Mettler-Toledo International Inc (MTD) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to our fourth quarter 2009 Mettler-Toledo international earnings conference call. My name is Elisa and I will be your audio coordinator 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. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan, please proceed.

Thanks, Elisa, and good day, everyone. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to the call. I am joined by Oliver Filliol, our CEO, and Bill Donnelly, our CFO. I want to cover some 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 and the presentation that we will refer to on today's call is also available on our website.

Let me summarize the Safe Harbor language which is outlined on page one of the presentation. Statements in this presentation which are not historical facts constitute forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statement. For a discussion of these risks and uncertainties please see the discussion in our recent Form 8-K. All of the forward-looking statements are qualified in their entirety by reference in the factors discussed under the caption "factors affecting our future operating results" and in the business and management discussion and analysis of financial condition and results of operation sections of our 10-K.

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 non-GAAP financial measures, and the most directly comparable GAAP measure is provided in the press release. I will now turn the call over to Olivier.

Thank you, Mary. Good evening, and welcome to the call. I will start with a summary of the quarter and then Bill will provide details on our financial results and our guidance for this year. I will then continue with additional comments on the business and how we are positioned to capitalize on growth in 2010 as our market recovers. As always we will have time for Q & A at the end.

Summary comments for the quarter are presented on page two of the presentation. In the quarter, local currency sales declined 5%, which is a little better than what we had expected the last time we spoke. While market conditions in the developed countries continued to be weak, we began to see significant signs of improvement in emerging market countries. In particular, sales growth in China was very strong. We are benefiting as these economies rebound, but also leveraging on our strong leadership position in this region.

In the developed world, market conditions remain challenging, particularly in our industrial and food retailing businesses, which tend to be more late cycle. Lab is more positive in these markets especially for service and consumables. With continued execution and the benefit of our cost reduction efforts, we generated 6% growth in operating profit and 5% growth in adjusted EPS in the quarter. This, despite the decline in local currency sales. Finally, as expected, cash flow was down in the quarter, but nicely up for the full year. We expect market conditions in emerging markets to grow in 2010, while business in the developed world will continue to be challenging; however, we are strongly positioned to capture growth as our markets gradually recover.

We provide highlights of this on page three of the presentation. Let me summarize. First, our new product pipeline is very strong. Lab and emerging markets in particular have numerous upcoming product launches, including a new density refractometer and new generation of our laboratory instrument control software and product inspection instruments for the Chinese market; second, our sales and marketing programs are well on track as we continued to invest in these initiatives throughout the downturn. Many of our competitors were not able to do this, which expands our competitive positions. Third, our cost structure is in solid shape. We have the benefit of our cost reduction efforts from last year and we'll continue to carefully control our cost.

Incorporating all of these factors, we expect to generate operating profit and earnings growth with modest sales growth in 2010. In addition, we expect cash flow generation to be solid in 2010. We use debt in 2009 and our capital structure is excellent. Given our strong balance sheet and our outlook for growth, we restarted the share repurchase program in December. We also deployed capital for new growth platforms in the form of small bolt on acquisitions, one for new technology, and one to extend our market position.

I will come back to these topics shortly, but first want to turn it to Bill to provide more details on our financial results and guidance. Bill?

Thanks, Olivier, and hello, everybody. Let me start with additional details on sales, which were $511.7 million in the quarter, a decrease of 5% in local currency. On a US dollar basis, sales were flat with the prior year as we had a 5% benefit from currency.

Turning to page four of our presentation, we outlined sales by geography. You can see we had a 5% local currency decline in the Americas, a 10% decline in Europe, and Asia rest of world sales increase by 3%. On the next slide, we present full year information. In 2009, local currency sales declined by 10%. By region, we had a decline of 11% in the Americas, 14% in Europe and 2% in Asia rest of world.

Now, on to slide six, we have sales by product area. In the quarter, laboratory sales declined by 1%, industrial sales decreased by 7% and food retailing declined by 14%. For the full year, the numbers were lab down 7%, industrial down 12%, and food retailing declined by 15%. In total, our service and consumables increased by 1%, and were particularly strong in lab, where we enjoyed a 7% growth. Year-to-date, service and consumables are also up 1% and were up 5% in the lab area.

