Mettler-Toledo International (NYSE:MTD) Q3 2026 Earnings Call

0:00 I will now hand the conference over to Adam Uhlman, head of investor relations. Please go ahead.

0:05 Hey, thanks, Jonathan. Good morning, everyone. I appreciate you 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 we'll refer 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, please see our recent annual report on Form 10-K and quarterly and recent reports filed with the SEC.

0:56 The company disclaims any obligation or undertaking to provide updates or revisions to any forward-looking statement except as required by law. On today's call, we will use non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8 and is available on our website. Let me now turn the call over to Patrick.

1:18 Thank you, Adam, and good morning, everyone. We appreciate your joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on page three of our presentation. We delivered an excellent third quarter, achieving relatively broad-based growth across our portfolio while capitalizing on improving market demand. Performance was particularly strong in Asia and the rest of the world. Improved sales volume and strong execution of our strategic initiatives result in another quarter of robust growth in adjusted EPS. We continue to benefit from investments in recent years that have strengthened our competitive position and prepared us for the growth opportunities we see ahead of us.

2:06 We have accelerated our innovation, expanded our digital capabilities, further enhanced our spinnaker sales and marketing excellence program, and evolved our global supply chain setup for increased resilience and agility. As market conditions improve, we are well positioned to deliver strong financial performance going forward. Let me now turn the call over to Shawn to cover the financial results and our guidance, and I will come back with some additional commentary on the business and our outlook. Shawn? Thanks, Patrick, and good morning, everyone.

2:41 Sales in the quarter were $1.1 billion, up 6% in U.S. dollars, and in local currencies. Organic local currency sales growth was also 6%. On slide number four, we show local currency sales growth by region. Organic sales increased 3% in the Americas, 2% in Europe, and 13% in Asia and the rest of the world, including 13% growth in China. Slide number five shows sales growth by region on a year-to-date basis. On slide number six, we summarize sales growth by product area. Organic sales increased 6% in laboratory and 6% in industrial, which included 5% growth in core industrial and 8% growth in product inspection.

3:32 Food retail declined 2% in the quarter. Lastly, service revenue grew 7%. Slide number seven details 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. Gross margin was 59.8% in the quarter, an increase of 60 basis points due to benefits from favorable price realization, lower tariff rates compared to the prior year, and volume growth, partially offset by higher material and transportation costs. R&D amounted to $54 million in the quarter, and was up 4% on a local currency basis over the prior period.

4:19 SG&A amounted to $267 million, an 8% increase in local currency over the prior year and includes sales and marketing investments and higher variable compensation offset in part by cost savings. Adjusted operating profit amounted to $333.5 million in the quarter of 8% versus the prior year. Adjusted operating margin was 30.5%, an increase of 40 basis points versus the prior year. Adjusted EPS for the quarter was $12.57, a 13% increase over the prior year. On a reported basis in the quarter, EPS was $12.29 as compared to $10.57 in the prior year.

5:05 And in reconciliation to GAAP, is located in our press release. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $652 million on a year-to-date basis and was negatively impacted by the timing of tax payments, which were $72 million higher than the prior year. Excluding taxes, free cash flow per share increased 7% versus the prior year. I'll now share additional thoughts on our guidance for the fourth quarter and our initial thoughts for 2027. As you review our guidance, please keep in mind the following factors.

5:50 First, we are encouraged by the relatively broad-based momentum in our business, 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. Third, we are encouraged by the increasing momentum and activity related to onshoring investments. While we have, while we are, excuse me. Third, while we are encouraged by the increasing momentum and activity related to onshoring investments, we have not assumed this will be meaningful to our 2027 results.

6:39 And 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 fourth quarter of 2026, our local currency sales growth forecast is approximately 5%. An adjusted EPS is forecast to be in the range of $14.84 to $15.04. which represents a growth rate of 11% to 13%. At recent spot rates, foreign exchange is not expected to significantly impact our results. For the full year 2026, we have increased our local currency sales growth forecast from approximately 4% to 5% to approximately 5%, reflecting organic growth of 4%.

7:33 Note that our forecast also excludes the impact on sales and cost of sales from tariff refunds. Adjusted EPS is forecast to be in the range of $47.70 to $47.90, which represents a growth rate of 12%. We've also provided our initial guidance for 2027, and based on our assessment of market conditions today, We expect local currency sales to increase approximately 5%. Our outlook reflects continuous strength in China and emerging markets, favorable trends in the U.S., and benefits from our Spinnaker sales and marketing growth initiatives in robust product portfolio, offset in part by a cautious view in Europe given various macro uncertainties.

