Q4 2024 Mettler Toledo International Inc Earnings Call
J.L.: Thank you for standing by. My name is J.L. and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler Toledo 4th Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I would now like to turn the conference over to Adam Uhlman, Head of Investor Relations. You may begin.
Speaker Change: Hey, thanks, Jay Ullman. Good morning, everybody. Thanks for joining us this morning. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer.
Speaker Change: a copy of the press release and the presentation that we will refer to today.
is available on our website.
Speaker Change: This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934.
Speaker Change: 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.
Speaker Change: For a discussion of these risks and uncertainties, please see our annual report on Form 10-K and quarterly and current reports filed with the SEC.
Speaker Change: The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement except as required by law.
Speaker Change: On today's call, we may use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8K and is available on our website. Let me now turn the call over to Patrick.
Patrick Kaltenbach: Thanks, Adam. And good morning, everyone. We appreciate you joining our call today.
Patrick Kaltenbach: Last night we reported our fourth quarter financial results, the details of which are outlined for you on page 3 of our presentation.
Patrick Kaltenbach: Get a strong finish to the year and be capitalized on very good customer demand for laboratory products, especially in Europe.
Patrick Kaltenbach: Strong sales growth and solid execution of all margin improvement initiatives contributed to excellent adjusted EPS and cash flow.
Patrick Kaltenbach: Reflecting on our achievements in 2024, we delivered good results despite soft market conditions and continue to benefit from our strong culture of execution and continuous improvement.
Patrick Kaltenbach: At the same time, we stay focused on our long-term strategy of delivering innovative solutions and extending our market leadership.
Patrick Kaltenbach: Looking ahead, driving growth is our top priority in 2025, and we will continue to build on our competitive strength and take advantage of opportunities in automation, digitalization, and high growth areas to further expand our market share and deliver good earnings growth.
Patrick Kaltenbach: Let me now turn the call over to Shawn to cover the financial results and our guidance.
Patrick Kaltenbach: and then I will come back with some additional commentary on the business and our outlook. Shawn? Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.045 billion, which represented an increase in local currency and in U.S. dollars of 12 percent.
Patrick Kaltenbach: On slide number four, we show sales growth by region. Local currency sales grew 7% in the Americas, 19% in Europe, and grew 14% in Asia, rest of world.
Local currency sales increased 4% in China in the quarter.
Patrick Kaltenbach: Excluding the impact of shipping delays in the fourth quarter of 2023, local currency sales grew 6%.
Patrick Kaltenbach: including 3% in the Americas, 8% growth in Europe, and 10% in Asia rest of the world, including 2% growth in China.
Patrick Kaltenbach: On slide number five, we show sales growth by region for the full year 2024. Local currency sales increased 3%, with 3% growth in the Americas, 8% growth in Europe, and a 1% decline in Asia and the rest of the world.
Patrick Kaltenbach: Local currency sales decreased 11% in China for the full year.
Patrick Kaltenbach: Excluding the impact of shipping delays, local currency sales in 2024 were flat, including 1% growth in the Americas.
Patrick Kaltenbach: 2% in Europe and a 3% decline in Asia and the rest of the world, including a 12% decline in China.
Patrick Kaltenbach: On slide number six, we summarize local currency sales growth by product area.
Patrick Kaltenbach: For the quarter, laboratory sales increased 18% and industrial grew 8% with core industrial up 5% and product inspection up 12%.
Food retail declined 14% in the quarter.
Patrick Kaltenbach: Excluding the impact of the shipping delays, we estimate our laboratory sales grew 10%, industrial grew 5%, with core industrial up 1%, and product inspection up 12%.
and food retail declined 21%.
Patrick Kaltenbach: Service sales increased 8% in local currency in the fourth quarter.
Patrick Kaltenbach: The next slide shows local currency sales growth by product area for the full year 2024.
Patrick Kaltenbach: Laboratory sales increased 6 percent and industrial increased 1 percent with core industrial down 1 percent and product inspection up 4 percent.
Food retail decreased 14%.
Patrick Kaltenbach: Excluding the impact of the shipping delays last year, we estimate our laboratory sales grew 2%.
Patrick Kaltenbach: Service sales increased 7% in local currency for the full year.
Patrick Kaltenbach: Let me now move to the rest of the P&L, which is summarized on slide number 8.
Patrick Kaltenbach: Gross margin was 61.2% in the quarter, an increase of 220 basis points due to higher volume, positive price realization, and benefits from our productivity initiatives.
Patrick Kaltenbach: R&D amounted to $50.1 million in the quarter, which is a 7% increase in local currency over the prior period.
Patrick Kaltenbach: SG&A amounted to $237.3 million, a 6% increase in local currency over the prior year and includes higher variable compensation.
Patrick Kaltenbach: Adjusted operating profit amounted to $351.9 million in the quarter, up 25% from the prior year.
Patrick Kaltenbach: Adjusted operating margin was 33.7%, which represents an increase of 360 basis points over the prior year.
A couple of final comments on the P&L.
Patrick Kaltenbach: Immortization amounted to $18.2 million in the quarter, interest expense was $17.9 million, and adjusted other income amounted to $1.1 million.
Our effective tax rate was 19% in the quarter.
Patrick Kaltenbach: This rate is before discrete items and is adjusted for the timing of stock option exercises.
Patrick Kaltenbach: Fully diluted shares amounted to $21.1 million, which is approximately a 3% decline from the prior year.
Patrick Kaltenbach: Adjusted EPS for the quarter was $12.41, a 32% increase over the prior year.
