Greetings, and welcome to the Ecolab's Second Quarter 2019 Earnings Release. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan, Senior Vice President, External Relations. Mr. Monahan, you may now begin.

Thank you. Hello everyone, and welcome to Ecolab's second quarter conference call. With me today is Doug Baker, Ecolab's Chairman and CEO; and Dan Schmechel, our CFO. A discussion of our results, along with our earnings release and the slides referencing the quarter's results and our outlook are available on Ecolab's Web site at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials, stating that this teleconference and the 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 discussed under Risk Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with a brief overview of the results, continued good sales growth and strong margin expansion drove Ecolab's double-digit earnings per share growth in the second quarter. Pricing, new business gains and product innovation led the sales and operating income growth, which along with cost efficiency actions yielded the second quarter's 12% adjusted diluted earnings per share increase. Moving to some highlights in the quarter, and as discussed in our press release, acquisition-adjusted fixed currency sales increased 4% as the Industrial and Other segments both showed strong sales gains. We realized improved growth from the Institutional segment and a modest gain from Energy. Adjusted fixed currency operating income margins increased 120 basis points, continuing the good acceleration shown throughout 2018 and into 2019. Growth we led by double-digit gains in the Industrial and Other segments. Adjusted earnings per share increased 12% to $1.42, representing another quarter of double-digit adjusted EPS growth. Currency translation was an unfavorable $0.05 per share in the quarter. Progress continues on the…

Thanks, Mike, and hello. Look, it was a very solid quarter, adjusted EPS up 12% versus year ago. We had a number of standout performances, led by water at 8% organic, life sciences, which was up 43% but importantly 14% organic, F&B up 9%, 5% organic, and pest 7% organic. And we also saw solid improvement in our Institutional and healthcare businesses. So continued strong pricing work, new business efforts led by innovation, all helped drive a 14% improvement in operating income, which reflects a 120 basis point improvement in ROI ratio at fixed currency. So was delivered, importantly, while executing the key final steps in our U.S. SAP rollout, which is now largely behind us. So as we sit here today, we feel we're in a very good position. We've got significant growth opportunities, our teams are focused on driving new business and having success, margins are expanding via pricing and cost saving efforts, and all of our initiatives have legs, they're early. So as a result, I remain quite confident we'll meet our dual objectives of delivering the year, and importantly, exiting with great momentum. So with that, I'll turn it back to Mike.

Thanks, Doug. That concludes our formal remarks. As a final note before we start Q&A, we plan to hold our 2018 investor day on Thursday, September 5. If you have any questions, please contact my office. Operator, would you please begin the question-and-answer period.

Yes, thank you. We'll now be conducting the question-and-answer session. We ask that you please limit yourself to one question and one brief follow-up question per caller so that others will have a chance to participate. [Operator Instructions] Our first question is from the line of Dan Dolev with Nomura. Please proceed with your questions.

Hey guys, thank you so much for taking my question. So looks like a great quarter when it comes the cost control, et cetera. It looks like your guiding your gross margin up by 50 basis points for the year. Two questions here, a, how much confidence do you have in that increase in the guide, Doug. And the second question is, if I think about sort of the EPS impact for this it's north of, I think, $0.10 potentially. You do have some interest savings, maybe a little bit more shares, like why not take up the EPS guidance; I mean this seems quite conservative? Thank you.

