Mettler-Toledo International Inc (MTD) 2011 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to our second quarter 2011 Mettler-Toledo International earnings conference call. My name is Jamica and I will be your Conference Audio Coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session.

(Operator Instructions)

Thank you, I will like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, Ma'am.

Thank you. Good afternoon. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo and I'm happy to welcome you to the call. I'm joined by Olivier Filliol, our CEO and Bill Donnelly our Chief Financial Officer. I want to cover some administrative matters first.

This call is being webcast and is available for replay on our website. A copy of the press release and the presentation 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 and 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 a discuss 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 10-K.

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

Thank you, Mary. Good evening, I'm pleased to welcome you this 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 initiatives to continue to drive our market to leadership. As always we will have time for Q&A at the end.

We had great results in the second quarter. Sales growth coming in better than expected and operating profit and EPS increased strongly despite currency head winds. Highlight of the quarter are presented on page 2 of the presentation. Local currency sales grew 11%, Asia/Rest of the World had outstanding results in all product lines while growth in Americas and Europe was also quite strong. Particularly on the industrial side.

Despite significant currency head winds we achieved an 18% increase in adjusted operating profit and a 23% increase in EPS. Bill will provide more details on our second quarter results as well as guidance. Now let me turn it over to him.

Thanks, Olivier. Hello, everybody. Let me start with additional details and sales which were $561.1 million in the quarter an increase of 11% in local currency.

On a US dollar basis sales increased by 20% in the quarter which included a positive 9% impact due to currencies. Let's turn now to page 3 of the presentation where we outline sales by geography. In the second quarter, local currency sales growth increased by 9% of the Americas and in Europe and 17% in Asia/ Rest of World.

The next slide provides year-to-date results, and you can see that sales increased by 10% in the Americas, 12% in Europe and 21% in Asia/ Rest of World for the first half. On slide number 5 of the presentation, we outlined sales by product area for the second quarter. Laboratory sales increased by 4% in the quarter.

Industrial sales increased by 21%. And food retailing was down by 3%. Divestitures reduced food retailing by approximately 6% in the quarter. Acquisitions contributed 3% to the growth of our industrial business. The next slide provides year-to-date results. (Sic- see slide 6)

Laboratory increased by 10%. Industrial was up 21% and food retailing was up 1%. On a year-to-date basis divestitures reduced food retailing sales by 5% acquisitions increased industrial sales by about 2%.

Now turning to slide number 7 and let me walk you through the key items of the P&L. Gross margins were 52.8% in the quarter, a 20 basis point increase over the prior year.

We benefited from operating leverage and pricing while, on the other hand, currencies reduced gross margins by approximately 170 basis points. We also had higher raw material costs, primarily due to steel related categories. R&D amounted to $29.6 million, an increase of 11% in local currency, while SG&A was $172.1 million an increase of 9% in local currency.

This increase was attributable to higher sales and marketing investments particularly in emerging market countries. Adjusted operating income amounted to $94.5 million which represents an 18% increase over the prior year amount of $79.9 million.

Currency, largely the Swiss Franc versus the Euro, reduced operating profit by approximately 5% in the quarter. Our operating margins amounted to 16.8% which is a 30 basis point decline from the prior year.

However, the combination of the weak dollar and the strong Swiss Franc versus the Euro reduced our operating profit margins by approximately 200 basis points. Especially given these currency head winds, we are quite pleased with our operating profit growth and margin improvement achieved during the quarter.

A couple of final comments on the P&L. Amortization amounted to $4.3 million. Interest expense was $5.7 million. Fully diluted shares for the quarter were 33 million shares.

Our tax rate was 26%. Finally, adjusted earnings per share was $1.90, a 23% increase over the prior year amount of $1.55. We estimate the currency head winds reduced EPS growth by 7% or $0.11 per share in the quarter. Year to date, adjusted EPS was $3.34. A 25% increase over the prior year.

And currencies reduced adjusted EPS growth by 7%, or $0.20 per share in the first half of this year. On a reported basis, earnings per share was $1.82 for the quarter. This includes $0.03 of purchase and tangible amortization and $0.05 of restructuring charges.

Principal components of this restructuring relates to efforts to reduce our cost base and high cost European countries and this reflects very much the current currency situation. I mentioned it to you as you may see additional actions in the future although I would not expect future charges to be significant.

