Mettler-Toledo International Inc. (MTD) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to our Mettler-Toledo first quarter 2008 earnings conference call. My name is Cara, and I will be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn our presentation over to our hostess for today's call, Ms. Mary Finnegan. Please proceed ma'am.

Thank you. Good evening. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo, and I am happy to welcome you to the call. I am joined by Robert Spoerry, Olivier Filliol and Bill Donnelly. I will start by covering some administrative matters and then turn the call to Robert. Now for the administrative matters. First, this call is being webcast and is available for replay on our website at www.mt.com. A copy of the press release we issued today is also available on the website. You should be aware that the statements on this call, which are not historical facts, maybe considered forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. For further information concerning issues that could materially affect performance related to forward-looking statements, please refer to our filings with the SEC. We undertake no responsibility to release any revisions to forward-looking statements as a result of subsequent events or developments. 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 measures and the most directly comparable GAAP measures is provided in the press release. I will now turn the call to Robert.

Thank you, Mary, and welcome, everybody to the call. As usual, I will start by summarizing the highlights of our first quarter and then Bill will provide details from our financial results and our guidance for the remaining part of the year. Following Bill, Olivier will provide some additional comments on the quarter and then both Olivier and I shall comment on some of our initiatives. We will have, as usual, time for Q&A at the end. Now let me start with the highlights of the first quarter. We are seeing continuous solid momentum in our business. Local currency sales growth of 5% was in line with our expectations. We had solid growth in our laboratory and in our industrial income business, but our retail was down against the strong quarter in the previous year. This solid sales growth combined with good gross margin expansion led to a strong 20% growth in our operating profit and a 20% increase in adjusted EPS. You will notice that we lowered our tax rate in the quarter to 26% and believe this rate is a sustainable one for the foreseeable future. The one item that was not as strong was cash flow. Bill will provide some details on year-over-year comparison that impacted this number. Our solid first quarter results and our lower tax rate, we are increasing our guidance for the full year. While we all optimistic today, the momentum in our business remain solid. We are very cautious also on the economy. We are preparing plans to reduce our expense growth in the event of a possible slowdown later this year. So I'll add [ph] further comments on guidance and our outlook later on the call. I am now going to turn over to Bill for details of the financial results.

