Q4 2020 Mettler-Toledo International Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the quarterly earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference.
<unk> is being recorded and if you should require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker for today Ms. Mary Finnegan. Thank you Ma'am. Please go ahead.
Thanks, Katherine and good evening, everyone I'm, Mary and again I'm responsible for Investor Relations of Mettler, Toledo, and happy that you're joining us Tonight.
I'm joined on the call today with the Olivier <unk>, our CEO and Shawn the della our Chief Financial Officer, Let me cover just a couple of administrative matters. This call is being webcast and is available for replay on our website.
Copy of the press release from the presentation that we referred to on today's call is also available on our website let.
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 statements within the meaning of the U S. Securities Act of $19 33 in the U S Securities Exchange Act of $19 34 of these statements involve risks uncertainties and other factors that may cause our actual result.
Levels of activity performance or achievements to be materially different from those expressed or implied by any forward looking statements for a discussion of these risks and uncertainties. Please see our most recent form 10-K and other reports filed with the SEC from time to time all four.
<unk> looking statements are qualified in their entirety by reference to the factors discussed under the caption factors affecting our future operating results and in the business and management discussion and analysis of financial condition and results of operations sections of our filings.
One other item on 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 and the most directly comparable GAAP measure is provided in our form 8-K, I will now turn the call over to Olivier.
Thank you Mary and good evening, everyone on the calling in from Switzerland Tonight Wells fall in many of our in Columbus, Ohio.
Patrick Coffey from Barclays All for joining the call with me from Switzerland.
Sorry.
On the board.
And I have had very productive onboarding sessions over the last few weeks of him.
Most recently has begun to meet with the senior leadership team, who is very happy to welcome him.
Eric.
The only for you as I know you want to make a few comments.
Thanks, Olivier and good evening everyone.
Really happy to join this call Tonight, and more importantly to be part of Mettler Toledo.
I'll spend my time, so far of working with Olivier meeting senior leaders virtually throughout the world and studying thorough strategy document comprehensive materials of spinnaker approaches and detailed R&D and still on July of priorities.
I am truly impressed with the depth and sophistication of the strategy initiatives and programs that are in place.
Fantastic Foundation has been built and I am committed to the organic growth strategy and look forward to leading the team to further enhance of our performance and continue the successful journey.
One of the onshore the lead this call today.
I look forward to avoid the actions on the next call and in the future.
Before I hand, it back I want to make a personal thank you to all of you.
For the excellent onboarding process for handling of handing over to me such a unique franchise.
On the dual leadership you have developed mettler Toledo into a true with a tremendous track record and future potential I am very pleased to note that you will continue to be part of the company.
I will turn it back to EBITDA.
Thank you Patrick for this very kind words from my side, we are off to a great start and I look forward to our continuous teamwork.
I will start with the summary of the quarter and then Shawn will provide details on our financials.
I will then have some additional comments and we will.
I'll open the line for Q&A.
The highlights for the quarter on page three of the presentation.
We ended the year with a very strong fourth quarter of which came in better than we expected local currency sales increased 7% in the quarter of growth was relatively broad based throughout the world.
Our laboratory business in our Chinese business did particularly well in the quarter, we benefited from strong execution and we are well positioned to capture growth as customer demand improved. However, we continued to be negatively impacted by COVID-19 in certain areas.
From the onset of the global pandemic, our focus has been to identify and pursue pockets of growth within our end markets and to be well positioned to capture growth as demand the pools, which which is what we saw in Q4.
The innovative go to market approach really plays very well into this environment.
The allowed us to capture this growth.
Good cost control and the continued benefit of our margin and productivity initiatives contributed to strong growth in adjusted operating profit and very strong growth in adjusted EPS in the quarter.
Finally cash flow from the other one in the quarter of but also for the full year was excellent.
2020 was an extraordinary year with some of the most challenging market conditions, we have faced in more than a decade.
Our organizational agility helped us to quickly adopt approaches and processes to the new environment.
Our broad end market diversification of the use of sophisticated data analytics allowed us to shift our sales and marketing focus to the more.
Most promising end markets early on.
It also helps to ensure we were well positioned to capture growth as demand improved during the latter part of the year.
We adapted our supply chain of service organization to maintain superior performance the strength of our franchise and the introduced many new digital sales and support tools to provide top quality customer interactions.
Spike due in most settings of our customers and sales team.
Throughout 2020, we increased our customer engagement and customer satisfaction, which translated into accelerated market share gains in many product categories.
With the strong end to 2020, we have very good momentum as we start 2021 and believe we are well positioned to continue to gain share of deliver good results.
We will have some additional comments of 2021, but first let me turn it to Shawn to cover the financial results.
Thanks, Olivier and Hello, everyone sales were $938 million in the quarter, an increase of 7% in local currency.
On the U S dollar basis sales increased 11% as currency benefit benefited sales by 4% in the quarter.
On slide number four we show sales growth by region local currency sales increased 8% in the Americas, 7% in Europe, and 8% in Asia rest of the world local currency sales increased 12% in China in the quarter.
The next slide sales sales growth by region for the full year 2020.
Local currency sales increased 2% of the Americas, 1% in Europe, and 3% in Asia rest of the World China local currency sales grew 7% in 2020.
On slide number six we outlined local currency sales growth by product area for the fourth quarter Laboratory sales increased 12% industrial increased 1% with core industrial up 5% and product inspection down 5% food.
Food retail increased 7% in the quarter.
We estimate that we benefited 1% to 2% from Covid tailwind in the quarter related to our pipette business for Covid testing.
The next slide shows sales growth by product area for the full year laboratory sales increased 5% industrial declined 1% with core industrial up 2% and product inspection down 7% food.
Food retail declined 4% in 2020.
Let me now move to the rest of the P&L for the fourth quarter, which is summarized on the next slide.
Gross margin in the quarter was 59, 6% of 60 basis point increase over the prior year level of 59.0%.
