Prepared remarks
Greetings, and welcome to the Ecolab Second Quarter 2026 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, Andrew Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Mr. Hedberg. You may begin.
Thank you, and hello, everyone. Welcome to Ecolab's second quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO, and Scott D. Kirkland, our CFO. A discussion of our results along with our earnings release and the slides referencing the quarter results are available on Ecolab's website at ecolab.com/investor. Take a moment to read the cautionary statements in these materials, which state that this teleconference and 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 material. We also refer you to the supplemental diluted earnings per share information in the release. With that, I would like to turn the call over to Christophe Beck for his comments.
Thank you so much, Andrew, and welcome to everyone joining us today. We delivered another strong quarter with accelerating performance across our business. Adjusted EPS grew 11% driven by accelerating organic sales growth of 5%, stable organic gross margin, and continued strong productivity. This performance reflects the strength of our growth model and, most importantly, the power of our global team to deliver for our customers every day in any environment. Last quarter, we talked about the second quarter being a short transition period. We entered the quarter with commodity costs increasing and the expectation that they would remain high through the year. We started the quarter with very little surcharge pricing, but expected benefits from the surcharge would progressively build through the quarter. That is exactly what happened. We moved quickly to implement a global energy surcharge backed by incremental customer value as we always do. As a result, pricing strengthened to 4% in the second quarter, and we expect the second half to be in our targeted 5% to 6% range. It is allowing us to offset the impact of rising commodity costs on our margins and EPS this year. Our global team executed extremely well through this transition period. In just one quarter, we absorbed increasing commodity costs, continued to win new business, grew volumes, stabilized organic gross margin, and delivered double-digit EPS growth. Importantly, momentum continues to strengthen across the portfolio. Volumes grew 1% despite a nearly 1% headwind from customer operations disrupted by the conflict in the Middle East. Excluding this, underlying volume growth accelerated from the first quarter. Growth in our core businesses strengthened, with food and beverage accelerating to 7% growth, Institutional & Specialty growing 4%, and growth in global water improving. All supported by strong new business from our One Ecolab growth initiative. At the same time, performance in heavy water and paper improved. Our growth engines continue to show strong momentum, delivering strong double-digit growth. Life sciences accelerated to 15% growth, driven by very strong share gains in bioprocessing and pharma and personal care, and improved performance in purification. We have been investing in talent, capabilities, capacity, and breakthrough innovation for years in this high-growth business, and those investments now are clearly paying off. In Purolite bioprocessing, we continue to take market share with the innovative resin technologies we have launched over the last few years. As a result, our business continues to rapidly scale as customers move their drugs into commercial manufacturing. Life sciences margin performance was exceptional this quarter, delivering a mid-20% operating income margin, giving a strong indication of the high-margin profile this business has. During the quarter, we benefited from very strong sales growth and a spike in bioprocessing, while underlying operating income margin is expected to remain in the mid-20s. Reported margin in the third quarter is expected to be in the high-teens as we continue to invest in these high-growth, high-margin businesses. Ecolab Digital grew 27%, reflecting strong adoption of software and connected solutions that help customers optimize performance in real time. Recent launches of solutions like DishIQ, AquaIQ, KitchenIQ, and CIPIQ are performing very well and are expected to continue to help drive long-term growth of more than 20% for Ecolab Digital. Pest Elimination also delivered a strong quarter with 7% growth driven by share gains from our One Ecolab growth initiative. We have deployed nearly 800,000 connected devices at customer sites and continue to expect to reach 1 million connected devices by year-end. We see unique insights from pest intelligence; we aim to deliver nearly 99% pest-free environments for customers on the platform. Growth in global high-tech accelerated to 29%, reflecting very strong demand across both microelectronics and data centers, driven by the rapid buildout of AI infrastructure. We further strengthened our position in this market with the acquisition of CoolIT Systems, which closed on July 2. CoolIT is off to a very strong start, with year-to-date sales growth prior to acquisition of more than 100%. With this addition, global high-tech is now approaching $1.5 billion in sales on an annualized basis, up from approximately $150 million in 2021. This reflects the strength of our strategy and sustained investments to capture the long-term opportunity in advanced computing. At the heart of AI is water. Water is required to produce, power, and cool chips. We are now the only company with integrated solutions across that value chain. With all the discussion around data centers and AI infrastructure, the