Q2 2020 Mettler-Toledo International Inc Earnings Call
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No International earnings Conference call. My name is Dimitri snowmobile audio coordinator for today.
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I would now like to pairing our presentation over to your hosts for today's call Ms. Mary Finnegan. Please proceed ma'am please.
Thank you and good evening, everyone on Mary Finnegan, I'm responsible for Investor Relations.
Alito unhappy that you're joining us this evening.
I'm joined on the call today with the Olivier Filliol, our CEO and Sean's Adela, our Chief Financial Officer, I want to cover just a couple administrative matters.
Oh is being webcast and is available for replay on our website.
A copy of the press release and the presentation is also available on the website.
Let me summarize the safe Harbor language, which is outlined on page two of the presentation.
Statements in this presentation, which are not historical facts constitute forward looking statement within the meetings up the U.S. Securities Act of 1933, and the U.S. Securities Exchange Act 1934.
These statements involve risks uncertainties and other factors that may cause our actual results level of activity performance or achievements to be materially different from those expressed or implied by any forward looking statements.
For discussions of these risks and uncertainties. Please see our recent form 10-K, and other reports filed with the FCC from time to time.
All of our forward looking statements are qualified in their entirety by reference to the factors discussed under the captions factors affecting our future operating results and business and management discussion and analysis of financial condition and results of operations in our filings one other item on today.
Today's call, we may use non-GAAP financial measures more detailed information with respect to the use of and differences between the non-GAAP financial measure the most directly comparable GAAP measure is provided in our form 8-K, I will now turn the call over to Olivier.
Thank you Larry Good evening, everyone I hope that's fine she said well I'm again doing is calling for switching why.
Our in Columbus, Ohio.
I will start with a summary quarter on and Sean will provide details on our financials I will then manav somebody's requirement and we will open the lines puts you in it.
The highlights for the quarter on page three of the presentation local currency sales declined 4% auto which was better than expected.
You know end markets continues to be negatively impacted by Cobiz 19. However, we had good growth in China, and our lab on industrial businesses.
Resilient that mediation, we expected.
Contributing to this resiliency is that's the muddled you've always sales or two essential as markets, including life Sciences on food manufacturing. Furthermore, we have significant products market diversification I know doing well in redirecting resources to the best growth opportunities.
Continued benefit of our margin initiatives centered on pricing on some doors as well as to quit actions, we took to temporarily reduce our cost structure, we achieved improvement in both gross and operating margin in the quarter.
Despite negative currency headwinds you have caused this growth in adjusted EPS finally cash flow generation in the quarter was very strong.
Overall, given the very challenging but we're pleased with these results.
I will have some additional common shortly but let me now to onto Sean for the financials.
Thanks, Olivia I also want to say that I hope. This finds all of your wealth sales were 690.7 million in the quarter a decline of 4% in local currency on a U.S. dollar basis sales decreased 6% as currencies reduced sales growth by approximately 2% in the quarter.
On slide number four we show sales growth by region local currency sales declined 7% in the Americas, 5% in Europe and increased 1% in Asia rest of the world.
Try to local currency sales increased 8% in the quarter. The next slide show sales growth by region for the first half of the year.
Local currency sales declined 2% in the Americas, 5% in Europe, and 3% in Asia rest of World.
China local currency sales declined 2% in the first half of the year.
On slide number six we outlined local currency sales growth by product area.
For the quarter laboratory sales declined 4% industrial declined 3% with core industrial down, 1% and product inspection down 5%.
Food retail declined 11% in the quarter.
The next slide show sales growth by product area for the first half of the year Laboratory sales declined 2% industrial declined 4% with core industrial down, 2% and product inspection down 7%.
Food retail declined 14% for the first six months.
Let me now moved to the rest of the PNM for the quarter, which is summarized on the next slide.
Gross margin in the quarter was 57.6% 20 basis point increase over the prior year level of 57.4%.
Our margin initiatives centered on pricing and Sterndrive contributed to the margin growth.
We also benefited from temporary cost actions undertaken earlier in the quarter offset impart by higher transportation costs.
R&D amounted to $31.2 million, which which represents a 15% decline in local currency.
The decline is principally driven by timing of activity as well as some temporary cost savings measures I would expect R&D as a percentage of sales to be in the historical range of 5% for the full year.
As DNA amounted to $190.1 million, a 7% decrease in local currency over the prior year.
Temporary cost containment measures as well as lower variable compensation were principal contributors to this decline.
Adjusted operating profit amounted to $176.6 million in the quarter, which represents a 1% decline over the prior year amount of $177.7 million, we estimate currency reduced operating profit by approximately $4 million in the quarter.
Despite the challenges to the top line in the foreign currency headwind, we increased operating margins by 130 basis points to 25.6%. We're pleased with our ability to drive operating margin growth in this very challenging environment.
