Ecolab Inc. (ECL) Q2 2026 Earnings Report, Transcript and Summary

Greetings, and welcome to the Ecolab Second Quarter 2026 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andrew Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Mr. Hedberg. You may begin.

Thank you, and hello, everyone. Welcome to Ecolab's second quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO and Scott D. Kirkland, our CFO. A discussion of our results along with our earnings release and the slides referencing the quarter results are available on Ecolab's website at ecolab.com/investor. Take a moment to read the cautionary statements in these materials, which state that this teleconference, associated supplemental materials include estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the risk factors section in our most recent Form 10-K and in our posted material. We also refer you to the supplemental diluted earnings per share information in the release. With that, I would like to turn the call over to Christophe Beck for his comments.

Thank you so much, Andrew, and welcome to everyone joining us today. Well, we delivered another strong quarter with accelerating performance, across our business, Adjusted EPS grew 11% driven by accelerating organic sales growth of 5%. Stable organic gross margin and continued strong productivity. This performance reflects the strength of our growth model and most importantly, the power of our global team to deliver for our customers every day. In any environment. Last quarter, we talked about the second quarter being a short transition period. We entered the quarter with commodity costs increasing and the expectation that they would remain high through the year. We started the quarter with very little surcharge pricing, but expected benefits from the surcharge would progressively build through the quarter. that is exactly what happened. We moved quickly to implement a global energy surcharge backed by incremental customer value as we always do. As a result, pricing strengthened to 4% in the second quarter, and we expect the second half to be in our targeted 5% to 6% range. It is allowing us to offset the impact of rising commodity costs on our margins, and EPS this year. Our global team executed extremely well through this transition period. In just one quarter, we absorbed increasing commodity costs continued to win new business, grew volumes stabilized organic gross margin and delivered double-digit EPS growth. Importantly, momentum continues to strengthen across the portfolio. Volumes grew 1% despite a nearly 1% headwind from customer operations disrupted by the conflict in the Middle East. Excluding this, underlying volume growth accelerated from the first quarter. Growth in our core businesses. Strengthened. With food and beverage accelerating to 7% growth. Institutional & Specialty growing 4%, and growth in light water improving. All supported by strong new business from our One Ecolab growth initiative. At the same time, performance in heavy water and paper improved. Our growth engines continue to show strong momentum, delivering strong double-digit growth. Life sciences accelerated to 15% growth. Driven by very strong share gains in bioprocessing and pharma and personal care, and improved performance in purification. We have been investing in talent, capabilities, capacity, and breakthrough innovation for years in this high-growth business. And those investments now are clearly paying off. In Purolite bioprocessing, we continue to take market share. With the innovative resin technologies we have launched over the last few years. As a result, our business continues to rapidly scale as customers move their drugs into commercial manufacturing. Life sciences margin performance was exceptional this quarter. Delivering a mid-20% operating income margin giving a strong indication of the high-margin profile this business has. During the quarter, we benefited from very strong sales growth and a spike in bioprocessing, while underlying operating income margin is expected to remain in the mid-20s reported margin in the third quarter is expected to be in the high-teens. As we continue to invest in these high-growth, high-margin business. Ecolab Digital grew 27%, reflecting strong adoption of software and connected solutions that help customers optimize performance in real-time. Recent launches of solutions like DishIQ, AquaIQ, KitchenIQ, and CIPIQ are performing very well and are expected to continue to help drive long-term growth of more than 20% for Ecolab Digital. Pest Elimination also delivered a strong quarter with 7% growth. Driven by share gains from our One Ecolab growth initiative We have deployed nearly 800,000 connected devices at customer sites and continue to expect to reach 1 million connected devices by year-end. We see unique insights from pest intelligence, we aim to deliver nearly 99% pest-free environments for customers on the platform. And growth in global high-tech accelerated to 29%, reflecting very strong demand across both microelectronics and data centers. Driven by the rapid buildout of AI infrastructure. We further strengthened our position in this market with the acquisition of CoolIT Systems. Which closed on July 2. CoolIT is off to a very strong start. With year-to-date sales growth prior to acquisition of more than 100%. With this addition, global high-tech is now approaching $1.5 billion in sales, annualized sales, up from approximately $150 million in 2021. This reflects the strength of our strategy and sustained investments to capture the long-term opportunity in advanced computing. At the heart of AI is water. Water is required to produce, to power, and to cool chips. We are now the only company integrated solutions across that value chain. And with all the talks around data centers and AI infrastructure, the world truly needs companies that can help build data centers the right way. We are one of them and we are committed to lead that journey. Together with Ovivo and CoolIT, our global high-tech platform is expected to grow more than 25% annually. Reaching $4 billion in sales by 2030, with an operating income margin of 25%. These targets represent an increase from our previous expectations of more than 20% growth and 20% OI margin reflecting the acceleration we are seeing in this business. global high-tech is now our largest growth engine, On a pro forma basis, including Ovivo and CoolIT, our sales growth would have been approximately 7% in the second quarter. Demonstrating already the two points of incremental growth these businesses will add to the overall company. The rapid growth of global high-tech and our other growth engines continues to shift Ecolab's portfolio to higher growth higher margin businesses. In 2025, our core businesses represented about 70% of our sales growing low-single digits with OI margin just above 20%. Our growth engines were approximately 15% of sales. Growing low-double digits with OI margins of nearly 20%. Our underperforming businesses represented about 15% of sales with low-single digit sales declines and OI margins in the mid-teens. In 2026, performance has strengthened across all three groups. Our core businesses are now growing mid-single-digits. With OI margins getting further above 20%. Our growth engines are growing in the low teens, with OI margin of nearly 20% as we continue to invest heavily behind these attractive high-growth opportunities. At the same time, our underperforming businesses have stabilized while maintaining operating income margins in the mid-teens. What is most encouraging is that all parts of the portfolio are moving in the right direction. Our core is performing well, our growth engines are scaling faster, and our underperforming businesses are improving. As a result, the mix of our business continues to shift toward faster-growing higher margin markets. Looking ahead to 2027, we expect this trend to accelerate further. Our core businesses should continue to deliver strong performance while our growth engines which are expected to approach 25% of Ecolab sales continue to compound at double-digit rates and play an increasingly important role in driving growth and margin expansion for Ecolab. That future is already taking shape today. We are preparing to introduce a breakthrough innovation at Supercomputing. A new integrated end-to-end cooling platform combining CoolIT's liquid cooling technologies with Ecolab's 3D TRASAR digital capabilities to optimize water, power, and compute performance at scale. We will be hosting an Investor Day at Supercomputing Chicago on November 17. Where we will share more about the growth opportunities ahead and how they will strengthen our long-term performance. As we move into the 5% to 6% range as energy surcharge benefits are fully realized. Volumes are expected to continue to grow as strong new business wins more than offset ongoing disruption in the Middle East. As a result, we expect organic sales growth of 6% to 7% helping drive an adjusted operating income margin of 19% in the second half keeping us on track to deliver our 20% OI margin next year. With this momentum, we are increasing our outlook for 2026. Where we now expect EPS in the range of $8.05 to $8.25, rising 7% to 10% versus last year. This range reflects strong underlying performance and a short-term impact from noncash amortization and financing costs from the CoolIT acquisition. Beyond this year, we continue to expect adjusted EPS growth, including CoolIT, to accelerate to our strong 12% to 15% growth trajectory. In closing, our business continues to strengthen. With the core improving and growth engine scaling. With this, our portfolio is shifting faster toward higher growth, higher margin end markets. Just as importantly, our team continues to execute at a very high level to deliver for our customers every single day. We have never been better positioned to deliver long-term organic sales growth of 5% to 7%. Expand operating income margins well beyond 20% and continue strengthening our EPS growth algorithm. So thank you for your continued trust and investment in Ecolab. I will now turn it back to Andy for Q&A.