world truly needs companies that can help build data centers the right way. We are one of them and are committed to leading that journey. Together with Ovivo and CoolIT, our global high-tech platform is expected to grow more than 25% annually, reaching $4 billion in sales by 2030 with an operating income margin of 25%. These targets represent an increase from our previous expectations of more than 20% growth and 20% operating income margin, reflecting the acceleration we are seeing in this business. Global high-tech is now our largest growth engine. On a pro forma basis, including Ovivo and CoolIT, our sales growth would have been approximately 7% in the second quarter, demonstrating the two points of incremental growth these businesses will add to the overall company. The rapid growth of global high-tech and our other growth engines continues to shift Ecolab's portfolio to higher growth, higher margin businesses. In 2025, our core businesses represented about 70% of our sales growing low-single digits with operating income margin just above 20%. Our growth engines were approximately 15% of sales, growing low-double digits with operating income margins of nearly 20%. Our underperforming businesses represented about 15% of sales with low-single digit sales declines and operating income margins in the mid-teens. In 2026, performance has strengthened across all three groups. Our core businesses are now growing mid-single digits with operating income margins further above 20%. Our growth engines are growing in the low teens with operating income margin of nearly 20% as we continue to invest heavily behind these attractive high-growth opportunities. At the same time, our underperforming businesses have stabilized while maintaining operating income margins in the mid-teens. What is most encouraging is that all parts of the portfolio are moving in the right direction. Our core is performing well, our growth engines are scaling faster, and our underperforming businesses are improving. As a result, the mix of our business continues to shift toward faster-growing, higher-margin markets. Looking ahead to 2027, we expect this trend to accelerate further. Our core businesses should continue to deliver strong performance while our growth engines, which are expected to approach 25% of Ecolab sales, continue to compound at double-digit rates and play an increasingly important role in driving growth and margin expansion for Ecolab. That future is already taking shape today. We are preparing to introduce a breakthrough innovation at Supercomputing: a new integrated end-to-end cooling platform combining CoolIT's liquid cooling technologies with Ecolab's 3D TRASAR digital capabilities to optimize water, power, and compute performance at scale. We will be hosting an Investor Day at Supercomputing Chicago on November 17, where we will share more about the growth opportunities ahead and how they will strengthen our long-term performance. As we move into the 5% to 6% pricing range as energy surcharge benefits are fully realized, volumes are expected to continue to grow as strong new business wins more than offset ongoing disruption in the Middle East. As a result, we expect organic sales growth of 6% to 7%, helping drive an adjusted operating income margin of 19% in the second half, keeping us on track to deliver our 20% operating income margin next year. With this momentum, we are increasing our outlook for 2026, where we now expect EPS in the range of $8.05 to $8.25, rising 7% to 10% versus last year. This range reflects strong underlying performance and a short-term impact from noncash amortization and financing costs from the CoolIT acquisition. Beyond this year, we continue to expect adjusted EPS growth, including CoolIT, to accelerate to our strong 12% to 15% growth trajectory. In closing, our business continues to strengthen, with the core improving and growth engines scaling. With this, our portfolio is shifting faster toward higher growth, higher-margin end markets. Just as importantly, our team continues to execute at a very high level to deliver for our customers every single day. We have never been better positioned to deliver long-term organic sales growth of 5% to 7%, expand operating income margins well beyond 20%, and continue strengthening our EPS growth algorithm. Thank you for your continued trust and investment in Ecolab. I will now turn it back to Andy for Q&A.
Thanks, Christophe. That wraps up our formal remarks. Operator, please begin the question-and-answer period.
Questions and answers
Thank you. We will now be conducting a question-and-answer session. We ask that you please limit yourself to one question so that others will have a chance to participate. If you have additional questions, please rejoin the question-and-answer queue. If you would like to ask a question, please press *1 on your telephone keypad. Our first question will come from the line of Timothy Michael Mulrooney with William Blair. Please proceed with your question.
Yes. Thanks for taking my question. And thank you, Christophe, for reaffirming the 20% operating margin target that you have for 2027. I was thinking about it in my model, but then when you acquired CoolIT there is so much extra amortization that I actually came off that margin target. But now you reaffirmed it today. So can you just help bridge that gap for us? Because there is a lot of extra incremental amortization coming through on the CoolIT side. So I just want to make sure I heard you right: you are reaffirming the 20% operating margin target for 2027. And can you help us understand how you plan to offset those incremental expenses flowing through? Thank you.
