Mettler-Toledo International Inc (MTD) 2010 Q3 法說會逐字稿

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo International third quarter 2010 earnings call. (Operator Instructions) Thank you. I would like to turn the call over to Ms Mary Finnegan. Please go ahead.

Thank you Sarah, and good evening, everyone. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to be called. I am joined by Olivier Filliol, our CEO, and Bill Donnelly, our CFO. I want to cover just some administrative matters first. This call is being webcast and is available for replay on our website at www.mt.com. Copy of the press release and the presentation that we will refer to on today's call is also available on the 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 U.S. Securities Act of 1933, and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statement. For 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 to 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 operations section of our form 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 differences between the non- GAAP financial measures, and the most directly comparable GAAP measure is provided in the 8-K. I will now turn the call over to Olivier.

Thank you, Mary. Good evening, and I am pleased to welcome you to the call. I will start with a summary of the quarter and then Bill will provide details on our financial results, and our increased guidance for the year. I will then have some comments on our recently completed budget tour. As always we will have time for Q&A at the end.

We had another quarter of very strong performance. Highlights of the quarter are presented on page two of the presentation. By local currency sales growth, 14% was against an easier comparison. The end result was higher than expected. Excellent growth in Asia and the rest of the world, and strong growth in the Americas, contributed to the better-than-expected results. Business momentum remained solid throughout the quarter, and we had good growth in most laboratory and industrial products. Upriding profit growth was strong at 17%, while EPS growth was excellent at 26%.

We have increased our outlook for the remainder of this year and will outline our growth expectations for next year. While significant uncertainty remains in the global economy, we are confident in our ability to continue to execute on our growth plan, and to continue to enhance our market position. Let me now turn it to Bill, who will provide details on our guidance, as well as our financial results for the quarter.

Okay, thanks, Olivier and hello, everybody. Let me start with additional details on sales which were $490.2 million in the quarter, an increase of 14% in local currency. We estimate that acquisitions contributed approximately 1% to this growth. On a USD basis, sales increased 13%, which included a negative 1% impact from currency. Year-to-date, local currency sales have increased by 12% with acquisitions contributing approximately 1%. As a reminder, this sales growth compares to a negative 12% for the same period last year.

Turning to page three of the presentation, we outlined sales by geography. In the quarter, local currency sales increased by 15% in the Americas, by 7% in Europe, and by 25% in Asia, rest of world. Year-to-date, which is outlined on the following slide, sales increased by 14% in the Americas, 5% in Europe and 23% in Asia, rest of world. On slide number five, we outlined sales by product area for the quarter. Laboratory sales increased by 16%, while industrial sales also increased by 16%. Food retailing increased by 5% in the quarter. The next slide provides year-to-date sales results for the nine-months, Lab is up 14%, Industrial 13% and Retail is up by 5%.

Turning to slide number seven of the presentation, we show the P&L. Let me walk you through the key items. Gross margins were 52.2% in the quarter, a 50 basis point increase over the prior year. We benefited from operating leverage, pricing while mix worked slightly against us. We also saw higher raw material costs in certain categories, particularly those which are steel-related. R&D amounted to $25 million in the quarter, an increase of 12% in local currency. SG&A amounted to $145.3 million, an increase of 13% in local currency. Higher variable compensation due to the strong results contributed approximately one half of this total increase. Investments in emerging markets, acquisitions and incremental sales and marketing programs accounted for the remainder.

Adjusted operating income in the quarter amounted to $85.8 million, which is a 17% increase over the prior year amount of $73.2 million. Our operating margins reach 17.5%, a 70 basis point increase over the prior year. As expected, currency headwinds, largely the Swiss Franc versus the Euro, reduced our operating profit growth by about 3%. Especially given the currency headwinds, we are quite pleased with the operating profit growth and margin improvement achieved during this quarter.

A couple of final comments on the P&L. Amortization was $3.7 million. Interest expense was $4.8 million. Fully diluted shares for the quarter were 34 million even. Our tax rate remained at 26%, and we continue to believe that this is an appropriate amount for the full year. Finally, adjusted earnings per share were $1.71, a 26% increase over the prior year amount of $1.36.

