Mettler-Toledo International Inc (MTD) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to our first-quarter 2011 and Mettler-Toledo International earnings conference call. My name is Marvin and I will be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (Operator Instructions) I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thank you, Marvin. Good afternoon everyone. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo and I am happy to welcome you to the call. I am joined today by Olivier Filliol, our CEO, and Bill Donnelly, our CFO.

I want to cover just a couple of 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 1 of the presentation.

Statements in the 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, level of activities, 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 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 sections of our form 10K.

One other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and the differences between the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the 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 a summary of the quarter and then Bill will provide details on our financial results and our updated guidance for this year. I will then update you on our recent acquisition and discuss how we are uniquely positioned to assist our customers in complying with increasing levels of regulations. 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 2 of the presentation. We had continued, strong momentum in most of our markets. Local currency sales growth of 17% was better than we expected, with excellent growth in most product lines and geographies. We are particularly pleased with the strength in all three regions.

We had strong operating profit despite a currency headwind. In the quarter, operating profit increased 22%, while adjusted EPS grew 28%. Based on the strong start to the year, we have increased our outlook for 2011. While uncertainty remains in the global economy, we are confident in our ability to continue to execute on our growth plans and to enhance our market position.

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

Thanks, Olivier, and hello everybody. Let me start with additional details on sales, which were $498.8 million in the quarter, an increase of 17% in local currency. On a US dollar basis, sales increased 20% in the quarter, which included a positive 3% impact from currency. Turning to page number 3 of our presentation, we outlined sales by geography. In the quarter, local currency sales increased by 12% in the Americas, 16% in Europe, 25% in Asia/rest of the world.

On slide number 4, we outlined sales by product area for the quarter. Laboratory sales increased 16% in the quarter, industrial sales increased by 21%, and our food retailing business grew by 5%. Divestiture's reduced food retailing by approximately 5% in the quarter. For total sales growth, acquisitions and divestiture's had no impact on sales growth.

Turning to slide number 5 of the presentation, we show the P&L. Let me walk you through a few key items. Gross margins were 52.4% in the quarter, a 10 basis point increase over the prior year. We benefited from operating leverage and pricing while currency worked against us. We also had higher raw material cost in certain categories, primarily steel related. R&D amounted to $26.4 million, an increase of 11% in the quarter. SG&A was $161.4 million, an increase of 16% in local currency. The increase was the attributable to higher variable compensation due to the very strong quarterly results as compared to the prior year. In addition, we had higher sales and marketing investments, particularly in emerging markets.

Adjusted operating income amounted to $73.8 million, which represents a 22% increase over the prior-year amount of $60.4 million. Our operating margins reached 14.8% as compared to 14.5% in the prior year. Currency, largely the Swiss franc versus the euro, reduced operating profit growth by approximately 5% in the quarter, and our operating profit margins by approximately 100 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 was $3.6 million, interest expense was $5.7 million. Fully diluted shares for the quarter were 33.3 million. Finally, adjusted EPS was a $1.45 which is a 28% increase over the prior-year amount of a $1.13. We estimate that currency headwinds reduced earnings per share growth by approximately 6% in the quarter. On a reported basis, earnings per share was $1.41, this includes $0.01 of restructuring charges and $0.03 of purchased intangible amortization.

As we indicated on our last call, cash flow was impacted in the quarter due to higher cash incentive payments. Specifically, we pay in Q1 our variable compensation for the previous year. This year, we paid out $39 million more in variable compensation as compared to the prior year. DSO was consistent with the prior-year at 42 days, while ITO slowed slightly to 4.6 times.

We have built safety stock in two key areas, safety stock from an inventory perspective, one related to our various Blue Ocean go-lives that are planned for this year or just recently took place, and secondly, for electrical components related to our supply-chain concerns for the recent situation in Japan.

During the quarter, we spent $57 million to repurchase 354,000 shares at an average price of a $1.61 and $0.50. Also in the quarter we spent $14.5 million on acquisitions consistently, principally consisting of bolt-on acquisition and our product inspection business. Olivier will give some additional comments on this shortly.

