Q1 2021 Mettler-Toledo International Inc Earnings Call
[music].
Chief Financial Officer.
Let me cover just some of administrative matters. The call is being webcast and is available for replay on our website of <unk>.
Copy of the press release and the presentation that we will refer to on today's call is also available on the website let.
Let me summarize the safe Harbor language, which is outlined on page two of the presentation.
<unk> 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 1934 of these statements involve risks uncertainties and other factors that may cause our actual results.
The 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 the discussion in our recent form 10-K, and other reports filed with the SEC 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 in the business and management discussion and analysis of the financial condition and results of operations sections of our filings just one other item on <unk>.
Today's call, we may use non-GAAP financial financial measures more detailed information with respect to the use of and the 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 Patrick.
Thanks, Mary and good evening everyone.
I am happy to host the call Tonight, which I'm doing it from Switzerland, while Shawn and Mary on Columbus, Ohio.
I wanted to start by thanking you for your interest and commitment to metal per liter.
The new many of the analysts on the call of covered us for quite some time now as well.
The ultimate of very longstanding shareholders, while also resuming growth.
I look forward total future interactions from hope that can take place in person in the not so distant future.
Let me make some brief comments of my impressions of the fruit simple mantra of mental Toledo.
It is clear that the company strategies and initiatives of well developed and well engrained throughout the organization.
The higher level of accountability is evident throughout the company, which underpins the culture of strong execution.
I am impressed with the interactions I have had with colleagues around the world and I share their passion for customers and innovation that is very apparent in how they approach their responsibilities.
It is exciting to join metal to lead the way at the time of such strong momentum, which I think is also of great reflects not only the use of legacy as the CEO.
All of his leadership the company developed a strong foundation for future growth.
I'm also grateful for the Onboarding process all of your prepared for me.
I'm committed to the organic growth strategy of Mettler, Toledo, and we'll work with the team to enhance the performance will continue and continued its strong track record of top and bottom line growth that has been in place for many years.
Now, let me turn job of financial results. The highlights on page three of the presentation and you can see we are off to a fantastic start to 2021.
It was the pattern with our Q1 guidance that we expected the very good quarter.
However, it came in even better than we expected the.
Local currency growth was 18% and we had strong broad based growth in all regions.
China in particular had outstanding growth in our growth in Americas, and Europe was also better than we expected.
Since the onset of the pandemic. The organization has been focused on identifying areas of growth and ensuring that we are strongly positioned once demand recovers.
The team executed well to capitalize on recovering market demand and to meet customer needs.
With the excellent sales growth combined with good cost control and benefit of of margin and productivity initiatives. We.
We achieved a 64% growth in adjusted EPS.
Cash flow generation was also impressive as we achieved an almost 200% increase in our free cash flow generation.
We believe the positive momentum will continue into Q2 and expect another quarter of robust sales and earnings growth.
As we look to the full year of 2021, we believe we can continue to gain market share any level of very strong results.
Let me now turn to Sean to cover the financial and guidance details and then I will come back with some additional commentary on the business and an overview of the <unk> acquisition that we completed in the quarter.
Sean Yes.
Thanks, Patrick and good evening, everyone sales were $804 4 million in the quarter, an increase of 18% in local currency.
On the U S dollar basis sales increased 24% as currency benefited sales growth by 6% in the quarter.
On slide number four we show sales growth by region.
Local currency sales increased 14% in both the Americas, and Europe, and increased 29% and Asia rest of the world.
Local currency sales increased 44% in China in the first quarter.
On slide number five we outlined local currency sales growth by product area in the quarter Laboratory sales increased 20% industrial increased 17% with core industrial up 26% and product inspection up 5%.
Food retail increased 13% in the quarter.
We estimate that we benefited approximately 2% from COVID-19 tailwind in the quarter, mainly related to our pipette business for COVID-19 testing.
Let me now move to the rest of the P&L, which is summarized on the next slide.
Gross margin in the quarter was 58, 6% of 90 basis point increase over the prior year level of 57, 7%, we benefited from pricing volume and temporary cost savings initiatives. These benefits were offset in part by higher transportation and material costs.
R&D amounted to $39 3 million, which represents a 7% increase in local currency.
SG&A amounted to $221 $8 million of 7% increase in local currency over the prior year.
Increased variable compensation was offset in part by our temporary cost savings and ongoing cost containment initiatives.
Adjusted operating profit amounted to $210 $7 million in the quarter, a 49% increase over the prior year amount of $141 $3 million.
Adjusted operating margins increased 440 basis points in the quarter to 26, 2%.
We are extremely pleased with this margin growth, which reflects excellent sales growth combined with good margin and cost initiatives currency.
Currency benefited operating profit growth by approximately 6%, but had very little impact on operating margins.
A couple of final comments on the P&L.
Amortization amounted to $13 $9 million in the quarter.
Interest expense was $9 $5 million in the quarter.
Other income in the quarter amounted to $2 $1 million, primarily reflecting non service related pension income.
Offsetting this was $2 8 million and acquisition cost that is excluded from adjusted EPS.
Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19, 5% as compared to 21, 5% in the first quarter of last year.
Fully diluted shares amounted to $23 7 million in the quarter, which is of 3% decline from the prior year.
Adjusted EPS for the quarter was $6 56.
A 64% increase over the prior year amount of $4.
