Mettler-Toledo International Inc. (MTD) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to our First Quarter 2012 Mettler-Toledo International Earnings Conference Call. My name is Stephanie, and I will be your audio coordinator for today. [Operator Instructions] I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thank you, Stephanie, and good morning, everyone. I am Mary Finnegan. I'm the Treasurer and responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to the call. I am joined here today by Olivier Filliol, our CEO; and Bill Donnelly, our Chief Financial Officer. I want to cover just a couple of administrative matters. This call is being webcast and is available on our website. A copy of our press release and the presentation that we refer to on today's call is also available on our website. Let me summarize the Safe Harbor language, which is outlined on Page 1 of the presentation. Statements in this presentation, which are not historical facts, constitute forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see the discussion in our recent Form 8-K. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under the caption Factors Affecting our Future Operating Results and in the Business and Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Form 10-K. One other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and differences between non-GAAP financial measures and the most directly comparable GAAP measures is provided in the Form 8-K. I will now turn the call over to Olivier.

Thank you, Mary. Good evening. I am pleased to welcome you to the call. I will start with the summary of the quarter and then Bill will provide details on our financial results and our updated guidance. I will then provide an update on some of our growth initiatives in 2012. As always, we will have time for Q&A at the end. The highlights for the quarter are on Page 2 of the presentation. We are very pleased with our local currency sales growth of 8%, which was strong and better than expected. We achieved this despite slower growth in our markets and challenging conditions in Europe. In addition, last year's sales growth was particularly strong. Adjusted operating profit increased 10% and adjusted EPS increased 14%. Overall, we are very pleased with these solid results in the start of the year. I will have some additional comments on our growth initiatives, but let me turn it to Bill to provide more details on the first quarter results as well as guidance.

Thanks, Olivier, and hello, everybody. Let me start with additional details on sales, which were $535.4 million in the quarter, an increase of 8% in local currency. On a U.S. dollar basis, sales increased by 7%, which included a negative impact of 1% due to currency. Turning to Page 3 of the presentation, we outlined sales by geography. In the quarter, local currency sales growth increased by 2% in Europe, by 7% in the Americas, and by 17% in Asia/Rest of World. Acquisitions contributed approximately 2% to total growth with 3% benefit to Europe and a 2% benefit to the United -- to the Americas. On Slide #4 of the presentation, we outlined our sales by product area. In local currency, laboratory sales increased by 8% and industrial sales increased by 10%, while food retailing was down 1%. Acquisitions contributed approximately 5% to industrial growth in the quarter. Turning to Slide #5 of the presentation, we show the P&L. Let me walk you through some key items. Gross margins were 51.8%, a 60 basis point decline versus last year. We benefited from pricing and reduced material costs in the quarter. However, these benefits were more than offset by mix, especially a significant component of lower margin industrial projects in China, as well as the fact that our mix of sales towards Europe was less than usual and we enjoy high margins on our European sales. Currency was also a drag on margins. R&D amounted to $28.7 million, an increase of 8% in local currency. SG&A amounted to 176 -- $167.6 million, an increase of 4% in local currency. The increase was attributable to higher sales and marketing investments, particularly in emerging markets, which was offset partially by lower variable compensation. Adjusted operating income amounted to $80.8 million, which represents a 10% increase over the prior-year amount of $73.8 million. Our operating margins amounted to 15.1%, a 30-basis point increase over the prior-year level. We estimate that currencies, largely the impact of the Swiss franc versus the euro, reduced operating profit growth by 1% and our operating margin by 20 basis points in the quarter. A few final comments on the P&L. Amortization was $5.2 million, interest expense was $5.8 million, while fully diluted shares for the quarter were 32.4 million. Adjusted EPS was $1.66 per share, a 14% increase over the prior year reported amount of $1.45. The benefit of our lower tax rate offset currency headwinds in the quarter. On a reported basis, earnings per share was $1.62, a 15% increase over the prior-year amount of $1.41. Now let me turn to cash flow. The first quarter is typically our lowest cash flow generation quarter, but we're pleased with the solid start to the year. As a reminder, cash flow is seasonally weaker as it includes the payout of prior-year bonuses. Free cash flow amounted to $4.2 million in the quarter versus a negative $7.2 million last year. DSO stands at 43 days, while ITO on an LTM basis stands at 4.3x. One final comment on our balance sheet before I turn to guidance. We are currently rated BBB/Baa2 by S&P and Moody's, respectively. With our December refinancing, our new bank agreement no longer requires ratings as part of the price grid, instead the price grid is based on leverage. The private placement market is our principal source of long tenure debt and private placements don't require ratings. We, therefore, intend to drop our ratings in the coming weeks and eliminate the related costs there. I wanted to just mention this so that you would have some context when I assume Moody's and S&P will communicate that they're dropping our ratings. Okay, now let me turn to guidance. Let me start with some general comments and then get into specifics. First, we're pleased with the start to the year. It was a good start. We expect to continue to grow faster in the coming quarters than our underlying markets, but we do remain cautious about the overall economic environment, particularly Europe. Second, currencies are modestly worse than the last time we spoke. I'm specifically referring to the currency impact on earnings, not in terms of the sales line. In particular, the Swiss franc-euro exchange rate, as well as the Japanese yen versus the dollar are slightly more negative than the last time we spoke. With this backdrop let me provide some specifics on our guidance. For the full-year 2012, we expect local currency sales growth to be in the range of 5.5% to 7.5%, so that's local currency sales growth, 5.5% to 7.5%. This compares to our previous guidance of 5% to 7%. The half-point increase reflects better-than-expected growth in Q1, as well as considerations for our outlook for Q2. Our local currency estimates that I just provided include approximately 50 to 100 basis points of acquisition sales growth. We would also expect currencies to reduce our U.S. dollar sales growth by about 2%, so that local currency number should be about 2% less in dollar terms. Now, we expect currencies to also reduce EPS growth for the full year by about 1%. The last time, we had expected currencies to have a more modest effect on earnings. Given this, we're not changing our guidance for the year. We expect adjusted EPS to be in the range of $9.20 to $9.50, which represents a growth of between 10% and 14%. For the second quarter, we expect local currency sales growth to be in the range of 5% to 7%, and adjusted EPS to be in the range of $2.10 per share to $2.15 per share, a growth rate of between 11% and 13%. We would expect currencies to reduce U.S. dollar sales growth by approximately 3% in the quarter. Okay, that covers my comments on guidance and the financials, and now I want to turn it back to Olivier.

