藝康 (ECL) 2025 Q4 法說會逐字稿

Greetings. Welcome to Ecolab's fourth quarter 2025 earnings release conference call. (Operator Instructions) As a reminder, this conference is being recorded.

At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President of Investor Relations. Andy, you may now begin.

Thank you. Hello, everyone, and welcome to Ecolab's fourth quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO; and Scott Kirkland, our CFO.

A discussion of our results along with our earnings release and the slides referencing the quarter's results are available on Ecolab's website at ecolab.com/investors. Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the 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 poster materials. We also refer you to the supplemental diluted earnings per share information in the release.

With that, I'd like to turn the call over to Christophe Beck for his comments.

Thank you so much, Andy, and welcome to everyone joining us today. 2025 was another record year for Ecolab with record-breaking sales, margins, earnings per share and free cash flow. This was all enabled by the exceptional total value of our team and technologies delivered to customers, helping them achieve better business outcomes, operational performance and environmental impact. Thanks to our team's dedication expertise, we're entering 2026 with strong momentum and are very well positioned to deliver continued high performance with confidence.

In Q4, we delivered 15% adjusted EPS growth with quarterly growth strengthening throughout the year. This was driven by accelerating underlying sales growth and continued strong OI margin expansion. Organic sales grew 3%, driven by 3% value pricing and positive volume growth. Volume actually was stronger than it appeared, with performance improving across most of our businesses.

Food & Beverage accelerated to 5%, Pest Elimination and Life Sciences both accelerated to 7% and Specialty continued to drive significant share gains, growing 7% as well. Institutional underlying sales growth was consistent with prior quarters, excluding the unexpected short-term impact from lower distributor inventories.

We also maintained strong double-digit growth in Global High Tech and Ecolab Digital. And taken together, this strong momentum lifted Ecolab's underlying volume growth to 2%, driving mid-single-digit underlying organic sales growth when we exclude impact from basic industries, paper and this lower distributor inventories. In other words, our core businesses and our growth engines are doing very well.

We expect the distributor impact to largely normalize in the first quarter of 2026. We also continue to anticipate basic industries and paper's performance to progressively improve in 2026. Combined with strong new business wins and continued momentum across our growth engines, we expect volume growth to get back to 1% as we exit the first quarter, with growth accelerating further as the year progresses.

Our strengthening underlying sales drove organic operating income growth of 12% and expanded our organic operating income margin by 140 basis points to 18.5%. This resulted in a full year operating income margin of 18%, up 150 basis points versus last year. We're confident we can continue to expand our OI margin well beyond the 20%.

Now, before I move into our 2026 outlook, I want to take a moment to acknowledge current events in Minnesota. Ecolab has customers in more than 170 countries, but Minnesota has been our home for more than a century. It is where our headquarter sits, and where thousands of our colleagues, customers and communities counting us every single day.

In recent weeks, Ecolab, along with other business leaders across the state, have come together to call for de-escalation and a constructive path forward. As a company that has always believed in doing well by doing good, we stepped in early to have rally business leadership and support the efforts underway. I'm proud of the progress we're seeing and encouraged by the positive momentum.

As expressed in an open letter signed by 60 Minnesota-based CEOs, the business community has an important role in supporting stability, strengthening local businesses and helping build the brighter future for Minnesota. We will continue to work together to help ensure Minnesota remains a strong and resilient place to live, work and grow.

Now, looking ahead to 2026. Our priorities are very clear. First is rapidly grow total value delivered to customers across our core businesses. Second is to accelerate our One Ecolab growth initiative. And third is to fuel our growth engines. We expect 3% to 4% organic sales growth this year with growth accelerating as the year progresses, driven by strengthening volume gains and continued 2% to 3% value price.

Total reported sales, including the Ovivo Electronics acquisition, is expected to grow upper single digits in 2026. And with this strong growth, OI margin is anticipated to expand 100 to 150 basis points to more than 19%, resulting in an OI growth of 14% to 16%. Altogether, this is expected to drive strong EPS growth of 12% to 15%, which includes the headwind of additional noncash amortization from the Ovivo acquisition.

Our first priority is to rapidly grow total value delivered, or as we call it, TVD. Across our core businesses, TVD is our formal framework for measuring the business outcomes, operational performance and environmental impact we deliver to customers. When we deliver measurable value across these three dimensions, it not only drives share gains, but it earns Ecolab collapse the ability to value price. And with the strong customer value pipeline heading into 2026, we remain very confident in delivering 2% to 3% pricing this year.

