Good day, ladies and gentlemen, and welcome to our Second Quarter 2017 Mettler-Toledo International Earnings Conference Call. My name is Devin, and I will be your audio coordinator for today. During today’s call there will be a question-and-answer session [Operator Instructions].

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

Thanks, Devin, 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 are joining us. I’m joined by Olivier Filliol, our CEO and Bill Donnelly, our Executive Vice President. I need to cover just a couple of administrative matters.

This call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we refer to is also available on our website. Let me summarize the Safe Harbor language, which is outlined on Page 2.

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 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 Management, Discussion and Analysis and results of operations 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 the use of and the differences between the non-GAAP financial measure and the most directly comparable GAAP measure is provided in our form 8-K. I will now turn the call over to Olivier..

Thank you, Mary, and welcome to everyone on the call. We are conducting the call from Switzerland this evening and started a little earlier than we normally do given the time difference. 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 3 of the presentation. We had another quarter of excellent results, sales growth was very strong with great growth in Asia/Rest of World including China as well as the America.

Europe also had a solid quarter specially when adjusting for the Easter impact. We are pleased with our ability to capitalize on our growth initiatives, we continue to expand margin and EPS growth in the quarter was excellent. We are very pleased with the second quarter and first half results.

Our outlook for the remainder of the year is also very positive, although we will face more challenging comparisons. We continue to be optimistic that we can further our share gains and delivered strong performance in 2017. Let me handle it over to Bill now to cover the financials..

Hi, everybody. Sales were $653.7 million in the quarter as an increase of 10% in local currency. Excluding the impact of the Troemner acquisition our organic global currency sales growth was approximately 8.5% on an U.S. dollar basis sales increased by 7% as currency has reduced sales by 3% in the quarter.

On Slide 4, we show local currency sales growth by region, sales grew by 10% in Americas, 4% in Europe and 15% in Asia/Rest of World. China sales growth was 22% in the quarter. growth in the Americas benefited by approximately 3% from the Troemner acquisition.

On the next slide we show year-to-date results, sales grew year-to-date by 12% in the Americas, 8% in Europe and 12% in Asia/Rest of World. China sales growth was 17% in the first six months, for the first six months growth in the Americas benefited by 3% due to Troemner.

On Slide 6 we outlined sales growth by product line, laboratory sales grew by 9%, industrial sales increased by 12% and food retailing increased by 2%. Troemner benefited the lab growth by about 3%. All comparisons are in local currency and versus the prior year. The next slide shows year-to-date growth by product lines.

Laboratory sales grew by 11% industrial sales increased by 12% while food retailing increased by 5%. Similar to what we had in the quarter sorry, Troemner benefited lab growth by 3% for the first half. All comparisons are in local currency and versus the prior year. Now let’s turn to Slide 8, and let me walk you through the key items on our P&L.

gross margins were at 57.4% and that’s a 30 basis points improvement over the prior year on 57.1%. we had a little tougher comparison last year as we had a 160 basis point increase in gross margins during the second quarter of 2016.

We continue to benefit from pricing and also had productivity gains in the quarter, offsetting this was negative mix, material costs were down slightly as we obtained savings in certain material categories, but they are being largely offset by higher commodity prices.

R&D amounted to $32.9 million that’s a 10% increase in local currency, growth in R&D in the quarter was driven by increase investment in new product development. SG&A was a $193.5 million that’s an increase of 5% in local currency. Variable comp investments in Field Turbo programs as well as employee advantage cost contributed to that increase.

Our adjusted operating income reached $148.5 million in the quarter and that’s 15% increase over the prior year amount of $129.1 million. Currency reduced operating profit by $2.6 million in the quarter or about a 2% impact to our growth rate. Adjusted operating margins were 22.7% and that’s a 150 basis points increase over the prior year.

A couple of final comments on the P&L, our amortization was $10.2 million in the quarter while our interest expense was $8.2 million in the quarter. In terms of taxes, for purposes of adjusted EPS, we are reflecting our estimated annual effective tax rate of 0.2%.

For the quarter, our actual tax rate was 20%, as a reminder the difference is due to the timing of stock option exercises and the impact of the new accounting policy that went into effect this year with respect to the excess tax benefit of these exercises.

We remain comfortable with our estimated full-year tax rate of 22%, which is before non-recurring discrete tax items.

