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Greetings. Welcome to Ecolab's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Andy. You may now begin.
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.
Thank you, Andy, and welcome to everyone joining us today. And I'd like to start by recognizing the strength and the 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. And they 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.
And we've seen that in the third quarter where 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 which 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 they 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. And these 2 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 continue to outpace and by far our total pricing, as our technologies and services help to 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 the 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. And 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.
And this is just the beginning as we build our leadership position in data center cooling and water circularity [ in microelectronics ]. And finally, within Global Life Sciences, we've launched a series of cutting-edge drug purification resins for the bioprocessing industry, which drives the 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. And we're seeing early successes in businesses like Institutional & Specialty and Food & Beverage that are growing very nicely. Talking about that, in Institutional & Specialty where organic sales grew by 4%, outpacing end market trends, and this good performance is being fueled by the exceptional value we are delivering to customers, which we capture through value pricing and growth from One Ecolab. With this, 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 being 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 cost and optimize water usage, which was always our promise. And of course, our growth engine 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. So let me unpack them one by one. Pest Elimination delivered 6% organic sales growth. And as mentioned earlier, 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 which we will be deploying in the coming months. This innovation is transforming 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 very 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 little 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. And 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. So 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. With this, I'm very 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 2 underperforming businesses, Basic Industries and Paper, back to growth.
And they're already making meaningful progress. We've shifted resources to support emerging opportunities, like in power and precious metals where they're 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% 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 '25. 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 '25 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 '27. And 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 '26 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 positioned to benefit from long-term secular tailwinds. All of this is enabling 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're very 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 your investment in Ecolab. I look forward to your questions.
Thanks, Christophe. That concludes our formal remarks. Operator, would you please begin the question-and-answer period?
[Operator Instructions] And the first question is from the line of Tim Mulrooney with William Blair.
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.
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, so High-Tech for us is a combination of data centers and microelectronic plants, many call it fabs, which at some point will be 2 businesses focused on different technologies, obviously.
But for now, it's really High-Tech, combining data centers and microelectronics. And it's a field that attracts most of the global investments, as we know. And 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 1 data center opens in the world every 1 to 2 weeks, with an investment ranging from $500 million to $3 billion. And there are 10,000 data centers in the world today. So it's showing a hard -- a strong base that's getting even bigger as we speak. On the other hand, you have 1 fab, 1 microelectronics plant, that's opening up roughly every month or so with average investments in the billions.
There are 500 fabs today and expected to be 100 more, getting to 600, in the next 10 years. So 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. So the key thing is that all of this will require way more power and way more water, which is where our role comes into it. Because as mentioned as well, 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 4 years and the drinking water needs of the whole of the United States as well at the same time, because data centers will need to be cooled and fabs require vast amounts of ultrapure water.
And the cool 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 we've been in the water business, obviously, for a very long time as well. So we're building offerings that are helping data centers to be cooled in 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, and this means 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 1 fab requires roughly the drinking water needs of 17 million people. And the pace at which it's being built, well, that's not going to work for the communities, obviously. So the tech industries, the famous ones, especially in Asia, but in the U.S. as well, well, are looking for solutions to reuse and recycle water.
But here is the key point, that water that's being used in those fabs needs to be ultrapure water, which means roughly 1,000 times more pure than the water that you would use in drugs, that you inject in your bloodstream, which is exactly what Ovivo is doing. So by bringing what Ecolab has always done in water circularity plus the capabilities of Ovivo in ultrapure water, we help microelectronics, ultimately, reuse and recycle water at ultrapure water level. So at the end, '26 for Global High-Tech, assuming we close, obviously, on Ovivo, will be roughly a $900 million business, growing double digits, with very strong margins.
And it's important to keep in mind that, for us, it's a new step, a further step on our high-tech journey and one that will change over time the growth profile of our company. So a very good new chapter for our company.
Our next question comes from the line of Ashish Sabadra with RBC Capital Markets.
