Mettler-Toledo International Inc. (NYSE:MTD) Q4 2024 Earnings Call Transcript

Mettler-Toledo International Inc. (NYSE:MTD) Q4 2024 Earnings Call Transcript February 7, 2025

Operator: Thank you for standing by. My name is JL and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Fourth Quarter 2024 Earnings Call. 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 the conference over to Adam Uhlman, Head of Investor Relations. You may begin.

Adam Uhlman: Hey, thanks JL, and good morning, everybody. Thanks for joining us this morning. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com. A copy of the press release and the presentation that we will refer to today is available on our website. This call will include forward-looking statements within the meaning of the US Securities Act of 1933 and the US Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, financial condition, performance, and achievements to be materially different from those expressed or implied by any forward-looking statements.

For a discussion of these risks and uncertainties, please see our annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement except as required by law. On today’s call, we may use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website. Let me now turn the call over to Patrick.

Patrick Kaltenbach: Thanks, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our fourth quarter financial results, the details of which are outlined for you on Page 3 of our presentation. We had a strong finish to the year and we capitalized on very good customer demand for laboratory products, especially in Europe. Strong sales growth and solid execution of our margin improvement initiatives contributed to excellent adjusted EPS and cashflow. Reflecting on our achievements in 2024, we delivered good results despite soft market conditions and continue to benefit from our strong culture of execution and continuous improvement. At the same time, we stay focused on our long-term strategy of delivering innovative solutions and extending our market leadership.

Looking ahead, driving growth is our top priority in 2025. And we will continue to build on our competitive strength and take advantage of opportunities in automation, digitalization, and high growth areas to further expand our market share and deliver good earnings growth. Let me now turn the call over to Shawn to cover the financial results and our guidance. And then I will come back with some additional commentary on the business and our outlook. Shawn?

Shawn Vadala: Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.045 billion, which represented an increase in local currency and in US dollars of 12%. On Slide number 4, we show sales growth by region. Local currency sales grew 7% in the Americas, 19% in Europe, and grew 14% in Asia/Rest of World. Local currency sales increased 4% in China in the quarter. Excluding the impact of shipping delays in the fourth quarter of 2023, local currency sales grew 6%, including 3% in the Americas, 8% growth in Europe, and 10% in Asia/ Rest of World, including 2% growth in China. On Slide number 5, we show sales growth by region for the full year 2024. Local currency sales increased 3%, with 3% growth in the Americas, 8% growth in Europe, and a 1% decline in Asia/ Rest of World.

Local currency sales decreased 11% in China for the full year. Excluding the impact of shipping delays, local currency sales in 2024 were flat, including 1% growth in the Americas, 2% in Europe, and a 3% decline in Asia/ Rest of World, including a 12% decline in China. On Slide number 6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 18%, and Industrial grew 8%, with core industrial up 5%, and product inspection up 12%. Food Retail declined 14% in the quarter. Excluding the impact of the shipping delays, we estimate our Laboratory sales grew 10%, Industrial grew 5%, with core industrial up 1%, and product inspection up 12%, and Food Retail declined 21%. Service sales increased 8% in local currency in the fourth quarter.

The next slide shows local currency sales growth by product area for the full year 2024. Laboratory sales increased 6% and Industrial increased 1%, with core industrial down 1% and product inspection up 4%. Food Retail decreased 14%. Excluding the impact of the shipping delays last year, we estimate our Laboratory sales grew 2%. Industrial was flat with core industrial down 3% and product inspection up 4% and Food Retail declined 17%. Service sales increased 7% in local currency for the full year. Let me now move to the rest of the P&L, which is summarized on Slide number 8. Gross margin was 61.2% in the quarter, an increase of 220 basis points due to higher volume, positive price realization, and benefits from our productivity initiatives.

R&D amounted to $50.1 million in the quarter, which is a 7% increase in local currency over the prior period. SG&A amounted to $237.3 million, a 6% increase in local currency over the prior year and includes higher variable compensation. Adjusted operating profit amounted to $351.9 million in the quarter, up 25% from the prior year. Adjusted operating margin was 33.7%, which represents an increase of 360 basis points over the prior year. A couple of final comments on the P&L. Amortization amounted to $18.2 million in the quarter. Interest expense was $17.9 million and adjusted other income amounted to $1.1 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises.

Fully diluted shares amounted to 21.1 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $12.41, a 32% increase over the prior year. On a reported basis in the quarter, EPS was $11.96, as compared to $8.52 in the prior year. Reported EPS in the quarter included $0.24 of purchased intangible amortization, $0.09 of restructuring and other costs and a $0.12 headwind from the timing of stock option exercises. The next slide illustrates our full year 2024 results. Local currency sales grew 3%. Adjusted operating income increased 4%, or 6% excluding unfavorable foreign currency, and our adjusted operating margin grew 60 basis points. Adjusted EPS grew 8% for the full year and grew 10% excluding unfavorable currency.

That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $900.6 million in 2024, a 2% increase on a per-share basis from 2023 and just over 100% of adjusted net income. DSO was 36 days, while ITO was 4.2 times. Let me now turn to our guidance for the first quarter and for the full year 2025. As you review our guidance, please keep in mind the following factors. First, uncertainty remains across many of our core markets in the global economy. Geopolitical tensions remain elevated and include the potential for new tariffs that we have not factored into our guidance. Secondly, we expect market conditions to gradually improve throughout 2025. We also expect to continue to benefit from customer trends in automation, digitalization and on- and near-shoring.

