I will now hand the conference over to Adam Uhlman, Head of Investor Relations. Please go ahead.
Hey, thanks, Jonathan. Good morning, everyone. I appreciate you joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com. A copy of the press release and the presentation that we will refer to on today's call is also available on our website. This call will include forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, financial condition, performance, and achievements to be materially different from those expressed or implied by any forward-looking statement.
For a discussion of these risks and uncertainties, please see our recent annual report on Form 10-K and quarterly and recent reports filed with the SEC. The company disclaims any obligation or undertaking to provide updates or revisions to any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website. Let me now turn the call over to Patrick.
Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on page three of our presentation. We delivered an excellent third quarter, achieving relatively broad-based growth across our portfolio while capitalizing on improving market demand. Performance was particularly strong in Asia and the rest of the world. Improved sales volume and strong execution of our strategic initiatives resulted in another quarter of robust growth in adjusted EPS. We continue to benefit from investments in recent years that have strengthened our competitive position and prepared us for the growth opportunities we see ahead of us. We have accelerated our innovation, expanded our digital capabilities, further enhanced our Spinnaker sales and marketing excellence program, and evolved our global supply chain setup for increased resilience and agility.
As market conditions improve, we are well-positioned to deliver strong financial performance going forward. Let me now turn the call over to Shawn to cover the financial results and our guidance, and I will come back with some additional commentary on the business and our outlook. Shawn?
Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.1 billion, up 6% in U.S. dollars and in local currencies. Organic local currency sales growth was also 6%. On slide number four, we show local currency sales growth by region. Organic sales increased 3% in the Americas, 2% in Europe, and 13% in Asia and rest of world, including 13% growth in China. Slide number five shows sales growth by region on a year-to-date basis. On slide number six, we summarize sales growth by product area. Organic sales increased 6% in Laboratory and 6% in Industrial, which included 5% growth in core Industrial and 8% growth in Product Inspection. Food Retail declined 2% in the quarter. Lastly, service revenue grew 7%. Slide number seven details sales growth by product area on a year-to-date basis.
Let me now move to the rest of the P&L, which is summarized on slide number eight. Gross margin was 59.8% in the quarter, an increase of 60 basis points due to benefits from favorable price realization, lower tariff rates compared to the prior year, and volume growth, partially offset by higher material and transportation costs. R&D amounted to $54 million in the quarter and was up 4% on a local currency basis over the prior period. SG&A amounted to $267 million, an 8% increase in local currency over the prior year, and includes sales and marketing investments and higher variable compensation, offset in part by cost savings. Adjusted operating profit amounted to $333.5 million in the quarter, up 8% versus the prior year. Adjusted operating margin was 30.5%, an increase of 40 basis points versus the prior year.
Adjusted EPS for the quarter was $12.57, a 13% increase over the prior year. On a reported basis in the quarter, EPS was $12.29 as compared to $10.57 in the prior year, and a reconciliation to GAAP is located in our press release. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $652 million on a year-to-date basis and was negatively impacted by the timing of tax payments, which were $72 million higher than the prior year. Excluding taxes, free cash flow per share increased 7% versus the prior year. I'll now share additional thoughts on our guidance for the fourth quarter and our initial thoughts for 2027. As you review our guidance, please keep in mind the following factors.
First, we are encouraged by the relatively broad-based momentum in our business, especially in China and emerging markets. Second, conditions in the Middle East remain volatile, and while we have limited exposure to the region, this could impact customer decision-making should conditions significantly change. We are not currently seeing any change in related customer behavior and have not included an escalation of the conflict in our forecast. Third, while we are encouraged by the increasing momentum and activity related to onshoring investments, we have not assumed this will be meaningful to our 2027 results. Lastly, we are very confident in our ability to execute on our growth and productivity initiatives and believe we are well-positioned to gain market share regardless of the macro environment. Now, turning to our guidance.
For the fourth quarter 2026, our local currency sales growth forecast is approximately 5%, and adjusted EPS is forecast to be in the range of $14.84-$15.04, which represents a growth rate of 11%-13%. At recent spot rates, foreign exchange is not expected to significantly impact our results. For the full year 2026, we have increased our local currency sales growth forecast from approximately 4%-5% to approximately 5%, reflecting organic growth of 4%. Note that our forecast also excludes the impact on sales and cost of sales from tariff refunds. Adjusted EPS is forecast to be in the range of $47.70-$47.90, which represents a growth rate of 12%.
We have also provided our initial guidance for 2027, and based on our assessment of market conditions today, we expect local currency sales to increase approximately 5%. Our outlook reflects continued strength in China and emerging markets, favorable trends in the U.S., and benefits from our Spinnaker sales and marketing growth initiatives and robust product portfolio, offset in part by a cautious view in Europe given various macro uncertainties. Adjusted EPS is forecast to be in the range of $52.50-$53.50, which represents a growth rate of 10%-12%. At recent spot rates, foreign exchange is estimated to be a 1% headwind to sales growth and neutral to EPS. Some further comments on our 2027 guidance. We expect total amortization, including purchased intangible amortization, to be approximately $76 million.