Our margin initiatives centered on pricing and stern drive as well as temporary cost savings contributed to the margin growth offset in part by higher transportation costs and unfavorable business mix.
R&D amounted to $39 $9 million, which.
Results of 6% increase in local currency.
SG&A amounted to $226 4 million.
The 5% increase in local currency over the previous year.
Increased variable compensation was offset in part by our temporary cost savings and ongoing cost containment initiatives.
Adjusted operating profit amounted to $292 8 million in the quarter, which is of 14% increase over the prior year amount of $256 $3 million.
Operating margins increased 80 basis points in the quarter to 31, 2%.
We're very pleased with this margin growth.
Currency benefited operating profit growth by approximately 2%, but actually hurt operating margin expansion by about 50 basis points.
A couple of final comments on the P&L amortization.
The amortization amounted to $14 7 million in the quarter interest expense was $9 5 million in the quarter and other income amounted to $3 $7 million.
We reduced our effective tax rate for the full year from 25% to 19, 5%.
This is the rate before discrete items and adjusting for the timing of stock option exercises in the quarter.
We're very pleased with this reduction and expect to maintain this rate in 2021.
Moving to fully diluted shares which amounted to $24 million in the quarter and as the 3% decline from the prior year.
Adjusted EPS for the quarter was $9 26.
And 19% increase over the prior year amount of $7 78.
Currency benefited adjusted EPS by approximately 2% in the quarter.
On a reported basis in the quarter EPS was $9 <unk>.
As compared to $7 84 in the prior year reported.
The reported EPS in the quarter includes 12 cents of.
Purchased intangible amortization and <unk> 11 of restructuring.
We also had two offsetting items for income taxes we.
We had the 20 <unk> increased due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. This was offset by of 'twenty benefit from adjusting our tax rate to 19, 5% for the first three quarters.
The next slide shows our full year results local currency sales increased 2% in 2020, while adjusted operating income increased 8% and adjusting the operating margins were up 130 basis points.
Adjusted EPS amounted to $25 72 and.
An increase of 13% over the prior year amount of $22 77.
Currency was neutral to the full year adjusted EPS.
Given the unprecedented challenges we faced in 2020, we're very pleased with our performance and believes it reflects the agility and a strong culture of our organization the effectiveness of our growth and margin expansion initiatives and the resiliency of our end markets.
That is it for the P&L now, let me cover the cash flow and.
In the quarter adjusted free cash flow amounted to $218 million, which is an increase of 20% on a per share basis as compared to the prior year.
We're very happy with our cash flow generation.
DSO declined approximately three five days in the quarter to $36 five days as compared to the prior year.
We are seeing concrete results from the use of analytics and productivity improvements in receivable collections and cash flow management during this period.
<unk> came in at four three times.
For the full year 2020, adjusted free cash flow was $648 million as compared to the prior year amount of $531 million.
On a per share basis. This is of 26% increase.
The earnings flow through of more than 100%.
We're very pleased with this performance, which demonstrates the strength of our franchise as well as our focus on continuous process improvements to drive cash flow generation.
Let me now turn to guidance.
Forecasting continues to be challenging given the uncertainty surrounding COVID-19, and the ultimate impact to the global economy.
Market dynamics of fluid and changes in customer demand can happen quickly.
With our strong fourth quarter performance, we continue to feel confident about those factors within our control, namely executing on our sales and marketing initiatives and continuing to launch new products with clear value added benefits to our customers.
We believe we have been successful in identifying and capitalizing on pockets of growth and are well positioned to continue to gain share.
We also continue to feel positive in our ability to generate margin improvement by our pricing and stern drive initiatives.
Now let me cover the specifics.
For the full year 2021, we now expect local currency sales growth will be in the range of 5% to 7% as compared to 2020, we.
We expect full year adjusted EPS will be in the range of $29 20.
To $29 80.
Which is the growth rate of 14% to 16% this.
This compares to previous adjusted EPS guidance in the range of $27 50.
The $28 30.
With respect to the first quarter, we would expect local currency sales growth to be in the range of 11% to 13% and expected adjusted EPS to be in the range of $5 55.
The $5 70.
Our growth rate of 39% to 43%.
Some further comments on 2021 guidance.
Let me start with the pacing of the year, we expect the first half of the year will be much stronger than the second half, we're starting the year with excellent momentum coming off of strong Q4. The first half of the year will also benefit from easier comparisons and the continued COVID-19 tailwind in our pipette business.
As we look to the second half, we will face more difficult comparisons, particularly with respect to our business in China.
Our Covid tailwind will also turned to a headwind as we lap comparisons.
We also feel more uncertainty exists for the second half of the year, especially with respect to COVID-19 potential impacts of the global economy.
We recognize that we're currently benefiting from strong momentum, which will not necessarily continue.
We will provide additional quarterly guidance or guidance on our next call, but I thought it would be helpful to provide this context now.
Some additional comments on guidance, we expect interest expense to be approximately $40 million from 2021, and total amortization to be approximately $55 million.
Other income which is below operating profit.
We will be approximately $9 million from 2021.
As I mentioned earlier, we would expect our effective tax rate in 2021 to also remain at 19, 5%.
In terms of free cash flow for the year, we expect it to be approximately $690 million we.
We will continue to repurchase shares and expect to end 2021 and of targeted range of approximately of one five times leverage ratio.
Some additional details with respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately three 5% in 2021 and 5% in the first quarter.
In terms of adjusted EPS currency will benefit growth by approximately 3% in 2021 that.
That is it from my side and I'll now turn it back to Olivier.
Thank you Shawn let me start with some comments on our operating results. Our lab business has exceptional growth in the quarter hybrid type of excellent growth and benefited from Covid related testing demand process analytics had another quarter of strong growth while the <unk>.
Monolithically instrument the balances we covered nicely in the quarter share.
