Good afternoon. My name is Patcy, and I will be your conference operator today. At this time, I would like welcome everyone to the Quarterly Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And I would now like to turn the call over to Mary Finnegan. Ms. Finnegan, you may begin the conference.

Thanks, Patcy, and good evening, everyone. I am Mary Finnegan. I am the Treasurer and responsible for Investor Relations at Mettler-Toledo. I am happy that you are joining us this evening. I am here with Olivier Filliol, our CEO; and Bill Donnelly, our Executive Vice President. I need to cover just a couple of administrative matters. This call is being webcast and is available for replay on our website. A copy of the press release and the presentation we will refer to is also available on our website. Our Safe Harbor language, let me just do a quick summary. It’s outlined on page one of the presentation. Statements in the 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 discussion of these risks and uncertainties, please see the discussion in our recent Form 8-K. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the captions Factors Affecting Our Future Operating Results and in the Business and Management Discussion Analysis of Financial Condition and Results of Operations in our Form 10-K. Just 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 in our 8-K. Let me now turn the call over to Olivier.

Thank you, Mary, and welcome to everyone on the call. I will start with a summary of the quarter and then Bill will provide details on our financial results and guidance. I will then have some additional comments before we open the lines for Q&A. The highlights for the quarter are on page two of the presentation. We continue to execute very well in the West as our [Spinaco] [ph] sales marketing programs and are now our field turbo program are allowing us to leverage our strong product portfolio to gain share. These same factors also contributed to very good growth in certain emerging markets including Southeast Asia. Offsetting the positives were continued weak demand in China, Russia and Brazil. As a result, our overall local currency sales growth 3% in the quarter, however, our sales growth excluding these three countries was 7% in local currency. We had excellent margin expansion, despite worsening currencies we delivered 9% EPS growth, 14% before the estimated impact of currencies. This is a very good result, especially in light of the weak sales in the three countries. Now let me turn it to Bill to go over the numbers.

Thanks, Olivier, and hello, everybody. Sales were $582.1 million in the quarter, an increase of 3% in local currency. On a U.S. dollar basis sales decreased by 4% as currencies reduced sales by 7% in the quarter. Turning to page three of the presentation, we outline sales by geography. In the second quarter, local currency sales increased by 5% in the Americas, 4% in Europe and were flat in Asia / Rest of World as compared to the prior year. As Olivier mentioned, we had three countries that under performed in the quarter and they reduced our sales growth by 4%. Let me provide some context. China sales declined 11% in the quarter, a little worse than last quarter. We had good growth in our -- we had growth in our Lab business but it was not as robust as what we saw in the first quarter. Industrial continues to be very weak in China, with sales down 22%. The rest of Asia did quite, excluding China, Asia grew by 14% in the quarter. The second area is Russia, which was down 30% on the quarter and that impacted our sales growth in Europe. Excluding Russia, Europe had a growth of 6% in the quarter, also a very good result. And finally, Brazil was down by 27% in the quarter and absent this country our business in the Americas grew by 6%. Now I would like to turn to the next slide. We show sales for the first half of the year which was 4% growth in local currency. By region for the six months sales have increased by 6% in the Americas, 3% in Europe and 2% in Asia / Rest of World. Our growth excluding the three countries is 8% year-to-date. Now I would like to turn to…

Thank you, Bill. Let me start with comments on business conditions. Lab did well in the quarter with local currency sales growth of 5%. All product areas had growth with particularly strong growth in AutoChem. In terms of regions we had good growth in all regions. We continue to benefit from our sales and marketing programs, strong product pipeline and are now seeing initial benefit of our field turbo program. Turning to our Industrial business, as a reminder, our Industrial business represents about 44% of total sales and there are two components to this business, Product Inspection which represents about 40% of Industrial, and Core Industrial which represents about 60%. Later on the call I am going to provide an update on our Product Inspection business, so let me make a few comments on Core Industrial. This business consists of selling and servicing a wide variety of weighing instruments, terminals and related software. Core Industrial is pretty evenly split between the Americas, Europe and Asia, with the Asian numbers being very weighted to China. While Core Industrial is our most economically sensitive business, we have a wide variety of end markets including food, chemical and pharma. Historically in China our Core Industrial business has a higher concentration of heavy Industrial business related to infrastructure build-out. But this is changing with the downturn experienced over the last few years. In the Americas and Europe, our Core Industrial end markets lean toward food, pharma and chemical, and most of this business is replacement. So while we sometimes have customers delay their replacement cycle, history shows that the business will come. Now turning back to the second quarter, our Industrial business was flat in the quarter, with Product Inspection up high single digits and Core Industrial down mid-single digits. We had particularly strong…

Thank you [Operator instructions] And our first question will be from Steve with Morgan Stanley, Steve Beauchaw.

