Mettler-Toledo International Inc (MTD) 2002 Q2 法說會逐字稿

Welcome to the Mettler Toledo second quarter earnings conference call. All participants are in a listen only mode. We will conduct a question and answer session and instructions will follow. Statements made during the conference call which are not historical facts are forward-looking statements. They involve risks and uncertainties that can cause actual events or results to differ materially from those expressed or implied. For farther information related to forward-looking statements, please refer to the Mettler Toledo's quarterly earnings release's annual report and periodic filings with the Securities and Exchange Commission. This conference call is being recorded. I would like to introduce your host, Mr. Robert Spoerry, Chief Executive Officer for Mettler Toledo. You may begin.

Good morning, everyone.& I am the Chairman and CEO of Mettler Toledo and thank you for joining us on short notice this morning. This call was originally scheduled for next week, however upon reviewing results, particularly following up in the key unit, it was evident in recent weeks we are experiencing weaker than expected market condition which has implications for the remainder of the year. We wanted to communicate this to you as quickly as possible. With me today in Switzerland is Dennis Braun, Chief Financial Officer whoa will lead the discussion on the financial results. We have worked closely over the last three months in their transition. Bill and Mary Finnegan handles investor relations are here as well. This call is being web cast and available for replay at www.mt.com. A copy issued last evening also available on our website. There four key items we wanted to communicate to you today.

First, it's our 2nd quarter result. You will see margins and cash flows were strong, but sales and orders came in at the low end of our expectations.

Second is our outlook for the remainder of 2002. The month of June was our strongest month this year, but clearly behind both last year and our expectation. In our business, orders slowed in recent weeks, particularly in pharmaceutical customer base. In our industrial business, we continue to insurance declining levels in Europe, despite easier year over year comparison. In our food retailing business, we experienced a sharp decline in orders in food retailers, complete Euro conversion programs, mostly late last year. In total, we do not see indications of improving business climate for the product and are taking a more conservative view for the remainder of the year.

Third, we want to update you on cost rationalization programs. In light of weaker than expected markets, we decided to implement additional measures to reduce the cost structure by further consolidation.

Fourth, and certainly most important, although current market conditions are challenging, our franchise is very strong. I am confident in saying this because of our market leading positions. I will continue investment in the future through strategic initiatives and the measures we are taking now to enhance our cost issues. These factors will firmly position us for growth as market conditions improve. Of course we will look over all these points in more detail throughout the course of this calls. First Dennis will take you through the financial results for the 2nd quarter. Dennis?

Thanks, Robert and good morning to those in the U.S. And good afternoon to those joining us from Europe. Earnings per share before nonrecurring items amounted to 54 cents a share in the quarter and is based on 45.4 mill yon shares outstanding. If you adjust for the new good will accounting rule, EPS was also 54 cents last year: On a reported basis, EPS was 8% greater than last year's 50 cents. Sales for the quarter amounted to 296.5 million, representing a 4% increase in local currency and an additional 2% benefit from currency, resulting in total U.S. dollar growth of 6%. If we adjust for acquisitions, our sales declined by 4% in local currency, at the low end of what we anticipated at the beginning of the quarter. The 2% benefit of currency, U.S. dollar sales growth adjusting for acquisitions was down 2% in the quarter.

Now let me give you additional information about our sales growth by region. Just as a reminder, these figures are in local currency sales and exclude the 2% benefit we received from currenty this quarter. In Europe, the Q2 organic number was down 12%. In Q2 total down 10%. In the Americas, the Q2 organic number was up 2% and 17% in total with acquisitions. Asia and the rest of the world was up 6% organically and 6% in total. For the total Company as I mentioned Q2 organic was down 4% and Q2 total with acquisitions was up 4%. On a year to date basis, organically, Europe was down 10%. Again, down 10% and year to date total down 8%. America's year to date organic up 2% and up 17% in total. Asia and the rest of the world up 8% organically year to date and 8% in total. For the total Company year to date organic down 3%. Up 5% in total.

