Good day, ladies and gentlemen, and welcome to our Second Quarter 2019 Mettler-Toledo International Earnings Call. My name is Maria, and I'll be your audio coordinator for today. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks as there will be question-and-answer session. . And I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

Thanks, Maria, and hello, everyone. I'm Mary Finnegan. I'm the Treasurer, and I'm responsible for Investor Relations at Mettler-Toledo. I'm happy that you're joining us today . I'm joined here by Olivier Filliol, our CEO; and Shawn Vadala, our Chief Financial Officer. Let me cover just a couple of administrative matters. This call is being webcast and is available on our website. A copy of the press release and the presentation we refer to is also on the website. Let me summarize the safe harbor language which is on page 2. 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 our Form 10-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's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. -- : I will now turn the call over to Olivier.

Thank you, Mary, and welcome to everyone on the call which we're doing from China. It is Friday morning for us and Thursday evening for most of you on the phone. I will start with a summary of the quarter and then Shawn will provide details on our financial results and guidance. I will then have some additional comments and we will open the lines for Q&A. The highlights for the quarter are on page 3 of the presentation. We had a good second quarter results. Local currency sales growth was solid, and we are particularly pleased with the excellent growth in our Laboratory business and very solid growth in Core Industrial product lines. Total local currency sales grew 5% in the quarter. Excluding Food Retailing, which declined in the quarter, local currency sales grew 6%. Growth in the Americas and Asia was very good. We had another quarter of good operating margin growth, and despite headwinds from currency and tariffs, we achieved a strong increase in EPS.

Thanks Olivier. Sales were $731.4 million in the quarter, an increase of 5% in local currency. As a reminder, all growth is organic. On a U.S. dollar basis, this total sales increased 1% as currencies reduced sales growth by approximately 4% in the quarter. On slide 4, we show sales growth by region. Local currency sales were 7% in both the Americas and Asia/Rest of the World. Growth in the Americas, excluding Food Retailing, was 9%, a level we're quite pleased with. Sales growth in Europe declined 1% in local currency and was impacted by a decline in our Product Inspection business. Absent Product Inspection, growth in Europe was up 3% in the quarter, which is quite good particularly given the 9% sales growth we had in Q1, which included some benefit from the timing of Easter holidays. Finally, China had another very strong quarter with 9% local currency sales growth. The next slide shows year-to-date results. Local currency sales growth increased 4% in Europe during the first half of the year; 5% in the Americas; and 8% in Asia/Rest of World. In total, sales grew 6% in the first half of 2019. On slide 6, we outline local currency sales growth by product area. In the quarter, Laboratory sales grew 8%. Industrial increased 3% with Core Industrial up 5%, and product – while Product Inspection was down 1%. Food Retail declined 8% in the quarter. As you heard from Olivier, Food Retailing reduced our overall sales growth by 1% in the quarter. The next slide shows sales growth for the first half of the year. Laboratory sales grew 8% in local currency; Industrial grew 5%, with Core Industrial up 7% and Product Inspection up 2%. Food Retailing declined 6% during the first 6 months of the year. Overall first -- overall for the first half, total sales were up 6% in local currency, 7% if we exclude Food Retailing.

Thank you Shawn. Let me start by providing some additional comments on our operating results. Our lab business continued to perform very well with 8% local currency sales growth in the quarter, which was against a good growth in the prior year. Analytical instruments, pipettes and automated chemistry did particularly well. All three regions showed good lab growth. Our laboratory business continues to benefit from disproportionate investments in field resources, Spinnaker sales and marketing initiatives and R&D investments. We expect market demand to remain favorable and expect good growth in the second half of the year. It won't be quite at the level we had in the first half, principally driven by more challenging comparisons. In terms of our Industrial business, Product Inspection was down slightly in the quarter. This business continues to do well in Asia and we saw better growth in the Americas, but it was more than offset by a decline in our European business. We continue to feel very good about this business over the medium-term. We would expect to see growth in the second half of the year likely in the low to mid-single-digit type range. Core Industrial did quite well in the quarter with growth of 5% in local currency. Growth was good in all regions. We would expect continued solid growth in the third quarter in Core Industrial and then they will face particularly challenging comparisons in the fourth quarter. Finally, Food Retail was down 8% in the quarter. This was slightly worse than we expected. This business faces challenging market demand and the timing of customer project activity, which is further impacted in that we are managing it for profitability and not for sales growth. We expect market conditions to remain challenging and this business will be down meaningfully this year.

