Mettler-Toledo International Inc (MTD) 2004 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Mettler-Toledo first quarter earnings conference call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then 0 on your touch-tone telephone. And as a remind, this conference call is being recorded.

The company would like to remind you that statements made during the conference call which are not historical facts may be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied.

For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Mettler-Toledo's quarterly earnings releases, annual report, and periodic filings with the Securities & Exchange Commission. This call is open to the public and is being carried simultaneously on the company's website.

I'd now like to turn the call over to the moderator, Robert Spoerry, Chairman, President, and Chief Executive Officer. Please proceed, sir.

Good evening, everybody, and welcome to the Mettler-Toledo conference call.

I am Robert Spoerry, the Chairman and CEO of Mettler-Toledo, and I want to thank you for joining us tonight. With me in New York this evening are Dennis Braun, our Chief Financial Officer, and Mary Finnegan, who is our Treasurer and handles Investor Relations. This call is being webcast and is available for replay on our website at www.mt.com. A copy of the press release we issued this afternoon is also available on our website.

On today's call, I would first like to give you a short summary on the quarter, then Dennis will go over the financials in more detail. After that, I would like to provide an update on our business and measures we are taking to accelerate growth. As always, we'll have time for Q&A at the end.

Let me now start with a summary comment on the quarter. We achieved EPS of 41 cents in the quarter which is an increase of 11% over the comparable amount of 37 cents from one year ago. We had another quarter of positive sales growth with an increase in local currency of 2%. We had solid growth in our core laboratory business, driven by our new product launches.

Retail, as well, had a solid quarter, and Asia continued to demonstrate very strong growth. Gross margins increased strongly over the prior year period. Finally, our cash flow generation for the quarter was excellent. Even after adjusting for the deferred timing of certain payments, our cash flow was more than double that of last year.

Dennis will now go into the financials results in more detail, and I will now turn it over to him.

Thanks, Robert.

As Robert mentioned, EPS was 41 cents, which was 2 cents above consensus and 4 cents, or 11%, above the comparable prior year EPS of 37 cents. You will note that our reported EPS last year was 29 cents, which included an 8-cent charge for the closing of our French manufacturing facility.

Sales amounted to $318.7 million in the quarter. This represents a 9% increase, of which 2% is local currency growth with an incremental 7% benefit from currency. This was slightly better than what we expected at the beginning of the quarter.

I will now discuss sales by geographic region in more detail. All these numbers are without the benefit of currency.

Sales in the Americas were flat in the quarter. Process Analytics, Retail, and Lab Balances had solid results. Industrial was down, principally due to a relatively strong Q1 of last year. As expected, Drug Discovery was down in the quarter.

In Europe, sales were down 2% in the quarter. Industrial remains sluggish, while Retail came in strong, albeit against a weak Q1, 2003. Lab came in basically as expected. Asia had another very strong quarter with sales up 18%. China was particularly strong, while Japan stabilized relative to the prior year. The growth in Asia continued to be pervasive across most product lines.

Now let me cover sales by business area. Again, this analysis excludes the benefit of currency.

Let me start with Lab. Our Lab business performed well in the quarter, up low to mid single digits.

Balances posted mid single digit growth by continued strong market acceptance of our new analytical balance.

Pipettes also had a strong quarter with improved demand from the government and clinical sectors. Drug Discovery was down double digits, due in part to product rationalization.

Process Analytics had an outstanding quarter with double digit sales growth. Industrial sales were basically flat in the quarter.

While our core Industrial business was up slightly, our Transport and Logistics business was down versus strong comparisons from a year ago. As we highlighted last year, T&L had an excellent year in 2003 with several sizable projects in the U.K., the U.S. and Australia. While the long-term outlook for this business continues to be very promising, the timing of projects can impact the comparison on a year-over-year basis.

Sales and Packaging were consistent against a strong quarter last year. In our core Industrial and Packaging businesses, quarter entry was above last year.