A few comments on these figures by business area. For the last group, our lab business grew low single digits in the quarter. The Americas was up nicely, while Europe improved over the first quarter and it was still weak. Asia was weaker than in the 1st quarter. Within lab, balances which is a significant piece of the total was down slightly in the quarter while analytical instruments and service was strong. On the industrial business, our industrial businesses including packaging and the Industrial instruments were down mid-single digits in the quarter. Asia was the only area of industrial growth for us. Packaging came in weaker than expected and the industrial instrument business declined with continued weakness in Europe. We had expected to see better performance here with the comparisons get getting easier, but again we were disappointed by a weak June. Our retail business was down 20% in the quarter. The U.S. was strong with double digit growth, but Europe was down more than we had expected. That covers the organic business, Rainin again performed well in the quarter with double digit sales growth and continue to be on track for the full year estimates. We are very pleased with the significant improvement in gross margins we achieved in the quarter.

Gross margins were up 210 basis points to 47.6% over the prior year. This improvement is due to cost savings ininitiatives like strategic procurement and a favorable product mix. Continuing down the PNL, R&D expenditures amounted to 17.7 million or 6% of sales. This represents a 10% growth in local currency. Without Rainin, R&D was still up 5%, demonstrating the priority to invest in innovation and assuring we maintain a strong product pipeline. SG&A in the quarter amounted to 82.4 million or 27.8% of sales. If you adjust for acquisitions and currency, this amount was basically flat. EBITA or earnings before taxes and amortization amount to 41 million, a slight increase over the prior year amount. This translates into a margin of 13.8%, modestly below last year. Excluding the impact of currency which heard us by about 1.3 million, EBITA was up 5% for the quarter. On a same currency basis, the EBITA was flat with last year which we feel good about, given the sales level. Based on today's currency environment, we expect to have a one-cent per share negative impact next quarter and will be neutral in the 4th quarter. Further down the PNL, amortizationamounted to 1.9 million and interest expense was 4.4 million.

Now I would like to give an update on restructuring. We recorded a 28.7 million pretax charge in the quarter of which approximately 20 million will be cash. This amount is about $5 million higher than what we communicated last quarter, due to additional actions we are taking in certain units to consolidate manufacturing. This increase also iudes $2 million due to currency with the sizable strengthening of the Euro versus the dollar that we have seen since last quarter. We expect to have annualized savings of approximately 15-20 million for this program of which we expect to realize 6-8 million this year. On an after-tax basis, the restructuring charge is 20.1 million, which is less than the one-time tax gain of 23.1 million we also reported this quarter. As we discuss last quarter, we completed a comprehensive tax restructuring and receiving formal clearance from the tax authorities that resulted in this one-time gain. The gain increased about 2 million versus what we told you last quarter due to the strengthening of the Euro versus the dollar. As I mentioned earlier, EPS before nonrecurring items was 54 cents for the quarter on par with left year, however currency hurt us by 2 cents in the quarter. The net impact in the quarter from the one-time tax gain and the restructuring charges is not included in the 54 cents. In the schedules attached to the press release, you will see reconsiliation of the reported EPS to that which is to be included in the 10-q filing.

Now I want to turn to cash flow which we believe is the highlight of the quarter. Cash flow generation was excellent during the quarter and for the first half of the year. Free cash flow which as a reminder we define as after taxes, working capital and cap-x, but before restructuring payments and acquisitions reached 27 million in the quarter and 31 million in the first half. Increases of 25% and 40% respectively versus the prior year. Good management of working capital was more than able to offset higher tax payments. At quarter end DSO was 57 days was below the target of 60 while inventory turn over was constant at 3.5 times. Cap-X was 8.5 million in the quarter, on par with what we spent last year. We spend $2 million on restructuring payments and 2.8 million on acquisitions, which was principally the acquisition of a small industrial distributor in the U.S. We have reassessed the cash flow projections for the year based on strong performance to date. We believe we can continue to generate strong levels in the second half of the year. We set a target in the $80 million range and we believe we can exceed this level.

Finally, the last 12 months EBITDA was up 191.6 million and net debt was 331 million. This resulted in strong credit staistics to net debt of EBITDA of 1.7 times and interest coverage of 12.0 times. That's it for my side. I will turn it back over to Robert.

Thanks, Dennis. Before I turn to current market conditions, I want to say that myself and my management team are disappointed with the numbers that we are reporting to you today. The markets are fundamental solid, however they are currently experiencing challenging conditions as I will discuss in a moment. The last time we spoke, we felt the market would benefit from comparison. These assumptions proved on track in April and May, but not in June. Although June sales were the highest we had this year, they were organically down 5% versus the prior year and we did not see the typical quarter end pick up. While there many signs the early indicators are healthy, we had not seen it all into the business yet. Futhermore we are also cautious about the increasing uncertainty in the world economy.

