Mettler-Toledo International Inc (MTD) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our Third Quarter 2006 Mettler-Toledo International Earnings Conference Call. My name is Cheryl and I will be your audio coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am

Thanks, Cheryl. Good evening, everyone. I am Mary Finnegan, Treasurer and responsible Investor Relations for Mettler-Toledo, and I want to welcome you to the call tonight. I'm joined by Robert Spoerry, our Chairman and CEO; and Bill Donnelly, Chief Financial Officer.

I will start the call by covering some administrative matters. I will then turn the call to Robert, who will provide you highlights of the quarter. Bill will cover the financials in detail, and then Robert will provide commentary or our outlook and business. Of course, we'll have time for Q&A at the end. Now for the administrative matters, first, 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 today is also available on the website. You should be aware that statements on this call which are not historical facts may be considered forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied.

For further information concerning issues that could materially affect performance related to forward-looking statements, please refer to our filings with the SEC. We undertake no responsibility to release any revisions to forward-looking statements as a result of subsequent events or developments. One other item, on today's call we may use non-GAAP financial measures. More detailed information with respect to the use of, and differences between, the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the press release.

I will now turn the call over to Robert.

Thanks, Mary. Hello, everybody. Thank you for joining us this evening. As you can imagine, we are very pleased with the operating results of the third quarter. Sales were strong with a 7% growth in local currency. All business areas and all regions delivered solid growth. Operating profits increased 14% in the quarter while cash flow generation was up 15%.

During the quarter, we also completed a legal reorganization, and as a result we will have lower tax rates and improved cash flow going forward. We did have one-time tax item favorably impacting earnings per share this quarter, which Bill will cover in detail. Excluding these one-time items and excluding share based compensation, EPS increased by really strong 31%. We are pleased with this EPS growth, particularly given that the third quarter of 2005 was very strong as well.

As we look forward to next year, we are cautiously optimistic. Current market conditions are favorable and we are confident in our ability to continue to execute our strategic plan. Based on market conditions similar to today, we believe that we have another year of solid earning growth in 2007 ahead of us. Bill will cover this in more detail later on the call.

And now I want to hand over to Bill, who will take you through the financial.

Thanks, Robert, and hello, everybody. We are very pleased to report a strong quarter to you today. I will start with EPS. As Robert mentioned, we have some one-time items impacting the year-over-year comparisons. In the schedules attached to the press release, specifically the last page, we provided a reconciliation of those items, and let me now walk you through them.

Our reported earnings per share is $1.16. During the quarter we lowered our annual effective tax rate before discreet items from 30% to 27% for 2006. As a result, in Q3 we recognized a benefit due to the impact of reducing the tax rate on the earnings of the first two quarters. This was the $0.06 per share benefit this quarter. In addition in Q3, we had a net nonrecurring tax benefit of $0.19 per share, which consist of three discreet items, which I will discuss later.

Finally, earnings per share also includes $0.03 of share based compensation that we did not have in the last year period. If you adjust for all these items, all the items that are not comparable to the prior year, you would have earnings per share of $0.94 per share, which is a 31% growth over the prior year amount of $0.72 per share. On a year-to-date basis, excluding the nonrecurring tax items and share based compensation, EPS was $2.47 versus $1.91 in the prior period. So on a year-to-date basis, that's a 29% increase. I'll have some additional comments on taxes later in the call.

Now let me provide you with additional details on sales. Growth rates that I'll provide are all in local currency unless stated otherwise. Sales in the quarter were $397.3 million, an increase of 7%, reported sales in US dollars grew an additional 2%. Breaking down sales by geographic designation, in the quarter, sales growth in Europe increased by 5%, driven by strong lab results.

Our core industrial business and our product inspection business also had solid results. Year-to-date, sales growth in Europe is now at 7%. Sales growth in the Americas increased by 6% in the quarter. This growth was driven by strong retail and core industrial growth. Lab was down slightly with continued weakness in large pharma, especially for higher priced instruments. Year-to-date sales growth in the Americas were up 5%.

