as well in life Sciences, 13% as well and then progressively as well moving towards institutional specialty past.
Well as well lead to better results going forward in 2020.
Great. Thanks for the color on that and then just with the S&P system up in North America.
Any any.
Insight into new targets opportunities, whether it's on the working capital front on efficiency measures anything anything notable with the with the early start up.
Yeah, I would expect ultimately all those things will be targets. It will get after what we've seen early is.
I would say, we recently had a review with our institutional business and they're already talking about the transparency that they have that they didn't have before in terms of what's happening in specific customers with specific categories. They can see their shipment cost much more clearly and understand.
I would say ramifications of shipping policies, how you might tweak goals in enhance if you will our ability both meet customer needs, but do it cheaper. So I think you're going to be a multitude of areas. Putting these then you're glad it's like a lifetime event, because nobody who do a twice, but we're very happy work through it and now starting to.
Bear fruit.
Great. Thanks, very much further color.
Thank you.
Our next question is from the line of Gary Bisbee with Bank of America. Please proceed with your question.
Hey, guys I guess, just the first one can you give a little more color on where you expect in the business to see the krona virus impact I think in the prepared remarks, you called out water and test, but but.
Is it broader than that and.
Any more color on how much is impacting your ability to produce product versus sort of customer pull demand at this point I realize it's fluid, but but any color would be helpful.
Yes, I'll just let me just stayed on Corona virus I think there's three levels of impact and will answer your specific question I'll have Christophe do it after I go through that there's certainly market demand in China, where that's the principal ground zero right now of Corona virus, so market demand has an impact.
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Said the secondary impacts are really what's it going to due to global supply chains now one impact our global supply chain, we have plants in China, but they're really for China consumption. We don't use it as an export market per se nor do we rely on specific parts from China for production in other regions around.
The world. So it is a big worry I think broadly about its impact on supply chain, it's not a specific worry for us, but then the third impact is what's it do ultimately to global GDP and that really is a question of does its Brad.
How long is it and if it doesnt spread even how deep in long doesn't last in China.
And they're all kinds of scenarios the traditional scenarios these burn out.
Fairly early like in March April as as weather gets warmer, but it's very hard to predict exactly what any of these are going to do and if it does spread obviously, you've got additional impacts and if it goes deeper see ended June and you really have this outage for other supply chain, it's going to have broader impact for us.
The impacts have been really China's specific I would expect them to remain China specific returns into global GDP, we're probably going to be.
Not as impacted as other companies, but obviously if global GDP goes down it's not healthy for any company, including ours, So with that I'll turn it to Chris talked to talk about the impacts are seeing right now ill just say two things. So on one hand, we all in deem infection prevention business that customers have a natural tendency to come to us bought out.
But thats a little part of the business to get them. So prevent the spread of infection. So long term, it's going to be a good thing and we strengthening the relationship with customers locally and globally on that but there's not much we can do as wed for restaurants and plans that are closed as well in the meantime, so kind of short term negative impact, but long term.
Probably something which is positive for our relationship with customers.
Great. Thanks, and then and then just a follow up.
A couple quarters in a row youve been seen is in the past obviously you talked about bookings momentum building, we don't see a lot of it in the in the organic constant currency growth rates yet.
How do we think about how long it takes to onboard new businesses. It is a very different from business to business and and.
How quickly should that start to flow through to revenue. Thank you.
Yes. Good question this is Chris stuff.
So it depends a busy business by business some on much simpler so the more institution so restaurants like.
Type of business, so goals quicker it can be done so in a few months, usually we think a quarter or two to get that rolled out we talk about change usually so when we talk about the regional chain, a global chain well that don't happen overnight, but it's kind of a quarter or too when we think about industrial businesses sites.
Clients were much more engineering work.
Needs to be done that's usually between two and three quarters.
Thank you.
The next our next question is coming from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.
Thanks, Good afternoon, just stop real quick on a follow up on Gary's question about.
Thinking the handoff, Doug for me to Christoph.
You covered it just didn't in on krona virus in China, and then those three categories.