8:25 Adjusted EPS is forecast to be in the range of $52.50 to $53.50, which represents a growth rate of 10% to 12%. At recent spot rates, foreign exchange is estimated to be a 1% headwind to sales growth and neutral to EPS. Some further comments on our 2027 guidance. We expect total amortization, including purchased intangible amortization, to be approximately $76 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $27 million on a pre-tax basis for approximately $1.05 per share.

9:12 Interest expense is forecast at $68 million for the year. Other income is estimated at approximately $22 million. We expect our tax rate before discrete items will decline from 19% in 2026 to 18% in 2027. Free cash flow is expected to be approximately $950 million in 2027, which represents 8% growth on a per-year basis. Share repurchases are also expected to be $950 million. That's it for my side, and I'll now turn it back to Patrick.

9:51 Thanks, Shawn. Let me start with some comments on our operating businesses, starting a flat which had broad-based growth in the quarter across nearly all product areas. In addition to growth in bioprocessing, it was encouraging to see another quarter of strong growth from customers in quality labs, where we sell a wide range of analytical instruments and lab balances, while trends in biopharma and biotech research improved, resulting in very strong growth in our liquid handling business. The laboratory also benefited from growth in hot segments to support the like semiconductor, battery, and GLP-1, among others. Our innovative portfolio resonates well with customers, and we have a deep pipeline of new innovations that will reinforce our technology leadership.

10:41 In process analytics, we launched a new online bioburden analyzer that provides real-time monitoring of microbial contamination, for example, in pharmaceutical water systems. The launch further strengthens our position in critical bioprocess applications. Turning to industrial, Core Industrial had another quarter of solid growth on top of 10% organic growth in the prior year. Sales growth this quarter was again led by our automation and digitalization solutions. We have maintained a steady cadence of new product introductions in recent years and further expanded our portfolio recently by introducing the ACT305 weighing transmitter, which is a high-performance device designed for fast, accurate transmission of weight data and status to control systems, enabling enhanced process control.

11:39 It is easy to use, quick to commission, and integrate seamlessly into industrial environments for filling and dosing, check weighing and other applications. Moving on to product inspection, we had a very good quarter with organic growth of 8% with strong results across the portfolio. Our mid-market strategy is working well and helping us target growth opportunities within growth segments of the food manufacturing market. They've also further expanded our portfolio of high-end solutions to help our customers tackle how to detect physical contamination. They also introduced AI-enabled image recognition software for our X-ray systems, improving contamination detection while reducing false rejects for customers.

12:26 Finally, food retail sales declined slightly due to the timing of project activity, especially in the Americas. Now let me make some additional comments by geography, starting in the Americas where sales grew 3% versus 9% organic growth in the prior year. We had strong results across most lab product categories, and it is encouraging to see strengthening demand for products used in research and development applications, especially pipettes. Industry also had good growth, on top of double-digit growth in the prior year with strong product inspection results and strength across our four industrial products that enable automation and digitalization.

13:11 Growth in these areas was offset in part by software sales in food retail and transport and logistics due to timing of project activity. Turning to Europe, growth in Europe was modest but broad-based across the portfolio. While macroeconomic conditions remain subdued, customer activity is good, and our team continues to execute well on capturing available growth opportunities. Finally, Asia, rest of the world, had excellent growth results again this quarter, with strong growth across the portfolio. This included 13% growth in China, which was led by our industrial business and strong results across our laboratory products.

13:58 Other emerging markets also grew double digits. That concludes my comments on our Q3 results, and now let me share with you some additional thoughts on our initial guidance for 2027. I recently came off our annual budget tour, meeting with our senior leaders around the world. I came away incredibly encouraged by the energy, optimism, and focus I saw throughout the business. but stood out most was the breadth of growth initiatives that are being pursued across the organization. Our teams have a deep pipeline of initiatives to drive growth and enhance profitability and are executing at a high level. Importantly, many of the investments we have made over the past several years are beginning to generate tangible results.