Sales growth in all regions was very strong we expect lots of continued to be very strong in the first half of 'twenty 'twenty, one due to favorable biopharma.
Vaccine research and testing of the bio production scale up of production.
Rob will face tougher comparisons in the second half of the year.
Excellent.
The portfolio, including our power of the bench solutions focused on automation and digital interfaces.
The data management.
True.
The.
The sales and marketing strategies, we believe we are well positioned to continue to capture share.
In terms of industrial business of core industrial did well in the quarter with the 5% increase driven by double digit growth in China.
Returns to growth in core industrial in Europe, while the Americas was flat, although they have very good growth in the prior year.
We are particularly pleased at how resilient our core industrial has proven the throughout 2020, given the challenges of the pandemic. We believe this reflects the strength and diversity of our product portfolio, our success in identifying and pursuing pockets of growth of.
Strong focus on execution.
I'll talk for core industrial remains solid, but the we acknowledge we are not immune to the overall economy, and we will face difficult comparisons of China during the second half of the year.
Product inspection came in weaker than we had anticipated with of 5% decline in the quarter, both Europe and Asia declined while the Americas was flat with the prior year.
While our outlook has improved for the business and we expect to start 2021 with solid growth. We are cautious as large packaged food companies continue to face operational challenges at the manufacturing side related to Covid, we believe pent up demand exists for our instruments, but the ultimate timing it Phil.
Hard to determine.
For the retail and came in better than we expected with 7% growth overall and growth in all of the way you just.
Now, let me make some additional comments by geography.
Sales in Europe increased 7% in the quarter with excellent growth in lab and good growth in core industrial and food retail.
We expect solid growth in Europe in 2021.
The Americas increased 8% of the quarter with excellent growth in lab offset by flat results in both product inspection.
Core industrial we expect good growth in the Americas in 2021.
Finally, Asia rest of the World grew 8% in the quarter with both lab and core industrial doing very well as mentioned, China half of 12% growth in the quarter with excellent growth across all of our clients, we expect market conditions in China to be very favorable as we start 2021, while the.
Face much tougher comparisons in the second half of the year.
One final comment of the business service and consumables were up 13% of the quarter of 8% for the full year.
That concludes my comments on the business.
As I reflect on 2020, I am very pleased with our performance given the exceptional challenges we faced the.
This performance would not have been possible without the strong foundation on the well ingrained corporate programs that we have in place, which allowed us to quickly pivot and adapt to the new environment.
We have always considered agility of focus on execution.
The key pillar of Mettler, Toledo, and I think you saw evidence of both of these.
Probably most important however, our success in 2020 sets the stage for us to continue to capture growth in 2021.
Bill.
Our strategy over many years has been remarkably consistent as the leader in fragmented markets. We have established strategies that allow us to gain a little market share each year, while continuously expanding our margin the <unk>.
Initiatives within the strategy will evolve and develop the strategies remain the same.
As we look to 2021, let me comment on how we're going about this.
I will start with our spinnaker sales and marketing initiatives as we discussed on our last call. We made some leapfrog advances in digital transformation during 2020 that positioned us very well for the future. We will continue to refine our sophisticated analytics to guide our sales force to the best.
We will continue to support our market organization with tools and methodologies to increase sales force time with the most strategic accounts, while leveraging our value selling and cross selling tools to further penetrate opportunities.
We'll also continue to leverage digitalization to develop new approaches to drive sales force efficiency.
Find techniques to improve the effectiveness of pellet sales teams, but also look forward to returning to visit the account to generate new opportunities. Finally, we look to execute more telemarketing campaign.
Tools to increase order conversions.
So we will continue to be essential element of our customer value proposition.
Well the most 3000 service technicians are an important competitive advantage for us this year, we will focus on further.
<unk> penetration and utilizing many of the same sales force guidance Tele sales of digital tools that we use for product sales to further drive service sales.
Yeah.
Our team in China did an exceptional job of 2020, not one of them continuing to serve customers and penetrate growth opportunities.
Just in terms of manufacturing and supply chain the <unk>.
Team's priority is to continue to optimize the organization to focus on high potential growth areas.
Attractive segment, and further leverage digital technology to engage customers and generate Lee Inc.
The introducing products for the local market, so China, such as an entry level ex one instrument for our product inspection portfolio is also an important element to growth in China.
Throughout the emerging markets, we remain very optimistic about the growth potential so the one the China, but throughout emerging markets over the medium term.
Constantly coming to market with new product launches is another important strategy.
Given the diversification of our product portfolio of new product launch will never be material by itself, but together. These launches of reinforces our market leadership helped trigger replacement of an existing customers help open doors to new customers and help support our price differentiation.
Later this month, we will launch the new automatic laboratory balance that will set the new standard for weighing of powders and liquids in the research lab.
Testing labs and port of.
Quality of short Rollouts.
Addressing the needs in the laboratory for automation smaller sample size of this flexibility ease of use and seamless documentation of this new balances offers an unmatched value proposition.
It is a simple fully integrated solution that will support our customers in the everyday operations. It is just one example of the many product launches we will have this year, but the illustrates how we are continually focused on bringing products to market the demonstrates clear value to our customers.
Similar to the continuous evolution of growth strategies. We also continued to develop our pricing and productivity initiatives, we have good growth.
Of course developments within pricing utilizing analytics, and so machine learning to most effectively price our offering.
On the supply chain side team was able to continue to make progress on the stern drive productivity goals in 2020, but we will be able to make.
Further progress in 2021, when the team won't have as many challenges as they face last year.
Finally, I think you will continue to see us market strategic acquisitions that leverage our technology leadership and global distribution.
I acknowledge that we have not had an acquisition for a while but of course.
The continued to be built.
We can't benefit from acquisition.
However, these acquisitions will be smaller and strategic not transformational.
I believe our franchise the stronger than ever as demonstrated in how we performed in 2020, despite all of the challenges.
