Ecolab 10-Q 2024-03-31 | filings.tools

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 1-9328

ECOLAB INC.

(Exact name of registrant as specified in its charter)


Delaware		41-0231510
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1 Ecolab Place**,** St. Paul**,** Minnesota 55102

(Address of principal executive offices)(Zip Code)

**1-800-**232-6522

(Registrant’s telephone number, including area code)

(Not applicable)

(Former name, former address and former fiscal year,

if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $1.00 par value 2.625% Euro Notes due 2025		ECL ECL 25		New York Stock Exchange New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ⌧		Accelerated filer ◻
Non-accelerated filer ◻		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧

The number of shares of each of the registrant’s classes of Common Stock outstanding as of March 31, 2024: 285,569,775 shares, par value $1.00 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



	First Quarter Ended
	March 31
(millions, except per share amounts)	2024		2023

Product and equipment sales		$2,986.5		$2,876.3
Service and lease sales		765.4		695.3
Net sales		3,751.9		3,571.6
Product and equipment cost of sales		1,679.2		1,798.3
Service and lease cost of sales		448.9		406.9
Cost of sales (including special charges (a))		2,128.1		2,205.2
Selling, general and administrative expenses		1,077.7		990.3
Special (gains) and charges		28.2		24.5
Operating income		517.9		351.6
Other (income) expense		(12.6)		(13.1)
Interest expense, net		71.6		74.2
Income before income taxes		458.9		290.5
Provision for income taxes		42.3		52.4
Net income including noncontrolling interest		416.6		238.1
Net income attributable to noncontrolling interest		4.5		4.7
Net income attributable to Ecolab		$412.1		$233.4

Earnings attributable to Ecolab per common share
Basic		$1.44		$0.82
Diluted		$1.43		$0.82

Weighted-average common shares outstanding
Basic		285.7		284.6
Diluted		287.8		285.9

(a)	Cost of sales includes special (gains) and charges of $1.6 and $3.2 in the first quarter of 2024 and 2023, respectively, which is recorded in product and equipment cost of sales and service and lease cost of sales.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	First Quarter Ended
	March 31
(millions)	2024		2023

Net income including noncontrolling interest		$416.6		$238.1

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments
Foreign currency translation		(46.6)		11.1
Gain (loss) on net investment hedges		8.9		(16.7)
Total foreign currency translation adjustments		(37.7)		(5.6)

Derivatives and hedging instruments		5.1		(4.7)

Pension and postretirement benefits		2.3		0.2

Subtotal		(30.3)		(10.1)

Total comprehensive income, including noncontrolling interest		386.3		228.0
Comprehensive income attributable to noncontrolling interest		5.0		5.2
Comprehensive income attributable to Ecolab		$381.3		$222.8

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

(unaudited)



	March 31		December 31
(millions, except per share amounts)	2024		2023

ASSETS
Current assets
Cash and cash equivalents		$479.9		$919.5
Accounts receivable, net		2,786.6		2,834.2
Inventories		1,565.9		1,497.2
Other current assets		379.3		393.2
Total current assets		5,211.7		5,644.1
Property, plant and equipment, net		3,451.1		3,474.6
Goodwill		8,111.4		8,148.2
Other intangible assets, net		3,413.6		3,493.5
Operating lease assets		566.3		553.5
Other assets		544.4		532.7
Total assets		$21,298.5		$21,846.6

LIABILITIES AND EQUITY
Current liabilities
Short-term debt		$11.3		$630.4
Accounts payable		1,607.1		1,566.3
Compensation and benefits		527.0		655.5
Income taxes		201.6		158.7
Other current liabilities		1,354.1		1,334.9
Total current liabilities		3,701.1		4,345.8
Long-term debt		7,528.6		7,551.4
Pension and postretirement benefits		640.4		651.7
Deferred income taxes		352.0		418.2
Operating lease liabilities		434.0		425.5
Other liabilities		416.8		381.8
Total liabilities		13,072.9		13,774.4
Commitments and contingencies (Note 16)

Equity (a)
Common stock		366.8		365.7
Additional paid-in capital		6,917.6		6,766.7
Retained earnings		10,324.5		10,075.4
Accumulated other comprehensive loss		(1,881.2)		(1,850.4)
Treasury stock		(7,522.1)		(7,312.7)
Total Ecolab shareholders’ equity		8,205.6		8,044.7
Noncontrolling interest		20.0		27.5
Total equity		8,225.6		8,072.2
Total liabilities and equity		$21,298.5		$21,846.6

(a)	Common stock, 800.0 shares authorized, $1.00 par value per share, 285.6 shares outstanding as of March 31, 2024 and 285.4 shares outstanding as of December 31, 2023. Shares outstanding are net of treasury stock.

