Q2 2024 Ecolab Inc Earnings Call
Greetings. Welcome to the Ecolab second quarter 2024 earnings release conference call.
Operator: At this time, we'll discuss the concern listening mode. A question and answer session will follow the form of presentation. If anyone should require our British assistance during the conference, please press the star's zero from your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation.
Speaker Change: 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.
Andrew Hedberg: At this time, it's now my pleasure to introduce your host, Andy Hedberg, Vice President and Vest Relations.
Operator: But this time, participants are in listen-only mode. The 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, Investor Relations. Thank you, Mr. Hedberg, and we now begin.
Speaker Change: At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations.
Christophe Beck: Thank you for the head review. We now begin. Thank you and hello, everyone, and welcome to Ecolab's second quarter conference call.
Andrew Hedberg: Thank you and hello everyone, and welcome to Ecolab's second quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO, and Scott Kirkland, our CFO. A discussion of our results, along with our earnings release and the slides referencing the quarter results, are available on Ecolab's website at ecolab.com slash investment. 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.
Speaker Change: Thank you, Mr. Hedberg, and we now begin.
Christophe Beck: With me today are Christophe Beck, Ecolab's Chairman and CEO. And Scott Kirkland, our CFO, a discussion of our results along with our earnings release in the slides referencing the quarter results are available on Ecolab's website at Ecolab.com slash investor. Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from most projected factors. That could cause actual results to differ are described under the risk factor section in our most recent Form 10-K.
Andrew Hedberg: Thank you and hello everyone and welcome to Ecolab's second quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO , and Scott Kirkland, our CFO . A discussion of our results, along with our earnings release in the slides referencing the quarter results, are available on Ecolab's website at ecolab.com slash investor.
Andrew Hedberg: Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance.
Andrew Hedberg: These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the risk factor section in our most recent Form 10-K and in our posted materials.
Andrew Hedberg: These are forward-looking statements, and actual results could differ materially from those projected.
Andrew Hedberg: Factors that could cause actual results to differ are described under the risk factors section in our most recent Form 10-K and in our posted materials.
Unknown Attendee: We also refer you to supplemental polluted earnings per share information in the release.
Andrew Hedberg: We also refer you to 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. Thank you, Andy, and welcome to everyone on the call. I'm happy to share my perspective before we jump into Q&A. But in summary, with 35% adjusted earnings growth in Q2 and 25% to 29% earnings growth expected for the full year, I feel very good about where we are and even more so about where we're going.
Christophe Beck: With that, I'd like to turn the call to Christophe Beck for his comments. Thank you, Andy, and welcome to everyone on the call. Happy to share my perspective before we jump into Q&A. But in summary, we 35% of just you doing scrolls in Q2 and 25 to 29% earnings scrolls expected for the full year. I feel very good about where we are, and even more where we're going. Ecolab's very strong business. Business momentum continued in the second quarter. Our team delivered forward customers and delivered forward shareholders. Organic sales growth remade in its previously forecast, 4 to 5% range as growth in our institutions and specialty segment normalize to a strong 7%, lapping last year's very strong 13%.
Andrew Hedberg: We also refer you to 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.
Christophe Beck: Thank you, Andy, and welcome to everyone on the call. I'm happy to share my perspective before we jump into Q&A. But in summary,
Christophe Beck: With 35% adjusted earnings growth in Q2 and 25 to 29% earnings growth expected for the full year, I feel very good about where we are and even more where we're going.
Andrew Hedberg: Ecolab's very strong business momentum continued in the second quarter. Our team delivered for our customers and delivered for our shareholders. Organic sales growth remained in its previously forecast 4-5% range, as growth in our institutions and specialty segments normalized to a strong 7%, lapping last year's very strong 13%. Performance across the rest of our segments further improved. Our growth continues to be leveraged by exceptional organic operating income margin expansion. Margin increased by 360 basis points to 17%, which is a record second quarter margin for Ecolab, resulting in a very strong 35% growth in adjusted earnings.
Christophe Beck: Ecolab's very strong business momentum continued in the second quarter. Our team delivered for our customers and delivered for our shareholders.
Christophe Beck: Organic sales growth remained in its previously forecast 4 to 5 percent range, as growth in our institutions and specialty segments normalized to a strong 7 percent, lapping last year's very strong 13 percent.
Christophe Beck: Performance across the rest of our segments further improved. Our growth continues to be leveraged by exceptional organic operating income margin expansion. Margin increased by 360 basis points to 17%, which is a record second quarter margin for Ecolab, resulting in the very strong 35% growth in the justice earnings per share. With continued to applying momentum and operating margins expanding towards our 20% target, we remain firmly on our long term 12 to 15 earnings growth trajectory. Looking at our segments, institutional and specialty continued to perform exceptionally well, delivering strong organic sales growth on top of last year's double-digit gains.
Christophe Beck: Performance across the rest of our segments further improved. Our growth continues to be leveraged by exceptional organic operating income margin expansion.
Christophe Beck: Margin increased by 360 basis points to 17%, which is the record second quarter margin for Ecolab, resulting in the very strong 35% growth in adjusted earnings per share.
Andrew Hedberg: With continued top-line momentum and operating margins expanding towards our 20% target, we remain firmly on our long-term 2012-2015 earnings growth trajectory. Looking at our segments, Institutional and Specialty continue to perform exceptionally well, delivering strong organic sales growth on top of last year's double-digit gains.
Christophe Beck: With continued top-line momentum and operating margins expanding towards our 20% target, we remain firmly on our long-term 2012-2015 earnings growth trajectory.
Christophe Beck: Looking at our segments, Institutional and Specialty continue to perform exceptionally well, delivering strong organic sales growth on top of last year's double-digit gains.
Christophe Beck: Importantly, our business continues to significantly outperform software restaurant food traffic trends as our customers look to Ecolab's labor savings technologies to improve the operational performance. This growth was leveraged by continued robust operating income margin expansion, with institutional specialties margin already exceeding 20%. Growth in our industrial segment improved despite continued volatile and market demand. Water sales growth accelerated to 4%, led by strong growth in downstream and double-digit growth in our global high-tech business, which serves the rapidly expanding data center and micro electronic industries. As expected, sales and food and beverage were stable as good new business wins offset comparisons to last year's double-digit growth performance in paper improved also.
Christophe Beck: Importantly, our business continues to significantly outperform softer restaurant food traffic trends as our customers look to Ecolab's labor-savings technologies to improve their operational performance. This trend was leveraged by continued robust operating income margin expansion with institutional specialties margin already exceeding 20%. Growth in our industrial segment improved despite continued volatile market demand. Water sales growth accelerated to 4%, led by strong growth in downstream and double-digit growth in our global high-tech business, which serves the rapidly expanding data center and microelectronics industry. As expected, sales in food and beverage were stable, as good new business winds offset comparisons to last year's double-digit growth.
Christophe Beck: Importantly, our business continues to significantly outperform softer restaurant food traffic trends as our customers look to Ecolab's labor savings technologies to improve their operational performance.
Christophe Beck: This growth was leveraged by continued robust operating income margin expansion, with institutional specialties margin already exceeding 20%.
Christophe Beck: Growth in our industrial segment improved, despite continued volatile end-market demand. Water sales growth accelerated to 4%, led by strong growth in downstream and double-digit growth in our global high-tech business, which serves the rapidly expanding data center and microelectronics industries.
Christophe Beck: As expected, sales in food and beverage were stable, as good new business winds offset comparisons to last year's double-digit growth. Performance in paper improved also, a trend we expect to continue, as new business winds helped us accelerate as end markets stabilized.
Christophe Beck: Performance in paper also improved, a trend we expect to continue, as new business winds helped us accelerate end-market stability. Our Health Care and Life Sciences segment also showed better performance. Life Sciences Scrolls improved to 4% as attractive share gains allowed us to outperform ongoing short-term soft industry trends.
Christophe Beck: A trend we expect to continue as new business wins had the sector rate and market stability. Our health care and life sciences segment also showed better performance. Life sciences scrolls improve to 4% as attractive share gains allowed us to outperform on going short-term soft industry trends. We continue to expect modest growth in our life sciences business during the second half of the year. Health care sales were now modestly as we continue to exit low margin business to improve our profitability. Our health care transformation is progressing very well, and the previously announced sale of our global surgical solutions business to Medline is moving exactly as expected.
Christophe Beck: Our Healthcare and Life Sciences segment also showed better performance. Life Sciences scrolls improved to 4% as attractive share gains allowed us to outperform ongoing short-term soft industry trends.
Christophe Beck: We continue to expect modest growth in our life sciences business during the second half. Healthcare sales were down modestly as we continue to exit low-margin business to improve our profitability. Our healthcare transformation is progressing very well, and the previously announced sale of our Global Surgical Solutions business to Medline is moving exactly as expected. Subject to customary regulatory and closing conditions, we expect to close this transaction very soon. As discussed when we announced the sale last quarter, once closed, the transaction will reduce our healthcare and life sciences quarterly sales by about $100 million and quarterly operating income by about $15 million.
Christophe Beck: We continue to expect modest growth in our life sciences business during the second half of the year.
Christophe Beck: Healthcare sales went down modestly as we continue to exit low-margin business to improve our profitability. Our healthcare transformation is progressing very well, and the previously announced sale of our Global Surgical Solutions business to Medline is moving exactly as expected.
Christophe Beck: Subject to customer regulatory and closing conditions, we expect to close this transaction very soon. As discussed when we announced the sales quarter, once closed, transaction will reduce our health care and life sciences quarterly sales by about $100 million and quarterly operating income by about 15 million. Longer term has to continue to sharpen its focus on its very healthy anchor instrument reprocessing business that combines consumables, personal service, and digital solutions. Well, in other words, a typical legal business; well, there is much more to be done. I'm proud of the progress we've made to create the sustainable, profitable health care business that will deliver even stronger value for our important hospital customers.
Christophe Beck: Subject to customary regulatory and closing conditions, we expect to close this transaction very soon.
Christophe Beck: As discussed when we announced the sale last quarter, once closed, the transaction will reduce our healthcare and life sciences quarterly sales by about $100 million and quarterly operating income by about $15 million.
Christophe Beck: Longer term, SK continues to sharpen its focus on its very healthy anchor instrument reprocessing business that combines consumables, personal service, and digital solutions. In other words, a typical Ecolab business. Well, there is much more to be done, but I'm proud of the progress we've made to create a sustainable, profitable health care business that will deliver even stronger value for our important hospital customers. This elimination, once again, continued to go exceptionally well.
Speaker Change: Longer term.
Speaker Change: SKA continues to sharpen its focus on its very healthy anchor instrument reprocessing business that combines consumables, personal service, and digital solutions.
Speaker Change: Well, in other words, a typical Ecolab business. Well, there is much more to be done. I'm proud of the progress we've made to create a sustainable, profitable healthcare business that will deliver even stronger value for our important hospital customers.
Christophe Beck: Best elimination, once again, continue to execute exceptionally well. Organic sales grew 9% in organic operating income grew double digit, benefiting from our enterprise cross selling strategy and innovative digital capabilities. As we continue our long term growth journey, I'm excited to share details of our One Equal of initiative, which will help you will 5 to 7% long term organic sales growth and continue to expand our operating margins towards 20% and beyond. We know what best-in-class performance looks like, the best restaurants, the best hotels, or the best data centers, and we know how to deliver this for our customers because of our experience serving millions of locations in more than 170 countries.
Christophe Beck: Organic sales grew 9%, and organic operating income grew double-digits, benefiting from our enterprise cross-selling strategy and innovative digital capability. As we continue our long-term growth journey, I'm excited to share details of our One Ecolab initiative, which will help fuel 5-7% long-term organic sales growth and continue to expand our operating margins towards 20% and beyond. We know what best-in-class performance looks like: the best restaurants, the best hotels, or the best data centers.
Speaker Change: Test elimination, once again, continued to execute exceptionally well. Organic sales grew 9%, and organic operating income grew double digits, benefiting from our enterprise cross-selling strategy and innovative digital capabilities.
Speaker Change: As we continue our long-term growth journey, I'm excited to share details of our One Ecolab initiative which will help fuel 5-7% long-term organic sales growth and continue to expand our operating margins towards 20% and beyond.
Speaker Change: We know what best-in-class performance looks like, the best restaurants, the best hotels, or the best data centers. And we know how to deliver this for our customers because of our experience serving millions of locations in more than 170 countries across 40 industries.
Christophe Beck: And we know how to deliver this for our customers because of our experience serving millions of locations in more than 170 countries across 40 industries. By leveraging more than 100,000 system connections and billions of proprietary data points on business outcomes, operational performance, and environmental impact, we can demonstrate how an entire network of customer sites can operate at best-in-class performance to deliver even more customer value. This will help us drive attractive growth by continuing to capture more share of our existing 55 billion cross-sell opportunities.
Christophe Beck: The cross 40 industries by leveraging more than 100,000 system connections and billions of proprietary data points on business outcomes, operational performance, and environmental impact. We can demonstrate how an entire network of customer sites can operate at best-in-class performance to deliver even more customer value. This will help us drive attractive growth by continuing to capture more share of our existing 55 billion cross-sell opportunities. At the same time, these new technologies will allow us to enhance the way we operate and serve our customers by realigning the functional work done across hundreds of offices around the world into major global centers of excellence.
Speaker Change: By leveraging more than 100,000 system connections and billions of proprietary data points on business outcomes,
Speaker Change: Operational performance and environmental impact, we can demonstrate how an entire network of customer sites can operate at best-in-class performance to deliver even more customer value.
Speaker Change: This will help us drive attractive growth by continuing to capture more share of our existing $55 billion cross-sell opportunity.
Christophe Beck: At the same time, these new technologies will allow us to enhance the way we operate and serve our customers by realigning the functional work done across hundreds of offices around the world into major global centers of excellence. The resulting total annualized savings of approximately $140 million are expected to be realized by 2027.
Speaker Change: At the same time, these new technologies will allow us to enhance the way we operate and serve our customers by realigning the functional work done across hundreds of offices around the world into major global centers of excellence.
Christophe Beck: The resulting total annualized savings of approximately 140 million are expected to be realized by 2027. But simply, one E-collab will enable customers to reach best-in-class performance on all three fronts: business outcomes, operational performance, and environmental impact by leveraging E-collab's complete offering. Looking to the balance of 24, the confidence we have in our performance continues to strengthen. As a result, we are increasing our outlook for full year 2024 adjusted DPS to the range of 650 to 670, up 25% to 29% versus last. As previously discussed, this range includes an unfavorable impact in the second half of 2024 from the sale of our global surgical solutions business.