Third, we assume foreign currency at current rates, which is a headwind to sales and adjusted EPS growth of approximately 2% and for the quarter and year. Finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by approximately $58 million, nearly all of which was recovered in our Q1 2024 results. This will be a headwind to our Q1 2025 sales growth of approximately 6% and will negatively impact our year-over-year operating margin change by approximately 260 basis points and adjusted EPS growth by approximately 18%. For the full year, this will reduce our sales growth by 1.5% and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS growth of approximately 4%.

Now turning to our guidance. For the first quarter of 2025, we expect local currency sales to decline by approximately 3% to 4%, representing growth of 2% to 3% excluding the prior year shipping delays. Operating margin is expected to decline 220 basis points at the midpoint of our range, or growth of 30 basis points excluding the shipping delays. We expect adjusted EPS to be in the range of $7.75 to $7.95, down 11% to 13%, or a growth rate of 7% to 9%, excluding the shipping delays and unfavorable foreign currency. For the full year 2025, our local currency sales growth forecast is unchanged at approximately 3% or up 4.5%, excluding the shipping delays. Operating margin is forecast to be flattish at the midpoint of our range, or up approximately 60 basis points, excluding the shipping delay.

We expect full year adjusted EPS to be in the range of $42.35 to $43, up $0.50 from our prior range, which reflects EPS growth of 3% to 5%, or 9% to 10% excluding the shipping delays and unfavorable currency. Lastly, I would like to share a few other details on our 2025 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $73 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $25 million on a pretax basis or $0.93 per share. Interest expense is forecast at $74 million for the year, down from our prior forecast due to lower interest rates on our revolver and our strong free cash flow in 2024. Other income is estimated at approximately $7 million.

We expect our tax rate before discrete items will remain at 19% in 2025. Free cash flow is still expected to be approximately $860 million in 2025 and share repurchases are expected to be approximately $875 million. That’s it from my side, and I’ll now turn it back to Patrick.

Patrick Kaltenbach: Thanks, Shawn. Let me start with some comments on our operating businesses, which will exclude the impact from last year’s shipping delays. I will start with Lab, which had a very strong performance in the quarter. We had excellent growth across most of the portfolio, including very strong growth across process analytics and analytical instruments, especially with pharma and biopharma customers. We continue to receive very positive feedback from the market on our innovative portfolio and on our service solutions, which we believe is contributing to market share gains. Shifting now to our Industrial business. Our underlying sales growth was led by our product inspection business, which has gained momentum as the year unfolded.

Our growth initiatives and new products targeting the mid-markets are delivering market share gains, and we have also benefited from growing adoption of X-ray inspection technology as customers look to increase product safety by detecting a wider range of physical contaminants. Our X2 X-ray platform has allowed us to offer differentiated solutions at attractive price points across a wide range of applications. It also provides valuable features that simplify maintenance and cleaning. The strong wins we have had with our X-ray platform are helping mitigate weak underlying demand from the food manufacturing industry which continues to face challenges and longer investment cycles. Switching over to our core Industrial business. Our underlying sales growth this quarter was modest as market headwinds persisted, especially in China.

While customer demand in some market segments like pharma and biopharma have improved recently, general industry and chemical sector have remained soft. Lastly, Food Retail declined against very significant project-related growth in the prior year. Now, let me make some additional comments by geography, which will also exclude the impact of last year’s shipping delay. Starting in the Americas, our underlying sales growth was led by our process analytics business that continues to benefit from the recovery in bioprocessing, and we also had good growth in other laboratory products and our product inspection business. This growth was offset by a significant decline in Food Retail following very large projects related to growth in the prior year.

Now shifting to Europe. We had excellent underlying sales growth this quarter that included very strong growth across both Laboratory and core Industrial. Our pharma and biopharma customers has led our growth over the past year as we have benefited from our innovative portfolio and our unique direct sales and marketing strategies. And finally, our Asia/Rest of the World results were also better than expected with strong results throughout the region outside of China. We have significant growth opportunities across the Asia Pacific region and have accelerated growth plans in various countries such as Japan and India to expand our market share. Our results in China were in line with our expectations with modest underlying growth as improved lab demand was partially offset by weaker industrial sales.

Market conditions in China remain subdued and we expect low single-digit growth in 2025. As we have mentioned in the past, trends in China can change quickly, and our team remains focused on taking advantage of growth opportunities. In summary, again, we are very pleased with the successful close to 2024, and we are optimistic that market conditions will gradually improve as we move throughout 2025. The many important growth investments we have made in the recent years have further enhanced our market leadership and will support above-market growth and margin expansion well into the future. As we enter 2025, we will remain focused on implementing our new strategies and techniques with Spinnaker 6, which include an expanded big data and analytics efforts for our lead generation and sales force guidance programs and new digital solutions that enhance our customer experience.

We will also make further progress with our Blue Ocean program, which is a critical backbone for many of our corporate programs such as Spinnaker and SternDrive. Blue Ocean is our global process harmonization initiative built on a single instance of SAP, and it provides us valuable real-time business intelligence insights that allow us to react quickly to changes in the business and operating environment. We are also very pleased with the growth in service sales over the past year and our team is focused on continuing to drive strong growth over the coming years. We are making important investments to support our service growth initiatives, which includes additional resources to help us address a larger proportion of our installed base that we do not service today.