Well, I guess from the first question on gross margin, I mean we feel good about our ability to continue to drive improvements in gross margin. Q2 reported had a negative year-on-year gross margin, not significant. But that was really driven fundamentally by the fact that we just produced less in that quarter. And that was taking down inventories, as we had a successful SAP rollout we built them in the first quarter, and actually in Q4, so we really reduced the inventories fairly dramatically, four days in Q2 versus Q1. And we also had lower sales in our WellChem business. So that's really the sum total of why you didn't see a little daylight between gross margin this year versus last year. So we see raws [ph] holding, getting marginally better, pricing continues. So we have a good deal of confidence that we'll see improvement for the year in gross margin, estimating, call it around, 50 basis points plus-minus for the year. Your question as to -- well, we've got pluses and minuses in the year, we always do. You identified a couple, interest income is a plus versus what we expected, raw materials are a minus-plus as we sit here today. Of course that can change. But as we look what will be minor plus versus our plan. But then you've got volume negative really just in the upstream business, and really principally in WellChem. And so that's the negative. They sort of neutralize each other. There is certainly some of the margin increase as just a function of a little lower sales as a consequence of WellChem volume coming down, which by itself is a lower margin too. So I think we feel we have a very balanced outlook. We're continuing very significant investments in the business. We are undertaking and finalizing SAP. The high risk stuff is all behind us, 100% of the U.S. supply chain is on it now, the key parts. And so we feel like we're in very good shape in a number of areas. And we're forecasting midpoint, like a 12%. So, it's a good year, and importantly we feel we'll have very good momentum exiting the year.

Great, excellent results. Thanks again.

Thank you. Our next question is from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Hey guys, good afternoon. Doug, as we exited last year the sales momentum had built, and I think the expectation was that that momentum would continue. And yet things have slowed a bit year-to-date. I realize Energy is a big component of that, and I guess to a certain extent Institutional, you've walked away from some low margin business. But how are you thinking about sales momentum overall and is this 4% or 5% type of number the last two quarters, is that pretty good number to think about going forward or is there a case that there could be some acceleration from here in the back-half of the year? Thanks.

Well, I think you touched on the two issues. I mean one is upstream sales are softer than expected and softer than last year, and Institutional losses. If you exclude the upstream business we have 6% sales, 5% organic, and that, it would include the Institutional losses this year. So I think underneath we feel good. I mean we were growing organically, watered 8%. I highlighted a number of standout divisions. And I think this 5% organic would easily be 6% with the normalized losses in Institutional which we will see beginning first quarter of next year. So I think we're in good shape there. We continue to drive pricing at the same time and manage a number of other initiatives. I don't think there's ever any satisfaction here with whatever the print is on our sales number, we always want another point or another two. But I don't believe that's an issue at this in point. And importantly, the net new business results are accelerating particularly in institutional which is the best leading indicator we have of future results.

Great. Thanks. And then just a quick follow-up, any -- how are you seeing the macros, thinking about the macros these days, a lot of headlines about slowing in China. Obviously, Europe remains relatively weak, is that having much impact on the trending in revenue, or has it not changed that much from your advantage point? Thank you.

Yes, I agree with the headlines. I mean we see some of it in China too. But for the year, we were estimating mid to upper single digit growth in China. And China is a size it's $0.5 billion, so it's not going to have a huge seesaw affect on our overall results. Yes, I don't think the economy is hitting our results right now. There is significant share in front of us. We can continue to drive it. There are economic conditions obviously that can't impact. We are not bulletproof, but we tend to perform better than most in poor economic times. But at this point in time, I wouldn't blame the economy. I think all in all we are doing what we need to do to continue to push sales and push pricing and the other things forward. And I think the environment is favorable enough to allow us to do that.

Great. Thank you.

The next question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question. Mr. Mulrooney, your line is open for question.

Sorry about that. Good afternoon, Doug. The performance in your water business has been outstanding over the last call it four quarter or little more maybe. I know the strong organic growth is a combination of many different factors. But in terms of share gains, if you look at the light business and the heavy business, you look at the different geographies; can you talk a little bit about where your product innovation is really having an impact with respect to new business wins et cetera?

