Good day, ladies and gentlemen. And welcome to our Fourth Quarter 2018 Mettler-Toledo International Earnings Conference Call. My name is Erica, and I will be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thank you, Erica, and good evening, everyone. I'm Mary Finnegan. I'm the Treasurer and I'm responsible for Investor Relations at Mettler-Toledo, and happy that you're joining us this evening. I am joined by Olivier Filliol, our CEO and Bill Donnelly, our Executive Vice President. I need to cover just a couple administrative matters. This call is being webcast and is available for replay on our Web site. A copy of the press release and the presentations that we refer to is also on our Web site. Let me summarize the Safe Harbor language, which is outlined on slide two of the presentation. Statements in this presentation, which are not historical facts, constitute forward-looking statements within the meanings 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, level 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 captions Factors affecting our future operating results and in the Business and Management Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. Just one last item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of, and the differences between, the non-GAAP financial measure and the most directly comparable GAAP measure is provided in the Form 8-K. I will now turn the call over to Olivier.

Thank you, Mary, and welcome to everyone on the call. I will start with the summary of the quarter and then Bill will provide details on our financial results. We will also provide an update of our guidance for this year. I will have some additional comments and we will then open the lines for Q&A. The highlights for the quarter are on page three of the presentation. We are pleased with our fourth quarter results and the strong finish to the year. Local currency sales growth of 6% came in as expected. We are especially pleased with the strong broad based growth in our laboratory business. Overall, demand in our markets remains favorable and we are executing well. Our productivity initiatives continue to generate positive results, which drove another quarter of strong adjusted EPS growth. We are increasing our guidance for 2018 and believe we are well positioned for further market share gains in 2018 and beyond. Let me turn it to Bill to provide more details on the financial results.

Thanks, Olivier. Hello, everybody. Sales were $778 million in the quarter, that’s an increase of 6% in local currency. Our acquisition of Biotix, which we completed in Q3, contributed about 1% to sales growth. On a dollar basis, sales increased by 10% as currencies increased sales growth by 4% in the quarter. On slide number four, we show local currency sales growth by region; sales grew 9% in the Americas, 1% in Europe and 7% in Asia Rest of the World;. Biotix contribute approximately 2% to the Americas growth; sales growth in China increased by 13% in the quarter. On the next slide, we show full year sales growth. Local currency sales grew by 8% in 2017, of which 1% was due to acquisitions. In the Americas, we grew by 8%, in Europe 5%, in the Asia Asia/Rest of World, grew by 11% in 2017. Americas growth benefited by about 2% from acquisitions. On slide six, we outline sales growth by product line. In the quarter, Lab grew 11%, of which 9% is organic. Industrial sales growth was 1%, as solid growth in core industrial was offset as expected by the decline in our product inspection business, which had a strong prior year quarter. Food Retailing declined 3% in the quarter. The next slide shows full year sales growth by product line. Laboratory grew by 10%, Industrial increased 8%, and Food Retailing declined by 4% for the full year. Acquisitions benefited Lab by about 2%. All comparisons again were in local currency and all were versus the prior year. Now let's turn to slide number eight, let me walk you through the key items on our P&L for the quarter. Gross margins were 58.5%, that's a 50-basis-point decline from the prior quarter. On a constant currency basis, however, our gross…

