Ecolab's Q3 2025 Earnings Call: Contradictions in Pricing Strategy, Volumes, Digital Investments, Growth Reinvestment, and SG&A Leverage

Date of Call: October 28, 2025

Financials Results

• EPS: $7.53 adjusted diluted EPS midpoint for full year 2025 (range $7.48–$7.58), midpoint increased
• Operating Margin: 18.7% this quarter (record); expect ~18% for full year 2025; target 20% by 2027

Guidance:

• FY2025 adjusted diluted EPS midpoint raised to $7.53 (range $7.48–$7.58).
• Full-year 2025 operating income margin expected around 18%; 20% target by 2027 and 100–150 bps annual OI margin expansion to 2030.
• 2026 outlook: ~3–4% revenue, 2–3% pricing, positive volumes, targeting 12–15% EPS growth and at least +100 bps OI margin vs. 2025.
• Ovivo acquisition (pending) would expand Global High‑Tech to ~$900M and support double‑digit growth.

Business Commentary:

* Strong Financial Performance: - Ecolab reported a 4% organic sales growth and mid-teens organic operating income growth, driven by double-digit growth in growth engines such as Pest Elimination, Life Sciences, Global High-Tech, and Ecolab Digital. - This was supported by breakthrough innovations and disciplined execution of the One Ecolab enterprise growth strategy, which offset market softness in underperforming businesses like Basic Industries and Paper.

• Water and High-Tech Business Expansion:
• The Global High-Tech business grew by 25%, with the pending acquisition of Ovivo electronics expected to double its size to nearly $900 million.

• This significant growth is driven by the high demand for data centers and microelectronics, leveraging Ecolab's expertise in water circularity and cooling technologies.

• Pricing and Value Delivery:

• Ecolab achieved a 3% pricing increase, driven by the full implementation of a trade surcharge, alongside continued value pricing strategies.

• This pricing discipline was supported by the delivery of significant total value to customers, exceeding pricing captured, and improved retention rates.

• Innovation and Market Penetration:

• Pest Elimination saw a 6% organic sales growth, with over 400,000 intelligent devices installed, aiming for 1 million by mid-2026.
• This innovation is transforming the Pest Elimination model by shifting focus from manual checks to solving critical customer problems and selling new solutions.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "consistent double‑digit earnings growth," reported a record organic operating income margin of 18.7% this quarter, and raised FY25 adjusted diluted EPS midpoint to $7.53 while forecasting 12–15% EPS growth in 2026 and a 20% OI margin by 2027.

Q&A:

• Question from Benjamin Luke McFadden (William Blair & Company L.L.C.): Can you discuss Global High‑Tech market share wins in data centers and any update on the pending Ovivo acquisition and the microelectronics growth opportunity post-close?
  Response: High‑Tech combines data centers and fabs; Ecolab is winning share via superior water/cooling solutions, expects Global High‑Tech to be ~$900M and grow double digits assuming Ovivo closes, which adds ultrapure water capability for microelectronics.

• Question from Ashish Sabadra (RBC Capital Markets): How will shifting resources, innovation and share gains in Basic Industries and Paper help return those businesses to growth in 2026 despite end‑market weakness?
  Response: Management expects consolidation to bottom in the next few quarters; they're reallocating resources, driving innovation and market share gains and see both Paper and Basic Industries returning to growth during 2026.

• Question from John McNulty (BMO Capital Markets): Excluding the tariff surcharge, is pricing easier to push through because of stronger value proposition or is price fatigue emerging?
  Response: Pricing execution remains healthy—value delivered outpaces pricing, retention is high in the 90s, and a steady 2–3% value pricing is seen as the long‑run sweet spot (tariff surcharge is an incremental help).

• Question from Andrew J. Wittmann (Robert W. Baird & Co.): How is Water top‑line affecting that segment's margin performance, and was the large new Pest customer a new logo or a conversion?
  Response: Excluding Paper and Basic Industries, Water grew ~4% with ~15% operating income growth; the Pest win is a new customer (large retailer) adopting Pest Intelligence.

