Q3 2023 Ecolab Inc Earnings Call

Greetings and welcome to the Ecolab third quarter 2023 earnings release Conference call.

This time, all participants are in listen only mode.

A question and answer session will follow the formal presentation.

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A reminder, this conference is being recorded.

It's now my pleasure to introduce your host Andy Hedberg, Vice President Investor Relations for Ecolab. Thank.

Thank you Mr. Hedberg you may begin.

Thank you and Hello, everyone and welcome to Ecolab third quarter Conference call with me today are Christophe Beck, Ecolab is chairman and CEO and Scott Kirkland, our CFO a discussion of our results along with our earnings release and the slides referencing the quarter results are available in ecolab website at Ecolab Dot Com Slash investor. Please take a moment to read the cautionary statements in these.

Materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward looking statements and actual results could differ materially from those projected factors that could cause actual results to differ are described under risk factors section in our most recent Form 10-K, and our posted materials. We also refer you to the supplemental Duluth.

<unk> earnings per share information in the release with that I would like to turn the call over to Christophe back for his comments.

Thank you so much Andy and welcome to everyone on the call.

Building on our momentum with strong and reliable growth that's the headline for ecolab third quarter. Thanks to exceptional execution by our routine ecolab delivered a very strong quarter as our momentum continued with 7% organic sales growth, which was actually exactly as expected and 18% growth in adjusted earnings per share.

Reaching the high end of our expected range.

Against unpredictable macro conditions, we drove continued strong pricing new business accelerated volume trends and continued robust margin expansion. Our focus remains on offense, which we are best at continuing to feel strong and consistent double digit earnings per share growth.

We maintained strong organic sales growth with pricing increasing by 7%. This increase reflects both the value based pricing we put in place last year and the new pricing. We've implemented this year reflect reflecting the enhanced value we offer to our customers.

Trends continue to strengthen as well, which is great news with <unk> is helping to accelerate volumes. Despite softening in global end market demand.

Operating income margin continued its impressive expansion of 160 basis points compared to last year, reaching 15, 5%. This notable progress reinforces our path towards achieving our long term margin goal of 20%.

In the third quarter, our adjusted gross margin expanded 360 basis points to 41, 3%. The strong expansion is a result of our value based pricing strategy improved volume trends and a slight decline in delivered product cost.

When global energy prices remain dynamic with confidence in our value based pricing strategy, and if absolutely necessary our capability to implement energy surcharges.

Operator: Greetings. Welcome to the Ecolab 3rd quarter, 2023 Earnings Released Conference Call. At this time, all participants are in listening only mode.

We continue to take a prudent stance on the trajectory of delivered product costs as cost remained up nearly 40% compared to pre inflation levels.

Operator: The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Assuming the current high energy price environment persists and our cost is only slightly in 2020 full we continue to expect very strong gross margin expansion in the quarters ahead. This will help us make progress in achieving our historical 44% gross margin.

Andy Hedberg: It is now my pleasure to introduce your host, Andy Hedberg, Vice President and Invest Relations for Ecolab. Thank you Mr. Hedberg. You may begin. Thank you and hello everyone and welcome to Ecolab's 3rd quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO and Scott Kirkland, our CFO. A discussion of our results along with our earnings release and the slides referencing the quarter results are available on Ecolab's website at Ecolab.com slash investor.

And I would 20% Oi margin target over the next few years.

Underlying productivity also remains strong as we continued to leverage our leading digital capabilities as expected SG&A expense was relatively stable versus second quarter levels.

Andy Hedberg: Please take a moment to read the cautionary statements in these materials which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward looking statements and the actual results could differ materially from those projected factors that could cause actual results to differ are described in the risk factor section and our most recent form 10k and our poster materials. We also refer you to supplemental diluted earnings per share information in the lease.

Year over year comparison reflects the rebuild of incentive based compensation, a result of our strong sales and earnings growth and strategic investments in our growth engines.

We also expect SG&A dollars in Q4 to remain very consistent with second and third quarter levels.

Performance further strengthened across our businesses. The highlight was institutional and specialty which grew organic sales double digits in organic operating income 28%.

Christophe Beck: With that, I'd like to turn the call over to Christophe Beck for his comments. Thank you so much, Andy and welcome to everyone on the call. Building on our momentum with strong and reliable growth, that's the headline for Ecolab 3rd quarter. Thanks to exceptional execution by our team. Ecolab delivered a very strong quarter as our momentum continued with 7% organic sales growth, which was actually exactly as expected and 18% growth in adjusted earnings per share reaching the high end of our expected range.

Organic Oi margin was up 260 basis points to 19, 3% approaching historical 20% level.

Our industrial segment also performed well, especially comparing to an extremely strong Q3 last year led by attractive growth in food and beverage any water as our unique ability to bring end to end water and hygiene technologies to customers continues to drive strong share gains in this segment.

Christophe Beck: Against unpredictable macro conditions, we drove continued strong pricing, new business, accurate volume trends and continued robust margin expansion. Our focus remains on offense, which we are best at continuing to fuel strong and consistent double digit earnings per share growth. We maintained strong organic sales growth with pricing increasing by 7%. This increase reflects both the value-based pricing we put in place last year and the new pricing we've implemented this year. Reflecting the enhanced value we offer to our customers.

Operating income growth eased a bit in the third quarter, reflecting the incentive based compensation rebuild as mentioned in the last call and importantly, we expect the segment's operating income to return to double digit growth in Q4.

Our healthcare bifurcation strategy is progressing well.

Pricing and new business helped to improve underlying sales growth and operating income.

The business also benefited from larger than normal surgical sales, which is not expected to recur.

Christophe Beck: Our volume trends continue to strengthen as well, which is great news. With new business helping to accelerate volumes despite softening in global and market demand. Organic operating income margin continued its impressive expansion, up 160 basis points compared to last year reaching 15.5%. This notable progress reinforces our past toward achieving our long-term margin goal of 20%. In the third quarter, our adjusted growth margin expanded 360 basis points to 41.3%. This strong expansion is a result of our value-based pricing strategy improved volume trends and a slightly decline in delivered product cost.

While we are pleased with our progress delivering sustainable and profitable growth remains a focus for me and for our team.

Life Sciences' growth also improved to mid single digits. Despite continued short term pressure for everyone. In this market as our team continued to win share.

What do we expect the market to remain under pressure for the next few quarters, our ongoing investments in additional new product capacity and Jim capabilities will allow us to capitalize on attractive long term high growth high margin opportunities in summary in the third quarter, we delivered as expected with strong sales.

Solid earnings growth now looking ahead, we expect our strong performance to continue into fourth quarter with adjusted earnings per share, increasing 17% to 24% versus last year, which is above the mid teens growth. We had guided to during our second quarter call and will bring full year EPS north of 2019.

Christophe Beck: While global energy prices remain dynamic, we confidently know our value-based pricing strategy and, if absolutely necessary, our capability to implement energy surcharges. We continue to take a prudent stance on the trajectory of delivered product costs, as costs remain up nearly 40% compared to pre-inflation level. Brothers, Assuming the current high energy price environment persists, and our cost is only slightly in 2024, we continue to expect very strong gross margin expansion in the quarters ahead.

P S T.

Performance is expected to be driven by new pricing volume growth and robust gross margin expansion expected to be up 250 to 300 basis points versus last year.

As we shared with you at our Investor Day in September we see continued strong momentum in 'twenty four even as global uncertainty remains with something macro demand. We continue to expect mid teens or better growth in adjusted earnings per share in 2024.

Christophe Beck: This will help us make progress in achieving our historical 44% gross margin and our 20% Hawaii margin target over the next few years. Underlying productivity also remains strong as we continue to leverage our leading digital capabilities. As expected, SG&E expense was relatively stable versus second quarter levels. The year-of-year comparison reflects the rebuild of incentive-based compensation, a result of our strong sales and earnings growth, and the strategic investments in our growth engines.

