Good morning, everybody. I am Doug Schenkel, and on behalf of UBS, it is my pleasure to welcome Shawn Vadala, Chief Financial Officer of Mettler-Toledo. Thanks for being with us this morning.
Yeah. Hey, it is great to be here. Thanks for hosting me, Doug.
I think Mettler is well-known to everybody here, everybody on the line, but it has evolved from its roots in precision weighing into a global leader across laboratory, process analysis, industrial, and product inspection markets with what it believes are number one positions in most, if not all of those areas. The company did a really impressive investor day earlier this week. The company is now leveraging that leadership position and a long track record of strong best-in-class execution to capture growth from automation, digitalization, and potential reshoring opportunities. A lot of exciting things to talk about. That really probably sets the stage for what we are going to go through as a roadmap. I want to talk about the analyst day. Maybe, yeah, we have a few questions there, and I want to talk about the messaging there.
Kind of sort of related, maybe we could just start with a state of the union, state of the company, keeping in mind you grew 6% or so organic in the third quarter. At the analyst day and on that call, you laid out an initial 2027 outlook of around 5% local currency revenue growth, low double-digit earnings growth. What drove the strength in the quarter?
As you are thinking about 2027, what are you assuming in terms of the demand environment across your key end markets?
Okay, great. Well, thanks, Doug. There is a lot to unpack there. I look forward to the next half hour.
Yeah, go. Oh, yeah.
So, hey, I'll start with the third quarter. Very pleased with the third quarter, 6% growth, as you mentioned. What was nice to see is the breadth of the growth in our product portfolio. On the industrial side, we were kind of comping, I think, a double-digit growth on the core industrial side in the year before. So, it was really nice to see growth on top of that. The trends that we continue to talk about with customer automation and digitalization really continued to We experienced that. On the laboratory side, what was nice is that if you think about the beginning of the year, bioprocessing had really good trends, and then in the second quarter, we started to see analytical instruments, laboratory balances, like that, products that tend to sell to the QA/QC bench doing very well.
By Q3, we were starting to see stuff on the early research side. For the first time in quite a while where we had very good growth in liquid handling, the pipettes and the pipette tips. So, that was also really encouraging to see. Geographically, Asia Pacific was clearly the highlight. Patrick and I were just there in September at the conclusion of our annual budget tour. High energy, as you can imagine. Each year when we go there, I feel like we're kind of getting a pulse on the situation, and we walked away really encouraged. We were literally accelerating some additional investments into the region in terms of growth investments while we were there, just because not only China, but the other parts of Asia Pacific. Organically, Asia Pacific grew 13% in the quarter, but China also grew 13% in the quarter.
That was great to see. We talked a little bit about that region and emerging markets more broadly in our second quarter call, and it was nice to see how that was playing out. As we start talking LRPs and things like that, emerging markets in general, I think, is an area where we're really encouraged. Then, you kind of take that, and we were able to get 13% EPS growth, which we felt very good about. That includes us continuing to invest in the business for the future, which we can talk a little bit more about with the LRP. As we kind of start to segue into 2027 and stuff like that, we do feel like market conditions now are better than what we were seeing. We're always a little bit cautious in how we look at things.
We're a little bit more cautious on Europe, as an example. I think the European continent has experienced higher energy costs relative to the rest of the world. I think that's going to influence some of their decision-making. In some of our core segments there, probably are investing more outside of Europe than they are in Europe at the moment. But still, we feel like market conditions generally are pretty good kind of going into next year. Now, maybe companies start a little cautious at the beginning of the year, but I think generally, we have probably more optimism at this point than we did a year ago.
Okay. That is great. A couple follow-ups. You mentioned Asia. You talked about China. China is about 16% of revenue. You had a really good third quarter. You are tracking to about 10% growth for the year.
That is right.
