Mettler-Toledo International Inc (MTD) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our fourth-quarter 2010 Mettler-Toledo International earnings conference call. My name is Simon, 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 like to turn our presentation over to our hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thanks, Simon, and good afternoon, everyone. I'm Mary Finnegan, treasurer and responsible for investor relations at Mettler-Toledo and I'm happy to welcome you to the call.

I am today joined by Olivier Filliol, our CEO, and Bill Donnelly, our CFO. I'd like to cover just a couple administrative matters. 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 1 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 our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements.

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 referenced 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.

One other item, on today's call we may use non-GAAP financial measures. More detailed information with respect to the use of and differences between the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the 8-K.

I will now turn the call over to Olivier.

Thank you, Mary. Good evening and I'm pleased to welcome you to the call.

I will start with the summary of the quarter and then Bill will provide details on our financial results and our updated guidance for this year. I will then summarize our growth opportunities for 2011. As always, we will have time for Q&A at the end.

We had a quarter with excellent performance. Highlights of the quarter are presented on page two of the presentation. We achieved record local currency sales growth of 17% in the quarter. Approximately 2% was from acquisitions, resulting in one of the strongest organic growth quarters. Of course, it is against easier comparisons in 2009, although I note that the Q4 2009 was the best quarter for that year.

The level of growth was clearly higher than expected when we last spoke. All regions showed strong momentum. We are particularly pleased with strong growth out of Europe. In terms of product areas, both lab and industrial have very good results.

We had strong operating profit results despite a currency head wind. In the quarter, operating profit increased 17%, while EPS grew 22%. The strong fourth quarter resulted in an excellent year for us.

In 2010, we achieved a 14% increase in local currency sales, a 19% increase in operating profit and a 24% increase in EPS. We also generated a very strong level of free cash flow amounting to $215 million for the full year. Based on our strong fourth quarter results, we have increased our outlook for 2011. While the global economy remains challenging, we are confident in our ability to continue to execute on our growth plan and to enhance our market position.

Let me now turn it to Bill, who will provide details of financials and our updated guidance for the year.

Thanks, Olivier, and hello, everybody. Let me start with additional details on sales, which were $592.8 million, in the quarter, an increase of 17% in local currency. As Olivier mentioned, we estimate that acquisitions contributed approximately 2% of this growth. As a reminder, the sales growth compares to a negative 5% in Q4 2009.

On a US dollar basis, sales increased 16% in the quarter, which included a negative 1% impact from currency. For the full year, both local currency sales and US dollars sales increased 14%, with acquisitions contributing approximately 2%.

Turning to page 3 of the presentation, we outlined sales by geography. In the quarter, local currency sales increased 17% in the Americas, 13% in Europe, and 23% in Asia/Rest of World. On page four of the presentation, full-year results are outlined. In 2010, sales increased by 15% in the Americas, 17% 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 17% in the quarter, industrial sales 20%, and food retailing was up 5%. For the full year, both lab and industrial were up by 15% and retail was up by 5%.

Turning now to slide number seven of the presentation, we show the P&L. Let me walk you through the key items. Gross margins were 53.4% in the quarter, a 60-basis point increase over the prior year. We benefited from operating leverage and pricing, while mix and currency worked against us.

We also had higher raw material cost in certain categories, primarily steel related. R&D amounted to 265 -- sorry, $26.5 million, an increase of 10% in local currency. SG&A amounted to $164.8 million, an increase of 19% in local currency. Higher variable compensation, due to much stronger results, contributed more than one-half of the increase. Investments in emerging markets, acquisitions and incremental sales and marketing programs accounted for the remainder.

Adjusted operating income, amounted to $125.3 million, which represents a 17% increase over the prior-year amount of $107.3 million. Our operating margins reached 21.1%, a record level for us. This represents a ten basis point increase over the prior year.

As expected, currency headwinds, largely the Swiss franc versus the Euro, reduced our operating profit growth by approximately 5% in the quarter and our operating margins by approximately 80 basis points. Especially given the currency headwinds we are quite pleased the operating profit growth and margin improvement achieved this quarter.

