The operator introduces the Ecolab Third Quarter 2023 Earnings Release Conference Call and the host, Andy Hedberg. The CEO, Christophe Beck, and CFO, Scott Kirkland, are also present. The cautionary statements and risk factors are mentioned, along with the website where the earnings release and slides can be found. Christophe Beck discusses the company's strong performance in the third quarter, with 7% organic sales growth and 18% growth in adjusted earnings per share. He credits the team's exceptional execution and strong pricing, new business, and margin expansion for the success.

The company's focus remains on offense and achieving double-digit earnings per share growth. They have maintained strong organic sales growth and increased pricing by 7%, with volume trends also improving. Their organic operating income margin has expanded and they are on track to reach their long-term margin goal. In the third quarter, their adjusted gross margin also expanded significantly. The company is confident in their value-based pricing strategy and their ability to implement energy surcharges. They are taking a prudent stance on delivered product costs, which are still up compared to pre-inflation levels. The company expects strong gross margin expansion in the future and is leveraging their digital capabilities to increase productivity. SG&A expenses have remained stable.

In the third quarter, the company saw strong sales and earnings growth due to the rebuild of incentive-based compensation and strategic investments in growth engines. The Institutional & Specialty segment saw double-digit organic sales growth and a significant increase in operating income margin. The Industrial segment also performed well, with strong growth in Food & Beverage and Water. The Healthcare bifurcation strategy is progressing well, with improved sales and operating income. The Life Sciences segment saw mid-single digit growth and the company expects to capitalize on long-term high-growth opportunities. Overall, the company delivered as expected with strong sales and earnings growth in the third quarter.

In the fourth quarter, the company expects to continue its strong performance with a 17% to 24% increase in adjusted earnings per share. This will bring the full year EPS above 2019's EPS. The performance is driven by new pricing, volume growth, and gross margin expansion. The company also expects mid-teens or better growth in adjusted EPS in 2024. They will continue to invest in the business, increase dividends, reduce leverage, and return cash to shareholders. The CEO is confident in the company's long-term fundamentals and outlook for strong performance. The question-and-answer period begins, and the first question is about the company's operating income margin, which was at 19% in the third quarter. There is debate among investors about whether the company will reach its pre-pandemic operating income margin of 21%.

The speaker, Christophe Beck, is confident that the company will reach its goals in the near future due to a strong team and positive trajectory. He mentions that the P&L of I&S will be better than previous years and expects to cross the 20-21% line in the next few years. He also highlights the opportunities and challenges in the institutional sector, which he believes will be a promising area for the company. In response to a question about new business wins, Beck emphasizes that selling new business is their strength and they have been successful in a difficult environment due to their focus on improving customer operating performance.

The company is seeing positive results in terms of volume and customer reception for their offerings in the Water and Hygiene industry. The team has the right tools and innovation to address customer needs and drive better performance. The volume in the third quarter met expectations and the company is confident in a 1% volume growth in the fourth quarter.

The speaker discusses the positive trajectory of the company's volume and pricing, despite a less-than-booming market. They also mention their focus on sales momentum and the benefits of organizational changes in the Healthcare and Life Sciences business. The team has successfully executed changes and reduced costs, but it is still early in the process.

The speaker discusses the progress being made in the Healthcare sector, but acknowledges that there is still a lot of work to be done. They mention a one-time sale and how it affected the growth of Healthcare, but overall, they are pleased with the progress being made. They also mention that they are not satisfied with the past performance of Healthcare, but are happy with the current transformation and early results. The speaker then answers a question about delivered product costs, stating that they were 3% lower than expected due to a variety of factors. They expect similar costs for the next quarter.

The speaker expects costs to remain similar in the upcoming quarters, with a slight easing in 2023. They do not anticipate significant improvements in the near future. The next question is about raw material purchasing, and the speaker explains that they have a lag of two to three quarters between market price changes and their P&L. The following question is about the Industrial business and the speaker notes that while they have seen good pricing and raw material decreases, there was not a significant margin lift. The speaker is asked about the volume in this business.

Christophe Beck discusses the performance of the Industrial business, stating that it is in a good place and that margins are improving. Scott Kirkland adds that the growth rates are impacted by a base comparison to last year and incentive compensation, but the business is still performing strongly. Christophe mentions that if the incentive-based compensation is stripped out, the operating income growth would be in the upper teens. The overall performance of the Industrial business is expected to continue to improve in the coming years.

