Mary T. Finnegan - Treasurer & Head-Investor Relations Olivier A. Filliol - President and Chief Executive Officer William P. Donnelly - Executive Vice President.

Daniel Arias - Citigroup Global Markets, Inc. (Broker) Patrick B. Donnelly - JPMorgan Securities LLC Tim C. Evans - Wells Fargo Securities LLC Isaac Ro - Goldman Sachs & Co. Steve C. Beuchaw - Morgan Stanley & Co. LLC Jonathan Groberg - UBS Securities LLC Richard Eastman - Robert W. Baird & Co., Inc. (Broker).

Good day, ladies and gentlemen, and welcome to our First Quarter 2016 Mettler-Toledo International Earnings Conference Call. My name is Jennifer, and I will be your audio coordinator. All lines have been placed on a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. Thank you.

And I would now like to turn the presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am..

Thanks, Jennifer, and good evening, everyone. I am Mary Finnegan. I am the Treasurer and I'm also responsible for Investor Relations at Mettler-Toledo. I'm happy you're joining us for this call. I am joined tonight by Olivier Filliol, our CEO, and Bill Donnelly, our Executive Vice President. I need to cover just a couple administrative matters.

This call is being webcast and is available for replay on our website. A copy of the press release and the presentation is also available on the website. On page one, we have our Safe Harbor language. Let me just cover it quickly.

Statements in this presentation which are not historical facts constitute 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, levels of activity, performance or 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 Form 8-K.

All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Factors Affecting our Future Operating Results and Management Discussion and Analysis in our Form 10-K. Just one other item. On today's call, we may use non-GAAP financial measures.

More detailed information with respect to non-GAAP financial measures and the most directly comparable GAAP measure is provided in our Form 8-K. I'll now turn the call over to Olivier..

Thank you, Mary, and welcome to everyone on the call. I will start with a summary of the quarter and then Bill will provide details on our financial results and guidance. I will then have some additional comments before we open the lines for Q&A. The highlights for the quarter are on page two of the presentation.

We had a solid start to the year with our first quarter results. Local currency sales increased 4%. We had another quarter of good growth in America, while Europe came in a little weaker than expected. Emerging markets growth was solid, and we are pleased that we had sales growth in China in the quarter.

With strong execution and the benefit of productivity initiatives, we achieved good growth in EPS, which increased 9% in the quarter. This equates to 11.5% growth excluding the impact of currency. We are pleased with these results and that the year is off to a good start. Now let met turn it to Bill to cover the numbers..

Thanks, Olivier, and hello to everybody. Sales were $539.7 million in the quarter, that's an increase of 4% in local currency. On a U.S. dollar basis, sales increased by 1%, as currencies reduced sales by 3% in the quarter. Turning to page three of the presentation, we'll outline sales by geography.

In the quarter, local currency sales increased by 6% in the Americas and 4% in Asia/Rest of World and were flat in Europe. Regarding the Europe number, we may have underestimated a little the impact of Easter being in March this year versus April last year. Europe should do better in the second quarter.

China had sales growth of 6% in the quarter, which is better than we expected. Turning to slide number four, we outline sales growth by product line. Laboratory had local currency growth of 5%, Industrial increased 2%, and Food Retailing was up 5%. All comparisons are versus the prior-year quarter.

Turning to the next slide, let me walk you through the key items in the P&L for the quarter. Our gross margins were 55.6% as compared to 55.8% in the prior year. We're pleased with the continued good contributions from pricing and from our material cost reduction programs.

Offsetting this were negative mix and some targeted investments in our service business. Currency was neutral to gross margins in the quarter. As a reminder, gross margins had a very tough comp. In Q1 last year, our gross margins were up 270 basis points, of which 170 basis points of the increase was on a constant currency basis.

R&D amounted to $29 million. That's a 5% increase in local currency, while SG&A amounted to $168.9 million, and that's an increase of 1% in local currency over the prior year. Investments in our Field Turbo program and higher variable comp were offset in part by cost-saving initiatives. Adjusted operating income amounted to $102 million in the quarter.

