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Text: I'm Mary Finnegan, I'm responsible for investor relations at Mettler-Toledo and happy that you're joining us.
I'm joined here today with Olivier Filliol, our CEO; and Shawn Vadala, our chief financial officer.
I want to cover just a couple of administrative matters.
Securities Act of 1933 and the U.S. Securities Exchange Act of 1934.
For a discussion of these risks uncertainties, please see our Form 10-K.
I will start with a summary of the quarter, and then Shawn will provide details on our financial results and updated guidance for 2020.
I will then have some additional comments, and we will open the lines for Q&A.
Sales growth in the quarter came in better than expected and was quite good given the excellent 8% growth in the prior-year quarter.
Total local currency sales growth in the quarter was 4%.
Growth in the Americas and China was strong.
We again faced meaningful headwinds in the quarter due to adverse currency and impact of tariffs.
With the benefit of our productivity and margin initiatives we were able to overcome these challenges and delivered strong growth in operating margins and earnings per share growth.
For the full-year 2019, we exceeded $3 billion in sales and achieved 5% growth in local currency.
Food Retail was down significantly in 2019.
Excluding this business, we have 6% growth in local currency sales.
We achieved a strong improvement in operating margins and a 12% increase in adjusted earnings per share.
Given the material headwinds we faced in 2019, we are quite pleased with this performance.
One final comment on full-year 2019, we generated more than $530 million in free cash flow.
A very strong level.
Let me make some comments upfront on the coronavirus that is impacting China.
To date, we have had no health impact to our employees in China, for which we are grateful.
We are working with the team of contingency and backup plans due to travel and back to work restrictions that the government has imposed.
Even before these actions were undertaken, we had taken steps, such as eliminating our annual sales force meeting and noncritical travel to reduce the risk to our employees.
We expect the coronavirus to significantly impact sales in China in the first quarter due to the loss of selling days.
At this time, we would expect to recover the sales later in 2020, and therefore, have made no adjustments for full-year sales growth for the coronavirus.
I wanted to mention this upfront so that you can put it into perspective as you evaluate our results and updated guidance for 2020.
In terms of the full year, our view on 2020 has not changed significantly since we last spoke.
We continue to remain confident in our growth, margin and productivity initiatives.
We believe we can continue to gain market share and drive earnings growth.
Excluding Food Retail and the near-term impact of the coronavirus, demand in our markets remained solid, although we are cautious on the macroeconomic environment, as uncertainty does exist, and there are pockets of weakness in certain end markets.
We will continue to invest for growth, but remain agile if market conditions change.
Based on market conditions today, we believe we are well-positioned to generate solid sales growth and strong earnings growth for 2020.
Let me now turn it to Shawn to cover the financials and guidance.
Sales were $844 million in the quarter, an increase of 4% in local currency.
On a U.S. dollar basis, total sales increased 3% as currencies reduced sales growth by approximately 1% in the quarter.
4, we show sales growth by region.
Local currency sales grew 6% in the Americas, 1% in Europe, and 5% in Asia/Rest of World.
China had growth of 8%, a little bit better than what we expected the last time we spoke.
The next slide shows year-to-date results.
Local currency sales for the year grew 5%.
And as Olivier mentioned, excluding Food Retail, local currency sales growth was 6% in 2019.
By region for the year, sales increased 6% in the Americas, 3% in Europe and 6% in Asia/Rest of World.
6, we outline local currency sales growth by product area.
For the fourth quarter, Laboratory sales grew 6%, Industrial increased 2%, with core industrial up 4%, while product inspection was flat.
Food Retail declined 2% in the quarter.
The next slide shows full-year sales growth by product.
In 2019, Laboratory sales grew 7% in local currency, Industrial grew 4%, with core industrial up 6% and product inspection up 2%.
Food Retailing declined 8% in 2019.
Overall, total sales in 2019 were up 5% in local currency and 6% if we exclude Food Retailing.
Let me now move to the rest of the P&L for the quarter, which is summarized on Slide No.
Gross margin in the quarter was 59%, a 60-basis-point increase over the prior-year level of 58.4%.
Stern Drive initiatives on material costs and productivity in pricing were strong contributors to margin growth.
Partly offsetting these positives were tariffs from the U.S.-China trade dispute.
R&D amounted to $35.3 million, which represents a 2% decline in local currency.
This decline was impacted by timing of activity and the 15% local currency growth in R&D in the prior year.
SG&A amounted to $206.7 million, a 3% increase in local currency over the prior year.
