Q1 2023 Mettler Toledo International Inc Earnings Call
Yeah.
Good morning, and welcome to the Mettler Toledo first quarter 2023 earnings conference call.
Today's conference is being recorded all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.
At this time I would like to turn the conference over to Adam Aman <unk> head of Investor Relations. Please go ahead.
Hey, Thank you Angela and good morning, everyone. Thank you for joining us on the call with me today is Patrick Kaltenbach, Our Chief Executive Officer, Jonathan <unk>, Our Chief Financial Officer, Let me cover some administrative matters. This call is being webcast is available for replay on our website at MTS Dot com a copy of the press.
Release, and the presentation that we will refer to today is available on our website. This call will also include 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. These statements involve risks uncertainties and other factors that may cause our actual results.
Financial condition performance and achievements to be materially different from those expressed or implied by any forward looking statements for a discussion of these risks and uncertainties. Please.
Please see our recent annual report on Form 10-K, and quarterly and current reports filed with the SEC.
The company disclaims any obligation or undertaking to provide any updates or revisions to any forward looking statement, except as required by law on today's call. We will use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is also available on our web.
Let me now turn the call over to Patrick.
Thanks, Adam and good morning, everyone. We appreciate you joining our call today.
Last night, we reported our first quarter earnings results and I'm happy to share that we have stopped.
The off strong with very good sales and profit growth.
The details of our financials are outlined for you on page three of our presentation.
Our sales growth was again broad based this quarter as our team effectively leveraged spinnaker to identify attractive growth opportunities across a wide variety of markets.
Im also pleased with the strong execution from our team.
Margin initiatives and cost control, which resulted in solid earnings growth on top of excellent results in the prior year, despite very significant currency headwinds.
Our outlook for the year is largely unchanged from what we had provided earlier this year. Although it has increased uncertainty in the economy and our end markets.
Hello, everyone.
Our team will continue to capitalize on growth opportunities and manage our cost effectively to help us level solid results for the year.
Let me now turn the call over to Sean to cover our financial results and guidance and then I'll come back with some additional commentary on the business and allowed Shaw.
Thanks, Patrick and good morning, everyone sales in the quarter were $928 $7 million, which.
Presented a local currency increase of 7% on.
On a us dollar basis sales increased 3% as currency reduced sales growth by 4%.
We estimate that the impact of not shipping to Russia was a headwind of almost 1% of sales growth on.
On slide number four we show sales growth by region.
We had broad based sales growth in Q1 as local currency sales increased 6% in both the Americas and in Europe , and 10% in Asia rest of the world, Excluding Russia, our sales growth in Europe grew 9%.
Local currency sales increased 9% and China in the quarter.
On slide number five we summarized local currency sales growth by product area for the quarter lab sales increased 5% industrial increased 7% with core industrial and product inspection inspection, both up 7% food.
Food retail grew 36% in the quarter as we benefited from significant project activity and prior year comparisons.
Let me now move to the rest of the P&L, which is summarized on slide number six.
Gross margin was 58, 9% an increase of 100 basis points as pricing was partially offset by higher costs business mix and currency.
R&D amounted to $45 $5 million in the quarter, which is a 9% increase in local currency over the prior year, reflecting increased project activity.
SG&A amounted to $234 6 million.
A 2% increase in local currency over the prior year.
Adjusted operating profit amounted to $266 $5 million in the quarter, a 10% increase.
Currency reduced operating profit growth by approximately 7%.
Adjusted operating margin was 28, 7%, which represents an increase of 180 basis points over the prior year.
A couple of final comments on the P&L amortization amounted to $17 $8 million in the quarter interest expense was $18 $2 million and other income amounted to zero point $4 million.
Our effective tax rate was 18, 5% in the quarter. This rate is before discrete items and adjusting for the timing of stock option exercises in the quarter and we expect to maintain this rate for the full year.
Fully diluted shares amounted to $22 3 million, which is approximately a three 5% decline from the prior year.
Adjusted EPS for the quarter was $8 69.
A 10% increase over the prior year or an 18% increase excluding unfavorable currency.
On a reported basis in the quarter EPS was $8 47 as compared to $7 55.
In the prior year.
Reported EPS in the quarter includes 20 <unk> of purchased intangible amortization and <unk> <unk> of restructuring costs.
We also had a <unk> 17 headwind due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises that normalizes in the fourth quarter of every year.
That covers the P&L, let me now comment on cash flow.
In the quarter adjusted free cash flow amounted to $135 3 million.
Up $60 million helped by better inventory and accounts receivable trends as well as lower incentive payments.
DSO was 38 days, while <unk> was three six times.
Let me now turn to guidance.
To start off forecasting remains challenging and market conditions remain dynamic as previously mentioned there is uncertainty in the economy and our end markets. We are basing our guidance for the second quarter and the full year assuming market conditions remain as they are today.
For the second quarter, we expect approximately 3% local currency sales growth.
This level of growth reflects the challenging multiyear sales growth comparisons we face in the second quarter as well as a growth headwind of approximately 2% from reduced sales in our pipette business we.
