Good day, ladies and gentlemen, and welcome to our Second Quarter 2016 Mettler-Toledo International Earnings Conference Call. My name is Nicole, 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 your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thanks, Nicole, and good afternoon, everyone. I am Mary Finnegan. I am the Treasurer and I'm responsible for Investor Relations at Mettler-Toledo. I'm happy that you're joining us this evening. I am joined tonight by Olivier Filliol, our CEO; and Bill Donnelly, our Executive Vice President. I need to cover just a couple administrative matters. The call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we’ll refer to on today's call is also available on our website. Let me summarize the Safe Harbor language, which we have on page two 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 statement. For a discussion of these risks and uncertainties, please see 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 MD&A of our Financial Condition and Results of Operations in our Form 10-K. Just one last thing. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the differences between the non-GAAP financial measures and the most directly comparable GAAP measure is provided in the Form 8-K. I'll 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 three of the presentation. Local currency sales growth was 6% in the quarter and better than we expected. We continue to generate very solid growth in the America. Asia/Rest of the World including China had very good growth. Europe growth was solid. With the benefit of our margin and cost initiatives we had good growth in margins which contributed to excellent growth in earnings per share. Cash flow was also strong in the quarter. We are very happy with our performance as well our outlook for the remainder of the year. We will cover this shortly, but let me now turn it to Bill to cover the numbers.

Thanks, Olivier and hello everybody. Sales were $608.3 million in the quarter and that's an increase of 6% in local currency. On the U.S. dollar basis sales increased by 5% as currencies reduced sales by about 1% in the quarter. On slide number four we show local currency sales growth for the quarter. Sales grew by 6% in the Americas, 4% in Europe and 8% in Asia/Rest of World. On the next slide we show local currency sales growth of 5%. On a year-to-date basis that includes the Americas at 6%, Europe at 2% and Asia/Rest of World has increased 6% in the first half. Starting on page -- slide number six we will outline sales by product area. Laboratory had very good growth, with local currency sales of 10%. Industrial increased by 3% and Food Retailing declined by 2%. All these comparisons are forced to the prior year. And the next slide you'll see our year-to-date sales summary by product lines. Lab has grown 7% in the first half. Industrial 3% and Food Retailing increased by 1%. Now I'd like to turn to slide number eight and walk through the rest of the P&L. Our gross margins were 57.1%, that's a 160 basis points improvement over the prior year amount of 55.5%. We are very happy with the strong performance in the quarter. And on a year-to-date basis, our gross margins have increased in line with the expectations we had for expansion for the full year. Pricing material costs and mixed off contributed to the increase in the quarter and was partly offset by some additional targeted investments in our Service business. Currency had no impact on gross margins in the quarter. R&D amounted to $30.7 million in the quarter and that's a 5% increase in local currency. SG&A…

Thanks, Bill. Let me start with summary comments on business conditions. Lad had very good growth in the quarter with 10% increases. Pipettes, analytical instruments, and process analytics had an excellent growth with balances and auto chem also had good growth. Growth was strong across all regions and reflects our robust product pipeline, benefit of Field Turbo investment and continued strong sales and marketing program. Spending by our biopharma customers continues to be very favorable. Industrial increased 3% in the quarter driven by a 6% increase in Core Industrial. Growth in Core Industrial was particularly strong in the Americas which benefited from some projects activity in transportation and logistics. We also have growth in Core Industrial in Europe and Asia including China. Product Inspection was down slightly in the quarter. This business continues to perform well, but was impacted by timing of some activity and the strong comparison from the prior year. Product Inspection had strong order growth in the quarter and we expect good sales growth in Q3. Finally, sales declines 2% in the Retail. This was pretty much as expected. We have growth in Europe and Asia, but decline in the Americas against good growth in the prior year. Now let me make some additional comments by geography. Sales growth in the Americas continues to be very solid with 6% growth. We have very good growth in Lab and Industrial, while sales declined in Retail. Demand continues to be solid in the Americas, but tougher comps will impact the second half. Europe grew 4% in quarter, an improvement over the first quarter which we think was in part due to timing of Easter holidays. Lab have excellent growth in Europe, while Core Industrial and Retail also grew. Product Inspection was down which was improved in the quarter. Asia/Rest…

[Operator Instructions]. Your first question comes from the line of Derik De Bruin from Bank of America Merrill Lynch. Your line is open.