Now I will speak with the assessment of the different businesses for the second half of the year. The numbers will exclude all the acquisition effects. First, a few words to the laboratory business. We expect to be in the low to mid-single digit range for the remainder of the year. This is slightly down from what we previously expected. As most of you know, approximately 75% of our lab business is equipment sales which is being more impacted by the current market weakness than consumables and tourists. Orders from customer base which is the most important market were weak in June and we may be starting to see what they referred to in this market. We believe that farmer demand is robust, but we are experiencing a significant slowing in approval for expenditure. We are especially cautious with our assumptions with typical year end pick up. We usually sell a lot of higher item ticket products in the 4th quarter. We are reluctant to assume the normal year end pick up this year, despite the fact that we have many great new product introductions, in particular in this area.

Next a few words to the industrial market. We feel industrial will continue to be down mid-single digits for the remainder of the year. As manufacturing output is declining by many of the markets. While you read many encouraging signs of the manufacturing output, if you look deeper, the statistics for equipment sales is not positive yet. As exact capacity slowly disappears, however and eventually investment activity will come back. Expected easier comparisons allow us to show improvements in the later part of the year in that business. However, orders for the quarter was down mid-single digits. In retail, as a result of the strong demand from the Euro conversion in 2001, we expect this business to be down 30% for the remainder of the year. Not as diverse as previously expected. We took the trend we experienced in the in Europe and decided against more difficult comparisons for the remainder of the year. In the U.S., current order and code levels indicate U.S. Retail to continue to show nice growth. Finally, across all three units, we expect service to continue to perform well. We see more opportunities in the fda-regulated markets and additional opportunities for new services. We will also continue to expand our service margin.

All in all, we are very pleased about the service performance. With all of these assumptions, we expect full year 2002 sales before currency effects will be slightly above prior year levels. That translates to organic sales in the range of negative 5-7% versus minus 2-to minus 4% that we previously thought. As a result, sales will be approximately 20 million less in the second half of this year. Despite our cost containment efforts, this has a negative impact on EPS. Assuming this lower sales level, we will have EPS in the range of 215-220 or 8% lower than the current consensus. That's the financial details of the cost restructuring.

I want to make a few additional comments. The clear objective of this program is to permanently eliminate cost from the structure. We are therefore focusing on manufacturing consolidations and elimination of personnel. There is a very limited impact to sales service and R&D . We will close several production lines and or facilities, there by eliminating overhead and in most cases taking advantage of lower cost base in China. We will permanently eliminate 300 position and transfer an additional 200 positions from America to China. As Dennis mentioned, we expect to realize cost savings from 15-20 million from these programs and once the business comes back, these costs will not return.

I know we have covered a lot of information today, but before I open the line for questions, I would like to summarize the essence of what we have spoken about. First, the markets we serve are fundamentally solid markets. However they are currently facing challenging conditions. Even here we are generating a healthy level of cash flow and believe this will continue in the second half of this year. Third, our cross profit margins have improved strongly as the higher value segments and the pay off from our cost containmentests. We continue to make great progress in service, not only profitability improvement, but as well expanding the offerings to the customer. Fifth, we continue to build for future growth to increase in R&D expenditures as well as expenditures in all the strategic areas. Finally, we are taking determined actions to permanently improve the cost structure and although these are not easy measures, they will put us in a better sustainable cost position going forward. The net result of all this is we are continuing to strengthen the competitive position of Mettler Toledo and should be in an excellent position for growth as the economy recovers. That is all from our side.& thank you for your attention and I would like to ask the operator to open the lines for questions.

Thank you. If you have a question at this time, please press the 1 key on your touch tone telephone. If your question is answered or you wish to remove yourself, press the pound key. Once again, if you have a question, press the 1 key. One moment for questions. Our first question is from Donna Taquita of Merrill Lynch.

Good afternoon to you and your team. Could we talk about some of the income statement items. You mentioned the gross margins were showed on significant improvement in the quarter. Better than what I was looking for. Given what you are talking about with the sales right now, are you also expecting the mix to stay the same? So even with a little bit lower sales, these gross margins can stay in force for the remainder of the year?

