Mettler-Toledo International Inc. (MTD) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to our Second Quarter 2011 Mettler-Toledo International Earnings Conference Call. My name is Jennica, and I will be your conference audio coordinator for today. [Operator Instructions] I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thank you. Good afternoon. I am Mary Finnegan, Treasurer and responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to the call. I am joined by Olivier Filliol, our CEO; and Bill Donnelly, our Chief Financial Officer. I want to cover some administrative matters first. This call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we will refer to on today's call is also available on our website. Let me summarize the safe harbor language, which is outlined on Page 1 of the presentation. Statements in this presentation, which are not historical facts, constitute forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. 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 a discussion of these risks and uncertainties, please see the discussions in our recent Form 8-K. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption "Factors Affecting Our Future Operating Results" and in the "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our Form 10-K. One other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and the differences between the non-GAAP financial measures and the most directly comparable GAAP measures is provided in the 8-K. I would now like to turn the call over to Olivier.

Thank you, Mary. Good evening. I'm pleased to welcome you to this call. I will start with the summary of the quarter, and then Bill will provide details on our financial results and our updated guidance for this year. I will then update you on the initiatives to continue to drive our market leadership. As always, we will have time for Q&A at the end. We had great results in the second quarter. Our sales growth came in better than expected, and operating profit and EPS increased strongly despite currency headwinds. Highlights of the quarter are presented on Page 2 of the presentation. Local currency sales grew 11%, Asia/Rest of World had outstanding results in all product lines, while growth in Americas and Europe was also quite strong, particularly on the industrial side. Despite significant currency headwinds, we achieved an 18% increase in adjusted operating profit and a 23% increase in adjusted EPS. Bill will provide more details on our second quarter results as well as guidance. Now let me turn it over to him.

Thanks, Olivier, and hello, everybody. Let me start with additional details and sales, which were $561.1 million in the quarter, an increase of 11% in local currency. On a U.S. dollar basis, sales increased by 20% in the quarter, which included a positive 9% impact due to currencies. Let's turn now to Page 3 of the presentation, where we outline sales by geography. In the second quarter, local currency sales growth increased by 9% in the Americas and in Europe and 17% in Asia/Rest of World. The next slide provides year-to-date results, and you can see that sales increased by 10% in the Americas, 12% in Europe and 21% in Asia/Rest of World for the first half. On Slide #5 of the presentation, we outline sales by product area for the second quarter. Laboratory sales increased by 4% in the quarter. Industrial sales increased by 21% and food retailing was down by 3%. Divestitures reduced food retailing by approximately 6% in the quarter. Acquisitions contributed 3% to the growth of our industrial business. The next slide provides year-to-date results. Laboratory increased by 10%. Industrial was up 21% and food retailing was up 1%. On a year-to-date basis, divestitures reduced food retailing sales by 5%. Acquisitions increased industrial sales by about 2%. Now turning to Slide #7, and let me walk you through the key items of the P&L. Gross margins were 52.8% in the quarter, a 20-basis point increase over the prior year. We benefited from operating leverage and pricing, while on the other hand, currencies reduced gross margins by approximately 170 basis points. We also had higher raw material costs, primarily due to steel-related categories. R&D amounted to $29.6 million, an increase