Hi. It’s actually Michael Ryskin on the line for Derik. I want to say congrats on the strong quarter and the Troemner acquisition. A couple of quick questions. The strength in the lab was a little bit better than we expected, obviously. It is coming off a little bit of weaker comps per year, but is that something that was strongly affected by that, or is this something you’re seeing operationally, and how do you feel about your ability to carry that double-digit growth, going forward?

So you’re right. It was modestly easier comp so in Q1 of 2015, we grew by about 8% and in Q2 of 2015 we grew by about 5%, and then last quarter we grew 5% on the 8%, so about 13% two-year growth, and now the 10% would imply 15% two-year growth and a slight therefore acceleration in the two-year growth. If we look out to the next quarter, the comp will be 7%. So I think our view is that lab will grow well. The two-year growth rate will continue in a similar kind of range to what we have on a year-to-date basis, and specifically in terms of the end-market as Olivier mentioned biopharma spending is good. It should continue to be good, but you know comps [ph] matter of it.

Yeah, nothing a substantial difference, not to your run rate there.

That's substantial. And I think it could probably be explained by a larger order here or there.

Okay. That's helpful. And in terms of the gross margins sort of similar question, you mentioned that, you know, it was mostly flat in 1Q, but you had the strong 160 basis points improvement this quarter. Is this -- was it mostly just making up for some weakness you had in 1Q, you mentioned pricing material costs, the 50 basis improvement going forward. Is that still in play for future quarters?

Yeah, I think -- so we're at I think it’s 80-plus on a year-to-date basis and that might be a little bit more than we would expect in Q3 and Q4 but still something probably north of the 50 basis points in Q3 and Q4. As we mentioned on the last call we really just had a very tough comp vis-à-vis Q1 of year ago on our gross profit margin. It was by far the biggest year-on-year increase that we had our year-end. And so I think kind of work themselves out on year-to-date basis in terms of the expense so we feel that the gross profit margin expansion that you guys have got used to should continue now.

All right. Thanks. I will get back in the queue.

Your next question comes from the line of Paul Knight from Janney Montgomery. Your line is open.

Hi, guys. This is actually Phil on behalf of Paul. I just have one question. You were kind of highlighting Services and Products, if you maybe could just by either by segment or by geography kind of where are you seeing strengths for each of those. There's any anomalies in terms of growth of demand. Thanks.

So if I take it by geography actually I will talk with the performance across the geography. But what I would highlight as particular nice is that we in Asia Services going very nicely. China had actually good growth of multiple quarters despite the product range [indiscernible] and the Services are growing that had a good reflects that our initiative have actually real impact and then we capitalize that growth. A highlight of the perfect market of age, of course, our penetration attach the place of Service is higher in mature markets and seeing us and catch up in emerging market side. If we talk about business segment particularly with ionized product where Service is going very nicely over the last couple of quarters and in terms of profitability but also pretty benefit is this particularly for us is Services increasingly across all the business, Products in particular. So that's probably benefit of the flavor that it would get [indiscernible].

Great. Thank you.

Your next question comes from the line of Ross Muken with Evercore. Your line is open.

Hi. This is [indiscernible] in for Ross, actually on his way out to see you guys. Congrats on a good quarter. I just wanted to ask a little bit more about your services investments that you've been making a lot of the you know and how that's impacting the sales line in terms of -- you know how do you think about the payback for those investments and how does that get address you know show you evidence that confidence in the revenue line trajectory? Thanks.

So we used the term Field Turbo and we have found on to weight this field additions have very project oriented in the sense that we really drilled out on the business story that the business line look and where we have these opportunities with good pay back. And what we do is we monitor actually the progress of these. So we monitor on one hand the implementation of it, are we successful in recruiting, onboarding, building up the pipeline and all the things. I'm very happy with how it’s going. We do kind of [indiscernible] support for that. We need to [indiscernible]. But then when it comes to the financial results, of course, it’s a little bit more difficult to isolate, but we have also dashboard behind us where we look at are we successfully outgrowing across the group average. Where we [indiscernible] and there is a very nice correlation between [indiscernible] where we are accelerating our growth. So I really feel good about it. Definitely [indiscernible] reflects in our results that this is paying off. We were talking about service before. Service is also an area where we did very positive addition [indiscernible] sales or services. We use like telesales and dedicated service and sales resources for service and [indiscernible].

Great. And then just one quick follow-up. Do you have any worries about any industrial softness or purchasing delays in Eastern Europe post Brexit? Thanks.

