Earnings Call Transcript - ECL Q3 2025

Operator, Operator

Greetings. Welcome to Ecolab's Third Quarter 2025 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, it is my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Andy. You may now begin.

Andy Hedberg, Vice President, Investor Relations

Thank you, and hello, everyone. Welcome to Ecolab's third 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'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 supplement 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 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 joining us today. And I'd like to start by recognizing the strength and resilience of Ecolab's team. Because in a year defined by a persistent macro uncertainty that we've all lived through and shifting global dynamics, our team continues to deliver consistent double-digit earnings growth. Their focus on what matters most—our customers, our strategy, and our long-term goals—is what enables us to perform at a very high level quarter after quarter. In the third quarter, sales growth improved, fueled by accelerating pricing, up to 3% from 2% last quarter, while volumes increased 1%. This momentum was driven by double-digit organic growth in our growth engines, which is remarkable and includes Pest Elimination, Life Sciences, Global High-Tech, and Ecolab Digital. Our core businesses, Institutional & Specialty and the rest of Global Water, delivered solid growth. All of this supported by exceptional total value delivery through best-in-class breakthrough innovation and disciplined execution of our One Ecolab enterprise growth strategy. In total, our growth engines and core businesses represent about 85% of our total sales and delivered 4% organic sales growth and mid-teens organic operating income growth. This strong performance more than offset ongoing market softness in our underperforming businesses, Basic Industries and Paper, which together represent the remaining 50% of our global sales. These two businesses declined 3% and had an impact of 1 percentage point of volume in the quarter. So let me briefly expand on each of these drivers before sharing how we're thinking about the remainder of the year and how we're positioned to deliver another strong year of double-digit EPS growth in 2026. Pricing accelerated to 3% this quarter, driven by the full implementation of our trade surcharge and continued value pricing that's working really well. As always, the total value we deliver to customers continues to outpace and far exceeds our total pricing, as our technologies and services help deliver enhanced business outcomes, operational performance, and environmental impact for our customers. Our breakthrough innovation is the strongest it's ever been, delivering significant value for customers and growth for Ecolab. In Institutional & Specialty, breakthrough innovations like the ones you've seen at Investor Day, like DishIQ, AquaIQ, and ReadyDose, are growing double digits as these solutions help our customers improve operational performance, optimize scarce labor resources, and reduce total cost. In our Pest Intelligence platform, we've now installed over 400,000 intelligent devices, formerly called mousetraps, on our way to deploying over 1 million devices. With this leading technology, we aim to deliver 99% pest-free outcomes as we harness the power of our ECOLAB3D digital infrastructure and our expert service capabilities. Within Global Water, we recently launched 3D TRASAR for direct-to-chip liquid cooling for next-generation AI data centers, which uniquely monitors and optimizes coolant performance in real time. When combined with our full portfolio of data center cooling technologies, we're helping to reduce up to 10% of the power used to cool data centers, which can now be utilized for compute power. This is just the beginning as we build our leadership position in data center cooling and water circularity in microelectronics. Finally, within Global Life Sciences, we've launched a series of cutting-edge drug purification resins for the bioprocessing industry, which drives improved product quality and significant operational efficiencies for our customers. When Ecolab focuses its breakthrough innovation on solving critical customer challenges like these, everyone wins. One Ecolab is helping us unlock significant cross-sell opportunities across our customer base. In total, this represents a $65 billion growth opportunity, with $3.5 billion of this sitting with our largest customers. We're seeing early successes in businesses like Institutional & Specialty and Food & Beverage that are growing very nicely. In Institutional & Specialty where organic sales grew by 4%, outpacing end market trends, this good performance is fueled by the exceptional value we are delivering to customers, which we capture through value pricing and growth from One Ecolab. We're working to deliver best-in-class operating performance for customers as they utilize more of our breakthrough technologies across more of their locations. In Food & Beverage, growth continued to accelerate with organic sales up 4% this quarter, once again ahead of market trends. This strong acceleration is driven by One Ecolab, where we bring together our industry-leading cleaning and sanitizing, water treatment, and digital technologies. This comprehensive offering delivers significant customer value to improve food safety, lower operating costs, and optimize water usage, which was always our promise. Our growth engines delivered another quarter of double-digit sales growth. These businesses are gaining momentum and Ecolab is well positioned to capitalize on the strong secular tailwinds driving these markets. Pest Elimination delivered 6% organic sales growth. The Pest Intelligence rollout is going extremely well. Our Pest team has just won another very large retailer here in the U.S., which has thousands of locations that we will be deploying in the coming months. This