Good afternoon, and welcome to the Mettler-Toledo Second Quarter 2023 Earnings Conference Call. My name is Briana and I will be your conference operator today. Please note that this call is being recorded. 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 will now turn the call over to Adam Uhlman, Head of Investor Relations. Please go ahead.

Thanks Briana, and good evening, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com. A copy of the press release and the presentation that we will refer to today is available on our website. This call will also include forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, financial condition, performance and 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 our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements, except as required by law. On today's call, we will use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is also available on our website. Let me now turn the call over to Patrick.

Thanks Adam, and good evening, everyone. We appreciate you joining our call today. Tonight, we reported our second quarter financial results, the details of which are outlined for you on page three of our presentation. Our sales growth in the second quarter included strong growth in our service business as well as solid performance across our industrial product categories, which was offset in part by softer market conditions in Laboratory and China. Focused execution of our margin expansion and cost control initiatives resulted in good growth in adjusted EPS despite currency being much greater-than-expected headwind this quarter. As we look to the remainder of 2023, there is increased uncertainty in the global economy and our end markets. In addition, market demand in China has deteriorated. While we have reduced our growth expectations for 2023 due to weaker market conditions, we remain confident in the factors we can control, including execution on our best-in-class sales and marketing programs and our margin expansion and cost-saving initiatives. Our team remains very agile in adapting to changing market conditions, and I'm confident that our efforts will deliver solid results this year. Let me now turn the call over to Shawn to cover the financial results and our guidance, and I will then come back with some additional commentary on the business and our outlook. Shawn?

Thanks Patrick, and good evening, everyone. Sales in the quarter were $982.1 million, which represented an increase in local currency of 2%. On a U.S. dollar basis, sales were flat as currency reduced sales growth by 2%. On slide number four, we show sales growth by region. Local currency sales increased 4% in Asia, rest of the world; 1% in the Americas and were flat in Europe. Local currency sales increased 3% in China in the quarter. On slide number five, we show sales growth by region for the first half of the year. Local currency sales grew 4% for the first six months, with 3% growth in both the Americas and Europe, and 6% growth in Asia, rest of the world. Local currency sales increased 6% in China on a year-to-date basis. On slide number six, we summarize local currency sales growth by product area. For the quarter, Laboratory sales decreased 3% and Industrial increased 6% with core industrial up 6% and product inspection up 5%. Food Retail grew 17% in the quarter as we benefited from significant project activity. The next slide shows local currency sales growth by product area for the first half. Laboratory sales increased 1%; and Industrial increased 6%, including 6% growth across both core industrial and product inspection. Food Retail increased 25%. Let me now move to the rest of P&L, which is summarized on slide number eight. Gross margin was 59.4%, an increase of 100 basis points as pricing was partially offset by higher cost, business mix and currency. R&D amounted to $47.2 million in the quarter, which is a 6% increase in local currency over the prior period, reflecting increased project activity. SG&A amounted to $228.6 million, a 6% decrease in local currency over the prior year and includes lower variable compensation…

Thanks Shawn. Let me start with some comments on our operating businesses, starting with Lab, where sales were softer than we had expected for the quarter. While we continue to see robust demand on hot segments like lithium-ion batteries, our pharma and biopharma customers have become increasingly cautious with their spending and have delayed investment decisions, particularly in China. As expected, our pipette sales were again weak in the second quarter as customers reduced inventories of chips and instrument sales declined. The impact of the lower pipette sales was in line with our previous expectations, and we continue to expect this headwind to ease in the second half of the year as comparisons become easier. As mentioned, we also see customers, especially in our key market segments such as pharma and biopharma delaying purchases. However, our pipeline and customer quoting activity has remained strong, and we were pleased to see continued strong service growth across our Lab business in the second quarter. We are hopeful conditions normalize soon, but we have not built this into our 2023 guidance. Turning now to our Industrial business. We again saw strong demand for our automation solutions from core industrial portfolio this quarter. While we expect to continue to benefit from customer investments in automation and localization of supply chains globally, we are not immune to the increased uncertainty around the global economic outlook. Regarding product inspection, it also had good performance this quarter, but our packaged food customers have also become more cautious about making investments in new equipment due to inflation and uncertain economic conditions, and we would expect softer results for the remainder of year. Finally, Food Retail delivered strong growth this quarter due to robust project activity in the Americas. Our Food Retail sales can be lumpy, and we would…

[Operator Instructions] Your first question comes from Dan Arias with Stifel. Your line is open.

Afternoon, guys. Thanks for the questions. Patrick or Shawn, maybe just to start on China. Growth there was actually a couple of points above the U.S. and Europe in the quarter. Is the deterioration that you're pointing to for second half showing up in the order book here in early 3Q? Or is it more just sort of reading the writing on the wall when it comes to the big picture direction that things are headed in over there?

