Ecolab - Earnings Call - Q4 2024

Executive Summary

• Q4 delivered steady top-line and strong margin progress: revenue $4.01B (+2% YoY) and adjusted EPS $1.81 (+17% YoY), with organic OI margin +150 bps to 17.4% as value pricing and new business offset growth investments.
• Results modestly beat consensus: revenue $4.01B vs $3.99B estimate and adjusted EPS $1.81 vs $1.80 estimate; FY24 adjusted EPS finished at $6.65, above the $6.64 consensus (beats in bold in tables below; S&P Global consensus).
• 2025 outlook: adjusted EPS $7.42–$7.62 (+12–15% YoY) despite ~4% FX headwind to EPS growth; Q1 2025 adjusted EPS $1.47–$1.53 (+10–14% YoY); company expects faster One Ecolab savings and “slightly higher” value pricing to offset FX pressure.
• Key stock reaction catalysts: rising confidence in 20% OI margin by 2027; high‑margin growth engines (data centers, microelectronics, Life Sciences) and Ecolab Digital disclosure starting in 2025; plus accelerated One Ecolab savings pacing.

What Went Well and What Went Wrong

• What Went Well

  • Margin expansion: Q4 organic OI margin rose to 17.4% (+150 bps YoY) on solid sales growth and lower delivered product costs, while reported gross margin expanded 130 bps to 43.3%.
  • U.S. strength and execution: CEO emphasized the U.S. (over half of sales) as the most profitable region with strong growth; reiterated confidence in 12–15% EPS growth for 2025 and path to 20% OI margin by 2027: “I think that we should cross the 18% OI margin this year… get to 20% by 2027”.
  • Growth engines: High‑tech business >$300M sales with OI margin well above 20%; AI-driven shift to liquid cooling in data centers and water circularity in fabs support multi‑year opportunities; Digital to be reported starting 2025 (top line).

• What Went Wrong

  • Pest Elimination profitability: Organic OI down 15% due to “an unfortunate and unusual spike in accidents” and investment in digital pest intelligence; management expects stabilization in Q1 2025 and reacceleration thereafter.
  • FX headwinds: 2025 guidance embeds ~3% sales and ~4% EPS growth headwinds from currency translation, requiring stronger value pricing and faster One Ecolab savings to offset.
  • Healthcare (reported) still lapping portfolio moves: Reported sales/OP down on the divestiture of Surgical Solutions; while organic growth improved to +3% and organic OI +47%, reported metrics remain pressured until the portfolio reset fully annualizes.

Transcript

Operator (participant)

Greetings, and welcome to Ecolab's fourth quarter 2024 earnings release conference call. At this time, all participants are in listen-only mode. The question-and-answer session will follow today's formal presentation. If anyone 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, Investor Relations. Thank you, Mr. Hedberg. You may now begin.

Andy Hedberg (VP of Investor Relations)

Thank you, and hello everyone, and welcome to Ecolab's fourth quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO, and Scott Kirkland, our CFO. A discussion of our results, along with our earnings release and the slides referencing the quarter 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 factor 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. With that, I'd like to turn the call over to Christophe Beck for his comments.

Christophe Beck (Chairman and CEO)

Thank you, Andy, and welcome to everyone on the call. As we wrap up another incredible year at Ecolab, I wanted to take a moment to acknowledge the hard work and dedication of our exceptional team. Their unwavering commitment to our mission has been instrumental in delivering unmatched value and best-in-class outcomes for our customers, driving Ecolab's record performance. It's a true privilege to lead such a talented group, and I'm proud of what we've achieved together over the last few years. 2024 was another record year for us, with record sales, record earnings, record margins, and record free cash flow, all supported by the exceptional total value we delivered to our customers. As we look ahead to 2025 and beyond, our results position us well to continue delivering superior performance for both our customers and our shareholders.

In Q4, our organic sales growth was solid and steady at 4%, driven by consistent volume growth and value pricing. Regionally, our performance continues to be led by the United States, where organic sales grew mid-single digits. The United States makes up more than half of Ecolab's sales and is our most profitable region. We expect this region to strengthen further in 2025, fueling continued strong performance for Ecolab. Sales across the rest of the world grew low single digits, driven by resilient demand for our leading solutions, good new business wins, and value pricing, which more than offset the uneven macroeconomic trends in these regions. Our organic operating income margin in the fourth quarter increased a robust 150 basis points. This underscores our commitment to driving margins higher while making continued critical investments in sales firepower, capabilities, and capacity to fuel our future growth.

For the full year, our organic operating income margin was 16.8%, up 290 basis points on top of 140 basis points delivered in 2023. With all of this, my confidence in reaching our 20% operating income margin target over the next three years continues to strengthen. As we move into 2025, I'm confident in Ecolab's ability to drive continued solid organic sales growth and 12% to 15% earnings growth. Our strategy centers on capturing market share through our One Ecolab initiative and accelerating momentum in our new growth engines, specifically in data centers, microelectronics, life sciences, and our newest offerings from Ecolab Digital. Externally, currency translation is expected to have an approximate 3% unfavorable impact on Ecolab's 2025 reported sales growth and an approximate 4% unfavorable impact on adjusted EPS growth. We plan to mitigate the earnings impact in two ways.