Thanks, Christophe. That wraps up our formal remarks. Operator, please begin the question-and-answer period?

Thank you. We will now be conducting a question-and-answer session. We ask that you please limit yourself to one question so that others will have a chance to participate. If you have additional questions, please rejoin the question-and-answer queue. If you would like to ask a question, please press *1 on your telephone keypad. the star key. Our first question will come from the line of Timothy Michael Mulrooney with William Blair. Please proceed with your question.

Yes. Thanks for taking my question. And thank you for, Christophe, for reaffirming the 20% operating margin target that you have for 2027. I was there in my model, but then when you acquired CoolIT, there is so much extra amortization there that I actually came off that margin target. But now you reaffirmed it today. So can you just help bridge that gap for us? Because there is a lot of extra incremental amortization coming through on the CoolIT side. So I just want to make sure I heard you right. You are reaffirming the 20% operating margin target for 2027. And can you help us understand how you plan to offset those incremental expenses flowing through. Thank you.

Yes, Timothy. You understood that right. So we have been very consistent, by the way, on making sure that we stay on our commitment of delivering 20% operating income in 2027. So that remains unchanged. I will ask as well, Scott, to add some color, to it in a second. But before we get there, our expectation and everything that we are doing is ultimately to drive, our commitment of 5% to 7% organic sales growth to 20% OI margin, and a strong 12% to 15% earnings per share growth. And ultimately, our job is to make sure that everything we are doing not only leads us to that, but leads us to beyond that. And that is especially true for the 20% OI in 2027. And I spent together with the team a lot of time as well to think how do we get beyond the 20% after 2027. And, the vast majority of our businesses today are already either close to 20% or beyond 20%. So we know well how to do that. The second half of this year, adjusted OI margin, so will be at 19%, as well. So all leading nice towards the 2027 story. it is going to be important to keep in mind that the first half and second half of 2027 will be a tale of two stories because of the lapping, obviously, of the CoolIT acquisition that closed early July, with the 12 months ending mid-next year, and then the second half of 2027. In other words, the second half of 2027 will be, even stronger. But as mentioned before, so my objective is really not only to deliver on those commitments, beyond 2026, but really making sure that we get, beyond the 20% that we can strengthen this 5% to 7% on the organic, and also, on the earnings per share, the 12% to 15% well, I guess that is going to get stronger as well over time. But, Scott, do you want to add any color to that?

The only thing, Timothy, that I would add is that next year, as you might remember, the Nalco amortization falls off, and so that is also as part of when you said how do you reconcile that, that we do get the benefit of, annualizing on the CoolIT amortization but offset by the Nalco amortization. Thank you.

Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your questions.

Thank you. Good afternoon. Christophe, I was just hoping within high-tech, could you just help us with the current mix of the business between data centers and microelectronics? so however you want to break it out and kind of, just some more color on, you know, your confidence on getting to that $4 billion target, I guess.

Yeah. Hi, Manav. So high level, obviously, since we do not go much in detail of the size of the business right now, but it is roughly $1.5 billion annualized sales. Yeah, obviously. So right now, when you have our legacy business, microelectronics and data centers within legacy, and then CoolIT and then Ovivo, which is in microelectronics. And each of them is roughly $500 million today of annualized sales, and that is how you get to the $1.5 billion. And for perspective, we were $150 million just a few years back. So, this is a platform that we have built over the last few years extremely rapidly. And the very good news is that all three elements are growing so very nicely. You have heard about the legacy business growing 29%. Ovivo expected to deliver some mid-teens for this year and CoolIT being north of 100%. So if you add it all up, you get to a very good place. So our trajectory of 25% growth for the next few years leads you to the $4 billion by 2030 and I feel quite confident that is very realistic. Thank you.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Thanks for taking my question. Just wanted to follow-up on the global high-tech So you mentioned the integrated end-to-end cooling platform that you plan to launch. at Supercomputing. I was just wondering if you could help or discuss how that can help drive more cross selling opportunity across all the different global high-tech offerings that you have. Thanks.