Year to date, reported EPS amounted to $3.23 per share. Cash flow came in as expected and amounted to $70 million or $2.13 per share. We continued to do well on DSO, which we are at 32 days -- I'm sorry, 38 days at the end of the quarter. Our inventory levels are a little higher at the end of the second quarter due to increased buffer stock as we go live with our Blue Ocean program in China in the coming months.

During the quarter we repurchased 334 million shares for a total of $57 million. Year to date we have repurchased 668,000 shares for a total of $114 million. Okay, that covers my comments on the quarter and now I would like to speak to you about guidance.

We have 2 considerations as we look at guidance for the remainder of the year. First, the momentum in our business is stronger today than we anticipated when we last spoke. Q2 came in stronger and momentum as we enter Q3 is quite solid. We therefore are increasing our sales guidance for the full year.

We now expect local currency sales growth for the full year to be approximately 10%. This compares to our previous guidance range of 8% to 9%. While business momentum is good, the foreign exchange environment has deteriorated since we last spoke. As we discussed on previous calls, our key foreign exchange exposure is the Swiss Franc versus the Euro.

If you turn to page 9 of the presentation, you will see that trend that occurred most recently. Since the last time we spoke, about 3 months ago, the Swiss Franc has strengthened approximately 10% against the Euro. This is creating a much bigger head wind than we anticipated. We are taking actions specifically with respect to our higher mid-year pricing increase to help offset some of this head wind.

Based on this environment we would expect adjusted EPS for the full year to be in the range of $7.95 to $8.05 a growth of 15% to 16%. Without the impact of currency our adjusted EPS growth for the full year would have been in the range of 22% to 23%.

For the third quarter, we would expect local currency sales to be in the range of 8% to 9% and adjusted earnings per share to be in the range of $1.87 to $1.93, a growth of 9% to 13%. Without the impact of currency, our adjusted EPS growth in the third quarter would have been in the range of a 17% to 21% growth. Okay, that's it for my side and now I will turn it back to Olivier.

Thank you, Bill. I will start with comments on our business results both by product area and geography for the quarter. Let me start with industrial, which had an excellent growth in the quarter. Core industrial continues to benefit from new plant size and expansion in emerging markets. Europe and America also had strong core industrial growth, as these businesses moved back to pre-crisis levels.

The other part of industrial businesses is product inspection which continue to deliver strong growth again this quarter. Virtually all product lines and regions had very strong growth. Our solid leadership positions and favorable market dynamics are driving these very good results for product [inflection].

Laboratory had mid-single year growth against very strong sales in the prior year period. Balances and process analytics did very well in the quarter. Automated chemistry was down in part due to timing of projects.

Pipette and analytical instruments were relatively flat against very strong comps from the prior year. Food retailing was down but then organic basis was up low single digits. Finally, let me add some additional color on sales by region. As already mentioned, industrial sales in Europe and Americas were up strongly.

Lab in Europe was down modestly, principally new to automated chemistry, In the Americas, lab was up mid-single digits. Finally, virtually all product lines and regions had strong growth in Asia /Rest of World.

That covers our second quarter results by product and geography. Let me now provide some additional comments on how we are continuing to drive our market leadership.

As most of you know, we have a global number 1 position in more than 75% of our product lines. Yet our overall market share is about 25%, thereby providing room for further growth gain. One way we ensure we were covering and capturing the entire global market is through our dual brand strategy. Many of you may not be aware that while Mettler-Toledo is the largest laboratory weigh-in brand we also have the position at the third largest brand via Ohaus.

Under the Mettler-Toledo brand we primarily utilize a direct distribution model and focus on the medium to high end of the market. Service is a very important consideration for products in this segment. Ohaus, on the other hand, utilizes an indirect distribution model and focuses on the low to medium end of the market. Ohaus will represent a little less than 5% of our revenue and has more than 100 year history. It has been part of our group for more than 20 years.

It's focus is the basic entry level market and its indirect channels include catalog and lab deals. In many countries business is done mainly (inaudible). Ohaus end markets include education, laboratory and general industrial customers. In order to be cost competitive, most manufacturing is done in China. Given the nature of these products, service is not as important for this segment of the market.

Ohaus products have a [robust] design and distinctive red and black color scheme which would not be confused with the green/blue design of Mettler-Toledo. Ohaus helps us gain incremental market share.

