Mettler-Toledo International Inc (MTD) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our first-quarter 2014 Mettler-Toledo international earnings conference call. My name is Jay 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). Thank you. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thanks, Jay, and good evening, everyone. I am Mary Finnegan. I'm the Treasurer and responsible for Investor Relations at Mettler-Toledo, and I am happy you are joining us tonight. I'm here today with Olivier Filliol, our CEO; and Bill Donnelly, our Executive Vice President. I need to cover just a couple administrative matters. This call is being webcast and is available for replay on our website. 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 in page 1 of the presentation. Statements in his 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, uncertainty, and other factors that may cause our actual results, levels of activity, performance, or achievement to be materially different from those expressed or implied by any forward-looking statements.

For discussion of these risks and uncertainties, please see our recent Form 8-K. All of the forward-looking statements are qualified in their entirety by reference to the factors under the caption, factors affecting our future operating results in the business and management discussion and analysis of financial condition and results of operation in our Form 10-K.

Just one last item, on today's call, we may use non-GAAP financial measures. For detailed information with respect to the use of and differences between non-GAAP financial measures and the most directly comparable GAAP measure is in our Form 8-K. I'm going to now turn the call over to Olivier.

Thanks, Mary. Welcome to everyone on the call. I'll start with a summary of the quarter and then Bill will provide details on our financial results and guidance. I will then have some additional comments on 2014. As always, we will have time for Q&A at the end.

The highlights for the quarter are on page 2 of the presentation. Local currency sales increased 4% in the quarter with very strong growth in Europe. We have solid growth in the Americas, and improving demand in China, although, as expected, sales were down in the quarter. China sales results were offset by relatively good growth in other regions of Asia/ rest the world.

We executed well in the quarter, and I am pleased with our growth in earnings per share, particularly given the challenging currency headwinds we faced in the quarter. We are benefiting from our values cost control and margin initiatives that we have enacted over the last few years. Let me turn it to Bill to provide more details on the financial results and an update to our guidance for the year.

Thanks, Olivier, and hello, everybody. Let me start with additional details on sales, which were $550.6 million in the quarter, an increase of 4% in local currency. On a US dollar basis, sales increased 5% as currencies benefited by about 1% in the quarter.

Turning to page 3 of the presentation, we outline sales by geographies. In the quarter, local currency sales increased by 9% in Europe, 3% in the Americas, and 1% in Asia/rest of world. Without the impact of exited product lines, Asia/rest of world increased by 2% in the quarter. For China specifically, local currency sales excluding exited product lines were flat with the prior year. Exited product lines contributed a further 2% decline in China sales for the quarter.

Sales growth by product line for the quarter is highlighted on slide number four. Laboratory sales increased by 7% in local currency while industrial sales increased 1%. Adjusting for the China product line exits, industrials increased by 2%, food retailing increased by 8% in the quarter.

Turning to the next slide, but me walk you through the key P&L items for the quarter. Gross margins were 53.1%. This compares to 53.2% in the prior year. This was a lower than we expected. We had benefited from pricing and lower raw material costs, which were offset by unfavorable mix, currency, and higher inventory charges. R&D amounted to $29.5 million, a 4% increase in local currency. The increase is principally driven by project development activity.

SG&A amounted to $172.2 million, which is an increase of 3% in local currency. Increased sales and marketing costs and higher variable compensation were offset by cost savings initiatives and lower employee benefit costs.

Adjusted operating income amounted to $91 million in the quarter, which is a 6% increase over the prior-year amount of $85.4 million. Our operating margins were 16.5%. That's a 20 basis point increase over the prior year. Currency had a larger negative impact on operating profit than we had expected the last time we spoke. We estimate currency reduced operating profit by $3.7 million. Without this impact operating profit would have increased 11% and our operating margins would have grown by 100 bps in the quarter. Given this headwind we are pleased with the growth in operating income and our margin expansion for the quarter.