Donna, its Dennis. We are pleased with the growth in the margins and we think we can maintain them. There a couple of factors working here. We have a good product mix and analytical instruments up double digits in the quarter. In addition, we have cost initiatives that are continuing to take root, such as strategic procurement and some of the benefits from the 2001 restructuring showing up in this quarter as a result. We will be able to maintain that for the rest of the year.

Along similar lines, SG&A was higher than I expected. The 27.8% of sales was the same as in Q1. Some of that was currency, but you indicated some of was the mix. Will that stay at that rate or start to ease up a little bit?

Donna, if you look at the pieces, we have an acquisition piece that's a big component of that as well as FX rates. Basically the organic piece was flat and we are hoping to maintain that. As we get current restructuring initiatives in place and see benefits from that, in the 6-8 million range.

Speaking of restructuring, what will be the actions being taken in the incremental $5 million? The products or facilities?

It's the sum of many smaller items we do here and there. It's not one thing.

Okay. Thanks a lot.

You're welcome.

Our next question is from Sherry Walker from Deutsch Bank.

Just a quick question on tax rate going forward 30%.

Yes.

Could you go into more on the lab products. You mentioned the scales piece went down a little bit and analytical instruments were up. Can you go through let product lines and talk about the demand or lack of demand you are seeing?

It's probably less a question of demand than money being released. That's over the last product. On the last conference call, it was evident that a lot of the money was released slowly. You can say everything is delayed by six months. In particular, the different product lines, balances are usually effected quickly when people hold back investments. They have a balance that still does the job.

I will hold the business on the other end with a mixed story for the quarter. Sales were flat. Orders actually built up nicely in the quarter. As you may recall, we have a lot of new products and kind of customers are focused on getting the new products. That's the reason why the build up in order was significant there. The outlook is I think good for the rest of the year. That's before we are not counting on a strong hockey stick towards the end of the year. We expect business being up in high single digits at least in the second half.

Analytical instruments have been doing well. We had significant product launches just at the end of last year, beginning of this year. That's really the key reason I think that business is doing well. I'm sure we will have that nice market share.

Great. Thank You..

Our next question is Paul Knight of Lifeful Partners.

What are you assuming for currency rates in the second half of the year?

We are assuming a small loss for thethird quarter and break even for the 4th quarter. Maintain in the current June rates on a go forward basis.

The exchange rate?

Yes.

Can you break out by percentage where your products are now manufactured? Europe? Japan? Etc.?

Are you trying to understand the currency exposure we have?

Yeah.

I mean the weak dollar is of course going to help us on the top line, but we told you many times in the past when it comes down to operating profit, the translation and the transaction effect neutralize each other. If they have one thing getting a little better, the Euro is strengthening and manufactured quite a bit in Switzerland and sold into the Euro. That might get better than earlier in the year.

How is Rainin working out?

Rainin is doing fine. It's on track. That business is of course as you recall 50% consumable. Research work is being continued and the customers and so forth. When they are slow in buying equipment, it doesn't mean they are slow in buying consumables. Aside from that, I am sure you all recall Rainin has unique technology that technology is finding a lot of new acceptance in the market. Through that they gain market share and last but not least, Rainin has global expansion opportunity and that is going well. So far we are pleased.

When you say equipment and conservative view on equipment or on what the business looks like, is it balances, tie traders or liquid handling or all of the above?

Taking to our world, balance don't really need consumable business. It's the same story. It needs consumables and that's the difference. I call the type of details the equipment and the tapes of consumables. Is it clear for you Paul?

Yeah.

Maybe we might add here less consumable business than other companies would have.

Okay.

Thank you. Our next question is from Scott Jones of AG Edwards.

Good afternoon. First question is back on the farmer spending comment you made. Do you get the feeling that the spending has been delayed due to merger discussions or something else?

I guess it's a combination of things. First of all, the companies are under pressure themselves. Being it because of generics and regulation on prices and price erosions. Some of them kind of are trying to save money not investing, for example in R&D. From my viewpoint, that's the beginning of the end. If they want to stay in the race, they need to spend. In that sense, that leaks to what we have seen this week. There is a consolidation probably happening again in the farm industry. I wasn't surprised hearing about that. If I would have been surprised, it would be more that such a big transaction happens in this big uncertainty but it makes tremendous sense. As we can seen in the past, it's not going to be helpful in the short-term. These companies are usually disorganized in the first phase. Our senses are clearly defined and investments will be. Once they are there, they are emerging healthier and stronger than before and they will heavily invest in R&D I am sure, that's the only way they survive. I think that was very much the rational for that merger. They have hours in their portfolio and a unique position they have.

