Q4 2023 Ecolab Inc Earnings Call

Operator: Greetings and welcome to the Ecolab fourth quarter 2023 earnings release conference call. At this time, all participants are in listen-only mode.

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

This time, all participants are in listen only mode.

Operator: The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations. Thank you, Mr. Hedberg.

A 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.

As a reminder, this conference is being recorded.

At this time it is now my pleasure to introduce your host Andy Hedberg, Vice President of Investor Relations. Thank you. Mr. Hedberg, you may now begin.

Andrew John Wittmann: You may now begin. Thank you, and hello everyone, and welcome to Ecolab's fourth quarter conference call. With me today are Christoph 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's results, is available on Ecolab's website at ecolab.com slash investor. Please take a moment to read the cautionary statement in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section of our most recent Form 10-K and in our posted materials.

Andrew Wittman: Hello, everyone and welcome to the Ecolab fourth 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's results are available in ecolab website at Ecolab Dot Com slash investor.

Andrew Wittman: 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 in our posted.

We also refer you to the supplemental diluted earnings per share information in the release with that I'd like to turn the call over to Christophe Beck for his comments.

Andrew John Wittmann: We also refer you to the Supplemental Diluted Earnings Per Share information in the release. With that, I'd like to turn the call over to Christoph Beck for his comments. Thank you so much, Andy, and welcome to everyone on the call. The very strong performance in the fourth quarter capped off a phenomenal year for our campaign, with fourth quarter organic sales growth of 6% and adjusted earnings per share up 22%. I'm so proud of this team because this strong performance underscores the collective hard work and dedication of our entire Ecolab team and reflects our sustained focus over the last few years on driving long-term growth. Right. Despite the unpredictability of macroeconomic conditions, our team drove further value-based pricing while maintaining our strong business momentum. Volumes in the fourth quarter continue to improve, with the positive growth reflecting new business wins that more than offset soft macro demand.

Christopher Evans: Thank you so much India and welcome to everyone on the call the very strong performance in the fourth quarter capped off a fundamental year for our company.

Christopher Evans: We used the fourth quarter organic sales growth of 6% and adjusted earnings per share up 22% I'm. So proud of this team because these strong performance underscores the collective hard work and dedication of our entire ecolab team.

And reflects our sustained focus over the last few years on driving long term growth the right way.

Christopher Evans: Despite the unpredictability of microeconomic conditions, our team drove further value based pricing, while maintaining our strong business momentum.

Christopher Evans: In the fourth quarter continued to improve we showed positive growth, reflecting new business wins than more than offset soft macro demand.

Christoph Beck: Our success is anchored in the value we create for customers by improving their operating performance while also reducing their water and energy consumption. In 2024, our focus remains on continuing to fuel our strong and consistent long-term double-digit earnings per share growth. The highlight for the fourth quarter was the continued and rapid expansion of our gross margin, which increased by 330 basis points, and our organic operating income margin, which increased 200 basis points to 16%.

Christopher Evans: Our success is anchored in the value we create for customers by improving their operating performance, while also reducing their water and energy consumption in.

Christopher Evans: In 2024, our focus remains on continuing do you feel are a strong and consistent long term double digit earnings per share growth the.

Christopher Evans: The highlights for the fourth quarter was the continued and rapid expansion of our gross margin, which increased by 330 basis points and our organic operating income margin, which increased 200 basis points to 16%.

Christoph Beck: This course was led by a 390-basis point increase in the institutional and specialty segment margin as we continue to quickly narrow the gap to this segment's historical 21% operating income margin. The institutional specialty team continues to execute well, driving further value-based pricing and volume growth that accelerated to the mid-single-digit range, reflecting the strong new business. The industrial segment operating income margin increased 220 basis points with notable expansion in each of our water, food, and beverage, and paper business. And other segments operating income margin was up 160 basis points driven by strong best elimination performance once again. As expected, the healthcare and life sciences segment operating income margin eased versus last year.

Christopher Evans: This growth was led by a 390 basis point increase in the institution on specialty segment margin as we continue to quickly narrowed the gap to the segment's historical 21% operating income margin.

Christopher Evans: Institutional and specialty team continues to execute well driving further value based pricing and volume growth accelerated to the mid single digit range, reflecting the strong new business wins.

Christopher Evans: The industrial segment operating income margin increased 220 basis points, which notable expansion in each of our water food and beverage and paper businesses.

Christopher Evans: In other segments operating income margin was up 160 basis points driven by strong pest elimination performance once again.

Christopher Evans: As expected the healthcare and life Sciences segment operating income margin eased versus last year.

Christoph Beck: Healthcare's profitability continued to improve, which is good, reflecting the benefits of separating our North America operations into two focus businesses, as mentioned, infection prevention and surgery. However, Healthcare's income growth was more than offset by comparison to the very strong performance of licenses last year and continued market pressure. Most importantly, operating income dollars for this segment grew sequentially throughout 2023 from the actions we have taken to improve performance, and we expect this growth to continue over the course of 2028. From a sales perspective, our life sciences business drove slightly positive growth in 2023, despite the market being down double digits. And while we continue to expect this market to remain soft for the next few quarters, our ongoing investments in new capabilities and new capacity are enabling us to gain market share in this very attractive, long-term, high-growth, and high-margin market.

Christopher Evans: Profitability continued to improve which is good reflecting the benefits of separating our North America operations into two focused businesses as mentioned infection prevention and surgical.

Christopher Evans: Income growth was more than offset by comparison to the very strong performance of licenses last year and continued market pressures.

Christopher Evans: Most importantly, operating income dollars, but the segment have grown sequentially throughout 2023 from the actions we have taken to improve performance and we expect this growth to continue over the course of 2024.

Christopher Evans: From a sales perspective, our life Sciences business drove slightly positive growth in 2023, despite the market being down double digits.

Christopher Evans: And while we continue to expect this market to remain soft for the next few quarters, our ongoing investments in new capabilities and new capacity, enabling us to gain market share in this very attractive long term high growth and high margin market.

Christoph Beck: Our overall performance highlights the strengths of the Ecolab model as we continue to execute on pricing and drive new business, all backed by delivering leading customer value. Additionally, we've seen some benefits from moderately lower delivered product costs. These costs are still up 35% compared to 2019 levels, but they declined by mid-single digits relative to last year's fourth quarter, a bit more than we had anticipated. We continue to take a prudent stance on the trajectory of delivered product costs.

Christopher Evans: Our overall performance highlights the strength of the economic model as we continue to execute on pricing and driving your business all backed by delivering leading customer value. Additionally, we've seen some benefits from moderately lower delivered product costs discussed are still up 35% compared to 2019 levels, but declined.

Christopher Evans: By mid single digits relative to last years fourth quarter, a bit more than we had anticipated we continue to take a prudent stance on the trajectory of delivered product costs. Therefore, our outlook for 2024 assumes that these costs will remain favorable in the first half of the year and stable in the second half of the year.

Christoph Beck: Therefore, our outlook for 2024 assumes that these costs will remain favorable in the first half of the year and stable in the second half. Although we are very pleased with the margin expansion we have delivered so far, our focus remains on fully recapturing our historical 44% gross margin to reach our 20% OI margin target. Our value-based pricing model and delivered product costs, which are now coming down, further strengthens our conviction in achieving this target over the next few years. Our underlying productivity also remains strong as we continue to leverage our leading digital capabilities. As expected, SG&A expenses remain relatively stable compared to the third quarter.

Christopher Evans: Although we are very pleased with the margin expansion, we have delivered so far our focus remains on fully recapturing our history, a 44% gross margin to reach our 20% Oi margin target.

Christopher Evans: Our value based pricing model and delivered product cost that are now coming down it further strengthened our conviction in achieving these targets over the next few years.

Christopher Evans: Our underlying productivity also remains strong as we continue to leverage our leading digital capabilities as expected SG&A expenses remained relatively stable compared to the third quarter and consistent with previous years, we anticipate a few percentage points sequential increase in SG&A in Q1, but expect to drive further improvements.

Christoph Beck: And consistent with previous years, we anticipate a few percentage point sequential increase in SG&A dollars in Q1 but expect to drive further improvements in our SG&A ratio as the year progresses. We expect 2024 to be another strong year for Ecolab, building on our long-term 12% to 15% earnings growth trajectory that is amplified by shorter-term benefits from lower delivered product costs. For the year, we expect adjusted earnings per share to grow in the 17 to 25 percent range, which assumes soft but stable microeconomic demand and lower delivered product costs in the first half of the year as global inflation eases.

<unk> ratio as the year progresses.

Christopher Evans: We expect 2024 to be another strong year for Ecolab building on our long term, 12% to 15% earnings growth trajectory does is amplified by shorter term benefits from lower delivered product costs for Europe, we expect adjusted earnings per share to grow in the 17% to 25% range, which.

Christopher Evans: Assume soft, but stable microeconomic demand and lower delivered product costs in the first half of the year as global inflation eases with this we expect to maintain our business momentum as we drive further pricing volume growth and continued robust operating income margin expansion.