Yeah. Hey, Dan. This is Shawn. Maybe I'll start, and I'll let Patrick add some color. But basically, as we were kind of exiting -- largely related to how we're exiting the quarter, but probably even more importantly, how we were starting the third quarter. And as you know, don't typically carry a lot of backlog in our business. But certainly, as we kind of started the third quarter, we started to really see a significant deterioration in conditions that we also started to see towards the end of Q2. And as kind of we mentioned before, it's largely in the area of Lab. Our Lab forecast for China is down very significantly in the third quarter. We're kind of like looking at literally something that could be in excess of a 20% decrease. Now, of course, as you know, we've had some extremely strong growth over the last couple of years. If you kind of look at, we grew 20% last year in Lab in China and almost 40% in Q3 and the year before that. But we're also seeing a little bit of slowdown in Industrial as well. And so, overall, we're just kind of seeing a lot of hesitancy in terms of customers placing orders. Not sure how much of it's related to a lack of clarity in terms of like stimulus in the country. I mean, there's some very recent talk of additional stimulus. But that's something that we have not built into our guidance for Q3 or for the rest of the year. And kind of just sitting here looking at this very sudden decrease -- and as we've said many times in the past, things in China can change very quickly. We feel like we're observing something that's a very negative quick pivot going in the wrong direction and with the fact that it's kind of just starting to happen so significantly, we don't feel like we're in a position to necessarily try to build anything in necessarily for the fourth quarter at this time. So, we're kind of building in also a negative outlook for Q4.

Okay. Okay. Just to finish that thought. Did you give a forecast for the year for China, if you did, I missed it.

Yeah. So, down mid single digits for the full year. And then for Q3, down mid-teens. And then, so if you kind of think -- step back and you look at that full year guidance of down mid single digit, I mean that's a very significant difference than what we're looking at last quarter when we provided guidance. We're looking at high single digit for the full year. And if you just kind of like do the quick math on that, that's kind of, I think, more than half of our decrease in our guidance is related specifically to China.

Yeah. Okay. Okay. And then, just -- maybe just moving to Lab and the destocking activity that you have going on in the pipette business. How much of what you're looking at? Are you attributing to that? Does it feel like that's tracking relative to your expectations last quarter? I mean, do you still think you can kind of normalize in the second half of the year? Or is there a better way to think about it just that takes the remainder of the year to sort of wash that out of the system?

Yeah. That one is playing out pretty similar to what we expected. It was about a 2.5% headwind in Q1. I think we were saying that we expected something to be about a 2% headwind in the second quarter. That's exactly what it was. So, our 2% growth would have stayed. In other words, our 2% growth would have been 4% if it wasn't for the decrease in pipette. And then our Lab business would have been plus 1% growth instead of a minus 3% decline if it wasn't for the decrease in pipette. So that's playing out very similar to what we thought. For the second half of the year, we're not expecting much of a headwind, maybe very little in Q3. I mean, pipettes could still be down low to mid single digit, especially in China, it's going to be down significantly because of what they're lapping with testing. But I'd say, overall, it's playing out pretty similar to what we thought -- how thought it would.

Got it. Okay. Thanks Shawn.

Yeah. Thanks Dan.

Your next question comes from Jack Meehan with Nephron Research. Your line is open.

Thank you. Good afternoon. I had one more follow-up on China. I was just curious like what feedback you've heard from the region about what might have driven this kind of rapid deterioration? Is it your sense this is just demand related? Or is there any sense maybe there's been an uptick in local competition at all?

Yeah. Jack, this is Patrick speaking. Let me take this. And since Shawn already commented the first part of the question about China. Look, the change is, I think, mainly driven really by the lack of stimulus when after COVID reopening, beginning of the year, there was really strong momentum in China, a lot of expectation on growth, and the government would drive it with additional stimulus. That really didn't happen. And I think it also now led to the fact that a lot of customers really become much more reluctant and waiting for the government to make a decision about the stimulus, so they are clear of how much they can spend and where they can spend the money. We have not seen any significant change in competition locally in China. That's one what we are hearing from the team. The team is really confident in our product portfolio. We have a very experienced sales team and a great product portfolio that helps us to compete efficiently in China. So, it's really about the missing momentum. And I would say the missing confidence in the economy that really leads to the fact that a lot of customers holding back investments and are waiting for the certainty about what's to come. And that's the major slowdown that we are facing now. And it's also the fast drop off that we have seen that. We also didn't expect and our sales team definitely didn't expect as we're going into Q2, but towards the end of the Q2, that really became a big momentum and now early in Q3. We don't see that changing, and that's why we're also careful with the outlook Shawn mentioned. We see China minus double-digit in the third quarter, and we don't really count on that improving in Q4 as well.

Got it. And then just in terms of some of the actions that you're taking to mitigate this pressure. Is it possible to quantify just the magnitude of cost-savings that are going to hit in the second half of the year and just where that's going to show up kind of across the income statement.