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 about on shifting resources, innovation as well as share gains, how that can help offset some of the end market weakness?
Yes. Thank you, Ashish. I really like the underlying performance of that business. It's a good margin business, just that you know as well, it's slightly below our company average.
But it's still a good business, good margin and good underlying performance. The biggest issue we have in that industry is it's consolidating, which means that they are closing mills. And mills are very big. And those mills, obviously, when they close are impacting our growth and there's not much we can do.
We lose very little to competition; we gain share in the existing and new mills. But when a mill is closing, well, we lose those sales. And that's what's happened over the last 18 months. We see that process of consolidation slowing down.
We see our underlying performance driven by what you were saying, innovation, improving as well. And I think the combination of both ultimately will be positive for Paper. So I think that we are reaching the bottom of that cycle in Paper. And I think in the next, I don't know, 1, 2, 3 quarters, Paper is going to get back to a growth trajectory, and the sooner the better, obviously.
And on the Basic Industries, we have regrouped our resources, we're driving critical mass as well, driving efficiencies. But it's really making sure that we capture as much market share as we can right now as the market recovers as well. And similar to Paper but for different reasons, we see as well kind of the bottom come in the next couple of quarters, and then we should get back to a good place. So in both businesses here, 50% of our company, we need to keep that in mind, and there will always be a few businesses that are having subpar performance.
I like the underlying performance. The market trends have been hard in the past. This is changing. So that's why I'm quite optimistic we will like where those 2 businesses are going to go.
But at the end of the day, let's keep in mind that 85% of the company is growing very well with mid-teens operating income growth. So in a very healthy place.
Our next question comes from the line of John McNulty with BMO Capital Markets.
So I had a question on pricing. I guess if you can take the tariff surcharge out of the equation, I guess would you say that pricing is getting easier to push through just because the value proposition is becoming more evident? Or would you say -- or would you characterize it as maybe getting tougher just because there may be price fatigue, inflation may be moderating a little bit? I guess, how would you characterize it?
Thank you, John. I would say the same. It's hard to put a metric obviously on that. But generally, the fact that pricing is getting stronger -- our total value delivered, by the way, is getting much stronger too.
And we're always trying to get 2% to 3% -- sorry, more total value delivered than pricing that's being captured. So it's a good deal for customers. I feel that we're in a pretty good place. And our retention is very high, in the 90s, as you know, and it's remaining very stable as well at the same time.
So a good story of customer for life with good retention, sharing the savings that they get in their operations, that translates into value pricing. And you're right, on top of it, so the tariff surcharge, or trade surcharge as we called it, is helping as well. But that's why I feel that 2% to 3% value price for the long run seems to be the sweet spot for our company.
Our next question is from the line of Andrew Wittmann with Baird.
Great. I had 2 questions. I guess, Christophe, just talking about the Water business as well here, you discussed the top line impact, the quarter, very detailed. Just wondering if you could just help us understand a little bit about how that top line is affecting that segment's margin performance?
So maybe if you could bifurcate that as well. And then just quickly, kind of a technical question here, you mentioned a large new Pest customer. I was just wondering, was that referencing to an entirely new customer that is not a customer today? Or were you saying that's just a conversion to the new technology?
Thank you, Andy. So 2 different questions, obviously. I think the easiest way to talk about Water top line and margin, if you exclude Basic Industries and Paper, which I know is a bit of a challenging accounting approach here to make sure I remain in GAAP. But generally, Water would be having a 4% top line growth and a 15% operating income growth excluding those 2 businesses.
So it's pretty clear where our work is focused on, and that's why we're focusing on these 2 businesses, to make sure that we enjoy all the good side of the Water business that we really love and that keeps getting better. Now on the Pest question, so we never mentioned which customer that is just to respect, obviously, their own confidentiality. But it's a new one, which has been really interested by that new technology. The fact that we focused early on, on the biggest out there helps, obviously.