That's a 5% increase over the prior-year amount of $97.3 million. Currency reduced operating profit by $2 million. Absent currency headwinds, growth in operating income would have been 7%. Our operating margin was 18.9%, that's a 70 basis point increase over the prior year. A couple of final comments on the P&L.

Amortization amounted to $8.4 million in the quarter. Interest expense was $6.6 million in the quarter. Our effective tax rate continues to be 24%. Fully diluted shares for the quarter were 27.4 million, which is a 4.7% decline from the prior year, reflecting the impact of our share repurchase program.

Adjusted earnings per share were $2.46 per share, a 9% increase over the prior year amount of $2.25 per share. Excluding the impact of currency, adjusted EPS increased by 11.5% in the quarter. On a reported basis, EPS was $2.40 as compared to $2.19 in the prior year.

Reported EPS includes $0.04 of purchase intangible amortization and $0.02 of restructuring charges. Now turning to cash flow. In the quarter, free cash flow amounted to $29.1 million as compared to $41.3 million in the prior year.

We're pleased with our working capital management and further improvement in DSO, which was reduced by one day to 43 days as compared to the prior year. ITO was 4.6.

The decline in cash flow versus the prior year is due primarily to the timing of working capital items, which was somewhat impacted by Easter falling in March this year as compared to April last year. We are on target for the full-year goal. Now let me turn to guidance.

We're raising our full-year local currency sales guidance to 4% versus the 3% to 4% guidance we provided in February. This reflects a better view on China overall, somewhat offset by an expectation that Europe could be a little weaker than we expected.

Overall, we feel very good about our product offering and our sales execution, in fact, better than we did three months ago.

We also have raised our earnings per share guidance and now expect adjusted EPS to be in the range of $4.25 per share to $4.35 per share (sic) [$14.25 per share to $14.35 per share] (8:01-8:07), and that's a growth of 10% to 11%. This compares to previous guidance of 9% to 11% or $4.10 (sic) [$14.10 per share] (8:15) to $14.30 per share.

Let me provide some additional background on our guidance for the remainder of the year. We now estimate that currency will have minimum impact on EPS for the full year. Previously, we had estimated that currency would be a headwind to EPS growth for the last three quarters of this year of approximately 1% or about $0.11 per share.

Now we estimate a positive $0.04 impact over the last three quarters. We expect to have continued gross margin expansion for the full year, but at a lower rate than we originally assumed. For the coming three quarters, year-over-year gross profit margins should be up about 50 basis points on average.

We also plan to expand our Field Turbo program further in the second half of this year as compared to our original assumption. We like the program's results so far and believe the environment is improving. This will offset some of the productivity gains we have and you saw in our Q1 results. One final item.

Our share count will be a little higher than maybe your models had given our recent stock price performance year-to-date. This is a smaller adjustment to our forecast. It reduces EPS by approximately $0.06, but since you're updating your models, we thought it was worth mentioning.

To incorporate these factors, we are raising the midpoint of our guidance range by $0.10. We now assume EPS will increase 10% to 11% as compared to the 9% to 11% previously. Now let's look at the second quarter. We expect local currency sales growth of approximately 4% and adjusted EPS in the range of $3.09 to $3.14.

This reflects a growth rate of 10% to 12%. We do not expect currency to meaningfully impact EPS growth in the second quarter. In terms of currency impact on sales growth, we would expect currency to reduce sales growth by 1.5% in the second quarter and 1% for the full year. One final miscellaneous item.

In the second quarter, we're going to take a non-cash pension accounting charge of approximately $8 million related to a lump sum offering to former employees of our U.S. plan. This plan is frozen, in fact it's been frozen for a long time, and the timing was advantageous to cash out the vested portion of these former employees.

There is no cash flow impact to the company, as we use pension plan assets to fund the payments. Okay, that's it for my side and I now want to turn it back to Olivier..

Thank you, Bill. Let me start with summary comments on business conditions. Lab had good growth, with 5% local currency sales growth, which is on top of strong growth in the prior year. Pipette and AutoChem had very strong growth, while Balances also had good growth.