We also have dedicated initiatives underway to help increase our sales of service contracts at the point of new instrument sales. We will also continue to sustain important investments in innovation over the coming year. Innovation empowers our customers to generate new insights, improve and digitalize their workflows and make their results more precise and reliable. Innovation is also important as it helps stimulate replacement cycles, support our market share gains and enhance our value proposition that reinforces our pricing. Over the past several years, we have launched many important enhancements to our portfolio, and we will have many exciting innovations to be introduced over the coming years as well. Now lastly, in 2025, we will look to capture additional benefits from new tools in our SternDrive program, which aims to drive operational excellence in our manufacturing facilities and our global supply chain.

As a reminder, we are on the third wave of SternDrive, which is focused on smart automation and digitalization technologies to drive productivity and capture material cost savings. The Mettler-Toledo franchise is stronger than ever and we remain focused on the things that we can control through the different execution of our initiatives — sorry, through a diligent execution of our initiatives. We are well positioned and continue to implement strategies with a good balance of initiatives focused on growth, innovation and operational excellence. Now, this concludes our prepared remarks. Operator, I’d now like to open the line to questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Vijay Kumar of Evercore. Your line is open.

Vijay Kumar: Hi, guys. Good morning and thank you for taking my question. Congrats on a nice [print] (ph) here. Patrick, maybe my first one on — if you look at the Q4 performance here, headline 12%, excluding the shipping comp, the underlying is 6%, Wouldn’t that imply like if that’s your exit rate, shouldn’t your underlying be in the mid-single-digit rate for Q1? Were there any one-offs in Q4 in the sense the customers prebuy ahead of potential tariff and geopolitical risk?

Patrick Kaltenbach: Hey, thanks, Vijay, and good morning. That’s a very good question. Of course, we are extremely proud of our strong finish to 2024 and the strong Q4. As you said, 6% underlying growth, if you exclude shipping delays, has been a very strong result. It has been especially strong in Lab as we said and in Europe. But also across the entire portfolio, we have been really, really pleased with the results. Now looking at what drives the growth, I think a lot of that is driven by, of course, a lot of innovation that we pushed in the market last year. I mean customers see the strength of our portfolio. We probably have seen a little bit of a budget flush in Europe. It’s always hard to quantify that. But if we have indications of what contributed to a higher growth that we potentially would have expected, it was probably a bit of a budget flush in Europe.

Regarding your point whether there had been pull-ins because of the tariffs, we have actually no real indications that that triggered this strong result. I think it’s more really our really exceptional portfolio that we have out there, our strong go-to-market strategies being close to customers when they have been ready to spend money. As I said, in Europe, specifically, we had, I would say, some releases of budget flush that we have not seen a year before.

Shawn Vadala: Yeah. I think too, Vijay, if you kind of look at the sequentials, we feel like it makes sense. If you look at kind of like a longer-term CAGR for Q1, we also think it makes sense. And we still kind of stand by the comments we made last quarter where we do expect the beginning of the year in ’25 to start off a little bit slower and then things gradually improve throughout the year. With all the different uncertainties in the world, we wouldn’t be surprised if our end-markets start off a little bit more cautiously this year.

Vijay Kumar: Understood. And that sort of segues into my follow-up on the macro geopolitical situation. I know the guide isn’t contemplating any risk in China for low singles growth. Maybe if you can talk about what is your competitive landscape in China? Do you have local competition? And then how should we think about potential risk related to China? I know one of your peers was put on a list. Is there any risk for that spreading broader to life science companies?

Patrick Kaltenbach: Yeah, Vijay, look, we have been in China for over 30 years, and there always has been local competition, right? And we have a very strong team in China, R&D team, manufacturing team, a very strong sales team. I think we are competing very effectively in China. We also have a very broad portfolio that you couldn’t point to one single competitor that we are competing against. It’s really a very fragmented space across Lab and Industrial and product inspection. Again, none of the competitors, not one of the competitors would have the same portfolio we have. And again, since we are manufacturing in China and sourcing in Chinese products, and our R&D teams actually are developing also solutions in China for China, I mean I would say that — I would never say there’s no risk, I would say there’s probably a more limited risk for a company like ours who has been in China and is serving the local market with local solutions.

Shawn Vadala: Yeah, as Patrick says, we clearly benefit from our diversity there as well too.

Vijay Kumar: Understood. Thank you, guys.

Operator: Your next question comes from the line of Dan Arias of Stifel. Your line is open.

Dan Arias: Hey, good morning, guys. Thanks for the questions. Shawn, on the Industrial business there and following up on those comments, is there any change in the way that you’re feeling about industrial this year? I mean, to Patrick’s point, it does seem like there’s some good overall momentum in product inspection. I think you have been picking low singles for both core Industrial and PI, if I remember correctly. So is it fair to assume that that’s still the view? Or are you may be tracking a little bit differently at this point?

Shawn Vadala: Yeah. I mean we’re — in terms of guidance, we’re still a little more cautious on the core Industrial side, if we look at the different businesses, we were very pleased with the quarter overall. But clearly, in terms of core Industrial, there’s still some more challenges in that marketplace, especially when you peel it back and look at our Chinese business as an example. But for product inspection, we were extremely pleased with the quarter, certainly better than what we expected with 12% growth in the quarter. And then as we kind of like look towards the full year here, we’re still thinking like mid-single-digit, but we — for product inspection, but we expect to get off to a better start in that business. I think some of the momentum in product inspection will carry forward into the first quarter and we’d expect to be more like high single-digit in that business in Q1.

And when you kind of like look at that business, it’s kind of interesting because the end-markets are challenged, but we are also competing really well. The new products that we’ve talked a lot about even in the prepared remarks are being really well received by the marketplace and our teams are executing really well.