A couple of final comments on the P&L. Amortization amounted to $4.2 million in the quarter, interest expense was $5.3 million, fully-diluted shares for the quarter were 33.6 million. Our tax rate remained at 26% in the quarter and for the full-year. Finally, adjusted earnings per share was $2.56, a 22% increase over the prior-year amount of $2.09. We estimate that currency headwinds reduced earnings per share growth by approximately 6% in the quarter. On a reported basis, earnings per share was $2.41 for the quarter. This includes a nickel of restructuring charges, which represents the final steps in the program initiated in late 2008. We also had a net $0.07 non-cash charge associated with a small divestiture and a previous acquisition.

On the following slide, that is slide number eight, our full-year P&L is presented. As I already mentioned, local currency sales increased 14% for the full year. Operating profit grew 19% to $351.4 million, which represented a margin of 17.9%, a level we're very pleased with. The resulting adjusted EPS amounted to $6.94, which represents a growth of 24%.

Currency headwinds reduced operating profit and earnings per share by approximately 2% for the full year. Cash flow came in stronger than we expected in the quarter, reaching $35.6 million, or a $1.06 per share. This compares to $26 million of cash flow, or $0.75 per share in the prior-year period.

We continue to be very pleased with DSO, which is now at 37.3 days, a two-day improvement from the prior year. ITO slowed slightly to 4.8 times, principally driven by the strong increase in business activity. For the full year, free cash flow amounted to $214.8 million, or $6.29 per share. During the quarter, we spent $91 million to repurchase 645,000 shares at an average price of $141.05. For the year, we repurchased 1.960 million -- I'm sorry, 1.96 million shares at a average price of $122.70 for a total of $240 million.

In terms of capital allocation you will see us continue to use our free cash flow for share repurchases, as we believe it is an attractive way to return cash to shareholders. We also continue to make small bolt-on acquisitions. On the capital allocation side we divested a small retail software business at the end of the year.

In terms of our balance sheet, we grossed it up by approximately $300 million here in the fourth quarter, as I mentioned to you last quarter, in anticipation of new tax laws going into effect at the end of this year we accelerated the repatriation of earnings from our foreign subsidiaries to the United States. This will result in a short-term balance sheet gross up as we will have higher debt on international subsidiaries and higher cash in the US. This cash and debt balance will decline over the next two years or so.

Now let's turn to guidance. We're increasing our sales and earnings guidance for 2011 based on our strong finish to 2010. We feel good about the momentum in our markets today and our ability to execute our business strategies. At the same time, we recognize that the recovery in certain parts of the world remains fragile. We have seen over the last two years that business conditions can change quickly and we need to remain cautious and flexible.

In 2011 we expect local currency sales to grow 6% to 7%. The mid point is actually 7% on an organic basis since we have this retail divestiture, which reduces growth by 50 BIPS. Therefore, we are increasing the mid point of our local currency guidance on an organic basis by approximately 2% from our previous level.

In addition to an assumption of higher sales in 2011, there is one other factor that has changed in our -- since our guidance we provided in November. We are facing a bigger headwind with respect to currency. In particular, the Swiss franc Euro has deteriorated by 4% since November. At current rates currency will reduce adjusted EPS by 3% to 4% for the year, with the impact more in the first half of the year than the second half.

Considering this, we expect for the full year that adjusted earnings per share will be in the range of $7.70, to $7.80, a growth of 11 to 12%, or approximately 15 to 16% including currencies. With respect to Q1, we have good momentum starting this year, and I point out that Q1 2010 was our easiest comparison quarter through the year. Based on market conditions today we expect our local currency sales to increase between 10 and 12%, in the quarter, and adjusted earnings per share to increase by 19%, to 22% for the quarter.

Let me put the Q1 guidance in a little more context to the over-all year. We expect sales growth to be less in the second half than the first half. This is because of tougher comparisons over all and specifically, the fact that we experienced quite a budget flush just now in Q4. When you are looking at models for the second half, mid single-digit sales growth and 10% EPS growth is probably realistic. Q4 sales growth might even be at the lower end of that range given the strong budget flush we saw (now).

One final comment on guidance. We expect full-year cash flow to be in the range of $225 million. In Q1, 2010, last year, we had $39 million in free cash flow. This year in Q1, we have an increase in bonus payments versus the prior year of about $35 million, so our start to 2011 will be a little slower but we expect to recover over the later quarters, as indicated by the guidance.

Okay, that's it for my side and I now want to turn it back to Olivier.

Thanks, Bill. I will start with some comments on the business results, both by product area and geography, for the fourth quarter.

In laboratory, we had an excellent quarter of growth, with virtually all product lines in all regions. Our lab business has good momentum with strong execution in product development and marketing. Core industrial had a very strong quarter, with continued very strong growth in Americas and Asia/Rest of World.