Purchased intangible amortization is excluded from adjusted EPS and is estimated at $27 million on a pre-tax basis, or approximately $1.05 per share. Interest expense is forecast at $68 million for the year. Other income is estimated at approximately $22 million. We expect our tax rate before discrete items will decline from 19% in 2026 to 18% in 2027. Free cash flow is expected to be approximately $950 million in 2027, which represents 8% growth on a per-share basis. Share repurchases are also expected to be $950 million. That is it from my side, and I will now turn it back to Patrick.
Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had broad-based growth in the quarter across nearly all product areas. In addition to growth in bioprocessing, it was encouraging to see another quarter of strong growth from customers in quality labs, where we sell a wide range of analytical instruments and lab balances, while trends in biopharma and biotech research improved, resulting in very strong growth in our liquid handling business. The portfolio also benefited from growth in hot segments this quarter, like semiconductor, battery, and GLP-1, among others. Our innovative portfolio resonates well with customers, and we have a deep pipeline of new innovations that will reinforce our technology leadership. In process analytics, we launched a new online bioburden analyzer that provides real-time monitoring of microbial contamination, for example, in pharmaceutical water systems.
The launch further strengthens our position in critical bioprocess applications. Turning to Industrial, Core Industrial had another quarter of solid growth on top of 10% organic growth in the prior year. Sales growth this quarter was again led by our automation and digitalization solutions. We have maintained a steady cadence of new product introductions in recent years and further expanded our portfolio recently by introducing the ACT350 weighing transmitter, which is a high-performance device designed for fast, accurate transmission of weight data and status to control systems, enabling enhanced process control. It is easy to use, quick to commission, and integrates seamlessly into industrial environments for filling and dosing, check weighing, and other applications. Moving on to Product Inspection, we had a very good quarter with organic growth of 8%, with strong results across the portfolio.
Our mid-market strategy is working well and helping us target growth opportunities within growth segments of the food manufacturing market. We have also further expanded our portfolio of plant solutions to help our customers tackle how to detect physical contamination. We also introduced AI-enabled image recognition software for our X-ray systems, improving contamination detection while reducing false rejects for customers. Finally, Food Retail sales declined slightly due to the timing of project activity, especially in the Americas. Now, let me make some additional comments by geography, starting in the Americas, where sales grew 3% versus 9% organic growth in the prior year. We had strong results across most Lab product categories, and it is encouraging to see strengthening demand for products used in research and development applications, especially pipettes.
Industrial also had good growth on top of double-digit growth in the prior year, with strong Product Inspection results and strength across our Core Industrial products that enable automation and digitalization. Growth in these areas was offset in part by softer sales in Food Retail and transport and logistics due to timing of project activity. Turning to Europe, growth in Europe was modest but broad-based across the portfolio. While macroeconomic conditions remain subdued, customer activity is good, and our team continues to execute well on capturing available growth opportunities. Finally, Asia, Rest of World had excellent growth results again this quarter, with strong growth across the portfolio. This included 13% growth in China, which was led by our Industrial business and strong results across our Laboratory products. Other emerging markets also grew double digits.
That concludes my comments on our Q3 results, and now let me share with you some additional thoughts on our initial guidance for 2027. I recently came off of our annual budget tour, meeting with our senior leaders around the world. I came away incredibly encouraged by the energy, optimism, and focus I saw throughout the business. What stood out most was the breadth of growth initiatives that are being pursued across the organization. Our teams have a deep pipeline of initiatives to drive growth and enhance profitability, and are executing at a high level. Importantly, many of the investments we have made over the past several years are beginning to generate tangible results. We have strengthened our product portfolio, accelerated innovation, deployed new tools across our strategic sales and marketing excellence program, and enhanced our digital footprint.
We have also invested in a more resilient and agile global supply chain. We remain committed to investing to support future growth and see significant opportunities ahead as replacement demand improves, companies increase investments to support onshoring and supply chain resilience, particularly in the United States, and customers place increased emphasis on automating and digitizing their operations. These trends align exceptionally well with our strategy and provide confidence in our ability to drive growth over the long term. Our biopharma customers are making substantial investments in artificial intelligence, digitalization, and next-generation research capabilities that we expect will accelerate drug discovery and development. We are uniquely positioned to support customers with our broad portfolio of innovative solutions across the entire value chain, from research and development all the way to manufacturing.