But was it was a consistent with what you have in the press release suggest water and pass or is it more broad based is it like four cents. One cents just kind of curious by segment. Thanks, and then I'll default.
Yes, no I would say the specific impacts in industries, we're seeing it clearly I mean it.
It all makes sense right hospitality travel is way down in China hotels are clearly impacted foodservice is clearly impacted you have a number of chains that have shut down.
Half their units in many instances we have then obviously industrial production, which you're speaking to which has also been curtailed I mean, they extended China new year for at least another week and they've talked another week, it's really different by province, you have a number of plants that are working to start back.
GAAP some have all of ours are back up and producing at this point in time, but they were down for several weeks and others were as well and some take longer to ramp up then the closer you are to widespread outbreak.
Centers.
The longer it's going to take for them to start up production.
Thanks appreciate that and then.
Ben exiting and institutional exiting lower margin businesses recently a bit.
And.
When they get a feel on what that impact might be early and in 2020, and where you stand on the curve of optimizing the portfolio from margin perspective.
Yes, so I'm going to give the answer that I.
Undergo the lion share that is behind us our theres a little during theres, a little dribs and drabs coming in but you know what we're done talking about it fundamentally we've seen the impact we're moving on we start we will expect like we saw on fourth continued improvement sequentially moving forward I would say, it's much more in the normal rate.
Range of what we have we have some attrition.
Every day, it's small, but we have some and this is much more in that normal keeping at this point in time.
Actually as we go throughout the year.
Thanks very much.
Thank you the next questions from the line of PJ Juvekar with Citi. Please proceed with your questions.
Hi, good morning, guys circuitry out for PJ.
As you look at your ship as you look at your share repurchases and 20 910, it's been the lowest level. Since then here I think since 2013, so how do you see buyback shaping up and to the sharing going forward versus M&A pipeline.
Yes.
A lot of the impact last year was a consequence of us being out of the market because of the negotiations around the subsequent announced RMT.
And so we were blacked out for periods of time that were unusual it as a consequence, we can really talk about this in third quarter or others right, we weren't able to buy because we are negotiating with that said I'll hand, it to Dan to talk about forward view.
Yes, sure. So one of the consequences of the split transaction prior to the RMT with apogee is that we will be out of the market essentially for the first half of the year.
We have said before I guess, what I'll say again that when we look forward beginning in the second half of the year and look at the cash dividend payment or cash payment that we will receive.
As part of the apogee and RMT it will evaluate at that time, whether or not the better uses of free cash flow or for share repurchase or debt retirement, our cash flow priorities importantly will remain consistent and I guess at this point looking so far forward I'm comfortable saying that we will repurchase shares.
At least a level to offset the impact if our share based compensation plans.
And at the margin this will be a decision that we make that when we get clarity on the market and what the best opportunities are.
Okay.
Secondly, at Investor Day, you talked about roughly 13% of sales being digitally in April that industrial of one first kind of institutional how do you expect that to growing 2020 or do you have a target to step up in mind per annum or how do you view that.
Internally.
So maybe to give you just some color is we don't have all numbers that we share usually we see that but based on what we said at Investor day.
So the numbers those dealer right. What's good these debt dose sales, which also digitally enabled we have to get degrees won which are the ones connected to the cloud and the other ones that enabled basically most of them together a billion three roughly each growing double digits. So it's something which is good then we expect so the same type of growth that we've seen.
The 19, continuing 20, which is basically helping the rest of the business continued to grow.
Helpful. Thank you.
Our next questions from the line of John Roberts with you've yes. Please proceed with your question.
Thank you.
What was the root cause of the plant contamination in Europe, and what's fixes have been put in place to keep that from happening again.
Yes, it was a waterborne bacteria that.
Ended up creating a biofilm in parts of the plant.
And biofilms or.
We will make a business of cleaning up biofilms on other facilities. So the good news is we had the technology and know how to gold clean this.
And the challenge with Biofilms is.
They don't leak out bacteria evenly it's more sporadic and so you end up with some batches contaminated some not when they are contaminated the biofilm itself sort of envelops, the bacteria, which normally would be killed by the product, but in some cases is protected so they're a bit gnarly. So we've done a number.
