Q1 2025 Ecolab Inc Earnings Call
Greetings and welcome to the Ecolab first quarter 2025 earnings release Conference call.
At 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, please dial star zero from your telephone keypad.
As a reminder, 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.
Speaker Change: Hedberg you may now begin.
Speaker Change: Thank you Hello, everyone and welcome to equal last first quarter conference call with me today are Kris <unk>, Chairman and CEO, Scott Goodwin, our CFO a discussion of our results along with our earnings release and the slides referencing the quarter results are available on <unk> website at Ecolab Dot Com Slash investor. Please take a moment to read the cautionary statements in these.
Speaker Change: Aerials, 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 would like to turn the call over to Christophe Beck for his comments.
Speaker Change: So much in <unk> and welcome to everyone on the call today.
Christophe Beck: Really pleased to share the results of another strong quarter of double digit earnings growth. Thanks to our team's focus on delivering best in class outcomes for our customers no matter. What this is ecolab at its best demonstrating the strength of our team our proven operating model and the breadth and health of our business.
Christophe Beck: Our superior performance reflected solid 3% growth in organic sales and strong 12% growth in EPS as we continue to significantly outpace soft end markets. This was driven by our team's ability to achieve attractive market share gains drove a one ecolab growth initiative and increased value pricing.
Christophe Beck: All supported by our focus on delivering exceptional value. So it gets to those as we've always done.
Christophe Beck: This good top line momentum.
Christophe Beck: Along with improved productivity from our investments in digital technologies drove a 190 basis point increase in our operating income margin and this marks another important step in executing on our objective of delivering a 20% operating income margin by 2027 as we've talked many times.
Christophe Beck: Looking ahead, the complexity of the global operating environment is increasing with softer end market demand and rapid changes in international trade policies.
Christophe Beck: With the external conditions, changing we are naturally, making proactive adjustments to our near term delivery part, but importantly, our overall expectations for earnings this year remain unchanged.
Christophe Beck: At the same time, we are continuing to make smart investments in our growth engines.
Speaker Change: Our top line expand our margins and build our future. So let me spend a few minutes on each topic could you share what we are seeing and explain why I believe we well positioned to deliver a strong year and long term performance.
Speaker Change: First on demand, we saw end market strengths up and a bit, particularly in the heavy industrial markets.
Speaker Change: Production rates in some industries that.
Speaker Change: We've outperformed these trends because of technologies and services, we provide drove a guesstimate is absolutely critical to their operations as they leverage our latest breakthrough innovations.
Speaker Change: And Additionally, we also have been significantly reduced at total operating costs, which they need now more than ever.
Speaker Change: This has led to very strong new business in the first quarter, Jennifer Reckitt actually these were broad.
Speaker Change: Based wins across our businesses and markets around the world showing that our value proposition continues to resonate with customers.
Speaker Change: Demand has stabilized over the past few weeks, we expect it to remain soft for the remainder of the year.
Speaker Change: We remain on offense.
Speaker Change: Fully focused on generating new business and on installing our strong existing new business pipeline to continue to outgrow our markets and as always to gain share.
Speaker Change: Now regarding the rapidly changing global trade environment, we much better position than most but not completely immune.
Speaker Change: Our robust <unk> global supply chain is a true competitive advantage.
Speaker Change: Part in the marketplace.
Speaker Change: And as we've demonstrated for decades, we therefore with customers when they need us the most no matter, what we will never ever let them down.
Speaker Change: Drove a local for local model, we've strategically positioned ourselves so that more than 90% up I would say as a produce closer with customers, allowing us to effectively navigate challenges like this with quite a high level of confidence.
Speaker Change: We therefore, leveraging the strength of ecolab to mitigate the impact of the 10% global baseline tariff, however, global terrorists greater than 10% and 145% tower, we placed on China I had a broad impact on the cost of some raw materials packaging and some equipment.
Speaker Change: Even though we don't import much from China, we expect the annualized impact from tariffs and increased local supplier cost due to higher onshoring demand to be a few hundred million dollars.
Speaker Change: To mitigate this impact we recently announced a 5% rate surcharge for all customers in the United States only <unk>.
Speaker Change: These surcharges leverages the tourism capabilities, we built a few years ago to ensure we can reliably supply customers, while also delivering value to them that exceed the total price increase so it's a win win situation. So.
Speaker Change: So we expect the benefit from the trade surcharges to build over the coming months.
Speaker Change: With full implementation beginning in third quarter as a result, we anticipate organic sales growth in the second quarter to be similar to slightly better than the first quarter as we accelerate in the second half.
Speaker Change: What are we focused on executing well to overcome the challenging near term operating environment. We are also continuing to invest in our long term growth engine, including life Sciences Best Intelligence Global High Tech and Ecolab Digitas. Each of these engines are different stages of development that all are performing very well with.
Speaker Change: Attractive long term growth and margin potential.
Speaker Change: Life Sciences, which is notwithstanding alone segments grew organic sales mid single digits and delivered organic operating income growth of more than 30%.
Speaker Change: Is this a biopharma business grew sales double digits driving attractive share gains as we leverage our investments and breakthrough innovation global capabilities and capacity expansion.
Speaker Change: Further investment in these attractive business, we continued to have a near term impact on operating income margins. However, we firmly believe positions lifestyle is very well to accelerate its long term growth and deliver operating income margin close to 30%.
Speaker Change: Our pest elimination business continues its rapid deployment of first intelligent ecolab proprietary digital solution that provides real time insight domestic DVD for customers across their enterprises.
Speaker Change: This program is growing extremely fast and we're able to deliver even better best free outcomes to our customers with enhanced service capability.
Speaker Change: As mentioned during prior calls we are investing heavily in this program, which has impacted growth and operating income growth near term.
Speaker Change: Begging Annualizing. These initial investments pretty soon and as a result, we expect operating income margin for this segment to get back closer to 20% in the second quarter.
