Ecolab (ECL) Q1 2026 Earnings Call Transcript

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Date

Tuesday, April 28, 2026 at 1 p.m. ET

Call participants

• President and Chief Executive Officer — Christophe Beck
• Chief Financial Officer — Scott Kirkland
• Vice President, Investor Relations — Andy Hedberg

Takeaways

• Adjusted diluted EPS growth -- 13% growth was reported, positioned at the midpoint of annual guidance.
• Organic sales growth -- 4% organic sales growth comprised 3% value pricing and 1% volume growth.
• Segment highlights -- Global High Tech and Digital achieved over 20% growth; Life Sciences posted 11% growth, "led by bioprocessing, where sales more than doubled"; Pest Elimination grew 7%.
• Specialty division performance -- Specialty segment delivered 9% growth through innovation targeting customer cost optimization.
• Food & Beverage segment -- Food & Beverage posted 5% growth, outpacing its own end markets.
• Operating income margin expansion -- Organic operating income margin increased by 70 basis points to 16.8%.
• Gross margin outlook -- Gross margin is expected to stabilize in the second half, with ex-OVIVO gross margin anticipated to rise 70-80 basis points over the period.
• Full-year EPS guidance -- Management maintained adjusted diluted EPS growth guidance of 12%-15% for the year, excluding the short-term impact from the pending CoolIT acquisition.
• CoolIT dilution details -- The pending CoolIT deal is expected to reduce quarterly EPS by "$0.20 per quarter" in the second half post-close, "neutraliz[ing] in 2027" as Nalco amortization rolls off according to Scott Kirkland.
• Growth engine contributions -- Growth engines are collectively growing at 12% with high margins; High Tech will become a primary near- and long-term growth driver.
• CoolIT and OVIVO strategic impact -- The combined Global High Tech, OVIVO, and pending CoolIT businesses will form a $1.5 billion unit expected to grow 20%-25%+ at high margin, "add[ing] a couple of points of high-margin organic sales growth" to company-wide performance.
• Life Sciences outlook -- Life Sciences is projected to maintain double-digit growth and "expand toward our 30% [operating income margin] target over the next few years," with new capacity expected online in the second half.
• One Ecolab initiative -- Achieved faster growth than company average, top 35 customers growing "quite a bit faster than the average" and F&B United grew 5% in North America alone.
• Energy surcharge implementation -- Energy surcharges began April 1, affecting 100% of customers and businesses, with execution expected to complete by late Q2 or early Q3.
• Second half organic sales forecast -- Organic sales growth is expected at 6%-7% in the second half, built on "5%-6% pricing" plus 1% volume growth and supported by improved SG&A leverage.
• Pest Intelligence rollout -- Approximately 700,000 smart devices deployed, aiming for 1 million by year-end, targeting full penetration in three to four years, with a positive impact on customer retention and margins.

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Risks

• Management cautioned that "higher commodity costs will impact second quarter EPS growth by a few percentage points," with costs expected to remain elevated through year-end.
• The pending CoolIT acquisition will have a "$0.20 per quarter" EPS reduction in the second half and requires regulatory approval before closing.
• Management noted, "It might impact slightly our volume growth in Q2. Honestly, I do not care because it will help us in the second half as we build new shares in the Middle East," though the region represents a small portion of revenue.

Summary

Ecolab (NYSE:ECL) delivered mid-teens earnings growth, sustained margin improvement, and expanding contributions from high-growth business lines, offset by near-term earnings dilution from the CoolIT acquisition and persistent commodity cost inflation. Guidance for full-year organic growth and margin targets remains unchanged, underpinned by ongoing pricing actions, digital investments, and successful scaling of growth initiatives across key segments. The company's pricing execution, strong balance of segment growth, and backlog in High Tech and OVIVO are expected to drive margin stabilization and position Ecolab for accelerating performance in the second half of 2026.

• The rollout of energy surcharges is proceeding globally, and management expects full structural pricing conversion in targeted segments such as Institutional.
• Management confirmed that OVIVO’s backlog and growth in ultra-pure water for microelectronics is "way higher than what we had thought," supporting sales visibility into 2027.
• CoolIT’s actual first-quarter sales accelerated "close to the triple-digit range," surpassing acquisition call forecasts and highlighting acute market demand for direct-to-chip liquid cooling.
• SG&A leverage improved by 130 basis points due to productivity gains from AI and digital transformation, exceeding the long-term annual target of 25-50 basis points.
• The Paper and Heavy Water segments have stabilized, with no additional mill closures in recent quarters, and are seen as potentially becoming slightly positive contributors in the second half.
• Life Sciences’ bioprocessing business grew "north of 100%" in the quarter, with management planning continued investment in capacity as demand exceeds supply.

Industry glossary

• Pest Intelligence: Ecolab's digital platform for pest management, utilizing smart connected devices to monitor and eliminate pest activity with data-driven efficiency and service automation.
• 3D Trasar: Ecolab's proprietary real-time digital water management technology, optimizing 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 efficiently dissipate heat, crucial in high-density AI data centers.
• DPC (Delivered Product Cost): Internal Ecolab term for the full 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 gains at Ecolab.
• OVIVO: Acquired Ecolab subsidiary specializing in ultra-pure water production and advanced water recycling for high-tech and semiconductor manufacturing sectors.
• CoolIT: Pending 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 systemic market penetration.

Full Conference Call Transcript

Christophe Beck: Thank you so much, Andy, and welcome to everyone joining us today. We had a great quarter with accelerating momentum across our portfolio. And I know oil prices, energy, and supply are top of mind for most; it is not for me. In 2022, commodity costs were up 50% and our margins post-cycle went further up. Today, commodity costs are up 9%, and we have all the tools to address this within one quarter, done the right way for our customers. As I sit here today, I feel very good about the year, how we are managing a complex environment, and I feel even better about where we are going next.