Patrick Kaltenbach: On a reported basis in the quarter, EPS was $11.96 as compared to $8.52 in the prior year.
Patrick Kaltenbach: Reported ETS in the quarter included 24 cents of purchase intangible amortization, nine cents of restructuring and other costs, and a 12 cent headwind from the timing of stock auction exercises.
The next slide illustrates our full year 2024 results.
Local Currency Sales Group 3%
Patrick Kaltenbach: Adjusted Operating Income increased 4% or 6% excluding unfavorable foreign currency in our Adjusted Operating Margin group's 60 basis points.
Patrick Kaltenbach: Adjusted EPS grew 8% for the full year and grew 10% excluding unfavorable currency.
Patrick Kaltenbach: That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $900.6 million in 2024, a 2% increase on a per share basis from 2023, and just over 100% of adjusted net income.
DSO was 36 days, while ITO was 4.2 times.
Patrick Kaltenbach: Let me now turn to our guidance for the first quarter and for the full year 2025.
Patrick Kaltenbach: As you review our guidance, please keep in mind the following factors.
Patrick Kaltenbach: First, uncertainty remains across many of our core markets in the global economy.
Patrick Kaltenbach: Geopolitical tensions remain elevated and include the potential for new tariffs that we have not factored into our guidance.
Secondly, we expect market conditions to gradually improve throughout 2025.
Patrick Kaltenbach: We also expect to continue to benefit from customer trends in automation, digitalization, and on and near shoring.
Patrick Kaltenbach: Third, we assume foreign currency at current rates, which is a headwind to sales, and adjusted EPS growth of approximately 2% for the quarter end year.
Patrick Kaltenbach: Finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by approximately $58 million, nearly all of which
was recovered in our Q1 2024 results.
Patrick Kaltenbach: This will be a headwind to our Q1 2025 sales growth of approximately 6% and will negatively impact our year-over-year operating margin change by approximately 260 basis points.
and adjusted EPS growth by approximately 18 percent.
Patrick Kaltenbach: For the full year, this will reduce our sales growth by one and a half percent and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS growth of approximately four percent.
Now turning to our guidance.
Patrick Kaltenbach: For the first quarter of 2025, we expect local currency sales to decline by approximately 3 to 4 percent, representing growth of 2 to 3 percent, excluding the prior year's shipping delays.
Patrick Kaltenbach: Operating margin is expected to decline 220 basis points at the midpoint of our range or growth of 30 basis points excluding the shipping delays.
Patrick Kaltenbach: We expect adjusted EPS to be in the range of $7.75 to $7.95.
Patrick Kaltenbach: down 11 to 13 percent or a growth rate of 7 to 9 percent excluding the shipping delays in unfavorable foreign currency.
Patrick Kaltenbach: For the full year 2025, our local currency sales growth forecast is unchanged at approximately 3% or up 4.5% excluding the shipping delays.
Patrick Kaltenbach: Operating margin is forecast to be flattish at the midpoint of our range, or up approximately 60 basis points, excluding the shipping delay.
Patrick Kaltenbach: We expect full year adjusted EPS to be in the range of $42.35 to $43, up 50 cents from our prior range.
Patrick Kaltenbach: which reflects EPS growth of 3-5% or 9-10% excluding the shipping delays and unfavorable currency.
Patrick Kaltenbach: Lastly, I would like to share a few other details on our 2025 guidance to help you as you update your models. We expect total amortization, including purchased and tangible amortization, to be approximately $73 million.
Patrick Kaltenbach: Purchased intangible amortization is excluded from adjusted EPS and is estimated at $25 million on a pre-tax basis or 93 cents per share.
Patrick Kaltenbach: Interest expenses forecast at $74 million for the year, down from our prior forecast due to lower interest rates on our revolver and our strong free cash flow in 2024.
Other income is estimated at approximately $7 million.
Patrick Kaltenbach: We expect our tax rate before discrete items will remain at 19% in 2025.
Patrick Kaltenbach: That's it from my side, and I'll now turn it back to Patrick.
Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, which will exclude the impact from last year's shipping delays.
Speaker Change: I will start with LAP, which had a very strong performance in the quarter.
Speaker Change: We had excellent growth across most of the portfolio, including very strong growth across process analytics and analytical instruments, especially with pharma and biopharma customers.
Speaker Change: We continue to receive very positive feedback from the market on our innovative portfolio and on our service solutions, which we believe is contributing to market share gains.
Shifting now to our industrial business.
Speaker Change: Our underlying sales growth was led by our product inspection business.
which has gained momentum as the year unfolded.
Speaker Change: Our growth initiatives and new products targeting the mid-market are delivering market-share gains, and we have also benefited from growing adoption of x-ray inspection technology as customers look to increase product safety by detecting a wider range of physical contaminants.
Speaker Change: Our X2 X-Ray platform has allowed us to offer differentiated solutions at attractive price points across a wide range of applications.
and also provides valuable features that simplify maintenance and cleaning.
Speaker Change: The strong winds we have had with our X-ray platform are helping mitigate weak underlying demand from the food manufacturing industry, which continues to face challenges and longer investment cycles.
Speaker Change: Switching over to our core industrial business, our underlying sales growth this quarter was modest as market headwinds persisted, especially in China.
Speaker Change: While customer demand in some market segments like pharma and biopharma have improved recently, general industry and chemical sector have remained soft.
Speaker Change: Lastly, food retail declined against very significant project-related growth in the prior year.
Speaker Change: Now let me make some additional comments by geography, which will also exclude the impact of last year's shipping delay.