In the quarter, we had a discreet tax item resulting in a benefit of $0.15 per share. This relates to the settlement of some prior year tax matters. We also had a $0.01 restructuring charge in the quarter, and a reported basis, earnings-per-share was $1.82 for the quarter. On the following slide, that is slide number eight, our year-to-date P&L is presented. For the nine months, local currency sales have increased by 12%, which drove a 21% increase in operating profit, and a 26% increase in adjusted earnings-per-share.

Now, let me turn to cash flow, which came in, as expected, at $70.3 million or $2.06 per share. We continue to be pleased with DSO, which is now at 39.5 days. ITO was flat at 4.9 times. During the quarter, we spent $76 million to repurchase 648,000 shares, at an average price of $117.30. Year-to-date we have repurchased 1.3 million shares at an average price of $113.50 or $148.8 million in total. I have a couple of additional comments on share repurchase which we have summarized on page nine of the presentation. Today, the board approved a $750 million increase to our program, as our current authorization was expiring at the end of the year. The current authorization had $262 million available at the end of September, and any additional amount will be incorporated into the new authorization. Since the inception of our program in 2004, we have reduced our shares outstanding by approximately 25%, as you can see in the graph. With our strong balance sheet and excellent cash flow generation, we continue to believe that share repurchases are an effective way to return cash to shareholders. This year, we expect to spend our free cash flow plus option proceeds or about $225 million on share repurchases.

Now, let's turn to guidance. For the fourth quarter, we expect local currency sales growth to be in the range of 5% to 7% and adjusted earnings per share to be in the range of $2.25 to $2.30 per share, which represents an 8% to 10% increase over the prior year. In considering the sales comparison for the first nine months of last year, local currency sales were down 12%. In the fourth quarter of last year, sales were down by 5%. Let me make some additional comments on our foreign currency assumptions for the fourth quarter. Based on the current exchange rate environment, we would expect currencies to reduce fourth quarter EPS by approximately 4%. With the actual results for the third quarter and our outlook for the fourth quarter, we now expect full-year local currency sales growth to be in the range of 10% to 11%. Of this amount, approximately 1% to 2% will be from acquisitions. This compares to previous sales guidance of 8% to 9%. Adjusted EPS is now expected to be in the range of $6.62 per share to $6.67 per share, or a growth rate of 19% to 20%.

Now, let's turn to guidance for 2011. We continue to be cautious on the global economy, given the uncertainty that exists. Our recent budget meeting, which Olivier will comment on shortly, reinforced our view that our business is very solid. However, we also acknowledge that business conditions can quickly change, and the global economic recovery remains fragile overall.

We expect local currency sales growth in 2011 to be between 4% and 6%. This would translate into adjusted earnings per share of between 11% to 14%. Our top line is on target with our medium term guidance that we have outlined to you in the past. EPS is slightly below our medium-term target, due to currency head winds, as well as some law changes impacting expenses in China. Assuming currencies remain constant, the head wind is limited to only Q1 and Q2. One additional comment related to next year, in anticipation of new tax laws going into effect at the end of this year, we see an advantage to accelerating the repatriation of earnings from our foreign subsidiaries to our U.S. parent.

This will result in a short-term balance sheet grossed up as we will have higher debt at our international subsidiaries, and higher cash in the U.S. You will notice that this is the opposite of what companies typically have in terms of a grossed up balance sheets. In those cases, cash is often trapped overseas. In our case we will have cash in the United States, which is a key distinction. I want to inform you now as you'll see higher cash balances and debt balances at year-end. In terms of orders of magnitude, approximately $500 million to $600 million and given the way we have structured things, these cash and debt balances will decline over the next two to three years to normal levels. Okay, that's it for my side. I would now like to turn it back to Olivier.

Thanks, Bill. I will start with some comment on the business results, both by product area, and geography for the quarter. In Laboratory, we had another quarter of very strong growth, in almost all product lines and in all regions. Our Product Inspection business continues to have very strong results, especially in the United States and Asia. Core Industrial also had very strong growth in Asia and the rest of world, and the Americas, with growth in Europe, too. Food retailing came in as expected, with middle single digit growth.

Finally, let me also comment on sales by region. We were pleased with solid growth in Europe, which faced a tougher comp in the second quarter. Looking at Europe by region, we had good growth in Germany, France and the UK. Eastern Europe was also strong, although it was against a very weak 2009. Countries in Southern Europe, which are the focus of the media attention, were down modestly in the quarter. Turning to Asia, rest of the world, we have strong growth in most product lines and most regions. Finally, in the Americas, we have good growth in most Lab and Industrial Product line.

