Ecolab - Q1 2024

Transcript

Operator (participant)

Greetings, and welcome to the Ecolab first quarter 2024 earnings release conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anybody today should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President in Investor Relations for Ecolab. Mr. Hedberg, you may now begin your presentation.

Andy Hedberg (VP of Investor Relations)

Thank you, and hello, everyone, and welcome to Ecolab's first 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 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 and release. With that, I'd like to turn the call over to Christophe Beck for his comments.

Christophe Beck (Chairman and CEO)

Thank you so much, Andy, and welcome to everyone on the call. We're really pleased to report that Ecolab is off to a strong start in 2024, with first quarter organic sales growth of 5% and organic operating income margin expansion of 400 basis points, driving adjusted earnings per share up 52%. We remain firmly on our long-term 12%-15% earnings growth trajectory, with our exceptional growth in the first quarter being the result of strong execution on fundamentals and the additional benefit of lower delivered product costs. This strong performance is a testament to the excellent dedication and execution of the entire Ecolab team, and I'm so proud of this team. We're encouraged by the current pace and momentum of our business.

Our efforts resulted in the delivery of 3% pricing, which included new pricing implemented during the quarter and a modest carryover benefit from last year's pricing action and brought us slightly above our 2 percentage point plus long-term run rate. This delivery, along with continued positive volume growth, is possible because of our customer value proposition. Because of the value we provide, the spend with Ecolab is a benefit and not a cost. This good top-line growth, combined with the anticipated easing of delivered product costs, continued the strong organic operating income margin expansion across the majority of our businesses, of our business segments and geographical regions. We're very pleased with the margin expansion we have delivered and remain focused on achieving our 20% operating income margin target over the next few years.

As we continue to execute against this target, gross margin is expected to continue on its positive trajectory. At the same time, we are now reinvesting some of these gains back into our business to fuel our long-term growth. Importantly, our underlying productivity remains strong, and we see opportunities to further improve by leveraging our leading digital capabilities. Looking across our segments, Institutional & Specialty continued to perform exceptionally well. This team delivered double-digit sales growth and a very attractive operating income margin as our labor savings value proposition continued to resonate with our customers. Going forward, we expect the rate of organic sales growth for Institutional & Specialty to moderate somewhat as we lap last year's strong pricing delivery. Industrial made a good underlying progress, improving its volume trajectory in a volatile global environment.

Excluding continued soft near-term paper industry demand, Industrial's volume grew, a nice improvement from the second half of last year. Healthcare and Life Sciences remained relatively flattish, but Life Sciences, Life Sciences sales grew modestly, which I consider constructive news given the continued short-term soft industry trends. We therefore expect trends to progressively improve during the second half of the year. As promised, we continue to take the action needed to transform our healthcare business. A year ago, we took the first step in our journey by adjusting our cost structure to a more competitive level. Then, in the third quarter of last year, we took our second step by bifurcating our North American healthcare business into two separate businesses: Surgical and Infection Prevention. Today, we made further progress by announcing an agreement to sell our surgical drapes business to Medline.

Once, and if this transaction closes after regulatory clearance, we will have a renewed focus on the instrument reprocessing portion of the remaining healthcare business. This business has the core elements of the classic Ecolab business model that combines an anchor platform with consumables, personal service, and digital solutions. While there's more to be done, I'm proud of the progress we've made to create a more sustainable, profitable healthcare business that delivers for our important hospital customers. Finally, Pest Elimination, which is now a standalone segment due to its relevance and promising performance, continued to execute very well. Sales grew upper single digits with double-digit organic operating income growth, benefiting from our Circle the Customer, Circle the Growth cross-selling strategy. Looking ahead, the confidence we have in our 2024 performance continues to strengthen.

We expect organic sales growth to remain relatively stable, driving 2%-3% price and 1%-2% volume growth. We're increasing our outlook for full year 2024 adjusted EPS to the range of $6.40-$6.70, up 23%-29% versus last year, as we now anticipate delivered product costs to ease through the third quarter, though the magnitude of cost favorability is expected to gradually diminish. This, along with continued pricing and volume growth, are expected to more than offset the estimated $15 million per quarter OI headwind from the divestiture of our surgical healthcare business once the transaction closes.