Now, let me talk about guidance for a minute. We are increasing our sales and earnings guidance for 2011 based on our strong start to the year. While we feel good about the momentum in our markets today and our ability to execute our business strategies, uncertainty still exists in certain parts of the world. As we've seen over the last 2 years, business conditions can change quickly and we need to remain cautious and flexible.

For 2011, we now expect local currency sales growth to be between 8% and 9%. This is both total sales growth as well as organic sales growth. As we discussed last quarter, currency is a headwind on earnings for us this year. For the full year we expect currency to reduce adjusted earnings per share growth by approximately 3% to 4% with more impact in the second-quarter as compared to the second half. We expect the full year, that adjusted earnings per share will be in the range of $7.90 per share to $8.00 per share. Or a growth of between 14% and 15% or approximately 18% if I exclude the impact of currencies.

With respect to Q2, we have good momentum starting the quarter. Based on market conditions today, we expect local currency sales growth to also increase between 8% and 9% percent. And our adjusted earnings per share to increase between 17% and 20%. The impact of currency will reduce EPS growth by about 6% in Q2.

While we are raising our guidance for Q2 in the full year, we don't expect growth in the second half of the year to be at the level of the first half. We have a few factors contributing to this, one is the tougher comps we will face, the second is that the benefits of pent-up demand from the crisis should begin to taper off in the latter part of the year. And finally, we also don't expect the extraordinary growth in China to continue at the level we saw in the first-quarter.

Given this, we'd expect sales growth in the second half of the year to the mid single digits. In terms of adjusted earnings per share, we of course will provide more specific guidance for the second half on our upcoming calls. However I do want to point out that with the current currency environment, we will face headwinds in the third-quarter which will likely result in an earnings growth below 10%. I want to highlight this point as current consensus estimates for Q3 are $1.94, which assumes a 13% increase.

Okay, that is all for my side and I'd like to turn it now back to Olivier.

Thanks, Bill. I will start with some comments on the business results, both by product area and geography for the quarter. In laboratory, we had a very good growth in all regions. Balances and analytical instruments and process analytics had particularly good growth. We are also particularly pleased with labs growth since it was against a strong prior year. Our lab business is benefiting from a strong product pipeline, and an excellent marketing program.

Core industrial had a great quarter with very strong growth in America and Europe, and excellent growth in Asia/Rest of the World. Our retail business and our transportation and logistics business did particularly well. Our emerging markets business benefited from the new plant site and expansion. On the other hand, our European and US businesses are gradually moving back to pre-crisis levels.

Product inspection had another quarter of very strong growth in all regions. This market continues to have good growth [around it] and we enjoy a very strong competitive position. Food retailing came in with middle single-digit growth with particularly strong growth in Europe. As Bill mentioned, on an organic basis, retails growth was approximately 10% as we divested a small retail software business at the end of last year.

Finally, let me comment on sales by region. I will start with Japan, which as a reminder, is only 3% of total sales. Sales in Japan were flat through the quarter. We expect some reiteration going forward. The other consideration is on the supply side, as certain electronic components are sourced from Japan. We did some advanced buying in the quarter, which is one reason that our inventory levels are higher than normal. While not all the risk on the supply side has been removed, we have pushed it out and hopefully we can get back to normal in the coming months. Beyond business consideration, I am very thankful that none of our employees or their families were hurt in the tragedy. I am also extremely impressed with our team in Japan, and the hard work and dedication that they demonstrated in maintaining operations and supporting customers during this extraordinary period.

With respect to other countries in the region of Asia, rest of the world, we had very strong growth in most product lines and most countries. Turning to Europe, we have been very pleased with the continued momentum in Europe. Almost all countries performed well. In the Americas, we had strong growth in most lab and industrial product lines. That covers our first-quarter results I product and geography.

As Bill mentioned, we completed both on acquisition in the quarter to expand our offering in product inspection which is a very attractive market, given the increasing concerns surrounding food safety. We have the broadest portfolio of in-line physical contamination detection and over-underfill inspection instrument in the industry. We are market leader with a substantial offering in metal detection, check weighing, x-ray and vision inspection. We sell mainly to the food and beverage and pharmaceutical customers. The primary concern of our customers are product quality and brand protection. As well as reducing costs and improving productivity of the manufacturing lines. Reliability and uptime are extremely important to this customer base, because if the product inspection instrument is down, the line is down as well. We have a tangible, competitive advantage in that our service force, in our most important market is two to three times larger than our nearest competitor.

