The operator welcomes participants to the Ecolab Fourth Quarter 2023 Earnings Release Conference Call and introduces the host, Andy Hedberg. The host introduces Christophe Beck, Ecolab's Chairman and CEO, and Scott Kirkland, the CFO. The cautionary statements regarding forward-looking statements are mentioned, and the call is turned over to Christophe Beck. Beck expresses pride in the company's strong performance in the fourth quarter, with organic sales growth of 6% and adjusted earnings per share up 22%. He credits the team's hard work and dedication, as well as their focus on driving long-term growth in the right way.

In the fourth quarter, the company's team was able to maintain strong business momentum and drive value-based pricing despite unpredictable macroeconomic conditions. The increase in volumes was driven by new business wins, which offset soft macro demand. The company's success is attributed to the value it creates for customers by improving operating performance and reducing water and energy consumption. The focus for 2024 is to continue fueling long-term double-digit earnings per share growth. The fourth quarter saw significant growth in gross margin and organic operating income margin, led by the Institutional & Specialty segment. The Industrial and other segments also saw notable increases in operating income margin, while the Healthcare and Life Sciences segment's margin eased compared to the previous year.

The company's operating income for this segment has grown sequentially throughout 2023 due to actions taken to improve performance. Despite a down market, the Life Sciences business has shown slight growth and the company expects to gain market share in the long-term. The company's overall performance demonstrates the strength of their model and their focus on pricing and driving new business. Delivered product costs have decreased slightly but are still higher compared to 2019 levels. The company remains focused on reaching their 20% operating income margin target and is confident in achieving it with their value-based pricing model and lower delivered product costs. Productivity remains strong through the use of digital capabilities and SG&A expenses have remained stable.

The company expects to see a sequential increase in SG&A dollars in the first quarter, but anticipates improvements in the SG&A ratio throughout the year. They are expecting 2024 to be another strong year with 12-15% earnings growth, aided by lower product costs. The adjusted earnings per share is expected to grow 17-25% for the year, with a peak in the first quarter due to lower product costs. The company plans to continue investing in the business and returning cash to shareholders, and is confident in their ability to grow their market share and deliver strong performance. The formal remarks have ended and the question-and-answer period will begin.

In the question-and-answer session of the conference call, Tim Mulrooney from William Blair asks about the performance of Europe in the fourth quarter and how it affected overall volume growth. Christophe Beck, the speaker, responds by stating that the company has been successful in shifting to an offensive strategy, leading to a 3% increase in volume growth if Europe is excluded. However, Europe has been a drag on growth, with only a 1% increase in volume. Despite this, Europe has achieved a 14% operating income margin, which was the company's goal for the region. The company will continue to focus on maintaining growth and rebuilding margins while prioritizing the right investments.

Christophe Beck, CEO of Ecolab, discussed the company's performance in Europe, stating that there was a slight decline in volume but good pricing and a focus on the right businesses. He also mentioned that the 3% growth outside of Europe in Q4 was positive news for the company. In response to a question about fiscal year 2024, Beck stated that the company expects to stay on their long-term growth trajectory with 2% pricing and positive volume growth. He clarified that this is in line with their long-term growth target and that they prioritize value pricing while driving growth. When asked about the breakdown of the five points of pricing in Q4, Beck did not specify how much was new versus carryover.

The paragraph discusses the company's strong performance in the fourth quarter, with a 5% increase in pricing and no carryover from previous years. The CEO is confident in the company's ability to continue increasing pricing and expects it to be north of 2% in the future. The next question asked about the expected earnings for the year, and the CFO explains that there may be factors that could affect the earnings throughout the year, but the first quarter is expected to have a larger impact from DPC.

The company expects that their underlying EPS delivery will be at the high end of their long-term targeted range, with a benefit in the first quarter and stability in the second half. They do not anticipate a significant increase in delivered product costs throughout the year, as they have seen a peak in mid-2023 and a gradual easing since then. However, they acknowledge the unpredictability of inflation and the diverse nature of their 10,000 product portfolio. Overall, they expect delivered product costs to continue easing in the first half and stabilize in the second half, but are prepared for potential changes.

The speaker emphasizes the importance of driving 12-15% earnings per share growth and mentions DPC as a factor that will contribute to this goal. They plan to achieve this through new business, value pricing, productivity, and innovation. The questioner asks about institutional business volumes and pricing initiatives. The speaker confirms that volumes in institutional business are up and that pricing initiatives will be implemented smoothly throughout the year.

In the paragraph, the speaker discusses the portfolio of the company and how different parts of the business are performing. They mention that while some areas may not be doing as well, overall the company has seen double-digit operating income growth in over 90% of their businesses. The speaker also mentions that the company approaches investments and resources in four different ways.