As a result, we anticipate quarterly adjusted diluted earnings per share growth in the second half of 2024 to progressively normalize towards the upper end of Ecolab's long-term 12%-15% target, a short-term benefit from lower delivered product costs ease. As always, we will remain good stewards of capital by continuing to invest in the business, increasing our dividend, and returning cash to shareholders. With great business momentum and cash flows, our balance sheet is in a very strong position. This provides us with many options to allocate capital to growth opportunities that will generate continued strong returns for shareholders. Ecolab's future has never looked brighter. Our leading customer value proposition, where our technologies help customers improve their operating performance while reducing the water and energy use, is proving to be increasingly relevant and continues to fuel our growth, pricing, and margin expansion.

Backed by the most talented team, leading technology innovation, and global capabilities, our strategic positioning enables us to consistently expand our market share within the vast and high-quality $152 billion market we serve. We therefore remain confident in delivering superior performance for our customers and for our shareholders for the years to come. Thank you for your continued support and investment in Ecolab. I look forward to your questions.

Andy Hedberg (VP of Investor Relations)

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

Operator (participant)

Yes, thank you. We'll now be conducting a question and answer session. May I ask you to please limit yourself to one question, and be sure, so the callers will have a chance to participate. If you'd like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone to indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question.

Tim Mulrooney (Equity Research Analyst)

Christophe, good afternoon.

Christophe Beck (Chairman and CEO)

Good afternoon, Tim.

Tim Mulrooney (Equity Research Analyst)

I wanted to ask about your growth investments. You know, it sounds like you're stepping up SG&A a little bit. So I guess my question is twofold. Number one, you know, does this impact how you're thinking about timing to achieve your 20% OI margin? I know a big chunk was gross margin expansion, but I also know, you know, to hit that target, it was a couple of hundred basis points of SG&A leverage. So, you know, how are you thinking about that 20% target now? And then secondly, on the investments themselves, you know, can you talk a little bit more detail about what those are, what parts of the business they're going into?

I know, you know, part of the reason that Ecolab has sustained its competitive advantage is, has been its willingness to invest in areas where, you know, others have cut costs. So I'm not saying it's a bad thing that these investments delay that 20% OI margin timing, but was just curious what the strategy is around the step-up here. Thank you.

Christophe Beck (Chairman and CEO)

Thank you, Tim. Let me start with the second part of your question. We are in a great, fortunate place, obviously, here, where we have top-line momentum, and we have margin expansion, and both are obviously so feeding our opportunities to invest behind our teams, our technology, and our future, which is exactly the place where we want to be on a continuous basis as well. Now, as we accelerate our growth investment, at the same time, we're also keeping a very close eye on our underlying productivity, and I like what I see. It's important to have both, that on one hand, underlying productivity keeps getting better on a long-term basis, and we've done a good job at that, and at the same time, that we can invest when time is right for the growth for the future.

Regarding those investments that we're making, it's mostly behind three growth drivers, Tim. The first one is growth firepower. We're a machine that's here to serve more customers, to serve them more broadly and more deeply, as well, having more people serving those customers and supporting those people serving those customers, will feed into our accelerated growth. The second part is digital and AI technology and services that we can sell. We're making very good progress on that front, and I look forward to sharing more with you as we move forward, and especially in 2025, because we see a lot of very good progress on that front serving our customers with digital technology, with AI services, and data that we can sell.

And the third driver, our capability is to serve as One Ecolab, where we can bring all the businesses together to serve one customer consistently everywhere around the world, and that's a unique opportunity for us to get that job done, as we speak, and in the next few quarters. And, and back to your first question, related to the 20% OI target, well, with faster growth and further margin expansion, it's making me more confident that we will get to this 20% margin in the next few years, as I've shared with you, and we will keep informing you as well on the progress that we're making on that path. But so far, very good progress made.

Operator (participant)

... Thank you. Our next question is from the line of Ashish Sabadra with RBC. Please just give us your question.

Ashish Sabadra (Managing Director)

Thanks for taking my question. Just on the DPC, I was wondering if you could elaborate how much was the DPC lower on a year-on-year basis, but how it's trending compared to pre-pandemic level, expectations for second quarter and rest of the year? Thanks.

Christophe Beck (Chairman and CEO)

Thank you, Ashish. I'll pass that question to Scott, who will be best positioned to answer that.

Scott Kirkland (SVP of Global Speciality)

Thanks, Christophe. Thanks, Ashish, for the question. So as you know, we've talked about before, we buy over 10,000 raw materials, so individually, they're moving in different places. But, as we expected for Q1, in totality, DPC, decreased in the upper single digits, and that was as we expected and as we guided to. And as Christophe said in his opening statement, as you talked about how we see it throughout the year, expect that DPC to continue to ease through the year, but the magnitude of that favorability will diminish, from Q1 to Q3. So, you know, going from this high single digits to, lower single digits by Q3.