What matters most for me today is to keep the organization focused on growth, to supply our customers seamlessly anywhere around the world, and to support our teams, especially those operating in the Middle East. In a complex environment, our teams are staying very close to customers and supporting their operations without any single disruption, because what we do is almost always mission critical to them. And when something is mission critical to our customers, it becomes mission critical to us too. That means supplying reliably, solving problems quickly, and delivering the outcomes they count on. And it is working. We would never ever let the customer down.

That commitment is what drives the consistency and the strength you see in our results. Now, turning to the first quarter, we delivered once again a very strong quarter with adjusted diluted EPS growth of 13%, right in the middle of our range. Momentum strengthened across the business as organic sales grew 4%, driven by continued strong value pricing of 3% and volume growth that accelerated to 1%. We expanded operating income margin, reflecting the disciplined execution across our global portfolio and the strength of our One Ecolab approach, which brings together service, expertise, and breakthrough technology at scale.

Momentum continued to strengthen across the portfolio, led by our growth engines, which, by the way, have close to no exposure to energy costs. Global High Tech and Digital grew more than 20%, driven by strong demand tied to digital adoption and the ongoing AI wave. Life Sciences accelerated to 11% growth, led by bioprocessing, where sales more than doubled. We have been investing in talent, capabilities, capacity, and breakthrough innovation in this high-growth, high-margin business for quite some time. And today, these efforts are clearly paying off—and we are just getting started. We expect Life Sciences’ growth to continue its double-digit momentum and operating income margin to expand toward our 30% target over the next few years.

And finally, Pest Elimination delivered a strong quarter with 7% growth, reflecting strong share gains from our One Ecolab growth initiative and, naturally, our new Pest Intelligence offering. Our core portfolio also performed very well. Institutional strengthened, with solid growth across restaurant and lodging customers, more than offsetting somewhat softer market trends. Specialty gained share with 9% growth, driven by innovation that helps customers optimize costs. Food & Beverage outperformed its end market again, growing 5%, supported by strong execution of our One Ecolab approach, and Light Water delivered steady growth too. We also made progress in smaller parts of the portfolio that have been a bit under pressure.

Collectively, the performance in Paper and Heavy Water stabilized as we supported them with new business and innovation. Overall, our growth engines are accelerating, our core performance is strong, and businesses that had been under pressure are turning the corner. Together, this continues to shift our portfolio towards higher-margin, higher-growth end markets well aligned with our long-term strategy. We also delivered solid operating income margin expansion this quarter. Underlying gross margin was steady, as strong value pricing offset commodity cost inflation. Reported gross margin was slightly lower due to a short-term impact from recent M&A and higher commodity cost inflation.

However, the M&A impact was favorable to our SG&A ratio and, as a result, largely neutral to our operating income margin. Underlying SG&A productivity improved meaningfully as we continue to scale our unique digital and AI-native capabilities, resulting in strong SG&A leverage year over year. As a result, organic operating income margins expanded by 70 basis points to 16.8%. We expect operating income margin expansion to improve in the second half of the year as pricing accelerates, and we remain very confident in delivering on our 20% operating income margin target by 2027. Looking ahead, the operating environment remains dynamic. But we are ready. We remain focused on growth opportunities while we keep managing a complex global environment.

The conflict in the Middle East is one example. It has driven sharply higher global energy costs, creating additional pressure across the supply chain. And in moments like this, customers turn to us as their partner of choice to ensure secure supply, exceptional service, and solutions that help reduce operating costs. We take decisive actions to absorb cost pressures wherever we can. However, the magnitude of energy cost increases requires additional action to ensure reliable supply, which is why we quickly implemented an energy surcharge. This is an approach we have used successfully before, focused on delivering incremental total value for customers that exceeds the total price increase.

We know it works for our customers, and we know it works for us. As a result, the second quarter will be a short transition period. Commodity costs are expected to increase high single digits starting in the second quarter, and we expect those costs to remain high through the end of the year. Surcharge benefits will build through the quarter following implementation on April 1. With this, higher commodity costs will impact second quarter EPS growth by a few percentage points. However, underlying performance remains on track and within the targeted 12% to 15% range.

Importantly, we expect to already fully offset the dollar impact from higher commodity costs as we exit the second quarter, as pricing continues to accelerate and volumes continue to grow. We expect organic sales to increase 6% to 7% in the second half of the year, helping to stabilize our gross margin during that period. And that is net of OVIVO. Ex-OVIVO, gross margins would be up 70 to 80 basis points in the second half. In other words, we will be fully offsetting the significant rise in commodity costs and its impact on earnings and margins in just a few quarters. As a result, we expect EPS growth to strengthen in Q3 and Q4, resulting in unchanged full-year expectations.

We therefore continue to anticipate adjusted diluted EPS growth of 12% to 15% this year, excluding short-term impact from the pending CoolIT acquisition. As discussed earlier, CoolIT financing and non-cash amortization are expected to have a short-term impact on adjusted EPS in the second half of the year. Following the close, the impact is expected to reduce quarterly EPS by approximately $0.20. Importantly, underlying EPS growth remains unchanged. Beyond the short-term impact 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 accelerate and amortization from the Nalco acquisition rolls off.

What is even better, the impact of our growth engines on Ecolab Inc.'s global performance is accelerating as we scale them. This is especially true for Global High Tech, where AI is driving significant new demand for circular water management and high-performance cooling. By bringing CoolIT and OVIVO together with our Global High Tech water business, we are building a $1.5 billion powerhouse that will help fuel Ecolab Inc.'s next phase of growth and margin expansion. As AI accelerates the buildout of global digital infrastructure, customers are prioritizing uptime, cooling performance, and reliable water management while driving massive increases in compute power with lower energy use and near net-zero water footprint.

