藝康 (ECL) 2021 Q1 法說會逐字稿

Greetings, and welcome to Ecolab's First Quarter 2021 Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Mike Monahan, Senior Vice President, External Relations. Thank you, Mr. Monahan. You may now begin.

Thank you. Hello, everyone, and welcome to Ecolab's first quarter conference call. With me today are Christophe Beck, Ecolab's CEO; and Dan Schmechel, 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/investor.

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 posted materials. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with a brief overview. The first quarter showed continued sequential business improvement that was offset by the Texas freeze. Adjusted EPS were $0.81. That EPS included the impact of short-term supply chain and customer disruption from the freeze that were estimated to be $0.10 per share. Healthcare and Life Sciences segment showed further strong sales growth. The Industrial segment experienced a modest sales decline as its growth was offset by the freeze impact. The Other segment significantly narrowed its sales decline from the fourth quarter and Institutional & Specialty segment sales decline narrowed slightly from the fourth quarter as sales trends within our U.S. Institutional business improved through the end of the first quarter.

Our markets are broadly improving and increasing rate of vaccination, along with the easing of social restrictions, provides further support for the global economic recovery. We expect that broad improvement, leveraged by our investments and the work we have done to further our critical innovation, service and digital business drivers, as well as our cost efficiency measures, will help drive strong comparisons against 2020 results over the balance of the year and result in 2021 adjusted earnings per share that exceed 2019 adjusted earnings per share from continuing operations excluding the estimated $0.15 per share impact from the Texas freeze.

Over the past year, we've seen the value of Ecolab's premium product and service expertise once again underscored through continued strong new business growth as well as our strengthened customer relationships despite the difficult market conditions. Our position as leader in food safety, clean water and healthy environments has become even more important. We believe this position, along with our strong long-term growth opportunities, remain robust, driven by our huge remaining market opportunity, our leading global market position, our focus on providing our strong customer base with improved results while lowering their water, energy and other operating costs, and through that, our ability to help them meet their growing ESG ambitions. We believe these sustainable long-term business drivers will continue to yield superior long-term performance for Ecolab and our investors.

And now, here's Christophe Beck with his comments.

Thank you so much, Mike, and good afternoon, everyone. I'm very pleased with our first quarter, which was right in line with our expectations. Excluding the Texas freeze, which we discussed earlier, our business continued to show solid fundamental improvement that gives us confidence in our full year outlook. Our underlying business momentum as well as margin development kept improving across the board, leading to strong results in the first quarter. Excluding the short-term impact of the Texas freeze, our Q1 adjusted EPS showed a significantly narrowing decline versus the prior year, continuing our improving quarterly trends. It's also ahead of what we delivered in Q1 2019, which is a good indication for our expected full year delivery. We did all this while continuing to invest in our major growth initiatives and in our global team capabilities to leverage our position as the markets reopen.

Excluding the freeze, all segments stayed strong or showed continued sequential improvement. Our fundamental business trends kept gaining momentum, especially in our Institutional division, which saw a definite pick up as we exited March. Our Industrial segment, which was most impacted by the Texas freeze, delivered improved underlying growth trends versus the fourth quarter of 2020 and continue to further strengthen its margin. Healthcare and Life Sciences maintained a strong double-digit growth and solid margin improvement. This good start strengthens our confidence for the full year and beyond. Our general market outlook remains largely unchanged versus what we said in previous calls. North America and China are moving ahead of our previous expectations, while Europe and several emerging markets remain behind as they recover from extended lockdowns and are still impacted by a rather slow pace of vaccination.

So while the exact timing of the global reopenings might shift a few months, which might also shift some of the recovery into Q3, we expect strong growth in the second quarter, driven by improving end markets and accelerated underlying growth momentum. We expect these trends to continue in the second half of the year. Our objective has been to start the year in a position of strength. And Q1 shows we clearly achieved this. Our net new business pipeline increased to record highs, and our global market shares are strengthening. Our differentiated innovations are continuing to help our customers protect their consumers and our world-class programs help them preserve vital natural resources while generating very attractive financial returns.

And with our new Ecolab Science Certified assurance program, we have become the brand that reissues customers and consumers in times they need it the most. All this underscores our confidence that we are on a path to deliver full year '21 adjusted EPS ahead of 2019 EPS, excluding the estimated $0.15 impact of the Texas freeze. Looking beyond the pandemic, our longer-term position is better than ever. In a world where hygiene standards are rising, where food safety and infection risk awareness has reached new levels, where the expected gap between water supply and water demand is wider than ever, our differentiated value proposition as the global leader in water, hygiene and infection prevention services and technologies positions us uniquely to capture this accelerating growth trends.