Yes, Timothy. You understood that right. We have been very consistent on making sure that we stay on our commitment of delivering 20% operating income in 2027, so that remains unchanged. I will ask Scott to add some color in a second. But before we get there, our expectation and everything that we are doing is ultimately to drive our commitment of 5% to 7% organic sales growth, to 20% operating income margin, and a strong 12% to 15% earnings per share growth. Our job is to make sure that everything we are doing not only leads us to that, but leads us beyond that. That is especially true for the 20% operating income in 2027. I spent a lot of time with the team thinking about how we get beyond the 20% after 2027. The vast majority of our businesses today are already either close to 20% or beyond 20%, so we know well how to do that. The second half of this year, adjusted operating income margin will be at 19%, as well, so all leading nicely towards the 2027 story. It is going to be important to keep in mind that the first half and second half of 2027 will be a tale of two stories because of the lapping, obviously, of the CoolIT acquisition that closed early July, with the 12 months ending mid-next year, and then the second half of 2027. In other words, the second half of 2027 will be even stronger. My objective is not only to deliver on those commitments beyond 2026, but really making sure that we get beyond the 20% so that we can strengthen the 5% to 7% on organic growth and the 12% to 15% earnings per share, which I expect to get stronger over time. Scott, do you want to add any color to that?
The only thing, Timothy, that I would add is that next year, as you might remember, the Nalco amortization falls off, and so that is also part of how you reconcile that: we do get the benefit of annualizing the CoolIT amortization but offset by the Nalco amortization falling off.
Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.
Thank you. Good afternoon. Christophe, I was just hoping within high-tech you could help us with the current mix of the business between data centers and microelectronics — however you want to break it out — and give some more color on your confidence in getting to that $4 billion target.
Hi, Manav. High level, since we do not go into a lot of detail on the size of the business by segment, it is roughly $1.5 billion in annualized sales now. Within that, our legacy business includes microelectronics and data centers, and then CoolIT and Ovivo. Each of those elements is roughly $500 million today of annualized sales, which is how you get to the $1.5 billion. For perspective, we were $150 million just a few years back, so this is a platform that we have built over the last few years extremely rapidly. The very good news is that all three elements are growing nicely: the legacy business growing 29%, Ovivo expected to deliver mid-teens growth this year, and CoolIT being north of 100%. If you add it all up, you get to a very good place. Our trajectory of 25% growth for the next few years leads to the $4 billion by 2030, and I feel quite confident that is realistic. Thank you.
Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your question.
Thanks for taking my question. Just wanted to follow up on global high-tech. You mentioned the integrated end-to-end cooling platform that you plan to launch at Supercomputing. I was wondering if you could discuss how that can help drive more cross-selling opportunities across your different global high-tech offerings?
Thank you, Ashish. When we acquired CoolIT, adding CoolIT to the data center multiplies between 3x and 5x the sales opportunity we have compared to legacy Ecolab in data centers, so the penetration of solutions opportunity is much bigger than before. The most interesting part is when you put all the pieces together: CDUs integrating 3D TRASAR control technology, 3D TRASAR coolant, and cold plates integrated in the system, ultimately an end-to-end optimization system to reduce the power used to cool while using zero net incremental water because everything is within the system. That is the biggest upside for our customers. With everything happening in AI infrastructure and data center pushback in communities, the world needs a company that will help this industry scale fast while doing it the right way — in terms of cost performance and impact on communities and natural resources. We are uniquely placed to do that. It took us just two weeks to get 3D TRASAR embedded in the next generation of the CDU for CoolIT, which is a good example of how the two teams have come together. We will share more at Supercomputing. We look at it from an ecosystem perspective; we do not want to own everything or get into a lot of hardware, but we want to be the platform that other elements come around to truly maximize cooling, minimize water and energy usage, and maximize uptime and performance of data centers. That is a typical Ecolab story where the outcome of operations is the main objective.
Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question.
Good afternoon. Thanks for taking my question, and congrats on some really solid results. I wanted to dig a little deeper on the life sciences side. You've outpaced the other major competitor in the space by a decent amount. Can you help us think about how much of it is end-market growth, how much is share gain, and how much is capacity unlock you've been working on?