Sales growth in Asia/rest of the world increased by 11% in the quarter. We saw solid growth in most product lines in the region. Sales in China were up 8%, but as noted on the last call, we expect a stronger second half, and in fact, order entry was up quite nicely in the quarter. For the nine-month period, sales increased by 9% in Asia/rest of the world.

Turning for geography now to the product groups, let me start with laboratory groups, which grew by 5% in the quarter. All product lines in lab had moderate to good growth, except for automated chemistry, where we are de-emphasizing certain higher ticket products in the drug discovery area and focusing our attention instead on real-time analytics and reaction engineering products, which are used later in the drug development process.

Year-to-date, our lab sales in total are up 6%. Sales in our industrial business increased by 6% in the quarter. We had very solid growth in core industrial as well as product inspection, while our transport and logistics business was down in the quarter against a very strong prior year quarter. Year-to-date industrial sales have increased 4%, and we've built a strong backlog in the third quarter especially in China.

Finally, our food retailing business increased by 13% in the quarter, frankly better than we expected. The installation of two large orders from US retailers took place in the third quarter as we expected. However, our core retail business did better than we had anticipated. For the nine-month period, retail sales were up 15%. As a reminder, retail sales were up 22% in the fourth quarter of last year, and as a result we expect much weaker sales in Q4 this year against those very tough comps.

Now turning to gross profit margins, we finished the quarter at 48.8%, which is down 20 basis points from the prior year. Positive factors impacting gross margin include the benefit of volume, a solid pricing environment for most products, and additional cost savings from procurement and China manufacturing. These factors were outweighed by two retail orders that I mentioned earlier, which reduced our gross profit margin by approximately 50 basis points in the quarter. That's our total gross profit margin for those two jobs.

R&D amounted to $20.5 million or 5.2% of sales. As we mentioned on previous calls, we are seeing an increase in local currency R&D. SG&A, excluding share based comp was $115.8 million, an increase of 4% in local currency. The growth was principally due to continued investment in China and some smaller restructuring measures we also took in the period. The net sum of these items resulted in an adjusted operating income of $57.8 million, which represents a 14% increase and a 70 basis point margin improvement over the prior year.

Continuing down the rest of the P&L, share based compensation amounted to $2 million, amortization was $2.8 million, interest expense was 4.4 million, and other income was 1.4 million, which principally reflects interest income or our cash balances. Now let's go back to taxes. We have a couple things going on in the quarter. First, we have diligently worked on a tax optimization strategy and in the third quarter completed a tax reorganization that allows us to utilize our cash flow in a very tax efficient manner. The genesis of this reorganization was in the American Jobs Creation Act of last year.

As you recall, this one-time legislation allowed companies like ourselves to dividend foreign earnings to the United States at a substantially reduced tax rate. We repay traded virtually all of our foreign earnings last year, which was beneficial in itself, but it also gave us the flexibility to reorganize our legal ownership of certain Swiss and Chinese subsidiaries without the consequences that such a reorg might have had in the past.

Switzerland and China generate a sizeable share of our cash flow and we want to repatriate that cash flow to the United States in the most tax efficient manner in order fund our share repurchase program. With our tax reorganization we can now repatriate earnings from these entities to the United States without occurring additional taxes.

In the past repatriation integration costs were approximately 3% of our effective rate. Consequently, we've reduced our effective rate from -- for 2006 to 27% from 30%. This resulted in a catch up in the quarter to get our full rate to 27%. As a result we had a $0.06 per share benefit in the quarter for this catch up. As we look to 2007, we expect to maintain this 27% rate excluding any discreet items. In addition to the tax rate change, we also had a nonrecurring net tax gain of $0.19 per share. This consisted of three discreet tax items. Two of these items directly relate to the tax reorganization.