Christoph Beck: With this, we expect to maintain our business momentum as we drive further pricing, volume growth, and continued robust operating income margin expansion. Looking at the first quarter, the benefit from lower delivered product costs is expected to peak, with costs down high single digits in the quarter, resulting in adjusted earnings per share increasing 44% to 56% versus last. Beyond the first quarter, quarterly adjusted diluted earnings per share growth is expected to progressively normalize towards the upper end of Ecolab's long-term 12-15% target as favorability from lower delivered product costs eases. As always, we will also remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. Most importantly, with the best team, science, and capabilities in the industry, we will continue to grow our share of the stable and high-quality $152 billion market. I believe Ecolab's long-term fundamentals are stronger than ever, and I'm confident in our outlook for continued strong performance as we work to deliver superior shareholder returns. So, thank you for your continued support and investment in Ecolab. I look forward to your questions. Thanks, Christophe.

Christopher Evans: At the first quarter the benefit from lower delivered product costs is expected to peak with costs down high single digits in the quarter, resulting in adjusted earnings per share increasing 44, 56% versus last year beyond the first quarter quarterly adjusted diluted earnings per share growth is expected to progressively nor.

Christopher Evans: <unk> towards the upper end of Ecolab long term, 12% to 15% target as favorability from lower delivered product costs eases as always we will also remain good stewards of capital by continuing to invest in the business, increasing our dividend and returning cash to shareholders. Most importantly, with the best.

Christopher Evans: Science and capabilities in the industry, we will continue to grow our share of the stable and high quality 152 billion market we serve.

Christopher Evans: Daily Ecolab long term fundamentals are stronger than ever and I'm confident in our outlook for continued strong performance as we work to deliver superior shareholder returns. So thank you for your continued support and investment in Ecolab I look forward to your questions.

Andrew John Wittmann: That concludes our formal remarks. Operator, would you please begin the question and answer period? Oh yes, thank you.

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

Speaker Change: Oh, yes. Thank you.

Well now be conducting a question and answer session.

Operator: We will now be conducting a question and answer session. We ask that you please limit yourself to one question for the caller so that others will have a chance to participate. If you'd like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: Ask you please limit yourself to one question per caller, so that others will have a chance to participate.

Speaker Change: If you'd like to ask a question at this time. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker Change: You mean, if I start to feel like to remove your question from the queue.

Speaker Change: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment please poll for questions.

Speaker Change: Thank you. Our first question is from Tim Mulrooney with William Blair. Please proceed with your question.

Operator: One moment, please, while we poll for questions. Thank you. Our first question is from Tim Mulrooney with William Blair. Please proceed with your question. Hey Christoph, good afternoon.

Tim M. Mulrooney: Hey, Christophe good afternoon.

Tim.

Tim M. Mulrooney: If I'm recalling correctly, you guys talked about Europe is kind of being a <unk>.

Tim M. Mulrooney: Drag on growth.

Tim M. Mulrooney: Good afternoon, Tim. If I'm recalling correctly, you guys talked about Europe as kind of being a drag on growth in 2023. Can you talk about how volumes trended in Europe in the fourth quarter and, you know, what volumes for the business overall look like if you were to exclude Europe? Thank you. I love that question, Tim.

Tim M. Mulrooney: In 2023.

Can you talk about how volumes trended in Europe in the fourth quarter.

Tim M. Mulrooney: What volumes for the business overall it looked like if you were to exclude Europe.

Speaker Change: Thank you.

Speaker Change: Look that question Jim Thank you.

Speaker Change: Two parts of your question.

Speaker Change: So let me give you a little bit the picture of the broader convenient than specifically to Europe, which had a lot of good stuff to offer as well at the same time. So as the world is slowing has been slowing over the past few quarters, especially outside the U S, especially in Europe as you mentioned as well.

Christoph Beck: Thank you. Well, there are two parts to your question, obviously here. So let me give you a little bit of a picture of the broader campaign and then specifically Europe, which had a lot of good stuff to offer as well at the same time. So as the world is slowing or has been slowing over the past few quarters, especially outside the US, especially in Europe, as you mentioned. Well, I'm really glad that we shifted to offense, as we shared with you a few quarters ago, because it's really working, as you've seen.

Speaker Change: I'm really glad that we shifted to offense.

As we shared with you a few quarters back because it's really working as you've seen so in the fourth quarter, our volume growth so when.

Speaker Change: One percentage point in Q4 and to your question. If you exclude Europe, our volume growth would be 3% up so quite a bit. So now our job is absolutely to maintain that cruising speed in 2024, as we rebuild margins obviously the right way.

Christoph Beck: So in the fourth quarter, our volume growth went up one percentage point in Q4. And to your question, if you exclude Europe, our volume growth would be 3% up. So quite a bit.

Christoph Beck: So now our job is absolutely to maintain that cruising speed in 2024. As we rebuild margins, obviously the right way, which means in Ecolab speak, in a way that benefits customers by reducing the total operating cost. But to your point on Europe, specifically, yes, it's been a drag on growth since overall company plus one, excluding Europe plus three. Europe has had an exceptional year.

Speaker Change: Which means in ecolab speak in a way that benefits customers by reducing the total operating cost but to your point on Europe.

Speaker Change: Specifically, yes, it's been a drag on growth in overall company plus one excluding Europe plus rate.

Speaker Change: Europe has had an exceptional year in 2023, we reached almost 14% operating income margin, which was our objective when we started the whole transformation in Europe. So good evolution in a very difficult market, where we prioritize really making sure we get the right.

Christoph Beck: In 2023, we reached almost 14% operating income margin, which was our objective when we started the whole transformation in Europe. So, good evolution in a very difficult market, where we prioritized really making sure we get the right margins, the right businesses, the right customers, and invest in the right places. So slight volume decline, very good pricing, and really focused on the right businesses with the right productivity. So a good year in Europe, difficult from a volume perspective, but good for the overall company in Q4. And especially so, the 3% ex-Europe is very good news so far. Transcribed by https://otter.ai. Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. I am pleased to see you with your question. Thanks for taking my question. Just as we think about fiscal year 2024, how should we think about volume growth as well as pricing normalizing in 2024? And congrats on this one. Thank you, Ashish.

Speaker Change: Margins are right businesses, the right customers investing in the right places so slight volume decline very good pricing and really focused on the right businesses. We still right productivity you saw good year in Europe difficult from a volume perspective, but good for the overall company in Q4.

Speaker Change: And especially so the 3% ex Europe is a very good news for us.

Our next question comes from the line of Ashish <unk> with RBC capital markets. Please proceed with your question.

ashish: Thanks for taking my question.

ashish: Just as we think about 15 to 24, how should we think about.

ashish: The volume growth as well as pricing normalizing in 'twenty, four and congrats on the solid quarter.

Speaker Change: Thank you Ashish good question as well so in that environment as described before so with Tim.

Speaker Change: I really expect that to stay.

Speaker Change: On our long term average ecolab growth trajectory.

Ashish Sabadra: Good question as well. So in that environment, as described before, and with Tim, I really expected to stay on our long-term average Ecolab growth trajectory, with what I would say is 2% plus pricing, as I've shared with you as well, and positive volume growth, as we had in the fourth quarter as well. But bottom line, our long-term growth targets remain unchanged. Even in difficult environments, they're going to be a little bit lower than that range.

Speaker Change: What I would say is that 2% plus pricing as I've shared with you as well and positive volume growth as we've had in the fourth quarter as well, but but online our long term growth targets remain unchanged.

Speaker Change: Even in difficult environments. It is going to be a little bit lower than that range. So for 2024, where we prorate ties obviously getting the right value pricing why keeping driving growth as we did in Q4 and that will help us deliver a very good year in 'twenty four.

Christoph Beck: So for 2024, where we prioritize obviously getting the right value pricing while keeping driving growth as we did in Q4, and that will help us deliver a very good year in 2020. Our next question is from the line of Seth Weber with Wells Fargo. Please issue your question. Hi, you guys. Good morning.

Speaker Change: Our next question is from the line of Seth Weber with Wells Fargo. Please proceed with your question.

Seth Weber: Hi, guys. Good morning, maybe just if I could just clarify Christoph that last comment.

Seth Weber: As pricing, 2% in 2024 is that is that what you said and then my bigger question is I was trying to disaggregate. The five points of pricing that you got in the fourth quarter, how much of that is new versus versus carryover, which I guess is ultimately kind of the same question, but.

Seth Weber: Maybe just if I could just clarify, Christoph, that that last comment, you, is pricing 2% in 2024? Is that what you said? And then my bigger question is, I was trying to disaggregate the five points of pricing that you got in the fourth quarter. How much of that is new versus carryover, which I guess is, you know, ultimately kind of the same question, but I just want to make sure I understood your answer to the prior question about pricing for 2024. Yeah, a few elements to unpack here. So the 5% in Q4 was all new pricing realized in 2023. There was no carryover from the previous years in the fourth quarter, which was a remarkable accomplishment.

