Mettler-Toledo International Inc (MTD) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to our third quarter 2008 Mettler-Toledo International earnings conference call. My name is Abigail, 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) Thank you. Ms. Finnegan, you may begin your conference.

Thank you. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo and I am happy to welcome you to the call today. I am joined by Robert Spoerry, Olivier Filliol and Bill Donnelly. I will start by covering some administrative matters and then turn the call to Robert. 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 our website. You should be aware that statements on this call which are not historical facts may be considered forward-looking statements for the 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 the differences between the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the press release. I'll, now turn the call to Robert.

Thank you, Mary, and good evening, everybody. As usual, I make some short introductory remarks and then Bill will provide details on the financial results and our guidance for Q4 and over the next year, Olivier will then make the comments on the quarter and the outlook and he will also cover with you on how we manage our business during times of uncertainty, such as those we face currently. As always, we will have time at the end for Q&A.

I will begin with highlights of the quarter. Local currency sales growth of 10% was very strong and we had good growth across the board. Most geographic regions and product lines did contribute to that growth. The strong sales growth led to a 15% increase in operating profit and a 25% increase in adjusted EPS. Cash flow was down from a year ago, and Bill will provide some insight into factors impacting on cash flow. Overall, we are very pleased with the strong third quarter and our solid year-to-date results. We saw better than expected results from the third quarter. We are now raising our guidance for this year for 2008. At the same time, given the great level of global economic uncertainty, we are planning lower revenue growth in the coming quarters. Despite building in this expected lower revenue growth, our guidance for 2009 assumes solid earnings growth and moderate sales growth. Let me now turn the call now to Bill for details and on the financial results.

Thanks, Robert, and hello, everyone. As you heard from Robert, we had a solid quarter and are pleased with our performance. Let me begin with adjusted earnings per share which came in at $1.44, a 25% increase over the prior year amount of $1.15. For the quarter, adjusted earnings per share excludes purchased intangible amortization experience and a discrete one-time tax gain. On the last page of our press release, we have a table that details the calculation of a justified earnings per share. Let me provide you more details on the results beginning with sales which were $509.1 million in the quarter, an increase of 10% in local currency. On a US dollar basis, sales increased 15% in the quarter, which includes a 5% currency benefit. Breaking down sales by geographic destination, and all of these percentages are in local currency, we are very pleased with 9% local currency growth in Europe. We had good growth in the quarter in almost all product lines. For the nine months, sales increased by 8% in Europe. Sales growth in the Americas increased by 4%. We had good growth in lab and industrial, while food retailing was down modestly. Year-to-date on an organic basis, sales growth the Americas increased by 4%. Sales in Asia rest of world Increased by 21% in the quarter with all product lines showing very good growth. Year-to-date, sales also increased by 21% in Asia rest of world.

Now looking at sales by product area. We had 9% growth in laboratory in the quarter, with good growth in almost all product lines. Year-to-date, laboratory sales increased by 10% on an organic basis. Industrial sales increased by 12% in the quarter, with very strong growth in core industrial products. Product inspection had solid sales growth in the quarter against strong comparisons from the prior year. Year-to-date industrial sales have increased by 9%. Finally, retail increased by 6% with good growth in Europe and Asia rest of world while the Americas was down. Year-to-date sales for retail have grown 4%.

Let's now turn to gross margins which were 48.8% in the quarter. Without the impact of currency gross margins would have been down slightly, basically flat in the quarter. We were impacted by higher material costs, particularly steel, and also by product mix in the details. R&D amounted to $26.6 million, or 5.2% of sales. That represented a 9% increase in local currency. SG&A was $145.6 million, an increase of 7% in local currency. We continue to invest in emerging markets in sales and marketing initiatives and in new product launches. We also incurred approximately $3 million of restructuring charges in the quarter, and those charges are included in SG&A. The net sum of all of these items resulted in solid operating income. Adjusted operating income increased by 15% to $76.5 million, as compared to $66.8 million a year ago. On a constant currency basis, margins grew by approximately 80 basis points in the quarter.