Thank you, Bill. Let me start with summary comments on business conditions. Lab had a great quarter and great year overall. Virtually all product lines performed well. Our investments in new product development Field Turbo resources and our Spinnaker sales marketing program are yielding tangible results. We expect current market conditions to remain but acknowledge that we will face tougher comparisons this year in Lab. Turning to industrial. Core industrial business was up a very solid mid-single-digit in the quarter and high single-digit for the full year. The fourth quarter growth in core industrial was broad-based across all major regions of the world. As expected, in the fourth quarter, product inspection was down modestly but ended the year with a high single-digit growth. We continue to be very well positioned in product inspection in terms of product offering, market presence and marketing strategies. We are coming off to strong use of growth so we’ll face tougher comparisons in 2018. Finally, retail was down 3% in the quarter and 4% for the year. Although, they have sales decline, we are satisfied with this business as we continue to prioritize profit growth and return on invested capital rather than sales growth. Now, let me make some additional comments by geography. Sales growth in the Americas was very good with strong growth in Laboratory and solid growth in the Industrial. Retail was down slightly. Sales growth in Europe was impacted by declines in retail and product inspection. Both of which had challenging comparisons with the prior-year. Lab had good growth and core industrial solid growth. Asia/Rest of the World had solid growth driven by very strong growth in China. For the year, China sales grew 19%. We expect China to have a solid first quarter that they will then face more challenging comparisons…

[Operator Instructions] And your first question comes from Ross Muken with Evercore ISI.

How would you tease out, as you would have expected, the order trend? I mean, there is a lot of moving parts there and you’ve got some tough comps and thesis. But given all of the economic data is quite good. Are there some segments or some industries where you are seeing any differential or is it pretty uniform and is really just a product inspection question just in terms of like industrial overall?

So couple of thoughts there. So as you've correctly point out, Ross, comps matter so -- and the toughest comps we have coming in food. I think, we do see good order trends in industrial pretty globally and we do see good order trends with our industrial customers that buy lab instruments. The one area I think it's always tough to dissect come, which is tough comps. You also read that some of the food companies, packaged food companies, have some topics and it will be interesting to see what type of growth we can do. We've been conservative I think relative to past growth rates for that in 2018, but I think it will take a little bit of time to observe that. Absent maybe this food's comment about packaging where we might be a little cautious, I think we see great economic environment. We're talking it about today with our Board where it's part for Olivier and I remember a point in time where so many parts of the world were performing well. And we see that across our industrial customer base.

I guess just building off on that Bill. Just as you think about the growth cadence for the year, like what proportion of the business in terms of thinking we've got this unique synchronized global expansion. What proportion of the business do you feel like highly confident as we think about the second half of '18 versus where do you think we have maybe a little bit of wiggle room or macro just given how elevated we are and maybe some of the geographies that historically have and always been this sustainably strong, I guess?

Again I’ll try to answer your question Ross, but maybe come back if you don't think I understood it completely. So we would tend to say historically that many parts of the business, particularly industrial piece, might be a little late cycle. So we tend to do okay in the later part of that cycle. I think where we feel too unusual things is in China, in 2017. We clearly benefited from some of the pent up demand for hold backs in that part of the world on capital investment in that '15-'16 timeframe. And then in the product inspection business, there is we're currently the Q4, 2017, we're going up against 15% comp, which led to what we had here in the fourth quarter. And I think we have another double digit comp in Q1. So we would tend to think that if the economy stays relatively at this level even with maybe some modest leveling off here and there, the second half would seem pretty solid relative to our current guidance.

And your next question comes from Jack Jack Meehan from Barclays.

I think versus our model, look like Lab was the greatest area of the strength in the quarter. Could you maybe just tease out what's performing better there? And sounded like it was pretty broad based, but just the outlook for 2018.

It was actually really broad based. Indeed, very happy how the Lab team performed. It's across the geographies. Certainly, China contributed very nicely. Just real estate in China, we have the seventh quarter here in a row where we have very good double digit growth in Lab. But we saw really good momentum also in Europe and U.S. I think it’s a reflection of the economy, but also very much that we had very strong product pipelines. We did highlight that about a year ago where I shared with you that I said I never had so much confidence in our new products and the differentiation of the [indiscernible], that certainly translates in good results. And then all the sales and marketing initiatives certainly contribute nicely in Lab, where the Field Turbo contributing as well as all the additional innovations that we have to engage new customers. So it’s a combination but definitely happy and I expect also '18 to continue to be good.

