We're gonna kick off day two of the BofA Vegas Healthcare Conference. My name is Michael Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team, and I'm excited to be joined by Shawn Vadala, Chief Financial Officer from Mettler-Toledo. Shawn, great to have you.
Great. Hey, great to be here, Mike. Thanks for having us.
Always a pleasure. Format will be a fireside chat. If anyone in the audience has a burning question, don't hesitate to raise your hand, and we'll throw you in. Shawn, maybe just to kick things off, you know, you reported 1Q results just a couple days ago. Feels like a lifetime, but I think it's only been three or four days. A lot of moving pieces in the quarter. A lot of debate on how it played out relative to expectations and sort of, like, what the moving pieces are. Maybe you could just start there, run us through high-level, you know, what happened relative to your expectations or how it impacts your view going forward.
Yeah, sure. So maybe a few comments. The first thing I don't want to get lost in the quarter is that, you know, we felt really good about our earnings growth in the quarter. You know, we had very strong earnings growth, 9% growth, and I think a more difficult environment. You know, I think that really comes back to not only execution, but really says a lot about the culture and the agility of the organization. As we kind of talk through things today, you know, that's one of the messages we want to leave people with, is that we feel really good about our ability to drive strong earnings growth. When we kind of go to the top line, you know, we delivered 3% growth.
That was in line with our guidance, but we acknowledge it included a little bit more M&A contribution. At the beginning of the quarter, we were expecting M&A to be more about 1%. It was 1.5%. With the rounding, the organic growth was 1% versus our 2% organic guide. You know, maybe a couple things that I also don't want to get lost in the print is that, you know, we're seeing increasingly good trends in China. I'm sure we'll have an opportunity to talk a little bit more about that. China was really good at certainly better than our expectations. Our product inspection business, which we talked a little bit on the call, had very strong growth, reported, but also organically. The service business continues to do well.
We've talked a lot about in the past about how important that is as an opportunity. Within lab, there were pockets of some good things, you know, bioprocessing being one of the examples. Of course, there was some softness in some of the other businesses, both in lab, but also in our core industrial business. You know, when we started the year, we did expect things to start a little slow, and we, you know, that's kind of how we communicated. We just felt like after last year, we felt like companies might be a little bit more hesitant with releasing capital and clearly that's what we saw. You know, there was, you know, different things that happened in the quarter, starting with some tariff threats at the beginning.
Of course, we had a war in the middle. You know, those things obviously create a little bit of uncertainty for the market and probably had some effect as well. You know, when you step back from all that, our organization remains positive. We really do. I know we have a little bit more of a cautious outlook for the second quarter, probably reflecting a little bit the dynamic environment. Also when we look at our internal pipeline, we're very encouraged, and I'm sure we'll talk a little bit more about that in a little bit. When you kind of look through all this, you know, we feel like we are well positioned for the future and we purposely talked about innovation on our call last week.
We really believe that that's the fundamentals, right? You know, when Patrick became CEO, that was one of the things he wanted to do was accelerate the pace of innovation in the company. It's no coincidence that we're talking more about it. We increased investments over the last few years. Thought we had a lot of nice examples of that. As you know, nothing moves the needle individually at Mettler-Toledo, these are all good opportunities to also engage customers and to drive sales in the future.
Okay. No, that's great. Thanks, Shawn. A lot I'm gonna follow up on from there. Maybe a point you made earlier in terms of your thinking and your sort of how you laid out the outlook when you were going into the year. You said you anticipated companies would be hesitant to release capital. I think that's something we've certainly been aware of and kind of tracking closely. Is there any changes in that as you kind of, you know, you're going through April and March, April and May, you know, with the tariff uncertainty, with the Iran war? Are there any moving pockets where companies are sort of getting over that hurdle and being, you know, a little bit more open to stepping up and deploying funds?