Thank you, Ashish. Well, generally, as we mentioned, when we did the acquisition of CoolIT, adding CoolIT to the data center multiplies between 3x and 5x, you the sales opportunity that we have compared to legacy. Ecolab in a data center. So much bigger obviously, than what we had before. So that is the penetration of solutions opportunity. But the most interesting part is when you put all the pieces together, from CDU integrating 3D TRASAR, our control technology to a 3D TRASAR coolant, to cold plate that are, integrated in that system and ultimately, an end-to-end optimization system to reduce the power used to cool while using zero net incremental water because everything is within the system. Is the biggest upside of this for our customers. And with everything that is happening right now in the AI infrastructure and data center pushback in the communities, Well, as mentioned, the world needs a company that is going to help this industry scale fast, while doing it the right way both in terms of cost performance and in terms of impact on communities, and natural resources. So I think that we are very uniquely placed here to do that, and it took us just two weeks, basically to get the 3D TRASAR technology embedded in the next generation of the CDU, so for CoolIT, it is a good example of how the two teams have come together. So it is going to be really good to, share with all of you and customers, obviously, Supercomputing how everything comes together. And last thing I would say, we really look at it, from an ecosystem perspective. We would not be owning everything. We do not want to get into a lot of hardware, obviously, out there But we want to be the platform that ultimately all the other elements have come around in order to truly maximize cooling, minimize the water and energy usage, and maximize ultimately the uptime and performance of the data center as well. So a typical Ecolab story with outcome of the operations is the main objective we have. Thank you.

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

Yeah. Good afternoon. Thanks for taking my question, and congrats on some really solid results. Just wanted to ask or dig a little bit deeper on the life sciences side of the business. I mean, clearly, there is a lot of interest on the bioprocessing side. We have seen you know, a number of drugs kind of hitting the market or starting to hit the market. At the same time, like, you have outpaced kind of the other major competitor in the space by a decent amount. So I guess, can you help us to think about how much of it is just the end market growth, how much of it is share gain, and how much of it maybe just some of the capacity unlock that you, that you have been working on as well?

Thank you, John. Very pleased with the life sciences team. it is been a few years in the making. As you know, we started that business in 2017. It was less than $100 million and today, it is close to a billion, so 10x. The size of where it was back then. We made the acquisition of Purolite in 2021, and the COVID implications on the market have been a little bit difficult to manage for the whole industry by the way. But when I look back, and think about what the team has done in how to build capacity, capabilities, relationship with customers, trust, that we can really be, the best partner in the future. Well, I am super pleased with what the team has done. We were not on the trajectory we had initially planned, as you know, since the acquisition of Purolite. But we have always been growing when the rest of the industry was not. So not in line with what we had expected. But better than competition. The very good news right now, John, is that well, we are only outperforming, the market and competition, but we are back in line, with our returns, expectations that we had set, early in that process. So really happy with the trajectory, the returns, the work that is been done, by the team. And ultimately, the most important element is to listen to our customers, that are really pleased with the agility of the team, the innovation strength of this team, being very entrepreneurial, and to be as close to them for what they need short-term in order to deliver the life savings, drugs, that they are trying to bring, into the market. We knew we would not become in the short or medium term, so the largest life science player in the industry. But our objective to be the best performing and the best partner of our customers I guess that we are pretty close to that ambition right now. So, early, but good news for the future. Thank you.

Our next question comes from the line of David Begleiter with Deutsche Bank.

Thank you. Good afternoon. Christophe, on CoolIT, the business was acquired, you mentioned perhaps a 30% type annual growth rate to model going forward. Given the 100%-plus growth rate in the first half of the year, should we update our models to a higher growth rate over the next few years here for CoolIT?

So I really like this acquisition; that is one of those, one of many, where, obviously, before you embark on such a journey I had my set of sleepless nights. And when I look back, well, I am really saying, I am glad we did it. Because this is the best technology in the market. it is the best performing business, as well. in directed-chip liquid cooling, their technology, and I have been so impressed. With the team that I have met at CoolIT and how these two teams are coming together. Now, David, it is been two or three weeks, that we have been together. it is very early. And we are getting to know each other starting to work together with customers. So it is so early that we are not, in a position to change anything. But if I look at the trajectories where they are better than what we had talked. that is the good news. But when we did our plans, you know, for the next four, five, 10 years, a lot can happen, and that is why we have picked a trajectory of 30%, which I think is the right one. True that the first half of this year for CoolIT has been way better than that. Acceptance by customers of the latest technologies of CoolIT is extremely good and even better, when we come together with Ecolab. So that is an even better sign, And that is the reason why we would like to be together with you in November at Supercomputing. is basically we will have four or five months of working together with CoolIT. we will better understand how it works, what is to like, what we need to work on, what is the new type of trajectory. So too early to change, right now, but give us the time the next few months to really sort of get the teams together, making it work really well together with the customers And in November, we will sit together to share with you how do we see 2027, and the years beyond. Thank you.

Our next question comes from the line of Christopher Parkinson with Wolfe Research.

Christophe, if I wanted to just circle back to life Sciences, just given the trajectory there and all the work you have been doing with your team in King of Prussia, Just a few things that I would like to break down. First of all, just kind of how you see the trajectory of some of the biopharma applications. Versus some of the purification and resins You know, how much this is attributable to basically the, you know, the beginning of the ramps in both King of Prussia and Wales. And then also, correct me if I am wrong, but a lot of that business initially started off in larger scale in Europe. And it seems like you have been making a lot of investments and leeway with partners in the United States. So, I would love to kind of just drill down on just anything that you can do to basically increase the probability of street sustaining this type of growth and trajectory, especially relative to the, you know, 20% margin targets? Thank you.