The basic entry level market particularly in the emerging markets is a big market segment for us. Our strategy to gain share includes a comprehensive product offering, constant new product introductions and thorough marketing program which positions Ohaus well for market growth.

Its quality culture is a clear different [chaser] at this lower end of the market. We have increased our support staff particular in Europe as we continue to expand our dealer presence. Our target is to continue to gain incremental share at all tiers of the market. Through dual brand strategy we can better pursue all tiers and in all channel segments.

As we have spoken to you before, our Spinnaker Marketing program are another important strategy for continuing to increase our market share. Creating new leads is at the heart of Spinnaker Marketing with our strong technology focus and in-depth segment knowledge, we do very well when given the opportunity to quote. The key is getting the chance to quote. However, there is a certain stickiness to customers purchasing decisions.

Customers have a comfort level with the brand they already own which impacts the replacement decision. Many customers buy the new model of what they already own without even asking for a competitive quote.

While this provides an advantage with our installed base, it presents a challenge in converting competitors customers. The ability to generate leads helps us to overcome the stickiness. We accomplish this by gaining full transparency of potential customers by profiling them on their IWAP, that is our customers industries, work places, applications and product needs.

This data is used to expand our CRM and base for creating our marketing communications. When a potential customer is making its next buying decision, we have a better chance of being able to provide a quote. We continue to develop Spinnaker marketing in America and Europe and are expanding it in emerging markets in China.

For example, food is a strategic market in China given its GDP per capita development and related movement to more packaged food. We have identified those segments of the food market with the highest potential and are expanding our customer database, qualifying contact and delivering segments specific marketing materials.

A good example is what we have done in the meat processing segment over the last few years. These customers are increasingly focused on hygienic issues and connectivity to ERP systems.

So, they need sturdy instruments to withstand the harsh washed down environment and interface capability to ERP systems to fulfill traceability requirements. Our industrial scales fit this need well and through targeted marketing we can articulate the value of our instruments to this cost conscious customer. We have seen significant growth in the meat processing business over the last few years.

Our business in India is also expanding its pinnacle approach by adding telemarketing resources and identified non-addressed market segments to targets. Our Indian unit has significantly increased the number of qualified contacts in our database and so far in 2011 the number of e-marketing campaigns have already exceeded the number in all of 2010.

New products are an integral part of us winning the quotes once we have the opportunity. As usual, we have a wide range of new product introductions taking place.

I want to highlight, too, in our automated chemistry area which focuses on the higher end solutions for the pharmaceutical and chemical industries. Very important to the customer base is fast process development and scale up once a pharmaceutical ingredient or chemical compound has been identified. Automated lab reactors facilitate this by simulating the manufacturing process in a vessel.

We recently launched our next generation automated lab reactor called Optimax which greatly optimizes the processes surrounding scale up and significantly improves productivity. It is a personal work station with an easy to use interface including 1\-touch operation.

Optimax removes many of the repetitive tasks involved with scale up by incorporating a unique thermostat technology. This technology eliminates need for filling and refilling ice baths and there by allows reaction to be run overnight and unattended. A built in sensor of provides realtime information which we use as waste from unnecessary samples.

Finally, data can be incorporated in electronic lab notebook and enabling information to be shared among Scientists or Chemical Engineers. Customer reception has been very strong.

We also recently launched the next generation of our probe for particle analysis specifically with respect of optimizational crystallization processes. This system incorporates a digital signal processing, which allows increased resolution of particle size and thereby provides more information in need to reaction. The end result for our customers is fewer experiments and faster data analysis resulting in lower total cost of ownership.

This concludes our prepared remarks. In summary, we are pleased with our excellent results in the first half of the year. While our growth rate for the remainder ever the year will be affected by a very strong previous year comparison, and that adverse currency situation, our business remains well on track.

We continue to capture incremental market share by capitalizing on our sophisticated marketing programs and our strong product buy plan. As we look to the remainder of the year we remain confident in our ability to execute on our strategies but acknowledge the economy remains uncertain. That concludes our prepared remarks. And I would like to ask the Operator to open the lines for questions.

(Operator Instructions)

Your first question comes from the line of John Groberg of

Hi guys. This is actually Dan in for John. Thanks for taking some questions.