I mean, maybe a couple things here. If you think about, like, last year, there were disruptions in the first half of the year, and it kind of created a little bit of a shift versus normal purchasing patterns last year. Feel like this year, I don't want to say it's the same, but I think there's, you know, you can analogize it to it. Like there's more disruptions in the first half. That's probably gonna shift things a little bit more to the back half. Maybe that's a little bit more than what we would have expected when we started the year. What encourages us is, you know, when we look at not only talk to the organization, but when we look at the pipeline.
You know, earlier in the quarter, we were hearing a lot of great anecdotes about early pipeline building. As we kind of look at the last couple months, we really see the pipeline really continuing to increase. I'm talking when I say pipeline, the sales funnel. That's very encouraging for us. Now I know we're a short cycle business, and I know we still have a cautious outlook out for the second quarter. Probably what's most important when you look through that is you know, when you look at things like earlier indicators like hot leads, but even more importantly, like opportunities, the level of opportunities we have is growing very significantly in the organization and that's something that's very encouraging.
Then you kind of combine that with some of the areas where we see momentum building, like, you know, we keep on talking about China. We really are seeing that developing in a very positive way. I really feel like China's gonna be a nice story for us this year. We've gone through a little bit of a challenging period here over the last few years, but you really can see a lot of positive signs here. Hopefully that will continue to play out. Biopharma, of course, is another area where we see good momentum as well too. There is some optimism.
We will lap, you know, in Q3 we'll have like a more difficult comp in our core industrial business, but absent that, you know, as we get into Q4, we'll also have some comp benefits as well too that will kind of probably be a little bit of a nuance.
Okay. I mean, let's stick with the pipeline there, and the opportunities you're talking about. Can you talk about visibility into some of that pipeline and that funnel?
Yeah
converting? You know, you said you are a short cycle business, but you tend to have, you know, pretty good visibility into customer decisions 3 to 6 months out. Do you feel like broadly your visibility is better now than it might have been 3, 6 months ago, or throughout 2025? Are there pockets where you feel a little bit more comfortable and sort of, you know, maybe weight the likelihood of some of those converting?
Yeah, I mean, hey, it's always difficult in our business, right? Like, we still, as everyone knows, we're still short cycle. Things can change. What we see is this momentum that's been continuously building, and, you know, the heart of the pipeline or the sales funnel is showing a lot of strength. Our conversion rates are also improving, which also is a sign of, you know, of strength. That's encouraging, you know, to us. You know, in terms of, Then when you kind of combine that with maybe some of the external things, you know, like PMI is getting better, you know, I think we're less cyclical today than we were 10 years ago, but it doesn't hurt, right? Especially on the core industrial side.
As you think about, like replacement cycles and onshoring and all these things like that we didn't, quote, "build into the guidance this year," they're still out there as opportunities, you know. You know, especially on the replacement cycle side. When you think about, again, where the hot segments or the hot opportunities in the market are, like trends towards automation as companies are reshoring or anything. With inflation, everyone's looking for more productivity, and we continue to see good growth in those areas, as well as digitalization. When you think about as companies are doing their own AI programs, they're looking to extract information out of their instruments, we're a perfect fit for that.
You know, we provide solutions all the way through the value chain, whether you're in the laboratory where we have LabX to really facilitate that. I think, you know, on a QA/QC bench, we can sell up to 40% of the instruments on a typical lab bench. With LabX, we can automate workflows, but also collect data and also ensure data integrity. On the industrial side, there's all kinds of things that we're doing with process control, with our terminals and enable a lot of things on the digital side. When you can provide things in a structured manner for your customers, it's very effective, you know.
I think it just is something that's very valued as, especially when you can do it in a very cyber secure way too.
Okay. one last point on this, that sort of like demand funnel and improving, you know, early opportunities. Just from a timing perspective, you know, you mentioned second quarter more cautious outlook. Is that a second half opportunity then? You know, you mentioned you do have some comps there, but, you know, will we see some of that fall through in the second half? Could that be more of a 1Q, 2Q, 2027 story?
For which part?
just the lead times on the improving pipeline.
I mean, hey, I would expect the things that we're seeing in the pipeline will be a second half story.
Okay.
Yeah.
Okay. Okay.
Yeah.
