Greetings and welcome to the Ecolab Third Quarter 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan, Senior VP, External Relations for Ecolab. Thank you, Mr. Monahan, you may begin.

Thank you. Hello everyone, and welcome to Ecolab's Third Quarter conference call with me today are Christophe Beck, Ecolab's CEO, and Dan Schmechel, our CFO. A discussion of our results along with our earnings release and the slides referencing the quarter's results are available on Ecolab's website at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with a brief overview, strong third quarter results were driven by robust new business wins and accelerating pricing. Which along with the continued recovery in the U.S. and improving European markets more than offset significantly increased delivered product and other costs. Looking ahead to the fourth quarter, we expect both accelerating sales volume and pricing momentum to leverage an expected continuing, though uneven global recovery. We expect these drivers to result in the fourth quarter showing better year-on-year sales growth than the third quarter. We have also experienced continued substantial delivered product and other cost inflation that we believe will increase fourth quarter costs by nearly $0.20 per share. As a result, we expect fourth quarter earnings to grow double-digits, though not as strong as the third quarter. We expect to once again to successfully manage the current inflation challenges in uneven global economic recovery to deliver very strong sales and earnings growth in 2021. Strong volume and pricing gains along with productivity and cost reduction actions enabled us to offset the higher costs and yield double-digit earnings growth. Recent programs, including Ecolab Science Certified net 0, further differentiated Ecolab's value proposition and enabled us to help create better customer outcomes and reduced environmental impact while simultaneously reducing their costs. Our new business wins and innovative pipelines are at record levels. New market-focused areas are positioned well to drive growth. And our leading digital capabilities continue to add competitive advantage. Our strong business momentum, along with enhanced value proposition and favorable macro trends, positioned us well to leverage the post-COVID environment and deliver further superior shareholder returns next year and for the future. And now, here's Christophe Beck with his comments.

Thank you, Mike. And good afternoon, everyone. Great to be together with you today. So Q3 has been another very good quarter for Ecolab. Demonstrating once again, that Ecolab is in great shape, with strong top-line momentum and a proven ability to effectively mitigate the adverse effects of inflation and supply shortages. The aligning sales trends were strong across the board; in a complex environment we delivered 10% reported and 8% fixed currency organic sales growth, driven first and foremost by continued strong momentum in institutional and specialty that delivered 17% sales growth in the quarter and 24% from the institutional division. We also saw accelerated momentum in industrial sales with 7% growth and 13% in other segments driven by sustained high-performance in pest elimination. Ecolab scientists posted negative sales growth year-on-year as they compare to exceptional growth during the pandemic, as we know. However, their respective underlying sales growth stayed on a healthy mid-single and double-digit trajectory. The planning momentum combined with accelerating pricing and structural productivity, benefiting from our state-of-the-art digital automation drove the strong adjusted EPS delivery, more than offsetting the short-term impact from Hurricane Ida and the rapid acceleration of global cost inflation. The team did an exceptional job minimizing the impact of Hurricane Ida, which we were able to successfully manage to be a much lower impact than initially expected at only $0.03 in the quarter. Most importantly, the team mitigated the impact of additional significant supply shortages to ensure exceptional service to customers while driving continued new business wins and strong price increases, contributing to a 31% increase in free cash flow. Current sales momentum is strong and we expect it to accelerate. Strong new business and breakthrough innovation are expected to continue to drive top-line growth. Also, pricing is projected to keep accelerating towards 4%. The strong volume and price momentum is expected to result in Q4 showing better year-over-year sales growth than what we've seen in Q3. At the same time, delivered product costs will keep increasing rapidly, which we'll continue to mitigate with great pricing. However, as we know, with our model this takes time to achieve sustainability long-term, and align with the incremental value we create for customers. We therefore estimate that the timeline between pricing and cost inflation will impact the Fourth Quarter EPS by approximately $0.20 versus what we expected just a few months ago, but that too, we'll address over the next few quarters. Next week we expect Q4 EPS to continue to grow double-digit, though not as strong as in Q3, which will help us exceed the year with great momentum. With strong volume growth, continued pricing, and delivered product cost hopefully nearing its peak, we'll then enter 2022 in great position to deliver another great year for Ecolab. The strong fundamental business momentum combined with continued market recovery provides us with great confidence in the future and especially for '22. In a world full of uncertainties, we keep driving strong business wins through competitive differentiation. In a world where customers struggle to find reliable partners for innovation, especially product supply and expertise to operate efficiently and serve their customers safely. We have substantially strengthened our position as their clear, innovative, and reliable global partner. In a world where our institutional specialty customers and consumers are concerned about increased risks of infection, Ecolab Science Certified has become the reference that provides guests with the assurance they're looking for. And in a world where environmental impact has become front and center, our net 0 offering is providing industrial segment customers with leading innovative ways to deliver on the commitments while improving their financial returns. All this provides us with confidence that '22 will be another strong year for Ecolab with sales and earnings growth above our long-term trends. So with that, I look forward to your questions.