One, through strong year value pricing, which is expected to be slightly higher than 2024's pricing as the total value delivered to customers continues to expand, and two, through slightly faster-than-expected One Ecolab savings. As a result, we look for continued superior performance in 2025, with adjusted diluted earnings per share expected to increase 12%-15%, even with organic sales growth improving slightly from the 4% we delivered in 2024. With a solid growth formula in place to deliver again in 2025, we also plan to build and invest in our business to fuel continued strong performance for the years ahead. Two of these critical areas include Ecolab's Global High-Tech business and Ecolab Digital. Our Global High-Tech business operates in the rapidly growing multi-billion dollar data center and microelectronics industries.

Sales in this business have reached over $300 million, and we expect strong growth to continue in the coming years, with OI margins well above 20%. The rise of AI is prompting data centers to rethink their cooling strategies, leading to a shift from air-cooled to liquid-cooled servers. This transition presents Ecolab with a significant opportunity to apply our extensive expertise in fluid management, microbio control, and naturally, high-performance cooling, which is one of our core competencies, to help our customers optimize their operations, maximize uptime, and protect their substantial investments. Our new business pipeline in these markets is very strong, driven by robust demand for our breakthrough innovation focused on high-performance cooling for data centers and water circularity for microelectronic fabs. We're well positioned to leverage these innovations, along with our leading digital applications and global sales and service expertise, to serve the world's largest technology companies.

Ecolab Digital will also add to our momentum by leveraging the power of our extensive digital and AI capabilities to identify insights and deliver best-in-class performance across the 40 industries we serve. Ecolab Digital manages more than 100,000 customer systems around the world today. Last year alone, we captured more than 120 billion proprietary data points across these systems. This data was used to identify ways to deliver improved operational performance and profitability for our customers' global enterprises. We're monetizing this enhanced customer value through patented device leases, application subscriptions, and digital content consumption, all of which is supported by Ecolab's global sales and service organization to make it work. As previously indicated, we'll begin to report our digital sales in 2025 to provide even greater transparency to this high-growth, high-margin opportunity.

To support these efforts and our other growth engines, we will continue to accelerate smart organic and inorganic investments. With this, we expect our CapEx to sales to be around 7% in 2025, as we continue to expand digitally connected systems like our Ecolab 3D Cloud, 3D TRASAR, AI Dish Machine program, and Pest Intelligence. With our record free cash flows and very healthy balance sheet, we are also in a unique position to take advantage of inorganic opportunities in water, digital, and life sciences to deliver even more value to customers and attractive returns for shareholders. With these initiatives, we remain focused on further enhancing shareholder returns through increased dividends and share buybacks.

In December, Ecolab's board declared a 14% increase in our quarterly cash dividend, and in 2024, we bought back $1 billion of Ecolab stock at very attractive prices, all signs of confidence in our team and in our future. Overall, I firmly believe the best of Ecolab is yet to come. Our ability to deliver innovative solutions that improve our customers' operational performance while reducing their water and energy use is increasingly relevant in today's macro landscape. We're well positioned to deliver another stronger in 2025 and beyond. So thanks again for your continued support and your 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. We ask that you please limit yourself to one question per caller so others will have a chance to participate. If you'd like to ask a question, you may press star one on your telephone keypad, and a confirmation tone will 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 poll for questions. Thank you. Our first question is from the line of Tim Mulrooney with William Blair.

Tim Mulrooney (Partner and Equity Research Analyst)

Heads up, Scott. Good afternoon.

Andy Hedberg (VP of Investor Relations)

Hi, Tim.

Tim Mulrooney (Partner and Equity Research Analyst)

Hello. So it sounds like your confidence around that 20% OI margin target by 2027 continues to go up. And it looks like the market's coming around to that idea as well, based on the stock price today. I wonder if you could help us, though, think through the cadence of that expansion over the next three years and remind me about the primary drivers behind this. Thank you.

Christophe Beck (Chairman and CEO)

Great question. Thank you, Tim. So you're right. I feel, we feel really good about getting to 20% by 2027, just to be accurate as well, even though the exact timing will also depend on external factors. But we're talking quarters here, not years. So 2027 is, for me, the year where we should cross that 20% line. So why am I confident? Well, first, we've been on a steady trajectory for a few years now. Our OI margin went up, as mentioned earlier, so up 140 basis points in 2023, 290 basis points in 2024. We had 16.8% in 2024. And second, we focused on the right things to drive margins. It's top-line momentum, which is pretty steady. I like it. Second, value pricing, solid. We didn't exactly know where it would land, so these 2%-3% seems to be the sweet spot, so for us.

Innovation keeps to add margin in a very steady way, and fourth, productivity driven by technology, so for 2025, with everything I know today, I think that we should cross the 18% OI margin this year, and beyond that, when I think about the new engines, Tim, that we are building and fueling to accelerate momentum, like the Global High-Tech I mentioned before, data centers and fabs, well, it's north of 20%, those businesses. Life Sciences underlying as well. We're investing behind it to really get ultimately this north of 20% margin in the P&L, but that's going to take a few years to get there, and last but not least, Ecolab Digital, which is doing really well, which we will report in the first quarter, as promised as well, well, has very good margin as well at the same time.

So, great track record so far, focused on the right drivers to drive margins. So, feel good about crossing the 18% line in 2025. And with what we're building in terms of new businesses, ultimately, so we'll get to 20% by 2027, as I promised for a while now.

Operator (participant)

Our next question is from the line of Manav Patnaik with Barclays. Please proceed to your question.

