Q4 2025 Earnings Call — February 10, 2026
Tim Mulroney (William Blair): Yeah, good afternoon, Christos. I just wanted to double-click on the volume cadence as you move through the year, specifically organic volumes, because I know you've got a couple of headwinds from paper and basic, and as well the inventory thing with institutional. So how do you think about these headwinds moving through the year, as well as then on the other side of it, you got that solid momentum and some of these other businesses. Can you walk me through these pieces and taking that all into account, how you're thinking about the trajectory for organic volumes specifically as you move through the year?
Christos (Executive): I'd love to, Jim. And our framework remains the same with the 1% to 2% volume growth and 2% to 3% to get to this 3% to 4% for the year accelerating in 2026. The truth is that the volume growth in Q4 was almost the same as in Q3. So we round up or down our volume. And the difference versus around 0% and around one was actually only a few million dollars. So at the end of the day, it was almost the same in Q4 as in Q3, which is why earnings were strong. And I feel great about where we're going. But what makes me the most optimistic about our future is that, well, 85% of our businesses are doing great. As mentioned, F&B, which we're building around this F&B united idea of bringing hygiene and water very closely together that's done in North America. Well, it's accelerated to 5%, life science to 7%, best to 7%, water, eggs, paper, and basic to 5%. So in other words, what I really like is that our portfolio is shifting to higher growth higher margin businesses, which is exactly where we want to go. And we deal, obviously, so we see 15% of the portfolio that needs work.
There will always be something, and I expect paper and basics to kind of get to a much better place as we progress in 2026. So if I put all that together, improving the underperforming businesses of paper and basic normalization of the distributor inventory in institutional and 85% of the company growing very nicely. I expect Q1 to be pretty similar to Q4, but with acceleration towards the end of the quarter and acceleration continuing in the quarters to come during the year of 2026. So overall, a very good trajectory, especially from the underlying growth. Thank you.
Manav Patniak (Barclays): Thank you. Christophe, I was hoping you could just double-click on the global high-tech piece, the water, the semis, the data center piece. Post Avivo, just help us size, what do you think the growth rate is, where the opportunities are, and perhaps if you see any roadblocks to you achieving some of your growth ambitions there.
Christos (Executive): I'd love to, thanks for that question. So global high tech is kind of a new business for us started it three, four years ago. Really focused on data centers and on fabs, which is the short term name for manufacturing of microelectronics chips. And if I step back, as I mentioned so many times, why are we so interested in that field? On one hand, well, AI demand is booming. Is that going to be a straight line to heaven? Probably not. There's going to be ups and slower ups probably as well going forward, but the trends are clearly up and we see it from an investment perspective. By 2030, we expect an incremental need of power for the whole of the electrical consumption of India and the incremental needs of the freshwater use of the whole United States. So at the end of the day, well, at the heart of AI is water. As mentioned before, to produce the chips, because they're produced in ultra-pure water, to power the chips, because power generation is the second largest water user in the world of agriculture. And the third one is to cool ships, which is shifting towards water at the same time. So high growth market where water is a part of it.
And especially so on those two key areas of fabs and data centers. And one might argue that power generation is also part of it. The way we're thinking about building it on fabs, since one fab requires the amount of water equivalent to 17 million people, that's an example in Korea, for instance. Well, the solution is to provide technology where you can recirculate water within the fab, which is really hard because at the same time, the quality of the water that's used to produce the chip is directly correlated to the quality of the advanced chips. And that's a thousand times more pure than water that's used in blood injections. Recycling water that's difficult to recycle at the super high standard. Well, that's exactly what Avivo helps us to do. That was the piece of the puzzle that was missing for us. And now we can provide semiconductor manufacturers with circular water solutions. And we're seeing very high interest from the key players out there. And the second and last I'll mention is data centers. Well, for a long time, there have been air-cooled that required cooling towers with a lot of water that we've been used to manage for a very long time.
Now that's shifting to liquid cooling, which means that you reuse the liquid in the data center, a liquid that's coming straight on top of the chip, and that liquid is not water today, but it's getting towards water tomorrow because it's the liquid with the best thermal properties, which is what we mastered the most as well at the same time. So liquid cooling in circular mode for data centers and circular water for fabs manufacturing, that's the way we're thinking about it. Combined, these two businesses are roughly $1 billion, growing strong double digits right now at very high margin, and we see many opportunities to make that business way bigger in the years to come. Thank you.
