Mettler-Toledo International Inc (MTD) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to our fourth quarter 2014 Mettler-Toledo International earnings conference call. My name is Dustin, and I will be your audio coordinator for today.

(Operator Instructions)

I would now like to turn our presentation over to your hostess for today's call, Miss Mary Finnegan. Please proceed ma'am.

Thanks Dustin, and good evening everyone. I'm Mary Finnegan, I'm the Treasurer and responsible for Investor Relations at Mettler-Toledo. Happy you're joining us tonight for the call. I'm joined here today by 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 is also available on the website.

Let me summarize the Safe Harbor language, which is outlined on page 1 of the presentation. Statements in this presentation which are not historical facts constitute forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements.

For 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 captions Factors Affecting our Future Operating Results in the Business and MD&A Analysis in our form 10-K.

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

I will now turn the call over to Olivier.

Thank you Mary, and welcome to everyone on the call. I will 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 before we open the lines for Q&A.

The highlights for the quarter are on page 2 of the presentation. We are pleased to end the year with very solid broad-based sales growth in the fourth quarter. Local currency sales increased 6% above the expectations we outlined with you the last time we spoke.

Europe's growth was better than expected, and it is particularly impressive given the very strong growth in the year-earlier period. Americas continues to perform quite well, and Asia/Rest of World also had solid growth. For China specifically, sales growth was on target with our expectations.

Our margin enhancement and cost control initiatives continued to yield benefits which contributed to our margin improvements and EPS growth in the quarter. This despite currency headwinds.

While there is economic uncertainty in certain regions of the world and recent currency movements with greater headwinds than we had expected, we feel good about our outlook for 2015. I will have some further comments on 2015 later on the call, but now we will turn it to Bill to cover the numbers.

Okay, thanks, Olivier and hello, everybody. Sales were $697.4 million in the quarter, an increase of 6% in local currency. On a US dollar basis, sales increased by 2% as currency reduced sales by 4% in the quarter.

Turning to page 3 of the presentation, we outlined sales by geography. In the quarter, local currency sales increased by 6% in both Europe and the Americas and increased by 5% in Asia/Rest of World as compared to the prior year. For China specifically, local currency sales increased by 1% in the quarter, which was in line with our expectations.

The next slide provides full-year sales, which increased 5% in local currency. By region for the year, sales increased by 5% in Europe, 6% in the Americas and 4% in Asia/Rest of World.

Turning to slide 5, we outlined sales growth by product line for the quarter. Both laboratory and industrial increased by 6% in local currency while food retailing was up 4%. For the year, which is on the next slide, laboratory sales increased by 6% in local currency, industrial sales by 4% and food retailing by 2%.

Turning now to slide 7, let me walk you through the key items in the P&L. Gross margins were 56.5%. That's 160 basis point increase over the prior-year margin of 54.9%. We are obviously very pleased with this increase, which was driven by the benefit of pricing and lower material costs, specifically net realized prices increased by about 230 basis points while our material cost declined by 270 basis points.

R&D amounted to $31.3 million, a 7% increase in local currency, while SG&A was $186.8 million, an increase of 8% in local currency. Higher variable comp and increased investment in our field organization were offset in part by cost saving initiatives and lower employee benefit costs.

Adjusted operating income amounted to $176.3 million in the quarter. That represents a 7% increase over the prior-year amount of $165 million. Our operating margins were 25.3%, an increase of 120 basis points over the prior year.

We estimate that currency reduced operating profit growth by about 3% or $4.5 million in the quarter. While foreign exchange hurt operating profit by 3%, it actually helped our operating margins by 40 basis points. This is because the percentage impact of currency on the sales line was larger than the impact on operating profit.

A couple of final comments on the P&L. Amortization amounted to $7.6 million in the quarter while interest expense was $6.9 million, our effective tax rate continued to be 24%. Fully diluted shares for the quarter were $29 million, which is a 4.4% decline from the prior year, reflecting the impact of our share repurchase program.

Adjusted earnings per share was $4.24 per share. That's an increase of 11% over the prior-year amount of $3.82 per share.

Currency proved to be a greater headwind that we expected, reducing adjusted EPS by approximately 3% in the quarter. Our guidance had assumed a 2% currency headwind on EPS growth.

On a reported basis, EPS was $4.17 per share as compared to $3.63 in the prior year. Reported EPS includes pretax restructuring charges of $1.5 million or $0.04 per share, which is primarily employee related cost. Reported EPS also includes $0.03 of purchased intangible amortization.

The next slide provides details on full-year 2014 results, specifically local currency sales increased by 5% while operating profit was up 7% and adjusted EPS grew by 11%. We are particularly pleased with the operating margins, which exceeded 20% for the full year, and for the full-year currency reduced EPS growth by about 3%.