Yes. There have been a number of areas. Obviously as you just highlighted, I mean the water business is strong across many fronts, which is one of the secrets. It's particular strength recently is an initiative that we had really coupling what I would call our food safety hygiene business with water. Particularly in the food & beverage area, we have had a number of just huge wins in that area because there is real synergy when you combine the two. We have a unique ability to do and deliver value in that way versus competition. So we have significant competitive advantage, i.e., we can bring outside value to customers that others can't. And as a result, we have seen dramatic share wins there. But this isn't the only area that we can do that. We are now taking in into some core parts of the institutional arena where we also believe the combination can have significant impact as we move forward. But the fundamental business, how they are executing, how we are looking at leveraging 3D TRASAR, how we digitize much of the business and give us more visibility -- gives us much more visibility. And in turn allows us to do much more for customers. All these things are helping drive share gains.

Okay. That's helpful. Thanks. And then my second question is digital business. Are there any quantifiable metrics that you could share with us with respect to digital innovation efforts to give us a better idea how the program is moving along maybe and in terms of the number of users today, your pilot programs in the field or data scientists on staff, or anything you can point to say, hey, we are in a different place than we were two years ago?

Well, we certainly are, I would say a couple of years ago, I mean we probably tripled sales what we called digitally enabled over the last couple of years. We have had a bunch of sizeable wins this year as the technology and the investments that we have been making over the last few years are now bearing fruit because they are marketable if you will. What we will do is spend real-time in the Investor Day meeting that we have coming up in September quantifying and discussing this in more detail that will obviously be webcast to even those who can't make it in person can certainly hear. And we are working and developing. We have a number of internal metrics that we have been refining. What we want to do is make sure we have the right metrics to point our investors to, i.e., the ones that we think are best indications of leading wins and leading results. And so, we've been doing a lot of work there. So certainly it's digitally enabled sales. It is number of people on hand, but its number of units that we're touching type of information that we're pulling, et cetera. All those things are moving in the right direction. We feel good about the effort. But this is an area where you can't move fast enough. And I think the more we learn, the more we know we have to learn and also the better we feel about the upside potential. This technology represents for our ability to make a difference with our customers. So it's all good, but we're going to do spend some real time on it now in September.

Got it. Thank you.

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

Thank you. Good afternoon, Doug obviously your sales pipeline today. I think gives you confidence that the macro environment that everyone's worried about maybe doesn't impact in India to medium-term. But I guess, a couple of years ago when GDP wasn't that wanted to bring your top line wasn't as fast. So is there something I guess the changes made over that period of time today? Does that give you more confidence that you'd probably be able to outpace that video sales pipeline the way it's executed in the last few years?

Yes, I mean, the only safe answer is, look I think we've done a number of things to further strengthen competitive advantage, the digital conversation that we just talked in that area, certainly one of the areas. With that said, and I mentioned this, we're not bulletproof. So yes, the economy drops dramatically. It's going to impact us, but I don't believe it pulls us negative and really it hasn't, even if you go back to the '08, '09 episodes. We kept our nose above water or be it barely during that period of time. So we do a good job during the downturn, a lot of it is the nature of what we sell, how we are going to market. The trade, we asked from customers, i.e., invest in our technology and you're going to get 2 and 3 back in returns is a very effective story even in difficult times. So, I don't want to say that it's not going to have any impact. That's not our history, but I think it's a muted impact versus other companies.

Okay. Got it. And then just on the margin side, and then obviously, the guidance implies that second-half margins were kind of an outside period, assuming raw material costs are in check or as expected, should we expect, next year to have kind of a similar showing on the margin side or there other moving pieces we should be considering?

Yes, I was a little wary of talking about the next year, so early in this year. But I guess what we've alluded to once we introduced the accelerated cost savings initiative. There are conversations. If you read back, I mean, we did indicate if we normally run a call at a 40 to 50 basis point improvement, accelerate should be added up to that we acknowledge that. This year we would expect OI margins to create over 100 basis points. You all things being equal, I don't, I don't think it's a one-year phenomenon, but there's a lot that I don't know about next year i.e. FX raw materials, economic environment, et cetera. So I'm a little wary of coming out too strongly on that. But what we're working hard to do is setup the scenario where that's the type of capability we have from a delivery standpoint i.e. when I reference in my upfront comments, we're leaving the year with momentum. We want both top line and margin momentum as we leave the year because then you have a lot of tools to deal with whatever the environment is going to be.