The combination of this unmatched value proposition and the breadth of our comprehensive offering makes us the obvious partner for global companies to help them deliver on their most ambitious sustainability commitment. Our ability to serve customers at 3 million locations in 172 countries with 25,000 dedicated underground experts in 40 industries allows us to deliver the same standards of quality and performance anywhere around the world. And our new business pipeline, breakthrough innovation, unmatched digital footprint, world-class scientific expertise and passion for exceptional execution will continue to lead to sustained growth momentum and continued double-digit earnings growth for the years to come. I look forward to your question.

So Mike, back to you.

Thank you. That concludes our formal remarks. As a final note, before we begin Q&A, we plan to hold our 2021 Investor Day on Thursday, September 16 in St. Paul.

Operator, would you please begin the question-and-answer period.

(Operator Instructions) Our first question will be coming from the line of Tim Mulrooney with William Blair.

I know everyone is expecting a strong recovery in the Institutional segment in the second quarter and particularly given the easy comparison that you have with last year. But I'm curious if you could maybe talk about how the recovery in that segment is unfolding on a global basis. How is U.S. Institutional performing recently relative to some of your other major global markets? And how do you see that playing out through the second quarter?

Thank you, Tim. So on Institutional, net-net, it's happening as expected. We had the U.S. and China that are ahead of our expectations as we can read as well in the news. And on the other hand, so we have Europe and a few emerging markets that are behind, as we can see restrictions with lockdowns, with a slow pace of vaccinations, especially in Europe as well. So that's the balance that we are trying to manage. When I think about how Institutional did during the first quarter, we saw a nice pickup in March. It's been confirmed in April right now in the second quarter. So net-net, Q2 should be more or less as expected. If there is 1 caveat might be so the timing of reopening in Europe and some of the emerging markets that might shift some of that growth in Q3, but for the full year I confirm the outlook the way we described it in the previous call.

Okay. That's great. And as my follow-up, can you just talk about within the Institutional segment, how your customers that are open, how they're spending? I know this has been a common theme that folks have asked on the conference call but curious on your updated thoughts. Are customers spending more than they were relative to pre-COVID levels on things like hard and soft surface cleaners, where I know that there's maybe some elevated demand? And do you think eventually that demand returns to pre-COVID levels? Or do you think that it settles somewhere above pre-COVID levels given the emphasis on virus protection and the like?

Good question, Tim. So our focus, as you know, is on our corporate account. So those are chain customers, regional or global customers. Those are the ones who have weathered the pandemic better than others as well. Most of them are investing in new units or in the refreshing of current units as well, so which bodes very well so for our business for today and for tomorrow. To your question on the hygiene products basically, the way we think about it is that it's going to be a bit less than during the pandemic, where the measures, obviously, are going to be a little bit less strong than what we've experienced over the past 15 months. But it's going to be higher than what we've experienced so pre-pandemic as well. So net-net, we think that our position in Institutional has strengthened and the customers that we serve are going to be in a better position as well.

Our next question is from the line of Manav Patnaik with Barclays.

I just wanted to touch on the -- on your comments around Europe. If you could just elaborate a bit more in terms of -- I know pre-pandemic, it was structurally, I guess, just a little growth area, and there was some competitive dynamics. So I was just curious if you see any of that changing once we do get this rebound or reopening?

So to your question on Europe. So Europe had a good year last year. So in 2020, we had flat sales overall. We had saw our profit margins that went up as well. So overall, I was very pleased with the business development that we saw in that critical region so for us. And if I look at '21, it's kind of an on-off approach that they are having. So first, I'd like to put on the sites of the U.K., which are partly reopen, as we know, so way ahead in terms of vaccinations versus Continental Europe. So U.K., we saw a good development over there. Continental Europe, so most of the countries are in complete lockdown. So most of the large countries have curfews even as well.

That's true for Germany and for France, for instance, as well. So most, if not all, of the restaurants and hotels are, for the most part, closed, which is something that's going to change, hopefully, before the summer. They're all talking about reopening in order to protect the summer season. I hope that, that's going to be true. It's going to be a bit later than what I had expected ultimately here, but then it's going to drive a rebound, which is going to be positive in Q3. So as mentioned before, we might have some of the growth we were expecting in Q2 shifting to Q3. But all in all, so for the full year, it's going to be similar than what we had thought.

Okay. Got it. And then the other question I just had, Christophe, was on water. I know it was 3% growth backing out the Texas freeze. But just given just the water scarcity issues out there, I was just curious what -- can water grow just like Life Sciences and Healthcare is growing just given the need out there? Or are there any limitations to get to that kind of growth rate?