From a regional perspective, we expect solid growth in the United States in 2027, where investments in advanced manufacturing and automation are expected to build as the year progresses. We also expect good growth in China despite more difficult comparisons, given the strong second half results in 2026. We are well aligned with the investment priorities in China in life sciences, technology, new materials, and clean energy, as well as trends in automation and digitalization. We are also well-positioned globally to capture growth in various hot segments such as semiconductors, advanced materials, and batteries, to name a few. We expect to see strong momentum across emerging markets and expect these regions to remain important contributors to our long-term growth strategy. We also expect to translate these growth opportunities into another year of double-digit growth in adjusted EPS through the focused execution of our initiatives.
In summary, we delivered an excellent third quarter and are pleased to have increased our full-year outlook. We are entering 2027 with positive momentum across the business as the investments we have made over the past several years are producing results, and our growth initiatives remain on track. We remain confident in our ability to continue creating compounding value over the long term, and we look forward to discussing our strategy in greater detail at our investor meeting on Monday. That concludes our prepared remarks. Operator, I'd now like to open the line to questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Luke Sergott from Barclays. Your line is now open. Please go ahead.
Great. Thanks for the question, guys. I just wanted to talk about kind of what you're seeing there in China. I appreciate some of the color that you gave, but when I'm thinking about the puts and takes that we're seeing here, and it's starting to recover for the rest of the group pretty strongly. Just kind of dig in from an end market perspective, and then what's also embedded within that 2027 guidance. Is there any material improvement in some of the slower parts of the areas?
Hey, thanks, Luke, for the question. Of course, we are very pleased with the 13% growth we have seen in China this quarter. In Q3, to give you a little bit more flavor, also included a strong Industrial growth and Lab growth. We actually feel very good about the momentum in China because we are, as I said in the prepared remarks, we are really well aligned with the investment priorities in China to invest into the future, building out the pharma portfolio, investment in life sciences and technology, in new energy and others. This really fits our portfolio very well. We're also benefiting from the in China for China strategy. We have a strong manufacturing footprint there. We have a strong local sales team and can also benefit from our global tools like Spinnaker to really address the hot markets.
There's overall, I would say, a broader-based trend clearly into automation and digitalization in China as well. Given all the updates we have made to our portfolio and the innovation we have put in there, we feel really well positioned for the future growth in China. Of course, next year, we face, especially in the second half, we will face some tougher comps, but we are overall really confident. I hand it over to Shawn to really give you some more details in terms of the growth rates in China we expect.
Yeah. Hey, thanks, Patrick, and good morning, Luke. Yeah. Hey, Patrick and I were just in China recently to meet with them, and then we also, of course, were on our annual budget tour where we got to meet with all the other colleagues in the region as well as around the world. We really came back feeling very positive on the region in general. What was nice to see is that the breadth of the growth kind of throughout the portfolio, particularly in China. If you think about earlier in the year, we started to see this momentum building on the Industrial side, which we continue to see, but we also saw good results in Lab in the quarter. I think in the quarter, Industrial was up probably like mid-teens, and Lab was a high single digit. Yeah, very, very high single digit in the quarter.
As we kind of like look to Q4, we see that Lab growth probably even further improving, and overall, we're thinking mid-teens for Q4 in China in both businesses. For next year, we're a little bit more modest, just mostly because of the comps that we're facing. We're probably thinking more like mid-single digit in China for the year. As we know, things in China can always change quickly, going in either direction. But we feel really good about what we're seeing, the momentum throughout the portfolio, especially in the pharmaceutical side, I think, as Patrick mentioned too. When we think about next year, that mid-single digit's probably more like mid to high on the Lab side and maybe more low to mid on the Industrial side, acknowledging there could be some upside, but we're just a little bit more cautious given the comps.
Okay, great. I guess just to follow up there and continuing on the 2027 guide theme, you guys usually frame kind of what you're looking for from that could be upside driver, downside drivers. Outside of geography and macro, but I kind of look at when I'm thinking about the upside, you have a pretty large installed base from an instrumentation perspective, and as I think AI kind of hits in the manufacturing sector, that's an unappreciated aspect of it. I'm just trying to think about the upgrade cycle from an instrumentation perspective. How much of your stuff is cloud agentic ready? I'm sure that's a huge focus for you on innovation, but as I think about some of upside drivers next year, could a rebirth or restart of an instrument upgrade cycle be one of them?
Well, Luke, I think you're hitting a good point here is that we have invested a lot into our technology and digitalization capabilities over the last years, and you're absolutely right. We have put a lot of emphasis on making sure that our sensors or instruments really seamlessly plug into the customer's digital environment. So we provide what I would call across the value chain all the sensors that you need to take the relevant data to either optimize a manufacturing workflow processes or in the environment drive automated labs, et cetera. What is important is that we also provide what I call the mid-layer data infrastructure that connect to our sensors and instruments that then seamlessly integrates into our customers' AI software solutions.
