Q4 2024 Ecolab Inc Earnings Call
Greetings and welcome to the Ecolab fourth quarter 2024 earnings release Conference call.
This time, all participants are in listen only mode.
The question and answer session will follow today's formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
If you remind this conference is being recorded.
Speaker Change: At this time, it's now my pleasure to introduce your host Andy Hedberg, Vice President Investor Relations. Thank you. Mr. Hedberg, you may now begin.
Speaker Change: Thank you and Hello, everyone and welcome to <unk> fourth quarter Conference call with me today are Christophe Beck, Ecolab is chairman and CEO and Scott Kirkland, our CFO a discussion of our results along with our earnings release and the slides referencing the quarter's results are available on <unk> website at Ecolab Dot Com Slash investor. Please take a moment to read the cautionary statements in these materials.
Speaker Change: So which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward looking statements and actual results could differ materially from those projected.
Speaker Change: 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. We also refer you to the supplemental diluted earnings per share information in the release with that I'd like to turn the call over to Christophe Beck for his comments.
Christophe Beck: Thank you Andy and welcome to everyone on the call as we wrap up another incredible year at Ecolab I wanted to take a moment to acknowledge the hard work and dedication of our exceptional team.
Christophe Beck: And wavering commitment to our mission has been instrumental in delivering unmatched value and best in class outcomes for our customers driving ecolab is record performance.
Christophe Beck: A true privilege to lead such a talented group and I'm proud of what we've achieved together over the last few years.
2024 was another record year for us with record sales record earnings record margins and record free cash flow all supported by the exceptional total value we deliver drummock estimates.
Christophe Beck: As we look ahead to 2025 and beyond.
Christophe Beck: Results position us well to continue delivering superior performance for both our customers and I wish shareholders.
Christophe Beck: In Q4 organic sales growth was solid and steady at 4% driven by consistent volume growth and value pricing.
Christophe Beck: Regionally our performance continues to be led by the United States, where organic sales grew mid single digits, the United States makes up more than half of ecolab sales and is our most profitable region.
Christophe Beck: We expect this region to strengthen further in 2025 fueling continued strong performance for ecolab.
Christophe Beck: Sales across the rest of the world grew low single digits, driven by resilient demand for our leading solutions, good new business wins and value pricing, which more than offset the uneven macroeconomic trends in these regions.
Our organic operating income margin in the fourth quarter increased a robust 150 basis points.
Christophe Beck: This underscores our commitment to driving margins higher while making continued critical investments in sales firepower capabilities and capacity to fuel our future growth.
Christophe Beck: For the full year.
Christophe Beck: Organic operating income margin was 16, 8% up 290 basis points on top of 140 basis points delivered in 2023 with all of this my confidence in reaching our 20% operating income margin target over the next three years continues to strengthen.
Christophe Beck: As we move into 2025 I'm confident in the club's ability to drive continued solid organic sales growth and 12% to 15% earnings growth our strategy centers on capturing market share through our.
Christophe Beck: One ecolab initiative and accelerating momentum in our new growth engines, specifically in data centers Microelectronics life Sciences, and our newest offerings from Ecolab digital.
Christophe Beck: Externally currency translation is expected to have an approximate 3% unfavorable impact on ecolab 2025 reported sales growth and an approximate 4% unfavorable impact and adjusted EPS growth.
Christophe Beck: We plan to mitigate the earnings impact in two ways, one through stronger value pricing, which is expected to be slightly higher than 2020 force pricing as the total value delivered to customers continues to expand.
Christophe Beck: And two through slightly faster than expected one ecolab savings as a result, we look for continued superior performance in 2025 with adjusted diluted earnings per share are expected to increase 12% to 15% even with organic sales growth improving slightly from the 4% we delivered in 2024.
Christophe Beck: With a solid gross formula in place to deliver again in 2025, we also plan to build and invest in our business do you feel continued strong performance for the years ahead do.
Christophe Beck: Two of these critical areas include Ecolab Global high Tech business and equal at digital.
Christophe Beck: I would probably high tech business operates in the rapidly growing multibillion dollar data center and Microelectronics industries saves in this business have reached over $300 million and we expect strong growth to continue in the coming years with Oi margins well above 20%.
Christophe Beck: The rise of AI is prompting data centers to rethink their coding strategies, leading to a shift from air cooled liquid cooled servers. This transition presents ecolab was a significant opportunity to apply our extensive expertise in fluid management micro biocontrol and naturally high performance cooling which is.
Christophe Beck: One of our core competencies to help our customers optimize their operations maximize uptime and protect the substantial investments.
Christophe Beck: I mean, new business pipeline in these markets is very strong driven by robust demand for a breakthrough innovation focused on high performance cooling, but at our centers and water circuit a regime for microelectronic fabs.
Christophe Beck: We are well positioned to leverage these innovations along with our leading digital applications and global sales and service expertise to serve the world's largest technology companies.
Christophe Beck: Ecolab digital will also add to our momentum by leveraging the power of our extensive digital and AI capabilities to identify insights and deliver best in class performance across the 40 industries we serve.
Christophe Beck: Digital manages more than 100000 customer systems around the world today.
Christophe Beck: Last year alone, we captured more than 120 billion proprietary data points across the systems. He thought I was used to identify ways to deliver improved operational performance and profitability for our customers Global enterprises.
Christophe Beck: We monetize it gets enhanced customer value through patented device leases application subscriptions and digital content consumption all of which is supported by Ecolab global sales and service organization to make it work.
Christophe Beck: As previously indicated we will begin to report our digital sales in 2020 fives to provide even greater transparency to these high growth high margin opportunity.
Christophe Beck: To support these efforts and our other growth engines, we will continue to accelerate smart organic and inorganic investments with this we expect our capex to sales to be around 7% in 2025, as we continue to expand digitally connected systems like our ecolab three D cloud three.
Christophe Beck: Trees, all Aig's machine program and pest intelligence.
