Q1 2021 Ecolab Inc Earnings Call
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[noise] greetings and welcome to Ecolab first quarter 2021.
And earnings release conference call.
At this time all participants are in a listen only mode and brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
A reminder, this conference is being recorded.
And now my pleasure to introduce your host Mike Monahan Senior Vice President external relations.
Thank you Mr. Monahan, you may now begin.
Thank you Hello, everyone and welcome to Ecolab first quarter Conference call with me today are Christophe Beck, Ecolab, CEO and Dan Schmechel our CFO.
A discussion of our results along with our earnings release and the slides referencing the quarter's results are available on ecolab website at Ecolab Dot Com Slash investor. Please take a moment to read the cautionary statements and these materials with 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 and factors that could cause actual results to differ are described under the risk factors section and our most recent form 10-K, and and our posted materials. We also refer you to the supplemental diluted earnings per share information and the release.
Starting with a brief overview of first quarter showed continued sequential business improvement that was offset by the Texas free.
Just the D P S where 81.
That E. P. S included the impact of short term supply chain and customer disruption from the free that were estimated to be 10 cents per share.
And health care and life Sciences segment showed further strong sales growth and.
Industrial segment experienced a modest sales decline and its growth was offset by the freeze impact.
The other segment significantly narrowed its sales declined from the fourth quarter and institutional and specialty segment sales decline narrowed slightly from the fourth quarter net sales trends within our U S institutional business improve through the end of the first quarter.
Our markets are broadly improving and increasing rate of vaccinations, along with the easing and social restrictions provides further support for the global economic recovery.
We expect that broad improvement leveraged by our investments and the work we've done to further our critical innovation service and digital business drivers as well as our cost efficiency measures.
Drive strong comparisons against 'twenty 'twenty results over the balance of the year and resulted in 2021 adjusted earnings per share that exceed 2019 adjusted earnings per share from continuing operations. Excluding the estimated <unk> 15 per share impact from the Texas free.
Over the past year, we've seen the value of ecolab and premium product and service expertise. Once again underscored from continued strong new business growth as well as our strengthening customer relationships, despite the difficult market conditions.
Our position as leader and food safety clean water and healthy environments has become even more important we believe this position along with our strong long term growth opportunities remain robust driven by our huge remaining and market opportunity, our leading global market position.
And our focus on providing our strong customer base with improved results, while lowering their water energy and other operating costs.
And through that our ability to help them meet their growing ESG ambitions.
We believe the sustainable long term business drivers will continue to yield superior long term performance for ecolab and our investors.
And now here's Christophe Beck with his comments.
Thank you so much Mike and good afternoon, everyone I'm very pleased with our first quarter, which was right in line with our expectations. Excluding depicts a freeze which we discussed earlier our business continued to show solid fundamental improvement that gives us confidence in our full year outlook.
The underlying business momentum as well as margin development gift improving across the board leading to strong results and the first quarter.
Excluding the short term impact of the Texas freezer with Q1, adjusted EPS showed a significantly narrowing declined versus the prior year, continuing our improving quarterly trends.
It is also ahead of what we delivered in Q1 2019, which is a good indication for our expected full year delivery we.
We did all this while continuing to invest in our major growth initiatives and and our global team capabilities to leverage our position as the markets reopen.
Excluding the freeze full segment stayed strong and showed continued sequential improvement our fundamental business strengths gift gaining momentum, especially in our institutional division, which saw a definitive pick up as we exited March.
Our industrial segment, which was most impacted by the Texas free has delivered improved underlying growth trends versus the fourth quarter of 2020 and continue to further strengthen its margin.
And that's again life Sciences maintains a strong double digit growth and solid margin improvement.
This good start strengthened our confidence for the full year and beyond.
Our general market outlook remains largely unchanged versus what we said in previous calls North America, and China moving ahead of our previous expectations, while Europe and several emerging markets remains behind as they recover from extended lockdowns and have been impacted by a rather slow pays a vaccination.
So what is the exact timing of the global reopening might shift a few months, which might also shipped some of the recovery into Q3, we expect strong growth and the second quarter, driven by improving end markets and accelerated underlying growth momentum. We expect these trends to continue and the second half of the year.
Our objective has been to start the year and a position of strength and Q1 shows we clearly achieved this our net new business pipeline increased to record highs and our global market shares are strengthening our day.
<unk> innovations are continuing to help our customers protect dig consumers and a world class programs had been and preserve vital natural resources, while generating very attractive financial returns.
And with our new Ecolab Science and 35 assurance program, we have become the brand that we have huge customers and consumers and done they need it. The most oldest underscores our confidence that we on a path to deliver full year 'twenty, one and adjusted EPS and ahead of 2019 EPS, excluding the estimated 15.
And the impact of that takes is free.
Looking beyond the pandemic.
Our longer term position is better than ever in a world where hygiene standards are rising with food safety and infection risk awareness has reached new levels, where they expected GAAP between water supply and water demand is what it and never our differentiated value proposition as the global leader and water hygiene and infection prevention services and technologies from <unk>.