Our circular water solutions deliver exactly that—from ultra-pure water to produce the most advanced chips, to 3D Trasar connected water to support power generation, and now direct-to-chip cooling to cool the chips. OVIVO expands our ultra-pure water and end-to-end microelectronics offering in a business expected to grow at a mid-teens rate this year, supported by a strong pipeline tied to fab expansions and increasing water circularity needs. Our pending acquisition of CoolIT builds on this momentum, adding 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.

And here is more good news: CoolIT has shared with us that they are off to a very strong start in 2026, with first quarter sales growing well ahead of the 30%+ we discussed on the acquisition call. Demand for leading liquid cooling technologies continues to rapidly accelerate. Together, these two businesses have the potential to add a couple of points of high-margin organic sales growth to Ecolab Inc.'s total growth as they scale and capture more of this huge and fast-growing high-tech market. In closing, we delivered a strong quarter with accelerating top-line momentum, continued margin expansion, and double-digit EPS growth in a complex environment. Our near-term outlook is strong and consistent. Growth momentum continues to build.

Our portfolio is shifting towards higher-margin, higher-growth markets and is much less exposed to energy cost. Our team is executing at a very high level. We are well positioned to deliver another year of strong performance in 2026. We remain confident in the long-term trajectory we built in. Thank you for your continued trust and your investments in Ecolab Inc. I will now turn it back to Andy for Q&A. This concludes our formal remarks. Operator, would you please begin the question-and-answer period?

Operator: Thank you. We will now open the call for questions. We ask that you please limit yourself to one question so that others will have a chance to participate. If you have additional questions, you may rejoin the Q&A queue. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. If participants are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Analyst: This is Sam Kotswurman on for Tim. Thanks for taking our question here. In your outlook, I think you shared you expected gross margins to stabilize in the second half, which is quicker than I think investors may have been expecting. I imagine that is because of the decision to implement your surcharge pricing pretty quickly when this conflict started. But can you help us understand how this fits into your goal of reaching a 20% operating income margin in 2027, including the impact that the CoolIT system acquisition will have?

Christophe Beck: Thank you, Sam. As mentioned before, I know most of you have these energy costs and oil prices top of mind. For me, that is not the case because we have been here before, and we have learned to master this very well. As a reminder, commodity costs in 2022 were up 50%, and as you remember, margins went further up post-cycle. Here, we are talking 9% up as we see it in Q2, and we are expecting such to stay high till the end of the year at least. I am expecting that six to twelve months.

We are expecting in Q2 to get the dollars back as we exit Q2, and then, as you said, to get gross margin to stabilize in the second half including OVIVO. If you exclude OVIVO, as mentioned, gross margin would be up 70 to 80 basis points, which is our traditional run rate, which is in line with our model. So operating income margin will be even better because SG&A is going to keep improving during that time. When I am looking at the math of pricing and DPC and commodity cost, basically, as you know, 30% of our DPC is roughly impacted by energy cost while growing 9%.

That is the gross impact of inflation out there, while it is 2.5% that we need to compensate, and that is why your 5% to 6% pricing in the second half brings us to a place where margins are stabilized at the minimum, and that is obviously including OVIVO as well. Underlying, we improve even further.

But as mentioned before, my priority is making sure that the organization stays focused on growth, which means perfecting our core businesses and building our new growth engines on High Tech, Life Science, Pest Intelligence, and Digital, which today or tomorrow with CoolIT would represent 20%+ of our company, which is really good news because these are high-growth businesses in very natural growth industries, high margins, and have low to no dependency on energy cost supply as well. If I put it all together, a second half that is going to be so-so to good in gross margin, SG&A that is going to be favorable, means a stronger operating income and EPS delivery.

If I look at 2027, including CoolIT and including as well the roll-off of the Nalco acquisition amortization, my objective for 2027—very early to talk about a year from now—is that we have a really good chance to be within our 5% to 7% top-line growth and, for sure, to get to the 12% to 15% earnings-per-share growth in a pretty solid way.

Operator: The next question is from the line of Manav Patnaik with Barclays. Please proceed with your question.

Analyst: This is Ronen Kennedy on for Manav. Thank you for taking my question. Christophe, could you please help us understand the base macro scenario embedded in the guide? Does it assume a broadly stable demand environment with modest improvement, or does it contemplate an already cautious customer posture given the higher energy cost, geopolitical uncertainty, etc.? And given the backdrop and your comments regarding not necessarily having the higher energy costs and oil prices top of mind, is there a macro sensitivity, or is it just a function of your internal execution levers like pricing, productivity, and mix?

Christophe Beck: It is 90% execution. We live on the same planet as everybody else, obviously, but that is why our assumptions are pretty conservative with this 9% commodity inflation in the quarter and expecting it is going to stay till the end of the year and probably into next year as well. From a demand perspective, we are expecting 1% volume growth in the second half. Q2 is always a little bit harder to define in detail as it is a transition quarter, but I look at the second half and feel good about the 1% growth. This is our assumption; this is not my plan.

We want to accelerate both volume growth and pricing, so in that range of 5% to 6%, as I mentioned before, you end up with 6% to 7% top-line growth for the second half. That is the assumption for pricing and the assumption of 9% on commodity cost as well, and adding this 1% volume. There might be some pluses and minuses in terms of demand around the world, but for me, controlling what we can control, the fact that our growth engines are doing really well—collectively, they are growing 12% at high margins—our new business is at record levels as well. I feel really good about that.