Product inspection business continues to have good growth. I would highlight, in particular, the strong performance in US. Food retailing came in as expected middle single-digit growth. Most importantly, they continue to expand the growth and operating margins.

We also sold our small stand-alone retail software business for grocery management because it had little synergies with our core offerings for fresh good solutions. This was a strategic move so our retail business can be focused on continuing to enhance profitability and leveraging synergies with our other businesses.

Finally, let me also comment on sales per region. We were very pleased with the improving momentum in Europe. Looking at Europe by region, we had very good growth in Germany, France and the UK. Spain and Italy also had good growth for the first time in 2010. Eastern Europe was also strong.

In the Americas we had strong growth in most lab and industrial product lines. Finally, in Asia/Rest of the World, we again had very strong growth in most product lines and most countries. The brick countries all did very well.

That covers our fourth quarter results by product and geography. Let me now provide some comments on our key growth drivers for 2011. We have emerged from the economic downturn with a stronger competitive position than before. We were able to accelerate share gains as we continued to invest in sales and marketing programs, R&D, and expansions in faster-growing emerging markets. Many of our competitors were not able to do so. Emerging markets now account for almost one-third of our total business.

China represents almost half of the exposure and have excellent growth in 2010, with 20% local currency sales growth. We have a long history, substantial resources and a strong market position in China and other emerging market countries. We have a broad product offering, which is well suited for the needs of customers in these markets and we continue to strengthen that offering.

For example, we are currently expanding our product inspection and pipette offering in China to meet growing needs in life science and food quality inspection. Our (spin out) marketing program is well established in the region and provides us the same opportunity for share gain as we have experienced in western markets. While emerging market growth in 2011 will not be at the extraordinary level of 2010, we believe the market dynamics for this region in near and long-term are very positive.

Turning to the Americas, this region has emerged solidly from the downturn. The two-year growth rate would show that we are back to the pre-downturn level. If we analyze further we do see some additional catch-up potential from core industrial, as they are still below 2008 levels. Overall, our result in the Americas demonstrates that the pull back that we saw from customers in 2009 was not sustainable given the replacement nature of our business.

In Europe we saw good momentum in the quarter but continue to be somewhat cautious, as the recovery has been slower. As we saw in the Americas, we do not believe the pull back we experienced in 2009 is sustainable and will benefit from a rebound early in the year. We will recognize we could see more volatility in this region.

Our other growth drivers in 2010 include continued development of our (spin out) sales and marketing programs. We have market-leading positions in fragmented markets and our strategy is to incrementally take share each year. Our customer data base, with several million contacts combined with sophisticated marketing sales programs, provides a very affective way go after new customers and gain share. We continue to further evolve these programs and believe they offer a unique competitive advantage in our markets.

Technology innovation will also drive growth in 2011 and our product pipeline is robust. Upcoming product launches included the new generation of our economic pipette, Pipet-Lite XLS. Although already economically designed the new version further reduces the force of pipetting, helping to further minimize repetitive strain injuries. It also has a clever a safety locking mechanism, which helps customers prevent errors and waste of costly (wages).

Also, the XLS pipette has an RFID trip, which can store critical service and collaboration information and helps customers to manage their pipette assets. RFID technology is transforming how customers manage their lab equipment and we are pleased to be the first pipette with this capability.

On the industrial side we will soon launch a new stainless steel bench portable scale targeted to food customers who prepare ready-to-eat meals or food portion. These customers are most concerned with improving productivity and maintaining a hygienic conditions. This instrument is easy to use and easy to configure, which is important to accelerate the startup and switch over of this manual processes. It has a large easy-to-see color code (led) screen, which clearly identifies when weight is outside of tolerance. Finally, the scales can withstand high-pressure washdowns, ensuring (its incorporated) the latest hygienic design (tiles).

These are just a couple of examples of the many products that we will be introducing over the coming year.

Those are my comments on our growth opportunity's for 2011. In conclusion, we have a strong foundation for long-term growth. We have market-leading positions in the majority of our product lines and we've furthered this position positions over the last two years.

We have a proven strategy for growth centered on our strong position in emerging markets, on our sophisticated sales and marketing programs, on new product launches and our continued focus on pricing and low-cost sourcing and manufacturing to drive margin improvement. We have a strong track record of execution. While we are cautious on the economy, given the uncertainty that exists, we are strongly positioned for growth in 2011 and beyond.