Thank you, John. I'm very pleased with the life sciences team. It's been a few years in the making. We started that business in 2017 at less than $100 million and today it is close to a billion, so about 10x. We made the acquisition of Purolite in 2021. COVID had implications that were difficult to manage across the industry, but when I look back at what the team has done — building capacity, capabilities, customer relationships, and trust — I am very pleased. We were not on the trajectory we initially planned after the Purolite acquisition, but we were growing when the rest of the industry was not, so we outperformed the market. The very good news right now is that we are not only outperforming the market and competitors but are back in line with the returns expectations we had set earlier. The team has been agile and entrepreneurial, very close to customers, and focused on delivering the drugs that save lives. We never expected to be the largest player quickly; our objective was and is to be the best performing and best partner to our customers, and I believe we are close to that ambition now. Early, but good news for the future.
Our next question comes from the line of David Begleiter with Deutsche Bank.
Thank you. Good afternoon. Christophe, on CoolIT, the business was acquired and you mentioned perhaps a 30% annual growth rate to model going forward. Given the 100% plus growth rate in the first half of the year, should we update our models to a higher growth rate over the next few years for CoolIT?
I really like this acquisition; it's one where I had some sleepless nights before we did it, but looking back I am glad we did. CoolIT has the best technology in the market and an impressive team. We've only been together for a few weeks, so it's very early. We're starting to work together with customers. The first half of this year has been way better than our plans, which is good news. When we did our plans, we modeled a 30% trajectory for the next several years, which I think is the right one. A lot can happen, and that is why we will use the next few months to get the teams together and see how everything works. In November at Supercomputing, after several months of working together, we'll share how we see 2027 and the years beyond. Too early to change guidance now, but the early signs are very encouraging.
Our next question comes from the line of Christopher Parkinson with Wolfe Research.
Christophe, if I wanted to circle back to life sciences given the trajectory there and the work in King of Prussia, a few things: how do you see the trajectory of biopharma applications versus purification and resins? How much is attributable to ramps in King of Prussia and Wales? A lot of the business started in Europe; you have been investing in the United States — any detail to increase the probability of sustaining this growth and trajectory, especially relative to the 20% margin targets?
It's been a few quarters that life sciences has been on the high end of expected performance, which is a very good sign. Early in the journey, we were growing faster than the industry but not as fast as we expected, which gave us time to build capabilities and capacity worldwide. We just opened one of the biggest plants in China a few weeks ago, which gives us a big footprint in Asia. Purolite's core originated in Europe, including Wales, and we have been building capacity in North America as well. Our strategy is to be on each of the three continents — North America, Europe, and Asia — and we are nearly there. Bioprocessing is the fastest-growing area and will remain an anchor in biotechnology. Our pharma and personal care business, focused on contamination control, is also doing extremely well. Purification, which is lower-grade products, was capped by capacity constraints, and the China plant helps address that. We are in a place with very good momentum. Our long-term target was 10% to 12% growth, and we are ahead of that range now. For margins, to reach the 30% return target, we see line of sight to get there but will continue investing in capacity and capabilities to ensure the business has the critical mass and momentum to keep winning. It's driven by research, innovation, and science, which is what our customers value.
Our next question comes from the line of Seth Weber with BNP Paribas. Please proceed with your question.
Hey, guys. Good afternoon. Wanted to ask a little bit about some of your more traditional businesses. I was struck by your comment that you think paper could see some modest growth in the third quarter. Do you feel like we are past the bottom in some of these categories? Or is it just maybe less bad and pricing is helping? Can you help frame what is going on in some of your more traditional segments?
I wouldn't call them 'old economy,' but more our traditional businesses. Those businesses are not going to grow as fast as the growth engines, which is why we differentiate between growth engines (double-digit businesses), our core (mid-single digits), and lower-growth businesses. On paper specifically, the good news is it was fairly positive in Q2 after more than a year in negative territory due to industry weakness and consolidation. We lost paper mills, which had a big impact on our sales because they used a lot of our solutions. Over the last six months, that consolidation has paused and things are getting slightly better. We are a bit better than the industry, so we are gaining share, which is positive. I am cautiously optimistic about Q3 and beyond. The business has good margins and is generating value for shareholders, which is the first step toward stronger performance.
Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
I'd like to revisit life sciences and dig in on bioprocessing. Are you mostly winning share in early-stage preclinical, or are you also getting equivalent share gains in later stage commercial? Also, on CapEx: are you investing ahead of growth to enter adjacencies, or should we view the CapEx cycle as the new run rate given the end-market growth?
A few things. I must be careful on competitive detail given the sensitivity of the industry. Generally, we have a very good position across the whole spectrum — early innovations, clinical trials of various stages, and commercial drugs. The team has done well to be ahead of the queue in many cases to cover the whole chain. The rule of the game is you need many early engagements to land the big ones later. We have clearly been investing ahead of growth in that business, which is why reported growth was in the mid-teens while underlying growth was in the mid-20s: about 10 points were investments ahead of the growth as we want that business to drive a ~30% margin at cruising speed. This industry requires perfection: product quality, team depth, delivery, and innovation take time and investment. Underlying margins are getting closer to reported margins, which is positive. Q2 had a spike in bioprocessing that won't repeat every quarter, but overall the trajectory is very good. We want to be the best life sciences partner, not necessarily the biggest, and we see the line of sight to the returns we've targeted.
Our next question comes from the line of Vincent Andrews with Morgan Stanley.
Thank you. On CapEx, when you acquired CoolIT, you noted they had enough capacity to supply a doubling of sales, which seems on pace. You also mentioned an asset-light plan similar to your dishwashing business, where you design and own IP and others manufacture. Where are you in that journey given growth may be faster than expected?
Directionally, no change: the plan to be asset-light and leverage partners remains valid. One small exception is good news: the growth seems faster than expected because of CoolIT's leading-edge technology and the combination of Ecolab and CoolIT delivering something no one else can provide. For the company overall there are no major changes, but our high-tech business may have to move faster, which is what we want to see.
Broadly, we will invest ahead of growth in the growth engines, but we expect CapEx as a company to remain similar to current levels for the next couple of years. We've talked about likely remaining around 7% for the next couple of years because we are investing ahead for global high-tech and life science, and as we scale these growth engines we will continue to evaluate investment levels while taking advantage of attractive returns.
Our next question comes from the line of Patrick Cunningham with Citi.
Maybe on food and beverage: strong 7% sales growth there, pretty good execution against a flat broader industry. Can you share what's contributing to increased traction and how much acceleration you expect within this business in the coming quarters?
Food and beverage is one of our best global businesses with a great team serving sophisticated consumer goods companies and big brands worldwide. Our long-term target for this business is 5% to 7%, so they're at the higher end of that range. The One Ecolab approach has been key — bringing food safety capabilities and water capabilities together as one integrated organization, not two teams just working together but an integrated team of experts serving the same customers globally. Cross-selling is a major driver: selling food safety into water customers and vice versa. Execution has worked well, and we're expanding what we built in North America around the world, which will take time but creates runway for momentum. Lastly, producing safe food is top of mind, and our integrated offerings are in greater demand from restaurants and retailers.
Our next question comes from the line of Unidentified Analyst with Evercore ISI. Please proceed with your question.
Ecolab Digital is nearly at a $500 million annual run rate and growing 20% to 30% with attractive incremental margin. Is there anything you can share on the trajectory for Digital into 2027, and comment on margin contribution and whether you could push to a faster transition to the subscription model given the value proposition?
You're right: we should push faster, and we've made good progress. Digital is a relatively new business unit though we've been in digital work for many years — 3D TRASAR was invented in 1999. Today we have hundreds of thousands of connected devices and thousands of customer locations around the world, so a strong installed base. For nearly 30 years, we provided much of this for free; we changed that years ago and began monetizing through subscriptions as customers realized the value. We introduced an internal playbook called the 100-100-100 model: connect 100% of customer locations, 100% of applications within those locations, and monetize 100% of them. That drives potential revenue of $3 billion from current customers, with $500 million today. Growing toward $3 billion is job number one, and that opens an incremental $10 billion for new applications and customers. We're early in that journey but on a very good trajectory.
Our next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your question.
Christophe, could you talk about the volume trajectory? It looks like it picked up: without the Middle East impact, would volumes be closer to 2%? Where are you seeing volume increases and where might you not be seeing them? Geographically or by business area, what should we be thinking about, given it has been a while since we've seen sustainable volume pickup?
