Mary T. Finnegan - Mettler-Toledo International, Inc. Olivier A. Filliol - Mettler-Toledo International, Inc. William P. Donnelly - Mettler-Toledo International, Inc..

Steve Barr Willoughby - Cleveland Research Co. LLC Isaac Ro - Goldman Sachs & Co. Tycho W. Peterson - JPMorgan Securities LLC Bryan A. Kipp - Citigroup Global Markets, Inc. (Broker) Michael Ryskin - Merrill Lynch, Pierce, Fenner & Smith, Inc. Luke Sergott - Evercore Group LLC Zachary R. Wachter - Morgan Stanley & Co. LLC Rob W. Mason - Robert W.

Baird & Co., Inc. (Broker).

Good day, ladies and gentlemen, and welcome to our First Quarter 2017 Mettler-Toledo International Earnings Conference Call. My name is Doris, and I will be your audio coordinator for today. After the speaker's remarks there will be a Q&A session.

It was my – at this time, I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Ma'am, please proceed..

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

The call is being webcast and is available on our website. A copy of the press release and the presentation are also available on the website. Let me summarize the Safe Harbor language, which is on page two of the presentation.

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. For a discussion of these risks and uncertainties, please see our recent Form 8-K.

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

More detailed information with respect to the use of and the differences between the non-GAAP financial measure and the most directly comparable GAAP measure is in the 8-K. I will 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 three of the presentation.

We had a great start to the year with excellent sales growth. We had expected sales growth in Q1 to be strong, and local-currency sales growth reached 12% in the quarter, better than expected with very good broad based growth.

We are quite pleased with these results, which reflect our ability to capitalize on favorable market conditions and very strong execution of our growth initiatives. Further progress on our modern initiatives are reflected in the strong margin expansion, which contributed to an excellent 36% growth in EPS for the quarter.

All in all, very pleased with first quarter developments. Our outlook for Q2 and remainder of the year is also positive. Let me now hand over to Bill to cover the financials..

Okay. Hello, everybody. I hope you are all having a good day. Sales were $594.6 million in the quarter, an increase of 12% in local currency. The Troemner acquisition contributed approximately 1% to local-currency sales growth. On a U.S. dollar basis, sales were 10% – sales increased by 10% as currencies reduced sales by 2% in the quarter.

On slide number four, we show local-currency sales growth by region. Sales grew 14% in the Americas, 13% in Europe and 9% in Asia/rest of world. China sales growth was 12%. Growth in the Americas benefited by 3% from the Troemner acquisition.

As Olivier already mentioned, you can see that these percentage increases reflect a strong and broad-based sales growth. On the next slide, we outlined sales growth by product line, which is also broad-based. Laboratory sales increased by 13%, while Industrial sales increased by 12% and our Food Retailing business grew by 8%.

Troemner benefited from – benefited our Lab growth by approximately 3%. All comparisons are in local currency and versus the prior year. Turning to slide number six, let me walk you through the key items on our P&L. Our gross margins were 57.7%, a 210-basis-point improvement over the prior year amount of 55.6%.

While comparisons were relatively easy as gross margins were slightly down last year, we had a couple of factors that helped our margins this quarter. First, we had good productivity gains in our plants and in our Service business, giving us strong sales growth.

Second, we continue to benefit from pricing, which was up by 190 basis points, which increased our gross profit margin by approximately 80 basis points. Material costs were neutral in the quarter, with savings in certain material categories offset by higher commodity prices in others.

We are very pleased with the increase in gross margins and expect further improvement as the year progresses, although we won't have the same benefit of easier comparisons as we did here in the first quarter. R&D amounted to $31.4 million. That represents an 11% increase in local currency.

Our growth in R&D in the quarter was driven by the timing of some new product launches. SG&A amounted to $184.2 million. That's an 11% increase in local currency over the prior year. Variable compensation, investments in our Field Turbo program, and employee benefit costs all contributed to the increase.

Our adjusted operating income reached $127.3 million in the quarter, and that's a 25% increase over the prior-year amount of $102.0 million. Currency reduced operating profit by about $1.4 million in the quarter, a little worse than we expected last time we spoke.

Our adjusted operating margins reached 21.4%, and that's a 250-basis point increase over the prior year. A couple of final comments on the P&L. Our amortization expense was $10.0 million in the quarter, while interest expense was $7.7 million in the quarter.