Our core business is in very strong and steady growth performance, and our underperformance areas have stabilized—Paper and Heavy Industries as well. Bring it all together, between our assumptions and controlling what we can control, by focusing on growth and managing performance at the same time, we end up in a place where the second half is a little bit better than we even thought a few months ago. I feel good about where we are going.

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

Ashish Sabdra: Thanks for taking my question. Very strong growth in High Tech, 20%+. You talked about CoolIT also growing really above that 30% growth in Q1. I was wondering if you could also talk about OVIVO—how that is tracking compared to your expectation? If you could talk about the cross-sell opportunities of OVIVO with core offerings in High Tech, and also as you are thinking about cross-selling once the CoolIT acquisition closes? Thanks.

Christophe Beck: Thank you, Ashish. Global High Tech is going to become, most probably, our strongest growth engine in the near to long-term future. Together with Life Sciences, we have two amazing growth engines for the future of our company, really focused on industries that are growth industries, high-margin industries, and very little dependent on any energy impact at the same time. It is a combination of sweet spots that I really like. In High Tech, when you bring everything together—our legacy business, OVIVO, CoolIT—you get to a business of $1.5 billion that is growing 20% to 25% or more at high margin.

We are exactly where we wanted to be strategically: we want to be the partner of the industry to help them produce better outcome chips or data compute with low to no water usage, which is a big issue for most of those industries socially as well around fabs or data centers. This is exactly what we are doing. With OVIVO, in microelectronics, we will move from 5% water recycling to north of 95%. It is absolutely game changing for fabs. Keep in mind, by 2030, 17 new fabs are going to be opened—that is roughly one a month—and OVIVO has the most advanced technology to recycle water at ultra-pure levels.

Something that is really interesting with OVIVO is that the quality of the ultra-pure water has a direct impact on the yield of the chips manufactured, which is game changing for the microelectronics industry—great for chip performance and yields, and at the same time, reducing by 95% the net water usage. On the other hand, CoolIT—you're all familiar with the uproar around data centers and water impact— with our end-to-end technology that we are going to bring to the market, data centers are going to have the water footprint of a large car wash. Humans in the data center use more water than the data center itself—just to showcase a bit of the power of that technology.

It is the first time in my career that I see on both fronts customers coming to us because they know there is not enough capacity to supply everyone, and we have the two best technologies for microelectronics and data centers. Customers want to jump the queue in order to gain share in their own industry. CoolIT, as mentioned, first quarter of the year well north of the 30% that we were planning—it is a very good problem to have. I think it is going to be a great story for all of us, and OVIVO will be in the mid-teens type of growth.

It is a longer-cycle business—building fabs takes more time than building data centers—but the backlog at OVIVO is way higher than what we had thought because of all the reasons I mentioned. I think we bet exactly on the right things that will pay off short and long term.

Operator: Our next question is from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

John McNulty: Maybe just shifting tack to One Ecolab. Sales growth, you called out noticeably above the core. Can you highlight how much better it was than the core? And do you have any ways to further accelerate the program now that you have been running on this program for a couple of years now?

Christophe Beck: Yeah, John. It has been a bit less than two years, but it has been a very good story. The most obvious outcomes are, on one hand, Food & Beverage United, where we are bringing food safety, hygiene, and water together. You see the results—F&B has been very strong, 5% growth in a major multibillion business in an industry that is not growing. Consumer goods are not exactly growing fast at the moment. F&B United has been North America only so far; we are expanding around the world, and that will extend the impact on that very promising business.

Second is our largest customers—our top 35 (top 20 and emerging 15)—those are growing quite a bit faster than the average of the company because of One Ecolab. And last but not least, technology—we are at the forefront of any industry in how we are using it. Our savings in performance have been remarkable while keeping our teams confident that we will focus most of our attention on growth while we drive performance at the same time. Early on the journey, but we see the pace picking up, which is exactly what we wanted in a complex global environment.

Operator: Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter: Christophe, on CoolIT, can you help us with the $0.20 of dilution in Q4? And what is your expectation or forecast for dilution in 2027 from CoolIT? Thank you.

Christophe Beck: Thank you, David. Let me pass it to Scott, and by the way, it is $0.20 per quarter in the second half, as we described in the release and on the acquisition call, and it is going to neutralize in 2027. Scott?

Scott Kirkland: Hey, David. As we talked about a month ago when we had the CoolIT call and as Christophe said, the $0.20 per quarter this year—again, because the close date is not known exactly yet—so the per-quarter impact will depend on the close. Excluding CoolIT this year, we are going to deliver the 12% to 15% as Christophe talked about. Then there is the $0.20 reduction this year. As we think about 2027, the roll-off of the Nalco non-cash amortization really offsets the incremental non-cash amortization from CoolIT. That is why we feel very good next year about staying in that 12% to 15% range from an EPS growth perspective.

Christophe Beck: Which adds to the top line, which is why we did those two investments, by the way. OVIVO and CoolIT are both going better than expected; they are adding a couple of points on the top line as well. It is an acceleration on the top line aiming at this 5% to 7% for the overall company and strengthening the 12% to 15% earnings-per-share growth as we enter next year. These are the objectives that I have and that we build towards. So far, things are going really well on both fronts.

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

Seth Weber: Hi, guys. Good afternoon. Wanted to ask about the Life Sciences business, the strength in the organic growth. Is this the step change that we have been waiting for? I think, Christophe, you mentioned that double digits is in the near-term foreseeable future, but can you help us contextualize how this business is going to react once the new capacity comes online? And what type of operating leverage should we expect to see in the intermediate term in this business? I know you have the 30% number long term, but if you are growing double digits, how much leverage can we see on the margin side there? Thank you.