A couple of final comments on the PML.
Amortization amounted to $13.9 million in the quarter interest expense was $9.6 million in the quarter.
Other income amounted to $2.9 million.
Our effective tax rate in the quarter was 19.7% before discrete items and adjusting for the timing of stock option exercises.
The rate is lower than we expected as compared to the last time, we spoke and is being driven by the impact of deductions in some better income mix.
For the full year and for the next two quarters. We now expect our tax rate to be 20.5%. This is also likely to be the rate we will have in 2021.
Moving to fully diluted shares which amounted to $24.2 million in the quarter and is a 3.5% decline from the prior year.
Adjusted EPS for the quarter was $5 in 29 cents, a 3% increase over the prior year amount of $5.16.
On a reported basis in the quarter EPS was $5 in 22 cents as compared to $5 in six cents in the prior year.
Reported EPS in the quarter includes 12 cents of purchased intangible amortization.
Three cents of restructuring and an eight cents difference between our quarterly and annual tax rate due to the timing of stock option exercises.
The next slide shows our first half results local currency sales declined 3%, while operating profit declined 2%.
Operating margins in the first half increased 60 basis points.
Adjusted EPS amounted to $9 in 28 cents versus $9 in 26 cents in the prior year.
That is it for the PML and let me now cover cash flow.
In the quarter adjusted free cash flow amounted to $170 million as compared to $113.4 million in the prior year.
We're pleased with this level as we made a concerted effort on accounts receivables collections and cash flow management during this period.
Dsos in the quarter was at 40 days, while it came in at 4.3 times.
For the first six months adjusted free cash flow was $218.3 million as compared to 193.5 million in the prior year on a per share basis. This is a 17% increase.
Let me now turn to guidance.
Forecasting continues to be challenging given the significant uncertainty surrounding cobot 19, and the ultimate repercussions for the global economy.
We are short backlog business and the timing and pace of a global recovery is difficult to ascertain at this time.
With our Q2 results. We now believe we have better information and insight into our business to provide Q3 and full year sales and earnings guidance as important to note that visibility is limited and market dynamics are very fluid and changes in customer demand can happen quickly.
For the third quarter, we would expect local currency sales to decline, 1% to 3% and adjusted EPS to be in a range of $5 in 80 cents to $6.
For the full year 2020, we would expect local currency sales to also declined 1% to 3% and adjusted EPS to be in a range of $22 in 70 cents to $23.20.
Let me provide some additional insights as you analyze our financial results.
We expect to continue to benefit from our spinnaker sales and marketing initiatives, which we believe are particularly important competitive advantage in the current environment.
We will also benefit from our margin initiatives centered on pricing and Sterndrive.
We will continue to benefit from the temporary cost containment measures and discretionary cost reduction actions in the third quarter.
For Q3, we would expect to reduce operating costs, approximately 4% to 5% as compared to the previous year.
Interest expense is estimated at $9 million in Q3 and $38 million for the full year.
Amortization is estimated at $14 million in Q3 and $56 million for the full year.
Other income, which primarily represents pension income is estimated at two and a half million dollars in Q3, and approximately $11 million for the full year.
As already mentioned, we estimate our full year effective tax rate before discrete items will be 20.5% in 2020.
Finally currency is estimated to increase sales growth by approximately 1% in Q3 and will be neutral for the full year.
We are targeting a net debt to EBITDA ratio of one and a half times by the end of 2020 and estimate we will repurchase shares of $200 million in Q3 and $700 million for the full year that has it from my side and I now want to turn it back to Olivier.
Thank you Sean let me start with some comments on our Q2 results I would like business can small resilient than we had anticipated with a 4% declining multicurrency at the core pull six I mean is particularly well while balances were more negatively impacted by Colby.
Analytical instruments business was down modestly contribution to the resilience of our lot business, if the diversity of our product of end markets.
Our agility with our sales and marketing techniques to direct resources to the best opportunities.
I will be industrial business declined 3% ended the quarter product inspection was down mid single digits with modest growth in our European business with declines in the Americas.
We still face challenges gaining access to food customer side.
Customs are currently focused on old priorities.
Core industrial did well in the quarter declining only 1% we benefit from an excellent product portfolio strong sales and marketing initiatives and diversity in our product offering as well as I will end markets.
We'll have some additional comments on core industrial hopefully.
Finally, food retail was down 11% equal now let me make some additional comments by geography.
Sales in Europe declined 5% with both lob under industrial in this range.
America declined 7% in the quarter with retail down 20%.
Lamps declined slightly more on the industrial revenues parts by strong double digit growth in lab into play a year.
Finally, Asia rest of the World grew 1% or the portal with both lavender goes through flowing modest growth on retail down double digits as mentioned, China up 8% growth in the quarter with both lab industrial doing well while retail decline.
