Mettler-Toledo International Inc. (MTD) Q1 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the Mettler-Toledo First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Adam Uhlman, Head of Investor Relations. Please go ahead.

Thanks, Rebecca, and good morning, 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 on today's call is also available on our website. This call will include 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, 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 available on our website. Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our first quarter financial results, the details of which are outlined for you on Page 3 of our presentation. We are pleased with our first quarter results, and we delivered good performance in an increasingly uncertain market environment. Solid execution of our margin initiatives supported very good adjusted EPS growth. Our investments in innovation continue to provide tangible benefits and we are well positioned to capitalize on our customers' investments in automation, digitalization and onshoring in the future. While we recognize increased uncertainty in the macroeconomic environment, we remain confident in our agility and strong execution of our growth and margin expansion programs to achieve solid adjusted EPS growth this year. Let me now turn the call over to Shawn to cover the financial results and our guidance and then I will come back with some additional commentary on the business and our outlook. Shawn?

Thanks, Patrick, and good morning, everyone. Sales in the quarter were $947 million, which represented an increase in local currency of 3% or 1% excluding acquisitions, which contributed approximately 1.5% to growth. On a U.S. dollar reported basis, sales increased 7%. On Slide #4, we show sales growth by region. Local currency sales increased 2% in the Americas, 1% in Europe and 5% in Asia/Rest of World, including 4% growth in China. Excluding acquisitions, local currency sales were flat in the Americas and increased 3% in Asia/Rest of World. On Slide #5, we summarize local currency sales growth by product area. Local currency sales increased 1% in Laboratory, increased 5% in Industrial, including 1% growth in core industrial and 11% growth in product inspection. Food Retail grew 7% in the quarter. Excluding acquisitions and currency, Laboratory sales were flat, while Industrial increased 2%, including core industrial flat and product inspection up 6%. Lastly, service revenue grew 7% and 5% excluding acquisitions. Let me now move to the rest of the P&L, which is summarized on Slide #6. Gross margin was 58.7% in the quarter, a decrease of 80 basis points and was up 10 basis points, excluding unfavorable foreign currency and acquisitions. We continue to benefit from favorable price realization and supply chain optimization benefits that helped offset an incremental gross tariff headwind of 90 basis points. R&D amounted to $51 million in the quarter and was up 1% on a local currency basis over the prior period. SG&A amounted to $258 million, a 1% increase in local currency over the prior year and includes sales and marketing investments, offset by cost savings. Adjusted operating profit amounted to $246 million in the quarter, up 4% versus the prior year. Adjusted operating margin was 26%, a decrease of 80 basis points versus the prior year or up 40 basis points, excluding unfavorable currency. We estimate the gross impact of incremental tariffs reduced our operating profit by 4% and it was a 90 basis point headwind to our operating margin. Items below operating profit were $0.13 per share, better than our guidance and included benefits due to changes in interest rates and other income. Adjusted EPS for the quarter was $8.91, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 4%. On a reported basis in the quarter, EPS was $8.33 as compared to $7.81 in the prior year. Reported EPS in the quarter included $0.27 of purchased intangible amortization, $0.29 of restructuring costs and a $0.02 headwind related to the timing of stock option exercises. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $120 million and was negatively impacted by the timing of tax payments, which were $58 million higher than the prior year. DSO was 35 days, while ITO was 4.2x. Let me now turn to our guidance for the second quarter and for the full year 2026. As you review our guidance, please keep in mind the following factors. First, while we have an immaterial exposure directly to the Middle East, the war has led to higher global energy costs and has increased uncertainty in our end markets, and we experienced customer delays in the first quarter. Second, we acknowledge improving global economic indicators and also see increased activity in our pipeline, which we believe will translate to better growth during the second half of the year. Third, our guidance includes a benefit from changes to U.S. import tariff rates in February, but also assumes tariffs in the second half of the year return to consistent levels with prior IEEPA rates. We have also not included potential tariff refunds from the U.S. government in our 2026 guidance, which could benefit cost of goods sold, and we have also not included potential tariff refunds to our customers, which would reduce sales. We will exclude these items from our adjusted EPS and organic sales growth in future periods. Fourth, our guidance includes higher costs due to inflation related to the war in the Middle East. We seek to mitigate these increases with cost savings initiatives and additional pricing actions, but have taken a cautious approach to guidance given the dynamic nature of the current environment. Lastly, we are very confident in our ability to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment. Now turning to our guidance. For the full year 2026, our local currency sales growth forecast remains at approximately 4%. Our forecast includes a contribution from acquisitions, which will approximate 1.5% in the first half of the year and less than 1% for the full year. Adjusted EPS is forecast to be in the range of $46.30 to $46.95, which represents a growth rate of 8% to 10%. This reflects an increase from our previous guidance of 8% to 9% growth. At recent spot rates, foreign exchange is estimated to be a 2% benefit to sales growth and neutral to EPS. For the second quarter of 2026, we expect local currency sales to grow approximately 3%, including a benefit of approximately 1.5% from acquisitions. We expect adjusted EPS to be in the range of $10.70 to $10.85, a growth rate of 6% to 8%. Currency for the quarter at recent spot rates would benefit second quarter sales by approximately 2% and would be neutral to adjusted EPS. Some further comments on our 2026 guidance. We expect total amortization, including purchased intangible amortization to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $28 million on a pretax basis or approximately $1.06. Interest expense is forecast at approximately $70 million for the year. Other income is estimated at approximately $25 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $900 million in 2026, which is an increase of 5% on a per share basis. Share repurchases are expected to be in the range of $825 million to $875 million. That's it from my side, and I'll now turn it back to Patrick.