Speaker Change: Just wanted to make sure I understood your answer to the prior question about pricing for 2024.

Speaker Change: Yeah, a few elements that you unpack here. So the 5% in Q4 was all new pricing realized in 'twenty three there was no carryover any more from the previous years.

Speaker Change: In the fourth quarter, which was a remarkable accomplishment so the 5% in an environment, where delivered product cost so tends to ease abuse Lee.

Speaker Change: <unk> that we can still get incremental pricing from our customers because we deliver even more value to them.

Christoph Beck: So the 5%, in an environment where delivered product costs tend to ease, obviously, the fact that we can still get incremental pricing from our customers because we deliver even more value to them in terms of total operating cost reduction, for me, is a very good sign. And as I've shared with you, I don't know exactly where pricing is going to end up on a longer-term basis. We used to be one plus a pre-inflationary cycle, if I may say so.

Speaker Change: In terms of total operating cost reduction for me is a very good sign and as I've shared with you I.

Speaker Change: I don't know exactly where pricing is going to end up on a longer term basis, we used to be one plus pre inflationary cycle. If I may say and I've shared with you used to say I'm fairly confident that we will be north of two as I called it so the two plus.

Christoph Beck: And what I've shared with you is to say, I'm fairly confident that we will be north of two, as I called it. So the two plus for the future, we'll see where we end up. I feel good about the two plus, that's going to be true for 24, while we keep volume growing as well at the same time. So let's see where we end up. Yeah, hi, good afternoon.

Speaker Change: For the for the future, we'll see where we end up I feel good about the two plus that's going to be true for 24, while we keep volume growing as well at the same time, so, let's see where we will end up.

Speaker Change: Our next question is from the line of Josh Spector with UBS. Please proceed with your question.

Joshua Spector: Yes, hi, good afternoon, so I wanted to ask about the cadence of earnings through the year so far.

Joshua Spector: So I wanted to ask about the cadence of earnings through the year. So, you know, first, congratulations on a strong guide for the first quarter. But I guess if you look at the typical run rate, you're up about 30%, 30 cents in the second quarter, another 30 cents in the second half. I guess if we run that math through, we're closer to something around $7 in EPS for this year, versus your guide in the low six. So just curious if you can kind of run through, are there things through the year that add to cost or things we should be aware of Thanks. Hey Josh, this is Scott.

Joshua Spector: First congrats on a strong guide for the first quarter, but I guess, if you look at the typical run rate Youre up about 30% 30 in the second quarter. Another 30 in the second half I guess, if we run that math through over closer to something in $7 in EPS for this year versus your guide in the low sixes. So just curious if you can kind of.

Joshua Spector: Run through other things through the year that add to costs or things, we should be aware of that would deter you from that path or any comments you have around that thanks.

Hey, Josh This is Scott I'll cover this one thanks for the question, Yes, as Christoph said in his opening we're expecting this a bigger benefit of DTC in the first half and bigger in the first quarter, but if you look at sort of separating out DPC would expect throughout the year that underlying EPS delivery to be at the high end of our long term.

Scott Kirkland: I'll cover this one. Thanks for the question. Yeah, as Christoph said in his opening, we're expecting this to be a bigger benefit of DPC in the first half and bigger in the first quarter. But if you look at sort of separating out DPC, we'd expect throughout the year that underlying EPS delivery to be at the high end of our long-term targeted range. So it's really this expected benefit in the first quarter, a little bit in the second quarter as well, but really looking at DPC in the second half being pretty stable. Our next question is from the line of John McNulty with BMO Capital Markets. Yeah, good afternoon.

Scott Kirkland: Targeted range. So it's really this expected benefit in the first quarter, a little bit in the second quarter as well, but really looking at DTC in the second half being pretty stable.

Scott Kirkland: Our next question is from the line of John Mcnulty with BMO capital markets. Please proceed with your question.

Yes. Good afternoon. Thanks for thanks for taking my question. So on the delivered product costs. I guess are you expecting to see either raw materials or some some other part of those costs pushing noticeably higher as we go through the year or is there some kind of a speed bump.

John P. McNulty: Thanks for taking my question. So on the delivered product costs, I guess, are you expecting to see either raw materials or some other part of those costs pushing noticeably higher as we go through the year? Or is there some kind of, I don't know, speed bump, or, I guess, reverse speed bump, some best fit that you're seeing in one cue? Because I guess I don't understand why you would necessarily be seeing delivered product costs pushing higher throughout the year. So we haven't said higher.

Scott Kirkland: I guess reverse speed bumps some benefit that you're seeing in <unk>, because I guess I don't understand why you would necessarily be seeing delivered product costs pushing higher throughout the year.

Speaker Change: So we haven't said higher what we said is that we reached a peak.

Speaker Change: Mid of last year, so 2023 and <unk>.

Speaker Change: Easing so in the third quarter into fourth quarter and will be the case as well. So in the first quarter of 2024, what we're saying is that it can keep easing in the second quarter and till the second half, where we expect it now so to be.

Christoph Beck: What we said is that we reached a peak in the middle of last year, so 2023, and it kept easing, so in the third quarter, in the fourth quarter, and that will be the case as well, so in the first quarter of 2024. What we're saying is that it's gonna keep easing in the second quarter until the second half, where we expect it now to be rather stable versus last year. And you know how hard it is to predict, obviously, the delivered product cost or inflation, as we've seen this morning as well, so with the inflationary print. It was hard to predict when it went up, obviously, how much and how quickly. It's hard to predict how much and how fast it's gonna go down.

Speaker Change: Rather stable.

Speaker Change: Versus last year.

Speaker Change: No and you know how hard it is to predict our business or the delivered product cost inflation as we've seen this morning as well so we see inflationary print.

Speaker Change: It was hard to predict when it went up obviously, how much and how quickly it is hard to predict how much and how fast it's going to go down so for now.

Speaker Change: What we see with what we know keeping in mind that we buy 10000.

Speaker Change: Products in our portfolio.

Speaker Change: Divers, which is a good thing in a way.

Speaker Change: As well as some would go up suddenly go down but generally so this easing for the first half stable in the second half and we will see with truly happens, but it's important to keep in mind, what Scott just said before we keep our eye is laser focused on really driving this 12% to 15.

Christoph Beck: So for now, with what we see, with what we know, keeping in mind that we have 10,000 products in our portfolio, so it's very diverse, which is a good thing in a way as well. Some will go up, some will go down, but generally, so this easing for the first half, and stable in the second half, and we will see what truly happens, but it's important to keep in mind what Scott just said before. We keep our eyes laser-focused on really driving this 12 to 15% earnings per share growth with everything we can control, and really, so to get as close to the 15% as we can, and DPC comes on top of it, which means the bump in the first half and in the second half, so to be closer to the upper end of that range. How do we do that?

Speaker Change: Percent earnings per share growth with everything we can control and really start to get as close to the 15% as we can and EPC comes on top of it which means the bump in the first half and in the second half so to be closer to the upper end of that range. How do we do that while at the old fashion way that we've been.

Speaker Change: Practicing for a long time, now with new business with value pricing with productivity and.

Christoph Beck: Well, it's the old-fashioned way that we've been practicing for a long time now with new business, with value pricing, with productivity, and with innovation. That's the way we think about it, and we hope you will see it that way. Our next question is from the line of Jeff Zekauskas with J.P. Morgan. Thanks very much. It's a two-part question: have volumes in the institutional business accelerated? And if so, why?

Speaker Change: <unk>, that's the way, we think about it and that we hope you will see that way too.

Speaker Change: Our next question is from the line of Jeff Zekauskas with J P. Morgan. Please proceed with your question.

Thanks very much.

Jeff Zekauskas: Two part question.

Jeff Zekauskas: Have volumes in the institutional business.

Jeff Zekauskas: Accelerated and if so why or is it just that the comparisons are easier year over year in the fourth quarter than they were in the third.

Jeff Zekauskas: Or is it just that the comparisons are easier year over year in the fourth quarter than they were in the third? And secondly, in terms of pricing. How will your price initiatives work? Are you already raising prices in the first quarter here at the beginning of the year? Or, you know, will they come later? Will they?

Speaker Change: And secondly in terms of pricing.

Speaker Change: Your price initiatives work are you already raising prices.

Speaker Change: The first quarter here at the beginning of the year.

Speaker Change: Or will they come later will they.

Christoph Beck: Will they sort of make their way smoothly quarter by quarter through the year? Or, you know, will things bump up? I don't know. That's the base.

Speaker Change: Sort of make their way.

Speaker Change: <unk> quarter by quarter through the year or will things bump up I don't know in May or June.

Speaker Change: As a base case.