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

Thank you. We will now start the question-and-answer session. Please limit yourself to 1 question and 1 brief follow-up question per caller to allow others to participate. A confirmation tone will indicate when your line is in the question queue. One moment please, while we gather questions. Thank you. Our first question is from Tim Mulrooney from William Blair. Please proceed with your question.

Christophe, good morning.

Hi. Good morning, Tim.

Thanks for taking my question. So my first one is on the guide. It sounds like you expect organic revenue growth to accelerate in the fourth quarter off an already strong result here in the third quarter. I know that some of that should come from better pricing, but are there other areas of the business that you expect to accelerate in the fourth quarter as well, and could you talk about what some of those might be?

Yeah, thanks for the question, Tim. You mentioned the pricing; we'll keep accelerating in Q4, and we can as well with the value that we're creating for our customers, that will help drive organic growth obviously. Volume growth will keep accelerating as well in most businesses, industrial being one good example, and institutionally is going to keep doing really well as it recovers. And you will have as well healthcare and life science that are going to compare to easier comps last year than we had in Q3, and all that brought together will bring us to a better place for Q4. Probably nearing to the double-digit level.

Okay. That's even more than I was thinking. Thank you. And quickly on margins, I saw industrial margins took another step back this quarter, but I know you guys have talked about maintaining these margins and building upon the gains you've made in 2020. So my question is: Is the step-back primarily related to the raw material cost pressure? In other words, would you still be on track to hold the margin gains you achieved last year if not for those raw material cost pressures? I'm just trying to understand what a normalized operating margin should look like for that business.

Yeah, that's a good way to look at it. Normally the margins would keep improving actually. So if we think mid to long-term, the margin trajectory for industrial will become even healthier going forward. Because when we talk about give backs, we're not giving back anything. Pricing is going up quarter-over-quarter in industrial like in other businesses by the way as well. Volume is going up as well. So it's kind of this short-term inflationary pressure, which is quite strong. It's growing quicker than the way we price for all good reasons since we want to make sure that we keep old customers while we do that and that we drop it.

Very clear. Thank you.

Thank you, Tim.

Our next question is from Manav Patnaik from Barclays. Please proceed with your question.

Yeah. Thank you. I was just hoping you can give us an update competitively in terms of John; I'm guessing everyone is raising prices and so customers are aware of that. But have the share gains moved one way or the other? Just curious if there's any update there to provide.

Hi, Manav. I wish most competitors were matching the pricing strategies we implement. Unfortunately, that's not the case, and for that, I'm grateful. We set our prices based on the value we deliver. We engage in meaningful discussions with our customers, identifying opportunities to enhance their productivity, and we expect to share in that value moving forward. When I assess most competitors across various sectors, they lag behind us regarding price progression. Therefore, we view ourselves as leaders in these industries, and it's our responsibility to lead the way. However, I do wish there were a bit more strength in price evolution among competitors.

Got it. And then just regionally in Europe with a greater competitor there, or any update on how your recovery in Europe is progressing?

The recovery is generally positive. It has been a bit faster in Europe compared to the U.S., as Europe transitioned from complete lockdown to nearly full reopening, which differed from the U.S. There are some fluctuations in the UK and Germany due to rising case numbers. Overall, the trends are encouraging, and our international business is also experiencing positive growth. It's important to note that last year we were stable; we didn't see a decline in international, so achieving positive growth this year indicates that things are recovering well.

Thank you.

Thank you, Manav.

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

Thank you. Good afternoon. Chris, Josh, just on price versus raws, when do you expect to fully catch up to these higher raw material costs?

So David, if you just take the dollar value year-to-date, we are ahead already, which is really in the Ecolab model, so it's not within the quarter. But if I take the year-to-date, pricing is ahead of the delivered product cost dollar pressure. And for the most part, we will remain ahead. It's not a perfect science, but it comes in lockstep. To me, the main objective is making sure that we can drive margin percentage, and that takes more time to get there because the inflationary pressures grow faster than our pricing capability.