Christophe Beck: Thank you, Seth. The short answer is yes—this is the performance that we were looking for and have been building towards. I am very pleased with what the team has done internally—getting capacity, quality, systems, platform R&D—everything together to get Life Sciences to the performance we planned. It was 11% in the first quarter. We are building a double-digit growth business all-in—this is where we are and where we will stay—and the idea is to grow even faster with operating income leverage getting close to 30%.

I want to keep investing behind that business, so in the short to mid-term, we might be in the mid-20s as we keep building, like the plant that we are going to open in the second half of the year, which will unleash even more capacity. I have no doubt we will get to 30% because it is all impacted by investments. As a reminder, our bioprocessing business, which is the core of our business, grew north of 100% in the first quarter. This is very encouraging. It is not going to be every quarter the same, but the steady growth will be very strong. We need more capacity—a good problem to have.

We are the fastest-growing business in the Life Sciences industry right now, and I think we will stay that way with a smaller, agile, innovative team. I am very happy with what the Life Sciences team has done.

Operator: Our next question is from the line of Chris Parkinson with Wolfe Research. Please proceed with your question.

Chris Parkinson: Chris here—obviously there is a lot going on in terms of raw materials over the next two quarters. But in terms of your 2027 CMD margin targets, it seems like you are well ahead in certain cases, and in line in others. Could you walk us through the intermediate to longer-term puts and takes of those targets and specifically how you are thinking about any newer dynamics across Institutional markets as well as the impending ramp of Life Sciences? Thank you.

Christophe Beck: Thank you, Chris. I feel really good with where we are heading, but let me have Scott answer that question first, and I will build on it.

Scott Kirkland: Thanks, Chris. As Christophe said, we are very confident in the margin expansion we are delivering and the path to 20%. Over the last few years, we have delivered north of 500 basis points of operating income margin expansion and feel very good about delivering 19% this year—that is 100 basis points year on year—and then there is 100 basis points left to get to 20% next year, which we feel very good about. As Christophe said, the surcharge is going well, Q2 will be a transition quarter, and we feel very good about the second half gross margin.

In addition, as part of that confidence, we talked about the business mix where higher-growth, higher-margin businesses—Global High Tech, Life Sciences, Pest, Digital—are also supporting that confidence in 20% by 2027 and in our longer-term algorithm of 100 to 150 basis points per year through 2027.

Christophe Beck: To build on that, as I have shared many times, I am really focused on beyond the 20%. For me, 20% is a given next year. Institutional Specialty is already north of 20%. Life Sciences, underlying, is north of 20% as well before the investments we are making. Pest Elimination is north of 20%. Most of Water is as well. We know exactly how to get north of 20%. The question is: what is next? I will share with you as soon as I have a clear, solid view, but it is going to be quite a bit north of 20%.

When you think about OVIVO and CoolIT joining us, that is on top, with businesses growing really fast at very good margin. I feel really good about 20% for next year—90% of my focus is on what is next post-20% to keep growing company margins.

Operator: Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Vincent Andrews: I wanted to talk more about Global Water and the margins. In the quarter, there were three dynamics going on: the OVIVO acquisition; you called out some raw material inflation, which I suspect hit you pretty hard in March, which you obviously could not price right away for; and then the stabilization of the headwind of the softer sales in Heavy Water and Paper. But you called out an upper single-digit operating income growth decline, which I would have thought would have helped the percentage margin. Maybe you could unpack the margin performance in Global Water, the decline, and how those three different buckets contributed to it, and how we should think about it over the next couple of quarters?

Thank you.

Christophe Beck: I will pass it to Scott, but generally here overall Water was flat in terms of operating income growth—down roughly 0.5% in Q1. If you exclude Paper and Heavy Water, Water has been growing top line mid-single digits and operating income high single digits. Generally, Water is doing really well, excluding Paper and Heavy. We are working on these two, but honestly most of my focus is on the growth part of Water. The combination of Most of Water getting better through higher-growth, higher-margin businesses like Global High Tech will get us to a much better place very soon, and at the same time, getting the underperformance in Paper and Heavy Water stabilized and improving.

We have reached the bottom for these two businesses. The combination of both will lead to good results for the second half in Water. I am not worried in Water. Scott, anything you would like to add?

Scott Kirkland: The only thing I would mention as well is on OVIVO. As we talked about for total company, there is a geographic mix between gross margin and SG&A, but not a material impact to operating income margin. There is a little bit of that geography in the Water business as well. As Christophe said, we feel good about the business; the operating income growth excluding Paper and Heavy is very good, and we expect Water operating income to aggressively accelerate throughout the year.

Operator: Our next question is from the line of Patrick Cunningham with Citibank. Please proceed with your question.

Patrick Cunningham: The Specialty division within I&S—pretty impressive organic growth. In an environment where you see weaker foot traffic and a consumer highly sensitive to wage inflation, is most of your growth coming from deeper penetration of digital suites and productivity tools versus traditional chemical volume at this point?

Christophe Beck: Patrick, the short answer is yes. It is mostly focused on solutions that help customers get the job done at a lower cost because they use less labor and fewer natural resources—energy and water—and it is working very well. When we think about the One Ecolab approach, we have a great example in F&B United, and we have a great example in Specialty. It is a business of standard at scale and performance at scale. The way the team is approaching large quick-serve and fast-food companies is to help them understand where the best performance is—what is the best restaurant in terms of guest satisfaction, cost, and environmental impact—and to scale those solutions across the system around the world.