That covers our business by product and geography. Let me know provide some perspectives on our business coming out of the recent annual budget tour. Bill and I spent four week on the road meeting with each operating unit around the world. While we interact with our units on a continual basis, this is a chance to spend several hours, face to face, in the local market analyzing current market conditions, our competitive position, and formalizing our growth initiatives for 2011. Each year a number of key learnings come from these reviews and I wanted to share a few with you.

First, the meetings reinforced that we strengthened our market position during the recent downturn. Second, I saw great progress in our sales and marketing capabilities and the continued evolution of the Spinnaker program. Third, we have a strong leadership team throughout the world which is well-aligned with our global initiative. Seeing this clear engagement of our entrepreneurial managers all pulling in the same direction, was a very strong message for me.

Let me provide some additional details on why we have improved our competitive position in recent years, and why I believe we can further build momentum. I will start with emerging markets, which now account for more than 30% of our total sales and includes China, which is our second largest market. We have strong leadership positions in emerging market,.due to our long history, our comprehensive portfolio, and excellent distribution network.

We continue to expand the number of products specifically targeted to the needs of this market. We are also using our innovative Spinnaker marketing programs to gain share in this market. We have a great team in place and they continue to execute very well. I am encouraged by the strength of both the short-term and long-term trends of these emerging markets.

Turning to the developed world, the key to growth here is product innovation and excellent sales and marketing capabilities. We continue to announce our Spinnaker marketing programs and it has become a key competitive advantage in gaining share. Our markets are highly fragmented, and although we hold number one market positions in most of them, our overall share is around 20%, which provides ample room for further gain.

In addition, our customer base is very diversified with no end customer accounting for more than 1% of sales. Our CRN system, with multimillion contacts, is a highly valuable intangible asset, given our fragmented market and diversified customer base. With this broad base of customers, our business has many elements of B to C marketing. The key to ensuring effective marketing communication is maintaining high quality and detailed information on these contacts and their potential needs.

We believe we have a unique, competitive advantage in marketing, and are working to extend that lead. Product innovation has always been a hallmark of our franchise. The budget meetings reinforce the strong R&D teams we have across all product categories. Meaningful product innovation will continue to distinguish us in the market.

An example I want to highlight today is in the area of software for our industrial and product inspection customers. We recently rolled out three significant software releases, principally targeted to our Food and Pharma customers. I will start with FreeWeigh, which is our long-standing quality control software which helps customers detect and eliminate product defects and overfilling, two important concerns for Food and Pharma companies.

Our new version expands FreeWeigh's reach beyond weighing, to provide standard methodology in the area of statistical process control or SPC. SPC is a industry standard scientific data-driven methodology for quality analysis and improvement. Our new version of FreeWeigh is an SPC tool which allows customers to collect quality data from a wide range of measuring devices in the manufacturing process. This allows customers to focus their quality management on the entire process, rather than discreet instruments. The new version also has an enhanced image-based user interface, so an operator can quickly identify product defects, thereby reducing waste and improving productivity.

Another software practice is FormWeigh, a formulation software solution which combines software and weighing technology to provide security, reliability and traceability for recipe preparation. We are repositioning FormWeigh with this new version to target small and medium-sized food companies. Of these customers, often these customers are still using paper-based recipe systems and FormWeigh Easy can increase productivity and significantly reduce waste by preventing bad batches due to incorrect or expired ingredients. It is an out of the box solution with a simple configuration for easy system set up, and fast formulation for tracking and tracing.

Finally, we also have a new software addition in our product inspection area. Pro-Dex is a software package that can monitor all product inspection instrument in real-time from a central location. This helps to improve product quality as inspection devices are monitored to ensure they are correctly installed and operating within given tolerances. It also dramatically improves productivity by reducing downtime associated with initial setups and line changeovers. Finally, it provides full transparency by recording all rejects and alarm triggers, so adjustments can be made to prevent such discrepancies in the future.

These are only a couple of examples of our recent software innovation. Software is increasingly becoming a key differentiator for us in the market. It allows us to provide a complete solution to the customer. Not surprisingly, a significant piece of our R&D is spent on software development. We have a dedicated team of software engineers in India that provides low-cost support to our R&D teams around the world.