Thus uniquely to capture these accelerating growth trends.
And the culmination of these unmatched value proposition and the breadth of our comprehensive offering makes us the obvious partner for global companies to help them deliver on venmo and ambitious sustainability commitments.
And our ability to serve customers at 3 million locations and 172 countries with 25000.
<unk> underground experts and 40 industries and allows us to deliver the same standards of quality and performance anywhere around the world and our and new business pipeline breakthrough innovation unmatched and neutral footprint World class scientific expertise and passion for exceptional execution, we continue to lead to sustained growth momentum and continued double digit.
<unk> earnings growth for the years to come.
That concludes our formal remarks as a final note before we begin Q&A, we plan to hold our 2021 Investor day on Thursday September 16, and St. Paul.
Operator would you. Please begin the question and answer period.
And yes. Thank you so they will be conducting a question and answer session.
We ask you please limit yourself to one question and one brief follow up for colors, and others will have a chance to participate.
If you would like to ask a question at this time and please press star one on your telephone keypad and a confirmation tone will indicate your lines from the question queue.
You May press star two and he would like to remove your question from the queue.
So Christmas using speaker equipment, maybe not day to pick up your handset before pressing the star keys or non please poll for questions.
Thank you.
Our first question.
And coming from the line of Tim Mulrooney.
William Blair. Please proceed with your question.
Good afternoon.
Good afternoon and Tim.
Hi, Christophe.
And I know everyone is expecting a strong recovery and the institutional segment and the second quarter and particularly given the easy comparison that you have with last year, but I'm curious if you could maybe talk about how the recovery and that segment is unfolding on a global basis how is.
U S institutional performing recently relative to some of your other major global markets and how do you see that playing out through the second quarter.
Thank you Tim so on institutional net net it's happening as expected.
And we had the U S and showing them that.
And ahead of our expectations as we can read as well and in the news and on the other hand, so we have Europe and a few emerging markets that are behind us we can see.
Restrictions lockdowns with a slow pace.
Vaccination and especially in Europe as well so that's the balance that we're trying to manage when I think about how institutional did during the first quarter. We saw a nice pick up in March it is being confirmed.
In April and right now in the second quarter. So net net Q2 should be more or less as expected ebay is one caveat might be so the timing of reopening in Europe, and some emerging markets that might shift some of that growth in Q3, but for the full Europe I confirm the.
Outlook the way we described it in the previous call.
Okay. That's great. Thanks, and as my follow up can you just talk about within the institutional segment.
How you are customers that are open and how theyre spending I know this has been a common theme that folks have asked on a conference call, but curious on your updated thoughts are customers spending more than they were relative to pre COVID-19 levels on things like hard and soft surface cleaners, where I know that there's maybe some elevator.
Demand and do you think eventually that demand returns to pre COVID-19 levels or do you think that it settle somewhere above pre COVID-19 levels.
And given the emphasis on virus protection and the like thank you.
Good question, Jim So our focus as you know is on a corporate accounts. So those out chain guests to news regional or global customers. Those are the ones, who have whether that's been day make better than others as well most of them all and investing in new units or in the refreshing of current.
Units as well, so which bodes very well so for our business with today and for Tomorrow and to your question on the hygiene products basically the way we think about it is that it's going to be a bit less and during the pandemic to.
Measures, obviously are going to be a little bit less strong than what we've experienced over the past 15 months, but he is going to be higher than what we've experienced so pre pandemic as well. So net net we think that our position and institutional saw strengthen and the customers that we serve are going to be in a better position as well.
Our next question is from the line of Manav Patnaik with Barclays. Please proceed with your question.
Yes, Thank you and good afternoon, I just wanted to touch on.
Your comments are on Europe, if you could just elaborate a bit pulling tonnes.
903, and then Inc.
<unk>, I guess, just and lower growth area and.
And there was some competitive dynamics I was just curious if you see any of that change and once we do get this rebound and reopening.
Hi, Manav so to your question on Europe, So Europe had a good year last year. So in 2020, we had flat sales overall, we had so our profit margins that went up as well. So overall I was very pleased with.
With the business day.
The government that we sell in that critical region. So so for us and if I look at 21, and it's kind of an on off approach that they are having so first I'd like to put on the sides of the UK.
Which was partially reopen as we know so way ahead in terms of vaccinations versus continental Europe. So U K, we see saw good development over there Continental Europe. So most of the countries are and complete lockdown. So most of the large gantries and curfews and even as well and Thats true for Germany and France.
For instance, as well so most if not all of the restaurants and hotels are for the most part closed.
Is it something thats going to change hopefully before the summer, they're all talking about reopening in order to protect the summer season, and I hope that that's going to be true. It is going to be a bit later than what I had expected Timothy Keira, but then it's going to drive a rebound which is going to be positive.
And Q3, so as mentioned before we might have some of the growth we were expecting in Q2 shifting into Q3, but all in all and so for the full Europe, it's going to be similar then Mark we had thought.
Okay got it and then the other question I just had a christophe on water and then it was three.
And grow and backing out the extra screen, but and as you get in.