Yeah. Sure. So, maybe the best way to look at it, Jack, is that we're kind of looking at our overall cost structure to be flattish for the full year. So, if you kind of like think about that in terms of the second half of the year, probably down low single digit in the second half of the year. And if we -- if you try to think about that, how it looks on the P&L, SG&A will be lower than other lines. Of course, part of our costs are also above gross profit, which you don't necessarily have broken out separately. But I think as we look at the -- at our program, we are focused on productivity and other discretionary spending. But I think it's also important to emphasize too. We're still continuing very much to grow and invest in -- I mean, invest in the business for growth. I mean, if you look at our R&D, as an example, it's still up 7% year-to-date. We still expect to see growth in R&D for the second half of the year. But then kind of just stepping back from everything too. I think we feel pretty -- like it's the right balance where we can still provide really good operating margin expansion on a full year basis in the 70 to 100 basis point kind of a range. And that's despite some unfavorable currency.

Great. Thank you.

Your next question comes from Derik de Bruin with Bank of America. Your line is open.

Hey, good afternoon. Thanks for taking my question. So, a couple of ones. So, I was surprised to hear your pharma biotech comments on things being down so much. And the reason why I say that is, I mean, we certainly have heard that purchases over $100,000 are getting held up. So, your items are often well below that. What's going on there? I mean, is it just a complete freeze? Or are you just getting a lot of pushback on pricing? I'll ask the pricing question, what are your expectations now for the price in your guide?

Yeah. I'll start with it, Derik, and then I let Shawn chime in as well. Look, we're not seeing a complete freeze. It's not like total pharma business is frozen for us. Of course, we see a decline. And as we said, we see delays in orders. It's not -- and you're right. I mean, our products are in lower CapEx or below CapEx spending. But that said, we see a slowdown in orders in pharma-biopharma, and it's pretty broad based, but it's not a complete going off the cliff, so to speak. But it's a significant decline that we're seeing and slowdown that we are seeing. And for us, of course, the question is as many others ask, how long will this take? And why is that happening? We want to hear from our sales team is, well, we have a lot of quoting activity, actually, what we're seeing, but I'm really happy to see is that we have a strong sales team engagement. We have a lot of sales teams out there with customers that are talking about their plans. They get good leads. Leads are actually up year-to-date. So, we see good momentum on the lease generation side, but they're not turning into orders as quickly they used to do. Now how long this will continue. It will definitely also depend on when more certainty is coming back to the economy. I mean that's what we're hearing from our sales team. I'm pleased with the quoting activity. I'm monitoring that on a daily basis. I see how our sales team is interacting with customers and now often they are out there with customers and discussing projects and investments. But the time to turn these opportunities into orders have definitely increased, and that's part of the slowdown we're seeing in orders.

In terms of the other part your question, Derik, pricing actually was very good in the quarter. For the total group, it was actually up 6%, which was a little bit better than what we had expected. And as we kind of like look at the second half of the year that's for the total company. And as we kind of look for the second half of the year, it's probably going to be a little bit better than what we were initially expecting as well to probably up by about 4%, which would kind of put us in the 5% kind of a range on a full year basis. And what we've kind of continue to observe is that we feel like our value proposition has really resonated and increased over the last few years. As the market like looks for opportunities in terms of productivity and digitalization, it really plays to the strength of our portfolio. And I think teams do an excellent job in terms of articulating that value proposition to the customer base. And as you kind of mentioned or implied with your question, our price points also tend to be pretty low as you know too. And so that value proposition really resonates, and it's easy to justify from a customer perspective. So, we feel good about the pricing program and how we think about it for the second half of the year.

Got it. Just as a follow-up. You're taking guidance down by about 4.5%. It looks like about 2.5% of that is China. So, can you quantify what else is that? And just like what's pharma, what's industrial, you're just not having good feelings about that you just want to be conservative on.

When you say -- when you ask that question, are you asking to break down the China piece or the rest of it?

We know the China piece. It's the rest of the piece that I just want. What's what else is baked into that remainder that's not the China cut?