One final comment on the second quarter service and consumable sales were flat in the quarter.
That concludes my comments on second quarter results.
How should we look sector due to second half of Goodyear.
The sales decline we are expecting in Q3 is modestly better than what we experienced in Q2 as I mentioned last quarter as we enter Q2, we have the benefit of our quote order pipeline that we build up in the first quarter as we enter Q3, we don't have we seen buildup.
In terms of geography, a western markets are in better shape than they were four months ago, while China like your ones have the same level of pent up demand that they have in Q2.
Taken all together these dynamics, so resulting in low single digit sales declined in Q3.
We will provide more insights into our Q4 expectations on our next call, but our full year guidance assumes Dave not a deterioration in operating conditions in the second half of the year.
It is worth repeating that our visibility is limited and we fully acknowledge that market conditions can change quickly even the unprecedented nature of Colby 19 dynamics.
Let me provide some additional insight.
We are managing the business im seeking out growth opportunities.
In March our sales organization quickly adoptive I will go to market approach pellets sales on a remote sales due to reduced access to customer sites.
We accelerated our plans twentytwenty adoption of Microsoft teams, which has proven instrumental in keeping us connected to our customers also in March we launched.
Lights, which highlights product features in an easy to use video format. Since then we have had more than 12000 video co browsing sessions with customers.
Enhanced training videos on sample conversations on bulk womens available with digital library, while helping our salesforce to generate new sales and cross selling opportunities.
We also followed the current environment can be an ideal time to showcase our technological expertise to webinars seminars and online training.
Using advanced analytics on Salesforce guidance to prioritize customer segment.
Moving to be very important given the very challenging market conditions.
Certain end markets Im sub segments, such a pharma biotech texting laugh on food manufacturers also in growth, while although more industrial end markets are showing significant declines.
Through an in depth customer segment analysis, we have identified thousands of customer side with growth potential even into current environment.
Redirecting resources to the best growth opportunity has always been fundamental to our sales approach and our ability to quickly adapt to rapidly changing market conditions is helping them the impact of this very challenging environment.
Finally, we're using sales activity monitoring our new dashboards to obtain real time information on our opportunity pipeline quotes on bookings. So we can quickly react to market conditions.
So we really see of I will result is being driven by defer the diversity of our end markets and our ability to lead our right to the best opportunities.
We also have an advantage from the diversity of our product offering our core industrial business is a good example of this while our corn standard industrial be Smith is being negatively impacted all the businesses within core industrial including transportation and logistics, which is focused.
On freight forwarding companies is holding up I.
Our technology leadership is also setting us apart that in this environment.
For example, last year, we launched a new innovative dynamic pilots dimensional which is helping our customers more easily optimized load climbing accurately talking four point.
Until now thats to be placed on the fastest dimensional which slows and gives rough operations.
New dimensionless cop two pilots wondering motion and can be integrated with our floor scale on software.
Another example of within core industrial is our recent launch Opex technology platform for the industrial Internet of things.
As part of the industrial Internet of things condition monitoring and production data collection.
Collected from devices can be useful predictive maintenance and machine learning to improve equipment uptime on product quality.
Our new device provides a seamless exchange of non time critical base up between our waiting solutions and the customers cloud ERP systems.
It can connect in both new scales of existing skill, enabling due to upgrade of installed base to more them technology on these particularly targeted for customers in chemical food pharma and logistics.
These are just two examples of our technology leadership within core industrial.
Within our lab business. We also benefited from diversity in our end markets and our product range.
I Am example is our process analytics business in which we are a global leader in real time measurement of key process control panel meters.
Process analytics is benefiting from strengthen bioproduction with ph of dissolved oxygen or critical parameters to control processes in bio reactors.
In pharmaceutical manufacturing there are three permit was that requires only throwing in ultrapure water system conductivity TLC and offer.
We are the one thing suppliers of can provide a portfolio of solutions for online measurement for these three power meters.
Beyond Biopharma.
Also extended our liquid closest analytics offering into the gap analytics market with a unique all point of falloff and easy to use instruments.
Well using concerns for safety and environmental compliance in the chemical end market is also driving growth.
Although the came to build market.
Is more challenged this year, we're still seeing good demand for our products.
Process analytics is just one example of the breadth of our product offering and diversity of our end markets.
That concludes our prepared comments the current environment continues to be the most challenging we have been able to quickly and adjust operating model, including changes necessary in our go to market approach. The numerous adjustments, we made to our supply chain on manufacturing and the.
Temporary actions, we took to our cost structure.
While much uncertainty still exists in our markets and we remain confident we took continued to gain share during these challenging times, but as we will be well positioned for growth as the recovery gets underway.
Now I want to ask the operator to open the lines for questions.