Finally, the budget tools also reinforced our strong cost leadership position. We continue to strongly leverage our manufacturing and supply base in low-cost countries. Approximately 40% of our material spent is sourced from emerging markets, and 30% of our products are produced in China. We see continued opportunities to increase our competitiveness by leveraging this very strong base.

To summarize these thoughts, we have made steady progress in strengthening our market position, and believe we have the strategies and infrastructure to continue this trend. We are benefiting from our long-standing presence, and strong market positions in Asia, and other emerging market countries. Our marketing programs are innovative, comprehensive, and well developed to capture new business. Our innovation and products and software solutions continues to differentiate us from our competition.

Finally, our cost structure is benefiting from our low-cost country manufacturing and sourcing. We are confident in our ability to execute our strategic initiatives, but remain cautious, given the uncertainty in the global economy. That concludes our report, remarks, and I want to now ask the operator to open the line for questions.

At this time, I would like to remind everyone in order to ask a question, please press *1 on your telephone keypad. Your first question comes from the line of Isaac from Goldman Sachs. Your line is open.

Hey guys, this is Justin for Isaac. Thanks for taking my call. Just looking at the 2011 guidance with the 4% to 6% local currency. I was wondering if you could provide more detail on where your expectations are, breaking either by region, or what your thoughts on GDP for next year -- kind of how you're getting to that confidence at the 4% to 6% at this point in time?

Okay. So, first of all, we have a sense for how things are coming in in the fourth quarter, which we now start to see the -- I wouldn't say difficult comps, -- but more normalized comps after the downturn of the first three quarters. Coming out of the planning process, we are anticipating manufacturing GDP growth globally, maybe not quite as much as we saw in 2010, but, certainly, positive growth.

We see our lab business and our industrial business growing, probably, at the higher end of that range and our retail business below that range. That reflects a little bit how we are planning for their product line sales by different geographies and categories. We are optimistic, at this stage, that the market will be reasonable and, certainly, feel good about our ability to execute against the plan.

Maybe one other comment, in the course of this quarter, emerging markets accounted for at about 33% of our total sales and, probably, that is a good number for the average of next year, maybe even a little bit better. We expect emerging markets to provide a solid amount of growth in the course of next year. We are not necessarily anticipating strong growth in North America or in Europe at this stage.

All right. Thanks a lot. That's very helpful. And then, just looking at the Lab business in the quarter, 16% local currency growth was more than I expected. Can you break that out in Pharma versus other life sciences and Academic and kind of, what you are seeing there?

Pharma was clearly one of the stronger one. We are benefiting in part of the world from emerging markets, which includes, of course, some Pharma, but not the traditional Pharma that you are referring to with your question. Academic markets and industrial markets were very solid for us. Again, the 16% is against a somewhat weaker comparison in the prior year. I think you can see in the prior year we were down about 8%. So the two-year growth rate is more in the 8% range.

All right. Thanks a lot.

Sure.

Your next question comes from the line of Jon Wood from Jefferies. Your line is open.

Hi. Bill, so, if I triangulate your comments, just looking next year, the difference between the midpoint of your EPS guidance, 12% and then the 15%, kind of normal, it is about $0.20 and FX is $0.10 of that, is that correct?

Yeah, about. For the full year, about 2%.

Okay. So, basically, the same as it was last quarter, or it hasn't changed from your estimate last quarter.

Yeah, not materially. Okay. If you look at currencies, Jon, I think we are about where we were at the time of announcing last quarter, I think we are 136 and change, something like that today. It went down as bad as 130 or so and now it's kind of come back up. We figure that for the full year, we are going to average somewhere in the 139-140 range for the full year of 2010, and sitting here today, we are about 136. A little bit of a head wind, but not too bad.

Then, there is, maybe, another 1% or so coming from -- in China they have announced just at the beginning of this week, actually, a new, let's call it -- it is a tax, but it's not a tax in the income tax sense, it is an operating expense for PNL purposes. That will be a little bit of a head wind for us, a little smaller than the currency one, but that gets you back to where we are thinking in terms of midterm.

Is that just a one-time impact in China?

