Ecolab Q1 2026 Earnings Call Highlights and Insights

Key Industry Terms Explained

• Pest Intelligence: Ecolab’s innovative digital platform for pest management, employing smart connected devices to monitor and eliminate pest activity efficiently through data-driven insights and automated services.
• 3D Trasar: Ecolab’s proprietary real-time digital water management technology that optimizes water, power, and cooling performance across industrial and commercial systems.
• Direct-to-chip cooling: Advanced liquid cooling technology applied directly at the semiconductor chip level to effectively dissipate heat, crucial for high-density AI data centers.
• DPC (Delivered Product Cost): An internal Ecolab term representing the comprehensive delivered cost of goods sold, including material inputs and logistics, as referenced in margin discussions.
• SG&A (Selling, General and Administrative expense) leverage: Year-over-year improvement in the ratio of selling, general, and administrative expenses to sales, reflecting productivity and efficiency advancements at Ecolab.
• OVIVO: Acquired subsidiary of Ecolab specializing in ultra-pure water production and advanced water recycling for high-tech and semiconductor manufacturing sectors.
• CoolIT: An upcoming Ecolab acquisition, a provider of direct-to-chip liquid cooling systems for data centers and high-performance computing applications.
• F&B United: Ecolab’s integrated Food & Beverage customer platform in North America, combining food safety, hygiene, and water solutions for comprehensive market penetration.

Complete Conference Call Transcript

Christophe Beck: Thank you, Andy, and a warm welcome to everyone joining us today. We experienced a robust quarter with increasing momentum across our diverse portfolio. While I understand that oil prices, energy, and supply issues are at the forefront of many minds, they are not a concern for me. In 2022, we faced a 50% rise in commodity costs, yet our margins continued to improve post-cycle. Currently, commodity costs have increased by 9%, and we have all the necessary strategies to address this effectively within a quarter, ensuring we do it correctly for our customers. Today, I feel optimistic about the year ahead and our management of this complex environment, but I am even more excited about our future trajectory.

My primary focus is to maintain organizational momentum toward growth, providing seamless support to our customers worldwide, and empowering our teams, particularly those in the Middle East. In this challenging environment, our teams remain closely connected to customers, ensuring uninterrupted operations, as our services are often mission-critical for them. When our offerings are essential to our customers, they become equally crucial for us. This translates to reliable supply, rapid problem-solving, and successful delivery of the outcomes our clients rely on. And we’re achieving this successfully; we would never let our customers down.

This unwavering commitment drives the consistency and strength evident in our results. Now, let’s examine the first quarter: we once again delivered a strong quarter, with adjusted diluted EPS growth of 13%, right in the middle of our anticipated range. Momentum has increased across the business, with organic sales growing by 4%, fueled by robust value pricing of 3% and accelerating volume growth of 1%. We successfully expanded our operating income margin, reflecting disciplined execution throughout our global portfolio and the effectiveness of our One Ecolab approach, which integrates service, expertise, and breakthrough technology at scale.

Momentum continues to strengthen across our portfolio, led by our growth engines, which are largely insulated from energy costs. The Global High Tech and Digital segments achieved growth exceeding 20%, driven by strong demand linked to digital adoption and the ongoing AI trend. Life Sciences accelerated to 11% growth, primarily through bioprocessing, where sales have more than doubled. We have been investing significantly in talent, capabilities, capacity, and groundbreaking innovation in this high-growth, high-margin sector for quite some time. Today, it is clear that these investments are paying off—and we are just beginning. We expect continued double-digit growth for Life Sciences, with operating income margins set to expand towards our 30% target over the next few years.

Lastly, Pest Elimination had a solid quarter with 7% growth, reflecting significant market share gains from our One Ecolab growth initiative and the successful implementation of our new Pest Intelligence solution. Our core portfolio also performed exceedingly well. The Institutional sector strengthened, with solid growth among restaurant and lodging clients, more than offsetting somewhat softer market trends. The Specialty segment gained market share, achieving 9% growth driven by innovative solutions that assist customers in optimizing costs. The Food & Beverage segment exceeded its end market growth again, posting 5% growth, bolstered by our effective execution of the One Ecolab strategy, while Light Water also demonstrated steady growth. We have also made advancements in smaller portfolio areas that have faced challenges.

Overall, the performance in Paper and Heavy Water has stabilized as we supported them through new business and innovation initiatives. In summary, our growth engines are accelerating, our core performance remains strong, and previously underperforming businesses are beginning to recover. This ongoing progress continues to shift our portfolio toward higher-margin and higher-growth markets, aligning with our long-term strategy. Additionally, we achieved solid operating income margin expansion this quarter. Our underlying gross margin remained steady, as strong value pricing effectively countered commodity cost inflation. Although reported gross margin experienced a slight dip due to temporary impacts from recent M&A and heightened commodity cost inflation, the M&A effects positively influenced our SG&A ratio, rendering it largely neutral concerning our operating income margin. Underlying SG&A productivity improved significantly as we continue to scale our unique digital and AI-driven capabilities, which resulted in strong year-over-year SG&A leverage.

As a result, our organic operating income margin expanded by 70 basis points to 16.8%. We anticipate further operating income margin expansion in the latter half of the year as pricing accelerates, and we are confident in achieving our 20% operating income margin target by 2027. Looking ahead, the operating environment remains dynamic, but we are prepared. Our focus remains on growth opportunities while adeptly managing a complex global landscape.