As a reminder to ask a question enterprise timeline on your telecom to withdraw your question. Please press the pound key.
Please standby will be compared to Q enable us to.
And our first question comes on Picor Peterson booking level you May proceed.
Let me I'm wondering if you could break out how much of the beat this quarter came from end market resiliency versus redirection of commercial focus to specific areas and then I guess going forward and curious about the sustainability of the trends. We've seen you research funding have some negative headlines around some of the cuts there China has got flooding right now.
I'm curious.
Headwinds you could talk to the back half of the year as well.
Yes.
Hey, let me first question very difficult to break that out I think.
Both please.
Well I think the key part was not very early on in the crisis. We did our heat maps, we did see mob on all the different industry segments that we are serving and then we even when on account level.
Using these analyses allows US then to guide our sales force to the most attractive accounts backslash fitness segment and in that sense.
We are in.
In good position that.
Being sold diversified Dale where absolutely an off accounts.
The industry segments that are really resilient.
Yes, that's a fact mettler Toledo is in particularly exposed to the bio pharma.
Packaged food.
Testing labs on chemical on these have certainly.
Being the most resilient one you might wonder about chemical.
Capital as a whole overall category challenged but then within capital you still have attractive sub segments and account and that was the benefits of the be analysis, and then leading the salesforce to go through this right opportunity so even within Q.
Michael.
We could spend quite a few attractive growth segments.
Regarding the second question sustainability.
Hey, I think the environment remains challenging.
We are you certainly also see that's in here in Q3, we going to experience Colby challenges as well as economic challenges, but I trust that our programs that we put in place we'll continue to yield good results.
Certainly feel that we are gaining share here.
Any in a strong away than usual.
We will also play here in Q3, even that challenges remain.
And no particular concerned about what you just raised flight European funding topics also.
And then on margin nice job with with the cost controls and new product pricing proactively can you maybe just talk a little bit about the pricing impact on gross margins and and the pricing strategy in this current environment.
Yes, Hey, Tyco. This is Sean yes. So we were very pleased with our execution on pricing. We really spent a lot of time with the organization to us to stay disciplined in this environment, we talked about that a little bit on I think on our last call as well overall, our price realization for the quarter was about 2%.
Which is a similar number to what we experienced.
In Q1, maybe maybe a notch better.
Impact on margins was probably about 90 90 basis points.
But maybe if I stay on margins for a second and then go back to pricing. Our margins also benefited from good benefits from our Sterndrive program as well as some of the temporary cost savings initiatives that weve.
I've been talking about in and those benefits were able to.
To offset the decline in the volume as well as some higher cost that we saw in terms of freight as we look at pricing for the rest of the year, we feel very good about again the execution in the momentum in the program.
The environment I think is going to be more challenging as we kind of proceed in a lower inflationary environment, but I would say, we still feel very strong about the activities around the program. We still feel like we have a great foundation with pricing as you know with lower price points selling directly to end users.
And we have a wonderful culture around it in the organization.
Thanks, and then just one last clarification you on core industrial can you break out how much of that is actually bioprocessing biopharma at this point any notable vaccine therapy tailwinds from from any of the covered work for you guys at this point.
Yes, I'd say, that's a bit from wanting to quantify.
Isolating microprocessor tier four core industrial.
We have some business in core industrial bioprocess, but I don't want to overstate that.
Good lab business certainly is more.
Exposed to bioprocess core industrial.
It would be too early to say that we already had some benefit on the production side.
Obviously, there are certain companies and are investing in expanding.
Bioprocessing a capacity.
I would say that has already been a healthy market for quite a while on.
We are benefiting but it's not big enough to call out.
Okay. Thank you very much.
And our next question comes from Derek and Brown with Bank of America. You May proceed.
Microscan on under assigned Thats, taking the question.
A couple of quick ones first could you comment a little more detail on the pace of recovery from Twoq to Threeq you.
Yes, some interesting color on what's going on in Europe, and and the you asked by end market I'm. Just wondering are there any areas that you see sort of recovering back to prior run way faster than others versus simply haven't bottleneck.
So curious for into Q, some that China strength.
You charge you touched on pent up demand that you some building over the course, the first quarter, how much of that plus eight do you think could've been.
The spillover from one Q versus when you think it's sort of underlying China results in the second quarter.
Yes, So let me take the first one of them Sean maybe the second one so.
On the floor Swann.
Indeed, there are differences by industry segment.
And do regional differences.
Axess they are little bit related to the timing of the long pounds.
But when I'm thinking about do recovering patterns is more about industry segments. So.
What we are seeing double opt business Bob.
He is.
As I had the biggest impact because you have a lot of lots that were closed people working from home and not having.
Do you need for new instruments.
On making decisions on this one so.
For this you we haven't decline and then when the lapse, we open we see a pent up demand.