As I look back over the last decade, plus year, we have made much progress in many areas.
Our continuous improvement programs of spin off.
Sales of marketing.
Non drive productivity, which I just discussed.
Great.
Throughout the organization.
And we'll continue to evolve and the important ingredients for the future.
The emerging markets, an important growth driver of our 35 35 percentage of sales today compared with 25% in 2007.
Similarly, our foster growing laboratory business is now 54% of sales up from 44% Finally service and consumable is now 33% of sales as compared to 28%.
We are directing resources on the investments to foster growing businesses has always been at the heart of our initiatives and these businesses will continue to fuel growth in the future.
The strength of the organization on how well we're positioned for the future contributed to my decision to step down as CEO.
On the Patrick's leadership I believe we have the organization corporate programs senior leadership team.
Tools in place to continue to gain share and continue our successful track record.
That concludes our prepared remarks, and now I want to open the line for questions.
Ladies and gentlemen, just as a reminder, if you'd like to ask a question. Please.
Then the number one on your telephone keypad once again, the net star and the number one.
Your first question comes from the line of Tycho Peterson with Jpmorgan.
Hey, Thanks, Olivier I know you have one more quarter. So we all congratulate you on the transmission just yet, but maybe thinking about the service and consumable numbers you highlighted sort of sales up 13% can you maybe just talk about the durability how much of that was picked up versus maybe some of the newer initiatives, especially on the service side.
Yes so.
The estimates.
The Covid tailwind.
Was about 1% to 2% for the group.
That was really related to the consumer business, mainly or almost exclusively around the pit.
That we produce.
In our raining the biotechs facility so that was.
Actually really strong, but then the.
The remainder of the service and consumables business.
Was.
Healthy.
The quite sustainable.
We I was actually pleased to see how we continue to perform service well even though.
Again.
More difficult of Lockdown situations particular also in Europe started to end of Q4 of Nevertheless, our service business could nicely holdup I would expect the same for this year. So I would almost day for our <unk>.
Service business.
We have.
Healthy environment.
<unk> continues to expect.
Similar growth as we had in the past.
Okay. That's helpful and then product inspection I know you've been talking about pent up demand with the CPG customers for a while obviously, we're not seeing it yet maybe talk a little bit about what youre hearing in that channel.
Yes.
Indeed.
Bill.
The C. Good demand for quotes.
We feel we have a very good market position, but we see the customers are just not committing to upgrades.
New packaging line from <unk>, which is not surprising all of these food companies really need to protect the protection.
The production from.
The coffee.
Exposures and you can imagine to have very weak.
The safety procedures, not wanting to lead in any external supplier.
That really drive.
The day ma'am.
I wouldn't be surprised that this takes in all of the six months.
There are many.
Production.
Companies here really.
Really hold back on Capex.
As a reminder, about more than 70% of our revenue in product inspection is coming from improved production. So.
Yes.
We count on the second half of that we would really see a strong pent up demand.
But I do expect that already in Q1, we will see better numbers, but not necessarily coming from pent up.
Okay, and then lastly on China last quarter, you talked about some pull forward you still had good growth, 12% overall industrial up double digits, maybe just talk a little bit about the sustainability and then if you could quantify what is baked into guidance for China growth. This year.
So let me take the first part of them.
Regarding the specific extent, Sean can add Inc.
Indeed, we are very happy about how Q4 came together at the Chinese team did perform really really well.
There is also a good market for us.
We see.
That's the Chinese.
Local.
<unk>.
Going very well and we benefit from that.
Investments also go in the right market segments for us that we can benefit from.
And I would certainly expect that this momentum will fill go all of those.
While we have here for example, Q1 I still have good expectations for the second part of the year. However, we got out of.
Face tougher comparisons and Thats.
Certainly one of the reasons why we guide.
When it comes to China.
A good start, but then a slowdown in the second part of the year now Sean do you want to add some flavor to that last comment.
Yes, sure, Thanks, Olivier and Hi, Tycho, yes, so for the full year in China, Tycho, We're now looking at high single digit growth for the full year. That's the improvement from our previous guidance, where we were seeing mid single digit and right now we're feeling that that high single digit would be both in the laboratory and the industrial business.
But as Olivier mentioned, the pacing is going to be.
Pretty unique just giving the whole situation with.
The comparison in Q1 of last year and then when we look at the second half of of last year as well. So just the even a little bit more specific on that in Q1, we're going to we expect China to be up mid to high <unk> in terms of growth, but again that was versus the minus 13% in Q1 of.
Last year.
And then of course, we're going to we're going to of to lap. Some of these tougher comparisons which included 17% growth in Q3 of last year and now 12% in Q4 of this year.
Okay. Thank you.
Okay.
Our next question comes from the line of Derik de Bruin with Bank of America.
Hi, Good afternoon, How're you doing.
Hey, Derik.
So I guess the first question is.
How did pricing come through in 2020, and just sort of curious if you've got better pricing the normal given the huge demand for pipe debt.
Because if you took some price advantage there and just sort of like what are you expecting in the 'twenty one numbers for pricing.
Yes, So hey, Derik I'll take that Sean.
We did so in the fourth quarter, we did just under two 5% in terms of price realizations. So that was a little bit of an improvement from what we were seeing earlier in the year I think each quarter, we started to see things progressively get a little bit better part of that improvement was that we were able to take a little bit more price.
This on in the area of Pipettes. Since you just mentioned, we also were able to do a couple of other things, where we're trying to offset some of these higher transportation costs as well as we look to 2021.
Previously guiding a little bit more cautiously than the 150 basis point kind of a range with the concern that inflationary forecast a few months ago are quite low for for 2021.
But still feel extremely good about the momentum in the program Olivier also alluded to a few of those things in the prepared remarks as well at this point in time.
Looking at probably a range of 150 to 200 wouldn't be surprised if we were more towards the higher end of that range.