Now continuing down the P&L, amortization amounted to $2.7 million in the quarter while interest expense was $6.8 million. Other expenses amounted to $400,000. Now for the share repurchase plan, we repurchased $681,600 shares for a total dollar value of $69.5 million. Fully diluted shares for the quarter were $34.7 million, and at the end of the quarter, were $34.4 million. In Q3, our share count is approximately 8% lower than at this time last year. Our tax rate in the quarter was 26%. We expect to remain at this level. You will notice that we also had $0.10 per share discreet tax gain. This results from the closing of certain tax shares which had been "open" for tax purposes. This $0.10 gain is excluded from adjusted EPS. Finally, earnings per share on a reported basis was $1.52 in the quarter as compared to $1.16 in the provide year period. Adjusted EPS was $1.44, which is a 25% increase over the prior year amount of $1.15. On a year-to-date basis, adjusted EPS is $3.85. That's a 27% increase over the prior year amount of $3.03.

Now, let me turn to cash flow. Free cash flow in the quarter was $59.7 million. This compared to $70.5 million one year ago. This results in free cash flow per share of $1.72 as compared to $1.88 a year ago. Working capital was solid as DSO came in at 45 days, to actually a half day improvement over a year ago. As I've said on previous occasions, we think that's a very good level of DSO and don't see much opportunity to improve there. ITO came if slightly lower than last year. The decline in cash flow overall is being driven by higher CapEx levels, specifically, for some IT investments we're making. We are initiating a process now to upgrade and standardize our global IT infrastructure and systems. Turning to our balance sheet. As we referred to on our last call, we completed a refinancing of our bank facility in Q3, and now have in place a $950 million facility which expires in 2013. This facility is currently about one-third utilized. Okay, that cover this quarter. Now let me turn to guidance for both Q4 and next year.

It's particularly challenging to forecast this year given the uncertainty surrounding the global economy. Our guidance is based on our current assessment of the outlook for our end markets and the global economy. Let's start with Q4. With respect to Q4, we enjoyed a very strong Q4 2007 on top of a strong Q4 2006. Our budgets for this year have assumed that Q4 would be our lowest growth quarter of the year. More importantly, during October, we have seen a decline in activity from our -- in our core industrial and retail businesses in both the United States and in China. The sudden change in activity for these businesses and our input for the field are the largest evidential matters in why we are cautious for growth in Q4 and as we enter next year. In Q4, we expect local currency sales growth in the 2% to 4% growth range with adjusted earnings per share in the $1.90 to $1.92 range, and that's a growth of approximately 10%. One other item on Q4 guidance. As we have disclosed in the past, we view a currency exposure on the Swiss frank versus the euro. Since the end of September, the Swiss frank has strengthened sharply in the volatile financial markets. We estimate that currency will reduce earnings by more than 5% this quarter and have built that into our current guidance.

As we look to 2009, we see organic local currency sales growth if the same range of 2% to 4%. We have built our cost structure to drive approximately 10% adjusted earnings per share growth off of that sales growth level. This would result in adjusted earnings per share in the range of $6.20 to $6.40. As I just said, this is based on our assessment of what market conditions could be next year. If conditions change, we'll adapt our plans accordingly. It may be necessary to take additional restructuring charges beyond the smaller ones that we typically do. A large restructuring program has not been built into our current guidance.

Maybe one final word from my side on guidance. The markets may ultimately be better or worse than we planned. We believe our current assumptions are reasonable and prudent for planning purposes. We've consistently shown the ability to grow faster than our markets. We'll continue to do so. Our franchise is extremely strong, stronger than ever, and we believe that we'll continue to perform well versus our market and our peers. That's it from my side, and I'll now turn the call over to Olivier who will provide some additional commentary.

Thank you, Bill. Let me start with a few comments on the quarter before I talk about our outlook.