That concludes our prepared remarks and I want to now to ask the operator to open lines for questions.

(Operator Instructions) Your first question comes from the line of Jon Groberg with Macquarie. Your line is open.

Hi, thanks a million for taking the questions. Congratulations on a strong quarter.

Thank you.

Thank you, Jon.

Just two quick questions. Obviously the big question I think investors are going to have is the flat operating margins year over year. Historically if you would put up 15% organic growth, you would have gotten 40% earnings growth or something like that. So maybe dive into a little bit more detail about what was happening there from a operating margin standpoint year over year and I guess your -- the confidence that you have in being able to continue to show your historical operating margin improvement?

Sure. So, Jon, if you back out the impact of currencies we had an 80-basis point improvement in our operating margin in the quarter, which, hey, I think that that's a good number for us. I think we're happy with that number. Maybe one other way in which you can tackle things is to look at incremental margins and so if you -- traditionally that number tends to be 30% plus. If you look in the quarter and if you -- it's, I think, 21%, you pull out the impact of exchange rates, it's 27%. Then you have this impact of bonus normalization and that's the fact that we were at a zero base pretty much a year ago, that would take you up into the low 30%s. And then the last factor that impacts us, as well, is the fact that some of this growth is, of course, the 2% coming from acquisitions and that's more at half of the incremental margin that we would normally get.

So when we looked at the factors we get to a number in the mid-30%s, and -- which we were pleased with. We also made some (inaudible) decisions to make some investments in the business in both R&D and marketing topics, as well, all with the ambition to continue to show out paced organic growth, which for us that's an important objective for us is to continue to be able to have better than our long-term traditional organic growth rates and we think we're on a good path in that regard.

I guess maybe just one other way to think about it is, as your emerging markets become a larger percentage of your business and you're growing very quickly and you're growing faster there than in other parts of the world and some of the inflation and other concerns that people talk about in those emerging markets, are you still able to get similar leverage in those markets when you grow at the rates that you've grown at historically?

I think that the short answer is yes, and I'll keep it simple by saying that our -- we look at our OP -- we call it our OP by destination, which is really what's our consolidated operating profit in the different countries we operate in and China, for example, would be in the top cortile there. Now what might be a fair comment, Jon, is that we are thinking about building the business long term and clearly, feet on the street. We need to invest on feet in the street, particularly in emerging markets over time so we do periodically make investments as we continue. Some of the product lines are not as established in that part of the world just because of the nature of manufacturing and the economies. They're a little bit less lab oriented, a little more industrial oriented, so as we're building out, for example, our lab business we do sometimes make some up-front investment there. But the overall picture is strong operating profit margins in emerging markets, it's no different than what we enjoy in the West.

On top of that what we will also continue to benefit is we really make more investment in the businesses with the higher margin and, of course, we expect [both] of these businesses grow faster than the group average and that will continue to support our margin expansion.

Okay, great, and then the second question, Olivier, just on, obviously, very, very strong organic growth. What did you see as you went from the end of the third quarter into the fourth quarter, what's really driving it? Is it just a bit more of the late of the cycle nature of your business? Was it -- it was an easy comp but one -- so your toughest comp of the year, so I guess maybe just -- if you could just describe a little bit when you saw throughout the quarter and why you thought this acceleration really happened?

We ended the quarter with good momentum, but we're certainly positively surprised how that momentum further build up throughout the quarter, December was exceptionally strong. I would certainly see pent-up demands that we described in the prepared remarks, but I would also see a budget flash phenomena as customers -- many of our end-user industry customers had were exceeding their own objective, their own budget and they took advantage to use the funds available to place orders at the end of the year. This is particularly also true for certain lab items where we have short lead times and that's helped very much the December numbers.

Thanks a million. Congrats, again.

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

Hey, thanks a lot. So did you guys have like ten extra selling days in the quarter? Just checking. So, Olivier, your --

It's still leap year, Jon.

If I look -- I think we've discussed this kind of looking at the three-year rates now and if I look at the last three quarters it's been around 11% organically. Why does that number change in -- as we progress through 2011?

Yes. Okay, I'd have to think about your question a little bit. Of course --

But, Bill, if I look at the guidance for 11% at the midpoint for the -- that's actually 11.5%, but that's like 9% or soon a three-year rate. Then the middle quarters of '11, that number slows down to 5%. So my question is, is that the right way to think about it on a three-year basis, and why does it change from that 10%ish number?

