Mettler-Toledo International Inc

NYSE:MTD

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by and welcome to the Mettler-Toledo Third Quarter 2023 Earnings Conference Call. I would now like to welcome Adam Uhlman, Head of Investor Relations, to begin the call. Adam, over to you.

[Adam Uhlman]

Thank you and good morning, everyone. Thanks for 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 today is available on our website. This call will include forward-looking statements within the meaning of the US Securities and Exchange Act of 1933 and 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 statements. For a discussion of these risks and uncertainties, see our recent Annual Report on Form 10-K and quarterly and current reports as filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements except as required by law. On today's call, we may 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 also available on our website. Let me now turn the call over to Patrick.

[Patrick Kaltenbach]

Thanks, 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. Market conditions were weaker than expected in the third quarter, especially in China, where market demand significantly deteriorated relative to our expectations. Our team has reacted quickly to address the market challenges and addressed our cost structure and delivered good margin and cash flow performance despite these headwinds. As we look to the remainder of 2023, we expect market conditions to remain weak, especially in China. And based on market conditions as of today, we would expect these headwinds to persist into next year. However, we remain confident in the factors we can control, including strong execution of our proven corporate programs like Spinnaker to drive growth and capture market share and SternDrive to manage our costs effectively. Our go-to-market strategy, innovative portfolio and unique culture has been important differentiators during challenging conditions. And I'm convinced our efforts have driven market share gains and will help us to emerge stronger in market recovery. Let me now turn the call over to Shawn to cover the financial results and our guidance. And then I will come back with some additional commentary on the business and our outlook. Shawn?

[Shawn Vadala]

Thanks, Patrick; and good morning, everyone. Sales in the quarter were $942.5 million, which represented a decrease in local currency of 5%. On a US dollar basis, sales declined 4% as currency increased sales growth by 1%. On slide number four, we show sales growth by region. Local currency sales grew 4% in Europe, declined 3% in the Americas and declined 14% in Asia, Rest of the World. Local currency sales in China were significantly lower than expected and declined 25% in the quarter. On slide number five, we show sales growth by region on a year-to-date basis. Local currency sales grew 1% for the first nine months, with 4% growth in Europe and 1% growth in the Americas and a 1% decline in Asia, Rest of the World. Local currency sales decreased 6% in China on a year-to-date basis. On slide number six, we summarized local currency sales growth by product area. For the quarter, Laboratory sales decreased 9% and Industrial decreased 6% with core industrial down 9% and Product Inspection, up 1%. Food Retail grew 49% in the quarter and benefited from significant project activity. Service sales grew 6% in the quarter. The next slide shows local currency sales growth by product area on a year-to-date basis. Laboratory sales decreased 3% and Industrial increased 2%, including 1% growth in core industrial and 4% growth in Product Inspection. Food Retail increased 33%. Service sales grew 11% 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 59.4%, an increase of 10 basis points, as pricing was partially offset by our volume decline, higher cost, business mix and currency. R&D amounted to $46.1 million in the quarter, which is a 1% increase in local currency over the prior period, including increased project activity. SG&A amounted to $217.4 million, a 9% decrease in local currency compared to the prior year and includes lower variable compensation and benefits from our cost savings initiatives. Adjusted operating profit amounted to $296 million in the quarter, a 4% decrease. Currency reduced operating profit growth by approximately 3%. Adjusted operating margin was 31.4%, which represents an increase of 20 basis points over the prior year. A couple of final comments on the P&L. Amortization amounted to $18.3 million in the quarter. Interest expense was $20.3 million and other income amounted to $1.2 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and adjusting for the timing of stock option exercises in the quarter. We continue to expect our tax rate to be 19% for the full-year, and again, in the fourth quarter. Fully diluted shares amounted to 21.9 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $9.80, a 4% decrease over the prior year or a 1% decrease excluding unfavorable foreign currency. On a reported basis, in the quarter, EPS was $9.21 as compared to $9.76 in the prior year. Reported EPS in the quarter includes $0.24 of purchased intangible amortization, $0.27 of restructuring costs, and $0.08 from the difference between our quarterly and annual tax rate due to the timing of stock option exercises. The next slide illustrates our year-to-date results. Local currency sales grew 1% for the nine-month period. Adjusted operating income increased 4% or 8% excluding unfavorable foreign currency. And our operating margin expanded 140 basis points. Adjusted EPS grew 4% on a year-to-date basis or 9% excluding unfavorable foreign currency. That covers the P&L. And let me now comment on cash flow. In the quarter, adjusted free cash flow amounted to $251.7 million, up $27 million, helped by favorable working capital. Year-to-date, cash flow per share grew 32%. DSO was 37 days, while ITO was 3.8 times. Let me now turn to our guidance for the remainder of this year and our initial thoughts on next year. First, forecasting remains very challenging, particularly for our business in China. Our team in China has reacted to changing market conditions very quickly, and we feel very good about our market position in the country. However, economic conditions remain challenged and there's low visibility. Outside of China, there's also greater uncertainty today with weakness in our core end markets such as life sciences and continued soft economic conditions in Europe and the Americas. We expect lower-than-normal customer year-end spending. The recent Middle East conflict also creates additional uncertainty. Secondly, our organization is not standing still during this period of reduced market demand, a defining attribute of our culture. The team has executed exceptionally well to adjust our cost structure to current market conditions, while at the same time, reallocating resources to support important investments in our long-term growth. Now, turning to our guidance. For the full year 2023, we expect local currency sales to decline approximately 1%. This compares to our previous guidance of 0% to 1% growth. We expect full-year adjusted EPS to be in the range of $39.10 to $39.30. This includes an expected headwind to adjusted EPS growth of approximately 3% to 4%. Free cash flow for the year is now expected to be approximately $875 million above our prior guidance, as our reduced profit forecast is more than offset by the favorable timing of tax payments and working capital. Share repurchases will now be $900 million in 2023. With respect to the fourth quarter, we would expect local currency sales to decline 7% to 8%. We expect fourth quarter adjusted EPS to be in the range of $10.50 to $10.70. Currency is expected to increase sales by approximately 1%, but decrease EPS by approximately 1%. We have also provided our initial guidance for 2024. And based on our assessment of market conditions today, we would expect local currency sales to be approximately flattish and adjusted EPS to be in the range of $39.10 to $39.80, which represents a growth rate of 0% to 2% or 2% to 4% growth excluding adverse currency. Relative to sales, currency is expected to be a headwind to sales growth of approximately 1% in 2024. Underpinning our 2024 guidance are the following assumptions. First, we expect our customers to remain cautious with spending in the first half of the year, reflecting the increased uncertainty in the economy. Our sales in China are also expected to decline in the first half of the year as economic trends are expected to remain weak and we faced challenging multi-year growth comparisons. We expect our local currency sales to improve in the second half of the year as comparisons become easier and market conditions improve. Secondly, we expect our year-over-year margin performance to be dampened due to lower sales volume and a reset in our variable compensation programs, offset in part by our cost savings initiatives. Lastly, I'll share a few final comments on our 2024 guidance. We expect total amortization, including purchased intangible amortization to be approximately $73 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $25.8 million on a pre-tax basis or $0.96 per share. Interest expense is forecasted at $86 million for the year and other income is estimated at approximately $5 million. We expect our tax rate before discrete items will remain at 19% in 2024. We expect free cash flow of approximately $850 million, representing a conversion of approximately 100% of adjusted net income. We also expect share repurchases will be approximately $850 million. That's it from my side. And I'll now turn it back to Patrick.