What makes our value model so powerful is our best-in-class approach. With our scale, digital intelligence and global service, Ecolab partners with customers to define what best-in-class looks like and scale it across their operations, helping them achieve peak performance. This has consistently help customers lower costs, reduce risk and improve performance across the entire enterprise.

Innovation is also essential to our best-in-class value model, and our 2026 lineup is strong and keeps getting stronger. In Global High Tech, we're launching direct chip pooling as a service to the data center market. This brings liquid cooling right where it's needed the most, the chip. By combining our CDO platform with Ecolab 3D trays, our real-time monitoring, advanced cooling technology and on-site service, we improve uptime, lower cooling costs and allow more power to be put towards compute.

In Food & Beverage, we're launching CIP IQ an AI-enabled digital solution that uses real-time analytics for a smarter way to optimize cleaning places. It decreases capacity, reduces water and energy use and improves quality control and product safety, helping customers run more efficiently at the time when every hour of production matters. Earn interest is strong, and we're looking forward to a healthy rollout in 2026.

In Institutional & Specialty, we focused on scaling our IQ suite, DisiQ, AquaIQ, KitchenIQ and BeverageIQ. These solutions directly address labor shortages, guest satisfaction and rising operating costs, giving operators smarter, more automated ways to run their kitchens and front of the house operations. We expect strong growth from the suite in 2026 as well. And in Pest Elimination, we're expanding beyond our rodent-focused smart devices with the new smart solution for approaches extending the reach and impact of our paste diligence platforms.

Moving into our second priority, 2026, expanding the One Ecolab growth initiative. We've demonstrated immense success over the last year. We've aligned our global resources to better serve our top 35 global customers, where there is a INR3.5 billion growth opportunity.

In 2025, sales growth with this group outpaced total company by approximately 2 percentage points. This year, we're expanding this model to our largest regional customers around the world, leveraging the tools, processes and sales structures bid for our top 35 customers.

Within One Ecolab, we've also delivered more than $100 million in SG&A savings as of year-end 2025. We achieved this by consolidating functional work into our global centers of excellence and deploying a number of agentic AI applications as one of the most advanced companies.

As we shared at Investor Day, our initial One Ecolab rollout exceeded expectations, allowing us to increase our savings target from $140 million to $225 million by 2027. And today, we're increasing our savings target again to $325 million by the same year, 2027, due to the continued success of the overall program.

Finally, looking at our growth engines, they now represent about 20% of our portfolio, including Ovivo Electronics, which closed earlier than expected. Together, our growth engines have very attractive long-term OI margin profiles, and in 2026, we expect them to collectively grow double digits, lifting Ecolab sales crops. When we look at what's skirting that trajectory, Global High Tech is leading the way as AI expands and every part of its value chain depends on water, the fabs that make the chips, the power plants that fuel the chips and the data centers that run and cool them.

Ecolab is uniquely positioned in all these markets to help enable the AI build-out. With Ovivo Electronics now part of Ecolab, we provide the ultra-pure water essential for semiconductor manufacturing, supporting the fabs producing the world's most advanced chips.

As we bring our unmatched capabilities together, we're building a unique circular water offering for the fast-growing microelectronics sector. And Ovivo is off to a strong start in 2026 as we have already secured several new fabs where leading ultra-pure water technologies will be deployed.

On the data center side, the industry expects unprecedented demand for AI to continue to rapidly expand. Higher rack densities and rising chip heat make liquid cooling mission critical. Our direct to chip cooling platform, including integrated three trays monitoring and on-site service positions us to help data centers improve cooling asset performance, reduce the power required to cool and return more power to compute.

And as the industry increasingly turns to water to cool next-generation chips like NVIDIA's Vera Rubin platform, we're very well positioned backed by more than a century of experience managing cooling and water systems in complex environments at scale.

As strong as that momentum is, it's only part of our growth engine story. Another major contributor is Pest Elimination. Nearly every Ecolab customer today uses some form of pest elimination. With our One Ecolab strategy, we're unlocking a $3 billion cross-sell opportunity by delivering the most compelling outcomes in the industry, targeting 99% pest relocation through our digital connected pest intelligence platform. We're leaders in deploying digital technologies to this commercial market and expect to have more than 1 million smart devices in the field in 2026.