Your first question comes from the line of Tycho Peterson from JPMorgan. Your line is now open.

Hey thanks. Maybe Olivier we'll start out with product inspection. Given what we've seen from some of your industrial peers, data points haven't been great. You're talking about a back half of the year recovery. Can you maybe just talk to your confidence in Product Inspection particularly getting better in the back half of the year?

Yes, let me comment. So, we had already good growth in Americas and Asia. And we expect solid growth in Q3 in these regions as well seeing also better spending from food manufacturers in these regions. It was really the Europe that was weak, but also against strong comparisons. For Europe, I feel Q3 to be relatively flat, but overall, I expect low-to-mid single-digits growth this year overall. This is below our long-term trend, and it's below what I expect also here if I look a couple of years forward. But I certainly also expect packaged food customers will return to growth. And hey, we are really, really well-positioned. We have leading positions here in multiple technologies. We see that customers combine more and more of these technologies, so-called Combitech is becoming more important. We have a unique position with our service network. So, I feel very, very good about this. And, of course, quality control in packaged food remains something very important. And just think about all the macro trends here that help us with the growing population in Asia and American markets, changing consumer trends. So, feel good, but I recognize that in the short term, we could have expected a little bit more.

And then I guess as a follow-up if we think about just your Industrial business more broadly can you talk to leverage you can pull if the macro continues to deteriorate? And then the guidance reduction seems mainly on the tariff front. Obviously, there's another 10% tariff coming our today, I assume that wasn't factored in, but how should we think about the impact of that? I know it's a little bit soon.

Hey Tycho, this is Shawn maybe I'll answer the second part of the question. In terms of the tariff that came out today, that one has very little impact on our business. As a reminder, more than 90% of our imports from China are already subject to a tariff. So, if we kind of like look at the last piece, it's probably on a gross basis, it's probably like $0.5 million a year on an annualized basis.

Back to the Core Industrial, I think we had actually really good growth across all the regions, another one in Q2, but actually for the whole first half. That reflects solid market conditions. But I want also to remind ourselves, as long as the economy is good enough, we feel actually -- we can actually drive replacement business we can go for market share gain. Our segment marketing here helps really very nicely because we can go after the industry segments that have good growth potential. I certainly also feel that the team is executing very nicely. We have very good momentum in the Spinnaker initiatives. So, I expect for 2019 year, mid-single-digit growth. Good growth for this business, although a little lower than what we had in the last two years mainly due to strong comparisons especially in Q4. We're going to have very strong comparisons coming up. But in terms of how we're performing, I feel good. And also as a reminder, the key industry segments that we serve here are a little bit less exposed to the economic cycles.

Okay. Thank you.

Your next question comes from the line of Dan Brennan from UBS. Your line is open.

Thanks for taking the question. Olivier, back to China if you don't mind. One of your peers, Sartorius, obviously discussed slower lab formation in China. I'm just wondering it sounds like things are -- remain very robust for you there. But maybe can you discuss your lab business in China. And is there anything on that front that you're seeing?

Hey, very happy how the lab business has been performing in China in the last couple of quarters. And I had a deep dive into the lab business also last Friday when I met our market organization team. I feel we are executing very well, and I see really the team to go after the many opportunities that are around. Now, what's helping here of course is our lab business serves a broad range of end-user industries, a lot of different applications. And the price points of our solutions are at the low end. And so it's -- yes, we don't see a slowdown here. I think rather we have the comparisons topics in the terms that multiyear, we had really good growth. But absent of that, I feel really very, very good. And all these programs that we have in place, the Chinese team is executing very well on it.