Speaker Change: We expect these programs to fuel continued attractive states drove an even further margin expansion as it is deployed over the next few years in global high Tech water.
Speaker Change: <unk> continues to perform exceptionally well as we deploy breakthrough innovation that is significant and expanding market global high tech sales growth accelerated to nearly 30% leveraging our leading innovation and global capability to develop water circular Ricky for microelectronics production gold Fabs and high performance cooling for that asset.
Speaker Change: And finally as promised this quarter, we began reporting topline performance for ecolab digitally.
Speaker Change: This includes lease revenue from technology hardware like three trays are and software subscriptions like water quality intelligence in the first quarter Ecolab digital grew 12% to $80 million or $320 million on an annualized basis, driven by extremely strong growth in subscription revenue.
Speaker Change: We expect this growth rate to accelerate throughout the rest of the year and beyond as we expand our digital offerings across our customer base and across ecolab businesses to capture more of this multibillion dollar high margin growth opportunity.
Speaker Change: As these growth engines continue to scale, we expect they will increasingly impact ecolab sales growth and operating income margins in the years to come.
Speaker Change: So in closing, we're clearly playing to win.
Speaker Change: We are very well positioned to navigate these complex external operating environment and I am confident that the best that Ecolab is still ahead of us our unique capability to deliver innovative solutions that help our customers achieve best in class outcomes enhance operational performance and conserving natural resources like water and energy are needed.
Speaker Change: Now more than ever.
Speaker Change: Our strong and resilient free cash flow combined with an extremely healthy balance sheet with over $1 billion in cash and a one eight times net debt to adjusted EBITDA ratio puts us a unique position of strength to take advantage of both organic and inorganic growth opportunities do you think John allows.
Speaker Change: Allows us to deliver even greater value to customers and attractive returns for shareholders.
Speaker Change: Confident we are well positioned to deliver another strong year in 2025 and beyond so thanks again for your continued trust and investment in Ecolab I look forward to your questions.
Christophe Beck: Thanks, Chris that concludes our formal remarks, operator would you. Please begin the question and answer period.
Thank you, we'll now be conducting a question and answer session.
Christophe Beck: We ask you please limit yourself to one question, so others will have a chance to participate.
Christophe Beck: We have additional questions. Please rejoin the queue for Q&A queue.
Christophe Beck: To ask a question at this time you May press Star one from your telephone keypad.
Christophe Beck: Your line is in the question queue.
Christophe Beck: You May press star two if you'd like to remove your question from the queue.
Christophe Beck: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Christophe Beck: One moment please 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.
Luke: Hi, This is Luke <unk> on for Tim Mulrooney, Thanks for taking our questions. So I know you've talked about sourcing more than 90%.
Luke: Your raw materials regionally so on the surface it sounds like Youre pretty well insulated from the trade war in any given region, but.
Luke: And we think for example, the U S where you have many companies scrambling to onshore as much of their supply chains as possible and as fast as possible.
Luke: Is this having any kind of a second derivative impact on your domestically sourced materials and just maybe as a follow up I was hoping you could just level set us on where do you expect pricing to ultimately shake out in 2025 after taking into consideration the recent surcharge. Thanks.
Speaker Change: Hey, Thank you Luke good to hear you well first as you said, we're in a very fortunate situation.
Speaker Change: Local for local strategy, where 92% of what we sell is produced locally we didn't do that with terrorists are.
Speaker Change: That's something that we've built over years more.
Speaker Change: C to secure supply to our guests tumors too that.
Speaker Change: Most of <unk> cost and it has to us for FX and now it is helping us.
Speaker Change: Unfortunately, if I may say, so forth with dollar so that's a very good place to be both estimates.
Speaker Change: Our company, that's also helping us to.
Speaker Change: To mitigate the 10% that were kind of expected.
Speaker Change: For 2025, so we feel good about the overall plan that we had so for 2025, obviously there are the two.
Speaker Change: <unk> exceptions, if I may say, you mentioned both of them.
Speaker Change: On one hand, so China.
Speaker Change: And the move from many companies as you said to source in the U S, which drive prices higher as well at the same time, so talking about China, we don't buy much.
Speaker Change: From them because 99% of what we said there is produced locally, but we still import roughly 100 million from.
Speaker Change: From China.
Speaker Change: But when you apply a 145% tariff.
Speaker Change: The inflation on low cost sourcing here in the U S because of People's So onshoring as you mentioned.
Speaker Change: You get to some meaningful numbers.
Speaker Change: <unk>.
Speaker Change: The nominal rate surcharge up to 5% that will be entering an effect.
Speaker Change: On may 1st.
Speaker Change: <unk>.
Speaker Change: These straight surcharge will apply only.
Speaker Change: The U S and the commitment that we've made to our customers is also to make sure that the value we provide to them the incremental savings in the operations will overcome.
Speaker Change: Total pricing.
Speaker Change: <unk> got we are asking from them as well at the same time.
Speaker Change: Win win.
Speaker Change: Situation is we practice so for many many years with our customers. So ultimately.
Speaker Change: To answer your other questions as well in terms of delivered product cost. We started the year kind of market was slightly up our net.
Speaker Change: The net impact was slightly down because of the efficiencies that.
Speaker Change: Our great supply chain and procurement teams so it could deliver and if I look forward. So in the quarters to come it would be going to be probably more towards.
Speaker Change: Mid single digit increase.
Speaker Change: We put everything together with everything we know now obviously things can change.
Speaker Change: In the weeks or months.
Speaker Change: And if I think about the overall pricing.
Speaker Change: We used the surcharge I think when you get close to 3% may be better we will see how that works but.
Speaker Change: All in progressing.
Speaker Change: Well I like how the team has gotten ahead of what's happening in the market and done in a way that's a win win for customers and for our shareholders as well at the same time.
Speaker Change: Thank you. Our next question is from the line of Manav Patnaik with Barclays. Please proceed with your question.