You expect it to grow, I think you guys described that growing around the company average, plus or minus, over the long term. With about 70% of sales to private companies. Based on the strength you are seeing, then when you think about September's pharma plan and then areas like batteries and new materials areas where you play a pretty important role. Why couldn't it be better in China, and how do you think about investing more in China? Because it does seem like there are some pretty interesting growth opportunities for Mettler specifically there.
Totally fair question. We are very optimistic on China. We are a little reserved with how we think about a longer-term guide. We just recognize that things can always change quickly in China.
Yeah, we've seen it.
We've seen it go both ways many times over the years. We're very favorable there, right? Like you said, we have a lot of competitive advantages in China. We've been there since the mid-1980s. We have a really great China- for- China footprint. Most of what we sell there, we make there. We are selling, as you say, directly. 70% of the time, we're selling to private companies. Then we also have a multinational footprint. So, it's a very, I think, a more sustainable footprint in terms of willingness to pay.
The trends that we see in China are not unlike the rest of the world, but I do feel like there's a lot of speed in China, as there always is, in terms of going after automation, going after digitalization, and those trends play very well to the strength of our portfolio, whether it be on the industrial side or whether it be in the laboratory side. As you say, we're also very well aligned with the strategic priorities there.
We've always had a very clear view of what the priorities are in the country in terms of pharmaceutical life sciences, but also clean energy. You mentioned battery as a sub-segment there and some of these other hot segments. Our portfolio plays very well there. What was nice to see is that with the reset in the market a few years ago, we felt like it wasn't like there was money throwing after the problem, right? There was a more organic recovery. Let's grow into the capacity, and then I think hopefully that's a little bit more sustainable going forward. But I think being aligned with those strategic categories is very important, kind of going forward, and that definitely makes us feel positive going to the future. Like you said, there's certainly argumentation for an upside to that.
As a follow-up, you touched on part of what I am about to ask, but one of the questions we get a lot is the localization you talked about. There is the BIOSECURE Act, specific to biopharma, just as an example of why China for China is particularly important. Between your manufacturing footprint and all the supply chains changes that you made in the pandemic, coming out of the pandemic, it sounds like you feel really good about your ability to be nimble, regardless of what happens geopolitically, within reason.
Absolutely. I mean, especially today versus three years ago. We kind of came out of COVID, like most companies, saying, "How do we add more agility to our supply chain?" We were already starting to think of what are the appropriate more region- for- region strategies to invest in. With the onset of tariffs and trade disputes, we, like a lot of companies, accelerated those plans. That didn't mean that we didn't do stuff in China- for- China. We did stuff in each region for its own region.
By doing those investments over the last four years, I feel like we're in a much stronger position, a more resilient position, but also it's a better answer for our customers, right? Because you think about delivery times and things like that, it's just a better answer. I do feel good about that. Now, like you said, there's limitations. There are topics in the world around electronics and other things that we, like all companies, we need to monitor closely. But I feel relatively like we're in a better position today certainly than we were in the past.
This puts you in a position, again, correct me if I'm wrong, but I believe your 2027 view assumes tariffs return to earlier higher rates. You are in a position to absorb the, quote unquote, "any changes like that," again, within reason, based on the footprint we just talked about, as well as SternDrive, essentially all the initiatives you have taken more broadly to basically manage your way through it.
Yeah. Just to even be more clear, we have assumed that the rates go back to the previous IEEPA rates in our guidance. If they go dramatically, like if we get back to the days of 145%.
That is tough.
Then that's another story. But within reason around IEEPA, we should be good. That's how we thought about it, yeah.
Pricing. You expect price realization of around 2% over the longer term. I think if we heard that 10 years ago, we'd say that's pretty impressive. In the current inflationary environment, how do we think about the ability to maybe get a little more price to basically manage things relative to cost?