The ongoing conflict in the Middle East serves as one example. It has resulted in sharply increased global energy costs, placing additional pressure on the supply chain. In times like these, customers look to us as their partner of choice for secure supply, exceptional service, and solutions that help decrease operating expenses. We take decisive actions to absorb cost pressures whenever feasible. However, the scale of energy cost increases necessitates additional measures to ensure reliable supply, which is why we promptly implemented an energy surcharge. This approach has proven effective in the past, focusing on delivering incremental total value for customers that surpasses the total price increase.

We understand that it benefits our customers, and we recognize that it works for us. Consequently, the second quarter will serve as a brief transition period. We anticipate commodity costs to increase by high single digits starting in the second quarter, with expectations for those costs to remain elevated until the year’s end. The benefits of the surcharge will accumulate throughout the quarter following its implementation on April 1. As a result, higher commodity costs are expected to impact second quarter EPS growth by a few percentage points. Nevertheless, our underlying performance remains on track and within the targeted 12% to 15% range.

Importantly, we expect to fully offset the dollar impact of higher commodity costs as we exit the second quarter, as pricing continues to rise and volumes keep growing. We project organic sales to increase by 6% to 7% in the latter half of the year, helping to stabilize our gross margin during this period. This outlook excludes the impact of OVIVO. Excluding OVIVO, gross margins would rise by 70 to 80 basis points in the second half. In other words, we will completely counterbalance the significant rise in commodity costs and its effects on earnings and margins within just a few quarters. Consequently, we expect EPS growth to strengthen in Q3 and Q4, maintaining our full-year expectations.

We continue to anticipate adjusted diluted EPS growth of 12% to 15% this year, excluding the short-term impact of the forthcoming CoolIT acquisition. As mentioned earlier, financing and non-cash amortization from CoolIT are expected to have a short-term effect on adjusted EPS in the latter half of the year. After the acquisition closes, this impact is projected to reduce quarterly EPS by approximately $0.20. Importantly, underlying EPS growth remains unchanged. Beyond the short-term effects this year, we expect EPS growth, including CoolIT, to accelerate back into the 12% to 15% range, as contributions from this high-growth, high-margin acquisition increase and the amortization from the Nalco acquisition rolls off.

Furthermore, the influence of our growth engines on Ecolab Inc.‘s global performance is accelerating as we continue to scale them. This is particularly true for Global High Tech, where AI is generating substantial new demand for circular water management and high-performance cooling solutions. By merging CoolIT and OVIVO with our Global High Tech water business, we are constructing a $1.5 billion powerhouse that will drive Ecolab Inc.‘s next growth phase and margin expansion. As AI propels the development of global digital infrastructure, customers are prioritizing uptime, cooling performance, and dependable water management while significantly increasing compute power with lower energy consumption and a near net-zero water footprint.

Our circular water solutions deliver precisely that—from ultra-pure water for producing the most advanced chips to 3D Trasar connected water supporting power generation, and now direct-to-chip cooling for enhanced chip efficiency. OVIVO enhances our ultra-pure water and end-to-end microelectronics offering in a business projected to grow at a mid-teens rate this year, bolstered by a strong pipeline linked to fab expansions and increasing demands for water circularity. The pending acquisition of CoolIT builds on this momentum, offering a scaled direct-to-chip liquid cooling platform and positioning Global High Tech with an integrated, service-led cooling solution for high-density AI data centers.

Here’s more promising news: CoolIT has reported a strong start to 2026, with first-quarter sales growing significantly beyond the 30%+ growth discussed during the acquisition call. Demand for leading liquid cooling technologies is rapidly increasing. Together, these two businesses have the potential to contribute a couple of points of high-margin organic sales growth to Ecolab Inc.‘s overall growth as they scale and capture more of this enormous and fast-expanding high-tech market. In conclusion, we delivered a robust quarter marked by accelerating top-line momentum, ongoing margin expansion, and double-digit EPS growth in a complex environment. Our short-term outlook is strong and consistent, with growth momentum continuing to build.

Our portfolio is shifting towards higher-margin, higher-growth markets and is less exposed to energy costs. Our team is executing at an exceptionally high level. We are well-positioned to achieve another year of strong performance in 2026. I remain confident in the long-term trajectory we have established. Thank you for your continued trust and investment in Ecolab Inc. I will now turn it back to Andy for the Q&A session. This concludes our formal remarks. Operator, please initiate the question-and-answer segment.

Operator: Thank you. We will now open the call for questions. We kindly request that you limit yourself to one question to allow others the opportunity to participate. Should you have additional inquiries, you may rejoin the Q&A queue. A confirmation tone will indicate that your line is in the question queue. If you are utilizing speaker equipment, you may need to lift your handset before pressing the star keys. Thank you. Our first question comes from Tim Mulrooney with William Blair. Please go ahead with your question.

Analyst: This is Sam Kotswurman on behalf of Tim. Thank you for taking our question. In your outlook, you indicated that you expect gross margins to stabilize in the second half, which is quicker than many investors anticipated. I imagine this is due to your decision to implement surcharge pricing promptly as the conflict began. Can you help us understand how this aligns with your goal of reaching a 20% operating income margin by 2027, including the expected impact of the CoolIT acquisition?