innovation transforms our Pest Elimination model as we shift from spending 95% of our time physically checking every device to 95% of our time solving critical customer problems and selling new solutions. Even with ongoing investment in Pest Intelligence, operating income margins improved to nearly 21%, driven by our strong sales growth and the leverage we're generating from Pest Intelligence. Life Sciences sales growth also improved to 6%, led by double-digit growth in biopharma and pharma and personal care. This strong performance overcame capacity constraints within our water purification business. Looking at the fourth quarter, we expect Life Sciences year-on-year sales growth to moderate a bit from third quarter's 6% growth as we compare against nearly 70% growth in our bioprocessing business last year, but underlying same trends. Despite this strong comparison, we expect bioprocessing to still grow double digits in the fourth quarter as we continue to gain share in this super-attractive market. Global High-Tech continues to grow rapidly, with sales up 25%. We've built an incredible growth platform where we're uniquely positioned to serve the high-growth data center and microelectronics industries. The pending acquisition of Ovivo electronics will more than double the size of Ecolab's Global High-Tech business to nearly $900 million, further strengthening this growth engine by bringing together Ovivo's very unique, attractive water technologies with Ecolab's leading water solutions, digital technologies, and global service capabilities. The combined technology platform will enable Ecolab to expand our offerings to provide circular water solutions for microelectronics, helping to maximize chip production and quality for this booming industry. Ecolab Digital maintained its strong momentum, delivering 25% sales growth this quarter. Ecolab Digital now has annualized sales of more than $380 million, driven by rapid growth in subscription revenue and digital hardware. Overall, Digital is a $13 billion growth opportunity for Ecolab, with $3 billion of this sitting within our existing customer base. We remain focused on capturing this high-margin opportunity as we leverage our leading digital technologies and monetize our large and expanding installed base. We're not only leveraging AI to build new fast-growing capabilities in Global High-Tech and Ecolab Digital; we're rapidly leveraging it in our own operations to dramatically improve our customer experience and enterprise performance. I'm proud to share that Ecolab has ranked #9 on the Fortune AIQ 50 List, recognizing the companies most prepared for the age of AI. Our global teams are quickly scaling AI to drive innovation, deliver customer impact through our best-in-class model, and deliver significant cost savings. Finally, we remain confident in our team's ability to get our two underperforming businesses, Basic Industries and Paper, back to growth, and they are already making meaningful progress. We've shifted resources to support emerging opportunities, like in power and precious metals, where they are supporting AI-driven power build-outs. For end markets still facing near-term demand headwinds, like Paper, we're focusing on innovation that can drive significant operational savings for customers. We're also leveraging our One Ecolab growth strategy in these businesses to expand relationships with existing customers. These actions are working as evidenced by our share gains and relative outperformance in these end markets. But we're not satisfied. While we expect these markets to remain soft in the near term, with actions well underway, we anticipate these businesses to return to growth during 2026. One of the greatest strengths of Ecolab for decades has been the breadth and diversity of our portfolio. While not every business delivers strong performance at all times, our diverse portfolio is the key reason Ecolab collectively delivers double-digit EPS growth in nearly any environment. With our strong performance, we drove a 110 basis point increase in our organic operating income margin, which reached a record 18.7% in this quarter. We continue to expect our operating income margin to expand at steady levels due to growth in high-margin businesses, value price, share gains, and productivity improvements, reaching a strong 18% for the full year 2025. Importantly, our margin expansion also includes significant and ongoing investments in our business. We continue to make these growth investments as they fuel high performance in the quarters and years ahead. As a result, we're increasing our 2025 full-year adjusted diluted EPS midpoint to $7.53, with a range of $7.48 to $7.58. Beyond this year, we remain firmly on track to achieve a 20% OI margin by 2027. As mentioned during our Investor Day last month, we expect to continue our momentum with 100 to 150 basis points of annual OI margin expansion to 2030. This positions us extremely well to continue to deliver steady 12% to 15% earnings growth in 2026 and beyond. In closing, our third quarter results reflect the strength of our business and the power of our strategy. Our pricing discipline, breakthrough innovation, and One Ecolab execution continue to drive share gains and margin expansion across our core business. Our growth engines are scaling rapidly and are positioned to benefit from long-term secular tailwinds. All of this enables us to deliver consistent earnings growth even in a complex and complicated macro environment. With strong and resilient free cash flow and an extremely strong balance sheet, we are well positioned to capitalize on both organic and inorganic growth opportunities to create significant value for our customers and drive attractive returns for our shareholders. I remain very confident in our ability to deliver sustained strong performance in Q4 this year and beyond. Thanks again for your continued trust and investment in Ecolab. I look forward to your questions.