Okay. Thanks, one we believe in north of sources and it was a onetime impact of impart moved equipment that occurred just before we bought the business, but with that said we know this is a water borne illness. It naturally occurring and found in many water sources. So.
We have significantly upped the capability, we have to ensure that the inbound water is absolutely bacteria free we've gone through the plan redesigned a number of dead end areas. We're going to continue to do that we have new aggressive protocol put in place. It frankly is much more aggressive them.
We think we need but we're going to make no mistake going forward. So we've taken a number of steps. The team has been all over that we're back producing we're through the 80% of previous production volume heading to 90, and then then over 100. So I think the teams done a good job.
Getting this back up running and contamination free.
And then how healthcare sales were up 3%, excluding the recall does that's that business grow above 3% near term now that the plan is fixed or did you lose some business that will cause you to grow below 3% here for a little while before you come back.
Yeah in the nature I mean this occurred in Europe, and so there's still going to be impact in the first quarter. Because December is part of our international first quarter and so you know.
We're through it but that impact is still going to is yet.
Part of Q1, but not nearly at the same.
Same level as it did in.
The fourth quarter that is by the way in our forecast. So it's not any new news, it's coming down the Pike, Yeah, I Wouldnt expect there's going to be a pipeline refill that will occur certainly we're going to go annualized against the recall event in the fourth quarter, you would expect to see larger sales as a consequence to that.
At this point in time I can't give you blow by blow off we lost any business as a consequence of this is the real possibility, but something that we're going to certainly work to earn back if thats in fact true we do not have any numbers on that at this point in time and I don't believe that's going to be the main story.
Thank you.
The next question is from the line of Jeff Secaucus with Jpmorgan. Please proceed with your question.
Hi, Thanks very much.
Your energy business had revenues that sell in the fourth quarter I think by 32 million than your operating profits were up 11.
How did you do that.
Hi, good profitability improve so much.
Yes, well, there's been a lot of work on cost savings a lot of work on formulation work I Ie, how do you produce efficacious formulas that at least at equivalent value not better at lower raw material input cost we talked about this work in previous calls when you're on the hydrogen three growth rate.
You all your Willie working do is meet demand we've had a period of time here, where we've been able to reformulate lower if you will the cost of goods kind of on a permanent basis and I think the teams done a very good job doing that that allows them to compete in a much tougher environment effectively so a lot of the work there.
There has been big focus on specific businesses, where we were upside down and cost there's some parts of the North America.
Let's see business that we're not going to work from a mass standpoint, we've taken out heads retooled work make sure that we can meet customer needs in a more efficient way. It's all those things combined we expect even moving forward and first quarter, we're going to have probably sales decline and significant.
Why growth from that business. So the Hawaii EBITDA trajectory that business is quite favorable ultimately I don't believe the oil story, it's like the last spike we've ever seen an oil kind of hard to call. A 80 years cyclical business no longer cyclical I just don't fundamentally believe.
That and I think the business is poised well going forward.
Okay.
Your incremental gross margin was over 100% in the fourth quarter.
Was that mostly price or raw materials or or how would you analyze sharp improvement in your incremental returns.
Yeah, I mean, it's a combination of two things I mean, we continue to secure price.
And we'll continue to to secure price going forward and we also had softening of the raw material markets, which we had forecast as well. So when you get the combination of those you end up with happy news and your gross profit line.
Great. Thank you so much.
Thank you. Our next question comes from the line of Rosemarie Morbelli with GE Research. Please proceed with your question.
Good morning, everyone.
Thank you.
When we look at the top line gross exclude adjusted for acquisitions. So we have what at five foot in both of which five life Sciences 13 et cetera.
Well there anything specific in those particular types close rate can we put that 2% price in all of them. All was the most feed demand and do you expect demand at this level to continue in 2020.
Yes, I'll add a common then asked Christophe to follow on with some some additional specifics you know.
I would say that's.
You know our assumption for economic growth in 2020 is that it's positive but below 2090 levels.
