Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mettler-Toledo International Inc (MTD, Financial) reported better-than-expected results in the second quarter, driven by good growth in laboratory sales in Europe and the Americas.
- The company continues to benefit from productivity and margin initiatives, which helped mitigate the impact of foreign exchange headwinds.
- Sales in Europe grew by 6% in local currency, showcasing strong performance despite challenging economic conditions.
- The service business grew by 6% in the quarter, building on double-digit growth from the previous year.
- The company expects local currency sales to return to growth in the second half of the year, driven by easier comparisons and the execution of the Spinnaker sales and marketing program.
Negative Points
- Sales in China remained weak, with a 23% decline in local currency sales for the quarter.
- Overall sales declined by 2% in local currency and 4% in US dollars due to currency impacts.
- Adjusted operating profit decreased by 8%, with unfavorable foreign currency being a headwind.
- Gross margin improvements were partially offset by lower volume, and adjusted operating margin decreased by 130 basis points.
- Market conditions are expected to remain soft, particularly in China, with no significant improvement anticipated in the near term.
Q & A Highlights
Q: Europe seems to be doing pretty nicely right now, especially given some of the macro conditions that exist in some of those countries. What do you think is driving that? And what do you think is making the biggest difference between that region and the Americas when it comes to revenue performance and growth?
A: We are very happy with our position in Europe and how well our team competes there. A lot of the success is based on our direct sales channel and the effective use of our Spinnaker sales and marketing tools. Additionally, we have launched many new products over the last two years, which have been well-received in Europe. Customers in Europe appreciate our innovation, and we are competing effectively, especially with our lab portfolio.
Q: Can you expand on the extent to which business conditions in China have changed at all? And if they have, what you think that might mean for the year?
A: China unfolded as expected in Q2, with softness across all end markets. We maintain our guidance for a high single-digit decline for the full year, expecting positive growth in the second half due to easier comparisons. We have not yet seen the impact of the stimulus program, which seems more focused on high-quality segments like AI, new energy, biopharma, and new materials. We have not built in any effect of the stimulus in our guidance for Q3 and Q4, expecting it to be more of a 2025 topic.
Q: Core industrial was down 9% in the quarter. Can you unpack that for us and walk us through segment expectations for core industrial for the rest of the year?
A: The division came in as expected, being down 9%. Industrial is disproportionately weighted by China, where we saw significant declines. Outside of China, we saw better activity, especially in segments focused on automation and digitalization. For the rest of the year, we expect core industrial to be up low single digits in Q3 and flat for the full year.
Q: Can you walk us through segment level and geography expectations for Q3 and the full year?
A: For Q3, we expect laboratory business to be up low single digits, product inspection up mid-single digits, core industrial up low single digits, and retail down mid-20s. For the full year, laboratory up low to mid-single digits, product inspection up low single digits, core industrial flat, and retail down double digits. By geography, Americas flat in Q3 and up low single digits for the full year, Europe down slightly in Q3 and up mid-single digits for the full year, and China up low single digits in Q3 and down high single digits for the full year.
Q: Your comps get 700 basis points easier in Q3. The 1% growth seems a little light. Can you explain the thought process for Q3?
A: We felt very good about our Q2 performance and are not seeing negative changes in the business. However, we remain cautious due to uncertainties in the macro environment and longer sales cycles. We typically have about 1.5 months of backlog, so we prefer to get through another quarter for more visibility.
Q: Can you provide color about what you're seeing across customer classes in China, like pharma and biotech, academic versus industrial, and regional dynamics?
A: In Q2, we did not see a significant difference between market segments or end customers in China. All segments were down similarly. Our local China team is well connected to customers and is helping them prepare for the stimulus applications. We have not seen a significant impact from the BIOSECURE Act.
Q: Given the success of your direct sales force in Europe, does that make you want to reinvest in a direct sales force where you might have gaps versus indirect?
A: We constantly evaluate our go-to-market strategies and channels. In Europe, we have a strong direct sales force, and we also have a strong direct sales team in the US. In other parts of the world, we use indirect sales channels. We look at coverage, market momentum, and investment opportunities to decide on our sales strategy.
Q: Can you talk about the growth in your services business and where you see room for further growth?
A: Services are a strong differentiator for Mettler-Toledo. We continue to invest in our service team and portfolio. We have a large installed base of instruments, and we are focusing on reaching out to these customers to offer updated service opportunities. We see excellent growth opportunities in services, and it remains a key focus area for us.
Q: Is it your view that share gain for Mettler is accelerating, or are you highlighting efforts to support historical share gain?
A: It's hard to measure share gain on a quarterly basis, but we compare our results to competitors and are pleased with our performance. We invest in innovation to drive market share gains, and while we make small gains each year, we are happy with our current performance and market share gains.
Q: Thoughts on the M&A target environment and share repurchase programs?
A: We are selective with acquisitions but feel we are a great platform for strategic opportunities. Absent acquisitions, we use our free cash flow for share repurchases. We feel good about our share repurchase program and plan to continue it consistently. This year, we estimate about $850 million in share repurchases, approximating our free cash flow estimate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
