Mettler-Toledo International Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Vijay Kumar - Evercore ISI - Analyst : Hi guys. Good morning and thanks for taking my question. Patrick, maybe my first one for you on the fiscal '25 assumptions here. I think ex the 150 basis points headwind, the underlying mid-singles, it's in line with the peers. What are you assuming for Labs versus Industrials? And I think your comments on Services was helpful. Is Services still expected to grow in the mid-singles plus high singles in fiscal '25?

Question: Vijay Kumar - Evercore ISI - Analyst : That's helpful, Shawn. And maybe one on margins here. EPS guidance. I know you guys start typically conservative. What are you assuming for operating margin expansion for fiscal '25? And are Service margins above corporate?

Question: Matt Sykes, - Goldman Sachs - Analyst : Hi, good morning. Thanks for taking my questions. Patrick, maybe just first on services. You guys gave a lot of great color in your prepared comments. One thing I'm just curious about and understanding that the margins are already above corporate average. But just curious about the level of operating leverage you can extract from services, understanding the 3,000 technicians you already have, it sounds like you're willing to make more investments in that. I'm just wondering on the technology and automation side, how much of that can offset maybe increased hiring to create operating leverage in the services business margin?

Question: Matt Sykes, - Goldman Sachs - Analyst : Great, Patrick. And then just on China, understanding your guidance for next year for low single-digit growth. Just curious how much stimulus impact are you kind of assuming in that growth rate? And then just more longer term, have you changed your assumptions on longer-term China growth as it faces your business? Just curious to see if that's been adjusted. I know there's a lot of different potential headwinds that could come in, but just curious about how your framing of that growth has changed?

Question: Matt Sykes, - Goldman Sachs - Analyst : Thank you very much.

Question: Dan Arias - Stifel - Analyst : Morning guys. Thanks for the questions here. Shawn or Patrick, maybe just another one on the outlook for '25. Obviously, a lot of moving parts out there. Where as you sit today, do you see the biggest sources of variability when it comes to what could have you better or worse than the initial outlook? Obviously, China is a big one. So I get that. But if there's more to add there, then by all means. But beyond China, I'm just kind of interested in where you see the error bars as being the widest when it comes to just the businesses or the key regions that you have?

Question: Dan Arias - Stifel - Analyst : Yeah. Okay. And then maybe on margins, a good portion of the Lab portfolio has been refreshed, I believe, at this point. And I think the idea for you is to replace products with those that have better margins. So is that something that you think can be meaningful when it comes to overall profitability next year?

Question: Dan Arias - Stifel - Analyst : Okay, thanks very much.

Question: Dan Leonard - UBS - Analyst : Thanks for the time. I have a question about a potential change in the tariff environment. How are you preparing for any change? And is there anything different about your business today versus the 2018, 2019 time frame when tariffs were a topic?

Question: Dan Leonard - UBS - Analyst : Appreciate that. And then a quick follow-up, Patrick. You mentioned that in speaking to your process analytics business that destocking is fully behind you at this point. What does the growth rate of that business then look like in the absence of destocking? Is it back to traditional long-term growth rates? Or is it something different?

Question: Dan Leonard - UBS - Analyst : Okay. Thank you.

Question: Jack Meehan - Nephron Research - Analyst : Thank you. Good morning. I wanted to ask a little bit about the assumptions on the fourth quarter guide. I was just doing some simple math. I think the revenue forecast implies something like 6% growth sequentially. I was just benchmarking looking back, I think it was more -- something more like a little over 10%. So I was just curious, like if you look sequentially, like why you were building in a little bit more conservatism than we've seen previously?

Question: Jack Meehan - Nephron Research - Analyst : Just looking at the ramp from the third quarter to the fourth quarter on total sales, I think it's about 6% sequential growth is what your guide implies? In the past, it's been a little bit over 10%. Just why you're embedding a little bit more conservatism?

Question: Jack Meehan - Nephron Research - Analyst : And then maybe just a follow-up on, again, like kind of this third quarter to fourth quarter dynamic. Can you just remind us like what you've historically seen as it pertains to a budget flush? Like I know some companies have more -- it's a little bit more dynamic. But if you could just talk about what you're expecting in that regard and just (multiple speakers).

Question: Jack Meehan - Nephron Research - Analyst : Sounds good. Thank you, Shawn.

Question: Rachel Vatnsdal - JP Morgan - Analyst : Great. Good morning. Thanks for taking the questions. I wanted to follow up on some of the China comments, but really more focused on the near-term trends. So you mentioned that China returned to growth this quarter. You also highlighted that there's some excess capacity in some of the markets and pressures in Industrial as well. So can you just unpack that for us a little bit more? And then, Shawn, you just mentioned on Jack's question that in terms of that 3Q to 4Q sequential ramp, some of that is pressured by China. So can you just walk us through what are your China assumptions into 4Q as well?