Now, let me turn to slide eight in the presentation where we provide a P & L for the quarter. Let me walk you through the key items. Gross margins were 52.8% in the quarter, a 100 basis point increase over the prior year. Let me provide some insight into the most important items impacting our margins. While ForEx, largely the weakness of the dollar, shaved off about 130 basis points in the quarter, this was more than offset by the benefit of pricing, mix, as well as reduced material costs, which together added up to 130 basis points in a positive direction. R & D amounted to $23.7 million or 4.6% of sales. This represents a decline in local currency, which reflects the timing of projects.

In addition, we're starting to see the benefit of having more R & D done in China as well as India. We saw the benefit of our cost measures on SG&A, which was $139 million, a decrease of 6% in local currency, the reduction principally reflects our cost reduction efforts implemented earlier in the year. Adjusted operating income amounted to $107.3 million, an increase of 6% over the prior year amount of $101 million. Operating margins exceeded 20% for the first time ever, reaching 21%, which is 120 basis points increase over the prior year. We are very pleased with this level. In fact, the increase would have been higher except for currency changes which deteriorated margins by more than 100 basis points in the quarter.

A couple of final details on our P & L. Amortization amounted to $3.1 million in the quarter, while interest expense was %6.1 million. Fully diluted shares for the quarter were 34.6 million and 34.3 million for the full year. Our effective tax rate remained at 27% versus 26% in the prior year. We incurred a restructuring charge of $3 million or $0.06 per share, related to our cost reduction program. We've essentially completed this program and have achieved our goal of $100 million in annualized cost savings. Total restructuring charges associated with the program have amounted to $37.8 million to date. We have excluded restructuring expenses from adjusted EPS. Finally, adjusted EPS was $2.09, a 5% increase over the prior year amount of $2.

On slide number nine you'll see our full year P & L. In 2009, we're challenging a difficult economy, while sales declined 10%, we believe we increased market share. We are pleased with our ability to increase operating margins given the current environment. Specifically, operating margins expanded from 15.8% in 2008 to 17% for this year, sorry, 2009. In terms of adjusted EPS, we were down 4% for the year despite the 10% decline in our top line.

Now, let me spend a minute on cash flow. As we indicated last quarter, we expect free cash flow in the quarter to be down due to much lower receivable balances entering the quarter. As a result, cash flow for the quarter was $26 million versus $40.4 million last year. In terms of working capital statistics, we're very pleased with the continued improvements in DSO, which improved by eight days to 41 days, our efforts to counter typical slowing by customers during a downturn produced excellent results. ITO remained steady at 5.1 times. We're very pleased with our full year cash flow, which increased by 12% to $199 million, which would translate into a 14% increase if we looked at it on a per share basis.

Late in the quarter, we restarted the share repurchase program, and purchased 58,800 shares for a total of $6 million. We also recently deployed capital for two small bolt-on acquisitions. We acquired a vision technology company for $14.3 million at the end of 2009, and a distributer of pipette and tips for $12.5 million earlier this year. Olivier will provide some additional comments on these acquisitions shortly.

Now let's turn to guidance. Forecasting continues to be challenging given the uncertainty that exists in the global economy. Although conditions are improving in certain countries, particularly in China and India, there is considerable uncertainty in the strength and recovery in our developed markets. I will also remind you that we tend to be more late cycle than not. In 2010, we expect China and other emerging markets to continue the momentum that we saw in the fourth quarter. In the developed world, we expect our laboratory business to see some growth, while we expect recovery in the core industrial to take more time to realize. Food retail will be lumpy by quarter but we expect growth for the full year.

As a result, we would expect growth to increase during the year as the global economy improves and our late cycle business sees improvement. Given these factors and based on our assessment today, we expect local currency sales growth in 2010 to be in the range of 3% to 5%. This includes approximately 1% growth from acquisitions. We expect adjusted EPS to be in the range of $5.90 to $6.15 per share. We estimate purchase intangibles amortization to be approximately $0.11 per share in 2010. This amount has been excluded from adjusted EPS.

With respect to the first quarter, we expect Europe to be still weak, particularly in industrial and retail. Consequently, we're assuming local currency sales growth in the range of 1 to 3% with approximately 1% coming from acquisitions while adjusted EPS should be in the range of $0.98 to $1.04. As a reminder, adjusted EPS excludes purchased intangible amortization, discrete tax items and other one-time items. Okay, that's it for my side and I'd like to turn it back to Olivier.