Hey guys. It’s actually Michael Clerico on for Steve today. Thanks for taking the questions.

Hi.

Hi. If we look at the 4-year outlook, it implies stability on a comp adjusted basis. So I’m wondering if that puts the onus more on lab growth to carry growth throughout the year, especially in light of weaker industrial trends. So I’m just wondering, given your outlook for 3% organic, what’s embedded in that outlook from a segment perspective?

So if you -- let’s talk about, first of all, the lab business. We should continue to still do well. So on a full-year basis, we’ll be in the mid-single digits in our lab business. The product inspection business within industrial will have a good second half, probably even a little bit better than the average of the first half. The core industrial business will stay in line about with where we were, maybe slightly better but basically in line with where we were this last quarter. The retail business is a little lumpy. So it’s probably the one I have the least forecasting ability on. But I would expect retail to be down a little next quarter in Q3 and up a little in Q4.

Okay. Thanks. That helps. Also so ….

Maybe one other way to look at it as well is geographically. And we do expect some tougher comps in Europe. So probably the Europe growth rate will come down a little bit but U.S. growth rate will come up and that’s largely driven by lab and product inspection.

Okay. So as you think about the China business into ‘16, as China transitions past the current 12th 5-year plan, do you see anything ahead that could kind of cause the growth rate here to reverse from the softer trends you’ve seen recently? And also headed towards the end of this year, are you expecting any budget flush from the close of the 5-year plan?

In terms of the -- maybe I’ll get the last part first. I don’t think Olivier and I, either of us see that that would be a material topic, the budget flush. Of course there will be orders, but given our business mix, we wouldn’t see that as material. Second comment would be that, you know, sitting here today a couple of quarters in a row of really tough business conditions in China’s industrial business. It’s kind of tough to talk about when the recovery is going to be. All of you guys know us pretty well and the comps matter. So we eventually will annualize here but whether that annualize takes place early the impact or the benefit of an easy comp starts helping us at the beginning of next year or later into the year. It’s kind of hard for us to judge now. I think Olivier and I are both going there in early September, and then I think I even have one more trip down there in November. And I think we’ll know more when we get on the call with you guys next time.

Okay. Thanks, guys.

Our next question is from Paul Knight with Janney.

Hi. This is actually Bill March in for Paul. How are you guys doing?

Good, Bill. Thank you.

First question, in thinking about the FX guidance, how do you think about the macro environments in terms of we saw a big move in the second half of 2014 and kind of a stabilization in 2Q. What’s driving the weaker guidance in the back half of the year?

Maybe, I will let Mary comment on the specific currencies. It’s not a big change from where we were. The second half of the year we have headwind on the Swiss franc Euro. We had headwind on the Swiss franc versus the dollar but not as much. And then the big thing is the dollar versus a bunch of small currencies for us like the yen, the Singapore dollar, Thai Baht and all that. But in terms of what’s changed recently, Mary, can you answer?

Yes, sure. Bill, if you look at it, it’s like as Bill’s saying, versus when we last reported in May, if you look at the yen, the Canadian dollar, the Aussie dollar, the Swedish Krona, those are all relatively small exposures for us but they have all moved against us and that’s what’s driving this $0.08 worse that we’re predicting now versus when we talked to you guys in May.

Okay. Got it. And then a follow-up to that is just thinking about operating margin, and I know you called out 70 basis points from currency. But could you point out to which segment you’re really seeing a, the currency headwind, and then b, where it’s more leveraged? Just trying to think about R&D spend and its percentage of sales.