And then to your last point, about where we are versus pre-pandemic levels, commodity costs still remain as you've probably seen, very high versus pre-inflationary levels or pre-pandemic levels. Thank you.

Operator (participant)

Our next question is from the line of Manav Patnaik with Barclays. Please just give us your question.

Manav Patnaik (Managing Director and Equity Research Analyst)

Thank you. Good afternoon. Christophe, I just wanted to, you know, bigger picture question on the components of the growth. So it sounds like from what you said, the new kind of 2%-3% pricing seems like, you know, that, that realization should be on track. And then I think a lot of the volume growth was kind of your own initiative this quarter. So I just wanted to confirm those two and then just get your take on the, you know, the, the third piece, which is just the macro. Like, what are the volumes, you know, in, in Europe and U.S.A looking like, you know, without your kind of new business pipeline?

Christophe Beck (Chairman and CEO)

Hey, thank you, Manav. Good to hear you. A few things here. So maybe starting with the macro. I would say kind of unchanged. There's a lot of puts and takes, obviously in all the 40 end markets that we serve. But what we've seen in 2023 is what we're seeing in 2024 overall. So feel good about the general macro, at least with everything we know now. We know it's an unpredictable world out there, but with everything we know, I feel good about where we are and where we're going.

Then, related to your two questions on pricing and volume, we feel increasingly good about our long-term pricing muscle, which, you know, is based always on what we call total value delivered, which are the savings we're generating for our customers, which usually are at least two times the pricing that customers are giving us, as well. So it's a very good win-win for both the customer and for us. So when we set our 2+, now I'm saying two-three, for 2024, I feel very good about delivering that. And on the volume side, well, as you've seen, so from our Q4 to Q1, so volume has moved up overall as a company.

So that's a good indication, obviously, that our shift to offense that we started a year-ish ago is really working well. Our new business is at record levels. We're investing, as I've shared, just before with team as well, so behind our team, behind technology, behind capabilities, in order so to sustain and accelerate that. So the volume is 1%-2%. I feel really good about it as well. Not every quarter is created equal, but generally, we should have a very good year in 2024.

Operator (participant)

Our next question is from the line of John Roberts with Mizuho. Please go ahead with your question.

John Roberts (Managing Director)

Thanks, Christophe. A couple of quarters ago, you changed how you operate the healthcare business. Now, with the Global Surgical Solutions being sold, are there still additional changes, structural changes that you're going to make there?

Christophe Beck (Chairman and CEO)

Not much. There were four points on my plan, John, and I shared with you, so each step that we made when I could obviously so do so. The first one was to really adjust the cost structure. We did that. The second was to create that bifurcation for infection prevention and surgical, which happened very well in the latter part of last year. And now, so the pending sale of our surgical solutions business to Medline, that's step three. It's been a great transaction so with a great partner. Feel really good with where we are and hope to close as quickly as we can on this one. And then there's the point four.

And the point four is to build our infection prevention business around the typical Ecolab style type of business, which means with a machine, with consumables, with service, with digital technology. And that's the instrument and endoscope reprocessing business that we have as part of infection prevention so today that we want to keep building in the years to come because it's a winning market. It's a market where we have all the right to win. It's a typical model for Ecolab as well, and we know exactly how to run a business that way. So it's the right focus, it's the right team. We will keep adjusting, obviously, so how we evolve that business. We will be building that business over the years to come. There will be internal innovation.

There might be some small acquisition as well, so too, it, nothing dramatic. I wanna build a great healthcare business in the years to come. It's gonna take some time. It's never easy, but we're gonna get to the right place, as we've always done with our previous new businesses in the company.

Operator (participant)

Our next question comes from the line of Josh Spector with UBS. Please proceed with your question.

Josh Spector (Executive Director)

Yeah, hi, good afternoon. I wanted to ask a couple related things around Institutional and Specialty. So at first, congrats, really strong performance in, in the quarter. I think we know the optics of pricing coming down, but if we say pricing in the segment was anywhere near the ballpark in the total company, looks like volumes were up high single digits, and it's a pretty meaningful step up on, you know, year-over-year and multi-year stacks. So the question is really, is that momentum that you think can be maintained, is that the new wins flowing through and you could deliver, call it, mid- to high-single-digit volumes on Institutional through this year? And the second part is more around margins, and that typically is a pretty meaningful step up in that first quarter to fourth quarter, call it 400-500 basis points.