Speaker Change: Thank you Christoph.
Speaker Change: In March we had already started talking about seeing weakness in the demand environment broadly and I was just wondering if you could give us an update since then have things gotten worse did that happen kind of in advance of what people.
Speaker Change: Just some flavor day in terms of how we should think of that translating into the volume assumptions for the rest of the year.
Speaker Change: It's a good question Manav.
Speaker Change: February so the second half of February so we sold that dip in.
Speaker Change: In demand, especially in the heavier industries that would be surfing and.
Speaker Change: I was not sure.
Speaker Change: Keep going down.
Speaker Change: In the weeks to come and if I look back.
Speaker Change: Since we talked.
Speaker Change: Amongst plus to go well.
Speaker Change: But to kind of stabilize at.
That lower level, since then which I take.
Speaker Change: As a reasonably good news.
Speaker Change: I don't think that is a given for the rest of the Europe. My assumption is that it's going to keep.
Speaker Change: Softening in the months to come because it's going to be a straight line because of the events happening out there. So as a team in a typical ecolab fashion is to focus on offense to play to win is to focus on.
Speaker Change: New business and new business in the first quarter has been very strong it's been or we had a record for our whole team. So we kind of generating Iowa tailwind, which is why I feel confident that we should have positive volume.
Speaker Change: In 2025, we see our strong that's going to come but as far as I can see I feel reasonably good in the stabilization over the past few weeks.
Speaker Change: It's kind of at least short term reassuring element.
Speaker Change: Our next question is from the line of Ashish <unk> with RBC capital markets. Please proceed with your question.
ashish: Alright, Thanks for taking my question I, just wanted to focus on the institutional lens.
Speaker Change: <unk> segment.
Speaker Change: I was just wondering if you could talk about the demand trends, what youre seeing from a foot traffic perspective.
Speaker Change: And as you continue to comprise the chicken solution. How you can help offset some of the weakness we might see from a foot traffic got occupancy perspective.
Speaker Change: Great question and answers thank you.
Speaker Change: Generally.
Speaker Change: Our IMS business. So he is doing really really well.
Speaker Change: And it keeps on that trajectory.
Speaker Change: Really encouraging love what his team is doing.
About gaining share is the right way by helping our customers produce more meters and serve more guests, while reducing the cost of labor and energy and <unk>.
Speaker Change: Water and waste as well at the same time and it's important so when we look at the overall number of <unk> as we know that we have health care in there now which is reducing one percentage points.
Speaker Change: Ians number so institutional division.
Speaker Change: Growing at 5% very steady very strong very good specialty.
Speaker Change: Actually underlying growing even much faster than what we see in our reported numbers.
Speaker Change: Because it was kind of the last quarter ish.
Speaker Change: Yes.
Speaker Change: Our private label business that we need.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Last year in that business is going to improve and there is also a natural shift in more difficult economic times from food service restaurants to quick serve restaurants. So thats going ahead specialty as well so feel really good about yes, yes ines.
Speaker Change: Ines trajectory margins are improving nicely.
Speaker Change: Same improvement for every quarter coming up, but it's going to keep improving in the quarters to come as well, it's up to the highest margin level its at Athene.
In a very good place good growth doing the right things with guesstimate as margins improving and innovation in that business. That's at the strongest point it has.
Speaker Change: Ever been.
Speaker Change: So really happy with what's happening.
Speaker Change: Not in any of these situations.
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.
John Mcnulty: So <unk> been pushing the ecolab, one initiative pretty hard I guess can you help us to think about the growth that the business saw for those roughly 35 accounts say versus the core just so we can get a better feel for the.
John Mcnulty: The volume trends there in this in this kind of new big push initiatives.
John Mcnulty: Thank you John.
Speaker Change: One ecolab initiative actually which youre right.
John Mcnulty: Focused on our growth.
John Mcnulty: I'll be careful not to disclose too much numbers, but our focused accounts.
John Mcnulty: Are progressing very well.
John Mcnulty: If I remember I'll remind you a little bit the broader picture one ecolab is to increase our share of <unk> 55 billion penetration opportunity that we have.
John Mcnulty: Mostly with our core counts and we started focusing on our top 35 that are doing really well how do we approach them.
John Mcnulty: Is best in class approach is basically so for each of those guests. The mers understand what is the best operating unit that they have around the world in terms of.
John Mcnulty: Product outcome cost performance Enviromental impact and then drive that performance across their own network, we translate that obviously.
John Mcnulty: Dollar TVD total value delivered and we give our sales. So if you use to get there as well that's the general approach strategically and one ecolab has a program as a platform enables all of that.
John Mcnulty: From a client or two to get that done. So we early on that journey John.
John Mcnulty: I like the progress that we making here customers are very interested in that because while it's cooling sites to know what's best in class within my company outside my company within the industry as well and as you know so on.
John Mcnulty: The internal side from a productivity perspective, as well, one ecolab is improving and progressing very well.
John Mcnulty: In terms of cost cutting but in terms of operation of performance because of AI platforms that we're using in some critical processes, we using agents as well at the forefront as.
John Mcnulty: As well of technology, and so for each working really well, which is why we have had as well of our savings delivery on that program. So on both fronts growth and.
John Mcnulty: Performance improvements, we see some very good progress.
John Mcnulty: Okay.
Speaker Change: The next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
David Begleiter: Thank you Christoph.
David Begleiter: Now as a surcharge back in 2022.
Speaker Change: Can you remind us the success of that surcharge, how much did you realized versus what you announced and you would you expect a similar or higher realization on this surcharge. This time around thank you.
David Begleiter: So the good news is that.
Speaker Change: In 2022 that was the first time, we're doing a surcharge like that honestly are new to the team. So would get something done I didn't know how quick and how much we would surely get.
David Begleiter: And it worked out really well.
David Begleiter: As we all remember.