Fair question. That's kind of like our baseline view of the world, right? That's a normal inflationary environment. To the extent inflation is higher, I think you'll see us do better, just like you've seen us do better in the past. We didn't want to assume anything on that. We didn't want to assume that we're going to do incremental actions with a longer-term guide. But certainly at elevated levels, we're monitoring that closely and will continue to do appropriate measures as we see fit. I think the bigger thing with pricing too is you can do that if you have a strong value proposition, right? You just can't It's not as simple as just saying, "Hey, inflation's higher. We need more." Of course, maybe that's how some conversations go, but in the end, it really Every time you have that kind of conversation, you're testing your value proposition.
Is a customer willing to pay? They're looking at their own budgets, and they're looking at, does this make sense? Our average price point is less than 10,000, so it helps, but we don't take that lightly. One of the things we talked about at the investor day, right, is accelerating the pace of innovation. R&D spending's up 32% over the last five years. The stronger that value proposition, the more it supports that ability to have that pricing conversation.
Reshoring. You expect more than half of your manufacturing and QA/QC exposure to benefit from U.S. onshoring. You've talked about greenfield sites taking three to five years to become fully operational. Some companies have thrown numbers out there quantifying it. I think it is really hard to do this without introducing an element of false precision.
Exactly.
That being said, Can you help us?
Exactly. Hey, we have obviously studied this very closely. There is a range here And within that range, all joking aside, we did not want to give this impression like, "Hey, here is the number. Because it really can go in many directions. So, when we reflected on it for this Investor Day, we said, "Hey, maybe what we will do is we will just kind of show everybody kind of like what we are seeing at a high level in terms of the activity. Back to like, is it real?
You mentioned we have a big opportunity here. 50% of our sales are sold in production, 20% in QA/QC. More than half of that we think would be what the product categories would be prime for this. We are a global company. We move well with these projects. A lot of these projects tend to be leaning into automation and digitalization. That fits us well also. But then we have our Spinnaker program, right? We are not just waiting for the projects to come. We are monitoring things. And Spinnaker is, we have been doing it for a very long time, and within the program we call Top K within Spinnaker, we kind of monitor different signals around the world, right? We have all these different external data signals, and we combine that with our knowledge inside the company.
I think it's that combination that takes a signal of something you would see, like, "Hey, they're announced that they're going to invest." How do you turn that into actions, right? That's what Top K is all about, is how do you take that and make it tangible, right down to the salesperson who gets it, what's the contact information, and then what's all the information we know about that customer that creates a competitive advantage? When we just look at that beginning point of the number of sites that are kind of in our database in terms of new incremental investment sites, the number has significantly grown just in the last year or two, and we kind of provided some year-to-date September numbers. To me, that's encouraging.
But in terms of the actual amount and the timeline, right, it's like both, because a lot of these things are going to take three to five years to build. Most of our benefit will be on the back end as they build out these facilities. But what's nice is that previous to COVID, like 80%, 90% of our business in the Western markets was just a replacement business. The fact that we're talking about greenfields in the U.S., it's very exciting. There's certainly incrementalism here. I know there's discussions about, well, what does that mean for Europe? I think Europe might be a little softer in the mix here, but still, net-net, we feel like it's incremental. There's going to be more redundancy maybe at customers, but that initial investment wave should help us. Yeah.
We didn't talk about this before, and it's a little bit hot off the presses given the election. It feels like the election was a while ago. It was last week. We had a policy discussion with the group last night. I think there's more questions about the shape of reshoring, the shape of MFN- coming out of the election. Clearly, this is a multi-year opportunity for you in its current form. If it changes shape, but we still keep in mind some of the underlying drivers for demand, does this, in a different form, do you think things drastically change from a long-term outlook standpoint if MFN were to change?
I don't think so.
I mean, you don't have a lot in your model for 2027.
No, no, definitely not for 2027. Like I said, the starting point for us when we were looking at our own supply chain, it was like we wanted to be more resilient anyhow. We wanted to better serve customers. I think most industries are thinking very similarly. It's just a question of how quickly do they move and over what period of time. But certainly, when we're talking about longer term estimates, certainly I think those things are in motion, right? You can see initial activity in many regards.
