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Text: I'm joined on the call today with Patrick Kaltenbach, our CEO; and Shawn Vadala, our Chief Financial Officer.
Let me cover just a couple of administrative matters.
For discussions 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.
I am pleased to host the call tonight, which we are doing from Switzerland as Shawn and Mary are here with me, too.
I'm excited to report another quarter of excellent results.
Several factors contributed to these results.
First, demand in our markets was very strong and broad-based.
Second, we were able to capture these growth opportunities as a key priority since the onset of the pandemic was to stay close -- in close contact with our customers and be strongly positioned once customer demand recovered.
And finally, the teams around the world have done an excellent job in execution and customer support.
Our supply chain team has had more than the share of challenges due to part availability and logistics complications while our market organizations have executed well to meet increasing customer demands.
Our teams have shown resiliency and agility in an environment where conditions change rapidly.
Now let me turn to our financial results.
Local currency sales growth was 27%, and we had very strong broad-based growth in all regions and most product lines.
With the exception with this exceptional sales growth and combined with focused execution of our margin initiatives, we achieved a 45% growth in adjusted operating income and 53% increase in adjusted EPS.
Cash flow generation was excellent in the quarter.
Demand in our end markets remains positive, although our growth for the remainder of the year will reflect more challenging comparisons than we had in the first half of the year.
We are making incremental investments, which will position us very well for future growth.
We remain confident that we can continue to gain market share and deliver strong results in 2021 and beyond.
Let me now turn it to Shawn to cover the financials and guidance details, and then I will come back with some additional commentary on the business.
Sales were $924.4 million in the quarter, an increase of 27% in local currency.
On a U.S. dollar basis, sales increased 34% as currency benefited sales growth by 7% in the quarter.
The PendoTECH acquisition contributed approximately 1% to sales growth in the quarter.
On Slide number four, we show sales growth by region.
Local currency sales increased 29% in the Americas, 23% in Europe, and 28% in Asia/Rest of World.
Local currency sales increased 35% in China in the quarter.
The next slide shows sales growth by region for the first half of the year.
Local currency sales grew 23% for the first six months with a 22% increase in the Americas, 18% in Europe, and 28% growth in Asia/Rest of World.
On Slide number six, we summarized local currency sales growth by product area.
For the second quarter, laboratory sales increased 35%, industrial increased 20%, with core industrial up 27% and product inspection up 9%.
Food retail increased 9% in the quarter.
The next slide shows local currency sales growth by product area for the first half.
Laboratory sales increased 27% and industrial increased 19% with core industrial up 27% and product inspection up 7%.
Food Retail increased 11% for the first six months.
Let me now move to the rest of the P&L, which is summarized on Slide number eight.
Gross margin in the quarter was 58.1%, a 50 basis point increase over the prior-year level of 57.6%.
We benefited from volume and pricing, which was offset in part by challenges in the global supply chain, namely higher transportation, logistics, and raw material costs.
These items are even more challenging than we had expected the last time we spoke.
One additional factor, as you compare to the prior year, we now have in our cost structure, the impact of the temporary cost actions we undertook in 2020.
R&D amounted to $42.6 million in the quarter, which is a 28% increase in local currency over the prior period.
The impact of the temporary cost reductions undertaken last year as well as the timing of project activity contributed to this increase.
SG&A amounted to $239 million, a 20% increase in local currency over the prior year.
The impact of the temporary cost savings that we undertook last year, higher variable compensation, and increased investments in sales and marketing were the principal factors driving the increase.
Adjusted operating profit amounted to $255.3 million in the quarter, a 45% increase over the prior-year amount of $176.6 million.
Adjusted operating margins increased 200 basis points in the quarter to 27.6%.
We are pleased with this margin growth, which reflects excellent sales growth, combined with focused execution on our margin initiatives.
Currency benefited operating profit growth by approximately 7% but had little impact on operating margins.
A couple of final comments on the P&L.
Operating -- I'm sorry, amortization amounted to $16.2 million in the quarter.
Interest expense was $10.4 million in the quarter and other income in the quarter amounted to $2.7 million primarily reflecting non-service-related pension income.
Our effective tax rate before discrete items and adjusted for the timing of stock option deductions was 19.5%.
Fully diluted shares amounted to $23.5 million in the quarter, which is a 3% decline from the prior year.
Adjusted earnings per share for the quarter was $8.10, a 53% increase over the prior-year amount of $5.29.
Currency benefited adjusted earnings per share growth by approximately 7% in the quarter.
On a reported basis in the quarter, earnings per share was $7.85 as compared to $5.22 in the prior year.
Reported earnings per share in the quarter includes $0.19 of purchased intangible amortization, $0.03 of restructuring, and $0.03 due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises.
The next slide shows our P&L for the first half.
Local currency sales grew 23% for the six months.
Adjusted operating income increased 47% with margins up 330 basis points.