Yeah. Yeah. Yeah. So, hey, I think we do see moderation in the Americas as well as Europe. So, for the Americas, we're now looking at more flattish growth. For the full year, our prior guide was like more like low to mid single digit. What we're kind of seeing there is just it's more concern with our core end markets. One of the things that is happening at the moment we have our three largest core end markets are under pressure pharma, biopharma, food manufacturing and chemical. And in the U.S., food manufacturing and others. We talked a little bit about pharma, but food manufacturing is also an area, especially in our product inspection business, where we see -- we came off a good quarter, but we also see some pressure for the second half of the year as these customers are under a lot of pressure. If you look at Europe, we're probably modestly a little bit lower than what we were before, at least at the lower end of what we were guiding. We're thinking more like low single digit for the full year. Previously, we were in the low to mid single digit. The one thing -- we've actually been very impressed at how well the European numbers have held up this year, but we also acknowledge that PMIs have been down very low there. They've decreased recently and it's been a prolonged period. And of course, there's a lot of uncertainty in the region, and of course, our end markets there are also under pressure. And if we think about Europe, like a good example is -- in addition, again, to give you an example other than pharma, biopharmas, the chemical industries under a lot of pressure. I mean, if you just look at the number chemical companies that have reduced their forecast for the year, just recently, double-digits, there's a lot of concern there in terms of that customer base, particularly when it comes to Europe. So that maybe gives you more of a geographic overview. If we kind of break it down by business area. Maybe I'll just kind of do the walk throughs so everybody kind of has that too. And of course, there's some overlap here because China is influencing some of these numbers, but I'm just going to kind of go through it. So, we have -- we're looking at Lab down mid single digit in the third quarter and down low single digit for the full year. We're looking at core industrial down, low single digit and up low single digit for the full year. And similarly, products inspection down low single digit for Q3, up low single digit for the full year. And then, our retail business is actually doing quite well, very good project activity. We continue to see that -- expect that in the second half. We expect that to be up high-teens in the quarter for Q3 and also for the full year.

Great. Thanks Shawn. That was really detailed. Appreciate it.

Yeah. Yeah. Thanks Derik.

Your next question comes from Patrick Donnelly with Citigroup. Your line is open.

Hey, guys. Thanks for taking the questions. Patrick, I guess, when you kind of look at these various headwinds you've called out and you kind of assessed them, you talked a little bit, I think, in the prior question about trying to figure out what could linger into 2024. I guess, when you kind of step back, which do you see being more temporary or transitory versus issues where you look and you're kind of doing these cost controls that you look out and say, maybe this could linger into 2024. If you can just kind of bracket it up for us and try to help frame that view would be helpful.

Sure. Absolutely. Look, I mean, of course, it's too early to make a forecast for 2024. Right now, we will do this in our next earnings call when we report our Q3 and look at Q4. But to say what is transitory right now. I mean, we have -- I would say the easier thing to capture for us is what we have seen on the pipette side. The destocking of pipette. We anticipate that it is normalizing. Again, the consumption of pipette probably to pre-COVID levels in the second half. We see that uptick happening slowly, but steadily. That is normalizing. When it comes to the rest of the industry, it's, of course, very hard to predict to say how is the economy continuing to evolve from here? How long will pharma and biopharma be under pressure and also will the rest of the economy, the Shawn also outlined, the chemical industry suffer from this economic downturn that we are seeing. The elongated time that PMIs are under pressure. It just leads us to -- right now, we look at the second half and say -- this is probably a good forecast for us, given the information we have. It's, of course, a significant downturn. But will it -- when it will turn, will it be early 2024, mid-2024, I think that's too early to call. You may call there, frankly. I mean, we have pockets where we see really still very good momentum as we count on that. They continue to grow. If we take what call the hot segments like the battery segment, for example, is performing extremely well, driving good growth almost across all of our businesses. We've emphasized on some of the Lab businesses like analytical is performing well. We still see pockets of good momentum in industrial automation. And we also see increasing interest -- as I highlighted in the beginning of the earnings call, also in the semiconductor business, we have been successful in some of our form [ph] business when it comes to ultra-pure water, et cetera, sensors. So, there are pockets of still good growth that we capture, and we're really going hard on for this. We have the right tools that we see these pockets of growth and drive our sales team towards the direction. But how long broader economy will under pressure, I think none of us here on the call can really tell you how long it will take. We're looking at the second the second half and forecast for half. And then once we get to Q4, we'll give you a guidance on 2024. But right now, it's too early to be honest.

Yeah. No, understood. And then, Shawn, I guess, maybe a follow-up on that. Just around the margins, you touched on them a little bit. But I guess when you think about the pricing lever, that seems like it's still quite strong for you guys in terms of the boost for margins. Again, some of these cost reduction activities. Can you just talk about the moving pieces as we work our way through second half? And then, I guess, how nimble you want to be on the cost side going into next year and then pricing, I assume, is still going to be positive as we move forward. You guys always protect the margins pretty well. So, just curious how you think about it, the moving pieces there would be helpful.

Yeah. Sure. So, I mean, hey, I think we still have a really great margin story. I mean, I think, as I kind of mentioned before, for the full year, we're still expecting to deliver an operating margin expansion in the 70 to 100 basis point range. And frankly, I wouldn't be surprised if we end up closer to the higher end of that range, and that's despite some unfavorable currency. And that probably puts us -- the operating margin by quarter might be down a little bit in Q3. It might be up a little bit in Q4. But overall, we feel very good about the ability to continue to expand for the full year. And then I think as we kind of go into next year, like Patrick said, it's a little bit early look at that. Of course, we'll probably have some savings from some of the actions that we did this year. There will be some stuff that goes away as well. And as we think about pricing, we still feel great about our value propositions. But it will also depend a little bit on the inflationary environment. And we'll -- as you know, we'll provide more thoughts and guidance and insights on all that on our next call in November.