Speaker Change: Starting in the Americas, our underlying sales growth was led by our process analytics business that continues to benefit from recovery in bioprocessing.
Thank you.
Speaker Change: We also had good growth in other laboratory products in our product inspection business.
Speaker Change: This growth was offset by a significant decline in food retail following very large projects related growth in the prior year.
Speaker Change: Shifting to Europe, we had excellent underlying sales growth this quarter that included very strong growth across both laboratory and core industrial.
Speaker Change: Our pharma and biopharma customers have led our growth over the past year as we have benefited from our innovative portfolio and our unique direct sales and marketing strategies.
Speaker Change: Finally, our Asia-Rest of the World results were also better than expected, with strong results throughout the region outside of China.
Speaker Change: We have significant growth opportunities across the Asia-Pacific region and have accelerated growth plans in various countries such as Japan and India to expand our market share.
Speaker Change: Our results in China were in line with our expectations with modest underlying growth, as improved lab demand was partially offset by weaker industrial sales.
Speaker Change: Market conditions in China remain subdued and we expect low single digit growth in 2025.
Speaker Change: As we have mentioned in the past, trends in China can change quickly and our team remains focused on taking advantage of growth opportunities.
Speaker Change: In summary, again, we are very pleased with the successful close to 2024, and we are optimistic that market conditions will gradually improve as we move throughout 2025.
Speaker Change: and many important growth investments we have made in the recent years.
Speaker Change: have further enhanced our market leadership and will support above market growth and margin expansion well into the future.
Speaker Change: As we enter 2025, we will remain focused on implementing our new strategies and techniques with spinnaker sticks
Speaker Change: which include an expanded big data analytics efforts for our lead generation and salesforce guidance programs and new digital solutions that enhance our customer experience.
Speaker Change: We will also make further progress with our Blue Ocean program, which is a critical backbone for many of our corporate programs, such as Spinnaker and Sterndrive.
Speaker Change: Blue Ocean is our global process harmonization initiative built on a single instance of SAP and it provides us valuable real-time business intelligence insights that allow us to react quickly to changes in the business and operating environment.
Speaker Change: We are also very pleased with the growth in service sales over the past year and our team is focused on continuing to drive strong growth over the coming years.
Speaker Change: We are making important investments to support our service growth initiatives, which include additional resources to help us address a larger proportion of our installed base that we do not service today.
Speaker Change: We will also continue to sustain important investments in innovation over the coming year.
Speaker Change: Innovation empowers our customers to generate new insights, improve and digitalize their workflows, and make their results more precise and reliable.
Innovation is also important as it helps stimulate replacement cycles.
Speaker Change: Support our market share gains and enhance our value proposition that reinforces our pricing.
Speaker Change: Over the past several years, we have launched many important enhancements to our portfolio and we will have many exciting innovations to be introduced over the coming years as well.
Speaker Change: Now, lastly, in 2025, we will look to capture additional benefits from new tools in our Stern Drive program.
Speaker Change: which aims to drive operational excellence in our manufacturing facilities and our global supply chain.
Speaker Change: The Metal Toledo franchise is stronger than ever, and we remain focused on the things that we can control.
to the diligent execution of our initiatives.
You are well positioned.
Speaker Change: and continue to implement strategies with a good balance of initiatives focused on growth, innovation and operational excellence.
Speaker Change: This concludes our prepared remarks. Operator, I'd now like to open the line to questions.
Thank you. The floor is now open for questions.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 again.
Speaker Change: If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Vijay Kumar of Evercore. Your line is open.
Vijay Kumar: Hi guys, good morning and thank you for taking the question. Congrats on the nice sprint here.
Vijay Kumar: Would that imply, if that's your exit rate, shouldn't you underline the mid-single digit rate for Q1?
Vijay Kumar: Was there any one option in Q4 in the sense that customers pre-buy ahead of a potential tariff in geopolitical risk?
and
Vijay Kumar: Hey, thanks, Vijay. Good morning. That's a very good question. Of course, we're extremely proud of our strong finish to 2024 and the strong 3.4. As you said, 6% underlying growth, if you exclude the shipping delays, has been a very strong result. It has been especially strong in lab, as we said, and in Europe, but also across the entire portfolio, we have been really, really pleased with the results.
Vijay Kumar: Now, looking at what drives the growth, I think a lot of that is driven by, of course, a lot of innovation that we pushed in the market last year, I mean, customers see the strength of our portfolio.
in Europe.
Vijay Kumar: that triggered the strong results. I think it's more really our really exceptional portfolio that we have out there, our strong go-to-market strategies, being close to customers when they have been ready to spend money. And as I said, in Europe, specifically, we had, I would say, some releases of Budget Plus that we have not seen the year before.
Vijay Kumar: Yeah, I think too, DJ, if you kind of look at the sequentials, we feel like it makes sense. If you look at kind of like a longer term CAGR for Q1, we also think it makes sense. And we still kind of stand by the comments we made last quarter, where we do expect the beginning of the year in 2025 to start off a little bit slower, and then things gradually improve throughout the year. You know, with all the different uncertainties in the world, we wouldn't be surprised if our end markets start off a little bit more cautiously this year.
Vijay Kumar: in that sort of segway into my follow-up on the macro geopolitical situation. Another guide isn't contemplating any arrests in China for low signals growth.
maybe if you can talk about what is
Speaker Change: Do you have a competitive landscape in China? Do you have local competition?
Speaker Change: And how should we think about potential risks related to China? You know, I know one of your peers was put on a list. Is there any risk for that spreading broader to life science companies?
