Mettler-Toledo Intl Executive Insights: Gross Margin, Food Retail
On Thursday, Mettler-Toledo International, Inc. (NYSE:MTD) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.
Jonathan Groberg – Macquarie: Can you maybe just – before we talk just two questions and the first is on margins. I know you mentioned, Bill, specifically on the gross margin front that I think you said you got pricing and you got productivity but it was offset by some mix both geographically and some of the products in China. Would you maybe just be able to quantify a little bit more what happened there and kind of how you expect that to play out through the year?
William P. Donnelly – CFO: We are talking about or trying to explain 16 bps in total. So, I’ll give you kind of the big pieces and price increases in the quarter and this now excludes the impact of the China item would include like some considerations around all the other businesses is that that was 260 bps in the quarter and if you think about what was the impact therefore on gross profit margin when you do the math, that’s about 130 bps, so around half that number. And material costs were down about 30 bps in the quarter. So taken together, that’s about 1.6%. The impact of mix, including the impact of these lower margin China jobs, was about minus 2% on the gross profit line. And think about that as roughly half coming from the China piece and the rest coming from other items, the largest of which was European mix. Then, what’s kind of leftover is, other, which is largely currency.
Jonathan Groberg – Macquarie: That’s helpful. If you think about the year, and I know you don’t have a breakdown kind of the operating line, but if you think about the year, how should we think about gross margins kind of on a year-over-year basis, given what you’re seeing now from a currency standpoint and some of the other mix issues?
William P. Donnelly – CFO: I think currency won’t have a big impact on gross profit going forward, so let’s get maybe the easier one out of the way. I tend to think that price increases won’t be worse than this. In fact, I think it’s more likely that it could improve from where it is as the year progresses. Material cost, I think that’s probably not a bad number. We could probably see that throughout the year. Now on the mix side, I think we will have some continued negative mix issues in part because of Europe. On the China side, I’d like to think that’s less impactful as the year progresses. We could still see a little bit of that in the course of Q2.
Jonathan Groberg – Macquarie: Then Olivier, when you think about strong quarter here off of tough comps, but you think about moving out throughout the rest of the year, you mentioned in particular Europe where you still see obviously some choppiness and some challenges, and can you maybe and also maybe just talk a little bit about China so maybe what you saw towards the end of the quarter and from other companies that we’ve heard that have a little – maybe a little more (relax) but with you guys it seems like those two markets have been a bit tougher here at the beginning of the year. So, can you maybe just talk about what you saw throughout the quarter and kind of what your expectation is for the full year?
Olivier A. Filliol – President and CEO: When we had the call last time and I was saying, I’m looking forward to have Q1 under our belt and would feel more comfortable to have a better view how the whole year would come together. To be honest sitting here today I feel I need to see also how Q2 comes together to really get a better at. There is still quite uncertainty out there and we saw also that the quarter had quite some volatility. You have heard us talk that January for example was rough and then February and March actually came in quite nicely and we were happy about that. If I look from a geographic stand point we would certainly feel today that Europe is probably the outlook is a little bit tougher than what we had expected. U.S. has good momentum and Asia emerging markets in general we observe it quite well. We have seen that China January was tough and we still China continuing to be challenging when – challenging compared to the previous years where we had excellent momentum. So, looking forward I do expect that we’re going to see better growth numbers out of Europe in Q2, but mainly because comparisons become easier. I do expect that Americas will be good because of the market environment and then in Asia Pacific…
William P. Donnelly – CFO: I think we would expect growth rates to come down preferably in China, I think we’ll still deliver probably double digit growth rates. You’ll also see when you look at our financials and part of the reason we grew a little bit faster this quarter was we did take down a little bit of backlog in China so the growth rate on orders was a little bit less than sales and I think we’ll more see now the more normalized number in terms of sales in the coming quarter. So something say in the low double digit levels.
Olivier A. Filliol – President and CEO: What we also saw that Q1 for example in China and our lab business did very well. Industrial had more difficult environment. I wouldn’t expect quite simple the lab business to continue as strongly in Q2 as we did in Q1. So we always said for many quarters, that we expect China not to continue with this high-teen growth, now looking towards Q2, it’s certainly going to be on the low teen growth.
Paul Knight – CLSA: I’ve always wondered if you could characterize the end-markets a little bit, particularly on the retail side, the industrial side and then perhaps even on the academic side I know you have low exposure there.
Olivier A. Filliol – President and CEO: Let me start with retail here. We talked about food retail. This is in the mean time less than 10% of our revenue and the food retail depends very much as of large project and this large projects are typically lumpy. We saw that also in Q1, we had a good business momentum in Americas I would expect that this is continuing and I will tell you that basically on (indiscernible) big project I would expect Europe continue to be challenging. Again it is less – just the end user environment it is much more based on the different project that we have seen in the pipeline. When it comes to industrial; here I was to differentiate between core industrial and product inspection. I would say that core industrial we have reasonable end user markets, the U.S. should actually be quite favorable as in Europe and Asia we certainly going to feel the uncertainty in the economy general, capacity utilization of our customers are certainly not that high and we are going to have an impact on our demand. When it comes to product inspection there the end user environment is very attractive for us particularly in the food industry. This is driven by regulations there is also good demand for quality control in general in the food industry and at this moment across the globe and I would expect us to have good growth throughout the year. When it comes to lab here we need to different we have a good part of our lab business that is driven by the life science industry. The life science industry it is less so about big pharma it is less about NIH and that could email, it is a wide range of end-user industry I would say, here we’re going to see more geographic topic than necessarily an industrial topic or end-user industry topic. Here, I would say, Americas would be healthy, Europe challenging, and Asia good growth but not the same growth like we had in the recent past. You specifically also mentioned academia, we are seeing that academia, in as far as it relates to government funding is challenging, and we see that in U.S., we see that in Europe, we don’t have that much exposure to academia.
Paul Knight – CLSA: You had mentioned Blue Ocean and the margin in proving activity there in China, have your plans changed at all on China as this course of moving manufacturing to that market is there any change in your strategy there?
Olivier A. Filliol – President and CEO: No. we definitely still perceive China to be a very attractive base for our production. We continue to expand our production in China, not just for the Chinese market but also for the export market, but what will be true is, there is less product lines that we are proactively moving to China, not that we feel any way different about China is much more that the big product lines that are really attractive to be manufactured out of China are behind us, but it’s really an attractive market. We have the right scales, we have an excellent team, and we have a good supplier base there. And in that sense, we got to continue to leverage this.