Thank you, Bill. Let me start with summary comments on business conditions. Labs did very well in the quarter with an 8% local currency sales growth, which was on top of a 16% growth in prior year. All product lines did well with process analytics and balances particularly strong. Automated chemistry also did well, but their comparisons were a bit easier. We are benefiting from our strong sales and marketing initiatives, as well as good product pipeline. Industrial was up mid-single digits on an organic basis, with both product inspection and core industrial in this range. We are quite pleased with these results, particularly given the excellent result in the year-earlier period, when sales were up 21%. Retail was down slightly in the quarter, but had tough comparisons on an organic basis. Now looking at the geographies, Europe was down slightly on an organic basis. This was again 16% growth in the prior year. Given the environment and the prior-year comparisons, we were not expecting much growth in this region. We remain cautious on Europe, but would expect to see a bit better growth in Q2 as comparisons will be easier. Americas was up 5% on an organic basis. Lab was up solidly, while industrial was relatively flat. Our core industrial business was up nicely, while product inspection was impacted by very strong sales in the prior year. Finally, turning to Asia/Rest of World, which was up 17% in the quarter, better than we had expected. Labs continues to do very well. Industrial also did well, but a bit lower than what we have experienced over the last several quarters. We expect sales in this region to continue to be good, but expect growth to moderate slightly from the levels we saw in Q1. That provides some context on how we view our business today. We believe we can continue to grow faster than our underlying markets and execution of our growth initiatives is key in achieving this. Let me provide some example of recent initiatives. With sales and service organizations in 35 countries, our global reach is an important competitive advantage as we have many competitors that are regionally focused. Last month, we extended our worldwide presence with the opening of our own organization in Turkey. We have operated in this region through distributors for some time, but believe we can more aggressively capture growth with our own sales and service organization. This market is attractive for our laboratory products given the importance of the pharmaceutical, chemical and food end markets. By utilizing our Spinnaker marketing techniques, including segment marketing and database development, we can expand our presence in the country. Equally important, we can go out to service opportunities in these region. We are also expanding our sales presence in Vietnam, Indonesia and Dubai. New products also continue to be an important driver of our growth. We have many new launches including a new generation of moisture analyzer and related proprietary consumables. Moisture analyzer are used in quality control in a wide variety of industries including food and pharmaceutical. We have incorporated many of the innovative features from our balances and titrators into these new generation instrument. For example, the design includes a hanging weighing pan, this is the first of its kind for moisture analyzers. This design enhances measuring performance since heat, which can interfere with weighing accuracy, can now be isolated from the weighing center. We have also incorporated our one-click interface which makes operation simple, error-free and fun, resulting in greater productivity for the customer. We are complementing this instrument launch with the introduction of a disposable reference substance. We refer to it as the SmartCal, that can be used to document the performance of the instrument in a simple 10-minute test. This is by far the fastest and easiest quality control test on the market today and provides a nice consumable stream for this instrument. We believe we are setting a new global standard for moisture determination with this introduction. This is just one example of numerous product launches currently underway. In addition to Spinnaker marketing and new product launches, we're also focused on margin improvements. As a reminder our principal levers for margin growth are pricing, supply chain optimization, low-cost country manufacturing and productivity programs centered on Kaizen or Lean initiatives. Today, let me highlight some productivity initiatives that are underway in Asia. In China, with the Blue Ocean implementation substantially behind us, we have a continued focus on growth but also renewed attention to productivity gains. The goal is to more than offset inflationary pressure to drive margin improvements. Early in the first quarter, we kicked off a new Lean program with a particular focus to reduce the overall cycle time. That is, we're looking at the entire process from supplier to customer, and have set an ambitious goal to reduce cycle time by 25%. Kaizen is a key tool of the program as we review business processes, such as order entry, service dispatching and others. We expect to not only achieve improved cycle times at quality levels but to realize incremental sales growth and higher level of customer satisfaction. Those of you that are familiar with Kaizen methodology know that the fundamental component of it is enhancing employee satisfaction. While turnover in China is higher than in our western countries, compared to other companies in the region, we do quite well. Kaizen events will help us maintain the high level of employee commitment and engagement than we currently have. Other smaller organizations are also embracing Kaizen to achieve efficiency. For example, our Thailand marketing organization recently performed the Kaizen on their contract renewal process for service calibration. Not only did they achieve a 40% improvement in productivity, they also noted an increase in revenue opportunities and the a higher level of customer satisfaction. These are just a couple of examples of productivity initiatives we are doing throughout the world to continue to drive margin improvement. Whether it is Spinnaker marketing, new product launches, productivity improvement or pricing initiatives, execution is key to achieving these results. Strong execution has been, and remains, a critical component of our culture. That concludes our prepared remarks. And I would like to ask the operator to open the lines for questions.