David Begleiter: Everything's, Doug as well got converted into structural pricing driven by value generated for customers as well all in that win win approach so between customers and shareholders.
David Begleiter: So we had.
David Begleiter: 8% surcharge back then at the highest it went up two 5% surcharge to any goods converted into structured price or you lost track a little bit of what was the net impact of it but.
David Begleiter: Very well actually here so we'll see how it works on this one it's the same platform. It's the same approach. It's on one country as mentioned so just in the U S at least but now let's see what happens so as the tariffs as well so going forward. So it is not.
A perfect science, but generally each.
David Begleiter: It works quite well and really our objective is to mitigate obviously.
David Begleiter: The incremental cost why driving even more savings at the customer location in order to make sure that we have something that is sustainable so <unk> ramped I feel quite good that that's going to work.
David Begleiter: <unk>.
David Begleiter: Intended.
David Begleiter: Okay.
Speaker Change: Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Speaker Change: Thank you last quarter and test you had some safety issues, which had a profitability of negative profitability impact to them Thats comments today said that those metrics are getting back in the right direction. So I'm just curious.
Speaker Change: In the first quarter.
Speaker Change: Are there still sort of adverse cost associated with that.
Speaker Change: Is there any adverse costs expected in the guidance for the back half.
Speaker Change: Yes, with some as I mentioned actually saw it last quarter. So it doesn't happen you'll see on a calendar basis.
Speaker Change: But generally.
Speaker Change: The safety insurance cost.
Speaker Change: Are getting behind us.
Speaker Change: And as I mentioned last time for me that was mostly a human issue.
Speaker Change: That it would be kind of short to midterm, but happy that our safety performance has improved dramatically.
Speaker Change: In pest elimination will be installed in most vehicles now so dash cams.
Speaker Change: That are looking at where the.
Speaker Change: Vehicles are going and how is the driver of behaving as well.
Speaker Change: We reduced dramatically.
Speaker Change: Our safety incidents by doing so so much so that we are leveraging all of those best practices for other businesses.
Speaker Change: We're focused at all on the road as you know so we have close to 30000 people on the road so generally so.
I've been fortunate in that as it was so fast I think that getting this one under control and at the same time, we can leverage what we've learned across the company is going to take time, because thats practical work.
Speaker Change: Usually to get them, so that's moving progressively behind us.
Speaker Change: At the same time, we are shifting towards best intelligence, which is remote monitoring.
Speaker Change: <unk>.
Speaker Change: Devices mouse drops.
Speaker Change: For a different word obviously, that's quite a heavy lift for our team. We have completed one of the major retailers with it as well with very good results.
Speaker Change: With much more pest free environment.
Speaker Change: At a lower cost.
Which is a really good proposition, but all in obviously its work and it takes time and that has an impact slightly on growth and our margins, but generally I'm really happy with that business with the leadership team with the mindset, we have on that team the best days of pest elimination.
Speaker Change: All of US and as you will see Q2 margins are going to improve.
Speaker Change: Essentially as I mentioned in my remarks, as well at the beginning so overall a very good story that keeps getting better.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.
Hi, good afternoon very helpful disclosure on the digital sales you mentioned, an accelerating growth rate throughout the year and over the coming years.
Speaker Change: What sort of growth rates and margin accretion are you anticipating in.
Speaker Change: Unpack this anticipated growth between software subscriptions versus hardware sales.
Speaker Change: Okay.
Speaker Change: Yeah, So a few questions Patrick.
Question here, so we're going to learn together.
Speaker Change: Obviously as we keep reporting on that so we're not disclosing margin.
Speaker Change: Of that yet because we need to do it the right where it has a lot of accounting practices, we need to get it right. Obviously for that we're going to get there as soon as we're ready to do it so but as you can imagine it's very high because you have almost no.
Speaker Change: Obviously materials related to it at all.
Speaker Change: To your question.
Speaker Change: On hardware versus software hardware it needs to be installed installs because aig's machine seats up has been intelligent devices <unk> trays are.
Speaker Change: And so on so that grows nicely, but much lower growth rate than software, which is.
Speaker Change: <unk> software, so we don't need to install anything except on a computer or getting the right connection.
Speaker Change: And.
Speaker Change: Monetizing to subscription.
Speaker Change: As we progress so as you know most of what we do in digital to diet. While it has been done for a few years or many years for free.
Speaker Change: And as we upgrade technology software and consumption models as well so we charge.
Speaker Change: Slightly.
Speaker Change: <unk> want to do it in a smart way for our customers or was driven by generating more value than what we're charging.
Speaker Change: ROI approach from the company, but when you think about it.
Speaker Change: We have 100000 devices that are connected today, we have over a million customer locations.
Speaker Change: With a lot of devices that we could.
Speaker Change: In each of them and most of them are not being monetized, which is what.
Speaker Change: Drives me.
Speaker Change: <unk> clearly knowing that we will be building a multibillion dollar business.
Speaker Change: Through Ecolab digital we're in the early innings.
Speaker Change: That journey. So the fact that we have over $300 million already growing double digit and accelerating in the quarters to come as well which is showing.
Speaker Change: The potential of that growth opportunity that we have here, which I think it's going to be a significant.
Speaker Change: In the midterm.
Our next question is from the line of Chris Parkinson with Wolfe Research. Please proceed with your question.
Chris Parkinson: Good afternoon.
Speaker Change: Chris I think you hit on a few of the your kind of your growth engines, but when you crossover pest elimination Lightwater with data center as.
Chris Parkinson: Well, it's kind of the green shoots for the recovery in life Sciences in Biopharma.
Chris Parkinson: In the intermediate term what are you. The most enthusiastic about and are there any of those three that you think youre going to further evolve your go to market strategy to further solidify yourself as kind of the go to any of those substrates. Thank you.
Speaker Change: Thanks, Chris I Love and hate that question, because you're asking me, so which can I love the most.