Currency benefited adjusted EPS growth by approximately 7% in the quarter.
On a reported basis in the quarter EPS was $6 32.
As compared to $4 <unk> in the prior year.
Reported EPS in the quarter includes 12 <unk> of purchased intangible amortization <unk> of costs related to the <unk> acquisition.
<unk> <unk> of restructuring and the <unk> benefit due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises.
That covers the P&L and I'll now comment on the cash flow.
In the quarter adjusted free cash flow amounted to $139 million, which is an increase of 196% on a per share basis as compared to the prior year.
We're very happy with our cash flow generation.
DSO declined by approximately six five days to 40 days as compared to the prior year.
Its network.
The organization continues to execute very well and has demonstrated a high level of resilience and agility in adapting to rapidly changing market conditions.
We continue to feel positive and our ability to gain market share and generate margin improvement with our pricing and productivity initiatives we.
We will also resume our field turbo program and expect to add sales resources in the second half of 2021.
Now let me cover the specifics for the full year 2021, primarily due to the benefit of our Q1 results and with a strong outlook for Q2, we now expect local currency sales growth for the full year will be in the range of 10% to 12%.
This compares to previous guidance range of 5% to 7%.
We expect full year adjusted EPS guidance to be in the range of $31 45 to.
The $31 90.
Which is a growth rate of 22% to 24%.
This compares to our previous guidance of adjusted EPS in the range of $29 20 to.
The $29 80.
With respect to the second quarter, we would expect local currency sales growth to be in the range of 19% to 21% and expect adjusted EPS to be in a range of $7 50.
The $7 65.
The growth rate of 42% to 45%.
Let me provide you with some additional details and guidance.
As mentioned, we expect <unk> to contribute 1% to sales growth for the remaining quarters of the year the impact to EPS from the acquisition is relatively neutral.
We would expect local currency sales growth for the second half of the year to be in the mid single digit range as we will face tougher comparisons the.
COVID-19 testing tailwind in our pipette business will turn to a headwind and we won't see the same level of pent up demand that we're currently seeing.
We expect reported amortization will amount to $62 million, which is higher than previously communicated due to the <unk> acquisition the.
Of the purchased intangible adjustment for EPS will increase to 66 for.
For 2021 other.
Other income, which is below operating profit will approximately will approximate $2 million per quarter for the remainder of 2021.
We expect our effective tax rate in 2021 to remain at 19, 5%.
In terms of free cash flow for the full year, we now expect it to be approximately $735 million.
We expect to repurchase 637 million.
Millions of shares in 2021 for the remaining three quarters of 2021, we.
We would expect to end 2021, and our targeted net debt to EBITDA range of approximately a one five times leverage ratio.
Some final details on guidance with respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately three 5% in 2021 and 6% in the second quarter.
In terms of adjusted EPS of <unk>.
Currency will benefit growth by approximately seven 5% in the second quarter and 4% for the full year 2021.
That is it from my side and I'll now turn it back to Patrick.
Thanks, Shawn let.
Let me start with some comments on the operating results.
And will that business had outstanding growth in the quarter.
<unk> had excellent growth and continued to benefit from COVID-19 related testing demand.
All other product categories at all to robust sales growth and growth in all regions was very strong.
Biopharma trends continue to be very favorable and we also experienced improved customer demand in other segments such as the chemical.
Do you expect lab to be very strong in the second quarter due to favorable biopharma trends exceed research and bio production scale up in production.
You also expect to continue to benefit from pent up demand in segments outside of Biopharma.
One last from face tougher comparisons of the second half of the year.
Believe well positioned to continue to capture share given the strength of all of product portfolio and continued strong execution of almost of a nickel sales and marketing initiatives.
In terms of of our industrial business core industrial did very well in the quarter with of 26% increase in sales driven by China, which had growth in core industrial in excess of 60%.
Europe and Americas also had strong low to mid teens growth in core industrial.
The improving market conditions combined with the strength and diversity of our product portfolio and number of focus on attractive market segments contributed to strong results.
All of our outlook for core industrial is very good for Q2, while they will face more difficult comparisons, particularly in China in the second half of the year.
Product inspection came in pretty much as we expected with of 5% local currency sales growth in the quarter.
Europe, and Asia had growth, while Americas was flat with the prior year.
You would expect modestly better growth in Q2, but this business continues to be challenged as large packaged food companies continue to face operational challenges related to COVID-19, and our careful with installing new equipment or even bringing service people into their facilities.
We believe pent up demand exists for instruments, but ultimate timing is still hard to determine.
Food retailing came in better than expected for 14% growth because of better market demand in Europe, and Asia and rest of the world.
Now, let me make some additional comments by geography.
Sales in Europe increased 14% in the quarter with excellent growth in lab core industrial and food retail.
The Americas also the increased 14% of the quarter with excellent growth in lab and core industrial offset by flat results in product inspection and the decline in food retail.
Finally Asia the risks of the World grew 29% in the quarter with very strong growth in most product lines.
As you heard from Sean China had outstanding growth of 44% of the quarter with excellent growth across most product lines.
We are benefiting from robust demand in many of the market segments, we serve.
This includes the very strong growth in life Sciences, food and chemical.
From a product point of view of our industrial customers are seeking greater automation and digitalization.
Which bodes very well for our product offering.
