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Text: I'm joined today by Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer.
Let me cover just a couple of administrative matters.
For a discussion of these risks and uncertainties, please see our recent Form 10-K and other reports filed with the SEC.
Just one other item.
More detailed information with respect to the use of and differences between non-GAAP financial measures and most directly comparable GAAP measures is provided in our Form 8-K.
I am pleased to report another quarter of very strong results.
Customer demand was robust and our growth initiatives continue to be very effective.
Our teams throughout the world are executing very well.
I want to give a special acknowledgment to our global supply chain team, which is navigating a myriad of challenges with respect to raw materials, components and transportation.
Our ability to continue to meet heightened customer demand while overcoming the dynamic challenges in the supply chain is proving to be a competitive advantage in this environment.
Now let me turn to our financial results.
Local currency sales was 16%, and we had broad-based growth in all regions.
Our Laboratory business had excellent growth and our industrial product lines also performed very well.
Food retail was a headwind, drove overall sales growth as we had significant decline in the quarter.
With our strong sales growth and good execution, we achieved a 19% growth in adjusted operating income and a 24% increase in adjusted EPS.
Cash flow generation was very strong in the quarter.
Our end markets remain favorable, and our strategic initiatives are very effective at capturing growth.
Our Spinnaker sales and marketing approach provides the framework to identify and pursue the most attractive market segments while also increasing our sales force exposure to the most strategic customers.
We also continue to invest in the strength and breadth of our product portfolio, further extending our technology lead and reinforcing customer trust through our global service offering, which supports customers' productivity.
We have several -- we have successfully navigated the challenges of the global supply chain to date, but are cautious as demand dynamics remain challenging and conditions can change rapidly.
Although pockets of uncertainty exists in the global economy, we believe we are ideally positioned to gain market share.
With proven strategies, good demand in our end markets and continued focused execution on our growth and margin initiatives, we believe we are in an excellent position to deliver strong results in 2021 and 2022.
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 our outlook for next year.
Sales were $952 million in the quarter, an increase of 16% in local currency.
On a U.S. dollar basis, sales increased 18% as currency benefited sales growth by 2% in the quarter.
The PendoTECH acquisition contributed approximately 1% to local currency sales growth in the quarter, while we estimate that COVID testing was a headwind of approximately 1% to sales growth.
Last year, the benefit in our pipette business from COVID testing labs was particularly strong.
On Slide four, we show sales growth by region.
Local currency sales increased 20% in the Americas, 10% in Europe and 16% in Asia/Rest of the World.
Local currency sales increased 19% in China in the quarter.
The next slide shows sales growth by region year-to-date.
Local currency sales grew 20% for the nine months with a 21% increase in the Americas, 15% in Europe, and 23% growth in Asia/Rest of World.
On Slide six, we summarize local currency sales growth by product area.
For the third quarter, Laboratory sales increased 23%, Industrial increased 12%, with core Industrial up 11% and product inspection up 13%.
Food Retail came in worse than we expected with a decline of 19% in the quarter.
The next slide shows local currency sales growth by product area year-to-date.
Laboratory sales increased 26%, Industrial increased 16%, with core Industrial up 21% and product inspection up 9%.
Food Retail declined 1% for the nine-month period.
Let me now move to the rest of the P and L, which is summarized on Slide eight.
Gross margin in the quarter was 58.4%, a 20 basis point increase over the prior year level of 58.2%.
We benefited from volume and pricing which was offset in part by the challenges in the global supply chain, namely higher transportation, logistics and material costs as well as the impact of temporary cost actions we undertook in 2020.
R and D amounted to $42.3 million in the quarter, which is a 19% increase in local currency over the prior period.
The impact of temporary cost savings undertaken last year and greater project activity contributed to this increase.
SG and A amounted to $240.7 million, a 16% 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 $272.8 million in the quarter, a 19% increase over the prior year amount of $230 million.
We are pleased with this increase, which reflects very strong sales growth combined with good execution.
Adjusted operating margins reached 28.7%, a 20 basis point increase over the prior year level of 28.5%.
On a teo-year combined basis, our margins were up 270 basis points as the prior year margin benefited from the cost actions we implemented due to the pandemic.
A couple of final comments on the P and L. Amortization amounted to $16 million in the quarter, interest expense was $11.8 million in the quarter, other income in the quarter amounted to $3.3 million primarily reflecting nonservice-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 $23.4 million in the quarter, which is a 3% decline from the prior year.
Adjusted earnings per share for the quarter was $8.72, a 24% increase over the prior year amount of $7.02.
On a reported basis in the quarter, earnings per share was $8.71 as compared to $6.68 in the prior year.
Reported earnings per share in the quarter includes $0.18 of purchased intangible amortization, $0.02 of restructuring offset by $0.19 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 and L year-to-date.
Local currency sales grew 20%, adjusted operating income increased 35%, with margins up 210 basis points.
Adjusted earnings per share grew 43% on a year-to-date basis.
That covers the P and L, and let me now comment on cash flow.