Thank you, Bill. I will start with comments on the business results, both by product area and geography for the quarter. Lab was down slightly in the quarter. Pipettes and process analytics have solid growth. Both balances and analytical instruments were even with the prior year. Altachem was down in the quarter due in part to timing of some projects.

Turning now to industrial. As expected, core industrial was down in both Europe and Americas while we had good growth in Asia and rest of the world. Product inspection had solid local currency sales growth in the quarter despite solid growth in the previous year. We are pleased that all regions recognized growth in product inspection. Food retailing was down in the quarter as we continued to face delayed projects investments. Our service and consumable businesses held up well, with lab in particular enjoying strong growth. Finally, let me also comment on sales by region. Europe was down in the quarter but better than what we saw in the third quarter, principally due to easier comparison. As Bill mentioned, sales in the Americas were down in the quarter.

We had growth in lab and product inspection, which was more than offset by declines in core industrial and food retailing. In Asia, we had growth in most product areas and as I mentioned previously with particular strong growth in China. That covers our business by products and geography. Now let me provide some additional comments on how we are strongly positioned to capture growth as our markets recover. First, our product pipeline is very strong. For example, we have numerous product launches in lab including a new line of density and refractometer that we will introduce in the coming weeks.

This analytical instrument is used in R & D and Quality Control for the beverage, pharmaceutical, fragrance and petrochemical markets. A typical application would be a beverage manufacturer using it to determine the sugar content of soda. In many applications, the research is also using a titration. To make the user interface familiar and easy, we have Incorporated many of the same features of our titration line into this new generation. In particular, the new density refractometer is built around the very successful one click concept of the titration line which provides easy, convenient, and error free operation of the instrument.

The instrument can be incorporated into a linked system, to Lab X 2010, our next generation lab to control which we are releasing simultaneously. As a reminder, lab X allows multiple lab instruments to be connected and managed from a central location. This operating procedures reduces errors in base of transfers. Lab X 2010 greatly simplifies programming required for individual workflows which takes significant user time. It is also very easy to install out of the box. The launch will be available for balances and new density refractometer with additional instruments to be included in the future.

For the new products include launches tailored specifically for emerging markets. An important example is a new range of product inspection instruments. We have a strong market position in product inspection with multi-nationals in China. To expand our share in the local or entry level segment, we tailored our products so they are smaller, more flexible and less costly. The products are manufactured in China. We offer metal indexers and check wires and in the coming months we will launch a new x-ray instrument targeted to this market. These are just a few examples of new product launches. We have many others in the coming months as well.

In addition to new products, our marketing initiatives position us very well to capture growth in 2010. We continue to make a big effort to increase leads and then nurture those leads into sales. A critical process to execute well in a weak market. Our lead generation programs have been successful and cost effective. We are reducing our cost to lead by utilizing various innovative web strategies. We also are adjusting our sales programs to reflect the weak environment. Our additional focus on value selling training programs is making our salespeople more effective with customers who need to show the pay back on their investments. Customers are increasingly including procurement and finance personnel in the selling process, and we are adjusting our selling approach accordingly.

On the pricing front, another round of pricing features went into effect in January. We are targeting a realized price increase of 100 basis points this year; however, our list price increases will be much higher especially in lab and in certain industrial product legs. Our increases are supported by expensive training of our sales and services for us to help realize these objectives. Approximately 1700 of our global field force have participated in pricing training over the last year.

Turning now to emerging markets, our leadership position in these markets provide solid foundation for 2010. Our industrial business in China will benefit from stimulus spending and continued focus to improve food safety in the country. Our expanded product inspection offering will bolster our opportunities in this market. Our laboratory business will benefit from continued investment by the Chinese life science industries, as well as good growth economics in academics and testing labs. India ended the year with strong sales growth and we expect momentum to continue in this market as well. Brazil is another market that although smaller than China or India, provides good platform for growth, especially with our recent investments there. Overall we have begun to see a rebound in certain of these emerging markets and expect to recognize growth in 2010.

We're positioned very well in 2010 to continue to strengthen our market position. On the defensive side, we will continue to monitor costs closely but we're in good shape as our cost reduction program is essentially completed. The final steps are currently being implemented and include the transfer of some production to China which we expect to be completed in the coming quarters. You will see us continue to leverage our production and development capabilities in China to achieve cost savings and to better position ourselves in emerging markets.