Anniversary, exactly. Of course we heard about it this week, and we're going to look at whether price increases or other things can help to offset it. But at this stage, literally, we are reading the regulations earlier in the day today and are trying to figure out what our approach will be to handling it.

Great. And then, for next year, any net impact from pricing versus raw materials? Should we assume it is kind of a normal year in terms of the next price you can get, and the raw material costs?

I think on the pricing side, Olivier and I were shaking our heads here. Both think we'll have a good solid year in terms of price increases. I think on the raw materials side, we have good programs in place. I am guessing the environment, will be on average, worse next your that it was this year. At the beginning of the year there was still good pricing in terms of raw materials. You see that, if you follow by quarter by quarter, the impact of raw materials has been getting a little bit worse each quarter this year, so I expect next year to be, in total, slightly worse than this year, largely because of the early part of this year, we had some nice pricing.

This year we see about 100 basis points of price realization, and would expect that to realize about the same next year. We differentiate, always, across the different product lines. That is probably a fair assumption if you take the group average.

Okay. Great. Good color. Bill, thanks for the share repurchase chart for 2011 guidance. Is there a rule of thumb we should use for the repurchases next year?

You kind of got a sense that we are going to be in this to 225 range. We will be at least 225 next year at this point. It could be more depending on how free cash flow comes in.

Okay. Great. Thanks a lot.

Your next question comes from the line of Jon Groberg. Your line is open.

Hi, Jon.

Hi. Thanks for taking the question. A question for you, Olivier. Bill mentioned you have 33% of your sales in emerging markets now, and you went around and visited them. Everyone talks about how that is the next growth engine. I am curious as you're there. What are some of the things that make you a little bit nervous in those markets? What are some things that, you know, for people that are older and have heard this story before, that these markets are going to continue to grow at very high rates with no bumps at all along the way. So I'm just kind of curious what you are seeing, what you're hearing, and what makes you nervous in these markets, what we should be watching out for.

When we talk about emerging markets, it is a big group of countries, but China accounts for almost half, or actually half of this 33%. When it comes to China, I am actually very confident that the country that I feel most confident that it is a sustainable path, there are many reasons for that. Definitely also just about our own presence, we have been there for so many years.

We have a local team, a very strong team and are perceived as being local players there,we have product developed for that market. We have excellent distribution set up, service network and all of these things. The businesses that we are serving are well diversified. We're not just dependent on one particular user industry. China, I feel really good. When it comes to the other countries, I wouldn't be surprised if one of the other countries might be weaker, and not have the sustainable high double-digit growth.

Then, I also say that many of these countries, we present 1% and 2% for us. So our exposure is well-balanced. In that sense, I feel comfortable with this emerging market exposure that we have, and I'd rather see the upside than a particular risk.

Two additional comments to what Olivier said. One would be that, you can sense Jon, in our guidance, that it's not that we think the trajectory of 2010 for emerging markets will continue in 2011. We're tempering that. I think we have often said that we think emerging markets is in a totally linear line. Our belief is that it will be more lumpy going forward than the Western world, but I think what we both have a lot of faith in is that the trajectory is positive, even if the ride can be more bumpy than the traditional Western market. We are optimistic about our ability to execute there, and the long-term growth prospects there. In 2011, the growth rate will be less than 2010, but we still expect it to be a good number.

These statements are clearly supported by our experience last year, where the world economy was down. We saw a couple of emerging market countries that really suffered and was very bumpy. When we look, our performance in China, overall, was actually a good performance.

Okay. Thanks a million for all the color. If I could, just one more. What are your own investment plans right now for next year in terms of CapEx and maybe other programs and willingness to invest yourselves? Thanks.

Maybe just from a project standpoint, I see us continue through significant investment in our IT programs. There are the usual investments that we have across all of the different businesses, being it tools, being it machines. They are all relatively small items. There is a third one. We need to expand our capacity in China. That will be a little bit bigger amount. But then when it comes to the total CapEx that we will have, it remains very much in the range what you have seen from us in the past. We would estimate around $75 million. This is about $5 million more than what we have seen this year. As you can see, this is not that significant of an increase.

I guess a couple additional comments to what Olivier said. We have China, we have our Blue Ocean program, and you see a little bit in the numbers, the impact of the weaker dollar. So, because a lot of our operations are outside the U.S., I would also say that we continue to build a strong pipeline of full-time type acquisitions, and I think you will see capital deployed taut towards small (inaudible) acquisition. But that will not slow us repurchasing shares along the line that we mentioned to Jon's earlier question.

