Mettler-Toledo International Inc (MTD) 2008 Q1 法說會逐字稿

Thank you for your patience. Good day, Ladies and gentlemen. Welcome to our Mettler-Toledo first quarter 2008 earnings conference call. My name is Kara, and I will be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. (OPERATOR INSTRUCTIONS)

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

Thank you. Good evening, I am Mary Finnegan, Treasurer, and responsible for Investor Relations at Mettler-Toledo, and I am happy to welcome you to the call. I am joined by Robert Spoerry, Oliver Filliol, and Bill Donnelly. I will start by covering administrative matters, and then turn the call to Robert.

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 can materially affect performance related to forward-looking statements, please refer to our filings with the Securities and Exchange Commission.

We undertake no responsibility to release 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 to Robert.

Thank you Mary, and welcome everybody to the call. As usual, I will start by summarizing the highlights of our first quarter, and then Bill will provide details from our financial results, and our guidance for the remaining part of the year. Following Bill, Oliver will provide some additional comments on the quarter, and then both Oliver and I will comment on some of our initiatives. We will have the usual time for Q&A at the end.

Let me start with the highlights of the first quarter, we have seen continued solid momentum in our business. Local currency sales growth of 5% was in-line with our expectation. We had solid growth in our laboratory and in our industrial incoming business, while retail was down against a strong quarter in the previous year. A solid sales growth combined with good cost margin expansion, led to a strong 20% growth in our operating profits, and a 20% increase in adjusted EPS. You will notice that we lowered our tax rate in the quarter to 26%. And believe this rate is a sustainable one for the foreseeable future.

The one item that was not that strong was cash flow. Bill will provide some details on year-over-year comparisons that impacted this number. With our solid first quarter results and our lower tax rate, we are increasing our guidance for the full-year. I will be optimistic today and the momentum in our business remains solid. We are very cautious also on the economy. We are preparing to reduce our expanse growth in the event of a possible slowdown later this year. We will have further comments on our guidance and outlook later on the call.

Now I want to turn it over to Bill for details of the financial results.

Thanks Robert, and hello everyone. As you heard from Robert, we had a good quarter and are pleased with the solid start to the year. Let me begin with adjusted earnings per share which came in at $1.01, a 26% increase over the prior year amount of $0.80. Adjusted earnings per share excludes purchased intangible amortization expense, and a discrete tax gain this year.

On the last page of our press release, we have a table that details the components of adjusted earnings per share. Let me provide you more details beginning with sales, which were $439 million in the quarter, an increase of 5% on a local currency. On a U.S. dollar basis, sales increased by 13% in the quarter, which includes an 8% currency benefit.

Given the strong impact of currency, I want to highlight again, that although we do have a benefit on the top-line currency, it is local currency sales growth that drives our operating profit growth. This is because we are relatively naturally hedged with our non-dollar sales approximating our non-dollar costs. The impact of currency on operating profit and earnings per share, tends to be relatively small. Breaking down sales by geographic destination, and all of these percentages again are in local currency. Europe increased by 4% in the quarter, with very strong growth in laboratory instruments. Industrial was in-line with expectations, while retail in Europe was down modestly.

In the Americas, sales growth was flat with good growth in Lab instruments, Product inspection and core Industrial products. This was offset by decline in retail and transport in logistics, against strong project activity in the prior-year period. Absent, the large project activity for retail and transport and logistics last year, the Americas increased by 5%. Sales in Asia and the Rest of World increase by 18% in the quarter, with all product lines showing good growing.

Now let's look at sales by product area. We had 9% growth in laboratory instruments in the quarter, with good growth in almost all product lines. Industrial sales grew by 7% in the quarter, with strong growth in core industrial products, and strong growth in product inspection. Offsetting this was the decline in transport and logistics, which as already mentioned had strong project activity a year ago.

Finally, retail was down 11% in the quarter, against strong comps, specifically retail was up 14% last year, last year of Q1. I have kept my remarks here brief, as Oliver will provide some additional insight on sales by product category.

Let's now turn to gross margins. We are very pleased with the strong gross margin increase in the quarter. Gross margins were up 100 basis points to 50.4%. We benefited from volume leveraging of our fixed cost base, a favorable product mix and price increases, that were offset by currency which diluted the margin, as well as higher steel prices. R&D amounted to $24.3 million, or 5.5% of sales, a 4% increase in local currency.

SG&A was $138.6 million, an increase of 6% in local currency. We continue to invest in global sales and marketing initiatives, particularly in emerging market countries. We also benefited from a small gain on the sale of some excess land in Switzerland, this was offset by some restructuring charges related to our cost reduction efforts, as well as some IT-related charges on capitalized software. The net sum of all these items resulted in a strong operating income, adjusted operating income increased by 20% to $58.3 million, from 48.7 million a year ago.