Sure. Well, maybe the way to answer that is if you’re okay I could tell you like percentage of where we do most of our R&D. So our number one currency in terms of R&D expense would be the Swiss franc. And then of course the next two places would be China and the dollar and of course as you know the remnibi is well linked to the dollar.

I’m thinking about it just more in the context of the sequential decline in R&D, how you’re thinking about R&D spend in terms of organic growth and product development?

We kind of think of it as this quarter it’s maybe down modestly in local currency. It’s going to be up in some of the future quarters. But it’s got to be flattish overall in terms of growth rate in the 5% or just above percentage of sales. And one of the things that you guys know is with the strengthening of the Swiss franc and other topics we have been looking at ways in which we can do certain pieces of our R&D in lower cost countries. We could give a long list of examples. I think you guys have heard it on earlier calls. And that’s certainly providing us increased productivity in R&D as well.

Got it. Thank you.

To illustrate this, on the industrial side we do a lot of R&D in China. And so of course we benefit from the lower cost there. Software development we have a very big team in India that is increasingly taking responsibility for that. And we are increasingly leveraging Warsaw in Poland. That’s helping us for the same amount of spending to get more output, basically.

Got it. Thank you.

Your next question is from Dan Arias with Citi.

Hi guys. This is actually Bryan Kipp on behalf of Dan. Just digging a little bit on China, I know you guys have gone into some depth. I just want to get an understanding of what you guys are seeing on the ground in terms of Tier 1, versus Tier 2, Tier 3 cities, if you are seeing any modest discrepancies or significant discrepancies amongst those? And then in conjunction with that, how is the competitive dynamic evolving there with some of your localized peers? Are you seeing them kind of get flushed out of the market, or are those guys still hanging in there?

I think you bring in an interesting aspect about the geography. Geography plays a role. I would maybe not link it too much to the tiers of the city but more the geography in the whole country. For example, the west has for us better momentum than the coastal cities. And there are certain economic zones where their development is driven also by the government that offer pockets of growth. We are actually definitely monitoring them and taking advantage and to a certain degree also moving resources towards these opportunities. So, geography plays a role but again, I wouldn’t link it too much to Tier 1 or 2 of these cities. When it comes to the competitive landscape, we need to differentiate between lab and industrial. In lab, we are mainly facing global competitors. These are the same competitors that we would have in the west. I do not expect that the current environment changes very much to that dynamic. I feel comfortable that we continue to win market share against them but it’s not a fundamental change. We are all facing similar challenges in the Chinese market. When it comes to the industrial world, it gets more complex because the market is very fragmented. Many of our competitors in the industrial world are local competitors, very regional competitors. And in that sense, they certainly face challenges in terms of liquidity, in terms of profitability and so on. But then they have maybe also a willingness to accept certain payment terms that we are not willing to accept, or they are accepting to price levels that we are not. So, I do not expect that there is structural changes that have long-term impacts. I also don’t feel that we are losing market share if I look at the whole country for industrial. But there are certain specific situations where we might lose against a competitor, again because we keep disciplines on the financial terms for ourselves.

I appreciate the color. Can I just sneak a quick one in here? I didn’t hear any strength from the consumables and service but how is your pipettes business doing on the consumable size? Is that something you’re still seeing some significant growth in or you are seeing some…?

Is that a China specific question?

No, broader.

Yeah. We’re doing well in pipettes including consumables especially.

Actually, pipette had a very good year so far and did particularly well in Q2. I was particularly also pleased because we had an important goal life, Blue Ocean goal life for you as you might have known and that went very smooth and they delivered actually good results across the world, including, or in particular U.S. as well as Asia. So happy about that performance. And this was pipettes as well as the consumable piece.

Thanks again.

And our next question will come from Derik de Bruin with Bank of America.

Hi. Hello. Good evening. This is actually Juan on behalf of Derik. Thank you for the question. I actually had another question on China. In this case, I guess focusing more on the customer profiles where you’re seeing a lot of strong demand, in particular in the China lab business. And for what types of products. I know that you just spoke about the consumable demand but then I would be interested also as to how the instrument and the equipment demand in the China lab business is doing.