This technology not only drives best-in-class outcomes for our customers, but it also frees our team to spend more time driving strong sales growth while continuing to expand margin.

We're also seeing exceptional progress in Life Sciences. We delivered our best year yet in bioprocessing. We saved up nearly 75% in 2025. Life Sciences has the potential to be one of Ecolab's highest-margin businesses, where we target long-term operating margins of 30%. We're investing behind these attractive and significant long-term opportunity with breakthrough biopharma purification innovations, new digital solutions and capacity expansions.

That includes the capacity expansion of our Life Sciences' industrial water purification business, which is expected to begin production in the second half of this year, removing the constraints that created a drag in 2025 and positioning us for strong growth in the years ahead.

And the fourth engine powering our growth is Ecolab Digital. We've grown this business to nearly $400 million in annual sales, increasing more than 20% in 2025, and we're still in the very early days. We're investing heavily to bring market-leading digital solutions to our customers across our portfolio. In 2025, more than 25% of our innovation pipeline was digital, which has grown significantly over the last few years.

The strength of Ecolab Digital comes from its focus on solving critical customer challenges and increasing the total value delivered to our customers. With all of this, we enter 2026 confident in our ability to deliver continued strong performance, and we're off to a strong start in the first quarter.

For the year, we expect reported sales growth of 7% to 9% and organic sales growth of 3% to 4%, with organic growth accelerating as the year progresses, driven by strengthening volume growth. And with 100 to 150 basis points of OI margin expansion, we expect 14% to 16% OI growth, and EPS growth of 12% to 15%, including the impact of Oviva.

I'll end where I often do. The best of Ecolab is yet to come. Our ability to improve customers' business outcomes, operational performance and environmental impact is more relevant than ever and it's powering consistent double-digit EPS growth. So thanks so much for your interest and your investment in Ecolab. I look forward to your questions.

Thanks, Christoph. That concludes our formal remarks. Operator, would you please begin the question-and-answer period.

(Operator Instructions)

Tim Mulrooney, William Blair.

I just wanted to double click on the -- you gave a lot of good color in the prepared remarks, but I just wanted to double click on that 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 in 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?

I'd love to, Tim. And our framework remains the same with the 1% to 2% volume growth and 2% to 3% to get to the 3% to 4%, so the year accelerating in 2026. And when I step back, the truth is that the volume growth in Q4 was almost the same as in Q3. As you know, so we round up or down our volume. And the difference versus around and around one was actually only a few million dollars.

So at the end of the day, 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 have accelerated to 5%, Life Science 7%, Pest 7%, water ex paper and basic to 5%, and INS ex the distribution inventory story there, well, we're growing the same at 4%, with specialty is steady at 7%.

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 did obviously saw, with the 15% of the portfolio that needs to work, and 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 the 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.

Manav Patnaik, Barclays.

Christophe, I was hoping you could just double click on the global high-tech piece, the water, the semi, the data center piece, post Ovivo, 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?

I'd love to, Manav, for that question. So global Hitech 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 name so 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 apps and slower apps probably as well going forward, but the trend are clearly up and we see it from an investment perspective. Second, the power and water that's required for that is incredible. As mentioned, so 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, when at the heart of AI is water. As mentioned before, to produce the chips because they produced in ultrapure water, to power the chips because power generation is the second largest water user in the world of the agriculture, and the third one is to cool chips, which is shifting towards water at the same time.

So high-growth market, where water is a heat of it and especially on those two key areas of fabs and data centers and one might argue that power generation is also part of it was kind of a flat market for a very long time, but that's changing because we need much more power that's going to help as well up on the side, but it's not part of our global high tech.

So 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, there, 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 1,000 times more pure than water that's used in our blood injections by the way.

So recycling water tha's difficult to recycle at a super high standard, but that's exactly what Ovivo helps us to do. That was the piece of the puzzle that was missing for us. and now we can provide so the 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, they've 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 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. We added Ovivo for fabs, and we will keep building our capabilities on data center. Today, combined, these two businesses are roughly $1 billion, growing strong double digit right now at very high margin. And we see many opportunities to make that business way bigger in the years to come.

Ashish Sabadra, RBC Capital Markets.

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 tailwinds from pricing as well as mix shift in '26?

Thank you, Ashish. I'll pass it to Scott, just to start the answer.