Very good. I know it's early for next year, but as we approach November, do you have early thoughts on how to think about the earnings progression for next year?

Yeah, it's very early, as you say, David. I think first, on the inflation side, I believe it's going to be very similar to the pressure that we have or that we are experiencing in '21, and that's why the pricing evolution that we have this year, roughly 2%. We're expecting to get towards 4% next year. That'll be a good equation at least over time. Generally, when I step back a bit, I think it's going to be fairly consistent with what we've seen in the second half of the year. So overall, it's going to be probably better than what we've seen pre-COVID, if I may say. Good top-line momentum with good leverage with it.

Very good. Thank you very much.

Thank you, David.

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

Thanks for taking my question. Just on the topic of the institutional business, can you speak to where you are from a volume perspective relative to 2019 for your third quarter?

It's a good question. I'll need some help for that. We're all recovering very nicely in institutional. In general, maybe just to give you an idea of the trajectory, we expect to be ahead of 2019 by early '22. I don't know which months that's exactly going to be—that's depending on a bunch of things. But generally, we see that in the next 3 to 6 months, it's going to happen, for sure. So right now we are roughly in Q3, about 11% down in volume, and we will be expecting to be close to 19 by early '22.

Got it. You've come back a good bit of the way, I guess, as a follow-up, you mentioned a bunch of labor issues for a handful of your general customer base. Can you speak to how much of an issue that is for them? How does it impact the overall growth for that business to recover? And then also, maybe some of the solutions that you can provide to some of these customers that help them with their labor issues?

It's a great question because it's a real challenge for the industry, not just for our end customers and really specific to institutional here. The whole distribution channel is also struggling with that. Getting trucks unloaded from our plants to the distribution center and then afterwards getting the picking right as well. For our customers, it's an interesting world out there. But I'd like to say as well, what's really important is that most, if not all of our customers, including the distributors, are now clearly valuing our service quality. We've done huge efforts to make sure that we can deliver to our distributors and to our customers, which is first and foremost what needs to happen, especially with Hurricane Ida that didn't help, but I think that we've ended up in a very good place in terms of service level. Now to your question on the staffing. If you just look at the numbers, institutional business up 24%, a very good progression. We are almost at the same level as 2019 in terms of customers that we're serving. And we have our restaurant sales that are not even 10% down versus last year when the dining food traffic is down over 20%. Generally, we're doing very well versus the market. But at the same time, when you go to restaurants, you see that they can't serve all the tables, so they can't be open every single day of the week as well. So it's basically showing an indication that we could be even better or will be better the moment that they get the staffing right. Last but not least, your point on how we help them get there. Obviously, the service that we provide on a regular basis going there is very helpful for them. Because if the kitchen—if the housekeeping—if the warewashing is not done appropriately, well, it's even worse because they usually don't have people who can truly do the work since they're all new and changing so often as well. That's problematic, and we provide a lot of products that need much less labor.

Thanks very much for the color.

Thank you.

Our next question is from Chris Parkinson with Mizuho, please proceed with your question.

Great. Thank you very much. You're clearly not only enthusiastic about, but you are executing on the share gain fronts, which seems to be across the portfolio. But what's the primary driver here? Is it enterprise selling as you've spoken in the past, new platforms like Science Certified, digitization, new customers' desire to go to brand name? If you could just briefly dissect the recent success, what underscores your multiyear confidence, it would be greatly appreciated. Thank you very much.

You're welcome, Chris. So there are a few drivers. The main one we have is really the new business generation; it's not new; you're familiar with that. We have close to 2,000 people managing corporate accounts, as we call them, and we're very proud of that team. The net new business generation is at an all-time high, which is good because it's the pipeline of new business for the future. And it's driven by two main drivers. If I may say, the one you mentioned, it's the Ecolab Science Certified, especially on the institutional side. Customers are looking for ways to provide the right confidence for their own customers, their guests, as they call them, and Science Certified requires the full Ecolab program to be certified, while that means higher penetration of most of the solution assets. We get more units and more solutions within the existing units in order for those customers to get the certification. One of the latest, as I mentioned on Investors day, is McDonald's, which has been a great story with them endorsing Science Certified. And on the industrial side, our net 0 program is getting some very interesting traction because many of our customers, if not most, have made a lot of sustainability commitments out there, some of them have a hard time to reach or get closer to stay on track for that. So they need our help even more to get to their commitments. That's helping generate new business, and last but not least, new engines like data centers and high-tech are extraordinary growth drivers. Really addressing your needs that existed pre-pandemic. But the pandemic has given a huge boost to cloud computing as we all know, since we all using these virtual technologies, and that's driving our own business as well at the same time.