So maybe I describe it by kind of breaking down the pieces of what we sometimes refer to as our classic lab line. So that would exclude our process analytics business. So what we see is, as you know, our pipette business there is relatively small but it’s growing at a year-to-date basis in the 30% range. Our AutoChem business, which is kind of the other end of the spectrum with higher end products, that’s actually growing well into double digits. And then the more basic products on a year-to-date basis, balances and analytical instruments are growing. Let’s call it mid-single digits on a combined basis. And maybe Anne is doing a little bit better than balances but the balance guys also have inventory in the channel there. There’s a lot of distributors and I know that their inventory levels are near record lows for the balance channel. So if that gives you a sense. In terms of the business mix on that, we do maybe a little bit differently than some of the other peer group companies. Those products are not only bought by government institutions but as well from our industrial customers. And we do see the industrial piece maybe as a little less strong than what we see in the more traditional government areas.

You would also note from the numbers that Bill shared, the two businesses that are more oriented towards life science in particular are pipettes and AutoChem actually had very nice double-digit growth as the business also exposed more to non-life science markets had more of the high single-digit growth performance.

Got it. Really helpful. Thank you.

Thank you, Juan.

Our next question will be from Tycho Peterson with J.P. Morgan.

Hey, guys. This is Tejas on for Tycho. First of all, just a quick numbers question. Can you quantify the pricing, volume and cost reduction contributions to your gross margins in the quarter?

Yes, we had 230 bps on pricing. That brings us to about 210 year-to-date. And on a material cost side, we are at 240 bps and that brings us to year-to-date to about 190 bps. We had some negative mix, as well as some investments we made in terms of service technicians that kind of brought that down to the 60 basis points net number after currencies that we referred to on the call.

Got it. And then in terms of just the broader emerging market theme that we have been talking about on the call, have you seen any improvement at all in the replacement cycle trends in China? And then how big are Russia and Brazil in terms of your topline? And beyond sort of the energy price issue, was there anything else that’s driving the weakness in these markets?

So maybe we start with the latter piece. I guess in addition to oil prices, sanctions are hurting Russia and I guess in addition to oil prices, the Petrobras controversy is hurting Brazil. With regard to China and replacement cycle, it’s a good question. I would say that because we continue to see the order mix, the declines are both in large orders and smaller orders, which tend to be more the replacement cycle. So I would tend to say we haven’t seen much of a change there. It continues to be weaker.

Got it. Thanks.

Our next question is from Brandon Couillard with Jefferies.

Hey, Brandon.

Thanks. It’s Brandon in for Brandon. Good afternoon.

Yes, this is Bill for Bill here.

Bill, sticking with the China theme, could you give us the order number for the quarter? And then did you give a revised revenue outlook for the year for China? And tell me if I’m wrong, but did I interpret your comments to suggest that your outlook on the lab business is somewhat diminished in the back half here?

So, sorry, just to make sure that I got it, everything you asked, Brandon was China based?

Yes.

So in terms of order entry in China I think it was -- Mary is pulling out the numbers for me. So the orders were slightly better than sales but I wouldn’t read, it was not a double digit number, it was down high-single digits. I wouldn’t read too much into that. In terms of our view on the second half -- I think the second part of the question was what was our view on lab in the second half in China. I do think that we’re going to see the industrial companies get a little bit weaker. I wouldn’t necessarily see that the second half would be worse than what we saw in the second quarter, something in that kind of range. But the fourth quarter is a relatively big piece. So, we’ll probably be smarter on the fourth quarter then. And I apologize, Brandon, your middle question I’m not recalling. I think you had three, right? I think I got the first and the third.

Just the guidance and bets for China overall for the full year?

So down high single digits with the second half being a little bit better overall than the second quarter.

Super. And then I think, Bill, you alluded to taking some incremental cost actions to offset the currency in the weaker China, Brazil, Russia dynamic. Could you elaborate on where those are coming from?

Hey, I think like many things at Mettler, it’s just okay. We need to push a little harder on some productivity topics. So maybe some -- with us there’s always a series of things in the pipeline that we’re thinking about cost wise, right. Planning for cost-wise. And we just need to move a few of those things up and that’s how we approach it. And then it’s time to almost fill the backlog again on some cost savings ideas. So nothing -- and we’re talking about a few million dollars. So, I don’t want to imply that there’s a major restructuring just a series of little things that we can do to enhance our margins and a few things in the pricing area too by the way.