The first is $0.33 per share benefit due to the reversal of the liability known in the tax and accounting world as an APB 23 reserve. We establish this reserve to reflect the incremental tax we would have incurred the dividend certain foreign earnings back to the United States. With our new structure now in place, this reserve is no longer necessary as we will not incur incremental tax. The benefit is initially offset due to limits on our ability to utilize all of our foreign tax credits. We have provided allowance on these credits until they are utilized. This amounted to a charge of $0.26 per share.

The final item did not have anything to do with the reorg, but was a favorable tax law change in Germany that benefited us by $0.12 per share. The items related to the reorganization are non cash, while the Germany Tax Law change has a tax flow benefit. That is it on taxes. We are clearly very pleased with the results, which not only help our tax rate but will allow us to continue to generate tax flow in excess of our net income for the coming years. Before, I cover EPS, let me comment on our share repurchase program.

During the quarter we repurchased approximately 1.1 million shares of stock for a total of $65.3 million. This brings us to $182.4 million or 3 million shares purchased year-to-date. Fully diluted shares during the quarter were 40.5 million and were 40 million at the end of the quarter. Finally, as I already mentioned, earnings per share increased by 31% in the quarter. This growth excludes the discreet tax items, share based comp, as well as the catch up in the quarter due to tax rate change. Year-to-date on a comparable basis, EPS was 247, an increase of 29%.

Now, let me turn to cash flow. Cash flows from operations amounted to $67.5 million versus 60.3 million last year. Free cash flow, which is after CapEx and adjusted for the impact of share comp was $59.5 million versus 51.9 last year. Year-to-date free cash flow is 131.3 million versus 99.4 million last year. DSO improved by two days to 47 days in the quarter, a level we are frankly very pleased with. ITO was 4.9 times. We'd see room to further improve this ratio, but as we have spoken about previously it will take some more time.

The results of the various inventory reduction programs we have now completed to this point are only offsetting the longer lead times from our larger or increased China content in our supply chain. Overall, we remain pleased with the continued level of strong cash flow generation in our company. Let me now review our guidance with respect to the fourth quarter. We believe local currency sales growth will be in the 3% to 5% range, a little lower than we've experienced year-to-date, which is due to the tough comps from the prior year.

As I've already mentioned food retailing increased 22% in Q4 of last year and our lab business was up 9. We do not expect any large food retailing orders in Q4, and we expect this business to be down against a very tough comp from last year. For the full year, food retailing will have had a very nice year with solid growth. With this sales growth assumption, we would expect EPS to be in the range of $1.16 to $1.21, which includes share based compensation and reflects an effective tax rate of approximately 27%. If we exclude share-based comp and make it comparable to the prior year, we would have a range for the fourth quarter of $1.20 to $1.25.

This represents an increase over current consensus for the fourth quarter in part due to a lower tax rate, but also due to an expectation of higher operating currency. For the full year this fourth quarter guidance would result in local currency sales growth for 2006 in the 6% range, and earnings per share on a comparable basis, that is excluding one-time items and share base comp in both periods of approximately 26%, which we would be pleased with for a full year performance.

As we look to 2007, we are optimistic that we can have another good year. We assume our end markets will remain positive and we have confidence in our ability to execute our strategic initiatives. Of course, we are also cautious on the global economic and our end markets and we will continue to closely monitor them and adjust our plans as necessary.

Assuming an economic environment similar to today, we believe we can achieve local currency sales growth in the 4% to 6% range on an organic basis. This is our medium-term guidance and although, there maybe some variability between the quarters, we feel 5% organic growth rate is realistic for next year.

A 5% local currency sales growth would result in earnings per share in the $4.00 to $4.10 range. This translates into a growth rate of approximately 14%, if you use the midpoints of the range. These numbers include share-based comp and reflect an estimated tax rate of 27%. Again, that's the comparable number for a full year 2006 tax rate. In terms of quarterly break down, we will provide more guidance as the year progresses, but I would note that we expect Q1 to be in the range of $0.65 to $0.67 per share. That is it for my side.

