The operator introduces the Mettler-Toledo Third Quarter 2023 Earnings Conference Call and welcomes Adam Uhlman, Head of Investor Relations, to begin the call. Adam covers some administrative matters, including the availability of a webcast and a copy of the press release and presentation on their website. He also mentions the possibility of forward-looking statements and the use of non-GAAP financial measures. Patrick Kaltenbach, the Chief Executive Officer, then takes over and discusses the company's third quarter financial results, which were weaker than expected due to market conditions in China.

The company has responded quickly to market challenges and has performed well in terms of margins and cash flow. Market conditions are expected to remain weak, especially in China, but the company is confident in its ability to control costs and drive growth through its corporate programs and innovative portfolio. Sales in the quarter decreased by 5% in local currency, with significant declines in China, but overall sales have grown by 1% on a year-to-date basis.

In the third quarter, Laboratory sales decreased by 9% and Industrial sales decreased by 6%, with core industrial down by 9% and Product Inspection up by 1%. Food Retail saw a significant increase of 49% due to project activity. Service sales grew by 6% in the quarter. On a year-to-date basis, Laboratory sales decreased by 3%, Industrial sales increased by 2%, and Food Retail increased by 33%. Service sales grew by 11%. Gross margin increased by 10 basis points to 59.4%, while R&D expenses increased by 1% and SG&A expenses decreased by 9%. Adjusted operating profit decreased by 4%, with a 20 basis point increase in adjusted operating margin. Amortization, interest expense, and other income all had a significant impact on the P&L. The effective tax rate for the quarter was 19%, and fully diluted shares decreased by 3% compared to the prior year.

The company's adjusted EPS for the quarter decreased by 4% due to unfavorable foreign currency, but increased by 1% when excluding this factor. The reported EPS for the quarter was $9.21, including costs for purchased intangible amortization, restructuring, and differences in tax rates. Year-to-date results show a 1% growth in local currency sales, a 4% increase in adjusted operating income, and a 140 basis point expansion in operating margin. Adjusted free cash flow for the quarter was $251.7 million, aided by favorable working capital. Forecasting for the remainder of the year and next year is challenging due to economic conditions and uncertainty in core end markets. The company is actively responding to these challenges and remains committed to its culture of adaptability.

The team has successfully adjusted the company's cost structure and reallocated resources to support long-term growth. The company's guidance for 2023 includes a decline in local currency sales and an expected headwind to adjusted EPS growth. However, free cash flow is expected to be higher than previously forecasted due to favorable tax payments and working capital. Share repurchases will also increase in 2023. For the fourth quarter, the company expects a decline in local currency sales and adjusted EPS, with currency having a slight impact. The company has also provided initial guidance for 2024, with expectations of flat sales and moderate growth in adjusted EPS. The company's assumptions for 2024 include cautious customer spending and a decline in sales in China.

The company expects an improvement in local currency sales in the second half of the year, but margins may be affected due to lower sales volume and cost savings initiatives. The company also provided guidance for 2024, including expectations for amortization, interest expense, tax rate, free cash flow, and share repurchases. In terms of operating businesses, Lab has seen declines in demand due to budget constraints and cautious spending patterns, particularly in China and the Americas. There has also been lower-than-expected demand for automated chemistry and weak demand from bio-processing customers in analytical instruments and process analytics.

The market outlook for the company's Lab businesses is positive for 2024, with expectations of a normalization in activity and a strong long-term outlook due to innovation pipelines and trends in automation and digitalization. The Industrial business experienced a decline in sales due to weaker demand in China and the Americas, but there are opportunities for growth in automation, digitalization, and reshoring investments. The company is also upgrading its portfolio to address customer needs, such as providing explosion-proof devices for use in hazardous areas.

The company released a new model of its weighing terminal for hazardous areas, and expects limited growth in its Product Inspection business due to difficult operating conditions for food manufacturing customers. They are focusing on innovation, and have had success with their new X2 line of x-ray products. Food Retail had strong growth, but they anticipate modest revenue declines in 2024 due to challenging growth comparisons. In Europe, sales grew 4% across all product portfolios and major end markets.