Thanks a million.

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

Thank you. Before we leave calendar year '11 guidance. So, are you implying that given the rollup of the budgets, that the Asia, rest of world, does it have a chance to grow at double digits next year, even '10? Is that the kind of regional growth that you are thinking of?

We certainly think 10% is a very reasonable number for the emerging markets.

Okay. Then also, when I look at the growth in Europe year-over-year and LC, it was plus 7%. You still had a pretty easy comp, there. Could you maybe go through the three pieces of the business, lab, industrial and food? What drove that growth in Europe?

Okay. So, let's just kind of go down through the groups. We grew by 11% on an organic basis, 12.5% in total in the Lab business in Europe. The Industrial businesses grew, let's say, 5%, and retail grew about the same. The one comment I would make is the Industrial numbers would look better if you pulled out the impact of the T&L business. I think, you remember historically, our T&L business can be a little bit lumpy, and that 5% of industrial goes to 9%, if you pull out the impact of the T&L business.

Okay. All right. And then, just, I guess an additional question, Bill, on the China expenses, there is a reference to tax. I understand that you can treat it as an expense. Is it a tax on the profitability, or --

It is an activity tax, think of it as like a VAT, but not like a recoverable VAT. It is a charge that the government levied on all Chinese companies, but foreign operating entities were excluded from the tax. But effective January 1, they will be included on the tax.

Okay. Labor content does not matter or anything else, basically, on doing business there?

Basically, it's on doing business there, and I think you'll hear other guys talking about the item and these other guys that have significant Chinese operations.

Okay. And then, how did the Service and Consumables piece of the business do in the quarter?

Service was up 4%, and Consumables would be--

Consumables probably about the same.

About 4%. Got one last question. In terms of -- we talked a little bit about Product Inspection in the past, and there was some discussion about this vertical, this Pharma serialization vertical. Has there been any progress there, either in terms of software targeted at that market, or hardware on your side? Is that still an opportunity for you?

Absolutely. We actually, we have some nice projects ongoing on that one. I would say this is particular in Europe, a good opportunity for us. Right now there are certain countries where legislation is more advanced than others in Europe. We see good demand. It is an business opportunity we are pursuing with our (inaudible) business unit out of Germany. No, it is a good one and certainly one that we want to continue to leverage.

Okay. Very good. Thank you.

Thank you.

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

Hi. Good afternoon. This is Raphael in for Derik. Thank you for taking questions. Just a couple more clarification questions on 2011 guidance. Is the local sales growth guidance -- does that include any M&A?

No.

Also, has the CapEx outlook for 2011 changed -- do you expect it to change much from 2010?

Olivier just estimated the number at about $75 million

Okay. There was one more. On food retail, it was a solid 5% this quarter, but it seems to have slowed a bit, sequentially. I was curious to know, if that was mainly on a more difficult comp, or if there were other issues that may have come up.

No, but remember that the food retail depends very much on large projects. These projects come in at different stages. So, I would say -- it came in a little better than expected, actually. I would say nothing particular happened. We were maybe a little bit disappointed about the numbers in U.S. But, I would say the prospects look very reasonable. There are some good projects in the pipeline.

Okay. Just one more on emerging markets. Last quarter you were talking about opportunities in Brazil, especially increasing your direct presence. I was just wondering if the thought there had changed with your recent visits to the worldwide operations? Any potential of expediting your presence there?

The strategy that I outlined on the last conference call is very much still valid. We are progressing very well, in terms of the execution of it. They have the additions that we have to the team. We are really strengthening our team and our presence there. We had good growth in the quarter, good momentum, and definitely continue to pursue the strategy that we outlined.

Great. Thank you very much.

Thank you.

Your next question comes from the line of Ramesh [Donchamfeti] from JP Morgan. Your line is open.

Hi guys. I'm in for Tycho Peterson. Thanks for taking the question and congrats on the quarter. I just wanted to ask you about emerging markets again, because it is becoming a big piece of your business. And just if we went and by division, Food Retailing, Industrial and Laboratory, the type of growth rates you are seeing in either total and emerging markets, or specifically even in China. You mentioned there was strong growth across -- in each division.