In March, we successfully acquired the Eagle x-ray business from Smith Detection. Eagle manufactures and sells x-ray solutions, similar to our Safeline brand and has been our number one competitor in both the US and Europe for many years. Our intention is to use that dual brand and dual channel strategy for the Eagle brand. As you know, we deployed the strategy very successfully today in several product areas, including in balances and in process analytics. Together, the two brands will have by far, the largest installed base of x-ray equipment in both the US and Europe. We plan to leverage our existing service organization across both brands, but utilize separate channels for sales. Manufacturing will be integrated in the coming months.

X-ray solutions for the product inspection market have been actively growing for several years, but we believe the market remains significantly under penetrated. Not only in Europe and the US but especially in emerging markets. We are excited about the prospects for this product category. We now have a very strong leadership position which we can leverage to expand into new solutions and new markets. Product inspection has long been a strong sector for Mettler-Toledo but with the addition of Eagle, we feel even stronger looking to the future.

Let me now turn to the impacts to our business from the increasing level of regulation in our customer markets. Last quarter, one of you asked about the impact of the food modernization act that was approved by the FDA in 2010. Food is just one area of increased legislation. We are also seeing more legislation and guidelines in cosmetic manufacturing in Europe, and pharmaceutical sterilization worldwide. We are also seeing more enforcement of regulations in emerging market countries. A trend, we expect to continue to increase over the years. Specifically in China, they have updated their GMP guidelines and pharmacopoeia guidelines this last year.

Given our broad product portfolio and comprehensive service offering we are uniquely positioned to help our customers comply with this regulations. For example, last year, a new directive was implemented that all European cosmetic companies must be in compliance with food manufacturing practices specifically tailored to the cosmetic industry by 2013. Companies must be able to prove quality, hygienic levels, and accuracy on large number of installed equipment. We recently expanded our good weighing practice services offering to include verification. By adding verification, the customer can verify and document the compliance of an installed instrument. Furthermore, our terminals for process automation are designed to meet the strict hygiene requirements of the cosmetics industry.

Another example in China, pharmacopoeia, which was updated last October to be more harmonized with international standards, in particular with respect to pure water in the drug manufacturing process, Chinese drug manufacturers will be required to use total organic carbon measurement or TOC as a quality parameter for pure water. The focus of this regulation is to ensure that no organic contaminates are allowed in drug manufacturing. We are leader in providing solutions to comply with these global standards. In late 2010, we introduced a lower-priced TOC transmitter that is manufactured and produced in China to meet the growing demand surrounding this new China pharmacopoeia regulation. Our TOC instrument is the only real-time instrument ideally suited for online process applications.

These are just two examples of the benefit we derived from increasing our regulation that is facing our customers. We are good partner for customers in regulated industries. Since weighing is so fundamental to most manufacturing processes, we have evolved a methodology we refer to as good weighing practices, to help customers comply with buyers good manufacturing practices surrounding weighing. It centers on guiding our customers to select the right solution and right service level to ensure compliance with GMP. Furthermore, as standards globalize, we can leverage our knowledge from one part of the world to another. With our broad product and service offering, and international presence, we're uniquely positioned to capitalize on these opportunities.

In conclusion, we believe we are strongly positioned to continue to capture market share. While our growth for the remaining quarters of 2011 will not match that of Q1, it is principally driven by tougher comparison. 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 a continued focus on pricing and low-cost sourcing and manufacturing to drive margin improvements. 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 would like to ask the operator to open the lines for questions.

(Operator Instructions) And our first question comes from line of Tycho Peterson with JPMorgan.

Good afternoon. Maybe just to start with a question on guidance I understand obviously you've got comps getting more difficult in the back half of the year, but can you just talk about some of that gives and takes within your divisions, you know if you could just walk through the three businesses in terms of how you see growth and then maybe, also, for the lab business, any color you can provide on pharma and academic would be helpful to?