Speaker Change: The resulting total annualized savings of approximately $140 million are expected to be realized by 2027.
Christophe Beck: Put simply, One Ecolab will enable customers to reach best-in-class performance on all three fronts business outcomes, operational performance, and environmental impact by leveraging Ecolab's complete offering. Looking to the balance of 24, the confidence we have in our performance continues to strengthen. As a result, we are increasing our outlook for full year 2024 adjusted DPS to the range of 650 to 670, at 25% to 29% versus last year. As previously discussed, this range includes an unfavorable impact in the second half of 2024 from the sale of our global surgical solutions business. The unfavorable impact on 2024 adjusted EPS is now estimated to be $0.08 a share, which is a bit more than we had previously anticipated as we expect this transaction to close very soon.
Speaker Change: Put simply, one Ecolab will enable customers to reach best-in-class performance on all three fronts – business outcomes, operational performance, and environmental impact – by leveraging Ecolab's complete offering.
Speaker Change: Looking to the balance of 24, the confidence we have in our performance continues to strengthen. As a result, we are increasing our outlook for full year 2024 adjusted DPS to the range of 650 to 670, up 25% to 29% versus last year.
Speaker Change: As previously discussed, this range includes an unfavorable impact in the second half of 2024 from the sale of our Global Surgical Solutions business.
Scott Kirkland: The unfavorable impact to 2024 Justice EPS is now estimated to be 8 cents a share, which is a bit more than we had previously anticipated as we expect this transaction to close very soon. This is very good news, but it also has a bigger impact from the future. FX, on the other hand, has also become more of a headwind and is now anticipated to be about 9 cents drag to fool your EPS. And despite this incremental headwinds to EPS, we still have increased our guidance range, which demonstrates the strong and allowing momentum we have in the business.
Speaker Change: The unfavorable impact to 2024 adjusted EPS is now estimated to be $0.08 a share, which is a bit more than we had previously anticipated as we expect this transaction to close very soon. This is very good news, but it also has a bigger impact on the full year.
Christophe Beck: This is very good news, but it also has a bigger impact on the full year. SX, on the other hand, has also become more of a headwind and is now anticipated to be about 9 cents a drag on full year EPS. And despite these incremental headwinds to EPS, we still have increased our guidance range, which demonstrates the strong underlying momentum we have in the business. We expect to keep growing our organic sales at a similar rate as in the first half of the year, driving 2-3% value pricing and 1-2% volume growth.
Speaker Change: FX, on the other hand, has also become more of a headwind and is now anticipated to be about 9 cents drag to full year EPS. And despite these incremental headwinds to EPS, we still have increased our guidance range, which demonstrates the strong underlying momentum we have in the business.
Scott Kirkland: We expect to keep growing our organic sales at the similar rate as in the first half of the year, driving 2 to 3% value pricing and 1 to 2% volume growth. Attractive operating income margin expansion is expected to continue the second half of 2024, though the rate of exceptional expansion will moderate the benefits from lowered delivered product cost we continue to ease. Finally, we continue to anticipate quarterly adjusted diluted earnings per share growth to progressively normalize towards E. Colab's long term 12 to 15% target as solid growth continues and impact from delivered product cost expected to normalize exiting 2024.
Speaker Change: We expect to keep growing our organic sales at a similar rate as in the first half of the year, driving 2-3% value pricing and 1-2% volume growth.
Christophe Beck: Attractive Operating Income Margin Expansion is expected to continue in the second half of 2024. Though the rate of exceptional expansion will moderate the benefits from lowered delivered product costs, will continue to. Finally, we continue to anticipate quarterly adjusted diluted earnings per share growth to progressively normalize towards Ecolab's long-term 12% to 15% target, as solid growth continues and impacts on delivered product costs are expected to normalize exiting 2015.
Speaker Change: Attractive Operating Income Margin Expansion is expected to continue the second half of 2024. Though the rate of exceptional expansion will moderate, the benefits from lowered delivered product costs will continue to ease.
Speaker Change: Finally, we continue to anticipate quarterly adjusted diluted earnings per share growth to progressively normalize towards Ecolab's long-term 12-15% target as solid growth continues and impacts from delivered product costs are expected to normalize exiting 2024.
Christophe Beck: As always, we'll remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. With great business momentum and cash flows, our balance sheet is in a very strong position. These providers with many options to allocate capital to growth opportunities that will generate continued strong returns for shareholders. E. Colab's future has never looked brighter; a leading customer value proposition where our technology has helped customers improve their operating performance while reducing their water and energy use is increasingly relevant and continues to fuel our growth, pricing, and margin expansion.
Christophe Beck: As always, we remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. With great business momentum and cash flows, our balance sheet is in a very strong position. This provides us with many options to allocate capital to growth opportunities that will generate continued strong returns for shareholders. Ecolab's future has never looked brighter.
Speaker Change: As always, we remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. With great business momentum and cash flows, our balance sheet is in a very strong position.
Speaker Change: This provides us with many options to allocate capital to growth opportunities that will generate continued strong returns for shareholders.
Christophe Beck: Our leading customer value proposition, where our technologies help customers improve their operating performance while reducing their water and energy use, is increasingly relevant and continues to fuel our growth, pricing, and margin expansion. We therefore remain confident in delivering superior performance for our customers and shareholders in 2024 and beyond. So, thank you for your continued support and investment in Ecolab. I look forward to speaking with you. Thanks, Christophe.
Speaker Change: Ecolab's future has never looked brighter. Our leading customer value proposition, where our technologies help customers improve their operating performance while reducing their water and energy use, is increasingly relevant and continues to fuel our growth, pricing, and margin expansion.
Christophe Beck: We therefore remain confident in delivering superior performance while our customers and shareholders in 2024 and beyond. So thank you for your continued support and investment in E. Colab. I look forward to your questions, Andy.
Speaker Change: We therefore remain confident in delivering superior performance for our customers and shareholders in 2024 and beyond. So thank you for your continued support and investment in Ecolab.
Operator: That concludes our formal remarks. Operator, would you please begin the question and answer period? I thank you.
Andrew Hedberg: Thanks, Kristoff. That concludes our formal remarks.
Speaker Change: I look forward to your questions.
Operator: Operator, would you please begin the question-and-answer period? Hi, thank you. I'm going to be conducting our question and answer session.
Speaker Change: Thanks Christophe. That concludes our formal remarks. Operator, would you please begin the question and answer period.
Operator: We're going to be conducting a question and answer session. Please limit yourself to one question per caller so that others will have a chance to participate. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate that your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: I thank you.
Operator: We asked you to leave them yourself to one question per caller, so others will have a chance to participate. If you'd like to ask a question, please first start one on your telephone keypad and a confirmation tone to indicate your lines in the question queue. You may press start two if you'd like to remove your question from the queue. For participants using speak equipment, you may be necessary to pick up your handset before pressing the start keys.
Speaker Change: We will now be conducting a question and answer session. We ask that you please limit yourself to one question per caller so that others will have a chance to participate. If you would like to ask a question, 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 would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. And our first question is from the line of Tim Mulrooney with William Blair. Please see if your question is answered. Christophe.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One more please; we'll poll for questions.
Operator: Thank you, and our first question is from the line of two with William Blair. Please see you through questions.
Speaker Change: One moment please while we poll for questions.
Speaker Change: Thank you and our first question is from the line of Tim Mulrooney with William Blair. Please proceed with your question.
Timothy Mulrooney: Kristoff, good afternoon. Good afternoon, Tim.
Timothy Michael Mulrooney: Good afternoon. Good afternoon, Tim. So I wanted to dig into the institutional segment a little bit here, which had really strong line margins in the second quarter, probably the strongest I've ever seen for the second quarter. I think margins typically peak in the third quarter, but I'm wondering if that's the expectation this year, given what we saw in 2Q. And were there any one-time factors that... that helped work in care, you know, that we should be aware of for our models?
Timothy Mulrooney: So I wanted to dig into the institutional segment a little bit here, which had really strong line margins in the second quarter, probably the strongest I've ever seen for the second quarter. I think margins typically speak in the third quarter, but I'm wondering if that's still expectation this year given what we saw in two queue. And whether any one-time factors that that helped moving here, you know, that we should be aware of for our models.
Speaker Change: Christophe, good afternoon. Good afternoon, Tim.
Timothy Michael Mulrooney: So I wanted to dig into the institutional segment a little bit here, which had really strong line margins in the second quarter, probably the strongest I've ever seen for the second quarter.
Timothy Michael Mulrooney: I think margins typically peak in the third quarter, but I'm wondering if that's the expectation this year, given what we saw in 2Q, and were there any one-time factors that...
Speaker Change: that helped work in care, you know, that we should be aware of for our models.
Timothy Mulrooney: And if I could speak in a part two, just to touch on the growth side that you're seeing in the institutional business right now, which looks really good. It's just curious how you're thinking about the sustainability of that strong performance ahead of the second half of this year and in the next year.
Christophe Beck: And if I could sneak in a part two just to touch on the growth side that you're seeing in the institutional business right now, which looks really good. I was just curious how you're thinking about the sustainability of that strong performance as you head into the second half of this year and into next year. Thank you.
Speaker Change: And if I could sneak in a part two just to touch on the growth side that you're seeing in the institutional business right now, which looks really good. I was just curious how you're thinking about the sustainability of that strong performance as you head into the second half of this year and into next year. Thank you.
Timothy Mulrooney: Thank you.
Christophe Beck: Hey, thanks for the question. Team very pleased with the institutional and specialty segment. They're performing exceptionally well. As you've seen, as you know, so they're lapping against a 13% applying growth in Q2 of 2023, so the 7% for this year is really strong, especially in a market where food traffic is down 4%. So quite a remarkable performance. The margin that we had in Q2, we're very clean for that segment. And as you know, it's a little bit seasonal, so by quarter, but generally, margins are going to remain north of 20%. And as we said, so for the full year, we should reach the 22% targeted oil margin for 24 as a segment.
Christophe Beck: Hey, thanks for the question. I'm very pleased with the institutional and specialty segments. They're performing exceptionally well, as you've seen, as you know. So they're lapping against a 13 percent top line growth in Q2 of 2023. So the seven percent for this year is really strong, especially in a market where food traffic is down four percent. It is quite a remarkable performance. The margin that we had in Q2 was very clean for that segment.
Speaker Change: Hey, thanks for the question. I'm very pleased with the institutional and specialty segment. They're performing exceptionally well.
Speaker Change: As you've seen, as you know, so they're lapping against a 13% of land growth in Q2 of 2023. So the 7% for this year is really strong, especially in a market where food traffic is down 4%. So quite a remarkable performance.
Speaker Change: The margins that we had in Q2 were very clean for that segment.
Christophe Beck: And as you know, it's a little bit seasonal. So by a quarter, but generally, margins are going to remain north of 20 percent. And as we've said, for the full year, we should reach the 22 percent targeted OI margin for 24 as a segment. And it will keep improving as well. So from there, it's a good top line, huge interest from customers, very clean, and from a margin perspective, so very strong.
Speaker Change: And as you know, it's a little bit seasonal, so by a quarter, but generally, margins are going to remain north of 20%. And as we've said, so for the full year, we should reach the 22% targeted OI margin for 24 as a segment, and it will keep improving as well. So from there, it's a good top line, huge interest from customers, very clean, and from a margin perspective, so very strong, and it's going to keep improving as well in the next few quarters and years. So very pleased with what INS is doing. Innovation is also adding a lot as well.
Christophe Beck: And it will keep improving as well. So from there, so good to apply using interests or from customers very clean and from a margin perspective, so very strong. And it's going to keep improving as well in the next quarter and years. So very pleased with what INS is doing, innovation is also adding a lot as well, so to defy a power of that business. As you know, our customers are all trying to find solutions to manage labor shortages, wage growth as well that they have. They need more automation, they need more systems, they need more digital technology.
Christophe Beck: And it's going to keep improving as well in the next few quarters and years. So, very pleased with what INS is doing. Innovation is also adding a lot to the firepower of that business. As you know, our customers are all trying to find solutions to manage labor shortages and wage growth as well that they have. They need more automation.
Speaker Change: To defy the power of that business?
Speaker Change: As you know, our customers are all trying to find solutions to manage labor shortages.
Speaker Change: wage growth as well that they have, they need more automation, they need more systems, they need more digital technology. This is exactly what we're providing our customers. So all in all, as I've shared with you many times, before the pandemic, for me, institutionals was kind of a steady, good business for the future of Ecolab. Now, a few years later, I'm extremely bullish about that business because we uniquely positioned to gain a lot of share at very high margin.
Christophe Beck: This is exactly what we're providing our customers: all in all. As I've shared with you many times before the pandemic, for me, institutional, so what's going to be steady, good business for the future of E. Colab. Now, a few years later, extremely bullish about that business, because we uniquely position so to gain a lot of share at very high margin.
Christophe Beck: They need more systems. They need more digital technology. This is exactly what we're providing our customers. So all in all, as I've shared with you many times before the pandemic, for me, institutional was kind of a steady, good business for the future of Ecolab. Now, a few years later, I'm extremely bullish about that business because we are uniquely positioned to gain a lot of share at a very high margin. Thank
Timothy Mulrooney: Thank you.
Shish Sabadra: The next question is from the line of She's Sabaja with RBC Capital Markets, please assume your question. Thanks for taking my question.
Ashish Sabadra: The next question is from the line of Ashish Sabadra with RBC Capital Markets. Thanks for taking my question. I just wanted to focus on the raw price dynamic. How should we think about the raw material payments going into the back half of the year? And we've continued to see pretty robust gross margin expansion. How should we think about the SG&A operating leverage going forward? Thanks. Thank you, Ashish.
Speaker Change: Thank you. The next question is from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your question.
Shish Sabadra: I just wanted to focus on the raw price dynamic. How should we think about the raw material being when it's going into the back half of the year? And we've continued to see pretty robust close margin expansion.
Ashish Sabadra: Thanks for taking my question. I just wanted to focus on the raw price dynamic. How should we think about the raw material tailwinds going into the back half of the year? And we've continued to see pretty robust gross margin expansion. How should we think about the SG&A operating leverage going forward? Thanks.
Scott Kirkland: How should we think about this training operating leverage going forward? Thanks.
Scott Kirkland: Thank you, Shish. I'll put that question to Scott. Yeah, Shish, thanks for the question. Just answering your first question as we think about the DPC as Christophe talked up front, you know, we saw the favorability in Q2, high single digits. We're expecting that favorability to taper as we go into Q3, sort of got a load of mid single digits.