Manav Patnaik (Research Analyst)

Thank you. Good afternoon, Christophe. I apologize if I missed this, but I know you said you'll report the digital numbers, I guess, throughout the year. Any sense of just sizing it? And I suppose, how intertwined is it with your One Ecolab Initiative and the importance of that?

Christophe Beck (Chairman and CEO)

Yeah. I promised that we would be disclosing that in 2025. We want to do it, obviously, the right way. It's going to be top-line in 2025, and it's going to be more of the P&L in 2026, hopefully, that we can have numbers that you can trust, that are transparent. It's all in the spirit of giving you as much visibility as we can. But today, it's $a few hundred million. We'll provide the exact numbers as we report the first quarter. It's high growth, high margin, high touch, very sticky because it's a combination of mostly three things, and it's purely digital, like you would use with your iPhone or Samsung, whatever you have, Manav. We get lease or rent for our devices, and we have 100,000 of those connections around the world. So it's first digital equipment leases. Second is software.

all think applications on a phone, but for us, it's software like OMNI to improve, optimize the performance of a power plant, for instance, between the cooling tower and the condenser. Well, we get the subscription for it. And the third one is consumption of data, of transaction, of minutes of support, of emergency service, and so on. So those are the three components that will be feeding our numbers that we'll be reporting under Ecolab Digital. And last point, the relationship to One Ecolab, well, it's very clearly intertwined.

And on purpose, obviously, because all the information that we're getting with all our connected systems and our service data, by the way, that we captured from our field sales force or from our customers or from other systems, all feed into Ecolab 3D that ultimately provides data for the software and the consumption as well that's being used by our customers. So it's two sides of the same coin, but more to come at the end of the first quarter when we can really report our top-line numbers.

Operator (participant)

Thank you. The next question is from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your question.

Ashish Sabadra (Managing Director)

Thanks for taking my question. I just wanted to better understand the volume growth expectation as we get into 2025, and if you could provide any color by segments as well as any impact, any potential impact from tariffs? Thanks, and congrats on solid results.

Christophe Beck (Chairman and CEO)

Thank you so much, Ashish. If I understood you right, the last part of your question was the impact of tariffs, which is obviously a bit of a different topic here. But generally, with what we know now, and it's an evolving proposition, as we know as well, we don't see a big impact on our business for a very simple reason: 92% of what we sell is produced locally. And in places like China, 99% of what we sell is produced locally. We're kind of well protected from a supply chain perspective. That's the reason why tariffs, for now, are not a big deal for the company, and hopefully, it stays so.

And if it doesn't, I'd like to remind you and all as well online that a few years back, so we established that surcharge mechanism that we used for the energy spike in 2022. Well, this is a mechanism that, in the extreme case, we can use as well. We're not planning to, but we're prepared to use it if we need to. So kind of feeling good about that tariff story. Now, the first part of your question on volume, 2025, the way we need to think about it, not every quarter is created equal, but trajectory is basically so these are around 2% volume growth. This is kind of the cruising speed we've had for a few quarters now. The price, value price, 2%-3%, but better than in 2024, I believe, which will lead to a 4% plus overall trajectory for 2025.

That's kind of the top-line expectation for 2025. That's for organic, obviously, and then you have an FX component for reported numbers. But last point I'll make, two elements. First, in terms of long-term directional growth, I'd like just to refer what I shared with you almost two years ago by business in terms of top-line and margins that invest today. Those ones are still valid. No change on this one. And the last point is the United States is our largest market. It's over half our sales. It's our best-performing market with the highest margin as well at the same time, which is a good place to be in the world that we're living in right now. And around the world, it's obviously different market by market, but generally, I feel good. All the markets are in a reasonably good place, good profitability as well.

We have no underdog as well out there, so pretty well balanced in terms of business performance and market performance at the same time, while the U.S. is the leading market, which is a good thing nowadays.

Operator (participant)

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

John McNulty (Managing Director)

Yeah, good afternoon. Thanks for taking my question. So I was just curious if you could give us some color or thoughts on how you're thinking about Delivered Product Costs in 2025. It seems like there's a bunch of kind of puts and takes out there. So if you can give us a little bit of color on that, that'd be great.

Christophe Beck (Chairman and CEO)

Thank you, John. I'll pass it to Scott so he can work as well a little bit.

Scott Kirkland (CFO)

Thanks for the question, John. Yeah, as we think about the DPC, as we started seeing in 2024, where we're starting to see the DPC tailwinds normalize and really turn to normal levels of inflation, our expectation going into next year, as we talked about after Q3, is this normal level of low single-digit inflation for delivered product costs. But certainly, we will continue to offset as much of that with supply chain efficiencies, but that is our net expectation for DPC next year's low single digits.

Operator (participant)

The next question is from the line of Jason Haas with Wells Fargo. Please proceed with your question.

Jason Haas (Senior Equity Research Analyst)

Hey, good afternoon, and thanks for taking my question. I'm curious if you could talk about what it will take to get the 2% volume growth to the long-term target of 3%-4%. How much of that is reliant on some of these industries you're in improving versus what you can accomplish with One Ecolab and your other initiatives? Thank you.