The second question is on the industrial customer base. Certain performing managers that have been positive for sometime and might suggest you would be seeing a pick up. I was wondering what you think it would take to see a pick up in your industrial market.

Some differentiate the commands between the U.S. And Europe. What you are seeing is visible and the industrial ordering take into the U.S. made steady improvements. Back to Mr. Greenspan, they are saying this market is gradually recovering. We see that actually slowly coming through in the U.S. Frankly, our disappointment is much more in Europe. I have been describing to you before the German situation. The German situation is really a very difficult one. The problem is the labor unions. Now the rate settlements have been made. The Euro conversion was a big problem because it was misused for price increases. Almost a silent consumer product and kind of exports have been bad living heavily from exports. I think the usual pre-election games in Germany paralyzed quite a bit our German situation was never as bad as I have seen it in the last 20 years. I did tell you in the last quarter that they were hurt as well in Q1. That was quite a pleasing thing in Q 2. The business certainly improved in Germany.

Thank you.

Our next question is from Richard Eastman of Robert W Baird.

In terms of Europe being down 8% in the quarter, can you walk through the mix of food lab and Industrial in Europe in the quarter?

Dennis, we will do that shortly with precise numbers, but of course the single biggest driver for Europe being down is the food retail business. We had very significant business last year and we told you that's a one-time effect and we are kind of in the aftermath of this. Dennis, could you maybe give numbers.

In Europe, for the quarter lab was basically flat. I would say in the industrial and packaging, kind of down mid-single digits in the 5-6% range. Retail down 40% when we were projectioning kind of a down negative 25. More industrial than on retail.

Just to stick with that thought for one second in terms of the German exposure, I guess I'm curious. If I look at industrial as you define it, what percentage of that is U.S. and what percentage is Europe?

Half-half, roughly. The Asian piece is growing nicely, but still relatively small. Maybe from the retail in Europe, we are not counting on a recovery in the European retail business. Our assumption for the rest of the year is that's the lest to remain for the rest of the year.

Let me ask you. The outlook you had given between lab, industrial, and food, you had mention lab. You expect low to mid-single digits.

That's correct.

Is that assumption for the year?

That's for the second half of this year and excludes the acquisition.

If I do the math on this, sales for the year will be roughly flat and then I pull out Rainin. The second half of the year, the organic growth assumption has to be down in the 10-12% range.

I kind of covered this in the call and maybe I just repeated that. If you can put everything together I was saying, then the organic sales will be negative 5-7% versus the 2 to minus 4% we showed you last time at the Q1 conference call.

That's for the second half and not for the year?

Yes. Local currency.

That's all in local currency. On top of that, we have a positive currency effect.

I'll check my math, but it seems like the business would have to be down a bit more. I'll double check. Thank You.

Our next question comes from Dan Mendosa of OMC Capital.

I have a handful. For the cost savings for the second half of the year, how much of that is (audio not understandable).

What's the question. You tailed off the at end.

Sorry. The projected cost savings from the restructuring. How much showing up in COGS and how much in SG&A?

It's a little bit more than half in total will show up in the cast of sales line. The net piece will be the later and just restructuring wide and take more effort than plans than it would be to [inaudible] that up.

Just to circle book the sg and a in the quarter, that was a big variance relative to the street models. I guess I don't fully understand why you mixed the currently.

If you think about it on the currency side, the our nondollar revenues are approximately our nondollar expenses. You can imagine a 2% impact on $200 million on sibig number and a lot of that offset with increases in SG&A that offset revenue. On top of that you have the impact of Rainin and soft technique in terms of additional SG&A and that was something we didn't have in the numbers until the end of the 3rd quarter. That's it for the first time in Q2.

Retail in Europe, when do they get easier? Not until the March quarter of next year?

We assume that the run rate for q2, 2002 continues for the rest of the year in the third and the 4th quarter. Compare sons will get steeper versus 2001 and the third and the 4th quarter. As we saw on the 1st quarter, they tail off in the 1st quarter of next year.