Yes, for water. So you mentioned it's a 3% ex the Texas freeze. It's important as well to keep in mind that within water, you have light industries, heavy industries. Both are growing, ex Texas, are in mid-single plus, which is very good in Q1. And you have mining, which is still in the negative territory since we exited some of our coal business. But even mining is going to come back in a nice way, I think, in the next few quarters and years, for sure. And to your point on water scarcity, we see always more customers coming to us and asking us how to help them reach their net 0 objective that they have for 2030 or for 2050, which is right in line with our ESG promise as a company and offerings of our customers. And that's going to feed as well, I think, the momentum for water in the years to come.

Next question is from the line of David Begleiter with Deutsche Bank.

Christophe, can you discuss the pressure from ROS you're seeing and the pricing you need right now to offset that and when that might equalize prices versus ROS?

Yes. David, on the ROS, it was pretty benign in Q1 as we've shared. But if we look at the full year, if we look at the indices that you reach to it's obviously much more than what we had expected initially. But when I step back and look at the overall picture, it's roughly kind of mid-single growth in terms of cost for our overall ROS spend, which is more than what we had expected, but something that we had experienced in the past as well. We know and we have the capability, so, to price for that in a good way. You know that we price to our customers based on value that we create as well. So for them, which means that we do that as well over time. It's not a rapid shift over a month. It take us some time. And just as a reminder, we tried to get the dollar value, so within 12 months back and the margin in percent -- in 24 months, so the second year. So the way we look at it today for '21 might be a slight negative, but I'm not even sure about that. Our teams are good in doing it. And what we're seeing right now is nothing exceptional versus what we've experienced in the past.

No, very good. And can you just discuss the competitive intensity of the marketplace? You have a -- one of your competitors is now public. Talk about your share gains you saw in Q1 and what you expect as you go through the year versus perhaps do a more public profile of the competitor?

So I'm really happy with the share gains that we're having in most, if not all businesses, actually, where we're tracking the number of units that we are serving, the number of solutions that we're serving to existing units as well, and we've talked about that over the past few quarters. That was an objective for the whole team during the pandemic to gain share. That when it reopens, we can leverage, obviously, that pick up, and that's happening as we expected, which is really good.

And you're right. So one of our competitors has become public over the past few weeks. We're very familiar with them. We've been competing with them for many, many years. We respect them a lot as well. And I would say they make us better because we need to be better than them. And when you think about it, we overlap in less than 1/3 of our end markets. We're 5x larger. We invest 10x more in R&D and digital than they do as well. So I feel really good about what we can do for our customers and how we're gaining share versus them on the marketplace.

Our next question is from the line of Rosemarie Morbelli with G. Research.

So Christophe, if -- what would be the likelihood that you could be close to the 2019 level of $5.12, including the hit from the freeze and outside of Europe recovering? Or do you need Europe to open its doors to all Americans vaccinated, and we are all going there in order to help you guys? What do you need in order to do better than what you are looking at currently?

So right now, I feel very good about delivering this 2019 adjusted EPS, excluding the Texas freeze. As you mentioned, the Q1 delivery has increased our confidence to deliver that. As mentioned before, there might be some shift between Q2 and Q3 because of the timing of reopening in Europe, as you mentioned. But overall, with everything I know right now, I think that the delivery, as we described it, is the right target. If things improve in Europe better than the old thing, well, we will definitely try to gain more momentum. But for now, I think that the 2019 EPS delivery would be a good target, excluding Texas.

Okay. And then looking at F&B, could you talk a little bit in more details of the different segments or areas in that particular segment?

So F&B had a good year last year. It's one of our best businesses, as you know, so good growth, good margin, good margin improvement. The whole Industrial end segment obviously did as well. F&B had a strong start in 2020 when the pantry loading was happening in the first quarter and a little bit beyond as well. So we have some comparisons challenges right now. But underlying, I feel good about where F&B is going. It's a little bit different by end markets. So we had the milk products that were impacted for a while because of schools being closed. That's improving progressively, which is good.

We see beverage and brews, beers improving in some places, especially in the U.S., but we're very strong in Latin America, where everything is closed. So that's going to be good for the future. That's a little bit less good right now. And in the food segment, that's where we have strong comparisons versus the previous year, where it pressures a little bit the year-on-year comparison. But net-net, Q1 so feels a bit softer because of the comparison. But underlying and especially when I look at the new business being generated in F&B, the next few quarters are going to show some good delivery as it is to be as well in the past.

Our next question is from the line of Gary Bisbee of Bank of America.

I guess the first question can you just give us an update on where we are with the cost savings program? Sort of what have you achieved to date? What's likely to be achieved in 2021? And then how much savings are left from those big programs for -- beyond 2021?

Thank you, Gary. I'll pass it to Dan, who has the details. But generally, I like so the progress that we've made in our cost savings program, which are all meant to strengthen our performance post pandemic as well. So if anything, things have progressed better than we had expected. But with that, Dan, maybe some more detail.