Any reason why we shouldn't see that in that framework for this year?

Christophe Beck (Chairman and CEO)

Thank you, Josh, especially so for the nice comments. So the team has done an unbelievable work in the last quarter, like in the many prior to that, as well. So back to your question on Institutional and Specialty. This business has been now for quite a while on a great path. As I've shared with you very openly, the pandemic has been game changing for this business, and I mean that in a very positive way. Generally, the industry is doing quite well. People have enjoyed going back to hotels, restaurants, and travel.

People have been open to pay more, and it's an industry that at the same time had been able to reduce their cost because they had a hard time as well, so to get all the staffing that they were looking for. That meant better margin for them, better traffic for them as well. Overall, an industry that is in a much, much better place than it used to be as well. Well, we've taken that opportunity to also improve our business in dramatic manner.

In North America, like everywhere else around the world, and I absolutely love what this institutional team has done around the world, because we've been able to align with exactly what the customers needed: short term, when they were reopening, mid-term, now, where they need solutions in order to serve the increased traffic that they see, and most importantly, they need to reduce their labor cost. Well, that's exactly what we help them do with all our automation solution. It can be software, it can be training, it can be chemistry, it can be technology. You will see that at the National Restaurant Association show as well in a month from now.

Very good stuff happening, which is driving all the growth of that business and the willingness for customers to pay more for those solutions, because as always, they get more value than the price that they're paying, ultimately, so for us. So to your question on the long-term trajectory, so for Institutional, I think that this five-seven that we've talked about for the company should be the swim lane for Institutional as well long term, and there will be times where they will be better than that, and sometimes they might be a little bit on the lower end. I think that this year they're gonna have a very good year in Institutional, and if it continues that way, well, it's gonna line up with what I just said so in terms of long-term trajectory.

For the margin, they're in a very good place. Right now, they're expanding, so quicker than we had expected, as well, with volume that's a bit lower than where it used to be, pre-pandemic. Well, that's basically demonstrating that the institutional, P&L is much better than it used to be. As volume will recover, the margins will keep improving as well, and the P&L of that business will keep getting better. So that's a typical business that's gonna be north of 20%, pretty quickly, and will keep growing from there because it's in a great position to do so. All in all, a great business with a great future.

Operator (participant)

Our next question is from the line of Chris Parkinson with Wolfe Research. Please proceed with your question.

Chris Parkinson (Managing Director)

Great, good. Good afternoon, I should say. On the global pest elimination business, you're offering a little bit more detail, and we've been hearing about that business for a while, but can you just offer a little bit more color on how you're thinking about that business strategically? Is this, you know, simply just, hey, it's a great institutional, you know, service-driven, pricing-esque business? Is this more of a roll-up? Should we be emphasizing... I think the old terminology was enterprise selling across your institutional clients. Just if you could offer a little bit more insights on how we should be modeling that and, you know, your thought process, that'd be very helpful. Thank you.

Christophe Beck (Chairman and CEO)

Hey, thank you, Chris. I've never personally worked in the pest elimination business, but I love that business. It's unbelievable the performance that it delivered in the best of times, like in the most difficult times, as we've seen as well over the past few years. Steady, high growth, high OI growth business, great margin, and great future. And maybe a few points here. The first one, they've reached the threshold of $1 billion sales in 2023. For me, that was the moment to separate that business and to have it report directly to Darrell Brown, our Chief Operating Officer, because it's a business where we wanna have all the focus, all the attention, all the investment that we can get as well behind it, because it's high growth, high margin, high return.

So that's what we've done internally from a management operating perspective that led directly obviously to how we report as well that business and wanted to make sure that our segment reporting was perfectly aligned with the way we manage as well the company at the same time. On a side note, it helps you, as investors, obviously, to see in full transparency how this business is performing and how it's operating as well at the same time. You're gonna see that it's maybe not the biggest, pest Elimination business on the planet, but it's the best performing one. Highest growth, highest margin, which is a pretty cool place to be. Now on how we're gonna keep driving that business for the future, it's gonna be first and foremost internal so organic.