Our other income was $5.7 million in the quarter, and that included a nonrecurring gain of $3.4 million from the sale of a manufacturing facility in Switzerland. This is part of our initiative to reduce our Swiss cost base by consolidating certain operations into an expanded facility. For comparison reasons, we've excluded this gain from adjusted EPS.

And also included in other income is financial income of about $2.3 million. Now let's cover taxes. We have assumed an annual effective rate of 22% for 2017, which reflects a 2% reduction from last year due to the new accounting policy with respect to the excess tax benefits on stock option exercises.

As a reminder, prior to 2017 this benefit was recorded in equity and was reflected in a reduction in diluted shares outstanding. Therefore, the P&L and the effective tax rate were not impacted.

As we discussed on previous calls, we'll have variability in our quarterly tax rate due to the timing of stock option exercises and the accounting requirements around them. In order to make our guidance and comparisons easier, we are reflecting our estimated annual 22% effective rate in our quarterly adjusted EPS.

You will see that our actual tax rate in the quarter was approximately 19%, and we've excluded the difference between the actual rate of 19% and our forecasted full-year rate of 22% in calculating adjusted EPS. We remain comfortable with our full-year tax rate of 22%, which is before nonrecurring discrete items.

Moving to diluted shares, they amount to $26.6 million in the quarter, which is a 3% decline from the prior year, reflecting the impact of our share repurchase program, offset in part by higher shares outstanding due to the accounting change I just mentioned.

Adjusted EPS was $3.34 per share, a 36% increase over the prior-year amount of $2.46 per share. On a reported basis, EPS was $3.48 per share as compared to $2.40 in the prior year. Reported EPS includes $0.04 of restructuring and $0.06 of intangible amortization.

In addition, as we already mentioned, reported EPS includes $0.14 due to the lower tax rate, and $0.10 for the gain on the sale of the Swiss property. Okay, that's it for the P&L. Now let me turn to cash flow. In the quarter, free cash flow amounted to $59.2 million, as compared to $23.3 million in the prior year.

We remain pleased with our working capital management, and achieved further improvements in DSO, which we reduced by one day to 42 days as compared to the prior year. ITO was 4.6, and that's consistent with the prior year. Okay, now let's talk about guidance. We have a very strong start to the year, and our outlook for Q2 is also quite positive.

We continue to execute well, and believe we're gaining traction from our excellent product pipeline, our innovative Spinnaker sales and marketing programs, and investments in our Field Turbo resources. Market conditions are favorable and we're capitalizing on the growth potential for our initiatives.

At the same time, we acknowledge that uncertainty exists in the global economy, and that market conditions can change and they can change quickly. We will also face increasingly tough comparisons as the year progresses, specifically in the second half of the year.

We expect market conditions to remain favorable, but recognize our growth rate later in the year will be impacted by these tougher comparisons. That provides you background on our market assumptions, now let me cover the specifics.

Incorporating the strong start to the year, and with the assumption that market conditions remain stable, we're increasing our organic local currency sales growth assumption for 2017 from 5% to 6.5%.

Of this increase, approximately 1% is due to better-than-expected Q1 results, and about 50 basis points is due to improved growth for the reminder of the year. For the year, we expect local currency sales growth of 7%, which includes 50 bps of growth due to the Troemner acquisition.

Incorporating our Q1 beat and higher organic sales, we now expect adjusted EPS for the full year to be in the range of $6.95 (sic) [$16.95] per share to $17.15 per share, and that's a growth rate in the 15% to 16% range. We expect currencies to reduce earnings growth by 1.5% to 2% for the year.

Now turning to Q2, we expect local currency sales growth for Q2 to be in the range of 8% to 9%, and that includes about 1% contribution from Troemner. This will give us adjusted EPS of $3.85 to $3.90 per share, and that's a growth rate of between 20% and 21%. We expect currency to reduce earnings per share growth in the second quarter by about 2.5%.

One additional comment, the impact of currency on sales growth, we expect currencies to reduce sales by about 3% in the second quarter and 2% for the full year. Okay, that's it for my side, and I now want to turn it back to Olivier..