Our operating margins improved by 70 basis points over the prior year, and we are very pleased with that margin improvement. Continuing down the P&L, amortization was $2.4 million in the quarter, interest expense was $5.8 million, Other expenses amounted to $1.7 million in the quarter, as compared to other income of $360,000 in the prior year. These amounts relate to reductions in interest income, with our cash balances and the impact of foreign exchange.

Let's turn to taxes. First during the quarter, we lowered our effective tax rate from 27 to 26%, we feel comfortable with this rate for the foreseeable future. Second, we had a discrete gain of 2.5 million, or $0.7 per share, related to tax law changes in China. We exclude this $0.07 from our adjusted EPS, as outlined on the last page of our press release.

Now for the share repurchase plan. During the quarter, we repurchased 954,200 shares, for a total amount of $95.6 million. Fully diluted shares for the quarter were $36 million, and at the end of the quarter was 35.6 million. Our share count is currently 7.5% lower than at the same time last year. Finally, earnings per share on a reported basis was $1.06 in the quarter, as compared to $0.78 in the prior period.

Adjusted earnings per share is $1.01, which is a 26% increase over the prior year amount of $0.80. Adjusted earnings per share excludes the $0.07 discrete tax gain, and $0.02 worth of purchased intangible amortization.

Now let's turn to cash flow. Free cash flow in the quarter was 13.5 million, as compared to 27.1 million one year ago. We had expected cash flow in Q1 to be below the prior year. We have a couple of comparability items which explains the difference. First, our variable compensation payments are specifically bonuses were $11.5 million higher than the prior year. This reflects our strong performance in 2007. Our bonus payments for 2007 are paid in March 2008, similarly our bonus payments for 2006 were paid in March 2007.

The second item comparability-wise was we had $8 million more in tax payments, this purely reflects the timing of some tax refunds that we received last year. Third, the payments of our Accounts Payable were $20 million higher than in the first quarter of 2007. This follows an unusually large Accounts Payable buildup in Q4 of last year, specifically related to inventory build and some CapEx. Offsetting these factors was a net positive of $10 million from the sale of excess land in Switzerland.

I know I named a number of items there. If you adjust for these unusual timing items, cash flow was up in the quarter, bottom line is for the full year these timing items will level out, and we will again have free cash flow per share in excess of our earnings per share, and nicely above the prior-year amounts. Just to cover, also DSO and ITO both came in at the same levels a year ago, with ITO slightly better, and DSO slightly down.

That covers the quarter, now let's turn to guidance. We have not much seen impact on the economy of our business to-date, however we are very cautious, given the increasing uncertainty. We are continuing to formulate plans assuming sales come in at the lower half of our 4 to 6% guidance range. We are initiating certain efforts internally, to reduce expense growth, to the extent that market conditions deteriorate. We want to be positioned to react quickly if necessary.

Even with this framework, we are able to increase our full-year guidance with the benefit of our strong Q1 results and our lower tax rate. We now expect that adjusted earnings per share will be in the range of $5.43 to $5.53, or a growth of 15 to 17% over 2007. This is an increase over our prior guidance, which had assumed a growth rate of 12 to 15%. for clarification, adjusted earnings per share excludes $0.07 expense for purchased intangibles, and the $0.07 gain for the discrete tax item I mentioned earlier.

In terms of the second quarter, we would expect adjusted earnings per share in the range of $1.26 to $1.28, which is a 16 to 17% growth rate over the comparable amount in Q2 '07. That is it for my side.

I will now turn it over to Oliver who will provide some additional commentary on the quarter.

Thank you Bill, and hello everyone. I will start with some commentary on the results, and then turn on our growth strategy. We had a good start to the year, and had solid momentum in our business. We feel confident in the year ahead, which is reflected in the increased guidance Bill has just outlined to you. We are of course cautious on the economy, and will continue to monitor it closely.

Now let me provide some additional comments on the quarter. Lab had a very strong quarter, with sales up 9%. We are very pleased with this sales growth level, which was broadbased across product lines and geographies. We continue to benefit from a strong product pipeline, our Spinnaker initiatives surrounding sales and marketing, and strong growth in emerging markets.

Turning to Industrial, our core Industrial business was strong in the quarter, with very strong growth in Asia, and descent growth in the Americas and Europe. Product Inspection also has solid growth, with particularly nice growth in the Americas. Offsetting this to a degree was a decline in Transportation and Logistics, which had very strong project activity one year ago. Comparisons for Transportation and Logistics gets easier for the remainder of the year, but we are not expecting much growth this year, as these customers are the first to be impacted by the slowing economy.

As you heard, retail was down in the quarter. Of all of our businesses, this tends to be the most uneven, although this quarter we are impacted by tough comparisons from one year ago, we don't expect much growth this year in Retail. We are strongly positioned and have an excellent product line. But feel Retail is maybe cutting back on their spending, given the economy.