We expect second quarter adjusted EPS to be in the range of $9 90.
To $10, representing a growth rate of 5% to 7% or 10% to 11% excluding unfavorable foreign currency.
For the full year 2023, we have left our local currency sales growth guidance of approximately 5% unchanged. We expect full year adjusted EPS to be in the range of $43 65.
The $43 95.
Representing a growth rate of approximate of about 10% to 11% or approximately 12% to 13% excluding unfavorable foreign currency. This.
This compares to our previous guidance of adjusted EPS in the range of $43 55.
The $43 and 95.
Total amortization, including purchased intangible amortization is forecast to be $72 million.
Purchased intangible amortization is excluded from our adjusted EPS and is estimated at $26 million on a pre tax basis or <unk> 92 per share now.
Now, let's turn to cash flow.
For 2023.
Continue to expect free cash flow in the range of $900 million and we still expect to repurchase approximately $1 billion of our shares. This year. That's it for my side and I will now turn it back to Patrick.
Thanks Shawn.
Let me start with some comments on our operating businesses, starting with lap, which had good growth in the quarter considering challenging prior year comparisons.
We also had a loss of an unexpected sales decline level pipette business as customers continue to work down their inventories.
We believe this headwind will continue into second quarter and ease in the second half of the year.
Outside of Pet pets, we had strong growth across most of our portfolio, particularly as our team pursues growth opportunities in hot segments, like lithium ion batteries and sustainable polymers among others.
Turning now to our industrial business.
Very strong growth across several core industrial products. This quarter as we continue to benefit from strong demand for our solutions that automate customer processes and enhanced productivity.
Product inspection also had a strong quarter as if capitalized on stronger demand from food manufacturers in the Americas.
While we experienced only modest growth in Europe .
While we are pleased with the good start to the year. Our core industrial business is also not immune from the economy and we expect softer results in product inspection as these customers face increased headwinds and we expect global growth for the remainder of the year.
Finally, food retail delivered very strong growth this quarter due to robust project activity in the Americas and Europe .
Comparisons were also favorable as sales declined 14% in the first quarter of last year.
While food retail sales can be lumpy, depending on our customer project activity and we would expect global growth rates for the remainder of the year.
Yes.
One final comment on the business.
Service sales continued to show excellent momentum and grew 15% in the quarter.
Continue to be very pleased with the growth in this important and probably a part of the whole business.
Now, let me make some additional comments by geography.
Sales in Europe increased 6% in the quarter or 9%, excluding the impact of stopping shipments to Russia.
Sales growth this quarter benefited from very strong growth from our food retail business as well as strong growth in our core industrial businesses.
Offset in part by a significant decline in pipettes.
Sales in the Americas was solid with strong growth across most of our businesses, especially food retail offset in part by a significant decline in pipettes.
And finally Asia and the rest of the World had another quarter of good growth.
Led by the lab business, China grew 9%.
<unk> very strong prior year growth rates with particular strong growth in lab.
Now speaking of China at the end of March our travel job.
To visit our operations in China, and I couldnt be more excited about the strength of the team we have in place and the substantial opportunity ahead of us.
I'd like to share with you some additional insights on our business in China.
While we are quite optimistic about our long term growth opportunity for you.
First as an overview, we have a very long track record of operations in China have been wholly owned subsidiaries therefore more than 35 years.
China represents 21% of our total global sales and we design manufacture and distribute products in China for the local markets.
Three manufacturing locations in China, representing approximately a third of our global production again over half of which is sold into the local markets.
China and the other emerging markets have historically been an important source of growth for our company and we believe this will be a source of future growth.
Our business in China overall has grown at a 13% CAGR over the last 20 years, including 14% growth in 2022 as the mix of whole business has shifted to foster growing it more resilient industries.
Customers in China increasingly seek out.
Our most advanced solutions.
We have we have a very strong competitive advantage and leverage our unique go to market approaches.
Our portfolio is extremely well positioned to serve the demand for automated solutions automation solutions.
Drive for productivity and to help ensure compliance.
We also benefit from the governments focused on developing a broad the life sciences industry and also strategic market segments.
Our colleagues in China are very agile to respond to local market needs.
With local application development and support of China specific demand.
We leveraged this unique approach with our spinnaker sales and marketing programs to capture growth in all segments like lithium ion batteries.
And I visited the bear a large federal customer and saw firsthand how massive investments in E mobility and stationary power solutions are.
But also how the solutions are excellently positioned to provide substantial value to this rapidly growing industry.
Overall, our business in China remained strong during the first quarter and our outlook for Q2 is also positive despite challenging multi year comparisons.
We see continued investments in key segments like lithium ion batteries pharma biopharma, but also healthy investments in industry as our customers look to reduce direct labor and improve productivity with automation investments.
I would note that.
Market sentiment I would note that market sentiment is also optimistic in anticipation of potential further government investments to support growth segments like E mobility, expanding R&D capabilities with new labs, and long term investments in pharma biopharma to support better health care.