Thanks, Shawn. Let me start with some comments on our operating businesses, starting with lab, which had modest growth across most product categories and strong growth in bioprocessing, partially offset by a decline in pipettes due to soft demand from academia and biotech customers. We see a growing need for replacement across our pharma and biopharma customers and expect to see a gradual increase in activity in the second half of the year. Additionally, our team has remained very active in identifying opportunities across various hot segments like biopharma, new energy and semiconductor that will further fuel our growth in the future. Turning to Industrial. Core industrial sales were up 1% or flat excluding acquisitions, as we have seen cautiousness in customers' purchasing patterns across most end markets given the dynamic geopolitical and macro environment. Product inspection sales growth was solid as it benefited from innovation and our mid-market strategy despite continued challenges facing the food manufacturing industry. Lastly, Food Retail had strong sales growth against easy year comparisons. Now let me make some additional comments by geography. Starting in the Americas, where sales grew 2% or were flat, excluding acquisitions. Growth in our lab business included strong bioprocessing growth, while product inspection also had strong growth. Core industrial sales were soft this quarter and were impacted by customer delays related to increased market uncertainty. However, we remain optimistic for growth in the second half of the year. Turning to Europe, strong growth in our product inspection and food retailing was offset in part by softer market conditions, especially chemical. Finally, Asia and the Rest of the World had good growth this quarter and included 4% growth in China, led by our Industrial business. In markets outside of China, we again had very good growth in India, Southeast Asia and many other emerging markets, which remain an important component of our long-term growth strategy. In summary, I am pleased that our team continues to execute very well in a challenging market environment. We also continue to make important investments in innovations to secure our future growth. Our R&D accelerator and JetStream programs have helped us increase our pace of innovation while better meeting our customer needs. We are especially focused on bringing new innovations to high-growth segments such as bioprocessing. Our innovation helped our customers generate new insights, improve workflows through automation and digitalization and to capture more precise and reliable measurements. Our dedication to bringing new innovations to market helps us increase our value proposition, stimulate replacement demand, gain market share and support our price premiums in the marketplace. I'd like to share with you some exciting examples of new innovative products we have brought to market recently. First, our automated chemistry business recently launched our new EasyMax advanced automated lab reactor that help scientists with their process development by automating scale-up experiments. EasyMax controlled temperature, stirring, dosing, sampling that provides precise measurements with smart digital sensors for continuous unattended data capture, increasing throughput and ensuring consistent results. An embedded vision system continuously records experiments and captures critical events automatically documented -- documenting visual context to speed up understanding of reaction behavior. By utilizing plug and play peripherals, researchers can instantly automate complex tasks such as pH-driven dosing or pressure-dependent sampling ensuring that every protocol is executed with robotic precision. Our lab business also recently introduced our InMotion PX One autosampler that fully automated density, refractive index and UV/VIS measurements, expanding our broad portfolio of automation solutions for the lab. The new autosampler eliminates manual sample handling, reducing variability while increasing measurement repeatability and while minimizing contact with potentially dangerous or toxic substances. Our powerful sampling, rinsing and drying features reduce the time for measurement cycles and enables high throughput and full data integrity and audit trail is enabled when connected to our LabX software. Our liquid handling business also recently became first to market with low retention pipette tips that do not use PFAS or forever chemicals. Our hydrophobic low retention pipette tips minimize retention of viscous liquids, proteins, enzymes and DNA without the use of forever chemicals, reducing both the environmental impact and compliance uncertainty associated with PFAS. Switching to our Industrial business. Our recent product inspection innovations have led to very strong sales growth and market share gains. We have further expanded our portfolio of X-ray solutions over the past year with additional coverage of the mid-market. We have also had excellent success with our high-end solutions including our proprietary dual energy X-ray solutions that utilize advanced photon counting technology for precise identification of physical contamination in food and pharmaceuticals. We have also recently introduced metal detection solutions that further expand our market leadership in metal detection. Our new M50 R-Series delivers a 20% increase in detection sensitivity and is engineered to increase productivity in modern production environments. I am very proud of our team's efforts to further build our portfolio of unique and highly competitive solutions. The breadth of our offering, the unique insights from our direct sales force and technical experts and the critical support of our service team provides with the largest service network of our main competitors are very important differentiators. These innovations will also ensure that we are well prepared to capitalize on the many significant growth opportunities over the medium term including increasing customer demand from automation and digitalization solutions as well as faster-growing segments like biopharma, semiconductor, new energy and others. We also look forward to capitalizing on future growth opportunities with customer replacement cycles, investments in on and nearshoring activities over the coming years. We are also fully committed to delivering on our margin expansion targets and have ample opportunity to deliver strong margin expansion this year and beyond. While there is increased uncertainty related to the conflict in the Middle East, our organization has remained highly agile, and I'm very proud of their efforts to balance the need to drive productivity gains and deliver strong EPS growth while investing for the future. Now this concludes our prepared remarks. Operator, I'd like now to open the line to questions.