I want to start with the robust growth and then industrial segment. It seems to be driven a lot by the product inspection the business which is going very well. I was curious if you could provide more color on some of the more specific market trends you see playing out globally that's really driving that business?

First I would start we were happy across the whole industrial business, also core industrial did well as I highlighted in the call. The product inspection business did very well across the globe and across the business lines. As a reminder we have different business lines like check weighing, x-ray, then also vision inspection and of course metal detection. And all of the 4 business lines did very well.

I would say it's a reflection of 3 things. The first one is our relative market positions that we have in this business is really extraordinarily strong. And this very strong market position help us to continue to win market share. This continuing winning of market share is certainly driven by very good execution of our teams.

We have strong management teams in this business across the world. We have made important investments in the past. We are fully leveraging Spinnaker, again, the combination of that helps us to win market share. And the third factor that clearly played into here, the end user markets for food inspection in particular, food safety is strong. The product inspection business in that sense is continuing to benefit favorable market environment.

And that food safety business is -- I know there are some regulation passed in the US but it might not have really been impactful yet. Is that more over in Asia or is it globally?

It's actually globally. I would say it that way. The US has passed new food safety regulation. This has not a direct impact on us in the sense that the food safety regulation doesn't specify that our equipment or the type of equipment that we provide needs to be installed. However, the food safety regulation has raised -- further raised, I would say it that way, the attention to quality inspection in food production.

There is a very high awareness of what it means if you need to recall a product. It's in terms if you want to protect your brand. Now food regulations will also enforce actually stricter processes in recalls. That really means that the food producers around the world want to apply very strict quality controls to the productions. And that benefits our business.

Great. And then one quick specification. You repurchased 343,000 shares during the quarter, correct?

Correct.

Okay. Thank you.

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

Isaac?

Hello?

Yes, hi.

Can you guys hear me? Sorry about that. So just thanks for taking the question. You obviously raised your guidance a little bit here and you could maybe comment on the pacing of the business in June and July and maybe how your book-to-bill informs the visibility you have for the back half of the year will be very helpful.

We had -- we have a solid backlog but we should put that in perspective. We are not a big backlog business. It's mostly short lead time products but momentum is good right now and that reflects why we adjusted our guidance for the quarter.

It's based on our bottoms up outlook process or forecast process for the quarter. And so orders and activity finished the quarter and started here in July in a solid way. I think that was your question?

Yes, that's helpful. And maybe just to drill a little bit more into the regional piece. I think earlier in the year you were relatively cautious on tough comps in the back half of the year for China. Certainly, 17% this quarter is very solid. How do you feel about the impact of any macro trends around fiscal policy and/or industry specific trends you are seeing and whether or not that feel better about the comps in your back half?

Well, I think we did expect that the China growth would slow down kind of quarter-by-quarter this year. So we were in the low 30s in Q1, we were in the mid-20s this quarter and I would expect a little bit less next quarter and maybe a little bit less in the fourth quarter as well. I think that is reflecting tougher comps and as you said government action that's overall probably reducing the investment climate a little bit there. We still think while the growth rate is slowing down a little bit in China we still would expect to put up solid numbers and we see no reason why mid-term growth rates can't be well into the teens going forward.

Got it. Thanks a bunch.

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

Hi, good afternoon.

Hi, Jon.

Hi, Jon.

So, on the lab business, Olivier, sounds like there was some discrete items in Auto Chem specifically and maybe some other not so discrete items in pipettes and I think you said analytical instruments. But can you kind of comment on the second half of lab vis-a-vis what you saw if the second quarter in terms of the local currency growth you'd expect in the lab division?

Maybe quickly comment to the businesses already for Q2. Yes, this is true. Automated chemistry was not so strong. But we need to put this in perspective. Automated chemistry is clearly weighted toward the end of the year.

The first two quarters are not that big. And I would also say the momentum that we see in the business is actually reasonable. We had certainly some effect here that some project were delayed. And I would also mention here of course that the big pharma environment is also impacted automated chemistry. When I look at the outlook I expect automated chemistry will look better in the second part of the year.

The same is actually also true for our pipette business. The pipette business has a more difficult environment than the first two quarters than we had in the past. Not the least also driven by tightened government funding, NIH funding which has an impact on the pipette business.

For the latter part of the year, I would also say the lab business will face tough comps and not the least in Q4. And in that sense if we will not see the very high growth rates as we have seen for example in Q4 last year or Q1. But I think actually mid-single digit growth for lab is what we would certainly expect for the second part of the year.