Sure, Gary. Thank you. Just for common reference maybe, it's probably helpful, again, to build up the pieces of our cost savings program, which you'll recall was originally announced clear back in 2018 as Accelerate 2020. This was the initiative to capture the investments in our digital offering with a $200 million cost savings target. We expanded it at the time we announced the ChampionX and covered things like stranded costs and anticipated costs related to ChampionX. We expanded it again to cover some aspects of supply chain industrial business and most recently to cover some restructuring or really some reshaping maybe of our institutional business to improve principally steel delivery.

So you add all that up and we have a targeted cost savings of about $365 million. Some of that is in gross margin. The big bulk of it is in SG&A. Year-on-year, the incremental piece that we expect to capture in 2021 is in the neighborhood, if you look just at the SG&A piece, $120 million-ish range. So it's a big help in 2021. Mind you there's a lot of -- $91 million, I'm sorry. There's a big piece that is captured. But the net of it is that we think that this entire program will essentially be delivered by the end of 2021. And there will be pieces of the institutional program that spill to 2022, but the bulk of it will be fully accrued and fully delivered by the end of 2021.

Okay. Great. And then the follow-up question, just how are you thinking about multiyear growth beyond 2021 as we get more normal performance for the business post pandemic? Historically, you'd laid out a number of long-term aspirational targets. Should we think back to those as appropriate? Or just can you give us a sense how you're thinking about the multiyear outlook?

Gary, just to make sure I understand your question. So you mean in terms of sales growth and earnings growth, right?

That's right. Yes. Yes. I know this year's got easy comps, and there's a lot of moving parts. But over the next 2, 3, 4 years, are those historical targets still reasonable?

Yes. Our ambition, Gary, has not changed. It's really -- so the 6% to 8% organic. It's 13% to 15% EPS. That has been true for many, many years, and it's not going to change in the future. If anything, our position has strengthened out there when you think about sort of the rise of hygiene standards, the search for most companies to improve their profile in terms of ESG delivery, net 0 in water consumption being one of them, the need for digital solutions as well. So those are all things that are improving our position. So going forward, no change in terms of growth expectations for the future. If anything, our position has improved.

The next question is coming from the line of John McNulty with BMO Capital Markets.

In the Institutional business specifically, can you speak to the number of accounts that you served this quarter versus the prior quarter? And how that may have changed? And then, I guess, to that, are you starting to see any early signs of new account or, I guess, potential customer launches at this point? Or is it a little bit early given where we are in the pandemic kind of stages at this point?

Good question, John, except that we don't share, obviously, the exact number of accounts or solutions per accounts that we're tracking on a monthly basis for a long time, actually, for competitive reasons for the most part. But what I can say is that the number of accounts keep going up, which is good months after months, which is giving us confidence, obviously, for the growth of our business going forward because it's hard to grow without having more customers buying programs from us.

So more accounts, buying more solutions. And 1 thing I'd like to add as well is the Ecolab Science Certified program that we've launched a year plus ago in Institutional requires customers to buy most of our solutions in order to qualify for the certification. And this is driving as well penetration of solutions in a good way, and it's helping as well with the retention as well going forward. So not only are we gaining number of accounts and solutions, but we're keeping them as well longer because customers are interested in keeping the certification at the same time.

Got it. And is there a way to think about on the Ecolab Science Certified program the difference in total value that you're getting from a specific customer versus one that's not tied into the program, if there's -- looking at like a like-for-like customer, obviously?

So it depends, obviously, where they're starting from. If they just bought 1 solution, the gap is way bigger and the opportunity is much bigger. In some cases, with some of our long-term customers, well, they're buying everything from us everywhere around the world. In that case, the opportunity is much smaller. But when I think about it, Ecolab Science Certified was a program we did not plan to launch pre-pandemic. That came as an outcome of the pandemic, where we really recognize that our customers needed some help in order to make sure they could protect their guests and at the same time guests coming in a hotel or in a restaurant are looking for more reassurance. And that's going to be true for the quarters to come.

So we're measuring as well so the number of locations that are certified by -- Ecolab Science Certified. It's pretty large. Actually, we're not disclosing that number, but it's by far the #1 program in the U.S. Right now, it's generating incremental sales, which is pretty significant. As well at the same time and as you know, we're supporting that as well as the brand in the media, which gets always more recognized by consumers or guests, as we call them in that industry. So all in all, this is really good to grow our market share in Institutional.

Our next question comes from the line of John Roberts with UBS.

Does it matter that COVID isn't significantly transmitted on surfaces? Or it doesn't matter because cleaning of theater is more important?