The accompanying notes are an integral part of the consoli

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management discussion and analysis (“MD&A”) provides information we believe is useful in understanding our operating results, cash flows and financial condition. We provide quantitative or qualitative information about the material sales drivers including the impact of changes in volume and pricing and the effect of acquisitions and changes in foreign currency at the corporate and reportable segment level. We also provide quantitative information regarding special (gains) and charges, discrete tax items and other significant factors we believe are useful for understanding our results. Such quantitative drivers are supported by comments meant to be qualitative in nature. Qualitative factors are generally ordered based on estimated significance.

The MD&A should be read in conjunction with both the unaudited consolidated financial information and related notes included in this Form 10-Q, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion contains various Non-GAAP Financial Measures and also contains various Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the statements entitled “Non-GAAP Financial Measures” and “Forward-Looking Statements” located at the end of Part I of this report.

Comparability of Results

Impact of Acquisitions and Divestitures

Our non-GAAP financial measures for organic sales, organic operating income and organic operating income margin are at fixed currency and exclude the impact of special (gains) and charges, the results of our acquired businesses from the first twelve months post acquisition and the results of divested businesses from the twelve months prior to divestiture. As part of the separation of ChampionX in 2020, we entered into an agreement with ChampionX to provide, receive or transfer certain products for a transitionary period. Transitionary period sales of product to ChampionX under this agreement are recorded in product and equipment sales in the Corporate segment along with the related cost of sales. The remaining sales to ChampionX are recorded in product and equipment sales in the Global Industrial segment along with the related cost of sales. These transactions are removed from the consolidated results as part of the calculation of the impact of acquisitions and divestitures.

Comparability of Reportable Segments

Effective January 1, 2024, the former Textile Care and Colloidal Technologies Group (“CTG”) operating segments are now part of the Water operating segment which continues to remain in the Global Industrial reportable segment. Additionally, the Pest Elimination operating segment, formerly aggregated with the Textile Care and CTG operating segments within Other, is now reported as the stand-alone Global Pest Elimination reportable segment. We made other immaterial changes, including the movement of certain customers and cost allocations between reportable segments. After these changes, we have eight operating segments.

Fixed Currency Foreign Exchange Rates

Management evaluates the sales and operating income performance of our non-U.S. dollar functional currency international operations based on fixed currency exchange rates, which eliminate the impact of exchange rate fluctuations on our international operations. Fixed currency amounts are updated annually at the beginning of each year based on translation into U.S. dollars at foreign currency exchange rates established by management, with all periods presented using such rates. Public currency rate data provided within the “Segment Performance” section of this MD&A reflect amounts translated at actual public average rates of exchange prevailing during the corresponding period and is provided for informational purposes only.

OVERVIEW OF THE FIRST QUARTER ENDED MARCH 31, 2024

Sales Performance

When comparing first quarter 2024 against first quarter 2023, sales performance was as follows:

●	Reported net sales increased 5% to $3,751.9 million and organic sales increased 5%.

●	Organic sales for our Global Industrial segment increased 1% to $1,815.6 million, as growth in Food & Beverage and Water more than offset the expected short-term decline in Paper sales.

●	Organic sales for our Global Institutional & Specialty segment increased 11% to $1,252.3 million with double-digit growth in both the Institutional and Specialty operating segments.

●	Organic sales for our Global Healthcare & Life Sciences segment decreased 1% to $382.9 million as lower Healthcare sales were offset by growth in Life Sciences.

●	Organic sales for Global Pest Elimination increased 9% to $266.8 million.

Financial Performance

When comparing first quarter 2024 against first quarter 2023, our financial performance was as follows:

●	Reported operating income increased 47% to $517.9 million. Organic operating income increased 44%.

●	Net income attributable to Ecolab increased 77% to $412.1 million. Excluding the impact of special (gains) and charges and discrete tax items from both 2024 and 2023 reported results, our adjusted net income attributable to Ecolab increased 54%.

●	Reported diluted EPS increased 74% to $1.43. Excluding the impact of special (gains) and charges and discrete tax items from both 2024 and 2023 reported results, adjusted diluted EPS increased 52% to $1.34 in the first quarter of 2024.

●	Our reported tax rate was 9.2% during the first quarter of 2024, compared to 18.0% during the first quarter of 2023. Excluding the tax rate impact of special (gains) and charges and discrete tax items from both 2024 and 2023 results, our adjusted tax rate was 19.9% during the first quarter of 2024, compared to 19.8% during the first quarter of 2023.