That's very helpful. And just as a very quick corollary of that, just turning to European Institutional, recently, there was a little bit sluggish versus its regional peers, but it seems to be edging in the right direction. Could you just briefly comment on what trends you're seeing there across the region, share gain opportunity, and just your ability to further drive margins higher across the region? Thank you very much.

Yeah, good question, Chris. We've done the last 10 years, and you've been following us for a long time, a lot of fundamental work in Europe for all our businesses. When you think about it, 10 years ago, we were making no money as a Company in Europe. Now, we are in the low teens, 13%, 14% in that region. That's been a remarkable improvement in profitability. Interestingly enough, Institutional has not made as much progress as all the other businesses in Europe because there was so much fundamental work that had to be done in terms of organization, systems, leadership, and innovation. It's taken us more time. But I would say the pandemic has helped us in a way. It's hurt us short-term, obviously, whenever things were shut down. But ultimately, our customers have seen that they needed a partner that could help them provide the assurance that they get, which was not exactly the focus they were having pre-pandemic. Now we are getting the fruits of all the work we've done over the past few years, where customers are recognizing that we are adding value that other suppliers can't provide.

Great. Thank you.

Thank you.

Our next question is from John Roberts with UBS. Please proceed with your question.

Thank you. Just a little clarification on the labor comments—customer labor comments that you made earlier. Are you—do you have any lost revenues? Because the customers just don't have enough staff to do all the cleaning that they would prefer to do?

Absolutely, when restaurants are open 3 days a week instead of 7 or whatever the schedule is, well, this is lost revenue for them, and this is lost revenue for us. But the good news is that they are going to open up at some point as they did pre-pandemic as well. That's going to help us.

No, I meant just that they were open but they are short-staffed while they were opening and so cleaning is getting deprioritized.

This was the case, John, early on. It's evolving quite nicely because you and I being guests in hotels and restaurants, well, we had some understanding for the lower cleaning standards during the pandemic. We pay the same price at the end for a room or for a meal. We expect as well a similar quality of service and cleanliness. This is something that's coming back progressively, but the labor shortage is hurting that. So the trends are good. It just takes time to get back to the right place.

And then I don't think healthcare and life science is very seasonal. So could you talk a little bit about the sequential change? On a sequential basis, I assume hand sanitizer were still down sequentially. I don't know when that bottoms and you get up comps. And what was up offsetting that?

A few things here. You're right; it's not really a seasonal business. That's not the way we look at it, for sure not. Last year was an exceptional year because of demand and a lot of government-driven demand for healthcare sanitizers and all those products. Estimates are exceptionally high back then. If you just look at Q3, say it's a 17% down versus last year, but up 8% versus '19, if you just do the math. And in terms of mix and not so much seasonality, what's driving profitability in healthcare is mostly the surgical part and COVID, as you know, has shifted away the elective surgeries, which has shifted our business towards a lower profitability type of business. But this is short-term. It's driven by COVID; the moment that surgeries are coming back, ultimately, we'll have the double combination: first, growth because we will be comparing against the more normal period, and second, profitability is going to come very naturally back because surgical is going to come back as well.

Thank you.

You're welcome, John.

Our next question is from Gary Bisbee with Bank of America. Please proceed with your question.

Hey guys, good afternoon. So I want to go back institutional for a minute. I think versus 2019 pre-pandemic, if you adjust for currencies in the last two years, the business institutional segment remains 8% below pre-pandemic revenue levels in the quarter. You commented you thought volumes in the next three to six months would get back to pre-pandemic levels. Does that equate to that revenue gap getting back to pre-pandemic levels, or are there other puts and takes that could lead revenue to take longer? And as part of that, I guess I also wondered, what unit level—customer level do you think you'll be at when revenue gets to pre-pandemic levels? So that—in I asked that from the perspective that you've talked about more products per unit, particularly for those clients that are using Ecolab Science Certified. Thank you.