So everyone else see that it's good, the leading companies are embarking on that journey and that it's really working. So that's going to be, I think, helping us for the future as well because the more of those great retailers we have onboard, the more others will join as well. It's an ideal proposition for them, 99% pest-free. A good deal for their own operations, it's good for us.
It's exactly the model that we want to build in the future. We're early on that journey, as mentioned, 400,000 devices today, but we will be at 1 million first half of next year. So it's showing how quick we're moving here, and we're clearly leading the industry, which is helping customers come to us.
Our next question is from the line of Vincent Andrews from Morgan Stanley.
Christophe, if I could ask you for an update on One Ecolab. In particular, 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 sort of the work you wanted to do with that top 35? And as we get into '26, will you be rolling it out more aggressively to the next 25 or 50 or what-have-you? Or how should we think about the layering in of incremental One Ecolab efforts from '25 to '26?
Thank you, Vincent. So the way we approach it -- and I don't remember how public I was with it. So we launched One Ecolab a year plus ago, as you remember, mid of last year. And we said we will start with 3 customers in 3 major industries of the company, to move towards, we called it internally the Mag 7. They're not exactly the same as the ones you would have in mind, but some are, obviously, in '25. And then to move towards the top 20 E15 in 2026, to really make sure we can demonstrate that customer after customer and learn as an organization as well without boiling the ocean.
It's progressing very well. Customers are very receptive. And the best example is really Food & Beverage United, where we brought Hygiene and Water together in North America, which you see the results in Food & Beverage, how the growth trends have shifted towards higher growth. It's exactly driven by One Ecolab, focused on some of those critical customers.
It's where the whole idea came from when we acquired Nalco, by the way, in 2011. So it's an old idea that's coming to life, very well received by customers, working in terms of growth, and we will expand as we move forward in 2026.
The next question is from the line of Patrick Cunningham with Citigroup.
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 sort of a continued step-up in growth investments embedded next year?
Thank you, Patrick. Scott was looking for a question, so this is a perfect segue. And I would suggest we start with SG&A in general as well and then focusing on these 2.
Yes. Thanks, Patrick. As we've talked about, SG&A productivity has been a great story over the last several years. Since 2019, our SG&A leverage has improved 150 basis points, and we're expecting to improve another 20 to 30 basis points this year for full year 2025. As we talked about at Investor Day, beyond 2025, with the benefit of the One Ecolab savings that we're driving and net of investments, we will continue to invest in the business.
And that leverage, I expect it to be pretty broad-based. Certainly, we are investing in the growth businesses, the growth engines, but expect going forward to deliver 25 to 50 basis points of SG&A leverage, benefiting from the One Ecolab program and the technology we're deploying.
And what I really love on that whole journey, it's not becoming cheap and saving money left and right. It's leveraging digital technology, agents. We have many now in our organization. That's why being recognized as one of the leading AI companies in the world was a really cool news for us.
It's really leveraging technology to do more with less. And we are still early on that journey, so I think it's going to keep getting better. So really good work here that's feeding ultimately the growth story that we want to capture.
The next question is from the line of Manav Patnaik with Barclays.
I just had a question. The 85% of your business, core, I guess, you said was growing 4%. Assuming the macro stay the same, I guess, it sounds like it's the growth engines that could take that higher. And so I'm just trying to understand from your perspective, how long do you think before that mix is big enough to start moving the needle?
Because you've obviously delivered well on the margins and EPS, and I think we're all looking to see if revenue growth can be better.
That's a great question. As I was sharing at the Investor Day and with the team, 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 which means that we won't have all end markets in the green at the same time as well. So focusing on this 15% a little bit of our time to make sure that those ones are becoming less of a drag and, ultimately, a positive driver. But when we look at this 85% growing 4% and mid-teens, the growth engines are growing 12%, and even more on operating income.