As always we will remain good stewards of capital by continuing to invest in the business, increasing our dividend, reducing leverage and returning cash to shareholders. Most importantly, with the best team science and capabilities in the industry. We will continue to grow with share up to stable and high quality 152.

Billion market, we serve.

I believe that ecolab is long term fundamentals are stronger than ever and I am confident in our outlook for continued strong performance as we work to deliver superior shareholder returns. So thank you for your continued support and your investment in Ecolab I look forward to your questions.

Christophe Beck: We also expect SG&E dollars in Q4 to remain very consistent with second and third quarter levels. Our performance further strengthened across our businesses. The highlight was institutional and specialty, which grew organic sales double digits and organic operating income 28%. Organic Hawaii margin was up 260 basis points to 19.3% approaching its historical 20% level. Our industrial segment also performed well, especially comparing to an extremely strong Q3 last year, led by attractive growth in food and beverage and in water as our unique ability to bring end-to-end water and hygiene technologies to customers continues to drive strong share gains in the segment.

Thanks, Christoph that concludes our formal remarks, operator would you. Please begin the question and answer period.

Thank you.

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One moment please poll for questions. Thank you.

Christophe Beck: Operating income growth is the bet in the third quarter, reflecting the incentive-based compensation we built, as mentioned in the last call. And importantly, we expected segments operating income to return to double digit growth in Q4. Our health care verification strategy is progressing well. Strong pricing and new business have to improve underlying sales growth and operating income. The business also benefited from larger than normal surgical sales, which is not expected to recur.

Yeah.

Thank you. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Christoph Scott good afternoon.

Good afternoon, Tim.

So I see you eclipse, 19% Oi margin.

Institutional in the third quarter, which was great to see if you go back to pre pandemic times Youre doing about 21% Oi margin every year on an annual basis.

Christophe Beck: Well, we are pleased with our progress, delivering sustainable and profitable growth remains a focus for me and for our team. Life Sciences growth also improved to mid-single digits despite continued short term pressure for everyone in this market, as our team continued to win share. Well, we expect the market to remain under pressure for the next few quarters, our ongoing investments in additional new product capacity and clean capabilities will allow us to capitalize on attractive long term high growth, high margin opportunities.

I think there is some debate amongst the investor community about whether or not ecolab will ever get back to that 21% Oi margin days or after.

Business has structurally changed I'd love to get your perspective on that Christophe how long that might take.

Particularly given the good momentum that we see in this quarter.

Thank you Tim I have no doubt in my mind that we will get there we have a great team.

Running a great business on a great trajectory and as mentioned many times, Jim the P&L of Ians will end up in a better place post this cycle versus previous.

Christophe Beck: In summary, in the third quarter, we delivered as expected, with strong sales and solid earnings growth. Now, looking ahead, we expect our strong performance to continue in the fourth quarter with adjusted earnings per share, increasing 17% to 24% versus last year, which is above the mid-teens growth we had guided to during our second quarter call and will bring the full year EPS north of 2019's EPS. This performance is expected to be driven by new pricing, volume growth and robust growth margin expansion, expected to be up 250 to 300 basis points versus last year.

The years like 2019, just for perspective, so in Q4 as mentioned during Investor day, as well our Oi dollar will already be back to the 2019 level. So I really expect to cross that 'twenty 'twenty, 1% line in the next few years.

While we drive new business innovation price the advantage of the new organization as well was to focus on sales and service and leverage as well digital technology as we've done over the past few years. So of all the opportunities we have in front of us all the challenges that we might be facing.

Christophe Beck: As we shared with you at our invested day in September, we see continued strong momentum in 24. Even as global uncertainty remains, with softening macro demand, we continue to expect mid-teens of better growth in adjusted earnings per share in 2024. As always, we will remain good stewards of capital by continuing to invest in the business, increasing our dividend, reducing leverage and returning cash to shareholders. Most importantly, with the best team science and capabilities in the industry, we will continue to grow a share of the stable and high-quality 152 billion market.

<unk> is going to be probably one of the best promise is that we have ahead of us.

Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your question.

Alright, Thanks, Good morning, you.

You mentioned a few times in the <unk>.

Sides in the release and your comments just about new business wins I'm, just can you talk to the <unk>.

Selling environment.

Your your sort of traction with new wins, and how we should think about.

Christophe Beck: We Serve. I believe that Ecolab's long term fundamentals are stronger than ever, and I am confident in our outlook for continued strong performance as we work to deliver superior shareholder returns. So thank you for your continued support, any investment in Ecolab. I look forward to your questions. Thanks, good stuff.

New ads going forward. Thank you.

Thank you Seth well selling new business is what we best at and what we liked the most doing so a shift to offense.

Over the past few quarters is delivering results because our team is really focused on driving new business with our customers.

Operator: That concludes our formal remarks. Operator, would you please begin the question and answer period. Thank you. We'll now be conducting a question and answer session. We ask you to plume yourself to one question so others may have a chance to participate. If you'd like to ask a question, please press star one on your telephone keypad, and the confirmation tone indicate that you're lying in the question queue. You may press star two if you'd like to move your question from the queue. Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please will be pulled for questions. Thank you.

In more difficult environment, and it's always been the case.

At Ecolab, what our customers are looking for ways to improve the operating performance, which is what we've always done for them and but they need the most.

Right now so they are very receptive to what we can do as well for them at the same time, we're bringing as well all the offerings. So from the company, especially water and hygiene in industrial segments, but also in institutional which are very well received by our customers.

Tim Moroni: Our first question comes from the line of Tim Moroni with William Blair. Please see the other question. Kristoff Scott, good afternoon. Good afternoon, Tim. So I see you eclipse 19% OI margin in institutional in the third quarter, which was great to see. If you go back to pre pandemic times, you're doing about 21% OI margin every year on an annual basis. I think there's some debate amongst the investor community about whether or not Ecolab will ever get back to that 21% OI margin days or, you know, if the business has structurally changed.

And we have innovation.

Well, which has made a step change over the last few years.

Addressing customer challenges or opportunities that they have so all in the team focused on what they truly like with the right tools right innovation right new products and customers that are open to what we can do for them speak improving the operating performance ultimately that's all driving better performance in terms of.

With new business, which is really good.

Our next question comes from the line of Josh Spector with UBS. Please proceed with your question.

Christophe Beck: I'd love to get your perspective on that, Kristoff. How long that might take, particularly given the good momentum that we've seen this quarter. Thank you, Tim. I have no doubt in my mind that we will get there. We have a great team running a great business on a great trajectory. And as mentioned many times, Tim, the PNL of INS will end up in a better place, post the cycle versus previous years, like 2019.

<unk>.

Yeah, Hey, Christoph I had a question along similar lines and particularly just related with this volume expectations. I mean, you were pretty confident a couple months ago that you were going to deliver positive volumes at <unk> I guess it rounds down to zero or maybe flattish is the best way to describe how that came in you're talking about positive volumes in the fourth quarter.

I guess I don't know if <unk> changed versus your expectations of where it would come in and the backlog combined with the new wins combined with base earnings I guess, how do you envision volume moving into early next year. Thanks.

Christophe Beck: Just for perspective. So in Q4, as mentioned, during investor day as well, our OI dollar will already be back to the 2019 level. So I really expect to cross that 2021% line in the next few years. While we drive a new business innovation price, the advantage of the new organization as well with the focus on sales and service and leverage as well digital technology as we've done over the past few years.

Volume is the most important driver obviously, so for us and our Q3 happened pretty much as expected we can talk about rounding.