Moving now to diluted shares, fully diluted shares, they amounted to $26.4 million in the, which is 2.6% decline from the prior year reflecting the impact of our share repurchase program offset impart by higher shares outstanding due to the accounting change we just mentioned.

Adjusted earnings per share was $3.92 per share and that’s a 22% increase over the prior year amount of $2.22 per share. On a reported basis, EPS was $3.84 per share as compared to $2.93 per share in the prior year, reported EPS includes $0.12 of restructuring in $0.06 of purchase intangible amortization.

In addition as already mentioned, reported EPS includes $0.10 due to the lower reported tax rate. On the next slide we show results for the first half of the year, which is excellent. We have a local currency sales growth of 11%, our operating income increased by 19% and our adjusted EPS increased by 28%.

That’s it for the P&L, and I would like to turn to cash flow. In the quarter, free cash flow was $130.2 million and that compares to $108.9 million in the prior year. We remain pleased with our working capital management, DSO was 38 days similar to the prior year. ITO was also consistent with the prior year at 4.6 times.

Year-to-date, free cash flow was $172.4 million as compared to $138 million in the prior year. For the full-year, we now expect free cash flow to be in the $400 million range, on a per share basis excluding the large facility programs we previously discussed, this is a 15% increase over 2016.

One additional comment, principally due to the timing of facility CapEx, we expect cash flow to be down in Q3 but will be up in Q4. Now, let’s turn to guidance. We have had an excellent results over the last four quarters achieving approximately 9% local currency sales growth and 21% earnings per share growth.

We have benefitted from a relatively stable global economy and we executed our strategies effectively. Going forward, we believe we will continue to execute well, but also acknowledge that market conditions can change and comparisons -. Looking to the second half of 2017, we see tougher comps than in the first half.

In the back half of 2016, our local currency organic sales growth was approximately 7.5% as compared to 5% in the first half of 2016. Secondly, we expect our retail business to be down double-digits in the second quarter of 2017.

As we have discussed with you in the past our retail sales can be volatile due to the timing of projects that provide you some background on our assumption on when we cover the specifics. Assuming that market conditions remained stable, we are increased in our local currency, sales growth assumption for 2017 from 7% to 8%.

Based on the sales guidance range, we now expect adjusted EPS for the full-year to be in the range of $17.25 to $17.35 per share and that’s a growth rate of 17%. This incorporates our Q2 B a higher sales growth assumptions as well as the impact of currency, which had improved.

Offsetting these positives higher variable compensation for the back half of the year given our better than expected results for the full-year. Now turning to Q3, we expect local currency sales growth to be approximately 5%, if you exclude retail, we would expect our growth to be in the 7% in Q3.

This will give us an adjusted EPS of $4.25 to $4.30 per share and that’s a growth of 9% to 11%. One final comment in terms of the impact of currency on sales growth, we expect currency to be neutral to sales in Q3, and reduce sales by about 50 basis points for the full-year. Okay. That’s it from 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 good growth in the quarter particularly given very strong results in the prior year. We had a very good growth balances, analytical instruments and pipettes.

New product launches, Field Turbo investments, and Spinnaker sales and marketing initiatives are all contributing to growth inline. We expect to see continued good growth in line. Industrial also had a very good growth in the quarter, product inspection had another great quarter of growth.

I will provide some additional comments on this business shortly. Core industrial also did very well in the quarter driven by an excellent results in China. Finally, retail was up modestly in the quarter. Now, let me make some additional comments by geography.

Sales growth in Europe was good, especially [indiscernible] were impacting by timing of to Easter in Q2 and this year versus Q1 last year. Lab had grown against very strong results in the prior year, product inspection did very well, while core industrial was down slightly although up on a year-to-date basis.

In the Americas, lab did very well in most product lines, product inspection had another quarter of excellent growth, core industrial was down against very strong results in the prior year period. Retail was also down in the quarter.

Asia/Rest of the World grew double-digit in lab, industrial and retail as Bill already mentioned, China had excellent growth overall with lab, industrial and retail showing very good results. We benefited in China into the quarter from completion of some industrial project activities.

As we look to the second half of the year, we expect to have very good growth in China in Q3, plus we will face tougher comparison in the fourth quarter. Before I call the products inspection, let me make some additional comments on services which have grown 7% in the first half.