Andy Hedberg, Vice President, Investor Relations

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

Operator, Operator

And the first question is from Tim Mulrooney with William Blair.

Benjamin Luke McFadden, Analyst

This is Luke McFadden on for Tim. I wanted to ask about the Global High-Tech business. We noticed the slides mentioned some recent market share wins in data centers. Can you talk a bit more about how you're achieving and measuring the gains here? And I know you haven't closed the deal yet, but curious to hear any updated thoughts on the Ovivo acquisition and how you would characterize the growth opportunity in microelectronics post deal close relative to your already strong performance in this end market today.

Christophe Beck, Chairman and CEO

Thank you, Luke. Love that field, as you know. So let me step back a bit because it's important. So for all of us to understand, High-Tech for us is a combination of data centers and microelectronic plants—many call them fabs—which at some point will be two businesses focused on different technologies, obviously. But for now, it's really High-Tech, combining data centers and microelectronics. This field attracts most of the global investments, as we know. We expect these global investments to continue to drive that growth trend. Even though we don't expect it to be a straight line to heaven, there will be, obviously, some more difficult and some better times ahead, but generally, it's going to be the growth of our times. When we think about some of the facts, talking about metrics, Luke, so one data center opens in the world every one to two weeks, with investments ranging from $500 million to $3 billion. There are 10,000 data centers in the world today, showing a strong base that's getting even bigger as we speak. On the other hand, you have one fab, one microelectronics plant, that's opening roughly every month or so with average investments in the billions. There are 500 fabs today and expected to be 100 more, reaching 600, in the next 10 years. We can see the pace at which those data centers and fabs are opening up, and our objective is ultimately to be in and hopefully own each of them around the world. All this will require much more power and water, which is where our role comes into it. Because as mentioned, by 2030, we expect that this industry, powering AI with fabs and data centers, will need the incremental power of the whole of India in the next four years and the drinking water needs of the whole of the United States at the same time, because data centers require cooling, and fabs require vast amounts of ultrapure water. The good news is that those are technologies that we master; we've been mastering for a very long time. Nobody understands water better than Ecolab. We've been in the cooling business for a very long time and in the water business, obviously, for a long time as well. We're building offerings that help data centers to be cooled in a more efficient way by reducing the amount of water and moving towards direct-to-chip technologies. That helps cooling faster; this means more compute power, less power for cooling, and more power for compute, which is exactly what the tech industry is looking for. On the other hand, we're providing circular water solutions for microelectronics manufacturers because one fab requires roughly the drinking water needs of 17 million people. The pace at which it's being built is quite concerning for communities. The tech industries, especially those famous names in Asia but in the U.S. as well, are looking for solutions to reuse and recycle water. However, the key point is, that water used in those fabs needs to be ultrapure, which is about 1,000 times more pure than the water used for drugs, which is exactly what Ovivo is doing. By combining what Ecolab has always done in water circularity with Ovivo's capabilities in ultrapure water, we help microelectronics to ultimately reuse and recycle water at ultrapure standards. By 2026, assuming we close on Ovivo, the Global High-Tech business will be roughly $900 million, growing double digits, with very strong margins. This represents a new chapter in our high-tech journey, one that will change the growth profile of our company.