Yes. 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 Christophe 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. And on top of that, with that, we're also driving the One Ecolab program, which Christophe announced that will now increased that savings target of $325 million. And that $325 million, as we think about it, about $120 million.

So I think that's sort of one-third, a little bit more than one-third through the end and then the remaining $200 million will be sort of equally over the next two years. And so that will be a driver of that 25 to 50 basis points as well.

John McNulty, BMO Capital Markets.

So I wanted to drill down a little bit into the incremental margins because it looks like what we saw in the Past was kind of a really explosive incremental margin in terms of how much kind of came down to 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?

Thank you, John. It looks like Scott is on a roll, so he's going to take the first part of the answer here.

Yes. 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 and Pest, 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 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 Christophe 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 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 was creating a lower base point for them. But again, that business is doing really well, as Christophe said, growing 7% top line and OI margins north of 20%, and we expect to continue that trajectory.

So maybe a few points here to build on what Scott just said. Not every quarter is treated equal. You can have year-on-year obviously some 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're all in the spirit of investing the right way, 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 is really making sure that we get or beat the 20% OI margin that we've talked about over 2027. We feel really good about it. So we were 18% last year, we are planning to be north of 19% '26. And I'm already thinking about what's beyond to 20% because many of our businesses or either beyond 20% already or have underlying margins that are already north of it, which is the case of Life Science.

Chris Parkinson, Wolfe Research.

Christophe, if you can just dig in a little bit to what you're seeing in the global water business. Over the last couple of quarters, there's been a bit of a divergence between light and heavy within water. Mining seems mix, perhaps some life in certain metals. F&B, it seems like it's inflected and papers continue to be a drag. But can you just kind of give the way you -- if you can give us some insights on how you're thinking about that business in 2026?

What you would need to see at the top and the bottom end? And forgive me for coming my own range, but to the 3.5% to 4.5% range, call it 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?

I'd love to, Chris. Water is half the company -- sorry, it's a big chunk of it. We've built that business since 2011, obviously, when we acquired Nalco. And our ambition was really to create the world's water company, and we 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 reduce and recycled water so in a closed circle as mentioned, so for the GHT 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 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. As I mentioned, the biggest business in there is Food & 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 with that can 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 $1 billion, 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 underlying growth is close to the mid-single, so this 5%, drag down by basic and paper.

But those two will recover. That's the good and the less good things are 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.

Seth Weber, BNP Paribas.

Christophe, 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 conquest 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.

Yes. New business is the number one focus of the whole company. We have this mantra of 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 with 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 spend 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 growth 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 new business. And within one week, we managed to grow our new business versus the same week a year ago by over 30% during that week as well.

So a very good story. Our value proposition is very well received by our customers because they needed 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 across our businesses around the world.

Andrew Wittmann, Baird. Andrew J.

Great. I guess I wanted to ask a couple of 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 raise.

So that was kind of one there. And then just on the expected volume improvements on the water side, Christophe, is -- are you seeing that -- is this just going to be a comp 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?

Thank you, Andy. So let me start with the second part, and then I'll ask the FX to Scott, two very different questions, obviously. The new business in -- for the whole companies 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 challenged 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, Andy, is a very strong proposition for us. 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?

Yes, happy to answer the mechanical questions, Andy. So on the FX for '26, we're not expecting a significant health for hurt. We're sort of thinking it's neutral to 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, the macro environment, so that could change.

But that's our going in assumption, but even any upside in the first half, as you look at sort of all items below OI, there's going to be offsets to that as we had in our guidance 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 will be about $30 million next year. So that's about a $20 million decrease on that other income just due to pension assumptions. So 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 sort of the next year or at 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, while it was not.

We thought that our delivered product cost would be pretty benign, the whole tariff situation changed quite a bit during the year as we now and we adjusted. So we've got us to become very agile to adapt to local conditions and make absolutely sure that we still deliver our 12 to 15 earnings per share. We hope -- we think that FX is going to be pretty benign in '26. Maybe it's not. And if it's not, we will adjust accordingly as well as we've done in the past few years.

Vincent Andrews, Morgan Stanley.

Just a question on the One Ecolab cost savings. You raised it again. I'm just wondering if your assessment is that this will probably be the last raise to it or if you still think there's opportunity there, maybe there's some conservatism in the number because it looks like the 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.

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, the technology, AI agents, agentic technology as well here that no one has really done so far. So there is 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 a 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 to where 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?