You see here, but we're in positive territory, which is good and if we exclude Europe, which is the most difficult place in terms of volume we are at plus 1% already and I feel.

Christophe Beck: So of all the opportunities we have in front of us, all the challenges that we might be facing, I think institutional is going to be probably one of the best promises that we have had of us.

Confident that in Q4, we will have a 1% volume growth overall for the company. So when you look at the trajectory that we are having on volume, especially resolved the pricing that we've done.

Seth Weber: Our next question comes from the line of Seth Weber with Wells Fargo. Let me just use your question. All right. Thanks. Good morning. You mentioned a few times in the slides and the release and your comments just about new business wins.

Over the past use and in a market that's not exactly booming right now.

I feel really good with what we're doing where we heading and to your point. So for 24, while it's the best way, we can close the year with good volume momentum in order to start 24 in whatever environment, we're going to find with a company that is having good sales momentum, which is our number one priority as a company right now.

Christophe Beck: I'm just, you know, can you talk to the selling environment, you know, your sort of traction with new wins and how we should think about new ads going forward. Thank you. Thank you, Seth. Well, selling new business is what we best add and what we like the most doing. So we shift to offense over the past few quarters is delivering results because our team is really focused on driving your business with our customers.

Our next question is from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi.

Congratulations on a nice quarter here.

Just in terms of the healthcare and life Sciences business I'm curious.

Christophe Beck: In more difficult environment and it's always been the case at E. Colab, well, our customers are looking for ways to improve the operating performance, which is what we've always done for them and that they need the most right now. So they're very receptive to what we can do as well for them. At the same time, we're bringing as well all the offerings from the company, especially water and hygiene in industrial segments.

If we saw any of the benefits from some of the changes that you're making on the healthcare side of that business already in Q3 or are those actions still to come and then just curious on the one time, 6% sales benefit.

Christophe Beck: But also in institutional, which are very well received by our customers and we have innovation as well, which has made a step change over the last few years, which are addressing customer challenges or opportunities that they have. So all in the team focused on what they truly like with the right tools, right innovation, right new products and customers that are open to what we can do for them, speak improving the operating performance. Ultimately, that's all driving better performance in terms of new business, which is really. Very good.

Did that also help margins come in higher or was that kind of an average incremental margin contribution.

Hey, Thank you for the nice comment Mike is three comments.

On your question so focused on the health care life Science, I know that they all combine your busy but two very different stories.

As we know so first if we saw some results of the organizational changes in Q3. The short answer is yes, but it's early I've been really impressed with how the team has executed this bifurcation.

Truly leveraging.

The market strength the breadth the critical mass of institutional both in terms of selling to new customers or existing institution customers to health care portfolio and at the same time getting the costs down. The team has moved very fast very well and I'm really pleased with where we are right now.

Josh Spector: Our next question comes from the line of Josh Spector with UBS. Please see with your question. Yeah, hey, Christophe, but a question along the similar lines and particularly just related with this volume expectations. I mean, you were pretty confident a couple months ago that you were going to deliver positive volume for 3Q. I guess it rounds down to zero or maybe cladish with the best way described how that came in. You're talking about positive volumes in fourth quarter.

But that being said, it's very early in the process.

It's going to leverage as well or lead to better results in the quarters to come there's still a lot of work that remains but I like the progression it's going to be.

Always better so as we move forward now the last point.

Josh Spector: I guess, I don't know, the 3Q change versus your expectations of where it would come in and the backlog combined with or the new wins combined with base earnings. I guess, how do you envision volume moving into early next year? Thanks. Yeah, volume is the most important driver of use is so for us and a Q3 happened pretty much as expected. We can talk about rounding obviously here, but we were in positive directory, which is good.

<unk>.

One time sale.

Was related to a contractual commitment that we had to deliver so by the end of the third quarter.

If you strip that out.

Healthcare had kind of low single.

Type of growth, which is better than in the past, but probably what we're going to see saw in the next immediate quarters until we can truly accelerate by leveraging the power of institution, but overall I like the progress that we're making on health care, but let me be very clear so I've not been happy.

Josh Spector: And if we exclude Europe, which is the most difficult place in terms of volume, we are at plus 1% already. And I feel confident that in Q4, we will have a 1% volume growth overall. So for the company, so when I look at the trajectory that we having on volume, especially with all the pricing that we've done over the past years and in the market that not exactly booming right now.

So with the performance of <unk> for many years I'm really happy with what the team is doing now in terms of transformation earlier results moisture.

And more work is also required to get to the place that we all want to be with that business.

Christophe Beck: I feel really good with what we're doing, where we're heading, and to your point, so for 24, while it's the best way we can close the Europe with good volume momentum in order to start 24 in whatever environment we're going to find with the company that's having good sales momentum, which is our number one priority as a company right now.

The next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you and very nice quarter Christophe and team.

Just on the delivered product costs. They came in below your expectations or better than your expectations, what drove that and what are your expectations for Q4.

Mike Harrison: Our next questions are in the line of Mike Harrison with seaport research partners. Please just use your question. Hi, congratulations on a nice quarter here. Just in terms of the healthcare and life sciences business, I'm curious. If we saw any of the benefits from some of the changes that you're making on the healthcare side of that business already in Q3. Or are those actions still to come and then just curious on the one time 6% sales benefit. Did that also help margins come in higher or was that kind of an average incremental margin contribution. Thank you for your nice comment Mike.

So DPC you delivered product cost was roughly 3% down.

Versus last year.

A little bit better than what we had expected it is always a very.

Broad mixed bag as you know so we have 10000 raw materials that we buy so they didn't all going the same direction. Obviously, so some easing on the market at the same time.

Our supply chain team speak procurement team did also some remarkable work as well as our partners suppliers. So broad bowls together led to 3%.

Using.

Versus last year, keeping in mind that our cost of $2, 40% higher than where they used to be.

Christophe Beck: Three comments on a new question. So focused on healthcare, not life science. I know that they're all combined, obviously, but two very different stories as we know. So first, if we saw some results of the organizational changes in Q3, the short answer is yes, but it's early. I've been really impressed with how the team has executed this bifurcation truly leveraging the market strengths, the breadth, the critical mass of institutional both in terms of selling to new customers or existing institutional customers, the healthcare portfolio.

Inflation, that's important to keep in mind I expect kind of the same type of cost. So for Q4, so kind of a similar.

<unk> versus the prior year and I expect basically so those costs to stay similar.

In the quarters to come which will mean, so the slight easing.

<unk> 23, when we talk about 24, so I'm not banking on a big improvement in the quarters to come and if they come well, we will all benefit from them.

Thank you.

Christophe Beck: And at the same time, getting the costs down, the team has moved very fast, very well. And I'm really pleased with where we are right now, but that being said, it's very early in the process. So it's going to leverage as well or lead to better results in the quarters to come. There's still a lot of work that remains, but I like the progression. It's going to be always better as we move forward.

The next question is from the line of.

Jeff Zekauskas with Jpmorgan. Please proceed with your question.

Thanks very much.

Ecolab buys its raw materials, sometimes monthly sometimes quarterly sometimes annually.

So raw materials have moved down through the course of the year, but it may be that the time the timing.

Of your contractual agreements.

Christophe Beck: Now, the last point on the one time sale was related, so to contractual commitment that we had to deliver. So by the end of the third quarter, if you stripped that out, healthcare had kind of low single type of growth, which is better than in the past, but probably what we're going to see. So in the next immediate quarters until we can truly accelerate by leveraging. The power of institution, but overall, I like the progress that we making on healthcare, but let me be very clear, so I've not been happy so with the performance of healthcare for many years.

Has slowed the benefits for ecolab.

Can you talk about.

How you purchase your raw materials in terms of the way raw materials or re priced that is should we expect different increment.

Incremental changes.