Dan Arias: Yeah. Okay. And then maybe just sort of a similar idea on Lab. I just want to understand the assumptions on biopharma, which looks like it’s gradually recovering here. So, on the low to mid-singles growth that you had penciled in for that business, is the simple way to think about it just that low singles is modest improvement and mid-singles is better improvement? Or was there not a lot that was baked in? I mean, Patrick, last quarter, you had expressed some optimism there. But it was early, so I wasn’t sure whether that was translating to the outlook. I’d just love to sort of get your view there at this point as we’re a couple of months into the year, at least 1.5 months in the year.

Shawn Vadala: Yeah. I mean for Labs — so for Labs, for the year for ’25, I mean, of course, we had a very strong quarter. I can let Patrick comment when I finish. But I mean it was very broad throughout the portfolio. But when you kind of look at certain categories like analytical instruments did exceptionally well, process analytics did extremely well. So, it was just really nice to see some of the trends that we saw in Q3 kind of carrying into Q4 with, I’d say, even somewhat better results. And Patrick kind of talked about it already, like a bit of a budget flush in Europe, which was certainly more than what we were expecting. As we kind of look at the full year for 2025, our guidance is, I think, similar to last time on a reported basis, up low to mid-single-digit for Lab.

But for excluding this shipping delay effect, we would be up mid- to high single-digit. But similar to my comment before about the sequencing of the year, we do expect things to start off a little bit more moderate in the first quarter. On a reported basis, we would expect our Lab business to be down low single-digit, but then excluding the shipping delay, we’d expect to be up mid-single-digit.

Dan Arias: Okay. And Shawn, just to maybe drive home the point, so there is some level of improvement that you have assumed in the biopharma environment, so to speak, that kind of underpins that growth rate that you’re talking about there?

Shawn Vadala: Yeah. I mean the guidance hasn’t changed, but for biopharma, like particularly bioprocessing, we certainly saw market conditions improving in the fourth quarter. But keep in mind, we — our guidance for ’25 was always that things would gradually improve throughout the year in 2025. But certainly, yeah, we saw some affirmation in the fourth quarter. Maybe the one thing that still hasn’t come back yet is maybe the other part of biopharma, which is the biotech side. We’re still seeing mixed conditions when it comes to liquid handling pipettes and small biotech.

Dan Arias: Okay. Very good. Thank you, guys.

Operator: Your next question comes from the line of Jack Meehan of Nephron Research. Your line is open.

Jack Meehan: Thank you, and good morning. First question is on the core Industrial piece of the business. We’re just curious what your latest take is on some of the macro factors. You saw the PMI go over 50 for the first time in a while on Monday for the US. Was curious if you feel like there’s a little bit more wind in the sails entering the year, potential for that business to improve.

Patrick Kaltenbach: Yeah. Good morning, Jack, really good question. Look, with core Industrial, I mean, as we also said in the past, we are not directly linking that to PMIs. I mean a lot of our products go into automation and digitalization efforts across many industries. When you look at our projected growth for industry, and Shawn can give you the breakdown afterwards, I mean a lot of that is depending also on the fact that a big part of the business, and compares also to the growth we have seen in China in the past years, which is now still slow. The investment on the industrial side in China particularly is still subdued. We don’t see the momentum that had been — we had strong growth in, for example, the battery segment before, which is now — definitely does not — not the same demand, so these customers will not invest in the same area.

So I would say, don’t link it directly to the PMIs. Of course, I mean, we are counting on the fact that our customers, and there is strong interest in our digitalization/automation solutions, that will continue, but it’s not forecast to grow at the same rate as Lab or product inspection in 2025. Shawn, you want to break it down in terms of the growth rate?

Shawn Vadala: Yeah. I mean in terms of how we’re thinking for the full year for — I think we might have mentioned it already, but the core Industrial, we’re expecting low single-digit growth for the full year in 2025 on a reported and adjusted basis. As Patrick says, that business, about — we’ve kind of estimated and talked in the past, about 60% of that business is a combination of pharma, food and chemical, which for us is largely specialty chem. And then you have like these hooks into automation and digitalization. But certainly, the economy, we’re not immune to it and, when it’s up, it certainly doesn’t hurt. And so — but at the same time, I think there is an element of how do customers respond to some of the uncertainty in the world right now and that kind of maybe fits into the pacing of the year a little bit. But nonetheless, it was nice to see about 50 PMIs for the first time in a while.

Jack Meehan: Yeah, agreed. And then just one housekeeping one. The raise to the 2025 EPS forecast, is that just a function of 4Q coming in a little bit better? Or were there any other changes to the assumptions that drove that?

Shawn Vadala: Yeah. So, I mean a lot of it was the beat in Q4, but then we had kind of like two things kind of, not offsetting, but kind of going in opposite directions. On one hand, we had a lot of negative foreign currency since the last time we reported. I think everybody has certainly seen the strengthening of the dollar. But with our exposure, we’re also sensitive to the strengthening of the Swiss franc versus the euro. And as a reminder, every 1% change there is like about a $2.5 million hit to — or increase to operating profit or change in operating profit. And then we have a similar sized exposure with the renminbi — Chinese renminbi, versus the dollar. So every 1% change there has like about a 2.5% — $2.5 million or so impact to operating profit.

But then kind of going the other way is we had a couple of benefits kind of below operating profit. We had our — when you kind of have a chance to update your model, you’ll see that interest expense came down a little bit, benefiting from a little bit lower interest rates and the strong cash flow we had in the fourth quarter. And then other income benefited a little bit just from updating, like, actuarial assumptions with pensions and things like that.