In the quarter, adjusted free cash flow amounted to $243.1 million, which is an increase of 19% and on a per share basis as compared to the prior year.
We are very happy with our cash flow generation.
DSO was 35 days, which is two days less than the prior year.
ITO came in at 4.5 times, which is slightly better than last year.
On a year-to-date basis, adjusted free cash flow amounted to $615.3 million, an increase of 48% on a per share basis as compared to the prior year.
Let me now turn to guidance.
While our end markets remain favorable, forecasting continues to be challenging.
There are pockets of uncertainty in the global economy, most notably in China.
Furthermore, the widespread challenges within the supply chain and in transportation and logistics and the corresponding inflationary impact also creates uncertainty.
Finally, we have seen over the last several months how COVID variance and lockdowns can occur quickly.
We recognize the importance of remaining agile and adapting to unexpected changes in the environment.
We are very pleased with our ability to navigate the unprecedented challenges of the last two years, which we believe reflects the strength of our organization.
While we remain cautious about factors outside of our control, we feel very good about our growth initiatives and our ability to continue to gain market share and drive margin improvement via our pricing and Stern Drive initiatives.
Now let me cover the specifics.
For the full year 2021, we now expect local currency sales growth in 2021 and to be approximately 17%.
This compares to previous guidance of 15%.
We expect full year adjusted earnings per share to be in the range of $33.35 to $33.40, which is a growth rate of 30%.
This compares to previous guidance of adjusted earnings per share in the range of $32.60 to $32.90.
With respect to the fourth quarter, we would expect local currency sales growth to be approximately 8% and expect adjusted earnings per share to be in the range of $10 to $10.05, a growth rate of 8% to 9%.
For the full year 2022, based on our assessment of market conditions today, we would expect local currency sales growth to be approximately 6% and adjusted earnings per share to be in the range of $37.25 to $37.65.
Using the midpoint of 2021 guidance, this reflects a growth rate of 12% to 13%.
Some further comments on 2022 guidance.
We expect a slight headwind to sales growth from the impact of COVID testing on our pipette business.
We expect interest expense to be approximately $50 million in 2022 in total amortization, including purchase intangible amortization to be $65 million.
Purchase intangible amortization is excluded from adjusted earnings per share and is estimated at $24 million on a pre-tax basis or $0.79 per share in 2022.
In 2022, other income, which is below operating profit, will amount to approximately $13.5 million.
This is higher than the $10.7 million expected in 2021 due to an expected increase in pension income.
Finally, we assume our effective tax rate before discrete items will be 19.5% in both 2021 and 2022.
In terms of free cash flow for 2021, we now estimate it will reach $810 million, which reflects a 29% growth on a per share basis.
For 2022, we would estimate free cash flow in the range of $845 million.
Cash flow in 2022 is impacted by higher variable compensation payments related to the very strong performance in 2021.
Once we get beyond 2022, we expect free cash flow per share will grow in line with earnings per share and net income conversion will be in the 100% range.
We expect to repurchase approximately $1 billion in shares in both 2021 and 2022, which should allow us to maintain a net debt-to-EBITDA ratio of approximately 1.5 times.
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 be relatively neutral to sales growth in Q4.
In 2022, we would expect currency to decrease sales growth by approximately 1%.
In terms of adjusted EPS, currency will benefit growth by approximately 4% in 2021 and be a slight headwind to adjusted earnings per share growth in 2022.
We do not expect currency to impact adjusted earnings per share in the fourth quarter.
Let me start with some comments on our operating results.
Our Lab business had outstanding growth in the third quarter despite having more challenging comparisons than it faced in the first half of the year.
Almost all product lines and regions had very strong growth.
We expect good growth in the fourth quarter, but it won't be the same level we have seen year-to-date.
As we look at 2022, we expect the strong biopharma trends to continue to be favorable and expect other end markets to do well, but we won't benefit from catch-up demand segments like chemical that we benefited from this year.
We also expect a bit of headwind in our pipette business from lower COVID testing activity.
Overall, we believe we are well positioned to continue to capture growth and gain market share in our Laboratory business.
An additional nice development within our Lab business is that we obtained a $36 million grant from the U.S. Department of Defense to expand our pipette tip production in California.
We estimate that by the end of 2023, we will expand our global tip production by approximately 15% and the grant will also allow us to enhance manufacturing, automation and warehouse and logistics surrounding tips.
We are happy with this grant, which allows us to cost effectively increase tip capacity while at the same time, improving productivity.
Turning to our Industrial business.
Core Industrial did well in the third quarter as we are benefiting from some catch-up in demand and have been well positioned to benefit from increasing trends in automation and digitalization.
Core Industrial should have a solid fourth quarter.
We will face tougher comparisons in core Industrial in 2022, but expect to continue to drive market share gains overall.
Product Inspection grew 13% in the quarter.
Growth was especially strong in the Americas.
We expect good growth in the fourth quarter and we are cautiously optimistic about solid growth in 2022 as we should benefit from some pent-up investments from large packaged food customers and our strong product portfolio.