On a six month basis, or a three month basis or an annual basis.

Well.

I have two ways to answer your question so in a complicated way or in a simple way.

Jeff So I'll go for the simple way Youll.

Youre right that depending on the raw materials, it's monthly some quarterly some annually.

Christophe Beck: I'm really happy with what the team is doing now in terms of transformation, earlier results, more is to come and more work is also required to get to the place that we all want to be with that, from the business.

With different types of contractual agreements I think we have a very good team we have the new leadership as well who is doing an exceptional work by the way so on on procurement.

David Begleiter: The next question is from the line of David Begleiter with Deutsche Mck, who's here with your question. Thank you, and very nice quarter, Christophe and team. Thank you, David. Just on the deliverer costs, they came in below your expectations or bedding your expectations. What drove that, and what are your expectations for Q4? So, DPC or delivered product cost was roughly 3% down versus last year, a little bit better than what we had expected.

The short way to.

To explain it is usually we have a two or three quarters' lag between so the market to market price changes up or down.

By the way that impact two or three quarters down the road our P&L. That's the rule of thumb that I'm using and that you should be using as well.

Our next question's from the line of John Mcnulty with BMO capital markets. Please proceed with your question.

Yes. Thanks for taking my question. So the industrial business I guess I was a little surprised not to see a little bit better margin lift just given that you have gotten some good pricing there in the raw materials. It does look like are starting to come off. So I guess, one can you help us to think about what the volumes were there and then.

David Begleiter: It's always a very broad mixed bag, as you know, so we have 10,000 raw materials that we buy, so they didn't all go in the same direction obviously. So, some easing on the market, at the same time, our supply chain team, speak procurement team, did also some remarkable work as well with our partners suppliers. So, brought both together led to these 3% easing versus last year, keeping in mind that our cost of still 40% higher than where they used to be, preinflation, that's important to keep in mind.

Do you feel like we're at a bottom in terms of the volumes for that business and maybe we start to see things level off a bit.

Theyre more more to kind of think about in terms of concerns going forward, how would you frame that.

John well industrial as you know a very good place actually but I'd like to ask Scott maybe you start to give some perspective on our margins evolution, yes happy to Christophe so.

David Begleiter: I expect kind of the same type of cost for Q4, so kind of a similar easing versus the prior year, and I expect basically so those costs to stay similar in the quarters to come, which will mean so the slight easing versus 23 when we talk about 24. So, I'm not banking on big improvement in the quarters to come, and if they come, well, we will all benefit from them.

As you're referring to the industrial why growth was at 8%.

But the growth rates are really impacted by a couple of things certainly there is a base comparison to last year. If you look at this on a two year basis that that business is improving and then also as we spoke to on the SG&A, they're impacted by the incentive comp given the strong performance they've had in the year, but overall in that business as Christoph said, a reference that the strong pricing.

Unknown Attendee: Thank you.

<unk> that we delivered this year, we continue to add new pricing and now as we start to see that DPC.

Jeff Stokakis: The next question is from the line of Jeff Stokakis with JP Morgan. Please excuse your question. Thanks very much. Equal lab buys its raw materials sometimes monthly, sometimes quarterly, sometimes annually. So raw materials have moved down through the course of the year, but it may be that the timing of your contractual agreements has slowed the benefits for equal lab. Can you talk about how you purchase your raw materials in terms of the way raw materials are reprised?

<unk> modestly and they were certainly the biggest impacted by that but on a dollar basis that Oi really remains very strong and we will continue to prove out these levels, but really as Christophe mentioned the opening expect that the growth returned to double digit oi growth in the fourth quarter and Youll see the marginal impact on that as well.

As mentioned earlier on John I like a lot the performance.

Industrial for the past few years and thats going to be even more true in the years to come if you strip out that.

Incentive based compensation, so the oi growth would be in the upper teens, which.

What are you going to see in the fourth quarter as well. So it was kind of a one quarter story underlying performance is very strong.

Jeff Stokakis: That is, should we expect different incremental changes on a six-month basis or a three-month basis or an annual basis? Well, I have two ways to answer your question. So in a complicated way or in a simple way, Jeff, so I'll go for the simple way. You're right that depending on the raw materials, it's monthly, some quarterly, some annually, with different types of contractual agreements. I think we have a very good team. We have a new leadership as well who is doing an exceptional work, by the way, so on procurement.

Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Thank you just two pilot Christophe so.

In the pricing Firstly I think.

In terms of what you already have in case. It is all too I think you get mid single digit pricing next year, but just curious on how you feel like you could keep pushing the pricing dynamic and then just a quick follow up with the new sales pipeline that really confident on lake.

How big is that the perspective like how much of.

Volume headwinds can that offsets.

Christophe Beck: The short way to explain it is usually we have a two or three quarters lag between, so the market to market price changes up or down, by the way, that impact two or three quarters down the road, our P&L. That's the rule of some that I'm using and that you should be using, as well.

Great question.

So they are related obviously, but the first one pricing dynamics.

If we think about.

Our pricing so going up retention.

Has remained very stable customer retention and at the same time, so volume accelerating so he's basically showing that.

Our balance of pricing and volume exploration.

John Mcnulty: Our next question to the line of John McNulty with BMW Capital Markets. Please excuse your question. Yeah, thanks for taking my question. So the industrial business, I guess I was a little surprised and not see a little bit better margin lift just given that you have gotten some good pricing there and the raw materials does look like are starting to come off. So I guess can one, can you help us to think about what the volumes were there.

Is he is going quite well and I am keeping a very close eye on.

On that because we keeping customers for life.

John Mcnulty: And then do you feel like we're at a bottom in terms of the volumes for that business. And maybe we start to see things level off a bit. Where is there more more to kind of think about in terms of concerns going forward? How would you frame that? Thank you, John.

We're a company and I want to make absolutely sure we do that the right way for our customers and for our company so about online.

Unlike the pricing that we've had so far when I look at.

What's going to happen in the next few quarters. So in Q4.

The carryover from last year by definition is going to get close to zero, obviously since it's going to be annualizing saw over the 12 months new pricing is quite good actually so I'm, especially pleased with the new pricing, we have which we will have obviously in Q4 and into <unk>.

Scott Kirkland: Well, industrial is in a very good place. Actually, but I'd like to ask God maybe so to give some perspective on a margins evolution. Yeah, happy to Christoff. So yeah, as you're referring to the industrial Y growth was at 8%. But the growth rates are really impacted by a couple things. Certainly there's a base comparison to last year. If you look at this on a two year basis that that business is improving and then also as we spoke to on the SNA, they're impacted by the incentive comp given the strong performance they've had in the year.

For it to be early so to go too much in detail, but we're going to be pleased with the pricing that we have while we keep accelerating.

As well as the volumes are really keeping bowls.

Very good place now to your question on the net new business.

Business.

You know so we're not reporting.

The dollar value of the growth, but we are really so reaching record levels on a quarterly and annual basis as well as new business. Our team is 80% focused.

Scott Kirkland: But overall that business is Christoff's sort of reference that the strong pricing that we delivered this year, we continue to add new pricing. And now as we start to see that DPC easing modestly and there was certainly the biggest impact by that. But on a dollar basis that OI really remains very strong and think we'll continue to prove off these levels. But really as Christoff mentioned the opening expect that the growth return to double digit OI growth in the fourth quarter.

On your business, it's where we good at what we like doing as mentioned before and those good results ultimately are compensating for the softening of the demand globally out there from all our customers. So if our volume is accelerating its all related to our new business.

Scott Kirkland: And you'll see the marginal impact on that as well. Yeah, as mentioned early on, John, I like a lot the performance of industrial for the past few years. And that's going to be even more true in the years to come. If you strip out that incentive based compensation so that the OI growth would be in the upper teens, which is what you're going to see in the fourth quarter as well. So it was kind of a one quarter story underlying performance very strong.