Yes, so, Gary, big picture as mentioned earlier, institutionally expected so early '22 to get back to 2019 levels. I don't know exactly which months that's going to be, but within the next 6 months, it's going to be the case, which is a very steady and healthy recovery. With that, the fact that we had very good new business, that's going to be installed as well in the months to come. So if today we have almost the same number of units and the same number of solutions within units out there, it is going to compound. Then afterward, once we get more units, more days that are going to be open, more staffing in the restaurants, as mentioned, as well. All those elements are ultimately going to help institutional accelerate versus what we saw in '19 pre-pandemic as well. On top of it, you have pricing that's also evolving in the right direction as in every business that we have in the Company that's going to add to it as well, and last but not least, from an earnings perspective as well, Institutional has done remarkable work in terms of field organization, system implementation, that really helps drive an even better leverage in that business. Overall trending in the right direction; it's going to take a few quarters in order to get there, but I feel confident that we are on a good path.

Okay, great. And then you've talked a lot about your own pricing and how you're handling raw material pressures; if we just think supply chain in general, not so much the cost and pricing angle, but are you seeing any volume issues of your own or do you feel like any of your customers in any of the segments are really being impacted in the volumes they're using based on the widespread supply chain challenges that are going on globally? Thank you.

To a certain extent, yes. So there's a labor shortage, as we mentioned before, but that's the one that you're talking about obviously here. But take the example of the car industry; I saw outdoors. The chip shortage that's happening out there has nothing to do with our own operation, but it's reducing the demand just because there are fewer cars being produced because they can't produce them due to the chips ultimately out there. So that's something we can't control, obviously. What we can control is always making sure that we can supply our customers in a way that doesn't stop or impact their own operations. And in this crazy world of shortages, hurricanes, and Texas freezes, not one customer had to stop ultimately because of what we were not able to supply. I've met a bunch of CEOs over the past few months as well, and all have been very complimentary on our ability to serve them in a difficult environment. Yes, it's not helping. Growth, if there were no shortages, we would probably be growing faster, but I don't think that it's a major impact on us.

Thank you.

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

Thank you. And good afternoon, everyone. A bit of a follow-up on the supply dynamics. When you speak to your suppliers these days, how much of the issue at this point and as we look into 2022 is still that they're struggling to get their plants back up and running at a full run rate versus just that the broader customer base very much wants to rebuild inventory and is also probably seeing very good demand? How much of a risk do you see that either: A, there's another run-up in raw material costs even as supply normalizes just because people want to rebuild inventory, or B, just that the raw stays stickier at these higher levels well into next year?

Well, the short answer is that I think it's going to last 12-plus months, what we're experiencing now. And that's the way we're organized; that's the way we're addressing it; that's the way we're planning for it as well. Supply shortages are going to be here for a while. You are familiar with the China-U.S. transport issues that are existing as well. There are many suppliers in the U.S. who have gone through force measures over the past few months. Sometimes for great reasons and sometimes not so much; just to get some more margins as well with costs going up. The way we're thinking through that is that, as mentioned earlier, I expect the inflationary pressure in dollars in '22 to be very similar to the one in '21, with easing plateauing during the second half of next year. Which is why on one hand, thank God, we've gotten very well organized in order to become more resilient to make sure we can supply our customers. And second, that we are doubling our pricing from 2% to 4%, from '21 versus '22 in order to address that. And if the world gets better earlier, well, we all are going to be happier.

Okay, thank you very much.

You're welcome.

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

Good morning—good afternoon, guys. Dan Rizzo on for Laurence. Just in terms of pricing that we've talked about a lot, is there situations where there's pricing rebates or pricing givebacks if things were to ease dramatically? Obviously, that's not expected if the world changes in 6 months, 9 months. Would you get pricing concessions?

Overall, we don't, Dan; we're serving 3 million customers in the world. I won't say that it's the case for 100% of all those locations that we're serving, but generally, if you look at just the last 10 years, Ecolab never went backwards in pricing. You have years with higher pricing and some with lower pricing. On average, you get to 1% plus something like that, which is a good indication of the fact that pricing is something that we hold going forward. And why is that? Because we always link the pricing that we're asking with the value that we create for customers: How much dollar value we've had them create by reducing the usage of natural resources, their improved productivity, reduced waste, and so on. Ultimately, that doesn't go away when the raw materials will go down, ultimately, which is on one hand the reason why pricing is always going to go up and, second, that the margins ultimately for the Company get better because you get lower input costs for a price that keeps going up as well. And last point is innovation as well, which is always brought in the market with higher margin. That helps as well improve the leverage in a much more natural way.