We have a great team, and especially on the technology side, as you've seen during Investor Day, and we'll see, so going forward, as well. We're leveraging all the digital capabilities of our company. Keep in mind that we have, in Industrial, for instance, 100,000 devices that are connected today. We have over 1,000 people in digital technology, that have been working, so for years as well, behind all the capability build, that we have today. Well, we're gonna leverage all that, in our Pest Elimination business to ultimately so really transform that business into a digital business. To the question of M&A, can't make big comments on that, but we will keep doing some small bolt-ons, as we've done in the past because we know how to do it. It works really well.

So every time we will find good companies that we can add to our Pest Elimination franchise, we will do so. So a great story that keeps getting better and will get better, in the years to come.

Operator (participant)

Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.

John McNulty (Managing Director and Chemicals Analyst)

Yeah, thanks for taking my question, Christophe. So just wanted a little bit more clarity on the life sciences business. I know it's struggled a bit, but it does seem like it's, it's finally starting to pick up a little bit of momentum. Can you flesh that out for us in terms of what you're seeing and maybe how that pipeline is filling out as we kinda look to the back half of this year?

Christophe Beck (Chairman and CEO)

Yeah, it's a good story, John. We know that building new growth platforms is hard, takes time, but we've done it many times. Pest elimination that we just discussed was a perfect example that we did so years back, as well. Life sciences is one of the newest one that we have. If you look at just the results in Q1, the fact that life sciences is growing in a market that's currently down double-digit is showing so how performing that business is and how interested our customers are in what we can offer. So I like where we are versus the market, and I know that that market is gonna recover. Is it mid this year, second half of this year, early next year? From a market perspective, I don't know.

I can't influence that, but I can influence how we serve our customers, how we generate new business, and I like a lot what I'm seeing here. Our innovation is best in the industry as well, with the smaller one, the more agile one, the one that can truly answer immediate special needs for the biotech industry. I like a lot that position of the emerging leader that we're shaping here. So we came from a place where we were building, now a place where we're seeing some positive signs of growth. We will keep investing in capabilities, in capacities, because I firmly believe that this business is gonna be a multi-billion business down the road at margins that are gonna be way north of our target of the 20%.

Operator (participant)

Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter (Managing Director and Equity Research Analyst)

Thank you. Good afternoon. Christophe, back on the growth investments, in terms of the timing right now, is there anything you're seeing in the market, be it the competitors, opportunities, that enhance your decision? And exactly where are the investments being focused by business and by geography? Where is the biggest portion of that going? Thank you.

Christophe Beck (Chairman and CEO)

Thank you, David. Maybe so, to your first question, so where, as I've shared with many of you, we look at our businesses in four key categories: fuel the growth, protect the growth, transform the growth, and fix. Those are the four big, broad categories where we put our businesses and our markets and invest accordingly to make sure that we do a very smart capital allocation based on projected returns. There are the obvious candidates here. We talked about Life Sciences just before. We talked about Pest Elimination just before. We talked about Institutional just before. And especially in Industrial, there are two new areas that are having outsized growth opportunities, and those are data centers and semiconductors. We have good position in both those end markets.

As you know, those are two end market that needs huge amount of energy/water, and we help our customers ultimately to disconnect the growth related from AI from impact on natural resources: water and energy. And that's exactly what we do for the high tech companies. It's to help them manage data centers that are, well, much more high-powered and many more data centers, but at the same time, reducing to zero the impact on the environment and the same on the semiconductor side.

We're also investing in digital technology, which I'm really proud of what the team has done over the past few years, and it keeps accelerating because we have so much data, so much knowledge, so much capabilities, ultimately, to leverage the knowledge that Ecolab has in every industry, in order to help every industry to reach their max potential in terms of performance, in terms of business results, and in terms of environmental impact. So that's the way we think in terms of growth investments.

Operator (participant)

... Our next question is from the line of Pavel Molchanov with Raymond James. Please proceed with your question.

Pavel Molchanov (Equity Research Analyst)

Yeah, thanks for taking the question. PFAS has been in the headlines in the U.S., and I guess I would just ask you to comment generally on what the PFAS opportunity looks like for you in the U.S. as well as internationally.

Christophe Beck (Chairman and CEO)

You know, Pavel, we've been on that topic for a very long time, but we don't wanna be part of the marketing fray or political fray, so of PFAS. We're by far the leader in water globally, and we've been in the business of mastering water purity for a very long time, like almost 100 years, as you know. So PFAS purification is one of the many things that we do and can do in water. So we are working very closely with our customers, but mostly B2B. Very limited interest to go to municipal, government, residential. This is not where we are as a company. We remain on commercial, we remain on B2B, and we're working with our customers to really understand what they need, where they wanna go.