I know everybody uses something else, but it's important that they have a good interface that can then connect against with our instruments and of course all the newer products that we have out there. Connect to it. LabX, for example, is a really strong platform that connects to almost the entire fleet of instruments we have in the lab space and typically cover 40% of them off the bench in the QA/QC lab, which is also heavily used in R&D. So that self-driving labs, and I think those of you who will be here on Monday will be excited about some of the showcases we have here in that direction as well. So I think we definitely will benefit from the trend of AI and as I said, have prepared our full portfolio extremely well.
Yeah, and just to be clear, Luke, I think you framed it correctly. As Patrick says, we're really well positioned for these trends. We will talk more about it on our investor day on Monday, but it's not like we've built anything meaningful into our guidance for next year. I view it more as upsides.
Yep. Great. Thanks.
Your next question comes from the line of Tycho Peterson from Jefferies. Your line is now open. Please go ahead.
Hey, thanks. Maybe just sticking with the 2027 outlook, wondering if you can break down some of the other assumptions by end market and geographies. You obviously hit on China already, but you are seeing a broader recovery here across the board, right? Are there other areas that are lagging that potentially could come back next year? Maybe just do a walkthrough by end market and geography, what is baked into that 5%?
Yeah, sure, Tycho. Hey, I will take that one. For 2027, I will start with the division. So for Lab, our guidance is mid to high single digit. So that would be an improvement from what we saw this year, kind of like the momentum we saw in the second half of the year kind of continuing. One of the nice things with Lab is if you kind of think about our business, we kind of like serve the different aspects of the customer's workflow or value chain. Earlier in the year, we were seeing good trends in bioprocessing. Last quarter, it was Q2 being last quarter, we saw things really improving in the QA/QC bench. Then this quarter, we saw better activity in R&D, which was really nice to see in areas like pipettes. So we are encouraged as we kind of go into 2027 in Lab.
Core Industrial, we are guiding mid-single digit for next year, kind of also benefiting from a lot of the favorable trends in automation and digitalization. Product Inspection, we are maybe a little bit more cautious, maybe low to mid-single digit in PI. Then in Food Retail, we are also a little bit more cautious with low single digit. In terms of the Americas, we are guiding mid to high single digit with kind of some of these favorable trends that we see kind of exiting this year in terms of the market. Europe, we are a little bit more cautious in guiding to low single digit. China, we already mentioned mid-single digit.
Okay, that is helpful. Industrial has come back better. You had accelerating on a tougher comp here. Is any of that receiving help from the chemical recovery or recapturing delayed orders? Maybe just talk about whether there is any sort of timing elements in what you are seeing now versus broader underlying improvement.
Yeah, I'd say certainly chemical is better than it was in Q1. We had that soft start. I'd say out of our core segments, it's still a softer market relative to like pharma. Pharma was probably the more standout in the quarter. But nothing special here. That market certainly has had different challenges in the past with higher energy costs. But right now, we're seeing decent activity there, but it's relatively softer compared to the other markets.
Okay, I'll leave it at that. Thanks.
Your next question is from the line of Vijay Kumar from Evercore ISI. Your line is now open. Please go ahead.
Hi, Patrick. Good morning, and thank you for taking my question. Hey, maybe a big picture one for you, Patrick. We've heard a lot of people speak about AI lab- in- a- loop. How some of the things that you speak about, liquid handling being very strong, process analytics being strong, are these things products that go into some of these AI lab- in- a- loop end markets? And have you tried to quantify what it means for Mettler?
Yeah, Vijay, thanks for the question. Look, lab- in- a-l oop or self-driving labs, there are several ways you can call this. I mean, in bioprocessing, I think we benefit most, of course, from our process analytical portfolio, where the connectivity of the sensors and the digital interfaces these sensors provide to our customers and seamlessly integrating their data systems allow them to optimize their process, and that's mainly manufacturing with our digital sensors and increase yields and productivity, et cetera, and also use their own AI solutions to optimize processes and their setup. But it's important that they have the right data points, and this is where our digital sensors play an important role.
On the self-driving labs or lab- in- a- loop approach, I point them more to, let's say, the late-stage R&D or R&D sites, whether it's in the pharmaceutical industry or in areas like batteries and other areas where we see these labs applying our instrumentation and solutions together with robots that we serve our instruments that could then control together with our LabX solutions to control the entire workflow, and then do self-optimizing experiments. We have, again, this in several accounts already. There's quite a lot of interest in these solutions. The importance there also is connectivity to the AI-driven approach that customers use on their side.
Again, everybody has a different model, but the importance is that they have the right data aggregation layer that we provide, for example, with LabX, they can plug into and then run fully automated experiments and refer to then experiment design and optimization. So it's still, I would say, still early innings, but we see really strong interest. Again, for those of you who will be here on Monday, you will see a practical example of that as well.