Christoph Beck: So hi Jeff, good to hear from you. So two questions, obviously here for the price of one. So the volume in institutional is clearly up. But it's not a year on year comparison question, especially when the market is down, as well as at the same time. So really showing that this business institutional is in great shape with great momentum, driving volume, driving share, getting price, driving margin, really like where institutional is heading. So the short answer is yes, volume in institutional, so keep accelerating. The second part of your question on pricing, there are the exceptional times, like in the past few years, and there are the more normal times, I would say, like now, where basically the discussions with customers, for the most part, they're not all created equal, obviously, are happening in the fourth and the first quarter of the year. So the fourth quarter and as we speak now.

So hi, Jeff.

Jeff Zekauskas: Hear you so two questions obviously here for the price of one.

Jeff Zekauskas: So the volume in.

Jeff Zekauskas: Institutional is clearly up it's not a year on year comparison question.

Jeff Zekauskas: Especially when the market is down as well at the same time, so really showing that this business institutional is in a great shape.

Jeff Zekauskas: Great momentum driving volume driving sheer getting price driving margin really like.

Jeff Zekauskas: Institutional is heading so.

Jeff Zekauskas: Short answer is yes volume any institution, so keep accelerating.

Speaker Change: The second part of your question.

Speaker Change: On pricing.

Speaker Change: Exceptional times.

Speaker Change: In the <unk>.

Speaker Change: Last few years and they are the more normal times.

I would say like now, which basically the discussions with customers for the most plants, they're not all created equal obviously.

Speaker Change: Are happening in the fourth and the first quarter.

Speaker Change: After years saw fourth quarter and as we speak now so it's usually something that's evolving progressive Lisa during the year with no big bumps, it's something which is pretty organic keeping in mind that the pricing is always based on the value we create for customers, which is why we were able to.

Christoph Beck: So it's usually something that's evolving progressively. So during the year, with no big bumps, it's something that's pretty organic, keeping in mind that the pricing is always based on the value we create for customers, which is why we were able to deliver 3 billion in the last few years and kept it and kept building it. It's because, ultimately, for customers, it's a good deal. The net net in the operations, while it's positive, including our pricing as well at the same time. So from a timing perspective, Jeff, this is happening in Q4, Q1, and it's being delivered in the quarters during that time. The next question is from the line of Manav Patnaik with Barclays. Thank you.

Speaker Change: Deliver $3 billion in the last few years and kept it and keep building it because ultimately for customers. It's a good deal.

Speaker Change: Net in their operations, while it's positive, including our pricing as well at the same time, so from a timing perspective, Jeff happening in Q4, Q1, and it's being delivered in the quarters during the year.

Speaker Change: Yeah.

Speaker Change: The next question is from the line of Manav Patnaik with Barclays. Please proceed with your question.

Manav Patnaik: Christoph, it looks like, you know, a lot of things are aligning well here at the start of the year, and you've touched on a lot of them. I just want to touch base on how you think about your portfolio. You know, there have been a few pieces, like health care and even paper, that have been dragged to top line growth. And, you know, just curious about how you think about your portfolio composition today and if anything might be in the works there. Yeah, hi Manav.

Thank you Christophe it looks like in a lot of things are aligning well here, starting starting the year and you've touched a lot of them I just wanted to just touch base on how you thought about your portfolio you know they've been a few pieces.

Health care and even paper that had been drag to top line growth and just curious on how you think about.

Speaker Change: Portfolio composition today, and if if if anything might be in the works there.

Christopher Evans: Yes, hi, Matt So it was a bit like with our kids theyre not always doing great at the same time, that's a bit the same so with our businesses doesn't mean that we love them less but if we look at all our businesses and markets out there over 90%.

Christoph Beck: So it's a bit like with our kids. They're not always doing great at the same time. That's a bit like it.

Christoph Beck: So with our businesses, it doesn't mean that we love them less. But if we look at all our businesses and markets out there, over 90% of them had double-digit operating income growth. So a pretty remarkable bias towards good performance for all our businesses. And so I like the overall portfolio that we have. We're also approaching investments and resources as a company that's been true for many years in four different buckets. The ones that we want to fuel are those with the highest growth potential and the highest margin potential as well. You have the one that we want to protect.

Thanks.

Christopher Evans: <unk> had double digit operating income growth so pretty remarkable.

Christopher Evans: Bias towards good performance for all our businesses.

Christopher Evans: And so I like the overall portfolio that we have.

Christopher Evans: We are also approaching investments and resources as a company that's been true for many years.

Christopher Evans: In four different buckets. The one that we want to fuel those are the ones with the highest growth potential the ones with the highest margin potential as well you have the one that we want to protect those are the ones that are doing well no big change you have the ones that we need to transform.

Christoph Beck: Those are the ones that are doing well. No big change. You have the ones that we need to transform. And those are the ones that obviously have potential but are not exactly there yet. And then you have the ones that you need to fix.

Christopher Evans: And those are the ones that obviously saw have potential but they are not exactly there yet and then you have the ones that you need to fix healthcare being one of the perfect example of that paper would Walter Beach on the transform side, because it's north of 16% margin that we have in that business not great volume growth right now but.

Christoph Beck: Healthcare being one of the perfect examples of that. Paper would rather be on the transformation side because it's north of 16% margin that we have in that business. Not great volume growth right now, but very good margins. And we'll end up in a good place as well as we keep transforming that business. So that's the way we think about it. We're not investing so everyone feels the same way. It's really so by category along the four that I just mentioned as well.

Christopher Evans: Good margin and we'll end up in a good place as well as we keep transforming that business. So thats. The way we think about it we're not investing saw everyone. The same way, it's really saw by category along the four that I just mentioned as well. So overall I like the portfolio, we have but we always kind of critical for every business.

Christoph Beck: So overall, I like the portfolio we have, but we are always kind of critical of every business, every market to make sure that we have the best owner's mindset and make sure that we do what's right for shareholders. Our next question is coming from the line of David Begleiter with Deutsche Bank. Thank you.

Christopher Evans: Every market to make sure that we have the best owners mindset.

And making sure that we do what's right for shareholders.

Christopher Evans: Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Thank you Christoph again, just on delivered product costs could you unpack the dynamics as to the.

David I. Begleiter: Christophe, again, just on delivered product costs, could you unpack the dynamics as to the high full-digit increase in Q1? Is that primarily a function of the cost-to-price decrease last year we saw for www.thevenusproject.com? Hey, thank you, David. Sorry, I'm looking at Scott, and he'd love to answer that question, so I'll pass it to you. Yeah, happy to, David. Thank you.

High single digit increase in Q1 is that primarily a function of the caustic price decrease last year, we saw for I think.

Christopher Evans: Every months of the year and then going forward is your flattening out a function of just caustic being up as the year progresses. Thank you. Thank you David I'm looking at Scott and I'd Love to answer that question. So, yes happy too David. Thank you yeah as Christophe referenced earlier.

Scott Kirkland: Yeah, as Christophe referenced earlier, you know, our DPC is still up, and again, just to clarify, 35% versus our pre-inflationary period. And as you referenced, it peaked in the middle of last year, right? And then we started to see some modest benefit in Q3, some additional single-digit benefit in Q4, and are expecting, then, that benefit, really, to peak in Q1, up high single-digits, as we said, and then some modest benefit, likely, in Q2, as we see cost stabilizing for the second half. And, you know, with the 10,000 raw materials, very difficult to sort of isolate individual buckets. Obviously, you have some raw materials, like caustic, where we've seen some easing, but you've also seen other products, raw materials, like propylene or resins, where we've seen those costs going up, as well. And so, with a big basket of materials, it's hard to isolate any one of them.

Our DPC is still up and again just to clarify 35%.

Scott Kirkland: Versus our pre inflationary period and as you referenced we it peaked in the middle of last year right and then we started to see some modest benefit in Q3. Some additional single digit benefit in Q4 and are expecting then that benefit really to peak in Q1 up high single digits. So as we said and then some modest.

Scott Kirkland: Likely in Q2, as we see cost stabilizing for the second half and with the 10000 raw materials are very difficult to sort of isolate individual buckets. Obviously you have some.

Scott Kirkland: Raw materials like caustic, where we've seen some easing, but <unk> also seen other products.

Scott Kirkland: Raw materials like propylene or residence, where we've seen those those costs going up as well and so with a big basket of materials.

Scott Kirkland: Isolate any one of those but what's important to keep in mind here is really where we focus our attention is really driving the business in order to get on the upper end of these 12% to 15% earnings growth and what's happening on the DPC front, we see that that all incremental benefit.

Scott Kirkland: But what's important to keep in mind here is really where we focus our attention. It's really driving the business in order to get on the other end of these 12 to 15 percent earnings growth. And what's happening on the DPC front, we see that that's all incremental benefit, which is exactly what we've shared. So for Q1 in pretty detailed terms as well, we get some more in Q2, and we expect flat from a DPC tailwind perspective in the second half. But let's see what truly happens.

Scott Kirkland: Which is exactly what we've shared so for Q1 in pretty detailed terms as well if we get some more in Q2, and we expect flat from DPC tailwind perspective into the second half, but let's see what truly happens.