All right. Let's touch on some of the, slightly more, you know, negative data points from the quarter. One, obviously the crisis in the Middle East. Talked about oil as an input cost. Both from a, P&L perspective, but also from a customer demand perspective, just, you know, where are you seeing maybe pockets of caution as a result of that? You know, is it tangible yet? Is it still, you know, more on the delay side of things? Maybe let's talk through that both from a, product segment perspective, but also from a geographic perspective.
Yeah, sure. I mean, like you said, there's two parts to inflation, right? There's your direct costs. On that one, of course, we're seeing inflationary pressures. I think our organization does a great job of responding to those pressures, and, you know, whether it's through cost savings initiatives or through our pricing program. When we guided, we acknowledged that we have some benefits from tariffs this year at the lower rate, which is a number that is very similar to what we're seeing on the inflationary side. We, as a result, we took a more cautious view on how we built in some of the mitigation actions.
As we kind of do those over the summer, we'll provide an update and, you know, perhaps that's a little bit of an upside in the second half. It's a dynamic environment, as you know, too, and so I think it's better to be cautious at this point. The bigger question I think is what you kind of get to, is what does it mean to our customers? You know, I feel like with, you know, there's two elements. There's the uncertainty part, but then there's also, like, the real cost and is their wallet smaller? You know, segments of the market that have been more affected by that in the past would be, like, the chemical market.
When I say chemical, for Mettler-Toledo, that means largely specialty chemical, that's about a low double-digit part of our business. We talked a little bit about that on the call. I think that, you know, that could be a softer end market for us this year. We'll see how it plays out. I would also acknowledge that, you know, we've been through higher energy costs in, you know, Europe is the one that stands out here. You know, they usually kind of get squeezed on these topics when it comes to energy. And we've seen that in the past, like with the war in Ukraine, and we've still done very well. I think part of it is for us is to, like, on one hand, you don't stand still, right?
You need to, like, look for where are the opportunities in the market and pivot towards where there are opportunities, and there are plenty of opportunities still in Europe. You know, biopharma is one of them. The other thing is, was encouraging to me is that, you know, despite that backdrop, you know, I think Europe has a, actually a, an improved Q2 outlook, you know? When we talk about, you know, funnel and pipeline, they're right there, you know? It's not like we're looking at the European pipeline and panicking it by any means at this point.
I think as we go through the year, there's gonna be some segments that are gonna be, you know, have a lot more opportunity and hot, and then there's gonna be some areas that are maybe a little bit weaker. I think, you know, comps will play out too, depending on the quarter with the segment and things like that.
Okay. That, specialty chemicals, a little over 10%, low double digits part of the business, that's global? That's not just in Europe?
Yes.
Yeah.
Yeah, yeah, that's a global number. I don't know the breakdown, by region. It might be a little bit larger when we get into China.
Okay.
Which is a good example of, like, you know, maybe that's a weak segment there.
Yeah
but we're much more-
And you-
optimistic on China.
Yeah, you're seeing pressure there a little bit everywhere.
Yeah.
It's not just in Europe. Okay. All right. I mean, let's go to China then. You mentioned a couple times in your remarks already, feeling more and more encouraged there. I mean, can you dig a little bit more into that lab versus industrial funnel?
Where are there pockets of strength? Sort of what's driving that?
Yeah, I mean, you know, Europe's had, I think, a few quarters in a row of showing nice growth, kind of improving from.
China or?
I'm sorry, did you ask about China?
It's China, yeah.
Yeah. Did I say China?
You said Europe, sorry. Just making sure.
Oh, sorry.
China. Yeah.
I was thinking China. I'm sorry. Thanks.
China.
China's had 3 quarters in a row of increasing growth. Thank you for clarifying. You know, the thing that probably stands out to me the most, we've always said in the past, hey, things in China can change quickly, one way or another. I'm really hoping that this 1 is going in the good direction. We, you know, we had a bit of a reset, you know, here a few years ago, in the economy there, you know, kind of coming out of COVID and everything. The 1 thing that stands out is the industrial business.