Christophe Beck: Thank you, Sam. As previously mentioned, I recognize that many of you have energy costs and oil prices on your minds, but I am not particularly concerned. We have navigated similar challenges before and have learned to manage them effectively. To recall, commodity costs in 2022 increased by 50%, yet our margins improved post-cycle. Currently, we are seeing a 9% increase in Q2, which we project will persist through the end of the year, potentially even longer.

We are prepared to recover the dollar impact as we exit Q2, and as you noted, we aim to stabilize gross margins in the latter half, including OVIVO. Excluding OVIVO, gross margin should increase by 70 to 80 basis points, which is consistent with our traditional run rate. Therefore, we anticipate operating income margins will be even better as SG&A continues to improve during this period. When I analyze the interplay between pricing, DPC, and commodity costs, roughly 30% of our DPC is influenced by energy costs, which are growing by 9%.

This gives us the gross impact of inflation, while we need to offset 2.5%. Hence, the 5% to 6% pricing anticipated for the second half will stabilize margins, including OVIVO. We aim to improve margins even further.

As mentioned, my priority is ensuring the organization remains focused on growth, effectively managing our core businesses, and developing new growth engines in High Tech, Life Science, Pest Intelligence, and Digital. These segments will represent over 20% of our company with CoolIT, which is encouraging because these businesses are in high-growth markets with high margins and minimal dependency on energy costs. In summary, the second half is shaping up to be moderate to strong for gross margin, with favorable SG&A conditions, leading to stronger operating income and EPS delivery.

Looking ahead to 2027, including the CoolIT acquisition and the roll-off of Nalco amortization, I believe we have a solid chance to achieve top-line growth of 5% to 7% and certainly reach 12% to 15% earnings-per-share growth comfortably.

Operator: The next question is from Manav Patnaik with Barclays. Please continue with your inquiry.

Analyst: This is Ronen Kennedy on for Manav. Thank you for your question. Christophe, could you elaborate on the underlying macro scenario reflected in your guidance? Does it assume a generally stable demand environment with modest improvement, or does it anticipate a cautious customer stance given the higher energy costs and geopolitical uncertainties? Given your comments regarding not considering energy costs and oil prices as a concern, is there a macro sensitivity, or is it simply a matter of your internal execution levers like pricing and productivity?

Christophe Beck: The answer is 90% execution. We are equally aware of the broader context, but we hold conservative assumptions regarding 9% commodity inflation for the quarter, expecting similar trends to persist through year-end and possibly into the following year. In terms of demand, we anticipate 1% volume growth in the second half. Q2 is typically a challenging quarter to define in detail as it serves as a transition period, but I feel optimistic about achieving 1% growth in the latter half. This assumption forms our basis, rather than being merely a plan.

Our goal is to enhance both volume growth and pricing, aiming for the 5% to 6% range mentioned earlier, leading to 6% to 7% top-line growth in the second half. This encompasses both pricing expectations and the anticipated 9% commodity cost increase, along with the 1% volume growth. While there may be fluctuations in demand across regions, my focus remains on controlling what we can manage. Our growth engines are performing well—collectively, they are growing at 12% with high margins—and our new businesses are achieving record levels. I feel confident about our trajectory.

Our core business is exhibiting strong and stable growth performance, and previously underperforming areas are showing signs of stabilization, such as Paper and Heavy Industries. When we combine our assumptions with our focus on growth and performance management, we arrive at a scenario where the second half is likely to outperform our prior expectations from a few months ago. I am optimistic about our direction.

Operator: The next question is from Ashish Sabadra with RBC. Please proceed with your question.

Ashish Sabadra: Thank you for taking my question. There has been remarkable growth in the High Tech segment, exceeding 20%. You mentioned that CoolIT is also performing above 30% growth in Q1. Could you provide insights on OVIVO—how is it tracking against your expectations? Additionally, what are the cross-selling opportunities for OVIVO with core offerings in High Tech, and how do you envision cross-selling after the acquisition of CoolIT?

Christophe Beck: Thank you, Ashish. Global High Tech is poised to become our most significant growth engine in the near to long term. Alongside Life Sciences, we have two outstanding growth engines for the future of our company, concentrating on high-growth and high-margin industries with minimal dependence on energy costs. Combining High Tech, OVIVO, and CoolIT creates a $1.5 billion business that is projected to grow at 20% to 25% or more with high margins.

We are strategically positioned as the industry partner to help clients produce better outcomes for chips and data computation while using minimal water, which is a pressing issue for many sectors surrounding fabs and data centers. This is precisely what we are accomplishing. With OVIVO, we aim to increase water recycling in microelectronics from 5% to over 95%. This represents a game-changing advancement for fabs. Keep in mind, by 2030, we anticipate the opening of 17 new fabs—approximately one per month—and OVIVO possesses the most advanced technology for recycling water at ultra-pure levels.

It’s noteworthy that the quality of ultra-pure water directly influences chip manufacturing yields, which is revolutionary for the microelectronics sector—enhancing chip performance and yields while simultaneously reducing net water usage by 95%. On the other hand, CoolIT—as you may be aware—addresses concerns regarding water consumption in data centers. Our comprehensive technology will enable data centers to achieve water usage levels comparable to a large car wash. Interestingly, humans in data centers consume more water than the data center itself—this illustrates the power of that technology.