14:50 We have strengthened our product portfolio, accelerated innovation, deploy new tools across our Spinnaker sales and marketing excellence program and enhance our digital footprint. We have also invested in a more resilient and agile global supply chain. We remain committed to investing to support future growth and see significant opportunities ahead as replacement demand improves, companies increase investments to support onshoring and supply chain resilience, particularly in the United States, and customers placed increased emphasis on automating and digitizing their operations. These trends align exceptionally well with our strategy and provide confidence in our ability to drive growth over the long term.

15:39 Our biopharma customers are making substantial investments in artificial intelligence, digitalization and next-generation research capabilities that we expect will accelerate drug discovery and development. We are uniquely positioned to support customers with our broad portfolio of innovative solutions across the entire value chain, from research and development all the way through manufacturing. From a regional perspective, we expect solid growth in the United States in 2027, where investments in advanced manufacturing and automation are expected to build as the year progresses. You also expect good growth in China despite more difficult comparisons given the strong second half results in 2026. We are well aligned with the investment priorities in China in life sciences, technology, new materials, and clean energy, as well as trends in automation and digitalization.

16:39 We are also well positioned globally to capture growth in various hot segments such as semiconductors, advanced materials, and batteries, to name a few. We expect to see strong momentum across emerging markets and expect these regions to remain important contributors to our long-term growth strategy. We also expect to translate these growth opportunities into another year of double-digit growth in adjusted EPS through the focused execution of our initiatives. In summary, we delivered an excellent third quarter and are pleased to have increased our full-year outlook. We are entering 2027 with positive momentum across the business as the investments we have made over the past several years are producing results, and our growth initiatives remain on track.

17:30 We remain confident in our ability to continue creating compounding value over the long term, and we look forward to discussing our strategy in greater detail at our investment meeting on Monday. So that concludes our prepared remarks. Operator, I'd now like to open the line to questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

18:19 Your first question is from the line of Luke Serget from Barclays. Your line is now open. Please go ahead.

18:25 Great. Thanks for the question, guys. I just wanted to talk about kind of what you're seeing there in China. I know I appreciate some of the color that you gave, but when I'm thinking about the puts and takes that we're seeing here, and it's starting to recover for the rest of the group pretty strongly, just kind of dig in from an MR perspective and then what's also embedded within China. That 27 guidance, is there any material improvement in some of the slower parts of the areas?

18:54 Thanks, Luke, for the question. Of course, we are very pleased with the 13% growth we have seen in China this quarter. In Q3, to give you a little bit more flavor, also included a strong industrial growth and lab growth. We're actually feeling very good about the momentum in China because we are, as I said in the remarks, we are really well aligned with the investment priorities in China. to invest into the future, building out the pharma portfolio, investment in life sciences and technology, in new energy and others. This really fits our portfolio very well. We're also benefiting from the In China for China strategy. We have a strong manufacturing footprint there. We have a strong local sales team and can also benefit from our global tools like Spinnaker to really address the hot markets. There's overall, I would say, a broad-based trend clearly into automation and digitalization in China as well.

19:47 and given all the updates we have made to our portfolio and the innovation we have put in there, we feel really well positioned for the future growth in China. Of course, next year we face, especially in the second half, we will face some tougher comps, but we are all really confident. I hand it over to Shawn to really give you some more details in terms of the growth rates in China, I expect.

20:07 Yeah, hey, thanks, Patrick, and good morning, Louis. Yeah, hey, Patrick and I were just in China recently to meet with them, and then we also, of course, were on our annual budget tour, but we got to meet with all the other colleagues in the region as well as around the world. and we really came back feeling very positive on the region in general. You know, what was nice to see is that the breadth of the growth kind of throughout the portfolio, particularly in China. You know, if you think about earlier in the year, we started to see this momentum building on the industrial side, which we continue to see, but we also saw good results in lab in the quarter. I think in the quarter, industrial was up probably like mid-teens and lab was, was a high single digit. Yeah, very, very high single digits in the quarter.

20:56 And as we kind of like look to Q4, we see that lab growth probably even further. Thank you for joining us today. throughout the portfolio especially in the pharmaceutical side I think as Patrick mentioned too and we think about next year that mid single digits probably more like mid to high on the lab side and maybe more low to mid on the industrial side acknowledging there could be some upside but we're just a little bit more cautious given the comps.