With a record free cash flows and very healthy balance sheet. We are also in a unique position to take advantage of inorganic opportunities in water digital and life sciences to deliver even more value to customers and attractive returns for shareholders.
Christophe Beck: With these initiatives we remain focused on further enhancing shareholder returns through increased dividends and share buybacks in December Ecolab Board declared a 14% increase in our quarterly cash dividend and a 2024, we bought back $1 billion of ecolab stuck at very attractive prices hold size.
Christophe Beck: Our confidence in our team and in our future overall.
Christophe Beck: Overall I firmly believe the best of Ecolab is yet to come our ability to deliver innovative solutions that improve our customers' operational performance, while reducing their water and energy use is increasingly relevant in todays micro landscape, we are well positioned to deliver another strong year in 2025 and beyond.
Christophe Beck: So thanks again for your continued support and your investment in Ecolab I look forward to your questions.
Christophe Beck: Thanks, Christoph that concludes our formal remarks, operator would you. Please begin the question and answer period.
Speaker Change: Yes. Thank you.
Speaker Change: Well now be conducting a question and answer session.
Can you please limit yourself to one question per caller, so others will have a chance to participate.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question Hugh.
Speaker Change: You May press star two if you'd like to draw your question from the queue.
Jason: This is Jason.
Speaker Change: Equipment it may be necessary.
Speaker Change: Where do you pick up your handset before pressing the starkey.
Speaker Change: Wanted one more can we poll for questions.
Speaker Change: Thank you our first question line of timber Ronnie with William Blair.
Speaker Change: Yeah.
Hi, Scott Good afternoon, Hi.
Speaker Change: Hi, Jim.
Speaker Change: Hello.
Speaker Change: So it sounds like your confidence around that 20% Oi margin target by 2027 continues to go up and.
Speaker Change: It looks like the market's coming out of that idea as well based on the stock price today.
Speaker Change: Wonder if you could help us though.
Speaker Change: Through the cadence of that expansion over the next three years and and remind me about the primary drivers behind us. Thank you.
Speaker Change: Yeah, Great question. Thank you Jim.
Speaker Change: So youre right.
Speaker Change: We feel really good about getting to 20% by 2027, just to be accurate as well, even though the exact timing will also depend on external factors, but we're talking quarters here not years, So 2027 needs for me.
Speaker Change: The Euro where we should cross the 20% line, so why Oh my confidence well first.
Speaker Change: We've been on a steady trajectory for a few years now.
Speaker Change: Oi margin went up as mentioned earlier.
Speaker Change: 140 basis points, and 23 290 basis points in 'twenty four we at 16, 8% in 2024 and second we focused on the right things to drive margins, it's topline momentum, which is pretty steady it second value.
Speaker Change: Pricing.
Speaker Change: Solid we didn't exactly know where it would land. So these 2% to 3% seems to be the sweet spot. So for us innovation keeps to add margin in a very steady way and.
Speaker Change: Fourth our productivity driven by technology. So for 2025 with everything I know today I think that we should cross the 18% Oi margin.
Speaker Change: This year and beyond that when I think about the new engines team that we are building and a few linked to accelerate momentum like the global high Tech I mentioned before data centers and Fabs, while it's north of 20% those businesses life Sciences underlying.
Speaker Change: As well, we're investing behind it really so get ultimately so this north of 20% margin in the P&L.
Speaker Change: That's going to take.
Speaker Change: A few years to get there and last but not least ecolab digital which is doing really well, which we will report them.
Speaker Change: In the first quarter as promised as well while it has very good margin as well at the same time, so great track record so far focused on the right drivers to drive margins. So feel good about crossing the 18% line in 'twenty, five and with what we're building into.
Speaker Change: If new businesses, ultimately said, we'd get to 20% by 2027.
Speaker Change: I promise still for a wide now.
Speaker Change: Our next question from the line of Manav Patnaik with Barclays. Please proceed with your question.
Speaker Change: Thank you good afternoon Christoph.
Speaker Change: I apologize if I missed this.
Speaker Change: I know you said you report the digital numbers I guess throughout the year any sense.
Speaker Change: Yes.
Speaker Change: Rising at an end I suppose.
Speaker Change: How intertwined is that with your one ecolab initiative and the importance of that.
Speaker Change: Yeah. So I've promised that we would be disclosing that in 'twenty five we wanted to do it obviously the right way.
Speaker Change: Gonna be topline in 'twenty, five and it's going to be more of the P&L in 'twenty six hopefully that we can have numbers that you can trust transparency solely in the spirit of.
Speaker Change: Giving you as much visibility as we can but today.
Speaker Change: It's a few hundred million will.
Speaker Change: Provide the exact numbers as we report the first quarter its high growth high margin high touch.
Speaker Change: Very sticky because it's a combination of mostly three things and it's purely digital.
Speaker Change: You would use with your iPhone or Samsung whatever you have manav well.
Speaker Change: We get.
Lease or rent for our devices and we have 100000 enough those connections.
Speaker Change: Around the world. So it's first digital equipment.
Speaker Change: Second is software or think applications.
Speaker Change: On a on a phone but for us each software like omni to improve optimize.
Speaker Change: Performance of our power plant for instance between the cooling tower.
Speaker Change: And the condenser, while we get to subscription.
Speaker Change: And the third one is consumption.
Speaker Change: Got out of transaction of minutes of support of emergency service and so on so those are the three components that will be feeding.
Speaker Change: Our numbers that we'll be reporting under ecolab digital and last point.
Speaker Change: The relationship to one ecolab, well, it's very clearly intertwined.
On purpose.
Speaker Change: Obviously, because all the information that we're getting with all our connected systems and our service data by the way that recaptured from our field sales force or from our customers or from other systems all feed into ecolab three deep that ultimately provides that off with the software and the.
Speaker Change: Sumption as well that's being used by our customers. So it's.
Speaker Change: Two sides of the same coin, but more to come at the end of the first quarter. So when we can really report our top line numbers.
Speaker Change: Thank you.
Speaker Change: Next question is from the line of Ashish <unk> with RBC capital market, especially with your question.