Details of these are still limited, but I would note that the government has announced structural changes and its organization responsible for accelerating the pace of scientific development highlighting the emphasis being placed on this important topic.
As we think about these trends and how they impact our business in China, we remain optimistic about our long term growth opportunity in the region and would expect our business in China to grow at a faster pace than the overall business.
However, SBA always like to remind everyone. While we are optimistic for the long term and for 2023, China has historically.
Historically being a more volatile market and things can change quickly in the short term.
In China like the rest of the World, We believe our unique growth strategies.
Tremendous diversity and culture of operational excellence and agility precision those very bill to gain market share and deliver solid financial results in 2023 now.
Now that concludes our prepared remarks, and now we would like to open the call to questions.
At this time I would like to remind everyone. If you would like to ask a question. Please press star one on your telephone keypad.
Your first question comes from the line of Josh Waldman with Cleveland.
Okay.
Good morning, guys. Thanks for all the detail thanks for taking my questions one for Sean.
Then one for Patrick Sean wanted to start on the near term organic growth guide and the implications for the quarterly cadence for the full year curious how about 3% local currency guide for Q2 compares to what you had previously penciled in for your full year assumptions and then are there factors beyond destocking that would come into play.
Since your last Guy they are leaving you more cautious on the on the second quarter.
Yes, sure. Thanks, Josh So hey, I think as we mentioned in the prepared remarks.
Stocking is a factor in Q2, so if you look at our 3%.
The decline that we expect in pipettes, specifically in the second quarter reduces our growth by about 2% so excluding that.
Headwind our growth would be 5%.
I think another important thing to.
Comment on for the second quarter is that.
I think it's important to look at the multiyear comparisons. So if we if we look back the last couple of years, our three year CAGR with the 3% is about 13% growth. So that's a CAGR of 13% and Thats actually very similar to what we did in Q1 of this year with the 7% growth.
So again to put that in perspective.
We grew on top of 10% last year, but that 10% growth was on top of 27% in the prior year. So that is very much is weighing on us as we as we think about the business.
And then maybe it is kind of like walk through our typical.
Guidance by business area and region I can kind of go through that kind of quickly.
So when we look at the lab business, we're looking at a low single digit growth in the second quarter keep in mind of course lab is dealing with this headwind in the pipette business, so that headwind for Q2.
It's probably estimated in the 4% kind of a range for for the lab business. So it would be high single digit excluding that and then for the full year. We're now looking at mid single digit for the lab business and Thats down a little bit from what we were thinking before because this headwind was a little bit more than expected. When you look at the first quarter.
<unk> of 7% that includes about a two 5% headwind from the decline in the pipette business.
Product inspection, we're looking at low single digit in the second quarter.
And then low to mid single digit for.
For the full year one of the things we're seeing in Pi is we actually had a very good start to the year in Pi in the Americas, but we are seeing maybe some some more challenges and caution and.
In investment activity and packaged foods and as you can appreciate there's a lot of headlines in that regard for that industry.
Core industrial.
Low single digit for the second quarter, and then mid single digit for the full year.
A full year basis, a little bit better than what we were expecting were just very continue to be very impressed with the resilience of that business.
And how well we've been executing there.
And then food retailing, we're looking at mid single digit for Q2, and then high single digit for the.
The full year, obviously got off to a better than expected start with very strong project activity and then for the regions.
We're looking at low single digit for the Americas in Q2, and then low to mid single digit for the full year that businesses, a little bit more disproportionately hit with this.
Headwind and the decline in pipettes.
Europe , we're looking at low single digit for Q2, and then low to mid single digit for the full year, a little bit better than what we were looking for the full year last time, we spoke given the very strong start to the year in Q1.
And then for China, we're looking at mid single digit for Q2 and high single digit for the full year, which is consistent with what we were looking at the last time, we spoke.
Okay got it appreciate all that Jonathan.
Patrick I appreciate the comments on China.
Wondered if you could provide a bit more context on the cadence through the quarter.
Maybe what youre seeing by end market and I guess, whether or not you guys are seeing stimulus benefits show up in the order book yet.
<unk> good morning, Josh.
Looking at the cadence in China as you have seen we started off strong in Q1 with nine.
9% growth in China is a very solid results and that of course was a quarter, where as you know we had to take.
Colby.
At the beginning of the of the quarter and yet our organization to really execute extremely well and delivered strong results.
As Sean mentioned the <unk>.
Plan.
Scheduled right now for Q2 mid single digit growth for China and that is of course also based on the fact that we have.
Very strong.
Compares.
For Q2.
And then for the full year.
China is still at high single digit growth.
So thats kind of the outline in terms of what Youre seeing there again, we have seen very strong growth for the lab business.
Specifically for analytical instruments I believe the business is performing really well for us.
<unk> also benefits from the hot segments.
Sure medical on the industrial business the growth.
Has moderated against really difficult comparisons.