And, I'd now like to turn it back over to Robert.

Thank you, Bill. I will start by providing commentary on the business and then provide also an update on certain key initiatives. Let me start with our laboratory business, which has a solid quarter. Most product lines had good growth except for the AutoChem business, which was down.

We think the Automatic Chemistry business, our Engineering and Real Time Analytics business did fine, while our Discovery business was weaker. Discovery business consists of larger instruments sold mainly to large US Pharma companies. This portion of the business is becoming a smaller and smaller piece of the total, as we strategically spoke focus more on where we have strong hold, namely the fields of Reaction Engineering and Real Time Analytics.

Our industrial business did quite strong in the quarter, particularly given the strong quarter last year. Full product lines developed with the exception of the transport and logistics business, which was down versus -- had a very strong quarter last year. We realize that this business is often driven by bigger projects. Our product inspection business also has nice quarter and we'll speak shortly on some development in the X-Ray part of the business, a business which is growing very nicely. Food retailing did better than we expected. The [best] of our products offering both hard and software is positioning us well for this business.

Our outlook for retail is very solid, although, we do expect this business to be down in the fourth quarter, given the very strong fourth quarter of last year. In the Q4 of 2005, we had several large projects. Now, I would like to add a few words from our strategic initiatives, namely those [from] emerging markets, new product instruction and also cost initiatives. Emerging markets are key to our growth. China has always been the cornerstone of the strategy, and will have a new manufacturing facility open in 2007.

We have also spoken about India. About a year ago, we took over the distribution of our lab business in India to more aggressively capture growth in this region. We are progressing with this development and seek further opportunity as we expand our product offering for India. Another emerging market, where we are seeing great growth is in the Common Wealth of Independent States of which Russia is the largest country. We have been just grading in Russia for almost ten years.

This [nations] growth is forming due to significant investment mainly in the raw material sector and also many other areas, which to offer many opportunities and with a broader array of those products in those key industry like the petrochem industry, the mineral industry, the metal industry, and the chemical industry.

While these industries are providing sales growth in the 15% range, we see room to further accelerate growth with opportunities in products inspection and the food retailing market. As the consumer goods market especially packaged foods, cosmetics and others are expanding in this region, there is great demand for packaged goods and consequently greater need such as metal detector, Checkweighers and our X-Ray equipment.

Multinational food companies are aggressively developing in these areas and want the same quality control assurance as they have in other parts of the world. Likewise, the food retailing sector is undergoing rapid growth, and our growth [offering] is positioned very nicely to capture that growth opportunity. We have a team of approximately 120 people in sales and service in that part of the world. We would expect to see sales growth north of 20% in this region in the near future.

New product introductions continue to enforce our technology leadership. As always, we have many examples, but I'd like to highlight just a couple today. We just recently launched a new line of titrators. A titrator is an analytical instrument used in research lab or QC lab to test the composition, for example, in liquid. An example of that could be a beverage manufacturer, who wants to determine vitamin C content in orange juice.

Titration typically involves numerous [manual] steps, which take time and increase the risk of errors. The value we are providing to our customer with our new titrator line is to make the operations simpler and more efficient. To save customer time and to reduce the risk of error is also part of value proposition.

The banner of our new titrator is One Click Titration. And that reflects [the ease] of using the instrument. Initiating the titration process typically took many steps, and now it's just one quick. It has an intuitive user interface and easy navigation. It is a modular system with plug-and-play feature and multitasking capabilities. It also allows measuring and massive development to take time at the very same moment.

Reducing the number of manual steps helps to reduce the potential errors. We have also built added security features such as self-recognition of the [burette] and the chemicals used in titration as well as an extensive user management control with access rights. We estimate the customer can recoup the cost of the titrator in less than a year. We rolled out this globally in September, and the initial customer reception is very strong.