Okay. That's helpful. Thank you guys.

Yeah. Thanks.

Your next question comes from Vijay Kumar with Evercore. Your line is open.

Hey, guys. Thanks for taking my question. I guess, my first one on the third quarter guidance, low single digit declines. You just did 2% in Q2. That's a 500 basis point change. And I think about 300 basis points of the 500 is coming from China. Are you seeing China down mid-teens in July? And if the assumption, it's down mid-teens for the rest of the quarter? And where is the remaining 200 basis points softness coming from, perhaps, from an end market perspective?

Yeah. Hey, maybe I'll take that one, Vijay. So, I mean, we don't typically -- as you know, we typically don't go into too much detail on individual months, but absolutely, we -- I kind of alluded to it before. We -- what we experienced and as we've seen July kind of start certainly heavily influenced how we're looking at the quarter and the rest of year for China. And so yeah, very much we're looking at down mid-teens and then, especially weighted in our Laboratory business. If you look at our Laboratory business, as I mentioned before, we're lapping some pretty big comparisons there, but we're expecting the Lab business to be down even more significantly there. If we kind of like look at the rest of the portfolio, it's kind of similar to how I answered Derik, I'd say, on the full year results. I mean, we're looking at low single digit growth in the Americas. There, it's very much the same topic about core end markets. It's this delay in pharma, biopharma that Patrick talked about. Of course, we also -- within that, we talked about pipettes, but of course, we also have a smaller exposure within single-use bioprocessing that we talked about last quarter, like with PendoTECH as well. And then similar to the prior answer, I mean, we're also looking at a decline in product inspection in the Americas in the third quarter as well with the pressure that we're seeing from food manufacturing companies. And then, Europe, we're still expecting Europe to be more low single digit in the third quarter, but acknowledging that we have different uncertainties that we talked about before. If we kind of like look at the business in terms of overall by business, for the third quarter, we're looking -- well, actually, I already mentioned it, so I don't need to mention it again. But in terms of the different areas, I mean, Lab being down more so than the other areas in terms of the guidance for Q3.

Understood. And then one maybe on the stimulus that you mentioned. If -- what specifically have you heard about from Lynx [ph] about a stimulus? And if there is a stimulus, how long does it take for it to flow through to customers placing orders in purchasing? And on the cost actions here, what is the pacing of cost actions? Is -- what kind benefits are you expecting? It looks like -- I mean, EPS is down more than revenue, maybe perhaps not much benefit in 3Q, but what's the magnitude of the cost actions -- the benefit from cost actions you've taken in Q4?

Yeah. Hey, so a lot there. So, the first thing you were talking about was the stimulus. So, in terms of the stimulus, like we don't have any -- probably more insights than anybody else. I mean there were some comments coming out of the government, I think, in the last week with an intention to stimulate. I don't think any specific details have been provided. So, it's hard to kind of comment on that at this point in time. And so, I think we'll have to see how that plays out and how long that takes to really -- how directly that affects our end markets and how long it takes to get into the economy. But like I said, right now, we haven't built anything in for our forecast for the second half of the year. So, we'll kind of see how it plays out. In terms of EPS, I mean, we do have unfavorable EPS in -- I mean, I'm sorry -- foreign currency. We do have unfavorable foreign currency that's been hurting us throughout this year. And as we kind of mentioned in the opening remarks, it's also kind of impacted us much more significantly than our last time we provided guidance. So, I think we were initially looking at a 2% headwind last quarter. And now we're looking at something more in the 3% to 4% range. And I think if we go back to our original guidance for the year, I don't think we were expecting very much headwind at all from foreign currency. So that's certainly something that's affecting us. So, I think it's important to kind of also consider that as you kind of look at the EPS growth for the second half of the year. So, if you kind like look at Q3, if you exclude foreign currency, will be anywhere from at the high end of our guidance flattish and to the lower end of our guidance, minus 3%. And then for the full year, we would be growing 5% to 7% in a year where sales are much more modest than the 0% to 1%. So, we feel like we still feel good about that in terms of the ability to still expand margins during the course this year and then at the same time being able to continue to invest in the business, which we've talked about -- which is important to us to protect the medium and longer term as well, too. But otherwise, no other specific comments, I would say, in terms of details.

Understood. Thanks guys.

Yeah. Thanks.

Your next question comes from Matt Sykes with Goldman Sachs. Your line is open.

Hi. Good afternoon. Thanks for taking my questions. Maybe for my first one, Patrick, you spent a lot of time and focus on the services portion of the business and you called out some pretty strong growth this quarter for that segment. Could you maybe talk about what your assumptions are for the full year for services growth? And just maybe help us understand a little bit better about the customer dynamic and caution as it relates to services, assuming it's a little more defensive. Just maybe talk about how you expect that business to perform in this type of environment.