Scott D. Kirkland: I'll pass that question to Scott. Yeah, Ashish, thanks for the question. Just answering your first question, as we think about the DPC, as Christophe talked up front, we saw the favorability in Q2, high single digits. We're expecting that favorability to taper as we go into Q3, sort of low to mid single digits. And then by Q4, ROS, we get really stabilized as we think about them. And going into next year, frankly, we're seeing a world where ROS gets back to sort of normal inflationary levels next year.
Scott: Thank you Ashish, I'll pass that question to Scott.
Scott: Yeah, Ashish, thanks for the question. Just answering your first question, as we think about the DPC, as Christophe talked up front, you know, we saw the favorability in Q2, high single digits, we're expecting that favorability to taper as we go into Q3, sort of low to mid single digits, and then by Q4, ROAS to get really stabilized, as we think about them and going into next year, frankly, we're seeing a world where ROAS get back to sort of normal inflationary levels next year. Certainly, given the amount of ROAS, the thousands of raw materials that we buy, they move around differently, in some cases, like cost of using favorability, but in other commodities, you're seeing them go the other direction, oil based commodities in particular.
Scott Kirkland: And then by Q4, Ross, we get really stabilized as we think about them. And then going into next year, frankly, we're seeing a world where Ross get back to sort of normal inflationary levels next year. Certainly, given the amount of raw, the thousands of raw materials that we buy, they move around differently in some cases, like cost that you seem favorably. But in other commodities, you're seeing them go the other direction: oil-based commodities in particular.
Scott D. Kirkland: Certainly, given the amount of ROS, the thousands of raw materials that we buy, they move around differently in some cases, like cost-to-gas favorability. But in other commodities, you're seeing them go in the other direction, oil-based commodities in particular.
Scott Kirkland: And then, as we think about the S-GNA leverage, which is a year's two-part question, is, as we talked about last quarter, we are making really smart growth-oriented investments, which is really driving the line share, the increase in the second quarter, the 6% year over year. And those investments are in frontline firepower, technology, digital technology, which is all helping long-term productivity. And we feel very good about that underlying productivity. So, in long term, we expect to get to at least those historical levels of productivity going forward.
Scott D. Kirkland: And then as we think about the SG&A leverage, which is your two-part question, as we talked about last quarter, we are making really smart growth-oriented investments, which is really driving the lion's share of the increase in the second quarter, the 6% year over year. And those investments are in frontline firepower, technology, and digital technology, which is all helping long-term productivity. And we feel very good about that underlying productivity. So, in the long term, we expect to get to at least those historical levels of productivity going forward. Our next question is from the line of Manav Patnaik with Barclays. Hi, good afternoon, this is Ronan Kennedy. I'm from Manav Patnaik.
Scott: And then as we think about the SG&A leverage, which is your two-part question, is, as we talked about last quarter, we are making really smart, growth-oriented investments, which is really driving the line share, the increase in the second quarter, the 6% year over year. And those investments are in front-line firepower, technology, digital technology, which is all helping long-term productivity, and we feel very good about that underlying productivity.
Scott: So in long term, we expect to get to at least those historical levels of productivity going forward.
Manav Patnaik: Are there any questions from the line of Manav Patnaik with Parklee? Let's just see with your questions.
Scott: Our next question is from the line of Manav Patnaik with Barclays. Please proceed with your question.
Ronan Kennedy: Hi, good afternoon. This is Ronan Kennedy. I'm from Manav. Thank you for taking my question.
Manav Shiv Patnaik: Thank you for taking my question. With the One Ecolab initiative, I understand the long-term guidance framework unveiled on September 23, Investor Day. It contemplated SG&A productivity, in addition to GM recovery. But to what extent did it consider this One Ecolab initiative and related benefits? Was it fully considered? Or is it incremental? And what impact did it have? And what was the impact on the targets, the trajectory, the timeline for realization?
Ronan Kennedy: With the One Ecolab Initiative, I understand the long-term guidance framework unveiled at September 23, Investor Day. I understand that contemplated SGNA productivity in addition to GM recovery.
Scott: Hi, good afternoon. This is Ronan Kennedy. I'm from Manav. Thank you for taking my question.
Ronan Kennedy: With the One Ecolab initiative, I understand the long-term guidance framework unveiled at September 23, Investor Day. I understand that contemplated SG&A productivity.
Christophe Beck: But to what extent did it consider this One Ecolab Initiative and related benefits? Was it fully considered, or is it incremental? And what impact, you know, what's the impact on the targets, the trajectory, the timeline for realization, if any.
Ronan Kennedy: In addition to GM recovery.
Speaker Change: But to what extent did it consider this one Ecolab initiative and related benefits? Was it fully considered or is it incremental? And what impact, you know, what's the impact on the targets, the trajectory, the timeline for realization, if any?
Ronan Kennedy: Thank you, Ronan.
Christophe Beck: Thank you, Ronny. It's all going to support, obviously, our commitment to reach the 20% ROI margin as quickly as we can. But most importantly, One Ecolab is a growth initiative. It's really helping fuel the five to seven percent, which is the other commitment that we've made as well, which leads to this 12 to 15 percent earnings per share growth. When you think about it, for One Ecolab, our company has anchored its strategy on circling the customer, circling the globe for a very long time.
Christophe Beck: It's all going to support, obviously, our commitment to reach the 20% UI margin as quickly as we can. But most importantly, One Ecolab is a growth initiative. It's really so helping fuel towards the 5% to 7%, which is the other commitment that we've made as well, which leads to these 12% to 15% earnings per share growth.
Speaker Change: Thank you, Ronny. It's all going to support, obviously, our commitment to reach the 20% OI margin as quickly as we can. But most importantly, One Ecolab is a growth initiative.
Speaker Change: It's really helping fuel towards the five to seven percent, which is the other commitment that we've made as well, which leads to this 12 to 15 percent earnings per share growth. When you think about it, for one Ecolab, our company has anchored its strategy on circle the customer, circle the globe for a very long time.
Christophe Beck: What do you think about it for One Ecolab? Our company has anchored its strategy on Circle the Customer, Circle the Globe for a very long time. The opportunity is huge, 55 billion and close to 3 billion forward to up 35 customers. Well, up to now, we had to rely very successfully so, by the way, on our teams to work together in order to provide the whole value of Ecolab to our customers everywhere around the world by working together, by reaching out, by working as one team. One Ecolab is today hardwiring all that that ultimately we can help our customers take a restaurant chain, for instance, understand what's my best in class performance that I should be aiming at because we know what the best restaurant performance is out there.
Christophe Beck: The opportunity is huge, $55 billion and close to $3 billion for our top 35 customers. Well, up to now, we have had to rely very successfully, by the way, on our teams to work together in order to provide the whole value of Ecolab to our customers everywhere around the world by working together, by reaching out, by working as one team.
Speaker Change: The opportunity is huge, $55 billion and close to $3 billion for our top 35 customers.
Speaker Change: Well, up to now, we had to rely, very successfully so, by the way, on our teams to work together in order to provide the whole value of Ecolab to our customers everywhere around the world by working together, by reaching out, by working as one team.
Christophe Beck: One Ecolab is today hardwiring all that so ultimately, we can help our customers take a restaurant chain, for instance, understand what's my best in class performance that I should be aiming for, because we know what the best restaurant performance is out there in terms of guest satisfaction, in terms of cost, in terms of environmental impact, and we can help them understand what's the total potential for their company, for their set of restaurants, and we will share that upside So between us as a value price, and obviously, so for the customer as a net net positive for the customer. Well, that helps us grow, that helps us improve our margin, and that helps our customers improve their performance. So it's a win-win that drives retention or loyalty as well.
Speaker Change: One Ecolab is, today, hardwiring all that, that ultimately, we can help our customers take a restaurant chain, for instance, understand what's my best-in-class performance that I should be aiming at, because we know what the best restaurant performance is out there.
Christophe Beck: In terms of guest satisfaction, in terms of cost, in terms of environmental impact, and we can help them understand what's the total potential for the company, for the set of restaurants, and we will share that upsides are between us as value price and obviously for the customer as a net net positive for the customer. Well, that helps us grow, that helps us improve our margin, that helps our customers improve their performance, so it's a win-win that drives as well retention or loyalty. So at the end of today, it's growth focused, and at the same time, that technology that we're using will help us reorganize the way we work, serving those customers as one Ecolab.
Speaker Change: In terms of guest satisfaction, in terms of...
Speaker Change: [inaudible]
John Ezekiel E. Roberts: So at the end of today, it's growth focused. And at the same time, that technology that we're using, well, will help us reorganize the way we work, serving those customers as One Ecolab, and that's going to improve productivity as well. We've had 20 to 30 basis points of SG&A productivity growth in the past, and that's going to improve as we go forward as we implement One Ecolab. But at the same time, as Scott was mentioning, so before, today, we're also reusing some of that margin upside in order to reinvest in growth.
Speaker Change: So at the end of today, it's growth focused, and at the same time, that technology that we're using will help us reorganize the way we work, serving those customers as one Ecolab. That's going to improve as well the productivity we've had.
Christophe Beck: That's going to improve as well the productivity. We've had 20 to 30 basis points in the past of SDNA productivity growth. That's going to improve as we go forward, as we implement one Ecolab. But at the same time, Scott was mentioning so before. Today, we also, we're using some of that margin upside in order to reinvest in growth investment. All in all, that will help us get to the 20% and go beyond by driving 5 to 7% deadline growth.
Scott: 20 to 30 basis points in the past of SGNA productivity growth, that's going to improve as we go forward, as we implement One Ecolab, but at the same time, as Scott was mentioning so before, today, we're also reusing some of that margin upside in order to reinvest in growth investment.
John Ezekiel E. Roberts: All in all, that will help us get to 20% and go beyond by driving 5% to 7% top line. Our next question comes from John Roberts with Mizzou Host Charities. Please proceed with your question. Yeah, maybe just a further follow up on that, Christophe.
Scott: All in all, that will help us get to the 20% and go beyond by driving 5% to 7% top line growth.
John Roberts: Our next question comes from the line of John Roberts with the Zoo Hostarity. Please see if you're...
Scott D. Kirkland: Sounds like you plan on creating centers of excellence. So what would the center of excellence be? And is the charge for severance for some of the functions that are going to be replaced by the center of excellence? So, John, I'll let it to Scott to reply to that question, but generally, we've been, so over the years, always evolving the way we work, especially with all the technology capabilities that we have, so most of the investments, it's to shift from older technology to newer technology, to that new way of working, which ultimately is gonna help us grow faster and drive productivity, but bottom line, the good thing is that our team, so we keep strengthening as well in the meantime, so there will be no net negative for anyone in the organization, is that Scott?
Speaker Change: Our next question comes from the line of John Roberts with Mizzou Host Charities. Please suggest your question.
John Roberts: Yeah, maybe just a further follow-up on that, Christophe. It sounds like you plan on creating centers of excellence.
John Ezekiel E. Roberts: Yeah, maybe just a further follow up on that, Christophe, sounds like you plan on creating centers of excellence. So what would the center of excellences be? And is the charge for severance for some of the functions that are going to be replaced by the center of excellences?
Scott Kirkland: So, what would the center of excellence be? And is the charge for severance for some of the functions that are going to be replaced by the Center of Excellence?
Christophe Beck: So, John, I'll let it to Scott to reply to that question, but generally, we've been, over the years, always evolving the way we work, especially with all the technology capabilities that we have. So, most of the investments, it's to shift from all the technology to new technology to that new way of working, which ultimately is going to help us grow faster and drive productivity. But, bottom line, there's a lot of work to do. The good thing is that our team will keep strengthening as well in the meantime, so there will be no net negative for anyone in the organization, is that Scott?
Christophe Beck: So, John , I'll let it to Scott to reply to that question, but generally, we've been so over the years, always evolving the way we work, especially with all the technology capabilities that we have. So, most of the investments, it's to shift from older technology to newer technology to that new way of working, which ultimately is going to help us grow faster and drive productivity. But bottom line, the good thing is that our team will keep strengthening as well in the meantime, so there will be no net negative for anyone in the organization. Is that Scott?
Scott Kirkland: Yeah, thanks, John.
Scott D. Kirkland: Yeah, thanks, John, I'll add to that, Christophe. As he said, this is not about the restructuring, it's not about cost savings, this is focused on growth. The savings, honestly, John, are pretty immaterial in the context of the P&L, and if you think about this over a three-year program, the net sort of cost and savings are less than 1% on average over the next few years, really starting in 2025, but as we think about it, to your question on what the sort of nature of it is and what's happening, that it's not about cutting the jobs, but it's about realigning where the work gets done, moving work to these centers of action, functional work, really, to support the growth, create scalability, to Christophe's earlier point, that helps drive incremental productivity from a long-term perspective, and then to your question on the charges, the special charges will include severance as we move work from many countries into these global COEs, but also there are other costs in there, including advisory costs, other costs, facility-related costs, but again, these are gonna happen over the next few years.
Scott Kirkland: I'll add to that, Christophe. As he said, this is not about the restructuring. It's not about cost savings. This is focused on growth. The savings, honestly, John, are pretty immaterial in the context of the P&L, and if you think about this over a three-year program, then that sort of cost and savings are less than 1% on average over the next few years, really starting in 2025. But as we think about it to your question on what the sort of nature of it is and what's happening that is, it's not about cutting the jobs, but it's about realigning where the work gets done, moving work to these centers of excellence functional work, really.
Scott: Yeah, thanks, John . I'll add to that, Christophe. As he said, this is not about the restructuring, it's not about cost savings, this is focused on growth.
Scott: The savings, honestly, John , are pretty immaterial in the context of the P&L, and if you think about this over a three-year program, then that sort of cost and savings are less than 1% on average over the next few years.
Speaker Change: really starting in 2025. But as we think about it, to your question on what the sort of nature of it is and what's happening that is, it's not about cutting the jobs.
Speaker Change: But it's about realigning where the work gets done, moving work to these centers of actions, functional work, really, to support the growth, create scalability, to Christophe's earlier point, that helps drive incremental productivity from a long-term perspective. And then to your question on the charges, the special charges will include severance as we move work from many countries into these global COEs. But also there are other costs in there, including advisory costs, other costs, facility-related costs. But again, these are going to happen over the next few years.