Another example of our technology leadership is in X-ray, where we have one of the most extensive product offerings in the market. X-ray is still a pioneering technology, however [there are] companies that need assurance beyond metal detectors that want to check for contaminants in their products. A good example is baby food, which is sold in glass jar. Since the manufacturing process starts in [raw] glass, there is a remote chance that glass gets into the product. The potential safety issue and both brand damage would be so severe that, of course, the [customer] does everything to avoid such an incident.

Our X-ray instruments can detect such particles, particles even of the size that you can't see by eye. Other applications for X-ray are for food products that are sold in aluminum foil or has foil lids such as the [yogurt]. With the movement towards more fresh foods, manufacturers are increasingly using, of course, that type to control packaged goods. Traditional quality control instruments such as metal detectors cannot be used to control these packages.

Our broad offering includes high performance X-ray equipment to detect very fine particles, as well as more standardized X-ray equipment used in general application. Our product offer is of the highest accuracy, easy-to-use and can very easily be connected to other instruments of the manufacturing line. The plug-and-play features make them easy to install, clean, and service. Although this is a small business for us right now, we expect to see continued very strong growth rate with further adaptation of this technology.

Now, we will please comment on cost control, which of course, as you all know, is part of our operating philosophy, and we constantly look at ways to save cost in our company. On the last call, we spoke about some of these opportunities, including our supply chain optimization, continuing to move more manufacturing to China and source more parts from our local currency as well as other procurement initiatives.

Today, I just want to mention that even though our business is really performing well, we are implementing now and also in the third quarter specific restructuring programs and will do the same all during Q4. These programs will reduce our cost structure and allow us to invest further in high growth areas to provide better cost position should the global economy weaken. Our reported numbers for the quarter and also the forecast for Q4, of course, do include these charges.

We recently completed our business review with all business units around the globe. Much work has gone into the execution for our strategic plan. And as a result, the operating units are quite well aligned with our global corporate objectives. We have a stable management team on many levels. And as a result the company is well synchronized, which facilitates a strong execution.

As we look forward to the next year, we assume end-user markets remain positive, and we feel confident in our ability to execute our strategic initiatives. As always, we remain cautious on the global economy and our end markets, but we feel confident that we can generate sales growth of approximately 5% and EPS growth in the 15% range for 2007 and the medium-term.

With that, I'd like to conclude our comments and would like to ask the operator to open the lines for questions. Operator, could you please open the line.

[inaudible question - microphone inaccessible] And the stock option expense generally in the same range about --

I think it's a little bit more. It will be depending a little bit on the brand information, we're assuming between $0.15 and $0.16 per share.

Okay. It makes sense. All right. And I guess when -- you know, when I try to model the company, I've always thought that usually you could expand the operating margin about 50 basis points a year. Is that how you see the business is maturing?

I think that's a little how we built the model for next year as well. We think if we can get in this 5% kind of growth range, that a 50 basis point margin expansion is very real based on a normal mix.

Great. I'll get back in the queue.

Hey, thanks Derek. We are going to go next to Rick Eastman.

Just a couple things. Robert, could you explain -- we had this 7% organic growth rate and I'm trying -- maybe some guidance or -- where you thought you'd be this summer. Where was the upside? Is it better defined as geographic or is it better defined by product line?

Yes. Hi, Rick. I think it came pretty much from both ends. You know, Europe probably does better than we did expect. We see also increasing performance from the Asian markets. In terms of the businesses, retail certainly did a little better in Q3 than we expected.

But as I said in my introductory comments, we were very pleased with the growth rate -- growth from -- in the company from all regions across all businesses. So there is not one which just make the difference.

Okay. Do you also have a sense of what your price realization was in the quarter year-over-year?

No, not a totally accurate number. But don't feel -- probably on the yearly base, we make a price increase in the range of maybe 70, 75 basis points.

But when we take into account, we also have programs around discount management. And when you take kind of the net, we think we did probably a little bit better than that, probably in the 100 basis point range.