[Patrick Kaltenbach]

Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, where our sales teams continue to see good engagement and activity levels with customers, but budget constraints and cautious spending patterns have led to declines in demand across our key market segments of life sciences, food and beverage and chemicals. This is especially true in China, where our pharma and biopharma customers have significantly reduced their investments and after significant spending during the pandemic. In the Americas, while customer destocking of pipettes has unfolded as we had expected, we still see weaker market demand. We also saw lower-than-expected demand from our automated chemistry business and analytical instruments and process analytics was again challenged by weak demand from our bio-processing customers. As we look out to 2024, the market fundamentals for our Lab businesses are good. While the pharma, biopharma market has slowed this year, we expect a normalization in activity in 2024 and the long-term outlook remains strong as innovation pipelines remain full of novel drugs and therapies to be brought to the market. We anticipate to benefit from trends in automation and digitalization, leveraging our LabX software. Additionally, our team remains focused on capturing the significant growth occurring in hot segments like lithium-ion batteries, semiconductors and sustainable materials. We will also gain from our investments in innovation and software and 2024 will feature many exciting product launches that I look forward to sharing with you over the coming year. Turning now to our Industrial business. Overall Industrial sales declined 6% in the quarter against very strong growth in the previous year. Our core industrial product sales were weaker than anticipated due to a sharp decline in sales in China. And we also had lower sales in the Americas due to very tough growth comparisons and weaker market demand. Product Inspection sales grew in Europe. However, this growth was largely offset by weaker sales in the Americas, as our food manufacturing customers have remained cautious with their investments in new equipment. As we look out to 2024, while our core industrial business likely faces headwinds from a slowing global economy, particularly in China, we should benefit from global trends in automation, digitalization and reshoring investments around the world. We also continue to upgrade our portfolio with new solutions to address our customers' challenges on the production floor. For example, there is increased customer focus, the devices used in hazardous areas to be certified explosion-proof and to be a simple-to-use as those in safe areas. Earlier this year, we released a new model of our flagship industry 500 weighing terminal for use in hazardous areas that provides powerful process control for our pharma and chemical customers. Our new terminals are intrinsically safe and also features seamless integration into customers' automation systems and deliver state-of-the-art cybersecurity features. Now, regarding our Product Inspection business, food manufacturing customers faced more difficult operating environment today, which we expect will lead to limited growth for our Product Inspection business in 2024. We will also continue to focus on innovation in this area as our customers increasingly seek solutions to protect the packaged foods from physical contaminants and increased productivity as they continue to be challenged by labor shortages. We have had great initial success with our new X2 line of x-ray products that have launched over the past year to address demand in both the mid and premium end of the market. This new line provides a wide range of package integrity checks in addition to the digital contamination detection and positions us very well to gain market share. Lastly, Food Retail had another quarter of very strong growth due to the robust project activity in the Americas. Our team has delivered remarkable growth this past year with successful penetration of major grocery and club stores. While we have cultivated an attractive portfolio opportunity pipeline, the strong growth we expect to deliver this year means we face very challenging growth comparisons in 2024, and therefore would expect modest revenue declines. Now let me make some additional comments by geography. Sales in Europe grew 4% in the quarter, with growth across our product portfolio, and across most major end markets against very modest growth in the prior year. While we are pleased to have generated good growth in Europe so far this year, we are more cautious on the outlook for Europe due to soft PMI readings in the region, the continuing war in the Ukraine and potential for disruptions for the economy from the conflict in the Middle East. Turning now to the Americas. Our very strong growth in food retailing customers was offset by a decline in both laboratory products and industrial. Customer feedback in the Americas continues to point to optimism over the coming years from various government stimulus programs like the CHIPS Act and the Infrastructure Bill, as well as reshoring activities. Our pharma and biopharma customers are expected to gradually increase their spend in 2024 as to return to more normal replacement cycles and continue to advance their drug pipelines. Finally, Asia and the Rest of the World sales declined 14%. Our sales in China declined 25% driven by very soft laboratory and core industrial product sales. Pharma, biopharma demand in China has declined significantly after several years of very strong growth. And we have also seen very weak demand across other end markets in China as the economy has abruptly slowed. The economy in China was expected to rebound following the end of the COVID lockdowns almost a year ago, as the central government shifted their focus towards growing its economy. However, the lack of stimulus, headwinds from the real estate sector and declines in direct foreign investments are weighing on business and consumer confidence. While the outlook for China is uncertain in the near-term, the long-term growth opportunity remains significant due to the country's commitment to expanding R&D investment and supporting development of advanced pharma, biopharma, new energy and new material industries. We also continue to see the laboratory market shift towards more advanced automated solutions in China, supported by a desire for highly accurate and reproducible results. Our industrial solutions are increasingly in demand as customers in China look to increase quality, reduce cost and prepare for labor shortages in the years ahead. Our business is very well-positioned to capitalize from these growth opportunities and we expect solid growth over the long-term. Now as we look forward to the remainder of 2023 and 2024, we expect market conditions to remain challenging. Nevertheless, we remain focused on the things we can control through the diligent execution of our initiatives. Our competitive position has grown stronger as we continue to expand our technology leadership with new product innovation and our Spinnaker sales and marketing programs will be further enhanced over the coming years with more sophisticated digital tools to ensure our sales teams are guided efficiently to the best opportunities. We're also stepping up on various strategic pillars and enhancing the Mettler-Toledo experience with customers and employees, which will be enabled with the launches of new programs over the coming year. I couldn't be more excited about what the future holds and fully believe that the best is yet to come. So that is the conclusion of our prepared remarks. Operator, I'd now like to open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Dan Arias with Stifel. Please go ahead.