So it is been a few quarters now that life science has been on the high end of the expected performance, which is a very good sign. And I have been very open, so with you, that the early years of that journey, we were growing, growing faster, than the industry but we were not growing as fast as we were expecting or I was expecting. But that is time behind us, and it gave us the opportunity to build those capabilities and these capacities that we needed around the world. We just opened our latest, 1 of the biggest plants in China, a few weeks ago. that is going to give us a big footprint in a market that is going really well for the life science industry, and for us, by the way, expanding as well. Around Asia. In Europe, the core, of Purolite, so, came from Europe as well, both Eastern Europe and Wales, as you mentioned, for bioprocessing. And capacity as well, in North America that we have kept building and that we will keep, building. it is always been part of our strategy is to be on each of the three continents, North America, Europe, and Asia. And we are almost there. And it is never going to be enough because it is growing fast. that is a good problem, to have as well. Have great teams, as well that we had to build bioprocessing, is the fastest-growing one. It is a very interesting very technology leading type of business that we will keep as the anchor, in the biotechnology industry. But I would like to add as well our whole pharma and personal care business that is focused on contamination control, basically making sure that the environment where the drugs are being produced is as healthy as it can be. This business is doing extremely well as well at the same time. And the purification, in business, that is kind of lower grades, type of products, that is still on the same platform, we were capped by capacity constraints. As you know, that is changing with the opening of the plant in China. So that is going to help us as well sustain the growth of that business going forward. So we are in a place where we have very good momentum. Our long-term target was 10% to 12%, by the way, so we are ahead of that range right now. Our margin, so to get towards the 30% ROI target, we will get there. We see the line of sight, to get there, but I want to make absolutely sure that we keep investing in capacity and capabilities. In the meantime, in order to get the business that has not only the critical mass, but the right momentum, to keep winning, in the future. So it is kind of a little bit of an overview of what we are trying to build here all driven by research, by innovation, by science, which is ultimately what is most important for our customers, and it is working really well. Thank you.

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

Hey, guys. Good afternoon. Wanted to ask a little bit about your some of your old economy stuff. I was struck by your comment that you think paper could see some modest growth here in the third quarter. do you feel like we are past the bottom in some of these categories? Or is it just maybe less bad and pricing is helping? Or can you just help us frame what is going on in some of your older economy stuff? Thank you.

I am not sure I would call that for the old economy, but it is more our traditional, businesses. So for sure, we know that those businesses are not going to grow as the growth engines do. that is why we have the differentiation, by the way, between growth engines double-digit type of business, our core business, which is the key of our company, kind of in this mid single, then you have the lower growth businesses. But, of course, with some affection, underperforming because there were underperforming for a while, And to your point on paper, well, the good news is that it was fairly positive, in Q2, which is a big deal. Obviously, so for that business after more than a year being in negative territory, impacted by the industry that was not doing great. And then an industry that was consolidated because of that, so we lost a lot of paper mills as well. And when we lose a paper mill, that has a big impact. on our sales because they use a lot of our solutions. And we can see that the last 6 months, that consolidation has stopped. Paused, and that things are getting, slightly better. And if you are-- as well, we are a bit better than the industry. So we are gaining share, which is a good thing as well. So very positive in Q2 for the paper team. But, I feel really confident, with a great leadership that we have there to get even more positive in Q3 and beyond. So I am cautiously optimistic with that business. it is having good margins, by the way. Important to keep that in mind. But, yeah, they are improving, and they are in positive territory. So they are generating value for shareholders, which is the first step. Towards greatness. Thank you.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

I would like to revisit the life sciences. Can you just dig in a little bit on bioprocessing? Are you mostly winning share in the early stage preclinical or are you also getting the equivalent share gains in later stage commercial? And really, I am trying to dig into your CapEx. You are you are talking about big CapEx. I think, was the word you used. You trying to get your CapEx additions ahead of your growth rate so you can go into adjacencies? Or should we be thinking of about this CapEx cycle as this is kind of the run rate that you will be continuing the 2030s because that is just how fast the end market is growing.

So a few things, and Laurence. First, bear with me, I will have to be careful in how much detail I am going on the sensitivity of the competitive situation. there is very few players in that industry. We know each other very well. We all understand that what we do well, is sustaining lives around the world. So I am very careful, so I am gonna talk about that. But generally, we have a very good position now across the whole spectrum between early innovations clinical trials of various stages and commercial drugs. The team has done very well in terms of jumping ahead of the queue, in some cases to make sure that we were covering. The whole chain. And as you know, it is a numbers type of approach. You need to have a lot early in order to get a few big ones, later. So that is the rule of the game, obviously, in life science. And now we are ideally positioned as the team has done in order to make sure that we can sustain and accelerate the growth in the future. The question on investments, we have clearly been investing ahead of the growth in that business. that is why we were talking about reported growth in the mid-teens and underlying growth in the mid-20s. Well, those 10 points were investments ahead of the growth as we wanna see that business driving 30% type of margin at cruising speed. But I do not want to get too quickly ahead of that. This is an industry of perfection. The quality of the products, of the team, of the delivery, of the innovation. It takes time. It takes depth. It takes passion, and commitment to get it done. But as you can see now, so the underlying margins are getting closer to the reported margins, which is a good thing. Q2 was a little bit of an extreme because we had a spike in bioprocessing not every quarter is created the same. But, generally, the trajectory is very good. So I like our competitive situation. And as mentioned before, do not have the ambition to become the biggest. We wanna become the best. Life sciences business in the industry. Thank you.

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Thank you very much. To go back to CapEx, Christophe, when you acquired CoolIT, my recollection is you said that they had enough capacity on their own to supply a doubling of their sales, which seems like a pace that they are very much on. And I think you separately said that the plan was to go sort of asset light, sort of similar to how you do it in your dishwashing business where you design and have the IP, and then somebody else does the manufacturing. So just wondering if you can tell us where you are in that journey given it sounds like the growth rate of CoolIT is really moving maybe faster than originally thought?