Now let's talk about cash flow. Free cash flow in the quarter amounted to $107.8 million, a 26% increase on a per-share basis as compared to the previous year.

We continued benefit from good working capital management. In particular, DSO improved 3 days to 40 days as compared to the prior year. We are very pleased with the level of DSO. ITO ended the year at 5 times.

For the full year, free cash flow was excellent. It amounted to $343.5 million as compared to $284.6 million in the prior year. This is a 25% increase on a per-share basis. Importantly it represents a 100% net income conversion, a level we are very pleased with.

Now let's talk about guidance. Forecasting is challenging as several factors need to be considered this quarter and for 2015.

First, we're coming off a strong finish to 2014 with sales growth and margins better than expected. Second, we continue to feel very good about our market position and our execution. Third, we are well on track with our field turbo program which will meaningfully increase our front end resources in 2015.

And offsetting these positive influences is increased uncertainty in the global economy and greater volatility in foreign exchange and financial markets. It is difficult to determine at this stage what impact this volatility and the uncertainty will have on customers' decisions around equipment replacement cycles and new investments.

With this as a framework, let me cover the specifics. We expect local currency sales for the year to be in the range of 4% to 5% -- local currency sales growth to be in the range of 4% to 5% in local currency. That's unchanged from the last time we spoke.

As you are aware, we are facing greater currency headwinds, however, to earnings growth. We now expect currencies to reduce adjusted EPS by about 4% as compared to a 1% headwind that we outlined on our last earnings call.

The 2015 currency headwind includes the benefit of the foreign exchange contracts that we disclosed on our press release the day the Swiss National Bank removed the Swiss franc floor to the euro. The hedges were put in place to mitigate our forecasted Swiss franc versus euro exposure in 2015 and to a lesser degree our forecasted exposure in 2016.

While the Swiss franc versus the euro is our largest currency exposure, we have many other currencies which have moved against us since November. In addition to the 4% EPS currency headwind in 2015, as the hedges roll off over the next two years, we will face an additional 1% EPS headwind in 2016 and an additional 2% in 2017. Of course, all these estimates assume rates do not change from today's levels. That gives you some additional color on currency.

With respect to our guidance, we now expect adjusted EPS to be in the range of $12.70 to $12.90. That's an increase of 8% to 10%.

A couple points worth highlighting in this guidance. First, this reflects a growth excluding currency of 12% to 14%.

Our previous guidance that we gave in November was a growth rate of 11% to 13%. This incremental earnings growth, the 12% to 14% as compared to the 11% to 13%, reflects the first steps we are taking to offset the medium-term headwinds from the Swiss franc.

Now turning to the first quarter. We would expect local currency sales growth to be in the range of 4% to 5%. We expect adjusted EPS to be in the range of $2.13 to $2.18. That's a growth rate of 7% to 9%.

Currency is more of a headwind in Q1 as we expect EPS to be reduced by 5% in the quarter as compared to 4% reduction for the full year. One additional comment on currency for your models, we expect currency to reduce sales growth for the full-year by approximately 7%. For the first quarter, we would expect that amount to be about 8%.

Let me make some final comments on guidance before turning it back to Olivier. We provided you with our best estimates for 2015 but acknowledge we face more unknowns today than we might have in the recent past. Currency rates in particular are very volatile, and there are questions on economies in various regions throughout the world.

I know there is a tendency for you guys to move to the top end of our guidance range. I think given the uncertainty and volatility we described, it is prudent to take our guidance as a range. That's it for my side, and now I want to turn it back to Olivier.

Thanks, Bill. Let me start with summary comments on business conditions, and then I will make some additional comments on currency and also provide an update on our key strategic initiatives for 2015.

Lab increased 6% in the fourth quarter with most product lines showing good growth. For the full year, lab sales were also up 6%.

We continue to execute quite well in our laboratory business. The combination of strong product pipeline and Spinnaker sales and marketing initiatives. I expect results in 2015 to continue to be solid in lab.

Industrial increased 6% in the quarter. Product inflection grew 4%, which was modestly lower than we had expected due to timing of certain orders, but represents good growth considering very strong sales in the year-earlier period.

For the full-year, sales and product inspection were up 6%, and the outlook for this market is favorable given the focus on brand protection in general and food safety in particular. We are well positioned in this business with strong relative market share, the most extensive product portfolio and the largest service network in the industry. We expect product inspection to continue to have good growth in the coming years.

Core industrial was better than expected with growth of 7% in the fourth quarter with good growth in all regions. For the full year, core industrial increased 4%, and we would expect low single digit growth in this business for 2015.