[Daniel Arias]

Hi. Good morning, guys. Thanks for the questions. Shawn, maybe just to start on China, what's the implied performance that you're baking in for '24? And I know it's hard to sort of predict cadence this far out, but can you just talk about what's assumed first-half versus second-half, just knowing that, obviously, the comps will be easier here in the second-half? It sounds like you think China can be -- will be down in the first-half, but maybe grow in the second-half. Are you able to sort of compare how those two pieces might look next year, and then just all-in what you're baking in?

[Shawn Vadala]

Yeah. Hey, thanks, Dan. Yeah, so for next year, we're kind of expecting China to be down high-single digit, but we're expecting more significant decline in the first half of the year. And frankly, also expecting a significant decline in the fourth quarter, probably down in the mid-20s in Q4, kind of similar to what we saw in Q3. But we do -- we are very optimistic about growth in the second half of the year next year. Like you said, we'll be facing some easier comparisons, but, I think a lot of different topics in the local market should also be flushed out. I think we also appreciate that there was an element of maybe some stocking at customers that were happening with supply chain constraints during COVID. And some of that inventory is also going to be flushed out by the time we get to the second half of next year.

[Daniel Arias]

Okay. And then maybe just on op margins, how do things look there for you, just sort of in the context of the expansion that you're delivering this year on, more or less similar organic growth? I mean, obviously, FX is a headwind. I would imagine there's a pricing headwind too. Can you just talk about that? And then also the dry powder or the gas in the tank whatever term is appropriate there, just when it comes to efficiency and productivity that comes out of things like SternDrive, Blue Ocean, et cetera?

[Shawn Vadala]

Yeah, sure. So, yeah, so when we look at our margin for this year, of course, we're very pleased with our margin expansion. On a year-to-date basis, I think, we're up like, what, 140 basis points. For the full-year, we'll probably be up, excluding currency, we'll probably be up over 100 basis points. But on a reported basis, probably in the 50 basis point kind of a range. As we look to next year, our operating margin will be more flattish. And if you exclude currency, it's probably up by about 20 basis points. Probably one of the -- as you -- I think you kind of like highlighted some of the things in terms of like puts and takes for next year. In terms of -- maybe I'll start with pricing, pricing continues to do very well this year. It came in about 4.5% or so for the third quarter, we'll probably be down a little bit from that level in the fourth quarter, probably in the 4% kind of a range. But then, when we kind of like think about next year, we're probably more in the 2% range, probably more -- in a more normalized environment for next year. So that has an impact what you kind of compare '23 versus '24. From a volume perspective, you know, you're right, it's probably kind of similar year-on-year in terms of the overall volume. But we also have initiated different cost savings measures. We're very pleased with the progress on that. A lot of that's targeted towards productivity in the organization. So we will have some benefits from that into next year, but we also -- one of the things we have going on next year is we also have -- so if you kind of like think about our overall cost structure, you know, excluding bonus and incentives, might be down slightly. But we do have to bring back bonus levels to a more normalized level next year. So that's going to be a little bit of a headwind as we kind of go into next year. And then, I think, maybe the final thing is like when you go through times like this, I think, on one hand, we're very proactive. On the other hand, we're also very mindful. We want to be very mindful of coming out of this situation stronger than when we entered it. I think, that's something we've always been good at in the past and we're very thoughtful about how we're trying to balance our costs and our investments in this environment, and we have a lot of things that we're still investing in that we're actually very excited about. We'll drive some innovation that we'll see next year, but also beyond next year too. And it's not just innovation, we're continuing to invest in our service organization as well. So, I think we have a good balance in the company. And I think when we kind of step back, I think, we have the right mix going into next year. And maybe I forgot -- almost forgot, there's one other thing is foreign currency. I think you mentioned in the question. You know, our currency will be about a 2% headwind to our EPS kind of next year.