Got it. All right. Thank you, guys.

The next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good afternoon. I guess two questions. One, could you give us a what the -- sort of longer term run rates and then the recent growth rate in the -- remain co energy, the piece that you're keeping? So we can think about what a benchmark is for the next few years. And secondly, from where you sit now, is there a way to leverage the digital platforms into healthcare to accelerate the business there or how's your thinking evolved around the need for scale in that business to improve to top line growth?

Yes, so I'll just touch on healthcare first. The healthcare teams been one of our leaders in digital innovation in their business and it already has significant sales. We have really, I think the best in class hand hygiene system, monitoring system for acute care adoption rate continues to pick up and move forward there. We've got great technology and monitoring and measuring our ability to knock down healthcare acquired infections which is a big and important measurement. So there are a number of areas where there's been real innovation and I think the team as they become more aware of capabilities are starting to drive this to other parts of the program. So, our healthcare business in the quarter was 4% and 3% organic, it was 6% organic in Europe and double-digit in other regions, North America, U.S. in particular was flat. But I think what the teams are doing well is they're identifying where they have really strong growth opportunities medium and long-term and they're increasing their focus on those areas and getting after them and that includes some of the digital efforts that I spoke to. The other question you had around downstream. So there are three components to our energy business today, there's oilfield chemicals, there's WellChem, those two comprise upstream that's being spun and downstream is remaining with the company and being folded into the industrial businesses. It'll be still a standalone business but it will report up into the industrial group, the downstream businesses about a $1 billion in size, it grew last year at mid single digits, it grew same in Q2, it's expanding margins this year around 200% as its pricing is catching up to raw materials this year as well. It's well above average in terms of OI margin for the corporation. Great return on capital, it's a very similar business to our other industrial businesses. The mid single digit is sort of what we expect out of that business when we're executing well and we've got advantage technology there, we have leading share and we continue to gain share in the market with that business.

Thank you.

Our next question is coming from the line of John Roberts with UBS. Please shoot your question.

Thank you. Nice quarter, is it fair to think about the pest business, pest elimination is a leading indicator for the institutional segment in that pest is a little bit more discretionary, so the fact that it's performing so strong for so long, it argues well for the momentum in the institutional business?

I would say the pest business look it's the largest component will be in institutional but it's got a fairly sizable share in industrial too. What's similar about the two businesses is execution matters quite a bit and what the pest team has really done over the last, I call it five, six years is stepped up their execution considerably. We went through a few years you may recall where it was low single digits. Everybody was kind of what's wrong with past. We put it into the shop, it came out and it's really done incredibly well growing at high single digit organic growth rates for a really several years now in a row. I don't know what if it's a perfect proxy or not. I would say our institutional business. I am not worried about it from a long-term standpoint; I wish it was growing faster this year. Yes that would align me with every member of the institutional team. With that said, I think they're doing exactly what they need to do, they are driving sales, they are driving innovation and driving execution particularly in Europe. We're seeing positive signs net business is up double-digits in institutional. The innovation focus and the execution focus is starting to show results in Europe albeit slowly but we expect Europe to improve towards second largest institutional business we have in the world, we need to get that thing moving and we still have such significant upside in this business, it can be product penetration in the more developed markets. We have new water opportunities this business which I alluded to but also ones that don't really involve Nalco water per se, but our significant we think upside potential for the business we have sizable share and execution opportunities globally. So we look at this and we talked about being on track to exit the year. I'll remind everybody, I mean like on 12/31 I believe we're going to be at a 4% to 5% run rate in that business as a new business continues to kick in. And most importantly, as the loss business is lapped and all the fundamentals point to that direction. So we're just asking the team to keep doing what they're doing. We believe time heals this thing in that we're going to be in very good shape moving into 2020.