Part of the reason I think that maybe it's not the right thing is, of course, you're comparing different periods, right? You have -- you're adding on a new year so I'm not sure going from year to year that that naturally works. As you know, Q4 2008, was when we really first starting seeing these things. Our view is that this early part of the year we still have -- the first half of the year we still have some more recovery of pent-up demand coming in Europe, in particular, and maybe in some of the industrial markets in general. We already see now in China we're getting to some tougher comps. China we expect to go from -- for the full-year 2010, we grew by 26%, 27% in China, I think, and probably more over time and it's gradually going to go down to the mid teens or something like that.

At this stage, our expectations would be in the short-term we're going to have another excellent growth quarter -- we would expect in Q1, in Q2 to be a solid quarter but I think at this stage we're more cautious about the second half of the year, number one, because comparisons will be tougher and number two, because we had a heck of a quarter here in Q4, which will make for a tough comparison because of the budget flush. Now as we get closer to Q3, if we have a more positive picture we might have a ditch view than that, but at this stage we are manning cautiously not just in terms of how we give guidance to you but also how we are thinking about how we want to run our business plan.

Jon, I would say that's the flush that I just described before. This is a one-time thing and it's very difficult to represent in a three-year growth analysis, so that certainly explains why we are more cautious about the latter part of the year, and in particularly Q4. Q1 this year also benefits still very much from this pent-up demand and a little bit of an aftermath of the budget flush that certainly carried over a little bit in to January. When I look at Europe and the US, we still see that particularly the core industrial business is not yet at the levels that we had 2008, and that's why we are expecting and forecasting still this effect of pent-up demand. As in Q3, Q4, I would say that this has gone by that time.

All right, great, that was very helpful. Thanks a lot. So emerging markets, can you give us an update, I think we said double digits last time, what do -- Olivier, what do you see emerging markets growing in the context of your updated guidance?

Right now we still see good momentum. I would also expect Q1 will still be good but we going to see a gradual decline. But still, very solid, very solid. Bill --

For the full year we'll -- early part of the year we would expect Asia/Rest of World to grow a mid-teens number and for the full year low double digits.

Okay, great. Thanks a lot.

Your next question comes from the line of Isaac Ro with Goldman Sachs. Your line is open.

Hey, good afternoon, thanks for taking the question. Just first one on considering the things that we've been seeing in the broader end markets for academic funding and pharma and maybe industrial spending and retail what do you see is the greatest uncertainty in your outlook across the end markets that you serve?

One thing that we have seen starting to come in to the business more and more is project businesses. That's -- project business, of course, takes a little bit more confidence in the investment outlook and if something happens that make people more cautious about longer-term investments opposed to purely a replacement then I think that that could maybe tail off. We see that -- we see projects in emerging markets, but we're also see projects in the developed markets, as well, that largely speaks to -- when I refer to this we're largely talking about the industrial side of the business. Then a secondary we benefited -- and I think you hear this from other companies -- is, lab instruments sold into industrial applications. The industrial companies are --clearly have been investing and that's been a nice part of the lab instrument growth that if there's more global uncertainly, particularly in the West, maybe in Europe that could be something to be more cautious about.

I would add in China we have strongly benefited from the momentum in the infrastructure-related investments and that's -- first we expect to a certain cool down but it's really difficult to assess how fast that would go. We have some exposure in there. Remember, we have, particular for the core industrial business, benefited quite from stimulus money and quite some of that was infrastructure related.

Got it. Okay, great. And then maybe secondly, in some of the emerging markets. In China is there reason to think you might have tougher comps there that offset some of the investments you're making to grow infrastructure? And then maybe secondly in Brazil, just any general thoughts on what you're seeing in South America and Brazil specifically?

Yes, China being the first piece. I think our investments in China are multifold. Some of them are putting relatively low-cost salespeople and expanding the geographic coverage that we have and the product coverage that we have. I think that, that can be -- we're not so worried about that getting ahead of itself, let me say it that way. I think even with some -- I don't think we gotten overly aggressive there and we do see -- to be clear we do see good fundamentals in China. We're just saying, hey, the comps are a little bit tougher. If we -- in terms of what we see in Latin America, I think our view is quite positive overall, particularly Brazil.