RESULTS OF OPERATIONS

Net Sales


	First Quarter Ended
	March 31
(millions)	2024		2023		Change
Product and equipment sales		$2,986.5		$2,876.3
Service and lease sales		765.4		695.3
Reported GAAP net sales		$3,751.9		$3,571.6	5	%
Effect of foreign currency translation		9.8		9.2
Non-GAAP fixed currency sales		$3,761.7		$3,580.8	5	%
Effect of acquisitions and divestitures		(44.1)		(24.0)
Non-GAAP organic sales		$3,717.6		$3,556.8	5	%

Product and sold equipment revenue is generated from providing cleaning, sanitizing and water treatment products or selling equipment used in combination with specialized products. Service and lease equipment revenue is generated from providing services or leasing equipment to customers. All of our sales are subject to the same economic conditions.

The percentage components of the period-over-period 2024 sales change are shown below:


	First Quarter Ended
	March 31
(percent)	2024
Volume		2	%
Pricing		3
Organic sales change		5
Acquisiti

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We use foreign currency forward contracts, interest rate swap agreements and foreign currency debt to manage risks associated with foreign currency exchange rates, interest rates and net investments in our foreign operations. We do not hold derivative financial instruments of a speculative nature or for trading purposes. For a more detailed discussion of derivative instruments, refer to Note 8, entitled “Derivatives and Hedging Transactions”, of the consolidated financial statements located under Part I, Item 1 of this quarterly report on Form 10-Q.

Item 4. Controls and Procedures

As of March 31, 2024, we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chairman and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.

During the period January 1, 2024 through March 31, 2024 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are continuing our implementation of our enterprise resource planning (“ERP”) system upgrades, which are expected to occur in phases over the next several years. These upgrades, which include supply chain and certain finance functions, are expected to improve the efficiency of certain financial and related transactional processes. These upgrades of the ERP systems will affect the processes that constitute our internal control over financial reporting and will require testing for effectiveness.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Note 16, entitled “Commitments and Contingencies” located under Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors

In our report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 23, 2024, we identify under Item 1A important factors which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Form 10-Q. See the section entitled Forward-Looking Statements located on page 40 of this Form 10-Q. We may also refer to such disclosure to identify factors that may cause results to differ from those expressed in other forward-looking statements made in oral presentations, including telephone conferences and/or webcasts open to the public.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


						Number of shares		Maximum number of
	Total					purchased as part		shares that may
	number of		Average price			of publicly		yet be purchased
	shares		paid per			announced plans		under the plans
Period	purchased	(1)	share		(2)	or programs	(3)	or programs	(3)
January 1-31, 2024	-		$	-		-		12,917,097
February 1-29, 2024	195,803			220.6220		107,571		12,809,526
March 1-31, 2024	725,815			226.9213		725,815		12,083,711
Total	921,618		$	225.5830		833,386		12,083,711

(1)	Includes 88,232 shares reacquired from employees and/or directors as swaps for the cost of stock options, or shares surrendered to satisfy minimum statutory tax obligations under our stock incentive plans.

(2)	The average price paid per share includes brokerage commissions associated with publicly announced plan purchases plus the value of such other reacquired shares.

(3)

As announced on February 24, 2015, our Board of Directors authorized the repurchase of up to 20,000,000 common shares. As announced on November 3, 2022, our Board of Directors authorized the repurchase of up to an additional 10,000,000 shares. Subject to market conditions, we expect to repurchase all shares under these authorizations, for which no expiration date has been established, in open market or privately negotiated transactions, including pursuant to Rule 10b5-1 and accelerated share repurchase program.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Plan Adoptions and Modifications

None.

Item 6. Exhibits


Exhibit No.	Document	Method of Filing

(a)	The following documents are filed as exhibits to this report:

(15.1)	Letter regarding unaudited interim financial information.	Filed herewith electronically.

(31.1)	Rule 13a - 14(a) CEO Certification.	Filed herewith electronically.

(31.2)	Rule 13a - 14(a) CFO Certification.	Filed herewith electronically.

(32.1)	Section 1350 CEO and CFO Certifications.	Filed herewith electronically.

(101.INS)	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	Filed herewith electronically.

(101.SCH)	Inline XBRL Taxonomy Extension Schema.	Filed herewith electronically.

(101.CAL)	Inline XBRL Taxonomy Extension Calculation Linkbase.	Filed herewith electronically.

(101.DEF)	Inline XBRL Taxonomy Extension Definition Linkbase.	Filed herewith electronically.

(101.LAB)	Inline XBRL Taxonomy Extension Label Linkbase.	Filed herewith electronically.

(101.PRE)	Inline XBRL Taxonomy Extension Presentation Linkbase.	Filed herewith electronically.

(104)	Cover Page Interactive Data File.	Formatted as Inline XBRL and contained in Exhibit 101.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


	ECOLAB INC.


Date: May 2, 2024	By:	/s/ Jennifer J. Bradway

		Jennifer J. Bradway
		Senior Vice President and Corporate Controller
		(duly authorized officer and
		Chief Accounting Officer)