[Patrick Kaltenbach]

So, if I might add, because Dan also has asked about SternDrive, just to add data on SternDrive, we, this year -- then I'll talk about stepping up on our strategic pillars. We just launched SternDrive phase three with a strong focus on automation on the shop floor, smart automation and we expect that also to continue to significantly contribute to our performance next year and drive savings both on the automation side, but also back-office sufficiency et cetera. So the program is fully running and the team is very committed to drive additional savings next year.

[Daniel Arias:]

Daniel Arias:

[Operator]

Our next question comes from the line of Josh Waldman with Cleveland Research. Please go ahead.

[Joshua Waldman]

Hey, good morning. Thanks for taking my questions, guys. Maybe one for Shawn and then one for Patrick. Shawn, I wondered can you talk a bit more on the assumptions that went into the guide, particularly as it relates to the sequential progression from Q4 into '24. I mean, it seems like the guide implies a bit more of a step-up than normal on an absolute basis into '24. I mean, anything you're seeing like in the markets that you're trying to capture within the guide, suggesting that maybe like fourth quarter is trough and things start to get better as we roll into '24?

[Shawn Vadala]

Yeah, I think, the one topic we have in Q4, Josh, is that kind of like -- if you look at how we think about market demand in the fourth quarter, I don't think we're going to get like -- I think the market demand is going to be less than it normally is towards the end of the year. Each year, there tends to be a pickup in market demand, especially in the Lab business. And right now, we're -- we're not anticipating much of that pickup, if any, in our fourth quarter guidance. So that's maybe one topic to think about this year versus next year. But then as we kind of like enter the year, we're very much thinking and not to get too specific this early, but we're definitely thinking the first half of the year is going to probably look more similar to the second half of this year. In other words, I think we fully expect to be down in the first half of the year. But we do see ourselves returning to growth in the second half of the year, especially as we face easier comps. I think there's Q4 dynamic, it should be better next year as well. And then, if you kind of like get into parts of the portfolio there's been different destocking issues at different points in time whether it's pipette tips or whether it was consumables and bioprocessing, especially on the single-use side. And then I kind of mentioned in the first question, some of the stuff that we're seeing in China as well.

[Joshua Waldman]

Got it. Okay. And then, Patrick, can you comment on how the service business is holding in? I think it's been a bright spot here recently. But, I guess, any risk that that business starts to slow on the back of software, hardware, and maybe pressures growth and profitability as we move into '24?

[Patrick Kaltenbach]

Yeah. Thanks. Thanks, Josh, for the question. I mean, I'm extremely proud of our service organization and that's definitely also an area where we continue to invest this year as well. We also had a headcount in services to make sure that we can deliver on the demand of our customers have in our services. As I mentioned in one -- in some of the earlier earnings calls, we increased our portfolio and improved our portfolio of service offerings. That helps us of course to also drive not only more -- to drive more services at the point of sales, getting a higher connect rate, but also good people after our installed base that we have out there and potential products that are currently not yet on the service contract we have established telemarketing campaigns et cetera. So really performing well. In Q3, I think, our growth rate, Shawn, correct me if I'm wrong, was 6%. And that's for the full-year still holds up in the high-single digits and low-double digits growth for the full-year on services. It has been very strong in the first-half. Now, of course, we're also facing tougher compares, because we also had strong growth in the second half of last year. Now, looking forward, again, we still have, I think ample of opportunity to go after our installed base, products that are currently not under contract, making sure that the customers, yes, understand the full benefits of being on a contract with us. We know the customers who are on the service contract are much more likely buy again from us, because they have seen the benefits of being on the service contract with Mettler-Toledo. We continue to look into the offerings we have, more sophisticated services for more complex solutions out there and that will also continue to drive momentum for us in service. I'm -- again, I'm very happy about the long-term opportunity in service and would expect it to continue to grow mid-single digit at least next year.

[Joshua Waldman]

Got it. Appreciate all the detail, guys.

[Operator]

Our next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.

[Vijay Kumar]

Hey, guys. Good morning, and thanks for taking my question. Patrick, maybe one on, you know, when you look at the Q4 guidance sequentially stepping down from 3Q shouldn't be a surprise given your commentary. Like what is changing from a Mettler's perspective, right? Can you comment on end market, you know, pharma versus industrial, like what are you seeing in China versus non-China, trying to figure out if this is all China or ex-China you're seeing softening?