Yes. Christophe said it very well, Vincent. The savings momentum is better than we expected, as you said, moving from that $225 million to $325 million 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 tie touch processes and then leveraging the global COEs that Christophe 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 One Ecolab and the scalability that it provides.

Patrick Cunningham, Citibank.

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?

Thanks, Patrick. I love that question. Well, as we go, we've been for a long time in the business of building great new businesses and Ecolab Digital, as we know, as you 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 TRASAR 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. We created a dedicated organization on that opportunity. It 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, very high margin and growing, obviously, north of 20%. And I think we'll grow probably 25% in '26 as well as here. And we're really at the beginning of it.

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, 10% of the applications that we provide to each of those locations think about the hotel, where you have the 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 its own, 100% of the units or 100% of the applications, 100% and 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 growth drivers of our company going forward by driving customer benefits ultimately because our promise is to help them reduce their total operating cost. That's the TVD that we've always promised to our customers.

David Begleiter, Deutsche Bank.

Christophe, back to Basic Industries and Paper. Is your confidence in the back half recovery just because of easier comps? Or are you seeing some underlying improvement in these end markets as we progress through the quarter?

Thanks, David. It's a combination of both that industry for the paper and packaging industry had a dual challenge. On one hand, okay, a demand that was pretty low 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 chart. So it can be up to $10 million 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, mill 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. It's not Ecolab average, but 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 will keep gaining share as well. And as those industries recover, that's going to help us as well over the next few quarters.

\Shlomo Rosenbaum, Stifel.

Quick questions. Christophe has normalized for that distributor inventory reductions. Just looking at a normalized way, 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 are you still -- you're kind of at a flattish trajectory? And then it's just a technical question I want to ask afterwards. On slide 13, 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 -- it's a blank or there's a word missing. Is that expected to go up, go down, be flat? If someone could just answer that.

So thank you, Shlomo. So a few questions, obviously, that you have in there. I&S, Institutional & Specialty, basically nothing changed from a demand perspective. And if you normalize, it was 4% organic for I&S and 3% for the institution division at 7% for specialty. So generally, nothing to see in I&S in a market, that's a difficult market, as you probably noticed, the restaurant and hospitality industry is not doing great right now, but we're gaining a lot of share, which is really good.

Maybe a comment on this distributor event, why did they go down and that's not under our control. It's obviously our customers ceciding that. But the better we become in our supply chain service, the more reliable, the more accurate we become, well, the less inventory they need to carry from our products. We've seen that in the past a few times already. That happens mostly at the end of the year as well.

Well, that's exactly what happened in the fourth quarter, and that takes a few weeks to happen and then it takes a few weeks or months to normalize as well. But it's driven by two good things. On one hand, demand hasn't changed. And on the other hand, inventories went down because our service improved.

Okay, we don't like the optics, but generally, it's a good thing as well as going forward. And your question on the water. So for the slide 13, I don't know what slide 13 was to be honest. So I'm glad I have some help here. I think that the word was missing.

And what I'm seeing here, it should have said expected to accelerate, that will be tabs.

Jeff Zekauskas, JPMorgan.

I have a couple of questions about Ovivo. Is Ovivo roughly $500 million in sales, maybe growing to $550 million? And is the EBIT, I don't know, $75 million, the EBITDA $100 million. Can you give us an idea about that? And Ovivo is a combination, I think, of sale of equipment and consumables.

What's the balance between equipment sales and consumables? And in the fourth quarter, it seems that you excluded it, that is you took out the interest costs that were connected with the acquisition and the revenues of Ovivo itself. Why did you treat it that way from an accounting standpoint? And what do you plan to do in the first quarter?

Thank you, Jeff. So I start looking at me because I'm not the accountant here in the group there. So he's going to take that question of the December accounting. And I'll cover your other questions after that. Scott?

Yes. Thanks, Jeff. So as you know, Ovivo closed a bit earlier than we expected and wanted to show that Q4 really show the underlying business without the transaction noise, which was very consistent on how we handle both the Purelite and Nalco acquisitions. So if you look at it because in Q4, the deal closed in the middle of December. In Q4, we had like half a month of interest expense, but very minimal sales and OI benefit just given the timing of flows and mix of the business geographically.

So it would have been very noisy. It was not part of our guidance that we had for Q4. And again, it's consistent with how we treated PureLight and Nalco.