As a reminder, service represents almost 25% of total sales and is a unique competitive advantage for us as well as an important platform for revenue growth. We have service cost of approximately 2,700 personnel which is by far larger than any direct competitor and have invested significantly in training of tools to support the daily activity.

Core to our service growth strategy is increasing percentage of our install based of the service contract. We have talked about this objective in the past, and today we can reported that over the last four years, we have seen our service contract business grow by approximately 40% through these efforts.

We are emphasizing service contracts versus service in general, because we see the importance of moving our service business to be more contract base.

We have much better plan on our technician when the work is contract base and we delete the value received by customers [indiscernible] when our work can be pre-planned and that drives healthy flight up time and prevented maintenance.

One of our core beliefs is at the quality of our service has been at least as important as the quality of our product in impacting the customer experience. It helps us maintain very high rate of customer retention and therefore reduces our selling cost in the loss term.

The intangible asset represented by our installed base of product is along with our CRM data the most valuable intangible that we have. We use as data collected on our installed base to promote the growth both our product and service business and to identify ways to bring value to customer.

Our service business and our installed base are critical important to our future. We expect to continue to grow our service contract business at higher rate as the corporate average. And with the high profitability of our service business, this would provide a very rise mid impact to profit.

Another strong performer has been our product inspection business, which had sales growth of 80% in the first six months. Let me provide a short update of this business, which represents slightly less than 20% of total sales or almost 45% of our industrial segment.

Product inspection is more weighted to the west and customers are principally food as well as pharmaceutical and consumer goods company. Our offline consists of checkweighing, metal detectors, X-rays, vision and sterilization solution to help ensure the integrity and quality of packaged items.

We have the broader product offering in the markets and are clear market leader in every major region except Japan. Our extensive service network is a very important competitive advantage for us. Manufacturing productivity and up time is critical to food and pharma companies.

For global customers the tie and reach of service capabilities is a key consideration or no competitors comes close to matching our global reach. We are generally recognized as leader in innovation, which we reinforced earlier in this year with the launch of our C-Series checkweighing.

the C series is an truly global product platform covering the entire markets of simple to high complex applications on the production line. All products are available worldwide and complying with global sound and regulations.

Furthermore they are scalable with a flexible combination of mechanical and software option that can be tailored to individual customer requirement. The series set standard for weighing technology and it’s what we refer to as future proof, that is it has a modular design making it easy computer upgrades.

While offering significant value to our customers the C series benefits us in terms of manufacturing, spare parts and service knowhow in the form of reduced complexity.

We have significantly reduced the number of product lines for more than 50 to 10 while at the same time filling products down to the markets and serving the full value per need with solution for both dry and wet environment.

This series has the same software, man machine is a based and communication capabilities across all product lines allowing for easy intuitive operation for our customers and more efficient production and supply chain requirements for us. [indiscernible] equipment design among the product lines, greatly reduces the number of spare parts.

Growth drivers for product inspection are attractive, principally driven by concerns product safety, plus brand protection and manufacturing productivity. We continue to see global food companies looking to standardize global leader product inspection instrument. Our global presence and service network provides us with a unique advantage here.

Finally as product inspection is heavily weighted to food and food follows population overtime, we believe that in the future emerging markets will provide various active growth opportunity for product inspection.

Product inspection should grow above the company average of over the medium term, we are currently expanding our manufacturing facility to product inspection in both in U.S. and in UK. to accommodate this growth potential. That concludes our prepared remarks. We are very pleased with our excellent results in the first half of the year.

Our outlook for the remainder of the year is positive, although we will face more challenging comparison in the back half of the year. With continued good execution, we believe we can gain share and generate good sales and earnings growth. I want to now ask the operator to open the line for questions..

[Operator Instructions] Your first question comes from the line of Ross Muken with Evercore ISI. Please go ahead. Your line is open..

Good afternoon, guys. So, maybe as we think about the end markets for second and maybe geographies. Where are you seeing the biggest inflections where you are seeing growth kind of take off continue to sort of accelerate and even when you look at your order book or you are steering at third quarter.

You sort of surprise that the trajectory or it’s noticeably different than maybe a more smoother trend. And then is there anything where you have seen that happen and is leveled off or in general have you seen most of the markets kind of stay elevated that have sort of done that so far.

Just trying to get a feel for maybe this slope some of these businesses that have been improving for you?.