You're also seeing benefits of government spending in key priority areas, such as new research labs.
Food safety, and food supply and packaged foods and investments in various strategic priorities.
Our achievement of China.
A great example of how we positioned ourselves to capture growth as demand for comment.
Our spinnaker sales and marketing techniques, including our go to market approach, which we adapted due to the new environment have served us very well in terms of identifying and capturing these growth opportunities.
We have also worked over many years to ensure that our product portfolio in China is well suited for the local market the <unk>.
Doesn't advantage.
Do you expect good momentum to continue in China. This quarter and then you will see a more modest growth in the second half of the year due to very strong growth in the prior year.
One final comment on the business service and consumables performed well and were up 11% in the quarter.
That concludes my comments on the business.
Not only is our business off to a great start in 2021, you also made the strategic bolt on acquisition to prove the expand one of our most attractive businesses process analytics.
Let me provide some additional insights into the acquisition.
We are a global leader in real time measurement of key process control per meters, which customers used to optimize the protection production processes.
About 50% of the process analytics business is to the pharma and biopharma market with an emphasis on sensors to monitor the ph dissolved oxygen carbon dioxide and other per meters.
Our solutions combine central technologies for specific measurements transmitters and services.
The sensors must be calibrated maintained and replaced on the timely basis, which creates an attractive consumable stream.
Process analytics has achieved above market growth for numerous years benefiting from the strength of bio production and very successful spinnaker sales and marketing strategies and techniques.
You also have a great track record of technology innovation.
The leader in the market with our innovative intelligent sensor management technology, which optimizes sense of replenishment to avoid unexpected downtime.
Although examples of innovations include inline measurement of carbon dioxide and high performance optical sensors for the salt oxygen.
The company be acquired penned attack ease of manufacturer and distributor of single use sensors transmitters control systems and software serving the biopharmaceutical manufacturers and life science of laboratory.
The primary focus is pressure, which is the common control per meter and used in bioprocess applications.
They are well recognized for the leading edge innovation in single use sensors that are becoming increasingly important in bio production as it provides greater manufacturing flexibility.
You have the extensive knowledge surrounding disposable flow sales and connected the signs and have strong bioprocess downstream application knowhow.
This is an excellent strategic acquisition as it expands our presence in the very attractive high growth bioprocess markets.
You have of complementary offering in bio processing applications of our strength in upstream and pandal Jake in downstream.
With the combination we will create one of the most competitive single use simple offerings in the market.
You see attractive cross selling opportunities as we believe there is significant customer benefit from using the same vendor in upstream and downstream bioprocess applications.
Finally, we see good opportunity to expand <unk> presence on a global basis, leveraging our global reach and large customer base.
We are excited about this transaction and believe it will further all of our strong leadership position in process analytics.
Let me wrap up by commending the <unk> off to a very good start to the year.
The the team has shown a tremendous level of resilience and agility in adapting and reacting to market conditions that are changing rapidly.
We remain focused on meeting our customer needs and believe we can continue to gain market share and deliver strong results.
That concludes our prepared remarks, and we now want to open the line for questions.
Thank you laid out the next time I would like to remind everyone in order to ask a question simply press star one on your telephone keypad.
We'll have our first question coming from the line of Barry Rubin from Bank of America. Your line is open.
Hi, good afternoon.
Thanks for taking my call.
So a couple of questions.
Start I think the first one.
I appreciate the color on the pipette tailwind that you've seen I am a little surprised that youre talking about the sort of slowing down.
The whenever I read the scientific Twitter feed.
There's still tons of articles the complaints about the pipette shortages.
Just would like the little bit more color there and also how is that sort of been contributed to your overall pricing.
I assume that.
Theres, the pipette shortage and that means the people are willing to pay more for it. So you can you talk about have you seen some incremental pricing gains in the business.
As a result of that and so do those sort of dissipate as well. Thank you.
Okay.
Eric I'll start off and then let Sean comment on the pricing topics facility as well from the <unk>.
First on the shortage of Paypal from pipette tips in the market right now.
Absolutely spot on there is still the shortage of markets, especially related to COVID-19 testing for the as shown elaborated we definitely expect the testing demand for COVID-19 going down towards the second half of the year and there is probably not the same amount in life science research and other areas.
That would compensate 44 that demand. This is why we are more cautious about the outlook.
Don't expect the same tailwind from the pipette business in terms of revenues.
In the second half on pricing, we had the first pricing around the C already in the outlet channel to commander of the overall impact of that yes.
Yes, so so Derek yes so.
Our pricing in pipettes, as I'd say, a little bit higher than where it would be in a typical year, that's probably been a situation that's been going on now for the last couple of quarters, but maybe more recently with the increase in resin costs.
Did kind of come up with.
The price increase more recently in that respect so youll start to see actually even higher price increases for.
For Pipettes in Q2, and probably for the remainder of the year at least until as long as these higher resin costs continue.
So what's embedded in your overall guidance for pricing just from the full year basis.
Yes, so for <unk>, maybe I'll start off with like how we did in Q1, and then I'll kind of talk yes the restaurant.
So we did about 2% and in.
In the first quarter.
In addition to the price increase for.
For Pipettes, we also did some price increases in other parts of the business to try to mitigate some of these material cost challenges that we start to see in the first quarter.
At the moment, we probably.
