Ecolab(ECL) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Ecolab's Q2 2024 unaudited consolidated financial statements detail income growth, balance sheet changes, and improved cash flow Consolidated Statements of Income Ecolab reported strong Q2 2024 performance with significant increases in net sales, operating income, and diluted EPS Consolidated Income Statement Highlights (unaudited) | (in millions, except per share amounts) | Q2 2024 | Q2 2023 | % Change | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $3,985.8 | $3,852.1 | 3.5% | $7,737.7 | $7,423.7 | 4.2% | | Operating income | $656.9 | $484.7 | 35.5% | $1,174.8 | $836.3 | 40.5% | | Net income attributable to Ecolab | $490.9 | $329.7 | 48.9% | $903.0 | $563.1 | 60.4% | | Diluted EPS | $1.71 | $1.15 | 48.7% | $3.14 | $1.97 | 59.4% | Consolidated Balance Sheets Ecolab's balance sheet as of June 30, 2024, shows decreased total debt, assets held for sale, and increased equity Consolidated Balance Sheet Highlights (unaudited) | (in millions) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $5,752.3 | $5,644.1 | | Assets held for sale | $565.6 | $- | | Total assets | $21,461.8 | $21,846.6 | | Total current liabilities | $3,847.6 | $4,345.8 | | Long-term debt | $7,538.8 | $7,551.4 | | Total liabilities | $13,153.9 | $13,774.4 | | Total equity | $8,307.9 | $8,072.2 | Consolidated Statements of Cash Flows Cash provided by operating activities significantly increased in H1 2024, while financing activities used more cash Cash Flow Summary for Six Months Ended June 30 (unaudited) | (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $1,260.5 | $771.6 | | Cash used for investing activities | ($445.4) | ($463.5) | | Cash used for financing activities | ($1,335.7) | ($322.2) | | Decrease in cash and cash equivalents | ($529.5) | ($44.4) | Condensed Notes to Consolidated Financial Statements Notes detail the surgical solutions business sale, new restructuring, debt, and legal contingencies - On April 27, 2024, the company agreed to sell its global surgical solutions business for $950 million in cash. The assets ($565.6M) and liabilities ($62.5M) of this business are now classified as held for sale[13][14] - The company announced a new restructuring plan, "One Ecolab," on July 30, 2024, with anticipated costs of $175 million and special charges of $50 million by the end of 2027[18] - Annual goodwill impairment assessment was completed in Q2 2024 with no impairment found for any of the eight reporting units[40] - Effective January 1, 2024, the company reorganized its segments. The former Textile Care and CTG segments are now part of the Water operating segment within Global Industrial. The Pest Elimination segment is now a stand-alone reportable segment[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 2024 performance, highlighting increased sales and operating income across all segments Overview of the Second Quarter Ended June 30, 2024 Ecolab delivered strong Q2 2024 results with increased net sales, operating income, and diluted EPS across all segments Q2 2024 Key Performance Metrics (vs. Q2 2023) | Metric | Result | % Change | | :--- | :--- | :--- | | Reported Net Sales | $3,985.8M | +3% | | Organic Sales | - | +4% | | Reported Operating Income | $656.9M | +36% | | Organic Operating Income | - | +32% | | Reported Diluted EPS | $1.71 | +49% | | Adjusted Diluted EPS | $1.68 | +35% | - Organic sales growth by segment: Global Industrial +2%, Global Institutional & Specialty +7%, Global Healthcare & Life Sciences stable, and Global Pest Elimination +9%[101] Results of Operations Q2 2024 organic sales grew 4% driven by pricing, with adjusted gross margin expanding due to lower supply chain costs Q2 2024 vs Q2 2023 Sales Change Components | Component | Percentage Change | | :--- | :--- | | Volume | 1% | | Pricing | 3% | | Organic sales change | 4% | | Acquisitions and divestitures | 1% | | Fixed currency sales change | 4% | | Foreign currency translation | (1)% | | Reported GAAP net sales change | 3% | - Adjusted gross margin increased to 43.8% in Q2 2024 from 39.6% in Q2 2023, reflecting lower supply chain costs and strong pricing[106] - A new restructuring initiative, "One Ecolab," was announced on July 30, 2024, with expected total program savings of approximately $140 million by 2027[114] Segment Performance All segments showed organic sales growth in Q2 2024, with expanded operating income margins across the board Q2 2024 Organic Sales and Operating Income Change by Segment | Reportable Segment | Organic Sales Change | Organic Operating Income Change | Organic Operating Income Margin Change (ppt) | | :--- | :--- | :--- | :--- | | Global Industrial | 2% | 18% | +2.2 | | Global Institutional & Specialty | 7% | 50% | +6.7 | | Global Healthcare & Life Sciences | 0% | 2% | +0.1 | | Global Pest Elimination | 9% | 20% | +1.9 | Financial Position, Cash Flows and Liquidity Ecolab's financial position strengthened with reduced debt, improved net debt to EBITDA, and robust operating cash flow Net Debt to EBITDA Ratio | (in millions, except ratio) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total debt | $7,544.7 | $8,181.8 | | Less: Cash | $384.0 | $919.5 | | Net debt | $7,160.7 | $7,262.3 | | EBITDA (trailing 12 months) | $3,318.1 | $2,975.8 | | Net debt to EBITDA | 2.2 | 2.4 | - Cash from operating activities increased by $489 million in H1 2024 compared to H1 2023, driven by a $339 million increase in net income and a $174 million favorable change in working capital[149] - In H1 2024, the company repaid $630 million of long-term debt and reacquired $519 million of its common stock[152] Subsequent Events Post-Q2, Ecolab commenced a new restructuring plan and completed the sale of its global surgical solutions business - The sale of the global surgical solutions business was completed on August 1, 2024[156] - A new restructuring plan was formally commenced after Q2 to leverage technology and AI through global centers of excellence[156] Item 3. Quantitative and Qualitative Disclosures about Market Risk Ecolab uses derivatives like foreign currency and interest rate swaps to manage market risks, not for speculation - The company uses derivatives such as foreign currency forward contracts and interest rate swaps to manage market risks and does not engage in speculative trading[162] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with an ongoing multi-year ERP system upgrade - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[163] - The company is in the process of a multi-year ERP system upgrade, which will affect internal controls over financial reporting[163] PART II - OTHER INFORMATION Item 1. Legal Proceedings Ecolab is involved in TPC Group Litigation, believing claims are without merit and covered by insurance - The company is involved in multi-district litigation (TPC Group Litigation) related to a 2019 plant explosion at a customer's site. The company believes the claims are without merit and are covered by insurance[89][165] Item 1A. Risk Factors No material changes to risk factors were reported since the last Form 10-K filing - No material changes to risk factors were reported since the last Form 10-K filing[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Ecolab repurchased 1.36 million shares in Q2 2024, with over 10 million shares remaining for repurchase Share Repurchases in Q2 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 725,049 | $225.22 | | May 2024 | 529,649 | $230.99 | | June 2024 | 108,867 | $236.19 | | Total Q2 | 1,363,565 | $228.34 | - As of June 30, 2024, 10,720,395 shares may yet be purchased under the company's repurchase authorizations[166] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications - Exhibits filed include CEO/CFO certifications and XBRL data[169]