The very good news is that we have the technology, we have the science, we have the expertise to solve it. We wanna do it in a way which is safe for the company, safe for the customers, and that it can make a lot of money as well, so for investors going forward. More to come. I like where we are, and we'll see where we're going on this one.

Operator (participant)

Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Laurence Alexander (Equity Research Analyst)

I have a, you know, a question around sort of your growth investments and the targeted returns. I think Ecolab usually has a metric for almost everything that we can think about. So do you have a sense for what your historical kind of hit rate is, you know, for those types of investments? Or, and I guess what I'm getting at is, as you move more into sort of the data or marketing to customers, is the hit rate getting better or worse compared to your expectations for how kind of your investments in staff, and training, and marketing are playing out?

Christophe Beck (Chairman and CEO)

Well, the short answer is that the hit rate is getting much better, especially when we think in terms of digital technology, data, AI. We are uniquely positioned, serving 1 million customers in the world, in 40 different industries, in 172 countries, and connecting, as you've heard, so 1,000s of devices and operations around the world. Today, as we speak, we have capabilities that no one else has and data that no one else has as well at the same time. So we know that investing in digital technology is an almost 100% hit rate. When you think in terms of margins, well, there is no raw material to our digital technology, so margins are way higher as well there.

So it's kind of a combination of large potential, unique capabilities that we have, and certain high margin investing. So behind, digital and AI for us, is a no-brainer, and we've done it for 30 years, and we've accelerated the last five-six years quite remarkably. So this one, it's kind of a 100% hit rate. For all the other ones, it's like I've said, before, we make absolutely sure that our SG&A productivity, underlying productivity, improves continuously. And it does, and it's important that it continues to do so. But in some moments, like now, I want to accelerate our investments, as mentioned, so in our frontline buyer power, at the same time, beyond the digital, investments as well in our capabilities as well to support, our frontline.

So it's gonna drive our ratio of SG&A, so slightly higher for a while. But when I think about the second half and 2025, I think it's gonna normalize pretty nicely, and underlying productivity is gonna remain strong.

Operator (participant)

The next question is from the line of Jeffrey Zekauskas with JP Morgan. Please proceed with your question.

Jeffrey Zekauskas (Managing Director and Equity Research Analyst)

Thanks very much. I think the overall volume growth of the company was 2%, and I think that what you said was that in the industrial business, if you excluded paper, volumes increased. So I take it that industrial volumes were down year-over-year. Is that right? And in the institutional business, were volumes up, I don't know, five or six?

Christophe Beck (Chairman and CEO)

I guess that's the end of your question, Jeff?

Jeffrey Zekauskas (Managing Director and Equity Research Analyst)

That is the end of my question.

Christophe Beck (Chairman and CEO)

Okay, good. Well, did you make sure I was not missing something obviously here? So a lot on volume. You're right, so it's the 2% for the company. That's the way we report it, so that's not a surprise. That's why I'm saying the 1%-2%. So for the year, I feel really good in getting that. Again, not every quarter is created the same. We have some year-on-year comparison we need to manage with, but the 1%-2% so feel good, and I'm talking 2024 here. And individually here, institutional, you're right. It's directionally, so kind of half price, half volume, doing really well, as I've shared, as well, so previously as well in some of the question.

Industrial overall volumes were flat-ish for the first quarter, all in, and they were positive ex paper. I don't wanna correct too much, Jeff, as well. Within Industrial, when I think about the various businesses, I feel really good with where we are. Because if I go a little bit more under the hood, well, you have heavy water, light water are kind of in the low mid-single total growth here, not just volume. Downstream is high middle mid-single, so in a very good place, as well. And then we had mining, that's a little bit negative because it's comparing against a crazy quarter in Q1 last year, but underlying doing really well, and then you have paper softness.

Generally, Industrial is moving in the right direction, in a world where manufacturing demand is not exactly accelerating. I like where we are and even more where we're going here.

Operator (participant)

The next question is from the line of Steve Byrne with Bank of America. Please proceed with your question.

Steve Byrne (Managing Director and Equity Research Analyst)

Yes, thank you. Gonna follow up on the pest control business. Do you have an estimate of what fraction of your customers within industrial and institutional are customers within pest control, and what could that fraction get to? Is that the primary driver for that business, or would you say, you know, expanding the platform and getting into other products, like fumigation and so forth, is the growth driver?