Could you give us an update just in terms of pricing growth in the quarter? And it seems some big moves on the FX front. Are there any opportunities or risks you are looking at there?

So on the pricing, we were up about 280 bps in the fourth quarter, which was modestly above and we did push in one or two areas a little bit some of this inflationary pressure that you here described. So some of that -- and we did experienced some of that inflation by the way in material cost structure. So it’s not that all 280 bps fell to the bottom line. But we had another good quarter and really a good year and feel pretty good about our pricing process entering '18 as well.

And your next question comes from Paul Knight from Janney.

Can you talk a little geographic on the European market up 1% in4Q, what's going on there? Obviously, a great year in Asia, China specifically. Can you talk about your thoughts on China in 2018?

Let me start with Europe. Overall, pleased with the numbers and generally in line with our expectations. As expected, region was down double digit, but were very much impacted also by previous year comparisons. It’s absent of retail, Europe grew 3% in the quarter. Again, solid growth already in the previous year. So that’s why we said it came out as expected, but actually also in a good way. In terms of counties, we have France and the Nordic region that did, for example, particularly well and we had also good growth in Eastern Europe. Lab had also particularly good growth in Europe. So all-in-all actually a good picture. If we go to Asia and then particular China, China certainly had a very strong quarter, as well as the full 2017, and expected -- also clearly my expectation, we did not expect that China would develop so well, when we entered the year. And certainly -- also when we end this Q4, we didn’t expect these results, very happy. The market environment is very strong, very good. And we benefit also from these pent-up demands that Bill mentioned that was certainly the case last year, Q4 maybe a little bit less so. This was particularly true for industry. Lab, we experienced multiple quarters as mentioned before seven quarters in a row with double-digit growth. I expect that to continue. As for several industries, we will now continue to experience the same growth rate. Here we're going to face tougher comparisons that will certainly play than in the second quarters of this year.

And Bill, could I ask last question, would be the net tax effect seems to be a little higher on your tax rate in '17. And what are all the moving parts mean for share repurchase? Any change in plan there?

So we might need to take it offline. So our tax rate of 22% came right in where we are, so our adjusted EPS is in line with what we expected for the full year. The tax rate or adjusted EPS, we did take a charge related to the new law. The charge was round figures about 80% cash related 20% non-cash. And we would expect that we can maintain this 22% rate going forward and probably longer term, we have actually a much easier repatriation process than we would have otherwise. In terms of the share repurchase plan, I would expect us to purchase 475 next year, which is our current -- this year, which is our current estimate for free cash flow plus option proceeds.

And your next question comes from Tycho Peterson from JPMorgan.

Olivier, just curious, I know you've talked about China in fair amount. Can you maybe talk on what drove the upside in the quarter for you guys in China? I mean, last quarter guided for high-single digit growth for the year. Obviously, you're trending above that. So where you seeing upside from a demand side?

So I think the main thing was we were a little cautious about how much orders got pulled from Q4 into Q3 in connection with the party conference. So we finished -- we probably just did a little bit better in that regard or a little bit too conservative. And I would say the order trend was good, the start to the year was pretty good. I think that's one thing we're monitoring is the timing of the Chinese New Year was a little different. So while January was very strong, I think we'll have to see how that plays out by the time we get to the end of the first quarter. But I was down there last week, Olivier was down there in the fourth quarter and I think both of us feel very good about how the business is positioned there. And the Chinese team is pretty optimistic about their growth prospects and share gain prospects there. But it is realistically a tough comp, because the pent up demand topic we keep referring to.

And then back to the Lab's strength. Just curious are you willing to comment on and January trends just wondering to what degree there was a little bit of a budget plus dynamic in the fourth quarter.

I would say the best one to look at is you guys are usually asking that question in terms of biopharma. And we clearly had a very nice growth in pipettes, as well as in our AutoChem business in the fourth quarter. But they are going to have a decent first quarter as well. So I would have said that we had a nice budget flush, but not a huge surprise either.