The company is cautious about the outlook for Europe due to soft PMI readings and conflicts in Ukraine and the Middle East. In the Americas, there was strong growth in food retailing but declines in laboratory and industrial products. However, there is optimism for the future due to government stimulus programs and reshoring activities. Sales declined in Asia and the Rest of the World, particularly in China, due to weak demand in various end markets. The economy in China was expected to rebound but is facing challenges such as lack of stimulus and declines in foreign investments. Despite this, the long-term growth opportunity in China remains significant due to its commitment to R&D investment and development of advanced industries. The laboratory market in China is also shifting towards more advanced automated solutions.

The company expects solid growth in the long-term as the demand for industrial solutions in China increases. They are focused on executing their initiatives and expanding their technology leadership. They will also be enhancing their sales and marketing programs with digital tools and launching new programs to improve the customer and employee experience. The company is optimistic about the future and believes the best is yet to come. In terms of China, they are expecting a challenging market for the remainder of 2023 and 2024, but are anticipating growth in the second-half of 2024. They are unable to provide specific numbers, but believe the comps will be easier in the second-half and are factoring this into their projections.

Shawn Vadala, speaking at a recent conference, discussed the company's expectations for the next year. They anticipate a high-single digit decline in China, with a significant decline in the first half and fourth quarter. However, they are optimistic about growth in the second half of the year due to easier comparisons and the flushing out of inventory. In terms of operating margins, they have seen a 140 basis point increase year-to-date and expect a 100 basis point increase for the full year, but next year's margins will be more flat.

The speaker discusses various factors that will impact the company's performance in the upcoming year. These include expected changes in pricing, volume, and cost savings measures. They also mention the need to balance costs and investments to ensure the company emerges stronger from the current situation.

The speaker discusses the company's investments in innovation and service, as well as their balance and mix going into the next year. They also mention foreign currency being a 2% headwind to their EPS. Another speaker adds that the SternDrive phase three program will contribute to performance and drive savings next year. The next question asks about the assumptions behind the guidance, particularly the progression from Q4 to '24 and if there are any factors that suggest improvement in the markets.

Shawn Vadala and Patrick Kaltenbach discuss market demand in the fourth quarter and the potential impact on their business. They anticipate a decrease in market demand compared to previous years and expect to see a return to growth in the second half of the year. They also mention potential challenges in certain parts of their portfolio and the strength of their service business.

In the paragraph, the speaker discusses the growth of their services division and their efforts to meet customer demand. They have expanded their service offerings and have seen a 6% growth rate in Q3 and expect high-single to low-double digit growth for the full year. They are also focused on targeting their installed base and promoting the benefits of being on a service contract. They plan to continue expanding their service offerings and anticipate mid-single digit growth next year.

In this paragraph, Patrick discusses the reasons for the expected decline in Q4 guidance for Mettler. He mentions that the biggest factor is the decline in China, which was initially expected to be in the double digits but is now projected to be around 25-50%. He also mentions the lack of a budget flush, which is affecting the Lab business and is a common trend among customers this year. Patrick also notes that there have been no significant changes in other industries such as the US and Europe, except for a slowdown in the chemical market in the US.

The speaker expects the chemical market to maintain its momentum going into 2024 unless there is a major disruption. The company has a strong value proposition and is investing in innovation to maintain its leadership. They expect pricing to be normalized with a 2% increase next year and anticipate a slight increase in gross margin.

During an analyst day in November, Mettler-Toledo raised its long-term revenue growth guide to 6%. The company believes that China will eventually rebound and contribute to this growth, as well as its focus on faster-growing segments such as life science and industrial automation. The company also sees potential for strong demand due to factors like aging populations and digitalization.

The company has a unique positioning in the market for Product Inspection and software, which will help them capture market share and drive growth and profitability. They have been increasing investments to develop new solutions and are keeping an eye on global opportunities. The business is short-cycle, but they have visibility into the back-half ramp and expect the pharma and biopharma industries to return to normal replacement cycles.