[Operator Instructions] Your first question comes from Jon Groberg with Macquarie.

Can you maybe just, before we talk -- I just had 2 questions, and the first is on margins. I know you mentioned, Bill, specifically on the gross margin front that-- I think you said you got pricing, and you got productivity but it was offset by some mix, both geographically and some of the products in China. Can you -- would you maybe just be able to quantify a little bit more what happened there and kind of how you expect that to play out through the year?

Sure. So we're talking about or trying to explain 60 bps in total, so I give you kind of the big pieces. And the price increases in the quarter, and this now excludes the impact of the China item, but would include like some considerations around all the other businesses, is that, that was 260 bps in the quarter. And that, if you think about what was the impact therefore on gross profit margin, when you do the math, that's about 130 bps, so around half that number. And material costs were down about 30 bps in the quarter. So taken together, that's about 1.6%. The impact of mix, including the impact of these lower margin China jobs, was about minus 2% on the gross profit line. And think about that as roughly half coming from the China piece and the rest coming from other items, the largest of which was European mix. And then what's kind of leftover is Other, which is largely currency.

Okay, that's helpful. And if you think about the year, and I can always breakdown kind of the operating line, but if you think about the year, how should we think about gross margins kind of on a year-over-year basis given what you're seeing now from a currency standpoint and some of the other mix issues?

I think currency won't have a big impact on gross profit going forward, so let's get maybe the easier one out of the way. I tend to think that price increases won't be worse than this. In fact, I think it's more likely that it could improve from where it is as the year progresses. Material cost, I think that's probably not a bad number. We could probably see that throughout the year. Now on the mix side, I think, we will have some continued negative mix issues in part because of Europe. On the China side, I'd like to think that, that's less impactful as the year progresses. We could still see a little bit of that in the course of Q2.

Okay. That's helpful. And then, Olivier, if you think about strong quarter here off of tough comps, but if you think about moving out throughout the rest of the year, and you mentioned, in particular, Europe, where you still see some, obviously, some choppiness and some challenges, and can you maybe and also maybe just talk a little bit about China. So maybe what you saw kind of towards the end of the quarter from other companies that we've heard, that have maybe a bit more overlap with you guys, it seems like those 2 markets have been a bit tougher here at the beginning of the year. So can you maybe just talk about what you saw throughout the quarter and kind of what your expectation is kind of for the full year?