That is all my comments on the business units and now I want to turn to our growth strategies. We continue to pursue our core strategies, that is our Spinnaker initiatives, our opportunities in emerging markets, our technology leadership, and our cost leadership. I have no intention to change the strategies, but we are continuing to resolve and refine the initiatives underlying these strategies.

In that sense, I would like to update you on recent initiatives related to Spinnaker and emerging markets, and then Robert will then discuss an exciting new technology that we launched. One focus area on the Spinnaker is pricing. As you know, we implement annual price increases, for both products and services each year. We have also discussed with new related programs aimed at discount management and better value selling.

Today, I want to discuss our recent programs related to service pricing. We have evolved a pilot program in the United States, to optimize our pricing for our service offering. Let me walk you through some of the key elements. First, we believe we can achieve sales and market gains through differentiated pricing. Individual regions and market segments have different service requirements. Some are more demanding, some are less.

We need a differentiated pricing strategy, rather than a uniform one, to better allow our service offering with our customer needs. Second, there should be a pricing gap, between Break/Fix services, and preventive maintenance activities. Brake/Fix is more costly, because it involves emergency scheduling, parts logistics, and technician skill levels. We need to ensure that is incorporated in our pricing models.

Third, we are analyzing factor base pricing for spare parts. We can optimize the price of spare parts, by taking into accounts such factors as, the proprietary nature of the part required, availability level, equipment criticality, lifecycle management, and the price of the spare parts, relative to the price of an instrument. Finally, similar to what we discussed in pricing for products, we are also increasing our training and emphasis on value-selling for service, including analysis of total cost of ownership, in order to better articulate the value of our service offerings.

As can you see, some of the individual elements of the program I described are not complex. But taken together, and with good execution, the impact is powerful. We are already seeing the potential to our U.S. pilots. Pricing will continue to be an area where, with good strategies and strong execution, we can drive excellent returns. We are building additional pricing expertise, and will start to implement parts of the program to the rest of the world in the coming months. It is worth noting that even in more difficult market conditions, which we may see later this year, service tends to remain a steady business.

Turning now to emerging markets. As we mentioned on our last call, emerging markets we present approximately 25% of total sales, and we expect to see double-digit sales growth from this region. In the first quarter, we had another good quarter, with sales growth of 15%, how are we driving this growth? If we look more closely at China, our biggest emerging markets, you can gain a better understanding of the growth initiatives for this region.

First, we are expanding our territory coverage in China. We have a strong presence along the coastline, and we are moving this presence inland, where there are numerous cities, with populations of several million people. We are opening new branch offices and expanding our dealer network, we are also expanding our service organization to cover these vast regions.

Second, we also are applying Spinnaker initiatives, such as segment marketing and lead generation. We have dedicated telemarketing resources to qualify leads, and have a CRM that is used by more than 600 personnel to manage customers and channels.

Third, we are also building up new businesses in China, including Product Inspection, as food safety becomes an increasing concern in this region. We are also expanding our RAININ pipette offering, and our AutoChem offering, to meet the expanding needs of research labs.

Finally, we are tailoring our offering to the market needs of China. That is we are localizing the product to better meet the customer requirements of this region. These customers are more focused on the midrange of our product offering, and we have local engineering and manufacturing, so that we can ensure cost-effectiveness for this region.

In summary, we feel very good about the potential emerging markets. Not only China, but also Russia, India, and other regions. This is not only for 2008, but in the years to come as well. We have been making substantial investments in emerging markets, which are yielding benefits. While head count in the rest of the world remained relatively flat, and we are growing in these region. We are investing in training and other HR programs, to continue to improve our retention rate in the regions.

That is all I wanted to cover for now on the Spinnaker and the emerging markets. We continue to make significant investments in R&D, and Robert will now provide you some insight, on one of the most exciting product launches we have had in a long time.

Thank you, Oliver . We are very pleased to announce the launch of a Quantum Leap product, that addresses a long-standing challenge in the lab. Namely how to most efficiently and accurately dose powders. Dosing powders to target weight, is one of the most frequently-used applications for laboratory balances.

Research scientists typically begin an analytical measure, such as HPLC, with preparing a sample, and this most often includes the dosing of a powder. This is a manual process, which involves transferring small quantities of powder with a spatula, into different containers on a balance. Dosing powder is very tricky, because the flow of the powder characteristics vary greatly. Some powders are very sticky and they are difficult to dose, while others flow very quickly, and can spill easily.

Not surprisingly the process is tedious, time consuming, and often highly inaccurate. Powders are costly and they can be expensive. In addition, powders can represent a health hazard, because they emit toxic aerosols. Technician safety is a very important concern for many of our lab customers. Earlier this month at the Analytical Trade Show in Germany, we unveiled QUANTO, a revolutionary instrument that provides optimization for powder dosing. QUANTO stands for a quantum leap in dosing.