Pavel S. Molchanov: Your best guess will be my guess, too. Our next question is from the line of Pavel Molchanov with Raymond James. Please proceed with your question. Thanks for taking the time to answer me. In this uncertain macro environment, including, you know, the inflationary pressures you alluded to earlier, can you talk about what you're seeing on the M&A front as far as valuations and any particular geographies that perhaps look more enticing than others? Good question, but a difficult one to answer for me, obviously, Pavel, as you know, but the way I always answer that question is basically what you've seen in the past from We have an extremely strong balance sheet now, and our leverage levels are closer to our longer-term average of these two times as well.

Scott Kirkland: Best guess it will be my guess.

Our next question is from the line of Paul.

Paul: <unk> <unk> with Raymond James. Please proceed with your question.

Paul: Thanks for taking the question.

Paul: In this uncertain macro environment, including the inflationary pressures you alluded to earlier can you talk about what you're seeing on the M&A front as far as valuations in any particular geographies that perhaps look more enticing than others.

Speaker Change: Good question, but a difficult one to answer for me.

Speaker Change: The battle is.

Speaker Change: As you know but.

Speaker Change: The way I always answer that question is basically what <unk> seen in the past from Ecolab is what youre going to see.

In the future we have an extremely strong balance sheet.

Speaker Change: Now.

Speaker Change: Our leverage levels are closer to our longer term average of these two times as well. So we're in a very good position to go after opportunities that we believe are strategically irrelevant. So for us and obviously that we can buy.

Christoph Beck: So we're in a very good position to go after opportunities that we believe are strategically relevant for us and, obviously, that we can buy at the right price, as we've done very successfully in the past. So, yes, the market is becoming even more interesting right now, which is good. We have a rich pipeline, as we've always had, and we will keep focusing on our three key priorities, as I've always shared. First is water, second is life science, and third is digital and AI technology, mostly focused on North America and Europe.

Speaker Change: At the right prices we've done.

Speaker Change: Very successfully so in the past.

Speaker Change: So yes, the market becomes even more interesting right now which is good.

We haven't reached pipeline as we have always had and we will keep focusing.

Speaker Change: On.

Speaker Change: Our three key priorities.

Speaker Change: As Ive always shared first these waters second is life science third.

Speaker Change: Digital and AI technology, mostly focused on North America and in Europe.

Christoph Beck: The next question is coming from the line of John Roberts with Mizzouho. Please receive your question. Thank you and congratulations on making the Just 100 list again.

The next question is coming from the line of John Roberts with Mizuho. Please proceed with your question.

John Roberts: Thank you and congrats on making the just 100 list again.

John Roberts: In healthcare, some companies have been talking about de-stocking continuing. Are you seeing de-stocking in healthcare and are you seeing equal benefits between your surgical and infection prevention business now that you've got the separation? Hey John, thank you for your comment on the Just List. We're never going after awards, obviously, but we're always honored and humbled when we get those awards.

John Roberts: In health care and some companies have been talking about destocking, continuing or are you seeing destocking in healthcare are you seeing equal benefits between your surgical and infection prevention business now that you've got the separation.

Hey, John Thank you for your comment.

Speaker Change: The adjusted list, we never going after awards, obviously, but we always honored and humbled.

Speaker Change: We get those awards.

Christoph Beck: That's basically describing the way we run our business, the right way, as much as we can, obviously. So the question about healthcare, I committed quite a while ago to fix that business with the team. I like the progress that we're making. We went through a few phases, as I shared very openly with you, and we'll keep doing so in the future. So we worked on the cost structure early on. Then we worked on the bifurcation of the two, surgical and infection prevention businesses by leveraging the critical mass of institutional.

Speaker Change: Basically describing the way we run our business the right way as much as we can abuse.

Speaker Change: Obviously so.

Speaker Change: The question on <unk>.

Speaker Change: Scare.

Speaker Change: I've committed saw quite a while ago, so to fix that business.

Speaker Change: With the team I would like to progress.

Speaker Change: That we're making we went through a few phases as I shared very openly.

Speaker Change: With you and we'll keep doing so in the future. So we worked on our cost structure. Early on then we worked on the bifurcation of the two surgical and infection prevention.

Speaker Change: <unk> by leveraging as well to critical mass.

Speaker Change: Institutional we early on that journey, because that happened, obviously signed a fall of last year healthcare is growing overall.

Christoph Beck: We are early on that journey because that happened, obviously, so in the fall of last year, healthcare is growing overall, which is something I like because that's early signs of success. Institutional margins are increasing quite significantly from a low level, as we know, but that's a second good sign as well of progress, and the team's working really well with the institutional team. I think that we have found the right model for now, but again, the work is not finished.

Speaker Change: Is something like.

Because thats early signs of success.

<unk>.

Speaker Change: Increasing quite significantly up from a low level as we know, but thats. The second good sign as well of progress and the teams working really well with the institutional team. So I think that we found the right model for now again the work is.

Speaker Change: Finished we've committed to get to double digit type of <unk>.

Christoph Beck: We've committed to getting to double-digit types of margin in that business, and we will get there. A few more phases are expected as well, and I will keep you posted on our plans and our progress as transparently as I can. The next question comes from the line of Lawrence Alexander with Jeffreys. Please proceed with your question. Good afternoon. Could you give a bit more detail on the trends you're seeing in Asia, particularly the strong volumes in China? Can you break out kind of where you're seeing that?

Speaker Change: Margin in that business and we will get there are a few more phases I expected it to happen and I will keep you posted on our plans and our progress as transparently as I can.

Speaker Change: The next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander: Good afternoon could you give a bit more granularity on the trends youre seeing in Asia, particularly the strong volumes in China can you break out kind of where youre seeing that and are you seeing sequential acceleration or is it just a comp issue.

Christoph Beck: And are you seeing sequential acceleration, or is it just a comp issue? We're in a fairly good place, actually, in Asia, especially China. For us, we separate Asia-Pacific, where we have a few markets, and China, which is one of the megamarkets. As you might remember, North America, Western Europe, and Greater China are our three megamarkets, where we focus 80% of our attention, where 80% of the opportunity lies, as well. And I like quite a bit how we're working in China. Not an easy environment, as we all know, but growth has been good in China, especially in institutional. We have a great team, a great business, and we have very good margins, as well, in China. That was not the case 10 years ago, but that's clearly the case today.

Laurence Alexander: Okay.

Speaker Change: We have fairly good place actually in.

Speaker Change: In Asia.

Speaker Change: Especially China for US, we separate out Asia Pacific, where we have a few markets in China, which is one of the Mega markets.

Speaker Change: As you May remember in North America, Western Europe and greater.

Speaker Change: Greater China to be ours, three mega markets, where we focus 80% of our attention where 80% of the opportunity.

Speaker Change: Lives as well and I like quite a bit.

How are we working in China, not an easy environment as we all know.

Speaker Change: But growth has been good.

Speaker Change: In China, especially in institutional.

Speaker Change: We have a great team a great business and we have very good margins.

Speaker Change: As well in China that was not the case 10 years ago, but thats clearly the case today.

Christoph Beck: So, we have a very good business, a great team, and we are very well-positioned with what customers in China want when it comes to food safety, infection prevention, and water. That's exactly what they're looking for, as well. So, pleased with the evolution of China, and that's true with the rest of Asia-Pacific, as well, but every country is a bit in a different place, but in aggregate, a pretty good story. Our next question is from the line of Shlomo Rosenbaum with Stiefel.

Speaker Change: So we have a very good business, a great team very well positioned with what customers in China. Once when we think food safety infection prevention.

Speaker Change: And water that's exactly what they're looking for as well so pleased with the evolution of China.

Speaker Change: And Thats true.

The rest of Asia Pacific as well, but every country is a bit in a different place, but in aggregate a pretty good story.

Speaker Change: Our next question is from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Shlomo Rosenbaum: Thank you. Hi, thank you very much. Christophe, you made tremendous strides in the margin, you know, over the last little bit, and the pricing has been very successful, and it looks like volumes have turned positive. So there's a lot of positivity there. I was wondering if you could bridge us from where you are today to where, you know, you mentioned getting to that 20% margin, and can you walk us through that bridge? How much would it cost? How much would you think about in terms of volumes?

Shlomo Rosenbaum: Hi, Thank you very much Chris.

Shlomo Rosenbaum: Christophe made tremendous strides in the margin.

Shlomo Rosenbaum: Over the last little bit and the pricing has been very successful and it looks like volumes have turned positive a lot of positivity. There I was wondering if you could bridge us.

Shlomo Rosenbaum: From where you are today to where.

Speaker Change: You mentioned getting to that 20% margins in and can you walk us through that bridge, how much would be pricing how much would you think about in volumes is there a certain cadence that we should be thinking about over the next several years.