Lab had a very strong quarter with sales up 9%. Similar to what we saw in the first two quarters, the sales growth level was broad-based, across most product lines and geographies. We continue to benefit from our strong product pipeline, our Spinnaker initiatives surrounding sales and marketing and strong growth in emerging markets. Turning to industrial. Our core industrial business was very strong in the quarter with continued excellent growth in Asia. Europe also had surprisingly strong growth while the Americas had moderate growth. We saw good growth in transportation and logistics in the quarter, as well. Product inspection had solid growth against record growth one year ago. Finally, retail was up 6% with good growth in Europe and Asia and the rest of the world. Now I want to turn to our outlook and planning process for 2009. First, Bill and I just completed our annual planning process in which we visit each operating unit and agreed on local targets and initiatives for the coming year. We are very pleased with the spirit and enthusiasm that we saw from our units, even with heightened uncertainty in the market. The outlook is positive and I do not want to lose the strong momentum that we have seen through September. At the same time, we can't ignore the uncertainty in the global economy today or our October order entry trends.

To help you understand how we have established guidance for next year, I want to provide additional insight in into our annual planning process and assumptions underlying the guidance that Bill just provided. Let me start with a few background comments to frame the discussion. Mettler-Toledo is a very strong franchise. Our franchise is built on market leading position, a strong global presence, a track record of bringing innovative products to market and a culture of quality and strong execution. We also have tremendous diversification in our franchise. We have a diverse product offering that serves through laboratory, industrial and (inaudible) sectors. We are diversified in terms of geographic coverage with expanding positions in fast-growing emerging markets. Our principal end markets are also diversified and generally healthy and include pharmaceutical, food and beverage manufacturers, food retailers, chemical and cosmetic companies. Finally, with respect to our customers, I point out that no one end customer accounts for more than one percent of sales. We believe our strong market leading positions combined with this diversification is a stabilizing factor in times of market and economic turbulence. With this background, let me walk you through some of the key aspects of our plan for next year with a particular emphasis on the plan in the context of the current economic environment.

First, we will continue to implement leading edge marketing programs under the Spinnaker initiative. Our confidence in sales and marketing continues to grow and and we are confident that we can gain share in a weaker market environment. We continuously seek to refine and improve these programs in general and in 2009, we intend to make extra efforts in two areas to reflect the weakened global market. One change is that we will place more emphasis and resources on the lead nurturing process. Lead generation will still be a key objective, but we need to do everything we can to combat natural slowing that happens in the lead to order cycles when markets deteriorate. We will also need to be even more segment focused in our marketing and focus our attention on the segments and specific applications where growth remains. Second, we have a very strong product offering with clear innovation and market-leading positions. We are working hard to insure that the value proposition of our product clearly (inaudible) Our product offering has strong value for position over all.

Operator, we hear on echo on our side, if you can try to remove that. Did you catch that, operator? Okay. Thank you.

Let me continue. So our product offering has strong value proposition overall. In these times in particular, we know that customers are looking closely at the cost structure, and we want to emphasize this benefit. For example, products like Quantos and our Intelligence Sensor Management system and process analytics bring great short term pay backs to customers. Third, we have good growth opportunity from emerging markets. This represents approximately 25% of total revenues. We expect that these markets will slow from the growth we had in 2008, but they should still provide solid contribution to overall sales growth. We have made significant investment in these markets in recent years, and these investments can now pay in terms of growth and continued market share gains. Fourth, pricing has been a strong contributor to margin expansion in recent years, and we see further opportunity to realize price increases in 2009. We are targeting realized price increasing more than 100 basis points next year and in fact, we have already begun to implement them for many markets and products. We are confident that we can achieve this price increase as we have made significant investments for tools and training.

Now turning to the assumptions underlying our annual plan. We are currently in an environment that makes forecasting difficult. At the same time, we believe it is important that investors understand our planning assumptions. We assume that the economy will be weaker in 2009 than in 2008. Given this weakness, we expect to generate local currency sales growth in the 2% to 4% range and produce a solid level of EPS growth. While we are focused on maintaining sales momentum, we are very alert and prepared for a weaker market. We have asked each unit to prepare contingency plans. These are concrete measures which we are already beginning to implement. These plans are reviewed carefully to ensure they can be quickly implemented. We have had this contingency process before, but we have much greater urgency this year. The advantage is that the whole organization is prepared and can work together to reduce our cost base without impacting our customers or the fundamentals of our franchise.