So, interesting question, I think one of the reasons that I wanted to call out in our guidance for Q3, Ross is the impact of retail is that when you kind of look at a three year growth rate including retail and two year growth rate including retail you kind of see Q1, Q2, Q3 all kind of at the same level.

But when you start to pull out the impact of retail actually, you see that there is just a modest little pick up. And I’m not sure this the impact of certain part of the global economy, I mean our general view is there is not too any [indiscernible] parts of the world right now.

But I think it’s the fact that we got a little bit more Field Turbo in there. And so we feel good about what we see globally, there is some markets like China that we would say hey, China is not going to say at that kind of rate and we will start to face much tougher comps later in the year.

But, overall we don’t see a slowdown, we see this 5% as more a little bit “artificial impact” due to retail which is kind of lumpy and just as a reminder for everybody tends to be a little less profitable particularly in the contribution line than some of the business, and also in the quarter..

And on the emerging market side, that’s what I’m more thinking about where you are seeing now this slope of recovery and obviously China as you mentioned was riding pretty hard.

I mean is that consistent across sort of all the subgroups within there or some of the earlier cycle stuff looking at a different than mid or late cycle or some of the healthcare businesses. Just kind of steady stages. Give us a little bit of a picture in some of the emerging market pieces.

I’m just trying to get a sense for maybe trajectories?.

So, we felt good about also the other emerging markets beside China, we have parts of Southeast Asia that have a strong quarter and even the Russia and Brazil also did quite well. You might recall on the last call we did also talk about India, we have in India mid single-digit growth against very good growth last year.

India is a little bit impacted by some new tax regulations, so maybe for the second part we’re going to see a little bit of an impact. But overall, actually really good results across all the emerging markets and we stay confident that we are going continue to see good momentum there..

Thank you, guys. You next question comes from the line of Tycho Peterson with JPMorgan. Please go ahead. Your line is open..

Hey, thanks. Just wondering if you can provide little more granularity on growth expectations by segment for the back half of the year. I know you kind of touched a little bit on that to Ross’ question.

But in particular on the lab market, I’m wondering what your expectations are given the funding environment getting a little bit better?.

Yes, we had high single-digit growth in lab for the second half of the year. And the Product Inspection business should continue to do quite well although they had a very tough comps in the fourth quarter and our core industrial business should be in that mid single-digit.

It’s the retail business that’s we are looking at probably a double-digit decline there in the second half..

Okay.

And then, Olivier On service, can you give us the sense as to how much of the services are under these broader Service contracts and how much of emphasis you are placing now is on emerging market service tax rates versus a more developed market?.

Okay so the contract based business is about half of our total service business or close to half. And has obviously been growing much faster like the rest of the service, the other parts of the service would be then spare parts and break fix and that piece has not being growing that well in the past.

For New York region have seen declined and particularly reflection that the quality of our products becomes much better. And we have been successful to migrate customers to preventive maintenance that also helps to reduce the break fix aspect.

So overall it’s a very healthy change of mix, it’s as I mentioned improved the customer satisfaction and it helps us to maintain a tight contact with the new customer base.

Now in terms of attachment rates of service contract, we still have a significant differences country-by-country that’s a question maturity of our whole service development and it reflects also maturity of the country, obviously in the West we have a much bigger installed base than in the East.

We bring more and more good service programs also to the East in particular also to China where we have experience very nice growth rate and increasing it also in contract base and services. But in terms of - we are clearly huge towards the West when it comes to service contract business today..

Okay. And then last one for Bill.

Can you just give us that the margin component how much price and material cost, I know you said that moved around a little bit and what do you expect in the back half of the year for those two components?.

Okay. So the price were up 230 basis points in the quarter and that’s 2010 year-to-date and so that contributed about 1%, then we had productivity gains including material component and labor component that was about 30 bps for the quarter, 60 bps year-to-date. And then the mix and let’s call it other would be then the reconciling items..

Okay. Thank you..

Your next question comes from the line of Steve Beuchaw with Morgan Stanley. Please go ahead, your line is open..

Well thanks for bringing the midnight early in Switzerland first of all. I really appreciate it if you could spend a minute on Field Turbo, I very much appreciate Bill’s comments that there is an increasing and I mean it’s in a good way disconnect between growth and the underlying markets, because the Field Turbo.