Okay, so maybe in terms of the give-and-takes, we can kind of start there. First, you know, we see our, maybe I start with our lab business. The lab business is a little bit disproportionate to the western world, so it has a smaller emerging market exposure as compared to the industrial, that's just kind of a reminder. And, we would say the second half of the year that, that should be in mid single-digit type of growth level and then if I look at our industrial business, I think we will probably grow at a similar level but with emerging markets being a higher percentage of that sales growth.

And, just to kind of keep that in mind. The product inspection business kind of within industrial will probably grow relatively well, particularly in the western world and then if I look at our food retailing business, it should be you know, flat to even down slightly, because you'll remember, Tycho, we divested that small business in the period, too. On an organic basis, I would say, let's say low single-digit kind of growth levels. In terms of the pharma side.

I will quickly comment on that one. Life sciences almost half of our lab business, and if you look at our lab results they were actually strong, we had 16% growth versus the previous year where we had high single-digit growth, so that shows actually that we had good momentum across life science. I would say in particular also in emerging markets, where we saw very good growth.

You know, I think, are you seeing then, pharma start to improve a little bit? I think you talked about them holding back a little bit you know in prior quarters. Are you seeing them open up the wallets a little more?

Yes, I think importantly for us it's not the big pharma that dominates. Life science is well diversified of course there is big pharma in it but there are CROs and there is academics and so on. So it is well diversified, but if we would focus on big pharma, we see actually good momentum there, but also last year wasn't particularly weak.

I would say it is you know, solid compared to maybe several years of kind of declining business there. We kind of don't necessarily anticipate it's going to decline in the coming quarters and it is still a smaller business as a percentage of total lab than it was let's say four or five years ago. But, not a source of concern anymore.

And then Bill, you guys have been very good historically about managing kind of your material cost. Just talk about your thoughts on passing you know some of the costs on to customers in this environment?

Sure. So, in terms of net realized price increases, we were north of 150 basis points in the quarter. That's a good number for us. We think that at least so far, and I will give you some specifics in a second, that the material costs have not hit us as much as we maybe anticipated and we are looking to maybe do some more price increases here at midyear in a couple of let's call them steel sensitive product categories. On the material cost side, we had about 60 basis points increase in terms of material cost, but of course material is not a huge component of our overall cost of sales and so, if you look at it from a impact in terms of gross profit, I think it was 10, 20 basis points something like that. So, so far we stayed ahead of the curve, but I think, Olivier and I would say we need to work to continue to do that in the coming quarters. The big story, really in the first-quarter on gross profit, was that we had you know a large impact of this was Swiss franc euro largely offset by strong volume gains in the you know the benefits of volume in terms of the fixed overheads.

Okay. Thank you very much.

Our next question comes of Jon Groberg with Macquarie.

And so instead of focusing on the sales because obviously it was 17% organic growth probably everything looks like it is going well. So, maybe if we just focus on some of the things that you did in the quarter. Would you mind saying, along with the Eagle acquisition what product inspection now is as a percent of your total sales?

It's around $300 million business on $2 billion of sales. So, 15% or so.

That's including Eagle?

Eagle, just to give you feeling, is you know I think $50 million in sales, maybe.

Okay. And, you mentioned as well, you know I think you mentioned both building up some of your inventory on electronic components but you also mentioned some Blue Ocean initiatives is what I think you called them. Would you mind just kind of reminding us what those are?

Sure. You know, Jon, I know you know this, but I remind everybody, Blue Ocean is an initiative with kicked off a couple of years ago with you know, oversimplified, it's an ERP implementation, but we are rolling out a single instance of an ERP with common processes, common data centers. We did our pilot last year, in Switzerland. So, we did our major Swiss operating units in April 1, we went live with a -- the remaining Swiss units, which included our process analytics business, our analytical instrument business, and in the second half of the year, we will go live in China and then in early next year, we will go live in the US and then we keep going. So, you know as part of doing that, we like the idea of trying to build up a little bit of inventory to overcome if there are any hiccups in terms of doing things but also to avoid let's say, the need for high volumes as the users are getting used to the system in the first stage, and as you know, Jon, we have quite a global supply chain where you know, our plants typically are shipping there specified product around the globe.