There are a few more specific activities going on related to the Swiss franc exposure that we have, that we talked also about in the last call. These are actually progressing as planned. And in that sense, I do expect that they will help us in 2017 here, when we have further head winds.

Super. Thank you.

Our next question is from Ross Muken with Evercore. Ross?

Good afternoon, guys. It’s been a really interesting economic cycle, right. We’re multi-years post the recession. You’ve always done your business historically, it’s more late cycle and yet here we are later in the cycle and the organic growth rates are kind of not what we would expect. And I think in the ‘07, ‘08 timeframe, we were in the 7s and now we’re in sort of the low singles. And so as we think about how this business should perform over a cycle, how does this experience and what’s gone on in the emerging markets make you think about sort of the very long-term positioning of Mettler and whether you need to be deeper on the lab side or the bet that you have made on emerging markets, how that will sort of play out? I’m just curious how much you’ve thought about that cyclical element and how this business is sort of pace versus what we’ve seen prior.

So, first of all in terms of our views on kind of what we think about our medium-term growth rates, we continue to think we’re a mid-single digit organic growth kind of company over a cycle. I think if you -- Olivier and I were explaining to the Board over the last couple of days. For us it’s kind of interesting, with the exception of periods of really snapback kind of purchasing. For us to grow outside of the BRC 7%, I’m not sure if I could pick a quarter where we’ve grown, much less a first half where we’ve done so well in those countries. Yet, of course, we all know how, what a great contributor China has been and not just China but China, Russia and Brazil have all been good contributors to our growth over the recent past. And we particularly feel that China over the next 10 years is going to be a good market for us. I think we’re uncertain for it in the medium-term. In terms of the business mix that we have, I think we’ve been open with you guys that we have used certain businesses as being the ones we’re investing in. The ones we’re investing in, in terms of things like our field turbo program, how we allocate resources in R&D etcetera. And those have been for a long time our lab business, our process analytics business and our product inspection business. And our core industrial business as well as our retail business have not -- we’ve not made the same kind of investments for growth there in the future. We benefited from it in our industrial business, the whole emerging market expansion, but we continue to think that that’s a business that we make excellent returns on. We get really good returns on capital. Our operating profit margin and our industrial business is frankly excellent. And we think that there are still ways to grow it, probably at rates less than the lab business but with really good returns on capital. And yes, I think that’s probably the how we would answer your question, Ross.

Okay. So I guess, just to be clear, so you guys think, because I was just looking at the growth rates. Since like ‘09 you’re averaging about 3.6%, that’s what I have it over the cycle. And the last few years it’s probably been in the 3’s as well. And so a lot of that is the function of emerging markets. Again I’m not suggesting we’re going to have China in sort of this lower rate, or Brazil, etcetera, forever. But I was just more curious about the strategic level. It seems like you’re certainly investing in some of those areas, but is the view that we’ll probably see mid-singles next cycle? Because I guess the point is, are you guys, as you’re looking at things, do you feel like we are late cycle? Because that’s the part that I think a lot of us kind of struggle with, because the industrials are kind of rolling over and that would sort of signal we’re late, much later in the cycle. So I’m just curious, if you’re strategizing if you agree with that concept that we are late cycle now, and sort of haven’t really -- and that 5% is really for the next cycle, or do you see what I’m trying to get at?

Yes. I can’t check your math fast on the 3.6, but I’ll take you at that number. And with regard to us being late cycle, we would generally say we have a series of different businesses that fit in different parts of the cycle, but we would agree overall, we have generally been a late cycle business. Of course with a late cycle is often where things are cyclically on a global basis or a regionally global basis isn’t always the same as we evidence right now.

Yes, I guess that’s the point. Maybe in developed markets you’re seeing the normal cycle, but EM is just kind of we had a super cycle and now maybe we’re making up for it. All right. Thanks, guys.

Sure.

Our next question will be from Richard Eastman with Robert W. Baird.

Yes. Good afternoon.

Hi Rick. How are you?