Good product pipeline, benefit of Field Turbo investments and continued strong sales and marketing programs are well contributing to strong Lab performance. Spending by our biopharma customers was strong. Industrial increased 2% in the quarter, driven by Product Inspection, which was up 7%.

Product Inspection had good growth in most regions and we continued to benefit from solid market conditions and very strong competitive advantages in this market. Core Industrial was down slightly in the quarter. Finally, Retail was up 5% with strong performance in Americas and Asia offset by a decline in Europe.

Now let me make some additional comments by geography. Sales growth in the Americas increased 6%, with good growth in most product lines. Core Industrial was down modestly, however, it was against strong comparisons in the prior-year period of 8%.

We continue to feel good about our growth in the Americas, but they will face tougher comparisons, particularly in the back half of the year. Europe sales growth was flat in the quarter, a little weaker than we expected. We had good growth in Lab and Product Inspection but declines in Core Industrial and strong decline in Retail.

As mentioned earlier, there was some impact of Easter holiday timing. Asia and Rest of the World had growth of 4% in the quarter. As Bill mentioned, China had growth of 6%. While we are pleased with the good start, overall economic environment remains challenging in China.

In particular, overcapacity remains in the industrial sector, which will take time to resolve. However, we are seeing good results in market segments, such as Life Sciences. We've had recent wins in our Process Analytics and Pipette businesses with research organizations such as the CDC and China National Biotec Corporate.

Our technologies centered on Intelligent Sensors in Process Analytics and our LiteTouch systems in Pipettes helped us beat competition. Our Industrial team also had some successes.

For example, we received an important order at a new pharmaceutical facility to provide a comprehensive solution to integrate formulation software with their bench and floor scales.

These are only a couple of small examples, but I thought worth sharing as they demonstrate that the breadth of our product offering provides us good opportunities to target the growth segments of the Chinese market even when many segments struggle.

I recently visited Southeast Asia and had business reviews with our teams from Singapore, Malaysia, Indonesia, and Philippines. I'm impressed with the good growth we are achieving in these regions, despite economic conditions which are challenging.

We have strong management teams with proven success capitalizing on Field Turbo investments and our Spinnaker sales, service and marketing initiative. I am pleased how we continue to create and develop market organizations in new countries. Recent examples include Turkey, Indonesia, Philippines, New Zealand.

All of these markets delivered strong results as we benefit from our direct presence. Our intentional customers really value our direct presence in these countries, particularly customers of our Product Inspection, Process Analytics, and Lab businesses. Those are all my comments on business strengths.

I want to spend a few minutes today providing an update on our Automated Chemistry business. AutoChem provides enabling technology and software to develop and transfer bench scale chemistry into commercial processes. We are the clear market leaders in automated lab reactors and associated analytical tools that analyze chemical reactions in real-time.

Our solutions provide customers increased R&D productivity, better product and process quality and ensure commercial processes deliver higher yields at lower costs.

Driven by the reality that biopharma and chemical companies are under ever-increasing pressure to bring products to market faster, customers have increased their adoption of our AutoChem technology to increase R&D productivity.

AutoChem had excellent sales growth in 2015, driven by increased adoption of our technology by our traditional customers combined with greater penetration in the biopharma large molecule segment.

The prospects for Automated Chemistry remain strong, as we estimate the majority of potential users still use in-house engineered solutions which have fundamental limitations.

We're increasingly seeing the general adoption of our EasyMax and OptiMax as the enabling platforms for automated lab reactors and are making great inroads in migrating chemists, engineers and biopharma scientists to adopt this technology to substantially improve productivity.

Expanding our product offering is core to our market leadership in this segment. As our technology gains greater adoption, we see continued opportunity to provide a wider range of solutions.

For example, we filled a gap in our offering with a plug-and-play control unit that provides automation for already installed manual high-volume, low-cost reaction systems. RX-10 has an easy-to-use interface that enhances data capture, increases automation and reinforces our automated lab reactors as the tool of choice in chemical development labs.

This month, we will also introduce a new software package which reduces process complexity, including for data analysis, which allows a tool to be used by non-experts. Our market-leading technology combined with the largest service force in this market provides excellent competitive advantages for us.