The next question is from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Hi, good afternoon, and thank you for taking my question, Hey, Christophe only get back to a question was asked earlier in terms of the volume it sounds like after three quarters of negative volumes, you're starting to get into the <unk>.

Positive territory.

Just go into <unk>.

Some of that.

<unk> categories over there what volumes are increasing in which volumes are decreasing.

Unknown Attendee: Our next question comes from a line of my mouth with Barclays. Please excuse your questions. Thank you.

You mentioned, a little bit about geography, but maybe you could talk a little bit just by business unit.

Manav Patnaik: Just a two part of Christoff. So, you know, in the pricing firstly, I think, you know, in terms of what you already haven't basically rolled through, I think you get missing the pricing next year, but just curious on how you feel like you could keep pushing the pricing dynamic. And then just a quick follow up was, you know, the new sales pipeline that you're really confident on, like, how big is that perspective? Like, how much of a volume headwind can that offset?

What's going on in various areas of industrial obviously paper is down but.

What are the standout areas, where you might have accelerating volumes in versus the ones which are shrinking.

How we should think of that going into next year with some of the softening end markets.

Yes, so to give you a simple answer so the once that are on the soft side.

Paper you mentioned it in Europe is the second one so those are the two everything else is trending in.

Christophe Beck: Great question. Man, I'm sorry, they're related, obviously, but the first one pricing dynamics, if we think about our pricing, so going up retention has remained very stable customer retention. And at the same time, so volume accelerating. So it's basically showing that our balance of pricing and volume acceleration is going quite well. And I'm keeping a very close eye on that because we're keeping customers for lights in our company. And I want to make absolute issue.

In either positive direction or improve the erection.

If they were on the negative side I'm, especially pleased Mr. Ians, so institutional specialty improvements and water. He is going to keep improving as well so those two key businesses.

I was going to be good in the quarters to come at least.

What we seeing as well right now so we have pest elimination as well, which is always a bit of a different volume play as we know that's doing exceptionally well.

Christophe Beck: We do that the right way for our customers and for our company. So, but online, I'll like the pricing that we've had so far when I look at what's going to happen in the next few quarters. So in Q4, the carryover from last year by definition is going to get close to zero, obviously, since it's going to be annualizing. So all of the 12 months new pricing is quite good, actually. So especially please, Mr. new pricing we have, which we will have obviously in Q4 and in 2024, it's a bit early. So to go too much in details, but we're going to be pleased with the pricing that we have while we keep accelerating as well, the volumes are really keeping both in a very good place.

We know that competition has a lot to do with themselves by the way, it's providing us an opening for us to gain share as well and our team is doing an excellent job in pest elimination, where we saw growth really steady strong and margins as well at the same time, so keeping <unk>.

So overall our business in a very healthy place.

A few places where we need to work on as mentioned saw Europe.

And.

Paper, but to the point of Europe, I'd like to mention as well that margin improvement has been great. So volume challenged.

And in Europe.

We know, but okay, not great and when I think about our operating income almost doubled in Europe in the third quarter. So the team has done some really good work.

Christophe Beck: Now to your question on the net new business, as you know, so we're not reporting the dollar value of the growth, but we are really so reaching record levels on a quarterly and annual basis as well of new business. Our team is 80% focused on your business. It's where we good at what we like doing, as mentioned before. And those good results ultimately are compensating for the softening of the demand globally out there from all our customers. So if our volume is accelerating, it's all related to our new business.

Our next question is from the line of Andy Wittman with Robert W. Baird. Please proceed with your question.

Oh, great. Thanks for taking my question guys I guess, maybe Scott probably for you.

I was just looking at the adjustments the results I noticed that there was $26 million of restructuring.

And the total <unk>.

Exclusions for 13.

For the quarter, you talked about last quarter expectation of five.

And actually the guidance for fourth quarter pre.

Pre tax around $30 million by my calculations.

Shlomo Rosenbaum: And the next question is in the line of Shlomo Rosenbaum. Let's see if you have your question. Hi, good afternoon. Thank you for taking my question. Christophe, I want to get back to a question I was asked earlier in terms of the volume and sounds like after three quarters of negative volumes, you're starting to get into the positive territory. What are increasing in which volumes are decreasing? You mentioned a little bit about geography, but maybe you could talk a little bit just by like business unit, what's going on in various areas of industrial, obviously paper is down, but what are the standout areas where you might have accelerating volumes and versus the ones which are shrinking. And how we should think of that going into next year with some of the softening and markets.

I guess could you just talk about.

What the restructuring actions were in the quarter and the quarter ahead.

Maybe which segments geographies.

And are these.

As another restructuring program that you've taken in the past forming here.

Or can you just maybe talk about some of the operational effects of what you've achieved and they are trying to achieve.

Certainly Andy I'm happy to do that thanks for the question, yes. So if we look at Q3.

The special charges restructuring was higher than we had guided to but thats really due to the timing of the phasing of our combined savings program that we had announced earlier. This year. That's really focus your question on where are we focused on it. This is really targeted around institutional and health care and as well as Europe. It started in the end of last year and then we.

Added onto it earlier this year and Thats, what really drove it but really around the timing, but still expected.

Christophe Beck: Yeah, so to give you a simple answer. So the ones that are on the soft side, paper you mentioned it and Europe is the second one. So those are the two. Everything else is trending in either positive direction or improve the direction if they were on the negative side. And especially please with the INS institutional specialty improvements and water is going to keep improving as well. So those two key businesses are going to be good in the quarters to come at least with what we're seeing as well right now.

I've talked about in previous calls that about of that program about 90% of those costs are going to be done by the end of next year, Okay, and so there'll be a little bit of a tail.

Going into the <unk>.

24, but really then if you look at that as Christophe talked before we're seeing the benefits in healthcare from the program there, but we're also seeing great improvement in the institutional businesses and that's where it was really focused and then as we talked about the end of last year. The actions taken against Europe, and Christophe mentioned that we're seeing really great margin improvement.

Europe as well so I think the actions that we're taking are having the benefits we expected.

Christophe Beck: So we have past elimination as well, which is always a bit of a different volume play as we know that's doing exceptionally well. We know that competition has a lot to do with themselves, by the way, it's providing us an opening for us to gain share as well. And our team is doing an excellent job in best elimination where we see our growth really steady, strong and margins as well at the same time.

We add a few comments here.

So totally support what Scott just said, obviously and really happy that most of the combined programs are coming to a close by the end of this year, which was the plan so delivered as expected as well at the same time.

Note that digital technology artificial intelligence. So we'll open some new productivity opportunity so for us in the future there's nothing clear.

Christophe Beck: So keeping improving. So overall our business in a very healthy place with a few places where we need to work on as mentioned. So Europe and paper, but to the point of Europe, I'd like to mention as well that margin improvement has been great. So volume challenged in Europe as we know, but okay, not great. And when I think about our operating income, it almost doubled in Europe in the third quarter. So the team has done some really good work.

Our plans right now, but we will keep looking at that and if there is an opportunity to improve significantly our productivity through technology.

In the quarters and years to come we will certainly capture them and discuss that with you.

Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.

Yes, Thank you Chris.

Christoph I'd like to hear your view or maybe ranking.

Among your four key product areas water hygiene energy in past with respect to potential share gains.

Andy Whitman: Our next questions from the line of Andy Whitman with Robert W. Baird. Please excuse your questions. Oh, great. Thanks for taking my question guys. I guess maybe it's got probably for you. I was just looking at the adjustments, the results. I noticed that there was $26 million of restructuring or in the total exclusions were 13 cents for the quarter. You talked about last quarter expectation of five. And actually the guidance for fourth quarter is pretax around $30 million by my calculations or nine cents.