On the financing side, we expect our cash flow to continue to be solid and our capital structure is excellent and provides us flexibility. Given the stabilization in the world economy, our strong balance sheet, and our outlook, we have restarted the share repurchase plan. We are committed to the share repurchase program and believe it is an opportune way to return value to shareholders. In addition to the share repurchase, we also deployed capital in the business for new growth platforms.

At the end of the year, we invested capital to acquire Vision Technology which fits nicely into our fast growing and profitable products inspection business. Vision Technology can inspect packages at high speeds to detect defects, improper labeling, incorrect filling and other items. Demand for this technology is increasing due to consumer goods companies and retailers drive for quality assurance. We see this technology as similar to x-ray several years ago. Our strategy is to acquire technology that we can grow quickly with our global distribution and application know how in product inspection. We also deployed capital earlier this year to acquire the leading UK distributer for pipettes and tips which will allow us to rapidly expand our market share in this important region. With our strong capital structure and cash flow, we will continue to reevaluate acquisition opportunities that can expand our technology base or global presence.

In summary, market conditions remain challenging and uncertain. We have begun to see growth in China and although emerging markets and would expect that to continue. In the developed markets, especially with respect to core industrial and food retailing, we expect the recovery to take longer. We're very well positioned both offensively and defensively as we enter 2010. We expect our markets to slowly recover but feel we cannot capitalize on the growth opportunities as markets rebound.

I would now like the operator to open the line for questions.

(Operator Instructions). Your first question comes from the line of John Wood with Jefferies. Your line is now open.

Good afternoon this is Brandon filling in for John.

Hi, Brandon.

Bill, could you give us a sense of how we could think about operating cash flow in 2010 and do you have anymore room for improvements on the working capital front? And then maybe a sense on CapEx?

Sure. I think you'll see CapEx relatively flat for the year. We'll be in the $60 million range again. I think you'll see our inventory turnover improve, so as in terms of the conversion rate, I think we certainly won't get hurt on inventory next year, especially over the course of the full year.

Our DSO is in quite good shape, I would say. What I don't necessarily see there is much of an opportunity to go beyond that level. I think it was 41 days and a seven day improvement versus Q4 a year ago and when I look at peer group companies I think that's about as low as you'll see so one thing that we are working on that again will help the conversion rate is first of all, deposits, there are parts of our business where we can get advance deposits from customers. We're constantly pushing that and we'll continue to push that next year and I think we should have a good year as you know, our cash tax expense is better than our book tax expense and that runs 6% to 8% lower so it's in a way a hidden benefit so I think you can expect cash flow for 2010 to be at around the same level as 2009 and in terms of conversion rate, somewhere between 95 and 100% of our net income.

Okay, and should we expect a normal pace of share buybacks in 2010 or will that activity be more opportunistic? How much have you built in?

I think that maybe make a few comments here. We're currently purchasing and you can kind of see this if you kind of rough up the numbers, we're currently purchasing at a rate of the equivalent of about $100 million a year. I think that that will increase over the course of the year but frankly, the way a share repurchase program works, if you run the numbers, if we purchase 125 or 150 or 175, it doesn't make too much of a difference in terms of this years earnings, maybe only a couple pennies. The benefit is really more towards how that plays out next year when you get to full year effect so at this point in time you can assume that we'll do something North of 100 million but it will be gradually increase that and we do our share repurchase program under a 10 B5 plan so we're in the market every day so we're not trying to be necessarily opportunistic in how we do it.

Okay, that's helpful, and one more. Have you seen any change in the M & A pipeline? Is your appetite to do tuck ins more bolt ons in 2010 greater than it has been the last few quarters and then could you give us a sense of maybe what the revenue contribution should be for those two businesses?

Our committment to M & A has always been here. What we have done in the last few months and quarters is a step up the resource on the topic, we are certainly more proactive in identifying opportunities, screening them, and in that sense I do expect and hope that we will have more activity also going forward but they will remain these bolt on acquisitions, they need to be synergistic and we will keep the high discipline on our financial hurdles that we are planning for but I think the fact that we have closed on two acquisitions here, it certainly is a reflection of this additional attention that we give to it. The strategic rationale however behind all of these acquisitions remain the same as in the past and so don't look at this as being a strategy change in any direction.