In summary, we believe we have a high-quality franchise, and our strong and diversified business will benefit us in these uncertain times. We will continue to build on the momentum, but we will be prepared in conditions continue to deteriorate. Despite our expectation for a slow-down in our markets, with the strength of our franchise and our strong focus on execution, we believe we can grow earnings solidly in 2009. I would now like to ask he operator to open the lines for questions.

(OPERATOR INSTRUCTIONS) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Richard Eastman with Robert Baird. Your line is open.

Just a couple of questions. Could you remind us of what the end market mix is in Europe, lab, industrial, and food retail, just roughly?

Europe is slightly more lab-oriented than the US market. US has proportionally more industrial, Europe has proportionally more lab.

And is food retail about the same?

Retail is roughly the same size businesses.

And then as you look to this 2% to 4% local currency growth for '09, could you give us a sense of how that breaks down by geography? What your thinking is there?

Our current thinking is we expect Europe to do slightly better on the Americas, in part based on the previous question you just asked, that higher lab mix, in the 1% to 3% kind of range. Low single digits from 0% to 2% on the Americas and let's Asia, rest of world in the 5% to 10% range.

I see. And then also just -- and again, and I know this gets mixed in a bit here with the geographic cut, but how did the pharma customer base do in the September quarter?

So the general statement is that first our lab products get sold to a large number of end markets, so you can see in our numbers that lab did quite good. The couple of businesses that have the highest percentage of lab pharma products, pharma and customers within the lab side, is our auto cam business and our pipette business, and both of those actually had good quarters in Q3, and -- but I would highlight the big ticket items as probably one area concerned with big pharma, and our auto cam business is not a huge business, but it actually did quite good in Q3.

And then maybe just a last question and I'll jump off, but could you just -- again just repeat your comments on the gross margin side? It was a little bit lower. I think you said in local currency, how did it fare?

If you adjust for currencies, it was basically flat, I think down 10 basis points, and if you kind of dig into the mix, there was strong growth coming out of China, particularly in some -- in the vehicle area and things and just mix-wise, that brought down the overall. If you kind of lined it up individual product lines, I think with few exceptions, we actually had margin expansion. I know, for example, our gross profit margins and the lab business did better overall, PI did better overall, but by did see a little bit on the mix side in our industrial.

Okay. And is that -- is the gross margin there, when you talk about it being affected by currency, is that gross margin impacted more by the Swiss frank versus --

No, the impact is almost completely, that I'm describing, relating to the fact that the sales are bloated and the costs are bloated because of the week dollar in the quarter.

Okay. Very good. Thank you.

You're welcome.

Your next question comes from Derik De Bruin with UBS. Your line is open.

Hi, good afternoon.

Hi, Derik.

What's -- what are you assuming for an FX headwind on the top line next year? About 4%, would be my calculation. Does that sound about right?

I actually think if you take a more recent exchange rate, you might get more than that. We're probably looking at a number more in the 6% to 7%, based on foreign exchange as of, Mary, yesterday?

Yes.

As of yesterday's exchange rates.

Okay. Thank you. And I guess, the change in the raw material costs, they've come down some. Should that benefit you going forward, or are you locked in?

No, that should benefit us going forward. This year, if we look at our cost structure overall, our material costs in total went up about 2%, and that's -- it's actually less than that on non-steel, where we had a negative inflation, but on our steel related stuff, we had quite a bit of inflation coming out to a net of 2%. We just were discussing on our executive committee meetings earlier this week, that's there's been a significant drop in steel prices. That mostly will have an immediate impact on our vehicle business, but, to be honest, vehicle business, there is some indexing related with how you price things with your client, but we certainly don't -- we think that is a net positive for us, the steel prices coming back in and just in general, commodity prices. For example pipettes, plastic costs and thinks like that.

And I guess, you're going to continue, obviously, the share buyback program, and I guess what contribution to that would be for the bottom line next year? Any idea how aggressive you're going to purchase shares?