[Operator Instructions] Your first question comes from Michael Ryskin with Bank of America.

Great. Let me just start with the high level on the full year guide. You reiterated the 4% LC sales growth, but I believe you bumped up the M&A contribution a little bit. I think it was previously 1% in the first half, 0.5% for the year, and now it's like 1.5% for the first half, a little less than 1% for the full year. So on the one hand, the deal's contributions trending nicely, and we'd love to talk about that. But I also want to see what's going on in the organic business. Is this something that you saw in the first quarter? Is this just adding a little bit of caution given the macro? And if you could expand a little bit on if it's more in lab or Industrial where you're taking down your assumptions, that would be great.

Okay. Mike, this is Shawn. Maybe I'll take that. So yes, you're right. So like in terms of the acquisitions, we're really pleased with how they're performing. The teams are really doing well, very good focus on integration. It was about a 1.5% contribution in the first quarter. We expect a similar contribution in the second quarter. So then when you kind of get into roundings, it's still going to be less than 1%, but it's going to be more than the 0.5% that we were thinking at the beginning of the year. So of course, that implies maybe a modest reduction in the organic number. I think that largely reflects a little bit of this uncertainty in the first half of the year. We're taking still a cautious approach to the second quarter just given the environment. But we still feel very good about growth for the second half. I mean we'll talk a little bit more about that throughout the day. But I mean you kind of see a lot of positive indicators out there externally in terms of the PMIs. You see just global indicators looking positive. But when we look at our own pipeline, we also feel good about that as well. If we kind of like get into the businesses themselves, maybe I'll just kind of go through it just so that everybody has it. So for the full year, we're looking at lab at low to mid-single digit, which is similar to before but for the second quarter, we're also thinking low to mid-single digit. But on an organic basis, that's maybe more like low single digit for the lab business. One of the things we're kind of looking at for Q2 is maybe a little bit more in Europe. There's maybe -- when we just think about topics like bioprocessing, we see that as something that we expect to see a little bit better results in the second quarter in Europe. When we get into core industrial, core industrial for the full year, we're still at like this low to mid-single digit at this one, but on organic basis, it's low single digit. This one has maybe a couple of dynamics to it. On one hand, we're seeing our Chinese business really showing good improvement, and we feel good about that. But on the other hand, we had maybe some more softness in the first half of the year in some of our Western markets. And then in terms of product inspection, we're a mid-single digit for the full year. That's maybe a little bit better than we were before. On an organic basis, low single digit, frankly, reflects the strong results we saw in Q1. And then on the geographies. And then for the second quarter, that one would be low single digit, which is down a little bit on an organic basis. And that kind of reflects a little bit the timing. We had a very, very strong start to the year, especially in the Americas, and we'll see maybe some of the other side of that in Q2. But overall, the business is executing extremely well. And then on the Americas, we're thinking kind of low single digit for the full year. And also for Q2, on a Q2 basis, that would be flattish. There's a few dynamics there. We can talk more about it in a minute. But one of the things is our retail business is -- can be a little bit lumpy, and that's going to be down there in the second quarter. And then if you look at our European business, we're still at low single digit for the full year, with low to mid-single digit in the Q2 guide, that's a little bit of a step-up. This is a little bit this lab topic that I was talking about before. And then China has been a bright spot in the quarter, and we just feel like there's actually very good momentum there. We went through this period where they kind of went through this reset. We've now had a few quarters in a row of good growth on the Industrial side with momentum continuing to build. So we're going to increase our growth expectations for China for the full year to mid-single digit. A lot of it is going to do with this Industrial business, which we kind of see building into the second half of the year. And then the guidance for Q2 is low to mid-single digit, which is a little bit more similar to what we saw in the first quarter.

Your next question comes from Luke Sergott with Barclays.

On the -- you mentioned the 2Q dynamics in the Americas. You mentioned some retail comps and issues there. Can you just kind of double click in there and give us a sense of what's going on and your outlook and how that's changed?