Operator, Operator

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.

Ashish Sabadra, Analyst

I just wanted to focus on the Basic Industries and Paper returning back to growth in 2026. I was wondering if you could drill down further on shifting resources, innovation, as well as share gains, and how that can help offset some of the end market weakness.

Christophe Beck, Chairman and CEO

Yes. Thank you, Ashish. I really like the underlying performance of that business. It's a good margin business, just so you know, slightly below our company average. It's a good business with good margins and good underlying performance. The major issue we have in that industry is consolidation, which means that mills are closing. Mills are very large, and when they close, they impact our growth, and there's not much we can do. We lose very little to competition; we gain share in existing and new mills. But when a mill is closing, we lose those sales. That's what's happened over the last 18 months. We see that consolidation process slowing down. Our underlying performance is driven by innovation, improving as well. I believe the combination of both will ultimately be positive for Paper. I think we are reaching the bottom of that cycle in Paper. In the next, I don't know, one, two, or three quarters, I expect Paper to get back on a growth trajectory—sooner, the better. On Basic Industries, we have regrouped our resources, driving efficiencies. We need to capture as much market share as we can right now as the market recovers as well. Similarly, for different reasons, we see the bottom coming in the next couple of quarters, and we should get back to a good place. In both businesses, remember, they represent 50% of our company. While a few businesses may have subpar performance, I like the underlying performance we're seeing. The market trends have been challenging in the past, but this is changing. I'm quite optimistic about where these two businesses are headed. But let's keep in mind that 85% of the company is growing very well, with mid-teens operating income growth, so we are in a very healthy place.

Operator, Operator

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

John McNulty, Analyst

So I had a question on pricing. I guess if you can take the tariff surcharge out of the equation, would you say that pricing is getting easier to push through just because the value proposition is becoming more evident? Or would you characterize it as getting tougher due to potential price fatigue or moderating inflation? How would you characterize it?

Christophe Beck, Chairman and CEO

Thank you, John. I'd say the same. It's hard to put a metric on that. But generally, pricing is getting stronger. Our total value delivered is getting much stronger too. We're always aiming to have 2% to 3% more total value delivered than pricing that's being captured, so it's a good deal for our customers. I feel that we're in a pretty good place. Our retention is very high, in the 90s, as you know, and it remains stable. So it's a good story with a strong customer retention rate, sharing savings leads to value pricing. You're right that, on top of it, the tariff surcharge, or trade surcharge, is helping as well. That's why I feel that 2% to 3% value pricing in the long run seems to be the sweet spot for our company.

Operator, Operator

Our next question is from the line of Andrew Wittmann with Baird.

Andrew J. Wittmann, Analyst

Great. I had two questions. Christophe, just regarding the Water business, you discussed the top line impact in the quarter, very detailed. I was wondering if you could help us understand a bit about how that top line is affecting that segment's margin performance? So maybe if you could bifurcate that as well. Then quickly, regarding the large new Pest customer, I was just wondering if that is an entirely new customer that is not a customer today, or is that just a conversion to the new technology?

Christophe Beck, Chairman and CEO

Thank you, Andy. To talk about Water top line and margins, if you exclude Basic Industries and Paper, it may be a bit challenging in terms of accounting to keep it GAAP-compliant. Generally, Water had a 4% top line growth and a 15% operating income growth excluding those two businesses. So it's clear where our work is focused, and that's why we're focusing on these two businesses to enjoy the good side of the Water business that we love and that keeps getting better. Now, on the Pest question, we never mentioned which customer that is to respect their confidentiality. It's a new customer interested in that new technology. The fact that we focused early on the biggest players helps, as others see that it's effective, and leading companies are embarking on that journey, which is really working. It will help us for the future as well because the more great retailers we have onboard, the more others will join. It’s an ideal proposition for them, 99% pest-free. A beneficial solution for their operations and great for us. We're early in this journey, with 400,000 devices today, but we'll reach 1 million in the first half of next year. It shows how quickly we're moving, and we're clearly leading the industry, which attracts customers towards us.