Christophe Beck (Chairman and CEO)

It's our main focus, Jason. I feel good about what we're doing about it. You mentioned One Ecolab. It's all about unlocking a bigger share of the $55 billion of penetration in existing customers that we have. And as mentioned, so separately as well, just our top 35 customers have a potential of over $3 billion of penetration as well. One Ecolab focused on our major customer partners is the main driver of how much we can accelerate underlying growth as a company. The second component is really those new engines, like I mentioned in my open, so Global High-Tech with data centers and fabs. These are really interesting engines for the future. Life sciences is another one. Ecolab Digital, as mentioned, that we're going to start reporting at the top-line levels of the Q1 will be one as well.

Ultimately, really keeping improving the performance of our core businesses, Institutional pest elimination, our core water businesses by focusing really on new business generation. I feel good with the trajectory that we're having, the backlog that we have in terms of new business. We need to install it. So we have all the elements that we need in order to improve the performance at the volume level. But I'd like to make sure that we also look at volume plus value pricing because for us, as you know, value pricing is not price. It's mostly our share of the value that we deliver to our customers, which as a proxy is usually twice the pricing that our customers are paying for us. So it's a very good deal for our customers while it's a good deal for our shareholders at the same time.

Operator (participant)

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

Rachel Leo (Analyst)

Hi, good afternoon. Thank you for taking my question. This is Rachel Leo from Patrick. It looks like Life Sciences perform better, and what is driving the underlying business momentum and the improving outlook in 1Q?

Christophe Beck (Chairman and CEO)

Thank you, Rachel. Life sciences is a business that we started building in 2016, 2017, really focusing on pharma, the acquisition of Purolite in 2021, added really the ultra-purification for the biotech world because we firmly believe that drug development, drug production, disease prevention is going to be and is a growth market long term so feel really good about where the market is going to go. We know that the industry had to go through a bit of a transition over the past few years, but it doesn't change where we're coming from, and it doesn't change where we're going. It's just a few years of transition. During those few years, we've kept growing as well, not as fast as we were hoping, but our competition was declining during that time so feel pretty good as well about that.

But the last few years, we've built new capabilities, plants, systems, quality systems. We've strengthened our team as well in dramatic ways, which is something that Ecolab is very strong at. So I feel really good about the industry we serve, how we serve that industry in being the smaller player, very agile, very innovative, very responsive, very close to customers, and the capabilities that we've built for the future. And we see early fruits coming out, which is a very good sign. So I feel good about where we are, where we're going with Life Sciences. It's not going to be a straight line to heaven for the quarters to come. Not every quarter is created equal, but the direction of travel is good and will keep getting better.

Operator (participant)

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

Vincent Andrews (Managing Director)

Thank you. I'm wondering if you could talk a little bit more about sort of the leverage point. It looks like you're going to get to, maybe it's in both data centers and in Pest, where you've had to make some meaningful investment to go after that business. And it's kind of more of a percolates in the backlog for a while before it actually shows up in revenue. So maybe you could just help us understand where you are in terms of the level of spend that you've had to make versus starting to see a real ramp-up or an inflection in the volume and therefore the margins that that new volume will drive as the volume becomes greater than the spend.

Christophe Beck (Chairman and CEO)

Yeah, well, it's already a good business with good margins to begin with. So we are investing behind these two businesses, data centers and fabs, but not in crazy ways. It's to do it in a smart way, in a typical Ecolab manner that it's pay as you go, even though it's a little bit more than we would normally. It's not much more. So it's done in a very healthy way. And to your question of how far are we down that journey, well, it's early because it's early for everyone. The very good news is that it's new technologies that nobody has truly developed yet. And I think that we are best positioned for that. The way we present it internally, and I might get a little bit ahead of my skis here, you have NVIDIA that's developing the best chips in the world.

You have ASML producing the machines to produce the chips. You have TSMC and Samsung producing the chips, and you will have us providing all the cooling technology and the water recycling in the fabs. Two comments on that. On data centers technology today, well, you have a lot of computers in a room that's cooled with air conditioning. We're very strong at that. We know how to master that. Well, the new generation now is direct-to-chip cooling. So you have a cold fluid going to the chip. Well, that's a very different technology. Can you imagine bringing that fluid to the chip, all the challenges of scaling, of fouling, of managing all that in real time? This is what 3D TRASAR was made for initially.

So we're uniquely placed in terms of technology, so close to the chip, managing that fluid and cooling that fluid as well at the same time. We feel really good with the developments that we've made and very close to some of the largest tech companies out there. So all the big names are working pretty closely to us. And the last point for the fabs, one fab, just for perspective, is using an equivalent of the drinking needs of 17 million people. So that can't go forever because obviously we won't have enough water in order to feed all those fabs while feeding people as well at the same time. So we need technology to reuse and recycle water within the fab, which is exactly what we're doing. And we're having some very good development projects with some very famous tech companies as well out there.

So it's early because the industry is early, but I think that we are the leading edge and we will be the ones hopefully leading for the years to come as well.

Operator (participant)

The next question is from the line of John Roberts with Mizuho Securities. Please proceed with your question. Mr. Roberts, perhaps your line's on mute.

John Roberts (Senior Equity Research Analyst)

Sorry about that. In the pest elimination segment, could you discuss the accidents that you had and how much of the earnings headwind was the accidents versus the increased spending on Pest Intelligence?