I think that's that's -- right now we have not -- we talked about that at that board meeting and maybe I just give you a little bit of perspective. We have pretty continuously bought, repurchased equal to our free cash flow, a couple of periods, even a little bit more than that. When we look at things today, what we're a little concerned with is the overall stability of the credit markets, and we're trying to be more prudent with our cash. We do expect to be continuing to repurchase shares next year, but we're not necessarily committing to an amount. I would say we -- what we've built into our current guidance would be more cautious than overall level of repurchasing than we've had in the past, but you can expect it to be in the market, and I maybe feel obligated to emphasize that our concerns are mostly receipted to credit markets, and I think we're -- we feel good about the overall franchise, and we continue to think that that's a good, share repurchase is a good vehicle for generating shareholder value.

So -- but with that comment, though, obviously, then despite the headwinds, you're still going to have some modest level of margin expansion if you're not basically factoring in to do everything by share buybacks?

Yes, that's correct. We think we'll continue to expand operating margins in part due to gross margin expansion. We're buckling down on cost structure, and, yes, we --

And pricing.

And pricing.

And of course, we are planning price increases that will give us margin expansion.

Great. Thank you very much.

Your next question comes from Peter McDonald with Wall Street Access. Your line is open.

Thanks for taking the questions. Just could you elaborate a little bit more on some of the steps that you could take to control expenses, and how quickly can they be implemented? is it a quarter process, or is it a month? How quickly could those flow through?

Actually, we have probably two levels of measures that we are taking here. On one hand, there are things that we can take in the short-term. This is particularly done on unit levels, but -- and that's something we have already launched with all the general managers around the world, and the second thing, which takes more time and wouldn't have an immediate impact within the quarter, is when we do restructurings, in terms of reducing headcounts, and that's something that you would probably would already see impact in Q1, but normally that takes a full year to have the full impact.

I would add, Peter, we're working on things already. Some things will be -- are in place already. More things will be in place by the end of the year and will continue to increase the intensity of our cost containment programs as time and markets --

Conditions warrant, right. And then in terms of the tax rate for 2009, is 26% going forward a pretty good number to use?

Yes, I think that that's a good estimate at this point in time. It will be interesting to see what a softening global economy, how various governments could react to that. We have a new election here in the US, we do part of our effective rates built on that, but I'm optimistic that the government side shouldn't go negative to us overall.

Okay.

At least in 2009.

And then finally, how was -- did Quantos launch in the quarter, and what has been the initial feedback from customers?

Customer feedback has been actually very positive, and we had actually good shipments already, but as we have also presented to you guys, we expect a slow ramp up in terms of these are big ticket items, people want to evaluate, test the systems, and this is ongoing. And we certainly expect that it continues to grow, and I would say we are definitely on plan as we expected.

Okay. Great. And then one final question, how should we think about CapEx for 2009?

We will ramp up a bit some CapEx. We have two items that -- we have some increased spending on IT as well as a new plant in China. I think you can assume a number between $60 million and $70 million next year.

Great. Thanks a lot.

One moment. Your next question comes from Peter Lawson with Thomas Weisel. Your line is open.

I wondered if you could just through the FX impact you had throughout 2008 and kind of an upside on what margins from FX in 2009?

Okay. So if you look at the Swiss frank versus the euro, which is our main currency impact, I think we have a positive, let's say, $3 million on a year-to-date basis. If you then kind of look at what that would -- what has moved in the rates in the fourth quarter, that would pretty much eliminate that impact in the course of the fourth quarter. So for the full year '08, we should be relatively neutral, but we've been mildly positive, I think, a couple of cents per quarter year-to-date.

And what could that do to 2009? What basis points upside do you think you can get on what margins from currency?

Yes. I'm better at being a CFO than an economist, but I maybe, go out on a limb a little bit here. I think that most people are expecting that the Swiss frank will weaken now somewhat in 2009 versus the euro. This is kind of an unusual level, this 151. We've planned for in the 2 to 4 in our current guidance, the 10% earnings per share growth, we have planned for a -- something of an improvement in the cross rate, but still a deterioration versus the prior year. Just to give you order of magnitude, in the range of perhaps about $0.10 to $0.12 built into our current guidance, negative.