Okay.

We expect something similar for next year.

Okay. And then another question, just regarding -- you made some comments about your Eastern block sales and growth rate, but I am curious. Could you just size that business in US dollars? How big is that whole Eastern block sales piece?

Well, let's first do a definition. So let's take the Middle Eastern European countries together with Russia. The definition -- Bill, help me out here at the basis.

That's the number this year. We probably will have $65 million or so in that part of the world. Maybe it could hit 70 with a good fourth quarter.

Okay.

I did talk about Russia. That's providing very solid growth rate. Of course, those countries which are closer to the far more European, Eastern European countries, they benefit a lot because of manufacturing shifting from Germany to Poland to the Czech Republic and [inaudible], and those countries also do provide very solid growth.

Okay. And then, Bill, a question for you on the percentage of sales. Could you just break that down by lab industrial and food retail?

Sure. Within the quarter, we had 43% in lab, about the same in industrial, and about 14% in food retailing.

So that's as reported?

That's as reported? Yes.

Yes. Okay. And then just one last question for Robert Spoerry. The restructuring that you mentioned -- we took a little bit more in the fourth quarter. I'm trying to [technical difficulty]

Hey, excuse me, just a second. Please if everyone could put their phones on mute. Thanks.

The answer to your question, what you obviously said, more of restructuring items that we try to cover in my comment. You did ask whether that was in any particular segment. Actually, you know, it's not so much segment specific, because it's not like compact when it is performing badly. So we need to do something.

It was more [inaudible] where we see opportunity for productivity improvement, but could be closing a small manufacturing unit or it could be also, you know, just optimizing the sales profits in another country. It's a couple of smaller items, which we did, but it did add some couple millions in terms of the costs, which we took in the quarter. And we will take more of that in Q4.

The key reason for doing that is we want to do this at the moment of strength when we are performing well, with that making sure that in case the economy would slow down, we do have, of course, [inaudible] being corrected. But in case, things continue to do well, we also can redeploy some of that money into, you know, other gross platforms for the Company and just make sure that we have enough power there.

Okay. Very good. Well, thank you, again.

You're very welcome.

Your next one is -- and again, as a reminder, if everyone could please put their phones on mute. We will go to Paul Knight.

Good evening. This is Jonathan Palmer in for Paul knight. Congratulations on the quarter. I was wondering if you were to characterize next year's guidance -- I know you guys mentioned you put that together with the end market status quo. How would that look or how should we be thinking about that if we see some pharma growth or science growth?

Of course, you know, we are serving many end user markets, and we have also many different businesses. So you know, in that sense as you have seen in the past when pharma did slow down, actually it didn't impact us so much. And now vice versa, you know, in case there will much more pharma spending, of course, we'll see benefit, but maybe, you know, not to the extent of those companies just serving into biopharma and life science market.

The reason why we gave you that top line guidance of 4% to 6% for next year is based on similar assumption of our end markets next year as it is this year. Maybe, you know, the global economy has started to slow down. In US, completely possible, but we see on the other side further upside in the Asian market. And you know, that we feel it's a reasonable guidance. It's very much in line with what you're asking, telling in the past, 4 to 6% top line growth, 10% operating profit growth and 15 or more EPS growth.

Great. And then just one housekeeping question. How much is left on your repurchase program right now?

We have a significant amount available. The original program, I think, was 900 million or so. And we have enough to certainly take us through next year. So I think the number is north of 300million, between 300 and 400 million.

Thank you very much.

We'll go next to Peter McDonald.

Hi. Just a question on retail. What has been the driver for the strength this year? Is it new products? Is it an upgrade cycle? A little bit of trends there.

Yes. Hey, probably, I think it is the healthy economy where consumer spending is pretty good. And for that reason, food retailers are at least, you know, doing quite well and we started doing investments.