In terms of how we value the business we use discounted cash flows with relatively high hurdle rates well above our WAC. We paid in terms of a multiple a little bit more than one-times sales.

That's great. Thanks so much.

Your next question comes from the line of Peter Lawson with Thomas Weisel Partners. Your line is now open.

This is actually Patrick Donnelly filling in for Peter. Thanks for taking the question. Just with Asia you obviously had a nice recovery to growth there. Would you mind breaking out how much was an easier comp, how much was a stimulus boost and how much was a recovery in the general industrial market there? Okay, so it's certainly fair that we had an easier comp in China overall but we should look at that on a relative basis. It still was a 9% growth in China in Q4 a year ago and this year in Q4 we grew 12% so that's just to give you a feeling, China accounts for about half of our emerging market sales so what we see is like Asian based countries are doing, Asian based emerging Markets and Latin America are doing relatively better. Still some struggles in the emerging markets and Eastern Europe including Russia.

In terms of the stimulus package, yes, we have a certain impact in Q4 on that one. We, however, expect more to come. I think the way we look at the stimulus package is a direct benefit and an indirect one. The direct one is where there is funded projects that have a need for our equipment. We have a special program that is tracking all these investments and currently if we would add up the opportunity behind that, it's about $25 million, but spread really across the next few quarters I would say the next 30 months or so, this should materialize for us and then there is another effect that is more difficult to quantify that's the indirect benefit, of course all of the stimulus packages in China helped the overall economy and we benefit from that, but I think that gives you a sense that yes we do benefit from the stimulus package but it's spread over many quarters and the fact that we had really good growth in Q4 shows that it came actually really broad based.

All right, great, and you guys benefited throughout the year from raw material, particularly steel prices coming down quite a bit. How do you anticipate some raw material inflation this year impacting and do you have anything planned to offset those increases? Sure. So first of all, you're accurate in that steel prices went up. I would highlight though the majority of what we buy is machine parts or fabrications or things where raw material prices only represent a certain percentage of the total spend, so as a reminder in 2008 when inflation and raw materials was certainly very high, on a weighted average basis across all of the things we purchase we had about a 2% inflation. This year, we had a 6% decline in terms of our material price index and that was partly explained by steel but also explained by other items. At this point we don't necessarily expect significant inflation in terms of what we buy and the items that are most sensitive to movements in commodity prices, our vehicle scale business in China is one where we do pricing on a continuous basis so we tend to move pricing a little bit based on steel prices, so in summary I would expect that next year we should have a further increase or sorry this year 2010, we'll have a further increase in our gross profit margin on a currency neutral basis and that will be a good number but maybe not quite the expansion we had in 2009 versus 2008.

I would maybe also add to that, I think our material cost is of course a reflection of commodity prices but it's also a reflection of our own programs that we have in place. For many years we have continued programs in place that help us to realize savings and I definitely expect that they will continue to benefit us also in this year as they did last year, so it's not just a reflection of commodity prices.

Okay, and then just one final question. Just wondering how things trended throughout the quarter. Were you seeing improvement from month to month and did any end market in particular improve from the beginning of the quarter to the end? In general, we saw pretty good order entry in the month of December. I don't have that much backlog so I wouldn't go overboard in that regard but I think we generally saw an improving trend. We didn't really see much signs of improvement in Europe but certainly in emerging markets and maybe to a lesser extent in the Americas it was improving. Great, thank you.

Your next question comes from the line of Jonathan Groberg with Macquarie. Your line is now open.

Operator? We'll take the next question.

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

Hi, this is actually Raphael in for Derrick. How are you?

Hi.

That was good music there. Just a couple of questions on the 2010 guidance. It seems like you were able to achieve some good price realization here in the fourth quarter and I believe in the third quarter as well. Just curious to know if that's something that you're baking into your guidance as well in 2010 and if so, do you mind sharing what type of impact you're seeing for that organic growth?

Yes, we did build in price increases. We're at this point assuming it will be somewhere around 100 basis points. That's a little bit less than we enjoyed in 2009 and 2009 benefited from as commodity prices were going strong at the end of 2008, we actually put through two price increases in 2008 so kind of mid year 2008 and it would be right at the end of 08, beginning of 09 so we had a little extra effect in 2009, I think maybe we're not expecting the environment to allow us to yield that although we're continue to push in pricing but probably 1%, 100 basis points is a realistic assumption.