And, Bill, what's the assumption for share counts for 2009?

We -- kind of what I elaborated on in one of the earlier questions. If you -- whether we -- we, at this point, have not built in the full impact of a share repurchase program. We'll finish this year with shares in the $34.5 million range, and I think with auction grants and restricted stock grants at the end of the year, that number should hold relatively stable in our current assumptions. If we do see credit markets stabilizing, I think we, in the overall market environment, economic environment stabilize, we probably will do more than that, but at this point in time, we have not built in such an aggressive program.

And then finally, what businesses are still firing in China, which which businesses are you most confident about in 2009?

Actually, for the lab business, that's still going well, and we would expect that continues to go well. The industrial and retail business in China, in particularly in October, has been weaker, and we would probably see a certain slowdown going on. On the other hand, we clearly see also good opportunities, including, for example, the packaging inspection division, where we have good markets to market shares opportunities to go after. So lab and PI probably on the upside, industrial and retail, we are certainly more cautious for next year.

Thank you.

Your next question comes from Mike Hamilton with RBC. Your line is open.

Hello, everyone. Could you take a minute and just talk about any refinements in cash deployment as you look forward in this environment? Is there an opportunity to be a little bit more aggressive on the acquisition front? Is there anything that you're sensing needs to be addressed if terms of mix of where you're production is, and just a little bit of thinking in what's a pretty incredible environment right now?

Yes. Hey, I -- so first of all, looking at our access to capital, we're happy with our current position. We -- we're, I would even say a bit lucky with the timing of our new bank deal, getting that done. We were trying to get it done because we felt things were uncomfortable. We are happy we got that done. We think we have access to capital, but we think it's also prudent to maintain that access to capital. Part of our prudence overall Mike, I think is a reflection that we do think down the road, there can be more opportunities for higher capital returns on acquisition targets. I don't think that's got to come immediately. It's -- maybe it's not a perfect comparison but if I can make it, a comparison to the housing market. It takes people a while to digest their new valuations, and whether it be public or private companies, and we think it's prudent to have capital flexibility to pursue acquisitions when times like this come. At the same time, we don't see that those opportunities presenting themselves in the short term, but maybe a year from now, that there could be such opportunities. We continue to like the share repurchase program overall. I think it's just maybe this short term concerns with the credit markets is making us be more prudent than we -- I mean, we're always a conservative company in terms of our balance sheet, but maybe a little more conservative than usual here in the short term.

And then a follow up. Could you comment a little bit on growth that you saw in China and then take that kind of outlook in the emerging markets in general as you're seeing things right now?

Actually, you have heard us commenting about Q3, where overall, that was very strong in China, across actually all of the businesses. When we look at October, we saw lab still very strong, industrial retail slowing down. I think that's a short term we would certainly see that. What we clearly also see -- hear from our team in China is that everything that's related to international business had a slowdown. That means the multinationals have reduced business activity. All of the export market was also impacted. When it comes to state owned companies, there we still see normal business activity. When it comes to medium term, the management team is actually much more confident. They see actually that the Chinese government is freeing up some funds for infrastructure, for example, and that's also an area where we would benefit. We have different solutions that serve, actually, the infrastructure market. So it's a little difficult to predict here in the short term, but at least medium and long term, we feel very confident that China will have good growth momentum.

Any trends worth noting in other emerging markets?

Overall, actually in Q3, overall, it was very strong. When you look just more in the recent weeks, there were certain markets that had very difficult environment, but these ones were typically the ones that represent relatively little in our sales. If I take you three examples where you would certainly also read in the media that it's difficult environments like Russia, Russia would, however, represent for us less than 2% of our sales, while Korea and Brazil, also difficult markets because of the currency. Both of these markets represent less than or about 1% of our sales. However, we have very strong management teams in all of these markets, and we have already seen them taking action. And we feel actually they will -- we will respond well after the new economic environment that we will have in this market, but they were certainly impacted in quite a strong way.

Thanks for your comments.

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

Hey, can you hear me?