Yes, when we had the call last time, I was saying I'm looking forward to have Q1 under our belt and would feel more comfortable to have a better view how the whole year would come together. I have to be honest, sitting here today, I feel I need to see how also Q2 comes together to really get a better grasp. There is still quite uncertainty out there and we saw also that the quarter had quite some volatility. You have heard us talking that January, for example, was rough. And then February and March actually came in quite nicely. And we were happy about that. If I look from a geographic standpoint, we would certainly feel today that Europe is probably -- the outlook is a little bit tougher than what we had expected. U.S. has good momentum. And Asia and emerging markets, in general, we observe it quite well. We have seen that China has -- January was tough and we see still China kind of continue to be challenging when we -- when I say challenging, compared to the previous years where we had excellent momentum. So looking forward, I do expect that we're going to see better growth numbers out of Europe in Q2, but mainly because comparisons become easier. I do expect that Americas will be good because of the market environment and then in Asia-Pacific...

I think we would expect growth rates to come down, including China, I think we'll still deliver probably double-digit growth rates. And you'll also see, when you look at our financials and part of the reason we grew a little bit faster this quarter was, we did take down a little bit of backlog in China, so the growth rate on orders was a little bit less than sales and I think we'll more see now kind of a more normalized number in terms of sales in the coming orders. So something, let's say, in the low-double digit levels.

What we also saw that Q1, for example in China, our lab business did very well. Core Industrial had a more difficult environment. I wouldn't expect, for example, the lab business to continue as strongly in Q2 as we did in Q1. So kind of, we always said for many quarters that we expect China not to continue with this high-teens growth. Now looking towards Q2, it's certainly going to be on the low teen growth.

Your next question comes from Paul Knight with CLSA. Paul R. Knight - Credit Agricole Securities (USA) Inc., Research Division: I was wondering if you could characterize the end markets a little bit, particularly on the retail side, the industrial side and then perhaps even on the academic side. I know you have a little exposure there.

Okay, let me start with our retail view. We talked about food retail. This is, in the meantime, less than 10% of our revenue. And the food retail depends very much on some large projects. And these larger projects are typically lumpy. I do -- we saw that also in Q1. We had a good business momentum in the Americas. I would expect that this is continuing. And I say that basically on the pipeline of the big projects, I would expect Europe continue to be challenging. Again, it's less -- just the end-user in mind is much more based on the big projects that we have see in the pipeline. When it comes industrial. Here, I want to differentiate between core industrial and product inspection. I would say that core industrial, we have reasonable end-user markets in the U.S., so it would actually be quite favorable. As in Europe and Asia, we're certainly going to feel the uncertainty in the economy in general. Capacity utilization of our customers are certainly not that high and we're going to have an impact on our demand. When it comes to product inspection, there, the end user environment is very attractive for us, particularly in the food industry. This is driven by regulations. There is also good demand for quality control in general in the food industry at this moment across the globe and I would expect us to have good growth throughout the year. When it comes to lab, and here we need to differentiate, we have a good part of our lab business that is driven by the life science industry. The life science industry is less so about big pharma. It's less so about NIH and academia. It's a wide range of end-user industry. I would say here we're going to see more a geographic topic than necessarily an industrial topic or end-user industry topic. Here, I would say, Americas should be healthy, Europe challenging and Asia, good growth but not the same growth that we had in the recent past. You specifically also mentioned academia. We are seeing that academia being, as far as it relates to government funding, is challenging. We see that in U.S. We see that in Europe. Labs came [ph] off. We don't have that much exposure to academia.

And you had mentioned Blue Ocean and the margin improving activity there in China. Have your plans changed at all on China as the source of manufacturing -- moving manufacturing to that market? Is there any change in your strategy there?

No. We definitely still perceive China to be a very attractive base for our production. We continue to expand our production in China, not just for the Chinese market but also for the export market. But what would be true it is there is less product line that we are proactively moving to China. Not that we feel any way different about China. It's much more that the big product lines that are really attractive to be manufactured out of China are all behind us. But it's really an attractive market. We have the right skills, we have an excellent team, we have a good supplier base there. And in this essence [ph], we are going to continue to leverage it.

Your next question comes from Isaac Ro from Goldman Sachs.