Infections can be transmitted, John, in so many different ways. As we know, it can be the air, can be what you eat, can be what you touch, can be what you drink, the hands that you're shaking, obviously. So it's true that COVID is mostly transferred through the air. But many other illnesses are transmitted through surfaces or human contact as such. And when I think about infection prevention, well, short term, we all think COVID-19, but mid to longer term we think about any infection that could happen out there and surfaces like human contact are a big vector, as we know. One example is that in hospitals, the #1 vector of infection is through the hands as well, not for COVID, but for many other infections as well. So overall, making sure that you reduce the number of infection in a public setting, John, well, you need to have surfaces that's infected, as you can.

Okay. Good answer. And Healthcare was 5% excluding onetime sales and 12% including. Could you talk about that difference?

The main difference -- first of all, I'd like to say so, Healthcare used to have underlying sales of 3%, 4% pre-pandemic. Getting towards this underlying 5% plus is a good step up, and you've seen the margins went up as well in a good way, which is all very encouraging for this business. Now the difference between the 5% and the 12% is solely driven by significant deals that we've made with some governments around the world during the pandemic to address, obviously, the infection risks in the U.K., in Germany, in Australia, in New Zealand, in many countries around the world. This is COVID-19 related. So it's tapering off right now. So you start to compare as well against very high growth last year, and that business is going to be reduced, we knew that, and then we will get back to the underlying growth of this 5%, as you can.

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

Dan, can I just ask you about the working capital and how you're thinking about free cash flow this year? Just noticing inventory was up about $100 million, $120 million in the quarter versus last year, even though sales were down. I think you mentioned in the prepared remarks that you're building inventory ahead of the recovery. But just how should we expect working capital to trend overall and then, ultimately, when that's going to translate into free cash?

Thank you, Vincent. I'll pass it to Dan just in a second. You've mentioned it right. So on one hand, so very happy with the cash flow delivery in the first quarter. And on the working capital piece, it's really -- so for us, we want to make sure that we can produce enough product for the reopening that's happening in the various states and markets around the world. And that has an impact of basically on working capital. But with that, Dan, would you add some comments on that?

Yes. Thank you, Christophe. And that might be the answer to the core of your question. And so inventory, look, internally, we've been very clear that the mistake that we are not going to make is not going to have product -- the right product in the right place to serve our customers as their path to reopening Accelerate, okay? So you're right. We built significant inventory versus the same time last year, also versus year-end 2020. And my guess is that we will continue to because we'll have the right stuff where we and our customers both need it.

If you think about the recovery of the business generally, rebuilding the balance sheet means that there will be some pull on inventory, accounts receivables, too, which are in very good shape from a payment perspective, but as people buy more stuff, we'll have more on the balance sheet and accounts receivable. We'll continue to manage our vendors in what we purchase with appropriate discipline. But look, there'll be an investment in working capital as the business rebuilds, which is to be expected and completely appropriate. The net, though, of our cash flow delivery for the full year, even including the higher level of CapEx that we will continue to invest in the business in 2021, our cash flow will continue to be bigger. And also, it will be -- if you think about the metric that matters most to me in terms of conversion, it will continue to be in the mid-90% range, which I think is a very good number for the company and for the model, okay?

Okay. And maybe, Christophe, any comments on where you are with sort of the bolt-on M&A pipeline?

For the M&A pipeline, that's always a difficult question. Obviously, we have a very rich pipeline. We've been working quite a bit during COVID. We've done less transactions for the obvious reasons, but we've done a lot of strategic work. We've built a lot of relationships with targets we have out there. So I feel good about the pipeline we have. I want to absolutely invest in places that are driving higher growth and higher margins.and making sure that we can do that at valuations that are good for us and for our shareholders. So I feel good with what's to come.

The next question is from the line of Scott Schneeberger with Oppenheimer.

Just with regard to the Texas freeze, it looks like the -- that lost revenue came at a high decremental margin, if my numbers are correct. Could you please elaborate on just how that impacted? And now that we're near the end of April, have you seen the full $0.15 impact? Or is this going to drag on through the fall on through the second quarter, possibly third? Just curious what type of lag there is occurring.

Yes, Scott. So the Texas freeze, we expected this $0.15, which seems to be the right number as we speak. $0.10 have impacted Q1 as we communicated, and we expect the remaining $0.05 to impact Q2. We see things really so moving behind us. It's not a perfect science. As you can imagine, what was closed, when it reopened, this is something that we can't control as such. But what I like is that things are really sort of back in operations. That's true for our customers. It's true for us and our suppliers as well. The only issue we had was impacting mostly March and April, which was obviously across 2 quarters, but $0.15 is the total number, $0.10 in Q1, $0.05 in Q2, and it's happening as expected.

And it appears largely in the Industrial segment, where if I back that out, the weather impact, very elevated margins. Just curious what incremental upside do you see in the segment going forward? It looks very strong since the onset of the pandemic and strengthening.

