Christophe Beck
Chairman & Chief Executive Officer at Ecolab
Thank you, Andy, and welcome to everyone.
In Q2, our team delivered another very good quarter, building on continued strong momentum and once again, making further improvements compared to the last quarter. Strong execution as well as easing inflationary pressure helped us get to the upper-end of our expected Q2 earnings growth range. In an environment that remains unpredictable, our shift to offense continues to gain traction and our confidence in delivering mid-term performance that's ahead of historical average trends clearly keeps getting stronger.
Organic sales growth remained strong at 9% driven by the steady recovery of Institutional & Specialty with 13% organic growth. Pest Elimination and Industrial follow delivering 11% and 9% organic growth, respectively. Despite softening global end-market demand, overall volume trends remained steady. In other good news, volume excluding Europe improved from flat in Q1 to 1% growth in Q2. So volume trends are improving further too.
Adjusted earnings per share grew 13%, led by strong organic operating income growth that accelerated from 19% in the first quarter to 21% in the second. Although year-on-year comparisons are getting harder, pricing remained strong at 10% as further new pricing continued to grow. Delivered product costs were 5% higher than last year, but eased sequentially a bit more than expected, which is further good news.
We keep working on strengthening our performance, including targeted actions in institutional, life sciences and healthcare. Institutional had another remarkable quarter as it continued its very strong recovery. Focus on new business and penetration drove share gains in unit served, solutions sold and sales delivered.
Growth, value pricing and productivity drove strong margin improvements, which we expect to continue in the second half. Additionally, innovation in labor automation positions institutional as the ultimate leader in a market undergoing a foundational transformation, driven by evolving consumer habits and increased use of digital technology, all good news for us.
Our highly attractive Life Sciences businesses was not immune to the short-term market pressure, which led to flattish sales. However, this is much better than competition. And Life Sciences growth potential remains extremely strong. Even if the short-term market transition takes a few quarters to get back to strong growth, we're staying on offense. We're taking this as an opportunity to gain share with major customers and to further invest in capacity and capabilities in biopharma and [Indecipherable] water, even if it results in short-term operating income decline. As promised, we're also continuing our rapid transformation in healthcare. In the first quarter, we announced a restructuring program to right-size our cost structure. This is progressing well.
Now, over the next few months, we will also be creating two separate yet focused businesses from our North American Healthcare business, surgical and infection prevention. Surgical which provides protective drapes for surgeons, patients and equipment in operating rooms will become a standalone business. Infection prevention, on the other hand, which provides environmental hygiene to reduce hospital-acquired infections, will leverage the critical mass of our North American institutional field sales and service organization to expand customer reach and significantly improve productivity. This is just a further step on our journey to transform healthcare into a profitable business that serves hospital exceptionally well.
While we continue to focus on margin improvements, which improved 130 basis points in Q2, we also accelerated our shift to offense. Our 1,100 corporate account managers achieved a record new business pipeline by leveraging enterprise opportunities to drive penetration and by focusing on new business prospects to expand our reach. Our more than 25,000 field sales associates sharpened their focus on exceptional service and deploying new business, which resulted in promising share gains. Our 1,200 scientists remain focused on breakthrough innovations, which enable customers to achieve better outcomes at the lower total cost through reduced use of natural resources.
We're also ramping up our investments in digital technology. With Ecolab 3D, one of the largest IoT cloud in the industry and our 1,000 digital experts, we're uniquely positioned to further empower our field and customers to deliver best-in-class performance to unleash unique customer value, improve field productivity and deliver an exceptional customer experience. You'll have the opportunity to experience some of this first-hand at our Investor Day in September.
In summary, we delivered the second quarter exactly the way we wanted, with strong top and bottom line momentum despite the challenging environment. Looking ahead, we anticipate delivered product cost to remain high, but to ease progressively and for global demand to soften further. Although none of this is new, the good news is that we are well-positioned to win in this environment as our momentum keeps picking up. In the second half of the year, we expect volume growth to continue improving and gross margins to expand 150 basis points to 200 basis points versus last year.
During the last few years, our expertise grew as we maintained our team and rolled-out new innovative solutions. Our retention rates remain high as we protected customers from supply shortages. Our margins continue to recover and our organic operating income accelerated as we drove pricing in thoughtful ways while increasing customer value. With this, we expected adjusted earnings growth in the third quarter to improve further and to reach 12% to 19% with continued strong momentum as we exit the year.
Finally, we will remain good stewards of capital by continuing to invest in the business, increasing our dividend, reducing our leverage and returning cash to shareholders as we've always done. Most importantly, with the best team, science and capabilities in the industry, we will continue to grow our share of the high quality $152 billion market we serve. In other words, our future has never looked brighter. I look forward to your questions.