Adjusted earnings per share grew 58% on a year-to-date basis.
That covers the P&L, and let me now comment on cash flow.
In the quarter, adjusted free cash flow amounted to $233.3 million, which is an increase of 41% on a per-share basis as compared to the prior year.
We are very happy with our cash flow generation.
DSO was 36 days, which is four days less than the prior year.
ITO came in at 4.6 times, which is slightly better than last year.
For the first half, adjusted free cash flow amounted to $372.2 million, an increase of 75% on a per-share basis as compared to the prior year.
Let me now turn to guidance.
Forecasting continues to be challenging.
Market conditions are very dynamic and changes to the business environment can happen quickly.
Uncertainty remains surrounding COVID-19, in particular, the impact of the latest variance, the worldwide pace of vaccinations, and related potential shutdowns and/or restrictions.
The ultimate impact on the global economy is also still uncertain.
In addition, we are monitoring our supply chain very closely and recognize we must remain very agile in order to adapt to unexpected material shortages, inflationary pressures, and unforeseen logistic challenges, which can create unexpected volatility.
As we enter the second half of the year, demand in our end markets is positive, although we face more challenging comparisons for the remainder of the year as compared to the first half of this year.
The organization continues to execute well and has demonstrated a high level of resilience and agility and adapting to rapidly changing market conditions.
We are making incremental investments for future growth and continue to feel confident in our ability to gain market share and drive earnings growth in 2021 and beyond.
Now let me cover the specifics.
For the full year 2021, with the benefit of our strong Q2 results and improved outlook for the remainder of the year, we now expect local currency sales growth for the full year to be approximately 15%.
This compares to our previous guidance range of 10% to 12%.
We expect full-year adjusted earnings per share to be in the range of $32.60 to $32.90, which is a growth rate of 27% to 28%.
This compares to previous guidance of adjusted earnings per share in the range of $31.45 to $31.90.
With respect to the third quarter, we would expect local currency sales growth to be in the range of 11% to 13% and expect adjusted earnings per share to be in a range of $8.12 to $8.27, a growth rate of 16% to 18%.
In terms of free cash flow for the year, we now expect it to be in the range of $770 million.
We expect to repurchase in total one billion in shares in 2021, which should put us in the range of a net debt-to-EBITDA leverage ratio of approximately 1.5 times at the end of the year.
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% in 2021 and 2% in the third quarter.
In terms of adjusted EPS, currency will benefit growth by approximately 3% in the quarter and approximately 3.5% for the full year 2021.
Let me make some comments on our operating businesses, starting with Lab, which had an outstanding growth of 35% in the quarter.
Pipettes had excellent growth.
all other major product categories also had robust sales growth and growth in all regions was very strong.
Biopharma continues to be very favorable and continuing the trend we saw in the first quarter, we see strong customer demand in other segments such as chemical.
We expect demand for our laboratory products to continue to be positive due to favorable biopharma trends, vaccine research, and bioproduction scale-up and production.
While we faced tougher comparisons in the second half of the year, we remain confident we can continue to capture share, given the strength of our product portfolio and continued execution of our Spinnaker sales and marketing initiatives.
In terms of our industrial business, core industrial did very well in the quarter with a 27% increase in sales.
All three regions of the world had robust core industrial growth.
Improving market conditions, including some benefit from pent-up demand, combined with the strength and diversity of our product portfolio and our focus on attractive market segments contributed to the strong results.
Similar to my comments on laboratory, we will face tougher comparisons for the second half of the year, but our outlook and our confidence in gaining market share remains positive for this business.
Product Inspection had increased momentum and solid sales growth of 9% in the quarter.
We saw good growth in all regions.
We expect good growth in product inspection for the remainder of the year as we are gaining better access to our customer facilities and believe we will benefit from some pent-up demand in the business.
Food retailing grew 9% in the quarter.
Let me make some additional comments by geography.
Sales in Europe increased 23% in the quarter with excellent growth in lab, core industrial, and food retail.
Americas increased 29% in the quarter with excellent growth in lab and core industrial.
Product Inspection did well in the Americas, while food retail declined.
Finally, Asia and the rest of the world grew 28% in the quarter with outstanding growth in Laboratory and Industrial.
As you hear from Shawn, China had another quarter of stellar growth.
We would expect another good quarter of growth in Q3 in China, although not at the same level of the first half as China faces more challenging comparisons.
We are strongly positioned in China, and the team is executing very well.
One final comment on the business.
Service and consumables performed very well and were up 23% in the quarter.
We are very happy with the growth in this important and profitable part of the business.
That concludes my comments on the business.
With our better-than-expected sales growth in the first half, we are making incremental investments for future growth.
These investments are centered on innovation and operational excellence.
In product development, in our manufacturing facilities, and in our corporate programs such as Spinnaker sales and marketing.