You're right that the margin work in Industrial has been remarkable. Over the past few years, it was over 300 basis points in 2020, while sales were slightly declining as you know. So in Q1, ex Texas, that was also a double-digit operating increase, which was good as well. And going forward, I believe that, that's a winning business. There will be times with raw materials and pricing, where quarter-over-quarter things might lag a little bit. But generally, margins will continue to improve in Industrial, especially because the value that we provide to our customers is unmatched.

As mentioned before, most of the customers are coming to us, especially in our water business, is to help them reach the ESG commitments that they've made for 2030 or 2050. Well, there's no one else that can truly help them as we can. This is something that is driving growth, and it's driving margins as well for us because they need better technology, which is where we invest most in research as well. That's where we have the highest margin. So it's good growth driven by good natural impact, which is driving as well our margin. So the short answer to your question, margins in Industrial are going to keep improving.

The next question is coming from the line of Laurence Alexander with Jefferies.

Just following up on the margin discussion and the price versus ROS. As you look at 2022, 2023, should margins be for the entire firm -- be hitting a new high?

It's a great question. So it's hard for us to know exactly how it's going to be in '21. So knowing '22 and '23 will be even harder. The way we drive pricing is really sort of driven by the value that we create for our customers. In other words, how much savings we help them deliver on a year. They invest 10% in our services, and they get 20% or plus back as a return. This is the way we price. It's basically so sharing how much value we create for our customers.

Obviously, when there are raw material increases, like we are and will be experiencing in the next quarters and probably years to come, well, we add that to the equation. We've been quite successful over the past few years in doing that. That's been one of the reasons why margins have improved so well over the past few years and especially as well last year. So I don't know how ROS are going to be in '22 and '23. But I know that our pricing is going to keep being in the 1% to 2% plus range depending on how the raw materials market are, but it's never going to go down. So all, it's going to be up in price, and it's going to be driving margins up as well over the long term.

And then are there any end markets where you have been surprised at the elasticity of demand and where you're seeing a clear trade-off between pricing and organic growth?

You mean in a negative manner?

Just -- I mean, has anything changed in your framework over the course of the COVID-related disruptions? Have you learned anything new about kind of the end market behavior, where you're like, okay, that was not expected?

No. If anything, it's more interest on one hand, so driven by this increased trend of ESG, of sustainability commitments. So what we do for customers becomes even more critical and customers are ready to invest more in order to get more return from a financial perspective, but also from an image perspective because they make commitments as well out there. But on the other hand, it's also in times where performance -- cost performance becomes more important. Think about some of the end markets are economically challenged right now.

Well, our solutions usually are very healthy for those customers because it helps them improve their cost competitiveness because you can do the same work -- the same outcome or better outcome with much less labor or creating less waste or using less natural resources as well. So it's a good financial deal. So on both sides for customers in most segments, well, they need more of what we do in order to reduce the impact on the environment. And while they do so, they reduce their cost as well, which is even more important in difficult economic times in some of the specific end markets. In both cases, this is a good story for us.

Our next question is from the line of Andrew Wittmann with Robert W. Baird.

You had a couple of questions on margins. I wanted to do another one. You had the one on the Industrial segment. You had the consolidated margin question. But I had a kind of a 2-part question here. On the Healthcare segment, to start out with. Obviously, you talked about some of the large governmental orders and other things that probably helped your fixed cost leverage in that segment over the past 12 months. I was just wondering, as those comparisons are now stiffer and the business starts to normalize above historical levels, but starts to normalize from last year at least, if you think that some of the fixed cost leverage goes away, if that's the appropriate way of thinking about that segment's margins in the 12 months ahead?

And then, secondarily, just maybe a little bit more detail on the Institutional segment margins. Obviously, the volume declines were significant and it all makes sense, what happened to the margins so far. But on the way back up with the cost reductions and programs that you've put in place, do you think that when the revenue level gets back to 2019 levels, is there any reason to think that the margins would be any different in that business than they were pre-COVID just recognizing that the customer base is probably going to be somewhat changed, maybe not yours so much given national accounts, but there are a lot of changes to hospitality and foodservice. So I wanted to get your thoughts on that. Sorry for the long question.

No, that's good. Thank you, Andy. Maybe starting with Healthcare, very different dynamic, obviously, than in Institutional. So in Healthcare, first of all, very pleased with the underlying growth performance moving towards this 5%, which was an objective for a long time. It's taken us so many years to get there. And COVID has helped because the infection prevention, awareness of customers and patients, in that case, well, has gone up very clearly during COVID-19, so which is good. So underlying growth, solid in Healthcare, and that's here to stay.