Christophe Beck (Chairman and CEO)

Yes, first, we are an extremely safety-focused organization. As you know, John, so my first thought is really about the people and the families who have been hurt. We have some very good safety records really at world-class levels. So when a few accidents happen, you can see it in the records. You can see it in our cost evolution as well. So the OI decrease that we had, so the majority of it was driven by the accidents. This is something that we're working on. We're very focused on. It can happen even though we are having that objective of goal zero in every business, every function, anywhere around the world, and when it happens, we deal with it, and that's exactly what happened. Unfortunately, in pest elimination, we need to live with it, but most importantly, we need to address it.

Operator (participant)

Thank you. Our next question is from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.

Shlomo Rosenbaum (Managing Director)

Hi, thank you very much. I want to ask if you could just unpack the CapEx a little bit. We talked about some investments into digital and some of the other areas. CapEx typically for the company was 5%. It moved up to a little over 6% last year, and we're talking about 7%. Are we into a new normal type of kind of business model, or is there something that's a short-term increase in investment or acceleration of investments?

Christophe Beck (Chairman and CEO)

Let me pass it to Scott and I'll comment after that.

Scott Kirkland (CFO)

Hey, Shlomo. Yeah, thanks for the question. As you know, CapEx by nature is a little lumpy. As you said, historically, we've been in this 5%-6% range, but just to ground you, about half of that CapEx, this percentage of sales, is related to customer equipment. So customer equipment location. So as we're growing, CapEx will grow. And as we move to that 7% in 2025, as Christophe said, we're continuing to invest and we're growing. So as sales accelerate, we'll continue to invest there. But in addition to that, we have programs that he has mentioned around AI Dish Machine, which you may have seen at some of our shows, the Pest Intelligence, which we've referenced, as well as the digital investments that Christophe talked before.

So those programs themselves, as we accelerate in the near term, certainly in 2025, I would expect possibly a little bit more elevated in 2026, but I don't think this is a long-term trend above 7%.

Christophe Beck (Chairman and CEO)

It's not a new normal, but we have very strong cash flow, a very strong balance sheet, very good growth opportunities. Well, I want to leverage the capital that we have also to feed those growth opportunities while we return cash to shareholders as well at the same time and keep the strong balance sheet that we have. All in all, pretty healthy investments.

Operator (participant)

Thank you. Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question.

Steve Byrne (Managing Director)

Yes, thank you. In order for your customers to utilize your products, whether it's in wastewater treatment, laundry cleaning, dishwashing, pest elimination, all of that equipment that they have, how much of it does Ecolab own or that you've sold to them or you have installed? Is this part of the loyalty and pricing power that you have with those industrial customers?

Christophe Beck (Chairman and CEO)

It's a great question, Steve. We own virtually all of it, and we want to keep it that way because it's a proprietary technology. It's much more sticky. This is good for us, but it's also good for the customer because they always get the latest technology, the upgrades in software. They might pay for the new subscriptions, for the new software as well. But generally, dispensing equipment, digital technology, all of that belongs to us.

Operator (participant)

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

David Begleiter (Managing Director)

Thank you. Christophe, on the 25-month growth of 2%, is that faster than the market? And if it is, how much faster than the market is it?

Christophe Beck (Chairman and CEO)

It is clearly faster than the market. You take the example of institutional 6% growth in a down market, and you can look at different ways of looking at it, but the foot traffic is down. So we're clearly gaining share. This is true in our water business as well at the same time. I feel really good about the share that we're gaining. The 2% is kind of the steady volume growth that we have. Our focus is to keep working on it, to accelerate it. As I mentioned before as well, with our growth engines, with capturing more share of the $55 billion by leveraging One Ecolab, adding digital as well. So all feeding into stronger than 2% for the long run. But we want to do it in a very smart way. I will never trade volume for price.

And as you know, we have strong value pricing as well. So it's keeping that equation in a good balance, and that's why you don't see big swings around these two. We want to really do it in a very steady way that ultimately you can trust the direction of travel that we're having.

Operator (participant)

Our next question is from the line of Jeffrey Zekauskas with JPMorgan. Please proceed with your question.

Jeffrey Zekauskas (the Managing Director and Senior Chemicals Analyst)

Thanks very much. I have a three-part question, but I think your answers will be brief. If you compare industrial and institutional in the quarter, which segment grew its volumes faster? In terms of your 20% margin target, it turns out that in 2027, your amortization costs will drop from today's level by about $150 million. So your EBIT margin will go up about 90 basis points, but it won't affect your EBITDA margin. So when you have that 20% margin target, does that include the drop in amortization, or is your EBIT target really 21% and it doesn't take that into account? And then lastly, in pest elimination, what exactly happened? Were Ecolab employees injured or customers injured? And why is this something which seems to have an effect over the next several quarters? Thanks.

Christophe Beck (Chairman and CEO)

So, Jeff, you paid for one question only, but I'm going to give you the two bonus questions as well as a good friend. So first, the volume difference between institutional and industrial. So as you know, we're not disclosing volume and price, especially for competitive reasons. So I can't really answer that question, but in both cases, it's pretty good. So I feel good about the balance, volume, and price, which is something, as mentioned before, that I want to keep a very good balance of, and you can see it at the overall company level. Second question, amortization is not included in 2027 there. So when amortization of the existing, obviously, so acquisitions that we've made, so it comes off the book, that's going to be on top. But I'm not counting that, so to get to the 20%.