Finally, retail was up 4% in the quarter with very strong growth in Europe offsetting a decrease in the Americas due to the timing of project related activities. For the full-year, local currency sales and retail increased 2%.

Let me make some additional comments by geography. Local currency sales in Europe increased 6% in the quarter, better than we expected. We have solid growth in laboratory, product inspection and core industrial and very good growth in retail in the quarter due to the timing of project activity.

For the full-year, Europe increased 5%. We will face strong compares in Europe this year and are cautious given recent news. However we continue to execute very well and are capitalizing on our Spinnaker sales and marketing initiatives and strong product pipeline in this region.

Americas had another good quarter with sales growth of 6%. Lab, product inspection and core industrial did very well. For the full year, sales were also up 6% in the Americas. Our outlook for Americas remains solid.

Asia/ Rest of the World increased 5% in the quarter. China came in as expected with a 1% sales growth. We have good growth in our core laboratory offering in China while industrial was down slightly in the quarter. For the full-year, sales where up 1% in China.

In general, China remains on track with our expectations. We remain cautious given the overcapacity in certain segments but expect better growth in China this year principally due to easier comparisons.

One final comment on the quarter. Service had excellent growth in the quarter, with revenue up 11% as compared to the prior year. For the full year, local currency service revenue increased 8%, with good growth in all geographic regions and in most product lines.

We are seeing the results of our investments and initiatives to globalize and harmonize our service offering. We are pleased with the strong finish to the year and expect continued good growth in service.

Let me now cover the topic of currency. Specifically, the strengthening of the Swiss franc principally against the euro. Historically, these currencies were tightly correlated, which provided a natural hedge for us.

With the financial crisis in 2009, this correlation begin to weaken, and we began to take steps to reduce our cost structure in Switzerland. The actions by the Swiss National Bank in establishing a floor provided us time to take actions which included moving our logistics lab to the Netherlands, shifting certain IT resources to Poland and moving certain back-office functions to Poland and India.

Now with the January move by the Swiss National Bank to abandon the floor, we will need to take additional steps to reduce our cost structure. We will utilize sourcing changes and further control of discretionary expenses to help mitigate the impact in the short term. On a longer-term basis, we are evaluating our cost structure to determine what additional actions we can undertake.

The advantages of having the foreign currency hedges in place for this year and in 2016 is that it provides us time to determine the best course of action. That is probably all I want to cover on this topic at this point, but we will provide additional insight as our plans are formulated and communicated internally.

Let me now update you on some of our key strategic focus areas for 2015. First, progress in our field [turbo] program is quite good. We covered the details on our last call, so I won't take too much time on the topic today.

As a reminder, we expect to add about 200 front end resources over the next 12 months or so. Hiring and training are underway, and we are optimistic that the growth opportunities can be realized. We also have plans to expand the program late in 2015 if the market environment continues to improve.

Our Spinnaker sales and marketing programs continued to generate tangible paybacks. Our sales and service organizations have detailed plans for marketing campaigns for 2015, and I'm happy with the level of lead generation.

A current focus under our sales and marketing umbrella is the formation of a group leads nurturing factory. This is a small team that supports sales organizations in nurturing cold leads. Automated e-mail marketing campaigns are designed, and then follow-up is done once the lead has moved from cold to warm status.

We are leveraging sophisticated lead scoring and routine methods that allow us to have very personalized e-mail content activities. The nurturing factory was created in the fourth quarter of last year, and our pilot work in this area indicates that we can meaningfully improve cold leads that we convert to warm potential. This allows us to focus our sales force on higher value leads, thereby raising their effectiveness.

Another focus area in 2015 is sales territory optimization. We are providing more central support to our local units in terms of analyzing sales target potential, classifying accounts in terms of ABC potential, developing non-visiting customer campaigns and optimizing service technician activities. This is a lot of blocking and tackling, but we feel that it must be constantly done to ensure sales force optimization.

At the same time, we are also enriching our contact database. The Spinnaker sales and marketing focus in the areas in 2015 will help to further improve our sales and marketing efficiency.

Turning to our technology leadership, our new product pipeline is more robust than ever. For example, by the end of this year we will have replaced and/or upgraded approximately 75% of our lab balance product portfolio. This includes upgrades to our high-end balances which we undertook last year and will include upgrades to our basic wing offering later this year.

We are also introducing a new entry-level moisture analyzer which is specifically targeted to emerging markets. Moisture analyzers are primarily used in food industry to control manufacturing processes and ensure optimum product quality.