Got it. And then, -- thanks Olivier. And then maybe just one other just related to China. I know a few of the peers, and I figured that Tycho already addressed this, but a few of the peers have discussed how the government there seems to be trying to favor non-U. S. players in certain areas, and I'm not sure if it relates to any of your businesses. But is that something -- I know you've been in the country for 30 years, and all your managers are local, so you're kind of part of the local fabric there. But is that something that you're seeing at all? Or is that something that could pop up and impact you? Thank you.

Yeah. Valid question, but really -- we have -- we don't see any of that, and we talked about that. And one of the reason is what you just said, 13 years in China. We are viewed as a local company. We have such a big presence. We have local management team. We have been around for so long. The Mettler-Toledo brand is viewed as a local brand, local company. And then first also, because the big majority of the products that we sell are locally manufactured, and we -- the big remaining part of imported products come from Switzerland. And we have hardly any products coming from U.S. So, it's for us. It's a non-topic. And we -- again, we are viewed here in a very good way. So, yeah happy to report on that one.

Great. Thank you.

Your next question comes from the line of Derik De Bruin from Bank of America. Your line is now open.

Hey. This is Mike on for Derik. Thanks for taking the question. I want to talk about the -- you called out another robust quarter for service in the quarter. Anything in particular that stands out? It seems like it's just been a very wrong -- very long runway there. So wondering how the dynamics there play into the guide. And then a follow-up was going to be on the pacing of 3Q to 4Q. You gave a lot of comments on your expectations for Food Retail and slowdown there, but even sort of if you backed that out, it looks like slightly more moderate expectations for the second half. I know part of that you talked to the general uncertainty in the macro and Industrial. Just curious if there's anything more specific on that or if it's just general caution.

Yeah. Okay. Let me take the first part, and then Shawn will general address the second part. So service, yes indeed, very good performance here that we have now performed many quarters. We have shared with you our strategies on service. We are very focused on executing on that one. It's something that we have global programs that we are executing across all the businesses. And really every country is involved. I see also pretty much every country with very solid service growth. And as a reminder, service is today about 23% of our sales. We had the 7% growth in Q2 as well as year-to-date. And I -- my expectation is that we're going to continue to grow above group average with service. We have these programs that have many more years to go. We are far from being saturated on that one. And there are also different markets where we are kind of at the beginning of the journey. I would include also China where we have solid growth in the last couple of quarters. But, when you look at the percentage of service in total, there's more room to go. And I would also add one additional associated business and that's the consumable business. That's also one that we are very focused on. I sometimes also look at service and consumables together, which is today about a third of our business. That one if combined, we had even better growth than service. So again, very happy how we performed on that, and services is very much also an execution topic. And you need to be on top of all the tactical aspects of that, and we do well on this.

Yeah. Mike in terms of the other part of your question. We don't see any particular changes between Q3 and Q4 in terms of moderation in the business. But the one thing I would maybe highlight to you is that we do face a very difficult and challenging comparison in the fourth quarter of last year. Overall, we were up 8%. But in particular our core Industrial business was up 13% in Q4 of last year. And also Europe had a pretty strong number too. So that's maybe just a comparison topic.

Got it. Appreciate that. Thanks.

And your next question comes from the line of Steve Willoughby from Cleveland Research. Your line is now open. Mr. Willoughby, your line is now open. You may now ask your question.

Can you hear me now?

Yeah, we can. Hey, Steve.

Okay. Sorry about that. Good morning. Shawn, I believe if I heard you correctly, you said that you're assuming FX and tariffs to be a negative 4% headwind now. And I had it down for -- you're saying that was negative 4.5% before and so I’m just trying to figure out the moving pieces between your old guidance and your new guidance and how that all settles out? And then I just have one quick follow-up.

Yeah. Hey, Steve it might be more of a rounding topic. I'm not seeing any particular changes in terms of like the tariffs versus what we talked about before. And if anything the FX is modestly a little bit worse than the last time we spoke.