Jack Meehan: Sounds good. Thanks, Shawn.

Shawn Vadala: Yeah. You’re welcome.

Operator: Your next question comes from the line of Matt Sykes of Goldman Sachs. Your line is open.

Matt Sykes: Hi, good morning. Thanks for taking my questions. I just want to go back to the strength that you cited in Europe, particularly in Lab. I know you mentioned there was some element of a budget flush there. But can we extrapolate sort of that improving demand among that customer segment in Europe into other developed market regions like the US? I mean does this encourage kind of your view as to what Lab globally could do, maybe ex China, could do?

Patrick Kaltenbach: Yeah. Look, for me, it’s, first and foremost, an encouragement of how well our portfolio is received by the market. And we have spent a lot of focus on driving innovation to the markets. We spent a lot of growth initiative money over the last three years. We launched a lot of new platforms. And those resonate really well. And I think probably in Europe, we have, maybe in some areas, maybe a quarter launch advantage on that. But I’m definitely positive that what we have seen in Europe, people will hopefully also see in US, that strong uptick of the market. And then remember, there’s — a lot of our business is replacement business. And these newly launched products can — will also help trigger replacement cycles.

So yeah, I’m actually positive seeing that we compete so well in a very difficult environment like Europe. This is a — you know how the economy in Europe is doing at the moment, but our growth rates are really speaking to the strength of both of our platform but also go-to-market strategies. We really go very quickly to the growth initiatives that we’re seeing out there. Our sales force guidance works extremely well. And I’m confident that, if the market uncertainty maintains reasonable in the US, then we will also see hopefully better momentum as the year evolves.

Shawn Vadala: Yeah too, and when you look at the fourth quarter, I mean Europe did better than the US, but the US still did very well also. Even if you exclude the shipping delay effect, I think we’re up high single-digit. And by the way, China did very well in Lab as well too, they were up high teens. And so kind of as expected, Lab was going to have a much better quarter and then Industrial in China. So Lab globally was good, but Europe was clearly the leader.

Matt Sykes: Got it. Thank you. And just going back to tariffs for a second, just specifically on Mexico. I know there’s been a delay in that, but you do have a manufacturing footprint there. Could you maybe remind us what your exposure is in terms of revenue shipped out of Mexico? And then you’ve often been very flexible in your manufacturing footprint. If these tariffs were to go through, like what would be the duration? And what would be the decision behind maybe flexing that manufacturing to another region? And what is your capability of doing that?

Shawn Vadala: Maybe I’ll start, if Patrick wants to comment. So, maybe I’ll back up a little bit, Matt, too. So like just to be clear, we’ve built in the recent tariff on — the incremental 10% in China into our guidance. We’ve mentioned in the past in China, we have less than $100 million of imports into the US, or exports to the US. So the new tariff is less than $10 million. And we’re confident we’ll be able to mitigate that with our various programs. And we built that into the guidance. We’ve also mentioned in the past that our Mexico exports to the US is less than China. And so we’ll kind of see how things play out there, but we also feel like we’ve looked at different scenarios, we’re monitoring closely, and we’re prepared to react if we need to.

And it will be a combination of maybe there’s some supply chain topics, but there’s also things we can look at on the pricing side as well. In terms of like a market itself, Mexico is probably about 2% of our sales. And by the way, so is Canada. But we don’t export a lot from the US to those markets in terms of like direct product sourcing in the US. So we’ve looked at that scenario and we also feel like we should be able to manage that if we got into like this retaliatory topic in North America.

Matt Sykes: Thank you very much.

Shawn Vadala: Yeah. You’re welcome.

Operator: Your next question comes from the line of Rachel Vatnsdal of JPMorgan. Your line is open.

Rachel Vatnsdal: Perfect. Hi, good morning. Thank you so much for taking the question. First, just housekeeping, I wanted to ask on the first quarter guide. Can you walk us through what are you assuming by segment for the first quarter including and excluding that shipping comp across segments and then geographies as well?

Shawn Vadala: Yeah. Sure, Rachel. So, I’m just going to go top to bottom. And I’ll cover things even if I already mentioned them just for — make sure we’re complete. So for Lab, for Q1 for ’25, our guidance is down low single-digit on a reported basis and up mid-single-digit on an adjusted basis, adjusting for this shipping delay topic from last year in Q1. Total Industrial would be down low single-digit, our guidance is in Q1. And adjusting for the shipping delay, it would be flat. And then within that, you have core Industrial down high single-digits on a reported basis and down mid-single-digit on an adjusted basis. And then you have product inspection up high single-digit on both a reported and adjusted basis. And then in terms of the geographies, the Americas, our guidance for Q1 is to be down low single-digit, and for — on an adjusted basis for the shipping delay, it would be up low single-digit.

Europe would be down high single-digit on a reported basis and it would be up low single-digit on an adjusted basis. And then China would be up low single-digit on a reported basis and adjusted basis. And do you want the full year too? Or do you — is Q1 good?

Rachel Vatnsdal: Sure. Yeah, if anything changed on full year, that would be helpful as well.

