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Text: I am joined today with Patrick Kaltenbach, our CEO; and Shawn Vadala, our Chief Financial Officer.
Let me cover just some administrative matters.
For a discussion of these risks and uncertainties, please see the discussion in our recent Form 10-K and other reports filed with the SEC from time to time.
Just one other item.
More detailed information with respect to the use of and the differences between the non-GAAP financial measure and the most directly comparable GAAP measure is provided in our Form 8-K.
I'm happy to host the call tonight, which I'm doing from Switzerland, while Shawn and Mary are in Columbus, Ohio.
I knew many of the analysts on the call have covered us for quite some time and know us well.
We also have very long-standing shareholders who are also listening in.
I look forward to our future interactions and hope that they can take place in person in the not-so-distant future.
Let me make some brief comments on my impressions of the first several months at Mettler-Toledo.
It is clear that the company's strategies and initiatives are well developed and well ingrained throughout the organization.
A high level of accountability is evident throughout the company, which underpins the culture of strong execution.
I am impressed with the interactions I have had with colleagues around the world, and I share their passion for customers and innovation that is very apparent in how they approach their responsibilities.
It is exciting to join Mettler-Toledo at a time of such strong momentum, which I think is also a great reflection on Olivier's legacy as a CEO.
Under his leadership, the company developed a strong foundation for future growth.
I'm also grateful for the thorough onboarding process Olivier prepared for me.
I am committed to the organic growth strategy of Mettler-Toledo, and will work with the team to enhance our performance and continue the strong track record of top and bottom line growth that has been in place for many years.
Now let me turn to our financial results.
It was apparent with our Q1 guidance that we expected a very good quarter.
However, it came in even better than we expected.
Local currency growth was 18%, and we had strong broad-based growth in all regions.
China, in particular, had outstanding growth, and our growth in Americas and Europe was also better than we expected.
Since the onset of the pandemic, the organization has been focused on identifying areas of growth and ensuring that we are strongly positioned once demand recovered.
The team executed well to capitalize on recovering market demand and to meet customer needs.
With the excellent sales growth, combined with good cost control and benefit of our margin and productivity initiatives, we achieved a 64% growth in adjusted EPS.
Cash flow generation was also impressive as we achieved an almost 200% increase in our free cash flow generation.
We believe the positive momentum will continue into Q2 and expect another quarter of robust sales and earnings growth.
As we look to the full year 2021, we believe we can continue to gain market share and deliver very strong results.
Let me now turn it to Shawn to cover the financial and guidance details, and then I will come back with some additional commentary on the business and an overview of the PendoTECH acquisition that we completed in the quarter.
Sales were $804.4 million in the quarter, an increase of 18% in local currency.
On a U.S. dollar basis, sales increased 24% as currency benefited sales growth by 6% in the quarter.
On slide number four, we show sales growth by region.
Local currency sales increased 14% in both the Americas and Europe and increased 29% in Asia/Rest of the World.
Local currency sales increased 44% in China in the first quarter.
On slide number five, we outline local currency sales growth by product area.
In the quarter, Laboratory sales increased 20%, Industrial increased 17%, with Core Industrial up 26% and product inspection up 5%.
Food Retail increased 13% in the quarter.
We estimate that we benefited approximately 2% from COVID tailwinds in the quarter, mainly related to our pipette business for COVID testing.
Let me now move to the rest of the P&L, which is summarized on the next slide.
Gross margin in the quarter was 58.6%, a 90 basis point increase over the prior year level of 57.7%.
We benefited from pricing, volume and temporary cost savings initiatives.
These benefits were offset in part by higher transportation and material costs.
R&D amounted to $39.3 million, which represents a 7% increase in local currency.
SG&A amounted to $221.8 million, a 7% increase in local currency over the prior year.
Increased variable compensation was offset in part by our temporary cost savings and ongoing cost containment initiatives.
Adjusted operating profit amounted to $210.7 million in the quarter, a 49% increase over the prior year amount of $141.3 million.
Adjusted operating margins increased 440 basis points in the quarter to 26.2%.
We are extremely pleased with this margin growth, which reflects excellent sales growth combined with good margin and cost initiatives.
Currency benefited operating profit growth by approximately 6%, but had very little impact on operating margins.
A couple of final comments on the P&L.
Amortization amounted to $13.9 million in the quarter, interest expense was $9.5 million in the quarter.
Other income in the quarter amounted to $2.1 million, primarily reflecting nonservice-related pension income.
Offsetting this was $2.8 million in acquisition costs that is excluded from adjusted EPS.
Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19.5% as compared to 21.5% in the first quarter of last year.
Fully diluted shares amounted to $23.7 million in the quarter, which is a 3% decline from the prior year.
Adjusted earnings per share for the quarter was $6.56, a 64% increase over the prior year amount of $4.
Currency benefited adjusted earnings per share growth by approximately 7% in the quarter.