Would you expect your SG&A to increase over time commensurate with revenue growth or do you do you see a pathway to perhaps reduce that 47000 head count in a way that.

Either utilized just as your digital approach or whatever to be more efficient and help you reach that 20% operating margin goal.

Maybe two questions.

In your question here, Steve So first in terms of share.

Scott Kirkland: I guess could you just talk about what the restructuring actions were in the quarter and the quarter ahead. Maybe what segments, geographies, and are these is another restructuring program that you've taken the past forming here? Or can you just maybe talk about some of the operational effects of what you've achieved and are trying to achieve? Yeah, certainly Andy. Happy to do that. Thanks for the question. Yeah, so if we look at Q3, the special charges restructuring was higher than we had gotten to.

Gain we know the consumer good.

Company, sorry to beat a harder to have the exact numbers, obviously here, but directionally when I look at the big ones, So ians up 12% in a flat market.

So thats, obviously, indicating so very interesting so share gains pest elimination.

Double digit when competition is either in the single digit though down for some of them as well thats showing as well so share gain industrial even comparing to a very strong last year.

Scott Kirkland: But that's really due to the timing of the phasing of our combined savings program that we announced earlier this year. That's really focused your question on where we focused on it. This was really targeted around institutional and healthcare. And as well as Europe, it started in the end of last year. And then we added on to it earlier this year. And that's what really drove it, but really around the timing, but still expected as I think I've talked about in previous calls that about of that program, about 90% of those costs are going to be done by the end of next year.

The mid single well PMI in the U S and in the EU.

Is negative so that's also showing so share gain as well and as mentioned so in healthcare. So growing back again is also showing so quite a healthy performance. So overall I like a lot. So how are we progressing.

<unk> our peers in the marketplace now to your question.

Scott Kirkland: And so there will be a little bit of a tale going into the 2024. But really, then if you look at that as Kristoff talked before of what we're seeing the benefits in healthcare from the program there, but we're also seeing great improvement in the institutional businesses. And that's where it was really focused. And then as we talked about the end of last year, the actions taken against Europe and Kristoff mentioned that we're seeing really great margin improvement in Europe as well.

On SG&A as I've shared with you. So in the past I think that ultimately the company is going to be much bigger.

The years to come I don't think that our team is going to be much bigger, but I'm not expecting the teams so to be reduced but it might be in different places and I want to make sure that the number one place where I want to have all the firepower I Ken is in the frontline.

Scott Kirkland: So I think the actions that we're taking are having to benefit this week. He's expected. Let me add a few comments here. So you totally support what Scott just said, obviously, and really happy that most of the combined programs are coming to a close by the end of this year, which was the plan, so delivered as expected as well. At the same time, we know that digital technology, artificial intelligence, so we'll open some new productivity opportunities.

Which means our teams serving.

Our customers, where we will leverage digital and AI technology, not only to improve productivity to help them.

So if more customers sell more solutions, but more importantly spend way more time in creating value for our customers, which drives obviously, so value for our customers, which drives new business, which drives pricing and ultimately so.

Scott Kirkland: So for us in the future, there's nothing clear. In our plans right now, but we will keep looking at that. And if there is an opportunity to improve significantly our productivity through technology in the quarters and years to come, we will certainly capture them and discuss that with you.

Improves our margin so the way I think about SG&A in ratio, it's going to keep going down.

The years to come but ultimately I'll make sure as well that through digital technology, we increase the impact of our frontline with our customers, which has been core to this company for the years past two.

Steve Bern: Next question from the line of Steve Bern with Bank of America. This is your question. Yes, thank you. Christophe, I'd like to hear your view or maybe ranking among your four key product areas, water hygiene, energy and pest with respect to potential share gains. And would you expect your SGNA to increase over time, commensurate with revenue growth, or do you, do you see a pathway to perhaps reduce that 47,000 headcount in a way that, you know, either utilize just as your digital approach or whatever to be more efficient and help you reach that 20% operating margin goal?

Thank you. Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.

Hi, good afternoon on the life Sciences business.

Should we think about new business growth and investment into next year, given some of the persistent near term weakness sort of juxtapose with the long term growth opportunity and margin expansion that you highlighted in your Investor day.

Yeah.

So Patrick so on life science.

Seen some improvement which is good.

In the third quarter in a market, that's generally down and I see that so as a short term.

In fact in the industry, it's an industry. So pharma biotech that is very promising so for the future.

Christophe Beck: There may be two questions in your question here, Steve. So first, in terms of share gain, we know to consume a good company, so it's a bit harder to have the exact numbers obviously here. But directionally, when I look at the big ones, so INS, up 12% in a flat market, so that's obviously indicating so very interesting, so share gains. This pest elimination up double digit when competition is either in the single digit or down for some of them as well, what that's showing as well, so share gain.

A few challenging times for a few quarters, we'll see how many more quarters, that's going to last for the industry out there, but I'm very bullish.

Where the industry.

As a whole is going.

In the in the years to come now when it comes to our own.

Performance was the fact that we have positive growth.

He is also.

Sign of the new business that we generating.

The share that we're gaining as well so versus our competition and it's in that time.

Christophe Beck: Industrial even comparing to a very strong last year in the mid single, well, PMI in the US and in the EU is negative, so that's also showing so share gain as well. And as mentioned, so in health care, so growing back again is also showing so quite a healthy performance. So overall, I like a lot, so how are we progressing versus our peers in the marketplace.

That ecolab, usually focus is the most in investing so for the future and as I've shared during Investor day, while we're investing in capacity, making sure that we will have enough production capacity. So for the years to come to deliver our growth and not just in one location, but in several locations.

Patients in Asia in Europe, and in North America and at the same time. It's also building capabilities building our team. It's building expertise, it's building science and R&D.

Christophe Beck: Now, do you question on SGNA as I've shared with you saw in the past, I think that ultimately the company is going to be much bigger in the years to come. I don't think that our team is going to be much bigger, but I'm not expecting the team so to be reduced, but it might be in different places. And I want to make sure that the number one place where I want to have all the firepower I can is in the front line, which means our team serving our customers, where we will leverage digital NAI technology, not only to improve productivity, to help them serve more customers, sell more solutions, but more importantly, spend way more time in creating value for our customers, which drives obviously so value for our customers, which drives your business, which drives pricing, and ultimately so improves our margins.

Well at the same time.

If the market is a bit different short term than what we had expected a year or two ago, our investment plans havent changed because for me. The future is totally unchanged. It's just a short term impact that the market is having.

On everyone's performance.

The next question's from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.

Yes, good afternoon Kristina.

Christophe I'd welcome your updated thoughts on the health care business I guess in terms of operations would you expect that business to grow on par with your corporate average next year or two.

Better or worse, and then on the strategic side I think you've now separated infection prevention from surgical and maybe you can kind of talk through.

Christophe Beck: So the way I think about SGNA in ratio, it's going to keep going down the years to come, but ultimately I'll make sure as well that through digital technology, we increase the impact of our front line with our customers, which has been core to this company for the years past.

What you're seeing in terms of.

Incremental benefits from that in the early days as it relates to <unk>.

Customer.

Touches and productivity and alike.

Yeah. Thank you, Kevin So three things, firstly bifurcation infection prevention and surgical as mentioned earlier.

Unknown Attendee: Thank you.

Patrick Cunningham: Our next question is from the line of Patrick Cunningham with City. Please see you with your question. Hi, good afternoon on the light sciences business.

<unk> is progressing very well.

It's really providing the right focus for the surgical business, that's serving different people in a hospital and infection prevention, which is much closer to institutional this is helping obviously so the surgical business and the fact that the infection prevention is now so.