When it's about industrial applications, we have a different dynamic.
Our customers typically has not closed down the operations, but they are very careful about not disrupting their production to say then on wants to have.
Great so for equipment, unless if necessary and so on buff business.
Has been ongoing.
We certainly have ongoing projects.
Accordingly for industrial applications.
I expect less decline, but also not much off a pent up.
As for lob environments sharper declines with some pent up.
And where you would see most extreme.
I want to cautious it's not such a big market for us is academia.
Our Canadian activity is very much down.
I see that we have much less visits actually a significant decline of sales visit to a kid email we have less leads generation.
Unless quoting opportunity, but I would expect that this will recover.
So, but thats most extreme on the other hands you have for example, pharma production, where things were going quite normal on.
Even project activities for the future still look very healthy.
Yes, Hey, Mike So it's only one.
Yeah in terms of the second part of your question, Yes, I think it's a fair comment it's hard to obviously always quantify these things, but if we look at China. They had a much more six severe decline in the first quarter given the nature of their locked down. So in Q1 as a reminder, they were down 13% in here in Q2, we.
We had 8% growth, we particularly felt like.
Our industrial business there benefited from some of that pent up demand in China. If you kind of like looked at the different pieces of the business in China in Q2.
Our laboratory business was up high single digit while our industrial business was up low low double digit.
Okay, great and to ask a quick one on the on the personnel then.
Some of your comments about three Q. I think you sort of 4% to 5% decline in opex year over year, there's about an 8% in second quarter some of those cost initiatives you've taken.
Hello temporary are there and is there.
This causes are permanently cut out another comes back.
Tied to travel things about how much of it needs to be caught up later either in Fourq you on 2021.
Yeah no.
As we said before and it's consistent to how we see it right now most of the actions are temporary in nature.
We are continuing to assess the environment and adapt our plans. Accordingly, I think we were very proud of the organization and the agility and the organization.
Of course as we proceed throughout the.
The situation I'm sure, we'll have some learnings and identify.
Savings as we normally would do.
That will consider as we go into next year, but it but at this point kind of too early to kind of comment on anything.
For for next year for Q4, I think that the key is that we stay agile and we continue to monitor things and adapt accordingly.
Okay. Thanks.
And our next question comes home grown areas. It's still Paul you May proceed.
Hey, great. Thanks for the question. This is Dan basic on for Dan Arias.
Just thinking about coming out of Kobin in China are you seeing share gains or do you see the potential for share gains as some of those smaller players can be shaken out there.
So in general.
Yes, yes, we.
We are convinced that we are winning share no question.
The one hesitation when you use the word shakeout.
We have hardly see exits in our industry.
This you know our competitors all benefit also former certain installed base.
And in China.
There are a lot of competitors, but there are smaller competitors.
Operating more on a regional levels.
And they need.
They don't compete industry more quality on price range. So.
[music].
Therefore, when I talk about share gain I really mean, mostly to be go global maybe regional players. The the small Chinese companies that you are referring to that might be shakes out.
Has not been really.
Key competitors.
On Sunday, I don't think will change too much into future.
But I want to reinforce that this environment.
Gives us the opportunity to really winning share to battle superior execution I think all this go to market.
Change program. So we haven't played have been very beneficial and not center at below our numbers that we reported exceed the market growth.
Okay. Thanks.
And then recognizing it's obviously very fluid environment I believe in the second quarter I'm sorry, the first quarter commentary you saw maybe Europe would be a little worse on Americas. It's just turned out to kind of really upset but is there anything more you can provide there or maybe we should know in terms of what was different from expectations maybe effects.
The outlook going forward.
Yeah.
I think the European.
Should play she.
Got it for US also better because the Lockdowns were released earlier than we expected.
In general the do call read health crisis in Europe develop more favorable than we thought.
And then what's what's also.
Product inspection in Europe did better than expected.
And in the us.
Retail business did a little worse than expected so.
We have here maybe.
The global or the overall environment that played a role and then business lines specific.
Things that impacted us.
Thanks appreciate it.
And our next question comes from VJ Kumar with Evercore ISI.
Procedure.
Thanks for taking my question and maybe.
The first one I believe there for you.
You made some interesting comments about coming out of this covert you're really about physician per share gains.
Curious.
Has that changed how we go to the customers, how you'll reach out to them.
And wondering if it has any margin implications when they looked at where the medium term. So I'm looking at the guidance here.
It's still suggest that margins are going to be down this year I'm doing my math right. So.
Maybe just address on on that coming out of Kovac from a margin perspective, if anything's changed for you guys.
Yes, so I got to have shown to comment specifically to the margin evolution also going forward.
Just a quick comment just go to market.
Change that we do.
Hi, Yes, absolutely an operating cost benefit at this stage of course travel and expenses is very significantly down.