Yes. So, generally, directionally, absolutely no change. What you have said is still valid. With one small exception, which is a good one, is that the growth seems to be faster than what we had expected for all the reasons I mentioned before. The leading edge technologies that CoolIT is having, the combination of Ecolab and CoolIT coming together providing the market with something that no one else can provide in terms of higher performance, no water, and less energy. To do the same job as well. So generally, for the company, I do not see big changes, but our high-tech business, we might have to go faster which is exactly what we would like to see and you would like to see, I guess, as well. But let me ask maybe, Scott, if you would like to add any perspective on CapEx in general.

Yeah. Just more broadly, as Christophe talked about, we will invest ahead of growth in the growth engines, but it expect that the CapEx as a company to remain similar to where we are at now, for the next couple of years, and we have talked about this for a little while. Likely remaining around 7% the next couple of years because we are investing ahead for the global high-tech business and life science. So but then as we scale these, these growth engines, we will continue to evaluate it. But we are always going to take advantage of these attractive returns. Thank you.

Our next question comes from the line of Patrick Cunningham with Citi.

Maybe just on food and beverage, pretty strong 7% sales growth there. A pretty good execution against a flat broader industry. I guess, can you share details on what is contributing to the increased traction there? And how much acceleration do you expect to see within this business over the coming quarters?

So food and beverage, which is one of those core businesses that we have, that I think is one of the best global businesses we have, is one of the best teams around the world. Serving a very sophisticated industry of consumer goods companies, with big brands everywhere, around the world. So it is a business I love, and I love it even more, looking at the performance. That this business is driving. You mentioned 7%. If you remember, so our long-term target for this business is 5% to 7%. So they are at the higher end of that range. And why that? I will give you the simple answer here. it is the One Ecolab approach where the team has brought together our food safety capabilities, with our water capabilities as one integrated organization. So it is not just two teams playing nice together to serve the customer. it is an integrated team with experts in food safety and experts in water Working on the same team for the same customers anywhere around the world. We are not done yet. We have done the work in North America where the teams came together and ultimately well, again, position it as a strategic idea of producing safe food while using less water and energy. But there is a much more mundane driver of the growth is the cross selling. So how do we sell food safety solutions into water customers and water solutions into food safety customers. that is the sales execution play with a good strategic intent. So that is been the main driver. The execution has worked really well. We are expanding what we have done in North America now around the world. That will take some time, but it is also driving some good runway of momentum. So for the years to come. And last but not least, is what you are hearing as well on the market. Producing safe food well, is something that is pretty top of mind. For everyone right now, being in restaurants, being in retail, and what we are doing is even more in demand than what it was in the past. Thank you.

Our next question comes from the line of Unidentified Analyst with Evercore ISI. Please proceed with your question.

I think Ecolab Digital is nearly at $500 million annual run rate and growing 20% to 30% smaller than global high-tech, but pretty attractive incremental margin. So I was wondering if there is anything you can share on the trajectory for digital into 2027 maybe talk to the margin contribution then why not push through a faster transition to the subscription model given the value proposition of the offerings? Thank you.

Thank you. So what you said is absolutely true as well, on what you said of, pushing for more, faster, which speaking the same language here. there is a lot of execution, that needs to happen. Obviously, in between. But I am very pleased with the progress that we have made, over the last couple of years. As you know, it is a pretty new business as a business, not as an activity. Because we have been on digital since we invented, 3D TRASAR and just for memory. It was invented in 1999 so it is been a long time that we have been in connected devices but they were obviously not connected to the cloud to mainframes and all the complicated technology that we had. So today, that is the good news Well, we have hundreds of thousands of connected devices thousands of customer locations around the world. So we have a great installed base. With a good critical mass. That only a few companies have out there but we know that for almost 30 years of that journey, were doing that for free. Without going for subscriptions and making sure that we were remunerated for the value the offering that we are providing for our customers. So we changed that years ago. That was a change for customers, not the change for the industry because that is why tech companies are doing for a living, as well as making sure our teams know how to do that, that our customers realize that, yes, they pay for something, that is something that we are used to, it is new, but it is driving as well incremental value. And that is why we have introduced internally, that playbook which we call the 100-100-100 model. Which is basically to say, we want to connect 100% of the customer locations 100% of the applications within those customer location and that 100% of them generate revenue. If you add all that it drives a potential value of $3 billion. $3 billion is the revenue we could generate doing exactly that within our current customers. have $500 million today, and that is why growing towards the $3 billion is job number 1. We would all like that; we would like to grow even faster, and I guess we will get there at some point. And what is even better is that the $3 billion opens an incremental $10 billion to it. For applications that we have not sold yet or customers that we have not sold yet. So early on that journey, but, on a very good trajectory so far. Thank you.

Our next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Christophe, could you talk a little bit about the volume trajectory? It looks like it picked up. And implication is if you would not have had that the impact from the Mideast war, you would have picked up to like 2% volume growth? Can you talk about where you are seeing the volume increases where you might not be seeing them? And geographically, maybe by, you know, from a high level, which areas of the business. And, really, what should we be thinking about that? You know, we have seen we have been accustomed to seeing some of the growth in terms of the pricing but it is been a while since we have seen volume pick up to this level on what I would say a sustainable rate. And can you give us your thoughts on that?

Yeah. Thank you, Shlomo. It seems like, for the short-term, for the next few quarters, the 1% run rate seems to be the right one. As you said, we were closer to 2%. Without the impact of the Middle East. But okay, we live in an imperfect world, and there will always be something somewhere. Obviously happening. We were all hoping that the Middle East we saw itself much earlier does not seem to be exactly the case right now, so we are living with it. And that is why I am saying okay. The 1% trajectory is a healthy trajectory that I really like. But this 1% is obviously the company average. So you have the ones that are way ahead of that, and those are the growth engines in high-tech. In life science, in pest, but also food and beverage has had some very good track records in volume. And then you have the other extreme of the paper heavier industries that were in the negative territory. So that is the beauty of the Ecolab for portfolio that ultimately whatever happens, one business or one region in the world, we can keep steady momentum which I believe the 1% for the next few quarters seems to be, the right assumption to make. And things improve out there, okay, it is gonna be better. But directionally, I think it is gonna be 1%-plus trending in the right direction. And the Ovivo and CoolIT, by the way, which are not, in those numbers because they are not organic by definition. Well, they add almost two percentage points to it as well. So yes, this 1% plus the 2% plus or minus the Middle East I talked about, you get to some very healthy type of volume growth, which is exactly the place we want to be. Thank you.