Scott Kirkland: To support the growth, create scalability to Christophe's earlier point that helps drive incremental productivity from a long-term perspective. And then to your question on the charges, the special charges will include severance as we move work from many countries into these global COEs. But also, there are other costs in there, including advisory costs, other costs, and facility-related costs. But again, these are going to happen over the next few years.
Joshua Spector: Our next question comes from the line of Joshua Specter with UBS.
Scott D. Kirkland: Our next question comes from the line of Joshua Spector with UBS. Hi, this is Lucas Berman for Josh. So just looking at the second half assumptions, typically, Ecolab will get a step up in EPS of sort of 25 cents or more, 2Q to 3Q. I mean, there's only been a couple of instances in the last 10 years where that didn't happen.
Lucas Berman: This is your second question.
Speaker Change: Our next question comes from the line of Joshua Spector with UBS. Please receive your question.
Lucas Berman: Hi, this is Lucas Berman on for Josh.
Joshua David Spector: So you guys are kind of assuming that it's only up kind of 12 cents to 20 cents at the high end. So firstly, I was wondering if you could just kind of walk us through why that normal seasonality doesn't make sense this year. And then secondly, you know, the typical like 4Q move is like flat to down modestly, which is basically what you've assumed in your guide. So if we had a more typical 3Q move, and then we got the normal 4Q move, it'd be pointing more to like 680 for the year versus where you guys are at on the 660. So just trying to understand sort of what's different in the setup this year, please.
Lucas Berman: So just looking at the second half assumptions, typically, like eco-level, get a step up in APS and sort of 25 cents or more to Q to 3Q. I mean, there's only been a couple of instances in the last 10 years where that didn't happen. So your guide's kind of assuming that it's only up going to 12 cents to 20 cents at the high end.
Speaker Change: Hi, this is Lucas Barman, I'm for Josh. So just looking at the second half assumptions...
Speaker Change: Typically like Ecolab will get a step up in APS instead of 25 cents or more.
Andrew Hedberg: Andrew Hedberg, Andrew Hedberg
Speaker Change: So you guys kind of assuming that it's only up kind of 12 cents to 20 cents at the high end So firstly, I was worried if you could just kind of walk us through why that normal seasonality doesn't make sense this year
Scott Kirkland: So firstly, I was wondering if you could just kind of walk us through why that normal seasonality doesn't make sense this year. And then secondly, the typical like 4Q move is like flat to down modestly, which is basically what you've ashamed in your guide. So if we had a more typical 3Q move and then we get the normal 4Q move, it would be pointing more to like 680 for the year versus where you guys are out on the 660s. Just trying to understand what's different in the setup this year, please.
Speaker Change: And then secondly, the typical like four key moves.
Speaker Change: Like flat to down modestly, which is basically what you've assumed in your guide.
Speaker Change: So, if we had a more typical 3Q move...
Andrew Hedberg: Andrew Hedberg, Andrew Hedberg
Scott Kirkland: Thanks.
Scott Kirkland: Thank you. I'll let this gut start, then that'll be on that.
Scott D. Kirkland: Thank you. I'll let Scott start, and I'll build on that. Yeah, feel free to add to this, Christophe. Obviously, there is a lot to move around. As Christophe talked, you know, in the second half, don't forget that we will have the impact of surgical, which will be a headwind, which we talked about, about $0.08, and in addition, the additional headwinds that we'll see from FX. But overall, as you see this, the sales, we expect to continue to accelerate throughout the year, right?
Christophe Beck: Yeah, feel free to add to this, Kristoff. Obviously, a lot of move around as Kristoff talked in the second half. Don't forget that we will have the impact of surgical, which will be a headwind, which we talked about, about 8 cents in addition to the additional headwinds that we'll see from FX. But overall, as you see this, the sales we expect to continue to accelerate throughout the year, right?
Speaker Change: Thank you. I'll let Scott start, and I'll build on that. Yeah, feel free to add to this, Christophe. Obviously, a lot of moving around. As Christophe talked, you know, in the second half, don't forget that we will have the impact of surgical, which will be a headwind, which we talked about, about 8 cents, in addition to the additional headwinds that we'll see from FX.
Scott D. Kirkland: And you typically see sales being higher in sort of the second and third quarter of the year. And then on the other side of this, you'll see the year-over-year margin expansion start to, will continue to expand, but it'll ease to the third quarter as DPC eases, and then DPC becomes sort of stable and ultimately a headwind next year. And so I think you have some dynamics here that are, you know, probably not going to be able to compare the second half of this year to normal years.
Scott: But overall, as you see this, the sales, we expect to continue to accelerate throughout the year, right? And you typically see sales being higher in sort of the second and third quarter of the year. And then on the other side of this, you'll see the year-over-year margin expansion start to, will continue to expand, but it'll ease to the third quarter as DPC eases, and then DPC becomes sort of stable and ultimately a headwind next year. And so I think you have some dynamics here that are, you know, probably not going to be able to compare the second half of this year to the normal years, but getting back to this is really the, if you look at our earnings growth, that we're going to drive very strong earnings growth and even excluding the DPC tailwinds we're getting at third quarter and then the stable DPC in the fourth quarter.
Scott Kirkland: And you typically see sales being higher instead of the second and third quarters of the year. And then on the other side of this, you'll see that the year-over-year margin expansion will continue to expand. But it'll ease to the third quarter as DPC eases, and then DPC becomes sort of stable and ultimately a headwind next year.
Christophe Beck: And so I think you have some dynamics here that are probably not going to be able to compare the second half of this year to the normal years. But getting back to this is really, if you look at our earnings growth, that we are going to drive very strong earnings growth and even excluding the DPC, the tailwinds we're getting at third quarter and then the stable of DPC in the fourth quarter that we're going to be driving underlying EPS at the high end of our long-term 12 to 15% rate. Yeah, I feel really good about the second half here.
Scott D. Kirkland: But getting back to this, really, if you look at our earnings growth, we're going to drive very strong earnings growth and, even excluding the DPC tailwinds we're getting in the third quarter and then the stable DPC in the fourth quarter, we're going to be driving underlying EPS at the high end of our long-term 12 to 15 percent rate. Yeah, I feel really good about the second half here when you think about it.
Scott: that we're going to be driving underlying EPS at the high end of our long-term 12 to 15 percent range.
Christophe Beck: When you think about it, so 35% earnings gross in Q2, 14-20 expected in Q3, 12-18 for Q4, with the midpoint of 15, as Scott said, so with no DPC help, as well at that point, including as well the impact of the surgical sale and FX as well, will demonstrate the strong business momentum and margin upwards momentum that we have as well here. It's a very consistent, very steady. I feel really good about where we're going here.
Christophe Beck: So 35% earnings growth in Q2, 14 to 20 expected in Q3, 12 to 18 for Q4 with the midpoint of 15, as Scott said. So with no DPC help as well at that point, including as well the impact of the surgical sale and FX as well, demonstrating the strong business momentum and margin upward momentum that we have as well here. So very consistent, very steady.
Scott: Yeah, I feel really good about the second half here when you think about it. So 35% earnings growth in Q2, 14 to 20 expected in Q3, 12 to 18 for Q4 with the midpoint of 15 as Scott said. So with no DPC help as well at that point, including as well the impact of the surgical sale and FX as well, will demonstrate the strong business momentum and margin upwards momentum that we have as well here. So very consistent, very steady. I feel really good about where we're going here.
Christopher S. Parkinson: I feel really good about where we're going. Next question is from the line of Chris Parkinson with Wolf Research. Great, thank you so much.
Chris Parkinson: Next question is from the line of Chris Parkinson's full of research. Please excuse your question.
Scott: Next question is from the line of Chris Parkinson of Wolf Research. Please just use your question.
Chris Parkinson: Great, thank you so much.
Chris Parkinson: Chris, I would like to dig in a little bit more on institutional and specialty, just given all the macro dynamics and your relative outperformance. But when you break down everything that's going on a quick service, including some of these perceived value wars and obviously the mechanics of food retail and then lodging and then institutional side of it, what's the degree of material outperformance? When we think about the second half and the 25, does your team see actually any further improvements there? Is it going to be primarily market share gains that's going to drive the narrative for the foreseeable future?
Christophe Beck: Christophe, I'd like to dig in a little bit more on institutional and specialty, just given all the macro dynamics and your relative outperformance. But when you break down everything that's going on in quick service, including some of these, you know, perceived value wars, and obviously the mechanics of food retail, and then lodging and the institutional side of it, you know, what's been driving the degree of material outperformance?
Christopher S. Parkinson: Great, thank you so much.
Christopher S. Parkinson: Chris, I'd like to dig in a little bit more on institutional specialty, just given kind of all the macro dynamics and your relative outperformance, but when you break down everything that's going on quick service, including some of these, you know, perceived value wars and
Speaker Change: Obviously, the mechanics of food retail and then lodging and the institutional side of it. You know, what's been driving, you know, the degree of material outperformance? And, you know, when we think about the second half into 25,
Christophe Beck: And, you know, when we think about the second half into 25, does your team see any further improvements there? Is it going to be primarily market share gains that's going to drive the narrative for the foreseeable future? Thank you. Yeah, thank you, Chris.
Speaker Change: Did your team see any further improvements there, or is it going to be primarily market share gains that's going to drive the narrative for the foreseeable future? Thank you.
Christophe Beck: Thank you.
Christophe Beck: Yes, thank you, Chris. It's mostly market share gain, as it's being as well, so the past few quarters, as mentioned. So, the food traffic in restaurants in the US is down 4%, so that's really showing how much we gain in share. The main driver in institutional and specialty of our performance is that we are helping our customers with labor alternation. They don't find labor, and labor is expensive at the same time and with a high turnover. Other than that, it's pretty easy for our customers, so it's pretty hard, obviously. All of the solutions that we provide them, being chemical solutions, are helping doing three in one, or our new machine program, like the AIG machine that we introduced at the National Restaurant Association show a few months ago, or our digital technologies, as well, are all helping our restaurant and hotels customers to serve more guests in a better way while using less labor.
Christophe Beck: It's mostly market share gain, as it has been for the past few quarters, as mentioned. So, food traffic in restaurants in the U.S. is down 4%. So that's really showing how much we're gaining share. The main driver for institutional and specialty our performance is that we are helping our customers with labor automation. They don't find labor, and labor is expensive at the same time and has a high turnover. Other than that, it's pretty easy for our customers. So it's pretty hard, obviously.
Speaker Change: Yeah, thank you, Chris. It's mostly market share gain, as it's been as well. So the past few quarters, as mentioned, so the food traffic in restaurants in the US is down 4%. So that's really showing how much we're gaining share. The main driver in institutional specialty of our performance is that we are helping our customers with labor automation. They don't find labor, and labor is expensive at the same time, and with a high turnover. Other than that, so it's pretty easy for our customers. So it's pretty hard, obviously. All of the solutions that we provide them being
Christophe Beck: All of the solutions that we provide them, being chemical solutions that help them do three in one, or our new deep machine programs, like the AI dish machine that we introduced at the National Restaurant Association show a few months ago, or our digital technologies, as well, are all helping our restaurants and hotels customers to serve more guests in a better way while using less labor. Well, this is exactly what they need. This is exactly what we're providing for them, and it's exactly what competition can't really provide. So you should put it all together.
Speaker Change: chemical solutions, helping doing three in one, or our new machine program, like the AI dish machine that we introduced at
Speaker Change: At the National Restaurant Association show a few months ago, our digital technologies as well are all helping our restaurants and hotels, our customers to serve more guests
Christophe Beck: Well, this is exactly what they need. This is exactly what we're providing them. And it's exactly what competition can't really provide, so you put these all together. That drives growth at a higher margin because everybody wins.
Speaker Change: in a better way while using less labor. Well, this is exactly what they need. This is exactly what we're providing them. And it's exactly what competition can't really provide. So you put it all together, that drives growth at a higher margin because everybody wins.
John Wittelty: The next question is from the line of John Wittelty with BMO Capital Markets. Let's see if there's a question.
John Patrick McNulty: That drives growth at a higher margin because everybody. The next question is from the line of John McNulty with BMO Capital Markets. Yeah, good afternoon.
Speaker Change: The next question is from the line of John McNulty with BMO Capital Markets. Please proceed with your question.
John Wittelty: Yeah, good afternoon. Thanks for taking my question.
Christophe Beck: Thanks for taking my question. When you look at industrial business, you know, it looks like it's kind of a haves and have nots. And you're seeing some decent growth in areas like water, food, and beverage paper, which is still, maybe struggling a little bit. I guess, can you give us your outlook for the industrial markets as you're looking forward into the back half of the year and early next year, what you're hearing from your customers, especially in some of the areas that may be struggling, like the heavier, heavier water applications? Thank you, John.
John Wittelty: When you look at the industrial business, it looks like there's a haves and have not, and you're seeing some decent growth in areas like water, food and beverage. Paper still may be struggling a little bit. I guess can you give us your outlook for the industrial markets as you're looking forward into the back half of the year and early next year, what you're hearing from your customers, especially on some of the areas that maybe struggling like the heavier the heavier water applicant.
John Patrick McNulty: Yeah, good afternoon. Thanks for taking my questions.
John Patrick McNulty: When you look at the industrial business, you know, it looks like it's kind of a
John Patrick McNulty: There's a haves and have nots and you're seeing some decent growth in areas like water, food and beverage paper still may be struggling a little bit. I guess, can you give us your outlook for the industrial markets as you're looking forward into the back half of the year and early next year? What you're hearing from your customers, especially on some of the areas that may be struggling, like the heavier water applications?
Christophe Beck: Thank you, John. Generally, I like the progression that industrial is having. So, if you take a little bit the broader picture, the last few years, industrial has done unbelievable work in terms of margin improvement. We've reached a record level as well, and the shift to offense a year ago that we started is starting to bear fruit as well in terms of top line momentum. Which is exactly where we wanted to be getting to apply in moving, why we keep improving as well the margins, and that's exactly what's happening. So, we've moved overall segments are from 1% growth in the first quarter to 2% in the second quarter.
Christophe Beck: Generally, I like the progression that Industrial is having. So if you take a little bit of the broader picture, over the last few years, Industrial has done unbelievable work in terms of margin improvement. We've reached record levels as well. And the shift to offense a year ago that we started is starting to bear fruit as well in terms of top line momentum, which is exactly where we wanted to be getting the top line moving while we keep improving, as well as the margins. And that's exactly what's happening here.
John: Thank you, John .