Yes. So retail is always a lumpy business. It always has been, always will be. If you kind of like look at Q1, I think it was like down double digit in the U.S., but we had like really strong growth in Europe, like -- and so it's like -- so overall, retail was up, I think, high single digit in the quarter. So that's kind of -- that's the business. You just have these kind of swings. So there's nothing to read into it. I think when I step back from it, actually, I feel very good, like in the sense of like how the team is competing. We've introduced a lot of new innovation in the last few years, and it's really well received in the market. I think our team actually just won an award on one of the products. So yes, so a lot of good things going on. We're competing well, but it's just very lumpy. Yes.

Right. And then just a follow-up here on China, the particular strength. We've heard this other from peers as well, but you have a slightly more Industrial lean. How much of this is due to the middle market strategy within the PID business and that kind of picking up and also leading to what you guys have been seeing there in that business over the last year and a quarter?

This is Patrick. Let me take that, Luke. I mean, again, as Shawn said, we are very pleased with momentum in China, but the strength is not coming necessarily out of the product inspection business. It's really the core automation business in our core industry business. There is a really nice momentum. There's a lot of investment going on in automation in China across many of the end markets. That is probably the primary momentum that is building up there and also has contributed to our good Q1 growth. On top of that, I would say, in the pharma space, with the recent pharmacopeia changes, we see also good opportunities and good momentum for our high-end balances and others, where customers are replacing stuff in their QA/QC labs and R&D labs. So these 2 are the more important vectors. It's not a PI business. It's really industrial automation and also a good piece of pharma.

Your next question comes from Catherine Schulte with Baird.

Maybe first, you talked about increased activity in your pipeline supporting maybe some improved growth in the back half. Can you just elaborate on that a bit? I know you typically only carry 1.5 months or so of backlog, but maybe talk through what you're seeing from a funnel indicator standpoint?

Yes, Catherine. Yes. So you're right. Like we normally kind of deflect these types of questions with our 1.5 months of backlog, which is very true. But kind of sitting here today, we've been kind of hearing for the teams for a while. Like there's a lot of different KPIs in the pipeline from like the whole funnel, right, from opportunities all the way through orders. And I don't want to get too specific, but we have a lot of ongoing reviews with our teams. We -- Patrick and I spent a lot of time with the executive team earlier this week kind of going through those details. We reviewed it with the Board yesterday. And just kind of coming out of that, we feel like there's -- you kind of compare that to what you see in some of these headlines and it kind of helps us feel better about like this growth in the second half of the year versus what we are seeing with the uncertainty in the first half of the year. I think we all kind of felt like the year would start off a little slower when we guided initially despite all the arrows pointing in a more positive direction exiting last year with the more favorable MFN agreements, biotech funding, macro indicators. But we did expect the year to start slow. And of course, what we didn't expect was some of the geopolitics, which created even more uncertainty in the quarter. But we're not seeing any cancellations from that. We're just seeing it feels like things are just getting pushed out a little bit. But when we look at the funnel, we're -- we need to still convert those into sales, but -- and absent things deteriorating on a geopolitical scale, we're actually feeling pretty good.

Okay. Great. And then you called out some chemical softness in Europe. We've heard some other companies calling out similar dynamics. Can you just unpack a bit what you're seeing there, when that softness started? Is it Ukraine related? Is it Middle East related? Is it something else? And maybe just talk through the outlook there.

Catherine, this is Patrick. Again, this is more related to, I would say, in general to higher energy cost in chemical. So many of these customers are actually seeing the pressure of high energy cost in Europe. They have -- they are really more cautious with their investments and also more cautious in expanding their facilities. So I would say it's not the Ukraine, it's a combination of the Ukraine and the Middle East. I mean the oil prices, as we all know, went up quite significantly and that weakness in chemical actually, we saw some of that in our Process Analytics business, which is very strong on the biopharma side. But on the chemical side, it has been a bit softer. And then also on the lab business, that actually had some impact.

Your next question comes from Dan Arias with Stifel.

Shawn, can you maybe talk about cost management in the current environment? It'd be great to just sort of hear about offsetting freight and then oil and input costs for the Rainin business, maybe just sort of a refresher on sensitivity in general there and any impact that you see here.

Yes.Thanks, Daniel. Of course, our team is highly focused on all these topics. It's a very dynamic environment. We have topics like fuel, transportation costs. We're looking at input costs as well, too. We certainly have a strong culture of agility, which always helps us during these times. So there's a lot of things that we can do on the cost side. There's things that we're looking at in terms of price mitigation as well, too. We've been a little bit cautious with how we've kind of factored that into our guidance because in addition to all that, we have some -- we'll have some benefits on the tariff side a little bit. If you think about these IEEPA tariffs going away and then kind of going to the 10%. Now of course, we have new news yesterday. We'll see how that plays out. But we're assuming the IEEPA tariffs go back to what they were before kind of midyear. But in that few month period, there's a little bit of a benefit. So the way we're kind of thinking about it is like, we'll have that benefit, we'll have some of these headwinds. And they probably are in a similar kind of a range. But on top of that, of course, we're going to look at trying to do some mitigation, which could be an upside here.