A reminder, we grew over 60% and industry in Q1 21 and over 20% in Q1 2022. So those compares of course would also count for Q2 moving forward.
We break it down so that does the growth come from we still see a lot of interest in solid growth opportunities in the hot segments like the battery manufacturing for example.
It's really impressive how China is putting emphasis behind building out of industry beyond car.
Mentioned, although the power grid.
Stock with using loss modules to go place.
On the power grids next two solar power plants et cetera to take out excess energy and give it back at <unk> I think there will be continued investment and that goes.
<unk> along with the overall investment that you see in automation solutions across the industry.
China has continued to look for productivity gains they are facing an aging workforce and.
The fact that we won't have enough workflows moving towards of the proactively looking for automation and productivity solutions, where our portfolio plays really well this way again.
Again, our overall confidence in the China business comes from we are extremely well positioned with the team behalf.
We are confident that the long term trends of the government.
Wanted to follow up on them and drive growth.
<unk>.
In the longer five year, China growth plan.
For healthcare related stronger research and development in China oil plays a valuable and total portfolio.
Thanks for all the detail guys.
Your next question comes from the line of Jack Meehan with Nephron research.
Thank you good morning.
I was wondering if you could update us on how much pricing contributed in the quarter and.
How is your full year expectation for that changed.
Yes, I think yes, thanks, Jacques so pricing came in pretty much as we expected in the 6% kind of a range. We expect it to get off to a good start this year given all of the different actions that we took last year. When we were kind of mitigating inflation.
And as we look to the to the full year, we're still expecting about 4% growth for the full year and as we look to Q2, specifically, we're looking at 4% growth and so the reason why Q2 would be lower than Q1 is because of the timing of some of the actions we put in place.
Last year.
Great.
Either Sean or Patrick can you just elaborate a little bit more on the Paypal destocking that you're seeing.
Just to be clear like how much of this do you think is specifically related to.
Covid and just how much visibility do you have into improvement in the second half of the year.
Yes, I can take a look at it.
The destocking effects not only the testing Colby testing related markets to be honest I mean, when there was this huge demand in the market last year.
You should also appreciate also the pharma biopharma customers and also help us really loaded up inventory because there was a shortage in the market and I think the whole industry and across the whole industry is seeing everybody was who is using plant. That's actually is suffering from the tech amount that they are still have quite some inventory that they are working down.
We do expect as we said this to be reduced in the second half so.
More back to normal volumes in second half, but it will definitely be still topic.
For Q2.
Thank you.
Okay.
Your next question comes from the line of Dan areas with Stifel.
Okay.
Good morning, guys. Thanks for the question, Sean maybe just following on <unk> question on pricing. There can you kind of put a 1% volume year, that's implied here with the guide in the context of those.
Prior years or prior periods, where you had some macro and market factors moving around.
How often did you see flattish volume growth and as we move through the year here what about this year.
It's most likely to be true.
Well I think what stands out this year Dan is we're just coming off of unprecedented period of growth I mean, like the CAGR that I mentioned before a 13% CAGR for the last three years is it's much higher than our how.
How we.
Envision ourselves for the longer term in terms of our our algorithmic algorithm. So we've always expected to see some level of moderation at some point during this year.
It's hard to compare it so maybe a historical precedent but of course in 2020.
We had a slower start to the year when it came to volumes during Covid and then that kind of like reversed in the second half of the year. So I think we will see how it plays out but I think.
We have the comparisons we've been kind of in a weak macro environment for quite some time now with PMI below.
It's hard to while we're while we have been resilient and executing very well specific particularly in our core industrial business, which has been historically more susceptible to the economy. We're also not resilient right and so as headlines continue to come out.
In our end markets in particular with some of the challenges that our end markets are facing whether it would be.
Food manufacturing companies or chemical companies or.
Other industries like Biopharma.
We do have a little bit of that on our mind as well.
Yeah.
Yes, okay.
And then maybe just as a follow up small and emerging biotech is obviously getting a ton of attention. These days what would you call your exposure there and.
And can you kind of just describe your sensitivity to spending by that portion of the customer base and then.
You would add to the conversation on how that's likely to evolve this year. Thanks, so much.
Yes, I think our overall exposure to small biotech is relatively small.
Of course that effects, a little bit of our of our rain in pipe that business, but it's a it's generally a very small part of that business. So nothing in particular that I would call out.
Okay.
Okay.
Operator next question please.
Your next question comes from Patrick Donnelly with Citi.
Hey, guys. Thanks for taking the questions.
Wanted to follow up on I think it was Jack's question there on the pet side Pat.
Patrick can you just talk about I guess the visibility into the normalization in the back half is it a comp dynamic is it customer conversations that gives you some level of confidence on a normalization just given the.
The chatter across the market about this.
Sector I just want to make sure we have a good feel as to what gives you guys. The confidence in terms of that second half ramp.
Yes.
It's part of it's both sides. We of course look at the historical data the growth rates being the volumes have come from but you also of course are in conversations with customers and we have clear signals of assay will Q2 will be.
A destocking quarter.