Speaker Change: A bit of a hard one they all are very well positioned but if I have to pick one.
It would be data centers cooling.
Speaker Change: Where we have not only a huge opportunity, but the right to win.
Speaker Change: As with <unk>, we have cooling expertise that no one else has.
Speaker Change: We have fluids monitoring capabilities that no one else has as well at the same time. So we're bringing the three components of data center cooling so nicely together between cooling tower CDU, so crude and distribution units.
Speaker Change: And we're producing does.
Speaker Change: We speak and third so.
Speaker Change: And the access to the chip as well as <unk> through <unk>. The overall data center. So when I look at the number of data centers, we have out there the growth of data center construction as well as the fact that ships.
Speaker Change: It used to be changed every three years now it's getting closer to every six months.
Especially if they are all directed cheap crude as well at the same time, where there's a lot of work in disaster operating service that we need to provide as well.
Speaker Change: Hope that business the way we're building it we sit Jack Hi Tech companies as well at the same time early on that journey, but.
Speaker Change: Great position, we're growing really felt great margins.
Speaker Change: And it's going to be a really big going forward.
Speaker Change: Our next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.
Shlomo Rosenbaum: Hi, Thank you very much.
Speaker Change: Just first off can you talk a little bit about pest and where you when.
Shlomo Rosenbaum: When do you expect it to get.
Shlomo Rosenbaum: <unk> back to what we've been seeing kind of the upper single digit range and then you talked about the margin getting better next quarter, but I want to ask a little about what the revenue growth and then.
Shlomo Rosenbaum: Two part or are you just wanted one but you mentioned something about a gentle and using that if you don't mind expanding on exactly where you're using it within the company. Thank you.
Shlomo Rosenbaum: Thank you Shlomo I'm going to pass the second question on Agentic too.
Shlomo Rosenbaum: Scott, who is becoming an expert.
Shlomo Rosenbaum: That area.
Shlomo Rosenbaum: By today.
Shlomo Rosenbaum: First on pest elimination.
Shlomo Rosenbaum: First we are growing 5%, which is kind of a good problem to have to your point. So we want to see that business get back to the high single type of growth pattern.
Shlomo Rosenbaum: As well I feel really good in getting towards that probably sometime during the second half.
Shlomo Rosenbaum: The euro and certainly saw in 2006.
Shlomo Rosenbaum: Beyond <unk>, we are building so the most advanced pest elimination and platform.
Shlomo Rosenbaum: Thats out there we have all the capability is all of the cloud platform all the AI capabilities.
Shlomo Rosenbaum: 1500 people that are working on digital technology in our company, while it's hard to beat obviously, so in our industry. So nut.
Speaker Change: Exactly I would like to be so we said 5%.
Speaker Change: Dave the team doesn't like it.
But we know why we dare, it's because of all the transformation work that we're doing but we know as well at the same time that that transformation work, while he is going to pay dividends.
Speaker Change: Going forward, so getting at the higher growth rate sometime in the second half of the Europe.
Speaker Change: <unk> is a good expectation maybe Scott on the.
Speaker Change: <unk>.
Christophe Beck: Yes, absolutely Shlomo, Yes, Christoph said, we're using the <unk> solutions developing those in one ecolab, but starting with building a foundation that will be able to use across the enterprise, but within one ecolab because it's very focused on the customers in the field. That's the processes that we're starting with the process as close to the customers and closest to the sales team.
Christophe Beck: So think lead to cash processes and looking at those initial use cases and as we build those we'll be able to build off into other end to end processes.
Speaker Change: Our next question comes from the line of John Roberts with Mizuho. Please proceed with your question.
Speaker Change: Thank you your dispensing equipment, whether it's a dishwasher or <unk> trace our machine is bundled into your pricing is the surcharge primarily around covering the costs related to the dispensing equipment.
Speaker Change: No Joe.
Speaker Change: That's one component because some of it comes from China.
Speaker Change: But we have also chemistry.
Speaker Change: That's coming from China, we have packaging.
Speaker Change: Sometimes coming from China.
Speaker Change: <unk> broad based.
Speaker Change: As mentioned, John we're talking about 100 million that we're importing from China. So for 16 billion company and Thats exactly huge but when you add 145% surcharge.
Speaker Change: Tirade on that obviously is that you get to a meaningful number and then you have everybody else.
Speaker Change: Is localizing sourcing of everything they buy in the U S right now which is driving.
Speaker Change: <unk> cost as well, which is a derivative from what's happening.
Speaker Change: Between U S and China and Thats across the board not just in equipment and dispensing technology, but we're talking about manageable numbers.
Speaker Change: <unk>, which is why I feel pretty good about how we can mitigate that and to do that in a way that's good for customers as well.
Speaker Change: Our next question is from the line of Steve Byrne with Bank of America.
Steve Byrne: With your question.
Speaker Change: Mr. <unk> your line.
Steve Byrne: A question.
Steve Byrne: Sorry about that.
Steve Byrne: Just another couple questions on the surcharge.
Steve Byrne: Is there any particular link here in this.
Steve Byrne: Like.
Steve Byrne: Natural gas or.
Steve Byrne: Your prior one.
Steve Byrne: Is there is there the potential that it could be reversed if there was some resolution and tariffs.
Steve Byrne: <unk> do you think you could convert this into more of a structural price increase rather quickly.
Speaker Change: And just one more comment Christoph you mentioned.
Speaker Change: That you demonstrate value in your price increases do you do you have to generate or demonstrate an incremental 5% value to your customers associated with the surcharge.
Speaker Change: Yes, so Steve a few elements to unpack your question here, so first on the value piece.
Speaker Change: This is what we call total value delivered which we document and align and agree with customers. We've done that for years. So this is a very well practiced process on how much we help them save.
Speaker Change: Operating costs and product improvements any environmental impact as well and in many cases, we even measure that on a real time basis.