Speaker Change: Thanks for taking my question I, just wanted to better understand the volume growth expectation as we get into 2025, and if you could provide any color by segment as well as any impact any potential impact from got it thanks and congrats on solutions.
Speaker Change: Thank you so much actually so if I understood you right. So the last part of your question was the impact of tariffs.
Speaker Change: So which is obviously a bit of a different topic here, but generally with what we know now and it's an evolving proposition.
Speaker Change: We know as well, we don't see a big impact.
Speaker Change: Our business for a very simple reason.
Speaker Change: Is that 92% of what we sell is produced locally and in places like China, It's 99% of what we sell is produced locally so we kind of were protected.
Speaker Change: From a supply chain perspective, that's the reason why.
Speaker Change: The race for now not a big deal.
Speaker Change: For the company and hopefully staying so maybe it doesn't.
Speaker Change: Like to remind you and all as well on line that a few years back so we establish that.
Speaker Change: So charge mechanism that we use to for the energy Spike in 2022, while this is a mechanism. That's in the extreme case, we can use as well we're not planning to but we are prepared to use it.
Speaker Change: If we need to so kind of feeling good about that tariff.
Speaker Change: Story now the first part.
Speaker Change: A few question.
Speaker Change: On volume 2025, the way we need to think about it not every quarter is created equal but trajectory is basically so these are around 2%.
Speaker Change: Volume growth.
Speaker Change: It is kind of the cruising speed, we've had for a few quarters now.
Speaker Change: The price value priced two to three but better than in 'twenty 'twenty four.
Speaker Change: I believe which will lead to a 4% plus.
Speaker Change: Overall trajectory so for 2025, that's kind of the.
Speaker Change: The top line expectation for 2025, that's for organic obviously and then you have an FX component for.
Speaker Change: Reported.
Members, but.
Speaker Change: Last point I'll make.
Speaker Change: Two elements first in terms of.
Speaker Change: Long term directional growth.
Speaker Change: So just to refer what I shared with you almost two years ago.
Speaker Change: <unk> business in terms of top line and margins at Investor Day.
Speaker Change: Those loans are still valid no change on this one and the last point is.
Speaker Change: The United States is our largest market.
Speaker Change: It's over half hours saves.
Speaker Change: It's our best performing market with the highest margin as well at the same time, which is a good place to be in the world that we're living in right now and around the world.
Speaker Change: It's obviously a different market by market, but generally I feel good all the markets in a reasonably good place.
Speaker Change: Good profitability as well, we have no other dog as well out there so pretty well balanced in terms of business performance and market performance at the same time, while the U S.
Speaker Change: Is the leading market, which is a good thing nowadays.
Speaker Change: Our next question is from the line of John Mcnulty with BMO capital markets. Please proceed with your question.
John Mcnulty: Yes. Good afternoon, thanks for taking my question.
Speaker Change: So I was just curious if you could give us some color or thoughts on how youre thinking about delivered product costs in 2025. It seems like there's a bunch of kind of puts and takes out there. So if you can give us a little bit of color on that that'd be great.
Scott Kirkland: Thank you John ill pass it to Scott So he can work as well a little bit.
Scott Kirkland: Thanks for the question John.
Speaker Change: Yeah, as we think about the DPC as we started seeing in in 2024, where we're starting to see the DPC tailwind a normalize and really turned to normal levels of inflation, our expectation going into next year as we talked about after Q3 is this normal level of low single digit inflation for silver product costs.
Speaker Change: But certainly we will continue to offset as much of that with supply chain efficiencies, but that is our net expectation peer DPC next year is low single digits.
Okay.
Speaker Change: Next question is from the line of Jason Haas with Wells Fargo. Please proceed with your question.
Jason Haas: Hey, good afternoon, and thanks for taking my question I'm curious if you could talk about.
Jason Haas: What it will take to get the 2% volume growth to the long term target of 3% to 4% how much it how much of that is reliant on some of these <unk>.
Jason Haas: This gives you an improving versus what you can accomplish with wanting a lot of your other initiatives. Thank you.
Jason Haas: Yeah.
Jason Haas: It's our main focus.
Jason Haas: Jason So I feel good about what we're doing.
Jason Haas: About it.
Jason Haas: Mentioned one ecolab.
Jason Haas: It's all about unlocking a bigger share of the $55 billion of penetration in existing customers.
Jason Haas: That we have and as mentioned.
Jason Haas: Separately as well.
Jason Haas: Yeah, just I would top 35 customers have a potential of over 3 billion.
Jason Haas: Penetration as well so one ecolab focused on our major guesstimate partners.
Jason Haas: Is the main driver of how much we can accelerate underlying growth as a company. The second component is.
Jason Haas: He is really those new engines like I mentioned in my open so global hijack with data centers in Fabs.
Jason Haas: These are really interesting engines, so for the future.
Jason Haas: Life Science is another one ecolab digital has mentioned that we are going to start reporting at the top line level.
After Q1 will be one as well and ultimately.
Jason Haas: Really keeping improving.
Jason Haas: The performance of our core businesses.
Jason Haas: Institutional pest elimination, our core water business is by focusing really on new business generation and I feel good with the trajectory that we having the backlog that we have in terms of new business, we need to install it. So we have all the elements that we need in order to improve.
Jason Haas: The performance at the volume level, but I'd like to make sure that we also look at volume plus a value pricing because for us as you know value pricing is not price it.
Jason Haas: Mostly our share of the value that we deliver to our customers, which.
Jason Haas: As a proxy is usually so twice the pricing that our customers are paying for us. So it's a very good deal for our customers. While it is a good deal for our shareholders at the same time.
Speaker Change: Our next question is from the line of Patrick Cunningham with Citigroup. Please proceed with your question.
Speaker Change: Hi, good afternoon, and thank you for taking my question. This is Rachel.
Speaker Change: Patrick.
Speaker Change: Looks like my stance is performing better.
Speaker Change: What is driving the underlying.
Speaker Change: Hum.
Speaker Change: I work in <unk>.