Finally, Food Retail declined 19% with pronounced declines in Americas and Asia and Rest of the World.
Our production was impacted by shortages of electronic components as these products use more standardized components that are also used in consumer electronic products.
We were also impacted by the timing of project activity.
We would expect Food Retail to also decline in the fourth quarter.
We are not forecasting much growth in 2022 as we continue to manage this business for profitability.
Now let me make some additional comments by geography.
Sales in Europe increased 10% in the quarter with very strong growth in Lab.
We would expect solid growth in Europe in 2022 against very good growth in 2021.
Americas increased 20% in the quarter with excellent growth in Lab, core Industrial and Product Inspection.
As mentioned earlier, Food Retail was down significantly in the Americas.
While we will face challenging comparisons in the Americas in 2022, we expect overall good growth.
Finally, Asia and the Rest of the World grew 16% in the quarter with outstanding growth in Laboratory and good growth in Product Inspection.
Core Industrial also did well.
China had good growth, particularly given the strong growth in the prior year.
We expect good growth in China in Q4 and in 2022, although it won't be at the same level we have seen year-to-date.
We are very strongly positioned in China, and the team is executing well.
One final comment on the business.
Service and Consumables performed well and were up 12% in the quarter.
We continue to be very pleased with the growth of -- in this important and profitable part of the business.
That concludes my comments on the business.
And now let me provide some context on our 2022 guidance.
We believe we are emerging from this pandemic as a stronger company and are further distancing ourselves from competition in several ways.
During the last two years, we have accelerated our digital transformation in sales and marketing.
We had already started on this path, but the disruption from COVID-19 allowed us to significantly accelerate our digital approach.
Our use of eDemos, our vast and expanded digital library of selling materials, further development of selling guides and greater utilization of telesales and telemarketing resources are clear differentiators for remote selling.
And while we expect our face-to-face customer interactions to continue to increase in 2022, these digital tools allow us to expand our customer reach in a cost-effective manner.
In addition to the digital gains in sales and marketing, we have also made great strides in sharpening our focus on the most attractive market segments, allowing us to accelerate market share gains.
Increasing sophistication in data analytics is fundamental to our ability to guide our sales force to the best growth opportunities.
We continue to provide what we refer to internally as Top K alerts.
These alerts provide tailored actionable information about potential sales opportunities, which our market organizations qualify and integrate into the territory planning and target setting.
We see the trend for greater use and sophistication of data analytics continuing in 2022 and beyond.
Our global service network and our ability to continue to service our customers during this period has led to steady increases in customer satisfaction.
Service keeps us close to customers, builds trust and the customer is much more likely to purchase additional products if they utilize our service offering.
We continue to develop service tailored specific to customer needs.
For example, we quickly developed a service tool for customers who utilize analytical balances and quality control to meet new requirements from the European pharmacopeia that goes into effect in January.
In addition, as software is becoming an integral part of our solutions, harmonized services for software are becoming increasingly important.
A new service offering supports our instrument control software LabX to enable customers to achieve consistent performance and meet regulatory compliance.
These are just two examples.
We have many more within our portfolio.
We believe service will continue to provide a good opportunity for growth and differentiation from our competitors, and we use the same data analytics approach to leverage service opportunities within our installed base.
New product development also continues to be core to our growth potential.
I am excited about the many launches that will take place over the coming year.
Our product pipeline continues to be very strong and product launches reinforce our technology leadership.
While most product and software development will continue to be done in-house, we will also complement this with small acquisitions like the one we completed in October.
We acquired a software company Scale Up Systems, which is the leading provider of scale-up and reaction modeling software for pharma and chemical customers.
It is a great addition to our AutoChem offering.
And we now have a comprehensive offering for process development and scale-up for the pharma and chemical industries.
Turning now to supply chain and margin initiatives.
As already mentioned, our supply chain team has shown tremendous agility in adapting to very dynamic market conditions and continuing to support customers.
There are risks and increasing inflationary pressures in the supply chain and transportation and logistics markets.
We have mitigation strategies in place to help offset and believe we can continue to manage effectively, but are cautious as conditions can change quickly.
Our pricing program and Stern Drive productivity initiatives have good traction and will help us to offset inflationary pressures that we will likely continue to face in the coming months.
I trust this provides some context to our guidance and shows the confidence we have in our ability to continue to capture growth, gain market share, and deliver solid earnings growth in 2021 and in 2022 and beyond.

user
compname posts q3 earnings per share of $8.71.
q3 adjusted non-gaap earnings per share $8.72.
q3 earnings per share $8.71.
compared with prior year, total reported gaap sales increased 18% to $952.0 million.
anticipates local currency sales growth for q4 of 2021 will be about 8%.
sees q4 adjusted earnings per share to be $10.00 to $10.05, a growth rate of 8% to 9%.
anticipates local currency sales growth in 2022 will be about 6%.
2022 sales growth of about 6% is expected to result in adjusted earnings per share in range of $37.25 to $37.65.

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