Not really. I think actually overall the industrial business is not too great [indiscernible]. I don't see anything get worse at all. On the contrary we could see very gradually things getting better and in Europe overall I expect that within the next few quarters we will be reasonably good. So the Brexit effect I am not saying it’s positive, but it's also not particularly negative. [indiscernible] with one exception, U.K. itself. But we need to [indiscernible] U.K. is a [indiscernible] percent of our total revenue. U.K. had already some softness before Brexit. I would associated some of the softness with the uncertainty and certainly after the whole uncertainty [indiscernible] further up and we will expect some further softness in U.K.

Okay. That was super-helpful. Thank you very much.

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

Hi, guys. Thank you. Just the first question on regional performance. On Europe you mentioned the 4% growth that was helped by [indiscernible]. If you back that out, just wondering if there was another effect there in terms of market share or something else that would have allowed you to grow faster than the actual market?

I think it's sometimes difficult to point specifically to market share gains. I think if we look in our lab in particular within one quarter, Isaac, but if we look at how we’re performing in lab and product inspection, I would say those are two categories that we would view ourselves doing very well competitively and very well specifically in Europe. As a reminder, Europe is the place where we have the largest percentage of direct sales. And so many of our [indiscernible] initiatives are often most fruitful there.

Got it. And then on the acquisition, I was just trying to put together some of the numbers you gave us. I think you mentioned 50 basis points contribution in the back half. Curious if you can give us a little sense of that number, what it assumes in terms of timing of deal closed in the third quarter, just so we get a sense of like the annualized impact? And then as part of that, just wondering, I don't think you mentioned how the revenues will be allocated between lab and industrial. I apologize if I missed that.

Okay. So a couple questions. So on an annualized basis, it's [indiscernible] about 1% of sales, and then we're assuming it's going to close in the next couple of weeks. And it's at 1% on an annualized basis [indiscernible] by a week or two I think. That won’t make a material difference. And then the nature of the business would be that the vast majority of it will be inside the lab business.

Got it. Thanks very much. Sorry to miss the event.

Your next question comes from the line of an Dan Arias from Citigroup. Your line is open.

Hi, guys. This is actually [indiscernible] behalf of Dan. I just wanted to take a step back just given the macro shift that we saw at least in terms of -- I'm surprised that over the last few weeks and kind of get an update on your view of how you guys think of the structure of your business. I remember last year when we use the tag Swiss franc conversations are being had as to whether or not you guys would shift from your cost to the euro dollars versus Swiss franc just kind of want to get an update on that in light of needs whether anything is fundamentally changed.

Yeah regarding Switzerland note currently it’s actually didn't move particular it's worth make a difference and Swiss matters was something that we initiated with a multiyear plan and we are progressing very well on that plan and I am very happy with the progress that we're making. The currency moves that took place is impacting our producing organization in U.K. As we might know we have for the Product Inspection we have the metal detection at the x-rays production there this is an attempt a favorable for us, but it will not change something to our global manufacturing strategy or output. So I don't see that this will impact our strategy in any significant way.

Okay. No fundamental change you're hedging strategies either.

In terms of hedging, no.

Okay. And I guess another one for me is the incremental margin in 2Q I have at right a little bit north 30% kind of in line what we have seen over the last few years and little bit higher Q-o-Q. Just surprised given the 6% organic I know you guys have prioritized some investments that would be net dilutive. Just kind of want to get a sense of how you guys looking at incremental margins going forward especially in the context of you know kind of a 3% to 4% growth and north and south of that where you think it can go on the incremental basis.

Yeah, so maybe a little bit of clarification in terms of the incremental margin I think at least the way we calculated it it's the 31% in were measured in actual dollars, but it's actually about 34%, 35% in constant currency, so probably closer to maybe what you would expect it. And then those included in there was a bid asset catch up and made investment to incentive payment in terms of our SG&A increase. And so we did trigger some reevaluation of where we expect to finish at the end of the [indiscernible] target. And maybe a last point would be along the lines when we were talking about for a while is that we do like the effectiveness to date in the Field Turbo program so either certain some brand investment with our -- to our internal program be in the quarter-end. And you'll see a little bit of that forward. In terms of our incremental margin I continue to think that, you know, numbers [indiscernible] are very realistic and frankly with the caps at the judgment that the comps in the current quarter won't impact full year number in any material way would have been there.