21:49 Okay great and then I guess just to follow up there and continuing on the The 27 Guide theme. You guys usually frame kind of what you're looking for from that could be upside driver, downside drivers. Outside of geography and macro, but I kind of look at when I'm thinking about the upside, you have a pretty large installed base from an instrumentation perspective. And, you know, as I think AI kind of hits in the manufacturing sector, You know, that's an unappreciated aspect of it. And I'm just trying to think about the upgrade cycle from an instrumentation perspective. You know, how much of your stuff is cloud agentic ready? And I'm sure that's a huge focus for you on innovation. But as I think about some of upside drivers next year, like, could a rebirth or restart of an instrument upgrade cycle be one of them?

22:41 Look guys, I think you're hitting a good point here is that we have invested a lot into our technology and digitalization capabilities over the last years and you're absolutely right. We have put a lot of emphasis on making sure that our sensors, our instrument really seamlessly plug into the customer's digital environment. So we provide what I will call across the value chain all the sensors that you need to take The relevant data to either optimize the manufacturing workflow processes or in the R&D environment drive automated labs, etc. What is important is that we also provide what I call the mid-layer data infrastructure that connect to our sensors and instruments that then seamlessly integrates into our customers' AI software solutions and where everybody uses something else. But it's important that they have a good interface that they can connect against with our instruments.

23:39 And of course, all the newer products that we have out there connect to it. LabX, for example, is a really strong platform that connects to almost the entire fleet of instruments we have in the lab space and typically cover 40% of the bench in the QA2C lab, which is also heavily used now. And these are the self-driving labs. I think those of you who will be here on Monday will be excited about some of the showcases we have here in that direction as well. So yeah, I think we definitely will benefit from the trend of AI and as I said, have prepared a portfolio extremely well.

24:16 Yeah, and just to be clear, Luke, I think you frame it correctly. Like, you know, as Patrick says, we're really well positioned for these trends. We will talk more about it on our investor day on Monday, but it's not like we've built anything meaningful into our guidance for next year. I view it more as upsides. Great, thanks. Your next question comes from the line of Tycho Peterson from Jefferies. Your line is now open. Please go ahead.

24:46 Hey, thanks. Maybe just sticking with the 27 outlook, wondering if you can break down, you know, some of the other assumptions by end market and geographies. You obviously hit on China already, but, you know, you're seeing a broader recovery here across the board, right? And are there other areas that are, you know, lagging that, you know, potentially could come back next year? Maybe just do a walkthrough by end market and geography, which baked into that 5%.

25:06 Yeah, sure. I'll take that one. And so for 2027, I'll start with the division. So for Lab, our guidance is mid to high single digit. So that would be an improvement from what we saw this year, kind of like the momentum we saw in the second half of the year, kind of continuing. One of the nice things with Lab is if you kind of think about our business, we kind of like serve the different aspects of the customer's workflow or value chain. Earlier in the year, we were seeing, you know, good trends in bioprocessing. Last quarter, it was Q2 being last quarter. We saw things really improving in the QA-QC bench. And then this quarter, we saw better activity in R&D, which was really nice to see, like, in areas like pipettes.

25:56 And so, we're encouraged as we kind of go into 2027 in lab and core industrial. We're guiding mid-single digit for next year, kind of also benefiting from a lot of the favorable trends in automation and digitalization. In product inspection, we're maybe a little bit more cautious, maybe low to mid-single digit in PI. And then in food retailing, we're also a little bit more cautious with low single digit. In terms of the Americas, We're guiding mid to high single digit with, you know, kind of some of these favorable trends that we see kind of exiting this year in terms of the market. Europe, we're a little bit more cautious in guiding to low single digit.

26:42 And then China, we already mentioned mid single digit.

26:48 Okay, that's helpful. And then, you know, industrials come back better. You had, you know, accelerating on a tougher comp here. You know, is any of that, you know, receiving help from the chemical recovery or recapturing delayed orders? Maybe just talk about whether there's any sort of timing elements in what you're seeing now versus broader underlying improvement.

27:07 Yeah, I'd say certainly chemical is better than it was in Q1. You know, we had that soft start. I say out of our core segments, it's still a softer market relative to pharma. Pharma was probably the more standout in the quarter, but nothing special here. That market certainly has had different challenges in the past with higher energy costs, but right now we're seeing decent activity there, but it's relatively softer compared to the other markets.