The increase was driven by investments in our field force and growth initiatives and higher variable compensation, offset in part by cost savings initiatives.
Adjusted operating profit amounted to $256.3 million in the quarter, which represents a 7% increase over the prior-year amount of $239.7 million.
We estimate currency reduced operating income by approximately $3.5 million.
We also estimate tariffs were a gross headwind to operating income by approximately $2.5 million.
Absent adverse currency and the gross impact of tariffs, operating income would have increased 9% in the quarter.
Operating margins reached 30.4% in the quarter, the first time we crossed 30% and represented a 110-basis-point increase from the prior year.
We are quite pleased with this increase in the quarter.
A couple of final items on the P&L.
Amortization amounted to $12.8 million in the quarter.
Interest expense was $9.6 million in the quarter.
Other income amounted to $1.9 million.
Our effective tax rate in the quarter was 20% before discrete tax items and adjust for the timing of stock option exercises.
Moving to fully diluted shares, which amounted to $24.6 million in the quarter and is a 3.5% decline from the prior year, reflecting the impact of our share repurchase program.
Adjusted earnings per share for the quarter was $7.78, a 14% increase over the prior-year amount of $6.85.
Absent currency and the gross impact of tariffs, our adjusted earnings per share growth would have been 16% in the quarter, a level we are very pleased at.
On a reported basis in the quarter, earnings per share was $7.84, as compared to $7.11 in the prior year.
Reported earnings per share in 2019 includes $0.11 of purchased intangible amortization, $0.15 of restructuring, and a $0.32 difference between our quarterly and annual tax rate due to the timing of stock option exercises.
In the quarter, we also incurred a one-time noncash deferred tax gain of $0.64 related to changes in Swiss tax law.
We expect our effective tax rate to remain at 20%.
One final point on reported earnings per share in Q4 of last year, 2018, we recorded a one-time noncash acquisition gain of $0.75.
The next slide shows our full-year P&L.
We are very pleased with our 2019 results.
We achieved 5% growth in local currency sales, 100-basis-points improvement in operating margin, and 12% growth in adjusted earnings per share.
We're particularly pleased we're able to overcome, to a degree, the headwinds from adverse currency and tariff costs.
That is it for the P&L and we'll now cover cash flow.
In the quarter, adjusted free cash flow amounted to $186.2 million, a 23% increase over the prior year on a per share basis.
Our working capital statistics remained solid, with DSO at 40 days and ITO at 4.5 times.
For the year, adjusted free cash flow amounted to $531.3 million, as compared with $455.9 million in the prior year.
This represents a 20% increase on a per share basis and represents a net income conversion of approximately 95%.
We are very pleased with this level and believe we can continue to further improve net income conversion in the future.
Now let me turn to guidance.
As you heard from Olivier, we're not making any changes to our full-year outlook for 2020.
We continue to feel confident about our ability to execute on our growth and productivity initiatives.
We believe we are well-positioned to continue to gain share regardless of the macro environment.
We also believe we can continue to expand operating margins through our ongoing productivity and pricing programs.
We remain cautious on the macroeconomic environment as certain indicators are weak.
While we believe our business is less susceptible to an economic downturn than in the past, we don't believe we're immune to economic cycles.
We will remain in the investment mode, but keep agile to adapt if market conditions necessitate.
Now let me cover the specifics.
We continue to expect local currency sales growth in 2020 will be approximately 4%.
While the total sales growth is the same, we now expect Food Retail to be modestly down for the year and a double-digit decline in the first quarter.
The last time we spoke, we had expected Food Retail to be up low single digits for the year and to be down in the first quarter, but not in the double-digit range.
Our sales guidance for 2020 remains unchanged and we are also maintaining our full-year adjusted earnings per share guidance in the range of $24.85 to $25.10, which reflects a growth rate of 9% to 10%.
While we have incorporated our Q4 beat, currencies have deteriorated since the last time.
In total, for 2020, we expect currency and the gross impact of tariffs to reduce our earnings per share growth by 2%.
Absent currency and tariffs, our earnings per share growth of 11% to 12% is the same as what we provided in November.
Some further comments on 2020 guidance.
We expect interest expense to be approximately $42 million in 2020 and amortization to be $53 million.
Other income in 2020 will be approximately $7 million.
You'll note this is higher than the last guidance, and it is related to pension accounting that is offset, to a degree, by higher pension costs that are above the line and included in operating profit.
Now let me make some comments on Q1.