Speaker Change: Generally, I like the progression that industrial is having. So if you take a little bit the broader picture, the last few years, industrial has done unbelievable work in terms of margin improvement. We've reached a record level as well. And the shift to offense a year ago that we started is starting to bear fruit as well in terms of top line momentum, which is exactly where we wanted to be getting top line moving while we keep improving as well as the margins. And that's exactly what's happening. So we've moved overall segments from 1% growth in the first quarter to 2%.
Christophe Beck: So we've moved overall segments from 1% growth in the first quarter to 2% in the second quarter. Within that, our largest business, which is water, is at 4%, which, by the way, has been impacted as well by mining. So underlying water would be even stronger.
Christophe Beck: Within that as well, our largest business, which is water, is at 4%, which, by the way, has been impacted as well by mining. So, underlying water would be even stronger in the downstream. Is really strong in water as well. Global high-tech is doing extremely well at the same time. So, industrial shifting very nicely when I think about F&B and paper. They're going to keep improving in the quarters to come.
Speaker Change: in the second quarter. Within that as well, our largest business, which is water is at 4%, which by the way has been impacted as well by mining. So underlying water would be even stronger in there. Downstream is really strong in water as well. Global high-tech is doing extremely well as well at the same time.
Christophe Beck: In their downstream, it is really strong in water as well. Global high tech is doing extremely well, as well, at the same time. So the industrial sector is shifting very nicely. When I think about F&B and paper, they're going to keep improving in the quarters to come. So, bottom line, you will see industrial shift even further up with a very strong margin of 16% today, which is 200 basis points better than where we were in 2019. So I think that we've really managed that very, very well. And the best is yet to come.
Speaker Change: So, industrial is shifting very nicely. When I think about F&B and paper, they're going to keep improving in the quarters to come. So, bottom line, you will see industrial shift even further up with very strong margin of 16% today, which is 200 basis points.
Christophe Beck: So, bottom line, you will see industrial shift even further up with very strong margin of 16% today, which is 200 basis points better than where we were in 2019. So, I think that we've really managed at very, very well, and the best is yet to come.
Speaker Change: better than where we were in 2019. So I think that we've really managed that very, very well. And the best is yet to come.
Jeff Picasso: Our next question is from the line of Jeff Picasso with JP Morgan. This is your question.
Jeffrey John Zekauskas: Our next question is from the line of Jeff Zekauskas with J.P. Morgan. Please proceed with your question. Thanks very much.
Speaker Change: Our next question is from the line of Jeff Zekauskas with J.P. Morgan. Please proceed with your question.
Jeff Picasso: Thanks very much. In the first quarter, your over your volume growth was 2%, and this quarter your over your volume growth is 1%.
Christophe Beck: In the first quarter, your year-over-year volume growth was 2%. And this quarter, your year-over-year volume growth is 1%, which is the reason for the deceleration and volume growth, and the institutional business because of tougher comparisons. And secondly, do you have a target for your global industrial business? I know you want to get to a 20% margin, and that's the business that's maybe at, I don't know, 16 and a half, something like that. Do you have a goal for that? Thank you, Jeff.
Jeffrey John Zekauskas: Thanks very much. In the first quarter, year-over-year volume growth was 2%.
Jeff Picasso: Is the reason for the deceleration, the deceleration and volume growth in the institutional business because of tougher comparisons? And secondly, do you have a target for your global industrial business? I know you want to get to a 20% margin, and that's the business that's maybe it. I don't know 16.5, something like that. Do you have a goal for that business?
Speaker Change: And this quarter, your year-over-year volume growth is 1%.
Jeffrey John Zekauskas: Is the reason for the deceleration a deceleration in volume growth in the institutional business because of tougher comparisons?
Speaker Change: And secondly, do you have a target?
Speaker Change: for your global industrial business. I know you want to get to a
Speaker Change: 20% margin and that's the business that's maybe at I don't know 16 and a half something like that do you have a goal for that business?
Christophe Beck: Thank you, Jeff. As mentioned just before, so industrial is at 16% right now. It's 200 basis points better than what it was in 2019.
Christophe Beck: As mentioned just before, industrial production is at 16 percent right now. It's 200 basis points better than what it was in 2019. And ultimately, we want to have an industrial move towards 20 percent as well. Getting to 18 percent will already be a good step in that direction. And if we get industrial to 18 percent and all the other businesses get to that target, we will get north of 20 percent as a whole company. So I feel really good about both getting beyond the 20 percent mark as a whole company and 18 percent for industrial, which is an unbelievable margin when you compare it to competition. Now, your first question on volume.
Speaker Change: Thank you, Jeff. As mentioned just before, so industrial is at 16% right now. It's 200 basis points better than what it was in 2019. And ultimately, so we want to have industrial move towards the 20% as well. Getting to 18% will be already a good step in that direction.
Speaker Change: And if we get industrial to 18% and all the other businesses get to their target, we will get north of 20% as a whole company. So feel really good about both getting beyond the 20% as a whole company and 18% for industrial, which is an unbelievable margin when you compare to competition. Now your first question.
Christophe Beck: It will feel really good about both getting beyond the 20% as a whole company and 18% for industrial, which is an unbelievable margin when you compare to competition. Now, your first question on volume, so from 2 to 1, well, you comment what the answer is the lap between Q2 institutional deceleration versus last year, which was 13. That's bringing the 2 to 1. So it's a year-on-year comparison. Other than that, all businesses, all segments that you've seen have been improving as well in the meantime. So a year-on-year optical comparison and all businesses are improving very nicely, which is why I feel good about the business.
Christophe Beck: So from two to one, well, your comment was the answer. It's the gap between Q2 institutional this year versus last year, which was 13. That's bringing the two to one.
Speaker Change: on volume. So from two to one, well, you comment what the answer. It's the lap between Q2 institutional this year versus last year, which was 13. That's bringing the two to one. So it's a year on year comparison. Other than that, so all businesses, all segments that you've seen have been improving as well in the meantime. So a year on year optical comparison and all businesses improving very nicely, which is why I feel good about the business momentum.
Christophe Beck: So it's a year on year comparison. Other than that, all businesses, all segments that you've seen have been improving as well in the meantime. So a year on year optical comparison and all businesses are improving very nicely, which is why I feel good about the business. Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Thank you.
Christophe Beck: Dennis momentum.
David Begleiter: Our next question is from the line of David Begleiter with Deutsche Bank. Let's just use your question.
Speaker Change: Our next question is from the line of David Begleiter with Deutsche Bank. We'll just use your question. Thank you. Christophe, back on to the One Ecolab initiative, do you need to make any additional investments to support this initiative? And how should we think about the rollout?
David Begleiter: Thank you.
David L. Begleiter: Christophe, back on to the One Ecolab initiative. Do you need to make any additional investments to support this initiative? And how are you thinking about the rollout and initial revenue drivers from this? So, David, thank you. It's gonna be progressive. There is no revolution that's to be expected here.
David Begleiter: Christophe, back onto the One Ecolab initiative. Do you need to make any additional investment to support this initiative? And how is your thinking about the rollout and initial revenue drivers from this initiative?
Speaker Change: Initial Revenue Drivers from this initiative.
Christophe Beck: So, David, thank you. It's going to be progressive. There is no revolution that's to be expected here. A lot of ground work has been done over the past few quarters, as well as we now get into execution mode. All the investments are planned in our numbers as well here. So no surprise to be expected from that initiative. It's really an initiative that's helping us get towards this five to seven percent as quickly as we can. And I feel really good because we know that the 55 billion cross-sell opportunity that we have out there. And again, as mentioned before, out of the top 35 customers, we have three billion is available there.
Christophe Beck: So, David, thank you. It's going to be progressive. There is no revolution that's to be expected here. A lot of groundwork has been done over the past few quarters as well as we now get into execution mode.
Christophe Beck: A lot of groundwork has been done over the past few quarters as well as as we now get into execution mode. All the investments are planned in our numbers as well, so there are no surprises to be expected.
Speaker Change: All the investments are planned in our numbers.
Speaker Change: as well here, so no surprise to be expected. So from that initiative, it's really an initiative that's helping us get towards these five to 7% as quickly as we can. And I feel really good because we know that the 55 billion cross-sell opportunity that we have out there. And again, as mentioned before, out of the top 35 customers we have, 3 billion is available there. Well, this is.
Christophe Beck: So from that initiative, it's really an initiative that's helping us get towards these five to 7% as quickly as we can. And I feel really good because we know that the 55 billion cross-sell opportunity that we have out there. And again, as mentioned before, out of the top 35 customers we have, 3 billion is available there. Well, this is easier for a client that we can get at a higher margin because, obviously, we're serving those customers already. So the cost you serve is much lower. So when you bring it all together, it's very organic. It's very easy.
Christophe Beck: Well, this is easier to apply, that we can get at a higher margin because obviously we're serving those. The customers are already, so the cost is much lower. So when you bring it all together, it's very organic. It's very natural. There is no revolution. It's what customers have been asking for years as well. What are our teams expecting as well, that when they go and serve a customer, well, they get the full picture of what we're doing for that customer today. At the same time, they understand what could be the best in class performance, how much additional value they could generate, one of the programs that they could sell to them as well, and then developing an execution plan for the customer to get there and ultimately so get paid for it through the value pricing that we've been developing over the past few years.
Speaker Change: easier to apply that we can get at a higher margin because obviously we're serving those customers already so the cost you serve is much lower so when you bring it all together it's very organic it's very natural there is no revolution it's what customers have been asking for years as well what our teams are expecting as well that when they go and serve a customer well they get the full picture of what we're doing for that customer today
Pavel S. Molchanov: There is no revolution. It's what customers have been asking for years as well. What our teams are expecting as well, that when they go and serve a customer, while they get the full picture of what we're doing for that customer today, at the same time, they understand what could be the best in class performance, how much additional value they could generate, what are the programs that they could sell to them as well, and then developing an execution plan for the customer to get there, and ultimately still get paid for it through the value pricing that we've been developing over the past few years.
Speaker Change: At the same time, they understand what could be the best in class performance, how much additional value they could generate, what are the programs that they could sell to them as well, and then developing an execution plan for the customer to get there and ultimately still get paid for it through the value pricing that we've been developing over the past few years. So bottom line, very organic, no incremental cost that we haven't included in the numbers as well in here.
Christophe Beck: So bottom line, very organic, no incremental growth that we haven't included in the numbers as well in here. So I feel really good about where we're going with one.
Pavel S. Molchanov: So bottom line, very organic, no incremental cost that we haven't included in the numbers as well here. So I feel really good about where we're going with this one. Our next question is from the line of Pavel Molchanov with Raymond James. Thanks for taking the question. Um, we haven't seen any M&A of late, you know, even on a kind of a bite-sized or tuck-in scale.
Paul Walker: Are any questions from the line of Paul Walker now with Raymond James? Let's see the question.
Speaker Change: So I feel really good about where we're going with One Ecolab here.
Christophe Beck: I'm curious how you're currently evaluating the acquisition pipeline. Thank you, Pavel. So I can't go into too much detail, for obvious reasons, on M&A. We've done several smaller ones over the last few years following, obviously, the acquisition of Pure Light at the end of 2021.
Speaker Change: Our next question is from the line of Pavel Molchanov with Raymond James. Let's see if he has a question.
Pavel Molchanov: Thanks for taking the question. We haven't seen any MNA of late, you know, even on kind of a bite-sized or tuck-in scale. I'm curious how you're currently evaluating the acquisition pipeline.
Pavel S. Molchanov: Thanks for taking the question. We haven't seen any M&A of late, you know, even on a kind of a, you know, bite-sized or tuck-in scale. I'm curious how you're currently evaluating the acquisition pipeline.
Christophe Beck: Thank you, Pavel.
Christophe Beck: We wanted to make sure we got that integration well done, that we got the right platform for the future, that we could get our leverage ratio, so back to two, that was our promise as well. We're getting there, as well as we speak even more, obviously, with the sale of our surgical solutions business. So it's all done in a thoughtful manner, both from an execution perspective and from a financial perspective as well.
Christophe Beck: So I can't go in too much detail for obvious reasons with MNA. We've done several smaller ones over the last few years following, obviously, the acquisition of Pure Light at the end of 2021. We wanted to make sure we got that integration well done, that we got the right platform for the future, that we could get as well. Our leverage ratio so back to two; that was our promise as well. We're getting there as well as we speak, even more obviously so with the sale of our surgical solutions business. So it's all done in a thoughtful manner, both from an execution perspective and from a financial perspective as well.
Speaker Change: Thank you, Pavel. So I can't go in too much detail for obvious reasons with M&A. We've done several smaller ones over the last few years following, obviously, the acquisition of Pure Light at the end of 2021. We wanted to make sure we got that integration well done, that we got the right platform for the future, that we could get as well
Speaker Change: Unknown Speaker Our leverage ratio, so back to two, that was our promise as well, we're getting there, as well as we speak even more, obviously, so with the sale of our surgical solutions business. So it's all done in a thoughtful manner, both from an execution perspective and from a financial perspective as well. What I can say is that our M&A pipeline of big and small opportunities is very rich. We entertain all those connections on a regular basis as well. The fact that we have a great business performing extremely well, with one of the strongest balance sheet that we've ever had puts us
Christophe Beck: What I can say is that our MNA pipeline of big and small opportunities is very rich. We entertain all those connections on a regular basis as well. The fact that we have a great business performing extremely well with one of the strongest balance sheets that we've ever had puts us in a unique position, obviously, so to go off the opportunities that we believe so would be the right ones for us.
Christophe Beck: What I can say is that our M&A pipeline of big and small opportunities is very rich. We entertain all those connections on a regular basis as well. The fact that we have a great business performing extremely well with one of the strongest balance sheets that we've ever had puts us in a unique position, obviously, to go for the opportunities that we believe in. So it would be the right one for us.
Speaker Change: us in a unique position, obviously, so to go off the opportunities that we believe would be the right ones for us. So what you've seen in the past is what you're going to see in the future, but always focused on our three key priorities, as I've shared many times with you. First, it's going to be water. Second, it's going to be digital. And third, it's going to be life science. So those are going to be the main areas where we're going to be investing in M&A as well.
Christophe Beck: So what you've seen in the past is what you're going to see in the future, but always focused on our three key priorities, as I've shared many times with you. First, it's going to be water.
Christophe Beck: So what you've seen in the past is what you're going to see in the future, but always focused on our three key priorities, as I've shared many times with you. First, it's going to be water; second, it's going to be digital; and third, it's going to be life science. So those are going to be the main areas where we're going to be investing in Eminence.
Laurence Alexander: Thank you for the question.
Christophe Beck: Second, it's going to be digital. And third, it's going to be life science. So those are the main areas where we're going to be investing in M&A. Thank you.