Retail was up double digit in the quarter due to a combination of easy comps from a year ago and the timing of certain large European projects which culminated in Q1 of this year. Demand, especially in Europe, is gradually improving, but we would expect more moderate growth for the remainder of 2004, consistent with our original expectations.

Our Service revenue grew 3% in local currency as growth in value-added services was offset by continued weakness in our Spare Parts business.

Gross margins were up strongly, 140 basis points over the prior year to 47.2%. This is the fourth straight quarter of gross margin expansion versus the prior year and reflects the benefit of our cost restructuring initiatives of shifting manufacturing to China.

We had another quarter of strong R&D investment which amounted to $20.7 million in the quarter, representing an increase of 6% over the prior year in local currency. This increase is principally attributable to our new laboratory product pipeline.

SG&A amounted to $96.8 million which represents an increase of 14% in U.S. dollars. Currency accounts for 8% of the increase, and the currency adjusted 6% is comprised of approximately 2.5% of comparable year-over-year increase, with the remaining amount due to new product launches, a North American sales meeting, which we hold every 5 years, and some restructuring payments as we continue to proactively manage the cost structure. We would expect for the remainder of the year that SG&A on an constant currency basis will increase 2.5% to 3%.

Adjusted operating income,which, as a reminder, is earnings before amortization, interest, and other income, was $32.8 million compared to $30.4 million last year. Operating margins were relatively constant on a comparable basis.

Continuing down the income statement. Amortization amounted to $2..8 million, and interest expense was $3.5 million. Our tax rate remained at 30% in the quarter. This results in net earnings of $18.6 million, or 41 cents per share, an 11% increase over the prior year amount of 37 cents.

Turning now to free cash flow, which we define as after taxes, working capital, and cap ex, we had a very strong cash flow generation in the quarter amounting to $26.0 million compared to $6.4 million in the prior year. We did benefit from the timing of certain payments in Q1 of this year versus last year. Taxes paid were approximately $5 million less this year, and interest on our public bond is paid in the second quarter, and therefore we didn't have about $3 million of interest payments.

Even taking into account this timing, our free cash flow this year was more than double the level of last year. Most of this is attributable to working capital improvements.

DSO was at 52 days, a one-day improvement from the prior year, while ITO remained constant with the prior year. Restructuring payments, which we do not include in free cash flow, amounted to $2 million in 2004 versus $2.3 million in the prior year.

Last twelve months EBITDA amounted to $195.0 million, and net debt was $185.5 million. We have a very strong capital structure as evidenced by the ratio of our net debt to EBITDA, less than 1.0. In terms of guidance, the current consensus for Q2 is 61 cents, and we are comfortable with this level.

Before I hand it back to Robert, I wanted to briefly update you on our share repurchase program. We spent $16.6 million in the quarter, and we continue to expect to spend approximately $50 million in share repurchases for the year.

That's all from my side, and I'll now turn it back to Robert.

Thanks, Dennis.

I will begin my comments with a brief update on current market conditions. Then I'll update you on our key strategic initiatives, and finally discuss the organizational change to bring Sales and Service and Marketing under one global leader.

Market conditions, in general, remain consistent with our expectation at the time of our last conference call. Conditions in Europe, although weak, appear to have stabilized. The timing and strength of the recovery in this region is still a question.

The Americas continued to show improvement. Again, pretty much as we expected at the time of our last conference call, and we see the evidence of that in our order entry which was growing.

Finally, Asia continues to generate very strong growth. China, in particular, demonstrated record growth, while Japan has stabilized versus last year.

I will now comment on our business areas, starting with Lab.

As we have discussed in the past, we will replace our entire line of balances over the course of the next two years. We started in October with our successful launch of the analytical balance XS. We continued the roll out in March at PITCON with the introduction of our new flat sheet balance XP. XP has a color touch screen which guides the user, and together with a new service of initial qualification, assures fullest compliance. It has an unmatched weighing performance and flow through technology for wireless communication. The customer reception of the new balance has been very strong.