But but that's good enough for us we believe to end up with better sales growth in 2020 that we saw in 2019, so it's positive not global recession, but not at the 2019 level and the reason we feel that way is one the strong new business results.
We had in Q3 Q4, we talked about the lag it takes a while for that business to show up we're starting to see it we started to see a bit of it in fourth quarter, we expect to see more of it in Q1 hardest thing is going to be looking beside him Corona virus, we'll do everything we can to be clear there but.
Obviously, that's going to impact Q1 for sure Q2 likely I, just it's hard to predict but if we look at sales ex China.
Right in virtually every category our expectation is that the business strengthens and the reason I see ex China is it's just trying to take away the unknown of Corona virus out of the equation and it is because of the new business effort and I'll throw it to Christophe nuance had any additional color.
But it was my this is Chris stuff so joining to build on that so the demand is not the extremely strong as such from customers, but and I am excluding a busy so.
The virus impact that Doug discovered in here, it's mostly so internally driven we have offerings. So far with customers that are very unique you were talking about life science for instance, many of our customers. So our most isa cleaning, we soap and water well that technology to chemistry to service the expert.
Is that we're bringing to those guesstimate. These absurdity unique and helps them so to be operating in much safer environment and to do that that the much lower total operating costs as well beyond that so we have very unique corporate account management structure. As you know we have these food and beverage global solution.
Corporate account organization that these really bringing together water and hygiene in a very unique place most of the competition count do died. So we you know very unique position to offer that drove a guesstimate as and ultimately let's also interesting is that well, we do that wed that gives them a high return.
So it's not the cost to question need to total cost the more they invest with us the better off they always do own operations and thats driving it out of demand of what we doing so ultimately that what we've been doing a lost two three years Rosemary.
Okay. Thanks, and then following up quickly on pricing.
You had 2% growth straight up rosacea should we anticipate that makes you will not be any more than one person.
Raw materials coming down and eventually there is going to be some kind of a balance between the two.
Yes, you know wide Rosemary it's going to be what we we round above the two this year and we'll probably around two or two in 2020, it's not going to be reported as a vast difference, but clearly our.
We expect pricing to be.
Positive in 2020 at a lower rate in 2019, but not dramatically.
Thank you.
Thank you. The next question is from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Good afternoon, just want to follow up on one of the earlier Corona virus discussions.
Can you put this in longer term context, when you look at other.
Outbreaks that ecolab has had experience with.
What does it take for it to turn into a.
Sustainable change in Ecolabs brand position in the affected region or longer term growth rate as opposed to a blip in operations.
Well you know the past ones I may be at each one in one or Sars I mean, Sars is probably the one most well known.
Sorry, it's ours is a different animal it was less contagious, but more definitely.
Probably like five times more definitely but easier to contain because it's really the.
How easy is it to transmit to other people is the number one factor in how easy or difficult is it to contain.
Unfortunately, this corona virus appears.
Pretty effective that being transmitted from one host to another to use like the the science term I I would say this I think.
Our gas from the literature, we've read from our scientists.
Viewpoint is.
Corona viruses.
Whatever happens during this season is likely going to reoccur in other seasons much like you see the flu.
And others and I don't know if this is going to have a fundamentally huge change in people's perception of US I think if you go to China, we're viewed as the food safety anti microbial experts in that country. We've had very good relations and worked very well in coordination with the Chinese government to China.
F.D.A. et cetera for a number of years, we'll continue that work our customers rely on us in these instances I think if you go back to each one and one that was really the advent evolve the hand Sanitizers you see in lobbies of all commercial buildings before that it didnt exist. So clearly changed the demise.
And permanently for hand, sanitizing products et cetera, you may well see that kinda outcome as a consequence of the Corona virus to that's harder to predict.
And then there's been some discussion in China of moving from the open markets to more industrial.
Food production would that provide service a faster growth ramp for ecolab in China or should we think of it has not really affecting your growth right.
Well, certainly I I think there'll probably be some changes in the way they think about the.
Life markets going forward.
And yes, I mean, the food has been shifting there too.