Christophe Beck (Chairman and CEO)

Hey, thank you, Steve. The pest business has grown over the last many years, almost entirely through what we call Circle the Customer, Circle the Globe, which is penetration of customers that the company has, even if Pest Elimination doesn't have. As Pest Elimination grew over the last few years, obviously, they got their new customers as well at the same time, which are feeding as well the opportunity for the other non-Pest Elimination businesses. But if I look at the opportunity of Pest Elimination within our customer base, well, it's worth billions out there, so sky is the limit. That's why this business is something that I like so much.

Operator (participant)

The next question is from the line of Kevin McCarthy with Vertical Research. Please proceed with your question.

Kevin McCarthy (Partner)

Yes, good afternoon, and thank you. Perhaps a few housekeeping questions on your surgical divestiture. Would you comment on the level of EBITDA attached to that business? And I'm not sure what the tax basis might be, but perhaps you could also comment on the expected cash proceeds and the deployment of those proceeds when the deal closes in the back half of the year.

Christophe Beck (Chairman and CEO)

Okay. Thank you. I'm gonna pass that question to Scott, but before I get there, so you've heard in my open, basically, so how we look at it. So we're not disclosing too much detailed business information. So underneath what we publish, that's the case, obviously, so for a business within healthcare. So the $15 million headwind per quarter, once we close, is kind of a good direction, but more to that, Scott.

Scott Kirkland (SVP of Global Speciality)

Yeah, Kevin, I'll talk on the proceeds and gain, but very high level. At this point, don't wanna get ahead of ourselves. We need to close the transaction first, which we feel very good in. And the proceeds themselves, you know, we're gonna remain committed to our capital allocation priorities, which is focused on investing in the business. And from a tax perspective gain, yeah, we do expect to realize a very attractive gain on the sale, but we'll disclose that amount once the deal closes and once the accounting is finalized. But, and that gain, will be in special charges just from a housekeeping perspective, and that's not included in the $0.15 estimate we had on the full year special charges.

Operator (participant)

Our next question is from the line of Patrick Cunningham with Citi. Please proceed with your question.

Patrick Cunningham (VP and Equity Research Analyst)

Hi, good afternoon. Thanks for taking my question. So Europe's been a drag on growth for several quarters. Can you give us your latest thoughts on the region and maybe how volumes trended in the quarter? And institutional stands out as particularly strong there. Is that mostly market outperformance, or is foot traffic starting to improve?

Christophe Beck (Chairman and CEO)

So two questions in here. So on Europe, I like a lot what this business has done. Just take the big picture. 10 years ago, it's a market where we used to make no money, and today, it's a business that's close to the average of the company today. So has done a remarkable work. Has grown very nicely last year. Is growing as well in the first quarter in a very difficult environment, and margin have kept expanding very significantly in Europe as well at the same time. So overall, Europe performing very well in a difficult environment. Now, to your question on Institutional and the foot traffic, it's mostly share gains within our customers and customers we don't have.

Foot traffic is not up versus 2019 right now, and especially the traffic in the dining room, so people sitting in a restaurant, not just taking a drive-through or ordering digitally as well. Well, this traffic is even further down, obviously. So if I look at where we are in terms of growth, where we are in terms of margin in that business, well, it makes the performance of that business even better in a market that hasn't fully recovered yet because it's all driven by market share.

Operator (participant)

Our next question is in the line of Andrew Wittmann with Baird. Please proceed with your question.

Andrew Wittmann (Managing Director and Senior Research Analyst)

Hey, great. Good morning, and thanks for taking my question. Christophe, earlier in the Q&A, you were talking about how you're investing across three growth vectors, kind of more people to help serve your customers, digital and AI. And then you talked about, investing to serve more as One Ecolab. So, there's been various initiatives to bring the whole solution to customers over time. So I guess I'd like to understand a little bit more about what you're doing here that's different from the past to, to try to, you know, circle that customer even better, to use your terminology, I guess.

Christophe Beck (Chairman and CEO)

Yeah. Thank you, Andy. It's been a long journey, and it's gonna be a continued long journey. At the end of the day, we call it our One Ecolab growth program. It's to provide our customers with a transparent view of all the businesses that are serving them and all the opportunities that they have if they were to work even more with them. At the end of the day, we wanna help them drive the performance of all their units at the performance level of the best-performing unit. We know which one that is. We know how to get there. We know how to help them get there. We need data, transparency. We're making very good progress on that, and we will keep investing on that.