Process Analytics had an excellent quarter with double digit sales growth. In the fourth quarter of last year, we introduced a carbon dioxide sensor which allows biopharma companies to obtain precise real-time continuous information on the carbon dioxide levels in the bioreactor.

Biopharma companies are continually looking to optimize their cell growth processes and the key to improving yield is continuous monitoring of critical parameters such as dissolved oxygen, pH, temperature, and carbon dioxide. We saw an opportunity to provide value to our customer with this offering, as there is no cost effective alternative for carbon dioxide monitoring in the market.

Turning to our Industrial business. China continued its excellent growth trend. In particular with China's domestic manufacturers, but also as well as multinationals who continue to shift production to this area to gain advantage of cost savings. Of course this manufacturing shift impacts also our Industrial businesses in the U.S. and Europe. We have a broad array of new products targeted at our multinational customers, as well as local customers under development currently in China.

I want to highlight a new low ends line of industrial scales known as Express that we are introducing this quarter. These scales are manufactured in China and targeted to the U.S. market to smaller companies that have basic application needs. This is a new market where Mettler-Toledo historically has had very little presence.

Our sales strategy compliments our manufacturing strategy in that it is a low cost model. More specifically, we'll have open distribution, and orders and inquiries will be taken place and supported only by web. There are no sales incentives, discounting, and no field service associated with that line. We think this market offers an attractive opportunity for us, and we believe we have found the right combination of a low end product with a cost effective distribution model.

We are also introducing a new line of retail price labeler products in Europe which is targeted at prepack markets. This market we have traditionally not covered, and this is, therefore, a nice growth opportunity.

We are starting with the price labeling equipment on the same platform as our UC retail scales which we have introduced a year ago. This has had many advantages to our customers in terms of ease of use, integration, and, of course, advantages also in terms of R&D and manufacturing synergies. We have just initiated the launch in France, and we will now roll it out to many other European countries in the upcoming months.

These are only some highlights of products we have coming out in the near term. In our annual report, you can get the inside view of several of our new instruments and also get a sense of the concrete value proposition these products provide to our customers.

Turning now to the cost side. The major production transfers from France and South Carolina are now completed, and you have seen the savings in our results. We are still continuously taking our actions to reduce the cost structure, primarily on the Lab side, and in the first quarter closed our Drug Discovery facility in Chicago and transferred it to our facility in Delaware.

With respect to Procurement we also have seen solid results. I am sure many of you are concerned with the rising steel prices. Although we do feel this, it is primarily related to our industrial scales, our packaging instruments, and also to the vehicle scales. By implementing customer price increases, as well as achieving other procurement savings, we expect to more than offset this negative threat from the steel price.

Our franchise is in a very solid position as we move to the midway point of 2004. Our restructuring efforts of the last few years are paying off nicely, and we have successfully reduced our manufacturing base. Furthermore, although we have faced a challenging economic environment over the last few years, we invested heavily in R&D, and our product pipeline is at a very healthy level.

We have also built up our Asian business in terms of low cost manufacturing resulting in turns of new products for this important region. Finally, it appears that the world economy is on a gradually recovery path.

These developments are all very positive, and we feel that it's now the right time to launch new growth initiatives. Our aim is to further enhance our customer orientation, optimize tools, resources and the processes of our worldwide sales force, and accelerate the creation and implementation of new global marketing programs.

Olivier Filliol, who will lead this effort, has been appointed head of Global Sales and Service and Marketing. He has been with Mettler-Toledo six years and has held a variety of key assignments throughout the organization. Most recently he has been responsible for Process Analytics.

He also has spearheaded the project to develop our new management strategies in which we identify and prioritize target segments, develop segment specific expertise, and value proposition examples, databases around customers in these segments. He did this initially with the Process analytics business that we had strong success, and then helped to roll out throughout the organization over the course of the last year.