The automation of powder dosing is extremely challenging. Besides have to compensate for the safe and other characteristics of the powder, that being whether it is thick or easy-flowing, the impact on powders during the automation process, has also to be thoroughly understood. How it impacts the particle composition, and so forth.

Therefore we overcome these challenges with unique technology, that combines a modified analytical balance, with a disposable dosing head, which can be clicked easily into the balance. The specific substance you want to dose is now safely stored in a dosing head. With a simple keystroke to dispense how much powder is needed, and QUANTO will dose directly, precisely, and automatically into a container.

The dosing process is controlled by the balance, and the dosing elaboration is constantly updated to optimize the profit. An RFID chip in the dosing head identifies and tracks all important information, such as the amount and type of powder being dosed, the number of dosings, and the accuracy of the dosings. Each value is retraceable and can be recalled on the touchscreen display at any time. The dosing head is a consumable, and it has to be replaced after 75 doses. Otherwise you can't guarantee accurate dosing.

A laboratory technician can now does powders to a target rate 20 times faster, as compared to the manual process. Furthermore, the cost of balance control that monitors the entire dosing process, it can achieve accuracy within a 2 to 5% tolerance range. With manual dosing, it is not unusual to have tolerance ranges of 10 to 15%. Waste is eliminated as powders are dosed more accurately, and spilling is avoided. Furthermore because of the great precision, scientists can use smaller sample sizes, and again achieve the same results.

Finally, worker safety is enhanced, as powders are contained within the dosing head, which prevents toxic aerosols from entering the workspace. We are offering a complete package including, qualification installation, and for problem assurance contracts, to implement the contract offering and to ensure the utmost reliability.

With tangible customer values, such as faster operations, smaller sample size, greater worker safety, better tracking ability, we provide a very quick payback to our customers. We have put in place specialized sales and service teams in our key markets, and our initial customer reaction from pilot installations, and the Exhibition has been very favorable.

As you can hear, we are very excited about the launch of QUANTO, and you will have a chance to hear more about this new product at the upcoming Investor Day in June. Concluding, I want to say that we are very pleased with the strong operating results of the first quarter, and our solid start into the year.

As you have heard, we have raised our guidance for 2008, and we remain confident in our ability to execute our initiatives. Momentum in our business remains solid. We remain at the same time cautious on the economy, and we will continue to monitor it very closely.

With that, I would like to conclude the prepared remarks, and I would like to ask the operator to open the lines for questions. Operator, can you open the lines,

Kara, can you open the line for questions please?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Peter Lawson with Thomas Weisel Partners.

We have seen a phenomenal expansion in gross margins, where do you think gross margins can get? Is there anything that is going to top that out?

I think every year we try to come up with a few ideas, and this year we have a number of them. I think the mix was good. I think we have done a good job in pricing.

Actually, I mentioned probably the currency dilutes our gross margin over 100 basis points this quarter. You can get the underlying impact is quite good. Our goal is for at least the next three years to continue to be able to expand our gross profit margins, and I limit it to the three-year period, more reflecting the ideas we have as of today, than reflecting any kind of topping out.

And what was the contribution to the bottom line from FX, are you still neutral on FX?

It was pretty neutral. When you look in the quarter, what you basically had as you know, our biggest exposure areas, the Swiss Franc versus the Euro. That actually worked against us in the quarter. That offset some of the benefits we had of some of our sales organizations around the world, their earnings translating into more dollars. So the net impact on the quarter was negligible. Mary is giving me the headshake to reenforce that. Yes.

It is clear from your business there seems to be a decoupling between U.S. growth and Asian growth. Do you think that is going to continue, or is there a point where you start to see Asian growth pulled in from a lack of U.S. growth?

Again, I think the decoupling, I would not overdo that. The reason I say that is our project business, this T&L and Retail unit, you have been following us for a while. That can be pretty lumpy.

If you pull that out in the quarter, the Americas were up about 5%, of course, not the same kind of growth rate as the emerging markets. If we look at our customer base in the emerging markets, a large piece of it is the increasingly large piece of these local Chinese companies, and some of them are exporting, and some of them are working for the local Chinese market as well. Of course, exports certainly do matter in China, but we continue to see good market activity there, and have a large part of our backlog build is actually in China.

Finally, I wonder if you could break out the businesses, revenues for lab, food, and industrial.

Sure. Our Laboratory instruments were about 45% of sales, Industrial 43, and Retail 12.

Okay. Thank you so much. Thanks for take my question.

Thank you.

Congratulations.

Your next question comes from the line of Tycho Peterson with JPMorgan.

[inaudible] here for Tycho. Congratulations on the great quarter. A couple of questions for you. One is about the process control market, and the regulatory drivers in that. Can you give us commentary as to what to expect in that market?

When you say regulatory control, are you talking in particular just in general food safety areas or process control around pharmaceutical?