That's the first part of the question. So I hope it answered your question, Jeff. And so now on Ovivo as a business. It's roughly $0.5 billion. Yes, it's a bit less than that.

And it's growing double digit. The way it looks for the first quarter is double-digit growth as well. I've been very pleased with the new business in that field. It's focused 99% on fabs, as you know. And we've closed a few very interesting deals in Singapore and in the US.

It's very few customers as we know that are producing some microelectronic chips. But those are very big every single time. There's no one that can do what Ovivo can do. And there's no one that can do what together we can do, which is the circular approach of reusing and recycling ultra-pure water. 95% of the water does not get recycled in microelectronics today, which is a major issue.

Our ambition is to get north of 80% recycled. So from 5% to 80%, or in some cases, even 100% of reuse. Now to your question on equipment and consumables. The Ovivo as such, is mostly technology and much less consumable. What's important to us is the combination of Ecolab and Ovivo, which then becomes very much like an Ecolab business where it's mostly consumables and technology as a secondary growth driver.

That's why we really like it. It was technology that was really hard to develop. No one is even coming close to them, Jeff. We could have developed it ourselves. It would have taken years.

The second issue is to get the credibility with those microelectronics manufacturers. They're very few and they're not exactly risk takers for technologies that are absolutely critical to the chip manufacturing. That would have been a second hurdle for us as well. And everything is happening as we speak as well at the same time. So a great business coming with what we have done for a very long time in terms of water management. Well, it's a typical one plus one equals three, I think that for our fabs business, it's going to be game changing.

Matthew DeYoe, Bank of America.

Think you're done with year one of One Ecolab that you'd rolled out to like the three largest customers. What's the feedback and any wins, learnings you can take as you deploy this to I think it's the top 25 customers in 2026, so an incremental 20 so to adds. And when do we see this as more of a top line driver? What kind of rollout do you ultimately need? Because it didn't feel like you have a pretty considerable amount of sales opportunity just with that top 35 based on the kind of conversations we've had over time?

Yes. So it's 35 customers. So it's our top 20 largest customers in the world and what we call our emerging 15. So those are not the biggest, but the ones having the potential to become some of our biggest, microelectronics being a perfect example of one of those 15. So you get to 35, that could drive $3.5 billion of share increase potential. That's why we focus on those ones first and foremost.

It's simpler because it's fewer customers, and it's the biggest potential, the $3.5 billion in many locations around the world. So we've gotten organized behind our 35 customers, which are the biggest brands, obviously, that you know in all industries as well at the same time. So that organization component has been done. The growth of those 35, as mentioned before, so it's 2 percentage points higher than the rest of the company. So facts of demonstrating that it's working.

And it's probably the second biggest moat that we have as a company, our first being our team, serving our customers everywhere around the world, is delivering best-in-class performance. Basically, we help each of those customers understand what's the best-in-class performance within their own company if it's a restaurant with the best guest satisfaction, what's the best cost performance, what's the best environmental impact.

If it's a data center, it's uptime, cost and impact, you get the system here, and we have them drive the performance of all the units towards the best-in-class performing unit within the company. And we do the same across the industry, not sharing the names, obviously, to help our customers understand all how far are they from a best-in-class performance.

So it's been developed based on an idea from a few of our customers a few years back. And those customers are ultimately asking even more than what we can deliver today, which is kind of a good problem to have because our customers, I would say, are ahead of us in terms of what they would like to see from us and what we can deliver. Well, that's a good problem to have, and that's where we are.

Mike Harrison, Seaport Research.

Christophe, you mentioned the IQ suite. I was wondering if you could talk about what penetration looks like today versus where you think penetration could go over the next, say, two to three years? Just curious, are you 5% or 10% of the way to where you hope to be or more like 30%, 40%, 50%?

And I guess as we think about growth in the IQ suite, where would we expect that to show up? Does it show up in digital sales? Does it show up in institutional volume growth? Or does it show up in margin expansion or all three?

The short answer is all three, Mike. So first your questions penetration. It's in the low single digit. Today, we're very early here. As mentioned often, this is something we did not exactly do in our institutional end markets because it was too expensive for our customers to embrace that technology, things that changed dramatically in the last two years, and we have the knowledge and expertise our water industrial businesses. So we're kind of very well positioned for that. So very early on that journey.