We've touched on many of the highlights, there's more from the investor day. Shawn , you guys always do a great job with those. What do you think is the biggest change? What is different this year from prior investor days as you are talking about Mettler? Essentially, what would you highlight as being the most incremental difference relative to what we have heard from you in the past?
So, maybe three things come to mind. One is we thought it was appropriate to reflect a little bit on the last few years and just also remind everyone how much we have been investing. I mentioned R&D already. But also in our own digitalization platforms. We have been investing in new growth programs as well too, like service is a good example, and then this resilience topic. So, the beginning point is, we have been investing and we feel like we are well-positioned for the future. Okay? The next thing is that, while the LRP itself probably looks very similar to the last time we had one, right? But the number of drivers is way more than last time. Way more. That is exciting, right? We already talked about some of them. Then the third thing is that we have this topic.
The concept of digitalization is not new for us, right? We have been doing Blue Ocean for, I do not know, almost 20 years. Throughout that program, we have a lot of advantages, harmonized processes, but out of those processes, we have data, and then we can start to do all kinds of things. Now we apply the new technologies on top of it, and it is really neat to see. But we talked about We spent a lot of time talking about what digitalization means inside Mettler-Toledo. So, there are three pillars there. One is, what are we doing to our own products to help our customers, whether AI wizards or imaging technologies? We gave a few examples.
The second pillar is, what are we doing to engage with our customers, which I think is super important as well too, making their life a little bit easier, adding a little bit of value in terms of the experience. The third one is, like a lot of companies, what are we doing inside? We shared a lot of examples in terms of the different use cases we have throughout the organization. I think we have 5,000 agents deployed already inside the company. We have more than 100 different use cases for each of the different functional areas. R&D is a very rich opportunity for us that we've been doing things, but it's every functional area. To me, that's very exciting.
You just see it's not about just squeezing what you can squeeze out of this. It's more about, what does it mean in terms of being able to do more innovation? What does it mean to grow faster? It's just like taking this whole resource reallocation topic and bringing it to the next level. To me, that was kind of neat. We talked a lot about that, but then we talked about, and this was maybe a little similar to the past, but it has a new flavor to it because of AI, is like, what are we doing across the whole customer's value chain in terms of our offering? We have such an advantage because we have all these leading instruments, as you mentioned.
Those instruments are collecting information, and the need for that information is more important than ever with all these AI programs. Now we provide a software layer above that, right? Like we have in the labs, we have LabX. Not only are we collecting it, we do it in a structured way, in a validated way, in a compliant way, and it fits very nicely into all of our customers' digital and AI programs. On the back end of that, hopefully there's some additional benefits with, like in the pharmaceutical industry, more drug candidates and ultimately more drug production.
Those are the things that stood out to me that were a little bit more different than the past. The baseline long-term strategies and what's prepared us for this moment, I mean, you don't get here in a year or a day, right? This has been many years in the making, and that's why it's so interesting.
Yeah, I mean, I do not remember you talking about hot segments before, right?
Yeah.
So, I mean, what is that? $250 million in revenue today, growing double digits. And you feel pretty good about areas like semiconductors, data centers, batteries, new materials, all of those hot segments, you feel pretty good about those being positioned to not just grow 10% this year or next year. The durability is there.
Yeah. I mean, if you just look at the fundamentals, right? Like, look at semiconductor, right? It is not a new topic. I mean, again, coming out of all the supply chain disruptions post-COVID, I think almost every country in the world, at least that was my impression when I was on the annual budget forum, like, "Oh my gosh, this is not just a two or three country topic." Everybody wants to have more autonomous control over their semiconductor supply chain.
There are all kinds of different programs all around the world on this topic. Now, we see it in our own country. I see it in my backyard in Ohio, for sure. That is the starting point. Then you layer on the electrification- global electrification trends, then the needs of the future. Depending on your views of all that, I mean, it just feels like this is a We are going to see this for many, many years to come. Then when you think about the time it takes to build the fab, it is not a short-term project, right?
No, this is not.