<unk>.
<unk> basically cut back more more to normal inventory levels put it that way.
And the overall volumes that we expect again go them get back to normalized.
Normalized growth rates over the last three four years, we would get back to the volume that we would expect for Q3 and Q4.
It's a mix of calculation and say, okay, what was the underlying market growth.
What is all anticipated market share gains at the half year numbers were very strong.
This portfolio.
Are these in your needles with delaying businesses very strong market share, especially in the U S.
Take all these factors into account.
<unk> basically to look at a picture of is yes, we will see more happened again in Q2, but then in Q3 Q4, but getting back to normal growth rates again.
Okay understood.
And Sean maybe one follow up on that pricing piece on the margin side can you talk about the expectations for <unk>. Obviously the earnings came in a little light of where the street was and then just that similar to that ramp in the second half.
Just the moving pieces on the margins would be helpful.
Yes sure so.
One of the things to kind of keep in mind is that if we're looking at our gross margin.
We grew above.
100 <unk>.
30 basis points, excluding currency actually I think it was 140 basis points excluding currency.
In the quarter, so that wasn't that much different.
Currency neutral basis to what we were guiding.
So currency clearly had an impact we also had a little bit unfavorable mix in the quarter.
Between the different businesses of course, pipettes and more profitable business in retail is kind of on the other side of that.
As we kind of like look towards the.
The rest of the year, we're looking at our guidance for.
Gross margin would be about 60 basis point improvement in the second quarter and if you exclude currency on a currency neutral basis that would be about a 100% improvement.
Improvement and then for the full year, we're looking at 70 basis point improvement and again on a currency neutral basis. That's about 110 basis point improvement, which is just down slightly about 10 basis points from the last time that we spoke.
And then on operating margins, we're looking at.
We got off to a very strong start to the year as we kind of expected. We're looking at a 90 about a 90 basis point improvement in the second quarter and again on a currency neutral basis that would be about 180 basis point improvement. So again another another very good number to start the year and then for the full year, we're still looking at.
About 130 basis point improvement, which is similar to last time, but what's a little bit different is that we.
On a currency neutral basis were up about 200 basis points. So that's that's gotten a lot better.
Understood Thanks for that color.
Yes.
Your next question comes from Vijay Kumar with Evercore ISI.
Okay.
Hey, guys. Thanks for taking my question.
Maybe my first one Patrick here I think.
You made some comments on the macro environment, it seems like a bit more.
Cautious tone on this call.
Well see our industrial outlook did not change so when you say.
Macro.
Taking a more cautious tone is.
Can you give us a sense for is this specific regions or perhaps end markets because industrial is where I would have expected.
Some change.
You look at the guidance all of the change from came from labs. So how should we think about the macro commentary.
Sure. Good question. So if you look at the macro economy in your end markets. A couple of things I want to highlight here first is suo, albeit once all of the <unk>.
Continue to be very soft.
<unk> has to be has been the indicator for us that the industry.
Business might slow down you are not yet fully <unk>, Fortunately because we have a strong portfolio, but it is a concern for us, but <unk> stayed pretty low.
<unk> is a more.
A negative headlines for example in the packaged food market. The site in Q1 that Europe is already a problem now reviewing also in the U S that some of the customers.
Excellent.
Slowing down their investments.
That resolves analytics, but as good as it used to be those headlines also looks to promising <unk> commended bill already was made about biotech wise.
They're not broadly exposed in biotech.
That is still in terms of end market.
<unk> out there there is concerns about biotech.
Of course affect our total macroeconomic pictures as well when you look at the regions.
Chumpier outlet and before Europe in the first quarter performed better than expected from our perspective was really strong.
We assume cost without the impact of the warrants Ukraine and Mike.
I mean for the economy moving forward. So although there will be again keep our forecast for Europe , so quite moderate.
In the U S.
Yes.
Sure.
Potential recession has.
I think it's also you need to be a bit cautious about the outlook overall.
Overall.
That's helpful Patrick.
Sure.
One follow up here on.
I know that.
Customer base that you serve it's pretty large.
So when you look at the daily run rate items, like Pipettes and order rates.
Could you do a survey of our customer base.
When this.
Order rates might pick up I'm curious when you thought about <unk> in the back half assumptions.
What kind of.
Yes.
Customer feedback have you gotten.
That gives you confidence in the back half guidance.
And therefore, I think everyone mainly refer to number one.
The compares will of course be Eagle Ford results in the second half in terms of growth rates.
Very strong growth last year in the second quarter. That's why you see a stronger decline this year.
And then in terms of customers, we talked to a lot of them are.
Pharma Biopharma research areas.
Usable pipettes quite intensely.
From directly from some of the customers advocate.
Good indications that fewer beds overstocking issues will be less of an issue in the second half.
Thanks, guys.
Your next question comes from the line of Tim Daly with Wells Fargo.
Great. Thank you.
Just quickly I know a lot of talk on lab here, but can you guys just help us with the underlying regional forecasts that are rolling up to that.