Yeah. Very good question. And hey, I couldn't be more pleased with the performance of our service business. As you probably recall, we grew 14% in the first quarter. It grew 13% now in the second quarter. So, outstanding performance of the service team. And actually, that's also a business just to -- reminder everybody on the call is where we still over hiring people. So, we're adding more service technicians to our team, because we see good business momentum there. We see good demand for our customers. We use the opportunity over the last year or two to also extend our service offering in our portfolio. We increased the emphasis on service sales at the point of sales, making sure that we sell more service contracts. We restructured the quoting process that services are obviously included in the quoting. We trained the service team more team more efficiently on selling, the sales on selling services. So, I think that all really now pays out in the growth we're seeing in services. And looking at the full year also more strong outlook here. I think for the full year, we're forecasting high single digits, at least in terms of service growth. Shawn, am I correct on this one?

Yeah. Might even high single digit for Q3 and yeah, might even -- yeah, probably might even be high single digit, might even be low double-digit, maybe close to 10%, but yeah, high single to 10%, yeah.

Good. And again, that's driven by the ongoing momentum. And we see -- at the moment, we see really stronger demand than in the product category, and we don't see a lot of pushback on pricing. And so, I would really see continue -- to see that momentum continuing. Of course, we're also having tougher comparisons as we move between the next couple of quarters as Q3 and Q4 last year also had been already quite strong on service growth. But the underlying momentum is strong. We have an extremely strong service team and we continue to invest in services that we can build, continue to build out that team and make sure that we can serve our customers in the best possible way and deliver an outstanding customer experience. That is really what is differentiating us as a [indiscernible] leader from many of our competitors that compete directly with us in the field is the strength of our service organization.

Great. And then just thinking of some other potential offsets just given some of the challenges in the Lab business. You talked about sustainable materials, batteries and semis. Can you maybe help us understand sort of the sizing of that business and what kind of you're seeing in terms of growth sort of globally, but maybe also by region. Just so we can kind of better understand what some of the offsets could be over the course of the year?

Yeah. Let Shawn break it down in terms of the size. But I mean, this is what we call the hot segments, right? And it's really -- at the moment, strongly driven by lithium-ion battery segments. We see strong -- really good momentum building up in the semiconductor business with the reshoring and homeshoring of some of the semiconductor plants that is gaining momentum in sustainable materials that are gaining importance. And that is, again, we call these pockets of growth in in itself, they have, of course, not super significant in terms of size, but the growth momentum is important for us to compensate and offset some of the weaknesses that we see in other areas.

Yeah. In terms of the size, Matt, I don't have a specific number for you, but I mean these are still relatively smaller end markets for us in the kind of low single digit kind of a range. But from a growth perspective, they certainly help lot in terms of growth given the higher growth relative to the rest of the portfolio and the longer term opportunities here. And what's kind of neat about these hot segments is that they -- we can provide solutions very end to end. A lot of them -- it starts in R&D. It goes all the way through development and to manufacturing. And so, we benefit in some cases, more so in our analytical instrument business, but we also see benefits through a large portion of our portfolio.

Great. Thank you.

Your next question comes from Catherine Schulte with Baird. Your line is open.

Hey, guys. Thanks for the questions. I guess, first in China, is the weakness concentrated in any product categories within your Lab business? Or is it more broad-based? And are you seeing the consumables and services side of the business holding up better there?

Look, Catherine. I take this, it's really broad-based in the market segment. I can't point to any specific product category. It's pretty broad-based and focused on pharma and biopharma. But for the single product category, I would point you that there is more effective.

Okay. And then, maybe…

And specific to consumables, Catherine, consumables are actually down more so because of all the testing that was still going on in China with COVID last year.

Yeah. Okay. Got it. And maybe on the packaged food side, you've been talking about caution in that category for several quarters now. At what point do you start lapping some easier comps there? And is there anything to point to in prior inflationary environment as to when you might start seeing improvements there?

I think we will not face any easier comparison because we have performed pretty well last year in this business, and we are almost confident, but we are confident that we have taken market share as well. Yeah. In the Americas, especially, we have been quite strong. And this is also why we see probably in the second half this year comparison with a bit of a slowdown in growth. We had pointed more reluctance of investment in Europe in the beginning of the year or end of last year. And we continue to see that going on. And Europe is just not the same investment environment right now in the packaged food industry. A lot of the customers are actually under pressure when it comes to their margins, so they're trying to push out their investments as well. That said, we had just recently had a big trade show in Europe, the Interpac and we have seen great interest in our product portfolio. We also launched a set of new products, also midrange products in the x-ray category and others. And that helps us, of course, to also really effectively compete in that segment and drive our future growth. We are actually quite sure that we're taking market share in the segment right now, although the growth is not outstanding. I think we are outcompeting our competitors. And it's a business that we, again, invested in over the last two years in expanding the portfolio, especially pushing more into the midrange to be there more effectively, but also now launching pretty soon some new higher end solutions.