of 11% in local currency, while SG&A was $172.1 million, an increase of 9% in local currency. This increase was attributable to higher sales and marketing investments, particularly in emerging market countries. Adjusted operating income amounted to $94.5 million, which represents an 18% increase over the prior year amount of $79.9 million. Currency, largely the Swiss franc versus the euro, reduced operating profit by approximately 5% in the quarter. Our operating margins amounted to 16.8%, which is a 30-basis point decline from the prior year. However, the combination of the weak dollar and the strong Swiss franc versus the euro reduced our operating profit margins by approximately 200 basis points. Especially given these currency headwinds, we are quite pleased with our operating profit growth and margin improvement achieved during the quarter. A couple of final comments on the P&L. Amortization amounted to $4.3 million. Interest expense was $5.7 million. Fully diluted shares for the quarter were 33 million shares. Our tax rate was 26%. Finally, adjusted earnings per share was $1.90, a 23% increase over the prior year amount of $1.55. We estimate that currency headwinds reduced EPS growth by 7%, or $0.11 per share, in the quarter. Year-to-date, adjusted EPS was $3.34, a 25% increase over the prior year, and currencies reduced adjusted EPS growth by 7%, or $0.20 per share, in the first half of this year. On a reported basis, earnings per share was $1.82 for the quarter. This includes $0.03 of purchase intangible amortization and $0.05 of restructuring charges. The principal components of this restructuring relates to efforts to reduce our cost base in high cost European countries, and this reflects very much the current currency situation. I mention it to you as you may see additional actions in the future, although I would not expect future charges to be significant. Year-to-date, reported EPS amounted to $3.23 per share. Cash flow came in as expected and amounted to $70 million or $2.13 per share. We continue to do well on DSO, which were at 32 days -- I'm sorry, 38 days at the end of the quarter. Our inventory levels are a little higher at the end of the second quarter due to increased buffer stock as we go live with our Blue Ocean program in China in the coming months. During the quarter, we repurchased 334 million shares or a total of $57 million. Year-to-date, we have repurchased 668,000 shares for a total of $114 million. Okay, that covers my comments on the quarter, and now I'll talk to you about guidance. We have 2 considerations as we look at guidance for the remainder of the year. First, the momentum in our business is stronger today than we anticipated when we last spoke. Q2 came in stronger, and the momentum as we entered Q3 is quite solid. We therefore are increasing our sales guidance for the full year. We now expect local currency sales growth for the full year to be approximately 10%. This compares to our previous guidance range of 8% to 9%. While business momentum is good, the foreign exchange environment has deteriorated since we last spoke. As we discussed on previous calls, our key foreign exchange exposure is the Swiss franc versus the euro. If you turn to Page 9 of the presentation, you will see that trend that occurred most recently. Since the last time we spoke, about 3 months ago, the Swiss franc has strengthened approximately 10% against the euro. This is creating a much bigger headwind than we had anticipated. We are taking action, specifically with respect to our higher mid-year pricing increase, to help offset some of this headwind. Based on this environment, we would expect adjusted EPS for the full year to be in the range of $7.95 to $8.05, a growth of 15% to 16%. Without the impact of currency, our adjusted EPS growth for the full year would have been in the range of 22% to 23%. For the third quarter, we would expect local currency sales to be in the range of 8% to 9% and adjusted earnings per share to be in the range of $1.87 to $1.93, a growth of 9% to 13%. Without the impact of currency, our adjusted EPS growth in the third quarter would have been in the range of a 17% to 21% growth. Okay, that's it for my side, and I now would like to turn it back to Olivier.