So, because of that long shipping time, we like to make sure that there's a little extra inventory in the system. So, I guess that kind of explains that. Then the second item was, again, I think most people are aware of this now, Japan is the source of and often the sole source of many electrical components and even ones that feed, let's say supply chain partners in places like China. And, we made a special effort, post the crisis, to have a contingency of those electrical components, you know industrial electrical components are often different than maybe what you see in the consumer industry. They can be, they're usually not in as large a supply and there is a need to, the supply chain is it's not maybe the number one priority sometimes of these manufacturers, when they want to bring new fabs online and things like that. So we thought it prudent to buy a little bit extra where we could in the market and avoid that we -- or minimize anyway any disruptions we might have in the second half of the year.

Okay. Thanks for the reminder and the clarification. Then last question for me, what is your expectation for emerging market growth for the second half of the year?

To give you a feeling, I think that the number should be north of 10%. 15% would probably be a little bit on the high side. I think, as you know, China is a little bit the key driver there. China grew quite nicely in the quarter, more than 30%, and -- but we don't expect those kind of levels to continue.

But, even if you're kind of between 10% and 15%, suggesting you are expecting very little growth from the developed markets, over the second half?

As mentioned, the retail business should actually be, probably down a little bit in that part of the world. Because of you know our efforts to focus that business more narrowly than it has been in past years.

The previous year comparisons, of course in the western world becomes quite demanding.

The Q4, was really quite a quarter as you know, Jon and we, at this stage are cautious about how that will be from a comparison point of view.

Okay. Thanks a million.

Our next question comes alive as Isaac Ro with Goldman Sachs.

Just first one on the numbers can you maybe walk us through the impact that the FX had on the P&L this quarter and specifically in operating margins. And the reason I ask is that I'm just trying to look at the rest of the year and try to get a sense of whether or not you might see year-over-year operating margin pressure, either the gross margin or operating expense line items because of FX?

Sure. Okay, so, first of all, if I look at the next couple of quarters, we'll actually have a positive impact on the top line due to currencies. Let's assume in the 5% range, for the next couple of quarters. Okay? Less in the fourth-quarter, maybe only a couple percentage points. Then, if you look at the impact that we are going to have in terms of operating profit, the biggest impact will be in the second-quarter, you know, just as a reminder we are looking at currency the impacts us the most is the Swiss franc euro, and the Swiss franc euro today is in the 120 range and on average Q2 a year ago, it was at 141. So, the impact will be between $4 million and $5 million in terms of OP, and then in terms of earnings-per-share, it should bring down maybe 6% or so in the quarter. If I look at, then, the last couple of quarters of the year, the impact will be less, maybe a couple million in Q3 and maybe $1 million, $1.5 million in Q4, and it will reduce earnings per share growth by let's say 3%, in Q3, and maybe 1% to 2% in Q4.

That's great color. Thanks. Second question, maybe you might be in the long-term for Japan, I think certainly near term we are watching it day by day but I think as we look over the long-term, do you see a reason to believe that the total market size there might not be as big on the other end of this, just given the population demographics you see over there or do you think the replacement spend could bring the all market size in Japan back to what it was?

We're actually not that worried in the long term. Our business, in Japan, is more to with the laboratory business. And, I think the laboratory business shouldn't be that much impacted, you know for some of the industrial production in Japan might be impacted by electricity shortage and all the things that might last longer. But again, since we have a small business over there, I don't think that will happen. We had actually good improvements of our Japanese business in the last few quarters. I would say last two, three years. Our team has done extremely well in the first-quarter. I got very good feedback also from our business partners in Japan. They felt that we did act in an extremely professionally, very supportive, and so on. This could even have a positive impact for us going forward.

Great, thanks a bunch. One last one for me would just be on M&A. Any new opportunities in your view presenting itself and as you're thinking they are involved in all just given the last activity in the last few quarters?