Speaker Change: Yeah, we have been in China for over 30 years and there always has been local competition and we have a very strong
Speaker Change: Team in China, R&D team, manufacturing team, very strong sales team. I think we are competing very effectively.
Speaker Change: in China. We also have a very broad portfolio that you couldn't point to one single competitor that we are competing against. It's really a very fragmented space across lab and industrial and product inspection. Again, none of the competitors would have the same portfolio we have.
Speaker Change: And again, since we are manufacturing in China, and sourcing in China's products, and our teams actually are developing also solutions in China for China.
Patrick Kaltenbach: I mean, I would say there's, I would never say there's no risk, but I would say there's probably a more limited risk for a company like ours who has been in China and is serving the local market with local solutions. Yes, Patrick says we clearly do benefit from our diversity there as well too.
Thank you.
Understood. Thank you, guys.
Speaker Change: Your next question comes from the line of Dan Arias of Stiefel. Your line is open.
Dan Arias: Hey, good morning, guys. Thanks for the questions. Shawn, on the industrial business there and following up on those comments, is there any change in the way that you're feeling about industrial this year? I mean, to Patrick's point, it does seem like there's some good overall momentum in product inspection. I think you have been picking low singles for both core industrial and PI, if I remember correctly.
Dan Arias: So, is it fair to assume that that's still the view, or are you maybe tracking a little bit differently at this point?
Dan Arias: Yeah, I mean, we're, you know, in terms of guidance, we're still, we're still a little more cautious on the core industrial side, you know, if we look at, you know, the different businesses.
Dan Arias: You know, we were very pleased with the quarter overall, but clearly, you know, in terms of core industrial, there's still some more challenges in that marketplace, especially when you peel it back and look at, you know, our Chinese business as an example.
Dan Arias: But for product inspection, we were extremely pleased with the quarter. Certainly better than what we expected, you know, with 12% growth in the quarter.
Dan Arias: You know and then as we kind of like look towards the full year here we're still thinking like mid single digit, but we for product inspection, but we
Dan Arias: what we expect to get off to a better start in that business. I think some of the momentum and product inspection will carry forward into the first quarter. And we'd expect to be more like high single digit in that business in Q1. And when you kind of like look at that business, it's kind of interesting because
Dan Arias: The end markets are challenged, you know, but we are also competing really well. The new products that we've talked a lot about, even in the prepared remarks, are being really well received by the marketplace, and our teams are executing really well.
Speaker Change: Yeah, okay. And then maybe just sort of a similar idea on lab. I just want to understand the assumptions on biopharma, which looks like it's gradually recovering here.
Dan Arias: So, on the low to mid-singles growth that you had penciled in for that business, is the simple way to think about it just that low singles is modest improvement and mid-singles is better improvement?
Dan Arias: Or was there not a lot that was baked in? I mean, Patrick, last quarter, you would express some optimism there. But it was early, so I wasn't sure whether that was translating to the outlook. We'd just love to sort of get your view there at this point, as we're a couple of months into the year, just a month and a half in the year.
Dan Arias: Yeah, I mean, for lab, so for lab, you know, for, you know, for the year for 25. I mean, of course, we had a very strong quarter, I can let Patrick comment when I finish. But I mean, you know, it was
Dan Arias: very broad throughout the portfolio, but when you kind of look at certain categories like analytical instruments did exceptionally well, process analytics did extremely well, so it was just really nice to see some of the trends that we saw in Q3.
Patrick Kaltenbach: kind of carrying into Q4 with, I'd say, even somewhat better results. And Patrick kind of talked about it already, like a bit of a budget flush in Europe, which was certainly more than what we were expecting.
Patrick Kaltenbach: You know, as we kind of look at the full year for 2025, you know, our guidance is, I think, similar to last time on a reported basis, upload a mid-single digit for lab.
but for
Patrick Kaltenbach: Excluding this shipping delay effect, we would be up mid to high single digit, but similar to my comment before about shipping delay,
Patrick Kaltenbach: You know, the sequencing of the year, we do expect things to start off a little bit more moderate in the first quarter. On a reported basis, we would expect our lab business to be down low single digit, but then excluding the shipping delay, we'd expect to be up mid single digit.
Speaker Change: Okay, and Shawn, just to maybe drive home the point, so there is some level of improvement that you have assumed in the biopharma environment, so to speak, that kind of underpinned that growth rate that you're talking about there.
Shawn Vadala: Yeah, I mean, the guidance hasn't changed, but for biopharma, like,
particularly bioprocessing, we certainly saw market conditions improving.
Shawn Vadala: in the fourth quarter. But keep in mind, you know, our guidance for 25 was always that things would gradually improve throughout the year in 2025. But certainly, yeah, we saw some affirmation.
Shawn Vadala: in the fourth quarter. Maybe the one thing that still hasn't come back yet is maybe the other part of biopharma, which is the biotech side, you know, we're still seeing, you know, mixed conditions when it comes to liquid handling, pipettes, and small biotech, so.
Yeah. Okay. Very good. Thank you, guys.
Speaker Change: Your next question comes from the line of Jack Meehan of Nefron Research. Your line is open.
Jack Meehan: Thank you and good morning. First question is on the core industrial piece of the business. We're just curious what your latest take is on some of the macro factors. You know, you saw the PMI go over 50 for the first time in a while on Monday for the US.
Yeah, good morning, Jack. A really good question.
Jack Meehan: Look at BifCore Industrial. I mean, as we also said in the past, we are not directly linking that to PMIs. I mean, a lot of our products are going into automation and digitalization efforts across many industries.