This is the first time in my career that we’ve seen customers actively approach us because they recognize the insufficient capacity to supply everyone, and we possess the two most effective technologies for microelectronics and data centers. Customers are eager to expedite their orders to gain market share within their industries. As mentioned, CoolIT has significantly exceeded our expectations this first quarter, achieving growth well above 30%—a positive challenge to have. I believe we have a compelling success story ahead, and I project that OVIVO will grow in the mid-teens.

It’s essential to note that OVIVO operates in a longer-cycle business, as establishing fabs takes more time than constructing data centers. However, the backlog at OVIVO is considerably higher than we initially anticipated, which is due to the reasons I outlined. I feel confident that we have made the right investments that will yield returns both in the short and long term.

Operator: Our next question comes from John McNulty with BMO Capital Markets. Please go ahead with your question.

John McNulty: Shifting gears to One Ecolab. Sales growth has been noticeably above the core. Can you highlight the extent to which it has surpassed core performance? Also, do you have strategies in place to further accelerate the program now that it has been running for a couple of years?

Christophe Beck: Yes, John. Although it has been less than two years, the progress has been remarkable. The most evident outcomes include our Food & Beverage United initiative, where we are integrating food safety, hygiene, and water solutions. The results have been evident, with F&B demonstrating strong growth of 5% in a multi-billion dollar industry that is not experiencing significant growth. So far, F&B United has predominantly focused on North America, but we are expanding globally, which will amplify the impact of this promising business.

Furthermore, our largest customers—specifically, the top 35 (top 20 and emerging 15)—are outperforming the company’s average growth due to One Ecolab. Lastly, our technological advancements are propelling us forward. Our performance improvements have been impressive, while our teams remain confident in our growth-oriented focus as we drive performance concurrently. We are still in the early stages of this journey, but we observe an accelerating pace, which is precisely what we envisioned in this complex global landscape.

Operator: Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter: Christophe, regarding CoolIT, could you clarify the $0.20 dilution expected in Q4? Additionally, what are your projections for dilution in 2027 from CoolIT? Thank you.

Christophe Beck: Thank you, David. I will hand it over to Scott. To clarify, the dilution is estimated at $0.20 per quarter, as we outlined in the release and during the acquisition call, and will depend on the closing date. Excluding CoolIT this year, we are on track to achieve the 12% to 15% growth range that I previously mentioned. The $0.20 reduction is part of the equation. Looking ahead to 2027, we anticipate that the roll-off of the non-cash amortization from Nalco will offset the incremental non-cash amortization from CoolIT. This alignment allows us to maintain confidence in achieving the 12% to 15% growth range for EPS.

Christophe Beck: This will also contribute positively to the top line, which is why we pursued these two investments. Both OVIVO and CoolIT are performing better than expected, adding a few points to our top line, and supporting our goal of 5% to 7% growth for the entire company while bolstering the 12% to 15% EPS growth as we move into next year. These are the objectives we are working toward, and thus far, we have seen positive outcomes on both fronts.

Operator: Our next question comes from Seth Weber with BNP Paribas. Please proceed with your question.

Seth Weber: Good afternoon. I wanted to ask about the strength of the Life Sciences business, particularly the organic growth. Is this the significant change we have been anticipating? Christophe, you mentioned that double-digit growth is foreseeable; can you help us understand how this business might react once new capacity comes online? What kind of operating leverage should we expect to see in the near term? While you aim for a 30% target in the long term, how much leverage can we anticipate on the margin side at double-digit growth levels?

Christophe Beck: Thank you, Seth. The short answer is yes—this is the performance we have been striving for and building towards. I am incredibly pleased with the internal efforts made by the team to enhance capacity, quality, systems, and platform R&D, all of which have contributed to achieving the performance we envisioned for Life Sciences. We recorded 11% growth in the first quarter, and we are developing a double-digit growth business across the board—this is our current status and our intention—to maintain even faster growth while achieving operating income leverage close to 30%.

I intend to continue investing in this business, so in the short to mid-term, we might see margins in the mid-20s as we build capacity, including a plant set to open in the latter half of the year, which will further enhance capacity. I have full confidence that we will achieve 30% margins because our growth is contingent on investments. As a reminder, our bioprocessing business, which is central to our operations, grew by over 100% in the first quarter. This is highly encouraging. While we may not see identical growth figures each quarter, the overall growth will remain strong, necessitating additional capacity—an excellent challenge to have.

We are currently recognized as the fastest-growing business within the Life Sciences sector, and I believe we will maintain this position with a smaller, agile, and innovative team. I am very satisfied with the accomplishments of the Life Sciences team.

Operator: Our next question comes from Chris Parkinson with Wolfe Research. Please proceed with your inquiry.

Chris Parkinson: There seems to be considerable activity surrounding raw materials over the next two quarters. Regarding your 2027 CMD margin targets, it appears that you are ahead in certain areas while in line in others. Could you outline the intermediate to long-term factors influencing those targets, particularly regarding the dynamics within Institutional markets and the anticipated ramp-up of Life Sciences?

Christophe Beck: Thank you, Chris. I am optimistic about our direction, but I will let Scott address that question first, and then I will build on it.