That's really helpful. And then just one clarification on something you said before. Did you say that you expect the raw material or the inflation environment to last for all of 2022 or most of 2022? Did I catch that right?

Yeah. I wish I could know exactly, but I am saying the next 12 months, it's going to be the case, and that's the way we're planning. That's the way we're getting organized. I think it's going to ease in the second half of next year. When is it going to start? How much is it going to be? I don't know. We're planning with the fact that it's going to be a tough year next year in terms of inflation, and if it gets better, then okay, it's going to make everything easier.

Okay. Thank you very much.

You're welcome.

Our next question is from Eric Petrie with Citigroup. Please proceed with your question.

Hi. Thank you and good afternoon, Christophe.

Good afternoon, Eric.

Which segments of industrial have you seen the greatest initial interest in your net 0 program?

That's a great question. It depends when, Eric. The ones over the last few years have been the food and beverage customers. Those are the Consumer Goods brands that are the most on the leading edge because their own consumers are asking them to behave in the right way in terms of environmental protection and natural resources usage. But the ones that are the most forward-looking, interestingly enough, or the high-tech companies like Microsoft, who have put the most ambitious commitments by 2030, you've read that, so they want to be carbon positive and water positive as well, which means giving back all the views since the beginning being in operations whenever that was, our early 90's as Microsoft. So there we use a lot of new technology for that. And the last one I'll just mention, Eric, which is becoming very interested—that was not interested 6 months ago, interestingly enough—is downstream in oil and gas because investors and consumers are truly asking them to shift, and those ones are coming to us, and they did not 12 months ago. So very different types of industries, but the trends are clearly going all in the same direction.

Thank you, and then a question on Ecolab Science Certified, I think that program was launched sometime in the third quarter of '20. When do you think you'll reach a point of market saturation or where the program doesn't add to the top line?

That's a great question. I hope never. But, well, these are, of course, somewhere, obviously. But interestingly enough, we have today 33 thousand locations that are Ecolab Science Certified in the U.S., and we are serving close to 200 thousand locations. So there is a lot of runway and that's just in the U.S. We're expanding in Canada and the U.K. right now. It's easier because the same language for the most part as well, and then we have the rest of the world, but we're careful in expanding internationally because since it's a new program, as you mentioned last year, we really want to understand how it works, how it's perceived, what's right, what's not right. I think that the runway is quite long and it's been much more successful than I thought it would be. Initially, I thought it would be just COVID related, but this is not the case. Interestingly enough, lodging customers or hotels are becoming increasingly interested in that program because guests want to have that feeling of well-being when they go to a hotel. The same for offices as well. So those are new opportunities that we didn't think about earlier on. That adds ultimately to the accessible market that we have in front of us.

Thank you, Christophe.

Thank you.

Our next question is from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Yes. Good afternoon. Christophe, I was wondering if you could talk through the hurricane impacts. It looks as though the impact is expected to be half of what you thought it might have been on September 13th, and your prepared remarks suggest you attacked that through pricing and productivity, so I was wondering if you could address each of those things and provide some more color as to how you went about mitigating that.

Good question, Kevin. Our practice is, when we see something happening that was not planned, we always get to you as quickly as we can to be transparent about what we see at that moment. So the downside of that practice is obviously, a week or two later, if things have changed for the better, in that case, the forecast is a bit different as such. To give you some color on Hurricane Ida, we have systems showing where hurricanes are going to go—what's the path of the hurricane. We initially thought that it would really avoid one of the large plants that we have in Louisiana in Garyville. Unfortunately, a few hours before, it changed direction, hitting exactly one of our main plants in the U.S. With the damage we had there, we thought the plant would be closed for 3 months. Our supply chain team, that fortunately or unfortunately, depending on how you want to look at it, has a lot of practice this year with natural catastrophes as such, has brought all the teams we had from other plants to help rebuild part of the production lines that had been damaged because you couldn't find contractors in the area either for all the reasons we know. This reduced the 3 months stop to 3 weeks ultimately. That has been great for our customers, first and foremost, and second, it's allowed us to reduce the impact quite dramatically. So that's an additional point to the ones you mentioned.

I see. Then as a brief follow-up, have you implemented incremental price increases over the last few months? And I guess regardless of the answer, how would you expect price contributions to trend in 4Q versus 3Q?