Speaker Change: Sure.
Speaker Change: Thank you Rachel life Science.
Speaker Change: <unk> is a business that we started building in 2016 2017 really focusing on on pharma acquisition of pure light in 'twenty, one added really the ultra purification for the biotech world because we firmly believe that.
Speaker Change: Development drug production and disease prevention is going to be and is a growth.
Speaker Change: Market long time, so feel really good about where the market is going to go we know that the industry had to go through a bit of a transition.
Speaker Change: Over the past few years, but he doesn't change where we're coming from and he doesn't change where we going at just a few years of transition during those two years.
Speaker Change: We've kept growing as well as part as we were hoping but our competition was declining.
Speaker Change: During that time, so feel pretty good as well about that but the last few years, we've built new capabilities plants systems quality assistance.
Speaker Change: We've strengthened our team as well in dramatic ways, which is something that ecolab is very strong at so I feel really good about the industry. We serve how we serve that industry in being the smaller player very agile very innovative very responsive very close to customers and the capability.
Speaker Change: Is that we've built for the future and we see early fruits, so coming out which is a very good sign so I feel good about where we are where we going with life science is not going to be a straight line to heaven for.
Speaker Change: For the quarters to come not every quarter is created equal, but the direction of travel is good and we keep getting better.
Speaker Change: The next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Vincent Andrews: Thank you I'm wondering if you could talk a little bit more about sort of the leverage point.
Vincent Andrews: It looks like Youre going to get to maybe it's in both data centers and in pet or you've had to make some.
Vincent Andrews: Some meaningful investment to go after that business and it's kind of more of a percolation the backlog for a while before it actually shows up in revenue. So maybe you could just help us understand where you are in terms of the level of spend that you've had to make versus starting to see a real ramp up for an inflection in the volume and therefore.
The margins set new volume will drive.
Vincent Andrews: The volume is becomes greater than the spend.
Vincent Andrews: Well, it's it's already.
Vincent Andrews: A good business with good margins so to begin with so we are investing.
Vincent Andrews: Behind these two business is data centers and Fabs, but nothing crazy ways to do it in a smart way in a typical ecolab manner that it's pay as you go even though it's a little bit more than we would normally.
It's not much more so it's done in a very in a very healthy way and to your question of how far are we down that journey.
Vincent Andrews: Well, it's early because it's early for everyone. The very good news.
Vincent Andrews: Is that it's new technologies.
Vincent Andrews: That nobody has truly developed yet and I think that we are best positioned.
Vincent Andrews: For that the way, we presented internally and it might get a little bit ahead of my skis here.
Speaker Change: You have envied, yes, that's.
Developing the best chips in the World you have ASML producing the machines.
Speaker Change: It used to chip's Yep, TSMC and Samsung producing the chips and you will have us providing older cooling technology and the water recycling.
In the Fabs two comments on that.
Speaker Change: That.
Speaker Change: On data centers technology today, well do you have a lot of computers in a room that's cool.
Speaker Change: Cool with air conditioning were very strong at that we know how to master that while the new generation now is direct to cheap cooling. So you have a cold fluid going to the chip well, that's a very different technology can imagine so bring that fluid to the chip all the challenges of scaling of falling.
Speaker Change: Of managing all of that in real time. This is about <unk> trays are was made for initially so we are uniquely placed in terms of technology. So close to the chip managing debt fluids and cooling that fluid as well at the same time.
Speaker Change: I feel really good with the developments that we've made and very close to some of the largest tech companies out there. So all the big names are working pretty closely to us on the last point.
Speaker Change: For the Fabs.
Speaker Change: One Bob just for perspective is using an equivalent of the drinking needs of 17 million people.
Speaker Change: No that can't go forever, because obviously, we won't have enough water.
Speaker Change: In order to feed all those fabs why feeding people as well at the same time, so we need technology to reuse and recycle water within the fab, which is exactly what we're doing and we're having some very good development project with some very famous tech companies as well out there. So it's early because the industry is.
Speaker Change: Early but I think that we are at the leading edge and we will be the ones hopefully leading for the years to come as well.
Speaker Change: The next question is from the line of John Roberts with Mizuho Securities.
John Roberts: With your question.
Speaker Change: Mr Adams, perhaps your line's on mute.
Speaker Change: Sorry about that in the pest elimination segment could you discuss the accidents that you had and how much of the earnings headwind was the accidents versus the increased spending on pest intelligence.
Speaker Change: Yeah.
Speaker Change: Yes first.
Speaker Change: We are an extremely safety focused organization as you know John So my first thought is really about the people and the families who have been hurt.
Speaker Change: We have some very good.
Speaker Change: Good safety records really at World class levels. So when when a few accidents happen you can see it in our records you can seat.
Speaker Change: But cost evolution as well so the Oi decrease that we had the majority of it was driven by.
Speaker Change: Bye bye accidents.
Speaker Change: This is something that we're working on we're very focused on it can happen, even though we are having that objective of gold zero in every business every function anywhere.
Speaker Change: Around the world and when it happens.
Speaker Change: Deal with it and that's exactly what happened Unfortunately.
Speaker Change: Pest elimination, we need to live with it but most importantly, we need to address it.
Speaker Change: Thank you. Our next question is from the lineup.
Speaker Change: Long haul rosenbaum with Stifel.
Speaker Change: Right.
Speaker Change: Hi, Thank you very much.
Speaker Change: I wanted to ask if you could just unpack the capex a little bit we talked about some investments into digital and some of the other areas.
Speaker Change: Capex typically for the company was 5%.
Speaker Change: It moved up to a little over 6% last year, and we're talking about 7% or we enter a new normal type of.
Speaker Change: Kind of business model or is there something that there's the short term.
Speaker Change: The increase in investment or acceleration of investments.
Scott Kirkland: Yeah, Let me pass it to Scott.
Speaker Change: Comment up to that.