27:40 Okay, I'll leave it at that. Thanks. Your next question is from the line of Vijay Kumar from Evercore ISI. Your line is now open. Please go ahead.

27:53 Hi, Patrick. Good morning, and thank you for taking my question. Hey, maybe a big picture one for you, Patrick. We've heard a lot of your peers speak about AI, lab in the loop. How, you know, some of the things that you speak about liquid handling being very strong, process analytics being strong, Are these things, you know, products that go into some of these AI lab-in-a-loop end markets? And have you tried to quantify what it means for Metler?

28:29 Yeah, Richard, thanks for the question. Look, lab-in-a-loop or self-driving labs are several ways you can call this. I mean, in bioprocessing, I think we benefit most, of course, from our process analytical portfolio. where the connectivity of the sensors and the digital interfaces these sensors provide to our customers and Siemens integrating their data systems allow them to optimize their process. There's many manufacturing up there with our digital sensors and increase yields and productivity, et cetera, and also use their own AI solutions to optimize processes and their setup. But it's important that they have the right data points, and this is where our digital sensors play an important role.

29:16 On the self-driving labs or lab-in-a-loop approach, I point out more to, let's say, the late-stage or on these sites, whether it's in the pharmaceutical industry or in areas like batteries and other areas where we see these labs applying our instrumentation of solutions together with Robots that will serve our instruments that could then control together with our LabX solutions to control the entire workflow and then do self-optimizing experiments. We have, again, this in several accounts already. There's quite a lot of interest in these solutions. And the importance there also is connectivity to the AI-driven approach that customers use on their side. Again, everybody has a different model.

30:08 What he calls is that they have the right data aggregation layer that you provide, for example, with FlavX. They can plug into and then run fully automated experiments and then experiment design and optimization. I would say it's still early innings, but we see really strong interest. And again, for those of you who will be here on Mondays, we'll see a practical example of that as well.

30:36 I understand. That's helpful. Shawn, maybe one for you on this Q4 guidance assumptions, you know, 5%. If comps get easier, why, you know, you just did 6%, why is organic going to slow down in Q4? Maybe if you could just talk about what was pricing in CQ in Q4 assumptions and why Q4 is stepping down, that would be helpful.

31:01 Yeah, sure, Vijay. So maybe I'll start with the pricing assumption. So in pricing in Q3, it was just over 2.5%, and we expect to be in that 2.5% range also in Q4. You know, probably the biggest difference in Q4 versus Q3 is if you, you know, like on one hand, I kind of see the, you know, lab getting, you know, that mid-to-high single-digit, and many more. was up, I think, 19% in Q4 of last year. So it's just lapping a really big comp. And as you know, that business can tend to be lumpy based upon customer activity. And then we're also a little bit more cautious on our product inspection business. I mean, PI has had a very good year here today, had a strong quarter.

32:05 but it's probably going to be more flattish in the in the fourth quarter and it's just probably if you look at the comp there for for last year and then the year before I think it grew organically double digit last year in Q4 and double digit the year before so we're just kind of lapping some difficult comps there on a stacked basis but just more customer activity we're actually competing really well and and the the product portfolio looks great we have some you know introducing new products as well. You'll see it here on Monday as well too. Understood. Thank you. Your next question comes from the line of Dan Arias from Stiefel. Your line is now open. Please go ahead.

32:51 Hi, good morning, guys. Thank you. Shawn Lowe, Singles for Europe. Can you just maybe talk a little bit about what we should expect out of labs specifically in Europe as we look to the end of the year here and then That's been an area that's soft. It sounded like you felt better about things like bioprocess, at least earlier in the year. So how might that translate? Are you assuming just sort of similar activity overall in European lab, or might there be an acceleration trend that we can look forward to?

33:24 Yeah, so for Europe, I mean, you know, we feel like our team continues to execute really well in a more challenging environment. You know, if you think about all the different topics in the world, Europe, you know, is probably a little bit more under pressure for different reasons, whether it be energy costs or whether it's like some of these, you know, Trade disputes are playing out. You know, if you think about the pharmaceutical industry, certainly we see a lot more activity outside of Europe than we see inside of Europe. But nonetheless, we still feel like, you know, within that low single digit, you know, it's probably about the lab business is probably still in that kind of single digit kind of a range in terms of the fourth quarter. and with the other businesses being a little bit more cautious and a little bit more exposed to the macro.