The water scarcity issue that.
And I was just curious what net.
What can and water drill and just like life Sciences, and health and point, just given the need out there or are there any limitations day to get to that kind of growth rate.
And as for water and so you mentioned, it's a 3% ex the Texas for US it's important as well to keep in mind that.
Within water you have light industries heavy industries, both are growing ex Texas, a mid single plus which is very good.
In Q1, and you have mining, which is still in the negative territory. Since we exited some of our coal business, but even mining is going to come back in a nice way I think in the next few quarters and years for sure and to your point on water scarcity, we see always more customers are coming to us and <unk>.
King.
To help them reach their net zero objective that they had for 2030 years for 2015, which is right in line with our ESG promise of the company and offerings of our customers and thats going to feed as well I think the momentum so for water and the years to come.
Alright, Thank you very much.
Thank you Manav.
Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.
Thank you.
Christophe you discussed.
Pressure from raws, Youre seeing and the pricing you need right now to offset that and when that might equalize prices versus raws.
Yeah, Hi, David.
And the roles and it was pretty benign and Q1.
As we've shared but if we look at the full year. If we look at the indices that you read too.
It's obviously much more than what we had expected initially, but when I step back and look at the overall picture, it's roughly kind of mid single.
Growth in terms of cost for our overall rolls spend which is more than what we had expected, but something that we had experienced in deposits as well, we know and we have the capability to price for that in a good way you know that the price drove our customers based on the value that.
We create as well so for them, which means that we do that as well and over time, it's not a rapid shift over a months they get some time and just as a reminder, we tried to get the dollar value. So within 12 months back and the margin and percent. So.
And in 24 months of the second.
So the way we look at it two day for 'twenty one.
Might be a slight net negative cash.
And I'm not even sure about that our teams are good.
And doing it and what we're seeing right now is nothing exceptional versus what we've experienced and the path.
No very good. Thank you Scott discussed the competitive intensity and the marketplace you have a.
One of your competitors is now public.
And talking about the share gains you saw in Q1, and what you expect and you go through the year versus perhaps do more public profile to competitor.
So im really happy with the share gains that were having and in most if not all businesses actually where we're tracking the number of units that we are serving the number of solutions that is serving to existing units as well and we've talked about that over the past few quarters that was an objective for the whole team during that.
And dammit gained share that when it reopens, we can leverage obviously debt.
That pickup and that's happening as we expected which is really good and you are right. So one of our competitors has become public over the past few weeks, we very familiar with them, we've been competing with them for many many years, we respect them.
A lot as well and I would say they make us better because we need to be better than them and when you think about it as a re overlapping lift and a third of our end markets. We five times larger reinvest 10 times more and R&D and digital done day do as well so I feel really good about what we.
And do for our customers and how are we gaining share and so versus them on the marketplace.
Thank you very much.
Yeah.
Our next question is from the line of Rosemarie and my belly with G. Research. Please proceed with your question.
Good afternoon, everyone.
Good afternoon and one's mind.
Okay.
And what could be the likelihood that you could get close to the 2019 level of 512, including the hit from the trades and outside.
I'll take covering or do you need.
And we're up to up and needs to do is to all.
We can and Sam.
She needed and we are going there and on that too to help you guys.
What do you need and other to do better than what you are looking at Jared and Kay.
Yes.
So right now.
Very good about delivering these 2019 adjusted EPS, excluding the excess phrases you as you mentioned the <unk>.
Q1 delivery saw has increased our confidence to deliver that as mentioned before there might be some shift between Q2 and Q3 because of the timing of reopening in Europe as you mentioned, but overall with everything I know right now I think that the delivery as we described it.
He is the right target.
Things improve in Europe, better than we all thing well, we will definitely try to gain more momentum but for now I.
Think that the 2019 EPS delivery so it would be a good dog and excluding Texas.
Okay.
Thanks, and then and looking at F&B could you calculated weighted and more details of the different segments.
And.
And in that particular segment.
Yeah.
So F&B had.
A good year last year, it's one of our best businesses as you know so good growth good margin and good margin improvement of the old industrial.
And segment, obviously did as well F&B had a strong start in 2021.
Entry loading so what's happening.
In the first quarter and a little bit beyond as well. So we have some compare reasons, John and Judy right now, but underlying I feel good about where.
F&B is going.
A little bit different bye bye and market. So we had the milk products that were impacted for a while because of schools being closed.
Improving progressively so which is good we saw.
We see beverage and and brews beer is.
Improving in some places, especially in the U S, but to be very strong and Latin America, where everything is closed so that's going to be good for the future that's a little bit less good.
Right now and in the food segment, that's where we have strong comparison and so versus the previous year, whereas pressures a little bits of the year on year comparison, but net net as of Q1, so feels a bit softer because of the comparison, but underlying and especially when I look at the new business being generated and F&B. The next few quarters are going to Shaw.
Good delivery.
It used to be as well and the path.
Alright, thank you.
Thank you and was nine.
Our next question is from the line of Gary Bisbee with Bank of America. Please proceed with your question.