As we kind of see some of the dynamics in the market, we do see some opportunities to maybe gain a little bit more price than.
Then we saw maybe a few months ago, and we will see how that plays out but that's certainly something on our mind right now of course of the other side of that is that some of these opportunities and price are also.
Looking at higher material cost in certain areas that we're mindful of that debt we.
We might be facing as well too.
Great. That's really helpful and Olivier you made an interesting comment in the opening remarks talking about accelerating market share market share gains in many categories can you sort of give us a little bit more color on that.
Yes.
Yes.
Yes.
We did flow.
Moving to.
Harsh data all of that.
The competitors do not publish specific comparable numbers.
And so we need to base. This on the observation of our field force.
We certainly also observe it.
The kind of the growth momentum, we see in the different industry segments of what we can expect.
And based on that we feel actually really good.
We have also clear anecdotes that we are winning share I feel.
All outpacing.
The market we.
GDP benchmark and I certainly feel that we are outpacing the app.
And so that gives us all of the confidence of the share gain there are some out of the data points that we use internally.
I mentioned that we leverage data analytics to guide our sales force.
Last year, we had a special effort to guide the sales force to non customers.
We did so because suddenly our sales force spend much less time behind the wheel.
They have much more time doing cold calling on engaging.
New customers through the virtual B malls.
Virtual calls.
Yes.
That was at the base for us to expand the.
The targets to our sales force.
Very pleased to see the results in converting more than ever.
Non customers, so that that gives us kind of the confidence.
<unk>.
Allows us to win share so in a nutshell, we feel that we've protected well our existing customer base, while we accelerated the access of the conversion from non customers certainly our strategy then we go to <unk>.
Pursue.
I see.
Many times said the crisis last year was for us an opportunity to leapfrog some of the changes.
In terms of go to market leapfrog, the other allocation of internal new tools and techniques on one of them was certainly all about the sales force guidance.
Reaching out to non customers.
We certainly maintain that flow.
Great Thanks of the detail.
Your next question comes from the line of Vijay Kumar with Evercore ISI.
Hey, guys. Congrats on a nice price here the Olivier maybe maybe I'll start with.
The high level question for you.
The guidance share five.
The seven it's a pretty solid guide.
What is it as Jimmy from from.
The business environment perspective, the car.
Human.
The environment is back to normal or is there some question.
Or are perhaps disruption from the second man and then your comments on M&A It sounds like.
Colin Shannon I'm curious.
If we get rid of it.
That's the right way is that the change in tone.
Let me take.
The first.
Hey.
We assume a relatively stable environment in terms of the second wave in Europe. We are in the middle of the second wave we are definitely on a quiet the strict lockdown in many of the countries started already before Christmas.
It feels very different to the first lockdown.
The business.
While we of many of us are in home offices.
We have <unk>.
Infrastructure.
And then understanding with our customer base the business is going on.
We.
Definitely leverage all of these we have.
Also last customer visits.
The effective relationships and we do not see that the core customer base is putting investments on hold so that's why the second wave is very different to the first wave when it comes to the business impact.
The personal levels, it feels kind of similar but not on the business level.
<unk>.
Hi.
If the environment stays about what it is the right now.
That's the.
That's probably our base for.
Our guidance here.
<unk>.
Sure.
Yes.
Particular worries.
The the lockdown situation will significantly impact our business and that means if the lockdown gets.
More severe or.
With simple ease up.
It looks like we have built here of certain resilience.
In our own business approach as well.
The business or the <unk>.
Industry segments that we are targeting I want also to remind we did quite a shift last year in terms of the industry segments that we are targeting.
And Thats.
We got to maintain.
Don't read too much around the M&A language.
It's really in the sense that a reinforcement of the strategy that we haven't been running in the past.
We are very interested in.
Jason fees.
We are interested in.
The company's.
That fit well in our.
Corn business.
The full cost.
My point was.
Even though we have your leadership transition Patrick and I share a common understanding here that we don't need any transformational acquisitions, we are not seeking any additional lag to the company. We feel we have an excellent franchise, but if we want to leverage to France.
When they are all good opportunities out there.
Again technology synergies.
Selective market consolidation opportunity. These are the typical adjacency that we did of the past.
We certainly it's going to continue to pursue.
Understood and Shawn one quick one for you from the margins it looks like the margin guidance. It's implied it's gone up versus the prior guide is that a fair statement.
I am sorry, Vijay can you repeat the question.
On the margin guidance it seems so versus your prior expectations.
The margin expansion, perhaps is closer to the triple digits.
At the high end of the guidance is the.
Correct.
No no so for so for the full year.
For Q1 of course, we have triple digit numbers, but.
For the full year just to be clear, we're expecting the operating margin to expand about 60% to 70 basis points. If we exclude the the impact of currency. So currency will be favorable to operating profit, but it will actually have a negative impact on the margin and net negative impact will probably be in the range of.
<unk> of 20 basis points, but then just to kind of link it back to you.
Your comment about what we were saying before we were saying before that would be a little bit below our typical guide of of 70 to 100 in terms of our mid mid term.
Expectations.
We might be slightly lower but we're a little bit more optimistic just given the higher sales.
Volume as well in terms of what wed expect and I think the other thing to always remind of remember is.
We did 130 basis points this year.
Now when we're looking at the two year combined growth, we're probably in the 190 to 200 basis point expansion, excluding currency, which we feel really good about and as we kind of made it.
You mentioned in the comments before.
We feel like this really excellent momentum on all of the different margin expansion initiatives, whether it be pricing or stern drive et cetera.
Understood. Thanks, guys.
Yes. Thank you.
Your next question comes from the line of Patrick Donnelly with Citi.
Hey, Thanks, guys Olivier maybe just one on the core industrial side, certainly proved a lot more resilient than we expected and it sounds like maybe you're expecting as well can you just pull back of occurred a little bit in terms of what you saw in <unk> and then also the expectations going forward.