And the second part is making sure that our teams also have real-time data at their fingertips, on their phone, knowing what's the potential that this specific unit is having versus the best-performing unit of that customer, and how to get there. What are the best practices that I can use that I'm not familiar with? They've been probably used in another country, maybe in another business as well. I have all that information on my phone, and I can deliver that value as well, so for the customer. And last but not least, is to make sure that our back office, where we've made huge progress with SAP over the last 10 years. We have 80% plus of our business on SAP, so today is perfectly aligned with that proposition behind customers. So there is no revolution here. It's pure evolution.

I'm taking the advantage of moving even faster in order to capture even more share, in order to grow faster and get higher margin at the same time.

Operator (participant)

Our next question is from the line of Mike Harrison with Seaport Research. Please proceed with your question.

Mike Harrison (Managing Director and Chemicals Analyst)

Hi, good afternoon.

Christophe Beck (Chairman and CEO)

Good afternoon, Mike.

Mike Harrison (Managing Director and Chemicals Analyst)

I was wondering if we could dig in a little bit more on the mining business. You mentioned that it was weaker year-on-year against a tough comp, but I'm just curious if you could give a little more color on what's going on and kind of how that's expected to trend the rest of the year. And then where are we in the process of shifting that mining business toward higher value segments of the market? And I know you did an acquisition back in November. How does that acquisition help you further move along in that shift toward higher value segments and fertilizers? Thank you.

Christophe Beck (Chairman and CEO)

You know, Mike, 10 years ago, I was not exactly in love with our mining business because it was focused on segments of the past. Coal, primary metals, all those things where the world is not exactly going towards to longer term. And we made the conscious decision, back then to shift everything towards much less cyclical, much more growth focused, and much higher margin, as well at the same time. And we've made a total transformation of that business over the last 10 years, and what was 80/20 yesterday is closer to 20/80 today, which is why I like where we are and even more where we're going with mining. When you think about mining, well, think about green transformation, think about copper, think about lithium.

That's where we spend a lot of time. So it's precious metals, as well at the same time. And the mining industry has a lot to do with water, to say the least, because most of the time there's not enough water, and the water they produce is not exactly great for the environment. We can help on both ends. We use and recycle water for ultimately a much better mining operation with a much lower environmental impact. So we've really driven that transformation. That takes time. Changing a portfolio within a business is something that takes years to get to the right place, and we've reached that place.

And in the acquisition we did last year, as you just mentioned, well, it is helping towards that because it's towards the new mining, as we call it, as well. So at the end of the day, right portfolio, much less cyclical, almost no cyclicality, and margin, much better. We had that year-on-year comparison, so with the first quarter of 2023 was up 42% last year. So it's just a year-on-year comparison. The next quarters to come, for the most part, is gonna be a very good story. So if I didn't like mining so much 10 years ago, I like mining a lot today.

Operator (participant)

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

Vincent Andrews (Managing Director)

Thank you. Christophe, if I could go back to the investment spending. I'd love just to get your thought process on how you sort of came up with the amount to spend. I guess I'm just asking, you know, did you set a bar or hurdle somewhere, are you trying to achieve a certain outcome, either in terms of your near-term earnings or your medium-term volume growth? You know, I guess why wasn't the number higher or lower? What things did you say no to, versus what things did you absolutely have to do?

Christophe Beck (Chairman and CEO)

Yeah, Vincent, the guiding principle is to invest in ways that help us raise the probability of delivering our targets of the five-seven, the 20% OI margin, as you know, and the 12%-15% EPS growth, as well, at the same time, for the long run. This is my job, this is our promise, this is what we're working all together towards to. So that's the way we're looking at those investments. It's not meant in a short-term way at all. It's all about delivering our long-term commitment. So there's not a threshold. Well, there's a threshold of making intelligent moves and trying to avoid dumb moves, at least willingly. That's probably the only one we have there.

And in some places, when we think about Global High-Tech in data centers, in semiconductors, I'm saying, "Well, let's go there as fast and as deep as we can." We have a leadership position. It's a huge market that keeps getting bigger, as well out there. I'm not putting a threshold here. It's get it done as fast and as well as you can. But at the end of the day, it's making sure that we get the five-seven, the 12-15 EPS, and the 20% OI margin, as we've talked about, in the next few years. This is my guidepost and my promise to you.

Operator (participant)

Thank you. Mr. Hedberg, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Andy Hedberg (VP of Investor Relations)

Thank you. That wraps up our first 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, and hope everyone has a great rest of your day.

Operator (participant)

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day.