Hey, guys. Good afternoon, I guess the first question can you just give us an update on where we are with the cost savings program sort of what have you achieved to date.
And what's likely to be achieved in 2021, and then how much savings are left from from those big programs for beyond 2021. Thank you. Thank.
Thank you Gary I'll pass it to Dan So who has the details but generally our likes of the progress that we've made in our cost savings program, which are all meant to strengthen our performance post pandemic as well so if anything things that progress better than we had expected.
With that then and what do you thing and I'm sure great. Thank you.
And just for common reference maybe.
It's probably helpful again to build up the pieces of our cost savings program, which you'll recall was originally announced back.
Back in 2018 as accelerate 2020. This was the initiative to capture and invest.
And our digital offering.
With a $200 million cost savings target.
We expanded it at the time, we announced the champion X and cover things like stranded costs and anticipated costs related to share.
And in fact.
And we expanded it again to cover some aspects of supply chain and industrial business.
And most recently.
And to cover from restructuring.
Haiping maybe.
Mark and institutional business to improve principally field delivery. So you add all that up and we have a targeted cost savings of about 365 million and some of that is from gross margin a big bulk of it and SG&A.
Year on year.
The incremental piece that we expect to capture and 2021 is in the neighborhood. If you look just at the SG&A to $120 million range. That's a big help in 2021 mind you know there is a.
A lot of.
91, I'm sorry, there's a there's a big piece that is.
After it but the net of it is that we think that this entire program will essentially be delivered by the end of 2021 and there will be pieces of the institutional program Thats still too.
And 2022, but the bulk of it will be fully accrued and fully delivered by the end.
And then.
Okay, great. Thanks, and then a follow up question just how are you thinking about multiyear growth beyond 2021.
And we get more normal.
Performance for the business post pandemic.
Historically you'd laid out a number of long term aspirational.
Should we think back to those as appropriate or or just can you give us a sense, how youre thinking about the multiyear and Gary Gary just to make sure I understand your question. So you mean in terms of sales growth and earnings growth right.
Right, Yeah, Okay got easy comps and Theres, a lot of moving parts, but over the next two to three or four years.
The target is still reasonable thank you.
Yeah, our ambition Gary has not changed it's really so that 6% to 8% organic needs the 13% to 15% EPS.
That has been true for many many years and it's not going to change in the future if anything I would position has strengthened.
Out there when you think about so the rise of hygiene standards.
And the search for most companies to improve their profile in terms of ESG delivery net zero and water consumption and so being one of them.
And the need for digital solutions.
And as well so those are all things that are improving our position so going forwards. So no change in terms of growth expectations are for the future if anything our position has improved.
Great. Thank you.
Thank you Gary.
The next question is coming from the line of John Mcnulty with BMO capital markets. Please proceed with your question, yes. Thanks for taking my question.
The institutional business, specifically can you speak to the number of accounts that you served this quarter versus the prior quarter and how that how that may have changed and then I guess to that are you starting to see any early signs of new account or I guess potential customer launches at this point or is it a little bit early given where we are.
And the pandemic kind of stages at this point.
So good question, Jon except that we don't share.
So the exact number of accounts of solutions for accounts that we track Inc.
On a monthly basis from a long time actually for competitive reasons and so for the most part but what I can say is that so the number of accounts so keep going up.
As good and most of the months.
We chose.
Giving us confidence of Disney stuff with the growth of our business going forward, because he called to grow without having more customers buy programs. So from so more accounts buying more solutions and one thing I'd like to add as well is the Ecolab science certified program that we've launched a year plus ago and.
Institutional requires customers from Dubai, most of our solutions in order to qualify for the certification and this is driving as well as penetration of solutions and a good way and it's helping as well with the retention as well so going forward. So net only regaining.
And number of gallons and solutions, but we're keeping them as well Nomura because customers are interested and keeping the certification at the same time.
Got it and is there a way to think about on the Ecolab Science certified program. The difference and in total value that you are getting from a specific customer versus first formed that's not tied into the program and if there is looking at like a like for like customer obviously.
So it depends obviously, where they're starting from if they just pulled one solution.
The GAAP is way bigger or the opportunity is much bigger in some cases with some of our long term customers, while the volume everything from us everywhere around the world in that case the opportunity is much smaller, but when I think about it so ecolab science and 55 of the program, we did not plan to lounge pre pandemic.
That came as an outcome of the pandemic, we really recognize that our customers need some help in order to make sure that could protect day guests and at the same time guests coming in a hotel or a restaurant or looking for more reassurance and thats going to be true for them for the quarters to come so we measuring as well so the the number of locations.
<unk> that are certified by Ecolab signs certified.
And it's it's pretty large.
We are not disclosing that number but it's by far the number one program and the U S.
Right now, it's generating incremental sales, which is pretty significant as well at the same time and as you know, we supporting that as well as the brand, Indonesia, which gets always more recognized by consumers or guests as we call them and that industry. So all in all this is really good to grow our market share and.
Institutional.
Got it thanks very much for the color.
Thank you John.