On a reported basis in the quarter, earnings per share was $6.32 as compared to $4.03 in the prior year.
Reported earnings per share in the quarter includes $0.12 of purchased intangible amortization, $0.10 of cost related to the PendoTECH acquisition, $0.04 of restructuring and a $0.02 benefit due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises.
That covers the P&L, and I'll now comment on the cash flow.
In the quarter, adjusted free cash flow amounted to $139 million, which is an increase of 196% on a per share basis as compared to the prior year.
We are very happy with our cash flow generation.
DSO declined by approximately 6.5 days to 40 days as compared to the prior year.
We continue to see good results from the new initiatives we put in place last year on the use of analytics and productivity improvements in accounts receivables collections in cash flow management.
ITO came in at 4.4 times, similar to last year.
Before I turn to guidance, let me provide some financial information on PendoTECH acquisition, which we completed late in Q1.
We paid $185 million upfront, and there is a $20 million potential earnout as well as some post-closing amounts.
We expect PendoTECH to contribute approximately 1% to sales growth beginning in Q2.
The transaction was financed through borrowings under our bank facility.
Patrick will have some additional comments on PendoTECH shortly.
Let me now turn to guidance.
Forecasting continues to be challenging.
Market conditions are dynamic and changes to the business environment can happen quickly.
Uncertainty also remains surrounding COVID-19 and the ultimate impact for the global economy.
In addition, further shutdowns, unexpected material shortages and unforeseen logistic challenges can also create potential volatility.
Our end markets have good momentum, and we are well positioned to capitalize on this growth potential by leveraging our Spinnaker sales and marketing initiatives, excellent product portfolio and service network.
The organization continues to execute very well and has demonstrated a high level of resilience and agility in adapting to rapidly changing market conditions.
We continue to feel positive in our ability to gain market share and generate margin improvement with our pricing and productivity initiatives.
We will also resume our field turbo program and expect to add sales resources in the second half of 2021.
Now let me cover the specifics.
For the full year 2021, primarily due to the benefit of our Q1 results and with a strong outlook for Q2, we now expect local currency sales growth for the full year will be in the range of 10% to 12%.
This compares to previous guidance range of 5% to 7%.
We expect full year adjusted earnings per share guidance to be in the range of $31.45 to $31.90, which is a growth rate of 22% to 24%.
This compares to our previous guidance of adjusted earnings per share in the range of $29.20 to $29.80.
With respect to the second quarter, we would expect local currency sales growth to be in the range of 19% to 21% and expect adjusted earnings per share to be in a range of $7.50 to $7.65, a growth rate of 42% to 45%.
Let me provide you with some additional details and guidance.
As mentioned, we expect PendoTECH to contribute 1% to sales growth for the remaining quarters of the year.
The impact to earnings per share from the acquisition is relatively neutral.
We would expect local currency sales growth for the second half of the year to be in the mid-single-digit range as we will face tougher comparisons.
The COVID-19 testing tailwind in our pipette business will turn into a headwind, and we won't see the same level of pent-up demand that we're currently seeing.
We expect reported amortization will amount to $62 million, which is higher than previously communicated due to the PendoTECH acquisition.
The purchased intangible adjustment for earnings per share will increase to $0.66 for 2021.
Other income, which is below operating profit, will approximately -- will approximate $2 million per quarter for the remainder of 2021.
We expect our effective tax rate in 2021 to remain at 19.5%.
In terms of free cash flow for the full year, we now expect it to be approximately $735 million.
We expect to repurchase 637 million shares in 2021 for the remaining three quarters of 2021.
We would expect to end 2021 in our targeted net debt-to-EBITDA range of approximately a 1.5 times leverage ratio.
Some final details on guidance.
With respect to the impact of currency on sales growth, we expect currency to increase sales growth by approximately 3.5% in 2021 and 6% in the second quarter.
In terms of adjusted EPS, currency will benefit growth by approximately 7.5% in the second quarter and 4% for the full year 2021.
Let me start with some comments on our operating results.
Our lab business had outstanding growth in the quarter.
Pipettes had excellent growth and continued to benefit from COVID-19 related testing demand.
All other product categories had also robust sales growth and growth in all regions was very strong.
Biopharma trends continue to be very favorable and we also experienced improved customer demand in other segments such as chemical.
We expect Lab to be very strong in the second quarter due to favorable biopharma trends, vaccine research and bioproduction scale-up and production.
We also expect to continue to benefit from pent-up demand in segments outside biopharma.
While Lab will face tougher comparisons in the second half of the year, we believe we are well positioned to continue to capture share given the strength of our product portfolio and continued strong execution of our Spinnaker sales and marketing initiatives.
In terms of our Industrial business, Core Industrial did very well in the quarter with a 26% increase in sales driven by China, which had growth in Core Industrial in excess of 60%.
Europe and Americas also had strong low to mid-teens growth in Core Industrial.