Scott Kirkland: There's a certain cadence that we should be thinking about over the next several years. You know, just give us your thoughts on how investors should be thinking about it, how you're thinking about it. I'll give it to Scott first, and then I'll make a few comments.

Speaker Change: Just give us your thoughts on how investors should be thinking about it how youre thinking about it.

Speaker Change: I'll give it to Scott first and then I'll make a few comments, yes, thanks, Shlomo Hey, great question.

Scott Kirkland: Yeah, thanks, Shlomo. Hey, a great question. Yeah, as we've talked about, and we talked about it on Investor Day, really very focused on getting to that 20% OI margin, and I think we have a very clear path over the next few years. And it's largely by getting back to those 2019 sort of pre-pandemic gross margins, right, which are still down relative to 2019. If you look at overall OI margins, so we finished the year at 14%, so about six points from that 20% OI margin, and by recovering those 2019 gross margins, which are really split pretty evenly between value-based pricing, what we do for our customers, driving that value-based pricing, and then the other half of that being volume and mix sort of combined there, okay?

Scott Kirkland: Yes, as we've talked about and we talked about at Investor day.

Scott Kirkland: Very focused on getting to that 20% Oi margin and think we have a very clear path over the next few years and it's largely by getting back to those 2019 sort of pre pandemic gross margins right, which are still down relative to 2019. If you look at overall Oi margin. So we finished the year at 14%.

Scott Kirkland: So about six points from that 20% Oi margin and by recovering those 2019 gross margins, which is really split pretty evenly between the value based pricing what we do for our customers driving that value based pricing and then the other half of that being volume and mix sort of combine there okay.

Scott Kirkland: You know, as we showed during 23, our OI margins were up 140 basis points, and we're expecting about another 200 basis points in 2024. So we think that's great evidence for what we can do and the path to get to that 20% OI margin. And additionally, in addition to the gross margin, we'll expect to continue to deliver some SG&A leverage at least equal to what we've done historically. So bottom line, Shlomo, with all the elements that Scott just mentioned, I feel even better with what I said and shared with you at Investor Day in 2023, saying we will get to this 20% ROI margin. So within the next few years, it's not going to take us five years to get there.

As we showed during 'twenty three ROI margins were up 140 basis points and we're expecting about another 200 basis points in 2024. So we think thats great evidence for what we can do in that path to get to that 2009 are that 20% Oi margin and then additionally in there aside from the gross.

Scott Kirkland: We will expect to continue to deliver some SG&A leverage at least equal to what we've done historically.

Scott Kirkland: Bottom line.

Scott Kirkland: Shlomo.

Scott Kirkland: All the elements that Scott just mentioned I feel even better with what I said and shared with you at the Investor Day.

Scott Kirkland: In 2023, saying, we will get to this 20% Oi margin. So within the next few years and it's not going to take us five years to get there.

Christoph Beck: Our confidence level has just risen with the delivery of the last few. Thank you. The next question is from the line of Steve Byrne with Bank of America. Please proceed with your question. Hi, I'm Rob Hoffman on behalf of Steve Byrne, and my question was to see if you guys could share any update on the Water for Climate and Science Certified Initiative. Yeah, those are two.

Scott Kirkland: So our confidence level has just risen with the delivery of the last few quarters.

Thank you.

Scott Kirkland: The next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.

Scott Kirkland: Hi, Rob Hoffman on for Steve Byrne and my question was if you guys could share any update on the water for climate.

Rob Hoffman: <unk> certified initiatives.

Yes, those are two.

Steve Byrne: Platform Innovations, as we call them, Ecolab Science Certified, so he's keeping progressing very nicely, with a few big customers as well, jumping on that journey, McDonald's being the latest big one, obviously out there, so we like how Ecolab Science Certified is not only providing a benefit to our customers by protecting their guests, by providing a safe and clean and welcoming environment, but also safe food at the right cost, with the total operating cost managed as well as we can, so Ecolab Science Certified is an overall promise for our customers, which encompasses all our services as well, so it's a penetration play, which is good for us, driving good results for our customers. Ecolab Water for Climate is a bit the same in a very different setup, obviously, because it's helping our customers get to their ambition of the net zero.

Speaker Change: Platform innovations.

Speaker Change: We call them.

Speaker Change: Ecolab science certified so keeping progressing very nicely.

Speaker Change: With a few big customers as well.

Speaker Change: <unk> on that journey, Mcdonald's being so the latest big one.

Speaker Change: Obviously out there so we like how ecolab science certified so is not only providing a benefit to our customers by protecting their guests by providing safe and clean and welcoming environment, but also safe food at the right cost, which the total.

Speaker Change: Operating cost manage as well as we can so ecolab science certified as an overall promise Huawei customers, which encompasses all of our services as well. So it is a penetration play which is good for us driving good results for our customers Ecolab water for climate is a bit the same in a very different set.

Obviously, because it's helping our customers get to their ambition of the net zero.

Steve Byrne: Some customers are much further down the road, and some are very early on that journey, so to give you some highlights without going too much in detail, since we don't share our customers' details publicly, we have a dozen flagship customers, as we call them, who have committed to getting to net zero. One has been very public, that is, Microsoft, and is progressing very well on that journey as well. It's really helping them get to net zero, but in a way that makes financial sense for them and for us by driving a lot of innovation and services in their own operations in order to deliver their objectives. So two growth platforms, driving penetration, and improving impact from our customers, which helps us ultimately drive growth and value. Thank you. The next question is from the line of Kevin McCarthy with Vertical Research Partners. Please receive their cards.

Speaker Change: Some customers are much further down the road and some are very early on that journey.

Speaker Change: So to give you some highlights without going too much in detail since we don't share so customers.

Speaker Change: <unk>.

Publicly.

Speaker Change: We have a dozen of flagship customers as we call them, who are committed to getting to net zero. One has been very public that is Microsoft.

Speaker Change: And progressing very well on that journey as well, it's really helping them get to net zero, but in a way that makes financial sense for them and for us by driving a lot of innovation and services in their own operations in order to deliver objective. So two growth platforms driving penetration improving impactful.

Speaker Change: Our customers, which helps us ultimately drive growth and value pricing.

Speaker Change: Thank you.

Speaker Change: Next question is from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.

Kevin Mccarthy: Yes, Thank you and good afternoon Christophe back at your Investor Day in <unk>.

Christoph Beck: Thank you and good afternoon. Christoph, back at your investor day in September last fall, we talked a little bit about cross-selling initiatives, and I was wondering if you could provide an update on those efforts. In other words, if I look at the volume improvement from the first half of 23 to the back half, basically going from negative to positive, do you think that those cross-selling efforts have borne fruit, or is that on the horizon in 2024? There's no doubt that it's proving right. It's been true for a very long time, by the way.

September last fall I think it was you.

Kevin Mccarthy: You talked a little bit about cross selling initiatives and I was wondering if you could provide an update on those efforts in other words, if I look at the volume.

Improvement from the first half of 'twenty three to the back half basically going negative to positive do you think that those cross selling efforts have borne fruit or is that on the com in 2024.

Speaker Change: There is no doubt.

Speaker Change: Proving right, it's been true for a very long time.

Kevin Mccarthy: I'd like just to indicate what we've built with Pest Elimination, for instance, which is a 90% circle the globe type of business, which is ultimately all of our businesses from institutional, healthcare, and industrial, bringing our team from Pest Elimination in order to offer their world-class service to all those different segments. Well, we've managed to build a billion dollar business with great margins and highest returns by doing so. So that's something that we have proven for a very long time in our company. It's also worth keeping in mind that half of the 152 billion market we have out there is an opportunity for penetration. Ultimately, customers we already have that should be or could be buying everything from what Ecolab does. And the two main drivers for it are what I just shared before with Ecolab Science Certified and Ecolab Water for Climate, that ultimately drives bigger gains for our customers by driving the overall end-to-end proposition that we have in the company.

Speaker Change: By the way I would like just to indicate what we've built we supposed elimination for instance, which is 90% of circle.

Speaker Change: Circle the globe.

Speaker Change: Type of business, which is ultimately all of our businesses from institution that has gained industrial bringing our team from pest elimination.

Speaker Change: In order to offer their world class service to all of those different segments. While we've managed to build a billion dollar business with great margins and highest returns.

Speaker Change: By doing so so that's something that we have proven for a very long time in our company. It's also keeping in mind that half of the 152 billion market. We have out there well is.

Speaker Change: Opportunity of penetration ultimately customers, we already have that should be or could be buying everything.

Speaker Change: From what Ecolab does and the two main drivers for it is what I just shared before we see good upside certified in ecolab water for climate that ultimately drives bigger gains for our customers by driving the overall end to end proposition that we have in the company and last point.

Kevin Mccarthy: And the last point I'll make is that we have further focused our execution work towards our top 35 customers in the company to make absolutely sure that we are not only providing them with all the resources of the company but that we could capture as well as much of the opportunity that those customers can offer to us, which is a number that counts in the billion. Thanks.

Speaker Change: I will make is that we have further focused as well our execution work.