Sure. So, I will just be to Asia, rest of world, which is not quite the perfect fit for emerging markets but is pretty close. You pull out your pan and throw in middle Eastern and European -- Eastern European countries. I have these numbers handy. We are getting solid growth across all the businesses, mid- 20% kind of growth in the Laboratory business, almost 30% in Industrial, and around 20% in the Retail business.

Proportionately, the Industrial business is a bigger piece of emerging markets than the global mix. And that's a reflection of the nature of those economies, particularly China being the global manufacturing bread basket for the world. So, you get a sense of strong growth across all the product categories.

Great. On Food Retail, you mentioned that visibility is somewhat challenging. You look at the outlook for the fourth quarter for next year, do you guys -- are pretty comfortable with your expectations there? How does that fit into your 2011 projection?

Our expectation for Food Retail is below group average. I think that is very much in line with our overall strategy that I have communicated in the past. The Food Retail business here, the number one is a focus on profitable growth. It is not just about market share games or aggressive expansion. So, I do expect that food/retail will come in softer next year versus the group average. But I clearly would expect that we would have some growth coming from it. It depends on project activities, but what we are seeing from today, we are comfortable with what I just said.

And maybe just to clarify your comment about visibility. I think the point we're trying to make is less one about disability, and more that comparisons are impacted by big projects. The focus of that business is, really, they're trying to drive up their operating margins, and what we are confident in is that they're done an excellent job doing that year-to-date and we expect that trend to continue. Its operating performance continues to improve.

Okay. All right. Thanks you guys.

(Operator Instructions) Your next question comes from the line of Greg Halter from Great Lakes Review. Your line is open.

Hello. Good afternoon. Back on the retail side, given the size and lumpiness of the business relative to the other two, I am wondering if it strategically fits with Mettler, I guess when you think about the company, given what it has done historically, and the growth profile and so forth. I'm just wonder if you can provide any comments you may have in that particular line of thinking.

It absolutely does. The reason is, there is a lot of synergies that we have, particularly in the back end. There is a lot of technology sharing when you think about the products that we are offering to the market. That have, in a sense, a very good marginal contribution to the overall group results. Of course, when you think about the content, the retail customers are very different. And there is some characteristics that make this business more difficult, and that's also why it performs in terms of operating profit margins below group average.

But, when we look from a marginal contribution, it is actually a very good business to be in. In that sense, we are committed to it. But, it's over the time, the share of that business will decline -- does decline -- and becomes less important because we are directing investments more to the high profitable businesses. That is also why we sometimes emphasize retail and now (inaudible). But that doesn't mean we are not committed to this business, again. There is a good, strategic, but also financial, reason why we are committed to it.

To add to Olivier's comments about the operating synergies that we enjoy with the business, and the fact that it's marginally much more profitable and might be on a fully allocated basis, is purely from a capital return point of view. Just, purely analytically, it is absolutely the right answer, in terms of Return on Capital. The Returns on Capital are quite good in the business in terms of alternative use as a Capital, the answer is even more clear.

It will not be a growth driver but certainly a cash driver.

Correct.

Thanks .

Your next question comes from the line of Paul Knight from CLSA, Your line is open.

Bill, what was the stated European growth in the quarter?

Sure. Europe grew in local currency by 7% in the quarter, and in terms of foreign exchange, is that what you are asking? Was there a foreign exchange impact?

With foreign-exchange tossed in.

Okay. Give me two seconds, Paul, sorry.

While you are looking at that, Olivier, could you address the environmental regulations coming in force in China in the July months? Are you seeing any impact on that as customers have to tool up with greater safety measures?

No, it's actually not going to impact us that much. We are active in the environmental control business. It is not that core to us. When you look at our instrumentation that we have, it is much more in the research and the quality labs than the environmental labs. It is, from a technology standpoint, we have solutions, but it is, typically, also a business that is quite competitive and is served by other channels that we are focused on. We are active in it, but it it is not that core to us.

Paul, to your first question, for the quarter, Europe grew in local currency by 7% and it was flat in dollar terms. Year-to-date it's 5% growth in local currency, and 3% growth in dollars.

Thank you very much at.

Sure .

There are no further questions in queue. I will turn to call back over to management for any closing remarks.

Thank you. If you have any questions, please do not hesitate to give us a call. Take care.

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