And then secondly at the National Restaurant Association meeting you previewed a lot of digital activities over in the Institutional segment. Is the Industrial segment, as Rich in digital opportunities and obviously the inter ratio is focused towards the institutional markets. So we didn't talk about there but I don't if you can give us a perception of how balance the digital effort is across the two?

Yes, I'd say, if anything, the Institutional side has been playing catch up to the industrial side, we started a lot of this work and Nalco water in particular part because we had a head start with the acquired technology 3D traits are which was connected to our system assurance center and Pune, India. But as we continue to develop that technology develop our capabilities. That was the first place that we really kind of use that as a tip of the spear for digital innovation because we had knowledge there that we could go leverage. We've taken a lot of the learnings there. And that's really the base of knowledge that we're applying in other businesses, and then obviously customizing it for the challenges at hand. So if anything, and I think you'll see that clearly in September, we have huge significant innovations there, many of which are being commercialized right now that we're quite, quite excited about, just like we do on the institutional side.

Okay. Thank you.

Our next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Thank you. Doug, just on pricing, given some raws are now flattening out coming down. Is there some potential for your pricing to also decelerated in the back half of the year?

We don't expect it to decelerate in the back half of this year. Obviously if you get a significant raw material give ups, it does have an impact on our ability to get pricing. We don't typically go negative on pricing as you've watched over the years and we don't expect too in the future, but for this year, we expect to have strong pricing throughout the balance of the year.

Very good. And just on what the S&P implementation done, would you expect the tailwinds to be for you guys from that fully in place now?

Well, I mean as I, as I said, we've got still some work to be done in a couple of divisions to bring on, but the big divisions in the big risk is really what I would consider behind us. Not in front of us. And we didn't - This is kind of the most mentioned, we've had in the quarter, mostly because we don't have any negative to tell you and we're largely done I look, there is a number of things, when you go through this. One, we know we had increased costs during implementation. Some of these are starting to come out, but there is more that we've got to go get out, you have to shift production, you have to build inventory you have a lot more inter-company freight than you do when you're not doing this you have extra shipments because your service levels are naturally impacted as a consequence of this significant shift, our product supply team I thought did a heck of a job managing through this, but you can see it and have any negative consequences, we know it did. So we know we're going to see some margin come back as we go through this, but most importantly it's a visibility that it gives us going forward. And the reason to make this investment isn't just defense, it's also offense. So, our ability to look at our business understand trends do a better job managing things like freight, things like customer delivery do a better job delivering and do it less money, all of which is even more important today given the escalation in freight pricing that we've seen the last few years, I think it's going to have a number of benefits as we go forward. Now, of course, we build that into our forecast, but it's these kind of cost savings opportunities that we want to continue to build, because these are the levers that we want to have to manage through whatever 2020 throws our way, with a similar environment is this year we're in perfect shape if it's even worse we're in good are decent shape. And that's the type of situation we try to put ourselves in.

Thank you very much.

The next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Thank you very much, Doug, just if I could ask you for more detail on Institutional, last quarter we talked about, there were some customer inventory issues that you thought would reset over 2Q and 3Q couldn't exactly tell the timing, so if you could just update us on where we stand on that it would be great.

Yes, we got some of the back in the second quarter. We would expect some more coming back in the third and fourth. But I expect this business really to kind of bounce around this 3% level for the balance of the year, it's a little better in that if you adjust for losses and stuff like that, but at that level it is very easy for us to get to the four to five exit rate that I've talked about. So that's what we see in some of that is inventory naturally coming back is it does.

Okay. That actually gets me right question for Dan, which is just looking at the cash flow from operations for the first six months year-over-year is up quite nicely and ahead of the net income gain. So and there were some conversation about the inventory builds around SAP and so forth. Maybe you can just give us a sense of how working capital should trend in the back half of the year, how we should be thinking about overall free cash flow for the year?