Vincent Andrews: Now, how should we think about, you know, news business growth and investment into next year, given some of the persistent near term weakness, you know, sort of juxtaposed with the long term growth opportunity and margin expansion that you highlighted in your investor day. [inaudible] my objective is to make sure that our healthcare business becomes at least at the average of the company, if not better, but that's going to take some time and some work in order to get Thank you and good afternoon everyone.

Managed by <unk>.

Institutional team well, we get not only saw the reach because they serve way more hospitals for institutional products, obviously than healthcare did well you get immediate synergies from a growth perspective, you get the synergies on the cost side as well because it's a way bigger team than what health care.

As well used to be so in terms of transformation.

Like the progress that's being made now in terms of growth performance.

If I think short term speak 24.

Health care is going to be below average.

The company and more longer term well my objective is to make sure that our healthcare business becomes at least at the average of the company, if not better but thats going to take some time and some work in order to get there.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

And good afternoon, everyone. Just a question for me on inventories.

Just looking at it down.

Mid to high teens year over year, but your volumes kind of flattish and prices up on your delivered product. So I'm just trying to understand.

<unk> are still sort of flattish, what's helping the inventory come down and improve the working capital performance. Okay. Thank you Vincent I am going to pass this one to Scott. Thanks, Vincent would be happy to answer. This so as you probably saw our Q3 working capital was about $250 million favorable versus last year and largely driven by some targeted inventory.

<unk> were down <unk> is down about 10 days so the rate impact on that versus the end of last year, So and thats really been driven by as the supply chain team has driven great supply chain resilience and allowed us to go after and reduce those inventory levels and so I would expect really like the working capital trajectory and expect really.

<unk> free cash flow growth through the balance of the year end.

Frankly expect our free cash flow conversion to be above historical levels, which is tends to be mid <unk> and expect that free cash flow conversion to be above 100%. This year on a full year basis.

Yeah.

Our next question from the line of Rosemarie more belly with Gabelli funds. Please proceed with your question.

Thank you.

Hi.

Congratulations everyone on that great quarter.

Institution.

Any quite well and I was in.

Hello, I was in several hotels recently and the level of cleaning changing sheets towels and salon has come down substantially.

No.

Adjusting your operations too.

Reflect this different 12.

But I was wondering if you could give us.

Little more detail on what Youre doing because if they don't change anything.

Obviously dumped failure electronic services and so on.

Details would be appreciated thanks.

Hey, Thank you I was wondering if this is a core.

Element of focus are between us and our hospitality customers. It was initially driven.

Bye bye shortage.

<unk>.

Of labor that they didn't have to do all of that work.

Which is still.

But at the industry at the same time, while they like the fact that less labor meant as well less cost while pricing. So when up that drove good margins for institutional customers, which ultimately is a good thing for the industry.

And when the industry is doing well, it's a good thing for us as well at the same time that being said.

Quality standards need to get back to where they used to be.

It's exactly playing into what we're doing which is having product that arm.

Delivering better quality better standards, better cleanliness with less labor. So two in one three in one <unk> ultimate dish.

Vincent Andrews: Just a question from me on Inventory, just looking at it down, mid-high teens year-over-year, but your new bonds kind of flatish and prices up on your delivered products. So I'm just trying to understand if rosers are still sort of flatish, what's helping the inventory come down and improve the working capital performance? Thank you, Vincent. I'm going to bust this one, Scott. Thanks, Vincent. We have to answer this. So yeah, as you probably saw, our Q3 working capital was about $250 million, a favorable versus last year, and largely driven by some targeted inventory reductions.

Dish machine laundry floor cleaning whatever those solutions might be as well so for the industry. So we've reoriented really over the last two years, all our innovation towards increasing even more automation level forward customers in order to drive better cleaning less while using.

Less labor and keeping the margins that they used to have so at the end of the day.

Institutional industry Hasnt changed for a long time like 100 years.

That the past few years, it's an industry that has made a step change in terms of leveraging technology more than ever. While this is exactly what we're doing for me.

Vincent Andrews: We're down, DOH is down about 10 days, so the rate impact on that versus the end of last year. So, and that's really been driven by, as the supply chain team has driven great supply chain resilience, and allowed us to go after and reduce those inventory levels. And so I would expect really like the working capital trajectory and expect really strong free cash flow growth through the balance of the year. And frankly, expect our free cash flow conversion to be above historical levels, which tends to be mid-90s, and expect that free cash flow conversion to be above 100% this year on a full-year basis.

It's going to help bring.

Our partnership between us and our customers to a whole new level, helping them perform better and for us leveraging all the innovations that we have to offer so at the end of today, a good news and cleaning is going to improve as well in the whole test that you're going to visit.

Thank you next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.

Rosemarie Morbelli: Our next question is in line of Rosemary Morebelly. Please excuse your question. Thank you for talking soft.

Thanks, very much Christophe could you give us an update it's been I think nearly five years since.

Data centers and animal health.

Christophe Beck: Congratulations, everyone, on that great quarter. Institution did really quite well, and I was in, well, I was in several hotels recently, and the level of cleaning, changing sheets, changing towels and so on has come down substantially. I know you are adjusting your operations to, you know, to reflect this different world, but I was wondering if you could give us a little more details on what you are doing, because if they don't change anything, you obviously don't sell your product services and so on.

<unk> big areas of focus at the company could you speak to growth rates at both and how meaningful they become within their sub segments of industrial.

Well the two are very different.

Obviously, you saw data centers is growing.

Incredible rates.

We not.

Giving some of the detail here, but it.

It's strong and it keeps accelerating so.

North of 30%.

So which is quite remarkable.

See that so with the high Tech companies, obviously saw the usage of cloud is going up exponentially they need way more computing power in places, where there is limited water as well at the same time and there is almost no one out there who can serve them in a way that's increasing.

Christophe Beck: Details would be appreciated, thanks. Thank you Rosemary. This is a core element of focus between us and our hospitality customers. It was initially driven by shortage, obviously, of labor that they didn't have to do all that work, which is still a challenge, but at industry at the same time. Well, they liked the fact that less labor meant as well, less cost, while pricing, so when up, that drove good margins for institutional customers, which ultimately is a good thing for the industry, and when the industry is doing well, it's a good thing for us as well at the same time.

Capacity, reducing water consumption and at the same time.

Making sure that the uptime.

<unk> are close to 100% so quite a challenge from a technology and expertise perspective. This is playing exactly to our strength as a company. That's why having focused on that business, having a dedicated team on it is paying off more than ever and I think that we're at the beginning.

Of that growth journey, which is really good animal health a total different story, obviously since <unk>.

Christophe Beck: That being said, quality standards need to get back to where they used to be. It's exactly playing into what we're doing, which is having products that are delivering better quality, better standards, better cleanliness, with less labor. So it's two in one, it's three in one, it's automated, dish machine, laundry, floor cleaning, whatever those solutions might be as well so for the industry. So we've reoriented really over the last two years, all our innovation towards increasing even more, the automation level for our customers in order to drive better cleanliness, while using less labor and keeping the margins that they used to have.

Problem is there is as the food industry is moving away at least in places where it is.

Being used antibiotics.

Need to have much higher level of hygiene in the farms that are growing.

We saw these animals.

We've been building that.

Over the last few years.

Nothing expand uninsured growth like data centers.

Has been is an even more will be in the future, but that's a business that's.

In a good place, but that you can't compare.

The data center business, but it's a very good complement to our food and beverage business, which is doing really well overall, so I like those focus on investments that we're making in.

Christophe Beck: So at the end of the day, if an institutional industry hadn't changed for a long time, like 100 years, I think that the past few years, it's an industry that has made a step change in terms of led bridging technology more than ever. Well, this is exactly what we're doing for me, it's going to help bring our partnership between us and our customers to a whole new level, helping them perform better and for us leveraging all the innovations that we have to offer.