Good. Olivier, could you possibly just touch on the lab business? When I look at how it’s performed in total, year-to-date, certainly the second quarter and maybe the outlook there that you presented, it doesn’t seem like you’ve chipped in your growth expectations for lab despite the fact that, as you flagged earlier, about half of that business does have industrial or process industry exposure. And I’m curious what that dynamic looks like. I mean, is kind of the pharma lab, life sciences stuff, is it growing at a little faster pace to offset the industrial, or how do you view the industrial side of lab?

This is right what you just said at the end. I see that not just in the hard facts when we looked at our revenue by industry segment, I see it also by product lines. So the AutoChem business and the pipette business is doing extremely well across the globe. Again, these are the businesses that have mainly life science content. As the business for example balances, which has a higher mix of different industries that we serve was more on the lower end of the lab portfolio in terms of growth. So this is certainly true. But I would also say the lab is very nicely benefiting from all our growth initiatives that we have, all the Spinnaker and field tube initiatives, it plays well. And lab is certainly a business that gets also more of this resource allocation and investments in additional growth because we see the market share gain opportunities. And lab has a very nice profitability. So I would say these are the key factors that help us. And last but not least, I would also say that we still have in China a business that is cued towards the industrial business. And so lab has less exposure in these markets that currently suffer under weaker economic environments.

Okay. And then the second thing, really I just wanted to think for a second or two about the services and consumables side and the hardware side. In the past, we have talked about the effort to grow services and expand services and the attachment rate. And we have talked about that being a mid-single digit growth business, if not high-single digits. If I weight these about right, it seems like the hardware business in this quarter, there was some modest growth in the hardware side of the business, but that’s probably fully explained for in price. Do you get price on the services side? So Bill, when you threw out the 230 bps of price in the quarter, does that apply to the services as well as hardware?

Yes. So we definitely increased prices on both. For service, it’s actually extremely important because of course we need also to offset wage inflation that we have on the labor piece of service. For consumables and spare parts, there is a little bit of a different dynamic, but also there of course we increase prices. So it’s both. You are right, we target an above group average growth for service, but I wouldn’t say that we can expect that in every single quarter. But overall, we are on track to achieve the targets and we see that happening actually across the geographies. I would mention here that also the growth on the service side in emerging markets, including China, is actually going well.

Okay. And so if I’m right, the forecast maybe for hardware for this year, you’re kind of really thinking about flattish type of volumes, with your core growth at 3% in local currency?

Modestly better, but yes. And maybe in some details, there is some exits we’re burying in there, but that’s not going to move the needle.

That’s how it rolls together. And then do you ever speak to or have a sense of what the vitality index might be on the hardware side in your business?

So we’re running a little higher right now, but we typically are running numbers in the mid 20s on products coming -- new product introductions over the last 24 months.

As a percentage of total revenue, okay.

Product revenue.

Correct. Okay. Great. Thank you very much.

I was just going to say we’re a little north of that right now.

Okay. All right. Thank you.

Sure.

Our next question will be from Isaac Ro with Goldman Sachs.

Good afternoon, guys. Thanks. I wanted to spend a minute talking about some of the comments you made on the cost side. You’re obviously trying to manage, I think, through a difficult operating environment. And if I look back at sort of the ‘08-’09 timeframe you guys had of course managed to do something very similar where when the topline really got pressure you guys did a great job of preserving earnings. So I would be curious like if you kind of talk a little bit about where your priorities are and trying to rein in expenses and some of those might be permanent versus sort of deferrals on future growth initiatives?

I think the two situations are very different. What we experienced in ‘08-’09 was across the world a decline across all the businesses and we went after really severe measures really also across the world. The situation today is much more differentiated. You have few geographies that are challenged and others that are doing well. And also from business lines, we need to differentiate. And accordingly, our response is very differentiated. Yes, we are taking cost measures in countries like Brazil, Russia and China to respond to the new situation, but at the same time we are investing in other countries where we see good growth opportunities and potential. So it’s definitely not across the board that we do cost-cutting programs, but we have that in our DNA that we continuously look for opportunities to optimize the cost structures. So, for example we have lean initiatives in all the production plants around the world to improve our productivity. And what we certainly also need to respond to is to currency changes. So we have the situation in Switzerland where we have very significant currency exposure at this stage, but then also down the road when some of the hedges that we have on the Swiss franc are running out. And there we have measures that we are implementing and that will kick in over the next few quarters and helping some offset that. So in a nutshell, a very differentiated approach. We are not pulling back any investments that we feel are strategic. In contrary, I would make the point that we are heavily investing in field tubal programs independent how we are doing on a quarterly base because we feel these are good long-term investments and we really believe also that this is really going to help us next year for example.