For the near term, a 1% run rate seems right for the next few quarters; without the Middle East impact we would have been closer to 2%. We live in an imperfect world and there will always be disruptions somewhere, so 1% is a healthy trajectory. That 1% is a company average: growth engines like high-tech and life sciences are ahead, food and beverage has strong volume performance, while paper and heavier industries were negative. The portfolio breadth allows steady momentum despite regional or sector disruptions. Ovivo and CoolIT, which are not included in organic numbers, add almost two percentage points to overall company growth on a pro forma basis. So 1% organic plus the acquisitions, net of the Middle East impact, gives healthy volume growth.
Our next question comes from the line of Scott Schneeberger with Oppenheimer.
Thanks. Two-part question: how is the energy surcharge progressing? You noted it ramped up in Q2 and should be more solid in the back half. And second, how is structural pricing progressing and your thoughts for the second half?
We've become very good at value pricing, and our approach has evolved. Historically, Ecolab took two years to fully recover cost through pricing, and now in Q2 we managed to recover both cost and margin dynamics within three months, which is a major change. That is driven by value pricing — customers pay more because they get more value, and net they are better off financially. Retention has remained stable, indicating the approach works for customers and Ecolab. On energy surcharge versus structural pricing: different businesses follow different paths — some go straight to structural price, others use a surcharge and then move to structural price. I don't worry about the mechanics as long as we get to the right place for customers and the company. We exited Q2 with 5% pricing, and with the team and systems we have, I feel quite confident we can hit the 5% to 6% range in the second half, supporting organic gross margin stabilization.
Our next question comes from the line of John Ezekiel Roberts with Mizuho. Please proceed with your question.
Pest Elimination has been delivering high-single-digit revenue growth for at least a year and operating margins are up around 20%. Does it accelerate to low- to mid-teens growth as you deploy digital and AI, and will you spend the margin improvement or will margins go up as you deploy digital and AI?
Our targeted trajectory for Pest Elimination is 6% to 8%, and Q2 at 7% is in the middle of that range. The pest team is exceptional at transforming the business with strong innovation and working with large customers in difficult environments. Digital deployment, pest intelligence, and connected devices — we have 800,000 connected devices and expect to be north of 1 million by year-end — require investments. We invest to build the right foundation first and then capture the returns. Pest Elimination is one of our higher-margin businesses with high returns, so early investments will lead to better top-line and bottom-line performance over time.
Our next question comes from the line of Jeffrey Zekauskas with JPMorgan. Please proceed with your two-part question.
First, on acquisitions to accelerate growth: do you have goals for return on capital, return on assets, or return on equity that situate those metrics relative to where Ecolab was before the acquisitions? Second, in the global Institutional & Specialty business organic growth was about 4% and I'd expect pricing in that segment to be higher than 4%, so was volume growth negative by 1% or 2%?
On Institutional & Specialty, I'm pleased with the steadiness. The 4% growth is a solid performance given the environment: food traffic in U.S. restaurants is down about 5% year-over-year, so Institutional growing 4% versus that backdrop is quite strong. We are gaining share and margin in that business, which operates in a mid-20s operating margin range and is a very strong global franchise. On acquisitions and returns, Scott will add detail, but we generally view M&A as complementary to our organic growth model and focused on attractive returns.
Jeffrey, for any deal we analyze specific investment returns. For CoolIT, returns are well above our cost of capital. More broadly, we focus on ROIC and growing our organic ROIC by at least 100 basis points a year. A significant acquisition will have a short-term dilutive impact on period ROIC, but we expect to get back to pre-acquisition levels on organic ROIC by 2028.
Next question comes from the line of Matthew DeYoe with Bank of America. Please proceed with your question.
Thanks. With 5% to 6% pricing, that's a large implied EBIT tailwind in the back half of the year. Why isn't margin expanding more materially in the back half? Is your raw material inflation assumption reflective of the basket from March/April or the current situation? For example, propylene appears to be easing. I'm trying to understand why operating leverage isn't higher with mid-single-digit price.