Question: Rachel Vatnsdal - JP Morgan - Analyst : Great. That's all helpful. And then just as my follow-up, could you walk us through those 4Q assumptions by segment and geography in terms of what you're assuming, including and excluding the comp? Thanks guys.

Question: Josh Waldman - Cleveland Research - Analyst : Hey morning. Thanks for taking my questions. Patrick, it seems like you've made more of a point to talk on share gains over the last couple of quarters. Do you think you're seeing improvement in momentum here? And if so, is it more a function of a change in the competitive landscape REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Josh Waldman - Cleveland Research - Analyst : Got it. And then, Patrick, can you talk a bit more on the trends you're seeing within the pharma end market? I think you commented strength -- on strength in the US and Europe. Was that more a benefit to process analytics and pipettes? Or are you seeing improvement in Instruments? And then based on what you're seeing from these accounts kind of real time and where do you expect to end the year, do you think we're on a path back to kind of normalized longer-term growth in '25 from these accounts?

Question: Patrick Donnelly - Citi - Analyst : Hey guys, thank you for taking the questions. Shawn, I wanted to drill a little more into the margins. Certainly get the moving pieces on '25. It sounds like flat for '25, mainly due to the kind of the logistics catch-up. But I guess when you look at '24, that was boosted by the logistics catch-up. I mean, would '24 have been down on margins without that logistics catch-up? Again, just trying to feel out the margin algorithm here, just given if we look at over a two, three year period, you just haven't seen much expansion. I guess what are the key levers going forward off of this? Are the China headwinds maybe weighing on things a little bit? Can you talk about the China margins? Just trying to dive into the margin piece ex some of that logistics, if you can.

Question: Patrick Donnelly - Citi - Analyst : That's really helpful. Anything on the China margins quickly, if you don't mind?

Question: Patrick Donnelly - Citi - Analyst : That's really helpful. And then, Patrick, just quickly on the Industrial side. It sounds like China, obviously weighing on things. Can you just talk Industrial broadly? Is it mainly China that's the issue? And what the -- kind of what you're seeing on that front from customers would be helpful.

Question: Tycho Peterson - Jefferies - Analyst : Hey, thanks. Actually, I just want to follow up on some of the Industrial stuff. So product inspection, you're guiding to high single digit in the fourth quarter. I assume that's easy comp because you're talking about low single digit next year. But can you maybe just touch on food manufacturing? That's been a challenging business for a while. And any risks, I guess, with the new administration on deregulation for either that or broader parts of the portfolio? I know it's early days.

Question: Tycho Peterson - Jefferies - Analyst : And then Patrick, I'm trying to reconcile your comments in the opening about just more onshoring, but then automation was soft in the Americas. I mean, just when do you think automation actually turns here, do you think, you know, you could actually overshoot next year, given some of the onshoring initiatives.

Question: Tycho Peterson - Jefferies - Analyst : And then, Patrick, I'm trying to reconcile your comments in the opening about just more onshoring, but then automation was soft in the Americas. I mean just when do you think automation actually turns here? Do you think you could actually overshoot next year given some of the onshoring initiatives?

Question: Tycho Peterson - Jefferies - Analyst : Okay. And the last one, Shawn, just pricing assumptions in the fourth quarter and then thinking about next year, obviously, with inflation coming down, what's your pricing power? Has the algorithm changed at all?

Question: Michael Ryskin - Bank of America - Analyst : Great. Thanks. Excuse me guys, I'll be quick. First, Shawn, I want to confirm some comments you made earlier. I thought I heard you say that margins flat in 2025? I just want to make sure I heard that correctly, and that's not sort of an adjusted number. Just a little bit hard to reconcile the EPS with guide with that. Is that kind of like flattish, maybe down a little bit? Or is that a hard flat?

Question: Michael Ryskin - Bank of America - Analyst : Flattish?

Question: Michael Ryskin - Bank of America - Analyst : Okay. Yes. All right. Exactly. That makes sense. And then sort of a follow-up on that. On the shipping component, I just want to make sure we back it out correctly, the way you kind of described it for 2024. Is it fair to say that ex shipping margins would be up something like 50, 75 bps range, 50, 70 bps next year, and that's the swing. I'm just trying to (technical difficulty).

Question: Michael Ryskin - Bank of America - Analyst : Okay. And then last one for me. I think Tycho was just asking about Product Inspection. I want to ask a little bit about Food Retail. I know it's not a critical part of your business, not something you talk about a lot, but that's just sort of been declining pretty consistently for a while. I mean you often have tough comps, onetime customer issues, things like that. It's just gone from like 15% of revenues back in the day down to, I think, 5% and continues to face some challenges. Just taking a step back, what are your thoughts on that? I mean is that something you continue to think can be a core part of the business? Or could there be some strategic solutions there?

Question: Michael Ryskin - Bank of America - Analyst : Okay. Makes sense. I'll leave it there. Thanks.