Thanks, Bill. Let me start with summary comments on business conditions. Lab had very strong broad-based growth in the quarter as all product lines performed quite well. We continue to benefit from our strong product pipeline, Field Turbo investments, and innovative sales and marketing programs, which are helping us gain share.

We expect continued good growth in Lab, but recognize that Q1 was our easiest comparison for the year. Industrial also had great growth in the quarter. Favorable market conditions and our strong competitive position continue to bode very well for our Product Inspection business.

Multinational food manufacturers continue to standardize on our products and services on a global basis. We expect strong growth from Product Inspection in the second quarter. Core Industrial also did quite well in the quarter. What was particularly nice is that we saw good growth across all regions.

We did benefit from easier comps and some project activity, but overall, very pleased with strength in this business. Finally, retail came in better than expected, driven by very strong results in Europe due to new labeling regulations which drove higher than expected sales. Now let me make some additional comments by geography.

Sales growth in Europe was strong, driven by very good growth in Lab, while core Industrial also had good growth, driven by some project activity. As already mentioned, Retail was up strongly. One additional comment, we had some benefit in Europe in the first quarter, given the timing of Easter, which this year was in Q2 but last year in Q1.

In the Americas, Lab did well with growth in most product lines. Product inspection was very strong, and core Industrial did quite well, also driven by some project activity. Retail was down double-digits in the Americas in the quarter, against strong growth in the previous year.

Asia/Rest of World grew high single digits, with good growth in Lab and Industrials offset by decline in Retail. Most product lines had very good growth. China did better than expected with 12% growth in the quarter. Lab in China continued to do very well, and we were very pleased to see strong growth in Industrial in the quarter.

One final comment on the quarter results, Service had a strong quarter with 11% growth. The strong start to 2017 reflects favorable market conditions, but also our successful execution of our growth initiatives. We have several key initiatives aimed at gaining market share, one of which is our initiative surrounding global key accounts.

Let me provide some additional background on what we are doing in this area. Our global key account efforts focus on customers in food, pharmaceuticals, and chemical industries.

As a market leader we have a wide range of product and service solutions, and a large direct sales force presence that enables us to be a true partner for these global customers, which have diverse needs in many locations.

We develop relationships at a high level with these organizations, which provides us the opportunity to sell based on the value of our solution. Increasingly, customers, particularly in segments such as Food Manufacturing, wish to standardize their equipment across their global location.

We are ideally suited for this, and leverage our customer contacts to influence our roll-out of a solution across many sites, or ensure we are preferred vendor for order opportunities.

In addition to furthering relationships at these customers, we are also utilizing our big data analytics initiative to improve the quantity and quality of our sales targets within these large and global diverse customers.

For example, we use our sales projects alert initiative to identify when customers might be reaching decision-making points in their investment projects, or to help us identify size of large accounts, while Solutions might be able to fill penetration gaps.

Capitalizing on our broad product offering and value selling are important to convert these opportunities to sales. Our sales teams have access to tools that help them demonstrate the competitive advantages of our offerings.

For example, with increasing frequency we are highlighting the value of our software platform, which helps customers meet their high data integrity requirements. In 2016, sales growth at our targeted global key accounts grew well above the company average.

We have further identified opportunities for 2017, and believe we can capitalize on them to drive further penetration with these customers. Another initiative in which strong execution is yielding good results is our Field Turbo program. We have added more than 500 field resources over the last two years.

We have put together a structured process to evaluate market opportunities and establish specific multi-year targets for these additional hires. Similarly, we leverage best practices across the market organization in terms of recruiting, hiring, and training these front-end resources. We are working on another wave of additional hires in 2017.

We are pleased with the market growth we are achieving in these target areas, and expect continued good results from the Field Turbo additions. That concludes our prepared remarks. As mentioned earlier, we are very pleased with the strong start to the year.

At the same time, we recognize uncertainty exists in the global economy and we'll continue to monitor it closely. With continued good execution of our growth initiatives and stable end markets, we believe we can continue to generate good sales and earnings growth. I want now to ask the operator to open the line for questions..

We'll pause for just a brief moment. Our first question is from the line of Steve Willoughby with Cleveland Research. Steve, your line is open..

Can you hear me now?.

Yeah, we can, Steve..

Can you hear me? Okay. Thanks, guys. I had you on mute – had you on mute for a second. Bill, just wondering if you could comment about how you're thinking about the full year now, in two areas.