Okay. Can I seek one last one just on China Industrial I mean you guys were relatively tapping to start the year and improved in 1Q in the sense of your outlook. It seems like it it's modestly improved in the second quarters as well is that after it one and two, do you expect to be relatively steady here or you think there's a few one-offs that might provide some mental the close of the year.

So if I look at China in total I think the second quarter was marginally better than the first. If I -- that was largely driven by our bad business and in particular the process analytics in the Lab business. If we look at kind of where we are we would expect a positive second half of the year particularly be to where we - where expectation were once we started the year but probably a little less than what you saw in the most recent quarter I think we grew our Lab business in China by, you know, close to 20% in the second quarter, and I think we don't expect that kind of growth a little bit large order driven and particularly in the third quarter. We probably sitting here today would estimate that maybe the fourth quarter [indiscernible].

I appreciate all the color, guys. Congrats on the quarter.

Thank you.

Your next question comes from the line of Tycho Peterson from JPMorgan. Your line is open.

Actually, Bill, just following up on the China question. Could you give the exact growth number for China? I may have missed it. Are you still expecting kind of low-single digit, mid-single digit for the full year?

Yes, I think at this stage, I think mid-single digit would probably be a pretty good guess. Specifically in the second quarter, we were at 9.5%, 10%, and about 20% on the lab.

And then product inspection, that's been a bit of a drag for a while. I think you previously mentioned you're expecting something around high-single digits for the year. Can you maybe just talk about some of the dynamics? What caused the decline this quarter and when do you think things turn there?

Yeah, maybe just to clarify, at least for us we’re thinking this is the first decline from a sales reported number, the first weak number. I think it’s been pretty consistent. It was 7% in the first quarter, 6% last year. It’s totally in backlog build. Actually the order entry in the quarter was high-single digits, and we were looking for a return to high-single digit or better in the third quarter. In the details of the why, if you kind of look at what happened in our product mix, as you know, it's one of the longer lead time products that we have in the portfolio, and just the mix changed a bit in a quarter where there were a lot more within [indiscernible]. So we're very happy with how that business performed in terms of execution, and continue to think that the market dynamics are good in that business, Tycho.

Okay, then just lastly, what are you baking in, in the back half for core industrial out of Europe? Are you assuming things improve from here?

Yeah, let me double-check the details. So maybe in the second half of the year we think we'll have some growth. I’ve to double check and see if there are any large P&L orders [indiscernible] something in the second half of last year, but I don’t think so. So some modest growth, single-digit growth.

Okay, thank you.

Your next question comes from the line of Steve Willoughby from Cleveland Research. Your line is open.

Hi, guys. Good evening. Just two things. Bill, the EPS guidance increased as you guys did. Are you guys expecting any accretion in the back-half of the year from the acquisition you've done here? And then I guess secondly, it's not every day that you guys do a lot of M&A stuff. But just wondering if there was any – do you think there are other future opportunities down the road for further consolidation of smaller lab manufacturers such as this?

I'll take the first part of the question, but let Olivier start with the second part of your question.

So this is a case that fits perfectly now with franchise. From a size perspective, it’s really core. With these opportunities around, yes, we definitely go for them. We have a radar of possible targets and there are more such companies. But actually you can’t really time when they’ll become available [indiscernible]. So we really pursue them and whenever they materialize, we are more than happy to close them. We are looking at smaller ones too, but you shouldn’t look that as a new path strategy that we are pursuing here. Yes, we did a couple of technology adjacencies and this time we had a great opportunity to acquire actually a service business, and if that pops up again we will do so.

Okay. And with regard to, it should add a couple pennies, maybe up to a nickel in a best case scenario. And that would include us making some investments in terms of different things on the growth side, for example, international distribution enterprise. Okay. Steve, any other questions?

No. That's good. Thanks guys.

Your next question comes from the line of Richard Eastman from Robert W. Baird. Your line is open.

Just a couple of follow-ups on the Troemner acquisition. Olivier, did they compete with you or is just kind of fill you know a regional hole in your service capabilities, is that is that part of the fit here.

So we did compete but while in Europe we are market leader, in the U.S. Troemner was the market leader and we had a relatively small weights and weight calibration of business in U.S. and talk it perfectly fit our franchise.

I see. Okay.

Troemner has a fantastic brand and confident in U.S. that they build up over decade that always made it difficult for Mettler to lead or to compete. As in Europe we have been the leader with patent it was difficult Troemner to establish a presence in Europe.

I see. And did they route to market for their mixers and stirs and some of the basic lab equipment, did that go through Ore House [ph] or how did they get to market with those products?