With this new offering, we provide basic functionality at cost-effective price. As emerging markets continue to focus on food quality, we felt it was an opportune time to upgrade our offering in this product category.

Product inspection is another product area with meaningful new product launches. Last year, we began to launch of our new generation checkweighers, the C3000 system.

It provides highest throughput of performance and most accurate high-speed weighing available in the market today. It has a very robust solid frame, yet a flexible design that allows it to be adopted into almost any packaging line.

Comprehensive diagnostic tools enhanced upside and strong return on investment. And we have incorporated best-in-class safety features that put customers well ahead of current requirements. Initial customer response is strong and reinforces our reputation as a leader in this market.

We are also launching our new generation of metal detectors, the Profile Advantage. This instrument incorporates a breakthrough technology that is up to 50% more sensitive than our previous offering and is especially effective in the more challenging food applications.

This is critical, not only to support compliance with food safety standards, but also to further enhance brand protection. Importantly, because of reduced validation requirements, this increases manufacturing uptime, thereby also offering strong return on investments for food manufacturers.

These are just a few examples of many new products we will have in 2015. We recognize the importance of technology innovation to enforce our market leadership position.

Our margin initiatives also remain well on track. We have good pricing results in 2014 and expect continued momentum in 2015 with the target of 150 basis points of pricing. A lot of work goes on behind the scenes for our pricing success, and I'm confident it will continue this year.

Our supply chain continues to benefit from the additional integration and transparency gain from Blue Ocean. Material costs were down approximately 2% in 2014, and I would expect material cost to be down again in 2015.

Finally, we are increasing our focus on reducing the complexity in our product development processes. We are still in the early phases of this initiative but expect over time to gain efficiency by driving more standardized processes for R&D and engineering.

That concludes our comments for today. Let me summarize key messages for 2015.

Our momentum remains pretty good, but we are cautious of the global economy as pockets of uncertainty exists. In particular, our performance in Europe ended the year on a strong note despite some weaker economic data.

Emerging markets are showing improvement but are still below the long-term growth potential. Overall however, we believe we are well-positioned to continue to gain market share by capitalizing on our field turbo investments, our ongoing sales and marketing programs and a strong product pipeline.

Our continued focus on margin enhancement initiatives combined with our strong cash flow generation and share repurchases should continue to drive earnings growth in 2015 and beyond. I want now to ask the operator to open the line for questions.

(Operator Instructions)

Tim Evans, Wells Fargo.

Hi. Thank you. Would you be willing to comment a little bit on your tax rate expectations and share repurchase expectations for 2015? I guess I'm just thinking here that, with the significant foreign exchange headwinds, just want to make sure that we are modeling the operating margin correctly -- so, trying to back into that.

Sure. So, in terms of the tax rate, you can expect it to be at around the same 24%, absent some changes in tax legislation. The reason for that has to do with our -- I don't mean to make it too complicated, but our tax strategy moves a lot of money to the manufacturing side, as a general statement. And this should -- the mix of income won't change that much in that sense; and we have income growth. So, that would be the first comment.

Then the second comment was with regard to the share repurchase program. Our free cash flow for the full year next year is in the, let's call it, $350-million range. I think you can assume we will repurchase somewhere in the area of $450 million to $475 million.

Thank you.

Brandon Couillard, Jefferies.

Good afternoon. Olivier, just in terms of your outlook for next year -- you seemed to exit with a lot of momentum in the fourth quarter, yet it sounds like some of your commentary might suggest that you're perhaps incrementally more cautious. What are your leads and quoting activities telling you about Europe right now, and how would you characterize, I guess, the level of confidence in the outlook, incrementally?

The team actually feels good. Early indicators that we have also continue to be good. I think the comments that we made about uncertainty is definitely coming from the economic environment in general and some recent events that took place in Europe, but also currency-related things that could have an impact on the economy.

But looking at what we see internally, actually I remain very positive. I commented before how well the team executed in Europe last year on all the sales and marketing initiatives. And I continue to be very bullish on that end for this year. And I certainly also expect that the field turbos will start to kick in and help us.

Everything that we control -- I feel very positive. The parts that we don't control brings the cautiousness in my statements.

On the new product pipeline, should we think about that as being accretive to the top line? And if I think about lab balances in general, are new product launches enough to drive a replacement cycle?

The way you need to look at all the new products -- they are always enhancements to previous products that we have. So, in that sense, we are not creating new product categories.

These new products allow us to further distance ourselves from competition. It allows us to raise prices. It allows us to win market share.

But this doesn't happen overnight, and it is not that we launch a product, and then we immediately see it in the top line happening. It is happening over time, and I say it is part of the strategy to outgrow the market and to increase our margins.