Operator, Operator

Our next question comes from the line of Vincent Andrews from Morgan Stanley.

Vincent Andrews, Analyst

Christophe, if I could ask you for an update on One Ecolab. I know the focus initially was the top 35 customers, so as we get to year-end 2025, where will you be in terms of the work you wanted to do with that top 35? As we move into 2026, will you be rolling it out more aggressively to the next 25 or 50, or how should we think about the layering in of incremental One Ecolab efforts from 2025 to 2026?

Christophe Beck, Chairman and CEO

Thank you, Vincent. The way we approach it—we launched One Ecolab over a year ago, as you remember, in mid-2022. We started with three customers in three major industries of the company, moving towards what we called the Mag 7. They're not exactly the same as the ones you might have in mind, but some are, obviously, in 2025. We aim to move to the top 20 E15 in 2026 to demonstrate customer success and learn as an organization without boiling the ocean. It's progressing very well. Customers are highly receptive. The best example is Food & Beverage United, where we brought Hygiene and Water together in North America, and you can see results in Food & Beverage with growth trends shifting towards higher performance. This method is driving our strategy, with strong results, and we will expand further in 2026.

Operator, Operator

The next question is from the line of Patrick Cunningham with Citigroup.

Patrick Cunningham, Analyst

How should we think about SG&A leverage, particularly in Pest and Life Sciences, next year as you start to lap some of the growth investments you've made across both businesses? Is it a relatively linear path to your 2027 targets? Or is there a continued step-up in growth investments embedded next year?

Christophe Beck, Chairman and CEO

Thank you, Patrick. Scott was looking for a question, so this is a perfect segue. I suggest we start with SG&A in general and then focus on these two businesses.

Scott Kirkland, CFO

Yes. Thanks, Patrick. As we've discussed, SG&A productivity has been a great story over the last several years. Since 2019, our SG&A leverage has improved by 150 basis points, and we're expecting to improve by another 20 to 30 basis points this year, for the full year of 2025. As we talked about during Investor Day, beyond 2025, with the benefit of the One Ecolab savings that we're driving net of investments, we'll continue to invest in the business. I expect that leverage to be broad-based. We are investing in the growth businesses, the growth engines, but we expect to deliver 25 to 50 basis points of SG&A leverage going forward, benefiting from the One Ecolab program and the technology we're deploying.

Christophe Beck, Chairman and CEO

What I really appreciate about this journey is that it is not about cutting costs indiscriminately. It's about leveraging digital technology and agents. We now have many in our organization. Being recognized as one of the leading AI companies globally has brought us great news. We leverage technology to do more with less, and we are still early in that journey. I think it's going to keep getting better, which ultimately feeds the growth story that we want to capture.

Operator, Operator

The next question is from the line of Manav Patnaik with Barclays.

Manav Patnaik, Analyst

I just had a question. The 85% of your business, core, is growing 4%. Assuming the macro stays the same, it sounds like it's the growth engines that could elevate that higher. I'm trying to understand from your perspective how long you think it will be before that mix is substantial enough to start driving the needle. You’ve obviously delivered well on margins and EPS, and I think we're all looking to see if revenue growth can improve.

Christophe Beck, Chairman and CEO

That's a great question. As I shared at the Investor Day, the beauty of the company is our broad exposure to end markets, which means that we won't have all end markets in the red at the same time, but conversely, we won't have all end markets in the green at any given time either. We are focusing more on this 15% to ensure that those businesses become less of a drag and ultimately become a positive driver. The growth engines are growing at 12%, even more in terms of operating income. This is a very strong story. The Ovivo acquisition will add to it as mentioned earlier. Since that group of growth engines is growing at double digits, the mix will shift toward them over time. I would not be surprised if that becomes 30% to 40% in a few years down the road.

Operator, Operator

The next question is from the line of David Begleiter with Deutsche Bank.