Speaker Change: Towards our top 35 customers in the company to make absolutely sure that we were not only providing them with all the resources of the company, but that we could capture as well as much of the opportunity that those customers can offered to us which is a number that counts in the billions.

Christoph Beck: The next question comes from the line of Patrick Cunningham with Citi. Please proceed with your question. Hi, good afternoon. I have kind of a specific follow-up on the last question.

Speaker Change: Thank you.

Speaker Change: Next question comes from the line of Patrick Cunningham with Citi. Please proceed with your question.

Patrick Cunningham: Hi, good afternoon, I have kind of a specific follow up on the last question. So you had the solid share gains in institutional with volumes up maybe mid single digits, where end markets are stable to slightly down how much of this was a share of wallet versus new customers and are there any sort of representatives.

Patrick Cunningham: So you know, you've had solid share gains and institutional with, you know, volumes up maybe mid single digits where end markets are stable to slightly down. But how much of this was your share of wallet versus new customers? And are there any sort of representative products or technologies which have driven a lot of the share gain this year? And then how should we think about new business wins for institutional and specialty in 2024? So a few different questions here, Patrick, all related to the same topic, obviously.

Patrick Cunningham: Products or technologies, which have driven a lot of the share gain this year and then how should we think about new business wins for institutional and specialty into 2024.

Patrick Cunningham: So a few different questions here about tricks all related to the same topic, obviously, so new business generation.

Christoph Beck: So New Business Generation is our number one focus in the company. We are a sales organization, sales at heart. Our mantra in the company for the 47,000 people is, "We're all in sales." Just to describe how we think about it as well.

Patrick Cunningham: Our number one focus in the company.

Patrick Cunningham: Sales organization saves at Hart, our mantra in the company for the 47000 people. We're all in sales just to describe so how we think.

Patrick Cunningham: About it as well so it's really a teamwork and new business generation, our pipelines at record levels right now really like.

Christoph Beck: So it's really a team effort. And New Business Generation, our pipelines are at record levels right now. Really impressed with how much we have gained. Obviously, we know we need to implement all that in the next few months, next few quarters. That's always true.

Patrick Cunningham: Much we have gained obviously, we know we need to install all of that in the next few months next few quarters, that's always true in each different businesses. It goes faster in institutional which is why you see as well so very good growth in institutional they have a great new business generation, they can install pretty quickly.

Christoph Beck: And it's different for businesses. It goes faster in institutional, which is why you see so much very good growth in institutional. They have a great New Business Generation. They can install pretty quickly as well.

Patrick Cunningham: As well good for customers good for us and leading so to a great results because margins are so good.

Christoph Beck: Good for the customers, good for us, and leading to great results because margins are so good, obviously, in that business. So. To your question about how much is cross-selling versus totally new, the best way to think about it in our company is generally two-thirds is cross-selling, which is really selling to customers that other businesses already have, and a third is brand new, and that's an average number.

Patrick Cunningham: Usually in that business so.

Patrick Cunningham: To your question on how much is cross selling versus totally new debates.

Patrick Cunningham: The best way to think about it in our company is generally two third.

Patrick Cunningham: Is.

Patrick Cunningham: Cross selling which is really selling to customers that other businesses already have and authority is brand new and Thats an average number it's not obviously always the same across businesses and geographies, but thats a good way to think about it and to keep in mind that we are primarily focused on cross selling which is the best way and.

Christoph Beck: It's not obviously always the same across businesses and geographies, but that's a good way to think about it and to keep in mind that we are primarily focused on cross-selling, which is the best way, and easiest way to sell, and the cheapest way, driving the highest revenue. Thank you. The next questions come from the line of Mike Harrison with Seaport Research Partners. Please proceed with your questions.

Patrick Cunningham: Yes, the way to sell and the cheapest way driving the highest margins.

Patrick Cunningham: Thank you. The next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Mike Harrison: Hi, good afternoon.

Mike Harrison: I wanted to ask another question around the institutional business, but I wanted to dig in more on the specialty side of that business. You just had, within specialty, probably the best year of growth in a decade or more. Can you talk about what is driving the improvement on both the QSR and the food retail side? And then you also, it also looks like you acquired this ChemLink business back in May.

Mike Harrison: Hey, Mike I wanted to ask another question around the institutional business, but I wanted to dig in more on the specialty side of that business. You just had within specialty you probably the best growth.

Mike Harrison: Decade, or more can you talk about what is driving the improvement on both the <unk> and the food retail side and then you also it also looks like you acquired this Kevin links business back in May can you talk about what <unk> is bringing into the portfolio within that specialty business.

Christoph Beck: Can you talk about what ChemLink is bringing to the portfolio within that specialty business? Okay, so a few questions there. Mikey, you're right. So Specialty, which is a QSR, so quick-serve restaurants and food retail, had a great year in 23. It's been true for a pretty long time, by the way, so great businesses based in the same place in North Carolina, as you probably know as well. The key reasons why those businesses are doing so well, on the one hand, especially QSR is an industry that's doing well at all times, especially in more difficult times, because people have a tendency to trade down, and when they move from food service restaurants to quick-serve, obviously, we The second one is that it's an industry that, by definition, is very standardized, as we know, across the country or across the world.

Speaker Change: Okay. So a few.

Speaker Change: A few questions in there so Mike you're right, so specialty which is.

Speaker Change: <unk>.

Speaker Change: So quick serve restaurants and food retail.

We had a great year in 'twenty three it's been true for pretty long time.

Speaker Change: Either way so great businesses.

Speaker Change: Based in the same place in North Carolina, as you probably know.

Speaker Change: As well.

Speaker Change: The key reasons why those businesses are going.

Speaker Change: So on one hand, especially curious saw is an industry.

Speaker Change: That's doing well at all times, especially.

Speaker Change: In more difficult times, because people have a tendency to trade down and when they move from foodservice restaurants to quick serve obviously, we can capture them.

Speaker Change: In a good way at high margin as well at the same time, that's a little bit the beauty of our portfolio seems to be sort of all the various segments. So serving.

Speaker Change: An industry that is.

Speaker Change: Very successful is the first.

Speaker Change: Element. The second one is it's an industry that by definition is very standardized as.

Speaker Change: As we know across the country across the world. When you think about our promise well, it's probably the industry resonate the most because what we are helping our customers achieve it is to understand what's the best performing unit in their enterprise and to help them get all that.

Christoph Beck: When you think about our promise, well, it's probably the industry where it resonates the most, because what we're helping our customers achieve is to understand what the best-performing unit in their enterprise is and to help them get all the units from the enterprise at the level of performance of the best-performing one, in terms of cost, in terms of quality of delivery, and in terms of environmental impact as well. The combination of a very strong business that's been built over decades with an industry that is especially successful right now, 23 was a great year for that industry, and a value proposition that resonates exactly with them, because their objective is to reach the best-in-class performance across the universe as well, those are three key reasons why this business is doing well, and I believe in the future of that business as well going forward. Thank you. Our next question is from the line of Scott Schneeberger with Oppenheimer & Company. Please proceed with your question. Thanks very much.

Speaker Change: From the enterprise at the level of performance of the best performing one in terms of cost in terms of quality of the.

Speaker Change: Delivery and in terms of environmental impact as well so the combination of a very strong business. That's been built over decades with an industry that is especially successful right. Now 23 was a great year for that industry and a value proposition that resonates exactly with them because.

Speaker Change: Their objective is to reach the best in class performance across the universe as well while those are three key reasons why this business is doing well and I believe in the future of that business as well going forward.

Speaker Change: Thank you. Our next question is from the line of Scott Schneeberger with Oppenheimer and company. Please proceed with your question.

Scott Schneeberger: Thanks very much.

Scott Schneeberger: I've heard a little bit with regard to the cost savings program. It's now been a full year in place, and very sizable. Scott touched a bit earlier on some of the key focus areas, geographies, and segments, and that was very helpful. But just curious, is this on track as far as timing is concerned?

Scott Schneeberger: Little bit.

Scott Schneeberger: With regard to the cost savings program. It's now been a full year in place and very sizable Scot touched a bit earlier on some of the key focus areas geographies and segments and.

Scott Schneeberger: And that was very helpful. But just curious is this is on track.

Scott Schneeberger: As far as timing wise is it something that maybe you've had the opportunity where you haven't had to be as aggressive because you've had a really nice growth 2023, just curious how close to unplanned timing wise and size wise. This is and any any incremental thoughts you'd like to share. Thanks.

Scott Schneeberger: Is it something that maybe you've had the opportunity where you haven't had to be as aggressive because you've had a really nice growth rate in 2023? Just curious how close to on-plan timing-wise and size-wise this is, and any incremental thoughts you'd like to share. Thanks.

Scott Kirkland: Thank you, Scott. So let me have the other Scott answer part of that question, and I'll make a few comments as well. Yeah, thanks, Scott. No, we are exactly where we expected to be. If we think about the combined program, which is really what we have left, we had some older restructuring programs which are complete. The Institutional Advancement Aid 2020 programs are complete through the end of the year.