Olivier and his team are in the midst of defining the initial high leverage areas upon which to focus, probably areas such as value selling and also models for low end distribution. I gave you just an example before on how we intend to do this with the Express line products.

We foresee completing this analyses in the next two months, after which we will develop the contact and the global rollout strategy for these focus areas. For those of who you are able to attend our Investor Day in July, you will have a chance to meet Olivier and hear firsthand about these global marketing and sales strategies.

One other topic I want to briefly comment on is our equity-based compensation program which we have to renew as the old one is expiring. We have spoken to many of you about this program, but I thought I would share some of the highlights.

The plan is described in detail in our proxy statement. It incorporates the use of restricted stock and includes many of the best practices in the market, specifically no repricing, no discounted option, and minimum performance periods. Our dilution and historical annual grants are below our peer group averages. We also have received a favorable vote from ISS. We will be very happy to answer any questions you may have on this proposal, and we will also appreciate your support on this.

Thank you, sir. If you have a question at this time, please press the one key on your touch-tone telephone.

Operator, Operator, I'm not done yet.

Okay. Pardon me, sir.

Finally, before we open our questions, you should have received some preliminary information on our Investor Day to be held in Switzerland on July 27th. This is a great opportunity to see your company behind the scenes.

We'll show you our technology in practice, our state of the art operations and logistics facilities, and you will hear firsthand our strategic initiatives from our key managers. An option for those interested is a visit to our award-winning leading manufacturing facility in Germany the day before. We recognize this is a time and money commitment from your side, but I think you will find it well worth in terms of the insight, and also the insight you gain in terms of our technology, marketing, operation, and strategic initiatives.

This is all from our side, and now I'd like to ask the operator to open the line for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Our first question comes from Darryl Pardi of Merrill Lynch. Your question, please.

Good evening, guys.

Hi, Darryl.

Hi, Darryl.

Robert, I wonder if you could give us a little more insight into what you're seeing in Europe? You mentioned you saw some stabilization there, and we've heard from some other industrial suppliers that things kind of improved over the course of the quarter. I wonder if you could give us your view, and how things maybe look in this quarter so far?

Yeah. I mean, as I said during my speech, I certainly see that Europe is not getting any weaker. It has certainly stabilized. It depends a little bit by segment on where we are in the recovery path. Clearly I have seen very nice growth, or we have seen very nice growth, again in retail.

The industrial business was a little weaker than a year ago, but that's really back to what Dennis said in terms of Transportation and Logistics. This is a project-driven business, and this has a lot to do with the timing of this project.

The lab business is also improving, and the improvement lags a little bit behind what we have seen in the U.S..

Okay.

But I think you are right. I am getting also gradually more optimistic in Europe.

Let's hope so. Hey, on shipping logistics. You had a large order from Deutsche Post about this time last year. How -- what's the sort of the -- given that that business can be somewhat lumpy driven by projects, what's the outlook for the rest of the year? You said it was robust. Is that -- you guys continue to see good order activity?

I mean, we had an extraordinarily strong year last year for Transportation Logistic. You recall our Industrial business, overall, did very well last year with close to mid single digit growth in a tough economy. A lot of that growth came from transportation logistics last year. And as I said before, it was probably extraordinarily strong. I am not so sure whether we can repeat the same growth as we had last year in Transportation Logistics.

And again it's the timing of the project. It has nothing to do with the market and the dynamics in this market. Actually, we see a lot of activity in terms of the concrete plans customers do have, but it's probably more a question of the timing and where we stand in the timing of these projects.

So I think in concrete words, the Transportation Logistic business, overall this year, is probably going be slightly down versus last year. But again, it has nothing to do with the dynamics in that market. It's more related to just the timing of the project.

Mm-hmm. Okay. And just the last question. In China, you know there's been some press recently given to Chinese government's efforts to try to slow the economy. Specifically with trying to limit the availability of funds through the state banks.