Yes. Okay. And then maybe just a follow-up on Mike's question and then your answer there. When you were going through the moving pieces, I don't know, it just kind of felt like there was at least as much uptick stuff as there was downtick stuff. You guys have a pretty good track record of leaving yourselves room to beat and you have some pricing power. So I know we're only talking about a couple of bps of organic, but can you just maybe pinpoint where it is that you found yourself needing to adjust the outlook?

Yes. I mean these things get kind of into rounding sometimes. So like, of course, we -- when we kind of look through it, you debate of is it this or that, but in the end, sometimes they're rounding. So I wouldn't try to read too much into the precision of it. But I'd say like where we felt like we had good momentum going into the second half of the year was this China situation. And then so modestly that kind of is offset by some of the other geographies. It might not change exactly how we say low single digit for this country or that country. But in the end, there's just kind of nuances between the countries. And it didn't change in terms of how we maybe speak to the range, but modestly a little bit better in China. We have good momentum, I'd say, in emerging markets in general, like countries like India is a very good example. And then just modestly a little bit lower in the Western markets and more so in the first half of the year. And I think in the U.S., we see it as much as anywhere here in terms of Q1 in terms of customer behavior.

Your next question comes from Patrick Donnelly with Citi.

Maybe just a follow-up. I know you talked about the chemical side, Patrick. Can you just talk about just that core industrial piece? It sounds like China is maybe a little bit better. But on the Western side, how have those conversations changed with customers? What are you hearing given the macro backdrop, and just the right way to think about this impact and the visibility you guys have for that business going forward?

Yes. Very good, Patrick. And clearly, as I said, China has already, I would say, taken a nice uptick there in terms of the automation piece in our Industrial portfolio. And when you ask me what's shifting in core industrial, it's while in the past, we have sold probably a lot more discrete industrial balances and stuff like that to end users, we see an increasing demand for automation and digitalization. And this is also done for our customers by a lot of automation partners. And so we see a lot of more engagement with [indiscernible] and others that are really using our portfolio to build higher automated manufacturing lines, et cetera, and we have an outstanding portfolio there and see a lot of engagement in China but also increasingly in the Western part in Europe, where we have seen good momentum. And then also in the U.S., I mean, looking forward, what I anticipate is also there with the buildout of manufacturing capacities in the U.S., whether it's in pharma and industrial pieces, we will see also better momentum in Industrial. Our industrial automation solutions going through these automation partners that build out manufacturing lines and other automation solutions for end customers. So I'm actually really, really optimistic about our solutions. We have put a lot of innovation in our products over the last years, and it really plays out nicely now that we have a very strong portfolio in this place.

Okay. That's helpful. And then, Shawn, maybe one for you just on the guide. Can you talk about the price versus volume? I think the previous guide was 250 bps of price, maybe 100-ish of organic volume. Can you just update where we are there? And then staying on the topic of price, just how you're thinking about the moving pieces of margins with price and maybe some of the input costs?

Yes, sure, no problem. So, price came in pretty much as expected in Q1, and we're in that kind of 3.5% kind of a range. We feel really good about the value proposition in the company. I mean, Patrick talked a lot about innovation earlier in the prepared remarks. I mean that's ultimately the key, right? Like when you're providing value to your customers, then there's a willingness to pay. And I think our organization does a great job articulating that and so that we can kind of be compensated for the value. As we think about like the rest of the year, Q2 will probably be in the 2.5% range or so, maybe a little bit better. Things start to step down now because we lap some of the midyear pricing that we put in place last year with some of the different topics from last year. For the second half of the year, we're still kind of holding this like normalized 2%. Frankly, I could see a little bit of upside here as we kind of think about inflation in this environment, but I wouldn't raise anything quite yet. We'll see what we'll do, and we'll kind of evaluate that. So for the full year, we're still kind of in that like 2.5% range or so. Yes.

Your next question comes from Vijay Kumar with Evercore ISI.

Patrick, maybe my first one for you on looking at Q1 performance, it looks like lab was where all the challenges happened. You did call out Middle East, maybe some customer delays. Talk about how Q1 phasing played out. Do you see trends improving exiting Q1? Like what was the issue in labs? And was it all tied to Middle East?

Yes. Thanks. On the lab side, yes, we had a bit slower than expected start with some headwinds and -- but the headwinds were mainly, say, in the research area, academia with pipettes. So our pipette business actually was negative in the first quarter. On the chemical side, it also was these delayed customer investments that we have seen in Europe that affected somewhat lab there. These were the 2 key areas where we saw good momentum and continue to see very good momentum is bioprocessing. That continues to be very strong, and we are also really well positioned there with our strong lab portfolio with LabX access as a workflow enabler and key differentiator against many of our competitors. So we expect, after this, I would say, a slower start in Q1, we expect conditions to gradually improve throughout 2026 for lab. And again, on the pro side, anyway, bioprocessing really strong. We see also really good investments, as I said before, for example, in China with the pharmacopoeia [ role ], we see there are also lots of investments of companies that build out manufacturing capacities for GLP-1s and others. And our team is really well connected to this buildout. So I think lab will gain momentum. And when Shawn referred to the pipeline activity, that also, of course, includes, to some extent, what our lab team is working with our customers on some of the better projects for the second half.