A couple of final items on the P&L -- amortization amounted to $7.1 million in the quarter. Interest expense was $5.7 million while our effective tax rate was 24%. Fully diluted shares for the quarter were 30.1 million. That's a 3% decline from the prior year, reflecting the impact of our share repurchase program.

Adjusted earnings per share were $2, a 9% increase over the prior-year amount of $1.84. Currency reduced EPS by approximately 5%. Given this headwind again, we are pleased with earnings growth in the quarter.

On a reported basis earnings per share was $1.93. This compares to $1.69 in the prior year. Reported EPS includes pretax restructuring charges of $1.5 million or $0.04 a share, which are primarily employee-related charges. Reported EPS also includes $0.03 of purchased intangible amortization.

Now turning to cash flow, free cash flow in the quarter was $34 million. And this compares to $9.6 million in the prior year. We are obviously improved with that strong number. Working capital statistics were solid in the quarter with ITO of 5.1 times and our DSO at 48 days. Both of these are slight improvements as compared to the prior year.

Let me make some additional comments on our balance sheet before turning to guidance. We have about $350 million of net debt, which is a relatively modest level, resulting in a net debt to EBITDA ratio of approximately 0.6 times. Given this solid capital structure and cash flow generation capability, we believe we can improve our cost of capital with modest increases in our leverage ratio over time. We have evaluated different alternatives to achieve this objective. In consultation with our Board we have decided to increase the level of our share repurchases in the coming quarters.

We have always believed that having an investment-grade rating was appropriate for this business, but we can maintain such a rating with a larger debt burden than we have today. This is a gradual change that we expect to do in our capital structure, and it will not have any impact on our ability to do bolt-on acquisitions.

We also want to highlight that we expect the changes in our leverage level to be gradual and achieved over multiple years and begin to have a modest benefit to EPS towards the end of this year.

Just one last item on the balance sheet and cash flow. Given the strong start to the year, I think we are likely -- our cash flow will come closer to the $310 million range. And this compares to the $305 million we had discussed last quarter.

Now, let's turn to guidance. We are more optimistic about our Western markets as the conditions appear to be improving. Europe will face tougher comparisons in the second half, but we expect both Americas and Europe to perform well this year. Offsetting this is greater uncertainty and caution in emerging markets. Year-to-date China is pretty much playing out according to our expectations that we shared with you last quarter. While sales growth was a little bit better than we expected, there remains enough uncertainty to keep us cautious. We expect sales to the flattish in the second quarter and then see sales growth in the second half of the year, principally due to easier comparisons in China. As a reminder, we estimate exited product lines will reduce sales by approximately 2% for the full year.

In terms of our emerging markets, macroeconomic conditions in Russia, Brazil, and India are all weaker as compared to the last time we spoke. Taken all together, we are slightly more positive about the developed world, which is offset by a little more caution towards emerging markets. Given this outlook and the good start to the year with our Q1 sales growth, we are moving our full-year sales guidance to approximately 4%. This compares to our previous guidance in the range of 3% to 4%. We are also raising the bottom end of our adjusted EPS guidance by a $0.05 to $11.45. This reflects the Q1 results, some help at the end of year from the increase in our share repurchase program offset by a little greater currency headwinds than previously thought.

The top end remains at $11.60, which results in a growth rate of between 8% and 10%. Our previous guidance was $11.40 to $11.60 per share. For the second quarter, we would expect local currency sales growth to be in the range of 3% to 4% and adjusted earnings per share in the range of $2.50 to $2.55 or a growth rate of 6% to 9%. Similar to what we experienced in the first quarter, earnings per share growth is lower versus our full-year guidance as two of the headwinds we faced this year -- higher Blue Ocean amortization and foreign-exchange -- have a larger impact as compared -- in the first half of the year as compared to the second half of the year. There is also more difficult comparison on sales as compared to Q1.

As you are updating your models, let me also cover some specifics on guidance. First, currency -- we would expect currency to have no impact on second-quarter sales. It should also have no impact on Q3 sales, but will reduce Q4 sales by about 1%. These are all based on current exchange rates. For the full year we would expect to have no impact on currency -- on sales due to currency.