Is that -- how much of your business there are to local businesses versus multinationals? And how much do you think a -- other rise in interest rates or reduction, availability of capital would affect your business?

The local business is a little more than 50% of our Chinese business. Frankly, you know, we have not seen any negative impact. Our Chinese business at the very moment is still very hot, and frankly, I don't expect it to change so fast.

I continue to hear many, many companies, hey, we are shifting more manufacturing to China or we're trying to source more parts from China. And I think there is a continued momentum and the shift to China is not over yet. And, of course, the Chinese government is trying somehow to cool down a little bit, but they also focus on other parts of China, in particularly the West of China, they said they want to now develop a little more, so we'll see that growth maybe in other regions of China.

Fair point. Great. Thanks very much.

Yeah.

Thank you. Our next question comes from Paul Knight of Thomas Weisel Partners.

Hi, Paul.

Hi Robert. Could you quantify your efforts in China? Namely, what personnel count do you have there now from maybe a year or two ago?

Okay. Our head count is in the range of 700 people. Dennis?

Maybe a little more. More like in the 800 range.

800 people. It's probably plus 30% over a year ago. And in terms of R&D, we have between 100 and 150 R&D guys in China. As I said, at other locations, I think it's fantastic act we have there, because with that, we not only have low cost manufacturing but also low cost engineering. And actually if engineered products are local in China, we also get lower manufacturing cost, because they design products more towards the Chinese supplier base.

Paul, I feel we also have tremendous opportunity in sourcing more from China for the Western manufacturer unit. We have put out a procurement team in China to source just for the European and U.S. manufacturing sides. And I think that will be somehow important an element to continue to have significant savings from our procurement efforts, not only for this year but also next year.

And can you talk about the Drug Discovery business? It was down double digits.

Yeah, but actually we need to look at it a little differentiated. First of all, order intake was not down. Secondly, we did consolidate the product offering. The move we made from Chicago to Delaware, we also made the decision to kind of prune the product portfolio and weed out some product lines which have not met the corporate profitability target.

So having actually good order entry relative to previous year in spite of product rationalization is quite good. We also have very a good pipeline for the second quarter. And I'm very optimistic that we are on track with the guidance we have given you at the outside of the year, which was that Drug Discovery is going to have for the full year mid single digit growth.

Are you giving any guidance on the current quarter?

Yeah. Of course. Dennis?

Yeah, Paul. The consensus estimate right now is 61 cents. And we're comfortable in that range.

Okay. Thank you.

Thank you. Our next question comes from Derik de Bruin of UBS.

Hi. Good afternoon. So given that you've got the equity compensation plan ongoing, you're buying back shares, where do you see share count by year end?

So, Derek, what's going to happen is, as you know, the share repurchase program, we bought back 391,000 shares at an average price around $42.40 on an all in basis, including the transaction cost during the quarter. But as you know, we're going to phase that in over the remainder of the year.

So in addition to that, you know, the objectives of the program were first of all to be accretive to earnings. But then secondly, to help offset some of the dilution from option exercises.

And just as a heads up, we have an option grant that was made in 1998 that expires over the next two quarters. So you'll see some option exercises for some of the executives there. So on a net/net basis, we think the share count is going to remain fairly stable, maybe gradually declining through the rest of the year.

Okay. Great. Given that you were kind of stung by the Pfizer-Pharmacia merger, any comments about the pending Aventis-Sanofi deal.

Yeah. I think, let's assume it's going to happen, so what's going to be the impact of it? First of all, we actually have received very nice orders from Sanofi for later in the year. So I think this year is probably going to be okay. And what concerns next year, I mean, you know these big pharma companies are usually in the range of you know $5, $6 million dollars of our sales.

I would expect that for an interim period, an interim period of maybe a year or so, they're going to make not so many decisions, and we're probably going to see an negative sales impact in the order of $2 million or so. That's a little bit experience out of the Pfizer-Pharmacia merger and our observations there. Not much in the overall, I think we can easily absorb that. And as I said for this year, actually I'm pretty optimistic, because we have a very strong pipeline, and also I do know for sure that we're going to get some very nice orders.