Thanks, Robert, and hello, everyone. As you heard from Robert, we had a good quarter and are pleased with the solid start to the year. Let me begin with adjusted earnings per share, which came in at a $1, a 26% increase over the prior year amount of $0.80. Adjusted earnings per share exclude purchased intangible amortization expense and a discrete tax gain this year. On the last page of our press release, we have a table that details the components of adjusted earnings per share. Let me provide you more details beginning with sales, which were $439 million in the quarter, an increase of 5% in local currency. On a US dollar basis, sales increased by 13% in the quarter, which includes an 8% currency benefit. Given the strong impact of currency, I want to highlight again that although we do have a benefit on the top line due to currency it is local currency sales growth that drives our operating profit growth. This is because we are relatively naturally hedged with our non-dollar sales approximating our non-dollar costs. The impact of currency on operating profit and earnings per share tends to be relatively small. Breaking down sales by geographic destination and all these percentages again in our local currency Europe increased by 4% in the quarter with very strong growth in laboratory instruments. Industrial was in line with exceptions, while retail in Europe was down modestly. In the Americas, sales growth was flat with good growth in lab instruments, product inspection and core industrial products. This was offset by declines in retail and transport and logistics against strong project activity in the prior year period. Absent the large project activity for retail and transport and logistics last year, the Americas increased by 5%. Sales in Asia/Rest of the World increased by 18% in the quarter with all product lines showing good growth. Now let's look at sales by product area. We had 9% growth in laboratory instruments in the quarter, with good growth in almost all product lines. Industrial sales grew by 7% in the quarter, with strong growth in core industrial products and strong growth in product inspection. Offsetting this was the decline in transport and logistics, which is already mentioned at strong project activity a year ago. Finally, retail was down 11% in the quarter against strong comps, specifically retail was up 14% last year Q1. I kept my remarks here brief as Olivier will provide some additional insight on sales by product category. Let's now turn to gross margins. We are very pleased with the strong gross margin increased in the quarter. Gross margins were up by a 100 basis points to 50.4%. We benefited from volume leveraging of our fixed cost base, a favorable breadth of product mix and price increases. They were offset by currency, which diluted the margin as well as higher steel prices. R&D amounted to $24.3 million or 5.5% of sales, a 4% increase in local currency. SG&A was $138.6 million, an increase of 6% in local currency. We continue to invest in global sales and marketing initiatives, particularly in emerging market countries. We also benefited from the small gain on the sale of some excess land in Switzerland. This was offset by some restructuring charges related to our cost reduction efforts as well as some IT-related charges and capitalized software. The net sum of all these items resulted in a strong operating income. Adjusted operating income increased by 20% to $58.3 million from $48.7 million a year ago. Our operating margins improved by 70 basis points over the prior year and we're very pleased with that margin improvement. Continuing down to P&L, amortization was $2.4 million in the quarter. Interest expense was $5.8 million. Other expenses amounted to $1.7 million in the quarter as compared to other income of $360, 000 in the prior year. These amounts relate to reductions in interest income, with our cash balances and the impact of foreign exchange. Let's turn to taxes. First, during the quarter we lowered our effective tax rate from 27% to 26%. We feel comfortable with this rate for the foreseeable future. Second, we had a discrete tax gain of $2.5 million or $0.07 per share related to tax law changes in China. We exclude the $0.07 from our adjusted EPS as outlined in the last page of our press release. Now for the share repurchase plan. During the quarter, we repurchased 954,200 shares for total amount of $95.6 million. Fully diluted shares for the quarter were $36 million and at the end of the quarter were $35.6 million. Our share count is currently 7.5% lower than at the same time last year. Finally, earnings per share on a reported basis was a $1.06 in the quarter as compared to $0.78 in the prior year period. Adjusted earnings per share was a $1.01, which is a 26% increase over the prior year amount of $0.80. Adjusted earnings per share exclude the $0.07 discrete tax gain and $0.02 for the purchased intangible amortization. Now let's turn to cash flow. Free cash flow in the quarter was $13.5 million as compared to $27.1 million one year ago. We had expected cash flow in Q1 to be below the prior year. We have a couple of comparability items, which explains the difference. First, our variable compensation payments or specifically bonuses were $11.5 million higher than the prior year. This reflects our strong performance in 2007. Our bonus payments for 2007 are paid in March 2008. Similarly, our bonus payments for 2006 were paid in March 2007. The second item comparability-wise is we had $8 million more in tax payments. This purely reflects the timing of some tax refunds that we received last year. Third, the payments of our accounts payable were $20 million higher than in the first quarter of 2007. This follows an unusually large accounts payable build-up in Q4 of last year, specifically related to inventory build and some CapEx. Offsetting these factors was a net positive of $10 million from the sale of excess land in Switzerland. I know I named a number of items there, but if you adjust for these unusual timing items, cash flow was up in the quarter. Bottom line is, for the full year these timing items will level out and we will again have free cash flow per share in excess of our earnings per share and nicely above the prior year amounts. Just to cover also DSO and ITO. They both came in at about the same levels as a year ago, with ITO slightly better and DSO slightly down. That covers the quarter. Now let's turn to guidance. We've not seen much impact of the economy in our business to-date. However, we are very cautious given the increasing uncertainty. We are continuing to formulate plans assuming sales come in at the lower half of our 4% to 6% guidance range. We are initiating certain efforts internally to reduce expense growth to the extent that market conditions deteriorate. We want to be position to react quickly if necessary. Even with this frame work, we are able to increase our full-year guidance with the benefit of our strong Q1 results and a lower tax rate. We now expect that adjusted earnings per share will be in the range of $5.43 to $5.53 or growth of 15% to 17% over 2007. This is the increase over our prior guidance, which had assumed the growth rate of 12% to 15%. For clarification adjusted earnings per share excludes $0.07 expense for purchased intangibles and the $0.07 gain for the discrete tax item I mentioned earlier. In terms of the second quarter, we would expect adjusted earnings per share in the range of a $1.26 to $1.28, which is a 16% to 17% growth rate over the comparable amount in Q2 '07. Okay, that's it for my side and I'll now turn it over to Olivier, who will provide some additional commentary on the quarter.