Yes, let me add maybe on Brazil. As I covered last summer on this conference call we have made some strategic moves in Brazil to expand our presence and setup. We have a few years ago taken over the respons -- direct responsibility to sell our lab portfolio. We have further expanded that late last year to add the pipette business and we are further expanding our presence for some other product lines at this stage. We are expanding the team and making quite significant investments but investments that have already paid off nicely. We have very good growth last year and I see good momentum in the market and there is ample room for us to win market share.

I think you asked about Russia, too, Isaac, and we had a good year in Russia in 2010. We would expect another good year in 2011 but a ways to go to get back to pre-crisis level there. That was one of the markets hardest hit in 2009 for us.

I did not ask about Russia but I do appreciate it.

Anything else?

Sir, did you have anything else to add?

I did not, thank you.

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

Olivier, could you maybe dig a little bit deeper in to Europe? You were pleased with the strength and yet you seem reasonably cautious. Was that an area that was more subject to the budget flush? And secondly, which area responded lab or industrial, did industrials start coming back quicker here?

It was actually across all major product lines. We had really good results. I -- yes, Europe (inaudible) budget flush. I would also say, however, the pent-up demands in general was important. And remember, also, Europe was a little bit later coming into the recession than US and, accordingly, it took a little bit more time maybe to come back. I would also say that I was surprisingly pleased about the results considering all the economic discussions that we have in Europe and we were certainly not impacted in demand for our products on that side. So certainly came in stronger than we had planned for. I do see that the momentum is still strong, that's also why we expect that Q1 will be strong again. But we feel like Europe remains fragile in terms of the economic environment and that's also why we are more cautious about what we can expect from Europe the second part of the year.

Understood, okay. And then how does -- how are you approaching pricing here for calendar 2011? We look at the organic growth and maybe single point estimate is 7%, how are you thinking about pricing?

Yes, yes. Let me maybe quickly recap to how I feel about pricing in the previous quarter. We had probably about 90 to 100-basis points from last year in terms of gain from pricing. In general feel comfortable. There were some areas where we didn't realize as much as I wanted. The (inaudible) and product inspection area was disappointed. We had there a couple of challenges. For this year, I want to realize, again, at least 100-basis points. I say so we need this also because, of course, there is more inflation trends this time than we had a year ago and we certainly have more attention, even more attention to the topic and we need more discipline to really execute (inaudible) across all the business lines on that one.

Okay, so we should think about the 100-basis points of capture. Okay. And then also, Olivier, just a question. In late calendar 2010, congress passed this fairly huge food safety bill. It seemed to mandate a whole lot more inspections, both domestic and international, but is there any benefit to Mettler's product inspection business in that mandate?

Yes, there is. For us it's good news, but I would say it's an indirect benefit. The reason why I say so, this new regulation does not specify that some of our product are used. The regulation is more giving from our customers food -- food customers more attention to potential exposure to recall and that's in a sense good for us because our products prevent recalls. We would certainly expect good continuous momentum for all our product lines, be it x-ray, metal detection, but also check point. We certainly use this new regulation, also, for our sales and marketing purposes and we see good interest from customers. It's maybe a little bit less direct as a benefit as you would see from our peer companies that have instrumentation that are even more directly in responding to some of the legislation.

Is there any software benefit to you, again, given the inspections? And, again, this is probably further upstream than where you sell for the most part but just from a software benefit is there any record-keeping responsibility or anything that may promote more higher software content?

Yes. No, there is. This track in trade, of course, is a big topic and that's something that we support, not just through our product inspection offering but we have also software like FormWeigh and FreeWeigh, packages that we offer for our core industrial weighing solution. We are very well positioned there. You might recall that we launched updates for both product packages in fourth quarter since it was very timely, we have a good story.

Okay. And then, Bill, just one clarification. You may have said this and I may have missed it, but the free cash flow generation and forecast for calendar 2011, should we think about that primarily used on the buy back?

Yes. Yes, if we -- at this stage I think we would expect to pretty much fully expend that towards share repurchase plan. If we have bolt-on acquisitions I think we would use these excess cash balances that we have currently.

Okay, very good. Thank you. Very nice quarter, thank you.

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

Good afternoon.

Hi.

Maybe just starting with a question on food retail and, obviously, it's a relatively small piece of the overall portfolio, but as we look at the trend in that business, they've been lumpy over the years. It hasn't quite snapped back to the same degree out of a downturn and you, obviously, made some strategic decisions to sell the software business, but can you just talk a little bit about strategically how you think about that business. Should we think about it as a mid single-digit grower on a go-forward basis, or is there an opportunity to maybe grow faster or sell it off at some point?

We had quite a good strategic review of the whole retail business in 2009. We clearly decided this is a good business for us to be in but it's, in particular, also because there are synergies with the rest of the business. Our recent move to divest this small software business we have fits very well with this strategy that we defined already 2009. For that software business that we didn't have the synergies so we felt we were not the right home for it. But the rest of the business that we have today is a good one because we have the synergies. Retail on its own will remain in terms of profitability below the group average. We accept that because we also feel the market dynamics retailers as customers is a top -- a tough group. There is big attenders that have influence on pricing and all that certainly drives a lower expectations and profitability. But still, a good one when we look at the overall picture.

Having said that, I certainly gave a mandate to my retail team to focus on sustainable profitability and not to just go for growth. Growth doesn't have the priority. I want us to be selective in where we compete and that means also we might take some tough decisions if we feel that a tender is moving to a price point which is not attractive any more, or if we have (inaudible) markets where we don't feel that there is an attractive environment to participate. So your point that we might look for mid single-digit growth sounds about reasonable to me. I would certainly expect retail to grow probably below the group average on a longer term.

Okay, that's very helpful. Then going back to Isaac's question earlier on the end markets, as we think about biopharma and academic, those two customer bases, can you just talk about whether you think each of the businesses can grow? And I know -- I think you've talked about in past about being underpenetrated in some of academic markets, so do you envision both those segments to grow this year?

Yes, we do. On academic, I think historically we have maybe not the full attention to it. We said in 2009, during the recession this was a very good market for us to grow. We gave more attention to it and we feel good about it and so we continue to give it -- to it. It's not that we went back to the old approach. So I feel we have in that sense a good word presentation in the meantime and we're going to continue to benefit from the growth opportunities there. However, would say is, in the Western markets, the growth potential has its limits, but when it comes to emerging markets we see very good growth opportunities there and a lot of attention. This is true for the whole life science market. Of course, we are observing the challenges that some of the life science markets has in the West, including also big pharma, but I clearly would say this is more than offset by the opportunities we see in the East.

Okay, great. And then just one last one for Bill maybe on -- as we think about margins and gives and takes there, how much of an opportunity is there to try to offset some of the raw material costs going forward? Is this something that you guys are focused on here in the near term?

Yes, for sure. I think as Olivier implied in what we're trying to accomplish pricing wise we're shooting for 100-basis points, hopefully more, on the pricing side. And then on the raw materials side, of course, in round figures our raw material costs globally are about $400 million compared to the $2 billion in sales, so a 1% on sales would more than offset a 1% on the material side. And then we've made good progress in terms of continued to expand our manufacturing base in China, which helps to do that. Our manufacturing level now is up to 30%, coming from China and -- about 40% of our material costs are coming out of China, as well. So I think those are good factors, attacking both the cost side and pushing on the pricing.

Okay, great. Thank you very much.

Thank you, Tycho.

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

Hi, Paul.

Hi, Bill. What was the operating margin excluding currency, if you can do such a pro forma"

I can. 22%.

22%, you said?

Yes.

What are you assuming for your non-US, non-European growth for 2011?

Okay. So, the Asia/Rest of World, let's say low double digits, 11% or so. And Europe, mid single digits, 5% to 6% kind of range.

And do you -- we certainly see SG -- or I should say cost of labor going up in China, is that an issue?

It's, of course, better if there was less than that inflation on the -- just as a reminder, our Chine -- for us in China, the Chinese domestic market is more important for us than the export market, so it's less of an issue as long as we can -- that inflation some how reflects the robustness of the Chinese market locally. And as their wages go up, they are eating more packaged goods, investments in health care, pharmaceutical, those are a net better thing for us than the impact of maybe our material costs getting a little bit higher, particularly on the export side. We -- one thing about China that we've enjoyed historically is we've been able to absorb the higher wage costs with continued productivity improvement, both through automation as well as just continuing to introduce lean principles in the manufacturing teams there, so I think that that's maybe less of an issue on the manufacturing side.

I think in terms of our R&D cost in China that's probably the one place where we do see some inflation, maybe a little bit more than in some of the prior years. But as you know, R&D as a percentage of the total P&L we are talking 5% or 6%, maybe. It's not such a big fear. Paul, overall something of a challenge but the idea of growth within the Chinese market for the long term is pretty important for us and we see that as the net positive.