34:16 As we kind of look forward to next year, I mean, of course, we're only sitting on about one and a half months of backlog at any point in time. But just looking at the different regions, this is the one area that we, you know, we have probably a little bit of a closer eye on kind of going into next year.

34:33 Okay. Okay, and then Patrick, maybe as a follow-up to Vijay's question there, you guys have been talking about automation and digitalization for a while now, certainly before the AI discussion became what it is today. Is that tangibly accelerating as a growth driver? I mean, is that something that you think will mean more to the P&L next year than this year? And maybe that's what you were saying to his question. I just need to hear it again. But I'm just curious about how much more you're seeing, you know, that kind of falls into that camp versus... prior periods and future periods.

35:08 Clearly, as the portfolio is shifting more in a direction, we see a lot of interest shifting more in the direction that you can call it broader digitalization and automation, but behind it, of course, there's a lot of also opportunities as customers now drive leveraging AI, and I think we are exceptionally well positioned because we provide them the instruments and the terminals to connect to these sensors and instruments and software to connect to instruments and empower them to drive these AI-based solutions. This is still a bit early innings, but we see really good interest in this area and really good engagements with customers across the board, whether it's in pharma, in drug discovery areas where they try to drive optimized experimentation, whether it's set in, for example, in the battery segment, where you think about things like electrolyte composition optimization for different battery types that are But they really have these labs and these automates set up running around the clock to optimize the chemical or the chemistry that they need for the batteries, et cetera.

36:17 This is very exciting to see this. But again, what customers are looking for is really an open environment and a data aggregation layer that they can plug into and drive then their experiments using their own AI approaches, the different ones customers use. I think we are really well positioned there with our digital sensors, with our analytical instruments that we have, and the connection layers of software and terminals that customers need to do that. Thank you. Your next call is from the line of Jack Meehan from Operon Research. Your line is now open. Please go ahead.

37:02 Thank you. Good morning, guys. I wanted to ask about the 2027 guide. If you look at the 5% local currency growth, can you just talk about a few of the factors, like price versus volume, how you're thinking about spinnaker share gain versus market growth, and then are you assuming any recovery in the replacement cycle, or could that be upside?

37:28 Yeah, I'll start. Patrick wants to add some color as well. So in terms of the 5% between volume and price, we expect to do just over 2% next year on price. You know, kind of our typical baseline is about two. We'll have a little bit, we'll do a little bit more than that, just given some of the pricing actions we did mid-year this year. and of course we'll continue to evaluate that as we go through next year based upon the inflationary environment so that you know that puts the volume in uh you know the three percent ish kind of a range um in terms of you know replacement cycle I feel like it's always difficult to tell like how much of it things are replacement but certainly if we look at some of the categories that lend themselves to replacement we've seen really good activity like in the analytical instrument category now for at least a couple quarters in a row and so that's that's very encouraging same with lab balances and so you know right now we kind of expect what we're seeing to continue into next year we haven't necessarily built in an acceleration from where we are um you know we'll talk a little bit more about this at the investor day on on monday but we see this to be uh you know certainly a broader theme you know kind of going forward in terms of exactly how things play out with replacement kind of given the significant sales we had back in 21 and 22 and and how That could play out with the life of our products.

39:00 And then in terms of market share, we don't have a perfect view on what the market growth would be just given the breadth of our portfolio, but we certainly feel very good about our ability to gain just a little bit of share each year through our Spinnaker program. We spent a lot of time this past week with our executive team and the board just kind of going through a lot of the different things that we're doing there. And the program just continues to increase with sophistication. And we'll actually share a little bit of that on Monday as well, too.

39:36 Great. Looking forward to it. Just as a follow-up, could you It'd be great to get an update on onshoring, just what visible activity are you seeing, either quotes, project funnel, anything in terms of just trying to get visibility into when revenue might start to manifest. Thanks.

39:54 Yeah. Yeah, Jack, we are really excited to see increasing activity in that regard. We use also, for example, as Sean mentioned, Spinnaker as a tool to identify investments in these areas very early. We have a really They're a good tool there to do sense market activity and then guide our sales force to these activities. As we see investment happening and increasing, some of these investments are also longer-term plans. If a pharmaceutical company plans to build a new facility and then Thank you, guys. Your next question comes from the line of Doug Schenkel from UBS.