The fact is, however, that I feel really very strong about our product portfolio overall. We have done a lot of investments over the last few years to upgrade, and so we have a very modern and a very advanced product portfolio. I mentioned before, lab, but, for example, PI is also very strong. This is an enabler for us to win the market shares.

Super. Thank you.

Paul Knight, Janney Capital.

How are you?

Good.

I sensed, Bill, when you said -- the range you said is a real range this time. And I guess, Oliver, your comments on the outlook -- is this 80% related to the currency volatility in the world, or are there signs within backlog that it is just not growing -- any fundamentals that most of us in New York don't see?

Maybe I will start, and let Olivier -- I think the first comment is, when we're walking you through the EPS role, let's call it -- so, we beat consensus and guidance in the fourth quarter by about $0.09, I believe, and we added that to the 2014 previous guidance. Then we subtracted off this incremental 3% -- that headwind that we had from how currencies moved since November. And then we reduced that for the fact that we already have to start doing some actions.

And I think we maybe can't tell you today every single one of those actions that are going to add up to that leap we have. And so, therefore, we think it is important in that sense that: Hey, there are some margin -- there is more than the normal Mettler [5%, 10%, 15%] margin enhancement. We've got a little extra here because of the currency headwind, in that sense. That maybe is the first comment.

Second comment would be that, from a backlog perspective, we do have more backlog entering 2015 than we did entering 2014. I maybe would make the distinction that the one interesting piece that maybe that's not true for is our Chinese business. As we talked about a little bit on the last quarter, they have been closing out some of the larger jobs. So, they have a little bit less -- while their short-term business has been holding up well, we have less of the big-project piece. But overall I would say, because the short-cycle piece is the main one driving current activity, and the short-cycle piece, Paul, looks pretty good.

Then the last thing is: We always talk to you guys about -- our business is a replacement business. And we like when our customers have a stable financial market, stable currency market, stable business, and they are likely going to continue on their normal replacement cycle. So, any time we see increasing uncertainty and increasing volatility in these markets, we always get a little bit more cautious in terms of what's that going to mean for some of our customers in terms of how they think about their replacement cycle -- how they think about their investment plans.

To connect that to what Olivier said, if we look in our Business today, backlog is good, leads look good, competitively we feel very strong, product portfolio is going well, field turbo program's off to a great start. But there's the customer considerations, and we will have to see how this thing plays out over time. We thought a lot about the guidance, and we felt that that added wording I gave you was appropriate, but I don't want to be overly dramatic about it either, Paul.

With this 4% growth in the year, what's the growth rate within service, consumables and software?

The software piece is relatively a small number; so, it is probably not worth adding that piece. But maybe I will let Olivier comment on the --

The way we look at software -- it's really part of the solution that we sell with the hardware. We hardly have any software-only revenue.

So, coming back maybe to service -- so, service had an 8% growth in the quarter -- really good -- and actually also for the full year was very strong. And consumables was actually also good overall. I am definitely very pleased.

As I made comments before, we have made pre-investments over the last years in service. We have invested heavily in harmonization. We have developed new service products. We have invested in additional service sales campaigns, but also resources, and they paid off nicely.

In that sense, I expect that service will continue to do better than product sales and -- in that sense -- and I also good confidence for 2015. But the 8% growth in last quarter was really exceptionally strong.

Thank you.

Isaac Ro, Goldman Sachs.

Good afternoon, guys. Thank you.

On China, I realize the easing comps are part of the tailwind that you expect for 2015, but I was curious if you could maybe identify any specific end markets where you're starting to feel a little better, or at least have a line of sight on better orders?

Maybe a couple areas. We would -- maybe right now, to talk about orders, I wouldn't give you any -- I think it would be misleading to imply -- I could name a couple large orders, but I think it wouldn't be material, in that sense, to our overall results.

But in terms of where we expect either continued good growth or, in some cases, improved growth, I would highlight, in particular, we think lab will have another good year. Lab grew double digit for us in China in 2014. We would be surprised if it didn't grow at least high-single digits, and probably will grow double digits again in 2015.

Our process analytics business I would highlight in particular had -- we had talked about it with you guys in the past that they had a double-digit decline in 2014, in part due to some environmental regulation benefiting earlier years. Our expectation is for good growth there in 2000 -- we think high-single digits, double-digit growth in the process analytics business for next year.

Maybe the big piece of the Business -- the one that accounts for about half of our business in China is our industrial business. We do think that the easier comps are going to help the industrial business. We think that if that business even grows low-single digits next year -- or sorry this year, 2015 -- that should mean our overall business grows in China mid-single digits. Hopefully even better, but let's just call it mid-single digits for now.