In terms of impact of currency on earnings, we would expect currency to reduce earnings by approximately 2% in Q2, 1% in Q3, and be slightly negative in Q4. For the full year 2014 currency is expected to reduce earnings growth by 2%. This is slightly worse than what we discussed last quarter.

Okay, that's it for my side. And now, let me turn it back to Olivier.

Thanks, Bill. Let me start with summary comments on business conditions. Lab increased 7% in the quarter with very good growth in balances, analytical instruments, and automated chemistry. Process analytics and pipette also had growth in the quarter. Industrial increased 1% in the quarter. We are happy to see core industrial returning to growth with 2% sales increase in the quarter. Product inspection also had growth. Retail increased 8% in the quarter, driven by project activity in Europe.

Now, let me make some additional comments by geography. Europe was a very strongly in the quarter with 9% growth, better than we expected. While comparisons were fairly easy, we did see good growth in most countries. Americas increased 3% in the quarter. We had good growth in lab and core industrial, offset by product inspection, which was up against very strong comparisons from year-earlier period.

Asia/rest of the world increased 1% in the quarter. Bill already made some comments on China, but let me add some additional ones. As mentioned, China is pretty much on track with our expectations. We recognize it is going to take some time to work through the weakness in industrial sectors, but I am pleased with the strong growth that we are seeing in certain markets. For example, our lab business was up 6% in the quarter in China. However, if you look deeper you would see that our lab instruments sold primarily into life science and research environment was up strongly, in fact, up double digits. This was offset, however, by our lab business, which is sold into more industrial markets, which was down significantly.

Similarly, in industrial, while core industrial was down as expected, product expansion was up quite strongly. We acknowledge recent economic news has not been encouraging, and we are being cautious for the second quarter and second half of the year, given this greater level of uncertainty. I would stress, however, we are convinced of the strong growth opportunities in this market over the medium and long term, given the growing [GDP per capita], increasing number of scientists, and greater focus on quality.

Now, let me make a few comments on service, which had good sales growth in the quarter of 5%. Service and consumables represent 30% of sales with service representing about three quarters of the total. Service represents an even larger percentage of sales in the developed markets, due to the large installed base and the maturity of the markets. With almost 2800 service personnel we have the largest and most global service force as compared to our competitors. We invest a great deal in our service organization in terms of extensive training and value of tools to support their activities. Also our service technicians are specialized in their product areas, which makes them experts.

Taken together, these attributes make our service organization a unique value proposition to our customers and a clear competitive advantage for us. We are currently making investments for growth in our service business, most recently, as part of our field approval program that we discussed last quarter. Approvals are targeted additions of front end resources to pursue very specific growth opportunities. On the service side we are adding some direct resources in our lab and product inspection area, as well as support in a couple of regions to better leverage our service technicians.

One last comment on service -- with an installed base of a few million instruments, our service database provides important information that is wanted for product development but also for service marketing campaigns tailored to the product lifecycle. We view this data as one of our most important and tangible assets. And in 2014 we will launch hundreds of marketing campaigns to leverage this asset and deliver further growth.

That covers my comments on current business conditions. In terms of additional topics this quarter, I want to cover two new product offerings which illustrate how we continue to use product launches to target growth segments and margin enhancement through cost reductions. Let me start with our offering in product inspection. As background, this business represents about 17% of our total sales, and customers are principally food and beverage manufacturers and pharma companies. We help to ensure the integrity and quality of packaged items with our checkweighers, metal detectors, x-ray vision and sterilization solutions. We are the clear leader in this business with the broadest product offering of anyone in the market today.

We combine this with the most extensive service force, which is especially important to these customers as manufacturing uptime is critical. The dynamics of this business are very strong because of market concerns around quality in all consumer products.