That’s a really helpful context between now and then. I appreciate that. One follow-up on the capital allocation front. You guys had raised your target leverage ratios. At the same time, the stocks obviously had a pretty good run here the last year or so since you did that. So can you talk a little bit about how you’re thinking around capital allocation over the back half of this year factors into your guidance and kind of your general views on where best to put your dollars? Thank you.

Isaac, we are continuing to purchase a little bit more than our free cash flow. You’re correct in your statement regarding our capital structure that we think a little bit more leverage would be appropriate. And we’ve always been a buyer of the stock. We buy it on a consistent basis, so you will see the same pattern in the second half of the year that you saw in the first half of the year.

Got it. Thanks, guys.

Our next question is Tim Evans with Wells Fargo.

Thanks. Isaac took my question there. So I will step off. Thanks.

Thanks, Tim.

Our next question will be from Steve Willoughby for Cleveland Research.

It’s actually Rob Cottrell on for Steve tonight. I just want to make sure that I heard you clear, Olivier. With the field turbo hiring program going on, it sounded like on the last call that you guys were committing to ramping up that effort in the second half of the year. With the reduced guidance, are you changing your thinking at all on that or are you still kind of moving forward with the hiring in the second half?

No, we are still committed. And the main reason is that we see that there are still many countries where we have these opportunities for good growth and that these investments are having good pay backs. It is, however, very differentiated. So we are -- on the one hand, we are maintaining costs, reducing costs in settling these three countries that we are seeing today as very challenging. But then investing, for example, in the US markets that we feel has a further growth potential. So the commitment is here, and we have already the development of new opportunities. We are reviewing first projects now and it will certainly be a key topic when Bill and myself will be on the better tour later in September.

Great. Thank you.

Thank you.

[Operator Instructions] We do have a follow-up question from Tycho Peterson with JPMorgan.

Hey, thanks. Sorry, I hopped on a little bit late. But I don’t know if you had commented on kind of your efforts to increase the attach rate for service. Can you talk a little bit about how that’s going and how far through that process you are?

This is an ongoing topic. I often say it’s a journey. So this is not completed within a few quarters. It’s going to take many, many years, progressing well. We have actually really good initiative in all major countries going on. One of the key elements of it is also having good training, good marketing programs to support the salespeople that we sell service at a point of sales. So when we sell the instruments initially. But then we have also a lot of activities after sales that where we leverage the so-called [I-base] [ph]. This is a huge effort that we have ongoing to have better transparency on the installed base. And then understanding which products are under contracts, which ones are not, and running dedicated programs to bring the maximum possible on the contract. So all-in-all, good progress but I want to really make the point that this is a journey, this is not something that happens overnight.

Okay. And then one follow-up. On the inspection business, obviously a nice recovery this quarter and I know you called it out in your prepared comments. Is there anything on the regulatory front that is driving that? I know in the past you have talked about things like organic carbon testing driving demand, but is there anything new on the regulatory front that maybe drove outsized demand?

No. I think we had in the past a significant change which makes recalls for companies actually really very expensive and very complicated. That’s actually the key driver today that companies really want to avoid recalls. And we see that top management, CEOs of these companies recognize that physical contamination detection is actually a key factor also to recalls, and that’s driving now the increased attention to metal detection and x-ray in particular.

Okay. Thank you.

And at this time, there are no more questions in the queue.

Thanks, Patsy. And thanks everyone for joining us. Of course if you guys have any questions, don’t hesitate to call. We are doing the call from Europe so the easiest way to get a hold of us, send me an email. We are more than happy to follow up with you tonight or tomorrow. Take care, everybody. Thanks. Bye-bye.