Scott Kirkland: Thank you, Chris. We are very confident in the margin expansion we are achieving and our path toward 20%. Over the last few years, we have accomplished over 500 basis points of operating income margin expansion, and we are aiming for 19% this year, which would represent a 100 basis point increase year-over-year. We believe we can achieve the remaining 100 basis points to reach 20% next year. As Christophe mentioned, the surcharge implementation is progressing well; Q2 is expected to be a transition quarter, and we are optimistic about gross margin improvement in the latter half of the year.

Moreover, our confidence is bolstered by the business mix; the higher-growth, higher-margin segments—Global High Tech, Life Sciences, Pest, and Digital—are also supporting our ambition of reaching 20% by 2027 while contributing to our long-term algorithm of 100 to 150 basis points per year through 2027.

Christophe Beck: To elaborate, I have often shared my focus on what lies beyond 20%. Achieving 20% is a given for next year. The Institutional Specialty segment is already above 20%. Additionally, Life Sciences is also exceeding 20% on an underlying basis before accounting for our investments. The Pest Elimination segment is also above 20%, as is most of the Water sector. We have a clear understanding of how to surpass 20%. The critical question is what comes next. I will provide clarity on this once I have a solid perspective, but it will likely exceed 20% significantly.

Considering the inclusion of OVIVO and CoolIT into our operations, this will enhance our growth in fast-expanding areas with robust margins. I feel confident in our ability to reach 20% next year, with 90% of my focus on what lies beyond that target, ensuring sustained margin growth for the company.

Operator: The next question is from Vincent Andrews with Morgan Stanley. Please proceed with your inquiry.

Vincent Andrews: I would like to discuss Global Water and its margins. In the quarter, three dynamics were at play: the OVIVO acquisition, raw material inflation—which I presume hit you significantly in March, and the stabilization of headwinds regarding lower sales in Heavy Water and Paper. Despite this, you mentioned that operating income growth declined by upper single digits, which I would have expected to enhance the percentage margin. Could you clarify the margin performance in Global Water, the reasons for the decline, and how these three factors contributed? Additionally, how should we approach this over the next couple of quarters?

Christophe Beck: I will pass it to Scott for further insights, but generally, Water experienced flat operating income growth—down approximately 0.5% in Q1. Excluding Paper and Heavy Water, the Water segment has been posting mid-single-digit top-line growth and high single-digit operating income growth. Overall, Water is performing quite well, excluding these two sectors. We are actively working on improvements for both, but my primary concern is on the growth side of Water. The combination of higher-growth, higher-margin businesses like Global High Tech will enhance our overall performance significantly, and we anticipate improvement in the underperforming Paper and Heavy Water segments.

We have reached a stabilization point for these two businesses. If they achieve slight positive growth in the second half, it will benefit overall performance. I do not typically focus on these areas. I concentrate on the 80% of the company that is performing exceptionally well, while also developing new growth engines. As I look to the second half, I believe these two segments will trend positively. They also have reasonable margins—not exceptional, but healthy. Importantly, they are not detracting from the overall value of the company.

Thus, with 80% of the company performing well and achieving over 5% top-line growth without these two segments, their improvement will further drive overall performance in the upcoming quarters and in 2027.

Operator: The next question comes from Patrick Cunningham with Citibank. Please proceed with your question.

Patrick Cunningham: The Specialty division within I&S has shown impressive organic growth. Given the current environment, characterized by weaker foot traffic and consumers sensitive to wage inflation, is the majority of your growth stemming from deeper penetration of digital solutions and productivity tools, rather than traditional chemical volume at this stage?

Christophe Beck: Patrick, the short answer is yes. Our focus is primarily on solutions that assist customers in achieving results at lower costs by minimizing labor and resource usage—both energy and water. This approach has been highly effective. When we consider the One Ecolab strategy, we have compelling examples in F&B United and Specialty. This business exemplifies our capacity to deliver standardization and performance at scale. Our team’s strategy for large quick-service and fast-food companies is to demonstrate the best performance metrics—identifying the top-performing restaurants in terms of guest satisfaction, costs, and environmental impact—and scaling these solutions globally.

Our customers, primarily franchises, appreciate this approach, which presents opportunities for us to influence units worldwide using a consistent methodology. This presents significant upside for these clients, and the results are evident—achieving 9% growth at the margins we maintain in this segment is quite remarkable. Furthermore, the beauty of the Institutional Specialty business is its adaptability; regardless of shifts in consumer behavior driven by economic conditions, we can capture market share across various sectors. Whether at luxury restaurants, mid-scale dining, or quick-service establishments, we are present. The margins remain consistent across these segments. We are exceptionally well-positioned to support consumer needs, ensuring stability and consistency in our performance.

Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Please proceed with your question.

Shlomo Rosenbaum: Christophe, I would appreciate further detail on your comments about Paper and basic industries turning the corner. Is there evidence of improvement in growth? Have you seen any further mill closures? What is the status of the metals side? Should we expect these businesses to trend flat this year? Please provide additional insights, as the other segments of the business are performing at your desired level, while these two remain lagging behind.