Our Spinnaker sales and marketing programs along with Field Turbo resources are positioning us well for further growth. For those of you that will be attending our Investor Meeting in July, you will have an opportunity to hear a little more about this business and see first hand some of our innovative technology for this market.

That concludes our prepared remarks. Let me make some summary comments before opening it up for questions. We feel good about the start to 2016, but remain cautious on the global economy, given the uncertainties that exist.

Our initiatives are well on track, and we expect to continue to benefit from our strong product pipeline, Field Turbo investments, Spinnaker sales and marketing program and our margin and productivity measures. Our focus is on execution and driving above-market growth. I want now to ask the operator to open the questions for us..

And our first question comes from the line of Dan Arias with Citigroup..

Hi. Good afternoon, guys..

Hi, Dan..

Bill, China during the quarter, to what extent do you feel like the results there relative to your guidance were driven by better market conditions, better demand versus maybe your expectations on sales force or sales manager activities, some internal things?.

So, certainly they did a little bit better than we expected. Just as a reminder, we talked to you a little bit last quarter about how we had done some things in terms of the sales teams to try to get them in the field a little bit more. Often in the early part of the year, we have sales meetings, training sessions, things.

And so we did expect to do – frankly, in our original models, we thought Q1 would be the best quarter of the year. And at this stage, we feel like we're going to get full-year growth, and that's an improvement. Probably low-single digit growth, maybe a little upside to that, but low-single digit growth for the full year.

That compares to a low-single digit decline that we would have guided you to before. If we look at the different pieces of business, of course our Lab business did particularly well during the quarter. It had solid growth. But even our Industrial business showed some signs of improving.

If I were to look at order entry, maybe the Lab numbers were a little bit better than the order entry. And then the other piece of the surprise was our Retail business did well in China. That's always a little bit lumpy there as it is in other parts of the world as well.

So we expect another positive number in China next quarter, maybe not quite as good as what we saw this quarter. And I think maybe in three months we can give guys a better sense of if it's the bottom or if we could see more lumpiness going forward.

There's still a lot of fundamental issues in China around overcapacity and some fragility in some of the financial markets, but it's nice to get some good surprises there in China. We hadn't had them in a long time and we'll take that. And we feel like the team executed real well, particularly vis-à-vis competition..

Okay, that's really helpful. And if I sort of stick with the geographic view here. I think the comps get a little easier in the back half of the year for Europe.

So should we be thinking about sequential improvement through the quarters there? And then maybe in the emerging regions, I'm just curious what the outlook for Russia is in terms of a pick-up and maybe whether Brazil, you're feeling like you might have found a bottom on that?.

Okay, so let's start with Europe. I actually think Q2 will be a solid quarter. We see that already kind of in April. I think it's pretty clear to us that we had a little move in Europe between March and April due to the change in Easter.

It impacts some of those European countries, although I look at Olivier, and it didn't have any impact in Switzerland because they were there, they were there throughout.

So Europe, if I look at multi-year growth rates, I think your comment maybe applies on two-year growth rates, but I think a little bit less so if we were to look at three-year growth rates, Dan. So maybe at this point, Q2 might be one of the better quarters for Europe given what moved between March and April.

In terms of Brazil, maybe I'll let Olivier give a couple comments about Brazil..

Hey. And maybe in general emerging markets outside of China had actually growth in Q1, but certainly Brazil and Russia are still challenging. Actually, Brazil was down mid-teens, so significantly down. But when I look forward, I would, for example, expect Russia to do better.

We had good order entry growth and so I am a bit more optimistic for Russia, And Brazil will continue to be challenging. But it's good to see, and then as I mentioned in the prepared remarks, I also expect Southeast Asia doing well. So for the remainder of the year, emerging markets should do actually okay, probably with the exception of Brazil..

Okay. Very good. Thanks a lot..

And your next question comes from Tycho Peterson with JPMorgan..

Hey, guys. It's actually Patrick Donnelly in for Tycho. Just on the Service front, Bill, I think you noted some increased investments there.

What went into that decision and is that getting a little more competitive as other companies increase focus in that area where you've always been a strong entrenched player?.