Based on market conditions today, we expect local currency sales growth to be approximately 0% to 1%.
We recognize this is not a level you were expecting, so let me walk you through a few factors that are impacting our Q1 sales growth.
First, Q1 will be our toughest sales growth comparison for the year as we had 7% growth in the first quarter of last year; second, we expect food retail to be down double digits in the quarter, which impacts sales growth by approximately 1%; and third, as Olivier mentioned earlier, we expect the coronavirus to have an impact on our sales in the quarter, but not for the full year.
In Q1, we would expect sales in China to be down mid- to high single digits which impacts our sales growth in the quarter by approximately 2%.
The impact from the coronavirus is, of course, difficult to estimate and reflects our current view of the situation, which is based on the assumption that people return to work on February 10.
For the full year, we continue to believe that China will have sales growth in the mid-single-digit range, the same level that we communicated last quarter.
Let me summarize what this means to Q1 sales growth.
Excluding the impact of the retail decline and adjusting our guidance for the estimated coronavirus impact, we would have expected sales growth in Q1 to be in the range of 3% to 4%.
On a two-year stack basis, this would have been growth in the 10% to 11% range, which we're pleased with.
I realize we are providing you a lot of numbers, but thought it would be helpful to put the Q1 sales guidance into perspective.
We would expect that adjusted earnings per share in the first quarter to be in the range of $4.20 to $4.30, a growth rate of 2% to 5%.
Absent currency and tariffs, adjusted earnings per share growth in the first quarter would be 7% to 10%.
In terms of free cash flow, we expect approximately $560 million, which is a 10% increase on a per share basis.
We plan to repurchase shares of approximately $800 million in 2020, which includes an incremental amount as we target a net debt-to-EBITDA leverage ratio of 1.5 times.
As in the past, we will buy shares evenly throughout the year.
With respect to the impact of currency on sales growth, we expect currency to reduce sales by approximately 100 basis points.
In the first quarter, we would expect currency to reduce sales by 160 basis points.
Let me start by providing some additional comments on our operating results.
Our Lab business continues to perform very well with 6% local currency sales growth in the quarter.
Most product lines did well, particularly if you look at it on a two-year basis.
Sales growth in Americas and China was particularly strong.
Our Laboratory business is well-positioned to continue to gain share, and we are very pleased with our robust product portfolio.
We expect market demand to remain favorable, especially in pharma life sciences.
We also sell our lab instruments into other end markets and see some pockets of weakness in certain end markets.
Overall, we expect good growth in our Laboratory business in 2020, although we faced more challenging comparisons after several years of very strong growth.
In terms of our Industrial business, product inspection was flat in the quarter, in line with our expectations.
We continue to believe this business will grow low to mid-single digits in 2020.
As we've discussed last quarter, we have not yet seen the large food manufacturers return to full investment mode, particularly with respect to global rollout.
We believe this is a matter of timing and are well-positioned to capture growth once these food companies return to investment mode.
Core industrial did great in the fourth quarter, increasing 4% against 13% growth in the prior year.
This was better than we had expected, and we are very pleased with the performance.
We're executing well in core industrial as this business continues to gain traction with Spinnaker sales and marketing initiatives.
Core industrial is also benefiting from innovation.
Underlying market demand is good enough, and we can capture growth given the diversity of our products, customers, end markets and geographies.
Finally, Food Retail was down 2% in the quarter, pretty much on target with what we had expected.
However, our outlook for this business has deteriorated since the last time we spoke.
We expect it to be down double digits in the first quarter and be down for the year.
Underlying market demand is weak.
And although we have easy comparisons we don't expect meaningful improvement in the later part of the year.
We had assumed last time we spoke that given the lower level of product activity in 2019, we would have some recovery in 2020.
Based on our outlook for Q1, we don't see this happening until later in the year.
As a reminder, we are managing this business for profitability, which also makes forecasting sales a bit challenging.
We have an active cost reduction actions over the last year in light of the challenging conditions.
Now let me make some additional comments by geography.
I will start with Europe, which was up low single digits.
Lab had growth while core industrial and product inspection were down against very strong growth in the prior-year period.
We continue to think this business will be up low single digits for the year.
We would expect a modest decline in the first quarter, principally due to a significant decline in Food Retail, as well as the 9% growth in Q1 2019.
Americas continues to do very well with 6% growth in the quarter.
Lab and core industrial had strong growth.
We expect market conditions to remain favorable and expect solid growth in 2020, but this region will be impacted by prior-year comparisons.