Understood. That's helpful. Shawn, maybe one for you on this Q4 guidance assumptions, 5%. It can't get easier. Why, you just did 6%. Why is organic going to slow down in Q4? Maybe if you could just talk about what was pricing in Q3 in Q4 assumptions, and why Q4 is stepping down, that would be helpful.
Yeah, sure, Vijay. Maybe I'll start with the pricing assumption. In pricing in Q3, it was just over 2.5%, and we expect to be in that 2.5% range also in Q4. Probably the biggest difference in Q4 versus Q3 is if you, on one hand, I kind of see the Laboratory getting that mid to high single digit, core Industrial probably being high single digit, but then maybe going the other way, you see Food Retail down mid-single digit. As a reminder, Food Retail was up, I think 19% in Q4 of last year, so it's just lapping a really big comp. As you know, that business can tend to be lumpy based upon customer activity. Then we're also a little bit more cautious on our Product Inspection business.
I mean, PI has had a very good year year-to-date, had a strong quarter, but it's probably going to be more flattish in the fourth quarter. It's just probably if you look at the comp there for last year and then the year before, I think it grew organically double digit last year in Q4 and double digit the year before. So, we're just kind of lapping some difficult comps there on a stacked basis, but just more customer activity. We're actually competing really well, and the product portfolio looks great. We have some introducing new products as well that you'll see and hear here on Monday as well too.
Understood. Thank you.
Your next question comes from the line of Dan Arias from Stifel. Your line is now open. Please go ahead.
Hey, good morning, guys. Thank you. Shawn, low singles for Europe. Can you just maybe talk a little bit about what we should expect out of labs specifically in Europe as we look to the end of the year here and then into next year? That's been an area that's soft. It sounded like you felt better about things like bioprocess, at least earlier in the year. How might that translate? Are you assuming just sort of similar activity overall in European lab, or might there be an acceleration trend that we can look forward to?
Yeah. For Europe, I mean, we feel like our team continues to execute really well in a more challenging environment. If you think about all the different topics in the world, Europe is probably a little bit more under pressure for different reasons, whether it be energy costs or whether it's like how some of these trade disputes are playing out. If you think about the pharmaceutical industry, certainly, we see a lot more activity outside of Europe than we see inside of Europe. But nonetheless, we still feel like within that low single digit, the lab business is probably still in that kind of mid-single digit kind of a range in terms of the fourth quarter, and with the other businesses being a little bit more cautious and a little bit more exposed to the macro.
As we kind of look forward to next year, I mean, of course, we're only sitting on about 1.5 months of backlog at any point in time. But just looking at the different regions, this is the one area that we have probably a little bit of a closer eye on kind of going into next year.
Yeah. Okay. Okay. Patrick, maybe as a follow-up to Vijay's question there, you guys have been talking about automation and digitalization for a while now, certainly before the AI discussion became what it is today. Is that tangibly accelerating as a growth driver? I mean, is that something that you think will mean more to the P&L next year than this year? Maybe that's what you were saying to his question. I just need to hear it again. But I'm just curious about how much more you're seeing that kind of falls into that camp versus prior periods and future periods.
Clearly, as the portfolio is shifting more in that direction, we see a lot of interest shifting more in the direction that you can call it broader digitalization and automation. Behind it, of course, there are a lot of also opportunities as customers now drive leveraging AI. I think we are exceptionally well positioned because we provide them the instruments and the terminals to connect to these sensors and instruments and software to connect the instrument and power them to drive these AI-based solutions.
This is still a bit early innings, but we see really good interest in this area and really good engagements with customers across the board, whether it is in pharma, in drug discovery areas where they try to drive optimized experimentation, whether it is set in, for example, in the battery segment, when you think about things like electrolyte composition optimization for different battery types that are. They really have these labs and these automated setup running around the clock to optimize the chemistry that they need for the batteries, et cetera. This is very exciting to see this. Again, what customers are looking for is really an open environment and a data aggregation layer that they can plug into and drive then their experiments using their own AI approaches, the different ones customers use.
I think we are really well positioned there with our digital sensors, with our analytical instruments that we have, and the connection layers of software and terminals that customers need to do that.
Thank you.
Your next call is from the line of Jack Meehan from Operon Research. Your line is now open. Please go ahead.
Thank you. Good morning, guys. I wanted to ask about the 2027 guide. If you look at the 5% local currency growth, can you just talk about a few of the factors, like price versus volume, how you're thinking about Spinnaker share gain versus market growth? Are you assuming any recovery in the replacement cycle, or could that be upside?