So the short answer is that we've gone to many customers 3 times this year. Usually, in normal times—whatever that truly means—we do that once a year or it's a very natural practice that the Company has, where we discuss the plan for next year, how much value we're creating for the customer, what's going to be our share of that, in other words, the price that we're going to get for it as well as making sure that the returns for customers improve. That's normal practice once a year. We did 3 times on average this year, so very unusual. I assume it's going to be similar next year or so; between 1 and 3 times, it's going to be more than 1, that I'm sure. We go for a bunch of pricing rounds. Now, to your question: Q4 versus Q3, we are heading to what's 4% to enter 2022. Is it going to be for the full quarter in Q4? I'm not totally sure yet; it's going to happen sometime during the fourth quarter, depending on when we get it done. I have a high confidence level that we're going to get the pricing that we're looking for.

Very helpful. Thanks so much.

You're welcome.

Our next question is from Rosemarie Morbelli with Gabelli and Company. Please proceed with your question.

Thank you. Good afternoon, everyone.

Bonjour, Marie.

Christophe, looking at the price of oil having reached to $80 a barrel or thereabout, do you see that already beginning to help your downstream business? And still on the downstream side, how is your net zero category going to help them? Which areas are you focusing on?

Great question. The high price of oil makes some people happy in our organization—that's the downstream team. And most of the rest of the Company are a bit less happy because that's an input cost that's going up, but net it's okay. We know how to manage that, generally. You've seen downstream though went up, so in Q3, by 2%, so we crossed the board of the zero, which is good. We see really good evolution in downstream. Yes, the price of oil is helping on the demand. They've done some very good work as well in our downstream in terms of new business. This is helping, and not directly related to the price of oil for sure. When you talk about the net zero, there are very interesting early discussions as such, but to take one example of one European Company, actually, with whom we are working on that net zero program, they basically are saying, you need to help us improve the environmental footprint of our old energy, which is the refining part, before we can focus on the new energy, the renewables. We've really helped them understand that by reducing the water consumption in a refinery, which, by the way, is the number one natural resource that's being used in a refinery, while you reduce the energy usage as well for electricity. So for the most part, so they reduce the water consumption; they reduce the carbon footprint by doing it, and they reduce the cost, I mean help inflation. Now, interestingly enough, it's an industry that was not so much interested in even having that discussion that has changed dramatically, and that's helping create a new demand for us.

Okay. And then—thanks, that is helpful. And then looking at Europe, which you know very well since you ran it for a while.

That's right.

If my memory serves me right. What is—I understand that you will never get the institutional business to reach the level of the institutional high-end and normal circumstances in North America. So what is the difference, other than the fact that you have a multitude of countries and different advertisements and so on? Is the competitive arena also very different? What is your new management there doing to accept some of them?

You said it the right way, so we will not reach the profitability level of the U.S. because it's not one country, and the complexities are bigger. As you mentioned, the language, logistics, regulatory, and so on. That's a cost of doing business that's higher than in the U.S. That's true for most companies, obviously. But that's not the reason why we shouldn't get close to it. We had to really do some fundamental work over there in getting our structure right, getting our talent right, getting our logistics right, and most importantly, we can't forget that 10 plus years ago, Institutional in Europe was a product business. We were selling products versus programs and outcomes in the U.S. because it was a joint venture with a consumer goods company, 10 plus years ago; that we had over there. That's a major cultural shift for our team that needed to happen. We are a patient Company; you know that we've been working on business for years. Take Pest Elimination; it took us 10 years to bring it profitable, and now it's one of our most profitable businesses globally that we have. I feel confident that in Europe we will get to a very healthy place even if it's not at the level of the U.S., it's going to be a very solid business down the road, but it's still going to take some time.

Okay.

I'm confident that in Europe we will reach a very healthy place; even if it's not at the level of the U.S., it will be a solid business in the future, but it will still take some time.

Our next question is from Scott Schneeberger with Oppenheimer, please proceed with your question.

Thanks very much. Good afternoon, Chris; I've just kind of taken a question off something you just mentioned. The other segment, the margin really rebounding strongly, and it's now above the 2019 level despite commentary end markets that have not fully recovered. I'm just curious if you could delve into a little bit to what is driving the margin in other end? Where that possibly could go, since we're now above '19. Thanks.