Second question, where it comes. Well our reporting segments are our traditional four reported segments that we have. The digital sales that we're mentioning are the digital sales of those four segments. so included in the four segments, which is the way we've presented at the last 12 or 13 months that we're doing that. And last but not least, yes, it improves the margin because digital sales have a way higher margins because there is no real cost or hardware cost related to it on the software side.

On the hardware side, it's a little bit different, but it's much higher than the average gross margin we have in the company. So it's all three.

Laurence Alexander, Jefferies.

Just wanted to flesh out a little bit how your thinking is evolving around the interplay between your M&A targets and your margin targets. The 20% margin has been kind of an elusive one over the years and kind of now it's within reach. You hinted earlier, you may be thinking about moving it higher sooner rather than later. Would you -- what type of M&A would you consider that would structurally push back the margin target a few years? Or do you see that as, given the types of things you look at, just sort of structurally unnecessary?

So just to be clear, we're not trying to push back any margin target. 20% by '27%, that remains the same. We had 18% last year. We'll get north of 19% in 2026, and we will get to 20% in '27. And then we'll keep growing so 100 basis points, as we shared as well on Investor Day.

And M&A needs to help getting there. We will never do an M&A deal that is destroying value for shareholders. So return on investment needs to be at the right level. It needs to be growth and margin accretive. Those are the plans.

Afterwards, whether everything happens as planned, well, that's an execution question, obviously. But we are very disciplined in how we do M&A. We will never do something that's destroying value because what we say inside the company that's buying work and it's done for shareholders. Well, those are two reasons for not doing that, at least not consciously. And we've done 100 deals in the last 10 years. We have a lot of practice, we've learned a lot, and we are very successful in how we do M&A in general. So no change for the margin targets.

John Roberts, Mizuho Securities.

This is Edwin Witbier for John. Christoph, just one quick one on the 2026 guide. Can you talk about the factors that could drive the higher end or lower end of that range, like what are the swing factors in there?

I guess all the things that we don't know are going to happen. If we look at the last five years, there was not one year that happened as planned, not because of us, but because of what's happening around the world. So we have this range of the 12% to 15%.

The fact that we are very agile as a company on how we run our businesses, how we manage value price, how we drive surcharges if we need, getting as well more performance out of One Ecolab as we discussed before as well, we have a great supply chain and procurement team as well doing unbelievable work in whatever conditions out there. So the big questions are the things, I don't know. But I know that the team knows how to deal with them. With everything we know now, I feel that the year is very well balanced, and I feel really good about the 12 to 15.

Jason Haas, Wells Fargo.

I'm curious if you can talk about I'm curious if you could talk about the cadence of the contribution from pricing as we go through 2026? And the reason I ask is because I believe you put in a tariff surcharge that went into effect the second half of 2025. So I'm curious if there's like a go over factor where you'll have more contribution from price in the first half of 2026 and then less in the second half. Is that the right way to think about it?

Well, the key point is also that surcharge, which was a trade surcharge. We had an energy surcharge in '21 or '22, I'm losing track of the year. We convert all that into structural pricing and everything has been done as well as we speak. That's why on one hand, whatever happened on tariffs with the Supreme Court, I'm not worried about that. And on the other hand, well, it's going to drive this 2% to 3% price in 2026 pretty consistently for the quarters to come.

That's obviously assuming that nothing else happens in 2026, but that's not at the heart of your question here. So basically, a traditional year in '26 with 2% to 3% value price, which is obviously a 100% margin driven by the total value delivered that we generate for our customers, which is a big growth driver for us and probably one of the best ones that I really like, and we'll keep focusing on that in the future.

Josh Spector, UBS.

Just a quick one here. I know you guys were spending a bit more on CapEx the last couple of years to basically grow into some new wins that I think you had in specialty. I guess with specialty growing 7% the last couple of quarters, is that now in the run rate? Or is there more of that to come? And will CapEx step down into next year as a result or stay at similar levels?

Let me pass it to Scott.

Josh, yes, on CapEx, as you know, our historical CapEx has been in this 5% to 6% range and about half of that is equipment at customer locations so -- which is why this thing grows in proportion to sales. The 2026 CapEx came in at about 6.5% of sales, to your point, because we're investing in growth like the new business but also the innovations around DISHIQ, Pest Intelligence, Global High-tech, and that will continue into 2027.

I expect that the CapEx -- sorry, the '26. I expect the CapEx for '26 to be around 7% and probably for the next couple of years because we're continuing to invest in those growth engines, really to focus on accelerating sales and expand margins. So we're investing organically and inorganically, both to expand margins and drive sales. And at the end of the day, it comes down to ROIC, and we like where we're at in ROAC, continue to expand that in line with our long-term targets.