David Begleiter, Analyst

Christophe, on the price surcharge, how much did you realize? With the surcharge now fully in place, should we think about this 3% pricing continuing for the next perhaps 2, 3 quarters?

Christophe Beck, Chairman and CEO

It's hard to know exactly because some businesses, like Institutional, for instance, decided to bring—and that was the same in 2022, nothing here to have it directly—into structural price. We don't have a perfect tracking of that. I don't particularly care because we are converging towards structural pricing. With the surcharge, we're closer to 3%. That’s why I'm saying 2% to 3% is the sweet spot. We sometimes round those numbers, so you might be rounding down to 2% and sometimes up to 3%, but I feel pretty good about where we are. Our objective is to stay closer to 3%, but it depends on tariff developments as well. We're monitoring what's happening with China this week, and we will know that in the next few days. The good news is that we know how to manage that if we need to, leading to very good margin performance. My objective is 2% to 3% long-term, and we want to remain as close to 3% as possible.

Operator, Operator

The next question is from the line of Chris Parkinson with Wolfe Research.

Christopher Parkinson, Analyst

Could we dig in a bit more into the Life Sciences segment? Understanding it's been volatile over the last few years, however, it seems like there's a decent recovery pending in bioprocessing and pharma. If you could hit on the top line first, that would be helpful. Then if we could move into just the capacity additions, where we stand there and your ultimate progress towards '27 goals and how you feel about them.

Christophe Beck, Chairman and CEO

Thank you, Chris. It's a business and an industry that I love. Although it has been challenging over the last few years, I would do it again, and we are excited about where this business is heading. We have a great team focused on the right innovations that the pharma industry is looking for to produce faster, high-quality, and lower-cost drugs with less environmental impact. Regarding the three elements you mentioned—top line, capacity, and margins—let me address them one by one. The top line has been growing low to mid-single digits over the last few years. This was less than we planned for when we acquired Purolite, particularly because the market fell and most competitors experienced declines. Although not ideal, it does provide context. The growth trajectory is clearly accelerating. I mentioned that Q4 would be a bit softer due to comparisons with significant growth in Q4 last year, but the underlying acceleration is clear. We're getting more commercial drugs in our pipeline, which makes a substantial difference. Our team is also becoming stronger. We are one of the few companies with capacities in various regions, adding to our resilience. When you add our water components and environmental hygiene that others don’t have, it enhances our position. The top line is moving from good to much better and will keep improving. A caveat is the capacity challenge in our purification business due to max capacity for manufacturing. Our new plant in China opening in mid-2026 will allow us to unleash more growth in that part of the business, which is great for the local and international markets. Regarding margins, as we shared at the Investor Day, we are currently in the mid-teens. Underlying, it's more mid-20s due to our investments in that business as we build the franchise. We can clearly see a path from mid-20s to 30, but our primary focus must be on driving growth during this investment phase before we start leveraging our critical mass.

Operator, Operator

Our next question comes from the line of John Roberts with Mizuho Securities.

John Ezekiel Roberts, Analyst

In hospitality, you use a metric called seats in the seats. Could you give us an update on that? It seems like we have a lot of mix trends going on in the full-service restaurant market.

Christophe Beck, Chairman and CEO

Thank you, John. I'm using the term food traffic for our business here. As you know, it's been different versus 2019, pre-COVID, with people sitting in restaurants down 30%. That hasn't changed. One-third of people are now opting for takeaway, delivery, or drive-thru—what we call the 3D model. We're seeing stabilization in food traffic, which is good, but we’re adjusting to the new model. Our digital solutions have been offered to the hospitality industry to manage the different ways they are selling products with fewer people, which has proven to be a very effective story since we've grown significantly. Our offerings have achieved high margins as well. While there's less volume, margins are better, leading to impressive growth. Institutional or the hospitality business is performing better than ever before, evidenced by margins north of 20% today. This will continue to improve with solid top-line growth. Our Specialty business is also doing exceptionally well, outperforming full-service restaurants, with high single-digit growth in the QSR or fast food segment. Overall, it's a very positive story in a new market.