Now that you have a few years experience, I mean how do you think about the sustainability that the growth rate of the sales force and how do you want to refine the Field Turbo program going forward..

The field turbo is really inspiring us as long-term initiatives like statistical [indiscernible] approaches, every year we get a little more sophisticated plus we don’t see an end to the story, you are not going to necessarily see us to the same amount every year, we will certainly address that to the market conditions, but in general we see opportunities really around the world and we are prioritizing however the business is with the best profitability and certainly also the best opportunity for us to win market share.

We the reason why I say the program has many more years to go is our average market shares are still giving us plenty room and for many, many years to grow here to additional resources and the additional resources help us to serve the customer better way and to have a better geographic coverage.

So yes, if I look this year we are for example planning to add another 200 people roughly and we are certainly going to investigate for opportunities later this year and from today’s perspective there is no reason why we wouldn’t do something similar again next year..

Really appreciate that. Just two quick modeling questions for me.

One is now that you have seen 2Q you still thing Easter was two or three points swing factor between the first quarter second quarter in Europe and then a quick one for Mary or Bill any chance you can give us a view on want the tax looks like beyond this year given this year we had a bit of an accounting transition..

Let me answer the last part first. So the tax rates sitting here today we would say same point 22% rate next year.

In terms of Europe I tend to look at the year-to-date numbers and say that our lab business is up 8.5% year-to-date and our industrial and [TI] (Ph) business is up about 5% year-to-date and kind a looking at the details I would say that 2% to 3% for the Easter impact on Europe is probably still realistic number particularly if I’m looking at the multi year growth rates too and if I adjust for that I think that is a reasonable assumption Steve..

Okay great. Thanks for the help..

Sure..

Your next question comes from the line of Isaac Ro with Goldman Sachs. Please go ahead, your line is open..

Good afternoon guys, thank you. question was on market share be interested maybe at a high level if you could talk a little bit about where you think you are getting share most effectively.

And then maybe as a counter to that where you think the opportunities from here are going forward are most compelling for you to do better on the share front?.

Because the data is not so easily available from our competitors. We can’t exactly quantify the numbers on a quarterly base or business-by-business or country. But in general, I definitely feel very strong about our product inspection business how we do there, really very strong, the whole lot portfolio does also extremely well.

And I also feel like we do well on the remaining businesses and when you think about geographies and feel strong across the world. And so I wouldn’t highlight particular country or so and yeah..

Okay. That’s helpful. And then maybe on the services side of the business. Can you talk a little bit about the types of investments you need to make at this point to drive continued growth there about corporate average. I mean just is that business grows as a percentage of total what that means through incremental margin profile of the total company.

I’m wondering if that will have a tangible effect. Thank you..

So, in terms of investments this has been something going on for years, we have heavily invested in having better data on our installed based. We make sure that we have an understanding where all our installed based is with respect to decision makers or users behind it and having an understanding how the equipment is used.

And then running marketing programs behind it and that’s actually very diligent work, detailed work for developing service contract business you need to do micro complains and that something that we have been really developing over the years. And we have invested accordingly in telesales resources, but also service development people.

And then when you have the business of course we need to add more service technicians and heavily invest in training for this service technicians, we are proud of having a very well trained, but also very specialized service force around the world.

And so these are multiple investments and of course we always talk about our [indiscernible] program, so in essence there is also IT tools that support our service organization across the world..

Understood. Thanks so much guys..

Your next question comes from the line of Dan Leonard with Deutsche Bank. Please go ahead. Your line is open..

Thank you.

First off, I was hoping you could you could elaborate further on what drove the acceleration in China whether by end-market customer class or anything you could offer color on?.

Okay. I think the thing that’s really changed the last couple of quarters is the industrial business. So, we’re doing well on industrial. I think there is multiple factors contributing it to that. One is we going back couple of years redirected our sale resources to go to more selected industrial markets.

And I think it’s fair to say that that process happen all at once. So, when you are approaching new segments, trying to gain share with customers et cetera it took a while to grow that up and I think that still improving.

Second factor is, we clearly believe that there was pent up demand in recent years coming from China, it’s hard to quantify, but we certainly have seen in another parts of the global economy, gets weak and there is let’s say something of a financial limitation on credit availability that we tend to get eventually bounce backs in our replacement cycles.