Second, on margins, very good improvement last year. In some cases, helped partly with the one-offs, those government deals that we talked about earlier. But I feel really good that margins is going to keep improving in '21 and in the future as well. So this is here to stay. So good story in Healthcare. And for me, that's not the end of the story. It's clearly so up to us to improve it further. That's on Healthcare. Institutional is a very different story, especially coming out of 2020, which is a business that's been impacted the most in our company. 90% plus of the COVID impact at Ecolab was on Institutional division, as we all know, which is 20% of our overall company as such.

So when I think about the margins, I'd say 2 things, Andy. The first one is every quarter, it's going to improve, and we're going to get a lot back from what we lost in 2020, and we'll get close to where we were in 2019 pre-pandemic. So probably not at the end of this year, but early in 2022. And the second part of your question, so post-pandemic, if I can call it that way, well, we've invested in our organizational development/restructure. We've invested as well in field technology that's going to help us well the performance. So if anything, the margins of Institutional over the midterm should improve versus what we have seen pre-pandemic.

Our next question is coming from the line of Shlomo Rosenbaum with Stifel.

Christophe, maybe you could talk a little bit about the discussion it used to be before the pandemic, a lot more about the investments that were being made in digital solutions. I know the company didn't want to pull back on investments through the pandemic. Can you talk about what has happened over the last year, where there have been areas of adoption that have been accelerated because of the pandemic and where might be areas of lag?

Great question. Thank you, Shlomo. Digital has been an important priority for us for many, many years. It started 30 years ago. Actually, it was called differently obviously back then. That was true when we did remote monitoring of pools and spa in Institutional and that was especially true with 3D TRASAR in industrial water business as well. And if I fast forward, ultimately, so for 2020 things have accelerated because, in many instances, we could not go to customer locations for obvious reasons related to COVID. So customers and our teams have embraced digital solutions even more than before.

Keep in mind as well that we've invested over the past 5 years over $150 million a year in digital. So we were ready for that moment during the pandemic. That was more luck than genius, obviously, as such, but it came very handy as well as such. So when I think about the 3 main drivers for us in digital at Ecolab, the first one is to drive customer value. So it's subscriptions. It's a Legionella prevention programs, for instance, as well. They're all driven by digital technology. We sell that technology. This is growing very nicely. The second one is our field solutions in order to improve the productivity and the value created by our 25,000 people around the world.

Institutional has rolled out everywhere around the world the new platform during COVID, and that's going to help us as well. So for post-pandemic, that's what I just answered as well before, which is one of the reasons why our performance in institutional will improve. And the last pillar is the customer experience, e-commerce, for instance, that has gained traction in 2020 also because of the remote nature of the customer relationship that we had during the pandemic. So on all 3 fronts, good progress in 2020. And when I look at the progress we're making in digital in 2021, our digital-enabled sales are roughly $1.5 billion and growing double-digit as we speak. So a very good story all in all.

Okay. Great. If I could follow-up, is there any progress to note in -- when the new verticals was going to be kind of the data center area? Is there anything to report on that over the last year or quarters?

Well, it's been a great story because we've all ended up working remotely on whatever is your system of preference, Webex, Teams, Zoom and so on, remote monitoring of applications as well or plants. It's an industry that has been booming, as you can see as well from the numbers from the tech industry that we serve. Early last year, which was also pre-pandemic, we created our global data centers as a dedicated business, which came luckily enough very handy for the pandemic. And since then, this business has been growing strong double-digit, operating income improvement, very strong as well.

And interestingly enough, so the customers that we serve, which are the tech companies, the ones are owning those data centers operations, at the same time, have made big commitments in terms of water and carbon savings. Well, this is the work we do for them because that's ultimately where they use the water or emit CO2 because of the energy that they need to use for the computers as such, which has brought them back to us. You've heard from Microsoft as well. They've shared it openly publicly, so it's not a secret that they've committed for the net 0 water by 2030, and that's a plan that we've developed with them. That's all driving the growth in that new vertical, which is very promising.

Our next question is from the line of Jeff Zekauskas with JPMorgan.

When you think about the restaurant and hotel business going forward, is the restaurant of the future going to be different than the restaurant of the past or the hotel of the future? That is there may be distancing rules. There may be other factors. Does the Ecolab institutional business go back to where it was in 2019 in a normal environment? Or does it go to a different place? Is it better? Is it worse?

This is a great question and a fundamental question, and it's not going to go back to where it was in 2019. I think it's going to be better. If I think about our end markets, it's not going to be true for everyone. For the independents, it's being difficult, obviously, for individual restaurants during the pandemic financially so to survive. Those ones have more hardship than the chain customers, which is the vast majority of our business. So corporate account customers, as we call them, or the chains, are the ones who have well survived, the ones who have invested in the operations and the one who are expanding as well in terms of units. This is who we serve first and foremost. So that's a good situation to be in for us.