We have a certain productivity gain.
Because we can operate here without traveling.
However.
This is not something that will stay in that way when it comes to operating expenses, we certainly to go back.
In.
The.
Well operating mode, where we want to see our customers were traveling will play an important role, but they're all going to be a lot of change management that we implemented here in Q2 that we going to keep and this is not keeps about remote selling its all about the salesforce guiding stoppage and the whole.
Prices have helped us to access Android money spinoff group practices and innovative new things.
And introducing new sales tools that we will maintain.
I will be very powerful for us to drive organic growth funds drive share gains, but I would not take them as important driver for margin expansion I see it much more as driver for share gains to margin improvements carmax.
From all the auto programs like Sterndrive pricing.
Material cost savings and Swan Valley, maybe back to Sean to comment quickly about the margin expansions you.
Yes, so a BJ just to clarify.
For the for the full year, we would expect our operating margin to be up about 20 basis points and this is the midpoint of our guidance by the way.
But the midpoint of our guidance would be our operating margin will be up 20% 20 basis points for the full year and then if we look specifically at Q3, we'd be up about 40 basis points and one thing I think you're going to see in the second half of the year versus Q2 is that as I mentioned before some of these temporary cost.
Reduction initiatives, we're going to slowly start to the pull back on some of those initiatives during the second half of the year.
That's extremely helpful is done and just that one that clarification that did I hear you guys on a.
700 million towards share repurchases.
I'm looking at the guidance EPS at the high end.
The Q comes in at the high in the implied.
Yes, Bill succeeds University Nucor.
Yes, all of the share repurchase being done and CQ, maybe just to clarify the share repo comments.
No no no I'm happy to clarify so as a reminder to the 700 would be for the full year. As a reminder, we did 200 and Q1.
We expect to do about 200 in Q3, and then the remainder would be in Q4.
Gotcha, Thanks, guys.
Thanks.
And our next question comes from Dan Leonard with Wells Fargo.
Christine.
Yeah.
We have your line on incentive for them to line.
Oh, I apologies I'm here now.
So for starters could could you. Please elaborate on trends you're seeing in packaged food and food retail industries. Olivier I know you mentioned site access and customer priorities are still in issue, but but it seems like your customers fortunes have improved as people are cooking from home. There. The earnings are your customers have been pretty good this week anyway.
Any comments on whether this is showing up in in your funnel or future demand forecasts.
Yeah, I mean, we remain actually.
Very positive about the product inspection business.
To highlight it's an end user industry that did well in this call we'd crisis.
We have really great value propositions, and we really see that as an attractive end user markets.
In the short term, it's going to remain challenging.
It is really that all this.
Crude companies have different although priorities there number one priority is really to keep production.
And there were reluctant to less I mean people in their plans.
Their engineers are.
Actually working on on other topics, mainly we need to kept to keep the operations up and running I see you on fee that less than right.
In particular true in America, I think in Europe. The situation is a little bit better one as well as in Asia, but.
It's going to take still here a couple of months before the situation will improve.
But I'm.
I'm confident we're here for the mid term.
When it comes to food retail, that's a little bit more complex one in the sense that we in food retail we depend on beat projects, sometimes also tenders.
We did already.
No early into you even before coverage that we gonna have here some challenging quarters.
Clearly also talked about that in previous calls.
And of course, the Colby situation Didnt help here in the sense that.
We provide to your equipment for a four stores.
Stores here customers again don't want us to customers don't want to make any changes in store service by growing stage and.
On a certain reluctance to make investments because a lot of the retail business is also moving to online.
But we do expect that the second part of the year will be better than the first part on that's consistent also with what we have guided here early in the year.
Okay. That's helpful color and then Olivier as a follow up I think you made a comment in your prepared remarks about about not having the same quote pipeline entering Q3 as you did entering Q2 did I hear that correctly and if so can can you elaborate on the significance of that is that a function of.
Challenges to build a quote on all went when folks are working from home staying at home and any color you could offer on that.
Yes.
So.
Indeed.
The home office of our.
Our decision makers at customers.
Our relevant in that but it's also that fewer new project or initiated maybe also fewer new expansions.
Capex investment since one.
So we believe anticipate that and you can imagine leads generation for example.
And quote request.
Well certainly challenge to you in Q2.
Where at the lower level than we would usually have put them all I will only activities and tactics here did offset the good part of that and so.
That gives us the confidence that the guidance that we have here in Q3 that things will be.
Be modestly better year down Q2.
It is actually well founded even that we have this challenge that the pipeline is different than when we entered Q2.
Okay. Appreciate the thoughts thank you.
And our next question comes and full of call.
With Wolfe research.
Christine.
Hi, good afternoon, and thanks for a for the time here.
I wanted to ask a couple of.