Speaker Change: Through connected chemistry to the Ecolab <unk> cloud. So this is something we know extremely well how to do.
Speaker Change: And we sit together with customer when we look at a price increase like the trade surcharge.
Speaker Change: <unk> is the big number and usually we between 1% to 3% of their total cost as well in the operation. So we are talking about small numbers.
Speaker Change: Customers, but still we're taking it very seriously and we want to make sure that put a customer.
Speaker Change: It's a win win so a practice that we know very well.
Speaker Change: The second one.
Speaker Change: Calories going away.
Speaker Change: Well I'm not going to make the first of them comment on that but I don't think that it is going to disappear the 10% of baseline is here to stay.
Speaker Change: We haven't heard what's happening as well with Europe, especially in other countries as well.
Speaker Change: Round the world is going to be zero.
Speaker Change: We know that as well and as mentioned before.
So the gyrate from China is.
Speaker Change: On kind of almost every product coming from there was a few exceptions, but for us, it's mostly oil products and the onslaught impact of people onshore in the U S. It's pretty broad based.
Speaker Change: Well at the same time, so it's kind of an overall tight.
Speaker Change: Individual.
Speaker Change: Raw materials or packaging equipment.
Speaker Change: Out there in a way it makes it easier to manage than just a few.
Speaker Change: Here it because at the end of the day, we can mitigate that with a nominal surcharge.
Speaker Change: We're going to do so on may 1st and the last part of your question shifting trade surcharge into a structured price that's exactly what we did with the energy surcharge, which was much higher.
Speaker Change: Mentioned earlier as well so a few years back we know how to do it we've demonstrated we can do it we've hedged as well relationship with customers, while we did it as well. So our approach is to make sure. It ends up in structure or price as quickly as we can but this is not a perfect science it depends.
Speaker Change: On the guest tomorrow, the industry situation, but that team in golf.
Speaker Change: The next question is from the line of Mike Harrison with Seaport Research. Please proceed with your question.
Speaker Change: Yeah.
Speaker Change: Hi, good afternoon.
Speaker Change: Kind of a higher level question here associated with the guidance. So you maintained your full year EPS guidance.
Speaker Change: If I look at what's happened with the dollar FX has really swung from being a headwind. When you initially issued this guidance a few months ago.
Speaker Change: Being a tailwind probably in the rest of the year. So should we think of the guidance and maintaining guidance.
Speaker Change: As some FX tailwind or FX, good guys offset by lower underlying market expectations.
Speaker Change: Or have your underlying market expectation not really change that much and maybe the currency is something that could potentially give you upside in the rest of the year. Thank you.
Speaker Change: I'll, let Scott to make a few comments here, but what I'd say is that we will deliver the same promise the same expectations a quarter by quarter and for the full year, but the path to get there has been different.
Speaker Change: We've seen it in the first quarter and will be different.
Speaker Change: In the quarters to come depending on what we know as we've been discussing so on that goal and what we don't know that we'll have so to trigger new actions.
Speaker Change: So in the months to come so same delivery different path the FX component.
Speaker Change: One of them, but it's a complicated equation. This is not the name of the game. It's one of the many drivers.
Speaker Change: We have we can deal with Scott any comment on that yes, sure Mike as Christoph said Theres a lot of variables very dynamic environment specific to the FX in Q1, as we expected that was the headwind as we disclose about 4% to EPS and although more recently FX has improved.
Speaker Change: Volatile dynamic environment, and so we're going into this with a very clear view and believe that FX is still going to be a headwind for the full year, although maybe a bit better than we originally expected.
Speaker Change: Our next question is from the line of Jeff Zekauskas with Jpmorgan. Please proceed with your question.
Jeff Zekauskas: Thanks, very much I think kind of a two part question.
Jeff Zekauskas: Your global water business year over year.
Jeff Zekauskas: One down a little bit in operating income.
Jeff Zekauskas: In the quarter.
Jeff Zekauskas: Why was that revenues grew and operating.
Jeff Zekauskas: Revenues grew year over year, I think you had positive pricing.
Jeff Zekauskas: Secondly, when when you when you look at the water business.
Jeff Zekauskas: Lot of the water business.
Jeff Zekauskas: Propylene to wrap it up.
Jeff Zekauskas: And.
Jeff Zekauskas: Maybe propylene derivatives are down 20% year over year.
Jeff Zekauskas: Chlorine is down.
Jeff Zekauskas: Ethylene is down.
Jeff Zekauskas: Oil is down.
Jeff Zekauskas: When you and if you look at your cost of goods sold your cost of goods sold overall is down 3%.
Jeff Zekauskas: When you go to your customers and you say that you want a surcharge.
Jeff Zekauskas: Do they do they reassessed at all or today.
Jeff Zekauskas: Yes.
Jeff Zekauskas: They feel that it's amply justified in the current environment.
Jeff Zekauskas: So Jeff two different questions here.
Jeff Zekauskas: Again for the price of one.
Jeff Zekauskas: So the first one.
Jeff Zekauskas: The water Oi operating income.
Speaker Change: For the first quarter of the simple answer is it was Europe.
Speaker Change: And it was because of last year, we added 200% increase.
Speaker Change: Operating income in Europe in 2024.
Speaker Change: Year on year.
Speaker Change: Comparison on Europe that is seeing storing otherwise so.
Speaker Change: Very good story, and you'll see that through the second quarter and going forward as wedding water. So feel good about that.
Speaker Change: Second part of your question.
Speaker Change: Our DPC market everything we buy Jeff.
Speaker Change: <unk> thousand raw materials and packaging that we buying out there.
Speaker Change: Up they're not down.
Speaker Change: So when we look at everything together to get all the indices our baskets.
Speaker Change: Dan you have our procurement team.
Speaker Change: Doing great work, we've been reducing as well our operating expenses improved our operating performance in the plant as well around the World and then you end up.