Ashish Savajra (RBC Capital Markets): Thanks for taking my question. I just wanted to drill down further on the drivers for the 100 to 150 basis point of margin expansion. You obviously raised the one collapse saving targets and talked about 100 million of savings already achieved in 2025. I was wondering if you could provide any incremental color on the savings in 26, but also payments from pricing as well as makeshift in 26.
Scott (Executive): Yeah, thanks, Ashish. Similar to the targets we set out at Investor Day last fall, this 100 to 150 basis points is anchored on really two things. Gross margins, which is at 75 to 100 basis points annually, which we're thinking about that long term, same sort of targets for 2026. And then this 25 to 50 basis points of SG&A leverage annually through 2030. So that's how we get to this 100 to 150 basis points. And then just diving into the gross margin, the drivers of that being the value-based pricing that Christoph referenced, our mix of businesses, as you see these growth engines being higher margin businesses, but also innovation. And then on the SG&A savings, if you look at over the last five years, we've delivered sales productivity almost 30%, which is sort of sales per head, which is part of that driver. Then on top of that, with that, we're also driving the OneEcoLab program, which Christoph announced that we've now increased that savings target to 325%. And that 325, as we think about it, about $120 million. So think of sort of a third, a third, a third, a little bit more than a third through the end of 25. And then the remaining 200 million will be sort of equally over the next two years. And so that'll be a driver of that 25 to 50 basis points as well.
John McNulty (BMO Capital Markets): Yeah, good morning. Thanks for taking my question. So I wanted to drill down a little bit into the incremental margins because it looks like what we saw in PEST was kind of a really explosive incremental margin in terms of how much kind of came down at the bottom line. And then when I look at things like the life sciences side, it was dramatically less so. It was probably the weaker of the performers of your businesses. So I guess can you unpack that a little bit in terms of what some of those dynamics might be, why we're seeing such different results by segment, and how we should be thinking about that going forward?
Scott (Executive): Yeah, thanks, John. As we've talked about in the past, we don't really think about incremental margins in that way, but I get your point on life sciences in the past. The life sciences, you saw the OI growth in low single digits in Q4. But frankly, that was as we expected because we had targeted OI margins in that mid-teen range. It was due to two things. One, as we've talked about, we're investing in that business. Underlying margins are actually better. And on top of it, you had a year-on-year comparison, sort of bad comp, if you will, on life sciences, really because of performance-based compensation. And that business sales accelerate throughout the year, as Christoph talked about, and the OI growth for the full year was 30%, and so they've earned that performance-based compensation. But we really expect that business going forward to increase that OI to increase double digits into 26 and going forward. And then PEST, as you mentioned, was sort of the opposite. And again, that was comparing against a comp last year. As you might remember, we had a spike in accidents at the end of last year, which is creating a lower base point for them.
But again, that business is doing really well, as Christoph said, growing 7% top line and OI margins north of 20%. And we expect to continue that trajectory. So maybe a few points here. So to build on what Scott just said, so not every quarter is treated equal. You can have year-on-year, obviously, so comparisons like our accidents in pest elimination, which were unfortunate a year prior, obviously. That's changing, obviously, the March profile on a year-on-year basis. It's also investment pacing by business. We all, in the spirit of investing the right way at the right time, it's not always equal in every quarter. And here I'm speaking about life science, for instance, as well. But generally, it's really making sure that we get or beat the 20% ROI margin that we've talked about. So for 2027, we feel really good about it. So we're at 18%. So last year, we're planning to be north of 19% in 26. And I'm already thinking about what's beyond the 20% because many of our businesses are either beyond 20% already or have underlying margins that are already north of it, which is the case of life science.
Chris Parkinson (Wolf Research): Good afternoon. Chris, if we could just dig in a little bit to what you're seeing in the global water business. You know, over the last couple quarters, there's been a bit of a divergence between light and heavy within water. Mining seems, you know, mixed, perhaps some, you know, life in certain metals. F&B seems like it's inflected, and papers continue to be a drag. But can you just kind of give the way, give us some insights on how you're thinking about that business in 2026, you know, what you would need to see at the top and the bottom end, and forgive me for coming up in my own range, but, you know, to the three and a half to four and a half percent range, call it fourth midpoint, obviously. Just how are you thinking about this business and what are you hearing from your teams to kind of confirm or deny the bottom or the top end of that range?