Sure. Thank you. So you're right, when we were on the first quarter call Right, taking questions about what was a relatively weak at least year-on-year cash flow performance, clearly that slipped in the second quarter as we expected it to and communicated that it would. And year-on-year, a big part of that is improvement in working capital trends and inventory in particular, if you look at the second quarter last year as Doug indicated, we were really building inventories in anticipation but also sort of a security for the SAP go-live, clearly we flipped that and in year-on-year comparison, inventory is significantly favorable to cash flow, as in fairness is accounts receivable and AP and so it was all in all a very strong quarter for cash flow. If you look over the full-year, I guess I would continue to say what I said last time, which is we - there continue to be opportunities to improve working capital performance somewhat, so we expect inventory balances to come down, but if you drop all the way down to year-to-date free cash flow, the metric that I focus on is where you started, which is we expect to be delivering very strong free cash flow is something like 90% conversion of net income and that will be dependent of course in on other activities that we take that's the number that I would focus on for the full-year. So great quarter feel good about our position to deliver strong free cash flow for the full-year in line with business results. Okay.

Thank you very much.

The next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks very much. On your consolidated income statement, your product and equipment sales were up 1% year-over-year and your service and lease sales were up six, why was product and equipment so slow and service and lease and growing so quickly?

Yes, the product was really a consequence of WellChem because WellChem doesn't really have service component per se and so as a consequence, when it's down it has an outsized impact on the product component. I will also say and I'll probably get kicked by my CFO and others we're not big fans of this product service split internally, we manage and look at the business in different ways, because we don't believe it's the best indicator now Dan didn't create as you'll also remind me it was foisted upon us, but we don't believe it's the best way to go work, but the issue you're talking about was really driven by WellChem volume being down which distorts the picture.

It's also the case that the margins in service and lease lifted 240 basis points and product and equipment cost of - in the property and equipment piece maybe dropped 120, can you talk about the margin differential why one was lower and the other one was higher?

Yes, well, the product is back to the earlier conversation which is - we made less product in the quarter, so absorption was a negative as we took down inventories where we four days from Q1 to Q2 and WellChem was down, so you had those double impact and absorption. It was the single biggest issue was or about what we expected pricing was what we expected et cetera. The surface component one, we've got initiatives, it gets a little outsize in terms of what the actual impact was in service, I would say, as we look at it, we don't believe in best illustrates what's going on in the business. And when we look at it, we would say overall gross profit combined was if you take out the inventory move was flat year-on-year roughly, and we had improvement in SG&A across the board. G&A and yes and we don't price this stuff separately. We do bundled pricing. So separating these things is a bit of an artificial game for us.

Okay, great. Thank you so much.

The next question is from the line of Christopher Parkinson with Credit Suisse. Please proceed with your question.

Thank you. When you break down your industrial business by platform, so commercial off the utility chemical, et cetera, and you should look at all of your longer term opportunities on a global basis, as well as the relative and market growth rates, pricing power capabilities, can you just comment broadly on the longer term margin drivers in terms of mix your expectations, just any sense we could get of on where this business could go over the long-term would be appreciated. Thank you.

Well, I'd see water across the board where while we say we are the market leader, it's a very similar story to the balance; we are still relatively low in share. And the wind, if you will, or the currents in the water area are very favorable. They're not favorable for the world, but they are favorable for those with technology like ours i.e. water pressures are going to increase, we know water scarcity is only going to worsen something like 70% of the world's GDP is going to be in water scarce areas. As soon as 2030 there's going to be a 40% mismatch between freshwater supply and demand as a consequence of growing middle class and finite water supply, so all those things lead favorable macro environment. And then, we sit here with what we consider best in class technology and capability, helping our customers, reduce water consumption dramatically. This in turn reduces their carbon footprint in energy bill, so they end up saving money, it's the same time they end up saving water, water itself is too cheap, but because it starts saving energy too, you end up with significant savings. This is true in virtually every industry that we are every vertical as you discuss, we compete in and so as a consequence, we feel very good about our positioning in water and our ability to continue to execute, digital will give us more capabilities in terms of shining a light on the difference that we can make, enabling customers to see where they stand in a given industry and what their opportunities are and what types of investments could be made to get, what types to return, all these things we think long-term are favorable to us. And then it's incumbent on us to execute. And that's really what we believe the name of the game here is in water. We bought it because we thought it was going to be an important issue for our customers, we knew it already was. And all we've done since is learned that it's even more important than we probably felt and that leading technology and I would say coupling of equal lab know how it's been a very potent mix.