Finally, Asia/Rest of World had solid growth with most business lines doing well, except for Food Retail.
China had strong growth in the quarter with double-digit Lab growth and high single-digit Industrial goal.
Excluding the temporary impact of the coronavirus, our outlook for this region remains favorable, but they will continue to face strong multiyear comparisons.
I want to point out that in Q1 last year, China grew 13%, the strongest quarter of the year.
Due to these tough comparisons and the impact of the virus we discussed earlier, we now expect Q1 sales in China to be down mid- to high single digits.
Our full-year sales growth in China remained unchanged from our previous level of growth in the mid-single-digit range for the full year, principally due to strong multi-year comparisons and a slightly more challenging industrial environment.
One final comment on the business.
Service and consumables together represent about one-third of our sales growth, and both grew 7% in 2019.
Very happy with this strong accomplishment.
That concludes my comments on the different pieces of the business.
We often speak to you about how we view our Spinnaker sales and marketing programs as key differentiators in the market.
Another important differentiator is the strength and breadth of our product offering.
Let me give you some additional insights, starting with our Laboratory offering.
We can provide more than 40% of the instruments that the scientists or chemists uses daily in a typical analytical lab.
These instruments range from balances and pipettes to analytical instruments such as pH meters, titrators and UV/VIS, and finally, to our automated chemistry solutions, which can help in drug process development.
We compete against different players across these product categories.
No one has the breadth and leadership of the bench of instruments that we do.
Our LabX software can link these instruments and provide connectivity to a LIMS, or Laboratory Information System.
This is a very powerful competitive advantage as none of our direct competitors has anything close to this capability.
More important than the number of instruments we can provide is the value these instruments provide to our customers.
Across the portfolio of instruments, we focus on three important value dimensions: first is automation, our instruments provide greater efficiency, higher sample throughput and less errors in daily laboratory tasks and analysis; second is information, our instruments can perform complex analytics, often with one click of a button and also can ensure the integrity and traceability of the data, this is especially critical in regulated environments; the final dimension is measurement quality.
We provide services such as calibration and good measurement practices to support the quality of our customer processes.
We refer to the value outlined in these dimensions as the power of the bench.
Our focus is to leverage and respond to global trends that our customers face, such as demand for greater productivity and digitalization and data management needs.
Our Lab solutions ensure compliance, data integrity, and provide real advantages in terms of automation and productivity.
We have additional product launches and R&D developments in 2020 that will continue to reinforce the strength of these value dimensions.
Likewise, on the industrial side, our product offering is very strong, and we continue to distance ourselves from competition with the breadth of the offering.
Our industrial customers are constantly striving to improve the productivity and streamline data management.
We are launching several highly innovative products and applications that help with these challenges.
For example, InVision is our breakthrough innovation for manual workplaces, where weighing, counting and packaging tasks have high error potential.
InVision uses machine learning and combines WAN technology and camera recognition for fail-safe parts identification in milliseconds.
Guided working steps, automatic data capture and process verification significantly increases production, quality and worker efficiency.
The instrument directly connects to the customers' production and ERP systems, providing full data visibility and visual proof-of-order fulfillment.
We expect customers could achieve productivity improvements of up to 30% with this revolutionary product.
This is just one example of many new product developments under way where the combination of multiple sensor technologies and the use of machine learning and artificial intelligence enables us to develop breakthrough innovation with unique new value proposition.
Furthermore, by utilizing different R&D expertise throughout the world, we can develop these products in very short time periods.
These are just a few examples of the strength of our R&D innovation that continues to be an important component of our market share gains.
That concludes our prepared comments.
We are very pleased with our results in the fourth-quarter and full-year 2019.
While uncertainty exists in the global economy, we believe we are well-positioned to gain share and deliver good earnings growth and solid cash flow generation in 2020.

user
q4 earnings per share $7.84.
q4 adjusted non-gaap earnings per share $7.78.
qtrly reported sales increased 3% compared with prior year.
will face tough comparisons in q1 2020 due to strong sales in prior-year quarter.
will face strong headwinds to adjusted earnings per share due to adverse currency and impact of tariff costs in q1.
expects a significant impact on its china sales in q1 due to wuhan coronavirus.
anticipates that local currency sales growth in q1 2020 will be approximately 0% to 1%.
anticipates q1 adjusted earnings per share in range of $4.20 to $4.30.
uncertainty remains in macroeconomic environment.
qtrly net sales $844 million versus $817.9 million.

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