That's just one part. I think the other part is that we have gone through a big transitioning in our retail operating, you know, from what you would call a scale offering to a much more solution-oriented approach where, of course, you know, the weighing and pricing based on rates is still important. But new applications have been very key. The base to that is an open architecture and expert solutions.

We have lots of software, which can do, for example, perishable goods management, merchandising information, linkage packing to the supply chain, trade abilities, labeling requirements to cross-promotion. And, of course, we've a lot of new value propositions to our customers just beyond the traditional offering we have. In that sense also, of course, our business momentum is a result of this.

Great. And then could you talk a bit -- was there a lot more product launches this year historically and -- or you know, is it just you've been better at managing your launches?

No. I think, you know, it's pretty much us in all the years. You know, sometimes the launches take a little while until they're fully effective in the market. For example, we did speak to you, you know, last year about the many new launches you had on the laboratory balance side, and we still benefit from that. We have state-of-the-art products in that field, competition has not really offered anything close to our products.

And you know, some of the end markets, like the pharma markets, are below markets which are conservative. They want to attack these new products first before they buy them, and we really strive not only from the new product launches this year, but certainly benefit also from many great launches of last year.

Okay. And then, final question. Tax rate, 27%, is that a pretty good number to use beyond '07, or it is pretty-- too early to tell? Let's say absent major changes in, you know, US tax rates, for example, or Swiss tax rates, I think it's a very reasonable number beyond 2007.

Okay. Thank you very much, and a very good quarter.

Thank you.

Thank you. We're going to go to Mike Hamilton. We'll go now to [Herb Connor].

Congratulations on a sensational quarter. Mary, Bill, Robert, can you guys hear me?

Yes. We can hear you. Hi, Herb.

How are you?

We're very pleased about the quarter and of course, we're good to hear from yourself.

Robert, normally on these calls we have a discussion about Spinnaker.

Yes.

It was absent today. I'd like to understand if it continues to contribute to the amount of leads that you received and the costs that it is. What percentage or what portion of the increment we just received in earnings has to do with this Spinnaker, and will it continue?

Okay. I didn't speak about Spinnaker today because we did speak about it many times on previous calls, but please do not feel that we are de-emphasizing this initiative. Actually in contrary, we are gaining more and more momentum throughout the company and more and more bio-businesses are behind these initiatives.

We have some many people who felt skeptical about the project and as they now see the result about the others, they are just, you know, so surprised that they go to work with our business. And we continue to invest a lot incrementally in this initiative to give you some idea, you know, search engine marketing spending has gone up a lot for us. But there are many other things we do, telemarketers, and we have really many, many people just doing telemarketing.

Your question was, you know, how much of the gross is attributable to project Spinnaker; of course, these things are hard to measure exactly. But our gut feel is just from the increment in leads we have, we probably have generated another 1%, 1.5% top line growth. So for us, it's you know, very tangible, very encouraging and we want to put more focus and more energy and more resources behind it because we're so encouraged by the results.

Thank you. Thank you very much.

You're welcome.

We'll go back, and is Tycho Peterson on the line?

Yes, I am.

Hi, Tycho.

Congratulations on the results. I wonder if you can characterize some of the demand that you are seeing on the laboratory side. How much of the demand you would characterize as you know, replacement cycle versus new laboratory buildup? And you know, how do you view kind of the opportunity for balances in particular given that it's been a little while since we had real new product flow in that area?

Well, maybe to comment on the later part of your statement, we have actually begun to launch this year new laboratory balances. We have a good stream of new products. And you know, in that sense, I'm extremely happy with the offering we have in the field of laboratory balances.

In terms of your question, you know, how much is from new laboratory and how much is replacement, actually, a lot of our business in our, you know, western companies, Europe and North America, is driven by the replacement cycle. We mentioned that many times. We are not just offering a new technology, which didn't exist in the past.

Actually, this technology we're offering has been offered since a long, long time, and therefore, you know, our challenge has always been to have the products of the product so the customers have a value proposition to buy new ones and that's an art, I think we understand quite well on how to do this.