Great, thank you. And just as a quick follow-up. On the enterprise selling initiative, obviously this week on and for some time, can you just do a self-report card and how do you think you've done the ongoing opportunities as well as the opportunities still to come. It's clearly been successful in F&B certainly recently, but what are the areas, institutional pest elimination and specialty? Do you still see the largest opportunities? Thank you.

Yes, with the time of the merger, and I'm going back and my memory is not flawless, but I believe we said that we were chasing a half a billion in terms of synergy sales. And we've more than delivered against that objective. And I would say, if anything, what we've learned across the way is how, how many, and how significant the opportunities are. The next chapter here is continuing what I would call development -- synergistic development i.e. where one innovation on let's say F&B and another innovation on the water side when coupled together, bring even more outsized advantage for customers who choose to buy both from us. We have the same opportunity in institution in a number of market segments as well as, and as we crack that code, we believe we are going to have even more success going forward. But it's still early I would say look, we chased a $120 billion market opportunity conservatively and we are $14 billion - $15 billion. And water is the single largest opportunity of all. And so, we are not sitting here worried about running out of green space in terms of the ability to go generate new business. It's really making sure that we execute and do it well so that we capture it.

Thank you.

And the next question is from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed with your question.

Thank you. Good afternoon everyone, and congratulations on a strong quarter. Looking at F&B, Doug, the industry was flat. And yet, you reported a strong growth excluding acquisitions, corporate account share gains, price et cetera. Can you talk about in more details what -- the trends you are seeing in the different sub segments like dairy, beverage, brewery, food?

Yes. I would say overall what's happening in our F&B business is one, we are gaining share. And we have had outside share gains particularly in the beverage and brewing parts of the business over recent trends. And so, those have been probably the most importantly fastest growth segment. Our beverage, brewery, food is about on par 4% et cetera. But dairy is also quite strong at 10%. And it's not exactly an ideal market for dairy. So, what we are doing is helping customers produce more with less; with less water and less energy. This brings outside savings to them. And when they are in a flat market, savings are very important. And they get to do this without any sacrifice, i.e., food safety, measurements. I would say operational efficiency measurements all are equal or better under these scenarios. And you get the resultant savings and water and energy and also a storyline around sustainability because it's real. So it's that formula that the team has developed in partnership and concert with the Nalco water team. And that's leading to our ability to drive success in a relatively flat business.

Thanks, that is helpful. And I wondering looking at beverage, I mean there is a lot of noise around plastic bottles. And there seem to be an increase in the use of aluminum cans versus plastic bottles at least for water and other soft drinks. How do you fit in that particular category? Are you going to be hurt if the industry moves to a substantially more cans versus plastic bottle?

No, I would say, first, our position is let's all collectively do what's smart for earth. And we will have to adjust our business. With that said, a trade in plastic bottle to either milk type carton and/or aluminum cans will not have a negative impact on our business.

So you are in both categories?

Yes.

Okay, thank you.

Our next question is from the line of Mike Harrison with Seaport Global. Please proceed with your question.

Hi, good afternoon. I was wondering within the water business you mentioned some new business wins in mining. I was just wondering if these are new mines, and the fills associated with the new mines, are you taking share at existing mines? I guess I was under the impression that it's typically difficult to take share from existing mines as that tends to be pretty sticky business.