Given the strong results here in the first quarter, what are you thinking in terms of overall revenue growth in both China, and then for your Industrial business overall for the full year?.

Sure. So, let me start with the China piece of the business. I think we're very happy with the start to the year. And as you guys have seen with us over the years now, when there's tough periods of time in the Industrial business, we often kind of bounce back there.

And I think we're seeing some of that return of the normal replacement cycle in our Chinese business, and just in general, the improving industrial environment there.

So if we kind of look out to the second half of the year, what's built into our guidance is that some of what we have seen so far won't continue at that same rate, but it should still be better than maybe what we felt, let's go back six months ago.

Okay? Then with regard to our Industrial business, we do – we are very happy with the start to the year. We think that, maybe even in parts of the world a little bit better than we expected as well.

If I look at Europe for example, I think that our European Industrial business benefited a little bit in the first quarter due to the timing of Easter, as Olivier mentioned on the call.

But maybe adjusted for that we would say, hey, in the western part of the world, maybe things can continue, adjusted for slightly maybe tougher comps in the second half and this Easter consideration. We do monitor the PMI numbers. The PMI numbers have been improving, but we're not – we're not yet ready to say that hey it's a time yet for big growth.

So....

Okay. Just one follow-up, then. I believe you made a reference to a $0.10 gain from a sale of a property in Switzerland.

Just wanted to confirm whether that was in or out of your guidance?.

Yes. So it's out of adjusted EPS. If you kind of look in the press release, you'll see a larger than usual number on the other income line. But it's footnoted to say that we pulled that out then, and took that out of adjusted EPS..

Perfect. Okay, thanks, Bill..

Our next question is from the line of Isaac Ro with Goldman Sachs..

Hi, good afternoon, guys. Thanks very much. Bill, a question for you on pricing. Just curious if you can give a little color on how that's played out year to date relative to plan, and the extent to which that dropped through to gross margin? It would be helpful if you could quantify that somehow? Thank you..

Sure. So, in the first quarter we had a net realized price increase of about 190 basis points. Little bit better than we expected, but I also think it's worth saying that some of that comes in areas like, let's pick vehicle, Isaac, so in the vehicle business if we look at the steel decks we have, we're having higher costs for the decks.

And remember too, a big piece of our vehicle business is in China. So steel prices in renminbi terms have gone up even more than we talked about here in dollars, and so we've passed on some of that. So this 190 basis points has – how we're doing versus beginning of the year guidance is a little misleading, just to take those numbers one for one.

But we're happy with the start to the year. And that 190-basis-point price increase contributed to about an 80 basis points of the gross margin expansion that we had in the quarter..

Understood. And then maybe a little bit more hypothetical on capital use.

Obviously you guys have done well with Troemner since the deal, but wondering if the funnel of deal activity has changed at all for the better or worse? Obviously equity prices are quite high, but you have also a lot of flexibility in the balance sheet, so I'm just wondering if you can probably-weight the likelihood of an acceleration in deal activity? Or at least characterize the nature of what you have on the radar? Thank you..

I would say that the strategy remains very much the same. Acquisitions are part of the strategy, we pursue always many targets, we have an attractive radar. And we can't really time the opportunities to our own desire, it's often when a seller is willing. And many of our targets are privately-owned companies, can have succession topics and so on.

The financial metrics the valuations play often a smaller role for the timing, but certainly we are very focused on the topic. And you have seen us doing stuff in the last two or three years, and yeah, I wouldn't mind if another opportunity like Troemner will materialize..

Understood. Thank you, guys..

Thank you, Isaac..

Our next question is from the line of Tycho Peterson with JPMorgan..

Hey, Thanks. Olivier, can you elaborate a little more on the Lab strength? I think people are conditioned to think about the recovery in Industrial, but you guys put up great numbers in Lab.

I know you had a slightly easier comp, but can you talk a little bit about the strength there, and the sustainability?.

Yes. Yes. Hey, very pleased to say that Lab was strong across the globe, across all the product lines. There were a few ones that had tougher comparisons and that played a role, like if you recall Automated Chemistry had a very strong previous year. They still had good growth this year, but maybe less than the average Lab.