Thank you, Bill. I will start with some comments on our business results, both by product area and geography for the quarter. Let me start with industrial, which had an excellent growth in the quarter. Core industrial continues to benefit from new plant sites and expansion in emerging markets. Europe and America also have strong core industrial growth as these businesses move back to pre-crisis levels. The other part of the industrial business is product inspection, which continued to deliver strong growth again this quarter. Virtually all product lines and regions had very strong growth. Our solid leadership positions and favorable market dynamics are driving these very good results for product inspection. Laboratory had mid single-digit growth against very strong sales in the prior year period. Balances and process analytics did very well in the quarter. Automated chemistry was down, in part due to timing of projects. Pipettes and analytical instruments were relatively flat against very strong comps from the prior year. Food retailing was down, but on an organic basis was up low single digits. Finally, let me add some additional color on sales by region. As already mentioned, industrial sales in Europe and Americas were up strongly. Lab in Europe was down modestly, principally due to automated chemistry. In the Americas, lab was up mid single digits. Finally, virtually all product lines and regions had strong growth in Asia/Rest of World. That covers our second quarter results by product and geography. Let me now provide some additional comments on how we are continuing to drive our market leadership. As most of you know, we have a global #1 position in more than 75% of our product lines, yet our overall market share is about 25%, thereby providing room for further growth gains. One way we ensure we are covering and capturing the entire global market is through our dual-brand strategy. Many of you may not be aware that, while Mettler-Toledo is the largest laboratory weighing brand, we also have the position as the third largest brand via Ohaus. Under the Mettler-Toledo brand, we primarily utilize a direct distribution model and focus on the medium to high-end of the market. Service is a very important consideration for products in this segment. Ohaus, on the other hand, utilizes an indirect distribution model and focuses on the low- to median-end of the market. Ohaus would present a little less than 5% of our revenue and has more than a 100-year history. It has been part of our group for more than 20 years. Its focus is the basic entry-level market, and its indirect channels include catalog and lab dealers. In many countries, business is done mainly via the brand [ph]. Ohaus end markets include education, laboratory and general industrial customers. In order to be cost competitive, most manufacturing is done in China. Given the nature of these products, service is not as important for this segment of the market. Ohaus products have a rugged design, and distinctive red and black color scheme which would not be confused with the green-blue design of Mettler-Toledo. Ohaus helps us gain incremental market share. The basic entry-level market, particularly in emerging markets, is a big market segment for us. Our strategy to gain share includes a comprehensive product offering, constant new product introductions and a thorough marketing program, which positions Ohaus well for market growth. Its quality culture is a clear differentiator at this lower end of the market. We have increased our support staff, particularly in Europe, as we continue to expand our dealer presence. Our target is to continue to gain incremental share at all tiers of the market. Through dual-brand strategy, we can better pursue share gains in all tiers and in all internal segments. As we have spoken to you before, our Spinnaker marketing programs are another important strategy for continuing to increase our market share. Creating new leads is at the heart of Spinnaker marketing. With our strong technology focus and the in-depth segment knowledge, we do very well when given the opportunity to quote. The key is getting the chance to quote. However, there is a certain stickiness to customers' purchasing decisions. Customers have a comfort level with the brand they already own, which impacts their replacement decision. Many customers buy the new model of what they already own without even asking for a competitive quote. While this provides an advantage with our installed base, it presents a challenge in converting competitors' customers. The ability to generate leads helps us to overcome this stickiness. We accomplish this by gaining full transparency of potential customers by profiling them on their IWAP, that is, our customers' industries, workplaces, applications and product needs. This data is used to expand our CRM and is the base for creating our marketing communication. When a potential customer is making its next buying decision, we have a better chance of being able to provide a quote. We continue to develop Spinnaker marketing in America and Europe and are expanding it in emerging markets such as China. For example, food is a strategic market in China, given its GDP per capita development and related movements toward more packaged food. We have identified those segments of the food market with the highest potential and are expanding our customer database, qualifying contacts, and delivering segment-specific marketing materials. A good example is what we have done in the meat processing segment over the last few years. These customers are increasingly focused on hygienic issues and connectivity to ERP systems. So they need sturdy instruments to withstand the harsh, washed-down environment, and interface capability to ERP systems to fulfill traceability requirements. Our industrial scales fit these needs well. And through targeted marketing, we can articulate the value of our instruments to these cost-conscious customers. We have seen significant growth in the meat processing business over the last few years. Our business in India is also expanding its Spinnaker approach by adding telemarketing resources and identifying non-addressed market segments to target. Our in [ph] unit has significantly increased the number of qualified contacts in our database, and so far, in 2011, the number of e-marketing campaigns has already exceeded the number in all of 2010. New products are an integral part of us winning the quotes once we have the opportunity. As usual, we have a wide range of new product introductions taking place. I want to highlight 2 in our automated chemistry area, which focuses on higher-end solutions for the pharmaceutical and chemical industries. Very important to this customer base is the fast process development and scale-up once a pharmaceutical ingredient or chemical compound has been identified. Automated lab reactors facilitates this by stimulating -- by simulating, sorry, the manufacturing process in a vessel. We recently launched our next-generation automated lab reactor called up OptiMax, which greatly optimizes the processes surrounding scale-up and significantly improves productivity. It is a personal workstation with an easy-to-use interface, including one-touch operation. OptiMax removes many of the repetitive tasks involved with scale-up by incorporating a unique thermostat technology. This technology eliminates the need for filling and refilling ice baths and thereby allows reactions to be run overnight and unattended. A built-in sensor provides real-time information, which reuses waste from unnecessary samples. Finally, data can be incorporated in an electronic lab notebook, enabling information to be shared among scientists or chemical engineers. Customer reception has been very strong. We also recently launched a next-generation of our probe for particle analysis, specifically with respect to optimization of crystallization processes. This system incorporates a digital signal processing, which allows increased resolution of particle size, and thereby provides more information in each reaction. The end result for our customers is fewer experiments and faster data analysis, resulting in lower total cost of ownership. This concludes our prepared remarks. In summary, we are pleased with our excellent results in the first half of the year. While our growth rate for the remainder of the year will be affected by a very strong previous-year comparison and an adverse currency situation, our business remains well on track. We continue to capture incremental market share by capitalizing on our sophisticated marketing programs and our strong product pipeline. As we look to the remainder of the year, we remain confident in our ability to execute on our strategies that acknowledge that the economy remains uncertain. That concludes our prepared remarks, and I would like to ask the operator to open the lines for questions.