Given our broad product offerings, customers can gain synergies by using multiple products in their line to tackle rather complex quality hurdles. For example, a European food company recently purchased an integrated solution involving checkweighers, metal detectors, and [color] vision inspection systems. In addition to ensuring accurate weight and no metal contaminants, the food manufacturer wanted to enhance the identification of products that did not meet quality levels. In particular, they wanted the ability to isolate products that had a burned area, irregular shape, or insufficient amount of toppings such as cheese.

The vision inspection technology allows these defects to be identified and the products to be rejected before packaging. The vision system consists of five cameras covering different angles and is incorporated into the checkweighing conveyor line. This results in reduced space on the line and a more efficient man-machine interface. While infield training and testing are needed to ensure acute performance to the specifications, the instruments are intuitive and easy to operate. This is just one example of the synergies within our product offering and product inspection.

Another example of our innovation is from our core industrial business. We recently launched our next-generation of industrial weighing terminals. These terminals are used in manufacturing operations and capture data from our weighing instruments and integrated into manufacturing control systems. This new generation of terminals enhances operator productivity by providing cost-effective, reliable weighing. The display has outstanding readability under a variety of lighting conditions and function keys with graphical items easily guide an operator. Software allows users to easily configure the terminal and backup files over multiple units within a facility, while the remote display provides additional operational flexibility. Communication options offer connectivity to devices and such as printers, remote displays, and PCs. The terminals are targeted to general manufacturing customers, particularly in the food segments. Completely designed and developed in China, these terminals provide a cost-effective solution for our customers and improved margins for us. These are just two examples of how we use new products to target growth sectors and continue to drive margin improvement.

Let me make a couple of concluding remarks before I open for questions. We remain cautiously optimistic in our Western markets and believe we are well-positioned to capture growth opportunities in these regions. We recognize the conditions in emerging markets and in China, in particular, are more uncertain but believe we are executing well and will see better growth as the year progresses. We continue to focus on execution and capturing more share. That covers my comments, and I want to ask the operator to open the line for questions.

(Operator Instructions) Brandon Couillard with Jefferies.

Olivier, I think Mettler might be the only company on the planet raising revenue guidance at this point in the year. Can you give us a sense of like how the orders trended in the first quarter? Was April better? And, in particular, what region do you feel more comfortable about in terms of the dynamics?

As I mentioned on the call, Europe certainly positively surprised us and was a little bit better than we expected. And I would say in general the West feels better than we talked last time on the call. When it comes to order trends, I think we need always to be (technical difficulty) rather and talk about the year-to-date numbers and the year-to-May numbers reflect the comments that we had on the call and give us the confidence that we had a good start and allows us to modestly increase the midpoint of our sales guidance.

Thanks. And Bill, are you able to quantify the incremental buyback planned for the year now? And could you remind us how much cash, if any, is trapped overseas?

In terms of quantifying it, I think we probably will end up buying somewhere in the range of another $50 million, $75 million before the year is out. I don't think it's that our goal is to catch up --- I should say our goal certainly is not to catch up on the capital structure side too quickly. We will do it gradually, over a longer period of time.

And then, sorry, the second part of your question?

If you have any overseas trapped cash.

So in terms of trapped cash, we really don't have any. Our program is -- our tax rate reflects the idea that we are going to fully repatriate our earnings. So in that sense, we don't really have any trapped cash. Sometimes if I look at the $100 million, most of it is related to the idea that in certain countries you need to hand in the annual statutory accounts before you can remit the cash back. So it's never the idea of trapped cash and our tax structure doesn't really fit together these days.

Super, thank you.

Isaac Ro with Goldman Sachs.

Just wondering if you could maybe spend a moment on some of the less often discussed emerging markets -- Southeast Asia, Eastern Europe. Just give us some color or anecdotes there as to how those markets are doing.

Okay. In general we commented that emerging markets are a little bit more challenging in these days. But there was some good numbers, nevertheless. I start, for example, with Russia. Russia was actually up for us in the quarter with, but against easier comparisons. I would, however, expect that Russia will be weaker in the near term. I would also stress that all the emerging markets are actually -- the individual account, we saw less than 3%. And Russia is only about 2% for us.