Laurence Alexander: That's from the line of Laurence Alexander with Jeffrey. This is you with your question.
Speaker Change: Thank you. Our next question is from the line of Lawrence Alexander with Jeffreys. Please proceed with your question.
Laurence Alexander: Hey, I did 10. Was one for Laurence just a little bit on the other side of the coin.
Laurence Alexander: Our next question is from the line of Lawrence Alexander with Jeffreys. Please proceed with your question. Hey, it's Dan Rosenbaum from Lawrence.
Christophe Beck: You did a investor in a low margin healthcare, and I forgive me for setting this in the past, but are there other businesses where you can look at where you might be exiting as well within that segment or within others. Not really. We obviously look at our portfolio. On a regular basis. And really, you think the way on who would be the best owner for that business that's been true for a very, very long time, and the surgical business was an obvious candidate because it is a product business. It's not the service business where we can apply the Ecolab model, where you have service technology came up.
Dan Rizwan: Hey, it's Dan Rizwan from Lawrence. Just a little bit on the other side of the coin, you did a divestiture in the low margin healthcare, and forgive me if I've said this in the past, but are there other businesses which you can look at where you might be exiting as well within that segment or within others?
Christophe Beck: Just a little bit on the other side of the coin, you did a divestiture in low-margin health care. And forgive me if we've said this in the past, but are there other businesses which you can look at where you might be exiting as well within that segment or within others? Not really.
Christophe Beck: We obviously look at our portfolio on a regular basis, and really, you think about the way on who would be the best owner for that business. That's been true for a very, very long time.
Speaker Change: Not really. We obviously look at our portfolio on a regular basis, and really
Speaker Change: Do you think the way...
Speaker Change: on who would be the best owner for that business. That's been true for a very, very long time.
Speaker Change: And the surgical business was an obvious candidate because it is.
Christophe Beck: And the surgical business was an obvious candidate because it is a product business. It's not a serviced business where we can apply the Ecolab model, where you have service, technology, chemistry, and data that come together. Surgical was purely drapes, great drapes, obviously, but those are products.
Speaker Change: a product business. It's not a serviced business where we can apply the Ecolab model where you have service, technology, chemistry, and data that come together. Surgical was purely a product business.
Christophe Beck: The industry and data that come together surgical was purely drapes. Great drapes, obviously, but those are products. That's a business that fits very well in a Medline portfolio, much less in our own company. So that's one of the reasons why we've sold this business at the same time. We want to make sure that our healthcare business can build from a smaller scale, a much healthier business for the future and really focused on instrument processing, which is a typical Ecolab business.
Speaker Change: Drapes
Speaker Change: Great drapes, obviously, but those are products. That's a business that fits very well in a Medline portfolio, much less in our own company. So that's one of the reasons why we've sold this business. At the same time,
Christophe Beck: That's a business that fits very well in a Medline portfolio, much less in our own company. So that's one of the reasons why we've sold this business. At the same time, we want to make sure that our healthcare business can build from a smaller scale, a much healthier business for the future, and really focused on instrument reprocessing, which is a typical Ecolab business. Beyond that, there is no obvious business out there that doesn't fit the portfolio that doesn't have the right performance.
Speaker Change: We want to make sure that our healthcare business can build, from a smaller scale, a much healthier business for the future and really focused on instrument reprocessing, which is a typical Ecolab business.
Christophe Beck: Beyond that, there is no obvious business out there that doesn't speak to portfolio, that doesn't have the right performance. I like a lot. The broad-based nature of the performance of the business across businesses and across markets. So, in short, no obvious candidate out there to do something similar.
Speaker Change: Beyond that, there is no obvious
Speaker Change: Business out there that doesn't speak to portfolio that doesn't have the right performance
Christophe Beck: I like a lot the broad-based nature of the performance of the business across businesses and across markets. So, in short, no obvious candidate out there to do something. The next question is from the line of Shlomo Rosenbaum with Stiefel.
Speaker Change: I like a lot the broad-based nature of the performance of the business.
Speaker Change: across businesses and across markets. So in short, no obvious candidate out there to do something similar.
Shlomo Rosenbaum: The next question from the line of Shlomo Rosenbaum with Steve. This is your question.
Speaker Change: The next question is from the line of Shlomo Rosenbaum with Stiefel. Please receive your question.
Shlomo H. Rosenbaum: Please proceed with your question. Hi, thank you. I thought I'd ask Scott to maybe dig a little bit deeper just on that volume question that was brought up before. Understand the mathematical implications of institutional growth slowing, but, you know, because of the comps, how should we think of that in the second half of the year? You know, if you look at it, on total company volume, you grew 1% on a negative 1% last quarter.
Shlomo Rosenbaum: Thank you. I thought it asked God to maybe dig a little bit deeper just on that volume question that was brought up before. Understand the mathematical implications of institutional growth, swelling, but, you know, because of the comps.
Shlomo H. Rosenbaum: Hi, thank you. I thought I'd ask Scott to maybe dig a little bit deeper just on that volume question that was brought up before.
Shlomo H. Rosenbaum: understand the mathematical implications of institutional growth slowing but you know because of the comps
Scott Kirkland: How should we think of that in the second half of the year? You know, if you look at it, you on a total company volume, you grew 1% on a negative 1% last quarter. If you had 0% or flat volume in three tutors, it'd make it tougher in order to generate the volume growth for the second half of the year. So just trying to get to, you know, how we should think of the volume growth going forward.
Shlomo H. Rosenbaum: If you had 0% or flat volume in 3Q, does that make it tougher in order to generate volume growth for the second half of the year? So just trying to get to, you know, how we should think of volume growth going forward. And then, if you don't mind, I just want to ask a housekeeping question.
Speaker Change: How should we think of that in the second half of the year? You know, if you look at it, on a total company volume, you grew 1% on a negative 1% last quarter. If you had 0% or flat volume in 3Q, does it make it tougher in order to generate the volume growth for the second half of the year? So just trying to get to, you know, how we should think of the volume growth going forward. And then if you don't mind, I just want to ask a housekeeping question. We saw a spike up sequentially in interest expense, about $7 million, but the debt level was relatively the same. I don't know if there were some inter-quarter borrowing or there's something else that's included in that line. If you could just clarify that so we can straighten that out for our models.
Scott D. Kirkland: We saw a spike sequentially in interest expense, about $7 million, but the debt level was relatively the same. I don't know if there was some inter-quarter borrowing or there's something else that's included in that line. If you could just clarify that so we can straighten that out for our models, yeah.
Scott Kirkland: And then, if you don't mind, I just want to ask you, how's keeping question? We saw a spike up sequentially in interest expense, about $7 million, but the debt level was relatively the same. I don't know if there were some interquarter borrowing, or there's something else that's included in that line. If you could just clarify that, so we can straighten that out for our models. Yeah, I'll start with your last question first. If you just look at interest expense, overall year over year, you know, we had cash that we used to pay down debt earlier in the year in the first quarter.
Scott D. Kirkland: First, if you just look at interest expense overall, year over year, you know, we had cash that we used to pay down debt earlier in the year in the first quarter. So there's some impact from that as cash has come down from over $900 million at the end of 2023 to about $380 million at the end of Q2. So that's probably the biggest driver as we look sequentially on interest expense; expect interest expense in the second half to be in that call it 60 to $70 million range, which is inclusive of the benefit we'll get from the ORCID proceeds, which is, as you've seen in the disclosure of the gross proceeds, there are about $950 million.
Speaker Change: Yeah, I'll start with your last question first. If you just look at interest expense overall, year over year, you know, we had cash that we used to pay down debt earlier in the year in the first quarter. So there's some impact from that as cash has come down from over $900 million at the end of 2023 to at the end of Q2, it's about $380 million. So that's probably the biggest driver as we look sequentially on interest expense, expect interest expense in the second half to be in that call it 60 to $70 million range, which is inclusive of benefit we'll get from the ORCID proceeds.
Scott Kirkland: So there's some impact from that as cash has come down from over $900 million at the end of 2023 to the end of Q2. It's about $380 million. So that's probably the biggest driver as we look sequentially on interest expense. Expect interest expense in the second half to be in that call it 60 to $70 million range, which is inclusive of benefit will get from the orchid proceeds, which is, as you've seen in the disclosure, the gross proceeds there are about $950 million. So back to your earlier volume question, I think Christoff hit on exactly which is, and to Jeff's earlier comment, as we look at that sequentially on the volume, it's really the impact of the comparisons to the institutional volume coming down from Q1 to Q2 on the more difficult comps.
Christophe Beck: So, you know, back to your earlier volume question, I think Christophe hit on exactly what Jeff's earlier comment was about, if we look at that sequentially on the volume, it's really the impact of the comparisons to the institutional volume coming down from Q1 to Q2 on the more difficult comps. And as we think about in the second half, you know, in that range that Christophe talked about earlier in this one to 2%.
Speaker Change: which is, as you've seen in the disclosure, the gross proceeds there are about $950 million. So, you know, back to your earlier volume question, which I think Christophe hit on exactly, which is, and to Jeff's earlier comment, is as we look at that sequentially on the volume, it's really the impact of the comparisons to the institutional volume coming down from Q1 to Q2 on the more difficult comps. And as we think about in the second half, you know, in that range that Christophe talked earlier in this one to 2%.
Christophe Beck: And as we think about, in the second half, you know, in that range that Christoff talked earlier, in this one to 2%. And maybe building on that, my commitments are to you as being so to get to these five to seven as quickly as we can, four to five this year, as I've said, so not every quarter is going to be created equal, mostly because of your near comparison. So four to five this year towards five to seven doesn't seem to be like something crazy, especially with the momentum that we're showing in industrial, so getting better.
Christophe Beck: And maybe building on that, my commitment to you has been to get to these five to seven as quickly as we can. Four to five this year, as I've said, so not every quarter is going to be created equal, mostly because of year on year comparison.
Speaker Change: and maybe building on that my commitment so to you has been so to get to these five to seven as quickly as we can four to five this year as I've said so not every quarter is going to be created equal mostly because of year-on-year comparison so four to five this year towards five to seven doesn't seem to be like something crazy especially with the momentum that we're showing in industrial so getting better as mentioned past remaining very strong institutional being in a very strong position as well and when I see all the investments that we making as well out of the margins improvements that we have with more feet on the ground
Christophe Beck: So four to five this year towards five to seven doesn't seem to be like something crazy, especially with the momentum that we're showing in the industry. So getting better, as mentioned, has remaining very strong, institutional, being in a very strong position as well. And when I see all the investments that we're making as well out of the margin improvements that we have with more feet on the street, with more capacities in gross businesses like global high tech, with more capabilities in digital and innovation around the world as well.
Christophe Beck: As mentioned, past remaining very strong institutional being in a very strong position as well, and when I see all the investments that we making as well out of the margins improvements that we have with more feet on the street, with more capacities in gross businesses like global high tech, with more capabilities in digital and innovation around the world as well. I feel good with the trajectory that we having moving from these four to five to five to seven is going to happen so very naturally.
Speaker Change: street with more capacities in gross businesses like global high-tech with more capabilities in digital and innovation around the world as well. I feel good with the trajectory that we're having moving from this four to five to five to seven is going to happen so very naturally.
Christophe Beck: I feel good about the trajectory that we're having; moving from this four to five to five to seven is going to happen so very naturally. Our next question is from the line of Steve Byrne with Bank of America. Yes, thank you.
Steve Byrne: Our next question from the line of Steve Byrne with Bank of America: this is you two questions. Yes, thank you.
Speaker Change: Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.
Stephen V. Byrne: I'd like to hear your view on two potentially meaningful longer-term opportunities in water. The first one being this initiative you talked about last year, where you're going to be going after these, I don't know, what are 150 companies that consume 20% of global freshwater? Is that initiative that still has, you know, meaningful potential for you? And then the other one is that PFAS is being classified as hazardous, which means every company that manages or uses it will have to report it in 2025 under TRI. Is that an initiative you're following? Thank you, Steve.
Steve Byrne: I'd like to hear your view on two potentially meaningful longer term opportunities in water. The first one being this initiative you talked about last year where you're going to be going after these, I don't know what is 150 companies that consume 20% of global fresh water. Is that initiative that still has, you know, meaningful potential for you? And then the other one is with PFAS being classified as hazardous. That means every company that manages or uses it will have to report it in 2025 under TRI. Is that an initiative you are following?
Stephen V. Byrne: Yes, thank you. I'd like to hear your view on...
Speaker Change: On two potentially meaningful longer-term opportunities in water.
Speaker Change: The first one being...
Speaker Change: This initiative you talked about last year, where you're going to be going after these, I don't know, what is it, 150 companies that consume 20% of global fresh water. Is that initiative that
Speaker Change: still has, you know, meaningful potential for you. And and then the other one is
Speaker Change: with PFAS being...
Speaker Change: classified as hazardous. That means every company that manages or uses it will have to report it in 2025 under TRI. Is that an initiative you are following?
Christophe Beck: Thank you, Steve. So two parts are obviously very different components of your question here. So first, in terms of focusing on the 150 companies that use a third of the world water, this is where we focus all our attention. And, as mentioned before, our laser focus on our top 35 customers as a company will align perfectly well with that vision of the world of those 150 companies. Using a third of the world water, those are the ones that are the more interested, obviously in our technology, helping them produce more while reducing their cost by reducing the usage of energy and water.
Christophe Beck: So two parts, obviously very different components of your question here. So first, in terms of focusing on the 150 companies that use a third of the world's water, this is where we focus all our attention. And as mentioned before, our laser focus on our top 35 customers as a company, well, aligns perfectly well with that vision of the world of those 150 companies using a third of the world's water. Those are the ones that are more interested, obviously, in our technology, helping them produce more while reducing their cost by reducing the usage of energy and water.
Speaker Change: Thank you, Steve. So two parts, obviously very different components of your question here. So first, in terms of focusing on the 150 companies that use a third of the of the world water, this is where we focus all our attention. And as mentioned before, so our laser focus on our top 35 customers, as a company well aligned perfectly well, with that vision of the world of those 150 companies.
Speaker Change: Water, using a third of the world's water. Those are the ones that are the more interested, obviously, in our technology, helping them produce more while reducing their cost by reducing the usage of energy and water. This is working really well, which is one of the reasons why our water business is doing well and keeps accelerating as well at the same time. On the PFAS question, which is an old question, we have all the technologies to get that done the right way. Regulation is going to help in a certain extent where everyone will have to play with the same rules. So we are really focusing on our
Christophe Beck: This is working really well, which is one of the reasons why our water business is doing well and keeps accelerating as well at the same time. Now, on the PFAS question, which is an old question, we have all the technologies to get that done the right way. Regulation is going to help to a certain extent, where everyone will have to play by the same rules.