Jack, can you speak up a bit?

Hey, can you hear me, Bill?

Yes, we can hear you now.

Okay, thanks. So, Bill did you say the currency hit in the fourth quarter, is that $0.05 in EPS, or 5%?

$0.05.

Okay. So you're guiding 4Q EPS of over a nickel despite another nickel of headwinds, so I mean you must not be too concerned about October. The numbers are going higher despite the adverse context, so can you or Olivier just give us a little bit more color around what you mean by softening activity? Is China going from 20 to 0, or 20 to 15 type of slowing?

Okay. Certainly, year-to-date our growth rate is in the high single digits, and now we're guiding you to a number in the low single digits. So we expect sales growth to slow in all three geographies and in China in our industrial and retail businesses, we think there'll be pretty limited growth in fourth quarter. But if I go out for what we expect to see, our current forecast for what we expect to see in 2009, we do see that Q4 will be worse than what we would expect to see if China in all of 2009. That has to do with some projects that have specifically been delayed and things, and so we're -- our overall feeling is good about China in the medium term, but we have some short term issues that we saw clearly in the overall level of business activity there. I guess in North America, you guys have seen a gradual slowing in our industrial businesses in North America all year, and we continue to see that trend coming through this year, but particularly, we saw a reduction in activity in the month of October.

Okay. Great. The -- what about CapEx update for 2008? I know you gave it for '09, but looks like it was a little bit higher in the third quarter.

Sure. In the third quarter, the main increase relates to some IT investments that we are making. We're trying to upgrade and kind of globally integrate some things on an IT perspective. We're going to be making those investments starting in Q3 and continuing through to next year, and we think that from a return on capital point of view, these should be highly beneficial.

Okay. But the year -- $50 million or so, is that about the right number to use?

The level in Q4 will be similar to what you saw in Q3, so I think you will see a number closer to $60 million than $50 million.

Okay.

Your next question comes from Gregory Halter with Great Lake Review. Your line is open.

Good evening, guys. Wondered if you could comment on your capacity utilization currently? And I know there's various facilities and so forth, but if you have some way you could parse that out, that would be helpful.

Okay. Hey, I think in -- for those of you who have toured most of our facilities, they're highly assembly oriented. There are maybe some in our load cell manufacturing, capacity would be kind of a normal thing. I think we're comfortable with current capacity levels. We made some investments in 2006 and 2007. The main place you might think about capacity levels is in China. We think that probably in late 2009, 2010 area, we'll probably have to do some more plant expansion based on growth levels in China, but that would be, let's say, the only place where we would have a significant need for building/building kind of CapEx levels. Did I get to your answer then --

Yes, that's --

-- Greg? Is that what you're looking for?

That's perfect. And your cash, $111 million, can you comment on where that is held, what it is invested in and what kind of rates you're earning currently?

It's a mix between US and non-U.S. The largest effort part of non-US is in Switzerland, so the investments are -- it's invested, Mary, in kind of money market type stuff. We don't have anything that has mark-to-market accounting. It's kind of cash based, literally.

So no level 2 or 3 assets?

No level 2 or 3 asset.

That's good to hear. What was the service and consumables part of your business for the quarter as a percent of the total?

It's about a third of our business, and it doesn't usually move much within a quarter. So I didn't look at it that way in the particular quarter, but year-to-date, that would be a good number, and I don't think it changed in the quarter.

Okay. And then finally, your receivables are about $340 million. Just wondered if you could comment on the equality there, whether or not you are see seeing any increases in delays? I know you count on DSO, but in terms of the quality related to some of the particular customers and whether or not you have increased your reserve for bad debts?

So in terms of bad debt levels, think we're more than adequately reserved. I -- the DSO actually improved slightly. If -- but I speak openly if these economic times, we expect we'll be fighting the past due numbers in coming quarters. We actually have a conference call kind of webinar thing with all of our controllers around the world tomorrow, trying to emphasize best practices in collection area and in the credit control area. Olivier mentioned that we don't have any end customer that accounts for more than 1% of sales, and so that is kind of a risk mitigation item, and then I would also add that the markets we sell to in total are generally a pretty healthy group. We're not very exposed to financials, to real estate. Of course we have some clients that have leverage, but we watch how we get exposed to them, and it's -- we -- I can't think of a customer today that we're -- we have exposure of more than $1 million dollars to, for example.