Our next question comes from the line of Scott Schneeberger with Oppenheimer.

Thanks very much. Similar question to Shlomo's, but on the pricing side, just curious how the energy surcharge is progressing. You have spoken about, hey, it is ramping up in the second quarter. Likely going to be more solidly in place in the back half. So just thoughts on that. And then the second part of the question is, how is structural pricing progressing and thoughts and second half here? Thanks.

So we have always been pretty good at pricing. I think that we have become really good at value pricing. Because of all the practice that we were given to the last, few years to manage, through that. Let's not forget stepping back as well that Ecolab for a very long time had an approach of getting sort of incremental cost back in dollars year 1 and the margin year 2. So a 2-year cycle. And now in Q2, we managed to do both within three months, which is really a major change of the model. And that is mostly driven by this value pricing approach driven by this total value delivered that we are providing to customers, that customers are seeing that yes, they pay more but they are getting more as well. And net, they are in a better place. Financially, which is where we laser focus to deliver to them. It takes some time to get it done the right way, but the fact that our retention of customers has remained super stable during all those years, well, it is a good indication that the approach is the right one. it is good for customers. it is good for Ecolab. it is good for shareholders, as well at the same time. So to your question on energy surcharge versus pricing it is always an imperfect science because some of the businesses go straight into structural price. Others go in energy surcharge and move, then afterwards, structural price, honestly, I do not really care. So how the whole thing is as long as we get to the right place. For us and for the customer as well. And we exited Q2 with 5% of pricing, So when we are talking about 5% to 6% in the second half, well, the exit trajectory of the second quarter. So it is pretty solid, to say the least, which is why, I feel quite good that we can get this positive gross margin organic gross margin in the second half because the team is really good at it. We have all the systems, the processes, the customers understand that. And we can manage almost any situation that is happening in the world that we cannot predict but we have demonstrated not only we can do it, but we can get it done in pretty short-term timing as well. Thank you.

Our next question comes from the line of John Ezekiel Roberts with Mizuho. Please proceed with your question.

Pest Elimination has been delivering high-single-digit revenue growth pretty consistently for at least a year now. And the operating margins are up around 20%. Does it accelerate to low- to mid-teens growth as you deploy digital and agentic AI and do you spend the margin improvement, or do margins go up as you deploy digital and agentic AI?

Well, John, it is gonna be sequential work here. First, on the top line, so our targeted trajectory is 6% to 8%. So with the 7% kind of hike in the middle. Of the targeted range, which is always a important first step, to me, delivering on our promise first, and then improving from it the ambition of the team, which is an exceptional team, by the way, that we have Pest Elimination. They are great at transforming the business. Great innovation, working with the largest customers in the world. In a difficult environment. The transformation they are doing is remarkable. I am so impressed, with everything that they are doing. So it is gonna drive top line, ultimately, even stronger. that is gonna be the other good But back to the question, on margin, it is a bit the life science, question. When we get into new technologies, new innovation, they suddenly need to create the right foundations first, before we can really get the benefit of it. So, yes, in the margin, of pest elimination and in the operating income growth, you have investments, behind. So pest intelligence continue, as I have said, so 800,000 connected devices will be north of 1 million by the end of the year. No other company is there around the world. Well, that requires efforts and investments. But, ultimately, we know it is gonna pay off both on top line and on bottom line in one of the businesses with the highest margins and the highest return. As well at the same time. So early investments and, ultimately, better returns down the road. Thank you.

Our next question comes from the line of Jeffrey Zekauskas with JPMorgan. Please proceed with your two-part question.

The first is that you have you have acquired to accelerate your growth. Do you have goals for either return on capital or return on assets or return on equity, or goals that situate those metrics relative to where Ecolab was before the acquisitions were made. And secondly, in the global institutional and specialty business, the organic growth was about 4% And I would expect pricing in that segment to be higher than 4%, so was volume growth negative by 1% or 2% and I guess that may have had to do with the institutional business, Can you talk about what is going on in that area?

Yeah. Thank you, Jeffrey. So two very different questions here. Let me start with the second, and then I will go to the first one and then I will ask Scott as well to add to the return question. On institutional, really pleased with the steadiness, The 4% in Institutional specialties, the restaurants, hotels, and specialty retail and quick serve. Well, allows us to capture consumers going to whatever segment cheaper or more premium depending on the economic state of the country, wherever our customers operate. So in a place where wherever people are going, we capture that growth. So the 4% I think is a pretty good steady, type of performance for that business. Keeping in mind that food traffic in the US in restaurants is down 5% year-over-year right now. So the growth of the 4% versus the minus 5% in the restaurants is quite remarkable. So it is a growth of life science digital, of GHD, but for such a traditional, industry, we are clearly gaining share, and we are gaining margin, as well at the same time. Because that business, is in the mid-20s to mid-20s type of operating margins, a very strong, solid business with a franchise that is unmatched. As well around the world. So for INS, I would love them to grow even faster but, honestly, I think that they are in a darn good place where they are now. And second or first, your question, when you talk about organic versus nonorganic, well, the results of growth that we had in the second quarter especially if you adjust for the Middle East, well, that growth of volume was not acquired. That was organic. Yes. Now CoolIT and Ovivo, which have been acquired are going to add a couple of points to the overall company. it is always been kind of a combination of two-thirds or 80% core growth. and 20% M&A. We are gonna keep on that path as well, Jeffrey, and it is working quite well. I like as well the return profile of it, but I would like Scott to comment on that.