Services is one of the area where we really want to get stronger and we want to have a growth above a product because it strengthens the franchise, it's good in terms to have customer access and, of course, from a profitably standpoint it's very attractive. Services generates actually above group average profitability.

Service is a strategic priority for us. We have given a lot of attention to Service in the recent years and will continue to do so. In recent years, we had to invest heavily in Service related to harmonizing our Service product offering across the world.

We wanted also to streamline our processes, we wanted to prepare Service also to bring into our Blue Ocean platform. And more recently, we started to invest now in Service in the growth area and so also about adding telesales people to sell service contracts and also have better coverage. So the investment goes there. We see actually good results.

We were happy to see that in Q1 Service and Consumables was actually up 6%. So as you can see, higher than what we had on products. And I am optimistic that we will continue to do well in Service. And so the investment and the attention that business gets is well deserved..

Okay. Then on Field Turbo, another place you talked about increasing investments. I think last quarter you talked about adding something around 200 front-end resources for 2016.

How much has that number shifted higher now that you're focusing some more investments there?.

So the 200 that we were talking about last time was across the whole year. What we are doing now is we're doing additional opportunities and funding it and it's also something that goes across my table. And that will be then going into the second half of the year and particularly also impacting next year.

So there is always a lag between our commitment to it and until it goes really in effect. You can imagine the teams are developing these business cases and then we review. We commit to it, fund it, but then it takes a couple of months to recruit the people, train the people, onboard the people. So there is always a lag.

So the additional commitment that we have goes to the second part of the year and is a pre-investment also for next year..

Okay. And then maybe just one last quick one for Bill on gross margins. I know you said you faced a tough comp. Can you just talk about the contribution, pricing, FX, some of the other factors there? Thank you..

Sure. So in terms of pricing, net realized prices were up about 180 basis points. That helped gross profit margin itself by about 80 basis points. Our material costs on an apples-to-apples basis were down about 120 basis points and that contributed about 20 basis points to gross profit margin.

And then in terms of other – we had some negative mix and as I mentioned some investments on the Service side that they'll pick up productivity levels in the second half of the year..

Understood. Thanks, guys..

Your next question comes from the line of Tim Evans with Wells Fargo Securities..

Thank you. Bill, just wanted to kind of step back and ask a bigger picture philosophical question on share repurchases.

The plan that you have this year to repurchase shares at a rate greater than your free cash flow, is that something you see continuing indefinitely, or is that more of a one-year thing?.

Well, I think it's something that we look at all the time. We do an intrinsic value calculation over various scenarios with the board and we monitor how that goes. We're of course looking at what might come up in terms of acquisitions or maybe more significant capital expenditures.

We would say sitting here today I think we're going to repurchase about $0.5 billion this year. And we still have those building investments, that was kind of spread over 2016 and 2017. And I think a number, my best guess at this point would be another number in the $0.5 billion range next year.

But that could change and we'll give specific guidance as we get closer. In terms of it being an indefinite thing, I wouldn't think of it as into infinity that we would buy more than the free cash flow..

Got it. And I just wanted to come back to Europe really quickly. I heard you that the Lab side of the business was better there, which was the same trend as you're seeing in North America. But I guess.....

Hey, Tim, we struggle to hear the topic there. Could you repeat? Sorry..

Oh, Europe, I wanted to focus on Europe. I hear you that the Lab side of the business is doing better than the Industrial.

Can you offer any more color there as to just how tough the industrial market is in Europe right now and how much visibility you have to the back of the year in the Industrial piece of the business specifically?.

I wouldn't read too much into the first quarter. As we also mentioned before, there is a little bit of an Easter impact and so on. And when I look at the project pipeline, I don't think we are expecting a cool down for the Industrial business also. Of course, I do expect Lab to do better than Industrial, but that's not a particular timing aspect of it.

It's more the whole environment that we have and the opportunities that we have. So I do actually expect that in the second part of the year, Industrial will actually look different than in the first quarter..

Okay. Thank you..

Your next question comes from Isaac Ro with Goldman Sachs..

Good afternoon, guys. Thank you. Wanted to spend a minute on China.