Speaker Change: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
So
Speaker Change: I would say don't link it directly to the PMIs, of course, I mean, we are counting on the fact that our customers and there is strong interest in our digitalization automation solutions that will continue.
Speaker Change: But it's not forecast to grow at the same rate as lab or product inspection in 2025. Shawn, do you want to break it down in terms of the growth rate?
Shawn Vadala: Yeah, I mean, in terms of, you know, how we're thinking for the full year for, I think we might have mentioned it already, but the core industrial week, we're expecting low single digit growth for the full year in 2025 on a reported and adjusted basis.
Speaker Change: As Patrick says, that business, we've kind of estimated and talked in the past, about 60% of that business is a combination of pharma.
Speaker Change: Food and chemical which for us is largely specialty chem so and then you have like these
Hooks into automation and digitalization.
Speaker Change: But, you know, certainly the economy, you know, we're not immune to it and when it's up it certainly doesn't hurt.
Speaker Change: And so, but at the same time, I think there is an element of
Speaker Change: You know how to customers respond to some of the uncertainty in the world right now and you know and that kind of maybe fits into the pacing of the year a little bit.
Speaker Change: But, nonetheless, it was nice to see above 50 PMIs for the first time in a while.
Speaker Change: 2025 EPS forecast. Is that just a function of 4Q coming in a little bit better or were there any other changes to the assumptions that are of that?
Speaker Change: Yeah, so I mean a lot of it was the beat in Q4, but then we have kind of like two things
Cut it
Speaker Change: Not offsetting, but kind of going in opposite directions. On one hand, we had a lot of negative foreign currency since the last time we reported.
Speaker Change: You know, I think everybody has certainly seen the strengthening of the dollar, but, you know, with our exposure, we're also sensitive to the strengthening of the Swiss franc versus the euro. And, you know, as a reminder, every 1% change there is like about a $2.5 million hit or increase to operating profit or change in operating profit.
Speaker Change: And then we have a similar size exposure with the rum and bee, Chinese rum and bee versus the dollar. So every one percent change there has like about a two and a half percent, two and a half million dollars or so impact too.
Thank you.
Speaker Change: to Operating Profit, but then kind of going the other way is we had a couple of benefits.
and Adam Uhlman.
Sounds good. Thanks, Shawn. You're welcome.
Speaker Change: Your next question comes from the line of Matt Sykes of Goldman Sachs. Your line is open.
Matt Sykes: I know you mentioned there was some element of a budget flush there, but...
Matt Sykes: Can we extrapolate sort of that improving demand among that customer segment in Europe into other developed market regions like the U.S.?
Matt Sykes: I mean, does this encourage kind of your view as to what Lab globally could do, maybe ex-China could do?
Matt Sykes: Yeah look for me it's first and foremost an encouragement of how well our portfolio is received by the market and we have spent a lot of
Matt Sykes: focus on driving innovation to the markets. We spent a lot of growth initiative money over the last three years. We launched a lot of new platforms.
Matt Sykes: And those resonate really well. And I think probably in Europe, we have, maybe in some areas, maybe a quarter launch advantage of that, but I'm
Matt Sykes: and these newly launched products will also help trigger replacement cycles.
Matt Sykes: So yeah, I'm actually I'm actually positive seeing how in that he competes so well in a very difficult environment like Europe this is a
Matt Sykes: You know how the economy in Europe is doing at the moment, but our co-authors are really speaking to the strength of
and I'm confident that...
and Patrick Kaltenbach.
Matt Sykes: Yeah, two. And when you look at the fourth quarter, I mean, Europe did better than the US, but the US still did very well. As also, you know, even if you exclude the the shipping delay effect, I think we're up a single digit. And by the way, China did very well and labs as well, too. They were up high teens.
Matt Sykes: And so, kind of as expected, lab was going to have a much better core than industrial in China. So, lab globally was good, but Europe was clearly the leader.
Speaker Change: Going back to tariffs for a second, just specifically on Mexico, I know there's been a delay in that, but you do have a manufacturing footprint there. Could you maybe remind us what your exposure is in terms of revenue shipped out of Mexico?
Speaker Change: You've often been very flexible in your manufacturing footprint if if these tariffs were to go through Like what would be the duration and what would be the decision behind maybe flexing that manufacturing to another region? And what is your capability of doing that?
Speaker Change: You know, maybe I'll start, if Patrick wants to comment. So, you know, so maybe I'll back up a little bit, Matt, too. So, like, just to be clear, we've built in the recent tariff on the incremental 10% in China into our guidance. We've mentioned in the past, in China, we have less than $100 million of
Speaker Change: of imports into the U.S. or exports to the U.S. So the new tariff is less than $10 million, and we're confident we'll be able to mitigate that with our various.
Speaker Change: programs, and we built that into the guidance. We've also mentioned in the past that our Mexico exports to the U.S. is less than China, and so
Speaker Change: And we will see how things play out there. We also feel like we have looked at different scenarios, we are monitoring closely and we are prepared to react if we need to. It will be a combination of maybe there are some supply chain topics but there are also things we can look at on the pricing side.
Speaker Change: from the U.S. to those markets in terms of like direct product sourcing in the U.S. So we've looked at that scenario and we also feel like we should be able to manage that if we got into like this retaliatory topic in North America.
Thank you very much.
Yeah, you're welcome.
Speaker Change: Your next question comes from the line of Rachel Battensdahl of J.P. Morgan. Your line is open.