Speaker Change: Shlomo. Thanks for the question as you know Capex by nature is a little lumpy as you said historically, we've been in this 5% to 6% range, but just to ground you about half of that Capex as a percentage of sales is related to customer equipment. So customer equipment location. So as we're growing capex will grow and as we move to us to that 7%.
Christophe Beck: 2025, as Christoph said, we're continuing to invest and we're growing so as sales accelerate we will continue to invest there but in addition to that we have programs that he has mentioned around AI dish machine, which you may have seen at some of our shows the pest intelligence, which we've referenced as well as the digital investments that Christophe talked before so those programs itself.
Christophe Beck: As we accelerate in the near term certainly in 25, I would expect possibly a little bit more elevated in 'twenty six but I don't think this is a long term trend.
Christophe Beck: Above 7%.
Christophe Beck: It's not the new normal.
Christophe Beck: But we have very strong cash flow, a very strong balance sheet very good growth opportunities well I want to leverage the capital that we have also to feed those growth opportunities, while we return cash to shareholders as well at the same time and keep the.
Christophe Beck: Our strong balance sheet that we have so all in all a pretty healthy investments.
Speaker Change: Thank you. Our next question comes from the line of Steve Byrne with Bank of America consistent with your question.
Christophe Beck: Yes. Thank you.
Christophe Beck: In order for your customers to utilize your products.
Christophe Beck: Whether it's in waste water.
Christophe Beck: Water treatment laundry cleaning dishwashing pest elimination all of that equipment that they have.
Speaker Change: How much of that does ecolab own or that you've sold to them or you have installed is this part of.
The the loyalty and pricing power that you have with those industrial customers.
Steve: It's a great question Steve.
Steve: We own virtually all of it and we want to keep it that way because it's a proprietary new tech.
Steve: Technology, it's much more sticky.
Steve: This is good for us, but it's also good for the customer.
Steve: They always get the latest technology the upgrades in software.
Steve: They might pay for the new.
Steve: <unk> for the new software is as well, but generally.
Dispensing equipment digital technology all.
Steve: All of that belongs to us.
Speaker Change: Our next question comes the line of David Begleiter with Deutsche Bank. Please proceed with your question.
David Begleiter: Thank you Chris.
Speaker Change: Christoph on the 25 volume growth of 2%.
Speaker Change: Is that faster than the market and if it is if it is how much faster than the market is it.
Speaker Change: It is clearly faster than the market.
Speaker Change: You take the example of institutional.
Speaker Change: 6% growth in a down market.
Speaker Change: And you can look at different.
Speaker Change: Days of looking at it but the food traffic is down.
Speaker Change: We clearly gaining share.
Speaker Change: This is true in our water business as well at the same time.
Speaker Change: I feel really good about the share that.
Speaker Change: We gaining.
Speaker Change: The 2% is kind of the steady <unk>.
Speaker Change: <unk> gross debt, we have our focus is to keep working on it to accelerate it as I mentioned before as well we saw a growth engines with capturing more share up to $55 billion by leveraging one ecolab, adding did you did as well.
Speaker Change: So all feeding into stronger than 2% for the long run, but we wanted to do it in a very smart way I will never trade.
Speaker Change: Volume for price.
Speaker Change: As you know so we have strong value price as well so it's keeping that equation.
Speaker Change: In a good balance and that's why you don't see you saw big swings.
Speaker Change: Round. These do we want to really do it in a very steady way that ultimately you can trust the direction of travel that we having.
Speaker Change: Our next question is from the line of Jeff Zekauskas with J P. Morgan. Please proceed with your question.
Jeff Zekauskas: Thanks very much.
Jeff Zekauskas: I have a three part question, but I think your answers will be brief.
Speaker Change: And if you compare industrial and institutional in the quarter.
Speaker Change: Which segment grew its volumes faster.
Speaker Change: In terms of your 20%.
Speaker Change: Margin target.
Speaker Change: Turns out that in 2027, your amortization costs will drop from todays level up by about $150 million.
Speaker Change: So your EBIT margin will go up about 90 basis points, but it won't affect your EBIT margin. So when you have that 20% margin target does that include that drop in amortization or is your EBIT target really 'twenty, one and it doesn't take that into account.
Speaker Change: And then lastly in pest elimination, what exactly happened, where ecolab employees ensured our customers injured and why is this something which seems to.
Speaker Change: Having an effect over the next several quarters.
Speaker Change: So Jeff you paid for one question only but I'm Gonna gives you said the two bone those questions.
Speaker Change: Well, it's a good friends so first.
Speaker Change: The volume difference between institutional.
Speaker Change: And industrial so as you know, we not disclosing so volume and price, especially for competitive reasons.
Speaker Change: So I can't really answer that question, but in both cases, it's pretty good so I feel good about the balance volume and price, which is something as mentioned before that I want to keep a very good balance off and you can see it at the overall company level second question amortization is not <unk>.
Speaker Change: <unk>.
Speaker Change: In 2027 there.
Speaker Change: So when when amortization after your existing.
Speaker Change: So acquisitions that we've made so it comes off the book, that's going to be on top but I'm not counting that so to get to 20% and third one in pest elimination.
Speaker Change: It's always a combination of two weeks insurance cost.
Speaker Change: So depending on who.
Speaker Change: <unk> owns the accident.
Speaker Change: We have to pay.
Speaker Change: It's been unfortunate accidents as you know in pest elimination, we have a few thousand people.
Speaker Change: On the roads.
Speaker Change: <unk> four seven.
Speaker Change: In sometimes remote places and sometimes difficult customer locations as well.
Speaker Change: So it's been unfortunate.
Speaker Change: <unk> It was mostly in Q4, there's going to be a little bit in Q1, but that's it.
Speaker Change: Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Speaker Change: Good afternoon could you give us a sense of your assumptions for 2025 around SG&A leverage.
Taxes interest expense and buybacks.
Speaker Change: Yeah, let me give it to Scott as well.
Speaker Change: I got that thanks, Lawrence I guess, a three part question remind me if I forget any of the three parts, but as we think about SG&A as we talked about previously we expected.