I think you will see better growth rate in the third quarter certainly as Olivier pointed out the fourth quarter might be a little tougher comps. To name one Auto Chem grew by 40% or something Q4 next year. Auto Chem will have a good Q3. Raining will have -- the pipette business will have better Q3 than a Q4 and the analytical instrument business will have a better Q3 than a Q2. Q4 will have tough comps for the lab business but Q3 should actually be a little better than what you saw in Q2.

Okay, great. And then Bill, just to -- I might have screwed up this math but, the FX hit for the year now is it $0.50 a share?

I'm at about $0.45, $0.44, yes, about that. Yes.

Okay. And basically it looks like your incremental margin guidance, XFX is up quite a bit here and to the low 40s if I'm not mistaken. Can you kind of discuss how you're achieving that? I know you took a mid-year price increase but anything else in terms of cost cutting that is allowing you to do those higher incrementals in the core?

Well, maybe if I -- we take a look at kind of what the incrementals were in the second quarter, we were kind of in that mid-30s kind of level. And we would expect those to kind of be in that kind of range as well in the second half. So it's not so much different.

I think when we reported Q1 we commented that for a variety of little things the -- we were a little bit below our incremental margin level. A little bit more than even just currency in Q1. We, I wouldn't say completely caught up but largely caught up with that and are expecting kind of that similar level kind of mid-30s level in the second half.

Okay, great. Thanks a lot.

Your next question comes from the line of Sung Ji Nam of Gleacher & Company.

Hi, thanks for the questions. Could you talk about the pricing environment and maybe by the different segments what you are seeing today?

We have, like every year, we have implemented a price increase early this year. We have a little bit of higher price increase than in previous years in anticipation also of inflation worldwide. And then we put actually a lot of emphasis on the execution of it tight controls worldwide that it's really fully implemented and certainly a lot of focus on discount management. We actually happy with what we see as realized. We are tracking this with our systems and we see 170 basis points roughly of realized pricing so far. Definitely happy.

Of course, it varies by business lines and geographies. We do differentiate depending on the pricing power that we feel we have. And of course, the different geographies have different inflation environments. But I would say that the number that I just quoted before is a good indication what we would do in average and -- yes, it's an in range of plus-minus 150 basis points across the different business lines.

We are also working on a mid-year price increase. Actually we were in full implementation right now. We do so to respond to the inflation environment. We do so also partially to respond to currency situations. And we are closely monitoring the impact also for it. We do actually make sure that we can still continue our path of market share gains despite that we are implementing this price increases.

Thank you. That was very helpful. And I guess, Bill, you guys talked about the pipette business and flat growth given tougher comps and also some pressure from the NIH funding environment. I think, Bill you also had talked about a recent investor -- at a recent investor conference about there being room for improvement for that business. Could you give us an update on what's going on there as to what you guys are working on? Thanks.

I think in the second half of the year as I mentioned we expect things to improve in that business. The number of let's say front end type of adjustments in terms of how they do some things pricing-wise, how they are organizing their sales force a number of factors we think are going to lead to better performance in the second half.

Actually, we are also looking to get good benefit from some new product launches that we have. We have product launch earlier this year and we are right now in the middle of launching a new product that we do actually expect to have a good benefit from that. That combination with what Bill said and then hopefully it little better market environment in particular from when it comes from government funded research and so on and these products should help us to have a better second part of the year.

Thank you so much.

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

Hi, Olivier, can you hear me?

Yes, hi, I can hear you, Paul.

Do you believe you're seeing the -- in Europe do you think the budgets right now reflect the level of austerity in those budgets going forward? Or do you hear or see more coming and issues developing there? Or are they ahead of us already?

I wouldn't -- I would not make any projections on the macro-economic environment other than what I pick up from my economies. But what I can say is we were certainly pleased to see our results in Q2, which were not really impacted by macro economic talks or budget talks, that's ongoing. And when I talk to my team in the different countries, actually they remain positive. They remain positive and none of them are giving me the impression that I would say the different political discussions and this deficit topics impact their business.

And then regarding -- you had mentioned Ohaus earlier, how is the difference -- what's the difference 2010 Ohaus and Mettler brand and distribution channels in China and other parts of Asia? Is Ohaus all distributor?