And can you remind us again, are a lot of these contracts one year terms or are these more realtime?

It's actually the price increase is not so much on contracts, this is really across all our offerings and products and so it's on our daily sales activity, that's also why I tried to point out before how important it is that we train our sales force on it, because they need to basically implement it in the field and defend the price increases, their daily quote activity.

And on the SG&A line, with the three to five organic that you're guiding to, how should we think about the SG&A line progressing in 2010?

Okay, so I think in the early part of the year, you can expect that we'll have some benefits still coming from the cost restructuring program and in terms of our overall expense structure growth, it will be somewhere around the 3% to 4% range and that would include kind of the combination of R & D and SG&A.

And also some of the policy changes that we're seeing in China, how do you think that might impact the type in China, how do you think that might impact the type of growth that you're achieving in this region?

Not that concerned right now. I think you are probably also referring to a tentative type of financial situation, not that concerned. I was talking to our Management team in the last few days and they didn't give me any indication that they feel that they would see a cool down because of that.

Okay, thank you for taking the questions. I'll jump back in the queue.

Thank you. Your next question comes from the line of Richard Eastman with Robert W. Baird. Your line is now open.

Yes, good afternoon.

Hi, Rick.

Just a couple thoughts. One is Olivier, could you just talk to if we look at the 3 to 5% growth rate in local currency that you're targeting for 2010, how do you think that plays out geographically, because I'm kind of looking at the comparison and Europe may not be doing much but the comparisons are quite easy. Do you expect every geography to grow here next year?

For the full year, yes, but it will probably turn out that Europe will start actually really slow and then we'll hopefully catch up at the end of the year and as Americas I would hope that already in Q3, we'll have modest growth and then getting better by the end of the year and as we talk about emerging Markets, Asia, rest of world, I would actually hope that they are already strong in Q1 and then stay that way for the full year, so that's from a time perspective for the full year, I would expect to be Asia rest of world to be the strongest high single digit as Americas more on the lower end and Europe probably even a little bit weaker than Americas.

Okay, and then the last comment when you said SG&A and R & D in the 3 to 4% range, of what? Is that inflation?

Sorry, yes, that would be the growth and comparison to there's some acquisition SG&A in that number as well and that compares to the 3 to 5% top line growth.

Okay, and then--

Excluding acquisition obviously this number is significantly low.

And on the acquisitions, just two things. On the Vision Technology business that you purchased, what exactly did you purchase there? Is that a kind of a digital camera business? Is it a component business or a systems integrator? I'm just curious when you say that.

It's a Company that provides a total solution, and the total solution includes a camera, but that's not really the differentiating factor, more differentiated factor is to apply this camera in the production line and that requires actually good knowledge about material handling and the way you position the camera and then you have a software piece in it, which is image recognition, and then the whole processing of this information and applying it with reject systems with data capturing software and all that stuff, and in essence, we bought a Company that has that total solution and that capability.

Okay, and in terms of orders, you touched on it before but in the industrial segment in particular, generally maybe you carry a little bit of backlog there, but was there anything encouraging in the fourth quarter sequential order trend in either the core industrial business or product ID?

In general, orders did better than sales in the fourth quarter and if you're talking about the industrial piece, a good part of that was China industrial. I would say that what we saw certainly in Europe and not really even in North America helped us in our core industrial but the product inspection had a good order trend.

Okay, and just the last question, and I'll jump back in then but Olivier, the lower price point product ID product line here that you talked about I think check wires and I think you said metal detection, that's being launched. Is it specific to China or is that a global launch and is that an attempt to maybe segment the market with a lower price point product?

No, it's more focused with the emerging Markets and in particular China. It is also manufactured in China and it is mainly to capture these additional opportunities that exist in China that we haven't been that focused on and we have an excellent position with the multinational that we clearly want to expand the market reach by having this additional product, and it is true for and we're going to launch the next next wave systems that will address that. There's in addition also the markets look different, the product lines look different in Asia and they are in the states and we feel that this product portfolio is even better suited for that.

Okay, very good, thank you.

Thank you.

Your next question comes from the line of Ben Kadlec with First Investors.

Hi, thanks. Can you talk about the levers for gross margin in next year? You guys did a good job growing that. I was wondering what the range you're expecting next year and what would make it go higher and/or lower?