Christophe Beck: This is working really well, which is one of the reasons why our water business is doing well and keeps accelerating as well at the same time.
Christophe Beck: Now, on the PFAS question, which is an old question, we have all the technologies to get that done the right way. Regulation is going to help in a certain extent where everyone, so we'll have to play with the same rules. So we are really focusing on our customers today, helping them get clients on how to address that PFAS issue that turns into a business opportunity for us all the time. And we focus mostly on food and beverage customers; those are the ones who have the highest interest right now. And I like the progress that we're making here, but it's going to take some time to see it happen or having an impact on our top line rules, but at some point.
Christophe Beck: So we are really focusing on our customers today, helping them get plans on how to address that PFAS issue that turns into a business opportunity. So for us over time, and we focus mostly on food and beverage customers, those are the ones who have the highest interest right now. And I like the progress that we're making here, but it's going to take some time to see it happen or have an impact on our top line growth. But at some point,
Speaker Change: our customers today, helping them get plans on how to address that PFAS issue that turns into a business opportunity. So for us all the time, and we focus mostly.
Speaker Change: On food and beverage customers, those are the ones who have the highest interest right now. And I like the progress that we're making here, but it's going to take some time to see it happen or having an impact on our top-line growth. But at some point, it will.
Kevin Mccarthy: Our next question is from the line of Kevin McCarthy with Vertical Research. This is your third question.
Christophe Beck: Our next question is from the line of Kevin McCarthy with Vertical Research. Thank you, and good afternoon, Christophe. My question relates to the potential timing attached to your longstanding EBIT margin goal of 20%. Would you expect to achieve that margin target coincident with 140 million dollars of savings from one Ecolab, or perhaps sooner than that or later? I appreciate that the macro environment obviously has something to say about the timing, but I would certainly welcome any updated thoughts on that glide path and time for questions.
Speaker Change: Our next question is from the line of Kevin McCarthy with Vertical Research. Please proceed with your question.
Kevin Mccarthy: Yes, thank you, and good afternoon, Christophe. My question relates to the potential timing attached to your longstanding EBIT margin goal of 20%. Would you expect to achieve that margin target coincident with 140 million of savings from one Ecolab, or perhaps sooner than that or later? I appreciate that the macro environment obviously has something to say about the timing, but I would certainly welcome any updated thoughts on that glide path and time frame.
Kevin William McCarthy: Thank you and good afternoon Christophe. My question relates to the potential timing attached to your long-standing EBIT margin goal of 20%.
Kevin William McCarthy: Would you expect to achieve that margin target coincident with the $140 million of savings from one Ecolab?
Speaker Change: or perhaps sooner than that or later.
Speaker Change: Appreciate that the macro environment obviously has something to say about the timing, but I would certainly welcome any updated thoughts on that glide path and time frame.
Kevin Mccarthy: Thank you, Kevin. It was in September or October last year that I said that we would get there so within a few years and for sure less than five. Well, we're almost a year later, so it's kind of the same and a year closer to that. If anything, I feel more confident that we're going to get there. We're going to get there in time. There is no direct correlations between the one Ecolab savings and that margin as Scott was saying before. We're talking about smaller numbers; this 140 million, in the grand scheme of things. One Ecolab is mostly a growth initiative, which we'll have obviously on the SGNA, but most importantly, so we'll drive the margin, gross margin, even higher, which we lead so to an OI improvement.
Christophe Beck: Thank you, Kevin. It was in September and October last year that I said we would get there, so within a few years and, for sure, less than five. Well, we're almost a year later, so it's kind of the same and a year closer to that.
Speaker Change: Thank you, Kevin. It was in September , October last year that I said we will get there, so within a few years, and for sure less than five.
Speaker Change: Well, we're almost a year later, so it's kind of the same and a year closer to that. If anything, I feel more confident that we're going to get there.
Kevin William McCarthy: If anything, I feel more confident that we're going to get there. We're going to get there on time. There is no direct correlation between the One Ecolab savings and that margin, as Scott was saying before.
Speaker Change: We're going to get there in time. There is no direct correlation between the One Ecolab savings and that margin, as Scott was saying before. We're talking about smaller numbers, these $140 million in the grand scheme of things. One Ecolab is mostly a gross initiative, which will help, obviously, on the SG&A, but most importantly, we drive the margin, gross margin even higher, which will lead to an OIE improvement.
Christophe Beck: We're talking about smaller numbers, these 140 million in the grand scheme of things. One Ecolab is mostly a growth initiative, which will help obviously with SG&A, but most importantly, we drive the margin, the gross margin, even higher, which will lead to an OIE improvement. So I stick to where we were within the next few years, and we see the pieces coming very well together. Gross margin is already close to 44 percent, which was the high water mark for our company.
Christophe Beck: So I stick to where we were within the next few years, and we see the pieces coming very well together. Gross margin is already close to 44%, which was the high water mark for our company. We keep improving from there. Our SGNA is 200 basis points below where it was so pre-pandemic, as well in 2019, and we keep accelerating as well. Well, you bring all three together: nice supply and acceleration, gross margin further improvements, and productivity improvements as well.
Speaker Change: So, I stick to where we were within the next few years, and we see the pieces coming very well together, gross margin is already close to 44%, which was the high water mark.
Christophe Beck: We keep improving from there. Our SG&A is 200 basis points below where it was pre-pandemic as well in 2019, and we keep accelerating as well. Well, you put all three together, nice top-line acceleration, gross margin, further improvements, and productivity improvements as well, will mathematically lead to the 20 percent failure. Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.
Speaker Change: for our company. We keep improving from there. Our SG&A is 200 basis points below where it was so pre-pandemic as well in 2019. And we keep accelerating as well. Well, you bring all three together, nice top line acceleration, gross margin, further improvements, and productivity improvements as well, will mathematically lead to the 20% fairly soon.
Christophe Beck: Well, we'll mathematically lead to the 20% fairly soon.
Patrick Cunningham: Our next question is in line of Patrick coming in with city. Please just use your question.
Speaker Change: Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.
Patrick Cunningham: Hi, I think you're taking my question. On the path to elimination business, sales growth continues to be very strong, but the margin expansion is a bit more muted than the other segments. How should we think about the cadence of growth investments into that business and the timing on when we start to see some meaningful sales leverage. And just a follow-up, there is what sort of long-term margin target do you have for that business?
Patrick David Cunningham: Hi, thanks for taking my question. In the pest elimination business, the sales growth continues to be very strong, but the margin expansion is a bit more muted than the other segments. How should we think about the cadence of growth investment into that business and the timing of when we start to see some meaningful sales leverage? And just a follow-up question there is your what sort of long-term margin target do you have for that? Good question, Patrick.
Patrick David Cunningham: Hi, thanks for taking my question.
Speaker Change: On the pest elimination business, the sales growth continues to be very strong, but the margin expansion is a bit more muted than the other segments.
Speaker Change: How should we think about the cadence of growth investments into that business and the timing on when we start to see some meaningful sales leverage? And just to follow up there, what sort of long-term margin target do you have for that business?
Christophe Beck: Good question, Patrick. So really loved that business, very steady growth, high single, low double, really good. Not always an easy market, but whatever happens out there, it's always a very good performance. At the same time, it's the best performing best elimination business in the world, which is also a good indication. And as you know, so there are no raw materials, almost none related to that business. So there is no DPC help or hurt, obviously, on that business. It's a business that's going to get north of 20%. For sure. And when I think about the main growth drivers here, there are two mostly.
Christophe Beck: I really love that business. Very steady growth, high single, low double. Really good.
Speaker Change: Good question, Patrick. I really love that business. Very steady growth. High single, low double. Really good. Not always an easy market, but whatever happens out there, it's always a very good performance. At the same time, it's the best performing, best elimination business in the world, which is also a good indication. And as you know, so there's no raw materials, almost none related to that business. So there is no DPC help or hurt, obviously, on that business. It's a business that's going to get north of 20 percent.
Christophe Beck: Not always an easy market, but whatever happens out there, it's always a very good performance. At the same time, it's the best performing, best elimination business in the world, which is also a good indication. And, as you know, there are no raw materials, almost none.
Speaker Change: for sure. And when I think about the main growth drivers here, there are two, mostly. The first one is to drive cross-sell, which has been at
Christophe Beck: The first one is to drive across cell, which has been at core of our growth strategy in best elimination, so selling the best elimination services to existing e-colab customers worked really well over many, many years. And second, it's to invest in connected devices. We have all the technology. We have one of the largest industrial clouds in the world. We have all sensing technology. We have all systems. We have all cyber security. Everything that you need. Ultimately, so to connect all those millions of devices around the world, that today we go and visit regularly each of them to check whether you're going to get activities or not.
Christophe Beck: Related to that business. So there is no DPC help or hurt, obviously, for that business. It's a business that's going to grow north of 20% for sure. And when I think about the main growth drivers here, there are two, mostly. The first one is to drive cross-sell, which has been at the core of our growth strategy in best elimination. So selling best elimination services to existing Ecolab customers has worked really well over many, many years. And second, it's to invest in connected devices. We have all the technology.
Speaker Change: The core of our growth strategy in pest elimination, so selling the pest elimination services to existing Ecolab customers, worked really well over many, many years. And second, it's to invest in connected devices. We have all the technology, we are one of the largest industrial cloud in the world. We have all sensing technology, we have all systems, we have all cybersecurity, everything that you need. Ultimately, so to connect all those millions of devices around the world that today we go and visit regularly each of them to check whether you're going to get activities or not. Well, tomorrow, it's going to be very different. One data point.
Christophe Beck: But we'll, tomorrow it's going to be very different. One data point at the National Restaurant Association show, we were in that big conference hall where you have 600 traps in there. Today, we need roughly eight hours to go and check all those traps. Tomorrow it's going to be done in 20 minutes. So just imagine how much Ashish, value we can create both in terms of growth, in terms of service to customers, and naturally in terms of performance that we can drive out of the business. So that's going to drive top-line growth, it's going to drive earnings growth, and it's going to drive, we turn on invested capital, which is already the highest. You know, we can't be any even further higher.
Christophe Beck: We have one of the largest industrial clouds in the world. We have all the sensing technology. We have all the systems. We have all the cyber security, everything that you need. One data point: at the National Restaurant Association show, we were in that big conference hall where you have 600 traps in there. Today, we need roughly eight hours to go and check all those traps.
Speaker Change: at the National Restaurant Association show we were in that big conference hall where you have 600 traps in there.
Speaker Change: Today, we need roughly eight hours to go and check all those traps. Tomorrow, it's going to be done in 20 minutes. So just imagine how much...
Christophe Beck: Tomorrow, it's going to be done in 20 minutes. So just imagine how much time it's going to take. Transcribed by https://otter.ai, Our next question is in the line of Andy Wittmann with Robert W. Baird. Oh, great. Thanks for taking my question this afternoon. I guess I also wanted to ask about the one Ecolab plan, just because, from the outside, it's hard to, I think, understand sometimes the difference between your various plans.
Speaker Change: value we can create, both in terms of growth, in terms of service to customers, and naturally in terms of performance that we can drive out of the business. So that's going to drive top-line growth. It's going to drive earnings growth, and it's going to drive return on invested capital, which is already the highest in our company, even further higher.
Andrew Wittmann: Our next question is in the line of Andy Wittmann with Robert W. Baird. Please just see with your question.
Speaker Change: Our next question is in the line of Andy Wittmann with Robert W. Baird. Pleased to see you with your question.
Christophe Beck: I think over the years; I think back to the 2018 efficiency initiative, you talked about some of the technology investments that you made that enabled those changes, then you expanded that in 19. And then again, in 20. The institutional advancement program that you rolled out in 23 was largely underpinned, I think, Christophe, by the digital investments that you made at that time as well. And then I think even the European program that you announced on 23 was kind of driven by digital.
Andrew Wittmann: Oh, great.
Andrew Wittmann: Thanks for taking a question this afternoon. I guess I also wanted to ask on the one Ecolab plan, just because from the outside, it's hard to, I think, understand sometimes the difference between your various plans. I think over the years, I think back to like the 2018 efficiency initiative. You talked about some of the technology investments that you made, enabled those changes then; you expanded that in 19. And then again, in 20, the institutional advancement program that you rolled out in 23 was largely underpinned, I think, Christophe, by the digital investments that you made at that time as well.
Andrew John Wittmann: Oh great, thanks for taking my question this afternoon. I guess I also wanted to ask on the One Ecolab plan, just because from the outside it's hard to, I think,
Speaker Change: understand sometimes they are the difference between your various plans I think over the years I think back to like the 2018 efficiency initiative you talked about some of the technology
Speaker Change: investments that you made enabled those changes then. You expanded that in 19 and then again in 20. The Institutional Advancement Program that you rolled out in 23 was largely underpinned, I think, Christophe, about the digital investments that you made at that time as well.
Christophe Beck: And then I think even the European program that you announced in 23 also was kind of driven by digital. So this one, I'm hearing, again, is going to be using technology to effectuate some of these efficiencies. But I mean, can you just make a little bit finer point on kind of what's different about this one compared to some of the prior ones? So the main difference, Andy, is the prior ones were by individual business. It was sort to really improve the delivery and the performance of institutional from a growth perspective. You've seen the results. That's why it's working so well today.
Speaker Change: And then I think even the European program that you announced in 23 also was kind of driven by digital.
Christophe Beck: So this one, I'm hearing again, is going to be using technology to effectuate some of these efficiencies. But I mean, can you just make a little bit finer point on kind of what's different about this one compared to some of the prior ones? So the main difference, Andy, is that the prior ones were by individual businesses; it was to really improve the delivery and the performance of institutional from a growth perspective. You've seen the results. That's why it's working so well today. But it's not the only reason.
Speaker Change: So this one I'm hearing again is going to be using technology to effectuate some of these efficiencies. But I mean, can you just make a little bit finer point on kind of what's different about this one compared to some of the prior ones?
Andrew John Wittmann: Obviously, we talked about innovation as well here, but the way we've organized ourselves, the way we've leveraged technology, well, has been leading to the great performance that we have in institutional specialty today. You look at Europe, it was also technology, but it was much more back office technology, it was much more ERP. Andy, and when you look today, well, Europe went from 0% margin to 13, 14% today.