You know, I would say when we started last year, 2025, when I was thinking about what am I really have my eye on, Chinese industrial was one of them. It was like one of those moments where, what is gonna happen in the economy there, it is gonna be a little bit more correlated. A lot of these other topics are at play there. This business is actually doing very well. We've had 3 quarters in a row there. The industrial business grew higher than the 4% that we reported. I think it was mid high single digit.
As we think about China improving throughout the back half of the year, I think, you know, industrial will be a leader here. One of the things that's interesting about that is I know there's been a lot of questions over the past year about local competition. You know? In China, we have the most local competition on industrial, so I think it shows the strength of our organization, the strength of our China-for-China strategy, and, you know, the things that we're doing locally to innovate and deliver solutions to the customers. This is a great example of Spinnaker, right? Like I talked about one segment being soft, you pivot to the ones that grow, you know? In China, there's a lot of hot segments right now.
Like, our team is doing a great job identifying them, pursuing them, and capturing them. Like, you know, the battery segment is heating up again. It went through really a pullback here a couple years ago, but that's a good example. Clean energy is another good example. Semiconductors is another good example. Biopharma in general, especially in the manufacturing side, is showing improvements. I think there's a lot of opportunities there in the future when you start thinking about GLP-1 and generics going forward. We continue to be optimistic here, and it's nice to see it start to show up in the results.
Okay. I mean, you mentioned a couple quarters in a row seeing some strength there. Like, as you also said, it can, it can change and it can pivot really quickly.
Yeah, yeah.
You know, are you still embedding some caution in the outlook there, just in case it does turn?
Yeah
potential downside risk or?
I think Yeah, I mean, you know, in this environment it's always hard to, like, you know, get it perfect, but I like to think there's probably more upside to that one than there is downside from what I see right here, like when I think about momentum, when I think about funnel and what's going on in that market. Like you said, like who knows what happens geopolitically.
Yeah
going forward. I, you know, I'm more optimistic. Yeah.
Okay. Like sticking on the topic of China, you also mentioned biopharma. You know, moving beyond industrial, GLPs, local innovation, local biotech infrastructure, that's been coming up more and more among other tools vendors as well.
That's, you know, you're seeing a nice turn there recently. What have you seen for more of the biopharma side of things in China? Then we can probably pivot to BU-.
On China?
Yeah.
You know, I'd say lab overall has been slower in China relative to our other areas. Like on the industrial side, we're seeing actually better growth on pharma. On the lab side I'd say it's not bad, but it's not at the levels that we've seen with industrial. When I look at the funnel, the funnel actually looks very good there. I still think in the short term industrial will do better, I think, you know, medium to long term there's a really great opportunity there, like you said, like with the GLP-1s, and with just the government's focus on developing its own life science industry, I think we have a lot of opportunity there.
Okay. Well, let's pivot to bioprocess and lab a little bit more globally. You know, you said the lab still remains under pressure for various reasons, but bioprocess seems to be a bright spot. You know, you've talked about that a little bit more over recent years. Remind us of your exposure to bioprocessing, sort of where are you positioned in the workflow stream, and you know, how well has that been going forward?
I mean, very well. I mean, you know, life sciences in general is about a 40% of our business. That includes small and large molecule throughout the value stream. Think bioprocessing as just a category is probably low double digit. A lot of our exposure here is in process analytics. We also do a lot of things with some instrumentation and then also with our industrial process control solutions. On the process analytics business, you know, we were the first company to have sensors inside of a bioreactor, so we've always had a leadership position here. It's a very significant, more than half of our process analytics business.
We're measuring a lot of different attributes, you know, in the reactor. You know, pH being like a strong foot, but a lot of other parameters as well. We are upstream and downstream. Our historical strength was upstream. With the PendoTECH acquisition, we kind of strengthened our downstream exposure. PendoTECH also helped us strengthen our single use exposure as well too. You know, we're, you know, we, you know, like everybody else, I think we're very positive on this as an opportunity. We saw particularly good growth, I'd say, in the United States in Q1.