Sure. Okay, so let me start with just the saying let's talk about any kind of a currency neutral environment and based on where the Euro is that's probably about how sitting here today, neutral currency to the top line is probably where we're at so we would expect that we can push through about 100 basis points of pricing and as a starting point that's about a 50 basis point improvement in gross profit margin alone. We would expect though, that the mix because we'll have better growth coming out of emerging market countries, that that will be a negative drag, a little bit on the mix side. Procurement wise material costs, I don't think that that's going to be, I think we'll see some inflation, but I think we'll be able to offset that with procurement programs and maybe we'll have a little bit of continued productivity improvement which was a good area in the service, so I think you'll end up seeing gross profit margins up minimum 25 basis points and it could be as much as 40 basis points or so.

Is that for year-over-year or off the fourth quarter?

Year-over-year but I'd say at this point wouldn't be surprised if it's the number in the fourth quarter as well.

Okay, great, thanks.

(Operator Instructions). Your next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open.

Hi, this is actually Abby sitting in today. Just wondering if you could provide a couple extra comments about food retailing. I know continued double digit declines in local currency in the quarter but of course up against pretty difficult comp, I think you feel at 6% local currency growth in there 4Q 2008. Do you think you reached a bottom there or are there any just additional comments on that and outlook for 2010.

The market continues to be difficult and we see project delays. We see some reluctance of customers to commit to significant capital spending, so it's certainly one business that we expect to perform below group average of 2010. Because it's such a project business it's also a bit lumpy but what I just said before would be true for the full year.

Okay, great, and then one housekeeping question. On the tax rate for next year, is there anything that makes you think that you could see anything different than the 27% knee pad for the last couple of quarters or is that a good forecast as well?

I think that that's a good assumption. We do have a number of tax planning initiatives under way that we're implementing and at the same time, I think maybe there's also some trends in terms of tax rates for corporations that could be mildly negative so at this point maybe we assume those kind of offset each other and the 27 is probably a good assumption to start the year.

Okay, great. Thanks very much.

Your next question comes from the line of Jonathan Groberg with Macquarie. Your line is now open. Your next question comes from the line of Chris Arndt with Select Equity Group.

Yes, did you all mention the sales contribution that you expect from the acquisitions? Is there any way you can ballpark that and the extent to which the acquisitions might be dilutive this year and when they may turn accretive?

Yes, okay, so they're going to add a little bit more than 1%. We paid I think you saw cash wise we paid about $27 million in total and we paid a multiple of 1.2, 1.3 kind of range, and in terms of EPS, we're certainly making some investments in terms of distribution, marketing integration branding type of topics and with that investment we don't expect it to be accretive to earnings this year but I also don't think it's going to be noticeably dilutive either. If we think about those businesses, the Vision one is certainly a story we would like it to be similar to our x-ray where we can create a high growth business that our x-ray business today is quite a profitable business above corporate average and then in the case of the liquid handling acquisition pipette and tips, that strengthens our leadership position and allows us to continue to push market share in the UK market, so it's probably a little bit less than a growth story and more of a return on capital story.

Okay, and the gross margin guidance that you just gave, was that assuming a 3% top line internal growth, or a 5%--

Kind of the mid point, I think at the lower end maybe it could be 25 basis points and at the higher end it could be 50 basis points and some of that difference between three and five a reflection at the variable contribution at a gross profit level is above the corporate average.

Okay, and would you expect that to flow through to the operating income? In other words you expect the same level of operating margin expansion next year assuming you do get 3 to 5% growth or how would that flow through?

In terms of the marginal contribution, if we grow four, it will be a little bit, the margin contribution will be something North of 30% as compared to 3% and if we grow five, it will be probably a little bit more than that, so each extra percentage point of growth will provide nice incremental contribution but in terms of operating profit margin expansion, we're probably talking a number in today's currency, probably in a little bit more like the high end of the gross profit margin expansion.

Okay, so among that range that you gave on the high end of that range?

Yes.

Okay, thanks.

Sure.

There are no further questions at this time. I would now like to turn the call back over to Management.

We thank you for joining us this evening. We know how busy you are and appreciate taking the time with us. We will speak to you again at the end of the first quarter. Thanks again and goodbye.

Thank you, have a good day.

Thanks, everybody.

This now concludes today's conference call. You may now disconnect.