Absolutely. Ohaus worldwide is not just for Asia is all indirect. We do not do any direct business for Ohaus. We have always dealers, catalog houses and orders that are doing the customer facing part. We, of course, in the background of the Ohaus franchise supporting them including with tech support, with quotes and all of these things but they are maintaining the customer relationships and they have also the proximity and we were talking about thousands of dealers than we have across the world.

In many different segments -- of also small segments and we have with that also a very strong territory coverage. In that sense, absolutely indirect and clearly different also versus Mettler-Toledo where we favor the direct approach. And if we use an indirect approach with Mettler-Toledo in Asia or China, it would typically be a value added resaler that would also provide service and would have a much tighter link to Mettler-Toledo and have a certain exclusivity for a certain geography or for a segment. That's not something that we require when we do the business through Ohaus.

Is there is a difference in margins between Ohaus and the Mettler brand, for you?

That's an interesting question. I think the way we should look at it is mainly when we look at the product part of the business. It's about equal between Mettler-Toledo and Ohaus but what's relevant is with the Mettler-Toledo sales we have a significant service business that comes with it. And of course the service business yields very attractive additional margins so that comes on top. Nevertheless, I indicated to you here that Ohaus business had actually good profitability, too.

Thank you.

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

Yes, good afternoon.

Hi, Richard.

Olivier, can you -- or maybe this is a question for Bill, but when we look at the outlook here for the balance of the year, you talked -- I think you commented that the local currency organic growth rate would be maybe a point better or so for the full year. Is that improvement coming out of volume? Or is that pump in guidance really a factor of your kind of a mid-year price hike?

A little bit of both. Little bit of the fact that we actually beat Q2 as well. I think we still remain cautious about comps come Q4 but I think the Q3 number is maybe if I was to do a little bit of a back of the envelope could be 50/50 what we think about Q3 today versus maybe what we thought 3 months ago reflecting pricing as well.

At the time we were already talking about the mid-year price increase when we talked to you guys last time. Probably we feel a little bit better about it today. It's hard to put an exact number on it, too.

And if I trend line out the growth rates here and maybe the second half, you know, it seems to work from the perspective of fourth quarter over the third quarter, you are not expecting much of a typical seasonal bump. I know that comps are tough and they're tough in both quarters. But barring -- excluding the comp issue, one would still think you would see a seasonal improvement in spend in that fourth quarter relative to the third. And it doesn't appear as though you are counting on that this year?

You might be -- I might have fully digested it because I think about our numbers in a Mettler way so let me come back to you and try to maybe express what we are trying to say about the fourth quarter and what's implied in terms of our full year guidance minus our Q3. We are implying that you can assume kind of a mid-single digit number. We will give precise guidance 3 months from now or so.

We are assume it will be somehow mid-single digits. And we are assuming that the currency impact will be less year in year, as well, if that's what you are getting at. But we certainly do assume growth and we certainly do assume that Q4 will be an increase over Q3 which may be I was hearing you were maybe saying we weren't saying that.

Just it appears though that it's an increase for the model to towards a 9% number -- but local currency number or 10%. But it seems like less of a seasonal bump. I mean, it would be typical.

I mean, if what you are saying, Rick, is the increase of Q4 versus Q3 last year in dollar terms was less than this year, what we are projecting, I mean, that's probably true but it's not for a huge difference I'm looking at the numbers now.

Yes, Okay. All right. And then Olivier, by end markets, is there an end market here or 2 that you feel less confident about here?

Whether it's academic or maybe it touched on large pharma a little bit. Obviously the analytical instrument space has been rattled a little bit recently about some questions about spending and maybe a deceleration in large pharma spend. Are there any verticals here that you can stop right now and look at for the second half and say, yes, this is slowing?

I think actually the 2 that you mentioned are the 2 that we have seen being slow in Q2 and then words that will take awhile to recover. This is everything that is related to our government in academia.

And the second one is big pharma. Big pharma is particularly also a topic in Europe. Reviewing this morning a few cases in the UK. We are definitely impacted particularly also from Pfizer. But also for in France we see a couple of big pharma companies in France holding back with investments and had an impact and is certainly going to impact us for a couple of more months.

Okay.