Our next question comes from the line of John Roberts with UBS. Please proceed with your question. Thank.
Thank you.
And does it matter that COVID-19 isn't significantly transmitted on surfaces or it doesn't matter because cleaning as theater as more and more important.
Infections can be transmitted journey and so many different ways.
We know it can be the Eric can be what you eat and can be what you touch can be what you drink the day, hence that you shaking.
So it's true that COVID-19 is mostly transferred through the air but many other illnesses are transmitted so through surfaces or human contact as such and when I think about infection prevention, while short term, but we all think cove.
<unk> 19, but mid to longer term, we think about any infection that could happen out there and surfaces like human contact or a big vector as we know one example is that the and hospitals the number one vector of infection and <unk>.
And as well not for COVID-19, but for many other infections as well so overall, making sure that you reduce the number of infection in a public setting done.
You need to have surfaces.
Disinfected as you can.
Good answer and.
Health care was 5%, excluding one time sales and 12%, including could you talk about that difference.
The main difference first of all.
And you say so healthcare you used to have underlying sales of three 4% so pre pandemic getting towards these underlying so 5% plus.
Is a good step up and you've seen the margin went up as well.
Good way, which is all very encouraging for this business now the difference between the.
The 512 is solid driven by significant.
Deals that may be some governments around the world during the pandemic.
To address obviously day infection risks in the UK, and Germany, and Australia, and New Zealand and many countries around the world. This is COVID-19 related so each tapering off.
And now so you start to compare as well against very high growth last year and that business.
Going to be reduced we knew that and then we will get back to the underlying growth of 5%.
And then.
Great. Thank you.
Thank you Dan.
Our next question is from the line and Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thank you Dan So I'll just ask you about the working capital and how you're thinking about free cash flow. This year, just noticing our inventory was up about 100 $120 million and.
And the quarter versus last year, even though.
Sales were down I think you mentioned in the prepared remarks that Youre building inventory ahead of the recovery, but just how should we expect working capital to trend overall.
And ultimately what that could translate into free cash.
Thank you Vincent.
Is it to Dan So just and a second you've mentioned and the right. So on one hand, so very happy with the cash flow delivery in the first quarter and under working capital piece, it's really so for US we want to make sure that we can produce enough product for the reopening.
What's happening in the various states and markets around the world and that has an impact on working capital, but with that then.
To add some comments and thank you Christophe and that might be the answer to the core of your question and so inventory look internally, we've been very clear that the mistake that we are not going to make is not going to have product the right product and the right place to serve our customers as their path to reopening.
Accelerate okay. So you are right, we built significant inventory versus the same time last year also versus year end 2020.
And my guess is that we will continue to because we will have the right stuff, where we and our customers both need it.
And you think about the recovery of the business generally.
Rebuilding the balance sheet means that there will be some poll.
And inventory.
Counts receivable too which are in very good shape from a payment perspective, but as people buy more stuff will have more on the balance sheet and accounts receivable.
We will continue to manage our vendors and what we purchased with appropriate discipline, but there'll be there'll be an investment and working capital as the business rebuilds, which is to be expected and completely appropriate the net though.
Our cash flow delivery for the full year, even including the.
The higher level of Capex that we will continue to.
Two.
Invest and the business and 2021.
Our cash flow will continue to be a bigger and also it will be.
Think about the metric that matters, most and many in terms of conversion it.
It will continue to be and the mid 90% range, which I think is a very good number for the company and for the model Okay.
Okay. Thank you and maybe Christophe.
Any comments on where you are with sort of the bolt on M&A pipeline.
For the M&A pipeline, that's always a difficult question.
Obviously, we have a very rich pipeline, we've been working quite a bit.
And COVID-19, we've done less transactions for the obvious reasons, but we've done a lot of strategic work with built a lot of relationships. So we started yet.
We have out there so I feel good about the pipeline we have.
Absolutely invest in places that are driving higher growth and higher margins and making sure that we can do that that valuations that are good for us and for our shareholders. So I feel good that is what's to come.
Thanks very much.
Thank you Vincent.
The next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions.
Thanks, very much good afternoon.
And just with regard to the Texas free it looks like the.
Net loss revenue came at a high decremental margin. If my numbers are correct could you. Please elaborate on just how that impacted and now that we're near the end of April have you seen the full <unk> impact or it's just going to drag on through through the day. They did.
The follow on through the second quarter, possibly third just curious what type of lag there is occurring.
Yes go ahead. So the fix is free as we expected this 15th which seems to be the right number.
And as we speak.
And <unk>.
<unk> impacted Q1.
As we communicated and we expect the remaining five two to impact Q2, we see things really so moving behind us.
It's not a perfect science as you can imagine so what froze what was closed when it reopens.
This is something that we can't control as such but what I like is that things are really sold backing operations. That's true for our customers, it's true for us and our suppliers as well.
And the issue we had was impacting mostly March and April which was obviously across two quarters, but 15 and the total number 10 in Q1 five in Q2 and it's it's happening.
Happening as expected.
And thanks, Chris Donovan and peers of ours, and the industrial segment, where if if I back that out.