Thank you Scott So let me have Scott.

Scott Schneeberger: Scott.

Scott Schneeberger: That question and I'll make a few comments yeah. Thanks, Scott No. We are exactly where we expect it to be if we think about the combined program, which is really what we have left.

Speaker Change: <unk> had some older restructuring programs, which are complete the institutional advancement eight 2020 are complete through the end of the year. The combined program. We delivered through the end of 2023, 75% of those expected savings cumulatively through the end of the year and expect to realize.

Scott Kirkland: The combined program we delivered through the end of 2023 accounted for 75% of those expected savings cumulatively through the end of the year, and we expect to realize the lion's share of that through 2024. And as you know, when we initially launched this at the end of 2022, it was initially focused on Europe. Then early in 2023, we expanded it to institutional and health care. And if you think about the performance of those businesses, Christophe talked about Europe, talked about the great margins there, and the great growth. And you've seen the great OI in institutional, especially up over 40% in the quarter, and then also as health care continuing to get better. And so we're on track with those, and that program is having a significant impact. So, well said, Scott. In general, we want to get transformation done the old-fashioned, organic way.

Speaker Change: The lion's share of that through 2024, and as you know when we initially launched this at the end of 2022. It was initially focused on Europe and early in 'twenty, three we expanded it to institutional and healthcare and if you think about the performance of those businesses Christophe talked about Europe talked about the great margins there the great growth and you've seen.

Speaker Change: Great.

Speaker Change: Ally in institutional, especially up over 40% in the quarter and then as well as the health care continuing to get better and so we're on track with those and those are programs that program is having a significant impact to what I said Scott.

Speaker Change: In general.

Speaker Change: Want to get transformation done.

Speaker Change: Old fashion organic way, it's only in exceptional.

Christoph Beck: It's only in exceptional opportunities that we go the restructuring way when it helps us move quicker, which means making the business more competitive to gain share and improve our margins in order to return more to shareholders. And to Scott's point, you look at what we've done in Europe. It has been an unbelievable journey. The fact that that business has been doing so well in 2023, reaching the highest level of margin as well in some of the toughest of times as well. Well, he's speaking very well about how we're doing that. Think about institutional.

Speaker Change: Opportunities that we go the restructuring way when it helps us move quicker, which means making the business more competitive to gain share and improve our margins in order to return.

Speaker Change: More to shareholders and to Scott's point, you look at what we've done in Europe has been an unbelievable.

Speaker Change: Journey, the fact that that business has been doing so well in 'twenty three reaching the highest level of margin as well in some of the toughest of times as well well speaking very well on how we're doing that I think about the institutional we had to adjust to a new reality. This business is in the best place is.

Christoph Beck: We had to adjust to a new reality. This business is in the best place it's ever been. And then health care early on that journey, a much smaller business, obviously, but we will get to the right place as well over time. And the restructuring investment helped us in all three cases to move much faster and to get returns quicker as well into the P&L. So when I look back, I like what's been done and especially what has been done as well.

Speaker Change: <unk> been and then healthcare early on that journey.

Speaker Change: Smaller business.

Speaker Change: But we will get to the right place as well over time and the restructuring investment helped us in all three cases to to move much faster to get returns quicker as well into the P&L. So when I look back I like what's been done and especially being done as well so in budget.

Vincent Stephen Andrews: So, in budget and on time, as we had promised as well. So, overall, good stuff for the company, our customers, and our shareholders. Thank you. Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question. Thank you. I'm wondering if there's been some change in your procurement strategy, whether it's been changing some of your large suppliers or changing the terms or duration of the contract that you have. I'm just really trying to bridge, you know, 4Q came in a bit better than expected, but 1H is obviously a lot better than what we were talking about three months ago. So I'm just trying to understand if something has meaningfully changed in what you're doing or if it was just conservatism or what drives us from there to here, particularly because, you know, it sounds like a lot of folks think the back half of the Roth guide is conservative. I would probably echo that.

Speaker Change: And in time, as we had promised as well so overall good stuff for the company our customers and our shareholders.

Speaker Change: Thank you.

Speaker Change: Question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Vincent Stephen Andrews: Thank you I'm wondering if there's been some change in your procurement strategy.

Vincent Stephen Andrews: Whether it's been changing in some of your large suppliers or changing the terms of duration of the contracts that you have.

Vincent Stephen Andrews: I'm, just really trying to.

Speaker Change: Bridge <unk> came in a bit better than expected, but <unk> is obviously a lot better than what we were talking about.

Speaker Change: Three months ago. So I'm, just trying to understand if something has meaningfully changed and what youre doing or if it was just conservatism.

Speaker Change: Or what drives us from there to here, particularly because.

Speaker Change: It sounds like a lot of folks think.

Speaker Change: The back half Rod guide is conservative I would probably echo of that so we're just trying to understand what might change over the next quarter or two that could allow that second half to come in better than what you're guiding to right now.

Christoph Beck: So we're just trying to understand, you know, what might change over the next quarter or two that could allow that second half to come in better than what you're getting to right now. Well, there are a few points in your question here. So when I think about our procurement team, we have an unbelievable team around the world. We have a new chief procurement officer who joined us a year ago from a world-class organization that's been very respected in the procurement world. And yes, he has brought new capabilities, new tools, new approaches, new ways, as well as new ways of managing relationships with suppliers. So yes, quite a bit of a transformation.

Speaker Change: Well a few points in your question here, so when I think about our procurement team.

Unbelievable team around the world, we have a new chief procurement officer, who joined US a year ago.

From a world class organization, that's been very respected in the procurement world and yes. He has brought new capabilities, new tools, new approaches new ways as well managing relationships with suppliers, so yes quite too.

Speaker Change: A bit of a transformation.

Christoph Beck: And I think we're really reaching world class levels with that new leadership and that new team that we have on procurement. So I really like what I see on the procurement side. So there's one team that can leverage as much as we can in terms of capturing the benefits of the easing of DPC inflation. Well, that's the right team.

I think we are really reaching world class levels.

Speaker Change: That new leadership and the new team that we have on procurement, so I really like what I see on the procurement side. So there's one team that can.

Speaker Change: Leverage as much as we can in terms of.

Speaker Change: Capturing the benefits of the easing of DPC inflation, while thats the right team. So when we talk about what you've heard from Scott it'll be early on our cost DPC cost is still 35% up versus what they used to be pre inflation well I see it.

Christoph Beck: So when we talk about what you've heard from Scott a bit early on, our costs, DPC costs are still 35% higher versus what they used to be pre-inflation. Well, I see it as a huge opportunity, obviously, for our company and for our shareholders, because most of it, we will recoup at some point. The timing is not in our hands. Our team is trying to get it as quickly as we can.

Speaker Change: There's a huge opportunity obviously, so for our company and for our shareholders because most of it we will recoup at some points.

Speaker Change: Timing is not in our hands our team is trying to get it as quickly as we can so we will get it and at the same time I want to make absolutely sure that we get our value pricing done the right way.

Christoph Beck: So we will get it. And at the same time, I want to make absolutely sure that we get our value pricing done the right way. As you know, our margins are not at the high watermark, the 44% where they used to be; we will get back to that 44%. Because yes, DPC is going to get back close to where it used to be, when I don't know, might take a few years to get there.

Speaker Change: As you know our margins.

Speaker Change: At the high watermark to 44%, which used to be we will get back to the 44% because yes, DPC is going to get back close to where it used to be when I don't know might take a few years to get there, but on the price side with our customers we want to do it exactly the right way that's a net.

Christoph Beck: But on the price side, with our customers, we want to do it exactly the right way. That's a net benefit for our customers as well. They get more value.

Speaker Change: Benefit for our customers as well they get more pricing, but when you think about the value we create for them.

Christoph Beck: But when you think about the value we create for them, well, it far outweighs the price that they're paying for us, which is one of the key reasons why our margins are improving so nicely and why we're keeping our customers and building even new relationships as we move forward. So overall, a good story for our customers, our company, and our shareholders. Thank you. At this time, we've reached the end of the question and answer session, and I'll now hand the floor back to Mr. Hedberg for a closing remark. Thank you, that wraps up our fourth 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 I hope everyone has a great rest of their day. This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time and have a wonderful day.

Speaker Change: Outweighs the pricing that they are paying for us which is one of the key reasons why our margins are improving so nicely and why are we keeping our customers and building even new relationship.

Speaker Change: As we move forward. So overall, a good story for our customers our company and our shareholders.

Speaker Change: Thank you.

Speaker Change: At this time, we've reached the end of the question and answer session I will now hand, the floor back to Mr. Hedberg for closing remarks.

Hedberg: Thank you that wraps up our fourth 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 and hope everyone has a great rest of your day.

Speaker Change: This will conclude today's conference. Thank you for your participation you may now disconnect. Your lines at this time and have a wonderful day.