[Operator Instructions] Your first question comes from the line of Jon Groberg of Macquarie.

This is actually Dan in for John. I guess I just kind of want to start with I guess the robust growth in the industrial segment. It seems to be driven a lot by the product inspection business, which is going very well. And I was just curious if you could just provide a little bit more color on some of the more specific market trends you see playing out globally that's really driving that business.

First, I would start. We were actually happy, really, across the whole industrial business. Also, core industrial did well, as I highlighted in the call. The product inspection business did very well across the globe and across the business lines. As a reminder, we have different business lines like checkweighing, x-ray, then also vision inspection, and of course, metal detection. And all the 4 business lines did very well. I would say it's a reflection of 3 things. The first one is our relative market positions that we have in these businesses is really extraordinarily strong. And these very strong market positions help us to continue to win market share. This continuing winning of market share is certainly driven by very good execution of our teams. We have strong management teams in this business across the world. We have made important investments in the past. We are fully leveraging Spinnaker. Again, the combination of that helps us to win market share. And the third factor that clearly played into here, the end-user markets for food inspection. In particular, food safety is strong. The product inspection business in that sense is continuing to benefit of favorable market environments.

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

No, it's actually it's globally. I would say it that way. The U.S. has passed new food safety regulation. This has not a direct impact on us in the sense that the food safety regulation doesn't specify that our equipments or the type of equipments that we provide needs to be installed. However, the food safety regulation has raised -- further raised, I would say it that way, the attention to quality inspection in food production. There is a very high awareness of what it means if you need to recall a product. It's in terms of you want to protect your brand, but now food regulations would also enforce actually stricter processes in recall. That really means that the food producers around the world want to apply very strict quality controls to the productions, and that benefits our business.

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

Correct.

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

You've obviously raised your guidance a little bit here. And if you could maybe comment on the pacing of the business in June and July and maybe how your book-to-bill informs the visibility you have for the back half of the year, that'd be very helpful.

We have a solid backlog, but we should put that into perspective. We're not a big backlog business; it's mostly short lead time products. But momentum is good right now, and that reflects why we adjusted our guidance for the quarter. It's based on our bottoms-up outlook process or forecast process for the quarter. And so orders and activity finished the quarter and started here in July in a solid way. I think that was your question, no?

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

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

Your next question comes from the line of Jon Wood of Jefferies. Jon Wood - Jefferies & Company, Inc.: So on the lab business, Olivier, it sounds like there were some discrete items in AutoChem specifically and maybe some other not-so-discrete items in pipettes, and I think you said analytical instruments. But can you kind of comment on the second half for lab, vis-a-vis what you saw in the second quarter in terms of the local currency growth you'd expect in the lab division?

Yes. Let me maybe quickly comment to the businesses already for Q2. So yes, this is true. AutoChem, or our automated chemistry, was not so strong. But we need to put this in perspective. Automated chemistry is clearly weighted towards the end of the year. The first 2 quarters are not that big. And I would also say the momentum that we see in the business is actually reasonable. We had certainly some effects here that some projects were delayed. And I would also mention here, of course, the big pharma environment has also impacted automated chemistry. But when you look at the outlook, I do actually expect that automated chemistry will look better in the second part of the year. The same is actually also true for our pipette business. The pipette business has a more difficult environment in the first 2 quarters than we have maybe in the past, not the least also driven by tightened government funding, NIH funding, which has an impact on the pipette business. Now for the latter part of the year, I would also say that the lab business will face tough comps, not the least also in Q4. And in that sense, we will not see the very high growth rates as we have seen, for example, in Q4 last year or Q1. But I think actually mid single digit growth for lab is what we would certainly expect for the second part of the year.