We use the latest information when we provide guidance; we don't stay stuck in March assumptions. It takes time and different dynamics to convert pricing into gross margin improvements in a company like ours. With roughly a 50% gross margin profile, you need roughly double the percentage change in price versus cost to move operating margins materially. Importantly, we executed faster this time: what used to be a two-year cycle to recover costs we managed in three months this quarter. Also, our approach is value-based: customers see net benefits and do not churn. Finally, remember the Ovivo acquisition is included in reported results and had an organic gross margin that was stable, which creates a drag in reported gross margin versus organic gross margin figures. Overall, the team executed quickly and the trajectory is positive; over the long term, the model drives improved gross margin as costs stabilize.
To add: we are expecting high-single-digit commodity prices for the balance of the year, and Ovivo is a reported item that creates about a 60-basis-point drag on reported gross margin versus organic gross margin in Q2. You'll see similar differences in the second half, which explains some of the math you referenced.
Our next question comes from the line of Joshua Spector with UBS. Please proceed with your question.
Hey. Good afternoon. A few weeks ago when you closed CoolIT you raised your plan to 2030 and increased margin expectations. I thought you'd come on this call with an update on CoolIT expectations for 2027-2028. What gave you confidence in early July to raise your 2030 expectations so much? Was it Ovivo or something else organic, or backlog at CoolIT?
When we raise targets, we want to be as sure as we can be. At the time of the announcement, we had a clear read on the trajectory: CoolIT and Ovivo plus our legacy high-tech business were all performing better than we had expected, which allowed us to raise the floor and, therefore, the midpoint of our outlook. We will present more detail at our Investor Day at Supercomputing in November, after several months of integration and working together, so that we can provide more granularity on 2027 and beyond. Directionally, the market and our position in it are stronger than we previously planned, which is a good problem to have.
Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.
Hi. Good afternoon. Christophe, you referenced the attention around food safety recently. Can you comment on the impact of the Cyclospora outbreak on consumer behavior and restaurant foot traffic? Are customers coming to you for more food safety solutions, and is the FDA stepping back helpful or harmful to your business?
I wouldn't categorize FDA action as simply helpful or harmful. We feel for those affected by such outbreaks; we're in this business to reduce and remove those risks. We haven't seen a change in consumption overall or in food and beverage demand. What we have seen is customers reaching out to our R&D teams and scientists to understand and address the problem. There is no company with more infection prevention expertise than Ecolab, so customers come to us for help. In many cases, restaurants and retailers have acted responsibly and taken good care of guests and employees. The next phase and a business opportunity is connecting producers with end users — producers and restaurants/retailers — which historically has not been well connected. Ecolab is uniquely placed: we protect a third of the world's food production and serve many end users, so bridging those segments is an important focus and opportunity.
Our next question comes from the line of Jason Haas with Wells Fargo. Please proceed with your question.
Curious about customer and industry reaction to the 50-kilowatt cold plate announced by CoolIT. What is the reception and timeline for when that could start to benefit you?
It has been very well received. This is one of the first times I've seen customers not only want to be in the queue but to be ahead of the queue because capacity is limited. That's the situation for CoolIT and Ovivo in different parts of the market. The cold plate technology is one element among others — CDUs, 3D TRASAR, coolants — and customers want the latest technology as soon as they can. It's a unique position for us: managing supply more than demand is a good problem to have.
Our final question will come from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Good afternoon. Christophe, on CoolIT: can you characterize the visibility you have into the order backlog or pipeline? Can you measure it in months, quarters, or years? How does CoolIT go to market and what are standard contract terms? Is triple-digit growth stable between now and year-end?
A few points: visibility into the near-term 2026 pipeline through year-end is clear and positive, so we feel good about the year. For multi-year modeling we used a 30% trajectory for CoolIT in our long-range work. On go-to-market, there are two main drivers: chip designers and manufacturers, because cold plates and chip-specific cooling need to be developed with them; and hyperscalers, interested in optimizing data center performance beyond individual chips when you scale racks and entire facilities. CoolIT is very close to both constituents, and that model is developing quickly. We are learning more as we integrate, and we'll share more in November. We've only been together for a few weeks, so more detail will come with time. In summary, Q2 was strong in a complicated environment; the team protected gross margin quickly while accelerating organic growth. The second half looks promising and positions us well for 2027 and beyond. We will continue to focus on growth, margins, and EPS trajectory and improving beyond those targets over time. Thank you.
Thanks, Christophe. That wraps up our second quarter conference call. This call and associated discussion slides will be available for replay on our website. Thank you for your time and participation. Hope everyone has a great rest of your day.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Enjoy the rest of your day.