No, remember, for the last two, three years, we clearly said that acquisition is part of our strategy. We keep the discipline in the review process, but we have more resources and more attention on working on our pipeline and looking at opportunities and nurturing those opportunities. I think, the fact that we have done now, more acquisition in the last 12, 18 months, is a reflection of that. I do expect us to continue that path, but it is not a strategic change and you will see us continue to focus on both on acquisitions.

Great. Thanks so much.

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

Yes. Just a question regarding the Europe in general, which of the three businesses, you know lab industrial or food retailing kind of drove that 16% local currency growth? I mean, you had a fairly easy comparison, but of which of the three businesses kind of lead and drove the growth?

You know, I am looking at my summary here, Rick, now and frankly, they all did well. We had double-digit growth in every product category except one small one.

Okay.

And there is a little bit of reflection of what we really saw. As mentioned in the prepared remarks, we had almost all regions across all the businesses doing really nicely.

Yes. Okay. And then, if you look at the service piece of the business, service consumables piece versus the hardware equipment side, was there any discernible difference in growth between those two?

Service had a growth of about 6%, in the quarter, so product, clearly outgrew that. But, I think there is also we see that the service business is more stable than the product business.

Is there pricing available on the service piece of the business, or is that typically, do we typically focus our price efforts on the equipment side?

Well, our pricing reviews and annual price increases really address both very clearly. I would say for the service piece, we need to differentiate when it comes to parts there we clearly have opportunities to increase prices in a very differentiated way when it comes to wage or the labor part of the service, then wage inflation plays a role and there's maybe a little bit more difficult to differentiate and have a higher increase than what the wage inflation is. So, there is a bigger link. But, our programs are clearly focused on both.

On both okay. And then, just the last question, when I look at the second-quarter local currency growth guidance, if I plugged that in on a local currency basis versus the first quarter, the seasonal increase is probably half of what you might typically see. Do you suspect that the first-quarter you know shipments in growth benefited unusually from fourth-quarter order flow-- budget flush? In other words, was the first-quarter bigger seasonally than would be -- would be typical?

Yes, it could a little bit. I'm also maybe thinking out loud a little bit. You know when we went live with some of the initial Blue Ocean pilots too in Q1 and Q2 a year ago it could be that some shipments were moved from Q1 to Q2. But, you know, I understand the point. If I look at kind of multi-year growth rates, I think that kind of makes sense, what we have built in for the quarter.

I would also say in Q1, we clearly still benefited heavily from pent up demand and that had an impact.

Great. Thank you.

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

So, just you know since we are kind of watching the FX move here, is there a rule of thumb, for every 1% move in the euro franc cross-rate it's going to hit your EPS by you know a certain amount of cents or certain percentage points so basically we can kind of model this a little bit better because I certainly the $0.20 that you mentioned this quarter was a little bit bigger than I would've anticipated.

So, then, Derek, maybe a rule of thumb and we actually disclose this in our 10-Q, is I think or 10K, I think it's something like 1.5 million or so actually I'm being corrected 1.5 million to 1.9 million it's actually a disclosure we give.

Okay.

Now Derik, what I would highlight though and you've hear me say this before but it's worth repeating, is that what tends to happen is there's just a natural number of offsets. A typical one would be if is, right now the RMB, the Chinese yuan, is up, the changes on year-on-year is offsetting. The strength of the yen versus the dollar is offsetting so if you did the math, using actuals on that ratio we just described on Q1, you would get a bigger number than we just told you and that's because of this offset. I think I've mentioned that in the past, that usually that's what tends to happen. Now, in terms of the impact on earnings per share in the quarter, the impact was sorry, it was about 6%, which is I thought I heard you say $0.20 and so that through me off a little bit.

Okay. Okay. Thanks for the clarity. On the, you know, you did a number -- you took a ton of cost out of the business a couple years ago. I mean, where are you in terms of adding back headcount? As you've had much better than expected organic revenue growth and I guess as you add more people in China, are you seeing more difficulties in terms of wage inflation?