• Question from Vincent Andrews (Morgan Stanley): Status of One Ecolab through year‑end 2025 and plans to roll it out beyond the initial top customers into 2026?
  Response: One Ecolab rollout is progressing well—initial customers showing strong results (e.g., Food & Beverage United); management will expand focus in 2026 from the initial cohort toward the top 20/E15 customers.

• Question from Patrick Cunningham (Citigroup): How should we think about SG&A leverage next year in Pest and Life Sciences as you lap investments—linear to 2027 or more investments ahead?
  Response: SG&A productivity has improved (150 bps since 2019), expects another 20–30 bps in 2025 and 25–50 bps annually thereafter net of investments, with leverage broad‑based while continuing targeted growth investments.

• Question from Manav Patnaik (Barclays): How long before growth engines mix is big enough to materially move overall growth, given they're growing faster?
  Response: Growth engines (~$3B today, ~20% of sales) are growing double digits and management expects them to become a much larger share (potentially 30–40%) over a few years, materially improving company growth.

• Question from David Begleiter (Deutsche Bank): How much of the 3% pricing was the surcharge and should ~3% pricing continue for the next few quarters now that the surcharge is in place?
  Response: Surcharge brings pricing closer to 3%; management views 2–3% as the sustainable range and aims to stay nearer to 3%, though exact contribution by surcharge varies by business.

• Question from Christopher Parkinson (Wolfe Research): Can you update on Life Sciences top line, capacity additions and progress toward 2027 targets?
  Response: Life Sciences is accelerating (bioprocessing still expected to grow double digits); capacity constraints exist but a China plant coming mid‑2026 will relieve bottlenecks and enable further growth while margins should move from mid‑teens toward mid‑20s+ as scale is achieved.

• Question from John Ezekiel Roberts (Mizuho Securities): Update on hospitality 'seats in the seats' metric and mix trends in full‑service restaurants?
  Response: Food traffic remains ~30% below 2019 with more takeaway/delivery, but stabilization plus digital offerings has driven higher‑margin growth in Institutional/Hospitality and Specialty (QSR growth high single digits).

• Question from Jeffrey Zekauskas (JPMorgan): Did Water volumes grow this quarter and were volumes in Basic Industries/Paper negative high single digits and decelerating?
  Response: Company does not disclose volumes by business; management said every segment had positive reported growth overall, Water was positive, Paper was low‑to‑mid single digit decline but improving.

• Question from Matthew DeYoe (BofA Securities): How much did cross‑selling/One Ecolab contribute to organic growth this quarter or year‑to‑date?
  Response: Top enterprise customers (One Ecolab focus) are contributing above‑average growth; Food & Beverage United is a clear example—cross‑sell/One Ecolab is driving incremental, higher‑margin revenue though no quantification was provided.

• Question from Michael Harrison (Seaport Research Partners): What's driving Food & Beverage's strong performance—market dynamics, share gains, or One Ecolab white‑space wins?
  Response: Food & Beverage's 4% organic growth is driven by One Ecolab (combining Hygiene and Water), a mix of white‑space expansion and share gains, plus digital monetization and value pricing.

• Question from Laurence Alexander (Jefferies): FX tailwind this year looks larger—what levers if currency moves against you next year?
  Response: CFO noted underlying performance remains strong; SG&A comps and productivity offset FX moves and they monitor commodity cost pressures—productivity and One Ecolab savings are the primary levers.

• Question from Jason Haas (Wells Fargo): Have customer acquisition costs risen in Pest or has competition stepped up?
  Response: Customer acquisition has become easier for Pest Intelligence as major retailers adopt the tech; offering is differentiated with ECOLAB3D backbone, competition healthy but Ecolab has a lead and margins are improving.

• Question from Joshua Spector (UBS): Do you still believe you can deliver low‑mid teens EPS growth in 2026 with flat to low volumes relying on price/cost execution?
  Response: Yes—management reiterated confidence in 12–15% EPS growth for 2026 driven by ~3–4% top line, 2–3% pricing, positive volumes, and at least +100 bps OI margin expansion, while acknowledging macro uncertainty.