And then lastly on Stern Drive. Can you quantify -- I know you’ve talked in past about where you expect in terms of benefit from that. Can you just remind us what you're expecting for the year in Stern Drive?

The Stern Drive is really a program that allows us to continue to expand the margins similar to what we had in the past. It touches different topics. It touches productivity topics. It touches on material cost savings. And in essence, you shouldn't look at it as being an incremental program. It’s more supporting the margin expansion that we have also pursued in the past. But it makes it more sophisticated now, it makes it more global and it’s basically the next wave of excellence that we bring to operations.

And your next question comes from Dan Arias from Citigroup.

Bill, just an outlook question. What are you looking for at this point for growth in Asia/Rest of World, if you exclude China?

High single digits in that 7%.

And then maybe just on the margin. Can you talk about the impact of mix on margins this year in the context of both your European business and then also what you do in the retail business? I know those are two things that can move the number around a little bit.

So the decline in retail certainly helped. What probably hurt a bit was the decline in our European business. You'll remember that Europe is the part of the world where we have the highest percentage of direct sales. So in terms of the gross profit margin that makes a difference. We also had, because of the strong growth coming out of china and the disproportionate amount of industrial business we have there versus lab as compared to the rest of world. While China is accretive at the OP line it tends to be a little bit dilutive at the gross profit margin line. So if I look out at our growth rates next year, we certainly have the retail business growing below the corporate average, but pretty solid growth in all product categories, maybe a slightly less in Europe than the rest of the world. But of course we’ll get some benefit from Stern Drive. I think in terms of looking towards maybe recent trends and what we might expect to see in '18, I think the biggest difference is that currencies got to tend to inflate sales and inflate cost in a way that will reduce our gross margin as a percent, but actually benefited in terms of dollars of gross profit we’ll be able to deliver. So currency will help us, help us more in '18 than it did in '17 and way more than it did in the previous 10 years. So in that sense, it’s helpful but it will tend to dilute a little bit the percent.

And your next question comes from Patrick Donnelly from Goldman Sachs.

Bill, maybe one on industrial. How should we be thinking about core industrial and products inspection growth rates to trend in 2018 here? And then specifically on core industrial, any geography still lagging on that front that you expect to maybe show some turnaround in the near term?

So we should be able to put up a mid single-digit growth in our core industrial business. And we did a little bit better than that in '17, but that’s largely due to the China industrial business it grew so much in 2017. And we see that one area now how good we are in measuring that pent up demand impact could be upside or downside to our guidance in this regard. But maybe connecting to our answer to our first question from Ross, I think we feel pretty good about the industrial environment in the western world. We feel actually good about it globally with maybe some comparison concerns when it comes to China. Was there -- I think I forgot this. I think you had a second part, Patrick, and I apologize I forgot.

It was just about if any geographies are still lagging on the core industrial side, but it doesn't sound like.

I think it's just this question of how well are we estimating the impact of pent up demand on the China numbers. That's the hardest one to predict.

And then maybe one on the Field Turbo side. Obviously, investments there have been at elevated levels for a couple of years here. Could you just talk through how long it may take to turn profitable and if there is any inflection point expected in 2018 from some of those early investments?

What's important to know is every Field Turbo is different and it's the payback period can make it change radically by geography and by type of business that we are focused on. So to illustrate it on a telesales person that telesales person might have reached breakeven point of the six months. But if we -- as a person for automated chemistry, it might take two years to build up the pipeline. So it varies. And the different ways that we are pursuing here have sometimes different entities, like two years ago we have strong entities on telesales. At this point, we have more emphasis on more sophisticated instrument sales people. And so we might have a little bit of longer payback period. But a good assumption is that of the one to two years, they reach to breakeven point. And so we definitely have a situation now where we are benefitting in terms of growth but also on profitability from the investments that we did one-two years ago.