Let me give you some recent examples, starting with product development, where we have a proven track record of launching market-leading technologies.
It all stems from our deep knowledge of customer processes and what our solutions can do to enhance or improve these processes.
We think of innovation in product development as customer-centric rather than technology-centric.
We are focused on the specific value of our solutions can provide to customers, for example, in terms of productivity, compliance-related matters, safety, or data integrity.
On the website, we have recently launched our newest version of our LabX instrument control and data management software.
This latest vision fully supports the lab digitalization, and with the strong adoption of our customer base, we have doubled the number of instruments that can be networked.
LabX increases our customers' productivity by speeding up daily work through the management of data and development of workflows.
It enhances security and compliance, ensuring data quality and full data traceability.
Finally, LabX helps reduce complexity in asset managers data, assets and workflow centrally and seamlessly integrates into laboratory data management systems such as LIMS. Software is progressively becoming a deciding factor for customers in choosing a supplier for Benchtop lab solutions.
With the increasing importance of software, LabX is helping to position us as a trusted advisor for certain global pharma customers as we meet their demands for instruments, service, and software.
While lab receives the greater share of R&D investments, we also have some great examples of new products on the industrial side, including a best-in-class industrial terminal, which provides fully integrated weighing applications for -- with the industry's fastest processing speed.
Similarly, we launched new load cell technology in our product inspection business, which provides industry-leading check weighing throughputs with maximum precision.
Both of these products provide value by increasing customers' productivity.
New products highlight our deep and great knowledge of our customers' processes and pain points and allow us to lead the market with technology to provide specific value to customers.
We are also investing in our manufacturing facilities to boost productivity.
Last quarter, we rolled out significant automation in our pipette and tip harvesting process, resulting in a meaningful increase in yield per molding machine.
This quarter, we are unveiling a new expanded clean room for our pipette manufacturing as well as inaugurating a new facility for our secondary brand, Biotix, that will expand our pipette and tip manufacturing capacity and efficiency.
We are also launching a project for our Process Analytics business in the U.S. to optimize production and its warehouse layout, which will yield improvements in material flow, in productivity, and production capacity.
We also continue to invest in innovation in our corporate programs.
You have seen over many years for tremendous innovation in our Spinnaker sales and marketing programs.
A current priority area for us is maximizing our cross-selling capabilities.
Because we utilize a specialized sales force, cross-selling techniques are different than what you might hear from companies that have -- that use a more generalist sales force approach.
Our goal is to use data analytics to identify customer sites in which we have low cross-selling penetration.
We then use contacts and references to develop warm and hot leads to other product categories.
It involves data and qualification analytics, and these leads have proven to be very effective in converting to sales.
Another innovative techniques we are using to stay fully engaged with customer is greater use of webinars.
In the past, we would conduct a few hundred webinars annually.
While our goal this year is to launch 2,000 webinars in local languages, which helps to overcome the limitations we face with customer interactions due to the pandemic.
We have professionalized the delivery of the webinars and have expanded our topics to include items such as compliance, productivity, Industry 4.0, and data integrity.
From a customer's perspective, webinars are very cost and time-efficient while still allowing for interactions with experts from various businesses.
Our supply chain team and pricing team are also demonstrating a high level of innovation.
For our supply chain team, agility continues to be a necessity in overcoming the many challenges of the current environment.
At the same time, they also continue to make excellent progress on Stern Drive, our corporate initiative to continuously improve and drive world-class operations and supply chain.
Stern Drive comprises several hundred projects throughout manufacturing and back-office operations focused on material cost reductions, shop floor productivity, and back-office productivity.
Finally, the pricing team also shown great resilience and agility in reacting to inflationary pressures.
They moved quickly earlier this year to implement certain midyear price changes and at the same time, they continue to work strategically on some pricing initiatives to help improve the efficiency and effectiveness of life quotes to customers.
Incorporating data analytics into upfront processes will make quoting more effective and easier and more efficient for our salespeople.
These are just a few of many examples we have internally in which we continue to move our initiatives to another level.
We recently held a virtual leadership meeting with senior leaders from around the world with the theme of doubling down to drive growth.
What we emphasize to our senior leaders and to you today is we have a great strategy in place, and we'll execute on it in an even more determined way than before.
We will continue to invest in innovation to double down on enhancing our initiatives that are the foundation of our future growth.
We remain confident that our strategies are effective in capturing market share and driving sales and operating profit.

user
q2 adjusted non-gaap earnings per share $8.10.
q2 earnings per share $7.85.
anticipates local currency sales growth in 2021 will be approximately 15%.
sees 2021 adjusted earnings per share to be in range of $32.60 to $32.90.
for q3 company anticipates that local currency sales growth will be in range of 11% to 13%.
sees q3 adjusted earnings per share $8.12 to $8.27.
qtrly net sales $924.4 million versus $690.7 million.

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