We think that's a reasonable expectation given comps and other considerations. But we are alert to -- it's the most economically sensitive piece of our Business down there. And there are some good signs some months, and bad signs other months, in terms of Chinese industrial, but we continue to think 2015 will be a better year than 2014 in terms of our China business. And we think we can grow mid-single digits.

Okay, that's really helpful. Thank you.

Second item was on pricing -- you had obviously a very strong 2014, realizing some solid price. Was curious what was baked into your guidance this year, more or less, versus 2014.

As part of that equation, was curious if you could talk a little bit about -- on the gross margin line -- how we should think about the flow-through of lower oil prices through your cost of goods, and whether the combination of pricing and lower oil prices might help the gross margin story for this year as well?

Okay, so, in terms of our gross margin, we will have continued expansion on a constant-currency basis. In terms of on a -- and that will be -- what's the word I'm looking for -- even elevated a little bit because of the impact of foreign exchange.

So, we talked on the call earlier, Isaac, that there will be a 7% top-line shrink due to foreign exchange. So, part of the offset of that -- because obviously the impact on OP is not as much -- is on the cost of sales line. So, maybe it is best to speak in constant-currency terms.

So, maybe if I start with pricing -- we had built in about 150 bps into pricing. I think, that's a little less than what we had in 2014, in part driven by an environment with less inflation to talk about, which makes it a tougher discussion with our customer base. We are going to certainly use pricing as one of the -- pricing will have to be one of the things we will work hard on, to help to offset some of the currency headwinds we see overall. But I think it would be difficult to quantify that at this stage.

Maybe with regard to your comment on raw material cost, probably the biggest impact of lower oil prices to us will be just a little bit less gasoline cost for our service technicians. I'd maybe highlight that -- or just as a reminder, because we have actually more service technicians in Europe than we do in the United States -- maybe the gasoline price reductions that we see in the United States are not the same in Europe in euro terms. But we will get some benefit there. I think Mary and I had estimated earlier maybe in the range of $0.5 million to $1 million.

Now, maybe if I think about, like, oil in terms of resin cost and things like that, it really won't be material -- that item won't be material. But as Olivier said, material cost overall, we should be able to get them down I think in the range of maybe 1% at this stage, hopefully 1.5%.

That was a ton of color. I really appreciate all of that. Thank you.

Sure.

Ross Muken, Evercore ISI.

This is James Clark on for Ross. Congratulations on the quarter, guys.

A question on Europe: It sounds like you continue to see a bit of a mismatch between your Business and some of the macro headlines we're seeing come out of the region. I guess I'm wondering if you can give some details on maybe lab balances and core industrial, some of the other businesses where you tend to see a bit of a lead with the macro changes?

In terms of our European business, as mentioned, we did quite well. I think 6% is an excellent number. I think, in particular, if you think about the fact that within that number is Russia, which was down around 20% -- I think, excluding Russia, I think our European business was up in the range of 7%.

Then, in terms of maybe the breakdown, we had, in the fourth quarter, good growth in all the businesses, including even good growth in the retail business. We had a good year in retail actually in Europe, with some projects in the first quarter of 2014, and some projects being delivered in the fourth quarter as well, but overall a good year.

I don't have -- if I'm literally looking at product line growth in Europe in total, and we didn't have anybody worse than 3%, and we had a couple of double-digit guys. So, I think pretty solid numbers up and down the line in Europe.

It is actually worth to mention, we had this 6% growth against the strong previous year comparison. Actually in Q4 2013, we had 8% growth in Europe, just reinforcing the point that the team executed actually really well, and executed well across all product lines and across also service.

Okay, that's helpful. And then maybe a follow-up: I think you guys spent some time talking about some of the levers you have to offset the impact of the FX headwinds. I'm wondering how you think about some of the investments you've laid out, whether it is new products or the field turbo programs or the growth of the service business -- how you think about those priorities relative to areas where you can potentially cut back and try to offset some of the headwinds through FX?

I look at these two things really separate. One is the offensive measures; the offensive measures like the investment in field turbo, service and [swamis] is really capturing the weight -- the growth weight.

We have talking about it at previous occasions. I feel that there is reasonable momentum in the market, and I want to make sure that we capture that momentum. And it is the opportunity for us to selectively invest in the front end for that.

This is not impacted by this currency situation; we want to make this investment. We want to make the investment in the Franchise.

On the measures around FX, this is -- we have a couple of things that we need and want to do really short term. And this is related to purchasing supplier base and the pricing topics that Bill was talking, and then select discretionary spending that we have. But all of these should not have any impact on the growth-related initiatives that we have.

