Mettler-Toledo International 2026 Q2 Earnings Call

Please go ahead. Great. Hey, Jonathan.

Thank you very much. Good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on our website at mt.com. A copy of the press release and the presentation that will be referred to on today's call is also available on our website. This call will include 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, financial condition, performance, and achievements to be materially different from those expressed or implied by any forward-looking statements.

For a discussion of these risks and uncertainties, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website. Let me now turn the call over to Patrick.

Thank you, Adam. Good morning, everyone. We appreciate you joining our call today. Last night, we reported our second quarter financial results, the details of which are outlined for you on page three of our presentation. Our second quarter results were strong and reflected better-than-expected organic sales growth across our portfolio, including very good growth in China and emerging markets. It was driven by improved market conditions and our focused Spinnaker sales and marketing program. Combined with our productivity initiatives, this resulted in excellent adjusted EPS growth in the quarter. Going forward, we are optimistic market conditions will gradually improve. Our team remains agile and focused on capturing growth opportunities, leveraging our sophisticated Spinnaker program and innovative product portfolio while benefiting from trends in automation, digitalization, and onshoring investments. I am confident that strong execution of our strategic initiatives will continue to deliver solid financial performance.

Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook.

Shawn? Thanks, Patrick, and good morning, everyone.

Before I review our Q2 results, I'd like to highlight a special item in our financials this quarter related to tariffs. As disclosed last quarter, we had a one-time gross benefit of $52 million from IEEPA tariff refunds in Q2 that benefited cost of sales and was offset in part by a $28 million related refund to our customers that reduced our reported net sales by 3%. Discussion of our results today will exclude the impact of both of these items. Sales in the quarter were $1 billion, up 7% in US dollars, and in local currency, our growth was 6% and above our prior guidance of approximately 3% local currency sales growth. Acquisitions contributed approximately 1.5% to sales growth, and organic local currency sales growth was 4%. On slide number four, we show sales growth by region.

Organic sales, excluding acquisition and tariff refunds, increased 1% in the Americas, 4% in Europe, and 9% in Asia/rest of world, including 9% growth in China. Slide number five shows core organic sales growth by region on a year-to-date basis. On slide number six, we summarize sales growth by product area. Organic sales increased 4% in laboratory and increased 3% in industrial, which included 4% growth in core industrial and 1% growth in Product Inspection. Food Retail grew 11% in the quarter. Lastly, service revenue grew 9%, or 7% organically. Slide number seven details organic sales growth by product area on a year-to-date basis. Let me now move to the rest of the P&L, which is summarized on slide number eight. Adjusted gross margin was 59.3% in the quarter, an increase of 30 basis points.

Excluding unfavorable foreign currency and acquisitions, gross margin expanded approximately 90 basis points due to benefits from favorable price realization, lower tariff rates compared to the prior year, volume growth in our productivity and cost savings initiatives, partly offset by higher transportation costs. R&D amounted to $53 million in the quarter and was up 3% on a local currency basis over the prior period. SG&A amounted to $263 million, a 4% increase in local currency over the prior year, and includes sales and marketing investments, offset in part by cost savings. Adjusted operating profit amounted to $309 million in the quarter, up 9% versus the prior year. Adjusted operating margin was 29.3%, an increase of 50 basis points versus the prior year, or up 100 basis points excluding unfavorable currency. Adjusted EPS for the quarter was $11.46, a 14% increase over the prior year.

On a reported basis in the quarter, EPS was $11.55 as compared to $9.76 in the prior year. Reported EPS in the quarter included a $0.92 net tariff refund benefit, $0.26 of purchased intangible amortization, $0.22 of restructuring costs, and a $0.04 tax headwind related to the timing of stock option exercises. Finally, we had a $0.31 acquisition-related charge related to higher earn-out achievements on previous acquisitions. Let me now comment on adjusted free cash flow, which amounted to $367 million on a year-to-date basis and was negatively impacted by the timing of tax payments, which were $55 million higher than the prior year. DSO was 35.6 days, while ITO was 4.2 times. Let me now turn to our guidance for the third quarter and the full year 2026. As you review our guidance, please keep in mind the following factors.

First, we are encouraged by our Q2 results and improved market conditions, especially in China and emerging markets. Second, conditions in the Middle East remain volatile, and while we have limited exposure to the region, this could impact customer decision-making should conditions significantly change. We are not currently seeing any change in related customer behavior and have not included an escalation of the conflict in our forecast. Lastly, we are very confident in our ability to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment. Now turning to our guidance for the full year 2026. We have increased our local currency sales growth from approximately 4% to approximately 4%-5%, reflecting organic growth of 3%-4%. Our forecast excludes the impact of the previously described tariff refunds.

Adjusted EPS for the year is forecast to be in the range of $47.15-$47.50, which represents a growth rate of 10%-11%, or 11%-12%, excluding currency. This reflects an increase from our previous guidance of 8%-10% growth. At recent spot rates, foreign currency is estimated to be a 1% benefit to sales growth and a slight headwind to EPS for the year. For the third quarter of 2026, we expect local currency sales to grow approximately 4%, which includes approximately a 0.5% benefit from acquisitions. We expect adjusted EPS to be in the range of $12-$12.15, a growth rate of 8%-9%, or 9%-10%, excluding currency. Currency for the quarter at recent spot rates would be neutral to third quarter sales and a 1% headwind to adjusted EPS. Some further comments on our 2026 guidance.

We expect total amortization, including purchased intangible amortization, to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $28 million on a pre-tax basis or approximately $1.07. Interest expense is forecast at $67 million for the year. Other income is estimated at approximately $24 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $900 million in 2026, which represents 6% growth on a per share basis. Share repurchases are now expected to increase to $875 million for the full year, as compared to our annualized repurchase level of $825 million during the first half of the year. That's it for my side. I'll now turn it back to Patrick.