The same was also true for pipettes in the U.S., where we had a strong comparison but still I'm very happy with it. I would particularly also highlight Europe and China, where we continue to have really good growth. I think it's a reflection also that Lab serves many end-user markets, it's not just the life science.

And many of these end-user markets start to be stronger and we see that also in our results. I would add also, I feel we had benefit from the strong pipeline, product pipeline that we built up. And we had many new products launched in recent years, and they all play well in the market, get good reception by customers..

And then I guess on incremental investments, you flagged some of the R&D projects and continuing investments in Field Turbo.

Can you talk a little bit just with the topline upside on how you're thinking about maybe expanding on some of these incremental investments?.

Yes. So the additional R&D investment often is a question of timing when we launch products and we have quite a couple of important launches, not just in Lab, across all the product portfolio in Q1, partially also in Q2. And probably more important is than the investment in Field Turbos.

The Field Turbos, they typically we say the first year is really an investment. It's about recruiting, onboarding, training, building up the pipeline. And then we want to see that typically in the second year, the Turbo or the individual breaks even. And then in year two, three, we start to have a payback also on the initial investment.

And I certainly see that this is happening. I would say the expectations – we exceed even our own expectations at right now, but that's more a reflection that the markets offer more growth than we originally planned..

Okay. Just last one on repos. You guys have been very consistent with your additional capital deployment, going back to share repurchase.

Just any thoughts on, given where valuation is, whether the returns there would impact maybe the pace of buybacks going forward?.

Sure. I'll take that one. So, the way we look at it, Tycho, is that we generate a lot of free cash flow. We look at the efficiency of different things. We certainly see that, our intrinsic value calculations for how we think we can build a business over time, it still makes complete sense to continue the share repurchase program.

I think there could be periods of time in the future where we have one or the other acquisition that might be bigger than some of these, more like Troemner's or whatever, a little bit bigger than the small bolt-ons, where we might think about our balance sheet and choose one or the other.

But sitting here today, our – we feel comfortable with the share repurchase program. We intend to continue with it as described earlier in the year. And we think that makes a lot of financial sense for shareholders, given where we see the intrinsic value..

Okay. Thank you..

Our next question is from the line of Dan Arias with Citi..

Hi, guys. This is actually Bryan Kipp on behalf of Dan. Congrats on the quarter. Just wanted to take a step back, you highlighted some of the new products and how they're contributing to overall momentum that we're seeing here.

Can you give a little bit more color around the incremental contributions, and whether or not the pipette launch that you guys had, the stand or UV/VIS, or some of the products last year, are really contributing now?.

Yes. Okay. So when we talk about new products, it's often new product generations. It is a product that has additional features, has additional benefits to the customer, but typically replaces an existing product. You mentioned UV/VIS. UV/VIS is kind of an exception, because that's a new product category.

But these new product categories like UV/VIS wouldn't have such an impact on the top line. You build this business over many years, rather than launching it and have an immediate impact. But the whole upgrade of our product portfolio drives the replacement cycle.

And that's why I say overall it helps our momentum, it helps us to increase prices because we have more differentiated value proposition and so on. But it's difficult to isolate the exact impact, because it's broad-based. It helps gaining market share, but then saying how many basis points, it's really difficult.

It's a continued stream of improving the competitive advantage that we have..

Okay. And just to help characterize back-half growth, just given the sequential stepdown that we're going to kind of see, I think two-thirds of your overall growth is implied in the first half.

How do you guys think about the Field Turbo investments that you did last year in contributing to back half, as well as some of these new products? Is your expectation more that that's just GDP plus growth, and that's where it's going to flush through, to maybe that 4% to 5% local currency range? Or is there more kind of baked in there?.

I think it's tough to just put a – for us to give you a guidance in reference to a GDP number or something, but maybe we look at it and our analysis would say hey, the comps get a little bit tougher.

Maybe I give a comparison here to the first quarter; I pick on maybe our Retail business had growth, in part due to some new regulations that came out at the end of the year. We weren't expecting that growth here in this first quarter.

We certainly think that over the course of the year that we're going to be at a much lower number, and that'll work itself out. If I look at the China business, and you guys probably get tired of hearing us say it, but the – we're always careful with how we forecast that China business.