In those industries, but they are very different from each other.

Okay.

Thank you.

Next question is from the line of Josh Spector with UBS. Please proceed with your question.

Yes, hi, Thanks for taking my follow up I guess, two quick ones, probably both here Scott.

When you look at SG&A, so flat in the fourth quarter, if I think about normal seasonality and what that means for next year extrapolating that gets me to like four four to $4 $5 billion or another 10% increase I guess is that the right way to think about it or would you expect it to move differently than that.

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Scott Schneeberger: Thank you. The next question is from the land of Scott Schneeberger, Papa Heimer. Please see other questions.

About $1 billion plus in debt due in the next couple of quarters pretty low coupon or you're looking to pay that off or when you roll that thanks.

Christophe Beck: Thanks very much. Christophe, could you give us an update? It's been, I think, nearly five years since data centers and animal health became big areas of focus at the company. Could you speak to growth rates at both and how meaningful they've become within their sub-segments of industrial?

Yes, Josh.

Handle the two follow ups. The first one on the debt and where we sit today.

<unk> strong liquidity as you saw on the free cash flows for the third quarter and the expectation for the full year and we ended the third quarter with a around about $1 billion of cash and so where we sit today and my expectation would be we would pay down both maturities due in December and January it combined is little over 1 billion.

Christophe Beck: Thanks. Well, the two are very different, obviously. So data centers is growing at incredible rates. We're not giving so the detail here, but it's strong and it keeps accelerating. So it's, it's not of 30 percent. So which is quite remarkable. You see that. So with the high tech companies, obviously, so the usage of cloud is going up exponentially. They need way more computing power in places where there is limited water as well at the same time.

Christophe Beck: And there's almost no one out there who can serve them in a way that's increasing capacity, reducing water consumption. And at the same time, making sure that the uptime remains close to 100 percent. So quite a challenge from a technology and expertise perspective. This is playing exactly up to our strengths as a company. That's why having focused on that business, having a dedicated team on 80s paying off more than ever. And I think that we are the beginning of that gross journey, which is really good.

So expectation there again long term focus on capital allocation remains the same but obviously in the short term are very <unk>.

Committed to deleveraging and on a good path to do that way at the end of the third quarter, our leverage ratios are about two and a half and feel very good by the end of next year to get back down to our historical sort of two times range getting back to your SG&A question as we talked about Christophe talked about in the open the Q3.

Dollar was what we expected I expect similar levels in Q4, as you talked about the year over year really largely driven by this incentive compensation and so.

And in that as well if you look at Q3 had a tougher comp low incentive compensation last year, but that underlying productivity remains really strong.

Just for perspective on that the SG&A as Christophe talked about we will continue to grow this business, but needing less people and actually in the third quarter, our head count year over year was down on SG&A, 2% and so our sales per head was up about 7% so showing that good productivity and I would expect it's early to sort of.

Talk about 2024, but we will expect to continue to drive great productivity next year, leveraging the technology that we've continued to deploy and really increasing the time that our sales team spent on creating customer value.

Christophe Beck: Animal health, a total different story. Obviously, since the promise there is as the food industry is moving away, at least in places where it's still being used antibiotics, while you need to have much higher level of hygiene in the farms that are growing, obviously, so these animals. We've been building that over the last few years. It's not an exponential growth like data centers has been is and even more will be in the future.

Two points.

To build on what you just said Scott.

On SG&A, it's 100% under our control.

We've demonstrated so for years that we drive productivity the right way, it's not by squeezing cost it's by automating our operations and focusing our teams on creating value with our customers. So I completely expect that in the years to come through technology through digital through AI, we will.

Christophe Beck: But that's a business that's in a good place, but that you can't compare with the data center business. But it's a very good compliment to our food and beverage business, which is doing really well overall. So I like those focus and investments that we're making in those industries, but they're very different from each other.

Keep on that journey and feel really confident about that and the point.

Josh Spector: Thank you.

On cash flow and debt speak balance sheet for me in those times, having a very strong balance sheet not only has been true for us for many many years, it's especially true too.

Today's so getting our working capital so as tight as it can be getting our cash flow are strong as it can be through volume new business pricing and all of that business.

Scott Kirkland: Our next question is from the live Josh Specter with UBS. Please hear your question. Yeah, hi, thanks for taking my follow up. I guess two quick ones, probably both are Scott is we're going to look at SGNA so flat into fourth quarter. If I think about normal seasonality, what that means for next year, extrapolating that gets me to like 4.4 to 4.5 billion or another 10% increase. I guess is that the right way to think about it?

Z so generated.

Is absolutely essential so on the two sides keep.

Keep looking for good progression bolt on SG&A productivity and the strengthening of the balance sheet.

Yeah.

Thank you Mr. Hedberg there are no further questions at this time I'd like to turn the floor back over to you for closing remarks. Thank.

Scott Kirkland: Or would you expect it to move differently than that? And this second, you have about a billion plus and debt due in the next couple quarters. Pretty little coupon. Are you looking to pay that offer? Would you roll that? Yeah, Josh. I'll handle the two follow ups. The first one on the debt and where we sit today have strong liquidity. As you saw on the free cash flows for the third quarter and the expectation for the full year.

Thank you that wraps up our third quarter Conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time and participation and hope everyone has a great rest of your day.

Thank you ladies and gentlemen, thank you for your participation. This does conclude today's teleconference and you may now disconnect your lines and have a wonderful day.

Scott Kirkland: And we ended the third quarter with around about a billion dollars of cash. And so where we sit today, my expectation would be we'd pay down both maturities due in December and January if combined is a little over a billion dollars. So expectation there, again, long term focus on capital allocation remains the same, but obviously in the short term are very committed to deleverging. And on a good path to do that, we're at the end of the third quarter, leverage ratios are about two and a half and feel very good by the end of the next year to get back down to our historical sort of two times range.

Scott Kirkland: Getting back to your S&A question, as we talked about and Christophe talked about in the open that the Q3 dollar was what we expected, expect similar levels and Q4s you talked about for the year over year, really largely driven by this incentive compensation. And so, and then as well, if you look at Q3 had a tougher, low incentive compensation last year, but that underlying productivity remains really strong. Just for perspective on that, the S&A is Christophe talked about, we will continue to grow this business, but we're needing less people.

Scott Kirkland: And actually in the third quarter, our head count year over year was down on S&A 2% and saw our sales per head was up about 7%. So showing that good productivity. And I would expect it's early to sort of, you know, talk about 2024, but we'll expect to continue to drive great productivity next year, leveraging the technology that we've continued to deploy and really increase in the time that our sales team spent on creating customer value.

Scott Kirkland: Maybe two points to build on what you just said, Scott, on S&A, it's 100% on our control. We've demonstrated for years that we drive productivity the right way, it's not by squeezing costs, it's by automating our operations and focusing our teams on creating value with our customers. So I completely expect that in the years to come through technology, through digital, through AI, we will keep on that journey and feel really confident about that.

Scott Kirkland: And the point on cash flow and debt speak balance sheet. For me, in those times, having a very strong balance sheet not only has been true for us for many, many years, it's especially true today. So getting our working capital so as tight as it can be getting our cash flow as strong as it can be through volume, new business pricing, and all that business, obviously, so generated is absolutely essential. So on the two sides, keep looking for good progression, both on S&A productivity and the strengthening of the balance sheet. Thank you.

Andy Hedberg: Mr. Hedberg, there are no further questions at this time. I'd like to turn the floor back over to you for closing remarks. Thank you. That wraps up for a third quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time of participation. Hope everyone has a great rest of your day. Thank you. Ladies and gentlemen, thank you for your participation.

Operator: Patience, this does conclude today's teleconference, and we now disconnect your lines, never won.