And third one, in pest elimination, it's always a combination of two. It's insurance cost. So depending on who owns the accident, well, we have to pay. It's been unfortunate accidents, as you know, in pest elimination. We have a few thousand people on the road 24/7 in sometimes remote places, in sometimes difficult customer locations as well. So it's been unfortunate. It happens. It was mostly in Q4. There's going to be a little bit in Q1, but that's it.

Operator (participant)

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

Laurence Alexander (Research Analyst)

Good afternoon. Could you give us a sense of your assumptions for 2025 around SG&A leverage, taxes, interest expense, and buybacks?

Christophe Beck (Chairman and CEO)

Let me give it to Scott as well. Scott?

Scott Kirkland (CFO)

Yeah, I got that. Thanks, Lawrence. I guess a three-part question reminds me if I forget any of the three parts. But as we think about SG&A, as we talked about previously, we expected in our guide for next year to be at this 20 to 30 basis points of leverage, and that's net of continuing to invest in the business. Now, certainly with the impact of FX, that will have an impact on that. But as we accelerate the One Ecolab savings as well, we still expect to be in that range of 20 to 30 basis points on SG&A leverage, but probably near the lower end of that range. And in Q1, I would expect it to be slightly negative because, as you can expect, the FX we're already seeing, and it'll take some time to realize those savings progressively throughout the year.

And then as we talk about taxes, so this year, we landed the full year in between our 19%-20% expectation for the year, landed at 19.3% on an adjusted tax rate for the full year, and expect to be in this 20%-21% range next year as we continue to drive earnings growth. So that earnings growth will sort of naturally get us closer to the U.S. corporate rate, especially given the strength of growth in our U.S. business. And then lastly, on buybacks, I would just say, as Christophe mentioned before, the balance sheet is in a very, very good place. No change to our philosophy on capital allocation. The balance sheet, as you probably saw, we ended the year at a net leverage of about 1.7 times. We repurchased. That includes repurchasing about $1 billion in shares in 2024.

And then future buybacks are really going to be dependent, as it always has been, on our investment opportunities, including M&A. So with the balance sheet strength that we have, it gives us a lot of opportunity to invest both inorganically and organically. And you'll see that in the CapEx, as we talked about, this increase to seven% of sales. So as we have right now, I would expect normal levels of buybacks, but consistent with our historical capital allocation philosophy, and we will invest in the business as a number one priority.

Operator (participant)

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

Christopher Parkinson (Senior Research Analyst)

Great. Thank you so much. Just when I'm thinking about the water segment and I'm looking at the growth between light, downstream, heavy, and mining, just given the long-term outlook in data centers, microelectronics, and some of the things you're obviously already betting from and obviously growing a more significant baseline, is there just a general mathematical equation that would get us to, let's say, more of a mid-single digit, like a five or a six% growth rate, especially the 2% pricing that you foresee for like 2026 or 2027? Just what's the best way to triangulate that over the long term? Because it seems like some momentum is beginning to build there. Thank you.

Christophe Beck (Chairman and CEO)

Yeah, well, you're right. So the Industrial also had to go through a lot of value pricing. As you know, so over the last few years, the team did an exceptional job while keeping volume momentum and especially keeping customers. We have this core principle as a company that we keep customers for life, and we've done that very well over the last few years. The shift of gears that Industrial did almost a year back now, well, has been to focus on businesses like Global High-Tech with the data centers, with the fabs that are picking up speed. So when you look at the 1% to 2% to 3% in Industrial, it's a big business, obviously. So you have some fast-growing businesses in there and some less fast-growing businesses as well.

So within Water, but the Global High-Tech, which is $300 million plus today, while growing pretty fast at very high margin, is going to influence the overall Industrial profile in the mid-term as it grows, obviously, in importance versus the size of the overall business. So if you've liked Industrial, which we call Water, by the way, so as of 2025 in the past, you'll like it even more in 2025 and in the years to come because our presence in those two big sectors is going to be critical in the future. And the other businesses as well in Food and Beverage and in Downstream and in Paper, they're all doing some really good work as well to improve the core performance of those older businesses, if I may say.

A combination of older businesses, core businesses, strong, solid, and improving, and on top of it, the new engines adding to the steam as well will be a good equation long-term for Industrial.

Operator (participant)

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

James Cannon (Equity Research)

Hey, guys. Congrats on a good quarter. This is James Cannon for Josh. I just wanted to touch on with some of the moving pieces that have happened in the Healthcare life sciences business. Could you just level set for us kind of how much is moving from Healthcare into the institutional segment, what that kind of does on a margin profile, and what the remaining standalone life sciences business looks like?

Christophe Beck (Chairman and CEO)

Yeah, you will see more, obviously, as we report the first quarter. Healthcare is roughly $500 million of sales at pretty low margin. And that's going to move into the I&S group. It's going to have an impact probably of 1 percentage point top line and 1 percentage point margin. That's basically what's going to happen optically. Obviously, the businesses themselves don't change. It's just the math that's regrouped Healthcare within I&S. But I&S, very strong, very healthy, and the leverage that we are creating between Healthcare and institutional, well, is going to be beneficial for both ultimately. So I&S is still going to be 20%-wide type of business, so very healthy, very steady, and it's going to keep getting better in the future.