Appreciate your comments in the script, but hoping you could put a little more color as to the reasons why you're maybe a little bit more optimistic for the balance of the year than you were maybe three months or four months ago when obviously the outlook was a little tougher? If you could maybe highlight a couple fundamental items that you're seeing in the marketplace that are giving you confidence, that would be great..

Hey. I guess one obvious element, Isaac, is the fact that we have Q1 under our belt and a pretty decent forecast for Q2, so we have half of the year. We'll probably finish the first half of the year with mid-single digit growth and we had predicted for the full year previously a low-single digit decline. So some of it's just the math piece.

The second is, I would comment on the fact that it wasn't that long ago that we were talking to you about we had last year in our China Core Industrial business, we had 20% decline for the full year last year and it varied between minus 17% and minus 23%.

And while I'm not sure we're going to get growth in Core Industrial for the full year in China, it's pretty clear to me it won't be that kind of number. And just now that we're this far into the year, we feel a little bit better than that.

In terms of what we see in terms of activity with customers, Olivier commented on some the progress we're making, particularly in the life science area. So we do see money getting awarded there. We see ourselves getting a good share without any kind of government preference things that might hurt people in certain industries.

So, overall, mostly good news about China relative to where we were three months ago..

Okay, that's really helpful color. Thank you. Follow-up, Bill, for you on pricing. I think there has been a bit of a run-up year-to-date in steel prices. So from the commodity standpoint, I'm curious how that factors into your plans to drive price.

And maybe actually it's part of that, from a cost of goods standpoint, I know that the run-up has been relatively recent and relatively quick.

Is that a factor that goes into gross margin for the year?.

So the area that you would see that impact us the most, Isaac, would be in our vehicle business because of the decks. And the way we do pricing in that market is we are quoting based on current market prices for steel. So we would push that price increase through with a little bit of margin.

And so while it might look cosmetically like a little bit more price realization, on the gross margin there wouldn't be too big of an impact of that. In terms of the other pieces of our business, we do buy some fabrications and, of course, we buy a lot of machine parts.

But those costs are mostly locked down in terms of annualized pricing, but certainly something we need to think about next year. And let's see how these commodity prices hold out and whether that might provide some opportunity because of what it does to Producer Price Indexes for us to try to do a little bit more pricing in the second half.

But I think at this stage, it's probably – we have nothing definitive..

Got it. Fair enough. Thanks very much..

Your next question comes from the line of Derik de Bruin with Bank of America..

It's actually Mike Resk in (34:44) for Derek. I had a couple questions for you. First, you gave some commentary on the Consumables and Services in the quarter.

Could you just follow-up with what you saw in terms of Instruments or how that was trending?.

Okay. So in terms of our – we grew 4%. The Service business grew a little faster than the Product business.

And I think our Consumable, because I don't have it in front of me, but Rainin did well, so I just have to assume that our Consumable business, because that's the biggest piece, must have been done at least as well as the rest of the Service business.

And then, of course, the Product Inspection business in particular had good Service growth, I would say, among the different divisions..

All right. Thank you for that.

And what about operating leverage as your organic growth is improving? With all the restructuring and cost-cutting initiatives, what does it look like in terms of what operating leverage you get as your organic is expanding?.

So I think on a currency-neutral basis, we're looking at contribution margins in the mid-30%s. So for every incremental $1 of sales, we should be able to do something in the mid-30%s. And historically that's a pretty good number off this base of 4% growth for the full year.

So not quite that mid-single digit because each extra $1 of sales growth usually has some more. And then I would comment that we're making pretty significant investments in the Field Turbo program that we're still delivering these type of incremental margins despite those investments..

All right. Thank you. And one last point real quick. You mentioned that you remain a little cautious on the global economy. There's some macro uncertainty. But at the same time you've talked a little bit about how China grew 6% in Q1, you saw a strong April so you expect mid-single digits at least through the first half.

So what indicators are you looking for until you're able to revise your macro outlook? Are you looking for a longer duration, or is there something else that you're waiting to see an uptick in?.

I think it's really tough to point to one single factor. There's a lot of different data points we get from the market. What are we seeing in terms of our direct business, what are we seeing in terms of the economic data that you guys look at? And it would be really hard to pin it on one or two specific things.