So which is a very good story. Ovivo is going to add to it as mentioned earlier, obviously, so High-Tech is going to get bigger. Since that group of growth engines is growing double digit, obviously, the mix is going to shift towards them over time. And I think that in the next few years, growth engines are going to become a really relevant part of our company.
It's roughly 20% today at $3 billion. I would not be surprised if it becomes 30% to 40% in a few years down the road.
The next question is from the line of David Begleiter with Deutsche Bank.
Christophe, on the price surcharge, how much did you realize? And with the surcharge now fully in place, should we think about this 3% pricing continuing for the next perhaps 2, 3 quarters?
It's hard to know exactly because some businesses, like institutional, for instance, decided to bring -- and that was the same in '22, so nothing here to have it directly, so within the structural price. So we don't have a perfect tracking of that. And obviously, I don't really care because, anyway, also converging towards structural price. So with the surcharge, we're closer to 3%, obviously.
That's why I'm saying 2% to 3% is the sweet spot. And since we round those numbers, sometimes you might be rounding down to 2% and sometimes to 3%, but I feel pretty good with where we are now. Our objective is to stay closer to 3%, but it depends what's happening with the tariffs as well. We're looking as well as what's happening with China, this week, we will know that in the next few days as well.
The good news is that we know exactly how to manage that if we need to, and it leads to very good margin performance. So for me, 2% to 3% is the sweet spot, and our objective is to be as close to 3% as we can.
The next question is from the line of Chris Parkinson with Wolfe Research.
Could we just dig in a little 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, so on and so forth. So if you could hit on the top line first, that would be helpful. And 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.
Thank you, Chris. It's a business and an industry that I love. And as hard as it's been the last few years, I would do it again, and we will love where this business is heading. Great team, focused exactly on the right innovations that the pharma industry is looking for to produce faster, high-quality, lower-cost drugs at a lower environmental impact.
So really converging with an Ecolab model. When I look at the 3 elements that you mentioned, so top line, capacity and margins, let me take them one by one. So the top line, we've been growing low to mid-single the last few years. That was less than what we had planned for when we acquired Purolite.
Well, that was during a time when the market went down, most of our competitors went down in terms of growth. Doesn't make it great for us, but at least it's adding some perspective. When I look at the growth trajectory that we have now, it's clearly accelerating. I mentioned this Q4 is going to be a bit softer because it compares to a huge growth in Q4 last year.
But underlying, it's clearly accelerating. The new business is very strong. We're getting more commercial drugs as well in our pipeline, which makes a big difference, obviously. And the team keeps getting stronger and better as well.
We're one of the only few companies having as well capacities in various places around the world. That adds to the resilience as well to it. And we add the whole water components and environmental hygiene that the other ones do not as well. So top line, finally, so getting from good to much better, and it's going to keep accelerating.
With one caveat, is this capacity challenge that we have in our purification business, just because we have max capacity of what we can manufacture. But our plant in China in mid-2026 is going to open and it's going to enable us to unleash that growth in that part as well as the business, which is going to be great for the local market and as well for some international markets. And last point, on the margin, as we've shared as well at Investor Day, we are kind of in this mid-teens today, but underlying, it's more mid-20s because of the investments that we are making in that business as we build that franchise.
So from the mid-20s to the 30, we see a clear path. But our focus is really to drive growth in that phase of the investment and then start to drive margins once we get enough growth that we can leverage the critical mass that we've built.
Our next question is from the line of John Roberts with Mizuho Securities.
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.
So thank you, John. So I'm using the terms of food traffic for our business here. As you know, it's been very different versus than 2019, so before COVID, so people going and sitting in restaurants. So down 30% versus 2019. And that hasn't changed.
Unfortunately, or fortunately, depending on how we want to look at it, 1/3 of the people are just going for takeaway, for delivery or for drive-thru, the famous 3D. So we see a stabilization of the food traffic, which is kind of a good news. But we've gotten used to that new model. And ultimately, with all the digital solutions that we have offered to that industry to manage this different way of selling products with less people as well, it's been a very good story, because we could grow very nicely because what we did was even more important to the hospitality industry.