Operator, Operator

Our next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeffrey Zekauskas, Analyst

In the Water business this quarter, did volume grow? In Basic Industries and Paper, was volume growth negative high single digits? Did that represent a deceleration from the numbers you would experience in the previous quarters?

Christophe Beck, Chairman and CEO

Thank you, Jeff. As you know, we don’t disclose volumes by business for obvious reasons. But every segment reported positive growth. That’s good news since no segment saw declines. It's crucial for all businesses to maintain positive growth, whether you're in High-Tech or more challenged areas like hospitality. Our teams are performing remarkably well. Water was positive in that regard, while Paper within Water was not, experiencing low to mid-single-digit growth. This is improving, which is why I feel optimistic about the next few quarters for our so-called underperforming businesses, Paper and Basic Industries. They aren't where they should be, but their underlying performance is solid. The markets have been challenging, but we are doing the right things.

Operator, Operator

Our next question comes from the line of Matthew DeYoe with Bank of America.

Matthew DeYoe, Analyst

Just follow up on Vincent's question earlier regarding cross-selling in One Ecolab. Do you have any idea how much that contributed to organic growth in the quarter, or an expectation you can provide for this year as it relates to overall revenue generation?

Christophe Beck, Chairman and CEO

Matt, it's quite good actually. We are a corporate account-driven organization focused on enterprise customers. This top 20, E15 focus contributes above average to the company's growth. This has always been true, but integrating One Ecolab within an enterprise is a greater challenge. That's why we've concentrated all our innovation and technology towards those Mag 7 customers, and then the T20, E15—the top 20 customers and the emerging 15 for next year. They are performing better than the overall company average. This strategy is effective, and as we broaden our focus beyond just the 35 customers, it will further enhance performance company-wide at a higher margin, helping customers achieve even greater efficiencies. A prime example is Food & Beverage United, where we unified Hygiene and Water. The performance in Food & Beverage has been remarkable, and it will continue to improve, having been done only in North America thus far.

Operator, Operator

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

Michael Harrison, Analyst

Christophe, could you elaborate on Food & Beverage? The performance this quarter seems to show the best organic growth in several quarters. You mentioned momentum from One Ecolab and pricing. Can you help us understand the underlying market dynamics you're seeing there?

Christophe Beck, Chairman and CEO

Good question, Mike. The 4% organic growth in Food & Beverage is strong—much better than the market. Consumer goods are not growing fast; many well-known brands are closer to flat than mid-single-digit growth. I’m pleased with our performance, which is accompanied by rising margins. This is an almost perfect outcome for us in Food & Beverage, where the unification of Hygiene and Water has significantly impacted growth. This effort has only been done in North America for now, which is less than half our global business, but it is proof of concept that this approach is effective. The growth we’re seeing is a combination of acquiring new customers and adding new plants within existing customers. By merging Water and Hygiene, we’re not just producing higher-quality, safer food but also reducing costs, which is essential in a slow-growth industry. Our growth model is consistent with our previous promises. Digital technology that we monetize plays a role, as does the value share we achieve through savings we create for our clients through value pricing. This is a combination of gaining new business and expanding existing relationships. Overall, this is a great story for one of our best global businesses.

Operator, Operator

Our next question comes from the line of Laurence Alexander with Jefferies.

Laurence Alexander, Analyst

It looks like your operating results are running pretty much in line with or better than what you thought earlier in the year. FX looks like it's basically double the tailwind of what it was last year. Can you talk a little about the gives and takes and what levers you have to pull if currency moves the other way next year?

Christophe Beck, Chairman and CEO

Yes. Good question, Laurence. I’ll hand it over to Scott for the FX and DPC question.

Scott Kirkland, CFO

As we mentioned, underlying performance remains really strong. Even with FX, our underlying EPS is growing double digits. Reflecting on just Q3, while FX is in line with our expectations and guidance, you also have the year-over-year SG&A comp that is offsetting that FX benefit in non-operating segments. So that underlying growth is indeed robust. We previewed the SG&A year-over-year comp during the Q2 call as well, and we expect this trend to continue as SG&A normalizes. We’re also observing commodity costs rising at low to mid-single digits, which we will need to overcome as well.