Christos (Executive): I'd love to, Chris. Water is half the company. So it's a big chunk of it. We've built that business since 2011, obviously, when we acquired Malco. And our ambition was really to create the world's water company. And we've come to that ambition over the last 10 years. And there is that feeling that we're just getting started on that journey. Now, that being said, we're serving many end markets with water. Obviously, some are growing very fast and some are growing a little bit less. But no one has the capabilities that we do have and the reach that we have around the world, plus the digital technology that we bring into it in order for our customers to reuse and recycle water. So in a closed circle, as mentioned, so for the GHD or global high tech example, as I described a little bit before. So if we look at the performance of that business, Chris, yes, we grew 2% organic in Q4 as a whole, but if you exclude basic and paper, which are in a down part of the cycle. Well, water was growing 5% in Q4, which is very strong performance, and we still want to get better than that. ==The biggest business in there is food and beverage.
We are merging hygiene and water to provide the best solutions for our customers around the world.== We've done it in North America. It's led to very good results. 5% for that business is good in an industry that's flat. By the way, I mean the end customers that we are serving as well here. And we've only done North America. We said to be united, we're going to keep expanding around the world. Then there is the global high-tech story that I just described before Chris which is close to a billion dollar which is growing so in strong double-digit rate with very high margins as well at the same time and then you have all the businesses in between from manufacturing areas, for instance, to our institutional water business as well, which is providing water services to our institutional businesses as well. But bottom line, so we end up with a business that's underlying growth is close to the mid-single, so this 5%. Dragged down by basic and paper, but those two will recover. That's the good and the less good things of a little bit more cyclical businesses, and we will deal with that.
So you bring together strong underlying growth, acceleration in global high tech, and recovering of basic and paper industries, and you end up in a pretty good place in a business that has strong margins. We had a very good quarter in Q4. I think it was the second highest quarter of the last five years from a margin perspective. And water will get as well to the 20% and move beyond the 20% in the years to come. Thank you.
Seth Webber (BNP Paribas): Christoph, in your prepared remarks and the slide deck, there were a bunch of mentions about new business wins. I'm wondering, can you just give a little bit more color around that? Are these conquests from other providers or just new companies that are new to the space that are kind of just adding suppliers or any color around these new business wins would be helpful?
Christos (Executive): Yeah. New business is the number one focus of the whole company. We have this mantra of we're all in sales, so no one is not selling in the company. It's either you're dealing with customers every single day or you're supporting someone who is serving customers every single day. I have this objective myself to meet once a week the CEO of a customer. And last year, I met close to 100 customers as well. So this is where we all collectively spent most of our time. Now, we are focusing first and foremost on our current customers and our largest customers as well. As mentioned earlier, so our top 35 customers have a gross potential of $3.5 billion. Well, this is where we want to focus our attention first and foremost, because it's the most obvious growth to get. And that's why we're growing much faster with those customers than everyone else. And it's the most cost-effective way, obviously, to get new business, because we have service people going into those sites already today. So it's expanding the share of wallet. And at the same time, it's helping our customers because we go with end-to-end solutions, helping them get to best-in-class performance.
They get better total value delivered, better for their P&L. We get a share of it. So at the same time, we get higher growth, better margin for us. And it's a better deal for our customers. That's the first priority that we have. And second, it's to do the same for our local large customers around the world. And the third priority are more the individual customers around the world. And the last thing I'd say, we had our global blitz two weeks ago, which is engaging the whole organization around the world on your business and within one week we managed to grow our new business versus the same week a year ago by over 30 percent during that week as well so a very good story our value proposition is very well received by our customers because they need it more than ever either because they don't have enough water or they're trying to improve their cost performance because they have price pressure cost pressure and so on this is the value that Ecolab provides to them. This is the way we sell, and this is why our new business is going very well, while retention remains very stable as well, so across our businesses around the world. Thank you.