Speaker Change: And our guide for next year to be at this 20 to 30 basis points of leverage and that's net of continuing to invest in the business.
Speaker Change: Now certainly with the impact of FX that will have an impact on that but as we accelerate the one ecolab savings as well, we still expect to be in that range of 20 to 30 basis points on SG&A leverage, but probably near the lower end of that range and in Q1, I would expect it to be slightly negative because as you can expect the FX, we're already seeing it.
Speaker Change: It'll take some time to realize those savings aggressively throughout the year.
Speaker Change: And then as we talked about taxes.
Speaker Change: This year, we landed the full year in between our 19 and 20% expectation for the air landed at $19 three on an adjusted tax rate for the full year and expect to be in this 20% to 21% range next year as we continue to.
Christophe Beck: Drive earnings growth, so that earnings growth will sort of naturally get us closer to the U S corporate rate, especially given the strength of growth in our U S business and then lastly on buybacks I would just say as Christophe mentioned before the balance sheet is in a very very good place no change to our philosophy on capital allocation.
Christophe Beck: The balance sheet as you probably saw we ended the year at a net leverage of about one seven times, we repurchased that includes repurchasing about $1 billion of shares in 2024, and then future buybacks are really going to be dependent as it always has been on our investment opportunities, including M&A. So with the balance sheet strength that we have it gives us a lot.
Robert a lot of opportunity to invest both inorganically and organically and Youll see that in the Capex as we talked about this increased to 7% of sales. So as we have right now I would expect normal levels of buybacks, but consistent with our historical capital allocation philosophy, and we will invest in the business as a number one priority.
Christophe Beck: Oh.
Christophe Beck: Our next question is from the line of Chris Parkinson with Wolfe Research. Please proceed with your question.
Chris Parkinson: Great. Thank you so much I'm, just what I'm thinking about the water segment and looking at the growth between light downstream heavy in mining.
Chris Parkinson: Given the long term outlook and Datacenters microelectronics and some of the things you are obviously already betting from.
Chris Parkinson: Obviously growing at more significant baseline.
Chris Parkinson: Is there just a general mathematical equation that would get us to let's say more of a mid single digit like a five or 6% growth rate, especially the 2% pricing that you foresee for like 26 or 27, just what's the best way to triangulate that over the long term because it seems like the momentum is beginning to build there. Thank you.
Chris Parkinson: Yes, well you're right.
Chris Parkinson: <unk>.
Chris Parkinson: Industrial so I had to go through a lot of value price as you know over the last few years. The team did an exceptional job why keep being volume momentum and especially so keeping customers we.
Chris Parkinson: This core principle as a company that we keep customers for life and we've done that very well over the last used to shift gears.
Chris Parkinson: That industrial did.
Chris Parkinson: Almost a year back.
Chris Parkinson: Now while it has been to focus on businesses like global high Tech with the data centers with the Fabs that are picking up speed. So when you look at the 1% to 2% to 3% in industrial it's a big business. Obviously, so you have some fast growing businesses.
Chris Parkinson: In there and some less pause growing businesses as well so.
Chris Parkinson: Within water, but the global high Tech, which is 300 million plus two day, we're growing pretty fast at very high margin is going to influence the overall industrial profile.
Chris Parkinson: In the mid term as it grows abusing importance versus the size of the overall business. So if you have liked industrial which we called water by the way so as of 2025 in the past you'll like it.
Chris Parkinson: Even more in 2025 and in the years to come because our presence in those two big sectors is going to be critical.
Chris Parkinson: In the future and the other businesses.
Chris Parkinson: Well.
Chris Parkinson: In food and beverage and in downstream.
Chris Parkinson: In paper.
Chris Parkinson: Doing some really good work as well so to improve the core performance of those older businesses.
Chris Parkinson: If I may say so combination of.
Chris Parkinson: Older business is core business is strong solid and improving and on top of it the new engines.
Chris Parkinson: Adding to the scheme as well will be a good equation long terms so for industrial.
Josh Spector: Our next question from the line of Josh Spector with UBS.
Chris Parkinson: With your question.
Chris Parkinson: Hey, guys congrats on a great quarter.
Speaker Change: James Cameron on for Josh.
Speaker Change: I just wanted to touch on.
Speaker Change: With some of the moving pieces that happened in the health care life Sciences business.
Speaker Change: <unk> set for us how much is moving from health care to.
Speaker Change: That kind of margin profile.
Speaker Change: What's the remaining standalone lifestyle.
Speaker Change: Correct.
Speaker Change: Yes, you will see more obviously as we report.
Speaker Change: The first quarter.
Speaker Change: Healthcare is roughly half a billion.
Sales are pretty low margin and.
Speaker Change: And that's going to move so into the IMS group.
Speaker Change: Group.
Speaker Change: It's going to have an impact probably up one percentage point topline and one percentage point margin.
Speaker Change: Basically what's going to happen optically obviously the business is <unk> don't change it's just a.
Speaker Change: The math, that's regrouped so healthcare within <unk>.
Speaker Change: Ines, but ians very strong very healthy and the leverage that we are.
Speaker Change: Creating so between health care and.
Speaker Change: And institutional while he is going to be beneficial for boats.
Speaker Change: Mentally so <unk> is still going to be you saw 20% Oi type of business, so very healthy very steady and it's going to keep getting better in the future on the life science side, while youll see the exact numbers.
Speaker Change: The end of the first quarter.
Speaker Change: But it's between 500 and a billion in sales we are investing quite heavily in that business.
Speaker Change: Underlying performance.
Speaker Change: Hawaii.
Speaker Change: Life Science is in the mid twenties.
Speaker Change: But with what we invest is more in the low to mid teens.
Speaker Change: Today, but it's really keeping in mind, we building capabilities capacities teams systems innovation.
Speaker Change: To build a business that's north of 25, and hopefully at some point north of 30% as well so very pleased with what we're doing and ultimately having that as a separate reporting segment for you to have the transparency the visibility of what's happening what we're doing and where are we heading because I firmly believe that life science.