Speaker Change: On a DPC delivered product cost net net that is.
Speaker Change: Wanted to 2% better.
Speaker Change: It was a year ago, while that's going to change and it's changing right now we see it as well for all the reasons I mentioned on that call being imported from China being the on slot here.
Speaker Change: The us market as well, which is why I expect DPC and it is trending right now so towards low single to mid single up.
Speaker Change: In the months to come this is clearly so the trajectory that we're seeing right now. So this is what we're discussing.
Speaker Change: Well with customers and I remind you that the core discussion we have with our customers.
Speaker Change: Not on the cost side is really how much can we help them improve their operating performance as well at the same time. This is real time. This is documented this is aligned with customers is approved with guests.
Speaker Change: Not just ecolab, so coming up with what we believe we saved with them is what we believe we are saved to gap that needs to be in the P&L as well at the same time, that's the whole discussion that we have we stand this is not new but it contains part of the input cost that the whole discussion is related to.
Speaker Change: Value.
Speaker Change: Our next question is from the line of foreign vendor with Jefferies. Please proceed with your question.
Speaker Change: So good afternoon could you speak a little bit about how it shifts in the U S too aggressive deregulation.
Speaker Change: Would either create opportunities or headwinds for your institutional and pest businesses on a secular basis.
Speaker Change: Well the short answer here is we haven't seen anything yet.
Speaker Change: In terms of impact of the regulation.
Speaker Change: Any business.
Speaker Change: I hope, we're going to see that because this is very important.
Speaker Change: Element of focus.
Speaker Change: That we expect from the industry and that's been promised by the.
Speaker Change: The administration.
Speaker Change: As well at the same time this is something that we should see as well.
Speaker Change: <unk> Dream business.
This is.
Speaker Change: Hope to see.
Speaker Change: Right now so we remain hopeful that thats going to help industry.
Speaker Change: In the U S in the months and quarter to come but so far we haven't seen any positive sign in the numbers.
Speaker Change: The next question comes 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 was curious if you could talk about what trends youre seeing in the life Sciences segment, and if you expect that growth to accelerate this year. Thanks.
Speaker Change: Yes, Jason.
Speaker Change: We've been building this business for a few years, we've been growing not as fast.
Speaker Change: We were.
Speaker Change: Hoping obviously early on.
Speaker Change: When we acquired pure light, especially at the end of 2021.
Speaker Change: <unk> was down double digits, we were up single digits weekend, good about our delivery.
Speaker Change: As good as we were hoping for.
Speaker Change: As we were gaining share.
Speaker Change: <unk> building capabilities, which means getting the right expertise on our team building capability capacity as well in terms of.
Speaker Change: Manufacturing capacity.
Speaker Change: Highest levels of quality as well as that takes time to get done.
Speaker Change: Obviously, a like a lot of what the team has done.
Speaker Change: Over the last.
Speaker Change: Three years as we see now.
Speaker Change: That business turning up in vre.
Speaker Change: Nice ways as well I think we're getting to the place.
Speaker Change: We were expecting.
Speaker Change: For the market is turning a bit better that helps our business is doing even better for all the reasons I mentioned before as well we keep investing as you see the margin operating income margin that we have in the business again are reported in the mid teens.
Speaker Change: Look at underlying so if you strip out early investment is more in the mid twenties.
Speaker Change: That's why I feel pretty good about that business, keeping extra rating each topline and getting to an operating income that's getting closer to 30% as.
Speaker Change: As we've been.
Speaker Change: Targeting early on and as I've shared with you as well and Thats been the case during Investor day as well.
Speaker Change: Thank you. Our next question is from the line of Josh Spector with UBS. Please proceed with your question.
Speaker Change: Yes, hi, good afternoon, I had a question just on SG&A.
Speaker Change: <unk> done a good job controlling that and then you actually brought it down in the quarter I guess I thought the SG&A as a percentage of sales would decline over time as you grew SG&A slower than sales, but you actually brought that down so I was curious one.
Speaker Change: What do you expect SG&A dollars to grow or decline for this year and then Q are you pulling any additional levers with SG&A already to help achieve your goals for this year. Thanks.
Speaker Change: Thank you Josh.
Speaker Change: Ask that question Scott.
Speaker Change: Scott who has become.
Speaker Change: Any management, yes, Scott Thanks for the question Josh.
Speaker Change: As Christoph mentioned before the Q1 SG&A was a bit better than we had expected coming into the quarter and really helped by the one ecolab program, which is going very well and that helped deliver that 30 basis point of leverage that we had year over year and that was net of what we talked about coming of the year. The continued growth investments that we'd be making and.
Speaker Change: And we expect to continue that as we did the last few years as you think back to 2017, we are at a 29% ratio and we brought that down to 27% last year.
Speaker Change: Continue to expect as we guided earlier that we will deliver on this 20 to 30 basis points for the full year, probably at the lower end of that range. As we continue to make these growth investments, but also deliver on the incremental savings from one ecolab that is going quite well, although I will say not every quarter will be created equal and then as we go long term.
Speaker Change: We expect with the one ecolab program with the digital capabilities to be able to deliver SG&A leverage beyond our historical 20 to 30 basis points annually.
Speaker Change: Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Yes, Thank you and good morning cures.
Speaker Change: Curious christophe as to whether or not your thoughts on capital deployment have changed at all with the external environment.
Speaker Change: Being so volatile so early in earnings season, but we've seen some other chemical companies throttle back on Capex are you still tracking towards 7% of sales there and.
Speaker Change: Might you be any more aggressive or conservative and evaluating M&A opportunities for example.
Speaker Change: So the headline here, Kevin is no change, but I would like to ask Scott to add some details in Congress to that as well, yes, Kevin. Good morning, Yes, Christoph said no change to the long term capital allocation priorities as we've always said, we're going to continue to increase the dividend invest in the business.