Kevin McCarthy, Vertical Research Partners.

Christophe, on slide 6, you indicate organic sales growth of 3% to 4% accelerating through the year. And I just wanted to understand that acceleration piece better. Is that to do with the aforementioned normalization or stabilization in basic industries? Or are you expecting your higher growth platforms to accelerate as well? And then related to that, would you make a comment on the expected growth in your data center linked businesses this year?

The two questions. So you're right, the 3% to 4% where we are now, obviously, and do the upper range or more after 3% to 4%, driven by both actually, so the normalization of the more challenged industries in paper and basic. And our core and growth engine businesses that are doing extremely well. As we discussed before, our gross engines are growing double digit today and some of our core businesses like institutional and specialties at 4%, F&B at 5%.

So our core business growth engines are doing really well at great margins and great margin development as well. So it's a combination of the two, and more specifically, the data center, which we don't exactly disclose as such, but our global high-tech business is growing pretty strong double-digit sales.

We will publish our exact numbers in the first quarter by the way, so I want to make sure I'm not getting ahead of my skis here, but we will get more color in the first quarter, but it's one of our best businesses that we have here, very strong margin, growing double digits at strong rates and Ovivo is going to help and all the innovation I mentioned before on the cooling as a service is getting great reception from our customers that needed more than ever because chips get more powerful, they get more concentrated on a rack.

They create more heat that requires more cooling. And if that doesn't happen, obviously, the data center stops operating. So it's absolutely essential as a component of the compute offering here.

So a very good story and early on that story. I think that that's one of the businesses that's going to become one of the best and biggest businesses we will have in the future.

Scott Schneeberger, Ampeheimer.

Just a quick one. In Life Sciences, you had great momentum, a little step back in the fourth quarter on the margin trajectory. It looks like you're doing some investments, some global capability build-out. Just curious if that -- is that going to be something that is pressured for multiple quarters? Or are we going to get back to inflect and had higher towards that target?

It's going to be a great story in '26. We've been building that business for years, as you know. I always love that opportunity. The first figures were more complicated than we were hoping, not because of internal questions, but the market. So it was a bit in a more challenging place after COVID.

It helped us gain share, build further our business, and now we're collecting the fruits of what we've built in Life Science, and you've seen the growth acceleration. Bioprocessing, which is a core part of it, is doing extremely well in there, is really at the forefront of innovation for the biotech industry as well at the same time.

So we're all going to really like the growth of that business starting in Q1, by the way, for Life Sciences. And our objective is to get to 30% margin, but we will not reduce our investment in the meantime to get the margin quicker. What we want to make sure is that we get as much share as we can in order to get the returns ultimately in the long run, that business. So overall, a great story that keeps getting stronger.

Bob Zolper, Raymond James.

How is your customer retention in institutional and specialty?

It hasn't changed. So it's always in the low to mid-90s in terms of retention attrition is obviously the reverse of that. It stays very stable over the years. We're looking at that very carefully because, well, we want to make absolutely sure that we do not lose our customers. We have this mantra of never ever letting our customers down in institutional and specialty.

Well, there's another dimension, it's restaurants close, there's not much we can do for that. It's very different by country obviously, but the customers we have and the numbers I gave you include the closures that we can't do anything against obviously.

So short answer, very stable. That's why I really like what our institutional is doing, has done over the last as well, shifting towards digital technology, all those IQ platforms that we talked about, AquaIQ, for instance, which is remote service for pools around the world. When you think about the work that's required, while that's taken over by AI with that application, those are game-changing innovations in that business that didn't exist five years ago.

So institutionally in a very good place, specialty that's some more quick serve as part of this hospitality business, as you've heard, it's growing very nicely, so at 7% very consistently with great margin as well. So I think that I&S is in a very good shape. So I'll end where I started. The company is doing well, and I especially like the growth development we have in our core businesses.

On top of it, the gross engines that are 20% of the company today are growing double digit with over average margins as well. So our portfolio is shifting towards higher growth businesses, higher margins, which is exactly where we want to get to, and that's why I feel as good as I can be in 2026 with everything I know to that.

Thank you. That wraps up our fourth quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time and participation. I hope everyone has a great rest of the day.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and have a wonderful day.