Christophe Beck: Overall, if we exclude these two underperforming sectors, the company is growing at over 5% top line, which puts us in a strong position. Water is also in that growth range. However, like any organization, there are a few segments that require special attention due to their positioning in older industries with slower growth rates. The short answer is that both segments have stabilized. We have not faced additional closures in the last three to six months, which is challenging to mitigate, as factory closures present substantial obstacles. We observe stabilization, and if they trend slightly positive in the second half, we will be in a favorable position.

The focus of the team is directed towards this objective, and I am optimistic about our prospects. To be candid, my primary focus remains on the 80% of the company that is thriving, while simultaneously working to nurture the growth of the struggling segments. As I look at the second half, I am confident that these two sectors will show improvements. Additionally, they exhibit decent margins—not exceptional, but adequate. They are not detracting from the company’s overall value, which is crucial.

Thus, with 80% of the company performing well, exceeding 5% top-line growth without these two segments, their uplift will aid in bolstering overall performance in the latter half of the year and into 2027.

Operator: Our next question comes from John Roberts with Mizuho. Please proceed with your inquiry.

John Roberts: Thank you. Can you clarify whether inflation is higher on raw materials or your CapEx, considering that you purchase significant amounts of equipment containing metals and plastics?

Christophe Beck: John, the majority of the inflation is occurring on the raw material side, particularly in logistics, due to rising costs related to driver shortages and fuel expenses—these are the typical challenges we have faced. In terms of what you refer to as CapEx, which pertains to technology equipment, there has been some inflation, but it has not been dramatic or energy-related. There is nothing noteworthy in that regard.

Operator: The next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question.

Jeffrey John Zekauskas: Thank you very much. Christophe, you mentioned that CoolIT is experiencing growth significantly faster than 30%. Can you quantify whether it is growing 50%, 70%, or 60%? Additionally, regarding competition in the data center markets for direct-to-chip technology, is the focus on water treatment chemistry, or is it more equipment-based? How do you perceive your competitive positioning with water treatment technology in the direct-to-chip segment?

Christophe Beck: Jeff, great question. In fact, the genuine growth rate—beyond the numbers you mentioned—is even higher. To be candid, we are observing growth close to the triple-digit range, which is quite impressive. However, I want to clarify that we have not yet finalized the acquisition; we are still awaiting regulatory approvals, but the outlook remains positive, indicating a potential closure in the third quarter. The performance has been exceptional, and I have interacted with numerous customers—there is significant demand for what CoolIT offers. While there are other competitors in the market—one notably starting with a “V” that is performing well and maintaining a solid backlog—CoolIT is also positioned favorably.

Overall, the growth trajectory is strong, although I expect it won’t be a straight line of consistent growth indefinitely. We will need to manage our capacity effectively to meet this demand, which is a positive challenge. We are witnessing customers actively seeking our services because they recognize the insufficient capacity available to meet their needs. As for your second question, I am indifferent to whether the competition is industry-based, equipment-based, or technology-based. Our primary value proposition for data centers is to provide higher uptime with reduced water usage and enhanced power performance. This is the outcome we deliver.

The shift from low to zero net water usage is transformative. As you know, there is considerable concern surrounding water usage in data centers; our solutions effectively address this issue, which is critical for hyperscale operations—while enabling more advanced chips that necessitate direct-to-chip cooling. We are exploring various models, all of which will continue to align with Ecolab’s recurring business structure. This is how we envision the business as we integrate our services with 3D Trasar optimization of water and power cooling, and coolant—which is designed to be a recurring product—along with all associated technologies.

Whenever a new generation of chips is introduced, system changes for direct-to-chip cooling are necessary; this includes new cold plates, new coolant types, and adjustments to CDUs as power demands increase. This inherently establishes a recurring business model.

Operator: The next question comes from Matthew DeYoe with Bank of America. Please proceed with your question.

Matthew DeYoe: Thank you, Christophe, and I appreciate your insights. One concern we hear from investors regarding the CoolIT acquisition is that it does not appear to be a consumables business. Two follow-up questions: first, is the $0.20 per-share dilution reflective of the 30% sales growth you previously outlined, or does this correlate with the near 100% sales growth currently observed? Does that distinction matter in the short term? Secondly, how R&D-intensive do you anticipate CoolIT will be? Given the rapid changes in technology, with cold plates and associated infrastructure being outside of Ecolab’s core competencies, I recognize you have 3D Trasar, but not necessarily this architecture.

Christophe Beck: A few points, Matt, and then I will defer to Scott. Generally, the base case we discuss is the anticipated 30%+ growth that we referenced; that serves as the foundation for our assumptions, and anything above that will be beneficial. Regarding R&D and expertise, it’s worth noting that this is fundamentally a water business, as direct-to-chip cooling is focused on water utilization. Even the coolants we offer today are not water-based, but water-based coolants represent the most efficient heat transfer solution we can imagine. However, working with water presents challenges, including scaling, fouling, and corrosion, especially at elevated temperatures for the latest chips.

This is a business where we possess substantial expertise, as we have mastered thermal management for over 80 years. We have a wealth of R&D capabilities in this field. CoolIT also has robust R&D capabilities. The integration of CoolIT and 3D Trasar technology will create a new Ecolab offering for customers the moment we finalize the acquisition. I am confident that this will transform our customers’ experiences. I believe this will be a classic case of one-plus-one equating to three, aligning perfectly with our strategic objectives.

Ultimately, this is a water business focused on heat removal, which has been our expertise across various industries for decades, and we are now applying this knowledge to a new industry. Scott, would you like to add anything regarding EPS impact?