Speaker Change: And the balance sheet is in a really really healthy position entering the year as we've talked net leverage Christophe mentioned is opening is down to one 8%. So below our long term target of around two times.
Speaker Change: We also repurchased about $140 million of shares you probably saw disclosed in the first quarter that was on top of the $1 billion. We did last year and again all buybacks in the future going to be dependent upon those investment opportunities, including the M&A pipeline, which is very robust, but the biggest thing is this strong balance sheet provides us a lot of optionality, particularly in an environment like this.
Speaker Change: To take advantage of both organic and inorganic opportunities to invest.
Speaker Change: Add to that.
Speaker Change: It's a moment, where we need to play to win.
Speaker Change: We can't environment that we are in with the capabilities, we have with the momentum we have the balance sheet. We have as mentioned by Scott for me each time to gain share each time to innovate each time to invest in the business and in our future and Thats exactly what were doing.
Speaker Change: Thank you. Our next question is from the line of Andy Wittman with Robert W. Baird. Please proceed with your question.
Andy Wittman: Yeah, great. Thanks for taking my question I guess.
Christophe Beck: Two questions here are Christoph and your answer previously on the life Sciences segment, you talked about how like you still see a view towards 30% segment margins there in that underlying the investments that you've made in the I think in our physical plant there the capital base for that business I mean, you're running in the mid 20, so <unk> suggestive.
Christophe Beck: You just kind of need some operating leverage to run through that business. So the question I guess on this one is what do you think the approximate revenue level needs to be in life sciences to deliver something on that order of magnitude. Obviously, we're not looking for specifically, but just trying to see what youre thinking too it takes to achieve that level.
Christophe Beck: Of margin and then my second question would be a quick one for Scott just talking about the free cash flow outlook, obviously, the first quarter come from last year on free cash flow is a really tough comp this quarter feels more seasonally normal but I'm. Just wondering if you feel like the inventory cycle, given the tariffs and the trade risks that are out there do you need to infuse.
More working capital into the business this year to be able to deliver certainty of supply for your customers and or do you still think that's your normal cash flow targets as a percentage of net income apply here in 2025.
Speaker Change: Thank you Andy So I'll, let Scott answer the second part of your question first and then talk about life Science, Yes, Andy as you said, our Q1, although year over year was down in the Q1 was in line with our expectations and our historical progression. So that the quarterly progression throughout the year Q1 was really comparing to a very strong comp last year.
Speaker Change: Which was unusually high due to timing of cash payments, but feel very good about with this strong earnings growth of 12 to 15 to be able to deliver our free cash flow conversion of 90%, which is that we guided for the year.
Speaker Change: So thats the second part of the question. The first part obviously very different on life science.
Speaker Change: So the investments that we're making.
Speaker Change: Long term investments.
Speaker Change: The plant extension.
Speaker Change: The U K.
Speaker Change: On biotech.
Speaker Change: It's building a new one in the U S. It's building a new one.
Speaker Change: In Asia as well so those are long term investments it's also deploying.
Speaker Change: EPS, our Asap platform.
Speaker Change: As well in there.
Speaker Change: Building our research muscle.
Speaker Change: As well at the same time those are all long term investments that we have here, we know exactly what were doing whats the impact on the P&L as well Thats why I can tell you kind of reported and underlying.
Speaker Change: In the mid twenties.
Speaker Change: It's going to take a few years.
Speaker Change: To get.
Speaker Change: To the levels that we have.
Speaker Change: <unk> talked about depending as well on how the market is evolving but we.
Speaker Change: Building this business for the long run.
Speaker Change: Takes us a couple of years to get.
The steady state high level place that we need or want to be that that's okay with me as well because we wanted to do it the right way for the long run.
Our next question is from the line of Andre.
Speaker Change: Costanza with Aaron Berg. Please proceed with your question.
Speaker Change: Hey, Hello, I wanted to ask how important can you say at this stage you recently put your life Science business. These do you expect this business may be impacted by by cuts in the federal budget in subsidies.
Speaker Change: Thank you.
Speaker Change: So good question, it's one of the.
Open items out there we don't exactly know how it's going to be so far seems to be impacting mostly the generics.
Speaker Change: That's not exactly where we focusing.
Speaker Change: Our attention.
Speaker Change: And we serving customers.
Speaker Change: Globally in life Science, So it's being produced in Europe or in Asia today, and it's moving to the U S. While we get a benefit when it's coming here in the U S. Any of these moving elsewhere around the world, while we're going to follow down there as well at the same time so none.
Speaker Change: Too worried about what we're seeing right now.
Speaker Change: If there are more prudent changes.
Speaker Change: We'll revisit.
Speaker Change: That's the world we're living in.
Speaker Change: Fine with it we adjust as we always do but so far I feel really good about our life Sciences.
Speaker Change: Business whatever happens in the market out there so generally one way to summarize it.
Speaker Change: All discussion.
Speaker Change: <unk> is well, we're delivering as expecting.
Speaker Change: In 2025, we expect to deliver as expected in the quarters to come and for the full Europe, but what's important to keep in mind is the path to get there well easy evolving because we try to stay ahead.
Speaker Change: What's happening in the world, but truly with that spirit of playing to win.
Speaker Change: As an organization staying on offense investing where it makes sense forging our teams and developing our teams so feel good.
Speaker Change: World about where we are and where we're going and I think that it is in times like these that we may be good I've, even stronger and our future even better so not easy, but a very good journey in a very good story so far.
Speaker Change: Thank you.
Speaker Change: Mr. Hedberg there are no further questions at this time I'd like to turn the floor back over to you for closing remarks.
Speaker Change: Thank you that wraps up our first quarter conference call. This conference call and the associated discussion slides will be made available for replay on our website. Thank you for your time and participation and hope everyone has a great rest of your day.
Speaker Change: Ladies and gentlemen, todays conference has concluded you may now disconnect. Your lines at this time have a wonderful day.