Olivier, if I could just ask another question on China, I just want to make sure I understood the nature of your comments there regarding the outlook. It sounds like you're calling for a sort of a nearer-term slowdown but longer-term expectations for that region still remained pretty healthy. So I just wanted to clarify that you, in fact, are saying that this is really sort of a temporary thing or rather -- are you saying that this is more of a product and sort of the investment you've made there in, and that on the longer-term basis we should be thinking about low double-digit growth versus high diluted, or high teens?

I think we need to see from where we're coming. We had 7 quarters of growth of more than 20%. Now we had a Q1 which was still very strong. But for quite a while, we were saying that we would rather expect midteens growth out of China. And in that sense, also kind of a coming down versus the historic growth. I would still see it that way, but still very healthy growth. We are still talking about double-digit growth that we feel is very sustainable for many more years. The mix might change a little bit from where the growth is coming. In the recent years, our extraordinary strong growth in China particularly was coming from the core industrial business, partially also infrastructure-related demand, for example vehicle scales but also salmon batching systems and auto weighing solutions. That part we always expect that it will slow down and that's certainly what we saw in Q1. And I would say going forward, that we'll not have the same growth momentum as in the past. But the fundamentals in China remain very healthy, very promising. I would remind ourselves on one very attractive macro trend is, for example, the number of scientists joining the workforce. And since we have many personalized instruments in our lab offering, this is going to be a macro driver that continues to be very healthy for us. Also, this general trend that Chinese companies invest more in quality, point quality measures is going to be good for us as we see that the government is promoting industry sectors that are very relevant for us, and will drive the demand. So healthy macro trends environments and in that sense, I can only confirm what you were alluding to, that we remain very optimistic for both of the medium and long-term growth prospects for us in China.

Great. That's very helpful. If I could just ask a follow-up there. If I understood your comments correctly, it sounded like you were suggesting that the components of growth in your business, well, may be shift a little bit towards the lab side of the franchise, and so if that's the case, as I understand it, I mean, it looks like we're standing in front of a pretty good year when it comes to government funding for research -- and certainly under the 5-year plan, this is the multiyear dynamic. So with that as backdrop, did you look at our portfolio in China for products in lab and say that you could augment that or innovate in a way that's sort of in China, for China and help accelerate the growth that you see relative to the market growth rate?

Yes, I think our lab offering today is already very well-suited for the Chinese market. I definitely also feel that we have a very, very strong team. But we talked at the last conference call about investments that we do in the Chinese market like going after additional regions and second-tier cities, for example. These investments continue on and will yield good results. So I think it's about expanding the presence being in China is more in terms of the franchise and the sales and service network that we have. What we are, in addition, leveraging is the second brand. We have a second brand called Ohaus that we clearly leverage in the Chinese market also to be present in indirect channels and fully leverage that opportunity. So, yes. We are going to fully tap in that opportunity. You mentioned, correctly mentioned, the lab business. What I would also add for example, product inspection, which is the other part of our industrial business and clearly, you'll see also very good growth prospects there. That's something that is not related to infrastructure. It is much more related to quality control and in the, for example, food industry in China, very, very good opportunity. Midterm, long-term, this is going to play clearly to our hands. Will we see a short term, maybe a quarter or the other quarter but these microtrends will not be that forceful, could well be and you heard Bill also when he talked about the guidance, in Q1, for example, labs, we might see a little bit less growth, but that doesn't mean that midterm, we have a different perspective on the growth opportunities.

Your next question comes from Jon Wood with Jefferies. Jon Davis Wood - Jefferies & Company, Inc., Research Division: Did you give the China growth rate in the quarter? I think I missed it.

If I didn't, I can give it to you. We grew by 16% in China in the quarter. Jon Davis Wood - Jefferies & Company, Inc., Research Division: Okay. And, Bill, so you mentioned the project business in China. Is that a discrete item, meaning, it doesn't recur in the second quarter? And is that why you think the company, overall, the organic growth rate goes down. Just seems like, why would the organic growth rate decelerate in the second quarter given how much easier the comps are. And so I'm just trying to tease out if that China impact was discrete or not?

I think, first, maybe a comment about the deceleration. I think in terms of looking at multiyear growth rates, I think we feel that the trend is very much kind of on a similar basis. And with regard to the specifics about China, yes, I guess part of the point we're making is that there were certainly more of some of the big jobs pushed through and completed here that of the quarter than maybe we expected. There is actually, our guys have some discussion, there's a belief that some of that was actually done intentionally, with this whole 5-year meeting that they had that they wanted to get some projects done and it seemed like things got wrapped up a little bit on an accelerated basis versus what we had maybe forecasted earlier. So if I look at kind of the mix to backlog right now, there's, of course, still some more profitable jobs and less profitable jobs. But I would say the backlog mix today is a little bit different than when we saw coming out in the first quarter. Jon Davis Wood - Jefferies & Company, Inc., Research Division: And then my second question is on the incrementals. And I would like to -- if you could quantify the sales and marketing investment impact in the first quarter, you talked about that in the fourth quarter being somewhere around $2 million, I think, $2.5 million, so could you quantify that?