Speaker Change: So the main difference, Andy, is that the prior ones were
Andy: by individual business.
Speaker Change: It was to really improve the delivery and the performance of institutional. From a growth perspective, you've seen the results. That's why it's working so well today. It's not the only reason. Obviously, we talked about innovation as well here, but the way we've organized ourselves, the way we've leveraged technology, well, has been leading to this great performance that we have in institutional specialty today. You look at Europe . It was also technology, but it was much more back-office technology. It was much more ERP, indeed. When you look today, well, Europe came from 0% margin to 13%, 14% today.
Christophe Beck: It's not the only reason. Obviously, we talked about innovation as well here, but the way we've organized ourselves, the way we've leveraged technology, well, has been leading. So this great performance that we have in institutional specialty today, you look at Europe. It was also technology, but it was much more back office technology; it was much more ERP. Andy, and when you look today, well, Europe came from 0% margin to 13, 14% today. So a very solid, good business that we have there. One collab is connecting all the businesses together in order. So for our customers, so to see one collab and for us, to really help them understand by leveraging all E-collab can do, what's the value, what's the savings that me as a customer can expect if all my units were at the best performance level of all my locations.
Christophe Beck: So, a very solid, good business that we have there. One Ecolab is connecting all the businesses together in order for our customers to see one Ecolab and for us to really help them understand by leveraging all that Ecolab can do, what's the value, what's the savings that I as a customer can expect if all my units were at the best performance level of all my locations, how much would that be? It's a different dimension because this one, Andy, is connecting businesses together; the previous ones were done by individual businesses, and that all led to very good returns. Thank you. Our next question is from the line of Mike Harrison with Seaport Research. Hi, good afternoon.
Andrew Hedberg: Good morning. Good morning, everyone. I am Andrew Hedberg. I am the CEO and CEO of ecolab. One ecolab is connecting all of the businesses together in order for our customers to see one ecolab and for us to help them understand by leveraging all ecolab can do, what the value and savings that we can deliver to our customers.
Speaker Change: Me, as a customer, can expect if all my units were at the best performance level of all my locations, how much would that be? It's a different dimension, because this one, Andy, is connecting businesses together. The previous ones were by individual businesses that all led to very good returns at the same time.
Christophe Beck: How much would that be? It's a different dimension because this one Andy is connecting businesses together, the previous ones whereby individual businesses that all led to very good returns at the same time.
Christophe Beck: Thank you.
Michael Harrison: Our next question is in the line of Mike Harrison with Seaport Research. Hi, good afternoon.
Speaker Change: Thank you. Our next question is from the line of Mike Harrison with Seaport Research. Please proceed with your question.
Michael Joseph Harrison: You noted that the high tech business within the water segment is growing double digits. Christophe, is there any way to be a little bit more specific? Is that a team's growth rate, or more like 20 or 30% or even higher? And can you talk about the penetration rate with data centers or any other context around the opportunity that you're seeing around data centers over the next few years for your water business? Thank you. So it's been in 2023.
Michael Harrison: You noted the high tech business within the water segment is growing double digits.
Michael Joseph Harrison: Hi. Good afternoon.
Michael Joseph Harrison: You noted the high-tech business within the water segment is growing double digits. Christophe, is there any way to be a little bit more specific? Is that a team's growth rate or more like 20 or 30 percent or even higher?
Christophe Beck: Kristoff, is there any way to be a little bit more specific? Is that a team's growth rate or more like 20 or 30% or even higher. And can you talk about the penetration rate with data centers or any other context around the opportunity that you're seeing around data centers over the next few years for your water business.
Michael Joseph Harrison: And can you talk about the penetration rate with data centers or any other context around the opportunity that you're seeing around data centers over the next few years for your water business? Thank you.
Christophe Beck: Thank you. So it's been in 2023, so that business, which is a few hundred million, as we've talked about, has been growing some in the 30%-ish like that. We know this closing, so too much detail so far.
Christophe Beck: So that business, which is a few hundred million, as we've talked about, has been growing. So in the 30% ish, like that, we're not disclosing too much detail so far. It will come when we have a more stable organization and platform to serve that new industry. We will share that, obviously, with you, but kind of a few hundred million and growing. Roughly 30% last year, it's showing you kind of the trajectory that we have in that business.
Christophe Beck: So it's been in 2023. So that business, which is a few hundred million, as we've talked about, so has been growing some in the 30% ish like that. We're not disclosing so too much detail so far. It will come when we have a more steady state organization and platform to serve that new industry. We will share that, obviously, with you, but kind of a few hundred million and growing roughly 30% last year. Well, it's showing you kind of the trajectory that we have in that business. At the same time, it's a very highly profitable business because the customers we serve
Christophe Beck: It will come when we have a more steady-state organization and platform to serve that new industry. We will share that obviously with you. But kind of a few hundred million and growing roughly 30% last year while he's showing you kind of the trajectory that we have in that business at the same time. It's a very highly profitable business because the customers we serve, which are the high-tech companies, being semiconductors, manufacturers, or data centers, hyperscalers, operators. While those ones are not looking for the most cost-efficient solution, they are trying to find partners that are helping them deliver the highest uptime, the highest power of computing while reducing the usage of water and energy because that's the true limiting factor.
Christophe Beck: At the same time, it's a very highly profitable business because the customers we serve, which are high-tech companies, being semiconductors, manufacturers, or data centers, hyperscalers, operators, well, those ones are not looking for the most cost-efficient solution. They are trying to find partners that help them deliver the highest uptime and the highest power of computing while reducing the usage of water and energy because that's the true limiting factor.
Christophe Beck: Which all the high-tech companies
Christophe Beck: being semiconductors, manufacturers, or data centers, hyperscalers, operators. While those ones are not looking for the most cost-efficient solution, they are trying to find partners that are helping them deliver the highest uptime, the highest power of computing, while reducing the usage of water and energy, because that's the true limiting factor.
Christophe Beck: And that's where we invest all our resources in innovation in order to help those companies produce more computing power while reducing the impact on the environment. Our next question is from Vincent Andrews with Morgan Stanley. Please proceed with your question. Thank you.
Christophe Beck: And that's where we invest all our resources on innovation in order to help those companies produce more computing power while reducing the impact on the environment. So the cost of it is kind of secondary, which means we can invest in high technology. They pay for it; it's good for them, it's good for us, it's good for our shareholders as well. These global high-tech businesses have been a fantastic business and keeps getting better.
Christophe Beck: And that's where we invest all our resources on innovation in order to help those companies produce more computing power while reducing the impact on the environment. So the cost of it is kind of secondary, which means we can invest in high technology. They pay for it. It's good for them. It's good for us. It's good for our shareholders as well. This global high tech business has been a fantastic business and keeps getting better.
Vincent Andrews: Our next question is from the line of Vincent Andrews with Morgan Stanley.
Vincent Andrews: This is you with your question. Thank you. One more on the one eco lab in Christophe. You notice that this program is designed for all of your segments. I'm wondering if you can just touch on within the different segments. Are there some where you anticipated having a greater impact on volume or a greater impact on price, and overall, are there some segments that you think it will benefit more than others? It's an interesting question. Vincent, there is one that I could share with you. When I think about F&B, as we speak, so we are bringing our food and beverage cleaning and sanitation business together with our water F&B business.
Speaker Change: Our next question is from the line of Vincent Andrews with Morgan Stanley . Please proceed with your question.
Vincent Stephen Andrews: And Christophe, you know, you noted that this program is designed for all of your segments. I'm wondering if you could just touch on, you know, within the different segments, are there some where you anticipated having a greater impact on volume or a greater impact on price? And overall, are there some segments that you think this program will benefit more than others? It's an interesting question, Vincent. There is one that I could share.
Vincent Stephen Andrews: Thank you. One more on the One Ecolab. And Christophe, you know, you noted that this program is designed for all of your segments. I'm wondering if you can just touch on
Vincent Stephen Andrews: You know, within the different segments, are there some where you anticipated having a greater impact on volume or greater impact on price? And overall, are there some segments that you think it will benefit more than others?
Christophe Beck: So with you, when I think about F&B, as we speak, we are bringing our food and beverage cleaning and sanitation business together with our water F&B business. And don't get me wrong, it's not that suddenly we'll have people on the front line doing both water and cleaning and sanitation; they go hand in hand, but they are complementary. Like you would be in a hospital, you have several physicians that are serving you as a patient. We believe in expertise; we don't believe in generalists.
Christophe Beck: It's an interesting question Vincent. There is one that I could share so with you. When I think about F&B, as we speak, so we are bringing our food and beverage cleaning and sanitation business together with our water F&B business.
Vincent Andrews: And don't get me wrong. It's not that suddenly we'll have the frontline people doing both water and cleaning and sanitation. They go hand in hand, but they are complementary. Like you would be in a hospital, you have several physicians that are serving you as a patient. We believe in expertise. We don't believe in generalists. But that business, which will include our cleaning and sanitation and water together, well, is one of our biggest businesses, one of our best franchises as well in the world. And I believe that's going to drive a lot of further value for our customers and for us and our shareholders, obviously, here.
Christophe Beck: And don't get me wrong. It's not that suddenly we'll have at the front line people doing both water and cleaning and sanitation. They go hand in hand, but they are complementary. Like you would be in a hospital, you have several physicians that are serving you as a patient. We believe in expertise. We don't believe in generalists. But that business, which will include cleaning and sanitation and water together, well, is one of our biggest business, one of our best franchises as well in the world. And I believe that's going to drive a lot of further value for our customers and for us and our shareholders, obviously here.
Christophe Beck: But that business, which will include our cleaning and sanitation and water business together, is one of our biggest businesses, one of our best franchises as well in the world. And I believe that's going to drive a lot of further value for our customers and for us and our shareholders, obviously here. But you can think as well about institutional. When your restaurant chain has thousands of restaurants in the country or around the world, knowing what the potential for performance improvement in dollar terms I can get if all my restaurants were performing at the best performing one.
Christophe Beck: But you can think as well about institutional. When you're a restaurant chain, so with thousands of restaurants in the country or around the world, knowing what's the potential of performance improvement in dollar terms that I can get if all my restaurants were performing at the best performing one. Well, that's huge insight. What's even more important. So with us is that we can deliver that performance because we've delivered it for the best performing unit as well at the same time. And the fact that we shared then afterwards the upside for the customer was that drives mostly value price, which is not a list price, which is mostly seen in other businesses.
Christophe Beck: It is all about institutional. When your restaurant chains, with thousands of restaurants in the country or around the world knowing what is the potential,
Christophe Beck: of Performance Improvement in dollar terms that I can get if all my restaurants were performing at the best performing one, well, that's
Christophe Beck: Well, that's a huge insight. What's even more important, so with us, is that we can deliver that performance because we've delivered it for the best performing unit as well at the same time. And the fact that we share the upside afterwards for the customer, well, that drives the value price, which is not the least price, which is mostly seen in other businesses, I mean, in other companies for us. And that's why we call it that way.
Christophe Beck: [inaudible]
Christophe Beck: So for the customers, well, that drives mostly value price, which is not the least price, which is mostly seen in other businesses, I mean, in other companies for us value price. And that's why we call it that way. It's our share in the improvement that we are delivering to our customers, which is why it never goes down by the way, and we keep going up as we move forward as well at the same time. So a very good story for all businesses. Food and beverage is an obvious one and institutional, another one as well.
Christophe Beck: I mean, in other companies, for us value price. And that's why we call it that way. It's our sharing the improvement that we are delivering to our customers, which is why it never goes down, by the way. And we keep going up as we move forward as well at the same time.
Christophe Beck: It's our share of the improvement that we are delivering to our customers, which is why it never goes down, by the way, and will keep going up as we move forward as well. So, a very good story for all businesses. Food and beverage is an obvious one, and institutional is another one as well.
Christophe Beck: So ultimately, this is bringing our strategy of circling customers and the globe in ways that are much more hardwired than the way we did it in the past, where we can share the knowledge of Ecolab anywhere around the world across all businesses and industries. Well, that's a critical reason why I believe that in the quarters and years to come, we will keep delivering day in and day out and get towards our targeted performance of the 5 to 7, our 20% ROI margin, and 12 to 15% earnings per share growth as our next step of performance.
Christophe Beck: So a very good story for all businesses, food and beverage is an obvious one, and institutional, another one as well. So ultimately, this is bringing our strategy of circle the customer, circle the globe in ways that are much more hard wired than the way we did it in the past, where we can share the knowledge of the club anywhere around the world across all businesses and industries. Well, that's a critical reason why I believe that in the quarters and years to come, we will keep delivering day in and day out and get towards our targeted performance of the five to seven, our 20% or I margin and 12 to 15% earnings per share grows as our next step of performance.
Christophe Beck: So, ultimately, this is...
Christophe Beck: Bringing our strategy of circle the customers, circle the globe in ways that are much more hardwired than the way we did it in the past where we can share the knowledge of Ecolab anywhere around the world across all businesses and industries, well that's a critical reason why I believe that in the quarters and years to come we will keep delivering.
Christophe Beck: Day in and day out and get towards our targeted performance of the 5 to 7, our 20% ROI margin and 12 to 15% earnings per share growth as our next step of performance. And again, that's not going to be the last step. This is our next level of performance that we're all working hard to deliver as quickly as we can.
Christophe Beck: And again, that's not going to be the last step. This is our next level of performance that we all working hard to deliver as quickly as we can.
Christophe Beck: And again, that's not going to be the last step. This is our next level of performance that we're all working hard to deliver as quickly as we can. Thank you. Mr. Hedberg, there are no further questions at this time.
Andrew Hedberg: Thank you.
Andrew Hedberg: I would like to turn the floor back to you for closing comments. Thank you. That wraps up our second quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thanks for your time and participation, and I hope everyone has a great rest of their day. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines and have a wonderful day.
Operator: Mr. Hedberg, there are no further questions at this time.
Andrew Hedberg: I would like to turn it over to you for closing comments. Thank you.
Christophe Beck: Thank you.
Christophe Beck: Mr. Hedberg, there are no further questions at this time. I would like to turn the floor back to you for closing comments.
Andrew Hedberg: That wraps up our second quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thanks for your time of participation. I hope everyone has a great rest of your day.
Andrew Hedberg: Thank you. That wraps up our second quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thanks for your time and participation and I hope everyone has a great rest of your day.
Operator: Ladies and gentlemen, thank you for your participation.
Operator: This does conclude today's teleconference.
You may now disconnect your lines and have a wonderful day.
Speaker Change: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines and have a wonderful day.