Okay. And could you just give us -- remind us what the segment breakout as a percentage of revenues was for the current quarter, that Life, Industrial, Retail and An Process .

Just a second, Derik.

Yeah, so Derik, very consistent with prior quarters. Lab was about 45% of total sales. Industrial was about 41%, and then retail was in the 13% to 14% range.

Okay, that's helpful. Just two final questions. Like, I guess, what was the overall impact of currencies on the operating margin? And, you know, I guess, where you're seeing currencies are going forward. And, I guess, just in any other comments about full year guidance?

Okay. So as you saw, we had a benefit from currency of about 7% on the top line. In Q2, we're expecting the impact on the top line to be between 2% to 4%. And for the full year, we think it's probably going to be in the 3% to 4% range.

In terms of net income, we think, as you know, we're fairly naturally hedged, so compared to a lot of the peer companies, we don't see a real significant benefit on the net income line. But we did have a benefit in the range of about a million dollars in the quarter. But also, we had some additional one-time costs of equal magnitude of that for restructuring, severance, and some other one-time items that basically offset that benefit.

Full year guidance. The fourth quarter we talked about full year guidance of EPS between $2.30 and $2.40. Basically by beating our 2 cents in this quarter, we wanted to narrow the range a little bit. So we now think that the full year guidance is going to be in the range between $2.35 and $2.40 without the benefit from share repurchase.

Great. Thank you very much.

Thank you. Our next question comes from Richard Eastman of Robert W. Baird.

Yes. Good afternoon. Just wanted to follow-up for a minute. What was the impact of currency at the gross profit margin line? Can you give us that, Dennis?

Yeah. We analyzed it, Rick, and it was fairly neutral at the gross profit line.

So the 140 basis points -- year-over-year, none of that was currency.

No.

It's real improvement, and it's a result of the restructuring activities. That's the movement to low cost destinations and getting rid of plant overhead.

Okay. But your expenses, as you pointed out, are still affected by the currency number on a translation basis?

Yes.

Absolutely.

Okay. And then I also had a question -- when you looked at how your sales came in for the quarter, you know, a bit above expectations, some of that seemed to be currency, and I'm wondering, was the balance of the upside from your internal model on the retail side?

Yeah, Rick. I think we were expecting in the 1% local currency growth. And we got a little upside there for 2% local currency growth. And I would say, yeah, on balance it was due to a stronger than expected performance in retail. And a little bit in our Lab balances.

Okay. Okay. And so, obviously, with the kind of local currency growth you're expecting for the year, one would -- you would begin to model this local currency number just kind of accelerating from here modestly? I mean, is that -- should be a fairly consistent trend upwards?

Yes. And, yeah, we think, yeah, it'll modestly improve throughout the remainder of this year.

Okay. And then one last question. The restructuring payment that you mentioned in the first quarter was about $2 million this year. Is that the same number that you commented on earlier? That flows through the SG&A line? Is that the same $2 million?

There's about $1.7 million in pretax restructuring costs. They're flowing through the income statement. Part of that, Rick, is up in the gross margin, and part of it is in SG&A. About $500,000 in the SG&A line.

Okay, so that's part of it. Okay. Okay. Thank you.

Okay.

Thank you. If you have a question at this time, please press the 1 key on your touch-tone telephone.

Our next question comes from Tycho Peterson of J. P. Morgan.

Hi, could you give us an idea of where you are in the cost restructuring process? I know you gave us a head count for China, but I think at the analyst meeting in July, you mentioned that global sourcing could save you $5 to $10 million per year, and the manufacturing shift to China could save you an additional $15 to $20 million. So within those parameters, can you give us an idea of where you are?