[Patrick Kaltenbach]

Yeah. Good question, Vijay. I mean, the biggest part of it is, as Shawn also outlined, is absolutely China, because we had initially we had planned for double-digit to mid-double digit declines in China, I'll be facing probably again 25%, 50% decline in Q4. That's what we are planning for. That's certainly one important piece of it. The other piece is the overall budget flush that also affecting mainly the Lab business, which we basically don't account for this year. We see very limited action there from customers and we should see by now, to be honest. So we didn't factor that into the Q4 growth as well. So in that regard, it's kind of a bit unusual Q4 for the margin and I think some of our peers also mentioned that you're seeing similar lack of demand, budget flush demand at the end of the year this year. Customers are just more cautious with their spending, and they're not really using their budgets. I have contact with several key customers out there, and they said, look, we have to hold our budget together this year and we will continue to look into opportunities next year, but don't expect a big budget flush from us in Q4 this year. I think that's probably the biggest things with China together with the lack of a budget flush. In terms of the other industry, I would say no significant changes, whether it's US or Europe. Maybe a little bit in the chemical market in the US, where we saw a slowdown in Q3 and we also factored into Q4. But we have to see how that plays out long-term, unless there is a major disruption in the market, I would expect it to still be with, I would say, normal momentum going into 2024, the chemical market.

[Vijay Kumar]

Understood. That's helpful. And Shawn, maybe one for you. Did I hear you right about pricing being normalized, you know, two points next year? Like just given Patrick's comments and end markets being little tougher, does the pricing -- like what gives you the visibility on pricing for next year? Should we assume gross margins being consistent flattish year-on-year?

[Shawn Vadala]

Yeah. So, I mean, yeah, I think, I feel very confident with the 2% for next year. I think there's a lot of factors that go into it. Of course, we have a pretty robust process. I'm sure you're familiar with that we literally start in the summer and we go through the whole portfolio with the organization and we look at different metrics. But, I think when you step back from it all, our value proposition remains very strong. And I think that's always the key and that's why we're always of course investing in innovation to make sure we maintain that leadership in terms of the value proposition. But what we've seen is over the last couple of years is the market actually also move towards our portfolio in a way as customers seek more automated solutions, more digitalization. These are strengths of our portfolio relative to competition. And I think we're very well differentiated in many respects. And so, I think, that certainly helps us kind of maintain our pricing position versus competition. In terms of the operating margin, I mentioned flattish, but if you look at the gross margin, I think it will actually be up a little bit next year.

[Vijay Kumar]

Fantastic. Thanks, guys.

[Shawn Vadala]

Yeah. Thanks.

[Operator]

Our next question comes from the line of Derik de Bruin with Bank of America. Please go ahead.

[Derik de Bruin]

Hi. Good morning. Thank you for taking my question. So I guess the first one is, last November, when you had your Analyst Day, you raised the long-term guide to 6% to 5% for revenue growth. Look, I agree with you that China is not going to be down for a long time or not going to be down forever, and it will pick-up some point. But what do you think -- what do you think it looks like once the market sort of rebounds? I mean, we're in a different world today. Politics is different, things are different. How much of that 6% topline assumes that it was just going to be business-as-usual as it had been for those prior years and -- or what did you -- what do you embed in that guide for sort of like that China assumption with it? So I think the broad question -- I know you don't have the crystal ball, but I do think it's important.

[Patrick Kaltenbach]

Yeah, it is important. Let me start and I'll let Shawn chime in, in here. So, look, we think our -- when we talk about a 6% growth long-term growth model for Mettler-Toledo, I think that number is still very relevant in the mid and long term. And there are several reasons for that. Number one, we have factory in China in that equation to be high-single digits to long-term. So it's not that the growth rates that we have seen over the last two years, but still I would say high-single digit is probably not unlikely that we will see this in the mid-term again in China. The other important piece for us, and remember, when -- that we also shifted our portfolio sequentially into faster-growing segments over time, and that continues into the Lab business and the life science market; in Industrial, automation, these are all markets that are still where we see -- will see strong demand, just given the underlying demand in different industries, whether it's related to aging working populations like a flavor out there driving automation, the whole story around digitalization, where we have a very, very strong portfolio both on the Lab side, but also on the Industrial side. And even if you look at Product Inspection, product software, products software, we have a very unique positioning out there as well. That is something that I think will continue to differentiate us and also give us the opportunity to capture market share in a few account for an underlying market growth over the mid and long term in the range of 4% to maybe 4.5%. We should get to the 6% by taking the market share that we are going after. I think we have the right portfolio, increasing our investments and we have increased our investments over the last two years significantly to also drive new solutions to the market. You will see a lot of exciting solutions coming also next year, because I'm a strong believer that differentiation will help us to drive growth, but also profitability.

[Shawn Vadala]

And as a global company, of course, there is opportunities for us as there's changes in the landscape as well too. So we can pick up as companies start to reinvest more in maybe countries outside of China. We've already seen opportunities for our businesses in those kind of areas as well too. So I think the key for us is to always keep an eye on where the opportunities are and make sure we're there, leverage our programs to identify and pursue those opportunities.

[Derik de Bruin]

Got it. And as a follow-up, your business is relatively short-cycle. You don't build tonnes of backlog. I'm just sort of curious on where you're getting your visibility from and particularly into that back-half ramp, which looks a little aggressive, frankly. And also in regards to the same questions, like you talked about pharma and biopharma, returning to normal -- relatively normal replacement cycle, it seems like do you -- I'm just surprised to hear you say that given what -- given what my understanding of how the business is and sort of like how your visibility is for the next couple of quarters. Can just a little bit more confidence on what sort of going into this other than sort of like tougher or easier comps in the back half of next year.