Again kind of held in there a lot better, particularly in the developed markets than we would've expected.
And so with all of a bit more color on the performance of men and the expectations as we go through 'twenty one here.
Yes.
Yes, our expectation was that.
The industrial business would be more exposed to the slowdown of the economy.
But I'm very pleased to see how Q4 came together I cross.
The globe pretty much on also across the different product lines in industrial.
And I expect this will.
Continue on to be relatively healthy but of course debt in the second part of the year than comparisons might then also plenty of again certainly also China well of course, we have is very significantly industrial business.
I would.
I attribute it to.
<unk>.
Two of a little bit the same things that we see for the whole group.
Debt, we early on this goal for the pockets of growth that still exist in this market.
Alright thing our resources on our attention to the most attractive accounts.
The played well.
Of our industry.
The industry segments that are very healthy at this stage the hull.
<unk> pharma.
The production.
There is a transport and logistics.
Healthy for us.
Manny order.
The segments.
<unk> in combination with the sales force guidance topic that a ways before.
Ofer really good opportunities in spite of.
<unk> economy is challenging so there are segments that are down for us the auto segments debt when I say often it is really up to us to focus on the on the right ones.
Yes, understood and then maybe the response of the last question. It seems like you've kind of acknowledged there is potentially some upside to the revenue guidance, maybe it's taking in more of kind of status quo and much of a recovery I guess, when you think about that 5% to 7% for 'twenty one.
When you look at it what do you think of kind of the one or two segments that have the most upside in terms of the lever.
If you kind of end up beating that number where do you think the most conservatism is.
And your prediction projections kind of when you go through the numbers there.
I wouldn't talk about conservative is from I think it is.
We recognize that there are.
Industry segments with good upside on the other stuff that will be more difficult.
At this stage, we would extrapolate kind of the trends that we have seen also in recent months, where we say biopharma is strong.
On.
The bulk of our.
Certain.
Chemical sub segments are strong.
And that showed the remained that way.
<unk>.
I would expect debt in the second part of the year, we are going to see good growth in <unk>.
The I pent up demand as we mentioned before.
But then on the flip side you have of course the.
The comparison topics so China will for example be rather.
<unk> down there.
Not the same growth rate.
In the second part of the year so.
That's a bit in terms of.
Well, we might experience positive from hopefully not negative surprises.
Yes.
Product inspection in China are certainly the ones that are.
Debt potentially in both directions.
<unk>.
Understood. Thanks for the I appreciate it.
Your next question comes from the line of Dan <unk> with Stifel.
Good afternoon, guys. Thank you Sean just to follow up on Tyco's question on product inspection and then some of the comments that Olivier just made there I think the comp NPI gets eight points easier for you guys next quarter than it was here in <unk>.
So I certainly appreciate Olivier point on maybe some of the pent up demand driving up but I think you said up 5%. This quarter. There of reason why you wouldn't get the high singles, maybe even low doubles in <unk> in product inspection.
So hey, Dan just to clarify so for Q4 product inspection was down 5% of it wasn't up 5% of its down 5%.
Yes, so so that probably helps a little bit and but you're right. It does have an easier comparison in Q1.
But as we kind of look at product inspection. This continues to be the one business in the portfolio. That's been the most negatively impacted by Covid and high case counts and as Olivier was describing earlier. These customers really are operationally distracted at the moment.
We do think that there is a really great opportunity for pent up demand at some point the timing of course is just very difficult to predict at this point in time, but.
But when we look at the guidance.
Mid single digit is kind of what we're looking at for Q1 and mid single digit is kind of what we're looking at for the full year.
Okay very good thanks for the clarification there.
Yes.
Your point on new product launches of I think back to the last time, you guys actually help it site visit down in Tampa.
It seems like a long time ago, we were focused on the Pi business, obviously, just given where we were but you guys talked a lot about what you were doing in terms of product development for Biopharma do you feel like 2020 was a year, where you saw some traction there.
Just given the things that you were doing or should we think about 2021 kind of being the year that 2020.
Would of been just given the pandemic related headwinds.
And also the fact that it sounds like some of the launches this year of pointed in that direction.
Yes, I don't want to overstate the impact of our product launches.
On the top line, we often talk.
Our strategy is true.
Continuously.
Upgrades and launched new products.
On the add up but.
I would say.
From one year to in order of there is not that much debt front.
Of course, the products that we showed to you in top of.
These were particularly also products in the area of auto Chem.
These products.
All going very well very happy with the option of choice.
They will also continue to contract with very well this year.
But they are mining in all of the other categories of being at process analytics being in the industrial.
Talked before about lab balances.
At the moment as I've talked in the analytical space about new products, we had for <unk> for example, and so on so this is of the whole portfolio that makes the.
The difference to keep the technology leadership.
Continued thing again.
Last year also 2021.
Highlights of state.
Think of a product that will make the <unk>.
Big difference to the top line.
Okay.
Okay. Thanks very much.
Your next question comes from the line of Steven <unk> with Wolfe Research.
Sure.
Hi, good afternoon, thanks for bringing me on here.
Wondered if I could spend a little time, just trying to understand more deeply olivier how it is.
As you think the operating environment evolves around the COVID-19 over the balance of the year just didn't have as much context as we can for for your planning assumptions.
Sorry, I hate to try to put words in your mouth, but my sense is that you think that in the back half of the year, there will still be some amount of macroeconomic pressure.
Maybe the there is a lingering impact of the virus and so the macro is a little tougher.
That's part one part two is it also seems like you think that into some of the life sciences categories, maybe around pharma that you've had some good tailwind and the debt.
There was also maybe sort of taper off in the back half of the year I want to make sure I'm understanding that correctly is that of a fair characterization.
Hi.
Thank you.
<unk>.
Yes.
Youre right, we are cautious about the macro environment.