Like, this takes many years, and the biggest benefits will be towards the end when they're building out these plants. But that doesn't mean that it's not important for us to be talking to customers now to get specced in. That's where Spinnaker is super critical.
Couple follow-ups. You service about a third of your serviceable installed base today. Which I think you've talked about being a $3 billion business. Each point, I just want to make sure I have this right. Each point of added penetration contributes about 70 basis points to growth. Is that right?
To the total company, yeah.
To the total company.
Yep.
Do AI tools such as the technician knowledge hub change how quickly you can penetrate this opportunity?
Yeah. I think something like that, first of all, it helps us with first-time fix rates. That is a great thing for our customers, and it gets them up and running, and it enhances our value proposition. The second thing is it gets our technicians up to speed much more quickly. You hire a new technician, we have already started to see their onboarding time is shortened, so we are more productive. The more productive we are, the more service we can do. We are seeing early innings opportunities here, but I think that is good. That is a great example of how we leverage large language models on top of our existing collaterals.
That is what is kind of cool about AI at Mettler, is we have the Blue Ocean program with all this data, but we also have these corporate programs that we have been doing many years that have all this great information, right? All these materials, collaterals, and you can put large language models on top of that. We have our own ChatMT, probably like a lot of other companies, but then we can do things like this knowledge hub.
That is why I think, when I talk about that third pillar of AI at Mettler, it is not just about the productivity, it is really about the insights that you are gaining and just the effectiveness that you are. Another example that we are doing here is then using these technologies for scheduling. If we can just get one more visit scheduled a day, it is great. It is really great.
It moves the needle.
It moves the needle. Like you said, that is why we try to also frame, well, what does 1% mean? It gives a little bit of a sense.
The LRP numbers, again, didn't look drastically different. But details you provided, as we just talked about, were. As I've walked around the last couple days here, a few folks have said to me, "Mettler did a good job. It was interesting to hear them talk about a growth rate of X. If Mettler says X, they really mean Y, and they know they can get there." I'm not going to ask you what Y is, but guidance philosophy, no change coming out of this Analyst Day?
No.
Okay. I want to ask another AI question. And maybe kind of tie AI and autonomous lab into the same thing. Mettler has an estimated, I think it's 40% of QA/QC bench instruments and LabX connectivity. Where does automation create incremental revenue opportunities? Because I think there's a debate about, in a world where there's more AI, there's more autonomous lab where do you win? Are there categories that maybe actually come under a little bit of pressure if momentum continues on this front?
Yeah. Like you mentioned, in the QA/QC lab, up to 40% of the instruments, we have LabX, but we are also in the R&D labs too. For those who were on site the other day, we showed an example in one of the workshops of what a typical autonomous lab could look like. We have our instruments, but then we also partner with external companies in terms of robotics. What is interesting is that a customer can usually buy a wide range of instruments, and then each day, they can completely change what they want to do. Then, certain days, it is going to be this combination of instruments, and another day, it is going to be other combinations.
Now, fortunately for us, the laboratory balance is typically the most widely used instrument in a lab with sample preparation or whatever. That is a good one. Same with liquid handling, using individual pipettes as well too. We are in a good spot there. Currently, we are talking with, I think, about 120 autonomous labs around the world.
That's right.
Yeah. It's a global topic. We've talked about China as an example. The Chinese move as fast as anybody on these types of topics.
A few companies have told me China's at another level when it comes to advancing autonomous labs.
Yeah. I'd say so far, we've already seen a dozen of these labs already up and running.
Is this showing up in your liquid handling business today?
Yeah. It's all of our businesses.
All of your businesses.
All of our businesses. Now, just to temper expectations, this is super early innings. A dozen labs is not, with our price points, it's not a ton of dollars. But it's still, the trend itself is encouraging. The fact that we're well-positioned for it is even more encouraging, because it's hard to put dollars on these things. I've had a couple of questions recently on it. Then, of course, I ask our internal people the same question, and you always get the, "It depends," right? It depends on what they want to do and the lab, blah, blah. But in the end, you're going to have generally more instruments, so you can have all these different combinations.