Speaker Change: He is going to be a terrific business so for us going forward.
Speaker Change: Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Kevin Mccarthy: Yes, Thank you and good afternoon, maybe a two part question.
Kevin Mccarthy: Mr. <unk> would you comment on the relative margin differential between your U S businesses, and your international businesses and whether Thats stable.
Kevin Mccarthy: Stable or narrowing or widening and then secondly.
Kevin Mccarthy: A question on your foreign exchange guidance.
Kevin Mccarthy: Why is it the case that currency is expected to be a larger drag of 4% on your bottom line relative to 3% on the top line.
Scott Kirkland: So let me maybe Scott start with the second part of your question.
Scott Kirkland: And he might add on the first part as well and that'll build on it. So why don't you start Scott, Yes, Kevin the simple answer first of all it's a pretty small difference we're talking 3% on reported sales and 4% impact of translation FX on EPS. So it's a pretty small difference, but the simple answer is just the result of geographic mix is.
Scott Kirkland: The simple and obvious answer.
Scott Kirkland: And on the Oi margin, so the DD U S.
Scott Kirkland: <unk> is is above average of the company.
Scott Kirkland: Outside the U S is below average of the company, but not that much actually it used to be way lower.
A few years back and today pretty close but also improving the.
Scott Kirkland: The 20% Oi margin by the way at the market level.
Scott Kirkland: Is the same objective for everyone around the world some markets have crossed that line already and everyone. In the company. So is having that objective in trying to get beyond the 20% in all of the 11 markets.
Scott Kirkland: We have around the world.
Scott Kirkland: Generally pretty healthy across the planet and I really like where we are.
Speaker Change: Our next question from the line of Justin.
Scott Kirkland: With there.
Okay.
Scott Kirkland: Yes, hi, good afternoon.
Scott Kirkland: My question right.
Scott Kirkland: All right.
Scott Kirkland: Okay.
Scott Kirkland: Yeah.
Scott Kirkland: Lab initiatives.
Scott Kirkland: Yeah.
Scott Kirkland: It looks like right around 102024.
Scott Kirkland: The quarters, and so I guess I'm just.
Scott Kirkland: I'm curious $225 million.
Scott Kirkland: To spend.
Scott Kirkland: That's still the right number.
Scott Kirkland: Frontloaded, it everything or orders.
Scott Kirkland: That number in a little higher.
Speaker Change: Yes, let me pass it to Scott you were breaking up whether it be the hard to hear you, but what we understood was the pacing of the savings for the one ecolab initiatives. So let me have Scott answer that question and if it's not what you had in mind. So please just ask again, making sure that we don't say what you are looking for.
Scott Kirkland: Yeah, So Justin on the program I just wanted to first start by saying of course as we've talked this program is really about enabling the sales growth that is the primary purpose accelerating that path to the five to seven in ticketing.
Scott Kirkland: Advantage of this $55 billion cross sell opportunity that we've talked about but as you said the program included $140 million of savings, which we expected and talked about last year. After Q3, when we rolled out the program that we would expect that to be pretty proportionate pretty even over the first three years or over the three years of the program.
Scott Kirkland: But of course, if you take that $140 million of savings again, that's like averaging 1% of sales a year. So again, the big impact is not sorry on SG&A, the big impacts not in SG&A, but on driving the sales growth, but within that savings, it's going to allow us to continue to invest in the business and that pacing as we've reacted to the FX and just driven that.
Scott Kirkland: Program, we're expecting it to be a little bit more front loaded, whereas you had expected a third a third a third previously works, probably expecting 40% to 50% of that savings to happen next year in 2025.
Scott Kirkland: I'd like to build on what Scott just said so two things.
Scott Kirkland: One ecolab.
Scott Kirkland: It's clearly a growth initiative, the fact that savings are coming in.
Scott Kirkland: Better and foster is a very good sign and it's a very good sign of adoption.
Scott Kirkland: Our team and our customers, it's not that we are cutting.
Scott Kirkland: We're doing some weird things here, it's a performance project to accelerate growth and it's important to keep it that way in mind. So that's the first part improving faster than expected, which is really good and second from a growth perspective. The best example is in our F&B.
Scott Kirkland: Business, where one ecolab.
Scott Kirkland: Has it been leveraged in the last few months, bringing hygiene and water together.
Scott Kirkland: As one offering so far with customers. This is working really well you've seen the results of F&B are improving as well at the same time. So it's really showing that the one ecolab initiative, which has been an old dream in a way is is really hitting on both fronts performance and growth.
Scott Kirkland: Acceleration, which is exactly what we were looking for early in the journey, but very encouraging early signs of success.
Scott Kirkland: Okay.
Speaker Change: Our next question is from the line of Andreas Mueller with partner. Please proceed with your question.
Speaker Change: Hello, I wanted to ask about the exploration and the charges for a day application implementation of why don't collapse. It seems that we are too.
Speaker Change: 100 million you think you can do.
Speaker Change: Four out of 25 that was budgeted by 2027. So my question is is that a risk.
Speaker Change: Round number of budgets.
Speaker Change: Yeah.
Speaker Change: No not at all just to answer your question really simply as we talked about we've had great execution. We're accelerating the program just naturally the cost will be more front loaded because you recognize the accounting for the cost earlier and then the savings happen over time and once you identify where those cost savings are going to be so that is naturally every program that.
Speaker Change: We took a restructuring program that we've had but again because we are accelerating savings next year seeing some of that those cost a little bit frontloaded, but in terms of the returns and the payback on the program itself, we will not see any difference.
Speaker Change: Our next question comes from the line of Mike Harrison with Seaport Research partners.
Speaker Change: With your question.
Speaker Change: Hi, good afternoon.
Speaker Change: Terms of the healthcare business going under the institutional segment.
Speaker Change: I was curious if theres basically just taking the operational changes you've made and now formalizing it into your financial reporting structure or are there some additional changes happening.
Speaker Change: How youre running that business and integrating that more with you.
Speaker Change: Additional approach thank you.