Great. Thank you.

Your next question comes from Josh Waldman with Cleveland Research. Your line is open.

Good evening. Thanks for taking my questions. Maybe, Patrick, just to follow-up on product inspection. I mean, it sounded like it held in the quarter, but seeing signs of softening from CPG, food and pharma seems like it's pulling back. Just curious what level of orders you've seen kind of entering the third quarter and maybe how the guide reflects those maybe softer end markets. It seems like the guide, I mean, only moved down modestly, if I'm correct.

Yes. That's right. The guidance is down modestly. Again, it's mainly in the U.S. where we see also tougher compares, but also the environment for the customers that are becoming a bit more difficult. And it looks like they are slowing down their investments. Shawn, anything else if we could say in terms of the guidance for PI.

No. I mean, I think also, if we look at Q2, we actually did better than we expected. So, maybe Q2 was better, but the second half is a little bit worse. And it's kind of like what Patrick says. If you just kind of like look at -- if we kind of just look at how -- what we're hearing from customers and from the organization, especially in the U.S., but also in Europe going into the quarter, we're just seeing a more negative situation than what we experienced in the second quarter.

Got it. And then, I guess, a follow-up or a question on process analytics. I wonder what you saw in Q2 from a demand perspective or growth perspective and then your assumptions on the second half. I mean, we've seen some of the bio prod peers, CDMO peers and chemical accounts talk on incremental softness. Is this something you're seeing show up in the business? Or do you think that business will hold in more resiliently?

Yeah. I'll start and I'll let Patrick add some color -- additional color if he'd like. But in terms of process analytics, we had very, very modest growth in the quarter, but there were definitely different storylines kind of under the covers. On one hand, we did have a very significant headwind in terms of bioprocessing specific more so to the single-use technologies and downstream bioprocessing. We also see softness in pharma and biopharma or more biopharma, I should say, coming off some very strong comparisons in previous years. But then kind of offsetting some of that is also -- have been good growth in some of these hot segments like semiconductors is an important segment for the process analytics business. But nonetheless, we have a more modest expectation here for the second half as well too, just given more pressure that we talked about in general with pharma and biopharma.

Yeah. Shawn, if I might add to yours. Of course, we're seeing some headwinds there in biopharma mainly. And you mentioned also the single-use sensor topic that we have with PendoTECH for the end market segment. But on the other hand, on Ingold reusable sensors, we are not having the same stocking dynamics that we have seen with PendoTECH, but that actually is still a good ongoing recurring [ph] business. And I also want to add here and I know we talk a lot about innovation, but we also launched last year a new unbreakable sensor that is now really a great success story for us in the dairy [ph] business, and we continue to launch it into new market segments. It really is differentiating us from our competitors. So, I am very positive about the product portfolio and how it will help us to also gain market share there even in difficult market environments.

Appreciate the detail, guys.

Your next question comes from Rachel Vatnsdal with JPMorgan. Your line is open.

Great. Thank you for taking the question. So, I want to follow-up on some of those comments around pharma and biopharma customers. Can you just walk us through, are you seeing any difference in buying trends between your large pharma customers and some of those smaller biotechs. And then can you detail us how are those conversations about decision-making on spending difference between the two? And then as a follow-up, just can you remind us how small is your emerging biotech exposure?

So, overall, our small biotech exposure is really small. I mean, that's not the majority of our customer base. The major customer base for us in pharma and biopharma are larger customers. And to your second part of the question about the decision slowdown, I guess there's not a specific particular reason we could point to. We're just saying what we're seeing is that delay in decision-making. What the real root causes of that might be different for different businesses. But I think overall, pharma just has become more cautious with spending. And that affects us across the board of our product portfolio.

Great. And then, maybe just a follow-up here on pricing. You said that you'll take roughly around 5% pricing this year. You also had above the average pricing contribution last year as well. So, how should we think about that pricing translating into 2024? Will you guys go back to your normalized range? Could it go below? What are really the expectations there? Thank you.

Yeah. Hey, Rachel, I mean, of course, it's early still to provide too many insights in terms of how we're thinking about 2024. But maybe what I would say is that we still feel very good about our value propositions. We still feel very good about our program. We continue to invest heavily in R&D to continue enhance those value propositions. And depending on the inflationary environment, I would expect us to be probably more in a normalized situation kind of going into next year, but I think we'll kind of have to see how the inflationary environment plays out.

Your next question comes from Liza Garcia with UBS. Your line is open.