Then going on, Eastern Europe actually did perform very well for us, had good growth partially against weaker comparisons but still I was very happy to see the numbers there. The part that was weaker was Latin America. I would say in general Latin America but in particular also Brazil. The currency effect and the general economic conditions in Brazil are more challenging.

Then we have in India, certainly, also currency topics, partially also government-related topics that delay certain investments on our customers. Then Southeast Asia was also softer, I would say, mostly impacted in China but then you also have sometimes country-specific issues going on, like in Thailand, that we are also facing.

But I would stress the point in all these countries we really feel we have very strong local management, very experienced management. What's also interesting is that all these country managements and country managers have been around for many years. They have experienced us addressing the downturn particularly in Europe and US in the economic crisis. They know how to handle their own local crises now and adapt to the circumstances, adapt also the cost structure. But I would say as much also applying Spinnaker techniques to go after the segments that still offer growth.

So I feel like we are responding in a very good way in all these countries.

Very helpful, thanks very much. And Bill, just a question on share repurchase in the context of your revised views on target leverage. If I heard you correctly, earlier you said that you are looking at, I think, a pretty modest pace of share repurchase for the balance of the year. I think you said -- I won't quote you put -- I missed the number. But the point was it center like you might be ticking up your annualized repurchase on an absolute basis. But the pace of repurchase for the rest of this year sounded like you would more or less end up to be about in line with last year, effectively 95% or 100% of free cash flow. So can you maybe just clarify the magnitude of share repurchase we should assume for this year? That would be helpful.

So, sorry if I chose my words poorly. So, we would incrementally add a number $50 million, $75 million between now and end of the year. I think it a little bit depends on our free cash flow. But in terms of absolute dollars I think even at that level, because of the higher cash flow as well, we will probably be closer to the $400 million range, whereas in last year we were closer to the $300 million range.

Okay, that's perfect. Thanks very much.

Tycho Peterson with J.P. Morgan.

First question on Europe -- you called out strength in food retail and some of the other sub segments. Can you maybe just talk about the sustainability of the trend, in particular, food retail? I know you had an easy comp there. But how are you thinking about that business in Europe?

I would first state Europe overall did very well, and it wasn't so much driven by food retail. Food retail was nicely contributing, but actually you have to say we did well in Europe across product lines and across countries. The food retail, as you all know, is for us every project-driven business. In that sense, also lumpy. I would not read too much into our performance of Q1 about food retail. Actually, I wouldn't be surprised if we are also going to have here quarters in this year where we will be down in food retail. So this is not a new trend. It's more reflecting the nature of the business.

When I look for the overall European numbers, I don't, certainly, expect that we are going to experience these nice growth rates of Europe in the same way for the full year. We are going to have more difficult comparisons in the latter part of the year. But I would say what was really good about this Q1 number is, first, the magnitude of the growth and then how consistent it was across countries. We had even France showing growth. We had southern countries that had growth. We have the UK and Nordic, which was, for example, very solid. These are very encouraging signs and, of course, is also very motivating for the teams. And that will create additional momentum for the rest of the year.

And then thinking about China, I think you had previously talked about back half of the year getting back to mid-single digit growth. Anything changed in your assumptions even some of the recent data? And any update on how payment terms are trending?

I would agree the economic news have not been that promising. But at the same time I have to say we did really anticipate that things in China will remain challenging for us. The numbers should start to look better in the second part of the year, mainly because of comparisons reasons. We feel like our numbers are showing that we are bottoming, but it's actually difficult to really say when the momentum comes back. What I'm really seeing and the team is confirming that there are different areas of growth. I think the prepared remarks about our core lab and selling mostly to the life science industry is certainly encouraging and showing that point. There are different industry segments that we see life coming back, particularly when it's oriented to consumer goods. But I even have got an update last week about specialty chemicals industry segment that were encouraging. There is certainly also geographic parts of China that are encouraging.