And then maybe the third thing that is another tough one to quantify and it’s probably a little bit into the coming quarters, but there is probably something to be said with the end of the five year conference coming up that the government likes to talk about this program or that program that they have gotten finished for the benefit of the “people” and we are today much less a direct beneficiary of such programs than we were in the past but we are certainly an indirect beneficiary of the pushing you get some of those projects done..

And just lastly, you can quantify growth rate between your industrial business in China and your lab business in China?.

Okay, sure. So year-to-date basis our lab business is up and mid teens let’s call it and industrial business is up around 20%..

Great. Thank you, Bill..

Your next question comes from the line of Dan Arias with Citi. Please go ahead. Your line is open..

Yes, good afternoon, guys.

Bill, just following up on retail how much visibility you have into 2018 at this point, but do you expect the project works as you move to the beginning of next year and I guess along those lines, I think what is the normalized growth rate for that business in the out years?.

So maybe I just start by trying to persuade with the idea that I want to answer your question, but I don’t want us to get distracted on that question too. If you look at what is going to drive our EPS growth for the long-term it’s how we are doing in those core product categories.

Retail is by definition lumpy, it represents today Mary help me, probably by the end of this year somewhere around 8% sort of 8.5% and it’s meaningfully less profitable than any other businesses. So certainly we need to help you guys with expectations for it, but if you think about your long-term model it’s not going to be a key value driver.

With that being said, sitting here today we don’t know that much, as you guys remember our budget tour is coming up, but we will know a lot more on the next call and probably to give you some better insights.

But you know sitting here today we will always say our next three to five year expectations for retail is also [indiscernible] and sitting here today we would see a different number for 2018 and that..

As you might recall that’s in recent quarters we were surprised actually by better retail numbers than expected, some of that was driven also by the European regulation for label, so we had a little bit of a spike of business that we are facing now tougher comparison and that business doesn’t repeat.

So again, this is lumpiness of that business and we just should accept it, because I feel that it’s kind of not the core that we want to focus on driving cost..

Yes, certainly understand. Okay. Thanks. And then maybe just within lab, I’m just curious about the pipettes business that was one that was up last year more than I kind of would have thought it would be. So I mean at the halfway point of this year, how do you think that looks in 2017 compared to the growth that you saw in 2016..

That’s our growing last year it grew around 10% and this year 150 basis points less..

Okay. Thanks very much..

Your next question comes from the line of Tim Evans with Wells Fargo. Please go ahead, your line is open..

Thank you. Maybe I’ll just turn to the balance sheet, over the past three years you have taken your leverage ratio up materially to return capital and I was just wondering if that’s something we should expect to continue should we think about that leverage rate remaining stable or perhaps even going down maybe any comments on that. thanks..

Okay. So Tim I’m going to try to be persuasive against. And I’m having fun with your comment materially. I think you have got average for the last couple of years buying about a $100 million a year over our free cash flow and very much reflecting the fact that our balance sheet is pretty conservative and still is at the end of today.

Sitting here today we are expecting that in 2018 we will get to buy just equal to our free cash flow which just as a reminder assuming things as they are today we will buy about a $0.5 billion this year, we bought about a $0.5 billion last year or we buy about a $0.5 billion again next year.

And maybe not to get too much in the reach here just one other thing is, you guys will remember that our free cash flow in 2016, 2017 and probably a little bit early 2018 will be impacted by all these building projects that we undertook and this is reminder that the two main categories that fall into are one is the campus consolidation that we did as part of our efforts to reduce our Swiss Franc cost base eliminated a number of facilities and are consolidating that in to one this year and then finishing that up next year.

And then second one is two plant pure expansions that we’re doing one in the United States and one in the United Kingdom, because our product inspection business as you guys hear from the numbers has just been growing really well particularly in the X-ray side and we just needed more facility then.

So with that kind of behind us, we lack of a better expression somewhat artificial deflating of our cash flow for couple years here we made up for that with some extra share repurchases and get back to a more normalized free cash flow level in 2018.

[indiscernible] understand that I answered your question fully?.

You did. That’s very helpful. Thank you.

Your next question comes from the line of Derik de Bruin with Bank of America Merrill Lynch. Please go ahead, your line is open..

Hi, good afternoon. Hey, so can you talk a little bit about the pharma and biotech markets and also pretty big bio production. In your [indiscernible] business you sell dissolved oxygen sensors and other tools that look at basically - they are using tool like bio production campaigns, bio manufacturing campaigns.