Maybe bigger picture question as you're out your your customer base has been parsed.
Pretty finally here.
The first one I wanted to ask for Olivia is if I think back historically about there what has made mettler such a good grower really across the board your proficiency in terms of identifying opportunities and be really nimble in terms of how to direct salesforce has been such a big part of that and you.
You referenced that a couple times here on the call that you're doing that little more acutely in or more adaptive way given that the environment has evolved so fast I wonder if you could maybe put a different lens on it and say okay. We may have learned a few things in the last few months, which have been so tough for everyone about how to do that about how to do what we do.
I have a hunch that you you have some new ideas and you're thinking in new ways about how to leverage your phenomenal CRM and data capabilities not just right now and in this environment, but into the future I Wonder if you could speak to that and then have a follow up.
Yes, yes, yes, hey, I would frame it that way.
We we all recognize today even more.
How powerful it is what we have here how powerful.
Over.
Data Q SAR does we built based on internal data CRM data, but very much also based on external data.
This data acute that we use for data and analytics.
It is so powerful back.
We could do for example, this industry segment heat maps this.
Is the heat maps, we did.
Basically XL wells with different data points that we took from banks from statistics from whatever and then we did overlay this heat maps.
Overall with data cubes, and then could really generate some some great salesforce guidance information so the the.
Technology that they saw has been around.
But we could apply it in an extremely fast way and of course, when you on a crisis mode.
The openness of of your management team and the sales force around the world.
This is a totally different one so I would phrase it that way the crisis allowed us to accentuate change management.
Like we would have never expected before it accentuated in that sense the power of the tools that we have.
And the beauty was that you certainly have a salesforce that has more capacity not just because you have less customer list demand leave but because they didn't have to travel and so.
They are open to past few things they see the success.
Yes of course, we enforcing so yes, we are extremely excited when we look forward.
Using all the tools no question.
Okay much appreciated I I loved it almost as much as you do I think.
[laughter].
The other thing that I wanted to ask about it's actually a reference back to a comment that you made on the one Q call, which was really interesting you were one of the the early observers to say look this is going to be an enormous disruption, but at some point out in the future there's going to be a lot of pent up demand and let's think about.
This is that a disruption maybe or borrow the Ben Bernanke, you referenced and say, it's it's sort of like a hurricane and away right its sweeps through and and a lot happens, but you come out the other side I wonder how you're thinking is evolving on the pent up demand concept not necessarily for Threeq. You. This is really not a 2020 question.
And at all but if you think about whether there might be pent up demand in 21 or even beyond what do you think that's most likely to emerge and what have you learned about that over the last few months and on I'll jump back in queue. Thank you.
Yes.
Dan where I want to people that were.
More aggressive in the sense they saw reshape and the V shape was certainly hinting to be pent up I think we were definitely more cautious on that even talking about the a U shaped recovery, but one that will offer pent up demand.
In different application industry sectors and fall.
And we have definitely experience that I think China is a big with example in China, we have experienced all righty. Good pent up demand here in Q2, I think for Europe and America.
It's not going to happen in the same way as in China.
But there are certain.
Applications backslash industry segments, where I think we will have similar effects like for example, when certain labs will we open we will see that.
It will.
Stepped up their ordering orders. They are simply also areas like we talked about product inspection and so on where things on hold and then we'll come back the the good thing about this I do not expect that it would happen all at the same time in all industry and regions to say.
Same time, and so it's going to be spread here.
Across to the next couple of quarters and ask you hinted into 2021 I do not expect that this phase of this whole pent up demand will be a Q4 topic at all so it will be gradual.
But let's also keep in mind.
They did an offsetting to this and this is the global recession.
There is a recession out there and we are not immune to that and so even that.
We have easier comparisons maybe next year and we have pent up demand we face also a recession.
So it's very much also going to be about us.
Executing very well to tap in to growth opportunities where they all.
Really appreciate that always helpful perspective over there.
Thanks.
And our next question comes have Patrick finally with Citi.
Christine.
Okay, maybe just on China, you know you guys put a pretty strong results there than a lot of mixed data points across the industry. Your business seems to be performing a little bit better than peers can you just dive into whats leading the recovery there and then let me just more specifically in terms of end market trends I saw performance across different industrial customers.
Academic side and Biopharma.
Right.
I want to start.
Our team in China that just a fantastic job.
I really well for think they executed extremely well.
We were one of the first.
The company.
Factory that was back.
Life.
We had they not sense, an excellent context to serve our customer actually really very very well I had also our market organization in China that even throughout the lock out.
Lockdown was reaching out to customers.
I'm not just in the sales mode, but also kind of be in front of them to making sure that we are available that we are helping and then when the locked down was was relieved door people could really get back to two work huge.
Afterwards to really get our revenue back on track.
And I would Chinese team did also execute all these go to market initiatives that I talked about.