Yeah. Hey, Jack. Maybe I'll start, if Patrick wants to add some color as well. In terms of the 5% between volume and price, we expect to do just over 2% next year on price. Our typical baseline is about 2%. We'll do a little bit more than that, just given some of the pricing actions we did mid-year this year. Of course, we'll continue to evaluate that as we go through next year based upon the inflationary environment. So that puts the volume in the 3%-ish kind of a range. In terms of replacement cycle, I feel like it's always difficult to tell how much of it things are replacement.
Certainly, if we look at some of the categories that lend themselves to replacement, we've seen really good activity, like in the analytical instrument category now for at least a couple quarters in a row. That's very encouraging. Same with lab balances. Right now, we kind of expect what we're seeing to continue into next year. We haven't necessarily built in an acceleration from where we are. We'll talk a little bit more about this at the investor day on Monday, but we see this to be certainly a broader theme going forward in terms of exactly how things play out with replacement, given the significant sales we had back in 2021 and 2022, and how that could play out with the life of our products.
In terms of market share, or market, we do not have, of course, a perfect view on what the market growth would be, just given the breadth of our portfolio. But we certainly feel very good about our ability to gain just a little bit of share each year through our Spinnaker program. We spent a lot of time this past week with our executive team and the board just going through a lot of the different things that we are doing there. The program just continues to increase with sophistication, and we will actually share a little bit of that on Monday as well.
Great. Looking forward to it. Just as a follow-up, it would be great to get an update on onshoring, just what visible activity are you seeing, either quotes, project funnel, anything in terms of just trying to get visibility into when revenue might start to manifest. Thanks.
Yeah. Jack, we are really excited to see increasing activity in that regard. We use also, for example, as Shawn mentioned, Spinnaker as a tool to identify investments in these areas very early. We have a really good tool there to sense market activity and then guide our sales force to these activities. As we see really investment happening and then the increasing, or some of these investments are for longer-term plans for pharmaceutical company plans to build a new facility and then ramp it up over the next couple of years. It takes probably two to five years until we see a big momentum out of that facility, whereas a simple product expansion of an existing facility. So it is a, I would say, multiple-year cycle.
What we see in terms of leads activity and investment activity and alerts that we are getting from our systems, it is really encouraging here in the United States too, and it is definitely linked to the reshoring activities.
Excellent. Thank you, guys.
Your next question comes from the line of Doug Schenkel from UBS. Your line is now open. Please go ahead.
Hey, guys. This is Avery on for Doug. Thanks for taking the question. I guess just to follow up on reshoring, does the election change how your pharma customers are thinking about their U.S. manufacturing projects and how you're thinking about semis and data center demand?
Hey, look, I think we don't have a crystal ball here. It's very early. I would not expect that it's impacting, especially on data centers, which is, of course, one of the, what we call hot segments for us, but it's really in terms of overall revenue contribution is rather low. But it provides great growth opportunities because for those, for example, we provide the solution, for example, to check the cooling systems, like the ultra-pure water solutions, or if they use coolants also, to use our sensors like the agents and others to control the cooling systems. I think what's in Again, I don't have a crystal ball what this election will do to the build-out. Even if it slows down, we still would see this as an exciting opportunity moving forward. Again, many of those are still under construction and build-out.
We are coming into the deal a little bit later than once when they go really live.
Yeah, a lot of these projects are already started, groundbreaking, committed, even on the onshoring side. Just to be clear, both of them were slightly, they are very much upsides to our guidance. We did not really build anything specific for them as we built our guidance for next year. If you think about even the onshoring topic, I think this was something that also started really coming out of COVID, where companies wanted to have more resilient and agile supply chains. I think most companies were already on that path to have more region-for-region production. I think the trade disputes and tariffs just accelerated that trend. I think that that is, from what we can see, that is very much in motion. The magnitude and timing is always maybe the bigger question and more difficult to be answered with precision.
But clearly, the activity is increasing, and we are seeing that as well, too, in terms of the projects themselves now. In terms of translating into sales will still take some time, but we are not sitting here today thinking that it is going to change significantly.
All right. Thanks. On the higher material and transportation costs that hit margin in the quarter, I guess, how big was that headwind in Q3, and how much of that is built into Q4 and the 2027 guides?
Yeah. I mean, there's, of course, a lot of different things going on in our margin. We certainly factored that into Q4 as well, and then also into 2027. I feel like the team is monitoring it very closely. I think we do a good job on mitigating these things when they come up. We will continue to look at different mitigation actions as we kind of go into next year, and we're kind of in that mode of just trying to make sure we're prepared to mitigate as it changes. But it's a very dynamic environment for sure.
Your next question comes from the line of Casey Woodring from JP Morgan. Your line is now open. Please go ahead.
Great. Thank you guys for taking the questions. Maybe first, just on Product Inspection, that grew 8% in the quarter. You just talked about flat expectations for Q4 in that business, which sounded like a comp dynamic, but you're guiding to low to mid-single digits there for 2027. Maybe just talk a little bit about the 8% you did in Q3 versus the guide for 2027. How conservative is that? And just kind of what's embedded there in Product Inspection?