Yeah, basically we're completed with the major structural moves in transferring the production to China. So in the fourth quarter, our Spartanburg plant was closed, and now all that production is being sources out of China.

Okay. And then in terms of the push to higher value service offerings. Can you talk a little bit about that? You talked about regulatory compliance, offerings, and things along those lines at the analyst meeting last July .

That effort is going very well. In channel, that part of our service offering has seen very nice growth. And as I mentioned before, together with the new products we're launching, new laboratory balances, we actually offer all new service product. For example with new XP balance we offer so-called initial qualification pack.

And that's something which I am sure is going to kind of be almost 100% sold with the new product. And will, in that sense, create a lot of additional revenue. Yeah, these efforts go very well.

Okay. And then finally, are there any IT issues for you guys in manufacturing in China?

Well this manufacturing identities we have in China, they are fully owned by Mettler-Toledo. And, of course, in that sense, we have much better control in it. I think the know-how we have in China and the know-how we transfer to China is typically for lower end products, and in that sense, you know, the exposure is quite limited.

Okay. Thank you.

Our next question comes from Vivek Khanna of Argus Partners.

Hi. Hi, good evening. I just had a question on the cash flow. What's your forecast for precash flow for the year?

Yeah, Vivek, we were targeting between 110 to 115 for full year cash flow, and frankly, we're probably at the higher end of that range after a strong performance in Q1.

Great. And then, if you look at, you know, your comment on the gross margin line was up, you thought that was a product because of the cost savings. So going forward, as we look out into the next several quarters, should we be modeling that kind of gross margin improvement, and then as the FX moderates, we should see more flowing through to the EBIT line, or not really?

Yeah, Vivek, I think what we're seeing at the gross margin line is a couple things. One is the benefits from the restructuring efforts, which we should continue to see at least in the second and third quarters. And then also impacting this quarter was some product mix benefits with the push of our new XS balance that we got good penetration during the quarter. We would expect that to moderate a bit throughout the remainder of the year.

You're not anticipating big EBIT margin expansion the rest of the year then?

Well, consistent with our original guidance.

Original guidance, right. And then when do you expect Europe to start showing some growth? I mean, you were saying it got stronger. Should we start -- expect some positive growth in Europe beginning in the second quarter or you're thinking it's more in the third quarter onward?

Vivek, I mean, my view is that probably in the next quarter we're going to have good growth in the U.S. Probably the European part is more a matter of Q3 or so.

Okay.

I say this also based on the order entry. I mean, the order entry made very clear indication that the Americas should have a good business in Q2.

Okay. Great. Thanks a lot.

Yeah, welcome.

Thank you. Our next question comes from Mike Whitfield of Wachovia Capital Markets.

Thank you. Good afternoon. Last quarter you guys talked about new product launches with CCD imaging identification. I wonder, can you comment on where that stands?

The product is ready for launch. We have one key customer who has big, big project foreseen this year. The project is still alive. But for various reason and beyond Mettler-Toledo reasons, the project has been pushed out, and I don't expect too much yet this year out of it from this very single customer. However, of course, there are many other projects which are alive, and I see that they're going to have, of course, some benefit from this new technology.

Okay. Thank you. Are there -- on the acquisition front, are there -- what particular areas would you like to see from a strategic standpoint.

I mean, what we have been saying consistently is that the focus areas for acquisitions are in the field of Lab, also within lab in [ultracam] in particular, life-science related applications. Then also end of line packaging control systems, and also process analytics applications.

These are all markets which we feel grow beyond 10% in a good economic environment. The reason for good growth in these segments is quite obvious. as they provide a lot of automation, they provide a lot of automation, a lot of value to customers through the automation. And that's where we focus our R&D resources and also our acquisition dollars.

In the other businesses, we also have a solid market position, and we see no reason to do any consolidation to extend our market leadership position.

Thank you.

It appears there are no more participants in the queue.

Okay. Let's -- thank you very much for joining us today, and we wish you very nice evening. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.