On the Life Sciences side, well, you'll see the exact numbers at the end of the first quarter, but it's between $500 million and $1 billion in sales. We're investing quite heavily in that business. Underlying performance of OI of Life Sciences is in the mid-20s. But with what we invest is more in the low to mid-teens today. But it's really keeping in mind we're building capabilities, capacities, teams, systems, innovation to build the business that's north of 25% and hopefully at some point north of 30% as well. So very pleased with what we're doing. And ultimately, we're having that as a separate reporting segment for you to have the transparency, the visibility of what's happening, what we're doing, and where we're heading because I firmly believe that Life Sciences is going to be a terrific business for us going forward.

Operator (participant)

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Kevin McCarthy (Senior Equity Research Analyst)

Yes, thank you, and good afternoon. Maybe a two-part question. Christophe, would you comment on the relative margin differential between your U.S. businesses and your international businesses and whether that's stable or narrowing or widening? And then secondly, a question on your foreign exchange guidance. Why is it the case that currency is expected to be a larger drag of 4% on your bottom line relative to 3% on the top line?

Christophe Beck (Chairman and CEO)

So, let me have maybe Scott start with the second part of your question. And he might add on the first part as well, and I'll build on it. So, why don't you start, Scott?

Scott Kirkland (CFO)

Yeah, Kevin, the simple answer, first of all, it's a pretty small difference. We're talking 3% on reported sales and 4% impact of translation effects on EPS. So pretty small difference. But the simple answer, it's just the result of geographic mix, is the simple and obvious answer.

Christophe Beck (Chairman and CEO)

And on the OI margin, so the U.S. is above average of the company, and outside the U.S. is below average of the company. But not that much, actually. It used to be way lower a few years back. And today, pretty close. Both are improving. The 20% OI margin, by the way, at the market level is the same objective for everyone around the world. Some markets have crossed that line already, and everyone in the company is having that objective and trying to get beyond the 20% in all of the 11 markets that we have around the world. So generally, pretty healthy across the planet and I really like where we are.

Operator (participant)

Our next question is from the line of Justin Kleber with Baird. Please proceed with your question.

Justin Kleber (Senior Equity Research Analyst)

Yeah, hi, good afternoon. Most of my questions are one simple thing. It's like the One Ecolab Initiative is running kind of a heavier plan. Spent, it looks like right around $100 million on it in 2024, and that's really three quarters. And so I guess I'm just curious, $225 million planning to spend through '27. That's still the right number? Is that front-loaded at everything, or is that number going to move a little higher?

Christophe Beck (Chairman and CEO)

Yeah, let me pass it to Scott. You were breaking up, so it was a bit hard to hear you. But what we understood was the pacing of the savings for the One Ecolab Initiative. So let me have Scott answer that question, and if it's not what you had in mind, so please just ask again, making sure that we answer what you're looking for.

Scott Kirkland (CFO)

Yeah. So Justin, on the program, I just want to first start by saying, of course, as we've talked, this program is really about enabling the sales growth. That is the primary purpose, accelerating that path to the five to seven and taking advantage of this $55 billion cross-sell opportunity that we've talked about. But as you said, the program included $140 million of savings, which we expected and talked about last year after in Q3 when we rolled out the program that we'd expect that to be pretty proportionate, pretty even over the first three years, over the three years of the program. But of course, if you take that $140 million of savings, again, that's like averaging 1% of sales a year. So again, the big impact is not on, sorry, on SG&A. The big impact's not on SG&A, but on driving the sales growth.

But within that savings, it's going to allow us to continue to invest in the business. And that pacing, as we've reacted to the FX and just driven that program, we're expecting it to be a little bit more front-loaded, whereas you'd expected a third, a third, a third previously. We're probably expecting 40%-50% of that savings to happen next year in 2025.

Christophe Beck (Chairman and CEO)

I'd like to build on what Scott just said. Two things on One Ecolab. It's clearly a growth initiative. The fact that savings are coming in better and faster is a very good sign. It's a very good sign of adoption by our team and our customers. It's not that we're cutting or doing some weird things here. It's a performance project to accelerate growth. It's important to keep it that way in mind. That's the first part. Improving faster than expected, which is really good. Second, from a growth perspective, the best example is in our F&B business, where One Ecolab has been leveraged in the last few months, bringing hygiene and water together as one offering of our customers. This is working really well. You've seen the results of F&B are improving as well at the same time.

So it's really showing that the One Ecolab Initiative, which has been an old dream in a way, is really hitting on both fronts, performance and growth acceleration, which is exactly what we were looking for early in the journey, but very encouraging early signs of success.

Operator (participant)

Our next question is from the line of Andres Castanos-Mollor with Berenberg. Please proceed with your question.

Andres Castanos-Mollor (Research Analyst)

Hello. I want to ask about the acceleration in the charges for the application implementation of One Ecolab. It seems that we are close to $100 million in 2024 out of $225 million that was budgeted by 2027. So my question is, is there a risk this will run over budget? Thank you.

Scott Kirkland (CFO)

No, not at all. Just to answer your question really simply, as we talked about, we've had great execution. We're accelerating the program. Just naturally, the cost will be more front-loaded because you recognize the accounting for the cost earlier, and then the savings happen over time and once you identify where those cost savings are going to be. So that is natural in every program that we've had, restructuring program that we've had. But again, because we're accelerating savings next year, seeing some of those costs a little bit front-loaded. But in terms of the returns and the payback on the program itself, we will not see any difference.

Operator (participant)

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

Mike Harrison (Senior Chemicals Analyst)

Hi, good afternoon. In terms of the healthcare business going under the institutional segment, I was curious, is this basically just taking the operational changes you've made and now formalizing it into your financial reporting structure, or are there some additional changes happening to how you're running that business and integrating that more with the institutional approach? Thank you.