Scott Kirkland: One point I would emphasize, Matt, is that we view this as a high-growth, high-margin business, and the 30% sales growth projection is anticipated over the next few years. In the initial years, with our averaging, we expect it to grow even faster. We remain positive about the outlook; we see accelerating growth. I still believe that the $0.20 per quarter is a solid base case following the acquisition, and we will adjust our projections accordingly once we take control of the asset in the latter half of this year. This dilution is expected to neutralize by 2027, as the amortization from Nalco rolls off concurrently—this timing is nearly perfect.

Operator: Our next question comes from Mike Harrison with Seaport Research. Please proceed with your question.

Mike Harrison: I am interested in understanding the Pest business. Regarding the rollout of digital and smart connected traps, could you provide insight into what percentage of customer locations are currently utilizing these new traps? Additionally, could you elaborate on the timing of this rollout and when we might expect to see margin benefits as we achieve greater efficiency from your sales and service teams with these new traps?

Christophe Beck: Thank you for your question, Mike. I have a strong affinity for this business, particularly as we transition toward Pest Intelligence. We have successfully implemented approximately 700,000 smart devices thus far. This initiative has been primarily driven by our collaboration with the largest retailer in the world, and it has delivered impressive results—creating nearly 99% pest-free environments while enhancing service quality, as 95% of our previous time spent checking empty traps is now redirected toward value-added activities, such as acquiring new accounts. Our aim is to transform the entire Pest Elimination business into a Pest Intelligence model within the next three to four years.

This transition is not linear; we must ensure everything functions seamlessly. We are on track to reach approximately 1 million connected devices by year-end, with plans to continue ramping up in the subsequent years. This rollout will positively influence growth, retention, and performance for our customers, and it will indeed impact our margins. So far, we are experiencing great success, with enthusiastic responses from our customers.

Operator: Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander: Good afternoon. As you evaluate the surcharges and the pricing momentum you have achieved, how has that changed over the years? Are you capturing a higher percentage of value across your portfolio, or are you focusing on delivering more value while capturing the same percentage? Moreover, as you assess these dynamics, do the newer businesses where you are concentrating your efforts currently have a higher value capture level relative to the value created for customers than some of the older legacy Ecolab businesses?

Christophe Beck: Laurence, this is a process we have refined over the last four to five years. Our approach ensures that the total value delivered to our customers exceeds what we capture in pricing. Not all businesses are created equal—there are significant differences between biotech manufacturers, Pest Intelligence in retail, and Food & Beverage for breweries. We navigate these variances thoughtfully. Over the past five years, we have not lost customers, and our margins have increased while retention has remained strong. Regarding the surcharge, it provides a framework for our teams and customers to understand our direction.

In some regions, we may capture more value than in others. In certain businesses, this transition goes directly to structural pricing. It has been successful thus far. This is a matter of execution, and our teams are effectively managing it. We will continue to share our progress, but I am pleased with our current trajectory.

Operator: Our next question comes from Andy Wittmann with Baird. Please proceed with your inquiry.

Andy Wittmann: Thank you for taking my question. It appears that the success of the energy surcharges will be vital for the ramp-up in the second half. Given that, Christophe, could you provide insight into the total number of customers you expect to approach regarding the energy surcharge compared to how many you have already contacted and informed of this initiative? How many are still pending awareness for the remainder of the year to achieve your ultimate target?

Christophe Beck: Thank you, Andy. All customers are affected—there are no exceptions. This initiative impacts 100% of our customers, 100% of our businesses, and 100% of the countries we operate in. Implementing this is not a straightforward task; we operate in 172 countries and serve 40 different industries, but this is our third time executing this approach. We began on April 1, and our progress has been promising. The systems and mechanics are in place, and we have tracking measures established. I review our pricing progress weekly. Consequently, I feel confident in our advancement. Our goal is to be largely completed by late Q2 or early Q3, while we simultaneously work on structural pricing adjustments.

Ultimately, we aim to convert all surcharges into structural pricing as quickly as possible, with some areas transitioning directly to structural pricing—Institutional being one of those sectors. Our established mechanics allow us to execute confidently and efficiently, perhaps even faster than in previous instances due to our increased proficiency.

Operator: Our next question comes from Jason Haas with Wells Fargo. Please proceed with your question.

Jason Haas: I am curious if the ongoing conflict in the Middle East has influenced any of your end markets, particularly regarding customer confidence within any segment. Thank you.

Christophe Beck: Yes, while the Middle East represents a relatively small portion of our business—approximately a few hundred million—it is crucial for our customers, and we take this responsibility seriously. We strive to ensure that no customer is left unattended; we remain engaged with them, especially during challenging times. Some units have closed for reasons we are familiar with, but the overall impact is minor. We are committed to doing what is right for our customers and teams. Our customers trust us to stand by them, especially in difficult times. Interestingly, our competition is facing challenges in supplying and servicing these clients, presenting us with a valuable opportunity to gain market share. While this situation may slightly affect our volume growth in Q2, it does not concern me, as it will ultimately help us build new shares in the Middle East. Q2 serves as a transition quarter, and our customers appreciate our support during tough circumstances. I take pride in our team’s response, and I believe this will yield positive returns once these challenging phases pass.