More prepared more production food for quite awhile and that trend I would agree with you. This is going to be more an accelerant of that trend. It's certainly not going to slow that trend down that's been a very positive trend for us because when you're doing large scale food you need to make sure that your food safety is.
Really good or you're going to poison a lot of people at one time and so all that move it's been quite positive force. We've always expected that to continue going forward and I don't think corona viruses going to do anything but accelerate that but that again, it's hard to predict.
Thank you.
Thank you next question is from the line of Mike Harrison with Seaport Global. Please proceed with your question.
Good afternoon.
Was wondering in the specialty business you noted in some of your prepared remarks, the strength in the food retail portion of that business, you mentioned, new accounts as well as some new program introductions can you give us a little bit more detail as to what has been driving the strength in that food retail business.
Yes that was one of the earlier adopters of digital so clearly our program, which is now coupled with digital will allow us even more transparency and better communication with customers. So they have more visibility as to what's going on in their stores has helped we secured a number of.
New chains in that business as we have in a number of businesses. That's always been a little bit of elephant hunting game. So sales can sales growth. It grows every quarter. It will grow faster obviously ft aligned a couple of these large chains, that's a situation where again, but the truth is we have a number though.
So stories past has had a lot of success securing new business institutional had a very good fourth quarter in terms of net new business gains we continue to a strong performance in FNB and the water business as well. So it's it's across the board I'd say the industrial side was quicker off the mark.
Mark, but now we see it across the businesses the success and net new business wins, including in FRS.
All right and then wanted to ask where the energy business. You mentioned some increase in international sales that were driving the downstream business did you get some new wins, there that should end up meaning sustainable growth for the downstream international business or was there something maybe more.
Temporary going on.
Help to this quarter.
Yes, nothing notable I would say, it's probably better execution in the quarter, but but no fundamental change that business is focused on new business. We've got great programs. There and we believe increased focus on execution is going to pay dividends there as well.
Alright, thanks very much.
Thank you thanks questions coming from Atlanta, Selmo Rosenbaum Stifel. Please proceed with your question Hi, Thank you for taking my questions Hey, Doug the part of the energy business since you're going to retain the downstream business.
Was up kind of moderately and I understand that's generally more of a mid single digit revenue growth business can you talk about what was going on in the quarter and when you do see variations in that business what.
What what part of what percentage of that business is really kind of very steady and what part kind of moves around.
Yeah, I mean, the fundamentals that business are quite similar to the rest of our water business to be honest, which is it's an annuity type business with.
Deep embedded servicing capability around technology and understanding the types of crudes that are being refined what needs to be done how do you treat the water the captive water and boiling and cooling et cetera with that said there is also an additive component to that business. So much like circle the customer exit.
Fusion another industries. We've also done the same in that industry for a number of years into the additives can be a little more up and down based on.
Consumption and or seasonality the fourth quarter for that business sales were on the 3% rate.
They were fairly solid was the best growth that we had all year in that business. So I would say to your point Yeah. We do view. This is a mid single digit type business going forward. It treats not only fuel refinery businesses, but also petrochemical plants.
And long term for sustainability, we're going to need plastics and derivative type lightweighting products to enable fuel efficiency and other things I mean, that's what the world is counting on I know plastics are under a lot of pressure there are good plastics and bad plastics and we make sure we don't throughout the.
Good plastics, where the bad plastics.
Okay, Great and just as a follow up just on that on the pest business. It's generally been kind of 16% came in at 5% I know, there's some timing of new business is there anything to call out over there or just kind of that's the kind of the ebbs and flows of the business in general.
Yes, no honestly, we're we're feeling pretty good about passed we don't like the 5%, but we like the fact that it was coupled with an incredibly strong new business.
When portfolio in Q4, two so we expect that business accelerate.
Thank you.
Thank you Mr. Monaghan there no further questions at this time by with let's turn the floor back over to you for closing remarks. Thank you that wraps up our fourth quarter Conference call. This conference call and associated discussion slides will be available for replay on our website.
Thank you for your time and participation our best wishes for the rest of the day.
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