Your next question comes from Derik De Bruin with Bank of America.

Couple of questions. First one, what's the pacing in terms of the FX on the top line benefit over the next couple of quarters?

I'll let Mary give the answer on that one.

So Derik, we're assuming for the top line about 3.5% benefit for the full year, and you're going to see it start off about 5.5% in the first quarter and then about 4% and then down to 2% for the second half of the year.

And I'm just curious, are you seeing any -- your business was uniquely positioned within the life sciences market that we cover. And I'm just wondering if you’ve seen any signs or any indication from any of your customers in the U.S. that they're going to reinvest any money from tax reform into their businesses and doing it through CapEx projects, i. e. any of food retailers planned using the windfall for investing in new equipment, or they all typically getting to Amazon?

I think I would start and say our instruments typically are not that expensive and not so CapEx relevant. And so I would be cautious to see a direct impact here from the tax changes in the U.S. I think what we might see more medium to long term that there might be more investments in new labs, for example, in U.S. and we might benefit from that. But on a short basis, I don't think so. And if you talk about retail, actually retail is probably more impacted about the overall nervousness on the profit pool, and that actually would rather impact or slowdown their commitment to new investments in store upgrades and so on. So in a nutshell, I don’t see a big impact here.

And then just one final question. You did a couple of acquisitions last year or the last couple of years. Can you talk about how those were trending if there is anything else that is catching around the horizon?

So the two acquisitions that you referred to one is Troemner that we did about a year ago and Biotix that we did a few months ago, happy on both. Actually Troemner had its first full year and exceeded our expectations, really happy. And Biotix had the first -- last quarter here, a very good performance too. So from a financial standpoint, happy about how things are growing. And in terms of integration or accumulation, also very happy good retention of the teams, good commitments of the teams. And Biotix team, which is a little bit new to us, we are very pleased by talent pool that we have seeing there, and there how we are talking about shared strategies going forward how we can leverage the global franchise and so on, so a promising start. When you refer to about the pipeline for further deals, the strategy remains the same. Of course, I'm happy that we could close here two attractive deals in the last 12 months. We had a period where we were not closing any deals. This is unpredictable and going forward, we’re going to pursue the same approaches both on acquisitions with good synergy potential. But the availability of deals is difficult to predict. But hopefully, one or the other deal will materialize.

And just one final one, just Bill on the op margin target for 2018. How much are you embedding your model for expansion?

So plus 50 bps, and currency adjusted a little bit more.

And the currency hit is basically on the gross margin line?

Yes, I guess if we look at our table, I'm struggling to give you -- I think through the logic of why that is. But yes, if we look at our model, which is bottoms-up, the short answer is yes.

And your next question comes from Brandon Couillard from Jefferies.

Olivier, did you get the service growth rate for the fourth quarter? And then at a high level, do you have any difference in the growth between the core contract business versus the parts business?

Service co growth in the quarter was 5% and yes -- for the full year it was 7%. And the contract business is doing actually really well. I don't know the number for Q4 separate, but I would be surprised if it wouldn’t be actually double-digit, because early in the year we looked at as we talked about it for you guys and we have really very good numbers, and the part that we also most focused on. The contract business is also outgrowing this past business because the quality of our products get better and better. And we shared with you that this is one of the things why we push the contract business the fixed business, including spares, we are not going to have the same growth dynamic and that’s certainly region wise. In the overall numbers, it’s difficult to see but the contract business would completely outgrow this 5% or 7% that we had for the year.

And Bill, are you still thinking about the APSs been up about 150 basis points for the year?

Realistically, it’s probably got to be a little bit more than that. But realistically, our material costs are going to be a little bit higher as well than we originally forecasted.

And we have reached the end of our Q&A. Ms. Mary Finnegan, your closing remarks please.

Thanks everyone for joining us tonight. Of course as always, if you have any questions just give us a call or shoot us an email. Take care and good night.