Then, the more long-term things are more structural that should also not have an impact on the growth momentum. It should also not have an impact on our product pipeline.

Okay, thanks. That's helpful.

Derik de Bruin, Bank of America Merrill Lynch.

Hi, good afternoon.

How are you?

Just out of curiosity, is the weaker currency environment for some other countries causing some of your competitors to be more aggressive, particularly since you are raising prices in some areas?

I would say, out of Europe, I'm not so concerned. I think in general these are disciplined and reasonable competitors. And in general, I would also say most of our competitors don't have that high profit margin. So, I don't think they will take advantage of the situation and be particularly aggressive. I haven't seen that in the last few years.

The ones that we need to watch a little bit are the Japanese competitors that we have to we call maybe in Japan, for example, it is the one end market where we have local competitors for our lab product. So, there we have put ourselves in a situation where our pricing power is impacted by the local competitors.

And then for the product inspection business, we have some Japanese competitors that also operate globally, in particular, often rest of Asia that we need to monitor. But I'm not worried that this will negatively impact our market share across the globe.

Great. And I was writing and I missed it, but can you revisit your comments about what happens in 2016 and 2017 when the hedges roll off? I believe you said a 1% EPS hit and 2% EPS hit, 2016/2017?

We will have -- again, all things staying equal, the impact of the hedges rolling off because we have a little less of 2016 hedged than 2015, is 1% headwind in 2016, and then another 2% when all the hedges roll off by the end of 2016, so into 2017.

That's on the EPS line, not on the top line?

Correct. That's an EPS comment only.

Great. Okay. So, always impressed that you take advantage of situations, and are proactive and do this. You clearly had plans in place to move some of your other manufacturing and some of your infrastructure around out there.

So, could you just refresh us in term -- our memory -- in terms of what you are certainly manufacturing for [Pruniz] -- how much you still have to move? Some comments on some of the actions you could potentially take on this, and how much more there is to go?

Maybe just to give you some ballpark numbers, and I want to make sure I say these the right way. So, let's say our net operating expenses in Swiss francs are in the area of [CHF]280 -- $255 million. And there's some things -- I pick examples like, clearly our supplier base in Switzerland will -- if we have an alternative supplier in euro, he suddenly became 15% more cost effective. And there are other things we can do in areas like printing and stuff like that.

In terms of maybe comments around manufacturing footprint and things like that, I think that's premature to talk about anything there specifically. And, Derik, you have seen our operations in Switzerland; it is not like we are vertically integrated there. It is high-end assembly operations, mostly on businesses where it is important to have manufacturing close to R&D.

So, we're continuously looking at our businesses in Switzerland and globally to become more efficient. I don't necessarily think that we feel like we need to solve this problem all within the confines of Switzerland. It is a thing we will work on as a team globally; and we are -- as you pointed out, we are on top of it already. We spent the last few weeks talking about that. We have some answers, but not all the answers. But we are determined to continue to be a highly competitive Company; and so, we are continuously looking at cost productivity measures.

Great. Thank you very much.

Tycho Peterson, JPMorgan.

Thanks for taking the question. Either Olivier or Bill, I'm wondering if you can give a little bit of color on your growth expectations by segment for lab, industrial, and food retail for this year?

Okay -- so, sorry, getting the right sheet in front of me. So, in terms of the lab business, we think that we had a great year in 2014, and think that it is very realistic to put up a mid-single-digit growth number on top of that.

If I look at our product inspection business, we would have expectations higher than that. That should be a business that grows high-single digits, whereas our core industrial business is probably going to be on that borderline between low-single digits and mid-single digits. But together I think the overall industrial business should be in the mid-single-digit range.

Then, as usual, we are not assuming much growth coming out of the retail business. I think we built it around 2% or something like that.

Okay. And then, I guess as we think about the growth you highlighted in service, you've been talking for a little while about the opportunity to increase at the attach rate there. Is this the result of incremental investments you've made, or how do we think about the potential going forward on that business?

Certainly, we are really happy with what we saw in 2014. We think we can continue to grow the service business faster than the product business, particularly in the core segments where we really want to be able to control proprietary service.

There's a lot of things we are doing from a sales and marketing perspective to make that happen, in general, and as part of the Blue Ocean program as well. So, we hope that's a multi-year trend that you are going to see in the Business over the medium term that we are going to have good growth, sales growth and good profit growth within our service business.

Okay, and then, on China, you've talked about the shift from infrastructure to pharma, food, biotech and chemicals. As we think about your level of investment there, are there incremental investments you need to incur throughout 2015 to capture the shifting growth dynamic?