Yes. I think we'll see a better growth rate in the third quarter, certainly. As Olivier pointed out, the fourth quarter might be a little bit tougher comps. To name one, AutoChem I think grew by 40% or something in Q4 next year. AutoChem will have a good Q3. RAININ will have, or the pipette business, will have a better Q3 than Q4, and the analytical instrument business will have a better Q3 than in Q2. So Q4 will have tough comps for the lab business, but Q3 should actually be a little bit better than what you saw in Q2. Jon Wood - Jefferies & Company, Inc.: Okay, great. And then, Bill, just to -- I might have screwed up this math, but the FX hit for the year now, is it $0.50 a share?

I'm at about $0.45, $0.44. But yes, about that, yes. Jon Wood - Jefferies & Company, Inc.: Okay. And basically it looks like your incremental margin guidance x FX is up quite a bit here into the low 40s, if I'm not mistaken. Can you just kind of discuss how you're achieving that? I know you took a mid-year price increase, but anything else in terms of cost cutting that's allowing you to do those higher incrementals in the core?

Well, maybe if I -- we take a look at kind of what the incrementals were in the second quarter, we were kind of in that mid-30s kind of level. And we would expect those to kind of be in that kind of range as well in the second half. So it's not so much different. I think when we reported Q1, we kind of commented that, for a variety of little things, we' were a little bit below our incremental margin level, a little bit more than even just currency in Q1. We I wouldn't say completely caught up, but we largely caught up with that and are expecting kind of that similar level, kind of mid-30s level in the second half.

Your next question comes from the line of Sung Ji Nam of Gleacher & Company. Sung Ji Nam - Gleacher & Company, Inc.: Could you talk about the pricing environment and maybe by the different segments, kind of what you're seeing today?

Okay. Like every year, we have implemented a price increase early this year. We have had a little bit of higher price increase than in previous years in anticipation also of inflation worldwide. And then we put actually a lot of emphasis on the execution of it, tight controls worldwide that is really fully implemented. And certainly also, a lot of focus on discount management. We're actually happy with what we see. As realized, we are tracking this with our systems, and we see extra about 170 basis points, roughly, of realized pricing so far. Definitely happy. And of course, it varies by business lines and geographies. We do differentiate depending on the pricing power that we feel we have. And of course, the different geographies have a different inflation environment. But I would say that the number that I just quoted before is a good indication, what we would do in average. And yes, it's in the range of, I would say, plus/minus 150 basis points across the different business lines. We are also working on a midyear price increase. Actually, we are in full implementation right now. We do so to respond to the inflation environment. We do so also, partially, to response to currency situations. And we are closely monitoring the impact also of it. We do actually make sure that we can still continue our path of market share gains in spite that we are implementing these price increases. Sung Ji Nam - Gleacher & Company, Inc.: That was very helpful. And I guess, Bill, you guys talked about the pipette business and flat growth given tougher comps and also some pressure from the NIH funding environment. I think, Bill, you also had talked about, in a recent investor -- at a recent investor conference, about kind of there being room for improvement for that business. So could you give us an update of what's going on there as to what you guys are working on?

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

Well, actually, we're also looking to get good benefit from some new product launches that we had. We had a product launched early this year. And actually, we are, right now, in the middle of launching a new product that we do actually expect to have a good benefit from that. So that -- the combination with what Bill said, then hopefully, a little bit better market environment from -- particularly when it comes from government-funded research and so on. And these products should help us to have a better second part of the year.

Your next question comes from the line of Paul Knight, CLSA. Paul Knight - Credit Agricole Securities (USA) Inc.: Do you believe that you're seeing the -- in Europe, do you think the budgets right now reflect the level of austerity in those budgets going forward? Or do you hear or see more coming, and as issues developing there? Or are they ahead of us already?

Yes, I would not make any projections on the macroeconomic environment other than what I pick up from my economists. But what I can say is, we were certainly pleased to see our results in Q2, which were not really impacted by the macroeconomic talks or budget talks that's ongoing. And when I talk to my team in the different countries, actually, they remain positive. They remain positive, and none of them are giving me the impression that, I would say, the different political discussions and this deficit topics impact their business. Paul Knight - Credit Agricole Securities (USA) Inc.: And then regarding you had mentioned Ohaus earlier. How is the difference -- what's the difference between Ohaus and the Mettler brand in your distribution channels in China and other parts of Asia? Is Ohaus all-distributor?