And it was sold at a high margin. as well. So less volume, better margins, very good growth. And I think for us, it's been exactly what we needed and it's made Institutional or the hospitality business even much better than what it used to be, and you can see it in the margin that's north of 20% today. And it's going to keep moving up with very nice top line growth as well.
So far, so good. And the last point I'd say as well is our Specialty business is doing extremely well, doing even better than full-service restaurants. So the QSR, the fast food businesses growing in the high single. It's a very good story as well there, which helps us capture wherever people go depending on the economic times that we're facing.
So overall, net-net, a very good story in a very new market.
The next question is from the line of Jeff Zekauskas with JPMorgan.
In the Water business this quarter, did volume grow? And in Basic Industries and Paper, was volume growth negative high single digits? And did that represent a deceleration from the numbers you would experience in the previous quarters?
So thank you, Jeff. As you know, so we don't disclose volumes by business, for obvious reasons. But as mentioned, every segment had positive growth, that we reported. So that's a good news.
So there was no segment that was going down. And for me, it's really important that all businesses maintain positive growth, whether you're in High-Tech where it's much more obvious because the flow of the river is very strong, or you're in more challenged businesses, like hospitality, as we talked about before and seen there. So our teams are doing really well. So Water was positive with that perspective, obviously.
Paper within Water was not, and it's in the low to mid-single. But it's improving. So that's why I feel quite optimistic with the next few quarters with our so-called underperforming businesses of Paper and Basic Industries. They're not where they should be.
They do exactly the right things. So the underperformance -- underlying performance of underperforming businesses is strong, markets are not. But net-net, we're going to get to a good place in the next few quarters. So we're doing all the right things here.
The next question is from the line of Matthew DeYoe with Bank of America.
Just follow up on Vincent's question earlier on 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 kind of give us for this year as it relates to just overall revenue generation?
Well, Matt, it's very good actually. So we are a corporate account, as call it, driven organization, enterprise customers, to use a different term as well. And the top 20, E15 focus is contributing over average to the growth of the company. So this is exactly the right place to focus.
It's always been true as a company. But to get the whole One Ecolab within an enterprise is harder to make it work very well. And that's why we've chosen to go with all our innovation, all our technology, bringing One Ecolab digital services together towards those Mag 7, as mentioned before, then the T20, E15, so the top 20 customers and emerging 15, so for next year as well. But they're doing better than the average of the company as well.
So it's clearly a strategy that's working. And as we expand the focus beyond those 35 customers, it's going to help drive as well better performance for the overall company at higher margin because it's helping customers drive even more efficiencies within their own operations. And the best example is Food & Beverage, Food & Beverage United as we call it within our own company, where we brought Hygiene and Water together. And you can see the performance of Food & Beverage has been remarkable in the third quarter, and it's going to keep getting better.
It's only North America that we've done it, by the way, and it's a very global business, serving global customers, with global quality standards, as you would imagine. And this one is going really well. It's a great team, with customer feedback, also because no one else can do it as well, which is a great way for us to strengthen our moat. So generally, this One Ecolab approach, our enterprise customers, is really working, and it's going to be a growth driver for the years to come.
The next question is from the line of Mike Harrison with Seaport Research Partners.
Christophe, just kind of following up on what you were just talking about with Food & Beverage. The performance this quarter was, I think, the best organic growth that you've shown in several quarters. You mentioned that there is some momentum from One Ecolab and from pricing. But I was hoping you could help us understand a little bit more about what's going on with underlying market dynamics that you're seeing there.
And to the extent that you are winning new business, is that mostly share of wallet and One Ecolab opportunities with existing customers, or are you seeing some new wins in that business in Food & Beverage as well?