And our growth guidance for the year within lab.
Yes sure.
Hey, I think as we kind of like look at.
At Q2, so we had low single digit growth for for lab as the division and I think we're kind of like looking in that low.
Low single digit range for for the Americas, and Europe again, Europe Americas is going to be the most impacted region by this decline and fight pads. So we'll probably see the softer growth in that region versus the other ones and then and then China.
We will probably be in the kind of mid to high single digit kind of a range there.
And I think a lot of the lab.
Two it's also important that we if you look at like the first quarter as an example.
Actually double digit growth.
Most of the other product categories and.
And we are still seeing good growth and a lot of these hot segments.
It's just these multiyear comps and then and then this this topic that we talked about with with the headwind in pipettes as we kind of entered the rest of the year.
Alright, Great and then just wanted to dig into the service and consumable climb.
How did.
I guess service grow in the quarter can you help us understand how you're thinking about that.
Contract for value add services growth for the year.
And then just kind of general commentary I don't think we touched on that much on the earnings call today.
Yes, no great question, I mean services tenant really good story.
We featured it on our last call.
We grew last year at 12% and we got off to a really good start this year with 15% growth.
We continue to see great opportunity here when you kind of look at the the overall installed base that we serve in and when you kind of put dollars to that in terms of what it could mean to our service business. It's a very significant opportunity we have a very strong value proposition here with helping companies with uptime and compliance.
Accuracy of their resolves and reducing waste and that those value propositions really are resonating very well in the marketplace and we can also do a lot of very value added activities like validating and certifying our processes and as we kind of go after these opportunities with our big data analytics.
Program, and how we penetrate that base or whether we have gotten better at selling.
Service at the point of sale by embedding these.
Into our into our quotation process, we've seen very good traction in terms of the ability to capture this opportunity in <unk>.
And then maybe one other final comment on services like our net promoter scores are.
To be at like all time highs and they were already high before and so it just shows you how well our our team executes around the world and as we kind of look towards the rest of the year, we continue to be.
Continue to be positive here wouldn't be surprised if we're in the in the 10% range again for for Q2, and then for the full year, what we will see how it plays out.
Great. Thank you for the time appreciate it thank.
Thank you.
Your next question comes from the line of Derik de Bruin with Bank of America.
Hi, good morning.
Hey, Derik.
Yeah.
Apologies if I missed this but can you remind us what your FX assumptions are for the revenue impact in Q2 and for the full year now has that been updated.
Yes.
Ken.
<unk>.
So okay. So FX on Q2 is just under 1% and then for the full year, so that would be a.
A detriment and then for the full year, it's it's about neutral maybe up modestly.
I think right.
Derek just to make sure you got this one the bigger one from my perspective is the FX impact on an EPS.
And so thats, a 4% headwind we mentioned I think in the press release for Q2, and it's about a 2% headwind to EPS for the full year and our previous guidance it was like.
Like a one 5% worse than prior guidance.
Great, Yes got that.
And can you remind us.
<unk>.
The split NPI versus core industrial.
And also just sort of like the margin differentials between.
Lab and industrial just trying to once again sort of like think back about the.
Margin activity the margin progression for the year.
Yes, so in terms of the yes in terms of the split our core industrial business is about 60% of our industrial exposure and Ti is about 40% it might be a little bit more than 16, a little bit less than 40, I don't know the exact math, but it's probably in that kind of of.
Of our range.
And then as we kind of think about.
The.
The margin differentials are lab business does have higher margins than the rest of the business.
And.
And then within within that of course, pipettes as a higher margin business.
Alright, great.
Have you seen I guess any cancellations I mean, I know your business is more short cycle orders are sort of building.
Bill the bought back a backlog, but have you seen any sort of cancellations, particularly in <unk>.
Any bigger instruments people not buying ph meters, just hesitation at all in buying or.
Yeah.
Are things still looking relatively healthy.
Not seeing any cancellations.
Q1 was actually quite good.
Of course hard to talk about if there.
Hesitant I think we will see how those types of things play out but in terms of cancellations not seeing anything like that okay.
Okay.
And then just one final one.
What was the actual growth.
<unk> and <unk> had some projects with analytics in the first quarter.
So for Pipettes, our business was down high teens in pipettes as just over.
10% of our business.
And what was the other part of our sustainability processing.
Process analytics actually has had a very good quarter I think they were up double digit in Q1 and.
And if you kind of like get into the if you are trying to like look for.
Inside fund on bio processing, there because a lot of that business is bio processing.
A lot of the businesses is holding up actually quite well of course, there are some vaccine production.
Comps that we that we have to deal with in that business, but the one area, where we have seen weaknesses in single use sensors and.
And that of course is a much smaller part of our business and portfolio.
Yes, Thats exact and that is exactly right with going with that process downloads question, yes.
Yeah.
Yes, sure absolutely, but thank you very much the next week alright take care.
Your next question comes from the line of Catherine Schulte with Baird.
Okay.
Hey, guys. Thanks for the question.
First you talked about services.