Now so they use other indirect channels and Ore House was not a part of them and they have -- that they have multiple brands that they also leveraging at this current stage and we're going to maintain that, but in addition we definitely want to leverage the Ore House brand or the Ore House franchise to expand in particular also in international markets where Troemner was a particularly strong with their lab equipment business.

I see. Okay. And then, Bill just a question, you know, we took up the 16 core growth guide from 4% previous leader now more like 5% and did you did you suggest earlier that, you know, 50 bps the basic points of that increase was due to Troemner?

Correct.

Okay. So…

…the pure organic number by 50 bps.

Okay. Despite the strength that you are seeing out of Asia-Pac and even you know the reacceleration maybe in Europe, I mean that's -- is that a high confidence forecast that that's all that would contribute in the second half? I would think that geographically is that Asia-Pac seems to be driving more upside than that.

You know I understand the comment if you -- I think that the comment that we've been making now in the last couple of quarters, Rick, is that given over capacity as well as credit risk in the Chinese market that it's worth put a little bit of a discount on that piece of it that would kind of number one. And number two would be in the details now and I am not counting a lot of basis points but that we see some tougher comps in a couple of different areas. So if you look at our year-to-date number we are plus 5% and we're saying A, by the end of the year we should finish it 4.5% at the midpoint of the range and I guess closer to 5% at the high end of the range, so let's see how China and some of these comps play out. Biopharma has been a strong market for a while. I'd like to think that there is upside to the numbers but we'll see as the quarter and the second half plays out.

Okay. This is great. And then just one last question maybe for Olivier the Lab strength in China is that, you know, somewhat traditional relative to the other geographies? In other words is that coming out of the biopharm vertical or, you know, are we seeing more uptake there in other labs, environmental or food and beverage or is it -- is a strength there by vertical kind of match up with U.S. or Europe.

I would say yes to both what you said. [indiscernible] generally the Lab is doing well, but I would also say, yes, that the life science and biopharma is particularly strong in China.

It is, okay. Great. Thank you much.

Your next question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Hey, thanks. Good afternoon. Just, Bill, circling back on China, just give us an update kind of on what’s the current or latest KPI readings, how they're faring in China in general, and if you could give us the order growth rate in the period.

Maybe on the economic stuff, I’m not sure if we’re a better source than kind of what you guys read. I think it's a bit of a lot of economic data globally. It’s a bit of a mixed picture. Maybe one interesting insight we might give you is that I know there’s been some articles that some of the GDP growth has come from leveraging up further some of this state-owned enterprises and regional governments, and it was interesting for us to see when we sorted through the details of our numbers that we saw really good growth, of course, in the government sector when it came to labs, but we also saw across the board a very good growth with multinationals. And that's an interesting comment in the sense that if you look over the last three years, the percentage of our total sales in China going to multinationals has shrunk, but now we see a nice rebound in the first half of the year across product categories, and I think that this famous comment that we talked about for a multinational company, they can defer the replacement cycle for a while on our products, but eventually it bounces back and I think we see that a little bit there. It’s probably a little less on the project side but much more of this return to the normal replacement cycle. In terms of the order entry, the order entry was similarly positive to what we saw on the sales side. So it was a solid number. It’s not that purely the order entry would make us cautious about the second half; it's just the realities of that it’s still a market with some instability in it, and I think us remaining cautious makes sense, but I actually felt what we just shared with you about multinationals was one of the more positive readings that we had in our data coming out of China.

That’s helpful and just two other quick steps. Could you give us the net ASP in the second quarter? How you’re feeling about the second half? And then should we assume the tax rate still 24% in the second half?

Sure. So in terms of our price increases, our net realized price increases were 230 basis points up in the second quarter, and on a year-to-date basis they're now up at 2%. We did go and look – and just to put that in a little bit of context, some of that was us chasing some of the currency movements. That’s going to happen in the course of the earlier part of the end of the first quarter, early part of the second quarter. And so we are trying to do something in terms of mid-year prices. I would not expect the second half of the year to be worse than 2% at this point in time.

Super, thank you.

[Operator Instructions].

Hey, Brandon. Tax rate we expect at 24%. I realized I forgot to answer that part of your question.

There are no further questions at this time. I turn the call back over to Mary Finnigan. End of Q&A

Thanks, Nicole, and thanks, everyone, for joining us tonight. Hey, as always, if you guys have any questions or any follow-ups, please don't hesitate to contact us. Take care and have a nice night.

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