Weather impact very elevated margin just curious what incremental upside D C and the segment going forward it looks it looks very strong from.
At the onset of the pandemic and strengthening and thanks.
Youre right that the margin and work in industrial and so has been remarkable.
Over the past few years he closed over 300 basis points in 2020, while sales were slightly declining as you know so in Q1 next Texas that was also a double digit operating increase which was good as well and going forward I believe that that's a winning business day.
B times with raw materials, and pricing were up quarter over quarter things, so might lag a little bit, but generally margins will continue to improve in industrial and especially because the value that we provide to our customers is unmatched as mentioned before most of the customers are coming to us, especially so in.
Our water business is to help them reach their ESG commitments that they've made for 2030 of 2015, while there is no one else that can truly help them. As we can this is something that is driving growth and each driving margin as well for us because they need better technology.
Which is where we invest most and resorts as well and Thats why we had the highest margin. So it's good growth driven by good natural feedback, which is driving as well our margin and so the short answer to your question margins and industrial are going to keep improving.
Alright, thanks very much.
Yeah.
Our next question is coming from the line of Laurence Alexander with Jefferies. Please proceed with your questions.
Good afternoon, just following up on the margin discussion and the price versus raws. So as you look at 2022 2023 should margins be for the entire firm and hitting a new high.
It's a great question.
So it's hard for us to know exactly how it's going to be and 21, so knowing 22 and 23, so it will be even harder.
The way, we drive pricing is really driven by the value that we create for our customers in other words, how much savings we help them deliver.
On a year they invest.
And 10 in our services and they get a 20% plus.
<unk> as.
Our return and this is the way we price each phase of the case of sharing.
How much value, we create with our estimates obviously when they are raw material increases like we all and will be experiencing and the next quarters and probably years to come well, we add that Judy equation, we've been quite successful over the past few years in doing that that's been one of the real.
And why margins have improved so well over the past few years, and especially as well last year. So I don't know how roles are going to be in 'twenty, two and 23, but I know that our pricing is going to keep being and.
1% to 2% plus range, depending on how the raw materials market, but it is never going to go down. So all it's going to be up in price and it is going to be driving margins up as well over the long term.
And then are there any and markets where.
You have been surprised at the elasticity of demand and where youre seeing a clear trade off between pricing and organic growth.
You mean in a negative manner.
Just I mean has anything changed in your framework over the course of the COVID-19 related disruptions have you learned anything new about coffee and market behavior, where you're like okay that was not expected.
No if anything it's more interest.
On one hand, so driven by day.
These increased trends.
Of ESG and sustainability commitment so what we do forecast day moves becomes even more critical and customers are ready to invest more in order to get more return from a financial perspective, but also from a image perspective, because they've made commitments as well out there, but on the other hand, it also and times.
Share performance cost performance becomes more important to think about some of the end markets are economically challenged right now when I was solutions usually are very handy for those guesstimate is because it helps them improve day cost competitiveness because you can do the same work.
At the same outcome, a better outcome with much less labor are creating less waste still using net natural resources as well. So it's a good tonnage of the and so on both sides for customers in most segments, while they need more of what we do in order to reduce the impact on the environment and while they do so that we do.
And their cost as well, which is even more important and difficult economic times, so and some of the specific end markets. In both cases. This is a good story for us.
Thank you.
Thank you.
Our next question is from the line of Andrew Whitman with Robert W. Baird. Please proceed with your question.
Great. Thanks for taking my questions you've had a couple of questions on margins I wanted if you do another one and you have the one on the industrial segment you had the consolidated and margin question, but I had a kind of a two part question here.
And the healthcare segment to start out with obviously here you talked about some of the large governmental orders and other things that probably helped your fixed cost leverage and.
That segment over the past 12 months I was just wondering as those comparisons are enough stiffer and the business starts to normalize above historical levels, but starts to normalize from last year at least if if you think that some of the fixed cost leverage goes away.
But thats the appropriate way of thinking about that segment margins and the 12 months ahead, and then secondarily, just maybe a little bit more detail on the institutional segment margin.
Obviously, the volume declines were significant and I.
And it all makes sense, what's happened with the Mark and so far but on the way back up with the cost reductions and programs that you've put in place.
Do you think that.
When the revenue level back and gets back to 2019 levels is there any reason to think that the margins would be any different.
And that business than they were pre COVID-19 just.
And just recognizing that the customer base is probably going to be somewhat changed maybe not yours and whats the national accounts, but there are a lot of changes to hospitality and food.
<unk> service and wanted to get your thoughts on that sorry for the long question.
And that's good thank you Andy.
Maybe starting with <unk>.
And as healthcare very different dynamic are busy Daniel and institution, and so and healthcare first of all very pleased with the underlying.
Gross performance, so moving towards the 5%.
Which was an objective for a long time, it's taken us from many years so to get there and COVID-19 has helped because the infection prevention awareness of <unk> and patients in that case, well how's it going up very clearly so during COVID-19, so which is which is good so underlying growth.
Solid and healthcare and that's here to stay second on margins very good improvement.