Rachel Battensdahl: Perfect. Hi, good morning. Thank you so much for taking the question. First with housekeeping, I wanted to ask on the first quarter guide, can you walk us through what are you assuming by segment for the first quarter including and excluding that shipping comp across segments and then geographies as well?
Rachel Battensdahl: Yeah, sure, Rachel. So I'm just going to go top to bottom.
Rachel Battensdahl: and I'll cover things even if I already mentioned them just to make sure we're complete. So for Lab, for Q1, for 25, our guidance is down low single digit on a reported basis and up mid single digit on an adjusted basis, adjusting for this.
shipping delay topic from.
last year in Q1.
Rachel Battensdahl: Total industrial would be down low single digit, our guidance is in Q1, and adjusting for the shipping delay it would be flat, and then within that you have core industrial down high single digit on a reported basis, and down mid single digit on an adjusted basis.
Rachel Battensdahl: And then you have product inspection up high single digit on both a reported and adjusted basis.
Rachel Battensdahl: And then in terms of the geographies, the Americas, our guidance for Q1 is to be down low single digit and for on an adjusted basis for the shipping delay, it would be.
Rachel Battensdahl: up low single-digit, Europe would be down high single-digit on a reported basis, and it would be up low single-digit on an adjusted basis.
Rachel Battensdahl: and then China would be up low single-digit on a reported basis and a adjusted basis.
Thank you.
Speaker Change: And do you want the full year too, or is Q1 good?
Speaker Change: Sure, yeah, if anything changed on Foliar, that would be helpful as well.
Speaker Change: Yeah, okay, so apologies if this is repeating. So, so lab on a reported up low to mid single digit on an adjusted basis up mid to high single digit Total industrial up low single digit on a both a reported and adjusted basis core industrial up
Speaker Change: And then, if we look at the regions, America's up low to mid-single digit on a reported basis, and up mid-single digit on an adjusted basis. Europe, up.
Speaker Change: Low single digit on a reported basis and up mid single digit on an adjusted basis, and then China up low single digit on both a reported and adjusted basis. And that was all for the full year.
Speaker Change: Great. That's super helpful. If I could just squeeze in my follow-up, Ben, just on sticking on that topic of China.
Speaker Change: And also just break down for us, obviously, we have some of this equipment specific stimulus that some of your peers have called out.
Speaker Change: What about the broader economic and monetary policy that we're seeing out of China on a stimulus impact? Should that be more of the driver for you guys than the equipment stuff? Just unpack that for us.
Thank you.
Speaker Change: Yes, yeah, very good. Thanks, Rachel. I'll take that and let Shawn chime in as well. So we have actually not participated a lot with our product portfolio in the current or last stimulus package, and those were more targeted towards
Speaker Change: But it didn't really move the needle for us in Q4. We also have not included any projection of a stimulus in our 2025 guidance. If there is a broader-based stimulus,
Speaker Change: That would definitely help us to be ahead of what we are forecasting now for 2025 in China.
and research instrument.
for that research.
Dan M.: and Dan M. Thank you. Thank you. Thank you. Thank you.
Dan M.: Right. And I think for, you know, we talked about a little bit in the past, you know, for us, one of the topics is, you know, broader stimulus, obviously, is bigger, you know, it's just, you know, we're implying a broader fiscal stimulus more similar to what they've done in past where they're really doing stuff to support economic development. But But of course, when they do that, it also
Dan M.: increases confidence in the country. And I just think like, you know, the more that they can send strong signals to increase.
Speaker Change: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Speaker Change: Your next question comes from the line of Josh Waldman of Cleveland Research. Your line is open.
Good morning. Thanks for taking my questions.
Thank you. Thank you. Thank you.
Speaker Change: Patrick, it sounds like the strength in Europe, maybe even the U.S.
Speaker Change: was focused within biopharma. I guess is that right? And, I mean, do you, or did you see an uptick in other markets? And then
Speaker Change: I guess, how do you interpret the strength in the fourth quarter as it relates to confidence of customers to return to normal growth and spending going forward? And curious what you're hearing from customers as it relates to their desire to spend on more replacement type purchases in 25. Any change there?
Speaker Change: Thanks, Josh. Again, when we talk about the growth in terms of end market segments, you have pharma, biopharma, volatile contributor, but so was also the food industry, and you have also heard about the numbers that we have, for example, in product inspection.
Speaker Change: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Speaker Change: And that is also affecting probably more the lab business and the process analytics business, especially when you think about biopharma processes, which is done.
I mean, the 3% growth.
Patrick Kaltenbach: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Patrick Kaltenbach: And in terms of the replacement cycles, yes, the last two years have been probably a bit subdued in terms of product replacement. And once the budgets come available, we have an opportunity to capture also more growth coming from replacement.
Speaker Change: Got it. Okay. And then, Shawn, a question on tariffs may be asked another way. I mean, it sounds like the updated guide contemplates potential impacts in tariffs. Any way to frame up how you're thinking about offsetting the cost impact? I mean, do you think more of the offset will come from price, or is it more weighted towards supply chain levers?
Speaker Change: You know, I mean, I think it will be similar to last time we dealt with the topic. I mean, clearly it will be a combination of both. I mean, we're clearly looking at
Speaker Change: The different scenarios, we're clearly looking at pricing opportunities in the portfolio. You know, we do it in a very differentiated way, you know, and so we've done that analysis.
Speaker Change: And then we also look at, you know, some of the processes within supply chain and, you know, whether we can make tweaks, you know, here or there, but, but of course, pricing is the more agile, you know, topic than the supply chain. Sometimes supply chain can take a little bit more time.