Also for the rest of the year.
I don't think.
The macro environment.
Just.
Immediately improve when the Lockdowns go away.
I think there are too many.
Drivers for our macro environment.
So we have not.
Particularly forecast of here for an improved macro environment.
More or less assume things remained about what they are two day so.
<unk>.
<unk>.
No I wouldn't say this is particular cautious I think we just don't know.
If all of this industry segment.
Our two day down will suddenly we call.
I would think that the momentum that we see in the industry segment line could bio production.
I don't think it goes nessus.
<unk> way and the second part of the year.
I think that can be actually quite sustainable.
Yes.
Modest benefits from investments in vaccine production.
But we are.
Yes.
Total.
Sure.
Our total revenue to remain fairly small so.
If that would slow down.
That wouldn't necessarily have a big impact on us the.
The investment in.
Far more production in particular, the bio production.
Thank you.
As a long way to go.
So in essence.
Feel like the corn microenvironment debt, we have could last.
For quite a few more quarters.
Including the industry mix.
Okay that was extremely helpful. Thank you for that perspective.
I've got one more follow up to ask the before I ask I know, it's too soon to say.
Goodbye to Olivier, but MSA Hello to Patrick it's good to hear your voice again.
After after a little while thank.
Thank you for each stage of being on the call here.
Thanks Jay.
Yes.
The question I would leave with is sort of a follow up to one of it was asked earlier. There was the question asked which frankly I would've liked to of that too about market share gains and the success of what you've done in this operating environment, where some of your nimble approaches really pay off in the unique way I Wonder if maybe we could just zoom in though maybe.
Talk about it, particularly as it relates to service, where your ability to get people in the field in an appropriate way of course in the right place.
Might be particularly helpful. Can you talk at all about the extent to which you might see service attach rates or service relationships evolving during the pandemic environment and then sorry. After some very long way the questions I'll get back in queue. Thank you.
Yes.
On the service side here I would say.
This is more on operational policies per your early on.
We were extremely fast.
And making sure that we equip our service technicians.
With all of the.
The safety gear.
We win.
Very early on made sure that our customers knew about that and then.
We keep.
We keep really the operations going you will recall, what we when we talked about Q2, how we did.
Many good things to maintain.
The auction going.
We're one of the first ones that we assume production also in China.
And simple things that we did also for the service technicians. So we.
We will really.
Up and running.
What we benefit continued to benefit from.
Is.
We do the net promoter score.
On.
Hi.
Very nice jump in customer satisfaction in Q2.
Yes, it went on throughout the year and I feel good reviews two hours.
Our service force, how well they are performing.
Having free people in the field here is.
Powerful venue need also to no debt for service.
The biggest competition or low coal I would almost say family owned.
Company.
And for these companies it is much more difficult to operate in the current COVID-19 environment non for US where we have of global organization and we have a lot of professional support of the field force.
That's one of the second one.
Our efforts to migrate to contract based service.
It was very beneficial.
The.
Yes.
Thanks, a lot of our business.
Your next question comes from the line of the Brandon Couillard with Jefferies.
Okay.
Yes.
Brandon Couillard your line is open.
Thanks, John one for you on the working capital front.
<unk> continued to trend lower you talked about the applying some analytics and better productivity tools, which I think of a new I may be wrong, but are you finding new ways to apply these in that area and how much more room.
Do you think is left there.
Yes.
Thanks, Brandon Thanks for the question.
These are new tools, and so I'm kind of happy to be able to respond to it so like many other things in the company I think it's just a really good example of agility.
Back in March.
We really kind of launched into a variety of crisis management.
The initiatives around Covid and then one of those initiatives of course was managed for cash.
All of your fortuitous internally and so within that initiative.
We challenged ourselves to come up with some new analytics, but even more importantly to try to make the connection between the analytics and the actions to be.
To be more efficient so we literally of broadcasting today.
Individual PPI charge that are highly actionable with with like top 10 list as well.
On the dairy daily basis, the each finance organization go into the leader every single day, and we found that that in itself has become.
Very actionable and it's allowed them to work with their local management teams and really get people behind.
Areas for improvement and so that's just one example, we've done a lot of other things and the manage for cash initiative. During the course of the year in terms of more legs.
We'll see I think we just had another good milestone, but when I take a step back I think the best way to look at it is that our free cash flow conversion. This year was over 100% when.
When we look at next year.
We will probably be right around 100% again.
So I think this inc.
Our level of that.
I don't think it is kind of gets too much more than a 100%, but I just think that flow through around 100% is a good range on the come.
<unk> looking at that for 2021, and I think as we go out.
What kind of take it on a year by year basis, but right now we feel really good of both the cash flow conversion.
Great. That's it from me thank you.
Yes.
Your next question comes from the line of Jack.
With the Nephron research.
Thanks, Good afternoon.
First one for Sean I was just wondering if you could walk us through the different factors that led to the EPS guidance range raise for 2021 at this point I think I caught China pricing FX and tax rate what did I Miss.
Yes, so hey, probably even bigger picture Jack So we have increased sales overall for the group.
So that's that's not just China, that's just the.
The overall group.
Yes.
The next thing I would say is that we would have.
Probably yes, probably within that yes, you have China being a little bit better you have Europe being a little bit better you have core industrial being a little bit better and you have lab being a little bit better.
And then and then we have the second thing would be our 2020, you have a more favorable currency environment and then and then of course, we of the reduced tax rate and so when you add that all up I think thats, how you bridge our guidance.
Great. Thanks for walking through that and then just one on food retail so saw a nice little rebound in the second half of the year, but I was just wondering if maybe that was some deferred sales from earlier in the year and if your thoughts of the changed at all around the outlook for 2021 there.
No we still look at food retailers of low single digit business for 2021, the business always can be a little bit lumpy were very much tied to customer.