That's excellent to hear. Thank you.

Your next question comes from Chris Arndt with Select Equity. Your line is open.

My question was answered. Thank you.

Thanks, Chris.

Your next question comes from [Soon Yi Nam] with JPMorgan. Your line is open.

Hi. Thanks for taking the questions. I'm sitting in for Tycho Peterson today. Most of my questions have been answered. I just have a couple of quick ones. For your food retailing business, could you give us more color around kind of how some of the recently introduced products are tracking, particularly the ones that you showcased at your analysts meeting, given current economic conditions?

Actually, all of these products, they -- remember, they are part of our total solutions that we are offering. They have -- clearly had all interest with different key accounts. We are leveraging it to win this project that we are working on. In terms of additional revenue, it's very difficult to isolate. I think it's mainly to improve our total solutions. Now, the food retail itself had actually a good quarter and has actually also a good backlog, so we are reasonably confident that Q4 will be also good, and (inaudible) supported by all of these new products that we have shown as the investment day.

Great. And as for your global IT infrastructure investment, could you give us more color kind of on whether or not that's expected to benefit or provide operating leverage? And, if so, kind of provide us qualitatively what that may be?

I think at this point, it's probably premature to talk about it. I think it's a several year program. We're doing it certainly to gain operating leverage, increased visibility in a few areas, so it's an important project for us. I think the -- but just to give you a feeling, probably, the first operational systems will only begin to roll out in 2010. So at this point, we'll -- we could probably give you better feedback a year from now on what sort of impact we think we can get from an operating leverage point of view.

Great. Thank you.

You're welcome.

Your next question comes from Richard Eastman with Robert Baird. Your line is open.

When you see your markets turn down on the industrial side, the food retail side, just -- how has service held up? Have you been able to get price there? Have you been able to grow service in a slightly down market?

Service is certainly a much more stable business, and we still have good opportunities in terms of going after the install base, offering more service contract and all of these things. And if that sense, we would expect, when there is a downturn, that service holds up much better. And we certainly expect service to continue to grow, but, nevertheless, if the downturn is significant, we might lose a few growth points on service, too.

I guess just to think of it in broad terms, if we're thinking that price is a point of growth across the board, and presumably, lab would grow in '09, and then are we essentially thinking industrial and retail are flat, or down?

Yes. Hey, we think that the lab business should be able to grow 3% to 5% next year with the industrial business and retail businesses kind of being flat to up slightly, but with the up slightly being driven by service and potentially down on a unit basis, maybe, from a product perspective, but with offsets with pricing.

Okay. And then Bill, just a technical question, can you just give us just the percentage of revenue, reported revenue by the three segments, lab, industrial, and food retail?

Sure. In the quarter, it was 43% lab, 45% industrial, 12% retail.

Very good. Thank you.

You're welcome.

We have another question from Derik De Bruin with UBS. Your line is open.

Actually, my question has an been answered. Thank you.

The next convention is from Charles Nguyen with Neuberger. Your line is open.

Hi, guys, my question has been answered, thanks.

We have Gregory Halter with Great Lake Review. Your line is open.

Hello, thanks for letting me on again. Your equity on a sequential basis dropped by about $40 million. Obviously, you had some net income, but had a share buyback as well, but it seems like a disproportionate decrease. Is the balance for the difference due to the currency exchange rates?

I want to say yes, but I had not looked at it that way. Can I follow up with you after the call, Greg?

Sure, that would be fine.

I think that's the answer, but I'm not a hundred percent sure.

Okay. Thanks a lot.

There are no further questions. I will now turn it back to the speaker for any closing remarks.

Thank you for your time today, and if you have any questions in the coming days, just please follow up with us. Have a good day. Bye-bye.

Thank you.

Bye.

This concludes your conference call for today. You may now disconnect.