Give me one second, so if I look at just the -- our SG&A grew by 4% in local currency in the quarter. And about a little more than half of that came from emerging markets. Jon Davis Wood - Jefferies & Company, Inc., Research Division: Okay, great. And then Blue Ocean, that obviously impacted you in the second half of last year in China, what is the impact on a year-over-year basis in 2012? I think you're doing that in the U.S. later this year. So we'd love to hear how we should think about the year-over-year impact in 2012?

Okay, I, probably, am not totally prepared on that one, so I apologize if I think out loud a little bit here. So, in China, there were certainly some disruption of the sales force towards the latter part of the year, which maybe wasn't as visible to you, because there was some impact on the -- more on the order side, I would say. Because if you looked at our sales numbers we were quite happy with how that went in during the Go Live period. I think in the U.S. market, we will have some people, sales guys in training and things like that on the fourth quarter. But, to be honest, Jon, at this stage, I think it wasn't very visible to you that we were--or didn't really impact how you guys were seeing the numbers, us implementing Blue Ocean in China and now I'd like to think that we have a similar no-drama situation when we do the U.S. roll in as well.

Your next question comes from Tycho Peterson with JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Maybe just a couple of points of clarification. On the lab business, if you look sequentially, you had a tougher comp this quarter than in the fourth quarter and you had better growth. So with that in mind and the fact you're maybe calling for the business to slow down a little bit in the second quarter, can you talk about the underlying dynamics. I mean, was this budget flush on the part of pharma or what kind of drove that growth acceleration on a sequential basis for lab and why are you a little bit more cautious, I guess, going into Q2?

I understand. I think maybe a couple of comments to answer that. So one was we certainly saw a acceleration of growth in our pipette business. It grew quite a bit faster in Q1 than it grew in Q4. I don't necessarily expect that to continue. Maybe you're linking now, your question, Tycho, to I think what Paul was asking earlier. It's the business we have that's most exposed to academics, the academic market and from what we hear talking, listening to peer companies and the like, I don't think of that as particularly good. I think we did -- we competed well on the first quarter but I think we grew by 6% in pipettes and that's really a good number and I think, particularly, vis-a-vis other consumable oriented lab bio -- life science- oriented company. So I think that could moderate a little bit. I think that's good to assume. The other thing that we had quite good growth in AutoChem in the quarter. We had mid-to high teens kind of growth rate there, but if I look at the order growth rate, it would maybe be more what you expect on a normalized basis for that business, more in the mid-single digits. And so, those would be my 2 kind of key remarks there.

And Tycho, I might add the geographic aspect of it. We had the Q1 actually, in China in particular, very good growth lab. I wouldn't necessarily expect it the same way...

And then, of course, Tycho, I'm also forgetting one other basic thing, I mean, I assume not only us, but other companies. We definitely had a working day benefit in Q1 that you don't have in Q2. In Q2, I'm kind of looking at my guys here, it's flat. In Q1, we had, I think, extra couple of days. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Okay, and then if we think about kind of the pricing dynamic, I know you called that out as a component on the gross margin. Heading into kind of mid-year, should we expect kind of another typical midyear price increase? I think you actually alluded to the fact you may to extract more on price, can you try to elaborate on that?

I think we would like to try do a little bit more on pricing. We hated the gross margin decline even if we could explain it analytically. Mix-wise, we felt like we need to do a little bit more there. I think we're kind of working through that process internally, but when I said that I felt there was more upside than downside on pricing in the second half, that was what we had in mind. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And do you see that as a function of mix trying to drive better product mix or, I mean, what's your strategy, I guess, to try to push through the pricing?

For pricing, I think the biggest single thing is we see win-loss ratios that support our ability to push through more on pricing and I think we're not trying to be greedy there, from a customer perspective, and trying to find the balance there. But our win-loss numbers look good and we think that, certainly, there are inflationary pressures in some parts of the business that we can articulate. But the win-loss implies our customers value highly our products. And therefore, we want to push pricing when we think it can be done in a reasonable way from a customer's eye. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then just last one as we think about kind of your cost structure for the rest of the year. Any change in your thinking about headcount adds? We talked, I think last quarter about kind of some emerging market headcount additions. But any sense that you're kind of maybe dialing back some of the additions in light of the macro environment, or...