Those customers are used to and welcome that approach. They are mostly franchised, so we have the opportunity to influence every unit anywhere around the world the same way. This is a huge upside for those customers, and you see it in the results—growing 9% at the type of margins we have in this business is quite remarkable. Last, the beauty of the Institutional Specialty business is that wherever the consumer goes based on economic development, we will capture them somewhere. It can be a luxury restaurant, mid-scale, or quick-serve—we are there. Margins are very similar. We are extremely well positioned wherever the consumer eats because people are going to keep eating.

If they do not go out, they buy from food retail, which is doing really well, explaining why Institutional Specialty is such a steady, stable, strong business with high margin: it is a great offering for customers to drive their own performance around the world, and for us, it drives huge stability and consistency.

Operator: Our next question is from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Shlomo Rosenbaum: Christophe, I was hoping to get a little more detail on what you meant that Paper and the basic industries are turning the corner. Is the growth getting better? Is it that you have not seen any more paper mills closing? What is going on with the metals side of it? Are we going to see those businesses get to flat this year? Give us a little color because the other parts of the business are already running in the range you want, and these are the ones pulling you down below that range.

Christophe Beck: The whole company—if you exclude these two—is growing 5%+ top line, so we are in a very good place. Water is also in that range with good volume growth as well. But like any company, there are a couple of kids that need special care because they are in older industries that are growing less fast. The short answer is they have stabilized. We have not been impacted by closures anymore in the last three to six months, which is hard to mitigate because when a factory closes, there is not much you can do. We see stabilization. If it gets slightly positive in the second half, we will be fine.

This is what the team is heading toward; I feel pretty good we will get there. To be very honest, this is not where I spend my time. I spend my time on the 80% of the company that is doing extremely well, building those new engines at the same time. I want to be absolutely growth-focused, driving operating income leverage while we manage those businesses that are struggling a bit more. As I look at the second half, I feel these two are going to get to more positive territory. Also, they have good margins—not great—but pretty good. They are not destroying value for the company, which is most important.

So 80% doing great, north of 5% top line without these two. With these two doing better, it will help the overall performance continue in the second half and in 2027.

Operator: The next question is from the line of John Roberts with Mizuho. Please proceed with your question.

John Roberts: Thank you. Is your inflation higher on raw materials, or is it higher on your CapEx? Because you purchase a lot of equipment that has metals and plastics contained in it.

Christophe Beck: John, it is mostly on the commodity raw material side of things. Logistics as well, because logistics costs are going up—shortage of drivers, fuel costs—traditional stuff we are used to. On what you call CapEx, which is more technology equipment, there is some inflation, but nothing dramatic. It is not energy-related. Nothing to see there.

Operator: Next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Jeffrey John Zekauskas: Thanks very much. Christophe, you said that CoolIT is growing a lot faster than 30%. Is it growing 50% or 70% or 60%—can you quantify that? And secondly, when you think about competing in the data center markets in direct-to-chip technology, does the competition emphasize water treatment chemistry, or is their direction more equipment-based? How do you see your competitive status and offering water treatment technology in the direct-to-chip area?

Christophe Beck: Jeff, great question. Actually, the true growth—you have not even mentioned it in the numbers you listed; it is even higher. To be honest, it is close to the triple-digit range, which is pretty cool. But I want to also mention we have not closed that acquisition—just to be clear—we need the regulatory approvals. It feels good so far that it should happen sometime in the third quarter, depending on us. Exceptional performance from those guys. I have met many customers—customers want what CoolIT does more than anything. You are familiar with a few others out there; they are doing well—one starting with a “V” is performing nicely and has a good backlog.

This is the case for CoolIT as well. Generally, great growth trajectory. It is not going to be a straight line to heaven forever; we will see how that goes. The biggest challenge we have is to build enough capacity to feed the growth—great problem to have. First time we see customers trying to jump the line to get services from what CoolIT can provide. On the second part of your question: as you know, I do not really care whether products are industry-based or technology-based or service-based or digital-based. What we are offering to data centers is ultimately higher uptime at lower water usage and better power performance. This is the outcome we promise.

The fact that we can go from low to zero net water usage is game changing. You are familiar with the uproar around data centers and water usage; what we do solves that problem—this is a big deal for the hyperscalers—while enabling more advanced chips that require direct-to-chip cooling. We are exploring various models; they are all recurring in a typical Ecolab Inc. manner. That is the way we scope the business as we get together with our services, 3D Trasar optimization of water and power cooling, coolant—which is by design a recurring product—and all the technology that comes with it.

Every time a new generation of chips comes in, you change systems for direct-to-chip cooling: new cold plates, new coolant, and as power demands go up, you change the CDUs as well. It is inherently a recurring business.

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

Matthew DeYoe: Christophe, thank you, and thanks for addressing that. One of the concerns we hear from investors on the CoolIT deal is it does not feel like a consumables business. Two to backfill on this. One, the $0.20 per-share dilution per quarter—is that math based on the 30% sales growth that you had been laying out there, or is that reflective of the near 100% sales growth that it is currently looking at, or does that matter over the near term? And then how R&D-intensive do you expect CoolIT to be? Presumably, the technology changeover could be pretty rapid, and cold plates and things like that are not really a core competency of Ecolab Inc.

I know you have 3D Trasar, but maybe not so much this architecture and infrastructure stuff.

Christophe Beck: A few things, Matt, and then I will pass it to Scott. Generally, the base case is the 30%+ growth we talked about—that is the base assumption and what we knew back then. Anything better will help us, obviously. On R&D and knowledge, I would like to remind you it is a water business because direct-to-chip cooling—the next technology—is to get towards water. Even the coolants we offer today are not water-based, but water-based are the best heat transfer coolant we can imagine. Then you get all the challenges to work with water: scaling, fouling, corrosion, especially at lukewarm temperatures for the latest chips.