In general food safety is really the crux of the question.

Okay. You. To take that or --

Yes. In the food safety, there are different things that are happening that are beneficial for us, the awareness of food safety is a big topic actually not just in the U.S., also very much in Asia. And we are well-positioned with our products to benefit from these things, and we are trying to actually more and more develop an offering that is targeted to these needs.

So for example you see us, even adapting some of the products that better comply in fact with needs, again, this part of the segment marketing that we have across.

So I think what I might add there, is that probably the drivers tend to be less regulatory, that was kind of the context of your question, and more customer-driven. We actually saw a really neat example recently, where a big U.K. retailer, Marks & Spencer.

Marks and Spencer has sent a video to all of their customers, and basically the video is about food safety, and I think in the first thee minutes, they mention Mettler-Toledo and our brand-safe line probably five times, and they are basically sending it out and reminding all of their customers, that they need to be doing metal detection, as part of our expectations for you as a supplier.

We really see the driver as much more coming from customers, particularly in the Western markets. The emerging markets that will eventually be the case, but probably not as strong a pull as it is in the West.

And just to tie-in to the emerging markets idea, do you expect an impact from the Olympics in China, and specifically if all of the factories are being shut down for a month prior too, or is that going to impact other local sales, or your manufacturing construction timelines?

We are all shaking our heads, but I think of course, we have never seen an Olympics in China. There is a certain amount of uncertainty, but I think we actually generally view it as a positive, in terms of bringing them into the global world, so our expectations are that won't be a significant issue in Q3.

The last question is in terms of raw material costs, I think what we are seeing across the board in this space is that with commodities prices increasing that is having a bit of a squeeze on various peoples margins, do you expect that as well, and are you hedging at all against that?

We don't do any hedging. We try to do price increases, we have been working recently on mid-year price increases, which is probably we tend to have an annual approach. But recently and particularly in areas where there is high steel content, we are pushing through prices, and in general just looking at currency movements as well, and how that impacts our cost structure to push on pricing.

Great. Thanks for taking the question.

Sure.

Your next question comes from the line of Jon Wood with Banc of America.

Hey, thanks. Bill, can you talk about, you just touched on it, but was there a price increase generally as of January 1 in the business, and do you expect there is to be another one given the commodity cost increases increases in mid-year?

Hey, I won't call it a precise January 1, but yes, we pushed through price increases at the beginning of the year. The timing and how they get effective is probably a little different, by product line, by customer, and by geography. What we were saying is that there are a couple or areas we are looking at putting through some price increases throughout the year I would eve say, those include some of the vehicle areas, and the product inspection areas which have high steel costs, another area we are looking, in some of the laboratory instruments where in certain markets, we see that the margins are being impacted because of the strengthening of our cost base, in terms of being manufactured in Europe, as compared to some markets like the U.S. for example, so we are looking at raising prices there, in particular where we see that competition would have a similar cost structure by currency to what we have.

If you look at the direct materials purchasing index, was there a change in that sequentially that you could see?

I think we have talked about it pretty openly. Last year was probably the first time in seven years that we had a number above 100. 100 being equal to the prior year, so we had six years in a row taking down cost. Last year it went up, and of course that was driven by steel. In the first quarter, what I see is that our steel costs are continuing to rise, and just to let you know, we measure that at the point of purchase.

What we saw really good numbers on is electronics. Some of that is driven by just electronic pricing, but a lot of it is driven by our own internal initiatives to try to bring down costs there. We probably expect we will have cost increases for the cost structure in total, but particularly on some of the high steel content prices, again to name them, vehicles, product inspection. We are pretty confident that we can pass through those costs.

Okay, thanks. You highlighted the strength of product inspection in the United States. In terms of Asia, is that business just so small there that it is not yet remarkable in your overall results? How is that line doing in Asia?

It is doing well but it is not that large, actually. I think that in China if we look over the last three years, the business has grown nicely. But it is still a fraction of what you see in the United States.

We are actually making significant investments there, we are building up more manufacturing capabilities, so that we can localize more products, and have them with the right price points, and and definitely committed to leverage the vast potential for our products there.

Okay, thanks.

On product inspection, we are a little bit later in the game than for most of the other products, to really have them localized, and building up also the necessary sales network, sales and service network. But we are certainly committed to having a very fair market share in Asia for the product inspection business.

Great. Thank you. One more, if I could. Could you comment just generally on the pharmaceutical account base, and also petro chemical, just broadbased what you saw from both of those customer groups in the quarter? Thank you.

Okay, so as you heard, our Lab business did very well in the quarter, and pharmaceuticals is an important component of that, so it did reasonably well. We are not as sensitive to Cap Ex budgets in pharmas, as maybe some other companies in the group, just because our price points are a little below those kind of radar screens. An interesting comment, if you look at our highest-end instruments, what we talk about our AutoChem business, is if you go back and look at our product mix by customer today, it is actually looking much like it did in the mid- to late-'90s, before the pharmaceutical guys started spending a lot of money in that area.