Understood. And when you think about the back half step-up, Patrick, is that assuming academic and government improves? You said it was down in Q1. Are you assuming the delayed orders from Q1 maybe catching up or perhaps a step-up in bioprocessing rate? And I think you mentioned something around automated chemistry as well performing well. So just what are the moving pieces from an end product perspective?

Yes, again, the bigger moving pieces is probably what you will see with our industrial automation solutions. So core industrial will be strong. Again, we see lab improving. But on academia, we do not factor in a big of improvement. I mean I think we are -- we'll continue to compete even better in that space and forecast probably more flattish for the -- instead of declines, for the second quarter and the rest of the year. Given also the strong portfolio that we launched, we just launched a very interesting new product on the pipette side with the Vero pipette. We again relaunched these new pipettes with PFAS-free coating, et cetera. So we have a lot of good stuff going there as well. So to step up again, they'll be more driven by Industrial. A lot of it is also coming out of China in general, more across the business. PI remains to be strong. So that's a good move for us in the second half as well. These are the key pieces. Shawn, was there anything you want to add?

No, no, I think that's good. Yes. I think, like you said, I think there's softer market conditions. Things will gradually improve, but there's also some things going on inside the company that will help, too.

Your next question comes from Kallum Titchmarsh with Morgan Stanley.

Maybe just talk us through the demand you're seeing on the service front and any stats you could just give us on the attach rate on the current installed base. Just a refreshed view there would be helpful given some of the bullish commentary in the past.

Yes. Well, thank you. Of course, we're really proud about the service growth. I mean you have seen us growing 7% in the first quarter. 2% of that was driven also through acquisitions we have done, but even the core underlying growth of 5% in this environment, it really speaks to our incredible strength and service, and our great connection of our customers through our service business. As I said before, I look -- I see our service business to continue to outgrow products as we have ample of headroom to grow, to connect more of the installed base that is currently not under service contract or even not covered today by our service organization. We launched about 2 years ago now, or 2 years in, dedicated service growth initiative that we continue to fund to cover more of that installed base with not only going after the uncovered installed base, but also increasing the connect rate of services at the point of sales, which is different across the product portfolio. I cannot give you like an average number here because as you can imagine, for example, a business like product inspection, which is end-of-line inspection fully automated, it's a very high connect rate because these customers cannot afford any downtimes in the food manufacturing environment, whereas in other areas like in lab or academia it's lower. But we have dedicated programs in place to increase these connect rates, and we see continued improvement there as well. So again, I'm very optimistic about our service business internally. My team hears me a lot speaking about how important it is for us to drive higher customer loyalty. Our NPS scores and services are outstanding when I compare this to the rest of the industry. And again, I think there's a lot of good stuff to come.

Great. And then just any update on the reshoring theme. Maybe just talk us through those discussions with customers if you had any and just to refresh on the time lines there.

Yes. Look, the reshoring, I mean, we're all excited about that, but it's still early innings for us. Remember, about 50% of our business is related to manufacturing and another 20% QA/QC, I would say, which if you think about manufacturing expansion is probably the biggest opportunity. But these reshoring activities while they're all in the news, and I just read an article this morning news from Switzerland that one of the companies in Switzerland actually decided to not expand the line in Switzerland, but build it out in the U.S. So this is exciting, but again, this will take time. I mean it's early innings. And I think it's a great opportunity for us moving forward to help our customers as they build out capacity with our highly automated and digitalized solutions.

Your next question comes from Josh Waldman with Cleveland Research.

Patrick, I wondered if you could comment on how durable you expect recent higher growth in PI could be. Any reason to think this like mid-single-digit growth for '26 could be sustainable into '27 when you think about kind of the upgrade cycle opportunity across mid-market and now the dual X-ray? I guess, have you guys started to road map out what you think the upgrade cycle could be?

No, we're not looking. This is also a constant replacement business in many areas. I mean these systems here, a lot of wear and tear in some areas. But we are even more excited about getting deeper in the midrange market. We've changed that strategy about 1, 2 years ago, expanding our portfolio in the midrange, where we are attacking very successfully with a new expanded portfolio. So I'm actually quite optimistic that there's a lot of headroom for us to continue to grow. The team puts out a lot of great innovation on all fronts, whether it's checkweighing, whether it's the metal detection, as I talked about in my earlier remarks, or with the photon counting in X-ray to drive even more sensitivity and with that also more application spaces for us. So I think this thing has a long runway.