Absolutely. So Ohaus, worldwide, that's not just for Asia, it's all indirect. We do not do any direct business for Ohaus. And we have always dealers, catalog houses and orders that are doing the customer-facing part. We, of course, in the background, at the Ohaus franchise, is supporting them, including with tech support, with quotes and all these things, but they are maintaining the customer relationships. They have also the proximity. And we are talking here about thousands of dealers that we have across the world, in many different segments, also small segments. And we have with that also a very strong territory coverage. Yes, in that sense, absolutely indirect and clearly differentiated, also, versus Mettler-Toledo, where we favor the direct approach. And if we use an indirect approach with Mettler-Toledo in Asia or China, it would typically be a value-added reseller that would also provide service and would have a much tighter link to Mettler-Toledo and have a certain exclusivity for a certain geography or for a segment. That's not something that we require when we do the business through Ohaus. Paul Knight - Credit Agricole Securities (USA) Inc.: Is there a difference in margins between Ohaus and the Mettler brand for you?

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

Your next question comes from the line of Richard Eastman of Robert W. Baird. Richard Eastman - Robert W. Baird & Co. Incorporated: Olivier, could you just -- or maybe this is a question for Bill, but when we look at the outlook here for the balance of the year, you talked -- I think you commented that the local currency organic growth rate would be maybe a point better or so for the full year. Is that improvement coming out of volume? Or is that bump in guidance really a factor of your kind of a mid-year price hike?

A little bit of both, a little bit of the fact that we actually beat Q2 as well. I think we still remain cautious about comps come Q4. But I think the Q3 number is -- maybe if I was to do a little bit of a back-of-the-envelope, could be 50-50, what we think about Q3 today versus maybe what we thought 3 months ago, reflecting pricing as well. Because at the time, we were already talking about a major price increase when we talked to you guys last time. So probably we feel a little bit better about it today. So it's hard to put an exact number on it too, Rick. Richard Eastman - Robert W. Baird & Co. Incorporated: And if I kind of just trend-line out the growth rates here in maybe the second half, it seems to work from the perspective of fourth quarter over the third quarter. You're not expecting much of a typical seasonal bump? I know that comps are tough and they're tough in both quarters, but barring -- excluding the comp issue, one would still think you would see a seasonal improvement in spend in that fourth quarter relative to the third. And it doesn't appear as though you're counting on that this year?

You might be -- I might not have fully digested it because, of course, I think about our numbers in a Mettler way. So let me kind of come back to you and try to maybe express what we're trying to say about the fourth quarter or what's implied in terms of our full year guidance minus our Q3. So we're implying that, A, you can assume kind of a mid single digit number, and we will give precise guidance 3 months from now or so. But we're assuming it's got to be somehow mid single digits. And we're assuming that the currency impact will be less year-on-year as well, if that was maybe what you're getting at. But we certainly do assume growth, and we certainly do assume that Q4 will be an increase over Q3, which maybe, I was kind of hearing that you were maybe saying we weren't saying that. Richard Eastman - Robert W. Baird & Co. Incorporated: Well, just it appears, though, it's an increase or to model towards kind of a 9% number, local currency number, or to 10, but it seems like less of a seasonal bump, I mean, it's -- than would be typical.

Yes, I mean, if what you're saying, Rick, is the increase of Q4 versus Q3 last year in dollar terms was less than this year, what we're projecting, I mean, that's probably true, but it's not a huge difference, kind of looking at the numbers now. Richard Eastman - Robert W. Baird & Co. Incorporated: Yes. Okay, all right. And then Olivier, by end markets, is there an end market here or 2 that you feel less confident about here? Whether it's academic or maybe you touched on large pharma a little bit. But obviously, the analytical instrument space has been kind of rattled a little bit recently about some questions about spending and maybe a deceleration in large pharma spend. But are there any verticals here that you can kind of stop right now and look at for the second half and say, yes, this is slowing?