Will there be seasonality in that business?

No. Q3 is usually a strong quarter.

Q4 is usually weaker seasonably because not air lot of retail stores want to take equipment after Thanksgiving.

I understand. You lowered guidance for last quarter and now you are doing it again a few months later. Are you getting a lot more conservative to make sure we don't have to do this again in the second half of the year or what was your approach to setting that number?

Our approach is to digest the information we see today. Again, we looked for it closely after order intake. We went back to the units and we have completed some of the recent announcements in the farm industry and potential consolidation there. We factor in the less spending for year end and factoring the increase and uncertainty in the global economy. That's a big change since we spoke last time. The global economy and the mood has changed a lot in the last couple of weeks. We factored that all in. Are we having a crystal ball? That would be a wrong statement, but we have given a hard shop to be totally realistic.

Tough insight in using the buy back of stock?

That's really not the discussion we are entertaining right now.

Our next question is from Marvin from Goldman Sachs.

Can we go down into the industrial businesses the way that we did in the laboratory in terms of talking about packaging versus industrial weighing versus metal detection, transportation, etc.?

Sure.

With the industrial business, I think I gave you the geographic break down briefly. The U.S. actually is really showing signs of having reached and we are on I promising trend. In European piece it's still declining and Asia is growing nicely, but being small. On a more product oriented base, the packaging business is really hard to read. In April, May excellent order intake and June is weak ordering take. If I break up between metal detection, metal detection being more stable, again I need to say the [inaudible] business was a big success. It's a difficult comparison there.

Transportation market is still doing well. I got some nice sources from U.P.S.. We think that's a business that's still solid. It may be the exception of the shifting scales that has tremendous pricing pressure. These products manufacturing in Spartanburg. We announced a few weeks ago as part of our restructuring program, we will move most of the beforing from there into China to be cost effective.. Truck scales had a very difficult year.

Last year this business was nicely up versus last year. Total packaging and industrial down mid-single digits in the quarter. The U.S. showing signs of up tick and as Robert mentioned, Europe is a concern.

Okay. Thank you.

Our next question is from Scott Wilkin of SG Cohen.

Just to push more on the guidance, clearly you are indicating softening of the lab side, yet your guidance I think is still low to mid-single digits and you did low single digits for the quarter. Do you feel thaw are being conservative enough in the business? Can you comment on Europe? That still seems to be a moving target down 12% after acquisition versus 10% year to date. It seems like it's a moving target. You can comment on both of those.

Again back to the minus 12%, that of course again is very much impacted by the food retail business. Then maybe back to the first part of your question, the lab, you are asking whether this low mid-single digit growth target is realistic. We have seen relatively solid performance in the lab business in the U.S. We see solid performance in Asia and the European piece has been improving and say by the different product lines. The one piece is certainly the more challenging one is the balance piece. The instrument business, we feel pretty good. Again, we are not building in that business the normal year end seasonality.

On the auto cam, we took it down to a mid-single digit number. That business has grown 15-20% in prior periods. It may be that you were trying to link it in the quarter versus the rest of the year. This comment that Robert made in the present guage he was indicating we had better than double digit or mid-teens auto cam versus a flat sales number. That has to do with new product introductions coming. We have a number more coming between now and the end of the year. The sales performance in auto cam if you pull it Rainin, it's a big peice of that. It will have courteous sales growth the rest of the year.

Would you think that you would be later in seeing a slow down or earlier. Given the price points being lower, you would be I guess delayed in seeing the slow downs go altered the the bigger ticket items.

That's true.

You can take a stab at 03 for us. Are when are you assuming Europe picks up. Last time you talked about beginning of 03. Clearly, that may be aggressive, but can you talk about when you think the European market will pick up and the lab business may pick up and take a stab at '03 guidance.

We are a pretty short backlogged business. That doesn't give us much visibility. Performance depends on the economy. On the industrial side, I think Greenspan was talking about things are improving with over capacity. On the industrial side until they get full capacity, they lot of the strengths with productivity improvements won't see a benefit in the customer base.. Once the excess capacities are worked out of the system, we will see a pick up. Whether that's 2003 or not, we don't have a crystal ball to tell. I guess on an over all basis for 2003, a lot of guidance ends on where the sales growth comes out. If we have 0%, it will be difficult to show earnings growth and in the mid-single digit revenue growth. We can expect something in the low double digits for EPS growth.