This is a business and technology we have mastered for a very long time—mastering water at higher temperatures, mastering heat transfer. We are the leading cooling company. For 80 years, we know thermal management really well. We have a lot of R&D here. CoolIT is super strong in R&D as well. Add the 3D Trasar technology that we will bring together—CoolIT plus 3D Trasar technology becomes the new Ecolab Inc. offering for customers the moment we close. It is going to be game changing for customers. I feel really good in terms of R&D and expertise. It is a typical one-plus-one-equals-three, which is exactly where we wanted to be.

It is a water business, removing heat, which is what we have done for 80 years in other industries and now in this new industry. Scott, do you want to add anything on the EPS impact?

Scott Kirkland: One thing I would say, Matt, on EPS is we think this is a very high-growth, high-margin business, and that 30% sales growth is over the next few to several years. In the earlier years, with that averaging, it will grow faster. We like what we see; we see growth accelerating. I still think that $0.20 is a good base case to have once we close, per quarter, and then we will adjust from there once we get hold of the asset for the second half of this year. It gets neutralized in 2027 because of the Nalco amortization rolling off at the same time—almost perfect timing.

Operator: The next question is from the line of Mike Harrison with Seaport Research. Please proceed with your question.

Mike Harrison: Hi. Good afternoon. Hoping I could ask a question on the Pest business. In terms of the digital and smart connected traps that you are rolling out, can you give us a sense of what percentage of customer locations are using those new traps? Maybe give a little more color on the timing of that rollout, and when you might expect to see margin benefits as you get better efficiency from your sales and service force with those new traps.

Christophe Beck: Thanks for that question, Mike. I love that business, and I love it even more moving towards Pest Intelligence. We have roughly 700 thousand smart devices implemented so far. As you know, it has been driven by the largest retailer in the world with whom we developed that proposition. It is working extremely well—resulting in close to 99% pest-free environments with much better service because 95% of the time we were spending in the past checking empty traps is now transformed into value-add, which means selling more new accounts. The plan we have is that in the next three to four years, the whole Pest Elimination business is going to be a Pest Intelligence business.

It is not a straight line—we have to make sure everything works well. We are going to reach probably 1 million connected devices by the end of this year and keep ramping up in the next few years. That will impact growth, retention, and performance for our customers, and yes, it will impact our margins. So far, it is working really well. We have a great team and customers are thrilled.

Operator: Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander: Afternoon. As you think about the surcharges and the pricing traction you have, and how that has changed over the years, is your percentage value capture across your portfolio increasing, or is it a matter of delivering more value while capturing the same percentage? And as you think about those dynamics, are the newer businesses where you prefer to focus your time right now—do they have a higher value capture level relative to the value created for the customer than some of the older legacy Ecolab Inc. businesses?

Christophe Beck: Laurence, it is something we perfected over the past four to five years. We always do it in a way that is beneficial to our customers. We make sure that the total value delivered to our customers is north of what we are capturing in price. Not every business is created equal—biotech manufacturer versus Pest Intelligence in a retailer versus Food & Beverage for a brewery—it is very different, and we do it thoughtfully. Over the last five years, we have not lost customers doing it. Margins went up, retention remained strong. When we talk about the surcharge, it provides a framework for our teams and our customers to understand where we are going.

In some places around the world, you have more; in others, less. In some businesses, it goes straight to structural pricing. It is working really well. As I said earlier, this is something we master really well. I am not worried about it. This is an execution play. Our teams are doing it the right way, and we are going to be fine. We will keep sharing our progress, but so far it is going really well.

Operator: Our next question is from the line of Andy Wittmann with Baird. Please proceed with your question.

Andy Wittmann: Great. Thanks for taking my question. It seems like the achievement of the energy surcharges will be important for the second half ramp. Given that, Christophe, as you look at the total customers that you expect to approach with the energy surcharge versus how many you have approached today and who are aware this is coming, can you help us understand what percentage have been approached and are aware, and how many are still to go for the balance of the year to achieve your ultimate target?

Christophe Beck: Thank you, Andy. Everyone is impacted—no exception. It is 100% of our customers, 100% of our businesses, and 100% of the countries we operate in. It is not an easy task—we have operations in 172 countries and 40 different industries—but it is the third time we are doing it. We started April 1, so it is a few weeks back; it is progressing very well. The mechanics are there, the systems are there, the tracking is there. I know every week where we are on pricing overall. That is why I feel good with the progress. The objective is to be mostly done by late Q2, early Q3, while we keep building on structural price.

Ultimately, all the surcharge is going to be converted to structural as quickly as we can, and in some businesses, it goes straight to structural—Institutional being one of them. The mechanics are there; we can go faster and with more confidence than in the past because, maybe unfortunately, we have become really good at it.

Operator: Our next question is from the line of Jason Haas with Wells Fargo. Please proceed with your question.

Jason Haas: Was curious if the conflict in the Middle East has had any impact on any of your end markets in terms of hitting your customers' confidence in any segment? Thanks.

Christophe Beck: Yes, but the Middle East is a pretty small business for us—it is a few hundred million. It is critical for the customers there, and that is why we take it very seriously—do not let any customer down. There is no customer location that we have left; we are there helping them, especially in difficult times. Some units were closed for reasons we are familiar with. It is immaterial, and we want to do things the right way for our customers and teams. Our customers trust us to be with them. Most importantly, our competition has a very hard time supplying and serving those customers—great opportunity for us to gain share. It might impact slightly our volume growth in Q2.

Honestly, I do not care because it will help us in the second half as we build new shares in the Middle East. Q2 is a transition quarter, but customers love that we share in the toughest times. It is working well. I am proud of what the team is doing there, and it always pays back after those phases are behind us.

Operator: The next question is from the line of Josh Spector with UBS. Please proceed with your question.