The speaker discusses the company's pricing strategy and how it has resulted in stable customer retention and volume acceleration. They are pleased with the new pricing and expect it to continue in the next few quarters. They also mention that the company is seeing record levels of new business and that their team is primarily focused on acquiring new customers.

The company's good results are compensating for the softening demand globally, and their volume is accelerating due to new business. The standout categories with increasing volumes are I&S and Water, while Paper and Europe are on the soft side. Pest elimination is also doing well and providing an opportunity for the company to gain market share.

The business is doing well overall, but there are some areas that need improvement, such as Europe and Paper. However, there has been great margin improvement in Europe, with operating income almost doubling in the third quarter. The restructuring charges for the quarter were higher than expected, mostly due to the timing of the combined savings program focused on Institutional & Healthcare and Europe.

The speaker discusses the progress of a program that is expected to be completed by the end of next year, with the majority of costs being covered. They also mention seeing benefits in the healthcare and institutional businesses, as well as improved margins in Europe. They plan to continue looking for opportunities to improve productivity through technology. The speaker is then asked about potential share gains and their view on SG&A and headcount, to which they respond that they are focused on digital approaches and potentially reducing headcount to reach their operating margin goal.

The speaker discusses the company's share gain in various markets, indicating positive performance and potential for growth. They also mention their focus on leveraging digital technology to improve productivity and increase the impact of their front line team with customers. The speaker expects SG&A to decrease in ratio in the future, but still prioritize investing in the front line team. A question is then asked about SG&A by a participant from Citi.

During the third quarter, the Life Sciences business showed improvement despite a generally down market in the pharma and biotech industries. While there may be some challenges in the industry in the near future, Christophe Beck remains bullish on its long-term growth potential. Ecolab is investing in capacity and capabilities to support this growth, with plans unchanged despite any short-term market impacts. The next question from Kevin McCarthy focuses on Christophe's updated thoughts on the Healthcare business.

The speaker discusses the progress of the bifurcation of infection prevention and surgical businesses, which has resulted in improved focus and synergies. They also mention that in the short term, Healthcare business may be below average, but the goal is for it to eventually match or exceed the company average. A question is then asked about inventories, which have decreased despite flat volume and increased prices on delivered products.

The speaker, Scott Kirkland, explains that the company has seen a favorable working capital performance due to targeted inventory reductions. He expects strong free cash flow growth and a higher conversion rate compared to historical levels. The next question is from Rosemarie Morbelli, who asks about the company's adjustments to reflect the decrease in cleaning and changing of sheets and towels in hotels. The speaker, Christophe Beck, responds that this is a focus area for the company and is initially driven by labor shortages in the hospitality industry.

The speaker discusses how the institutional industry has benefited from increased automation and how their company has focused on providing products that deliver better quality and cleanliness with less labor. They mention the importance of leveraging technology and how it has helped improve partnerships with customers. The speaker then responds to a question about the growth rates of data centers and animal health within the company's industrial segment, stating that the two are very different and providing no further details.

The data center industry is growing rapidly, with usage of cloud going up exponentially. This requires more computing power and limited water resources, which presents a challenge for many companies. However, the company is well-positioned to serve this demand and has a dedicated team for this business. On the other hand, the animal health industry is not experiencing the same level of growth, but it is a good complement to the Food & Beverage business. The SG&A expenses are expected to remain flat in the fourth quarter, which could lead to a 10% increase in the next year.

In response to a question about the company's debt and SG&A expenses, Scott Kirkland explains that they plan to pay off their upcoming debt maturities and are focused on deleveraging in the short term. They also expect SG&A expenses to remain at similar levels in the fourth quarter, but the company's underlying productivity remains strong. In fact, their headcount in SG&A has decreased by 2% while their sales per head have increased by 7%.

The speaker discusses the company's plans for the future, including driving productivity through technology and focusing on creating customer value. They also emphasize the importance of a strong balance sheet and cash flow, and their commitment to achieving both through volume, new business, and pricing strategies. They thank participants for their time and conclude the call.

This summary was generated with AI and may contain some inaccuracies.