Okay, thanks guys.
Yep.
Speaker Change: Your next question comes from the line of Patrick Donnelly of Citi. Your line is open.
Patrick Donnelly: Hey guys, thanks for taking the questions. Shawn, maybe just to pick up right where you left off there on the margin front, can you just talk about the margin build this year? It's always helpful to hear about the price contribution, the moving pieces, both 1Q and for the year, would be helpful just to think about the margin side.
Patrick Donnelly: Yeah, so, of course we were really happy with our margin expansion in the fourth quarter. You know, just really strong. I mean, if you put it into perspective, you know, our gross margin expanded 220 basis points.
Patrick Donnelly: And if you exclude all this noise from the shipping delay, it was still up by 160 basis points. And what we saw in the quarter was getting back to volume growth, you know, volume growth was clearly
Patrick Donnelly: stood out for us in our numbers, and it was really great to see. Pricing kind of came in as we expected, you know, kind of in this 2%, you know, range. And so we were very pleased with the execution, actually had a very strong finish to the year in our Global Pricing Program.
Patrick Donnelly: And then, you know, we continue to benefit from some of the other things we're working on, you know, whether it's like
Patrick Donnelly: programs within the Stern Drive umbrella about productivity and cost reduction in certain categories.
Patrick Donnelly: and then we were able to still invest in the business, like in our service organization. So, really great finish to the quarter on a full year basis. You know, it drove actually also, you know, very good results on a full year basis. And if we kind of then skip to...
Patrick Donnelly: More of your question with the first quarter, you know, the first quarter.
Patrick Donnelly: is, you know, we're expecting pricing to kind of start out at 2%.
Patrick Donnelly: We're expecting that also for on a full year basis as well, too. Hey, I acknowledge, you know, there could be some upside to that number depending on how the tariff situation evolves. We'll see how that goes and we'll update accordingly, you know, next quarter as we kind of learn more about how the tariffs
unfold, but right now we're assuming 2%.
Patrick Donnelly: And then, you know, and then I think it will be a similar thing, I think, in the first half of the year, we'll have less volume in the second half of the year, you know, we kind of like look at the
the actual quarters themselves.
about 220 bps.
Patrick Donnelly: And I think in the prepared remarks, I said excluding the shipping delay was up by 30, but it's probably more like up like 40. And then on a full year basis, our operating margin would be flattish, maybe up slightly. But the shipping delay had an impact of about 60 bps on an operating margin. And then if we kind of jump up to the gross margin, on a reported basis, our gross margin would be down probably in the 40 bps kind of a range because of the shipping delay volume
but on a reported basis.
Patrick Donnelly: And that's kind of like apples to apples, comparing apples to apples.
Patrick Donnelly: But then on a reported basis, it would be up by about 20 bps. So the shipping delay had the effect of reducing our gross margin by about 60 basis points. And then for the full year, it would be flattish, maybe up slightly on a reported basis. But again, if you exclude the shipping delay from last year and do apples to apples, it would be up probably about 20 bps.
Patrick Donnelly: That's really helpful, helpful details. Thanks, Shawn. And then Patrick, maybe one for you, you know, I think on one of the earlier questions, you know, on the exit rates, you kind of said you wouldn't be surprised if end markets start a little more cautious this year.
Speaker Change: Just listening to the call, I mean, it sounds like product inspection momentum is picking up, pharma seems better.
Speaker Change: Just curious if that was more conservatism or something you're seeing to start the year in specific markets It sounds like most these markets are picking up, but just wanted to clean that up if you could thank you so much
Speaker Change: Yeah, sure. I mean, when you look at product inspection, for example, of course, there's also, of course, a project business with longer cycle times. And when we look at the sales projection for Q1,
Speaker Change: those and stuff. But as Patricia said, if you look at Q3 and the different tasks that we have listed here, each of them, there's a different quality statement. Very similar quality statement, but each
But, um...
Yeah, pharma, biopharma is having good momentum at the moment.
Speaker Change: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Speaker Change: I mean, it's still pretty volatile there. For us, it's really important that we follow the leads very quickly, that we have a strong lead generation engine, that we turn them around into orders.
Speaker Change: and we have been, we have demonstrated in the past we can be very, that we are very effective on this and I'm counting on the team on the continued execution excellence.
Speaker Change: to drive every potential order home also in Q1. But there is uncertainty out there and we cannot neglect that. It's still in China, it's also in some of the mature markets that began with this.
Speaker Change: be well advised to take a bit of a conservative step at the moment.
Yep, makes a lot of sense. Thank you.
Speaker Change: Your next question comes from the line of Catherine Schultz of Baird. Your line is open.
Catherine Schultz: Hey guys, thanks for the questions. Maybe first on your services business, I think this was the second consecutive quarter of high single-digit growth there, and I believe your guide assumed mid to high single digits for 25. You know, do the results this quarter make you confident in hitting the high end of that range?
Catherine Schultz: Yes, actually, it does. And we had in service, we had a very strong 2024 all with 7% growth, the first half.
Catherine Schultz: was I think about 6%, Q3 was 9%, Q4 was 8% and we're really looking forward to
Catherine Schultz: into service capacity. We have also developed a broader set of in our service portfolio.
and making sure that we address.
Catherine Schultz: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Speaker Change: All right, great. And maybe just on the new administration, I know you don't have much NIH exposure, but are there any other policies more broadly that you think could either disrupt or benefit you other than the tariff piece that you've already talked about?
Uhlman
Speaker Change: I don't think so. I mean, I think that's the biggest impact.