Shawn Vadala: Yeah. Okay. So apologies if this is repeating. So, Lab on a reported up low to mid-single-digit on an adjusted basis, up mid- to high single-digit. Total Industrial up low single-digit on both a reported and adjusted basis. Core Industrial up low single-digit on both a reported and adjusted basis. Product inspection up mid-single-digit on both a reported and adjusted basis. Retail flattish on a reported basis and up low single-digit on an adjusted basis. And then if we look at the regions, Americas up low to mid-single-digit on a reported basis and up mid-single-digit on an adjusted basis. Europe up low single-digit on a reported basis and up mid-single-digit on an adjusted basis. And then China up low single-digit on both a reported and adjusted basis. And that was all for the full year.

Rachel Vatnsdal: Great. That’s super helpful. If I could just squeeze in my follow-up then, just on — sticking on that topic of China, you guys pointed towards low single-digit growth for the year, which was also your prior assumption. So, have you seen any impact regarding some of this equipment stimulus to date yet? And is anything embedded for stimulus within that full number? And also just break down for us, obviously, we have some of this equipment specific stimulus that some of your peers have called out. What about the broader economic and monetary policy that we’re seeing out of China on a stimulus impact? Should that be more of the driver for you guys and the equipment stuff? Just unpack that for us. Thank you.

Patrick Kaltenbach: Yes. Very good. Thanks, Rachel. I’ll take that and let Shawn chime in as well. So, we have actually not participated a lot with our product portfolio in the current or last stimulus package. Those were more targeted towards high-end research products. We, of course, had some deals where we bundled instruments together to qualify for the stimulus amount and the thresholds, but it was — it didn’t really move the needle for us in Q4. We also have not included any projection of the stimulus in our 2025 guidance. If there is a broader-based stimulus, that would definitely help us to probably be ahead of what we are forecasting now for 2025 in China. But it remains to be seen. Again, we took a cautious stand here and said we’ll go with the current market conditions as they are.

If there — again, if it’s a broad market stimulus, it goes across the industries, we will benefit definitely more. If it’s another very targeted high-end research instrument, front-end research stimulus, maybe not so much, and it can — the outlook will remain unchanged.

Shawn Vadala: Right. And I think for — we talked about a little bit in the past, for us, one of the topics is broader stimulus, obviously, is bigger. It’s just — we’re implying a broader fiscal stimulus more similar to what they’ve done in the past where they’re really doing stuff to support economic development. But of course, when they do that, it also increases confidence in the country. And I just think like the more that they can send strong signals to increase confidence in the business community so that people will start pulling the trigger on capital expenditures, et cetera, or just spending and investing in general, that’s a — that would be a very positive.

Operator: Your next question comes from the line of Josh Waldman of Cleveland Research. Your line is open.

Josh Waldman: Hey, good morning. Thanks for taking my questions. Patrick, I mean it sounds like the strength in Europe, maybe even the US, was focused within biopharma. I guess, is that right? And I mean, do you — or did you see an uptick in other markets? And then I guess how do you interpret the strength in the fourth quarter as it relates to confidence of customers to return to normal growth and spending going forward? And curious what you’re hearing from customers as it relates to their desire to spend on more replacement-type purchases in ’25. Any change there?

Patrick Kaltenbach: Yeah. Thanks, Josh. Look, I’ll maybe talk about the growth and what triggered growth in terms of end-market segments, you have pharma, biopharma was a contributor, but so was the food industry, and you have also heard about the numbers that we have, for example, in product inspection. So I would say it was, in Q4 specifically, was across a broader part of the markets, and not just for pharma/biopharma. But we clearly see the strongest demand coming out of pharma/biopharma. And that is also affecting probably more the Lab business and the process analytics business, especially when you think about biopharma process, which is exactly driving the growth that we’ve seen in process analytics. Now looking forward, is the Q4 for us a good indicator that the market will fully recover to normal levels?

We are still cautious there and we are looking at 2025 as also a transitory year still. As we said, we guide first half lower than the second half. I mean the 3% growth and extra shipping delays to 4.5% growth is still not back to what we would consider a normal year, so to speak. But we’re hoping that the market growth will continue to pick up. Again, our portfolio competes really well. And in terms of the replacement cycles, yes, the last two years have been probably a bit subdued in terms of product replacement. And once the budgets become available, we have an opportunity to capture also more growth coming from replacements.

Josh Waldman: Got it. Okay. And then, Shawn, a question on tariffs, maybe asked another way. I mean it sounds like the updated guide contemplates potential impacts on tariffs. Any way to frame up how you’re thinking about offsetting the cost impact? I mean do you think more of the offset will come from price? Or is it more weighted towards supply chain levers?

Shawn Vadala: I mean I think it will be similar to the time we dealt with the topic. I mean, clearly, it will be a combination of both. I mean we’re clearly looking at the different scenarios. We’re clearly looking at pricing opportunities in the portfolio. We do it in a very differentiated way. And so we’re — we’ve done that analysis. And then we also look at some of the processes within supply chain and whether we can make tweaks here or there. But of course, pricing is a more agile topic than supply chain. Sometimes supply chain can take a little bit more time.

Josh Waldman: Okay. Thanks guys.

Operator: Your next question comes from the line of Patrick Donnelly of Citi. Your line is open.

Patrick Donnelly: Hey, guys. Thanks for taking the questions. Shawn, maybe just to pick up right where you left off there on the margin front. Can you just talk about the margin build this year? It’s always helpful to hear about the price contribution, the moving pieces, both 1Q and for the year, would be helpful just to think about the margin side.