Good evening, guys. Thanks so much for squeezing me in. So, I'll try to keep it brief. Just circling back since we're talking about China. I think you called out growth actually on the Industrial side of the China business. And I know the focus has been on the biopharma and pharma piece obviously, you detailed quite a bit there. Can we just talk about your expectations on the other businesses in China for the balance of the year and kind of what you're seeing there and how to think about that? And then, I'll have a follow-up really quickly.

Yeah. Okay. Thanks, Liza. Yeah. So, I'll take that one. The growth in the second quarter, I mean, was more mid single digit for Industrial. So, we're pleased on that. As you know, we've been kind of lapping some big comparisons in that part of the business as well. As we kind of like look to the second half of the year though, we're looking at the industrial business to be down probably mid single digit. We are seeing some decline in that part of the business as well. And I think it's important to remember, like some of these customers are also exposed to a lot of the same end market exposures that we're exposed to in Laboratory as well, too. So, when we say pharma and biopharma is down, it's also affecting our industrial business also. And so, maybe not down as much as what we're seeing pronounced in the Lab business, but still down in the second half of the year and probably more flattish on a full year basis.

Great. And yeah, I mean, you guys were talking about -- obviously, you mentioned SternDrive and that initiative. But I believe there's another wave of Spinnaker that's supposed to be underway or kind of coming under that should be launched, I believe, in right now. I guess, kind of how to think about that and kind of the levers that you have. I mean, Spinnaker has obviously obviously been great in terms of market share and how to think about what Mettler can deliver over the next couple of quarters with the next wave.

Yeah. So, in terms of Spinnaker, we continue to innovate in Spinnaker -- Patrick, can you hear? We can continue to work. Okay. You’re live though. You’re live. Yeah. So, in terms of -- Liza, can you still hear me?

I hear you great.

Yeah. Hey -- so hey, I think Patrick just lost the ability to hear the question. So, I'll just kind of answer it. So, in terms of Spinnaker, we continue to innovate in terms of Spinnaker. And we are in the process of launching a new wave. We're going to share some of the details on that until we kind of roll it out a little bit further, but something that we're just at the very beginning of doing and kind of very excited about. And I think there's some really interesting opportunities for us kind of going forward to continue the journey that we have in Spinnaker.

Great. Thanks a lot.

Your next question is from Tim Daley with Wells Fargo. Your line is open.

Great. Thanks. So, Shawn or Patrick whoever can answer here. But it's pretty clear the guide discounts, any year-end budget flush in pharma biotech. But again, Patrick, given your experience, you brought up Mettler from your prior lives across the life science industry, or Shawn, yourself, given the historical experience you have at Mettler. Can you get a game theory for us, if you will, potential narratives or factors that would influence the outcome for a potential year-end budget flush if macro conditions stabilize or don't considerably fall off by the end of the year, and that's a potential outcome.

Yeah. Hey, Tim, this is Shawn. I'll take that one. So hey, of course, we didn't -- it's always difficult to be able to judge exactly what his budget flush and quantify it from year-to-year, especially in our business. We did not build in anything specific for budget flush. And I think just like you said, just kind of implicitly, looking at our guidance, we have a much more cautious view in terms of pharma and biopharma as we kind of exit the year. And if you can just kind of like look at how we're thinking about Q4 in general. It's not quite the same, but it's pretty similar to how we're thinking about the third quarter. So, certainly, if pharma and biopharma had a more robust end of year spend, that certainly could be an upside to how we're looking at things.

All right. Got it. And then just again, sorry to beat the dead horse here in China. But just now, given that is a pretty critical piece of the investment -- long-term thesis for growth within Lab, the standardization of Western facilities. Just curious, is there a pullback from Western companies because of geopolitical potential risk there? Has there been any change in impetus that whole standardization of one global facility format, which utilize the Mettler productions within it? Or is that still -- is just temporary stuff weighing on us?

Thank you. I hope you can hear me. I mean, we just got to disconnect -- yeah. Okay. Well, I'll take that question. Okay. With regard to multinational pulling out of China and what we're seeing here, right, as for now, I think we don't see a significant impact yet. But the way I want you to think about it is if multinationals pull out of China and do some reshoring, homeshoring, whether they go from China to India, they go back to Europe or the U.S., we also see this, of course, moving forward as potential opportunity for us to capture these investments as the investments are happening. Then, we have definitely the right market sensing tools market sensing solutions in place to capture these opportunities earlier then guide our sales team and our -- to these companies as they are going -- if they are going to reinvest either in the U.S., in Europe or somewhere else if they're putting businesses out of China. But as of now, I would say that this is not the major driver for the slowdown in China. That's not what is driving it. For us, it's really the overall sentiment, the lack of confidence in the market and the wait mode for stimulus until the companies they really decide on how much budget they have and how much they can invest moving forward.

Got it. Thank you. Appreciate it. End of Q&A:

There are no further questions at this time. With that, we will end the conference call. Thank you for joining us today. You may now disconnect.