If you go back to some of our business exits that we did -- I think that was early in 2014, end of 2013, Tycho, we exited some industrial businesses. We probably moved -- in effect, changed out about 100 people on a net basis. And we really made a lot of those efforts in terms of making sure the sales force within China was well aligned to the markets you mentioned, and as well expanded our scope in the west.

We think that the biggest piece of that was already done, but it will be something we will continue to invest in going forward. And if we think about the field turbo program or our market penetration efforts that we've talked about earlier, I think that applies to China as well. And we will continue to move front-end resources in those directions, and as well as product development efforts.

Okay. Thank you. Appreciate it.

Richard Eastman, Robert W Baird.

Good afternoon. Olivier or Bill, was Europe above plan at that 6% local currency growth, if you pull out food retail? In other words, industrial lab -- did they come in at plan, with the upside out of food retail?

Particularly -- the short answer is yes, and particularly if you think about Russia.

Okay, so, Russia was down 20%.

And Russia has basically no retail.

Okay. All right. And then, what portion of revenue is consumables at this point? And how did they fare in the quarter? They must have been up very high double digits.

Consumables in Q4 was about 6%. In terms of growth, we are just looking it up.

Okay. Because your reference earlier was service and consumables was plus 11%, service was plus 8%, so consumables had a big quarter. Is there any trend there or new product driver or just --?

For example, our pipette business did well in Q4; and of course, the pipette business has a significant share of consumables. So, I would certainly expect that this was a part of the explanation.

Okay.

I could confirm what Olivier said, and as well on our sensor business and a number of other areas. I think, if I look at the full year, maybe a little bit less in the fourth quarter, but if I look at the full-year numbers, for example, our Quantos consumables also had a good --

Okay. In terms of the field turbo program, I think the target was to add 200 people, I think by the end of calendar 2015. So, maybe -- can you just update us -- how far along are we in terms of ads there, front-end ads, as you speak? And then also, is that weighted to -- initially weighted to any geography or product line?

Let me take the second part first. So, this time we do this actually really globally. It is not just emerging markets. We go after underpenetrated markets and where we feel we can win market share. So, there are adds in Europe, as well as in the Americas.

When I look at Europe, it's certainly particularly weighted to [west-eastern] Europe. You have Turkey and some other countries, but it is not just emerging markets. We also did a couple of investments in mature markets.

When we look at product categories, we focus on product categories with the highest profitability. So, we would certainly see lab, products inspection, and process analytics getting an overproportionate number of these resources. Service is also part of it, that we certainly invest.

Then, there's a few additions that are cross business. For example, we invest more in key account management, and there we typically cover multiple divisions.

In terms of progress, actually we have, on a regular base -- we have these dashboards that show us the progress. We had the last one in December, and I was actually pleased to see that we have actually made progress already in recruiting, on-boarding people. And I do actually expect that we will be slightly ahead of the plan in terms of having these people on board. So, when we said we will do it throughout 2015, I wouldn't be surprised if we have the very big majority on board by mid of the year.

I see, okay. And then, lastly, Olivier, any opinion on -- competitive opinion on Sartorius -- finally they sold their industrial tech division to a Japanese company that, quite frankly, I hadn't heard of before. It wasn't -- it's not been too bad to compete in that space against Sartorius? You think -- any thought there?

I think actually it will not really impact our strategy and our position. I think actually, it is not obvious that the strategy of that business will change through the new owner. And in that sense, I feel actually comfortable that we will continue to win market share here in that situation, too. So, I don't have strong feelings worried about it.

Okay. All right, thank you.

(Operator Instructions)

Reggie Miller, Citi.

Hi, there. Thanks for taking the question. Just wondering: For the front-end investments that you are putting together, I'm just wondering if you had a sense of when we can see that materially impacting the top line?

Typically it takes six to eight months before we have sales that covers cost. And as I said before that it will take us until the mid of the year to really have the team on board. We would expect maybe late this year to start to have an impact.

But to reach the full potential for sales people, it can easily take three to four years. So, I expect us to benefit from that also in 2016 and 2017. So, in that sense, it's one of the reason why we talk about investments in the mid-term.

Okay, thanks. And the order timing issues that you discussed for the retail group in the Americas -- when do you expect to realize that? In 2015?

I think it was more related to product inspection where we said there was a little bit of a timing thing. I wouldn't read too much into that. We talk here about lead times of a few weeks, so it might have moved a little bit, but this is not so much here.

Okay, thanks so much.

We seem to have no further questions at this time. Do you have any closing remarks?

Thanks, Dustin. Thanks, everyone, for joining us tonight. Of course, if you have any questions or any follow-ups, please don't hesitate to give us a call. Have a good evening, everyone.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may all disconnect.