Shawn Vadala: Yeah. So of course, we were really happy with our margin expansion in the fourth quarter, just really strong. I mean if you put it into perspective, our gross margin expanded 220 basis points. And if you exclude all this noise from the shipping delay, it was still up by 160 basis points. And what we saw in the quarter was getting back to volume growth. Volume growth was clearly — stood out for us in our numbers, and it was really great to see. Pricing kind of came in as we expected, kind of in this 2% range. And so we’re very pleased with the execution, actually had a very strong finish to the year in our global pricing program. And then we continue to benefit from some of the other things we’re working on, whether it’s like programs within the SternDrive umbrella, about productivity and cost reduction in certain categories.

And then we were able to still invest in the business like in our service organization. So really great finish to the quarter on a full year basis. It drove also very good results on a full year basis. And if we kind of then skip to more of your question with the first quarter, the first quarter is — we’re expecting pricing to kind of start out at 2%. We’re expecting that also for — on a full year basis as well too. Hey, I acknowledge there could be some upside to that number depending on how the tariff situation evolves. We’ll see how that goes and we’ll update accordingly next quarter as we kind of learn more about how the tariffs unfold. But right now, we’re assuming 2%. And then I think it will be a similar thing. I think in the first half of the year we’ll have less volume than the second half of the year.

If we kind of like look at the actual quarters themselves, you’d see that the first quarter would be, from an operating margin perspective, would be down by about 220 bps. And I think in the prepared remarks, I said, excluding the shipping delay, it was up by 30, but it’s probably more like up like 40. And then on a full year basis, our operating margin would be flattish, maybe up slightly. But the shipping delay had an impact of about 60 bps on an operating margin. And then if we kind of jump up to the gross margin, on a reported basis, our gross margin would be down probably in the 40 bps kind of a range because of the shipping delay volume topic. But on a reported basis, and that’s kind of like apples to — comparing apples-to-apples. But then on a reported basis, it would be up by about 20 bps.

So the shipping delay had the effect of reducing our gross margin by about 60 basis points. And then for the full year, it would be flattish, maybe up slightly, on a reported basis. But again, if you exclude the shipping delay from last year and do apples-to-apples, it would be up probably about 20 bps.

Patrick Donnelly: That’s really helpful — helpful details. Thanks, Shawn. And then Patrick, maybe one for you. I think on one of the earlier questions on the exit rates, you kind of said you wouldn’t be surprised if end markets started a little more cautious this year. Just listening to the call, I mean it sounds like product inspection momentum is picking up, pharma seems better. Just curious if that was more conservatism or something you’re seeing to start the year in specific markets. I mean it sounds like most of these markets are picking up, but I just wanted to clean that up, if you could. Thank you so much.

Patrick Kaltenbach: Yeah, sure. I mean, let me — when you look at product inspection, for example, of course there’s also, of course, a project business with longer cycle times. And when we look at the sales projection for Q1, these have also — unlike a lot of our other portfolio where we have very fast turnaround times in terms of inventory, here we have longer cycles and then also have a longer view in terms of the sales volume on the incoming orders. But yeah, pharma/biopharma is having good momentum at the moment. The food industry, as we said, specifically [indiscernible] in the product inspection area, we see that our product portfolio resonates extremely well, that we’re getting into new market segments that we didn’t serve before in the mid-market.

It opens a lot of new doors, a lot of new deals we have are actually with new customers that we didn’t serve before. But we remain — we have a little bit of cautious stand here on the outlook because we also want to see how these uncertainties around tariffs, et cetera, in the different markets really play out. I mean it’s still pretty volatile there. For us, it’s really important that we follow the leads very quickly, we have a strong lead generation engine, that we turn them around into orders. We have been — we have demonstrated in the past that we can be very — that we are very effective on this, and I’m counting on the team on the continued execution excellence to drive every potential order home also in Q1. But there is some uncertainty out there, and we cannot neglect that, still on China, also in some of the mature markets with, again, with these potential tariffs, we need to see how that plays out.

So I think it’s — we are well-advised to take a bit of a conservative stand at the moment.

Patrick Donnelly: Yeah. Makes a lot of sense. Thank you.

Operator: Your next question comes from the line of Catherine Schulte of Baird. Your line is open.

Catherine Schulte: Hey, guys. Thanks for the question. Maybe first on your services business. I think this was the second consecutive quarter of high single-digit growth there. And I believe your guide assumes mid to high single-digits for ’25. Do the results this quarter make you confident in hitting the high end of that range?

Patrick Kaltenbach: Yes. Actually, it does. And we had in service, we had a very strong 2024 overall with 7% growth. The first half was, I think, about 6%. Q3 was 9%. Q4 was 8%. And we’re really looking forward to continued growth in service. We have launched a growth acceleration program also last year for services where we invest more into service capacity. We’ve also developed a broader set in our service portfolio and making sure that we address a bigger part of the installed base that we had. I found that it currently is not on the service with Mettler-Toledo. So I think we have a good opportunity to reach that growth rate that we projected for service.

Catherine Schulte: Great. And maybe just on the new administration. I know you don’t have much NIH exposure. But are there any other policies more broadly that you think could either disrupt or benefit you other than the tariff piece that you’ve already talked about?

Patrick Kaltenbach: I don’t think so. I mean I think that’s the biggest impact probably on the business, there could be tariffs. Again, it creates uncertainty in the market. But in these, I would say, rather turbulent times, we also have demonstrated in the past that Mettler-Toledo is really a company that is very agile and captures opportunity. Of course, uncertainty is never good for the market, but it’s also, for companies like Mettler, we have a global footprint who can react quickly in terms of how we can serve our customers. And we have demonstrated also during COVID, it’s an opportunity to gain market share. So, I look at it also as an opportunity. It’s also the story I tell to my team here, we have to see this as an opportunity to continue to serve our customers in the best possible way. We have tremendous customer trust as a supplier and that should benefit us as well.