Last year in some cases helped partly with the with the one off.
And those government deals that we talked about earlier, but I feel really good that margin and he is going to keep improving in 'twenty, one and in the future as well. So this is here to stay.
And so a good story in healthcare and for me that's not the end of the story, it's clearly so.
Up to us due to improving further that's on health care.
Institutional so very different.
Story, especially so coming out.
And of 2020, which is the business that's been impacted the most in our camp and you're 90% plus of the COVID-19 impact and Ecolab was on institutional division as we all know which is 20% of our overall company as such so when I think about the margins I'd say two things.
And Andy the first one is.
Every quarter, it's going to improve and we're going to get.
Got back from.
And from what we lost in 2020, and we will get close to where we were in 2019 pre pandemic. So.
Not that the end of this year, but early.
In 2022, and the second part of your question. So post pandemic, if I can call it that way, while we've invested.
And our organizational development slash restructure we've invested as well and field technology, that's going to help as well the performance. So if anything the margins of institutional over the midterm, so should improve versus what we had seen pre pandemic.
Thank you very much have a good day. Thank you you too.
Thank you.
Our next question is coming from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.
And Mr. Rosenbaum Airlines like and I proceed with your question.
Sorry, Christophe maybe you could talk a little bit about.
The discussion needs to be before the pandemic a lot more about the investments that were being made and digital solutions I know the company didn't want to pull back on and vessels through the pandemic can you talk about.
And what has happened over the last year, where there have been areas and adoption that have been accelerated because of the Titanic pandemic and where there might be areas of lag.
Great question and thank you slow Mo.
Digital has been.
And important product for us for many many years installed 30 years ago actually what's called differently. Obviously back then.
That's true and we did so remote monitoring of pool, and spa and institutional and that was especially true. So we have three day trades are industrial.
Industrial water business as well and if I fast forward.
Ultimately so for 2020.
Things that accelerated because in many instances, we could not go to get them and locations for obvious reasons related to COVID-19, so customers and our teams have embraced digital solutions, even more than before keep in mind as well that we've invested over the past.
Five years over $150 million a year.
And digital so we were ready for that moment during the pandemic that was more lux and genius.
Such that became very handy as well as such so when I think about the three main drivers for us and digital at Ecolab first one needs to drive customer value. So it's subscriptions legionella.
<unk> net as a prevention programs for instance, as well they all driven by digital technology. We said that technology is growing very nicely. The second one is our field solutions in order to improve the productivity and the value created by our 25000 people.
And the world institutional is rolled out everywhere around the world than your platform doing COVID-19 and that's going to help us as well so.
Post pandemic.
I would just answer it as well before which is one of the reasons why our performance and institution and so it will improve and the last pillar is the customer experience E. Commerce for instance that has gaining that has gained traction in 2020 also because of the remote nature of the customer relationship that we had.
And the pandemic so on all three fronts good progress in 2020, and when I looked at the progress, we're making and digital in 2021, our digital enabled say adopt roughly one 5 billion and growing double digit as we speak so a very good story, all and home.
Okay, great and if I could follow up is there any progress to note and.
The new verticals, there's going to be kind of the data center area is there anything team to gain a report on net.
For the last year or quarters.
While it's been a great story, because we've all ended up working remotely.
And whatever.
Is Europe.
And more preference webex teams zoom.
And so on and remote monitoring of applications as well our plans.
It's an industry that has been booming.
As you can see as well so from the numbers from the tech industry.
And we serve early last year, which was also a pre pandemic, we created a global data centers.
And the dedicated business.
Which game Luckily enough, so very and so for the pandemic and since then this business has been growing strong double digit.
Operating income improvement very strong as well and interestingly enough. So the customers that we serve which all of the tech companies.
Once our owning those data centers operations at the same time have made big commitments in terms of water and carbon savings. While this is the work we do for them because that's ultimately where they use the water or <unk> because of the energy that they need to use for the computers as such which is.
Brought them back to us you've heard from Microsoft as well that share it openly publicly so its not the secret that they've committed for the net zero water by 2030 and Thats. The plan that we've developed with them. That's all driving the growth and that new vertical which is very promising.
Thank you so much.
Thank you Shlomo.
Our next question is from the line of chest and caucus with Jpmorgan. Please proceed with your question.
Thanks very much.
When you think about the restaurant and.
Hotel business going forward.
Is the restaurant of the future going.
Going to be different.
And then the restaurants over the past and the hotel of the future.
That is that there may be distancing rules, there may be other factors because the ecolab institutional business go back to where it was in 2019 and a normal environment.
Or does it go to a different place as it better is it worse.
This is a great question and a fundamental question and it's not going to go back to where it was in 2019 I think it's going to be better if I think about our end markets.
And that's going to be true for everyone for the independents, it's going to be it's being difficult obviously for individual restaurants during the pandemic financially so to survive those loans and more hardship than the chain customers, which is the vast majority of our business. So corporate account customers as we call them will change.
And all the ones who have survived the war.