Projects in buying cycles, so I wouldn't necessarily read anything particular into the fourth quarter results. Although I would say that we are looking at.
More favorable outlook again in the first quarter and probably we will start the year more high single digit there.
Great. Thanks, Sean.
Okay.
Your next question comes from the line of Dan Brennan with UBS.
Great. Thank you thanks for the questions.
Hoping to Tula.
Digging a little bit on lab, I know you've talked about of a lot of the initiatives there, but it was a nice beat in the quarter. So I'm just wondering if you could just flush out like how would you prioritize what the biggest reasons were for the upside and for 2021 I think previously you were thinking mid single high single.
Still the case of it sounds like it's kind of ticked up a little bit maybe you can just kind of walk us through a little bit of lab drivers.
Yes, so maybe I'll start with the with the the last part of the question Dan So so.
So were thinking high single digit for the lab for the full year for 2021, and then for Q1, we're looking at low teens.
In terms of.
The the.
The results in in Q4.
We really felt good about the whole portfolio I mean of course, the pipette business is of course, continuing to do well, we probably had a little bit better in terms of the COVID-19 tailwind in terms of what we were expecting but but there was but if I look at the other categories like process analytics had a great quarter and we also did.
Really well and our analytical instrument business as well as our laboratory balanced business. So we feel like generally there's just really good momentum there globally. Good market trends of course, there's also pockets of.
Of challenging and other industries, but in particular Biopharma is doing very well.
Great. Thank you and then just.
From product inspection, just given the delayed spending cycle that's been ongoing here like how much pent up demand is there like the.
On the food manufacturers put the stuff off the they're going to be of big catch up so how do we think about kind.
Got it the inspection that you talked about a nice recovery in the second half, but then kind of what happens beyond that just any color on that would be helpful.
It's probably quite difficult to quantify book.
A little bit the way to see you.
We have now a few quarters of decline.
I would expect that we kind of catch up quite a bit of of this.
The big question will be.
How far off of.
On.
Is it going to be at the same time in U S as in Europe or not.
There might be also differences by industry segments for example.
The meet the industry in the U S has been very much impacted by Covid.
Certainly in the area of where there was various level of investment.
<unk> activities.
So hopefully that will come back.
Not too far away.
But then to be seen so internally.
I'd say, we count on the second part of the year.
The word.
Talking of also today with.
People from the.
The industry day.
We were kind of hinting to us that the.
The decision making.
Really.
Starts to ramp up again in Q I would say at customer so.
That would support.
Support I'll hop off of it it should go along then Inc.
The next year.
Certainly I hope the 2022.
Also from a good quarter.
Quarters.
Great. Thanks Olivier.
Your next question comes from the line of Steve Willoughby with Cleveland Research.
Hi, everyone.
All of my question most of my questions have been asked already but I just wanted to touch on one as it relates to pay debt.
I believe you of some new capacity coming online this year for pipette. So I was just wondering given the demand you're seeing these days, where you stand today in terms of being able to meet the demand that youre seeing and any comments on what youre seeing in sort of like backlogs order books get extended.
And what that new capacity means for your type of business.
So at this stage, we cannot fully satisfy the demand we have capacity issues.
This is around.
So north of one type of but mainly on the tips to tip towards us.
Okay.
In Covid testing, we do expect that this is something debt.
We have a spine from right now.
We will then flattening of I'll.
I'll go back.
We do already extraordinary efforts to increase the capacity we have increased the capacity in Q4 and will continue to increase.
In Q1.
In the summer indeed, we have <unk>.
No.
<unk> in Mexico, a new facility in Mexico that will go online.
But of course, we would also take a few weeks, we can fully leverage net debt will bring additional capacity.
<unk>.
Most important is that we can maximize capacity here in these days in these weeks.
It's commercially attractive but of course it has also irrelevant. It's our contribution also.
<unk>.
The situation at the Society.
So the teams are very motivated here to do any of the folks.
Thanks very much.
Your next question comes from the line of Matt <unk> with Goldman Sachs.
Thanks for taking my question I'll be quick I just have one just on.
Olivier you mentioned on the Stern drive.
Can you do the challenges that you face in 2020, you might not have gotten as much out of the program. As you historically have I'm. Just wondering are there particular cost savings projects that you have kind of lined up that we should expect some momentum in terms of cost takeouts as we move through 2021.
Yes, the stern drive is about.
Really the Dolphins technology, even hundreds of projects actually last year I think we were working on the 300 projects and just due to COVID-19.
Has to put on hold or has some delays on.
A part of the 300 projects.
We will resume the full speed on them here in 2021. The results in 2020 were still good and I feel also expect the growth contribution in 'twenty 'twenty one but.
The programs have proven to be very powerful.
Extremely happy about Stern drive from <unk>.
Wouldnt be surprised if down the road stern drive could have even a bigger impact.
And I certainly also see Patrick to be passionate about the topic has the sales first review meetings around Stern drive and came back in the very positive monitor about it.
He will swiftly engaged on this debt.
We'll give the team.
Even more momentum so youre going to continue to see.
Talking on milestone drive from having the benefit from it.
Great. Thanks very helpful.
And I'm showing no further questions at this time I would like to turn the call back over to the company for any closing comments.
Yes. Thank you.
Hey, let me end of this call with the simple.
Thank you to you analysts.
Shareholders listening here on this call.
Thank you for the Youll support of commitment to metal Toledo over the many years.
Of truly appreciated your engagement in the ratio.
Off to our various interactions during this time.
While my focus over the next two months as successful hand over to Patrick and still delivering a very strong Q1, but.
But I'm also very happy to remain involved with mettler Toledo in the future through my board the role as well of supporting Patrick on marketing on the August.
All of the organizational model.
I wish you all a very successful 2021 and again a big Thank you and all of the best to you Bye bye everybody.
Well the item, Jim Ladies and gentlemen. This concludes today's conference call. We thank you for your participation you may now disconnect.
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