Think of pricing in the two and a half kind of percent range for the second half of the year, maybe there is an opportunity to do a little bit better than that and then in Q2, we would probably be somewhere between the two to two five per cent.
Great and then just one final question, what's your overall bioprocess expense exposure I guess, the dollar amount right now.
Mettler historically has not been.
One of the company the sort of Pops up on the list. When you think about it can you just give us some context. So we can put it measured against some of the peers in the space.
Yes, we don't have a specific number for bioprocess, specifically, but we'd probably continue to say that of about a third of our business is sold in the life Sciences of course, bioprocess as an important part of of.
That third.
With the acquisition of <unk> of course, we we further increased our exposure into the bioprocess as well.
Thank you.
Our next question will be coming from the line of Vijay Kumar with Evercore ISI. Your line is open.
Hey, guys congrats on the nice win here.
Maybe Patrick I'll start with the Big picture question for you.
Perhaps that's the current central.
The C suite change we didn't have an acquisition.
I'm just curious as you've had some time here.
Do you sort of the strategic priorities and how should we be thinking about capital deployment of capital allocation for Metro.
Very good question of each Anne and thanks for the congregations on the quarter over the very proud of this quarter as you can imagine as we really.
The form much better than we expected.
To your question regarding acquisitions look.
Meadow Toledo has just only a very strong organic growth.
Story and also of success in organic growth.
The.
B it definitely of our business model is really on increasing market share average yield by better go to market strategy, we've always spinning of sales marketing technologies, having the unique products in.
In the markets in terms of how would you sign usability of said rather the very much favored by our customers.
And we see debt growth Sylvia to continue for quite some time.
We still have plenty of headroom to grow.
That will not change it is fundamentally an organic growth story.
To do bolt on acquisitions tuck in acquisitions, we could all of the call. Then we're able to we think it makes sense from the technology perspective.
Complements our product portfolio. So I'm personally of course from very committed to the organic growth strategy.
Which doesn't mean, we are looking at potential acquisitions as they would make sense I think metal fleet overall is a great platform for such a small and medium sized.
Tuck in acquisitions of bolt on acquisitions, but the.
Underlying story definitely is an organic growth story.
Understood and then perhaps one of them.
The guidance here.
It's a pretty impressive guidance when I look at some of your peers.
Feels like they've been a little bit conservative your guidance by far this is the.
Best in the group so far.
On a.
Comp adjusted basis.
I think you mentioned something about pent up demand perhaps.
We did benefit in Q1 or is that based on the <unk> guidance.
Or.
Perhaps the back half any commentary on.
Whats driving the underlying strength of our metro coming in.
All of our peers.
Thoughts on pent up demand I think will be helpful.
Let me start off and then I'll pass the Doble again to Sean regarding some to give some additional flavor on the guidance question.
Of course of the increased guidance is number one based on the strong Q1 results and our confidence in our Q2 number.
See how well our products received in the market.
See how strong our go to market strategy around spinnaker sales and marketing really plays out.
As I said in.
In my commentary is already is I think the repair the team extremely well to capture demand the market demand as it recovered.
Guide on what the sales force.
Very effectively through the opportunities out there.
And that gives us columns of the strong confidence for Q2 and also of course for the remainder of the year, even in light of the potential headwinds and the risks and uncertainties that you mentioned like.
Shortages in semiconductors, and maybe some of the shortages of material supplies, which we factored into this forecast.
But overall I would say the our confidence in this guidance range is very strong.
Sean you want to add some additional flavor share of Hey, maybe just the echo a little bit what Patrick said I mean, if you're looking at Q1 and then you look at our Q2 guide and you put them together.
Almost 20% growth in the first half of the year. So of course, we feel really good about that and the the momentum in the business of course, it's always difficult to assess the topics like pent up demand in stimulus.
But as we kind of like look to the second half of the year. We typically only sit on one five months worth of backlog. So it's always a little bit difficult. We will start the face more difficult comparisons in the second half, especially when we look at like China in Q3, which grew 17% last year in Q3, and then we have this we won't necessarily.
At the same level of of.
COVID-19 testing that we talked about in the first question from from Derek already but if you kind of look at the second half of the year, maybe the best way to think about it is that we're looking at being at assuming a more normalized multi year growth rate in the second half of the year again on a multi year type basis.
Just to be clear, Sean So there is no pent up demand baked into the second half correct.
No, we're not expecting any pent up demand per se at this point in time.
For the second half of it.
Fantastic. Thank you guys.
Our next question will be coming from the line of Tycho Peterson with Jpmorgan. Your line is open.
And so I'll just pick up where we left off on the pent up demand was that greatest on the industrial part of the business.
John can you comment on the order book on the narrow you said the okay. I wanted to have most of the backlog, but how does the order book coming out of the quarter.
Yes, I mean of Hey, it's always difficult to talk about your quantify pent up demands twice, specifically, but certainly the industrial business out of tremendous quarter. If you look at the core industrial business. What was really impressive there Tycho is that China's now had three really strong quarters in a row in core industrial and we saw.
Hard to really see.
Very strong momentum in China, which which had many different growth drivers to it maybe I'll, let Patrick add some more color on that one.
I kind of finish the comment but the other thing is we saw us.
It's really strong growth in the core industrial of both in Europe and in the.