This played particular well into China because.
You had a situation where to a bit where an off customers spend when I went back to investment mode.
The liquidity in the Chinese market is good for state owned companies and medium to large companies.
What.
My understanding is that the smaller companies. However, still have a difficult time, but we saw nos. Our most important customers. So.
I would say I actually a good.
Market environment for us with excellent execution.
Good market environment, because you have.
Particular, the bio pharma the testing labs.
The partially also chemical.
That that are doing well.
This is.
Actually I would say throughout Asia, we see.
Quite good economics, but then in China in particular.
Okay, Great and then maybe just one on the cash flow nice performance there. It sounds like Capex came down a little bit does that more on the timing side or is a concerted effort to pull back and then just how should we be thinking about that side.
Second half the year.
Yeah. So in terms of cash flow Hey, we're very pleased of course with the with the results in the quarter in terms of cash flow I mean, I'm sorry in terms of Capex I mean in some of that was was timing. If you look at Q2 of last year was a.
They have a higher number we had some facility spend topics going on there a year ago, but but otherwise hey, we're being disciplined of course with how we're managing the cash flow, but I, but you know in terms of like the project activity and things that investing in the business were still in that.
Thing and doing the right things for the long term health of the franchise.
Okay. Thanks, guys.
And our next question comes from Steve Willoughby with Cleveland Research.
So you May proceed.
Hi, good evening, Thanks for taking my question.
Two things for yet one I guess first if you could just comment on your performance and your outlook within your pipette business.
And then second last quarter I know Olivia just gave some good color as it relates to China, but last quarter you were talking about how you thought you could potentially see some stimulus in China.
The pay on on Pipettes.
They are initially the pipette business was quite impacted by laugh closures.
That was a bit of a challenge, but then in the same time.
The of course, there is more research activities also rounds Colgate that this then beneficial.
At the beginning of two corridor.
There was also some supply chain topics for some of the competitors that we didn't experience.
We benefited so and interesting dynamic throughout the quarter.
But then certainly happy how they performed in the into full quarter.
And then just quickly on the stimulus.
Yes stimulus is we see it in China.
There are a different sub sectors that benefit from.
Particularly in the area of public health Farmar CDC testing labs.
There is also saw modest stimulus money that would go to five clean energy and power segment.
Where we benefit a bit but I would say less sold on everything that goes to public health. However, I don't want to overstate here.
In the impact I would say in Q2 that wasn't a particular significant.
But we should see some benefits here in the second half.
Thanks very much.
Yes.
And operator are there any final question.
And our next question comes from Dan Finance, Yes, you May proceed.
Thank you very much last but not least hopefully congrats on a on the quarter everyone. So our maybe first question would just be Olivier.
It's just come off you know historic lows and they had a steeper sent here and I'm just wondering the second half guide no longer imply that maybe a gradual a sand, but I'm. Just wondering is there any reason why we shouldn't see typical snap back in demand for mettler come a few quarters. After the PMI recovery, saying as we look in early 21.
I would be very cautious with assumptions first PMI is is one indicator, but it's not really the best one there's not a super good correlation here.
And there was definitely so money although effect.
Look I I made the statement before I feel very strong about our execution I feel stronger we can win market share.
But I still believe that.
There is a recession here.
We'll also impact us.
In that sense next year will continue to be challenging for us, but there is some positives that will help us comparisons will be easier pent up demand, we will see some of it. But then offsetting is is a recession that will go on.
I see.
At this stage I'm reasonably confident about Asia, Europe, and the managed costs will continue have have a difficult economic environment.
And then let me.
You know all the because it's a good better than a you know weird forecasted you know lab down for probably part of our double digit decline. Just wondering liquid then lab could you just speak just from a different customer groups because I know, it's not a it's some of the heterogeneous customer, but let me give us a little color like what happened within your lab business across your key customers.
Maybe you know how to send it to the quarter and kind of what's expected in lab going forward in the back half. Thank you.
Yes so.
Maybe not surprising the the customer groups that.
Lots that were closed.
Was more the most challenging ones for us.
The more resilient pieces, where where the quality lab testing labs.
Bad, but continue to do well and then for example in Biopharma you can imagine that there is a lot of our lab equipment also used in production area off or in Q Sielaff dot.
Was actually a favorable environment.
And then.
We have businesses in life Science study hinted before for them for the pipette business did well and then last but not least a process analytics did.
Particular also well post its analytics is more exposed to biopharma.
And that has been an attractive segment to be.
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Great. Thanks Wendy.
This concludes that you any question on today's conference and then like a trying to call back over to your house for any closing remarks.
Hey, Thank you and thanks, everyone for joining us this evening as always if you have any questions or follow up please don't hesitate to reach out take care everyone Bye bye.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great. Okay.
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