We're always looking at capacity utilization in China, we're looking at how they're doing from an export perspective. Maybe one of the new factors that's come out recently is the new Five-Year Plan probably since the last time we talked, and that certainly was more of the same at least as it related to our piece of the business.

So I think just the passage of time and continued positive results there would be one of the factors we'd look to the most. Let's be honest, we have very much a short-cycle business, including in China, even if China's maybe slightly longer cycle than the rest of the world. But it's tough for us to be the – maybe the guy to make the first call..

All right. Thank you..

Your next question comes from the line of Steve Beuchaw with Morgan Stanley..

Hi. Good afternoon. Just a couple of quick clarifications. First, on selling days, there was a comment in the prepared remarks around Easter.

I wonder if you've thought much about what the impact might have been in basis points, and was that isolated to Europe and were there any other selling day anomalies that you might spike out here?.

So if we look overall for the entire business, we felt reasonably good about that it was flattish for selling days. I think the comment related more to geographically the impact in Europe and that the Easter holidays tend to lead to our sales force as well as customers just being out of the office for that week.

And it moving between March and April had a little bit of impact in terms of European sales and a little bit of impact in terms of cash flow collections..

Got it.

And then in the prepared remarks, Bill, I want to say that I caught a comment that suggested that in total there's not much change to the way you're thinking about overall margin expansion for the year, but you seem to think that the operating margin expansion might be a little bit more concentrated in terms of the rate of operating expense spend as opposed to gross margins.

Am I interpreting that correctly? And can you give us a sense for what some of the underlying moving parts there? Thanks..

Sure. And I'm looking at Mary, too, to make sure I quote some of the numbers right. But I think I understand your source. So the first comment is, hey, gross margin came in a little less than our model, probably a little bit less than some of your guys' models in Q1.

If we look at now the remaining three quarters of the year, our best estimate at this point would be on a currency-neutral basis or actually I think there's maybe only 10 basis points anyway difference between actual and constant currency, but look at something like 50 basis points on average in the remaining three quarters of the year.

It could be a little bit better than that, but something in that range. That, of course, is a good number and so we're happy with that number, but I think it compares a little bit. And if you look at what that means in terms of our full-year model, it means maybe a little bit less gross profit margin for the full year than most people were expecting.

So that's maybe a slight negative. A slight positive is that we took the midpoint of our sales guidance up by 50 basis points. The next item is that you could see in our operating expenses that our various cost savings, cost reengineering initiatives, continue to go well.

Our operating expenses, as we view it internally, were only up about 1% in the quarter despite having I think 250 more field personnel between sales and service than we had in Q1 a year ago. So we feel good about that.

And partly because we're happy with how the Field Turbo program is going, Olivier mentioned that we're starting to approve already a few more Field Turbos that'll start to add a little bit of operating expense growth more than we had in the original model in the second half of the year.

And then the final minor thing is that the share price has performed well recently. And that, for most of you guys, will probably have some impact on us spending $0.5 billion on share repurchases. We'll get a few less shares purchased because of that. That impact for us, at least in our model, was about $0.06.

And, of course, one of the bigger impacts, Steve, is that if you look at where currencies are as of yesterday I guess as compared to what we told you in February and you looked at that over the last three quarters of the year – I say the last three quarters because, of course, the first quarter is already behind us, we estimated about $0.15 per share impact as the delta between those two.

And of course, that's a positive delta. So taking all those things together, that's how we got to this $0.10 per share movement in terms of the midpoint of our guidance..

As always, incredibly helpful. Thank you..

Your next question comes from the line of Jonathan Groberg with UBS..

Hey. Bill, so just to clarify, in the first quarter – you just answered the question that gross margin was maybe a little less than you were expecting.

And can you maybe just say what surprised you in the quarter? Was it mix or was it something else? Did you not get as much price as you maybe thought you were going to? And then, Olivier, in the U.S., everyone is kind of ignoring the U.S., how strong it's been growing, all these companies.

What drove the strength for you? Was it mainly from an end market or a customer standpoint? Was it mainly pharma, or was it broad-based? Thanks..