In the Americas, both grew in kind of like the low teens kind of a range. But then if you look at the lab business. I mean, Biopharma has continued to do really well, but we also felt like there was like of pent up topic. There if you look at.
Segments outside of Biopharma like chemical we felt like chemical was very strong, but we also started to see a lot of other end markets recover as well too.
What was the second part of your question Tycho I couldn't remember.
Well I think you answered it was on the order book and then just with all of the order book, Yes, yes, okay.
Sure.
Patrick maybe just digest.
Reflect back a month into the job.
You kind of think about your.
The 180 day strategic review of our initial kind of outlook on the business can you maybe just talk the strategic priorities in the networks, obviously very well run business to begin with but other kind of things that are top of mind for you as you step of all yeah excellent excellent question, Tycho I look I mean as.
I came into metal Toledo.
Actually I would almost have found what we had expected.
Number one the organization very focused on the strategic priorities in the really focus on execution.
The strategic priorities for the company will not change.
<unk> is a very well ingrained throughout the organization.
Focusing on our <unk>.
And market opportunities in terms of the areas, where we can gain market share we continue to evolve.
Of the underlying strong programs and strategies, we have from an plays around spinnaker sales and marketing, which is has been an.
And the strategies for more than 10 of 15 years already the same is true on the.
The Stern drive program free.
Regarding operational excellence and productivity.
<unk> across the company, but I will definitely continue to work with the team on those.
Both of those programs because we think it would be of convinced they still have a lot of headroom at towards talking a little bit about of opportunity to gain market share.
Very very tangible for US you see the opportunities we see the mark of opportunities. We guide the sales force into the right directions in the.
Frankly, we also have very solid product development new product development.
Program on the way that we continue to exit that will be definitely also a strategic focus area of for myself to make sure that we launch.
<unk> products into market segments, where we see the strongest underlying growth.
Over the last.
10, 15 years Midland continuously made the shift more towards faster growing market spaces in the lap in the life science market, which continues to grow and there's definitely again and emphasize the emphasis also on my side to continue that trajectory to find identify and.
Capture these faster growing market segments for metal Toledo been on all of the strategy.
The priorities for me clearly also working on next generation leadership as you would expect from from every CEO have the strength strong focus on that as well to make sure that free.
In Tony also develop.
Leaders for the company that can drive.
Can drive the company forward and continue to its exceptional growth story.
Okay. That's very helpful. And then just last one on going back to the industrial markets for a second yes consumer package goods has been challenged for a while I'm wondering if there's any signs of a day.
Net improving it didn't sound like it from your commentary and then also separately how you think about infrastructure stimulus here in the U S. If we did get a big package.
Hey, Tycho, so maybe I'll take that one so in terms of packaged food I think the situation you're right I think it's generally similar to the last time, we would of talk.
The packaged food companies continue to be.
Challenged by COVID-19 on there is still a reluctance to have the.
Visitors on site, but we do see increased activity there in terms of quotations and things like that we still feel very good about the business in terms of being positioned for a pent up opportunity here, we didn't necessarily build that into our guidance.
But we but we do feel like we're well positioned there, but its still difficult.
To tell the timing and when that's all going to happen in terms of government stimulus.
Also difficult to judge I mean, I would expect we would have some level of benefit some of it probably more indirect than direct we don't have necessarily.
Significant NIH type of exposure.
But on maybe some of the infrastructure stuff, our industrial business could could benefit from some of that.
Okay. Thank you.
Our next question will be coming from the line of Patrick Donnelly with Citi. Your line is open.
Hey, thanks for taking the questions guys.
Sure maybe on the guidance now that its bumped a little higher would you mind just running through the segment outlook in terms of what Youre thinking by segment for the rest of the year with the new range.
Yes, sure so Patrick maybe I'll start with the divisions and then I'll talk about the regions. So if I start with the lab Division for Q2, we're looking at mid Twenty's growth and for the full year low to mid.
Double digit growth.
In terms of industrial business, we expect.
Our core industrial in Q2 to be in the 20% kind of range and then for the full year in the low double digit kind of range and then with the product inspection business being more mid to high single digit in Q2, and maybe mid single digit plus for the full year.
And then food retailing for Q2 to be high single digit and then for the full year to be more like mid single digit.
And then if we look at the geographies.
Start with Europe, which would be kind of like high teens to 20% kind of range and then for the full year of high single digit to low double digit.
The Americas.
High teens for Q2, and then for the full year also of high single digit to low double digit.
China, we're looking at mid <unk> for Q2, and then high teens for the full year.
Okay. That's really helpful. Maybe just the.
The zone in on China.
Finished with it high teens for the year, obviously put up.
A monster number of this quarter was 40 plus can you just talk about I guess the durability, obviously, the comps get a little bit harder how youre thinking about that the rest of the year. What you saw this quarter that you know.
Was there some kind of pull forward or anything like that that's one time just wondering in terms of the guidance full year versus obviously, the first half of it would be quite a bit higher than that.
Yes, Paul let me take that Patrick.
Look.
Really really happy with our result in China, because I think it was truly exceptional.
Much better than we expected and we commend the team for the excellent execution and capitalizing on the growth opportunities we have there.
There have been simple dynamics.
But you should consider when evaluating our China results.
First of the number of looks very high for the first port of about the comparisons of the easy because the go down 30% in the prior year. However, the two year combined growth rate is still very good.
Beyond very strongly positioned in China of referral of sales and marketing initiatives, which are allowing us to gain share and support customers.
The ultimate.
The philosophy of most years to adapt our products from the local market, which helps to support our leading position in many of the product categories in China.
And in terms of the underlying dynamics.
Yeah, Sean said, we see strong recovery in many of our end markets life Sciences in particular is very strong.
The continued we continue to expect growth from this.
End market, although the dynamics we are seeing.
Is that although we primarily serve local markets in China, our local customers do see some greater demand from the western World actually.
Net debt of course fueled some of the end markets for us like chemical.
And.
Finally, I think the also benefiting from the government spending if you look at the China's five sales plan and the investments behind in things like New labs.
Funding research also continue to fund.
Safety and crude supply of packaged foods.
It's impacted by the Israel of it plays out for us very well.
And then last one of these similar to the rest of the world.
<unk>.
<unk> sort of an automation, which plays very well form offerings in China. So we are pretty confident that the momentum in China will continue.
And the.
<unk> strongly believes it will have a very good Q2.
Then as we said of more moderate growth because of tougher compares in the second half of the year.
That's really helpful. Thanks, Patrick and maybe just a quick last one on the product inspection side nice to see the leaseback the mid single digit growth. It sounds like the guidance is still calling for it more mid single in the pumping that too much what do you need to happen to get that segment going a little bit of time as you've been a little bit sluggish for for over a year now.
Now.
Would love some color on that front. Thanks.
Yes definitely.
As we look for product inspection of thing for us to Brian <unk> will be the.
The investment at the end market comes back of the confidence in the end market comes back and the customers will be.
You are willing again to invest in the facilities to bring people into their facilities to have been pretty restricted given the COVID-19 situation as I said I think in my introductory remarks.
The product line has been facing issues, even between the service people into some of the the customer sites, because David sort of afraid of the COVID-19 situation today, so as debt market as the COVID-19.
Situation eases up we think that some of the pent up demand of of our customers will then materialize fossil to into somewhat higher growth rates towards the second half of the year.
Very helpful. Thanks, guys.
Our next question will be coming from the line of.
Can you kind of with Nephron research your line is open.
Hi, This is <unk> on for Jack So theres been a lot of discussion around supply chain challenges related to the pandemic. How do you see this impacting the business.
Yes, hey in terms of supply chain I mean, I think we are.
We're really impressed with our team over the past year, if you kind of go back to.
Just over a year ago in China, when the pandemic started we already had supply chain challenges and then if you kind of go over the last 15 months or so it's been a tremendous journey for them the agility and the organization has been really tremendous.
We still but at the same time, we have challenges as well.
Just feel like the team has done a good job overcoming those challenges in the short term right now we're not.
We haven't built anything in particular in terms of our projections in terms of any supply chain disruptions.
And right now we feel like we can continue to manage it. We also benefit I think of little bit from the diversity in our business.
So if there is a component shortage in a particular area. So.
So far it hasnt been that significant to the overall group, but certainly don't want to downplay it either it's certainly a topic that the teams are working really hard at globally.
Yes, so if I might add some flavor there as well.
Definitely.
It's a very.
It's very high on our radar screen, so to speak to make sure the b.
The address the potentially upcoming topics we in some areas we have build some safety stock, especially in the areas of.
Semiconductors that are on the pressure right now the CF.
<unk> heard from other parts of the industry.
The automobile industry.
<unk> thousand of Lucas homes lost last week for example, in Germany because of shortage of electronic components again, not one of our supply chain team is working with our vendors.
Free closely to make sure the understanding of the whole supply chain integration build safety stock level possible.
And then continue to mitigate feels of continuing to mitigate internally looking at too even potential design changes, where it would be adequate to make sure that we can continue manufacturer of other components if needed.
Its pretty unpredictable right now.
I would say of.
The supply chain expense more energy than ever on this topic to ensure the npls.
Facing any major shortage, but you're certainly not immune from the overall trend. So no guarantees, but I can tell you to be at least for the most companies because of components.
The components, we know of.
We handle them also with some.
Sure.
With some safety stock et cetera.
Great that makes sense and can you update us on what your target is for gross margins for the year and are there any notable factors to call out around fixed cost leverage.
Yes, hey, so.
In terms of gross margin for the year were kind of like looking at.
The second quarter will probably be overall similar to the first quarter could be a little bit lower and then for the full year the <unk>.
Most margin level, we're thinking in the 50 to 60 basis point kind of range in terms of margin expansion.
What youll kind of see as the year progresses, I think youll start to see a little bit more.
More improvement from the pricing program that we talked about in the initial question from Derrick.
We will continue to also have benefits, especially in the second quarter from from higher volumes, but kind of on the other side of that we do have higher costs related to material costs as.
As well as freight and then another dynamic that we're going to see in the second quarter is that if you think back a year ago. That's the core.
When we started the have a lot of temporary cost savings in the business and a lot of those cost savings will now be coming back into the cost structure in the second quarter, and so that would be kind of like a.
Something kind of going the other way.
Our next question will be coming from the line of Matt <unk> with Goldman Sachs. Your line is open.
Yes, thanks for taking my questions. Just the first one of you spent some time on kind of tack and so I'm just curious.
As the integration kind of starts coming along.