[Shawn Vadala]

Maybe I'll start and let Patrick kind of add some color. I mean, I think, hey, I understand the point. We're typically only sitting on about a month-and-a-half worth of backlog, so I get that part. But I think if you take a step back too, like if you look at our multi-year CAGRs, kind of like four-year-type CAGRs, I mean, we are starting to see ourselves moderating here. And when you kind of look at the back half of next year versus even like 2019, you start to see more consistency from what we see here in the second half of this year. And so, I think at a high level, we think that that is reasonable. We also think that we are going to have easier comps. We know there -- our topics in China that will flush out with some excess inventory, maybe in the system from coming out of COVID. And then I think as we kind of particularly look at the fourth quarter, I think this year's fourth quarter is setting up to be a more unusual fourth quarter for the Group in terms of like lack of that end of the year uptick that we normally see in terms of market demand. And we can't predict what Q4 of next year is going to be like, but I wouldn't expect it to be the same environment that we're faced right now. You know and I'd say probably maybe one other comment is just talking to the sales organization throughout the world. And just what we hear from customers is that there is still a tremendous amount of interest out there. There's a lot of activity out there. It's just a question of when people will start to reinvest and have the funds available.

[Patrick Kaltenbach]

Certainly. And if I may add here, the topic around destocking is something that we have seen in pipettes, that we have seen in, you know, with the sensors in our Pro business et cetera. We think in the year for more customers, most of that is behind us. I mean, you are back to normal order pattern on these consumables and sensors that are used, for example, in manufacturing. Customers don't build-up excess inventory anymore, it's also clearly what we're hearing from them, but we see in terms of the order cycles and their -- that they are back to a normal use model that with the sensors.

[Operator]

Our next question comes from the line of Matt Sykes with Goldman Sachs. Please go ahead.

[Matthew Sykes]

Hi. Good morning. Thanks for taking my questions. Maybe just first on Europe, where there was some relative strength there, but just on the core industrial side and particularly on the chemical side, just the data points for getting things simply deteriorating, but there and you talked about the PMIs. Could you maybe talk about that as in sort of the context for '24, Europe and on the core industrial side?

[Patrick Kaltenbach]

I'll start with it and -- on Europe, yes, we have seen actually good performance this year in the margin, but -- and Middle East they also had some easier comparisons versus China, US compared to last year, where they had -- where we had seen more growth last year in the market. That said, on the chemical market you referred to, one of our concerns going into the year was that the high-energy prices in Europe, which impacted market much more than we have seen actually it held up quite well also over Q3 for us. And I think it's two factors. Number one, it's our capability to continue to drive market share. Remember, we have a very strong sales team in Europe that goes mainly directed as -- and we leverage our -- also our Spinnaker sales capabilities to direct our sales team to opportunities very quickly and also address hot segments like lithium-ion batteries, et cetera, which help us to compensate some shortfalls in other areas. We are, of course, a bit more cautious on Q4 and expect also much more moderate 2024. You're right, the PMIs also point downwards, it's why we are more cautious next year. The investment sentiment across Europe, I would say, is, if you go to Southern Europe and Spain, for example, or Portugal, which are quite significant market for us, it's quite healthy. On the other hand, Europe -- within Europe, Germany has been slower this year than we thought it would be, but we also see a lot of excitement, for example, in France. France has put a France 2030 plan in place, where they plan to invest in some of these core technologies in pharma, biopharma, in semiconductors, but also into lithium-ion battery and energy market, which I think will continue to drive growth moving forward. So, again, overall for Europe next year, very moderate, but long-term, I think it has still holds our model that we expect low-to-mid single-digit growth from Europe.

[Shawn Vadala]

Yeah. And just to maybe --

[Matthew Sykes]

And then just one --

[Shawn Vadala]

Go ahead. Yeah.

[Matthew Sykes]

Go ahead, Shawn.

[Shawn Vadala]

I was just going to say, just to answer your question specifically for next year, we're a little bit more cautious on Europe in core industrial specifically, probably expecting it to be more, more flattish next year. And this again after coming on top of some really solid numbers this year and clearly frankly exceeded our expectations for the year. And then for Europe in total for next year, since I'm hitting it, we're probably looking at growth up slightly for the year overall.

[Matthew Sykes]

Got it. Thank you for that color. And then, maybe just following-up on Derik's question on the second-half next year assumptions. Shawn, if we were to kind of look at the comp impact and then inventory destocking, where there might be some level of visibility that going away. Could you kind of isolate what your assumptions are for just underlying demand growth in the back-half, in the context of the second-half recovery, if that's possible?

[Shawn Vadala]

Yeah. I'm sorry, Matt. I don't have that level of triangularity in our model. And of course -- they, of course -- it's very early to start trying to give specific for any quarter for next year. I think we always try to share what we know at this time of the year, recognizing it's early, but we feel like it helps everybody to know at least what's on our mind and it helps you to think about how to organize your models. But of course as we get into the year, we'll refine the things as we learn more about trends as we enter the year.

[Matthew Sykes]

Got it. I appreciate that. Thanks, Shawn and thanks, Patrick.

[Shawn Vadala]

You're welcome. Yeah.

[Operator]

Our next question comes from the line of Patrick Donnelly with Citi. Please go ahead.

[Patrick Donnelly]

Hey, guys. Thanks for taking the questions. Shawn, maybe one for you, just in terms of next year, do you mind just breaking out kind of the segment forecast? You know, it's usually pretty helpful just to hear kind of that sub-segment detail and maybe geographies too. I know you mentioned Europe and China.