41:03 Your line is now open. Please go ahead. Hey, guys. This is Abraham for Doug. Thanks for taking the question. I guess just to follow up on reshoring, does the election change how your pharma customers are thinking about their U.S. manufacturing projects and how you're thinking about semis and data center demand?

41:21 Hey, look, I think we don't have a crystal ball here. It's maybe early. But I would not expect that it's impacting, especially on data centers, which is, of course, one of the what we call hot segments for us, but it's really in terms of overall revenue contribution is rather low. But it provides great growth opportunities because for those, for example, we provide the solutions, for example, to check the cooling systems like the water-pure water solutions or if they use coolants also to use other sensors like the H-sensors and others to control the cooling systems. I think what's in again I don't have a crystal ball what this election will do to the build-out and even if it slows down we still would see this as an exciting opportunity moving forward and again many of those are still under construction and build-out and they're coming into the deal a little bit later than when they go really live.

42:16 Yeah a lot of these projects are already started groundbreaking committed and then They've been on the unshoring side. I mean, and just to be fair, both of them was like we did more, they're very much offsides to our guidance. Like we didn't really build any things specific for them as we kind of built our guidance for next year. But if you think about even the unshoring topic, you know, this was, I think this was something that also started, you know, really coming out of COVID where companies wanted to have more resilient and agile supply chains and and I think most companies were already on that path that have more region for region production and then I think that the trade disputes um you know and tariffs just kind of accelerated that trend but I think that that's from what we can see that's very much In motion, you know, the magnitude and timing is always maybe the bigger question and more difficult to be answered with precision, but clearly the activity is increasing and we're seeing that as well, too, in terms of the projects themselves now, in terms of like translating into sales will still take some time, but we're not sitting here today thinking that it's going to change significantly.

43:30 Thanks. And then on the higher material and transportation costs that hit margin in the quarter, I guess, like, how big was that headwind in Q3, and then how much of that is built into Q4 in the 27 guides?

43:42 Yeah, I mean, you know, like, there's, of course, a lot of different things going on in our margin, you know. We certainly factored that into Q4 as well and then also into 27. I feel like the team is monitoring it very closely. I think we We do a good job in mitigating these things when they come up. We will continue to look at different mitigation actions as we kind of go into next year. And we're kind of like in that mode of just trying to make sure we're prepared to mitigate as it changes. But it's a very dynamic environment for sure.

44:33 Your next question comes from the line of Casey Woodring from J.P. Morgan. Your line is now open. Please go ahead.

44:41 Great. Thank you guys for taking the questions. Maybe first, just on product inspection, sorry, that grew 8% in the quarter. You just talked about flat expectations for 4Q in that business, which sounded like a comp dynamic, but you're getting to low to mid singles there for 27. So maybe just talk a little bit about You know, the 8% you did in 3Q versus the guide for 27. How conservative is that? And just, you know, kind of what's embedded there in product inspection?

45:10 Hey, look, Casey, we're really pleased again with the organic growth we have seen this quarter. And when we had seen this year, our growth is really a combination of a long-winded market strategy, but we also compete very well at the high end, which has recently introduced also new high-end products, which really differentiates us really well in the market. For Q4, as Shawn mentioned, the growth is expected to slow due to customer projects and then also tough comparisons. So it's also, in this business, also the timing of projects, always how they play in, but also we're facing really tough outcomes moving forward. And that's why we also set our expectation a bit more harder. I think they're competing extremely well with the portfolio.

45:57 But overall, of course, the food market is nothing that we overall expect really high single digit, right? For us, it's important that we're competing really well and that we continue to take market share, which we are really pursuing a very valuable portfolio.

46:14 Okay. Okay. Understood. And, you know, I think your comments around labs growth this quarter sounded like the consumables business, in particular the pipettes, you know, was a nice contributor there. Can you maybe just talk about, you know, that was softer, you know, several quarters ago. Seems like that's very much back to normal. Maybe just talk about how you're thinking about, you know, the consumables-focused parts of the lab business in 27. Thank you.

46:40 Yeah, yeah, maybe I saw right there with the pipettes and we are really pleased to see that improving conditions because this segment has been subdued. In recent years, we think market conditions have been improving across biopharma and biotech research. But I also want to mention that we are really competing well. We launched new pipettes, new electronic pipette, and also some really nice new PFAS-free tips, low retention tips, we call them, Thank you. Your next question is from the line of Josh Waldman from Cleveland Research. Your line is now open. Please go ahead. Hey, guys. Thanks for taking my questions.