The mix is not as reliant on pharma, maybe as it was five years ago, and part of what has been improving there is petrochem is still one of the sectors, but if you look at our Lab business overall, petrochem is still a relatively small segment.

Thank you.

Your next question comes from the line of Peter McDonald with Wall Street Access.

Thank you for taking my questions. First turning to service. What percent of revenues is coming from service now, and ultimately how big do you think that could be as a percentage of sales?

It is 23% of sales, I think our general feeling is that it should be able to grow faster than the product business. But not twice as fast or anything like that, so it is going to gradually increase towards 24 and then towards 25. We don't expect it to be 40% of sales, or anything like that.

Okay and congratulations on creating a consumable for our balance. That is an achievement. How much do the dosing heads cost, and what would be the annual revenue stream from a typical installation?

The dosing head prices for the U.S. haven't been firmed up yet. We are looking of something in the range of 150 to $170. Again, you can use if for 75 dosages. The instrument itself will be in the price range of 40,000 to $45,000, our expectations in terms of impact of QUANTO on the balance business is such, that we believe, that we wish that we will have the laboratory balance business growing at mid- to high-single digit range, over the coming future. I think we will get good growth out of our laboratory business, which by the way is a very high margin business. And, of course, the consumables on top are even more attractive.

Great, and then if you do see the market slow down, how soon would the expense controls kick in? Is it a quarter lag, or something you can do mid-quarter?

With us, it is people so there are some limits to it. One of the things that we have is, we are trying to watch head count, particularly in the West, we are continuing to make headcount investments in emerging markets. We have close scrutiny on what we call general expenses internally. This whole idea of expenses paid to suppliers.

Another thing we have is variable compensation. It is quite an impact, in terms of, because people are paid on a high variable amount. That number can kick in fast when the business turns down. We at this point want to be in good shape, so if the business turns down, we can get our expense structure down to a reasonably speaking, a low-single digit kind of growth rate.

My final question, how much do you have left on the share repurchase authorization?

Mary is pulling up the number. My one comment would be, is we have consistently increased that one, we put a new one in place, Mary, last year in Q3, was it? And what is remaining on the program is a little over $0.5 billion currently.

Okay, great. Thanks a lot.

Sure.

Your next question comes from the line of Richard Eastman with Robert W. Baird.

Hello, I just want to return for a second to pricing. What did you realize in price at the top-line in sales on a consolidated basis in the quarter, year-over-year?

In the first quarter, because there are price increases going in, I am less comfortable talking. We have better data as the year progress. It is tough to measure right now, but what, we mentioned that our gross profit margin was up about 100 basis points. The currency impact was against us more than 100 basis points. We are probably realizing something north of 100 basis points currently.

All right, Bill I am just trying to sort through some of the commentary you gave here on the call and the press release. If I adjust for currency, your incremental EBIT margin in the quarter was like 48%.

Yes.

It was a fantastic number, how much of that is a function of pricing versus mix? That is a big number and it sounds like in local currency that your SG&A and R&D kind of grew at about a 6% rate, which would be in keeping with --?

Hey, I guess a couple of comments. So, first of all, if you look at the same number that you are quoting for last year, we were at for the full year around 40%.

And so it is an increase but not overdone, and then the fact that, the first quarter being kind of a low sales quarter, the impact can be a little more dramatic. I think the biggest drive is that mix-wise, in the first quarter because retail and [TLNO] were down, they are among our less profitable product lines, and you had very strong growth in Lab instruments in particular, but also Product Inspection, and you know our Lab instruments have excellent gross profit margins.

Okay, that probably does answer a lot, especially against that sales--. One other question, when we exited the fourth quarter and came into the first, there was a bit of confidence, given your backlog level coming into the year, and I am curious did any of that get pushed, or did some of that fall in to the quarter, or I am just curious with that sits at this point? Is your backlog still higher year-over-year?

Yes, we have good backlog levels, record levels of backlog.

Okay. And much of that is in Asia? Is that a good blanket statement for all three regions?

A lot of the increase, I would argue is in Asia, and probably my recollection is 40 of the increases in Asia, but that could be, I wouldn't read so much into that, that could be as much mix, because we have a big vehicle scale business there, and that has longer lead times, so I wouldn't read as much into that. I think we have a healthy retail backlog in a couple of other areas, too. Some good projects so yes.

Okay.

Good backlog as well.

Okay. Very good. Thank you.

Sure.

Your next question comes from the line of Chris Arndt with Select Equity Group.

Robert, if you could talk a little bit more about the long-term opportunity for QUANTO, and you mentioned that it might be used often with HPLC, and obviously that is a large market. How do you think in terms of the opportunity to penetrate this market, and what ultimately the product might grow to?