[Shawn Vadala]

Yeah, sure. So, hey, maybe I'll -- some of this might repeat what I've already said, but I'll just kind of go top-to-bottom just to make sure everybody gets it. So, I think, you know, the overall sales growth for the full-year next year is flattish. And so, if we start with Lab, we expect Lab to be up slightly. We expect, core industrial to be down slightly. We expect Product Inspection to be up slightly. And then we expect Food Retail to be down probably mid-single digit, might be a little bit more than that. From a geographical perspective, we expect, as I mentioned before, China to be down high-single digit with a bigger decrease in the second -- in the first half of the year and growth in the second half of the year. And then we expect the Americas and Europe to be up slightly.

[Patrick Donnelly]

Okay. That's helpful.

[Shawn Vadala]

You know, slightly low-single digit.

[Patrick Donnelly]

Yes. Go ahead. Yeah, I got you. And then maybe one on the earnings side, Shawn. I mean, just looking at 4Q, you know, in typical years, it's about a-third of the year in terms of earnings. Yeah, you're a little bit below $11 here for 4Q. I mean, just take that as a run rate, right, it kind of suggests something like $33. You know, the guidance for next year is more $39. I guess, is there something holding 4Q down, it goes away next year? I'm just trying to think about that as a jumping-off point and just bridging the gap to get to that guidance for next year on the earning side relative to what 4Q seems to imply.

[Shawn Vadala]

Yeah. I mean, I feel like you're trying to take a low quarter and try to extrapolate. And of course, the fourth quarter has this dynamic that we talked about with not having your typical year-end market demand, you know. And so -- so I'd be a little bit cautious to try to do any correlations off of that and of course, the way we're building it up is a lot more granular. Looking at the different levers and trying to pull it altogether and so we feel good about the guide that we've provided. And of course, there's a lot of moving parts. Things are dynamic, but I think we still stay very committed to operational excellence inside the Company. I mean, the culture is just amazing. The amount of agility and the amount of resilience is really impressive. And the organization is doing very well in that regard. And like I mentioned before, we do try to find the right balance for the medium and long term here too. And I think we were striking that with this guidance.

[Patrick Donnelly]

Okay. No, so 4Q seems maybe like a little more of a depressed number than how you think about next year, I guess.

[Shawn Vadala]

Yeah.

[Patrick Donnelly]

Okay. I appreciate, guys.

[Shawn Vadala]

Yeah. Thanks.

[Operator]

Our next question comes from the line of Jack Meehan with Nephron Research. Please go ahead.

[Jack Meehan]

Thank you. Good morning.

[Shawn Vadala]

Hi, Jack.

[Jack Meehan]

So, one of your peers called out lab closures is impacting demand as they went through the third quarter and into the fourth quarter. You obviously have really good visibility into this, probably amongst the best in the peer group. I was just curious what you're seeing in that regard, if that's kind of a factor that's playing into the outlook.

[Shawn Vadala]

Yeah, maybe I'll start, Jack. So, I mean, hey, the only thing I've really heard about is like there's certainly a lot of small start-up biotech that have gone out of business. Some articles on that kind of recently. But, as you know, that's not a big part of our business. I mean, it has a smaller effect on maybe our pipetting business, but a lot of our portfolio really isn't geared towards early research. So less of an impact for us, but other than that we're not hearing anything.

[Patrick Kaltenbach]

No, absolutely not.

[Jack Meehan]

Okay. And then on Food Retail, so, I just look back over the last decade, this has been, you know, give or take a $200 million business, you're there. This year, you're obviously trending well above that. Do you view this as pull-forward from future years? Is there some risk that this could swing below the trendline before we can get to equilibrium?

[Shawn Vadala]

It's always a lumpy business, you know, like we've had some years where it's been down recently. It's nice to see retail have a great year. But beyond just being lumpy, we've actually won some new accounts in the US and in Europe. So the teams, it's actually done a really great job with that. So you have like the cyclicality of investment cycles, but then, I think we have won a couple of nice -- you know, a couple of really nice projects here. And then we've also have come out with some new innovations in the last couple of years, some new things that have added onto our portfolio or refresh of the portfolio, I should say, that has been really well received in the marketplace as well too. But I would never extrapolate anything from retail, because it's always lumpy. Our visibility into next year is that we see that we should have another really good year of project activity. But given the comparison, it's still going to be down a little bit. And -- but going forward, I think, it's always better to have a long-term view on retail. We still view it as like a long-term a lower-single digit kind of growth business, but pleased to see how well it's doing this year.

[Jack Meehan]

Okay. Thank you, Shawn.

[Shawn Vadala]

Yeah, welcome.

[Operator]

Our next question comes from the line of Rachel Vatnsdal with JPMorgan. Please go ahead.

[Rachel Vatnsdal]

Thanks. Good morning and thanks for taking my questions. So, first up, I just wanted to see if you could spend a few minutes talking about your exit rates of how the segments performed in the month of September and then so far into October and early-November here. And then you mentioned during Derik's question four-year CAGR on the volume side is seeing some stabilization there that gives you confidence into the back-half ramp next year. So can you just talk about, are those CAGRs that you are applying referring to really about the overall 3Q CAGR or are you just looking at some of the exit rates here, given it sounds like July and August were likely a bit stronger?