I think, one of the things that we talked about was that we committed to this field turbo program in the second half of last year that we felt like it was important to add some more feet-on-the-street, some more front-end personnel. And at the time we made that decision, maybe the -- early last year, mid last year, and committed to those resources, probably economic environment was a little bit better than it was when those people started coming onboard at the end of last year and now the early part of this year. And certainly they've been contributors to what we think is market share gain in the period. Probably from an incremental margin point of view, they may not be as productive as our salesmen, that'll probably take more towards the end of this year and into next year. But we have added a lot of -- not a lot, but for us a good number of front end people and as you've heard in our SG&A analysis, a lot of those were in emerging markets as well.

And going forward, our focus will definitely be on the emerging markets. You heard us talking about Turkey today and Vietnam, Indonesia and so on, and that's certainly places we will continue to make investments.

Your next question comes from Sung Ji Nam with Cantor Fitzgerald. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: So, Olivier or Bill, you guys talked about taking market share, and I'm assuming that's an important driver in this environment. Could you maybe comment on the product segments where you feel like you're especially well-positioned to take share in the competitive dynamics, I guess, in the current environment?

I feel actually strong about market share gain pretty much across all the businesses. I would-- maybe on the food retail it's a little bit difficult to say. I would strive to certainly focus on profitable growth, and as mentioned it's a lumpy business in terms of having big projects. But as I look at all the other businesses, being it lab, being it core industrial, product inspection, we have very good marketing position. We are running our Spinnaker marketing programs across all the businesses. And in that sense, I do expect that we are expanding our market share across all these businesses. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: Great. And then in terms of tax rate, do you still anticipate 24.5%? And then longer term, how should we look at, are there -- is there headroom for potential improvement there in the outer years or if you could comment on that.

At this point, that's our best estimate for full-year rate, excluding discrete tax items. And in terms of looking out forward, of course, it's something that we want to work on to continuously improve. But probably the biggest variable is really government law changes and so that's probably got to be the biggest determinant of whether our tax rates move up or down at this stage in the future. Sung Ji Nam - Cantor Fitzgerald & Co., Research Division: Okay, and one last quick one. Your cash flow expectation for the year is it still 15% growth, roughly 15% growth year-over-year. And then if you could also comment on if there are any share repurchases. I think you guys had around 700 million remaining. And if there are further opportunities for the remaining year -- for the remainder of the year.

Sure, on the cash flow side, I think we're off to a good start. And I think we'll-- certainly going to hit our targets this year. I would surprised if we didn't. And with regard to our share repurchases, our intention would be to repurchase our free cash flow and estimated option proceeds as well this year. So we'll kind of stick to the normal formula.

Your next question comes from Richard Eastman with Robert W. Baird. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Bill, could you just walk -- I'm just kind of playing around a little bit with the incremental margin. And you're trying to -- if I pull out the currency impact, top line and EBIT line, it's not terribly significant. So the incremental looks like maybe 18%, 19% and yet the mix kind of shifted a little bit towards lab. And I think -- I would think that would be beneficial, since price would be helpful there. But is there -- does that number improve and maybe do you just have a quick answer as to why maybe that's a little bit lower here than you'd expect.

Sure. So first, and you're an incremental guy, so I think that's -- so I think one way to refine the calculation is to pull out the impact of acquisitions because, of course, those incremental margins will be, by definition, be different than your core business. So, Rick, if I adjust for incremental margins and the impact of foreign exchange year-on-year, you get to an incremental margin for us in the mid-20s. I do think that, that number will improve and we would have it built into our model that it would improve. And the biggest improvement would be the less mix towards these Chinese projects that we talked about earlier. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes, okay, so that will be helpful. All right. And then did you mention that acquisitions added one point to Europe's LC growth.

I thought it was more. I think it was 3 points, let me double check. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: To Europe? Okay.

Yes, 3% to Europe. A rounding, it's 2.5%, but if rounded, it's 3%. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's fine. And so when you look at the mix within Europe, industrial and lab and food and beverage, did you see the slowdown, was it much greater on the industrial side. In other words, if you look at industrial, and you assume the whole thing is down a point, organically? What was the differential between industrial and lab in terms of growth or decline?

Sure. So we had more growth in industrial, but that included, of course, acquisition benefits. And if I pull that out, both businesses grew similarly on an organic basis. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Which is similarly is 0?