Good question, Mike. It's -- 4% organic growth in Food & Beverage is strong, so for sure. It's much better than the market. Consumer goods are not exactly growing fast.
When you look at the companies out there or the, obviously, saw famous names out there are closer to flat than to mid-single type of growth. So really pleased with the performance that we're driving. And we're doing it while increasing our margins as well at the same time. So it's almost a perfect play what's happening in Food & Beverage here, with this unification of Hygiene and Water.
And again, it's only North America that we've done it so far, which is less than half our global business, but it's showing how well it's working, that whole approach. And to your point on the share of wallet and white spaces, it's a combination of both. We're getting, gaining definitely some new customers, new plants as well within existing customers as well. Because by bringing Water and Hygiene together, we help them not only produce higher-quality, safer food, but reduce a lot of costs as well at the same time.
So in a slow growth industry, that's exactly what they're looking for. So what we're doing for them is exactly what they're expecting. But at the same time, we're adding digital technology that we monetize, charge for, using a different term. And we get as well the value share, so our share of the savings we're generating for them in terms of value pricing, that's also incremental.
So it's a combination of white spaces and share gains. Overall an awesome story for probably one of our best global businesses that we have.
Our next question is from the line of Laurence Alexander with Jefferies.
It looks like your operating results are running -- I mean, your organic growth is running pretty much in line 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 bit about the gives and takes and what levers you have to pull if currency moves the other way next year?
Yes. Good question, Laurence. Let me pass it to Scott because it's an FX, DPC question.
Yes. Thanks, Laurence. Hey, as we've talked about, the underlying performance remains really strong. So even with FX, I mean the underlying EPS, the OI is growing double digits.
And as you think about just in Q3 itself, while FX is in line with what we expected and as we guided, you also have the impact of year-over-year SG&A comp that is offsetting that FX in benefit of the nonoperating. So that underlying growth is really very strong. We previewed the year-over-year comp in SG&A during the Q2 call, and expect that Q2 -- our Q4 performance to continue as the SG&A normalizes. But we also are seeing commodity costs growing low to mid-single digits, and overcoming that as well.
The next question is from the line of Jason Haas with Wells Fargo.
I'm curious if you could talk about the Pest business, if you've seen any increasing costs for leads or any increased competition in that space recently?
If I understood well your question, so on Pest, Jason, so the SG&A versus competition? Is that what you asked?
Sorry, just to be more clear, I'm asking if the customer acquisition costs have gone up at all, if you've seen any step-up in competition from one of the major players out there?
Customer acquisition costs. Okay. I wanted to make sure I got it right, Jason. Actually, it's become easier because -- and we're early on that journey, as mentioned.
So we got 1 major retailer in the U.S. We're getting the second as we speak. We wanted to do it large customer by large customer. It's not a geographic play.
It's a customer play because, ultimately, one brand wants to be safe and not have any issue in social media or whatever, really to concentrate on guest satisfaction and quality of the experience and the food, obviously, here. But what we offer here with all the digital technology, all the AI that we've developed within the company for many years now, well, is serving the needs of our Pest Intelligence business. No one else can provide as much technology as we can and have such a backbone like ECOLAB3D as well at the same time. So it's a leading offering.
It's ahead of the competition. Customers are very open to it. And what I really like as well with it is that the whole industry, even if not moving all at the same pace, is trying to add value to customers and get paid for it as well at the same time. So very healthy competition.
And it's a good thing for customers and for the guests, called the ultimate consumers of the thing, whatever those locations are, ultimately. And in terms of operating costs, well, when 95% a few time was spent in the past checking devices that were empty and you spend 5% of your time doing it tomorrow within your system, your operating costs are getting better and you can spend much more time acquiring new customers and serving them even better, which is why our margins is improving as well at the same time. We love that business. It's going to keep -- it's on a strong base of performance right now.