Yes. Look, there two things going on in mining. But the biggest is that mining rebound broadly. It's a cyclical industry. But, we have also had some success with new business in mining. And we are targeting and trying to move increasingly away from coal which you might find obvious in the areas like phosphates and the others. These strategies are working, and so, some of it just reflects moves that we are taking to better position the business long term.

All right. And then wanted to also ask about the healthcare business, can you talk about what profitability looks like in that business and maybe how that has been changing or evolving over time?

Yes, healthcare we'd expect OI for the year to be roughly flat. But it really reflects decisions to invest in the business. The Anios acquisition that we made a couple of years ago, in France, which really gave us even stronger beachhead in Europe, but most importantly an avenue in a number of other markets around the world, has proven to be a great acquisition. And so we continue to invest in real strong growth opportunities. And we're happy to do that. In Europe, as I mentioned earlier, we're seeing 6% organic growth in the healthcare business, and we'll feed that.

All right, thanks very much.

Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your questions.

Hi, Doug. This is Eric Petrie on for PJ. Historically food & beverage and water growth rates are in the mid single digits. But now with your digital investments and market share gains do you see this upper single-digit sustainable into 2020?

Well, you know what -- look, we are working hard to always increase what we'll consider normal. And I think there's a lot of legs; I mean water has got quite a bit of momentum. We've got good momentum in F&B. We don't see anything sitting here today that's going to make us change our view that that's what we should be growing -- that's the rate we should be growing the business. I also don't know what 2020 is going to bring us. So I don't want to sit here and commit to 8% on water organically as our terminal value. With that said, there's significant upside in that business. We got a great team, great technology, and they're executing well. So I would expect that growth rate to be above average for the company.

Okay. Secondly, I wanted to ask about your M&A pipeline and what you're seeing in terms of valuations. And does your EPS guidance of 10% to 14% include any bolt-on deals in second-half?

Yes, look, it does include any bolt-ons, obviously anything that probably comes on the remainder of this year is likely to be dilutive as it is accretive just because there's not much time left in the year. But that doesn't stop us from doing the deals. We really look and focus on do we believe we're going to get a good return for shareholders out of a deal, not immediate accretion, dilution. But all of them would be incorporate in our forecast already. Our pipeline is large, and I would say slower multiples. And so as a consequence we're going to remain disciplined. We are doing deals, we are buying companies, we're even with the prices higher than we might like. We know we have such significant upside that we can turn it into a very good return deal for our shareholders, and we'll continue to do that. But we're going to exercise discipline, as you would expect us to.

Great. Thank you.

The next question is from the line of Andrew Whitman with Robert W. Baird. Please proceed with your questions.

Great. Thanks for taking my question. I guess I just wanted to dig in to the margin profile a little bit more by looking at what seems to be the two biggest factors, which are raw material costs as well as the cost savings program that you guys have been undergoing here, and hoping that you could quantify the increase year-over-year in raw materials that you saw, as well as the amount of cost savings that you recognized in the quarter or maybe annualized exit rate just so we could get a sense of what's driving your very good margin improvement in the quarter?

Yes, for cost savings it was a little over $20 million year-on-year in terms of what it delivered in the quarter. In terms of raw materials were fairly benign in Q2 following a fairly hefty bill in Q1. Let me just get to that, so I don't give you the wrong number. Yes, raw materials were just up modestly in Q2, and we expect them to be below last year in the second-half. So -- but it wasn't a material impact on Q2 one way or another, it just wasn't positive or a significant negative.

Great. Thank you for the color. That's all I had.

Thank you. At this time, I'll turn the floor back over to Mike Monahan for closing remarks.

Thank you. That wraps up our second quarter conference call. This call and the associated discussion slides will be available for replay in our Web site. Thanks for your time today, and participation, and best wishes for rest of the day.

Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.