No, 2% each and retail was down. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay, all right. Okay. And then just lastly, the emerging markets' piece of the business, was that -- did that stick around 35% in the quarter? And what was the growth rate, I mean, China's half of it, but how did the other countries do in there? India, Brazil?

Everybody did good. The one exception was Russia. I think Russia had mid-single digits. Everybody else did well. And particularly, we had a really good quarter in Southeast Asia, really a good quarter. India had a good quarter, I think a little bit less so on order side, but still a solid quarter. Yes, I think I mentioned already that we had 16% growth in China. That would be kind of the highlights. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: 16%, yes. And then also maybe just the last question, when you do look at the lab piece plus the 8% in LC, we talked a bit about some of these markets that maybe are slowing a little. And I think, Olivier, you'd mentioned Americas was good. But was there -- is there any end markets within this lab piece where you're seeing double-digit growth in terms of end markets like petrochem or chem or any of the applied markets perhaps. I mean can you flag a couple of the stronger markets, if you have that visibility?

Yes, it's actually not easy for us to have that exact visibility. It would be hard for us to give you now really an end-user market with precise double digit growth. But what I would say is, in general, academia wasn't so good. And it was clearly offset by all of the other markets, meaning industrial markets. But also life science in general and some of the emerging markets look very, very healthy for us.

And just as a reminder, Rick, why it's difficult because in the U.S. market we're selling the balances through Fisher VWR.

Our next question comes from Derik De Bruin from Bank of America.

Could you talk a little bit about the acquisitions? Were those things you did in Q4 or was that something that you did in Q1, because I didn't have anything on my model?

So we did the Eagle -- the old x-ray businesses, Smiths, we did that in Q2 of last year. We did the Vision acquisition in Q3 or Q4 -- Q3 of last year.

Okay, great. So I'm going back to something that Isaac asked. So it looks like it's about a 6% organic growth in gross numbers that you did in Q1 up against the 17% comp. And if you use your local currency growth guidance, with the high end of the range, it's 7%. And you use of FX and M&A impact, negative 3 and plus 2. You end up at about 5% organic number for Q2. So I'm just a little curious, I mean, even if you just mixed your days, you were certainly were well above 10% in Q1. It seems like it's a rather dramatic slowing off of what I would assume would be a stronger quarter with that. I'm just still a little bit confused.

Okay, maybe-- you got definitely one thing. The only thing that I would clarify with you, Eric, is that acquisitions are 1% in Q2 versus 2% in Q1, which has some impact. And then the other comment would be is that our order entry growth in particular, as it related to our Chinese industrial business, the biggest impact year so our order entry growth was less than our sales growth, largely explained by that item. And the other thing is, of course, we're going through our normal forecasting process and this is a little bit how we see the picture.

[Operator Instructions] Our next question comes from Greg Halter with Great Lakes Review.

There's been a lot of discussion about China and so forth, but I don't know if you've broken down the percentage that is in industrial versus lab and where you see that going, maybe over the next 3 to 5 years?

Today, the ratio is, lab is around 35% to 40%, industrial is approaching 6%, and the remain -- or 60%, sorry. And the remainder is our retailing business. And clearly, we would expect the lab business to increase as of a percent, and that would be at the expense of the industrial business and of the retail business as well, but that's a small piece of it.

Okay. And I know there was a share repurchase coming off the cash flow statement, but did you mention how many shares were acquired in the quarter?

Sure. We acquired approximately 362,000. To be precise, 361,777.

And the share count from -- the average share count, I should say, from December's quarter is basically flat. Was that due to timing or option grants, or what?

Actually the biggest impact was exercised options due to retirements. We had 2 executives that have announced their retirement and I think that's probably a guess [ph] -- and they have exercised options. One has already had his last day with the company. One has announced it, it's been filed and he'll leave later in the year. And so we had relatively more option exercises than you normally would have.

So we could see the decline going forward on the average basis, assuming you continue the repurchase?

Yes, I'm getting Mary's head nod, yes.

Okay, and what do you envision for capital spending for the full year 2012?

A little bit less than last year. I would assume probably about $5 million less than last year, it could be a little bit even less than that.

There are no further questions at this time. I'll turn the call back over to management.

Thanks, Stephanie. And thanks everyone for joining us tonight. Of course, if you have any questions as you go forward, please don't hesitate to call. Thanks and have a good night.

Thank you.

Thank you.

Thank you. This concludes today's conference call. You may now disconnect.