Once we have invested in their operations and the one who are expanding as well in terms of units. This is who we serve first and foremost so that's a good situation to be in so for US then to your question on.
The restaurants or the wholesale of the future do you know exactly how it's going to be.
Is hard to tell but a few things.
Now on one hand, so the hygiene standards expected by the guests.
We'll be up versus 2019, it's going to be a little bit lower than during the pandemic. Thank god, but it's going to be higher than 2019, that's pretty sure and we are asking guests of consumers all the time in order to understand so what's happening in day in mind, and they clearly telling us that day expecting higher high.
And standards more theater of clean they want to see cleaning action in order to feel safe, which is which is good.
And the labor shortage is going to become a bigger issue and issued pre pandemic. It is going to be even more so going forward as we read and the newspaper what our solutions are helping them deliver more with less labor.
Which is good as well as such and the last thing which is harder to.
Graphs completely is how much did take out the delivery.
Is going to grow it's going to keep growing for sure and those are new opportunities for us because those are new businesses as well, we haven't figured it out completely but I see that there is upside so net net for our customers the chain customers, it's going to be different than 19, but it's going to be it's going to be better for us.
And going forward.
Thank you for that and.
What percentage of triple of cost of goods sold are raw materials for you.
It's roughly 45%, but obviously depends on luck bye bye bye business pest elimination as much lower as you can imagine and in some industrial businesses it might be higher but in average at 45% for the company and.
Thank you so much.
Our next question is coming from the line of Mike Harris with Goldman Sachs. Please proceed with your question.
Oh, good afternoon, and thanks for taking my question.
And just a quick follow up for Christophe earlier, you mentioned net.
First quarter results give me confidence that you took the path.
2019 earnings level and.
And I was just curious I mean, what what.
And in the quarter net.
The positive.
Price to your internal expectations.
Boosted your confidence.
Well, thank you Mike.
The bigger question so for US for Q1 was to know where and especially in the U S. The states would.
Open and as you remember so in Q4 day locked down so went backwards in Q4 versus Q3, while that was not exactly.
Great News and still we improved our performance in Q4 versus Q3. So the question was how is it going to continue.
In Q1 and that we didn't know obviously, so as we started.
Our year 'twenty, one so we were hoping that things would be improving and ultimately they did but they did nothing January and February. They did in March. So we were thinking so Q1 would be a difficult quarter as it compares versus Q4, so modest improvement, but it definitely ex Texas.
Better than what we felt in Q1, so if I look at that the reopening in the U S States is a good news.
So for us going forward, China has been good since the beginning of the year. So those two markets.
And are really on the positive side of the ledger on the other and so you have Europe and some emerging markets like Brazil.
India, the Dynamo difficult situation. So net net it's basically as as expected.
And the last thing that I would say is that because of the timing of the reopening so in Europe, that's going to happen. So towards the end of Q2 some of the growth that we had expected in Q2 might shift in Q3, but all in all so ICU that net net the trends are as expected our cost structure does it.
Expected the timing might be a little bit different than what we had and might initially but at the end of the euros. So it ends up so to these full year delivery. That's ahead of the EPS 90, and excluding these taxes impact.
Okay. Thanks for that color.
Thank you.
Our next question from the line of Eric Petrie with Citi. Please proceed with your price.
Hey, good morning Christophe.
Hi, Eric.
How much of your overall sales are to infection prevention, and if you could give a breakdown between the institutional and health care.
So its roughly 10%.
For the company, what we call sanitizing products.
As such it has.
Very good growth.
Last year that was especially true in healthcare, which has a higher percentage as you would expect obviously.
These infection is the bigger part of what we do.
And how it's because then what we do we'd hoped as the restaurants as you can imagine, but in both and segments and.
Grew double digit and we expect the growth that we delivered in 2021.
Overall to maintain the overall number that we got in in 'twenty, one which is a combination of more customers are buying more of those sanitation product, but at the same time, we are live.
A little bit lower consumption, so much higher than what we had pre pandemic close to what we had in 2020 and close to the 10% for the overall sales.
Helpful and then as a follow on how much of your and infection prevention and Chemistries or sanitizing products started based on chlorine alcohol or proxy side and have you seen any attrition to accelerated hydrogen peroxide.
Yes, it's one of the of the.
The applications that we have.
So we don't disclose too much abusing the formula.
We are using.
And so that you didn't think about.
The 15 seconds and Colby kiln.
That belongs from the market as well last year. This is an absolutely unique differentiated application no one keeps COVID-19, and 15 seconds or less.
So that's been very.
Unique and potential and obviously you saw on the market, but what you mentioned so we see accelerated hydrogen peroxide, that's one of the solutions.
We like it as well we use it as well, but for US we're going beyond that as well.
Thank you.
Thank you at this time, we've reached the end of our question and answer session I will hand, the floor back to management for further remarks.
Thank you that wraps up our first quarter conference call. This conference call and the associated discussion and slides will be available for replay on our website.
Thank you for your time and participation and best wishes for the rest of the day.
Thank you and this concludes today's conference you may disconnect. Your lines at this time and have a wonderful day.