Shawn Vadala and Patrick Kaltenbach discuss the confidence in the company's performance in the second half of next year. They mention that although there is limited backlog data, they expect easier comps in the back half of next year and more consistency compared to 2019. They also mention that there may be excess inventory in China due to COVID, and this year's fourth quarter may be unusual but they cannot predict next year's Q4. They also mention that there is still a lot of interest and activity from customers, but it depends on when they will have funds to reinvest. Finally, they mention that destocking has been seen in some areas, but they believe most of it is behind them.

The speaker discusses the performance of the company in Europe, noting that they have seen good results in the margin. They attribute this to their strong sales team and their ability to drive market share. However, they express caution for the future as PMIs in the region are pointing downwards and they expect more moderate growth in 2024.

The investment sentiment in Europe is overall healthy, with Southern Europe and France showing excitement and potential for growth. However, Germany has been slower than expected this year. For next year, the company is expecting moderate growth in Europe, with a focus on core technologies in industries such as pharma, biopharma, semiconductors, and energy. The company is more cautious about core industrial growth in Europe next year, but overall expects slight growth for the region. The company does not have specific assumptions for underlying demand growth in the second half of next year.

The speaker discusses the company's forecast for the next year, stating that it is still early to give specific numbers for each quarter. They share what they know at this time, but will refine their predictions as they learn more throughout the year. They then break down the forecast by segment and geography, expecting overall sales to be flat with slight increases in Lab and Product Inspection, and slight decreases in core industrial and Food Retail. They also predict a high-single digit decrease in China in the first half of the year, with growth in the second half, and slight increases in the Americas and Europe. On the earnings side, the speaker mentions that it is still early to give specific numbers.

The speaker is discussing the financial performance in the fourth quarter and the guidance for the following year. They caution against extrapolating from the lower fourth quarter numbers and explain that there are many moving parts and a focus on operational excellence. They believe they have struck a good balance for the medium and long term. The speaker responds to a question about the fourth quarter being lower than the following year's guidance, stating that there may be factors contributing to this and they feel confident about their guidance. Another person joins the call and asks a question, but the summary ends before their question is fully answered.

During a discussion about the impact of lab closures on demand, the company executives state that they have not seen any major effects on their business. They also mention that their food retail business has been performing well, with new accounts and product innovations contributing to its success. They acknowledge that this business can be cyclical, but they believe they have made positive strides in recent years.

The speaker does not want to make assumptions based on retail numbers because of the inconsistency in the industry. They expect a good year of project activity next year, but it may be slightly lower compared to this year. They have a long-term view of retail as a lower-single digit growth business and are pleased with its performance this year. The speaker then discusses exit rates and four-year CAGR, which they base on the third quarter and their guidance for the fourth quarter. They do not want to comment on individual months, but they are aware of the numbers while providing guidance.

The speaker provides guidance for the fourth quarter, stating that they expect Lab to be down 10%, core industrial to be down mid-single digit, and Product Inspection to be down high-single digit. They also mention that China will be down mid-20s, while the Americas will be down mid-single digits and Europe will be down low-single digit. The speaker then discusses the first-half, second-half dynamic, stating that they expect Lab to be slightly up for the full year and Industrial to be flattish, with China being a big factor in seasonality. They do not have specific details to share at this time.

The company is expecting to have more visibility and provide more details as they enter the new year. They mentioned that their manufacturing customers in the Americas remained cautious with spending on new equipment, but they expect growth in other regions. They also have new innovations in their product portfolio that they believe will contribute to growth in 2024.

The company has seen positive reception for their new metal detection products and is optimistic about their market position. They have also expanded their offerings with PendoTECH, although there has been a slowdown in demand due to the biopharma market. However, the company remains confident in the strength of PendoTECH's portfolio and is expanding into new applications.

The operator hands over the call to Adam Uhlman for closing remarks. Adam thanks everyone for joining and mentions that a replay of the call will be available on their website. He also invites any follow-up questions and looks forward to seeing everyone at future events and conferences. The operator thanks the speakers and ends the call.

This summary was generated with AI and may contain some inaccuracies.