Hey. Look, Casey, we are really pleased again with the organic growth we have seen this quarter, and when we have seen this year. Our growth is really a combination of our mid-market strategy, but we also compete very well at the high end. We just recently introduced also new high-end products, which really differentiates us really well in the market. For Q4, as Shawn mentioned, the growth is expected to slow due to customer projects and then also tough comparisons. So it's also, in this business, also the timing of projects, always how they play in, but also we're facing really tougher comps moving forward, and that's why we also set our expectation a bit more moderate. I think they're competing extremely well with the portfolio. But overall, of course, the food market is nothing that we overall expect really high single digits, right?
For us, it's important that we are competing really well and that we continue to take market share, which we are really seeing very well in our portfolio.
Okay. Understood. I think your comments around Lab growth this quarter sounded like the consumables business, in particular the pipettes, was a nice contributor there. Can you maybe just talk about, that was softer several quarters ago. It seems like that's very much back to normal. Maybe just talk about how you're thinking about the consumables-focused parts of the Lab business in 2027. Thank you.
Yeah. Maybe I start right there with the pipettes, and we are really pleased to see that improving conditions because this segment has been subdued in recent years. We think market conditions have been improving across biopharma and biotech research. But we also want to mention that we are really competing well. We launched new pipettes, new electronic pipette, and also some really nice new PFAS-free tips, low retention tips we call them, that are really very well received in the market. So we are well positioned as market conditions improve, and that, of course, will also then increase contribution of the consumables business overall.
Thank you.
Your next question is from the line of Josh Waldman from Cleveland Research. Your line is now open. Please go ahead.
Hey, guys. Thanks for taking my questions. I guess first, a quick follow-up on the stronger liquid handling. If I recall, this category has a much stronger margin profile. I guess, is that right? If so, regardless, more broadly, how are you thinking about margins, both gross margins, op margins for 2027? Would you expect mix to be a driver to margin expansion next year, just given some of the strength in new pockets within the portfolio?
Hey, Josh. I will take that one. Our Lab business in general tends to be higher than the rest of our business in terms of margins, and then within the Lab business, certainly our liquid handling business is one of our better margin businesses for sure. As Patrick said, we are very encouraged to see market conditions improve, but also really happy to see some new products being launched, some new innovation that is really well received in the market, and that, of course, is the key to sustaining margins in the future. In terms of 2027, as we kind of look at the year with Lab being a little bit better versus the other divisions, of course, that implies that we should probably have a little bit of favorable mix within the portfolio. Maybe I will kind of walk through things for next year.
At the operating margin level, we are probably thinking, of course, this depends on where you are in our range. At the midpoint, it is maybe an operating margin +70 basis points. To put in order of magnitude, if you were at the high end of the range, it would be about 90 basis points in terms of margin improvement year-over-year. We are a little bit more modest when it comes to the gross profit margin expansion next year. It is probably flattish, maybe up slightly. One of the things, we are just a little bit more cautious with two things. One is, we are keeping an eye on this inflation, but then the other thing is the tariff rates, right? We are kind of assuming that the rates go back to the previous IEEPA rates next year.
We'll see how that plays out, but that's at least how we're kind of positioning ourselves sitting here today.
Okay. Thank you. Patrick, you commented on strong core. I guess, any more detail or context you can provide on where you're seeing pockets of acceleration or maybe decel within core Industrial? Regarding onshoring, is this something that primarily hits pharma, or are you also starting to see onshoring opportunities show up in the more Industrial accounts? Where are these opportunities in the pipeline? Is it already hitting revenue, or do you think it's more opportunities that have yet to hit orders and yet to hit revenue?
Good. Great question, Josh. Yeah. Let me start first with Industrial, on core Industrial. Again, the majority of the growth is seen here as really industrial automation. Our customers are building out automation capabilities. That means not only end customers, but also customers like system fabricators and system integrators who build automation solutions for customers, whether it's pharma or other industrial opportunities out there. That's really driving the growth there. Across the board, we talked about that in China, but we also see that in the U.S., and some of it is also linked, of course, to the reshoring or onshoring activities to the United States, because as customers expand facilities over here or build new facilities over here, they are looking then to also use our automation solutions coming from Industrial.
Overall, on reshoring and onshoring, as I said, we are excited to see the activity of what we see in the funnel. There's really good customer engagement there. We see a lot of activity, but it's still really in it. We see this as an increasing momentum that will contribute in the second half of 2027 and the years ahead. There is some revenues, of course, also that we have seen in this quarter, but still very early. I think the majority there is really still to come. I expect this to be a stronger and longer-term way for us, especially in the United States. We have seen some of it also, for example, in the emerging markets around China over the last years, and that will continue potentially as well.