[Shawn Vadala]

Yeah. Hey, Rachel. So maybe I'll start with the second part of your question. So from a CAGR perspective, we're kind of looking at what we saw in Q3 and how we're guiding Q4. And then just kind of taking a step back and applying our own judgment as to like that looks reasonable to us as kind of a moderation or normalization rate as we kind of think about next year. And then in terms of like exiting and entering, you know, we usually don't try to comment too much on individual months. But I would say that we certainly understood both of those numbers as we were providing guidance on the fourth quarter here. And if it helps at all, maybe, I haven't really touched upon guidance for the fourth quarter, but I can maybe just run through that by segment just to provide a little bit more color in terms of how we're thinking about the different parts of the business. So we were looking at for the fourth quarter Lab being down in the 10% kind of a range. We're looking at core industrial being down mid-single digit. Our Product Inspection being down high-single digit, but with Retail growing in the 20% kind of a range. And then from a geographic perspective, I've already mentioned, China being down like mid-20s. And then from a geographic perspective, the Americas being down mid-single digits, with Europe being down low-single digit.

[Rachel Vatnsdal]

All right. That's helpful. And then I just wanted to press a little bit more on that first-half, second-half dynamic here. You talked about China being pretty pressured in the first-half and then starting to get optimistic about growth in the back half of the year. But I wanted to press on those types of assumptions around the Lab and Industrial businesses. How much of a meaningful step-up should we see in growth rates in both of those segments next year and then again how much of that is really driven off the easier comp dynamic versus underlying demand accelerating?

[Shawn Vadala]

Yeah. I mean, like I said before, I mean, I think we expect Lab for the full-year to be up slightly. And then we expect on the Industrial side, overall, it's going to be flattish with core industrial down slightly and Product Inspection up slightly. I think, China, of course, is going to be a big part of like the seasonality next year. And so, I would expect things to be relatively down in the first half of the year and then up in the second half of the year. But, like I said earlier, we don't have specifics to share regarding some of the other granularity of how we would arrive at that. And as we -- like I said before, as we enter the year, we'll have more visibility and can provide -- help you refine models and provide more color.

[Operator]

Our next question comes from the line of Catherine Schulte with Baird. Please go ahead.

[Catherine Schulte]

Hey, guys. Thanks for the questions. Maybe first, you mentioned manufacturing customers in Americas remained cautious with spend on new equipment. I know you talked about Product Inspection being up slightly next year. But maybe talk about the outlook for that customer group in '24, and what gets them to start being a little more constructive around spend.

[Shawn Vadala]

Yeah, maybe I'll start, Catherine, and then I'll let Patrick pick it up. So, you know, so, hey, we've talked a lot about food manufacturing over the last couple of years. I'd say, overall, it's probably exceeded our expectations to a certain degree this year. But we do see a lot of pressure on that segment, kind of going into the fourth quarter and by this time we have enough visibility to say that. So, for the fourth quarter of this year, we're seeing, you know, negative results or declines, I should say, both in the Americas, but frankly, also in Europe. That market segment has been under a lot of pressure in terms of their own cost structure. Their own challenges with inflation and you've seen some of the food companies closing plans, executing restructuring plans, a lot of antidotes from our team say like, like a lot of other things like, hey, there's a lot of interest there, but they're just not getting approved, things are getting held off to a certain degree. But outside of the Americas and Europe, we're also seeing actually good growth at the moment. And as we kind of enter into 2024, this is a really good example, where we have a lot of nice innovation in the portfolio coming out. We have a lot of good products in different areas of Product Inspection, like in the x-ray business, I think we talked about it in our prepared remarks. We have good stuff also coming out in metal detection as well. And in the innovation and the new products are being very, very well-received by the marketplace. We just heard some updates yesterday about some antidotes from a trade show that the guys were recently at and really good market reception of some of the new products. So, we feel good about what we're doing what we can control and how we're positioning. It's just a much more -- it's a difficult market environment, but it's frankly been like that for a little while. It's been a little bit up and down, but the value proposition is still there, right, like the need to help these companies with productivity. We can really help them and I think they recognize that. So I think that's still there. And then just the focus on food safety and brand protection, you know, you see things in the news in that regard. And of course, that we certainly can help companies as they seek to address those needs as well too.

[Catherine Schulte]

Okay. Great. And any update on how PendoTECH is performing and your thoughts on there going forward?

[Patrick Kaltenbach]

I can take this. Yes. So PendoTECH again for us has been performing really well over the last years. I mean, integration went really well with PendoTECH. Of course, they are strongly dependent on the underlying biopharma market and we have seen a slowdown compared to the years before. That shouldn't be surprise, but what we have done with PendoTECH is we expanded also the offering there. We have new parts within their portfolio. So that's not only pressure sensors, they also have now UV monitorings -- monitors, et cetera in their portfolio. So while, of course, we see lower demand compared to last year, we think the portfolio is really, really strong, and of course, by expanding it also different application wages, we are quite optimistic on PendoTECH's future, although we are seeing negative growth here.

[Operator]

I would now like to turn the call over to Adam Uhlman for closing remarks.

[Adam Uhlman]

Great. Thanks. Hey, thanks for joining us today. A replay of the call will be available on our website. And if you have any follow-up questions, please feel free to reach out to me. And we look forward to seeing you at future events and conferences. Thanks.

[Shawn Vadala]

Thank you.

[Patrick Kaltenbach]

Thank you.

[Operator]

I would like to thank our speakers for today's presentation. And thank you all for joining us. This now concludes today's call. And you may now disconnect.