Certain markets will remain very difficult for a long time. I'm talking about steel industry, [service] industry, and so on. But all in all, we do see that things should gradually improve. And then, combined with the easier comparisons you have, we do expect growth in the second part of the year.

How fast things will come back to the high single digit growth/low double-digit growth -- that's the key part that is really difficult to forecast and anticipate.

In terms of --

It's not that we see -- go ahead, Bill.

Maybe just to comment on the credit thing, so you guys remember we talked probably about a year ago about our concerns around credit topics. I think for us it's not that we see more credit availability in the system, but it's got incrementally worse in terms of our own balance sheet, our past due, our DSO type of statistics are actually now back to where they were before we started seeing this problem. And so we feel good about that. Actually, it's probably one of the reasons -- and probably it is one of the reasons our cash flow was good this quarter. And so we don't see that situation getting worse.

And then last one, Bill -- can you just talk about bookings versus revenues? Last quarter I think the delta was about 2% -- and any particular areas where the bookings were better than the revenues significantly.

I think if we look at the Western world, let's say, or even excluding China, we are talking about mid-single digit kind of growth rates in terms of orders and sales. And then China took both of those down. If I look at like absolute backlog levels I think we have a little bit more backlog than we did a year ago and things started out reasonable in the first part of this quarter.

Okay, thank you.

Jon Groberg with Macquarie.

This is actually [Harris] on for Jon. Just a quick question around capital structure. Can you maybe comment on what your new longer-term leverage targets are?

So we think it makes sense to remain an investment-grade-like company. That probably implies net debt to EBITDA ratios in the 1, no more than probably 2 level. And so we could gradually work there over a multiyear period.

Great, thank you.

Bryan Kipp with Janney Capital.

Hi, this is -- just taking this one for Paul. Just to start off, I guess, to step back and look at the margins -- you did see a gross margin decline. And there was some acceleration, some incrementals in 4Q. Did those not crossover? I know those were on raw material costs and a little bit on pricing leverage. And then on the SG&A decline as a percentage of sales, is that attributed to anything specific a la the pull-in consolidation that you guys saw at the beginning half of 2013? Was that pulled through or does it represent more of the benefits and initiatives you guys instituted in 2013?

Okay, so let me start with the gross profit side. So just to set the numbers, our gross profit was down about 10 bps in the quarter. If I look at pricing, our pricing did well. Our net realized prices across everything was more than 150, slightly less than 200 basis points. Our material costs were down about 100 -- between 100 and 150 basis points, let's say. And if you dig deeper into, okay, so why, then, was the margin not bigger, because those are certainly numbers that would be in line with what we would expect for the full year and should produce, let's say, 30 to 50 bps, if we kept on that pace.

We had a funny mix within some of the details like, for example, the mix was in what we sold of lab balances and the couple other topics. And then we had a currency headwind, and then finally we just -- we had some inventory charge comparison topics between the two periods.

Our expectation will be that we will return to this -- some gross margin expansion for the remainder of the year. So I don't expect that trend that you saw here in the first quarter to remain. Maybe the second comment you made was on what were the specifics that led us to being able to have pretty good cost control on the SG&A side. I think there are several factors there, so -- and maybe some pluses and minuses. But overall a good picture.

As a reminder, we have a headwind on the bonus side. So, we have some catch-up to do this year on bonuses versus the prior year. I think for the full year it's a number in the $15 million range. It's being split now throughout the year. A second headwind is currency and then we, of course, have some cost savings as well associated with their different programs that we had. Some of them relate to the shared service center but other topics as well. So overall we feel like the cost structure is in pretty good shape as we start the year.

And just a quick follow-up on the two new products that you guys highlighted earlier -- just thinking about that in terms of your revenue guidance here, is there any benefit with those new products in those numbers? And I guess the other question, to back up, is full utilization when you ramp up in some of that, is that six months to nine months or 12 months?