It's – it can turn fast, it's – different economic situations or political situations could change demand quite quickly in China, or the credit situation there. And we do feel that we're currently benefiting from some pent-up demand, and it's unclear how that long – how long that will last.

And while we feel good about – well, I would even say we feel great about our start to the year in China – we're cautious about how the second half will be. So yeah, we are looking at those tougher comps, and I think let's see how the second quarter plays out.

Let's see how our order entry and backlog looks sitting here in July, and I think we can give you guys a better picture at that point in the year. But I think at this point we're careful to get carried away after this one really strong quarter of growth..

All right. Appreciate it. Thanks for the color..

Mm-hmm..

Our next question is from the line of Derik de Bruin with Bank of America Merrill Lynch..

Hi, thanks. This is Mike Ryskin actually on the line for Derik. Congrats on the quarter, clearly. Appreciate your comments on what you discussed earlier in terms of targeting the global key accounts, and how those areas grew well above the company average.

I was wondering if you could quantify how much that contributed to your topline growth, in any way? And whether the share gains you're seeing there, are they focused on any particular end-market or product segment? And then also what's the runway with sort of that initiative? Is this something that's still in the early stages, or will it be a contributor for some time? And then a follow-up also on the timing of Easter, is it – that you called out as a tailwind in 1Q.

Is it fair to say that's probably approximately a 50-basis point contribution to topline growth? And so, we should expect sort of similar headwind built into the 2Q numbers?.

Okay. Good. Let me take the first one on the global key account program that we have. Hey, what's maybe important to say, none of our end-customers is more than 1% of our revenue.

So, while these are very important customers, they – the difference is when we have a large group of them, where we apply this improved sales and marketing techniques that I described. And in that sense, there are many years for us to benefit from these improved approaches, because we can apply them to many, many customers.

And at this stage we are working on two handfuls of customers where we really apply the full program, but we're going to scale it up and I'm confident that we have a long-lasting impact. Quantifying the impact on the whole group, I want to be cautious to really give a number.

I think what's for us more important that we see that the approach is really working, that's why I mentioned to you that they are growing above the group average, because that gives us the confidence that we have a good program in place. In terms of the Easter ....

The Easter, it's impossible to exactly quantify, but I think, could it be two to three points of European growth in the quarter? I think that's a realistic kind of number. Certainly less in the U.S., and not impacting Asia..

The reason why it's more Europe, it's because many Europeans take a vacation around Easter. So it's not just about the one or two working days, it's maybe they go on vacation the whole week. And that's why we call out here Europe..

Got it. Thank you, that's really helpful..

Our next question is from the line of Ross Muken with Evercore ISI..

Hey, guys. It's Luke in for Ross. Great quarter. Just kind of two high-level ones from me.

If you could talk about the different margin expansion opportunities that you have within each business, and kind of how you balance between investing for growth and how you look at maybe it's time to take out some OpEx?.

Yep. Maybe on the latter one, I try to drive a resource allocation process in the company where we reallocate resources towards the businesses that have the best long-term profit margin upside for us, and certainly also the businesses that have the best strategic value for us.

And so, for many years we have been for example favoring the Laboratory business over the Retail business. And this is certainly something we continue to do. In the last few years, when you think about China, we did some restructuring in the Industrial part of the business as we continue to invest in the Laboratory business.

So, we do that resource allocation, we do prioritize in these terms. And when I think about Field Turbo investments, additional R&D money, this is all taking place.

When it comes to going for investment and tentatively reduce cost at our other parts, that is probably more driven by geography at this stage, because it's very difficult to play offensive and defensive at the same time in a market organization. And at this stage, we feel actually pretty good in most of the countries around the world, if not all.

And so at this stage we are mostly in an investment mode, and very selectively we do maybe cost measures in a country. It's a little bit different when we talk about the producing organizations. When you look for productivity there, it's more programs that we have in place. On the last call in February, we talked about Stern Drive.

This is a program that is going on across the globe, and there we definitely also do cost measures whenever we have good opportunities to execute them.

Okay. Great, thanks..

We do have a question from the line of Steve Beuchaw with Morgan Stanley..

Yeah, hi. This is Zach Wachter on for Steve this afternoon. Thanks for the question. Just looking geographically at your local currency growth, it looks like, even if I take out Troemner from the Americas and Easter in Europe, you had a nice underlying acceleration on a two-year stack in those regions.