As I articulated in my remarks, the product is typically used for sample preparation, where you typically have to dose those powders, and HPLC is one of those prominent applications, but not the only one.

Okay.

We have done market analysis where we looked at how many balances are installed in that application, and I said it is one of the most frequent laboratory applications. So of course, now you can go to many different assumptions, how much of those balances are being used in a manual dosing form, can be replaced by this new product QUANTO, and time will tell what is the right answer.

For us, I think it is an integral part of our balance offering, and I would typically tie-to here is that we believe that we can grow our balance in the high-single digits. Probably the markets for laboratory balance is a low-single digit growth, and for us, Mary, at 200 to 220 million revenue business in Laboratory balances, so you have got a feel for how much that impact can be. We also want to maybe learn a little more, before we talk too much about the numbers. We feel it is a very fundamental application, that has great value paybacks for our customers, we have actually gone through some customer testing installations, and we have seen that customers have been saving more than $100,000 over 5 years, if you extrapolate, so a fantastic pay back.

Great, thank you.

You are welcome.

Your next question comes from the line of Vivek Khanna with Civic Global.

Good evening, I missed the lab revenue growth. Can you give that again, Bill?

9%.

And you said the retail was down 11, and are you seeing any improvement in the business as you go into the second quarter, or do you expect that to continue to be down year-over-year?

It is going to be good in the second quarter, but in part because we have a large project coming through, I think that we are monitoring that business, we are not sure how the second half will do. There is a pretty good pipeline. How fast it translates is going to be partly dependent on the economy, and probably at this point, we are cautious about the second half for retail.

Right. And you said industrial was up 7, right?

Industrial was up yes, 7% and that had down T&L within that.

Right. Right and did you give the China growth rate in the quarter? I don't think you did.

I didn't, but it was a number north of 20%.

Great, thanks.

Yes.

Your next question comes from the line of Greg Halter with Great Lakes Review.

Congrats on the good results.

Thank you.

Just trying to square away some numbers on the share repurchase. In the body of release, you talk about $95.6 million being spent on the share repurchase, and then on the cash flow statement, it is 98.6 million, and I am just wondering which number is which?

We get asked this question every couple of years and the different is, Mary is writing me, is for one purpose the accounting rules require that you use the settlement date, and in the other one it is the cash actual purchase amount, and Mary is signalling that it is a three-day difference.

Right. Right, the three day settlement Okay. Also, I believe that you had indicated in the release that Asia/Rest of World was up 18%, but Robert, I think you indicated that emerging markets were up 15% in the first quarter? Is that correct? Did I hear that correctly?

Your emerging market number is correct. The difference is that we had large projects in the middle eastern, or middle European countries a year ago, and what we call our MEC countries, which is Poland, Czechoslovakian stuff, was not strong in the quarter, but purely due to comparisons. If I remember right, Russia was not particularly strong, again because of a large order in Q1 a year ago.

Okay. Thank you.

Your next question comes from the line of Jonathan Groberg with Merrill Lynch.

Hi, Jonathan.

Hi, thanks for taking the call. Juggling a few different calls, I apologize if, some of this question has been answered to some degree. In the U.S., I know for example, Wal-Mart recently created some new initiatives, they are requiring that their suppliers, for example, food suppliers meet certain testing standards, in terms of what they are delivering to Wal-Mart, and I was curious, within the U.S., as I assume things are slowing to some degree in the U.S., where you feel more exposed, and where you feel better-positioned?

Yes, sure. All of our businesses to some degree have some economic sensitivity. We traditionally have looked at certain ones as having more, I think we commented a bit that the retail business would be, we believe, and for obvious reasons more economically sensitive, our transport and logistics businesses, which tends to be the big hugs, to a certain extent some of our Industrial business as well, we would tend to, as you say, product inspection we tend to think has some other drivers, and our Lab business as well had some other drivers as well. And process analytics as well also some other drivers.

If I use your wording what, what percent of the revenues would be ones that you think have other drivers, and what percent would ones that maybe are a bit more economically sensitive?

The ones most economically sensitive are probably 20% of sales, and the ones that have less economic sensitivity are probably 80% of sales.

Okay. And feeding that over for those people who may be a bit more skeptical about China, and the rest of the world maintaining their rapid growth rates, given what you are seeing in some of the more developed markets, are you seeing any changes at all in patterns or trends in the emerging markets?

Not really. Actually we had great momentum in the first quarter. You heard before Bill mentioned, Russia was maybe a little bit weaker, but that was mainly because of previous year comparisons, and China growing well, Russia growing well, India growing well. We feel actually quite comfortable across all business [labs].

And I know you mentioned in the past, and I think on the call as well, if things were to slow down there, you also are able to adjust that. I don't know if there is certain labor laws or regulations, or anything in these emerging markets. Would you also be able to adjust accordingly, should things slow?

Yes, actually, it is easier in Asia than in Europe, for example.

Just to put it in context, we don't imagine, because there is so much just internal growth required there, that you would go negative for an extended period of time there. It would be more a question of us slowing our investment, than having to lay off people.

Jonathan, if you are questioning our world, our mindset for that part of the world is rather, how can we really pursue all growth opportunities, which to excess that is pre-occupying our minds, and much less whether it will slow down, and when we would do in that case.

Which it should be. I just, you have to look at the other side of every coin.

Yes, yes, but the market, we are very, very happy with the business momentum in that part of the world. We are not seeing anything of what you are describing. We are seeing many, many opportunities which we are really not covering yet, and we are thinking about how we can get after that.

And then last question, you talked a lot about the commodity and steel prices going up. What about in these markets that are growing quickly. You are announcing you are investing for growth, what is happening with SG&A, et cetera? Is inflation running higher than you had maybe anticipated at the end of last year? How is that meeting expectations?

We talked a little about it on the materials side, in terms of other areas, clearly we have lots of sales and service guys driving cars every day with higher energy costs.

I was thinking more about the people themselves?

Our salary inflation, most of the raises go in in Q1. We have a pretty good idea of what our Q2 cost structure is looking like. I think we have that built into our numbers. What we are talking about now recently, there is talk about higher wage increases in Europe in 2009, and I think that may be one of the areas that we want to take look at, and make sure we are getting the right productivity in that part of the world, too.

For the remainder of the year before you had said you expected the first half to be higher than the second half, with the range of revenue estimates that you gave in local currency sales. You have kind of done 5% here, do you still expect things to be a little slower in the second half, or not necessarily?

I think we are trying to make sure the cost structure can be at a level, that allows us to hit the targets with less sales in the second half than the first half. If the environment is better than that, we are also in the position that continue to make investments such that we are not giving away growth opportunities.

Great. Thanks a million. Congratulations.

Sure, thank you. (OPERATOR INSTRUCTIONS) The next question comes from [Anna James, Silverman].

Hi, this is Vishal Saluja from Seligman. I just wanted to clarify your outlook a little bit. It sounds to me like that you are not really seeing any pushouts or cancellations, or any letup in your lead generation. You are just responding to everything you are reading or hearing, and making sure that you preserve your earnings power in the back half. Is that a fair characterization?

Yes.

Okay. Last quarter, you talked about lead generation productivity. Is it fair to say that the quality, as well as the quantity of leads hasn't really dropped?

Yes, we have very good leads, ongoing lead momentum, quote activities are good, even actually in the U.S. We have not seen a real slowdown on that one.

Okay and there is a certain degree of prudent conservatism that you think is appropriate, given all of the talk of the slowdown, but really from a day-to-day monitoring of the business, you haven't seen more variability necessarily?

To say it differently, we have commented on it already in the call. Yes, our retail and T&L business, we didn't do as good as we would have liked to in the first quarter, but that was against a difficult comparison. Generally speaking, we are in agreement with the way you are laying things out, we think that the business is on a solid base now. We think it is prudent to be thinking about what we would need to do with our cost structure, if things did soften in the latter part of the year.

Okay, sounds great, I appreciate it. On the Service business which you said is 23% of revs, what is the steady state growth rate of that?

I think we would probably say mid-single digits.

Okay, thanks again. Good quarter.

Sure.

Your next question is a follow-up from Vivek Khanna with Civic Global.

I am sorry to ask you this question again, but you said the Lab business grew 9, and Industrial 7? Did I get that right? And that is about 90% of your business?

That sounds correct. Yes.

And then the rest, 10% was down 11?

12% was down 11.

Then how do you get to 5? I mean I was asking organic, unless you gave reported.

Let's see, 9 times, sorry for doing the math in your head, I have a calculator and I have the benefit of that, I was just saying 90% of the business grew 8, let's say.

There is also some rounding there, and it's a rounded, sorry, what was your Industrial number again? 7.

It's 6.6.

Okay.

Probably those type of things, and I am looking at it. Lab is 8.6.

Okay, so some rounding there. And can you quantify the order, this big retailer in the tens of millions of dollars the next quarter?

No, but it as a mid-millions kind of number delivered. Actually an order approaching $10 million, and I think maybe 5 or so gets delivered next quarter.

Okay. Did you build, getting back to the previous question, did you build a backlog in this quarter, or how did you -- .

We always build backlog in the first quarter, but the absolute level of currency adjustment is at record levels.

At record levels. Okay, great. Thank you, Bill.

Yes.

There are no further questions in queue. I would like to turn the call back to management for any closing remarks.

We would like to thank you all for joining us tonight, and thanks for being patient and negotiating the call with us. We wish you now a very nice evening, and all the best. Bye-bye.

Bye.

That concludes this evening's teleconference. You may now disconnect.