The speaker discusses the company's focus on fueling and protecting businesses with high growth and margin potential, transforming those with potential but not yet performing well, and fixing struggling ones. They mention healthcare as an example of a business that needs transformation but has good margins. They also mention that the company is not investing equally in all businesses and is mindful of shareholder interests. The following question asks about the high single digit increase in delivered product costs in the first quarter, and the speaker responds that it is due to caustic price decreases last year and clarifies that the DPC is still up 35% compared to the pre-inflationary period.

The company saw a modest benefit in Q3 and Q4, and expects it to peak in Q1 before stabilizing in Q2. It is difficult to isolate the impact of raw material costs, but the company is focused on driving business to achieve 12-15% earnings growth. They expect flat benefit from DPC in the second half. The company has a strong balance sheet and will likely continue with its past M&A strategy.

The speaker discusses their company's position to pursue strategic opportunities and their focus on three key priorities: water, life science, and digital/AI technology. They also mention being honored to make the Just 100 list. In response to a question about de-stocking in Healthcare, the speaker talks about their progress in fixing that business and the growth in that sector.

The company's margins are increasing significantly, indicating progress and a successful model. They have committed to reaching double-digit margins in their business and are seeing strong growth in China, with a focus on food safety, infection prevention, and water. The company is pleased with the evolution of China and the rest of Asia Pacific.

During a conference call, a question was asked about how the company plans to reach its goal of a 20% operating income margin. The operator asked the question on behalf of Shlomo Rosenbaum from Stifel. Christophe Beck, the speaker, deferred the question to Scott Kirkland, who explained that the company's plan involves recovering 2019 gross margins through value-based pricing and increasing volume and mix. This is expected to result in a 200 basis point increase in operating income margin in 2024, along with continued SG&A leverage.

Christophe Beck provides an update on Ecolab's financial performance, stating that their confidence level has increased due to the delivery of the last three quarters. He also discusses two of the company's platform innovations, Ecolab Science Certified and Ecolab Water for Climate, and shares that they are making progress with several big customers, including McDonald's and Microsoft. These initiatives aim to provide benefits to customers by ensuring a safe and clean environment and helping them achieve their net zero goals.

The speaker discusses the success of cross-selling initiatives at Ecolab, citing the example of their pest elimination business which has generated high returns and a $1 billion business. They also mention the potential for further growth by penetrating half of the $152 billion market and selling more services to existing customers.

The company has seen solid share gains in institutional markets, driven by their focus on new business generation and their end-to-end proposition. They have also focused on their top 35 customers to capture more opportunities. Their sales organization is working together to drive growth, and their pipelines are at record levels. This growth is expected to continue in the coming months and quarters, particularly in the institutional market.

The company has a great new business generation and can install quickly, making it good for customers and leading to great results. Two-thirds of their business is cross-selling, which is selling to customers that other businesses already have. They focus on cross-selling because it is the easiest and cheapest way to sell and has the highest margins. The specialty side of their institutional business, which includes quick serve restaurants and food retail, had a great year in 2020. This is due to the industry doing well in difficult times, as people tend to trade down. The company also acquired Chemlink in May, which is contributing to the success of the specialty business.

The cost savings program has been in place for a full year and is on track with its timing and size goals. The focus areas include geographies and segments, and the company has had a strong growth year in 2023 which may have allowed for less aggressive cost cutting measures. The program is expected to continue in the future.

In this paragraph, Christophe Beck and Scott Kirkland discuss the progress of the company's restructuring program. They mention that they are on track to achieve 75% of expected savings by the end of 2023 and the remaining savings by 2024. They also highlight the success of the program in Europe, where margins and growth have improved, and in the Institutional and Healthcare sectors. The company is focused on organic growth and only uses restructuring when necessary to improve competitiveness and return value to shareholders.

The speaker discusses the success of the company's restructuring investments in the Healthcare sector and mentions that there has been a change in procurement strategy with the addition of a new Chief Procurement Officer. They express confidence in the company's performance and thank their customers and shareholders. The speaker also addresses a question about changes in the company's outlook and explains that the procurement team has brought new capabilities and approaches.

The speaker is pleased with the progress of the procurement team and believes they are well-equipped to take advantage of the benefits of easing DPC inflation. They acknowledge that DPC costs are still high, but see it as an opportunity for the company and shareholders. The speaker emphasizes the importance of getting value pricing right and believes it will ultimately benefit customers and the company's margins. The call concludes with a reminder that the call and slides will be available for replay on the company's website.

The operator is ending the conference and thanking everyone for participating. They can now disconnect their lines and have a great day.

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