10% in the quarter, how did consumables perform overall and then excluding Paypal.
Yes. So good question. So let me just.
Make sure I got the right number here, so our consumable business was down about.
12% and that was.
Almost entirely due to the decline that we saw in pipettes I think we had growth in all of our other consumable categories.
Okay, and then it sounds like core industrial is trending better than you expected coming into the year can you just talk to what kind of trends you're seeing there in any quarter, but commentary that gives me confidence to raise that full year. Despite the macro weakness that we're seeing.
Yes, I will take that Kathryn good morning.
Look again industry it comes down to our portfolio and solutions to help customers automate processes.
And we see still very very healthy.
Our investments in interest in our product portfolio and I think we compete extremely well, especially also with the new products that we released last year. The industry 360, I think you talked about it at the Investor day, very successful product, but also the overall OEM business for us.
It's doing really well.
See strong demand.
Around the world there are still there's still a lot of interest in building out automated solutions.
The replay of significant part as a player in this segment so that gives us quite some confidence moving forward.
The industry will besides a very negative PMI trends there will not be.
Effective as badly as to <unk>.
Can be pointing to low single digit growth in Q2, because it's also tough compares don't forget we're really looking at it Super tough compares on a three year basis here for industry massive growth in China over the last three years in the industry.
Very good investments in Europe in the U S and of course. These compares to put additional positive growth.
It means quite something.
Okay, great. Thank you.
Your next.
Question comes from Mac Sykes with Goldman Sachs.
Great.
Thanks for taking my questions.
Hi, Patrick maybe the first one for you.
Just as you're going through this pretty significant normalization, particularly in the lab business.
And then looking at your comments on services and the growth that you've shown last year and then obviously this quarter could you maybe help us understand a little bit more of the historical.
Three three year CAGR or longer on services, just so we can understand essentially.
The algorithm post this normalization and the contribution that services could actually make to the overall group growth algorithm, meaning if it's services or sort of Twentyish percent. Please correct me if I'm wrong on that.
But growing at a higher rate without the comp difficulty that the rest of the business has.
Actually change the longer term growth algorithm for Mettler, if services were to continue to grow at the rate it's growing up.
42 shown here on this question because he has the growth numbers.
Right in front of it yeah, thanks, Matt so.
I mean of course, we're very pleased with the with the growth we've been seeing in service and as I mentioned before we see that as a really good opportunity.
If we kind of look at how we started the year.
It's like a 10% three year CAGR.
And but we were kind of exited last year with maybe a 7% CAGR in Q4. So I don't have the full year number in front of me, but I certainly wouldn't want to characterize this as a double digit business going forward, although we're pleased with it and we're going to.
Challenge the organization to do well this year, but I think kind of going forward I would just characterize it as above corporate average and which would imply high single digit and it certainly will have.
Should have benefits in upside to our overall algorithm over time, but nothing that I would highlight differently than how we thought about it.
Historically other than we're just executing very well at the moment.
Got it thanks for that and then just on automation that space.
You guys typically compete against within fragmented markets is automation any different from that I'm, just thinking of sort of the larger European players or Japanese players and automation as you sell into China and other regions is that a different type of competitive landscape. You guys are facing automation or is it similar or are you going to find other ways to compete.
I think it's different maybe I'll start and let patrik jump in but like a lot of our automation, we're selling the system integrators and so so there is a whole business model that.
It has to do with not only quality and all that kind of stuff, but how easy are you to integrate into their solutions.
And so that's the area, where we have a lot of competitive advantages well hey, great. It's about how our sensors and our terminals plugging in home.
Both into the system, but also the overall software environment.
End user has I think we have a very strong portfolio and very up to date per quarter that resonates very well with the system integrators.
Thank you.
Okay.
Your next question comes from.
Liza Garcia with UBS.
Yeah.
Hey, guys. Good morning, Thanks, so much for taking the question.
So I don't know.
That customer.
Customer type event.
More broadly on the pharma I think there's like a lot of questions on farmer more broadly I know you spoke a little bit earlier on the centers, but could you just talk about kind of what youre seeing in the pharma environment more broadly.
And the growth trends there even if qualitatively.
Okay.
Yes, I can start with Sanchez.
And you look at pharma and Biopharma. The first thing you should appreciate as our diverse exposure given the broad portfolio ramps. So we serve customers.
Sure.
This was broad based and I'll leave the portfolio.
With pipettes.
When you go downstream.
<unk> solutions to scale up.
Manufacturing of all the <unk> businesses with a strong in pharma as well and then the whole.
Pro business.
Please proceed.
<unk>.
Plus the industry portfolio when it comes to downstream industry. So I think we have a really broad based exposure.
What we're seeing I think is continued investment long term investment any way into pharma Biopharma, yes, there was a slowdown.
<unk> manufacturing as well.
We see we saw some of that exposure in Biopharma I think Sean related distributors as well with for example, with <unk> that we saw for single use sensors.
Plus effects that are used in viral and biopharma process, we saw a slowdown there, but we see still really healthy demand on the R&D side.