Christophe Beck (Chairman and CEO)

No, it's exactly what you said, Mike. If you remember, so in healthcare, I've made a commitment to solve that business, which means getting this business to a place which is creating value for shareholders. We had a few steps. The first one was getting the cost structure right. The second was the bifurcation of Surgical versus infection Prevention. The third was to sell the Surgical drapes business. We've done that very successfully. So it's a done deal. By the way, worked out really well with the carve-out and sales to Medline. Worked out really, really well.

And the last step was to leverage Institutional because we have Institutional with a huge critical mass, especially in the U.S., serving so many locations where you bring, obviously, the Institutional service in the food service, in the hospitality part, and then bringing Infection Prevention was a very natural add to serve hospitals the best possible way. So getting those two together, reported in the same segment, made a lot of sense because that's the way we will operate going forward. So that's the way we need to report as well at the same time. That being said, as I've mentioned, the future of Healthcare will be in instrument reprocessing. This is kind of a dish machine business, obviously, at the highest standard because it needs to be disinfected or sterile depending on the instruments that you are processing here. It's a business model that we know extremely well.

We know how to make money with it as well. We have the capabilities, we have the reach, we have the footprint for it as well. So that's going to add to it. But again, a business that's very similar to what we do in institutional in dish rooms, just for different types of equipment at the different standard of cleaning as well. So I feel pretty good with the evolution that we've gone through with our healthcare business. Finally, it was time, obviously, to get to the right place. But I think that we're in the right place and heading in the right direction too.

Operator (participant)

Our next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.

Scott Schneeberger (Managing Director)

Thanks very much. Good afternoon. Yeah, I have two. I'll say them both up front. On the Digital Pest Intelligence Program, Christophe, how long is the investment cycle there? Is that quarters, years? And when and how will we see the benefits reflected? Will it be top line? Margin, just curious what we should see down the road. Thanks. And then on the follow-up, just on cross-sell, could you talk about where you are with cross-sell, particularly your top 35 customers as you enter 2025? How meaningful can that be? Thanks. Hey, thank you, Scott. So two very different questions, obviously, here. So the pest intelligence timing, when you think about it, it's thousands of people. It's millions of devices that you need to shift from analog to digital. This is something we know very well how to do, but this is physical work beyond the digital component, obviously.

Christophe Beck (Chairman and CEO)

So it's going to take some time. I think it's going to be a few years, but we're going to do it in a smart way, as we've always done. It's in a pay-as-you-go type of approach in a very typical Ecolab manner, as I mentioned before as well here. We can afford it because of the strong cash generation that we have as a company, the strong balance sheet that we have, a strong business franchise with pest elimination. So we might have some slight reduction of margin. So for a while, as we did, we applied science to make sure that ultimately we end up with a margin that's even better than where we were and where we are as well today. So a few years, but it's going to be done in a very healthy manner. There will be no big shock, no big surprise.

And we will share with you the progress that we're making. And so far, so good. Some of the key customers, well, one of them is probably the largest retailer in the world, which has been our main partner to develop that solution, is almost done, progressing very well. We have much better results as well at every retail location in the U.S. The customer is very happy. We've learned a lot during that path as well. We had to adjust a few things. We still have to do it as well. We're learning with them, but it's the right partner for us to develop the solution of the future. So far, so good. Now, your second question on cross-sell, which is the One Ecolab initiative. So it's capturing our fair share of the $55 billion cross-sell or penetration opportunity that we have.

As mentioned, the top 35, we have a $3 billion opportunity as well out there. F&B, as mentioned before, is a perfect example of a business benefiting from it because many of their customers are in those top 35 as well. We see the performance improvement in F&B is coming from there. For most of those 35 customers, we have focus plans that are enterprise-wide plans, Ecolab-wide, and customer-wide as well at the same time, where we know ultimately what's the best-in-class performance. As I've shared with you, it's really for each of those 35 customers that we can help them understand what's the best-in-class performance in terms of business outcome, cost performance, environmental impact. The difference between best-in-class performance and area of their location will translate into the max dollar potential that we can get or that they can get.

We have plans to get this within the next few years. Very well received by customers because they see ultimately better products, better cost profile, and lower impact on the environment. It's hard to beat, especially when you can do it at a high return, which means higher TVD than the pricing they're paying for it as well. So far, so good, good progress, and the best is to come.

Operator (participant)

Thank you. Our final question is from the line of John Roberts with Mizuho Securities. Please proceed with your question.

John Roberts (Senior Equity Research Analyst)

It's been answered. Thank you.

Christophe Beck (Chairman and CEO)

Oh, that was a quick question, John. Well, thank you to everyone. I really like the record performance that we delivered in 2024. The world is a bit complex in 2025, but I feel really good with our plans, how we've started the year delivering this 12 to 15, which was our commitment, my commitment. So I feel good for 2025. And most importantly, I feel even better for where we're going beyond 2025 with data centers, with microelectronics, with life science, with Ecolab Digital, and ultimately with the best team in the industry. And that's what makes me believe even more in our future and we will deliver as we've always done. Thank you. That wraps up our fourth quarter conference call. This conference call and the associated discussion slides will be available for replay on our website.

Operator (participant)

Thank you for your time and participation, and hope everyone has a great rest of the day.