What drove the upside in particular? I know you said that research was down double digits in the Americas.

Was it really Industrial driving that upside?.

I'm hesitating on the double-digit comment. So if I'm looking at our Americas business, if I look at our Lab business excluding Troemner, we grew by let's call it 6.5% or something like that in the quarter, which is certainly a solid result. And it compares to a plus seven in the prior year, so the stack numbers are very solid.

Our Product Inspection business, which can be quite lumpy, had 30% growth, and that drove a lot of our Industrial growth in that part of the world, and we are very much looking forward to that comp a year from now. But we have a lot of good things going on in Product Inspection.

We're certainly taking some share, and that's a – one of the – somebody was asking about what kind of customer groups, but that's certainly one that Olivier's strategies around global key accounts has been helping us. And then our core Industrial business did very solidly as well, and let's see how that picks up in the coming quarters.

What's worth noting is actually our Retail business was down mid-teens in the second quarter – or first quarter, I'm sorry. But that was, frankly, against mid-teens growth in the prior year..

Okay. And on the same comp-adjusted measure it looks like China, you actually saw a nice acceleration here in the quarter, but meanwhile, Asia/Rest of the World was more stable.

Were there any pockets of softness in other parts of Rest of World?.

No. If I kind of – I'm recalling a chart in my head, I think we had almost everybody was up mid-single digits, with, actually, Brazil and Russia not big markets but showing some very nice growth. I don't remember, even, anybody of material size having a decline, so.....

Okay. Thanks for the question..

We do have a question from the line of Rob Mason with Baird..

Yes, good evening. Thanks for taking the question. You mentioned that, Olivier, that Service, I think, grew 11%.

Is that adjusted for Troemner?.

No, it's not. Without the Troemner effect, it would be about 9%. Which is of course a very good number; Service is a much more stable business, and when we exceed the long-term average by a couple of points we are extremely happy.

I think it's a reflection actually of good execution, and what particularly made us happy was that it was across the globe, and particularly also in the Americas. So really good execution, and shows the potential of Service..

And maybe Europe benefited from the Easter that we discussed earlier..

Okay. But still, that's a step up from where we trended, even exiting 2016. So....

Definitely..

...why would that necessarily – I understand the dynamics and maybe lack of visibility in some of the Product business in the second half of the year – but why would Service back off that number materially?.

I think, actually, the last point that Bill made about Easter impacting Europe, that's certainly one..

And then the second one is, Service, in terms of the labor piece of our Service, Q1 is the smallest one. So, you know, if you – I'll make up a number, if you pick $1,000 worth of contracts, the impact of that in terms of the growth rate on the first quarter is just going to be a little bit larger. So, we were being open.

We were surprised at it, and maybe we will do a little bit better in the quarter. It's certainly an area we've been investing for growth, so I'd like to see the growth continue. But if I look at our forecast for the second quarter, we're going to see some impact due to the Easter. But let's see how Q3 and Q4 come together..

Okay. Okay. And also, Bill, the – with the first quarter, the operating margin expanded I think you said 250 basis points. If I do my math correctly, it looks like maybe there's 150 basis points baked into the second quarter. But as I look at the full year, or at least the second half, it's – there's not nearly as much in the second half.

Is there anything that your – one, is my math correct? And I guess if so, is there anything that we should think about in the second half of the year, other than just the growth rate?.

Yeah. I think the biggest impact is due to the growth rate. I was just looking at one of Mary's schedules here to see if currency had really a different impact, and no, it's similar. So, yes, slight – Mary's saying a little bit worse, but it's mostly driven by the pure volume impacts..

Okay.

Just the last question, the share count that underpins the 2017 guidance, give us a feel for that?.

Yes. So, it's 26 million, 266 point.... And just as a reminder, that that includes the new accounting rules regarding the stock option stuff. And I guess maybe that number, I guess it's updated to the most recent stock price, or – let me tell you it this way, last week's stock price..

Very good. Okay. Thank you. Nice quarter..

And we have no other questions in the queue at this time. I'll turn the call back over to management for any remarks..

Thanks, Doris. And thanks everyone for joining us this evening. We appreciate it. Of course, as always, any questions, please don't hesitate to reach out to us. Take care, and everyone have a nice evening..

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect..