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

Bryan A. Kipp - Citigroup Global Markets, Inc. Patrick Donnelly - Goldman Sachs & Co. LLC Zachary R. Wachter - Morgan Stanley & Co. LLC Michael Ryskin - Bank of America Merrill Lynch Jason A. Rodgers - Great Lakes Review.

Good day, ladies and gentlemen, and welcome to our Third Quarter 2017 Mettler-Toledo International Earnings Conference Call. My name is Sera, and I will be your audio coordinator for today. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Ms. Finnegan, you may proceed..

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

The call is being webcast and is available for replay on our website. A copy of the press release and the presentations that we refer to is also on the website. Let me summarize the Safe Harbor language, which is outlined on page 2 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 result, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. For a discussion of these risks and uncertainties, please see the discussion in 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 of Financial Condition and Results of Operations 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 our Form 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. We will also provide an overview of our guidance for the fourth quarter and next year. I will have some additional comments and we will then open the lines for Q&A.

The highlights for the quarter are on page 3 of the presentation. We are pleased with our sales growth in the quarter, particularly in light of the very strong sales in the prior year. In the third quarter of this year, sales growth in Asia/Rest of World was excellent, driven by growth in China.

In the Americas and Europe, sales growth in Laboratory and Industrial was good but, as expected, we had a meaningful decline in Food Retailing sales. Overall, demand in our markets remains good and we are pleased with our strong execution.

Our productivity and margin initiatives continue to yield results which drove strong growth in EPS in the quarter. Our outlook for the remainder of the year and for 2018 is quite positive. We are also pleased to have completed the acquisition of Biotix. I will cover that in some more details later in the call.

For now, let me turn it over to Bill to cover the financials..

Thanks, Olivier, and hello, everybody. Sales were $698.8 million in the quarter, an increase of 6% in local currency. On a U.S. dollar basis, our sales increased by 7% as currencies helped sales growth by about 1% in the quarter. There are two considerations in evaluating our local currency sales growth for the quarter.

First, we had a significant decline in our U.S. and European Retail businesses and, second, acquisitions benefited growth in our U.S. Lab business. Excluding Retail and the impact of M&A, the rest of our business grew organically by 8% in local currency during the third quarter. On slide 4, we show local currency sales growth by region.

Sales grew 2% in the Americas and Europe. As I just mentioned, growth in both of these regions were impacted by the significant decline in Food Retailing sales, which was driven by a number of factors including strong prior year results. Excluding Food Retailing, local currency sales growth was approximately 5% in the Americas and 4% in Europe.

Turning to Asia/Rest of World, we had 15% growth, driven by terrific results in China, which had local currency sales growth of 28% in the quarter. Retail did not impact Asia/Rest of World or our China growth rates. On the next slide, we show the results on a year-to-date basis. Sales grew by 9% in the first nine months of the year.

In the Americas, sales grew by 8%. In Europe, sales were up 6%, while in Asia/Rest of World, sales increased by 13% year-to-date. On a year-to-date basis, sales growth benefited by approximately 1% from acquisitions, while growth in the Americas benefited by 2%. On slide number 6, we outlined sales growth by product line.

In Laboratory sales, we grew 9%, 7% of which was organic, while our Industrial business increased by 8%, very much driven by our China growth, and our Food Retailing business declined by 18%. The next slide shows year-to-date growth by product line. Laboratory sales grew by 10%, Industrial increased 11% , while Food Retailing has declined 4%.

Acquisitions benefited Lab growth by about 2% on a year-to-date basis. All the comparisons in this page are on local currency and versus the prior year. All right. Now I'd like to turn to slide number 8 and let me walk you through some key items in our P&L. Our gross margins reached 57.3%.

That's a 50-basis-point improvement over the prior year amount of 56.8%. We continue to benefit from pricing and we also had productivity gains in the quarter. Offsetting this was mix and foreign exchange. R&D amounted to $32.5 million in the quarter, that's a 6% increase in local currency.

Our growth in the quarter for R&D was very much a result of investments in various product development programs. SG&A was $204.9 million in the quarter, that's an increase of 8% in local currency versus the prior year. Variable comp and investments in our Field Turbo program as well as some new marketing programs contributed to the increase.

Adjusted operating income was $162.9 million in the quarter, and that's a 7% increase over the prior year amount of $151.7 million. Adjusted operating margins reached 23.3%. A couple of final items on the P&L. Amortization was $10.7 million in the quarter, while our interest expense was $8.2 million.

In terms of taxes, for purposes of adjusted EPS, we are reflecting our estimated annual effective tax rate of 22%. For the quarter, our actual tax rate was 25%.

As a reminder, the difference is due to the timing of stock option exercises and the impact of the new policy that went into effect at the beginning of the year with respect to the excess tax benefit of these exercises. We remain comfortable with our full year estimated tax rate of 22% which is before non-recurring discrete tax items.

Moving to fully diluted shares. This amounted to $26.3 million in the quarter, and that's a 2.2% 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 reached $4.36 per share, which was a 12% increase over the prior year amount of $3.89 per share. On a reported basis, EPS in the quarter was $3.99, and that compared to $3.77 in the prior year. Reported EPS includes $0.10 of restructuring and $0.07 of purchased intangible amortization and also $0.05 of acquisition costs related to Biotix.

In addition, and as already mentioned, reported EPS includes $0.15 of higher reported taxes due to the timing of stock option exercises. On the next slide, we show our year-to-date results which were very strong. We achieved local currency sales growth of 9%.

Our operating income has increased by 15% and our adjusted earnings per share have increased by 21%. That's it for the P&L and I now want to talk about cash flow. In the quarter, as expected, free cash flow was down versus the prior year due to the timing of capital expenditures related to our previously discussed facilities expansion program.

Free cash flow amounted to $111.9 million in Q3, and that compares to $125.6 million in the prior year. Our working capital statistics remain solid, our DSO is at 40 days while our ITO is at 4.5 times. Year-to-date, free cash flow was $284.3 million, and that compares to $263.7 million in the prior year.

On a per share basis, this is an increase of 11%. For the full year, we now expect cash flow to be in the $410 million range. On a per share basis, excluding the large facilities expansion program, this represents a 15% increase over our 2016 level. Let me now make a few comments on the acquisition of Biotix, which we completed in the third quarter.

Biotix manufactures and distributes plastic consumables associated with pipettes including tips, tubes and reagent reservoirs used in the life science market. Biotix's annual sales of approximately $35 million, we paid $105 million or approximately 10 times EBITDA for the business.

Based on the results over the next two years, we could also have the potential earnout payment beyond base purchase price. Biotix is a unique strategic fit with our reigning pipettes business on several fronts, and we're very pleased to have acquired it. Olivier will provide additional background on Biotix shortly.

With this acquisition, we have adjusted our share repurchases in 2007, and estimate that we would repurchase $400 million in total, which is in line with our estimate of free cash flow for this year. Now, let's turn to guidance. We continue to believe that our full year 2017 local currency sales growth will be approximately 8%.

However, we're raising our EPS guidance and now expect to achieve EPS of approximately $17.50 per share for the full year 2017. This compares to $17.25 to $17.35 per share we previously disclosed. The improvement is principally due to our Q3 B (11:58), as well as a more favorable FX environment.

With respect to the fourth quarter, we expect local currency sales growth of approximately 5.5%. This includes approximately 1% growth from Biotix. We assume adjusted EPS would be approximately $5.90, which reflects a growth rate of 12%. One final comment in 2017.

The impact of more favorable currency environment on earnings in the second half of this year is largely offset by bonus expense due to the very strong results we had in the first two quarters. Now, let's turn to 2018. We're very pleased with our strong performance, particularly in the second half of 2016 and for the first three quarters of this year.

The economic environment in the Americas and Europe is good. Market conditions have recovered in China, and we are currently benefiting from some pent-up demand, especially in our industrial business.

Similar to how we have developed full-year guidance in the past, we are assuming market conditions remain largely consistent with the current environment. We're not assuming changes in the global economy nor are we assuming changes in the currency rates versus current levels.

That being said, we want to acknowledge that we see very limited opportunity for improvements in the global economy or the foreign exchange environment. In terms of things we can't control, we feel very good. We are confident in our growth strategies, which are yielding good results based on strong execution.

We should continue to gain share in our productivity, and margin enhancement initiatives should deliver further operating profit growth. One final comment, and as I've mentioned this to you in the past, comparisons matter. We'll have some challenging comparisons in 2018.

I specifically refer here to our growth in China, as well as in our product inspection business, and this will especially be so in the early part of the year. Taking all of these factors into account, we expect local currency sales growth to be approximately 6% in 2018. This will include approximately 1% from Biotix.

We expect this to result in adjusted EPS in the range of $19.65 per share to $19.85 per share, and that's a growth rate of between 12% and 13%. In terms of our quarterly guidance for 2018, as usual, we will provide that on our upcoming calls.

However, I know you will be updating your models, and I want to point out that we'll have some very tough comparisons in the first half of next year, but particularly in the first quarter. As a reminder, we had 11% organic sales growth and 36% EPS growth in Q1 of this year.

With these comparisons, we would estimate that sales growth in Q1 2018 would be in the 4% range and EPS growth will likely be in the mid to high single-digits. In terms of currency impacts on sales growth, we expect currency to increase sales by about 2% in the fourth quarter of 2017.

This will result in basically a flat currency impact for the full year on sales. In 2018, we expect currencies to increase sales by approximately 75 basis points. Finally, in terms of cash flow next year, we would expect free cash flow to be approximately $450 million.

We would expect our capital expenditures to again be higher than normal due to the completion of our facilities expansion program. As we've discussed in the past, we're currently expanding and consolidating our product inspection business in the U.S. into a new facility in Tampa. We're also expanding our production inspection manufacturing in the UK.

And finally, to reduce our Swiss cost exposure, we're consolidating certain of our Swiss operations into an expanded facility at our headquarters in Greifensee.

The timing of these expenditures has been delayed since we first spoke to you about them, and we've also modestly expanded the UK and Swiss projects, given the level of expected business at these locations. We estimate CapEx at $130 million dollars in 2018 and expect to complete the expansion projects late next year or the early part of 2019.

Thereafter, we would expect our CapEx as a percentage of sales to be in the 3% range. Excluding these facility CapEx on a per share basis, we expect to increase NCO by approximately 11% in 2018, which is in line with our EPS growth. In terms of share repurchases, we'd expect them to be in the $500 million range in 2018. Okay. That's it from my side.

And I'd now like to turn it over to Olivier..

Thank you, Bill. Let me start with summary comments on business conditions. Lab had a very good growth in the quarter. Almost all product lines performed very well. Our strong product pipeline, Field Turbo investments, and continued strong Spinnaker sales and marketing program are all contributing to favorable results and position us well for 2018.

We expect good growth in 2018 in Lab, but acknowledge spending by our biopharma customers won't be as favorable as we have seen these last few years. Industrial also had good growth in the quarter, with core-industrial up high single-digits.

Core-industrial was particularly strong in China, but Europe had solid growth as did Americas if we adjust for some challenging comparisons in transportation and logistics in the prior year. We would expect solid growth in core-industrial as we finish 2017 and look to 2018. Product inspection was up 7% in the quarter and 14% year-to-date.

We are well-positioned in this business, which we have discussed with you in the past. Given timing of project and prior year comparisons, we would expect this business to be down in Q4, but expect mid-single-digit growth in 2018. Finally, Retail was down 18% in the quarter.

As Bill mentioned, this was expected given prior year strong growth and timing of project. We would expect Retail to be flat in the fourth quarter and low single-digit growth in 2018. We continue to manage this business for profit growth and return on invested capital. Now let me make some additional comments by geography.

Sales growth in the Americas was solid in laboratory and product inspection. Core Industrial also did well if we exclude the impact of some project business in transportation and logistics. Europe also had good growth across products – most product lines, except Food Retailing, which was down.

Asia, Rest of the World grew double digits driven by excellent growth in China. We had very strong growth in both Lab and Industrial in China with almost all product lines showing excellent growth.

The performance reflects good economic environment, which benefited in part with additional activity in advance of the start of their five-year Congress meeting. We are also benefiting from our initiative to shift resources to faster growing markets, in Industrial and Lab business.

Our outlook for China is good, but they will face tougher comparisons beginning in the fourth quarter. We would expect sales growth to be in the mid-single-digit range for remainder of this year as we look to 2018. Finally, service grew 7% in the quarter and on a year-to-date basis. That concludes my comments on the business.

I now want to provide some context to our acquisition of Biotix, which we completed in September. Headquartered in San Diego with manufacturing in Mexico, Biotix manufactures and distributes plastic consumables associated with liquid handling, specifically pipette tips, tubes and reagent reservoirs primarily used in the life science market.

As most of you know, we are a leader in liquid handling through our Rainin subsidiary, which manufactures and sells pipettes and tips. Rainin is the leader in U.S. in pipettes and is widely recognized for its innovation, particularly in terms of ergonomic and electronic pipettes.

Many of you saw this firsthand at our Investor Meeting at Rainin last summer. Rainin is somewhat unique in the pipette market in that it sells direct through its own sales force, which we believe provides us a key competitive advantage, particularly around our ability to leverage our Spinnaker sales and marketing program.

This acquisition is a great complement to Rainin as we will gain access to indirect distribution channels with strong secondary brands. Our strategy is to run a dual-channel, dual-brand strategy, with Rainin focused on direct sales and service and Biotix focused on indirect distribution channels and OEMs.

We have successfully implemented this strategy with balances, where we used Mettler-Toledo brands on a direct basis and all-house (21:37) on an indirect basis. Biotix will also lead our efforts to support large OEM customers in this market, like the companies who offer robotic liquid handling solutions.

Overall, they have been more successful than Rainin in this niche, and with access to Rainin's technology should be even more successful going forward. Biotix has a strong technology focus, and over time we expect to achieve synergies between Rainin and Biotix in the R&D and supply chain.

We also expect to leverage our international presence to expand their footprint at presently almost 70% of sales are in the Americas. In the near term, Biotix will be run as a separate entity with management team intact. Biotix should add approximately 1% to our sales growth and is modestly accretive over the next year.

We believe Biotix is a strong strategic fit and are excited about the potential and our further expansion in the attractive pipette consumable market. That concludes our prepared remarks. We are very pleased with strong results year-to-date.

Our outlook for the remainder of the year and for 2018 is positive, and we believe we are well-positioned to continue to gain share and deliver strong results. I want now to ask the operator to open the lines for questions..

Thank you. Your first question comes from Dan Arias with Citi..

Hi, guys. This is Bryan Kipp on behalf of Dan. Thanks for taking the questions.

I guess for me just to start with Biotix, just because we kind of ended on that, when we were out at the Rainin facility, you guys highlighted a lot of the automation manufacturing that you guys were doing for pipette tips and how gross margin expansion has accelerated from those efforts.

How should we think about Biotix's manufacturing facilities and whether that's an incremental opportunity for them as well?.

Okay. So first, as mentioned, they're in Mexico. So the labor costs are meaningfully lower, I think, in the area of 20% of what we have up in the Oakland area. But I do think there are opportunities for more automation than they have today.

I don't think you'll see it looking exactly like the Rainin facility in that sense because of labor costs, but also because of a little bit of their business mix. It's smaller, so they probably have – let's call it shorter runs on the injection molding equipment than we might have at the Rainin facility.

What I would say is that we're certainly hoping to work with Biotix to raise their growth profile. They should be able to grow faster than Rainin in the coming years. And there will be a lot of leverage in, and a big part of the synergies will be some of the leverage that will come in their manufacturing facilities from that additional growth..

Okay, helpful. Thank you. And a quick follow-up, Bill, I guess I was surprised by your comment that you said that you see little opportunity for improving the economy plus FX environment.

Just given the macro data we've seen out of the Europe lately and continued strength in China, can you give any order commentary around that? Is there any anecdotal comments you can give as to why you think there's not a lot of further upside room from here?.

So you have to look at it first maybe on the currency side in the context of we've had a currency headwind as a company for 10 years, and this is our first year of having one. So I don't know, maybe we feel like we finally got a present instead of coal in our Christmas stocking.

I can't imagine that this will happen two years in a row or further improve from here. And I think the other comment is and we've been saying it for a while is since the end of 2016, just a global economy for our kind of company has been going really well.

On the one hand, we're not trying to say that we see clouds on the horizon, but if I look back at my 20 years, I'd struggle to name a point in time where you had so many parts of the globe acting at a good level. And so, that would tend to tell me this has – we'll have some hiccups over time.

I hope there are hiccups in the smaller economies that impact us or smaller sectors of the economy. So I think that my comment should be read in that way. It's not that we see a big cloud on the horizon, it's more of the, hey, it's really good out there and it's hard to imagine it getting better..

Okay. And order commentary here or order trends are in line with kind of what you've stated to date on expectations, right, for 4Q and....

Yeah. For 4Q, but I would just comment that we're a short-cycle business, so yes, October orders were good, but Mettler-Toledo in total has, I don't know, a month and a half of backlog, so I wouldn't read too much into orders..

Awesome. All right, thank you..

Your next question comes from Tycho Peterson with JPMorgan..

Hey, guys. This is actually Julie (27:07) on for Tycho. Thanks for taking my question. My first one is regarding Americas. So this quarter, I know you called out a slowdown in Food Retail, but even excluding that, Americas still grew 4%, which is a slowdown from last quarter of 10%.

So, could you guys just give a little bit of color on what might be causing as a slowdown there?.

Okay. So first, I just want to clarify a little bit on our numbers, so what we're saying is our organic growth in the Americas was about 5%. And I think as we had talked about a little bit on our last call, we do see tougher comps in a number of our U.S. businesses.

So, for example, our product inspection business had a very strong second half last year and that would – to maybe just mention one, kind of pulling out my sheets now in front of me. In 2016, yeah, we had a good quarter, but particularly a good quarter in product inspection at 10% growth. So, yeah.

And then if you – our T&L business had – grew by – I think the number was 62% in the third quarter and that made for a little bit of tougher comp on the Industrial side..

Got it. That's helpful. Thank you. And then a follow-up on the Biotix acquisition. Just wondering if you could shed a little bit more color on the rationale given that the pipette business is tailored for the biopharma industry. And I think you mentioned that you expect a continued – a deceleration in the biopharma end market.

So what's behind your rationale there? And then, specifically, if you could quantify the kind of growth that you're modeling for Biotix? And I think you mentioned it will be modestly margin accretive, but exactly how much, if you could quantify? Thank you..

So, let me take the first part of the strategic rationale, and then Bill can fill you in on the model. First, I want to say the biopharma markets remain still very attractive for us. We are more talking about that we are coming out of a period with very high growth rates and growth rates become a little bit more moderate.

But we like the biopharma market very much. It's one of our key focus, and especially if we look on that globe, that's going to be a core market for us going forward. And I'd like actually when the mix goes up for us with the whole life science market is attractive. Biotix is very synergistic. It strengthens the franchise.

And there are synergies in the back-end that we talked about before. In terms of operations, there is a synergy in terms of R&D. And then, we feel we can play an interesting strategic card here by having two brands and two channels to the market. There is good growth potential for us here. And Biotix is clearly more focused to the U.S.

market today, and we feel Mettler-Toledo can add value to also leverage the international presence that we have. So, in some way, I would say it fits very well into our core strategy about the markets that we want to serve. And the second point is, we clearly see synergies, and I think we are the perfect home to develop that business.

In terms of the model, Bill?.

Yeah. So, maybe two comments on the model.

So, their market share is relatively slow, but we think by teaming up there's a couple of specific opportunities that we can work with them on that we're pretty confident there'll be a double-digit growth business for the next three years; and that if we run that kind of through the model with some of the synergies that Olivier mentioned, we could move their operating profit or EBITDA kind of margins up well into the 20s from where they are today and that would mean even almost double the profit growth, pre-tax profit growth for the business that we have as compared to sales growth.

So, I think the return on invested capital, if we hit our model, which I think is pretty realistic, would be quite good in terms of returns here. But there – but just to be clear, and I maybe misheard you, the margins today at Biotix are meaningfully less than what we achieved at Rainin..

Very helpful. Thank you..

Your next question comes from Patrick Donnelly with Goldman Sachs..

Hey, guys. Thanks. Maybe just one on China. You obviously saw a big 3Q with high 20% growth there. Can you just talk through what areas were outsized growth, and then also why it's been slow so dramatically? And I think you're calling for mid single-digits even this quarter.

I mean, was there a timing element in 3Q, pull forward, or maybe just kind of talk through that?.

Yeah. Hey. So, China definitely exceeded our own expectations too, really, really happy. The market environment is very favorable. No question about that one, but our team also execute extremely well. All these growth programs that we have placed are paying dividends here.

However, we need to realize we are benefiting also from pent-up demand, so this is very much true for the Industrial business. For Industrial, we have seen that a couple of quarters where we had a difficult performance, and now we see customers coming back.

And so, there's definitely a timing topic in this and that's also the reason why we caution going forward about expectations, we're talking about high single-digit growth rates here for Q4 and certainly next year This is partially because of comparisons, but also because we don't expect to continue to benefit from this pent-up demand as we did.

We did also mention on the call there was a timing question around the congress that they have, that could have modestly also benefited us. So, all in all, I think the situation that we have is – on the Lab, it continues to be very strong. Industrial, in particular, was an acceleration of growth, but not that specific one that will just stay that way.

I think there we're going to see a more normalized growth going forward..

Okay. Great. Then maybe one for Bill.

So, on the margins next year, could you talk through pricing, raw material pricing, just the impact with gross profit margins for next year?.

Yeah. So, in terms of our gross profit margin, we've assumed that within pricing we should be able to do 150 bps that – and that on the material cost side that we'll see some of this continued increasing commodities, but that we ought to be able to offset it. So, we kind of assumed a neutral material cost environment.

And I would say though if it gets a little bit worse on the material cost side, we probably could push pricing a little bit more to compensate for that. So, I think that combination is a realistic one. And then, in terms of mix effects, I don't think that there's a big assumption one way or another.

In terms of the overall gross profit margin, I think 50 bps is probably a good starting point based on today's currency. I think currency, just – because we have some top line benefit, the currency – I assume the currency might somewhat dilute the gross profit margin percentage even if it didn't hurt the dollars..

Great. Thanks. And maybe just one last one if I could sneak it in. How are you thinking about the geographic breakdown in terms of growth for next year? Thank you..

Okay. So, in terms of geographic breakdown, we see that Asia/Rest of World, we've built in something in that mid to high single-digit range assuming that China is a little bit of a tougher comp. For the Americas, we should grow mid single-digit organically and benefit – move up to high single-digits when you take in the impact of Biotix.

And then, we're looking somewhere in that 2% to 4% range for Europe..

Great. Thank you..

Your next question comes from Steve Beuchaw with Morgan Stanley..

Hi .This is actually Zach Wachter, on for Steve. On the Food Retail line, your 2018 guide for a low single-digit growth sounds very much in line with the long-term model.

I'm wondering if that assumes any sort of impact from new food regulations in Europe?.

Hey there. It's still a little bit benefit of this fiscalization, particularly actually France is adopting it; in Germany, it's pretty much implemented and the benefit over for us; but in France, we will still have some. But I wouldn't attribute too much upside from that. I think more it's a question of timing of projects.

Typically, in retail we have bigger projects and we do see that things should be more normal next year. This year, we faced, first, comparisons topics, and then a few things that got postponed..

Okay.

And given the draft of the tax reform that was passed around today, I'm wondering if you had any initial thoughts on that and potential impact from that?.

So – hey. There was a few pages to digest there, so we didn't quite get the model fully fired up. We actually had our board meeting today, so all the senior guys were tied up as well. So, I think, in terms of impact on our effective rate, a few highlights would tend to make me think there's no big upside, but no big downside either.

I think the one that we were worried about when we first started talking about this was the border adjustability topic. And I guess, for a while now, we've known that won't be part of it. We're not a big beneficiary of cash parked overseas and trying to repatriate that. As you guys know, our tax rate already reflects full repatriation.

I think one of the things we found interesting was that the rules around CapEx expensing would be retroactive to the end of September, I guess, or sometime in September. And that's probably helpful in terms of we wouldn't want people deferring purchases into next year, that would make the fourth quarter more complicated.

So we assume that's a good thing, but that's more a sales topic than in terms of our income tax rate..

Okay. Thanks. And just one last quick one for context on Biotix.

Could you give us what was the historical growth rate for the business maybe for the last two or three years?.

I would say it was in the 10% to 12% range. I think, if you count year-to-date through, let's say, last 12 month, the LTM ended September 30, and 2016, you probably get numbers in that range..

Great. Thanks..

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

Hi. Thanks for taking the call. It's actually Mike Ryskin on for Derik. Solid quarter, guys. Congrats again. A lot of the questions have been asked. So I just want to follow up with some more fine points. On the China front, you recalled that you're seeing some pent-up demand and that's benefiting you.

I'm wondering if you could sort of talk a bit more about that, what's the pipeline there, expectations for how long it will take to work through that demand, just trying to parse apart what you see is the sort of underlying growth rate versus a little bit more of a temporary boost as people work through back orders essentially?.

And maybe just a few context so I think I'm answering your question, but if you want further clarification, let me know.

You guys will remember back in 2015, our Industrial business was down by 20% in China, and then last year it had started to – it was pretty much flat for the first three quarters of the year and then started growing 12% in the fourth quarter. And then the first three quarters of this year, it's been coming up from that level.

And I clearly – I think we all clearly think part of that growth rate in 2017 is the things that got deferred from 2015, this is what we referred to as pent-up demand.

Now, we also had a pretty nice spike in our Lab business here in the third quarter and maybe some of that could be the result of the Communist Congress or People's Congress taking place.

And in terms of what we – when we see this starting to get a little bit tougher as we already see now coming here in the fourth quarter, the fourth quarter was really a strong quarter for China. Last year, we grew by 15%, that was by far the strongest quarter we had in 2016 in China.

Now we're saying that, hey, the comps will get tougher, we'll probably grow between 5% and 10% in the fourth quarter of this year. And I guess that's kind of the start of some of these tougher comps..

Okay. Thanks. And then looking at sort of the 3Q performance vis-à-vis the 2018 guide, 6% local currency in both but without equivalent contribution from M&A, and yet in 3Q you had a pretty substantial headwind both in U.S. and Europe from Retail.

So, for the 2018 guide, is it safe to say that the majority of the sort of conservatism in the guide related to the tough comps you're facing from 2017 or is there anything else in terms of you're seeing from the individual markets, whether it is a little bit of slowdown in the Lab or by geography?.

Yeah. So, I guess, the way we're looking at it is, you're right, the numbers for Q3, Q4 and 2018, if you look at the organic numbers, they're all kind of getting around to the same level. I think that if you pull out the Retail piece particularly, and I guess, if you look at our Q3 piece, we have quite a bit of growth coming out of China.

We think that's got to go to a somewhat lower level. But we'll have – we see some pickups in other parts of the business. I think we're happy with our mix kind of globally as well as by product category. We're getting the growth in the right places and we're optimistic for 2018..

Okay.

One last, and if I could squeeze it in, the last two years, some nice tuck-in M&A between Troemner and Biotix in areas where you really have a dominant position for both, can you talk a little bit about the deal pipeline going forward? Is this sort of we should expect about a 1% contribution from deals moving forward once these annualized?.

Yeah. The strategy that we pursue on M&A has been very consistent for many years. We always have a couple of opportunities that we are working on. We have quite a sophisticated approach to identify targets and we nurture them. And the availability for these targets is very difficult to predict.

You have seen us, as you mentioned, doing the Biotix and Troemner, these were two acquisition in the Lab space. Before that, we did a few ones in the product inspection area, and process analytics would be the third business line where we are focused on opportunities.

The fee (44:38) businesses offers additional acquisitions, they will certainly be all bolt-on. But it's not that I would feel like, oh, the track record of the last 12 months can be just extrapolated to the next 12 months.

It's not – yeah, we'll see what comes, but again, I don't want to suggest that we will have every six months such a nice fate and such an attractive target as the last two that we could materialize here. But we will quite focus on opportunities, no question..

Great. Thanks. Appreciate it..

Your next question comes from Jason Rodgers with Great Lakes Review..

Yes.

What was the impact from price on revenue and gross margin in the quarter?.

So, about 2.5 points of price gain in the quarter and about half that was the impact on gross profit margin..

And as far as 2018 guidance, what are you modeling for share repurchase?.

About 475 million, I think we said on the call about 0.5 billion. So, I think precisely it's about 475 million, I think, today..

And then, finally, I wonder if you could talk a little bit about what you're expecting from any kind of productivity improvements including Stern Drive (46:16) looking at 2018? Thanks..

Sure. So, we've built in an assumption around incremental operating margins with our typical something north of 30% on a currency-neutral basis. And if you look into what are the details that make that up, you would see that we've built in productivity assumptions in both our SG&A area as well as in our factory supply chain.

Those numbers would approach probably high-single-digit millions, but we're also making investments in Field Turbos and other activities, so not all of that's falling to the bottom line. So, maybe that gives you some sense of what's in there.

I think in terms of modeling purposes, you can assume this typical Mettler incremental operating margins in the mid-30s, high-30s depending on currency..

Thank you..

There are no further questions at this time.

Do you have any closing remarks?.

Thanks, Sera. And thanks, everyone, for joining us this evening. As always, if you have any questions, please don't hesitate to give us a call or shoot us an e-mail. Take care and have a good night..

This does conclude today's conference call. You may now disconnect..