When we have a crisis we took out about 10% of our headcount, we did staff at the time in a very analytical way, and we took the people out, mainly in areas where we felt we wouldn't see good growth momentum in the long-term. And today, when we are adding back people, it's at different places than where we removed them. Which is adding a lot of headcount, particularly in emerging markets as when we reduced headcount it was in particular also in the mature markets remember we did a couple of things in France, in Benelux, but also in the US market. So, it's a different resource mix that we have today. I would make one exception of course, in the downturn we also reduced headcount in production areas these resources are back now where we have the volume.

Great, thank you very much.

Our next question comes from line of Paul Knight with CLSA.

Good evening. Could you talk about why you're a little more sanguine about these Chinese market in the second half or later in the year?

Sure. I guess, there are several factors. I think if you kind of follow Chinese growth rates over time and you know I'm kind of looking at you know the multi-year growth rates in China, there was clearly some benefits coming from the pullback that happened in 2009 when multinational's and other companies that were focused on the export market, out of China, were pulling back significantly on their investments. And, where the multinational's that were building upon in China we're trying to cut back on their CapEx levels globally. So, they also slowed up their investment in China. And, we think that will -- you know we clearly got last year some you know bigger impact from that and we think that impacted the first-quarter as well.

A second thing is that some of the Chinese infrastructure programs that they put in place to try to offset some of the pullback's that were done by multinational's, clearly that's got to come off the books a little bit. Particularly in the industrial side. And then, probably one other item is that our Chinese business in terms of like infrastructure, ports, things like that, we see the Chinese government pulling back on their investments and then doing other things that in terms of their interest rate policies, some of their capital policies that are clearly intended to slow down the level of investment. You know, you hear about it in housing and other markets and those don't have direct impacts on us, but they have indirect impacts when it comes to our customers in the steel industry, cement industry and the like.

So, to put it in perspective, we feel very good about long-term growth prospects in China, but you know we don't think the 25% to 30% growth rate we've enjoyed the last five or six quarters, is going to continue at that same rate. But, it still should be you know mid-teens kind of numbers would be a realistic expectation.

And Bill, can you put some metrics on the acquisition and has that deal closed?

Yes. We closed in March, I think mid-March, it's -- we paid approximately $12 million for a business and we paid a little bit less than one times sales.

Okay. Thanks.

(Operator Instructions) Your next question comes from the line of Jon Wood with Jefferies.

Thanks, this is Brian Couillard actually in for Jon tonight. Bill, could you give us an update on your core incremental OP margin expectation for the year are you still expecting something in the 30% range?

Yes, I thought that might be a question. Our number is of course below, but that's largely explained by, it was 19% in the quarter, it was largely explained by foreign exchange impacts. So, we -- and if I pullback the impact of foreign exchange you get a number in the mid-20s. Okay? And now, for the full year, exchange rate adjusted which is I think is how we described the number to you in the past, we should reach the 30% number for the full year and in fact I think you will see a number well -- well better than what you saw in the first-quarter in the second-quarter. So, I think that continues to be a realistic expectation for incremental operating profit margins on a currency neutral basis. You know a 30% number, hopefully better too, in some quarters. And, you will see it next quarter and you should see it for the full year as well.

Thanks. And could you update what type of share repurchase expectations are factored into the guidance for the year?

We look to be repurchasing about our free cash flow as well as option proceeds. And that number, Mary, is about 225?

That's right.

Million or so, and I think that would still be a realistic expectation for the full year. We bought about one fourth of that in the first-quarter.

Great. Thank you.

And there will be no further questions at this time. I would now like to turn the call back over to management for closing remarks.

This is Mary, thanks for joining us this evening. One final item we want to mention is that on Friday, July 29, we will host an investor meeting at our Bedford, Massachusetts facility which is located outside of Boston. We expect to begin the meeting around 9 am and conclude after lunch. In addition to a general group overview, we will provide an update on our process analytics and our pipette businesses. Including product demonstrations, and a tour of our facility there. We are still finalizing arrangements, but wanted you to mark your calendars. I will come back with more details in the coming weeks. That is all that we have for tonight, of course of you have any questions, please don't hesitate to call. Thanks.

And this concludes today's conference call, you may now disconnect.