Got it. Thanks for the detail, guys.
Your next question comes from the line of Evie Koslosky from Goldman Sachs. Your line is now open. Please go ahead.
Great. Thank you for taking my questions. I think this is the second quarter you have mentioned strength in emerging markets. Maybe just talk through the investments you are making there, and then the durability of those trends, and then any particular geographies you would specifically call out.
Yeah. Hey, Evie, this is Shawn. I will take that one. As I mentioned earlier, Patrick and I just came off of our annual budget tour, and we kind of wrapped up in Asia Pacific, and it was just a great way to end the tour because just the number of opportunities and the enthusiasm, frankly, that we felt from the teams was really encouraging. We have always felt like we have a really great footprint in the region. We have been there for so many years with dedicated direct sales organizations in a lot of these countries, like the various countries within Southeast Asia or India or Korea and et cetera. I think that dedicated focus with direct sales is a real key differentiator for us. They all benefit from the same program, Spinnaker, that we see worldwide.
I think we've also been incrementally investing in these countries for a while. Most of them have very specific dedicated strategic growth plans that they review with us on a regular basis. Then frankly, just even coming off this tour, we were looking at opportunities for incremental investment going into next year, just given the strength of momentum. So we feel really good. When you think about this global footprint of all the emerging markets, including Eastern Europe and Latin America as well, I think emerging markets outside of China are about 17% of our sales. Then China's going to be in that 16%, 17%, maybe this year probably rounds to 17%. So it's a very chunky piece of business, more than a third to maybe a little bit more than a third of our business in these faster growth areas right now.
If you think about these regions, of course, they're the ones benefiting a lot from nearshoring or China Plus One strategies, or India with a lot of generics opportunities, et cetera.
Great. That's super helpful. On pharma, given the strength there, maybe just walk through biotech versus large pharma, then any particular instruments that are selling into that space that have seen recent strength. Then contributions from a broader market improvement versus any new product launches.
Yeah, the one thing we saw in the quarter, maybe I'll start the answer, is biotech had been under a lot more pressure, right, for several quarters in a row. What was nice is that, if you think about the one area, we don't have a significant exposure there, but the one area we do is liquid handling and pipettes. We certainly saw improved activity for sure with strong growth in the quarter there. So that was very encouraging for us to see. In addition to that, it was kind of like a great one-two punch because as the market was recovering, we also have some new products that we're bringing to the market as well too. So it's hard to say how much of it was market versus product, but it was clearly market conditions have improved.
But, hey, these new products are just being launched, so it's still a little early, but very well received.
And back to your question—
Thank you.
Back to your, maybe I should say, back to your question regarding the portfolio, it is across the board from all the QA/QC into manufacturing. In manufacturing, it's not only the sensors that go, for example, into bioreactors, but it's also industrial weighing applications that we sell in pharma as well. So it's really driving a lot of good contribution for us across the portfolio.
Your last question is from the line of Michael Polark from Wolfe Research. Your line is now open. Please go ahead.
Good morning. Thank you. One topic, two-parter. China. If I have the math correct, the original guide for China in 2026 was low single-digit growth. I think you are tracking to do something like 9% or 10%. How would you bridge that variance? Is that broad-based upside, or is there one or two things that deviated positively from your model? The second part is for the mid-single-digit growth guide for China in 2027. I understand it is a volatile geography, and your visibility is generally low regarding backlog, so things can swing. As you reflect on a long history in China, what is a reasonable up/down band versus an initial Mettler forecast for say, mid-singles? I would appreciate some perspective on that. Thank you.
Yeah. When you look at the full-year guidance and if you kind of squeeze out, if you kind of apply this Q4 guidance that we talked about earlier, we are probably more in the 10% range for China, frankly, for this year. This has been a great year for China, right? We saw things starting to gradually improve every quarter. It started with the Industrial business, and now we are seeing it also in the Laboratory business. It is really nice to see that it is I like the fact that it has also been a little bit more gradual, even though it is a lot different than it was at the beginning of the year, instead of being very spiky. At the same time, we have said for many years, things in China in particular can change very quickly, more than other regions.
It is just a little bit what we Given that we only have about one and a half months of backlog at any point in time, that is why we are just a little bit more cautious as we look next year. Clearly, there could be a swing factor going into next year, and acknowledging that, sitting here today, there probably looks like there is more upside there than downside.
Thanks, Shawn.
There are no further questions at this time. I will now turn the call back to Adam for closing remarks.
Great. Hey, thanks, Jonathan, and thank you, everybody, for your excellent questions. If you have any follow-ups, please feel free to reach out to me, and I hope you all have a great weekend.
This concludes today's call. Thank you for attending. You may now disconnect.