Speaker Change: No it's exactly what you said.
Speaker Change: Mike.
Speaker Change: If you remember so on the health care I've made the commitments so to solve that business.
Speaker Change: Which means getting this business so to a place which is creating value.
Speaker Change: For shareholders.
Speaker Change: We had a few steps the first one was getting the cost structure right. The second was the bifurcation of surgical versus infection prevention.
Speaker Change: The third was to sell the surgical drapes business, we've done that very successfully so it's a done deal.
Speaker Change: The way it worked out really well with the carve out and sale. So two to Medline worked out really really well and the last step was to leverage institutional.
Speaker Change: Because we have institutional luisa huge critical mass, especially in the U S.
Speaker Change: Serving so many locations where you bring obviously the institutional service.
Speaker Change: In the food service in there.
Speaker Change: Hospitality part.
Speaker Change: And then bringing infection prevention, whereas the very natural add to serve hospitals, the best possible way. So getting those two together are reported in the same segment made a lot of sense because that's the way we will operate going forward. So that's the way we need to report as well at.
Speaker Change: The same time that being said as I've mentioned, the future of health care will be.
Speaker Change: In instrument reprocessing.
Speaker Change: This is kind of a dish machine business, obviously at a higher standard because it needs to be disinfected austerity, depending on the instruments that you are.
Speaker Change: <unk> a business model that we know extremely well, we know how to make money with it as well we have the capabilities. We have the reach we have the footprint.
Speaker Change: For <unk> as well, so that's going to add to it.
But again a business that's very similar to what we do in institutional in dish rooms, just for different types of equipment at the different standard of cleaning as well so I feel pretty good with the evolution that we've gone through with our healthcare business finally.
Speaker Change: Time, obviously to get to the right place, but I think that we in the right place and heading in the right direction too.
Speaker Change: Our next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed.
Speaker Change: With your question.
Speaker Change: Thanks, very much good afternoon I have two.
Speaker Change: I would say in both upfront.
Speaker Change: The digital past intelligence program, Christopher how long is the investment cycle. There is that is that it.
Speaker Change: Quarters years, and when and how will we see the benefits reflected will be top line.
Speaker Change: Margin just curious what we should see that down the road. Thanks, and then on the follow up.
Speaker Change: Just on cross sell could you talk about.
Speaker Change: Where you are with cross sell particularly the top 35 customers as you enter 2025, how meaningful can that be thanks.
Speaker Change: Thank you Scott so two very different questions. So obviously here so the best intelligence.
Speaker Change: <unk> when you think about it it's thousands of people.
Speaker Change: Millions of devices that you need to shift from analog to digital.
Speaker Change: This is something we know very well how to do.
Speaker Change: But this is physical work beyond the digital component, obviously, so it's going to take some times.
Speaker Change: I think it's going to be a few years.
Speaker Change: We're going to do it in a smart way as we've always done it's pay as you go type of approach and a very typical equal a manner as I mentioned before as well here we can afford it.
Speaker Change: Because of the strong cash generation.
Speaker Change: We have as a company.
Speaker Change: Strong balance sheet that we have a strong business franchise, we especially elimination. So we might have some slight reduction of margin so for a while as we did with.
Speaker Change: Life Science to make sure that ultimately we ended up with a margin that's even better than where we were and where we are today. So a few years, but it's going to be done in a very healthy matter there will be no big shocks no big surprise, and we will share with you the progress that we're making and so.
Speaker Change: So good.
Speaker Change: Some of the key customers.
Speaker Change: Well one of them is probably the largest retailer in the world.
Speaker Change: Which has been our main partner to develop that solution is.
Speaker Change: He is almost done progressing very well.
Speaker Change: We have much better results as well every retail location in the U S. The customer very happy we've learned to not doing that passes well we had to adjust a few things we still have to do it as well we're learning with them, but it's the right partner for us to develop the solution of the future. So.
Speaker Change: So far so good now your second question.
Speaker Change: On cross sell which is the one ecolab initiative.
Speaker Change: It just capturing.
Speaker Change: Our fair share of the $55 billion cross sell a penetration opportunity that we have as mentioned the top 35, we have a 3 billion.
Speaker Change: Opportunity as well out there well F&B as mentioned before is a perfect example of a business are benefiting from it because many of their customers are in those top 35 as well we see the performance improving in F&B is coming from there for most of those 35.
Speaker Change: Customers, we have focused plans that are enterprise wide plants, ecolab, wides and customer wide as well at the same time, where we know ultimately what's the best in class performance as I've shared with you. It's really for each of those 35 customers that we can help them understand what's the best in class performance.
Speaker Change: In terms of business outcome cost performance and by mentally impact and the difference between best in class performance in every of the location what translates into the Max dollar potential that we can get or that they can get and we have plans to get this off within the next few years.
Speaker Change: Where we see by customers because they see the team literally better products better cost profile and lower impact on the environment. While it is hard to beat especially when you can do it at the high return, which means higher TVD then the pricing they are paying for it as well so so far so good good progress.
And the best is to come.
Speaker Change: Thank you.
Speaker Change: Our final question is from the line of John Roberts with Mizuho Securities. Please proceed with your question.
Speaker Change: It's been answered thank you.
Speaker Change: Oh that was a quick question John.
Speaker Change: Well, thank you so to everyone.
Speaker Change: Really like.
Speaker Change: The record performance that we delivered in 'twenty four.
Speaker Change: The world is a bit complex.
Speaker Change: In 'twenty, five but feel really good with our plans how we've started the year delivering these 12 to 15, which was our commitment to make commitments. So feel good for 25, and most importantly, I feel even better for where we're going beyond 25 with data.
Speaker Change: Centres with microelectronics with life science with Ecolab digital and ultimately we have the best team in the industry and Thats. What makes me believe even more in our future and we will deliver as we've always done.
Speaker Change: Thank you that wraps up our fourth quarter Conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time and participation and hope everyone has a great rest of the day.
Speaker Change: Ladies and gentlemen, you may now disconnect your lines at this time.