<unk> investments and also on the QA QC side.
A huge installed base of instruments out there also sort of Indesit continues replacement business.
<unk> also addressed with our portfolio.
<unk> pharma on a global scale.
Tom.
Regionally I would say.
We see.
No big slowdown at the moment for pharma Biopharma in the U S.
Sales in Q1.
And in China, It looks similar.
We had actually quite good sales in Q wanted introducing as a segment now what it means moving forward with it there will be a change in biopharma, which.
Could be one of the segments in China. If you could look at as I said on the more pressure, but again given the broad portfolio behalf. I think we are very well positioned to capture growth opportunities.
And just to clarify his comment on U S was excluding the pipette, excluding micron and we talked about.
Okay.
And then just.
<unk> talked about.
And sustainable polymers.
It's maybe a bit of a smaller but can you talk about kind of how you think about there.
A bit of a longer term question like how you think about the runway there and how many how we should think about growth outlook there.
Yeah, absolutely look I mean, there's a lot of investment in the area and a lot of research going on in the area of sustainable polymers.
New materials.
The resurface with broader portfolio again, a lot of it is on the lab business. If you look at the raw material characterization portfolio.
Very closely working with our customers to understand the demand and the workflows that they're used to and.
And what solutions they are looking for.
Given wherever you are in terms of fuel oil.
Market trends I think it's still early innings, there's a lot of demands.
Opportunities to come up with solutions to obviously standup plastic for example, and also more sustainable materials moving forward. So.
We are confident that it will be while it's still a smaller second clause is one of these hot segments similar to what we see and what we have seen them and can you do see with lithium ion batteries.
If you're early enough to go to customers and provide them provide solutions and Devry group flows.
Can be.
I will lead up to participating in that growth as they build up build out research later on manufacturing and of course also keep QA QC, that's that will be a thumb inflict on Hulu.
The battery segment, we have been very early with all these customers to understand what their needs are and Margaret participating really nicely in the growth opportunities both on the R&D, but also now in the manufacturing side in terms of tools we are using.
Thanks, so much guys.
Thank you.
Your next question comes from Brandon Couillard with Jefferies.
Hey, good morning, Thanks for squeezing me in just one for you Sean.
We split out the lab versus industrial business in China in the first quarter.
Any update on the.
<unk> forecast for those two sub segments of the year and then Patrick any change in local competition or dynamics on the ground there.
Care to call out.
Okay. Good.
Hey, Brandon ill take the first part of that question then so.
For Q1, we actually had a really good start to the year and our lab business, we were up mid teens.
We saw a lot of growth throughout the portfolio.
With the exception of they also have a.
Our pipette headwind, but it's a smaller part of their business.
In the lab business in China, we like a lot of our other businesses. We also.
Have been benefiting from a lot of these hot segments that we were just talking about like lithium ion batteries is.
As a good example.
Which in which really thin to a very strong growth of our analytical instrument business and then on our industrial side we grew.
Low single digit in the quarter and.
I think that's important to put that in context with the with the <unk>.
Comparisons so that's on top of about 24% growth in Q1 of last year, but on top of 63% growth in the year before that so China's lapping some some very very challenging comparisons in the first half of the year for their industrial business.
And as we kind of like look towards Q2, and the rest of the year, we're kind of looking at low single digit again and in industrial for Q2 given.
Challenging comps also in the second quarter, but.
We're expecting better results in the second half as the comparisons improve so probably still thinking of that business is low to mid <unk> for the full year, which is kind of similar to how we were thinking before and then.
And then lab might have some moderation also because of some comp topics on a multiyear basis in Q2, maybe it's more in the mid <unk> mid to high single digit kind of growth range.
We're still optimistic for the full year, especially given the strong start in Q1, so still thinking that double digit for for the full year on the lab side.
Okay.
I think the topic there like a lot of other reasons, but especially in China is going to be how to.
With all the investment that they've had in Covid, what does that look like.
For the rest of the year and given the fact that they just went through the reopening more kind of see how that plays out.
Okay, Okay, Thanks, and Brian Davis from my side, you asked about the competitive situation in China with the market, but there is a significant change I would say no look it's a very competitive market. We have local players deals as well, but you have to I want to remind you would be have a really strong history in China strong R&D.
And manufacturing base to Abbvie as I said in my remarks, we are manufacturing a lot of products locally in China, and also tailored marketing applications to the local market needs that helps us to really effectively compete with the political folio and our sales and marketing team uses to set the very same spinnaker sales and marketing approach to really go after the growth.
Communities identify those in the China market.
In that example about battery segment.
And they have been very successful.
Do those so.
Yes, <unk> competitors, but I would say it hasnt changed dramatically for us.
Our team is well positioned to continue to continue to compete and be made from my perspective also a lot of food and restaurants to make sure that we have the right portfolio to compete effectively in the market.
Very helpful. Thank you.
With no further questions. We will conclude today's conference. Thank you for your participation you may now disconnect.
Okay.
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