Improving market conditions combined with the strength and diversity of our product portfolio, and our focus on attractive market segments contributed to the strong results.
Our outlook for Core Industrial is very good for Q2, while they will face more difficult comparisons, particularly in China in the second half of the year.
Product inspection came in pretty much as we expected with a 5% local currency sales growth in the quarter.
Europe and Asia had growth, while Americas was flat with the prior year.
We would expect modestly better growth in Q2, but this business continues to be challenged as large packaged food companies continue to face operational challenges related to COVID-19 and are careful with installing new equipment or even bringing service people into their facilities.
We believe pent-up demand exists for our instruments, but ultimate timing is still hard to determine.
Food retailing came in better than expected with 13% growth because of better market demand in Europe and Asia and the rest of the world.
Now let me make some additional comments by geography.
Sales in Europe increased 14% in the quarter, with excellent growth in Lab, Core Industrial and Food Retail.
Americas also increased 14% in the quarter with excellent growth in Lab and Core Industrial, offset by flat results in Product Inspection and a decline in Food Retail.
Finally, Asia and the Rest of the World grew 29% in the quarter with very strong growth in most product lines.
As you heard from Shawn, China had outstanding growth of 44% in the quarter with excellent growth across most product lines.
We are benefiting from robust demand in many of the market segments we serve.
This includes very strong growth in Life Sciences, Food and Chemical.
From a product point of view, our industrial customers are seeking greater automation and digitalization, which bodes very well for our product offering.
We're also seeing benefits of government spending in key priority areas, such as new research labs, safety in food supply and packaged foods and investments in various strategic priorities.
Our achievement in China are a great example of how we positioned ourselves to capture growth as demand recovered.
Our Spinnaker sales and marketing techniques, including our go-to-market approach, which we adapted due to a new environment, have served us very well in terms of identifying and capturing these growth opportunities.
We have also worked over many years to ensure that our product portfolio in China is well suited for the local market, which gives us an advantage.
We expect good momentum to continue in China this quarter, And then you will see a more modest growth in the second half of the year due to very strong growth in the prior year.
One final comment on the business.
Service and Consumables performed well and were up 11% in the quarter.
That concludes my comments on the business.
Not only is our business off to a great start in 2021, we also made a strategic bolt-on acquisition to further expand one of our most attractive businesses, process analytics.
Let me provide some additional insights into the acquisition.
We are a global leader in real-time measurement of key process control parameters, which customers use to optimize their production processes.
About 50% of the Process Analytics business is to the pharma and biopharma market, with an emphasis on sensors to monitor PH, dissolved oxygen, carbon dioxide and other parameters.
Our solutions combine sensor technologies for specific measurements, transmitters and services.
The sensors must be calibrated, maintained and replaced on a timely basis, which creates an attractive consumable stream.
Process Analytics has achieved above-market growth for numerous years, benefiting from the strength in bioproduction and very successful Spinnaker sales and marketing strategies and techniques.
We also have a great track record of technology innovation.
We are a leader in the market with our innovative intelligent sensor management technology, which optimizes sensor replacement to avoid unexpected downtime.
Other examples of innovations include in-line measurement of carbon dioxide and high-performance optical sensors for dissolved oxygen.
The company we acquired, PendoTECH, is a manufacturer and distributor of single-use sensors, transmitters, control systems and software, serving the biopharmaceutical manufacturers and life science laboratories.
Their primary focus is pressure, which is a common control parameter used in bioprocess applications.
They are well recognized for the leading edge innovation in single-use sensors that are becoming increasingly important in bioproduction as it provides greater manufacturing flexibility.
They have extensive knowledge surrounding disposable flow cells and connector designs, and have strong bioprocess downstream application know-how.
This is an excellent strategic acquisition as it expands our presence in the very attractive high-growth bioprocess market.
We have a complementary offering in bioprocessing applications of our strength in upstream and PendoTECH in downstream.
With the combination, we will create one of the most competitive single-use sensor offerings in the market.
We see attractive cross-selling opportunities as we believe there is significant customer benefit from using the same vendor in upstream and downstream bioprocess applications.
Finally, we see good opportunity to expand PendoTECH's presence on a global basis, leveraging our global reach and large customer base.
We are excited about this transaction and believe it will further our already strong leadership position in Process Analytics.
Let me wrap up by commenting that we are off to a very good start to the year.
The team has shown a tremendous level of resilience and agility in adapting and reacting to market conditions that are changing rapidly.
We remain focused on meeting our customer needs and believe we can continue to gain market share and deliver strong results.

user
q1 adjusted non-gaap earnings per share $6.56.
q1 earnings per share $6.32.
management anticipates local currency sales growth in 2021 will be in range of 10% to 12%.
fy adjusted earnings per share is forecasted to be in range of $31.45 to $31.90.
for q2 of 2021, anticipates local currency sales growth will be in range of 19% to 21%.
q2 adjusted earnings per share is forecasted to be $7.50 to $7.65.

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