Thank you, Bill, and hello, everyone. I will start with some commentary on the results and then turn to growth strategies. We had a good start to the year and have solid momentum in our business. We feel confident in the year ahead which is reflected in increased guidance Bill has just outlined to you. We are all, of course, cautious on the economy and will continue to monitor it closely. Now let me provide some additional comments on the quarter. Lab has a very strong quarter with sales up 9%. We are very pleased with the sales growth level, which was broad-based across product lines and geographies. We continue to benefit from strong product pipeline, our Spinnaker initiatives surrounding sales and marketing and strong growth in emerging markets. Turning to industrial. Our core industrial business was strong in the quarter, with very strong growth in Asia and recent growth in the Americas and Europe. Product inspection also had solid growth, with particular nice growth in the America. Offsetting this to a degree was decline in transportation and logistics, which had a very strong product activity one year ago. Comparison for transportation and logistics get easier for the remainder of the year, but we are not expecting much growth this year as these customers are the first to be impacted by slowing economy. As you heard, retail was down in the quarter. Of all our businesses, this tends to be the most uneven. Although this quarter we are impacted by cost comparison from one year ago, we do not expect much growth this year in retail. We are strongly positioned and have an excellent product line, but feel retailers maybe cutting back on the spending given the economy. That is all my comments on the business units. And now I want to turn to our growth strategies. We continue to pursue our cost strategies, that is our Spinnaker initiatives, our opportunities in emerging markets, our technology leadership and our cost leadership. I have no intention to change these strategies, but we are always continuing to evolve and refine the initiatives underlying these strategies. In that sense, I would like to update you on recent initiatives related to Spinnaker, an emerging market and then Robert will discuss an exciting new technology that we launched. One focus area on the Spinnaker is pricing. As you know, we implement annual price increases for both products and services each year. We have also discussed with you related programs aimed at more effective discount management and better value selling. Today, I want to discuss our recent programs related to service pricing. We have evolved a pilot program in United States to optimize our pricing for our service offering. Let me walk you through some of the key elements. First, we believe we can achieve sales and margin gains to differentiate the pricing. Individual returns on market segments have different service requirements. Some are more demanding, some are less. We need a differentiated pricing strategy rather than an uniform one to better align our service offering with our customer needs. Second, there should be a pricing gap between brake fixed services and preventive maintenance activities. Brake fixed is more costly because it involves emergency scheduling, parts statistics, and technician skill level. We need to ensure this is incorporated in our pricing model. Third, we are analyzing factor base pricing for spare parts. We can optimize the price of spare parts by taking into accounts the factors as the proprietary nature of the part, required availability level, equipment cystality [ph], life cycle management and price of the space part relative to the price of an instrument. Finally, similar to what we discussed in pricing for product, we also increasing our training and emphasis on value selling for service including analysis of total cost of ownership in order to better articulate the value of our service offering. As you can see, some of the individual elements of the program I described are not complex. But taken together and with good execution, the impact is powerful. We are already seeing the potential to our US pilots. Pricing will continue to be an area where with good strategy and strong execution we can drive excellent returns. We are building additional pricing expertise and we'll start to implement part of the program to the rest of the world in the coming months. It is worth noting that even in more difficult market conditions which we may see later this year, service tends to remain a steady business. Turning now to emerging markets. As we mentioned on our last call, emerging markets represent approximately 25% of total sales and we expect to see double-digit sales growth from this region. In the first quarter, we had another good quarter with sales growth of 15%. How are we driving this growth? If we look more closely at China, our biggest emerging market, you can gain a better understanding of our growth initiatives for this region. First, we are expanding our territory coverage in China. We have a strong presence along the coastline and we are moving this presence inland where there are numerous cities with population of several million people. We are opening new branch offices and expanding our dealer network. We are also expanding our service organization to cover this vast region. Second, we are also applying Spinnaker initiatives to such effect with marketing and lead generation. We have dedicated telemarketing resources to qualified leads, and by this year end [ph] reduced by more than 600 personnel to manage consumers and channel. Third, we are also building up new businesses in China, including product inspection as food safety becomes an increasing concern in this region. We are also expanding our Rainin Pipette offering and our AutoChem offering to meet the expanding needs of research lab. Finally, we are tailoring our offering to the market needs of China. That is, we are localizing the product to better meet the customer requirements of this region. These customers are more focused on the mid range of our product offering, and we have local engineering and manufacturing, so that we can ensure cost effectiveness for this region. In summary, we feel very good about the potential in emerging markets. Not only China, but also Russia, India and other regions. And this is not only for 2008, but in the years to come as well. We've have been making substantial investments in emerging markets which are yielding benefits. While headcount in the rest of the world remains relatively flat, we are growing in these regions. We are also investing in training and other HR programs to continue to improve our retention rates in the region. That's all I wanted to cover for now in Spinnaker and emerging markets. We continue to make significant investments in R&D and Robert will now provide you some insights on one of the most exciting product launches we had in a long time.

Thank you, Olivier. We are very pleased to announce the launch of quantum leap, products that addresses the long standing challenging lab. Namely, how the most efficiently and accurately dose powders. Dosing powders through target leads [ph] is one of the most frequently used application for laboratory balances. Research scientists typically begin an analytical method such as HPLC, with preparing a sample and this is most often, well most often include the dosing of a powder. This is manual process, which involves transferring small quantities of powder, which is transferred into different containers on a balance. Dosing powder is very tricky, because the flow of the powder characteristics vary greatly. Some powders are very sticky and they are difficult to dose, while others flow very quickly and can spill easily. Not surprisingly, the process is tedious, time consuming, and often are inaccurate. Dose powders are costly, and they can be expensive. In addition, powders can represent a higher effort, because they emit toxic aerosols. Technician safety is very important concerns for many of our lab customers. Earlier this month, at the Analytical Trade Show in Germany, we unveiled Quanto, a revolutionary instrument that provides automation for powder dosing. Quanto stands for a quantum leap in dosing. The automation of powder dosing is extremely challenging. Besides having to compensate for the different flow characteristics of the powder that is sticky or easy flowing. The impact on powders during the automation process has also to be thoroughly understood. How it impacts the particle composition and so forth. We've overcome these challenges with unique technology, that combines a modified analytical balance, with a disposable dosing head, which can be put easily into the balance. The specific steps in filling dose is now safely stored in a dosing head. With a simple keystroke, (inaudible) of how much powder is needed and (inaudible) the dose directly, precisely, and automatically into a container. The dosing process is controlled by the balance and dosing elaboration is consistently updated you to optimize the process. An RFID chip in the dosing head identifies and attracts all important information, such as the amount and type of processing dose, the number of dosing, and the accuracy of the dosing. Each value is traceable and can be recalled on touch screen displayed anytime. The dosing head is a consumable, as it has to be replaced after 75 doses. Otherwise it cannot guarantee accurate dosing. Laboratory technician can now dose powder to target rate 20 times faster as compared to the manual process. Furthermore, because it balances, controls and monitors the entire dosing process, it can achieve accuracy within 2% to 5% tolerance range. With minimal dosing, it is not unusual to have tolerance ranges of 10% to 15%. Waste is eliminated as powders are filled more accurately and spilling is avoided. Furthermore, because of the great precision, scientists can use smaller sample sizes and they can achieve the same result. Finally, worker safety is enhanced as powders are contained within the dosing head, which prevents toxic aerosols from entering the blood stream. We are offering a complete service package including our application installation and performance assurance contracts to implement Quanto offering and ensure utmost reliability With tangible customer values, that affect our operations, smaller sample size, greater worker safety, better tracking ability, we provide a very quick payback to our customers. We have put in place specialized sales and service teams in our key markets and our initial customer reaction from private installation and its division has been very favorable. As you can hear, we are very excited about the launch of Quanto, and you will have the chance to hear more about this new product at our upcoming Investor Day in June. Concluding, I want to say that we are very pleased with the strong operating results of the first quarter and our solid start into the year. As you have heard, we have raised our guidance for 2008, and we remain confident in our ability to execute our initiatives. Momentum in our business remains solid. We remain at the same time cautious on the economy, and we will continue to monitor it very closely. With that, I'd like to conclude the prepared remarks and I would ask the operator to open the line for questions. Operator, can you open the line, please?

Carol, can you open the line for questions please? Question And Answer

[Operator Instructions]. Your first question comes from the line of Peter Lawson with Thomas Weisel.

Yeah. We've seen a phenomenal expansion in gross margins. Where do you think gross margins can get? Is there anything that's going to top that out?

I think that every year we try to come up with the few ideas and this year we have a number of them. I think the mix was good, I think we've done a good job in pricing. Actually I mentioned, probably that the currency actually dilutes our gross margins over 100 basis points this quarter. So the underlying impact is quiet good. I think, our goal is at least for the next three years to continue to be able to expand our gross profit margins and I limit it to the three-year period, more reflecting what we have ideas as of today than reflecting any kind of tapping out.

And then what was the contribution to the bottom line from FX, are you still kind of neutral on FX?

Yeah, it was pretty neutral. If you look in the quarter, what you basically had was, as you guys know our biggest exposure area is the Swiss Franc versus the Euro, and that actually worked against this in the quarter. So that offset some of the benefits we had, some of our sales organizations around the world, their earnings translating into more dollars. So the net impact on the quarter was negligible. Mary is kind of giving me the headshake here to reinforce that. Yes.

It's clear from your business, there seems to be a decoupling between US growth and Asian growth. Do you think that's going to continue or is there a point where you start to see Asian growth pulled in from lack of US growth?

Again, I think the decoupling, I wouldn't overdo that. The reason I say that is because, our project business, this P&L and retail, you've been in all this for a while and know that that can be pretty lumpy. If you pull that out in the quarter, the Americas were up about 5%. Of course not the same kind of growth rates as emerging markets. If we look at our customer base in emerging markets, an increasingly large piece are these local Chinese companies and some of them are exporting and some of them are working for the local Chinese market as well. But of course exports certainly do matter in China. But we continue to see good market activity there and have a very actually… a large part of our backlog build is actually in China.

And then just finally I wondered if you could just break out the businesses revenue for lab, food and industrial?

Sure. Our laboratory instruments in the quarter were about 45% of sales, industrial 43% and retail 12%.

Okay. Thank you so much. Thanks for taking my questions. Congratulations.

Thank you

Your next question comes from the line of Tycho Peterson with JP Morgan.

I am here for Tycho. Congrats on a great quarter. Just a couple of questions for you. One is about the process control market and the regulatory drivers in that. Can you give us a little bit commentary about what to expect in that market?

When you say regulatory controller, are you taking in particular just in general food safety areas or process control around pharmaceutical or--?

In general, food safety is really the part of the question.

Okay. Do you want take that?

Yes. In the food safety, there are different things that are happening that are beneficial for us. The awareness of food safety is a big topic actually, not trust in US, it's very much also for example in Asia and we are well positioned with our products to benefit from these things. And we are trying actually to more and more develop an offering that is targeted to these needs. So for example, you see us even adapting some of the products that better comply in fact with these needs. Again this is quarter of segment marketing also that we have across.

I think what I might add there is that probably the drivers tend to be less regulatory, because that was kind of a contactual question and more customer driven. We actually saw a really neat example recently where the big UK retailer, I apologize it's slipping my mind.

(inaudible)

Sorry Marks & Spencer. Marks & Spencer has sent a video to all of their customers and basically the video is about food safety and I think in the first three minutes, they mentioned that Mettler-Toledo and our brand Safeline probably five times. And they are basically spending it out and reminding all other customers that you guys need to be doing metal detection as part of our expectations for you as a supplier. So, we really see the drivers much more coming from customers, particularly in the western markets. I think the emerging markets that will eventually mitigates, but it is probably as not strong a pool as it is in the west.

Okay. And just the time to the emerging market idea, do you expect this is having any sort of impact from the Olympics in china and specifically if all the factories have been shutdown for a month prior to or is that going to impact other local fields or your manufacturing instruction timelines?

We are all kind of shaking our heads, but I think of course we've never seen an Olympics in china, so I guess we are… there is a certain amount of uncertainty. But I think we actually generally view it as a positive in terms of further brining them into the global world. So, our expectations are that there won't be a significant issue in Q3.

And then the last question is in terms of raw material costs, I guess, I think what we're seeing across the Board and the spaces that with commodities prices increasing that having a bit of a squeeze on various people's margins. Do you expect that as well, and are you hedging at all against that?

We don't do any hedging. We try to do price increases. We've been working just recently on mid-year price increases, which is probably we tended to have more of an annual approach. But recently and particularly in areas where there are high steel content, we're pushing through prices and in general just looking at currency movements as well, and how bad that impacts our cost structure to push on pricing.

Great. Thanks for taking my questions.

Sure.

Your next question comes from the line of John Wood with Banc of America.

Hey, thanks. Hey Bill, can you just talk about… you just touched on it. But was there a price increase generally as of January 1 in the business? And do you expect that there'd be another one, given the commodity cost increases in mid-year?

Hey, I wouldn't call it a precise January 1, but yes, we pushed through price increases at the beginning of the year. The timing and how they get effective is probably a little bit different by product line, by customer and by geography. What we were saying is that there is a couple of areas we're looking at putting through some price increases throughout the year I would even say. Those include some of the vehicle areas and the product inspection areas which have high steel costs. Another area that we're looking in some of our laboratory instruments where in certain markets we see that the margins are being impacted because of the strengthening of our cost base in terms of being manufactured in Europe as compared to some markets like the US for example. So we're looking at raising prices there, in particular where we see that competition would have similar kind of cost structure by currency to what we have.

So was there a direct… if you look at your direct materials purchased index, was there a change in that sequentially that you could see?

Well, I think you… I think we've talked about it pretty openly last year, it was probably the first time in seven years that we had a number above a 100 again 100, again 100 being equal to the prior year. So, we had six years in a row taken down cost. And last year went up and of course that was driven by steel. In the first quarter what I see is that our steel costs are continuing to rise and just we measure that at the point of purchase. Now what we saw really good numbers and is a electronics. Some of that is driven by just electronic pricing. But a lot of it's actually driven by our own internal initiative to try to bring down cost there. We probably expect that. We will have cost increases for the cost structure in total, but particularly on some of the high steel content prices again and name the vehicle product inspection. But we are pretty confident that we can past through those costs.

Okay, thanks. You highlight the strength of product inspection in the United States. But in terms of Asia, is that business just so small there that it's not yet remarkable in your overall results, how was that line doing in Asia?

It's doing well, but it's not that large actually. I think that in China if we look over the last three years, the business is growing nicely. But it's still a fraction of what you see in the United States.

However, we are actually making significant investment there. We are building up more manufacturing capabilities so that we can localize more products, have them also with the right price points and I'm definitely committed to leverage actually the vast potential for our product there.

Okay, thanks.

On product inspection, we are a little bit later in the game than for most of the auto product to really have been localized and building up also the necessary sales network, sales and service network. But we are certainly committed to have a very fair multi-channel [ph] in Asia for the product inspection business.

Great, thanks. And one more if I could. Could you just comment generally on the pharmaceutical account base and also petrochemical just broad-based which you saw from both those customer groups in the quarter? Thank you.

Okay. So as you heard our lab business did very well in the quarter and pharmaceuticals is an important component of that, so it did reasonably well. We're not as sensitive to CapEx budgets and pharma as maybe some other companies in the group just because some of our price points are a little bit below those kind of radar screens. But an interesting comment, if you look at our highest end instruments where we talk about our AutoChem business is, if you go back and look at our product mix by customer today it's actually looking much like you did in the late 90s before our mid-to-late 90s before really the pharmaceutical guys started spending a lot of money in that area. So the mix is not as reliant and pharma as it may be was five years ago. So and then a part of what's being improving there is Petrochem is for example one of the sectors. But if you look at our lab business overall, Petrochem is still a relatively small segment.

Thank you.

Your next question comes from the line of Peter McDonald with Wall Street Access.

Thanks for taking my questions. First, turning to service, what percent of revenues is coming from service now and ultimately, how big do you think that could be as a percentage of sales?

It's 23% of sales. I think our general feeling is that we should be able to grow faster than the product business, but not twice as fast or anything like that. So, that that will gradually increase towards 24 than towards 25. But we don't expect it to be 40% of sales or anything like that.

Okay. And then congratulations on creating a consumable for a balance of an achievement. How much does one of the dosing heads cost and what would be the annual revenue stream from a typical installation?

The dosing head prices for the US has not been firmed up yet. But we are hoping of something in the range of $150, $170. And again, you can use it for 75 dosages. The instrument itself will be in the price range of $40,000 to $45, 000. Our expectations in terms of the impact of Quanto on the balance business is such that we believe that with that, we will have a laboratory balance business growing at the mid-to-high single digit range over the coming future. So, I think you will get good growth out of our laboratory business, which by the way is a very high margin business. And of course the consumable on top, even more attractive.

Great. And then, if you do see any market slowdown, how soon would the expense controls kick in? Is it a quarter lag or is it something you can, kind of do in mid quarter?

Hey. With us it's people. So there is some limits to it. But one of the things that we have in our… we are trying to watch headcount particularly in the west. We are continuing to make headcount investments in emerging markets. We have close scrutiny on what we call general expenses internally, this idea of expenses paid to suppliers. Another thing that we have, of course, is variable compensation. And it is quite an impact in terms of… because people are paid on a high variable amount, that number can kick in fast, when the business turns down. We at this point, want to be in good shape, so that if the business turns down at a later point of the year, we can get our expense structure down to, reasonably speaking, a low single digit growth rate.

And then, my final question, how much do you have left on the share repurchase authorization right now?

Mary's pulling up that number. But maybe my want on that would be… you know, we've kind of consistently increased that one. We put a new one in place, Mary, last year, in Q3, was it?

That's right.

And so what's remaining on the program is a little over $0.5 billion currently.

Okay, great. Thanks a lot.

Sure.

Your next question comes from the line of Richard Eastman with Robert W. Baird. Richard Eastman - Robert W. Baird & Co.: Bill, I want to just return for a second to pricing. What did you realize in price at the top line in sales, just on a consolidated basis in the quarter year-over-year?

Hey. In the first quarter, because there's price increases going in, I am less comfortable talking. We have better data, as the year progresses. It's a little bit tough to measure right now. But we mentioned that, our gross profit margin was up about 100 basis points. The currency impact was against us, more than 100 basis points. So, we're probably realizing something north of 100 basis points currently. Richard Eastman - Robert W. Baird & Co.: Okay. All right. Bill, I'm just trying to sort through some of the commentary you gave here on the call and in the press release. But if I adjust for currency, your incremental EBIT margin in the quarter was like 48%, and that was a fantastic number. And how much of that is a function of pricing first mix? That's a big number and it sounds like in local currency, that your SG&A and R&D kind of grew at about a 6% rate which would be in keeping with…

Hey, I guess a couple of comments. So first of all, if you look at the same number that you are quoting for last year, we were at for the full year around 40%. And so it's an increase, but it's not overdone, and then the fact that the first quarter being kind of a low sales quarter. The impact is going to be a little bit more dramatic. But I think the biggest driver is that mix wise. In the first quarter, because retail and T&L were down. They are among our less profitable product lines, and you had very strong growth in lab instruments in particular, but also product inspection. You know, our lab instruments have excellent gross profit margins. Richard Eastman - Robert W. Baird & Co.: Yeah. Okay. That probably does answer the last question against sales. And then one other question, when we exited the fourth quarter and came into the first, there was a bit a confidence given your backlog level coming into the year. And I am curious did any that get pushed or did some of that fall in to the quarter or I'm just curious where that sits at this point. Is your backlog still higher year-over-year?

Yeah, we have very good backlog levels. We have record levels of backlog. Richard Eastman - Robert W. Baird & Co.: Okay. And how much of that is in Asia? I mean to say, is that a good blanket statement for all three regions?

A lot of the increase I would argue is in Asia. Probably I think my recollection is 40% of the increase is in Asia. I wouldn't read so much into that, that could as much mix because we have a big vehicle, scaled business there and that has longer lead times. So I wouldn't read as much into that. I think we have a healthy retail backlog, a couple of other areas too. So some good projects, so yeah. Richard Eastman - Robert W. Baird & Co.: Okay.

Good backlog as well. Richard Eastman - Robert W. Baird & Co.: Okay. Very good thank you.

Sure.

Your next question comes from the line of Chris Arndt with Select Equity Group.

Yeah. If you could, Robert, perhaps if you could talk a little bit more about the long-term opportunity for Quanto you mentioned that might be used often with HPLC. And obviously that's a large market. So how do you think in terms of the opportunity to penetrate this market and what ultimately the product might grow to?

Yes, I articulated in my remarks. The product is typically used for sample preparation, where you typically have to dose powders and HPLC is one of those permanent applications, but not the only one. Of course we have done market analysis where we look at how many balances are installed in that application and as I said, it's one of the most frequent laboratory application. So now you can go through many different assumptions, how much of dose balance is being used in a manual dosing form can be replaced by this new product, Quanto. And time will tell, what is the right answer. For us, I think it is an integral part of our balance offering and I would typically state to you here that we believe that it can grow our balance business high single digits. Probably the market for laboratory balance, is a low single digit growth and for us it is 220 million revenue business in laboratory balance. So you get a feel for how much that impact can be. But we also want to maybe learn first, a little more before we talk too much about those numbers. But we feel it's a very fundamental application which has great value payback for our customers. We have actually gone through some customer test installations and we have seen that customers have been saving more than $150,000 over five years, if you add separate [ph]. So, fantastic payback.

Hey, great, thank you.

Welcome.

Your next question comes from line of Vivek Khanna with Civic Global [ph].

Hi, good evening, I just missed the lab revenue growth. Can you just give that again though?

90%.

So the retail was down 11% and are you seeing any improvement in that business as you go into the second quarter or you would expect that to continue to be down year-over-year?

Hey, it's got to be good in the second quarter, but it is going to be good in part, because we have a large (inaudible) we are coming through. I think that we are monitoring that business, we are not sure how the second half (inaudible) is a pretty good pipeline. But that pipeline, how fast it translates, it has got to be partly dependent on the economy. So, we probably at this point are cautious about the second half for retail.

Right, okay and you said industrial was up 7, right?

Industrial was up, yes 7% and that had down T&L within that.

Right, and then did you give the China growth rate in the quarter? I don't think you did?

I didn't, but it was a number north of 20%.

Great. Thanks.

Yes.

Your next question comes from the line of Greg Halter with Great Lakes Review.

Congrats on the good results. Just trying to square away some numbers on the share repurchase. In the body of the release, you talk about $95.6 million being spent on the share repurchase, and then in the cash flow statement, it's a $98.6 million. And I'm just wondering which number is which?

We get asked this question every couple of years and the difference is Mary's reading me, it's for one purpose here the accounting rules require to use the settlement date, and in the other one it's the cash, actual purchased amount. And as Mary say, it's 8 million [ph] to three-day difference.

Right, it's a three-day settlement. Okay. And also, I believe that you had indicated in the release that Asia/Rest of the World was up 18% but Robert, I think you indicated that emerging markets were up 15% in the first quarter, is that correct? Did I hear that correctly?

Your emerging market number is correct, and the difference is that we had some large projects in the Middle Eastern… Middle European countries a year ago. So what we call our MEC [ph] countries, which is kind of Poland, Czechoslovakia and stuff, was not strong in the quarter. But purely due to comparison. And if I remember right, Russia wasn't particularly strong, again because of a large order in Q1 a year ago. So that's a difference.

Okay, thank you.

Your next question comes from the line of Jonathan Groberg with Merrill Lynch.

Hi, Jonathan.

Thanks for taking my call. Juggling a few different calls. I apologize. Some of these questions have been answered to some degree. But in the US, can you just talk about, I know that for example Walt-Mart recently had created some new initiatives where they try to put it, they are requiring that there suppliers for example food suppliers meet certain testing standards in terms of what they are delivering to Walt-Mart. And just curious within the US, what, as I assume things are slowing to some degree in the US. Where you feel more exposed and where you feel better positioned?

Sure. I guess, hey, all of our businesses to some degree had some economic sensitivity, but we traditionally have looked at certain ones that's having more, I think we've commented a little bit that the retail business would be we believe and for obvious reasons more economically sensitive our transport and logistics business, which tends to feed the big hubs to a certain extent some of our industrial business as well. We would tend to as you say product inspection, we tend to think as some other drivers and our lab business as well had some other drivers as well and process analytics as well also from other driver.

If I use your wording what percent of your revenues would be one that you think have other drivers and what percent would be one that maybe a bit more economically sensitive?

Okay, hey, the ones that are most economically sensitive are probably 20% of sales and the ones that have less economic sensitivity are probably 80% of sales.

Okay. And now feeling that over for those people who maybe a little bit more skeptical about China and rest of world being able to maintain there rapid growth rates given what you are seeing in some of the more developed markets. You're seeing any changes at all in patterns or trends in the emerging markets?

Not really. Actually we had great momentum also in the first quarter. You heard before Bill had mentioned, Russia was maybe a little bit but that was mainly because of previous year comparisons. Now it's growing well, China growing well, Russia growing well, India growing well and we feel actually quite comfortable across all business labs.

And I know you mentioned in the past and again on this call as well. If things were to slow down there, you also able to adjust that and I don't know if there are certain labor law or regulations or anything in these emerging markets. Would you also be able to adjust accordingly should thing slow?

Yes. Actually it's easier in Asia than in Europe.

And hey just to put a context, I don't… we don't imagine because there is so much just internal growth required there that you would go negative for an extended period of time there and it would be more be a question of us slowing our investments than having to lay off people.

Hey, Jonathan to put your question in maybe our road, our mindset for that part of the road is rather how can we really peruse all the growth opportunities which do unfit. That's preoccupy now mind than much like whether it's still slow down and what we were doing in that case.

Which it should be and just you know we have tend to look at the other side of every coins?

Yeah. The market, we are very happy to beat this momentum in that part of the road. We're not seeing anything of what you're describing. We've seen many, many opportunities which we are not really covering yet and we are thinking so how we can get after that.

And then last question I guess you talked lot about the commodities, still prices going up, what about in these markets again that are growing very quickly, you're announcing you are messing for growth, what's happening with SG&A etcetera there, as inflation running higher than you maybe anticipated at the end of last year, how is that meeting expectation?

We talked a little bit about it on the material side. In terms of other area, as you know clearly we have lots of sales and service guys driving cars every day with higher energy costs.

I was speaking more about the people themselves.

Our salary inflation, most of the rate is going in Q1. We have a pretty good idea of what our Q2 cost structure is looking like. So, I think that is, we have that built in our numbers. We are really time out. Now recently there is talk about higher wage increases in Europe in 2009 and in think that's maybe one of the areas that we want to take a look at and make sure that we are getting a right productivity in that part of the world too.

For the remainder of the year, before you said you expect that the first half to be maybe a little higher than the second half with the range of revenue estimates that you gave in local currency sales, you've kind of done 5% here. Do you still expect, maybe things to be a little slower in the second half or not necessarily?

I think we are trying to make sure the cost structure can allow us, could be at a level that allows us to hit our targets with less sales in the second half than the first half. If environment is better than that, we are also in position to continue to make investment such that we are at, let's say given away growth opportunities.

Okay, thanks a million and congrats.

Sure, thank you.

(Operator Instructions). Your next question comes from Ana James [ph] with Silverman [ph].

Hi, this is Vishal Saluja from Seligman. I just wanted to clarify your outlook little bit. It sounds to me that you are not really seeing any push outs or cancellations or letup in your lead generation. You are just responding to everything you're reading or hearing and so making sure that you preserve your earnings power in the back half. Is that a fair characterization?

Yes.

Okay. So last quarter, you talked a lot about lead generation productivity. Is it fair to say that the quality as well as the quantity of leads hasn't really dropped?

Yeah. We have actually very good leads, ongoing leads momentum. Quarter activities are good, even actually in the US we have not seen a real slowdown on that one.

Okay. So there is a certain degree of prudent conservatism that you think is appropriate given all of the talk of the slowdown. But really from a day-to-day monitoring of the business, you haven't seen more variability necessarily?

We are to say different view. We have commented on it already in the call. Yes, of course, our retail and T&L business, we didn't do as good as we would like to in the first quarter but that was against the difficult comparison. But generally speaking, we're in agreement with kind of the where you're laying things out. We think that the business is on a solid base now, but we think it is proving to be thinking about what we need to do with our cost structure if things didn't soften in the latter part of the year.

Okay. Sounds good. Appreciate it. And just one real quick one, on the service business which you said is 22% of revs, what's the steady state growth rate of that?

Yeah, I think we'd probably say mid-single digits.

Okay, great. Thanks again. Good quarter.

Sure.

Your next question is a follow-up from the line of Vivek Khanna with Civic Global [ph].

Bill, I'm sorry to ask you this question again. But you said the lab business grew 9% and industrial grew 7%, did I get that right and that's let's say 90% of your business?

]: That sounds correct, yes.

And then the rest 10% was down 11?

12% was down 11.

Then how do you get to 5%. I mean, I was asking organic, unless you give reported.

Let's see. 9 times… sorry for doing the math in my head, but…

Yes. I have a calculator, that's why I have the benefit of that. But I was just saying 90% of the business grew 8%, let's say.

There is also some rounding there. It's rounded. So where… sorry, what was your industrial number again?

7%, I thought you said.

Its 6.6%.

Okay.

It's probably those type of things. I'm looking at it and lab is 8.6%.

Okay. So there is some rounding there, okay. And then, can you quantify the order, this big retail, is it in the tens of millions of dollars in the next quarter?

No. But it's mid million kind of number I think it delivered. It's actually an order approaching $10 million and I think maybe $5 million or so gets delivered the next quarter.

Okay. And then, just getting back to the previous question, did you build backlog in this quarter or how did you…

We always build backlog in the first quarter, but the absolute level currency adjustment is at record levels.

At record levels? Okay, great. Thank you, Bill.

Okay.

There are no further questions in queue. I would like to turn the call back to management for any closing remarks.

We'd like to thank you all for joining us tonight and thanks for being patient and to (inaudible) the call with us. We wish you now very nice evening and all the best. Bye-bye.

That concludes this evening's teleconference. You may now disconnect.