It's going to keep improving as we move forward. And margin is going to improve as well. But I want to make sure that we keep investing as well in there because until we are 100% with the Pest Intelligence model around the world, well, we will not slow down our investments that has real impact on the operating margin, but it's still improving, as you could see since we're north of 20% now.
Our next question is from the line of Josh Spector with UBS.
I wanted to ask from a general context. You talked about '26 confident in the low to mid-teens EPS growth. I think around this time a year ago, you made comments around you don't really need strong volumes to get there. You're really confident in the price/cost equation.
I guess when you sit here today and look out a year, do you feel the same way that you can kind of get there with 0% to 1% volumes and, if you start to see an acceleration, that's upside? Or would you frame it differently?
I see exactly the same way the way that you described it. With the only caveat, we don't know how the environment is going to be in '26. We had some very firm plans for '25 with very strong FX headwinds and delivered product cost that would be really helping. Well, it was exactly the other way around that it happened in 2025. And still we delivered what we had promised in terms of top line, but most importantly, in terms of bottom line. So when I think about '26, for me, it's going to be a strong year, very similar to '25 with 3% to 4% top line, positive volume, 2% to 3% price, to drive this 12% to 15% EPS, and at least 100 basis points in terms of operating income margins, to get to 19% plus, which is bringing us closer to the 20% that we committed to for '27. FX are going to be a help.
Inflation might be a little bit of a headwind in '26, and everything else that we don't know. But I feel really good on that trajectory. And to your point, if things improve, if our end markets are even more open to what we do, well, that's going to be upside. That's why I feel really good with where we're heading in 2026 one more time, like it's been in the past few years.
Our final question is from the line of Kevin McCarthy with Vertical Research Partners.
This is Matt Hettwer on for Kevin McCarthy. Thanks for all the color on data centers that you gave earlier. Just following up on that conversation, 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 have everything you need to compete and win there?
Or should we expect additional bolt-on deals in that arena?
Love that question, Matt. No one has everything they need for direct-to-chip cooling. This is leading-edge, obviously, technology. It's 5% of the data centers; those are the newest.
But interestingly enough, when you say direct-to-chip cooling, liquid cooling, this is fluid management. This is exactly what we've done for a very long time, so managing fluids in a bunch of different industries, obviously. So in a way, it's coming closer to our own mastery of science and technology. So when I think direct-to-chip cooling, well, we've talked about our cooling distribution units that we call coolant intelligence unit, because they integrate 3D TRASAR technology that we've been obviously developing for many, many years.
So we have that technology in the middle of a data center integrating 3D TRASAR. We've developed as well connected coolant, so the liquid itself, so to make sure that you have the best thermal performance to cool the chips as well. We have coolant monitoring systems as well to make sure that you don't have leaks, you don't have fouling, you don't have anything bad that's happening as well, to maximize as well the performance of the data center. And you have everything else obviously that's going up the chain, in chillers and towers, on the roof.
The latest data centers that we're serving have no cooling towers on the roof and have no water in there as well. So we have many pieces that we need and we're developing and exploring the new pieces that we will need as well in the future. And that's why I think we're just at the beginning of that journey, but that's a field that's exactly what Ecolab should be focused on. We should become the owner of cooling technology for data centers in the world.
And that's refocusing all our efforts, all our resources and all our investments as well in Global High-Tech. And on top of it, we do similar, obviously, with microelectronics, different technology. As mentioned before, it's reuse and recycle of ultrapure water, and that's where Ovivo is playing exactly, in that field. So it's really serving our dual strategy in high tech, to be the owner of circular water -- ultrapure water standards in microelectronics, and cooling technologies in data centers.
And that's why I'm so bullish about what we've done, where we are today, but most importantly, where we're going. And that's why I'm saying, it's going to change over time the growth profile of this company because it's a huge growth wave and we're very well positioned on that wave. So we like where we are. The competitive set is strong out there, but no one understands cooling and water better than we do.
So I would clearly bet on the Ecolab team.
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.
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.
Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Have a wonderful day.