Either way we need to look at product launches in Mettler-Toledo is that we have such a broad product range and so many products that a new product launch has very little impact on our top line. We are really, in that sense, very diversified across many different businesses. Continuous product innovation and product launches, however, is very important to maintain our technology leadership, to be able to continue to expand our margins and all that. So in that sense, I am very happy about these product launches, but I do not expect that they have a big impact on the overall revenue.

Thank you.

Ross Muken with ISI Group.

I just wanted to maybe dig into a little nuance on the China commentary, and I appreciate a lot of the details you've given. Any differential demand or order trend at different price points? We have heard from various folks some of the higher end instrumentation -- obviously, it's a little bit different for you guys -- has been less robust than maybe lower-priced or typical service or other types of revenues. And then, Olivier, you commented on the industrial side, pieces like specialty chemical getting better. Any other discernible trend among some of the other major industrial end markets where things either got materially better or materially worse or you were kind of surprised with the lack of reaction? And this is China-specific.

Okay. On the price points, actually I would say surprisingly we don't have much differentiation. I would say the big differences, what goes well and what doesn't go well, is more, actually, geography than anything else. And if I look at different business lines that we have, they were relatively consistent. And even if I take a product category like laboratory weighing, it's not that the high end or the low end did perform particularly in a differentiated way.

Just to clarify your question, Ross, you are asking specifically about China there?

Yes.

So if we dig down, actually what Olivier said would apply to China as well. If you look maybe to pick pipettes and balances as a proxy for lower-cost -- I don't want to hurt any of our Swiss engineers' feelings with the higher end of the balance sheet. And then maybe analytical instruments and auto can be relatively higher end. Actually, we had excellent growth in all those categories.

Great. That was very helpful, thank you.

In terms of industry segments, I think nothing in particular to add, other than what I said. It's really -- everything that's closer to consumer-related things is going well. And the industry that is linked to consumer demand benefits of that, and then things that are related to quality measurement, food safety, and so on is also particularly healthy.

And on the other side, everything that's related to infrastructure is particularly challenging.

Steve Willoughby with Cleveland Research.

Couple of questions -- first, Bill, your comments regarding the impact from FX on margins. You made a comment about -- something about 80 basis points. I was just wondering if that was the total impact from FX on margins or versus what you were expecting.

A year-on-year number.

Okay, in total?

Yes.

Secondly, on the step-up in share repurchases, should we also factor in some sort of step-up in interest expense, or is it going to be from working down cash balances?

There will be a step-up in terms of interest expense.

Okay. And just the final thing is if you could just comment on Japan in the quarter and then Japan maybe after the quarter, given the changes there at the end of their fiscal year?

So let me pull forward the Japanese numbers first. So, we had a good quarter in Japan. But it was against a relatively easy comp. Maybe to give you a feel, the two-year growth rate would get you mid-single-digit kind of numbers. In terms of their outlook for the second quarter, I don't remember them sticking out particularly good or bad. And actually, getting the -- hey, let's call it some modest growth in Q2, probably.

What might be interesting for you to realize -- that Japan is definitely skewed to its lab business. You have heard us saying that lab was strong across the world in first quarter, and that's actually also reflected here in Japan. In Japan we have definitely less revenue in the industrial world than non -- for food or retail.

And as you guys know, Japan is not nearly as big market for us as it is for some of the peer group companies. But I think that there are also some tax things that took place in Japan that might have helped some customers want to buy in Q1 versus Q2, if I remember correctly.

Great. Thanks, guys.

Richard Eastman with Robert W Baird.

Olivier or Bill, could you just speak to the lab growth rate of plus 7? I guess is the appropriate way to look at that again is this two-year growth rate, which puts it more in the lower single digits? Or was there anything that really stepped out at you as driving a 7% core growth rate there?

We certainly think that multiyear growth rates are good way to look at it. You know us, we sometimes look at three-year growth rates, too, Rick, so on a three-year basis it was maybe a nice move in a positive way. So while Q1 of last year was the easiest comp for 2013 in terms of the quarters, if you actually look at 2012 and 2011, in 2011 we grew 16% the lab business in the first quarter, and in 2012, 8%. So some of the why Q1 last year was week was partly due to the comps in the prior year.