Speaker Change: probably on the business, there could be tariffs. Again, it creates uncertainty in the market. But in these, I would say, rather turbulent times, we also have demonstrated in the past that MetaPolito is really a company that is very agile and captures opportunity.
Speaker Change: of how we can serve our customers and we have demonstrated it also during COVID.
Speaker Change: it's an opportunity to gain market share. So I look at it also as an opportunity. This is also the story I tell to my team here. We have to see this as an opportunity to continue to serve our customers in the best possible way. We have tremendous customer trust as a supplier and that should benefit us as well.
Great, thank you.
Speaker Change: Your next question comes from the line of Tycho Peterson of Jeffries. Your line is open.
Tycho Peterson: Hey, thanks. You guys noted accelerating growth in India. I mean, I feel like it's been a while since you've called that out. Just curious what secular trends you're seeing there that warrant increased investment.
I think we have not really...
Tycho Peterson: I think you spoke in detail about accelerated growth in India. We said we have growth acceleration plans in countries outside of China. One of the countries was Japan.
that take two years dedicated to growth acceleration plan.
and India. Thank you. Thank you.
Shawn Vadala: was coming well for us throughout 2024. Shawn, do you have the final number? Yeah, I do. I mean, we did have actually a very strong quarter. Now, I don't know how much of it the shipping delay topic would have played into it, but it was a very, very strong double-digit number. And for the full year, we were up high single-digit there. So we did well in India, and we see it as a market that
You know should outgrow other markets going forward
Okay.
Speaker Change: and then two quick follow-ups. Shawn, I appreciate your commentary on pricing 2% for the quarter and first quarter for the year. How high could you take that if you needed to in an inflationary environment? Is there kind of a natural ceiling on where you think you could take it? And then you talked about process analytics strength. Is that more greenfield or are you taking kind of share there in bioproduction? Thanks.
Speaker Change: Yeah, hey, so in terms of pricing, Tycho, it all depends really on the environment. Like we kind of saw that when inflation really increased a few years ago, I think we were able to do more like that ceiling was higher because inflation was higher, right. And I think that the environment of tariffs
Patrick Kaltenbach: Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach, Adam Uhlman, Patrick Kaltenbach,
Speaker Change: on what the tariffs are, what countries are hit or not hit, how broad it is or not. So we'll play it out. I mean, I think for us, I think we are well positioned because we feel like we have invested a lot in our value proposition. We feel like that very much resonates with our customers.
Speaker Change: to the direct end user, they also appreciate that value proposition.
and then, as you know, our average...
Speaker Change: price of our products is less than $10,000. So when we start talking about a percent.
you know, dollar wise, it's not like
Speaker Change: a significant dollar increase. So I wouldn't want to put a ceiling on it, but we do feel like we're pretty well positioned going into it.
Speaker Change: In terms of process analytics, Patrick, did you want to comment on that?
Speaker Change: So I think we are well positioned with our portfolio as we also have there have launched a lot of new products over the last two years and that's
Speaker Change: We have a strong portfolio so we see also that portfolio good growth.
Speaker Change: I mean, it's always hard to take market share. I'm proud of our portfolio. I'm proud of our team of how they execute on the go to market strategies. So yeah, I would say potentially yes. But they don't have any absolute numbers. Again, portfolio is strong, the customers love our portfolio, they love our service. And that's
Speaker Change: That's where we need to be to also continue that growth.
Okay, thank you.
Speaker Change: Our last question comes from the line of Michael Ryskin of Bank of America. Your line is open.
Speaker Change: Great. Thanks for sending me in, guys. I'm sort of scratching the bottom of the barrel for questions. Almost everything's been asked by one of the other analysts, but maybe just a couple miscellaneous cleanups. You alluded to this earlier, Shawn, on the EPS bridge for 25, the 50 cent increase. You talked about interest and FX.
Speaker Change: and the SIS rank have an impact. Any chance you could just give us the numbers? I'm sure we could do the math, but those will be more precise in terms of, you know, how much each contributed.
Thank you.
Speaker Change: Yeah, hey, Mike, I mean, I think the map is probably pretty clear. I mean, I think, you know, you can see the beat and then we updated the interest in the other.
Speaker Change: uh, numbers, and then, you know, the, the FX and, and the other probably...
Speaker Change: you know, squeezes out together and, you know, the high 50s or something.
Speaker Change: Okay, all right, fair enough. And then, just on the margins,
Speaker Change: to an earlier question, we talked through the margin, gross margin versus that margin for the year. But in my notes, I had you guys having a gross margin up a little bit previously. I think, I think, Tariq, you said you expect gross margins up 30 to 40 bits.
Speaker Change: Now it seems like it's a little bit less than that. Is that FX having an issue or is there anything else in terms of moving pieces there?
Speaker Change: Yeah, no, hey, I think I mean, I think, you know, we ended a little bit, I think the absolute number that we ended this year is going to be like, I think the number that we have for next year is the same. It's just that we we landed a lot higher than what we expected this year, you know, so yeah, yeah.
Speaker Change: So, I think it's up slightly on a reported basis, and then if you exclude the shipping delay topic, it's probably up, probably, what did I say, 30 basis points.
Okay, that works. All right. Thanks so much.
Thank you.
Speaker Change: That concludes our Q&A session. I will now turn the conference back over to Adam for closing remarks.
Adam Uhlman: Okay, great. Hey, thanks everybody for joining us on the call this morning. If you have any follow-up questions, please feel free to reach out to me. I hope you all have a great weekend and we'll talk to you soon.