They are already facing a very strong market in bio processing and you integrate it into your global platform.
Of new opportunities do you think you can open up for <unk> in terms of new customers in new geographies I know they have a presence in Europe.
But I'm just curious about what what the what mettler can add the <unk> because you continue to integrate.
And the them into your into your platform.
Yes, good question and let me comment on the sooner.
As I said extremely pleased with the acquisition of <unk> I think it's really complementary to our strength.
We already have in some of the bio processing and even some single use sensors that you also have the metal Toledo.
Complementing the portfolio very nicely.
The <unk> definitely stronger in downstream BMO at the moment stronger ops in the upstream.
If you look at the combination of the two businesses.
Actually very beneficial for customers to have the same window for both upstream and downstream.
Applications of think re from as metal Toledo.
A lot of the table for Ben to take in terms of overall global reach global footprint of our customer base in the sponsor.
Actually the market reach for them worldwide.
But you also have differently.
The central technology Knowhow in areas, where they are.
Don't play today.
But they have for the Alba hands in a lot of.
The Sino how of how to implement sensors in single use the signs of a Houston downstream application. So I think theres a lot of technology leverage that comes together as well as a good.
Market leverage in terms of our strength and all of them.
The global reach that we have as metal Toledo.
Of the indication is going extremely well and we're very pleased of how things are going to we will see or disruption of.
For our customers secondly, the response, we have received the FERC from kind of net.
Customers was extremely positive.
<unk> demos on the supply chain sides of queuing supplying for actually increased demand for their products as well. So I think this is this is really.
A combination of of two companies.
But we'll provide a lot of benefit for customers in the Biopharma space.
Great. Thanks for the that's very helpful. And then just I know you spent some time on product inspection, but just given the level of potential pent up demand.
Given what the business has been going through over the past couple of quarters could you just help me with the sort of.
The the sales cycle in terms of from when the decision is made to one of the product shipped and install of I'm just what I'm.
I'm trying to get at is like how quickly could this turnaround once those companies decided to refocus back on spend.
So look, particularly I'll start off with this and I'll, let John chime in as well.
Soon as longer experience versus pulling line of I have.
But I can tell you that the sales cycle of course for investments.
Like like you would see and pulling of inspections on the longer I mean these products are in most of the cases.
The design for the specific application and the specific line of the customer. So you have to think about the customer has basically the fruit manufacturing line and stable of mantra at some specific.
Product inspection, whether it's metal detection of this extra money with us recently.
The inspection and the devices have to fit their manufacturing line. Some part of the process is basically the apple sales strength.
Come in and work with the customer of all number one.
Got it from you saw in terms of the subject and he wants to detect India with its ex waiver of its metal detection with the submission, which will check lane, even and then it comes to the point of the syndicate, we have to have the right solutions and then it comes to designing true the installed base of the rest of the manufacturing lines of this.
So it fits in that cycle.
Actually it takes a couple of days two simple reached you get through the final approval process with the customer as well and then the system is built.
Its not something Thats true digital turnaround.
In a couple of free each when you talk about pent up demand. What we are doing however is we saw the increase to our marketing efforts.
We also brought our team of trucks back on the road, especially in Europe to be close to customers, who cannot go to trade shows et cetera. So we bring the products of the customers where they can see them.
How the it looked like and then can you start the conversation with the wholesale Smith about the potential investments for the next couple of quarters.
Sean any additional flavor in the months no I think you did a really good job answering it Patrick I wouldn't add anything to that I think that's very much the nature of that business, which is different than our other businesses.
Great. Thanks very much.
Next question coming from the line of Dan Brennan with UBS. Your line is open.
Great. Thanks, Thanks for taking the questions guys I appreciate it so just in terms of.
The full year guide just wondering if you think about the back half of the I think this question was already raised but Im just wondering Q2 guide solid Q2 does assume a bit of the deceleration. When you look at like whether to you at the year stock comp is that just conservatism is that any reflection that penalize, the peaking and you just kind of think about what the business could do well.
Just maybe again really strong quarter, just wondering how you would characterize kind of what's implied for Q3 Q4.
Just in terms of the.
Kind of what got you to that level.
Sure. So when we look at Q2, just to clarify I wouldn't characterize Q2 as any of deceleration from Q1 in fact, I think if you look at the multiyear stack, it's actually going to be very very.
Very similar even excluding the <unk> acquisition I think as we look at the second half of the year as we kind of talked about earlier.
<unk>.
As of few different factors, one we have a more difficult comparison, but I guess that would neutralize in the multi year, but if you look at the.
The Q1 Q2.
Even as we kind of ended 2020, we did feel like there was an element of the pent up demand in various dynamics kind of going around already starting in China in Q3 of last year.
Starting to accelerate in other parts of the World in Q4, and then we saw a very significant momentum gain I'm hearing in Q1 with other markets outside of Biopharma really starting to recover and so it's always difficult to to relate to determine of quantify how much is attributable pent up right now as we talked about earlier, we're just not assume.
Moving that Theres any additional pent up for the second half of the year, but if you look at our multi year growth rates for the second half I think it's more consistent with our historical normalized growth rates, Okay of course.
We'll see how Q2 plays out and we'll update everybody as we kind of get to the end of the quarter.
Great. Thanks, and then I know when you think in kind of the rest of world regions and there's a lot more volatility in kind of.