Then to your question on the restaurant or the hotel of the future. To know exactly how it's going to be is hard to tell. But a few things we know. On one hand, so the hygiene standards expected by the guests will be up versus 2019. It's going to be a little bit lower than during the pandemic, thank God, but it's going to be higher than 2019, that's pretty sure. And we are asking guests or consumers all the time in order to understand so what's happening in their mind, and they're clearly telling us that they're expecting higher hygiene standards, more clean. They want to see cleaning action in order to feel safe, which is good.

Second, the labor shortage is going to become a bigger issue. It was an issue pre-pandemic. It's going to be even more. So going forward, as we read in the newspaper. Well, our solutions are helping them deliver more with less labor, which is good as well as such. And the last thing, which is harder to grasp completely, is how much the takeout, the delivery is going to grow. It's going to keep growing for sure. And those are new opportunities for us because those are new businesses as well. We haven't figured it out completely, but I see that as upside. So net-net, for our customers, the chain customers, it's going to be different than '19, but it's going to be better for us as a company going forward.

Okay. And what percentage of cost of goods sold are raw materials for you?

It's roughly 45%, but obviously, it depends a lot by business. Pest elimination is much lower, as you can imagine. And in some industrial businesses, it might be higher, but in average, it's 45% for the company.

Our next question is coming from the line of Mike Harris with Goldman Sachs.

Just a quick follow-up for Christophe. Earlier, you mentioned that the first quarter results gave you confidence that you could surpass the 2019 earnings level. I was just curious -- I mean, what happened in the quarter that was, I guess, a positive surprise to your internal expectations that kind of boosted your confidence?

Well, thank you, Mike. The bigger question so for us for Q1 was to know when, especially in the U.S., the stage would reopen. And as you remember, in Q4, the lockdown so went backwards in Q4 versus Q3. Well, that was not exactly a great news. And still, we improved our performance in Q4 versus Q3. So the question was, how is it going to continue in Q1. And that we didn't know, obviously, as we started our year '21. So we were hoping that things would be improving. And ultimately, they did. But they did not in January or February. They did in March. So we were thinking, so Q1 would be a difficult quarter compared -- versus Q4, so modest improvement.

Ultimately, ex Texas, it was better than what we felt in Q1. So if I look at that, the reopening in the U.S. states is a good news. Obviously, so for us going forward, China has been good since the beginning of the year. So those 2 markets are really on the positive side of the ledger. On the other hand, so you have Europe and some emerging markets like Brazil or India that are in a more difficult situation. So net-net, it's basically as expected. And the last thing that I would say is that because of the timing of the reopenings in Europe, that's going to happen, so towards the end of Q2, some of the growth that we had expected in Q2 might shift in Q3. But all in all, so I feel that net-net, the trends are as expected. Our cost structure is as expected. The timing might be a little bit different than what we had in mind initially, but at the end of the year so it ends up sort of this full year delivery that's ahead of the EPS '19, excluding this Texas impact.

Our next question is from the line of Eric Petrie with Citi.

How much of your overall sales are to infection prevention? And if you could give a breakdown between Institutional and Healthcare?

So it's roughly 10% for the company, what we call sanitizing products. As such, it had very good growth. Last year that was especially true in Healthcare, which has a higher percentage. As you would expect, obviously, this infection is a bigger part of what we do in hospitals than what we do in hotels or restaurants as you can imagine. But in both end segments, it grew double digit. And we expect the growth that we delivered in 2021 overall -- to maintain the overall number that we got in '21, which is a combination of more customers buying more of the sanitation products, but at the same time with a little bit lower consumption. So much higher than what we had pre-pandemic, close to what we had in 2020 and close to the 10% for the overall sales.

Helpful. And then as a follow-on, how much of your infection prevention chemistries or sanitizing products are based on chlorine, alcohol or peroxide? And have you seen any attrition to accelerated hydrogen peroxide?

Yes. It's one of the applications that we have. So we don't disclose too much, obviously, the formula that we are using as such. If you think about the 15 seconds of COVID kill that we launched on the market as well last year, this is an absolutely unique differentiated application. No one kills COVID-19 in 15 seconds or less than us. So that's been very unique and patented, obviously, on the market. But what you mentioned, so with the accelerated hydrogen peroxide, that's one of the solutions. We like it as well. We use it as well. But for us, we're going beyond that as well.

At this time, we've reached the end of our question-and-answer session. Now I'll hand the floor back to management for further remarks.

Thank you. That wraps up our first quarter conference call. This conference call and the associated discussion and slides will be available for replay on our website. Thank you for your time and participation and best wishes for the rest of the day.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.