Good to hear. And then I wonder if you could talk through what you're seeing in core industrial more at a product level. Any pockets of recent acceleration or decel? And then any more color on where the delays hit? And then I thought a portion of this business was kind of tied to kind of component sales, maybe the bioproduction equipment OEMs. Is that right? So can you remind us kind of the size of that business and trends you've seen there?

Yes. So maybe just giving you a couple of shades of flavor here. So like I think the thing that stands out to me the most is that the portfolio still seems to perform really well, and you see higher growth in the areas that support themes around automation and digitalization. Like we talked a lot about the portfolio strength in this area. We definitely see the opportunities globally. We see customers shifting into this direction, and that continues to do really well. In other parts of the portfolio, sometimes there can be some lumpiness like we saw in Q3 of last year with some project activity in some of the dimensioning solutions that we provide for logistical people and things like that or companies. But I'd say overall, the team is competing well. Now, when you think about the end market exposures, about 60% of core industrial is sold to a combination of pharma, food manufacturing and chemical. And out of those 3, I'd say the one that's probably the softest right now is the chemical for kind of the obvious reasons with the impact of higher energy costs on their facilities and just probably kind of delaying. But I'd say, in general, there was just some caution in the broader end market space for Industrial. I just think it's like kind of like similar to how we started the year, we just felt like after all the -- when there's uncertainty, people pause a little bit, right? And that's how we expected the year to start. It definitely happened. And with the increased uncertainty, I think that was a factor. But the other side of this business, of course, is we talked a lot about that it's less cyclical than the past. But of course, improving PMI is something that we look at favorably as well, too, for the future. And when you factor in, I'm not talking -- timing of these things always is -- we'll see how it plays out. But as we kind of even go into the medium term, we'll have -- we'll have broader opportunities with this onshoring theme that Patrick talked about. And at some point, I think we'll see more on the replacement cycle. And then what we're also seeing is like in some of the hot segments like if you kind of look into China, like China has a lot of very exciting hot segments that are -- seem to be really picking up momentum, like the battery segment being a good example there. And these are things that, again, play well to the portfolio.

Your next question comes from Doug Schenkel with Wolfe Research.

Two questions, or really 2 topics. First, on pacing. Some of this has been covered in some of your answers to other questions, but I'm just curious if you'd be willing to distill a little bit when it comes to any product categories or geographies that got notably better or worse in April versus March. I think it was Dan Arias' question earlier where he kind of pointed out lots of moving parts, but that's fairly normal and there are some good guys and bad guys in the quarter, but it would be helpful to just see if there were areas where things changed over the last couple of months as we think about trends into the rest of the year. So that's the first one. The second is specific to China grants. Could you elaborate a bit more on the grant proceeds recognized in the quarter. That seems like it could be something important in terms of being indicative of broader improvement in sentiment in the region. But I just want to make sure we're not putting too much emphasis on that.

Yes, sure. So in terms of getting into more granularity, Doug, hey, we're probably not going to -- we usually don't talk about months and certainly wouldn't want to talk about too much color. But I think you can -- just the fact that we tried to lay out what we thought for Q2 by product area and division and region and the full year, you could probably draw -- you can kind of see directionally how we're thinking of things in terms of Q1 to Q2 and then Q2 to the full year. And I wouldn't want to kind of repeat kind of what I went through there before. But in terms of like the China grant, so this is a grant from local government there. The way I would read it is like they're just encouraging us from -- in terms of expanding our capacity there in the Shanghai area. They are also encouraging us for local manufacturing for things and also for research. And these are things that have always been priorities of the Chinese government. And so for us, it's consistent with our strategy. We're not necessarily doing things significantly different here in terms of how we think about our footprint. But I think everybody knows we have a very important Chinese business that we think has got a great growth opportunity for the future, and we have a great China for China story. And I'd say this is another chapter in that China for China story in terms of how there's investment in China for China. And this one is nice because the local government's encouraging it. And so the $6 million was just -- there's 2 dynamics to the grant. There's some of its CapEx related and some of it's OpEx related, and the OpEx is mostly on the research side. And from a cash flow perspective, there's going to be timing differences between when we receive grant funds and when we actually spend against the grant. And then so we'll exclude both of those from our cash flow statement as we kind of report on our NCO, our free cash flow going forward.

Your next question comes from Tycho Peterson with Jefferies.

I want to actually hit on the customer delays again. Can you quantify how large those were? And how you think about the path to recoup? And then the chemical softness, is this a pushout? I mean -- or is it more CapEx budgets getting cut, which obviously has longer-term implications?

Yes. Tycho. So, hey, on the customer delays, I mean, it's not like we have a quantification of that. It was a general theme that we saw in some of the Western markets in the quarter, especially earlier in the quarter. So I can't put a specific number on that. But as we kind of like provided some of the insights to our pipeline and stuff like that, I think you can read into that. We're feeling more confident about things converting here as we kind of like go towards the second half of the year. In terms of chemical, I think it's -- we'll see how it plays out. I think it's still too early to kind of to judge like exactly how it's going to play out. Certainly, out of the core end markets, it's the softer one certainly out of the big 3 for us. I mean China chemical, to put it in perspective, is about 10 to low teens kind of a percent growth, but most of it's specialty chem for us. But there's also sectors of that that also participate in some of these hotter segments, too. And so it's not necessarily all bad in terms of how we think about. Yes, and I think we'll have some easier comps here in the second half on chemical as well, too.

