Ecolab 2Q17 Earnings Call Notes

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Douglas M. Baker, Jr. – Ecolab, Inc.

Economies are okay to good. Raw material costs creating margin pressure

“If we look at the macro environment, the economies around the world we’d say are mixed but in aggregate, are okay to good. FX headwinds have subsided. Energy markets have recovered some and certainly stabilized. Raw materials, though, are rising and creating some short-term margin pressure but we believe are manageable over the year.”

If you cut through the noise US growth is a little softer

“If you cut through the noise, U.S. growth is a little softer. It’s around 4%. Globally, I’d say Global Institutional is around 3%, same factors as last quarter which is what we had forecast. Same-store sales are a bit soft in U.S.”

We do expect mining to be positive in the second half

“Yeah, we do expect mining to be positive in the second half. I will also say we expected mining to be positive in the second quarter. I mean, it was about flat (12:06). So, it’s always a little hard to predict. But clearly, it’s been healing, if you will, if you look at the sequential growth rates. And we do expect it to pop into positive in the second half for sure in probably the third quarter.”

Oil price hasn’t really changed

“I think the Energy business and how we see oil price hasn’t really changed from what we expected going in the year. So, we didn’t have a particularly bullish outlook. So, we don’t need to bring it down, I guess, is the easiest way to put it.”

I don’t think there’s been any huge fundamental change in food service

“Well, I would say the softness in the first quarter in particular was also timed identically to the retail softness broadly. There’s all kinds of assumptions or guesses about what was driving it and timing of tax refunds, et cetera. I don’t think you’ve got any huge fundamental change you’re currently seeing in U.S. food service, i.e., takeout order or some other magical thing. Those things move year-on-year but at a fairly slower rate, so I don’t believe those are the trends that we’re seeing. I think what we’re seeing is some softness broadly in a certain segment of the foodservice industry. We’ve chased it before over time. We’ll probably chase it again. So, that’s really I think the issue. I don’t believe there’s been any fundamental secular change that we’re dealing with at this moment. That’s not what the industry sees. It’s not what the stats suggest.”

raw materials biting us in Europe. Getting some pricing power

“In terms of raw materials, they’re biting us in Europe. No doubt about it. We have the same story there. It takes us a while to recover via pricing, but we’re starting to get pricing in Europe as well. And we expect a kind of tried-and-true formula we’ve talked which is absolute raw material cost coverage, year one and margin recovery, year two. Sometimes we do it in a little more accelerated basis, but it’s not a bad way to think about it.”

Example of the cloud in use

“We’ve got, I don’t know, some 2 million customer sites nearly if you add up all the restaurants, probably collecting data 90%. But we only have a small fraction of it currently connected to the cloud. So, in most instances, our people have to walk into the unit, download via an RF port, and then they have the data to start analyzing how they can further improve the customer’s operation. We know that if we take that and send it to the cloud, do the analytics, send it to our person in advance of them arriving at the front door that we’re going to improve their productivity significantly and improve the amount of time they have for up-selling and for doing other things, even handling more accounts. So, technology, I would say in all industries, we have not yet pushed boundaries in these areas we are going to”