Catherine Schulte: Thank you.

Operator: Your next question comes from the line of Tycho Peterson of Jefferies. Your line is open.

Tycho Peterson: Hey, thanks. You guys noted accelerating growth in India. I mean, it feels like it’s been a while since you’ve called that out. Just curious what secular trends you’re seeing there that warrant increased investments?

Patrick Kaltenbach: I think we have not really, I think, spoken in detail about accelerated growth in India. We said we have growth acceleration plans in countries also outside of China, and one of the areas — one of the countries was Japan, the other one was India that we highlighted. But we have also other regions that we — where we have developed over the last, let’s say, two years, dedicated growth acceleration plans. India actually was going well for us throughout 2024. Shawn, do you have the final number?

Shawn Vadala: Yeah, I do. I mean, we did have actually a very strong quarter. Now, I don’t know how much of it — the shipping delay topic would have played into it, but it was a very, very strong double-digit number. And for the full year, we were up high single-digits there. So we did well in India. And we see it as a market that should outgrow other markets going forward.

Tycho Peterson: Okay. And then two quick follow-ups. Shawn, I appreciate your commentary on pricing, 2% for the quarter and first quarter and for the year. How high could you take that if you needed to an inflationary environment? Is there kind of a natural ceiling on where you think you could take it? And then maybe totally separately, you talked about process analytics strength. Is that more greenfield? Or are you taking kind of share there in bioproduction? Thanks.

Shawn Vadala: Yeah. Hey. So in terms of pricing, Tycho, it all depends really on the environment, like we kind of saw that when inflation really increased a few years ago, I think we were able to do more — like that ceiling was higher because inflation was higher, right? And I think that the environment of tariffs could lead to a higher inflationary environment or it could lead to an environment where our market is just going to raise prices higher, but it will very much be dependent on what the tariffs are, what countries are hit or not hit, how broad it is or not. So we’ll play it out. I mean, I think for us, we — I think we are well positioned because we feel like we have invested a lot in our value proposition. We feel like that very much resonates with our customers.

I think our sales organization around the world does a really great job of articulating that. And fortunately, because we sell most of the time directly and we’re often selling at to the direct end-user, they also appreciate that value proposition. And then as you know, our average price of our products is less than $10,000. So when we start talking about a percent dollar-wise, it’s not like a significant dollar increase. So I wouldn’t want to put a ceiling on it, but we do feel like we’re pretty well positioned going into it. In terms of process analytics, Patrick, did you want to comment on that?

Patrick Kaltenbach: Sure, I can. So I think we are well positioned with our portfolio as we also have, there, have launched a lot of new products over the last two years. And that’s resonating well with customers both in pharma/biopharma, but also, for example, in the semiconductor industry for ultra-pure water applications where we have a strong portfolio. So we see also in that portfolio, good growth. Do we — I mean it’s always hard to be taking market share. I’m proud of our portfolio. I’m proud of our team of how they execute and on the go-to-market strategy. So yeah, I would say, potentially, yes. But they don’t have any absolute numbers. Again, the portfolio is strong. The customers love our portfolio, love our service. And that’s where we need to be to also continue that growth.

Tycho Peterson: Okay. Thank you.

Operator: Our last question comes from the line of Michael Ryskin of Bank of America. Your line is open.

Michael Ryskin: Great. Thanks for squeezing me in guys. I’m sort of scratching the bottom of the barrel for questions, almost everything has been asked by a lot of the other analysts. But maybe just a couple of miscellaneous cleanups. You alluded to this earlier, Shawn, on the EPS bridge for ’25, the $0.50 increase. You talked about [Technical Difficulty] and FX in terms of the Swiss franc have an impact. Any chance you could just give us the numbers. I’m sure we could do the math, but in terms of being more precise in terms of how much each contributed?

Shawn Vadala: Yeah. Hey, Mike, I mean, I think the math is probably pretty clear. I mean, I think you can see the beat, and then we updated the interest in the other numbers. And then the FX and the other probably squeezes out together in the high 50s or something.

Michael Ryskin: Okay. All right. Fair enough. And then just on the margins, to an earlier question, you talked through the margin — gross margin versus op margins for the year. But in my notes, I had you guys having gross margin up a little bit previously. I think you said you expect gross margins up 30 to 40 bps. Now it seems like it’s a little bit less than that. Is that FX having an issue? Or is there anything else in terms of moving pieces there?

Shawn Vadala: Yeah. No, I think — I mean, I think we ended a little bit — I think the absolute number that we ended this year is going to be — like I think the number that we have for next year is the same. It’s just that we’ve landed a lot higher than what we expected this year. So yeah. So I think it’s up slightly on a reported basis. And then if you exclude the shipping delay topic, it’s probably up, probably, what did I say, 30 basis points?

Michael Ryskin: Got it. Okay. That works. All right, thanks so much.

Shawn Vadala: Yeah, thanks.

Patrick Kaltenbach: Thank you.

Operator: That concludes our Q&A session. I will now turn the conference back over to Adam for closing remarks.

Adam Uhlman: Okay. Great. Hey, thanks, everybody, for joining us on the call this morning. If you have any follow-up questions, please feel free to reach out to me. I hope you all have a great weekend, and we’ll talk to you soon.

Operator: This concludes today’s conference call. You may now disconnect.