You know, we were kind of hearing from our team at least that there was a little bit more prioritization on the U.S. in terms of investments from a lot of our customers. What's encouraging is that when we look at our Q2 outlook, our European forecast for this business looks quite good as well too. So I think this will be very much a global theme. I think, you know, from our perspective, we feel very good about it. And I think a lot of the activity that we're seeing in our business on the consumable side and not quite yet getting all the benefits from facility expansion.
That could be a more positive one as we kind of look to the future.
I mean, on that topic, I assume you're talking about reshoring, onshoring, capacity expansion. You know, it's been talked about a lot as an out year benefit. What are you seeing on that? Is there, you know, is there talk about it? Are we in the planning stage? You know, there's a lot of debate on brownfield refurbishment versus new greenfield opportunities. What are you seeing in terms of what's happening on the ground?
Yeah. I'm hearing more and more stories of engagement with, you know, some of the system integrators and, you know, the engineering firms that do a lot of these projects. That's been a really good sign. Timing is still a little bit difficult to tell when it's gonna happen. Of course, there's been, you know, some activity. You know, like, if you think about, like, semiconductor investments in, you know, like, every country in the world, but, like, the U.S. as well. You know, we sell a lot of different applications through their value stream, a lot of pure, ultrapure water applications for cleaning, but also analytical instruments, industrial equipment. There's a lot of ways that we can help that industry, and we've certainly have seen, you know, little pockets of that.
And it resonates a lot in our, in our process analytics business as well too.
Okay. Earlier in your remarks, I think you talked about, you know, AI opportunity at pharma, sort of how it's changing the game.
what pharma's able to do, where they're investing, where they're putting money. Are you seeing that being deployed already? Is that a hypothetical discussion? Is that being broadly adopted? Sort of where are we in the pharma leveraging AI? When you do leverage it, you know, how does Mettler come into play? Where do you benefit there?
Yeah, I mean, you know, I don't know if I'm the, the best source for that one, but I, I know it's a topic, I know it's a priority. I do hear about conversations in R&D labs about, you know, how people wanna, you know, make investments in this area for obvious reasons. You know, from our perspective, I think Mettler is a great partner for these companies in this regard. You know, when you think about it, like, you know, the first step is really collecting data, right?
When you have a very broad range of instruments, you know, at a company, you know, we, and we have a great software package, and by the way, we just came out with the latest version of LabX, it really facilitates this, you know, to really collect information in a very structured and good way. Like, you know, data's everything when it comes to any technology, right? So really I think we're a great partner and enabler for this, but it's not only in the lab side, right? It's gonna be also on the industrial side. If you, like, look at our products, we're also doing things to our products, to also, you know, leverage AI technologies. Like, we'll have, like, AI wizards in some of our instruments, right?
Where it can, like, start to, you know, kind of get to the result a little bit faster. We're using imaging technology in a couple areas in the business, that's, like, really, you know, whether that's AI or not, it's, it's digitalization, you know, and, you know, which is a broader theme from my perspective. We're doing a lot of great things there too that are really providing differentiated solutions that allowing customers to gain new insights and gain productivity. We're doing a lot of these things in an automated or semi-automated way, right? Like, that's also the big hot topic in labs is, like, you know, we wanna do more, but we also want more productivity, you know?
Yeah.
I think the companies that do a good job of enabling these trends are the ones that are gonna be the most successful in the future.
Okay. Yeah. I mean, when you talk about data collection and just sort of more inputs going into the pharma R&D, I think that automation will be sort of the first way to do it.
Yeah.
Is that where you're, you know, you're seeing the most interest in pharma? Are you seeing any, you know, green shoots there?
I mean, we already have a lot of things that we're doing with partnerships and collaborations that we've talked about in the past in that area, and I continue to think, like, those are gonna be areas that, you know, you'll hear more and more about as we kind of go forward. Yeah.
Okay. Okay. We got a couple minutes left. I wanna ask sort of a little bit more of a bigger picture, longer term question. You know, we talked about the various moving pieces as you get through 2026. You got the comms dynamic, like you said, a little bit softer 2Q guide, but, you know, potentially some opportunities and some better funnel for the second half. As you exit this year and go into next year, sort of how do you see some of those swing factors for growth shaking out? Can you sort of, like, bridge us from, you know, your exit rate this year into 2027, 2028 and beyond? Sort of what keeps you optimistic there?