The vaccine rollouts have been slower to come by and just wondering can you just comment on the rest of world just kind of what's baked in and kind.
Kind of what trends you've been seeing there.
Yes so.
What's interesting is not only in rest of the world. The we've kind of been really monitoring the Steven closely in Europe.
Soon as like the the variant started coming out and what we've kind of observed here with this.
Chapter of COVID-19, if you will.
Is that it has less impact on our end markets and it seems to be affecting things more from the social lockdown perspective, and less business impact I'm not saying that.
I'm not saying, we work the economies of resilient to COVID-19 and that there couldn't ultimately be some kind of a knock on risk of stack, but if we just observe things like Europe's been I'm pretty heavy locked down for the last few months and you see the business environment, But then you look at the rest of the world like a country like India who's going through a very severe situation at the moment.
Our end markets are still actually doing well there.
We will continue to monitor that of course, that's 2% to 3% of our business probably more in the 2% kind of a range.
But other than India, we're not necessarily seeing anything.
Significant in other parts of the World Latin America, we have.
I'd say, it's a smaller exposure and not necessarily seeing impact on our business at least at this point in time.
Great. Thanks, Sean.
And our next question will be coming from the line of Brandon.
But the Jeffries your line is open.
Hey, Thanks, good afternoon.
Just one from me Sean I think you mentioned in the prepared remarks plans to add some commercial sales resources under field turbo in the second half of the year could you just talk about the magnitude of those plans in terms of the head count in.
Or will those be targeted at any certain geographies or specific business lines. Thanks.
Yes, Thanks Brandon.
We're excited to restart the field Turbo program I think it also demonstrates how we feel about the business and the growth potential, especially as we're kind of preparing for 2022.
We're going to be making investments in the in the field Turbo program as well as other investments for growth and other other types of investments for growth in other parts of the business as well too when we look at the program.
It is global in nature.
And but it will have a little bit of a.
A disproportional investment in China, just given the significant opportunity we see in China in the in the medium to long term.
If you look at the types of resources.
The kind of similar to the past where there'll be kind of.
Good mixture of field resources, but also inside resources, including Tele sales resources and we just continue to see really excellent returns in terms of our investments.
In the field, but also of the inside.
The sources I mean, the telesales program continues to generate very significant leads for the for the company. These resources also do a fantastic job of leveraging our field sales. So that they are even more effective as well too so and so we feel very good about.
Making these investments and I think youll start to see them happen in the second half of the year.
Great. Thank you.
And again, if you wish to ask a question. Please press star one on your phone's keypad.
Next question will be coming from the line of Josh Walkman with Cleveland Research. Your line is open.
Hey, guys. Thanks for squeezing me in I just have two questions first just one last follow up on the full year guide.
And if you'd be willing to more specifically kind of lay out how much of the increase to the full year was due to the <unk> beat versus an improved outlook of your assumptions for the remaining three quarters.
And then second.
I'm wondering if you could walk through how youre seeing orders shape up from kind of.
The process within the process analytics business.
I believe this was an area that performed quite well.
Throughout 2020, and I guess, just seeing wondering if youre seeing any signs of the business slowing.
And maybe how youre thinking about growth in that business within your full year guide.
Yes, Hey, so maybe I'll take that one Josh so in terms of.
A high level of bridge to the guidance.
You look at.
The.
The Q to Q1 beat of course, that's part of it but from a sales perspective actually a bigger part of it was our Q2.
It's much higher than what we would of thought.
Three months ago, as well as a modest improvement in the in the rest of the year and then of course. It also includes 1% per Penndot Tech and if you look at it from an EPS perspective, I'd say just under half of the increase is related to the Q1 be.
And then probably something more like in the 60% kind of range was related to higher sales volume as well as a little bit of benefit from currency, which improved a little bit since the last time, we spoke offset by some of these growth investments that we talked about.
In terms of process analytics, maybe I'll start that one and I'll, let Patrick at some comments that he has any additional color, but a process analytics is doing extremely well about half of the business or so is has an exposure to bio.
By our production as you can imagine that part of the business is doing really well we've had a lot of really great photo ops in that business actually all around the world over the last few months with leaders around the world.
Visiting bio production plants and in our equipments behind the recent one was was when the President Biden was at the Pfizer plan in Michigan.
Of that business is doing really well, we've we've always felt very strongly about that Patrick talked about that when he talked about penndot tech as well, but what we're also seeing is debt.
The the end markets other than.
The Biopharma are also coming back quite strongly there also.
Yeah, absolutely Sean I mean, the only thing I could potentially next year. As you know this is also a strong consumables business so to speak because <unk> have to be replaced on a regular basis.
All of which builds the very healthy revenue stream for us given the strong installed base. We have and then also we have new technologies like the intelligent sensor management technologies, which of them, which is very attractive from many customers.
Which allows us to upgrade them of even replace some of our competitors in the space. So we'll be looking actually very healthy funnel.
<unk> business.
Thanks Scott.
Yeah.
And we don't have further questions coming in I would like to hand, the call back to Mary.
Thank you and thanks, everyone for joining us this evening as always if you have any questions or any follow up please don't hesitate to reach out take care everyone Bye bye.
And this concludes today's quarterly conference call. Thank you everyone for your participation and you may now disconnect.
Okay.
Okay.
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