Okay. And then just double checking here. Shawn, at the end of your prepared comments you'd mentioned that you're not assuming any change in market conditions. But then near the end of Olivier's commentsm he commented about how the markets are more challenging in the second half than the first half. So how are you -- what are you assuming in terms of the overlying and underlying end markets overall?

Yeah. Hey we continue to feel very good about our execution. And what we're seeing in our business is, of course, it's always hard to look out beyond the quarter in front of us. Right now when we look at our bottoms-up submissions from our units, we feel good about our Q3 guidance. I mean especially if you exclude Food Retailing. So at this time, we don't feel like we need to build in any particular anticipated slowdown in the fourth quarter. But we also tried to be transparent with -- we fully acknowledge that there are uncertainties out there in terms of moderating economic statistics, the trade tariff dispute, which is obviously a very dynamic situation, which back to Tycho's question the direct impact on our business is very insignificant. But with this announcement what impact that may have on the global economy is probably a bigger question.

Sure. All right, thank you very much.

And your next question comes from the line of Mr. Steve Beuchaw from Wolfe Research. Your line is now open.

Hi thanks for the time here, and thanks for the questions as well. I'll ask two. One, I actually want to revisit a topic that was -- you touched on very briefly later but I wonder if you could give us a bit more detail on it. And that is you mentioned in your prepared remarks that in the event that the environment were to become more challenging there are steps that you can take to offset those headwinds in terms of -- I believe your implication was the earnings power of the company. So it would be helpful to know what those steps might be and how big an impact do you think you could have if the macro does get worse. My second question actually relates to food specifically. I appreciate that some of what's going on in food is in Europe but it sounds like in food the U.S. is also a little tougher. Be really helpful to understand thematically why it is that food has gotten so much tougher here relative to your expectations coming into the year. And what would you recommend that we keep an eye on as we try to diligence and keep an eye on what's going on with the pulse of that particular segment of the revenue stack? Thanks so much.

Let me start and then Shawn will add flavor to this. So in terms of how we can react, if the economy changes or the market changes. So foremost that I would highlight is this flexibility that we have how we can allocate resources. We have programs in place and we have a strong tool set that allows us to go after the pockets of growth in the markets that exist particularly around segment marketing. We can guide our sales force to visit a certain type of customers by segments. And we can drive this also to our leads generation program. And then we have shown also in the past that we are quite agile in shifting resources from one business to the other. So that's one avenue that we always leverage. And the second one is, of course, we implement a discipline in our cost structure. And this is not certainly something that we also have a good track record and we have this agility in the system. Yeah, I think that's the core that I would give. And, of course, we monitor the markets very cautiously and try to anticipate these things and it very much depends how severe it is. And the very high diversification that we have in our business helps us tremendously. As you can imagine we have a huge diversification by country and we have a huge diversification by business and the end-user industry and that comes to a big advantage to us.

Yeah. Hey Steve I wouldn't add anything to what Olivier said, other than he implies that we also tailor our actions to the situation. And so we leverage these programs. We're constantly looking for productivity gains and we'll adapt if necessary.

The second part was the Food Retailing. Here as a reminder for -- we always said we run our Food Retailing business for profit and not for growth. It's -- we call it kind of noncore to us in these terms. I'm very committed to the business but it is a business that is below group average in terms of profitability. And so we have always managed that way including also in recent quarters where we have taken some steps to reduce the complexity in the business. We have taken some step also to take some cost out of the business. And so that's one effect that we have. But the second effect which is even bigger is that the whole Food Retailing market is lumpy and it's certainly also impacted by changes going on. And we see here this year a bigger downturn than we expected. And we are not trying to fight that, but rather actually adjust to it again in terms of measures that we are taking. I'm not particularly worried about it in terms of from a strategic standpoint and from my group -- or a business franchise. We are comfortable with that. But of course, it hurts our top line numbers. But this is more for Q3 and the year. As for next year, I'm not that pessimistic at all.

Okay. Really appreciate that.

Your next question comes from the line of Patrick Donnelly from Goldman Sachs. Your line is open.