• Question from Matthew Hettwer (Vertical Research Partners): Is Ecolab positioned to compete in direct‑to‑chip cooling or will more bolt‑ons be needed?
  Response: Ecolab has many necessary components (3D TRASAR, coolant intelligence, monitoring) and is well positioned but expects to continue developing capabilities; Ovivo supports the parallel ultrapure water need in microelectronics.

Contradiction Point 1

Pricing Strategy and Pricing Discipline

It involves changes in the pricing strategy and discipline, which directly impacts the company's financial performance and customer retention.

How should we think about pricing given inflation moderation and price fatigue? - John McNulty (BMO Capital Markets Equity Research)

2025Q3: Pricing is stable at 2%-3% with value capture exceeding pricing by 1%. Pricing discipline is strong, and customer retention remains high. - Christophe Beck(CEO)

What is your outlook on pricing? What guidance can you provide for the second half with and without the upcoming surcharge? - Manav Patnaik (Barclays)

2025Q2: 2% value pricing is working well, backed by value delivered to customers. The U.S. trade surcharge will help strengthen our pricing to closer to 3%. - Christophe Beck(CEO)

Contradiction Point 2

Volumes and Market Growth Opportunities

It involves changes in expectations regarding volume growth and market opportunities, which are critical for assessing Ecolab's growth potential and competitive positioning.

Can you achieve 12-15% EPS growth without strong volume? - Joshua Spector (UBS Investment Bank, Research Division)

2025Q3: We expect 3-4% volume growth and 2-3% pricing to drive double-digit EPS growth. Improving market conditions could lead to an upside. - Christophe Beck(CEO)

What are your 2025 volume growth expectations and segment-specific details? What is the tariff impact? - Manav Patnaik (Barclays)

2024Q4: The company anticipates 2% organic volume growth in 2025, with regional focus in the United States, which accounts for over half of Ecolab's sales. - Christophe Beck(CEO)

Contradiction Point 3

Digital and Technology Investments

It impacts expectations regarding Ecolab's digital and technology investments, which are crucial for driving operational efficiencies and growth.

Can you provide more details on the recent data center market share gains and your current view on the Ovivo acquisition? - Benjamin Luke McFadden (William Blair & Company L.L.C., Research Division)

2025Q3: Ecolab Digital will be reported top-line in 2025, with numbers expected to be provided in the first quarter. - Christophe Beck(CEO)

Can you provide sizing for digital numbers and their integration with One Ecolab? - Manav Patnaik (Barclays)

2024Q4: In 2025, we will take another step by reporting the top line of Ecolab Digital as well. We expect Ecolab Digital to be a high-growth, high-margin opportunity, as we continue to leverage digital systems for customer data. - Christophe Beck(CEO)

Contradiction Point 4

Investment in Growth and Cash Flow Management

It involves the company's plans for reinvestment in growth and cash flow management, which are critical for long-term financial health and growth.

How has reinvestment in the business changed compared to six months ago? - Joshua Spector (UBS Investment Bank, Research Division)

2025Q3: We're focusing on firepower, digital technologies, and One Ecolab for growth. Reinvestment is driven by strong performance in growth engines and strategic initiatives. - Christophe Beck(CEO)

Could you clarify the key factors influencing this? Is conservatism a factor, or is there something else we're missing? - Timothy Mulrooney (William Blair)

2025Q2: We're investing further. We're committed to delivering 12% to 15% EPS growth for the quarters to come. It's a combination of both that conservatism and investing further. - Christophe Beck(CEO)

Contradiction Point 5

SG&A Leverage Expectations

It involves changes in financial forecasts, specifically regarding SG&A leverage expectations, which are critical for cost management and profitability.

How should we think about SG&A leverage in Pest and Life Sciences? - Patrick Cunningham (Citigroup Inc.)

2025Q3: SG&A leverage is expected to improve by 20-30 basis points in 2025. - Scott Kirkland(CFO)

What are your expectations for SG&A expenses, and are you taking additional steps to meet 2025 goals? - Joshua Spector (UBS Investment Bank)

2025Q1: SG&A is trending lower than expected, supported by One Ecolab. The target is to deliver 20-30 basis points of leverage annually, with potential for higher leverage from digital. - Scott Kirkland(CFO)