Yeah. Jeffrey, as we talked about, obviously, this specifically to CoolIT, but with all deals, that we look at the specific investment or asset returns. And as we have talked about CoolIT, the returns on this are well above our cost of capital. And then more specifically, if we think about just the company as a whole, we have talked about our ROIC for a long time. Obviously, our ROIC is sort of a point in time measure, and when you have a significant acquisition like this, that will have a dilutive impact in the short-term, but we still are very focused on ROIC and growing ROIC, organic ROIC as we define it. By, at least 100 basis points a year and feel very good about that. As we think about the impact of CoolIT, that will take a year and a half to annualize because of the denominator, but expect to get back to pre-acquisition levels on our organic ROIC by 2028.

I would like to make a comment on life science as well, so I will just underline what I said before, Jeffrey, i.e., we set what is the return expectation that we have? So for that business, early on, we were not on track for two to three years as we know. And that was the absolute focus for the team to get back on the early promised return of that business, and that business is back on that drive. So we take it super seriously.

Thank you. Next question comes from the line of Matthew DeYoe with Bank of America. Please proceed with your question.

Thank you for squeezing me in. So 5% to 6% price I do not know. it is $450-plus million of just EBIT tailwind year over year for the back half if I just give you 100% margin, which I do not know, maybe it is too much. But that is implying, like, raw material inflation that is candidly feels way too high. And if I am thinking about just operating leverage through the business covering normal course inflation, which maybe is not the case, Long story with this is just why is not margin expanding more materially in the back half? And does the guidance for raw material inflation that you are baking in reflective of the basket in March. April, or is it reflective of the current situation, you know, as I think about things like propylene basket kinda coming under pressure. I mean, obviously, who knows, right, with the Strait closed. But I am just trying to understand why the operating leverage is not significantly higher with mid-single-digit price.

So a few comments here. And I will I will pass it to Scott as well a bit more. So first, it is always with the latest information that we update you. We do not stay stuck to assumptions that made in March. The world has changed quite a bit, obviously, so in the in the meantime. So it is fresh information. When we talk together. Second, I need to explain to you how it works to get margins in positive territory. Since we have roughly 50% gross margin, what you need double the price versus the cost that you are getting. And when you need to do that in three months, not a chemical business, but in a service technology expertise type of business. This is remarkable. Accomplishment, and especially when you need to do it over and over again. While keeping building more growth with more cash customers without losing any as well at the same time. So that is the simple math of the predicting gross margin And as I said before, it took us two years to do the same work, as we do in three months, today, a few years back. And last point, I would say, we do it in ways that are always constructive for our customers, which means that they get savings in their operations higher than the incremental price that we are asking from them as a share of the benefits that they get. As well at the same time. So it is gonna lead ultimately that the good news once the delivered product cost is gonna stabilize, well, then you get a much better gross margin because we never give the pricing back in other model, not because we just stay stuck on it, but because the value we are generating to our customers will remain. Within the customer operations. So that is why every time that there is an economic cycles are going up in inflation, not only we manage it well, but second, it leads to a net incremental margin our trajectory, which is why if you look at the last 10 years, our gross margin has kept going up.

Yeah. Just add a couple of things to that, Christophe. Thank you. As you talked about, it is difficult to make these firm assumptions at that dynamic environment. But as we see it here today, we are expecting these high-single-digit commodity prices for the balance of the year. Right? And so if you look at that, then the other thing I would say, and we talked about this earlier, if you look at the gross margin, you also have the impact of Ovivo. So we had a reported gross margin We have organic gross margin. And Ovivo, as we talked about in Q2, Ovivo on an organic basis, our gross margin was stable. So there is that, call it, 60-basis-point drag just from Ovivo, and you will see that same type of the difference in the second half. So that may be part of the math. Thank you.

Our next question comes from the line of Joshua Spector with UBS. Please proceed with your question.

Hey. Good afternoon, guys. Thanks for squeezing me in. I wanted to go back to the high-tech piece. And really what I want to ask about is that a few weeks ago when you closed CoolIT, you took up your plan to 2030. You took up your margins. Obviously, a high degree of confidence. I thought you would come on this call and be able to give an update on CoolIT expectations for 2027-2028. And maybe if that accretion math is pulled forward, based on your comments earlier to David, it seems like you wanna talk about that maybe in a few months. So I am just really curious, like, what gave you the confidence then at the start of July to raise your 2030, like, expectations there so much Was Ovivo or something else organic? Or is it that you saw the backlog on CoolIT? Just help me understand that, please.

So a few things here. First, when we share, so, a new target, with you, we wanna be sure or as sure as it can be, of what we are sharing. Obviously. So with you and together, so with CoolIT since the first week of July, so that is been just a few weeks. And you cannot do much, before you close, as you know as well. So we are getting to know much more, when we look at the trajectory of both businesses. CoolIT and Ovivo, and our core business, by the way, which has been doing really well. For quite a long time now and especially in the second quarter, we ended up in a position where we can say the minimum has to be risen. and I do not need to go much into math and to say, okay. We can move up the floor, which means that the middle of the range is going up at the same time. But this is also the reason why we wanna have an investor day at Supercomputing in November because we firmly believe with not only where the market is going, but most importantly, how our businesses are leading in those technologies that will be better than what we had initially planned which is a good problem to have. So if anything, it is gonna be better than what we just communicated. But we wanna do the right work. We are talking about the next three, four, five years, to come. And that requires some in-depth work on all those businesses. But generally, the direction of travel for all of those well, is quite a bit better than what we had expected. So expect good news in November. Thank you.

Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi. Good afternoon. Christophe, you kind of referenced the attention that is happening around food safety recently. And I am just curious if you can comment at all on what kind of impact this Cyclospora outbreak has had on consumer behavior and maybe impacting your restaurant customers' in terms of foot traffic? And then, I guess, on your customers and them coming to you for food safety solutions or with greater attention on that, And maybe also tie in, it seems like the FDA has taken a little bit of a step back in terms of what they are monitoring. And you know, just curious if you view that as something that is helpful to your business or harmful to your business.

So, Mike, would not call that helpful or harmful. We are talking a little bit. Or a lot about people being impacted by what is happening again here. We are experiencing those situations, too often, in our country and around the world, and that is why we exist. Actually. it is to reduce and remove that risk as much as it is possible for every one of us eating food for infection prevention in general. So we feel for everyone that is been impacted. By what is happening in our country right now. So the few key questions that you had impact on demand on our business. Now. No change of consumption at all. And in F&B, you have seen as well, so no change either. what is true however, is every time that something like that happens, customers come to us, spend a lot of time with our research and development team, with our scientists to really understand what is it, how does it work, how does it impact us, how can we solve it, There is no one in the world that has more knowledge and expertise in infection prevention than Ecolab. So customers are clearly coming to us, which is a good sign. So and in the case of the end users, the restaurants, in that case, I think that they have done a very good job. And in the specific case that we are talking about, they have been exemplary. How they have taken care of their guests, of their employees, of their processes. We have been very close to them as we always do, but we stay behind the scene. We are there to help them We are not there, obviously, so, to get ahead of them in terms of news. We have worked with a lot of producers. As well out there to make sure that they were learning from that we could make sure that the risk was going down. For all the other ones as well. And the one that is being talked about in the media right now is not one of our partners or customers, I cannot comment on them. But I think, ultimately, that the next phase, and that is a big business opportunity so for us, is to connect the producers with the end users being restaurants or retailers, which is something that has not been done much so far, and we are uniquely placed because we protect a third of the world's food production and we serve even more of the end users, retail, and restaurants and hotels. So connecting the two, in the future, will be a new business opportunity for us. Thank you.

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

I am curious if you could comment on what the customer and industry reaction has been to the 50-kilowatt cold plate that was announced by CoolIT. Just curious what sort of reception there is, and it is going to take some time. But curious you know, just timeline when that could start to benefit you guys. Thanks.

it is been very well received. Actually. it is the first time in my business history I have to admit that I see and hear customers not only wanting to be in the queue, but to be ahead of the queue because there is limited capacity, as we know out there. Well, that is the situation, of CoolIT or Ovivo, too, by the way, in a different part of that industry. it is a very, unique place, to be. And that technology that you are talking about, so on the cold plate is one of the elements, but there is many more. In terms of CDU, in terms of 3D TRASAR, in terms of coolants as well that we have developed and will be developing as well. Everybody is looking for the latest and to have that as soon as they can. So a very new experience. For us where you need to manage supply, more than demand. But I guess that is a good problem to have. Thank you.

Our final question will come from the line of Kevin McCarthy with Vertical Research Partners.

Yes. Good afternoon, and thank you for squeezing me in. Christophe, I want to follow-up on a few prior questions regarding CoolIT. Is there a way to characterize or quantify the visibility that CoolIT has or you now have into the order backlog or pipeline? Is there a way to measure it in terms of months or quarters or years, Maybe you can talk a little bit about how they go-to-market You know, what are the standard contract terms and you know, over the next little while here, perhaps we will learn more in November certainly. But is that triple-digit growth rate stable, do you think? Between now and the end of the year? Or could you just elaborate on that visibility question there. Thank you.

So a few questions into that. So the visibility so far, the foreseeable future is over 2026, through the end of the year as you are calling it. it is pretty clear So, yes, we feel good about the trajectory so far for the year. Which is a very good way to start. Obviously, saw, an integration And for the years to come, as mentioned before, we have considered in all our math and projections of 30%. So our growth rate for the next 10 years So we do the work to really understand what is the right number for it, and we share that with you when we get together at Supercomputing in November. But, generally, that sounds like a good news. Your second question on the go-to-market, it is mostly two different drivers. The first one are the chip designers and chip manufacturers. Because the cold plates and technology of cooling for each individual chip well, is chip related, and that needs to be developed together with the chip designers and or manufacturers depending on who that is. Out there. So they are very close to them. And this is a huge strength of that business. At the same time, they are very close to the hyperscalers. As well. That are interested in optimizing the overall including performance of the data center that goes beyond individual chips when you put all of them together in one rack then afterwards, in one data center, the physics, look very different. And that is the relationship with the hyperscalers. So it is to be very close to those two constituents and CoolIT and Ecolab, by the way, are very strong at that type of-- so that is the way, the model works. it is developing together, with the hyperscalers and the chip industry, and that is going very fast. As you know, every week, there is something new that is happening very different than many, of our businesses. And the last question, on the backlog and pipeline, we are learning as we are working closer together with them. They have very good sales metrics. We have, on the more traditional Ecolab side, similar, but a little bit different sales metrics. We are gonna try to learn from each other, and that is also something that we would like to share with you in November. We have been three weeks together, so that is very early. So more is going to come in November. So since it is the last question, just wanted to recap, briefly. We had a very strong quarter in Q2 in a tough and complicated environment. As we all know, really happy with the team that is been able to protect gross margin in three months versus two years in the past. While accelerating the organic growth as well as the business. Second, the second half looks promising for the company. Especially as a trajectory for 2027 and the years to come as well. Where I believe that we are really in a better position to deliver on our growth ambitions, our margin ambitions, and earnings growth ambition, and ultimately, where we need to focus over time is how do we improve from there even further, which is where I spend my time. Where the team is aligning around, and I think that we are in a very good place as a company especially when we look into the future because we have the best team in the industry. So thank you again for all your time and your commitment. To Ecolab. All the best. Talk to you soon.

Thanks, Christophe, that wraps up our second quarter conference call. This call and associated discussion slides will be available for replay on our website. Thank you for your time and participation. Hope everyone has a great rest of your day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Enjoy the rest of your day.