Do you want to go first, Olivier? Okay, so in terms of your question on gross profit margin, so maybe I'd give the overall picture. So the overall picture, 180 basis points price realization, that translates to about plus 80 bps on gross margin.

Material costs were down 120 bps, that translates to 20 bps in terms of year-on-year movement in gross profit margin. Then the rest is kind of equally split between a mix topic, a series of little mix things kind of adding up.

So maybe some of the highlights ones were a little less sales in terms of the overall composition, a little less European direct sales and a little less Southeast Asian sales. And those are two highly profitable markets.

And if I look at within the Lab product categories, titration, for example, is one of our highest gross margin products that some of their sales moved a little bit into the latter part of the year due to some new product introductions. And then the Service was the other half of the negative.

And in Service, Olivier talked about it earlier, we really see Service as an important part of our growth in terms of profit going forward. But also it's just one of the great competitive barriers and advantages that we want to build on and we invested a little bit more in Service technicians.

It usually takes service technicians, depends on product category, but two quarters to four quarters to be breakeven. And we added a few more in a couple very targeted areas that are going to help us. And they very much fit in with how we made some of our Field Turbo investments and very much support those..

On Americas, so Q1 we had actually a good quarter. We were up 6%. Particularly actually was happy about the performance in Lab, Product Inspection, and Retail. Core Industrials was slightly down, but against a strong comparison in the prior year.

So all-in-all, the growth was in line with our expectations and our outlook continues to be generally positive. But I would acknowledge that we start to have a strong comparison in the second part of the year. And biopharma. When I think about the particular strong end-user markets, it was certainly biopharma.

I saw that, for example, very nicely in our results from our Pipette business and Automated Chemistry that are strongly exposed to that market and did extremely well. And I did mention that Product Inspection did well.

That's certainly also because the whole food safety topic is an ongoing hot topic and we see our customer base having a high investment rate on that front. So, all-in-all, actually good and I definitely expect it growing – continuing to do well, but higher comparisons will also start to kick in..

All right..

And your next question comes from the line of Richard Eastman with Robert W. Baird..

Yes, good afternoon..

Hi, Rick..

Hello. Bill, could you just talk, in terms of Europe, I think you explained maybe why that came in flattish here in the first quarter. But you did kind of reference some puts and takes to the 4% core growth rate and you did mention maybe Europe comes in a little bit softer than you thought for the full year.

Did I miss which piece of the business in Europe do you expect maybe for the full year to come in a little bit softer? Is that the Core Industrial or Retail?.

Core Industrial. Product Inspection – actually, Product Inspection in Europe is going to have a tough comp in Q2, but the business overall does well. On a normalized basis, it does well. We also have tough comps in Retail.

And that's one we've been talking about since I think when we gave our original guidance in November that we're not going to have a particularly good year in Retail. We had some large orders I think in the Netherlands and Germany a year ago. But the Lab business looks solid in Europe.

And overall our forecast would say we'll do better in Q2 than we did in Q1..

I see. Okay. And then in China, did the Core Industrial business, I mean, it has such weak comps throughout this year.

Did the Core Industrial business grow, though, in China in the first quarter?.

It did. It had some bigger orders coming through and that's a little bit I'm unclear if – some of our hesitancy is we're going to keep getting those, or is that part of it? Rick, I think I remember talking I think even specifically to you a year ago when we were putting up the minus 17%s and minus 20%s in Core Industrial in China.

There just was no big projects. And we got a couple of big projects in the backlog, some delivered in Q1, a few more coming in Q2. And we need to see a little bit more of that before it's easy for us to say, okay, now there's a more solid base there..

I see. Okay.

Sorry if I missed it, but did you give the number of shares repurchased in Q1?.

390,337..

Excellent. Okay. Thank you very much..

And we have no further questions in queue at this time. And I would like to turn the conference back over to our presenters..

Thanks, Jennifer. And thanks, everyone, for joining us this evening. As usual, if you have any questions or any follow-ups, please don't hesitate to give us a call or send us an email. Good night, everybody..

Thank you for your participation. This does conclude today's conference call and you may now disconnect..