Besides that, feel comfortable with most of the end user industries. It's good momentum in them. There are a few ones that are not so significant to us. But of course we see some electronics flat panel manufacturing and so on where we are experiencing some slowdown but they are not so significant. And it's offset by smaller segments that also have good momentum being just to mention. One example the sugar industry is doing quite well and is that business that we have not big business in it but we benefit.

Okay. And then just can I double back to Europe for a second? I may have been slow at taking notes here. Europe was plus 9% in LC.

And I think the commentary was lab was down modestly. Was industrial there for, I'm not sure what the waiting is, but was industrial up more than industrial in total for the year? Or was it plus 25% or something? Was it up that strong?

Bill? Would you take that one?

Sure. Our industrial business in Europe was up mid-teens kind of level.

Okay. All right. Thanks much.

Thank you.

(Operator Instructions)

Your next question comes from the line of Tycho Peterson of JP

Hi, good afternoon. Maybe just first question the notice the outlook for the US market accelerated, was that largely industrial? Can you comment on the driver there?

Hi Tycho, I apologize, I was reading and trying to look at a number for Europe and thinking about Rick's question. Could I ask you to repeat your question, please?

Yes, Just thinking about the outlook for the US market. It looks to be accelerating a little bit here, is that largely on the industrial side you are seeing the uptick?

So in terms of the Americas, certainly the industrial business did quite well in the quarter. It was our strongest performing area. I think that will realistically come down a little bit in the second half. But I think at least compared to Q2 our lab business should do a little bit better in the second half.

Okay. And then on the margins, are you able to quantify the give and takes around the material cost fluctuations in currency? I mean I know it all netted out to not a lot.

Maybe if again we had about a 20 basis point increase in gross profit margin in the quarter. In the quarter, net realized price increases were about 2% and so if you do the math on what was the impact of that on gross profit margin it's 1%. Because we were at 50%.

Currencies were a head wind -- so maybe start with material cost were head wit of 60 BPs and that reflects material costs being up 2.5% in the quarter. And then currencies were a negative 170 BPs in the quarter and of course then we have some leverage benefit as well.

Okay. And then on the supply chain side you guys had built inventory last quarter around Japan have you worked through lots of that or just talk to your outlook on managing the supply chain there?

I think right now we feel relatively good about electronics coming out of Japan. I don't have any components that are sitting with a red dot on the dash board. So I think -- I think we were largely through that. I always am a little cautious in that area because we are not the big dog in the electrical component purchases areas so we can get whipped around if the big suppliers start to move.

But I think we were in relatively good shape there. We built a little bit of inventory this quarter in anticipation. We go live in the coming months in China and Blue Ocean and they are a big part of our production chain and because it's far away and shipping a lot of things on boats, we thought it would be good to build up a little bit of extra caution there. That would be maybe my main comment on the inventory area.

Then maybe last 1 on capital deployment and how you guys are think being buybacks versus tucking M&A and then comment on the performance of the tuck in deals you guys have done this year.

You know, we like both. And we think there is room in the balance sheet to do both and at least so far we never been forced to choose in the sense of identifying M&A that was so big that in some ways we would have to dial back on our share repurchase program. And I think we were quite happy about how our M&A has done -- Maybe Olivier --.

Absolutely. We have done last year and then again earlier this year and we are very well progressed in terms of integration. Very happy how we can integrate to assimilate the team and product lines and particular also how we could leverage our marketing power already for this acquired companies. And they are all going extremely well and strategically fit very well to franchise.

And, yes, expect us to continue that path and we have things in the pipeline that are going similar direction, similar size. And that will also remain our strategy. We are focused on bolt-on acquisitions. It's not -- we don't feel that we have a necessity to do any big acquisitions and we also not particular focused on this one.

Do you have other divestiture's you are looking at? You did 1 in food retail. Are there other things you looked at to trim?

No, not particular. The one we did food retailing was really part of the strategy to focus the food retailing business on the core part where we have synergies and that was a strategic move that we did. Otherwise, at the current stage I don't see a need for any particular divesture. I feel actually, the franchise is a good 1 and in general the business fit well actually. The overall strategy that we pursue.

Great. Thank you very much.

Thank you.

And at this time there are no further questions in queue. I will turn the call to Management for closing remarks.

Thank you. And thanks for joining us this evening. We look forward to seeing some of you tomorrow at our investor meeting here in Bedford, Massachusetts. As always, if you have any questions please don't hesitate to give us a call. Good night.