So you know that we have in our segments or you have a combination of different businesses; obviously, pest elimination being the bigger and best one. You have textile care, that's in there, and CTG, or our Colloidal Technology Group. Very different businesses, obviously, it’s hard to talk about an average as such. The main driver is pest elimination that has done a remarkable work during the pandemic. They've recovered very quickly during 2020 and kept growing in '21. At the same time, they managed as well to improve their profitability versus '19 by 3.5 percentage points. So large business growing very nicely, profitable and getting more profitability. Obviously, you get a lot of leverage, and Scott, that drives the good results that you've seen in our so-called other segments.

Excellent, thanks, I appreciate that, and then in my follow-up on that kind of delve into in the supplemental discussed in the summary section; there is commentary expecting to enter 2022, solid momentum driving strong top, bottom line through product and service innovation, digital solutions, new markets, and appropriate pricing. Just curious, Christophe, at this point, can you elaborate on new markets in that sentence? Specifically what you had in mind, if not a follow-up, but I just want to delve on that. Thanks.

Yes. So it's kind of all of the above; starting first with new business. It always feels a bit mundane. But we have these people in the Company that in doubt go and sell something. And it's really having everyone trying to sell new customers and new solutions to existing customers. This is job one, and we want to make sure that we don't lose, obviously. So that's interestingly enough, when you do more pricing, that has an impact as well on how much new business. So it's not a perfect science, but we manage that reasonably well or very well, if I may say. In terms of new markets, I'll mention a few. So the one I expressed before our data center business, which is driven by the whole boom of cloud computing. We've created that high-tech division, which is really dedicated to companies with their own needs, uptime quality, cyber security, and all that, which is growing extremely fast. That's one of the new markets. Animal Health is another one, which has been this year a bit impacted by the pandemic and some difficulties in some countries. But ultimately, that's also one that's going to grow very fast in the years to come. And most importantly, you had life science, which is a business that we created 5 years ago. It's a 300 million business growing double-digit with extremely high profitability as well. This one it's just at the beginning of its growth story, and as you know, life science is serving mostly the farmer industry, which is the trillion-dollar industry growing double-digit. For me, we have so much to offer to that industry. I think that's going to be the number one new market, to use your term, that's going to help us grow as well next year and the years to come.

Excellent. It sounds good. And that's what I expected to hear. It's just we want to make sure there wasn't anything geographical, perhaps expanding, but I will turn it over. Thanks so much, Christophe.

You're welcome.

Our next question is from Shlomo Rosenbaum from Stifel. Please proceed with your question.

Hey, Christophe, a couple of quick questions. Just—maybe some of the growth in water and paper is particularly strong; can you dissect how much would you say is coming from easier comps and how much is really an accelerated can of those businesses that we should be thinking about just done in a more regular basis?

Yes, so first on water, it's been a steady business for many, many years because, for all the right reasons, water scarcity has become a bigger issue. And by reducing the water usage, you reduce energy usage, you reduce your carbon footprint. So it fits really well with the net 0 idea. The water business, which is a very large business while the Company has been successful for years, will keep going well because customers need it even more because of this net 0 approaches that step. Now on paper, it's been an unbelievable year in Q3, growing 19%; you have gone up a third of it is pricing, and two-thirds is volume. Some is comp, but a lot of new business as well has been generated in our paper division. So it's not going to stay at that high level just because the comp are going to normalize going forward, but it's going to remain a healthy business going forward with a very nice profitable margin as well.

Okay, great. And what's the interest internally at Ecolab to pursue M&A within their pest business? And there's been more consolidation outside with other players have bought a lot of small businesses. Is that something that you guys would be interested in going and doing more activity over there? Or alternatively, if someone approached you about your business, would you be interested in doing a deal with someone else?

So hard for me to comment on M&A, as you know, Shlomo, but it's a great business for us, and it's definitely not excluded from what we're looking at out there. We've done a lot of acquisitions, and that's how it's grown to a certain extent as well. We started with an acquisition in North Dakota, a few decades ago as well. So we know how to do it; it works really well. We do not exclude it; is it the number one priority in terms of M&A? No. I've always mentioned it's life science, water, healthcare, and digital are the big ones out there. But, hey, Shlomo, we would not have a strategy getting underway of making money. If there's a good opportunity out there, we'll consider it as we've always done.

Okay. Great. Thank you.

Mr. Monahan, there are no questions at this time. I would like to turn the floor back over to you for closing remarks.

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

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