Yeah, I mean, hey, I think, you know, like, I mean, of course, we don't wanna provide any guidance or any insights on 2027, you know, at this point in time. I mean, you know, pharma's gonna be a big topic for us. You know, it's 40% of our business. I think these trends in automation as well as companies' digital programs is gonna continue to accelerate. We've been talking about it for a while. We continue to see good growth opportunities in these areas. I think that's gonna be a really good one for us. I think China, we've talked a lot about today, but also broader emerging markets.
You know, emerging markets last year outside of China were just slightly bigger than China. We see a lot of momentum in these countries, you know, You know, India being a good example, Southeast Asia, Korea. I think there's a that's a good one for us going forward. I think this topic of replacement cycle, you know, like, certainly is something that I think we're all looking forward to seeing kicking in more. Then of course the onshoring topic. You know, like, you know, 50% of our business is sold into the production area of a customer. 20% approximately is sold into QA/QC. We clearly will be a beneficiary as this trend kicks in.
As a global company, we move well with these companies, and especially on the industrial side when you have a lot of local competition, I think it's going to really be a strength for us kind of going forward. Those are the things on our mind, probably no surprises there. You know, hey, we'll see how things play out, and of course we'll provide more insights and thoughts as we kind of get to, you know, November of this year.
Okay. Okay. Last couple minutes. Let's talk a little bit about margins and operating leverage. You know, despite some of the pressures on top line, and, like you talked about tariffs, input costs, you're still delivering, you know, healthy margins and EPS, both in the first quarter and for the year. You know, what's driving that, what's driving that operating leverage this year, and again, sort of like a healthy jumping off point for next year?
I mean, you know, our operating margin guidance, just for those who are updating models, it's similar to what it was last quarter. Optically there's a lot of currency, as you know. I think it's like 50 or 60 basis points on the full year in terms of a headwind. When you subtract that, I think it actually looks quite good. I feel really great about the programs we have right now, you know, whether it's SternDrive, whether it's our cost, our productivity and cost savings programs, but also our pricing program. You know, like, the pricing program is great because it really is a great, you know, indicator of our value proposition and what customers appreciate.
If you're delivering value, you know, then someone's gonna be willing to pay because they're getting a payback on it, you know. I think that our whole setup has always been great, where we're selling often directly to the end user, where our average price point is less than $10,000. That user, when you sell directly, that person can articulate that value proposition. When you're selling to the end user, they understand it, and like I said earlier, we've been investing into that. I think that whole flywheel has worked really well for us.
Of course we have a really good program around it with a lot of analytics and stuff, where we, you know, try to make sure we get the right price point, and we have a lot of our own digital tools that can help us make sure that we're providing the right price point to a customer.
Okay. We're pretty much at the top of the slot, Shawn. Any last concluding remarks or anything we missed, anything you wanna leave investors with as they walk away?
Yeah. Hey, we fully recognize this is a dynamic environment, you know, it can be a little bit distracting. I hope people can look through that and as we look to the future, we feel like we're really well-positioned. I think Mettler-Toledo has a long history of execution. We have really great corporate programs that help drive these opportunities, probably most important, we have a great culture. You know, I think the culture of Mettler-Toledo, I've been around for not quite 30 years, I'm getting there, hard to believe, but I'm not the only one, right? I think it says a lot about people are really passionate about our company, and there's a really great spirit of collaboration.
I feel like a lot of companies around the world, we've certainly, become a lot more agile in the last five or six years, and I think that's gonna ultimately be key for any company going forward, is that agility muscle and just like, "Hey, things are gonna change, it's okay," but how do you respond to it? That's what matters, and I feel that's what I feel best about.
Okay. Great. That's a good place to end it. Thanks so much, everyone. Shawn, thank you.
Great. Thanks, Mike.
Really appreciate it.
Appreciate it. Thanks.