Andrew Whitman (Baird): Great. Excuse me. Thank you. I guess I wanted to ask a couple kind of maybe kind of punch list items here, but usually, you all have a view on FX that's included in your guidance, and I didn't see one in this press release. Scott, I was wondering if you could talk about the FX rates that are implicit in your EPS guidance rates. So that was kind of one there. And then I just, on the expected volume improvements on the water side, Christoph, are you seeing that, is this just going to be a comps game where the comps get easier? Or are you, in fact, expecting the volumes in some of those more challenged industries to actually improve? And if so, what are you looking at that gives you that indication?
Christos (Executive): Thank you, Andy. So let me start with the second part, and then I'll pass the FX to Scott. So very different questions, obviously. The new business for the whole company has kept going up in absolute terms. So dollar of net new business, so net of what we might have lost, which is very little usually. This is true for water, and this is true for the challenge businesses as well of basic and paper. They also got to record new business. It's just that the demand then afterwards of those businesses is lower year on year, and that's driving the growth or the slight decline that these two businesses are experiencing as well at the same time. But generally, new business is a very strong proposition for us. That's why we focus the whole organization on it. Making sure that whatever happens out there, your business is where you need to focus your time, gain share, even in a market that might be declining. So good story, even in our challenged businesses. Now on FX, Scott.
Scott (Executive): Yeah, happy to answer the mechanical questions, Andy. So, on the FX for 26, we're not expecting a significant help or hurt. We're sort of thinking it's neutral the year. Just given the current position of the dollar, probably slightly favorable in the first half, but really assuming neutral in the second half going in. Obviously, the FX is pretty dynamic, you know, the macro environment, so that could change, but that's our going-in assumption. But even any upside in the 1st half, as you look at sort of all items below, why there's going to be offsets to that is we had in our guidance that the tax rate is going to go up from the 20.2 we had this year to somewhere between 20.5 to 21.5. And then also which wasn't in our specific guidance but other income is going to be a little bit of a headwind. It'll be about 30 million next year, so that's about a 20 million dollar decrease on that other income just due to pension assumptions.
So you know if you look at as a whole below OI items they're not a net help to us but maybe a point on this FX because it's always when we think about the next year or the beginning of the year, what are the assumptions that we've taken when I think a year ago or even all the years prior, Andy, we were almost never right. We thought that FX would be a massive headwind in 2025. Well, it was not. We thought that our delivered product cost would be pretty benign. Okay, the whole tariff situation changed quite a bit during the year as we know, and we adjusted. So we've gotten used to become very agile to adapt to local conditions and make absolutely sure that we still deliver our 12 to 15 earnings per share. So we hope or we think that FX is going to be pretty benign in 26. Maybe it's not. And if it's not, we would adjust accordingly as well as we've done in the past few years. Thank you.
Vincent Andrews (Morgan Stanley): Thank you, and good afternoon. Just a question on the OneEco Lab cost savings. You know, you raised it again, and I'm just wondering if your assessment is that, you know, this will probably be the last raise to it, or if you still think there's opportunity there, and maybe there's some conservatism in the number, because it looks like the cash costs associated with achieving these benefits are still nicely above the benefits themselves, and I often think of those two lines, those two numbers, ultimately, intersecting so maybe just your latest thoughts there and how that might carry forward into 27.
Christos (Executive): You know maybe a comment before I pass it to Scott. I don't think it's conservatism. It could have been but it's not in that case. We're leveraging obviously so technology, AI agents, agentic technology as well here that no one has really done so far. So there's no real benchmark blueprint out there. You've probably seen that we ranked number nine on the Fortune AI list of most prepared companies. So for the age of AI, I really encourage the whole team to embrace technology, to stay at the frontier of what's out there and to see how it works. And for the most part, it's been a very good story. It's not the perfect story. There are places where it didn't work, but 80% of the time, it's working really well, where it's driving better outcome for our customers, for our teams, the way we operate, while at the same time, driving huge productivity gains. And my feeling is that it's going to keep improving in the years to come. But we don't know exactly where it's going to come from, because the technology in some cases doesn't even exist. Scott?
Scott (Executive): Yeah, Christoph said it very well, Vincent. You know, the savings momentum is better than we expected, as you said, moving from that 225 to 325 now by 2027. And it's that way as we're learning, but also moving up the value chain as we deploy technology and AI and high-tech processes, and then leveraging the global COEs that Christoph referenced before, which allows us to deploy that technology at scale. But I think as we think about 26 to 27, that incremental $200 million from what we've already realized, I would think about that pretty evenly. And then long-term, this is really an enabler to this 25 to 50 basis points of SG&A leverage, which is our long-term target. And that's relative to historically what we've done about 20 to 30 basis points. So really almost doubling our SG&A leverage that we've had historically enabled by the OneEcoLab and the scalability that it provides.