Great. Thanks. Maybe one for Olivier. I know it's been asked a few different ways, but just on the Industrials the Core Industrial's outlook. Obviously, we've seen a bunch of mixed data points, particularly even in the space. Can you just talk through I guess your visibility into the back half confidence level maybe even by geography how you're feeling about that market overall?

Yes. If I look at our performance year-to-date, it has been really strong in all regions and not only here in Q2, but really for the whole first half. We feel that we have good enough market conditions in pretty much all the areas of the world. I feel strong execution from the team. And so for the whole 2019 I expect mid single-digit growth. The -- here also in Q3 where we have good visibility, I feel really good. But want to be cautious about Q4 just because of the comparisons. We are going to face a much stronger comparison here in Q4. That's the main reason. Then I would also highlight here what I said at previous occasions or in the context also of China for Industrial, we serve a very broad base of end-customer segments. We can apply segment marketing to also guide our sales force to the most promising applications in the industry even if some end-user industry would be hit more strongly by a tentative economic slowdown.

Okay. And then maybe just one more just on the Americas. That continues to be a source of strength for you guys. Can you just parse out what segment has been particularly strong here? And then the outlook I think you said mid single-digits ex Food. Could there be upside there? And what would be the upside levers?

So indeed very happy with the performance year-to-date and certainly also in Q2. The lab continued to do particularly well. We had good strength in our product offering. The investment in field resources pays off very nicely. Industrial was also solid here. Core Industrial as well as Product Inspection was nicely up in the quarter. And I expect solid growth in this business also here in Q3. The one that was down was retail that was significantly down. And I expect also Q3 retail would be down again. But otherwise, yes feel very good about the execution. The team did very well. Our program -- sales and marketing programs show great fruits here in that region.

Thanks. Olivier.

Your next question comes from the line of Richard Eastman from Baird. Your line is open.

Yes, good afternoon. Could you just maybe Shawn, just give us a snapshot here of how pricing was in the second quarter? And then the cadence of price increases last year in 2018 if I -- I think I have this kind of noted properly, but it would seem that pricing might be a little bit more challenged year-over-year in the back half of the year. I mean, would be plus 1% to 2% in the back half of the year?

No...

No?

Well I fully agree that pricing will be more difficult in the back half. And Rick that's also consistent with what we've been saying in our public commentary as well. And this is very much related to like you said the timing of the significant midyear price increases that we've put in place last year. I'd say it might be more like the 1.5% to 2% range in the back half of the year. And then maybe just to respond to the first part of your question I mean the program -- the execution around the world in the program is really fantastic at the moment. I feel very good about it. We're in the -- we probably did 2.5% or so in Q2 and I feel very good about how we're executing around the world.

Okay. And then also Olivier within the Lab segment, you're kind of underexposed so to speak to a lot of the industrial process markets. But you do have some chemical exposure there maybe petrochem exposure, just any inflection or just change in trends within lab that you might associate to those more industrial-oriented markets.

No particular that I would highlight. I think here again this diversification plays a role. And even in -- within the chemical industry, there are so many subsegments from fine chemicals over to bulk chemicals and everything. We have different applications. On the prepared remarks, I highlighted for example the China dynamic where we are benefiting from a heightened focus on safety due to all these explosions that is triggering additional demands for us in the chemical industry particular for automated chemistry, partially also for material characterization and process analytics. So, while you might have one segment that is maybe a little bit down for example the chemical industry, that is also serving the automotive world, but then you have other segments that are up. All-in-all, we see the chemical industry still being good for us and I expect it to stay that way.

Okay, okay. And just the last question for me. Is there any color you could shed -- you could provide on maybe the M&A pipeline? Is there a few things in there? Or is there anything active? How do you approach that these days just kind of keep refreshing it? But maybe you can give us some thoughts there.