But, hey, we think in China -- or, sorry, in Asia -- or, sorry, in Europe we are certainly benefiting from that market being more stable economically, not having things. And there was some pent-up demand. As comps get a little tougher in the second half of the year from Europe, we won't be seeing those type of growth rates. But we feel very good and how we did these vis-a-vis competitors in our lab product lines the last few quarters, frankly.

Sure. And do you get the -- if price was 175-basis point kind of capture for all of Mettler in the quarter, would it be north of that for lab, I presume?

Yes, I think that that's a fair statement.

Okay. And I'm still maybe a little bit surprised when I look at the growth rates by lab, industrial -- I'm surprised again that you didn't get more of a positive bump on the gross profit margin line. You referenced the weak lab mix of instruments. Was that anything to do with material costs or one-timers? Or was that just --?

I could take you through -- there's a little bit of a story behind multiple of them. AutoChem had one very large order that went through with -- there were some specifics on a couple of other product categories like the mix of business within processing analytics, a little bit less TOC versus some other topics. So, there were different things that contributed to it, as well as this kind of inventory charge topics where we were unusually low in Q1 last year and a little bit above what we would expect on a quarterly basis.

Sure. Okay. All right. And just the last question -- I probably just missed this. But in terms of China, did you mention -- I think you had mentioned lab was plus 16% in China. If I tried to weight that out, then maybe the industrial was minus kind of a high-single digit. Is that reasonable math?

And maybe just to -- I think the word that Olivier used was, quote-unquote, classic lab, which would have excluded process analytics. So actually our industrial business did a little bit better than what you described.

Okay, I understand. Okay, thank you.

(Operator Instructions) Sung Ji Nam with Cantor.

So I was wondering -- you obviously had a good quarter for your lab business, had more difficult comps for product inspection. Just curious -- I know I think you guys have roughly a quarter of your business exposed to biopharma. And in light of all the announcements about mergers and potential mergers, was wondering how that might, or if it all, impact your business going forward.

These merger activities that we see today in big pharma and partially also expected associated restructuring has been going on for quite a while. And we had that in the past few years, in the West. [I think] we have also learned from that that this can impact some of our lab categories but then all the lab categories might benefit. So to give you an illustration, while the number of scientists might go down, this could impact the pipette business, partially also the lab balance business. But then the automated chemistry typically benefits from that because these new companies want to invest in automation tools.

Then what I also want to stress is that none of these big pharma customers are really representing a big a part of our revenue. We don't have a single customer that is representing more than 1% of revenue. And in that sense we are not particularly exposed to it. And then last but not least, this has been a continuous trend that we would see pharma, biopharma more challenging in the West but more than offset by the activities and the growth going on in the East. All the CRO's and all the auto, partially government-driven investments is biopharma industry sector.

Great, thank you. And then just one more question on China. Obviously, you are seeing the region playing out as you had expected thus far. Was wondering if you could talk about the competitive landscape. I know you've talked about in the past walking away from some of the project. And I also was wondering if there are further opportunities for pruning or rightsizing your product portfolio there.

Yes; in terms of portfolio, this was something that we did last year and then rapidly executed. So, absent any major changes in the economic environment, I don't see that we have additional steps that we would take. And in terms of competitive landscape, we keep our discipline on payment terms. And so we still have cases where we see competitors accepting payment terms that we would not. We are okay. We are okay. We definitely feel that keeping discipline is more important.

We don't have full transparency about market share on a quarterly basis. And we have many competitors that don't publish numbers. But exchanging with the teams, I really don't feel that we are losing here market share. In contrary, especially against international players, we are very well positioned, and I feel we can continue to win market share even in this environment and even as we keep this very disciplined approach to payment terms.

Great, thank you.

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

Thanks, Jay. And thanks, everyone, for joining us tonight. Of course, if you have any questions, don't hesitate to give us a call. Good night.

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