You're going to want to have with us, with a common software layer like LabX, it helps to automate the workflows and communicate with the robots, but also collect all the data that it needs for its own AI purposes. When you're doing all that, we're just really well-positioned to sell presumably more instruments that are kind of with this one software layer. Then if it's truly 24/7, there's going to be more use. Maybe what does that mean for future replacement? But what does that mean for future service? So, there's a lot of questions that we still don't know. That's getting a little bit far out into the future. But there could be a lot of positives here, and hopefully our customers are also very successful with their programs, and we see ultimately more production coming out of these labs.
You did a nice job covering where you play there from a QA/QC standpoint to where you play more upfront in terms of on the discovery side. One thing we've been thinking about is, there's greater use of real-time analytics as bioprocessing titers increase. Obviously, any QA/QC issues there are really expensive. How are you positioned as AI plays a bigger role in basically trying to create better QA/QC tools?
In process analytics?
Yeah.
Yeah, I mean, this is, I feel like a sweet spot for us, right? We're the first company to have an inline sensor in bioreactors that started off with pH, and then over the years, we've added a wide range of parameters. Like anything, right, if you're a company, you want to measure all the parameters, and it's nice to have one supplier and, frankly, one digital connection to one terminal to monitor and control all this stuff. More recently, we just added glucose. You want to monitor the living organisms, their oxygen, CO2, all this stuff, but then you also want to monitor how much you're feeding the organisms with, quote, "sugar," you know?
Yeah.
We can do that in an online basis, very new parameter for us, so something we're excited about. We kind of look at this whole area as there's increasing needs for higher quality sensors, more of them, to make sure that they tightly control the batches, because a bad batch is very expensive. Our sensors are also digital, and so that's a competitive advantage. Some of them are smart, where they collect all the information right in the sensor itself, and they can tell you when it needs to be replaced, as an example. A lot of very cool things we're doing in this area, and I think by, once again, being a company that can broadly collect this information for our customers, they can then leverage that for their own AI programs.
I'm going to clumsily move over to industrial very quickly. Conceptually, it's some of the same principles that can drive even better positioning when it comes to areas like product inspection.
Yeah, on the product inspection side, definitely similar. I mean, one of the things that's interesting there for us is just what we've done from an innovation perspective in terms of coming out with some new products. We shared a few of those earlier this week. We've been kind of going after the mid-market opportunity as a segment that we didn't focus on a lot in the past. That's worked out very well, and now we've come out with, just very recently, new premium products as well, and that's being extremely well received too. That's fantastic. Then on the core industrial side, that even starts to sound more like the lab and process analytics side, where that data integration.
On the product inspection we do, we have product software, and we do that as well too, and then you can kind of use that as a feedback loop to your customers in terms of if you're seeing defects or contamination. Then in core industrial, then that gets a little bit more into IoT topics and things like that. We just literally came out with some new terminals, and that ability to integrate into our customers' systems is a huge advantage for us.
We're about out of time. I just want to make sure I get one last question in.
Sure.
You talked about $950 million of repurchases for next year. You also, on Monday, pointed to life sciences, recurring revenue businesses such as software and service, and distribution as key areas for potential bolt-ons. How actionable is the pipeline today?
We're always engaging in a pipeline. Just because we don't announce things doesn't mean we're not actively looking. We're just very disciplined when it comes to strategy and just making sure we have the right fit. But we have a good pipeline now, and we'll see how it turns out. But in the end, we feel very strongly about our organic story and a leader in very highly fragmented markets. We just need a little bit of market share. But we certainly like bolt-ons, and it'd be nice to see a couple additional ones in the future. But if it doesn't happen, we still feel great about our organic story.
All right. That's fantastic, Shawn. Let's leave it there.
Great.
Really appreciate you being here.
Yeah. Thank you very much.