Operator, Operator

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

Jason Haas, Analyst

I'm curious if you could talk about the Pest business and whether you've noticed any increasing costs for leads or any increased competition from major players recently?

Christophe Beck, Chairman and CEO

I understand your question regarding Pest, Jason, about SG&A versus competition. On customer acquisition costs—it's actually become easier because we have one major retailer in the U.S., and we’re getting the second as we speak. Our strategy focuses on large customers rather than geography. One brand desires a safe operational environment without risking any issues in social media. What we offer through our digital technology and AI, developed over years, is perfectly aligned with the needs of our Pest Intelligence business. No one else can provide as much technology or the supporting backbone as ECOLAB3D. Our offering stands out ahead of the competition, and customers are very receptive, which is encouraging. The industry is advancing to provide more value, which benefits the customers. In terms of operating costs, when you were previously spending 95% of your time checking devices, the model now allows for 95% of time solving customer issues and selling new solutions. Thus, our operating costs are optimized, which is positively affecting our margins, now north of 20%. We love this business; it’s on a strong performance base right now and is set to improve as we move forward while continually investing in our Pest Intelligence model until we achieve full deployment.

Operator, Operator

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

Joshua Spector, Analyst

From a general context, you talked about '26 and your confidence in achieving low to mid-teens EPS growth. Around this time a year ago, you indicated that strong volumes aren’t necessarily needed to reach that target. You were confident in the price/cost equation. As you look ahead and sit here today, do you feel the same way—that you can reach that target with 0% to 1% volume growth, and if volumes improve, that's upside? Or would you frame it differently?

Christophe Beck, Chairman and CEO

I see it exactly the same way you described it, with one caveat: we don’t know how the environment will look in 2026. We had firm plans for 2025, with strong FX headwinds and product costs that were expected to help. It was actually the other way around in 2025. Despite that, we delivered what we projected for the top line and bottom line. For 2026, I anticipate a strong year, similar to 2025, with 3% to 4% top-line growth, positive volume, and 2% to 3% pricing to drive 12% to 15% EPS growth, exceeding 100 basis points for operating income margins, moving us closer to the 20% target for 2027. FX will be a factor; inflation could pose challenges in 2026, along with uncertainties. However, I still feel confident in our trajectory. If conditions improve and end markets are more favorable, we'll see upsides. Thus, I'm optimistic about our progress in 2026, similar to the previous years.

Operator, Operator

Our final question is from the line of Kevin McCarthy with Vertical Research Partners.

Matthew Hettwer, Analyst

This is Matt Hettwer on for Kevin McCarthy. Thanks for the insights on data centers. I wanted to get your thoughts on how Ecolab is positioned with regards to next-generation cooling technologies, such as direct-to-chip cooling. Do you feel you have everything necessary to compete and win there, or should we expect additional bolt-on deals in that arena?

Christophe Beck, Chairman and CEO

That's a great question, Matt. No one has everything they need for direct-to-chip cooling—this is leading-edge technology. Direct-to-chip liquid cooling represents 5% of the newest data centers. When you mention direct-to-chip cooling, liquid cooling, this is fluid management, which is what we've done well for a very long time. Thus, in a way, it's coming closer to our mastery of technology and science. We’ve discussed our cooling distribution units, called coolant intelligence units, which integrate 3D TRASAR technology developed over many years. We also have several components that are critical for efficient cooling, such as connected liquid, and we monitor coolant to ensure no leaks or fouling occurs. We’re investing in appealing pieces that we will require in the future. This is just the beginning of our journey, and we're accessing a field that Ecolab should focus on appropriately. We need to become the owner of cooling technology for data centers globally. This prioritization of resources and investment in Global High-Tech is crucial. Alongside this, we are pursuing microelectronics, focusing on circular water and ultrapure water standards, an area where Ovivo excels. We're poised for significant growth on this dual strategy and are very excited about our direction.

Operator, Operator

Thank you. At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to management for closing comments.

Andy Hedberg, Vice President, Investor Relations

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

Operator, Operator

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Have a wonderful day.