Josh Spector: Good afternoon. Thanks for squeezing me in. I unfortunately am going to continue to ask on the price-cost side. It is a little odd to me that you are talking about high single-digit raw inflation in 2Q—that is coming quicker than I would have anticipated—and then you are not really saying that it is going to increase through the rest of the year, which most other companies are expecting. What is different or unique there? And, two, your ability to ratchet up that surcharge automatically if inflation goes to mid-teens from the high single digits—is that baked in, or is that something that has to be retriggered by you? Thanks.

Christophe Beck: We buy a lot of products—over 10 thousand—so the basket is very broad and pretty stable. The increase started in February, impacting the second quarter because of inventory timing. We expect 8% to 9% commodity cost increase in the second quarter. I am not thinking it is going down. I think it is going to be flat to up, to your point. We are accounting for that. We can manage it in how we buy, how we save cost, and most importantly how we price. It is impacting about a third of our commodities—not everything. We are pretty well insulated. In the extreme case where things change completely, we will go to the next level of energy surcharge.

We did it in the past; we know exactly how to do it. Our customers are familiar with those discussions. This is not something I spend a lot of time on. Our teams master it extremely well; they have had the opportunity to do it a few times with our customers. Do not forget that we are providing more cost-savings value to our customers' operations than what we are asking them to pay in price. That is why surcharges get into structural price and why customers stay with us. This is not high on my priority list because I know it works, customers are familiar with it, and we will master it whatever happens in the market.

Eighty percent of my focus is to grow the company while we manage that and many other things happening in the world at the same time—this is just one of them.

Operator: The next question is from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Kevin McCarthy: Yes, thank you for taking my question, and good afternoon. Christophe, I would appreciate your updated thoughts on the subject of SG&A leverage. It looks like you were able to decrease your ratio of SG&A to sales by 130 basis points in March. Is that a reasonable trajectory to think about for the next several quarters? Maybe you could provide some updated thoughts on what you are doing productivity-wise and the effect of acquisitions on that ratio as we model the company going forward.

Christophe Beck: Thank you, Kevin. I will pass it to Scott. As I said before, the whole price/surcharge/delivered product cost topic is not high on my agenda, and SG&A leverage is not high on my agenda either. Not because it does not matter, but because it is very well mastered. We know how to manage price and DPC. We know how to manage SG&A through technology. We are clearly at the forefront of AI in our organization, and it is delivering great results. These two things are well mastered while we focus on growth. Scott, color on SG&A?

Scott Kirkland: Thanks, Kevin. Really good productivity on SG&A in Q1—down 130 basis points. We are getting the benefit of One Ecolab, and we are launching digital and AI programs. There is some shift, as I mentioned before, between gross margin and SG&A from M&A—primarily OVIVO. In the first quarter, that accounted for 20 to 30 basis points, but still driving 100 basis points underlying, which is above our long-term target for leverage of 25 to 50 basis points.

On a full-year basis, I expect SG&A leverage to be around 80 basis points, including some benefit from OVIVO because of the geography between gross margin and SG&A, but the underlying is above our long-term 25 to 50 basis point target because of fast sales growth and great productivity. Over the long term, we still feel very good about that 25 to 50 basis points.

Operator: Our final question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.

Scott Schneeberger: I am going to touch on Light Water. You saw some solid sales in the first quarter, expecting that again in the second quarter. Do you expect transportation and green energy, which were cited, to remain the primary drivers going forward? What is driving those verticals? Is it just a few large projects, or is it a structural formation that is being created here?

Christophe Beck: Light Water is doing quite well. Transportation is one of them. What we do for them is ultimately better paint while using much less water and creating much less waste. It is a great offering for the most advanced car manufacturers around the world. They like the idea of better products at a lower impact and lower cost. This is something we have built over the last two years. It is working really well with great technology. The Korean manufacturers in solar panels—totally different industry but interesting—are close to semiconductor-type manufacturing. This is something we mastered quite well in some places around the world, and it is growing nicely.

The last part in Light Water is what we call Institutional Water—hotels and public buildings, office buildings—air conditioning water management, Legionnaires’ disease management—and those are working well. We used to be more in that business going one unit by one unit. Now we are working with large real estate companies around the world and facility management companies because they like a standard performance implemented anywhere around the world that drives cost down and environmental impact down at the same time. I like what I am seeing in Light Water; performance keeps getting better and is going to keep improving as we move forward into the year, which is a really good story.

Since it was the last question, just to wrap up and recap a few things: we had a very good start of the year with strong momentum driven by what we like the most, which is growth. That is exactly where we want to be in a world that is quite complicated. Our new engines are doing extremely well—High Tech and Life Sciences are driving growth dramatically, in good ways, at high margin, with very low impact from energy costs. I have full confidence in our team in managing margins—both the price/DPC equation and SG&A. These are not priorities to me as the CEO because I can count on the team to deliver as they always have.

I feel really good that 2026 is going to be a great year for the company—both top line and bottom line. Looking ahead, the new engines we have with CoolIT and OVIVO—top line and bottom line performance—are putting us in a very unique position to serve this industry; the same with Life Sciences. That is why I think 2027 is going to be an even better year for us—a strong 2026 and an even stronger 2027—which is what I have been committing to you for quite a while. Every single year, we want to make progress toward that ambition, and we are getting there as we enter next year.

I feel really good and even better about where we are going. Thank you so much for attending the call today, and I will pass it back to Andy.

Andy Hedberg: Great. Thanks, Christophe. That wraps up our first quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thanks for your time and participation. Hope everyone has a great rest of your day.

Operator: This concludes today's conference. You may disconnect your lines at this time. Have a wonderful day.

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