That's helpful.

Just to add the time is quite uncertain. I want to assure you we are totally focused on sharing the next year. You get all the cost in the park this year, but that's how all the other costs impact next year.

Thank you.

Thank you. Once again if you have a question, press the 1 key. Our next question is from Donna Taquita of Merrill Lynch.

Hello?

Hello.

You mentioned Germany a lot. They are maybe a quarter of your European sales. What's going on in the rest of Europe?

I just took you through the different parts of Europe. The south is doing reasonably okay. Slightly up and I'm sure kind of keeps that trend. Moving more into central Germany, we covered neighboring markets like Switzerland. Switzerland is not doing well. Very export oriented and exports is not strong from Switzerland right now. France, France has hold up reasonably well versus Germany 18, but I think they have a lower effect from Germany. What concerns the rest of the year, I am lukewarm on France. Moving to the UK, I think they have clearly reached the bottom. Is there much upside? Probably up there. The north is holding up nicely and amazing how isolated they operate so far from the rest of the European piece. . I hear that from many other companies how they are holding up so far.

Okay. Is it too early since it's only July 17 or whatever it is to know what the early results for packaging were in the first couple weeks of the month? In other words, the weakness in June in packaging, is that continuing?

I think that could not be you and I don't have the number. It will be wrong to take it as an indication. Usually because a lot of the orders at the end of the month. I think you should be careful trying to read in numbers like that.

I'm there tomorrow, you can call me.

We will get realtime updates on that. Let me see if I can characterize in a different way. You are talking about a more moderate outlook on a month by month basis. Probably on a month by month basis, you the big delta in the third month. You were just thinking it goes along as it was or maybe in the 2nd quarter. That's all weaker. Would that be an accurate characteristic?

Not totally wrong. If I summarize what we are saying, we are much more cautious on the year end spending. That usually has a big impact on the company because a lot of equipment is bought at the last minute and we pull back on that. Companies are sitting tight on money. We see that many were anticipated.

It's my observation over the years that the way money is being sent is particularly on the industrial side, we see a little bit more money going into the maintenance and remain of the facilities and improvements and the big capacity expansion. We don't have to get to that capacity phase for you to see some of that productivity show up in numbers. Anyway, shifting gears to something that hasn't come up yet, we saw the announcement that Lucas was leaving to go to another instrument company. Could you talk about how you will reorganize the management team to accommodate the departure?

Yeah. First of all, kind of a quick update on how we are organized. We have this operating unit. One team on the autocam business, one team on the balance business and one on the analytic business and these operating units have their own leadership and whatever else in place. They are not there. That's maybe adding a lot of stability like somebody leaving. What are we going do. We have implemented management structure. From the group management, it kind of absorbs the extra load. Most all of you probably know Bill. He has been involved in some of the acquisitions, particularly Rainin. Bill is kind of the leading member to Rainin. He supplied similar procedures and we can handle this change easily. I top the say clearly what we are reporting to you today has nothing to do with these management changes.

Will you replace them or -- I think it's called interim structures. I'm assuming there will be a replacement?

We will replace him, yeah.

In Asia which I guess was the strong geographic region, could you break out maybe over there a little bit more with China or Japan or Korea.

The softness was driven primarily in Japan. The rest of it, China continues to do well. Japan is kind of the slow point right now. The outlook doesn't look that much better for the rest of the year. The rest of the business e especially khaoeup is doing well.

Japan is lab and Industrial?

Mainly lab, but some Industrial.

Thanks.

Your next question is from Richard Eastman from Robert W Baird.

What's your position on acquisitions. Are you looking aggressively and is pricing okay and what opportunities are yousee?

As we told you on the last call, we look at acquisitions and we invest more of our management to making this restructuring happen fast. In relation to your second part of the question, price suggest more reasonable. It's the question of the right time to look at acquisition. Value is going farther down. Are you weigh buying something as the market is getting more difficult. Are you getting it at the right moment when the price is lower and before the market picks up? That's a difficult question.

Fair enough. Thank you.

I am showing no farther questions.

I would like to thank you for joining this conference call and I wish you a good day. Goodbye everybody.

Ladies and gentleman, this concludes todays conference.