Some of your competitors have commented about flowing in the bio production market. I’m just wondering if you notice anything weird in terms of production scale and from your perspective in that market..

Okay, so life science in general is about 25% to 30% we will include [indiscernible] so have bio-pharma, we have pharma on skills and so on. this is a market that we serve in particular with the high tech business but also auto lab business and with the degree of which the process analytics business.

You heard us just talking about high tech how well we have been doing so very happy with that.

And if I look at the process analytics business, we had excellent growth last year, this year a little bit less so, but in terms of two year growth actually remains really strong and I think I feel like we saw a little a weaker now but that’s because the comparison were really so difficult.

But in terms of market momentum, I definitely feel good and we’re reviewing that business early in the week and the outlook actually remains strong. So, I feel actually good about the end user prospect and particular also in the area bio production and bio stimulus and all the related markets..

Great. Thank you. And Bill, can you talk to us a little bit about the gross margin progression in the second half of 2017. Your second quarter numbers were a bit lower than what we have modeled? Thanks..

Yes. Sure. So, it’s correct, we are up about 30 bps in the second quarter and that 1largely was explained because we’re up a 160 bps in the prior year. In the second half of the year, I think you can assume our gross profit margins will be up about 50 bps..

Great. Thank you very much..

Your next question comes from the line of Steve Willoughby with Cleveland Research. Please go ahead. Your line is open..

Hi. Good evening. Bill or Mary, I was wondering and I apologize in case I missed it. If you could just give us a quantify some of the like an EPS bridge between your old guidance and your new guidance. I know you called out a number of things [indiscernible] OpEx as well as some higher variable comps.

So I just wonder if you can help us to put some numbers around how you are thinking between your EPS guidance and your new EPS guidance?.

Hi. I struggle to be overly precise, because each one was independently bottoms up, if you know what I mean Steve. So, but that being said on the EPS side we certainly built in some additional upside due to higher sales expectations. We built in some impact due to higher bonuses to be paid.

And you might know that has a little bit of weird impact that if I can explain it clearly in the second half of the year, because the first half of the year was so strong it’s got mean, we finish very, very well on our bonus plans for the full-year.

But with this kind of more mid single-digit growth in the second half of the year has a little bit of a disproportionate impact on the cost structure in the second half. And incremental margins would otherwise be even better in the second half.

And then we updated ForEx, ForEx is still a slight headwind for the full-year, but certainly less than the headwind than it was last time and then we added in the impact of what we would be this quarter. So, that kind of gives you hopefully the flavor of how we are thinking about it..

Okay. That’s helpful. And then just one quick follow-up and just on tax rate.

[indiscernible] the simple math, I just want to make sure we’re looking at the right, 22% for the year we’re thinking something in somewhere in 24%, 25% range in the back half of the year?.

Yes. I guess that it certainly got it over the only hesitation on the amount remember our pre-tax earnings are larger in the second half of the year than the first. So you might not be that much of an impact to get there but it’s something north of 22, 24 probably..

Perfect. Thanks very much..

[Operator Instructions] Your final question comes from the line of David Stratton with Great Lakes Review. Please go ahead. Your line is open..

Hi, thank you for taking the question.

Really quick, would you go over what you are seeing in raw material cost and any benefit from this Stern Drive program at this point in procurement?.

Yes, so maybe we kicked off some projects that will layer in over time, but I think we kicked off projects that have a total value savings about $9 million again it won’t be all realized at once related to the Stern Drive program.

We were relatively flat in terms of material cost and year-to-date basis and I believe that commodity prices were negative about a $1 million with offsets in other categories and then another one that was negative if I recall correctly was electronic components.

So electronic components in commodity prices are up and other categories are down, I think we got 2 millions are negatives and 2 million of positives if I remember correctly..

All right.

And then really quick to the service revenue, how much is Troemner benefitting that category?.

So yes it could be 1% or something like that, I think their pure service business is certainly less than $10 million..

Thank you..

There are no further questions in queue. I’ll turn the call back over to Mettler-Toledo management..

Thanks Devin and thanks everyone for joining then call tonight. As always if you have any questions, please don’t hesitate to contact us. Given that we are in Switzerland probably the best way is through e-mail. Hope everyone have a good night and take care. Bye-bye..

This concludes today’s conference call. You may now disconnect..