I think, actually, the 2 that you mentioned are the 2 that we have seen being slow in Q2, and then worried that they're going to take a while to recover. This is everything that is related around government and academia. And the second one is big pharma. Big pharma is particular also a topic in Europe. We're just reviewing, this morning, a few cases in the U.K. We are definitely impacted, particular also from Pfizer. But also, for example, in France, we see a couple of big pharma companies in France holding back with investments. And had an impact and is certainly going to impact us for a couple of more months. Besides that, I feel actually quite comfortable with most of the end-user industries. They have good momentum in them. There are a few ones that are not so significant to us, but of course, we see some electronics, flat panel manufacturing and so on where we are experiencing some slowdown, but they are not so significant. And then, it's also offset by smaller segments that didn't have also good momentum being -- just to mention one example, the sugar industry is doing actually quite well, and this is a business that we have not big business in it, but we benefit from. Richard Eastman - Robert W. Baird & Co. Incorporated: Okay. And then can I just double back to Europe for a second? I may have just been slow at taking notes here, but Europe was plus 9% in LC, and I think the commentary was lab was down modestly. Was industrial therefore -- I'm not sure what the weighting is, but was industrial up more than industrial in total for the year? Or was it plus 25% or something? Was it up that strong?

Bill, you want to take that one?

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

[Operator Instructions] Your next question comes from the line of Tycho Peterson of JPMorgan. Tycho Peterson - JP Morgan Chase & Co: Maybe just first question, I noticed the outlook for the U.S. market accelerated. Was that largely industrial? Can you comment on the drivers there?

Tycho, I apologize. I was reading, trying to look at a number for Europe, thinking about Rick's question. Could I ask you to repeat your question, please? Tycho Peterson - JP Morgan Chase & Co: Yes, just thinking about the outlook for the U.S. market. It looks to be accelerating a little bit here. And is that largely on the industrial side that you're seeing the uptick?

So in terms of the Americas, certainly the industrial business did quite well in the quarter. It was our strongest performing area. I think lab, I think that'll realistically come down a little bit in the second half. But I think, at least compared to Q2, our lab business should do a little bit better in the second half. Tycho Peterson - JP Morgan Chase & Co: Okay. And then on the margins, are you able to quantify kind of the give and takes around the material cost fluctuations and in currency? I mean, I know it all netted out to not a lot but...

Maybe, again, we had about a 20-basis point increase in gross profit margin in the quarter. In the quarter, net realized price increases were about 2%. And so if you do the math on what was the impact of that on gross profit margin, it's 1%, because we're at about 50%. Currencies were a headwind -- so maybe I'll start with material costs, were a headwind of around 60 bps, and that reflects material costs being up about 2.5% in the quarter. And then currencies were a negative 170 bps in the quarter, and of course, then, we had some leverage benefit as well. Tycho Peterson - JP Morgan Chase & Co: Okay. And then on the supply chain side, you guys had built inventory last quarter around Japan. Have you kind of worked through a lot of that? Or can you just talk to your outlook on managing the supply chain there?

I think right now we feel relatively good about electronics coming out of Japan. I don't have any components that are sitting with a red dot on the dashboard. So I think we're -- I think we're largely through that. I always am a little cautious in that area, because we're not the big dog in the electrical component purchases area, so we can get whipped around if the big suppliers start to move. But I think we're in relatively good shape there. We built a little bit of inventory this quarter in anticipation, we go live in the coming months in China in Blue Ocean, and they're a big part of our production chain. And because it's far away and we're shipping a lot of things on boats, we thought it would be good to build up a little bit of extra caution there. But that would be maybe my main comments on the inventory area. Tycho Peterson - JP Morgan Chase & Co: And then maybe just last one on capital deployment, how are you guys thinking about buybacks versus tuck-in M&A? And can you just comment on the performance of some of the tuck-in deals you guys have done this year?

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

Yes, absolutely. We have done last year, and then again early this year. And we are very well progressed in terms of the integration. Very happy how we could integrate, assimilate the team and the product lines, and particular also, how we could leverage our marketing power already for these acquired companies. They're all going extremely well and, strategically, did very well the franchise. And yes, expect us to continue that path. We have things in the pipeline that are going this similar direction, similar size. And that will also remain our strategy. We are focused on bolt-on acquisitions. It's not -- we don't feel that we have a necessity to do any big acquisitions, and we also not particular focused on this one. Tycho Peterson - JP Morgan Chase & Co: Do you have other divestitures you're looking at? I mean, you did one in food retail. I mean, are there other things that you would look to trim?

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

And at this time, there are no further questioners in queue. I will now turn the call over to management for closing remarks.

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

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