Patrick Cunningham (Citibank): Hi. Good afternoon. Thanks for taking my question. Just on the digital sales piece, could you maybe give us an update on how your ability to monetize these technologies has evolved in 2025, where you ultimately see it going and where you're getting the best traction with customers?
Christos (Executive): Thank you, Patrick. Love that question. Well, at Ecolab, we've been for a long time in the business of building great new businesses. And Ecolab Digital, as we know, is a fairly new business that we started two years ago. It's not that we started digital technology and digital offerings to our customers two years ago. We just did it as part of our offering for 30 years when we invested in 3D trace technology. And we haven't monetized directly that offering to our customers for 28 years of the last 30 years that we've been in that field. So we're building that new organization. Created a dedicated organization on that opportunity is in the early years. It's not perfect. It's a bit rough on the edges at the beginning, but that's always been true when we build new businesses. But the fact that we are already generating close to 400 million of sales, which encompasses only two components of it, it's connected hardware and it's software those are the two elements that are driving those 400 million a very high margin and growing obviously knows of 20 and I think we grow probably 25 percent in 26 as well here and we really at the beginning of it.
You know the way we think about digital sales at Ecolab, and especially in the future, is what we call the 100-100-100, where 100% of the customer locations that we serve will have to be connected. 100% of the applications that we provide to each of those locations, think about a hotel where you have a dish machine, a laundry machine, an AC unit, pest elimination, EcoSure audit systems and all that, those are the applications. 100% of them need to be connected. And the third element is 100% of the time where people pay for it. So 100% of the units or 100% of the applications, 100% billable offering. This is the way we think about it. And that's why when I think about the 400 million we have today, we have just scratched the surface of what we can do. We still have a lot of customers using those technologies that do not pay because they're still on the old programs. And we have a lot of customers that do not use it today, especially in institutional because it's relatively new that the cost barrier is not the barrier anymore. So for most of our customers, as well, and we have millions of customers out there that can use it.
That's why Ecolab Digital is a great story, very early in that development, and I think it's going to become one of the biggest cross-drivers of our company going forward by driving customer benefits, ultimately, because our promise is to have them reduce their total operating costs.
David Begleiter (Deutsche Bank): Thank you. Christoph, back to basic industries and paper. Is your confidence in a back-end recovery just because of easier comps, or are you seeing some underlying improvement in these end markets as we progress through the quarter?
Christos (Executive): Thanks, David. It's a combination of both that industry for the paper and packaging industry has had a dual challenge. On one hand, a demand that was pretty loud and at the same time related to it, consolidation of the industry. So consolidation means that they were closing paper mills and a paper mill for us is a big chunk. So it can be up to 10 or 15 million of sales in one location. Well, if it happens that that location gets closed, okay, there's not much you can do because you're not going to sell much to that location anymore. So we had to go through that the last 12 to 24 months. And that seems to be behind us. We haven't seen in our environment, milk closures in the last few months, which obviously is a good news for us as we enter 2026. New business is good in that business as well. Innovation is strong as well at the same time. And the margin of that business was, what, 13% last year. So it's not equal on average, but it's still okay, if I may say.
So the combination of both kind of recovering progressively and pretty good margins even in a down environment in 2025 makes me a bit more optimistic for 2026, but I'm not even close to declaring victory on this one. Same for basic industries, different industries obviously, but similar model as well. So we're dealing with it, making sure we make money in all of those businesses, we keep gaining share as well. And as those industries recover, that's going to help us as well over the next few quarters.
Shlomo Rosenblum (Stiefel): Hi, thank you very much. Quick questions. Christophe, if you normalize for that distributor inventory reductions, just looking at it in a normalized way, what what's going on with the volumes are the volumes actually going up like if you didn't have that surprise are the volumes going up or you're still you know you're kind of at a flattish trajectory and then it's just a technical question what to ask afterwards on slide 13 um on the top left it talks about water's organic operating income growth is expected to something in the first quarter of 2026 and there's...