Maybe reinforcing one point of that one. I think this productivity gain is definitely very true. This is true across production but it's also very true in the field. Our people get more experienced. We provide them, also, more productivity tools, we support them with marketing programs and so on, so the sales per head clearly goes up and that, of course, offsets -- needs to offset, also, the wage inflation that we have.

The second point I would add this discussion here is that in the past we had an attitude that prices were rather coming down in China rather than going up and we have reversed that. We have now processes in place, we have the right attitude and mind set from our Chinese team and we are also raising prices in the Chinese market. I think that's actually very important for us and particularly now where inflation is coming through the Chinese market having an organization ready to respond to the inflation also in terms of pricing of our own product is extremely valuable and extremely important.

Thanks very much.

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

Good afternoon.

Hey, Derik.

Given the higher cash balances and the debt, what are the implications for interest expense?

Okay. We've built in to interest expense $22.5 million to $23 million or something like that for 2011.

Thank you. When you look at the changes that you had during the downturn -- it's put a lot of pressure on competitors -- have you think you done dramatic share gains to -- is one of the reasons why you seen such robust organic (inaudible) growth. What's your take on the overall landscape right now? Are you in a better position now than you ever have been.

Yes, we are. I would caution with the word dramatic in the since that we always go for continuous market share gain. I think in this cycle we gained maybe more market share than in the past, but it's -- we're always talking about the few points. I feel we are very well positioned to continue this path and it wasn't a one-time opportunity just to go in the downturn to win market share. Remember, consciously we were not particularly aggressive to grow up the market share. We didn't -- we were not aggressive on pricing just to win market share. We wanted to win market share through our marketing program through better execution and that is sustainable and should go up. If I look at our growth and I compare it with what we know about our competitors, yes, I do feel very comfortable about 2009 and certainly also about 2010.

And has your -- have your local competitors, the Chinese manufacture companies, have their technology gotten better, have they become more -- are you seeing them more when you're out trying to do sales?

I wouldn't say more than in the past. In the lab area we compete mainly with global competitors for the industrial business. We have many local Chinese competitors, we always have. It's a very fragmented market. There is no particular strong player that we need to worry about and that was why I say feel very comfortable with that competitive landscape. But we need to take it serious, we need to work very hard every day to avoid that and they become too strong. That's also one of the reasons why we use a second brand in China to make sure we fight, also, on the lower cost side and not just focused on the premium applications or the high-end applications.

Then one final question. In the process analytics business, first of all, remind me how big that is of your total sales? And then, as you've seen a number of companies in the drug industry have problems with manufacturing, I guess have you seen any up-tick in demand for more inline testing and more of your products there? Where that market, PAT market right now relative to where it has been?

So in the PAT market we benefit with the process analytics divisions. We also have solutions from our [AutoChem] business that goes in to that market. I would say AutoChem has even more dedicated solutions to PAT than process. Process are more the traditional analytics. That business, I wouldn't say it's benefit so much if there are particular customers that have production problems or recalls. I think it's a quite a standard measurement that you have, like Ph, (inaudible), and so these are common measurement points. I think here it's much more that we win market share than enforcing new measurement points or new technologies into the markets. Little bit different on the AutoChem business but size wise the AutoChem business is still smaller than process analytics.

Thank you.

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

Thank you. Congratulations on a very good quarter. Wondered if you could run through the three sectors; lab,industrial and food, by the three regions in terms of growth -- year-over-year growth, either for the quarter or for the year?

Okay, and maybe we give you some rough numbers here for the quarter. We had 18% growth in the -- well, let's talk about organic, maybe. We had 18% growth in total and European lab, that's about 15% organically. And then on the product inspection and the industrial businesses combined we had about 6% growth or so and retail about 13%. Then if we look at the Americas, the lab business was 10%, 11% kind of range, the industrial markets on an organic basis were above 20%, and the retail business was down slightly. Then in Asia/Rest of the World, the lab business was up in the low 20%s, the industrial business was up in the, let's call it mid-20%s, and the retail business was up mid teens.

Okay, thanks a lot.

There are no further questions at this time. I turn the call back over to our presenters.

Thank you for joining us this afternoon. If you have any follow-up questions, don't hesitate to give us a call. Have a good night.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call, you may now disconnect.