Of course, the story's quite different when you go to Asia like countries like India and China where a lot of new labs, so, Tycho, maybe to quantify this, I probably would say, you know, 75% of outbalance seems for example are replacement that maybe, you know, around this new act.

Okay. And then, you know, you talked in the past and I think two quarters about some of the environmental regulations and RoHS potentially having an impact. Is that still driving sales overall?

Tycho, could you maybe --

Early chess.

I think he ask in early chess

Right. Yes. In Europe in terms of the environmental regulations.

No, not at all.

I mean it was a complication in our supply chain management since we had to change over our electronic designs to be compliant with that and we also have maybe some cost pressure because suppliers of these components took advantage of, you know, to help demand on these components. But we have been successfully working through that and we are hopefully compliant.

Okay. Thank you.

You're welcome.

We'll go to Vivek Khanna.

Hi. I was wondering if you could give the geographic growth rates for Europe and North America. I didn't write them down.

That's okay. Just give me a second. Europe was plus 5%. Americas was plus 6%, and Asia, rest of world was plus 11%. Those are local currency organic numbers.

Okay. Great. And then maybe if, Robert can talk a little bit about, you know, what you are seeing in terms of bookings activity and did you guys bill backlog in the quarter, just some sense on how the bookings looked as you went through the quarter?

Actually, we feel good about the business and also, you know, as Bill mentioned in his call or comments, you know, particularly in invest able business, we had a solid booking in quarter. You know, if you look at our Q4 forecast, you will see this is a little less entailed gross than we had year-to-date.

But that's not the reflection of us feeling less strong about the business. This is pure weight impact of a very, very strong Q4 last year. Bill had mentioned that in retail we had plus 22% gross last year due to some large project and you know, that's the only reason that maybe the guidance forQ4 is a little less than what you have seen yesterday. Please, do not see this as a reflection of less enthusiasm in the business.

All right. Thank you very much. Congratulations.

Fair enough.

Thank you.

We'll next go to [Vishal]. How about [Brandon Fazio]. Maybe what I'll do because I'm not sure I have the most current list, maybe if there's other people on the call that have questions, if you want to open your lines.

Are there any other questions for the call?

This is Rick Eastman at Baird.

Hi, Rick.

Hi. I just had a follow-up question. On the lab business, when I look at the growth rate of 5%, I'm curious is the industrial lab piece, and I think pharma, I think large pharma is kind of 35% of that business. But I'm curious, is large pharma up, you know, year-over-year?

Large pharma is up clearly in Europe. That has a lot to do with the pharma company in Europe actually reporting very solid numbers. In U S, it's a little more difficult. So that's a distinct difference.

Are you seeing any change in the inflection of demand in the US large pharma? We've kind of heard some mixed signals on this earnings season from other players. I'm just curious where you stand on that. And are you seeing any order growth?

We are in that sense a little bit different in that discussion. We told we are more in the product replacement cycle and therefore, we have more steady business in the pharma sector as well. Where we have seen some pharma spending in the US in our AutoChem business.

We did discuss that before. That business was slightly down, but frankly, it was not only down because of pharma spending. It is also very much impacted by us just kind of saying strategically, we want to focus on the stronghold in this business and that's there action engineering. And that business actually has very good growth also in the US pharma companies.

Okay. Is it fair to say that the environmental and industrial QC lab component of the overall lab business drove the growth to that 5% number? In other words, move up that number?

I think both parts did contribute as the sales growth and not just the other piece, yeah. Lab balance growth, the value was quite book.

Okay. Thank you.

Welcome.

Again, if anyone has any questions, if you could un-mute and state your question. I don't think we have any follow-up questions. Again, we thank you for your patience and again, apologize. If there is any follow-up question, we're available. Give myself or Bill a call. It's no problem. Okay. Thanks. Thank you everybody. Have a good evening. Sorry, for the inconvenience.