Operator: The next question comes from Josh Spector with UBS. Please proceed with your inquiry.

Josh Spector: Good afternoon. I appreciate your insights. I would like to continue discussing the price-cost dynamic. It seems somewhat unusual that you are forecasting high single-digit raw inflation in Q2, which is occurring sooner than I anticipated, yet you are not suggesting it will escalate further throughout the year, as many other companies expect. What sets your situation apart? Additionally, is your capacity to increase that surcharge automatically if inflation trends toward the mid-teens from the high single digits already established, or will it require a reactivation on your part?

Christophe Beck: We source over 10,000 products, so our basket is quite extensive and generally stable. The inflationary pressures began in February, impacting Q2 due to inventory timing. We expect commodity costs to rise by 8% to 9% in the second quarter and do not envision them decreasing. I believe they may remain stable or increase, as you noted. We are prepared for that scenario. We can manage costs through our purchasing strategies, savings, and, most importantly, pricing adjustments. Approximately one-third of our commodities are affected by these cost increases—not all of them. We have a fair level of insulation against extreme fluctuations. In the event of a significant shift, we will implement the next tier of energy surcharges.

We have successfully navigated similar challenges in the past, and our customers are accustomed to such discussions. I do not spend much time worrying about this dynamic. Our teams are proficient in managing these aspects effectively, having had multiple opportunities to engage with our customers in this context. It is essential to remember that we provide more cost-saving value to our customers than what we ask them to pay in price. This is why surcharges transition into structural pricing and why customers remain loyal to us. While I acknowledge the importance of this, my primary focus is on growing the company while concurrently managing this and numerous other global challenges.

Operator: Our final question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Kevin McCarthy: Thank you for taking my question, and good afternoon. Christophe, I would appreciate your thoughts on the topic of SG&A leverage. It appears that you successfully reduced your SG&A ratio to sales by 130 basis points in March. Should we anticipate this as a reasonable trajectory over the next several quarters? Additionally, could you provide insights into your productivity initiatives and how acquisitions affect this ratio as we model the company going forward?

Christophe Beck: Thank you, Kevin. I will pass it to Scott. While I recognize that the topics of pricing, surcharges, and delivered product costs are important, I do not prioritize them highly, nor do I prioritize SG&A leverage. Not because they are unimportant, but because we manage them effectively. We have a strong grasp on pricing, DPC, and SG&A through technology. We are at the forefront of AI within our organization, which is yielding excellent results. These elements are well-handled while we concentrate on growth. Scott, would you like to provide additional insights on SG&A?

Scott Kirkland: Thank you, Kevin. We observed significant productivity gains in SG&A during Q1, with a reduction of 130 basis points. We are benefiting from the One Ecolab initiative and the implementation of digital and AI programs. There has been a shift, as previously noted, between gross margin and SG&A due to M&A—primarily OVIVO. In Q1, this accounted for 20 to 30 basis points, but we still achieved an underlying reduction of 100 basis points, which exceeds our long-term target for leveraging SG&A of 25 to 50 basis points.

For the full year, I expect SG&A leverage to be around 80 basis points, taking into account some benefits from OVIVO due to geographic variations between gross margin and SG&A. However, the underlying performance is still above our long-term target of 25 to 50 basis points due to robust sales growth and remarkable productivity. We maintain strong confidence regarding this long-term projection.

Operator: Our final question comes from Scott Schneeberger with Oppenheimer. Please proceed with your inquiry.

Scott Schneeberger: I would like to address Light Water. You reported solid sales in the first quarter and anticipate similar performance in the second quarter. Do you expect the transportation and green energy sectors, which you mentioned, to remain the primary growth drivers moving forward? What factors are contributing to that growth? Are these driven by a few large projects or indicative of a structural shift?

Christophe Beck: Light Water has indeed been performing well. The transportation sector is a significant contributor. Our role involves providing superior coatings that require far less water and generate minimal waste, making it an attractive offering for advanced automotive manufacturers globally. They appreciate the value of enhanced products with lower environmental impacts and costs. This initiative has been cultivated over the last two years, yielding positive results with innovative technology. The Korean manufacturers involved in solar panels—although a different industry—exhibit similarities to semiconductor manufacturing and have been performing well in specific locations.

Another aspect of Light Water is what we classify as Institutional Water—covering hotels, public buildings, and office complexes, particularly in managing air conditioning water and preventing Legionnaires’ disease. These areas have also been thriving. In the past, we approached this business on a unit basis; now, we collaborate with large real estate and facility management firms globally, as they favor standardized performance that can be implemented worldwide to reduce costs and environmental impact. I am optimistic about the ongoing success of Light Water; its performance is continually improving and is set to enhance as we progress into the year, which is an encouraging story.

To conclude and summarize several key points: we started the year strongly, with substantial momentum driven by growth, which aligns perfectly with

Sophie Harrington is an accomplished author and financial writer at Oxford Wise Finance, where she explores a wide range of general topics related to personal finance and economic literacy. With a passion for demystifying complex financial concepts, Sophie empowers her readers to make informed decisions about their financial futures. Her engaging writing style blends insightful analysis with practical tips, making finance accessible to everyone. In addition to her contributions to the blog, Sophie frequently speaks at workshops and seminars, helping to foster a greater understanding of financial wellness in her community.