Yes, yes. No problem Ric. Hey very consistent on that one. It's -- the way we look at it the way we approach it is very much from my strategic standpoint. We are focused on adjacencies that fit the strategy where we have important synergies. We don't need an additional leg. We certainly feel we are well diversified already. We have a very strong franchise. We don't need an additional leg. What we want is to acquire companies where we can add value and we add value for our customer solutions. And so the targets that we have are typically bolt-on opportunities in particular Lab Product Inspection area. We have -- if you look back, we have done a few acquisitions with Biotix and Troemner. And I would rather -- our target universe would be that kind of company. But it's not that we have something here just around the corner. I think these are very much dependent on the availability of such companies. It's -- and the -- what I also want to add, we are very disciplined when it comes to valuation. We always have and we will also continue to be. And yes, so I expect us in the couple of next years to continue to pursue that strategy. Yes, I think that fits well. And while we welcome M&A, it's not a must and it's not -- yes, we are very focused on this organic growth story.

Okay, very good. Thank you.

And your next question comes from the line of Jason Rodgers from Great Lakes Review. Your line is open. Excuse me Mr. Jason Rodgers, your line is open.

Can you hear me now? Hello?

Yes, we can.

Okay. Thanks. China, I might have missed it, but did you give expectations for growth in the second half of the year?

Yes, we're looking at mid to high single-digit growth for the second half with good growth both in our Laboratory and Industrial businesses.

And then looking at Europe, the expected improvement that you're looking for in the second half, is that primarily from better results you're expecting in Product Inspection and the slightly easier comps? Or are you looking for some type of improvement economically in that region?

Yes. I think the best way to probably look at Europe is on a year-to-date basis. We have this Easter timing topic that we talked about in the first quarter. So, on a year-to-date basis, Europe is plus 4%. For the second half of the year, we're probably like low to mid-single digit, but it's going to have a little bit of this retail effect. If you exclude retail, we're probably more in the mid-single-digit range. So, we're not expecting any particular changes in the second half. We're kind of assuming that the economy continues to be good enough for people to stick to their replacement cycles. And as we look at the third quarter outlook from our organization, we kind of feel good about what we're seeing in the execution in our business.

And then moving on to the Field Turbo program is 200 -- is that still the figure for the planned additions for the year? And any issue in finding qualified candidates there?

Believe me I have more proposals that I can approve just because I think it's a good process to always be selective and go for the most attractive one. As a reminder, this is kind of a bottom-up top-down review process and we continue to have very good opportunities. But we also review the opportunities in the context of how we reach the economic -- the economy and in particular also when it comes to countries and industry segments or business lines. I feel good about the projects around Turbo that are already approved. And Shawn and I will be on our annual budget around here in the coming weeks and that will be certainly also a topic that we will further review. But I feel good about the program and we are still in the investment mode.

And then lastly, any change to the share repurchase expectations for the year? I think $745 million was the last number given.

No, changes at all. No.

All right. Thank you.

And your next question comes from the line of Brandon Couillard from Jefferies. Your line is open.

Thanks. Good afternoon. Shawn, sorry if I missed this. But could you just help us with the gross margin bridge year-over-year between the components of currency pricing and the tariffs?

Yeah, sure Brandon. So as I mentioned before pricing was good in the quarter up about 2.5%. That had an effect of positive 100 basis points to the margin. Kind of offsetting that was the gross impact of tariffs, which was about 50 basis points. And then we had a variety of things kind of going both ways to make up the bridge.

Super. And then just an update on net interest and other expense for the year.

Sure. So interest expense for the year, we'll have Mary double check for you. $139 million for the year. Oh, I'm sorry, sorry, sorry. Looking at the wrong line…

37.

30 -- oh, sorry. $37 million. Yeah, $37 million for the year. And what was your other question?

I guess just net interest and other kind of all rolled up together.

Okay. And then other would be about $4.5 million. And that would be income by the way.

Okay. Super. Thank you.

Yeah.

As there are no further question at this time, you may continue speakers.

Thank you. Thanks Maria. Hey, thanks everyone for joining us this evening. As always, if you have any questions just let us know. Hey, we are in China, so probably the easiest way to get a hold of me or us is through email, but we're happy to get back to you. Take care everyone. Have a nice night.

And this concludes today's conference call. You may now disconnect.