Okay. And then follow-up just on Europe. You've had a couple of months of PMIs in expansionary territory. I know you took up kind of the near-term guide a little bit. But is there a chance that that could actually come back sooner?

Yes, we'll see. I mean, right now, in the short term, we're still a little bit more taking a more cautious profile, but we'll see how it plays out. We'll see how it plays out.

Your next question comes from Evie Koslosky with Goldman Sachs.

So I think in the past, you've talked about your exposure to the semiconductor industry with the ultra-pure water business. Can you remind us what your exposure there is as a percentage of revenue? And then how that business trended to start the year?

Percentage, is it like low single digits?

Yes. So Evie, this is Patrick. I mean if you think about -- it's part of our Process Analytics portfolio, and I think in total, is a low single-digit contribution in revenues. But it's doing extremely well. I mean all these buildouts in semiconductor, including, by the way, data centers where these things are also used for cooling systems. This is a great business opportunity for us, and we have a really strong go-to-market team there and really strong connection to customers. So that's growing really well. But in total revenue contribution, I mean, of course, it's one of the hot segments that I highlighted, but it's low single digits in total.

Okay. Great. And then on bioprocessing, I think that saw a good growth in the quarter. I guess what sort of demand are you seeing for your bioreactor sensors as people look to drive automation in their facilities? And then how do you feel your portfolio is competing relative to the broader market?

The growth rate?

How are we competing in bioprocessing?

Yes. Well, we're competing extremely well. We also launched -- we continue to launch also new products. We just launched also recently a new [ glucose ] sensor, for example. We are very strong there. Also with all our digital sensors for like our integrated or intelligent sensor management systems, fully digital, which really is highly differentiated from our competitors. We see good demand, I would say, across the world around the world in bioprocessing. No slowdown there, and I would expect that with the buildout for major important drugs like GLP-1s, that continues.

Your next question comes from Brandon Couillard with Wells Fargo.

Patrick, did I hear you break out lab versus Industrial within China in the quarter? And then are there any pockets of lab that are doing better like bioprocess there? Or are they all kind of generally in the same sort of similar flattish range?

No, I'm looking at numbers here...

Yes, let me -- I'll start with the numbers and then Patrick can answer the question. So in terms of the quarter, we were up, like we said -- hold on a second, I'm looking at the wrong thing here. I just want to make sure I'm giving you the right number. Yes, we were up 4% in China in the quarter. Industrial was up high single digits. So to put it in perspective, this is like the third quarter in a row with good growth on the Industrial side in China. And the second quarter in a row with like more like high single-digit kind of growth here. Lab was just down slightly, some different dynamics going on there, but it depends a little bit on the product category. But I'd say overall, the market is a little bit softer than the Industrial side, but I think that we're kind of optimistic as we kind of look into the second half of the year here. Maybe you can add a little more color, Patrick.

Yes. Look, I mean, specific to lab, I mean and the pharma -- let's say the pharma end markets as well as the pharma, biopharma piece is doing well. The small molecule market or some people call it chemical pharma in our area is softer at the moment. That has impact on some of the product categories that we have. For example, if you think about in lab about our AutoChem business, has been also impacted by that. Two vectors there. One vector is, I would say, the softer end market in small molecule chem, but then also we launched a new product and some customers knew about that. So that also caused a little bit of delay in terms of growth there as well.

Your next question comes from Casey Woodring with JPMorgan.

Great. Maybe I'll just ask one last one. I wanted to clarify the incremental tariff piece. Is the March change in Harmonized Tariff Schedule codes included in that? Maybe just unpack the tariff component a little bit more.

Yes, sure, Casey. So yes, we -- so there's kind of like 2 dynamics here. Like on one hand, we have like a good guy with the lower rate from February in tariffs. We'll see some of that kind of in the second quarter, but we assume that that kind of goes back to the previous like rates similar to the previous IEEPA rates kind of in the summer here. But on the other side of that, we also have higher inflationary pressures. And as I mentioned before, like, of course, we're working on different mitigation actions, but we're a little bit cautious about putting that all into the guide. So the way I kind of think about it is you have like some of these inflationary topics, kind of largely offsetting the tariff benefit with an upside on how we approach some of the mitigation kind of in the second half of the year.

This concludes the Q&A session. I will now turn the call back to Adam for closing remarks.

Thanks, Rebecca, and thanks, everybody, for joining us this morning. If you have any follow-up questions, please feel free to reach out to me, and I hope you all have a great weekend. Take care.

This concludes the call. Thank you for attending. You may now disconnect.