47:37 I guess, first, a quick follow-up on the stronger liquid handling. If I recall, this category has a much stronger margin profile. I guess, is that right? And if so, or I guess, regardless, more broadly, how are you thinking about margins, both gross margins, off margins, for 27? And would you expect Nix to be a driver to margin expansion next year, just given some of the strength and kind of new pockets within the portfolio?

48:10 Yeah, hey, Josh, I'll take that one. So our lab business in general tends to be higher than our, you know, the rest of our business in terms of margins. And then within the lab business, certainly our liquid handling business is one of our Thank you, everyone. You know, as we kind of like look at the year with lab being a little bit better versus the other divisions, of course, this implies that we should probably have a little bit of favorable mix within the portfolio.

49:02 But, you know, maybe I'll kind of like walk through things for next year at the operating margin level. We're probably thinking, of course, this depends on where you are in our range. At the midpoint, it's maybe at operating margin plus 70 basis points to foot in order of magnitude. If you're at the high end of the range, it would be about 90 basis points in terms of margin improvement year over year. We're a little bit more modest when it comes to the gross profit margin expansion. Next year is probably flattish, maybe up slightly. But one of the things we're just a little bit more cautious with two things. One is, you know, we are keeping an eye on this inflation. But then the other thing is the tariff rates, right? Like we're kind of assuming that the rates go back to the previous IEPA rates next year. We'll see how that plays out. But that's at least how we're, you know, kind of positioning ourselves sitting here today.

50:00 Okay. Thank you. And then, Patrick, you, You commented on strong core. I guess any more detail or context you can provide on where you're seeing pockets of acceleration or maybe decel within core industrial? And then regarding onshoring, is this something that primarily hits pharma, or are you also starting to see onshoring opportunities show up in the more industrial accounts? And then where...

50:29 where are these opportunities in the pipeline is it is it already hitting revenue or do you think it's more uh opportunities that have yet to hit orders and yet to hit revenue good good great question Josh yeah yeah so let me start first with industrial or industrial again the majority of the growth is seen as really industrial automation our customers are building out uh automation capabilities that means not only end customers but also and customers like system fabricators and system integrators who build automation solutions for customers, whether it's pharma or other industrial opportunities out there. So that's really driving the growth there. And then, first of all, we talked about that in China, but we also see that in the US.

51:15 And some of it is also linked, of course, to the reshoring and onshoring activities to the United States because as customers expand facilities over here or build new facilities over here, they are looking then to also use our automation solutions coming from the industry. Overall, on reshoring and onshoring, as I said, we are excited to see the activity of what we see in the funnel that is really good. Good customer engagement there. We see a lot of activity, but it's still early in it. We see this as an increasing momentum that will contribute in the second half or 27 and the years ahead. There is some revenues, of course, also that we have seen in this quarter, but still very early.

52:00 I think the maturity is really still to come. I expect this to be a stronger and longer-term way for us, especially in the United States. We have seen some of it also, for example, in the emerging markets around China over the last years, and it will continue potentially as well.

52:22 Got it. Thanks for the detail, guys. Your next question comes from the line of E.T. Kozlowski from Goldman Sachs. Your line is now open. Please go ahead.

52:33 Great, thank you for taking my questions. So I think this is the second quarter. You've mentioned strength in emerging markets. Maybe just talk through the investments you're making there and then the durability of those trends and then any particular geographies you would specifically call out.

52:48 Yeah. Hey, this is Shawn. I'll take that one. So, as I mentioned earlier, Patrick and I just kind of came off of our annual budget tour and we kind of wrapped up in Asia Pacific and it was just a great way to end the tour because just the number of opportunities and like the enthusiasm, frankly, that we felt from the teams was really encouraging. You know, we've always felt like we have a really great footprint in the region. You know, we've been there for so many years with dedicated direct sales organizations in a lot of these countries, like, you know, the various countries within Southeast Asia or India or Korea, et cetera. and I think that dedicated focus with direct sales is a real key differentiator for us and you know they all benefit from the same program Spinnaker that we see worldwide and I think we've also been incrementally investing in these countries for a while you know we have most of them have very specific dedicated strategic growth plans that they review with us on a regular basis and then, frankly, just even coming off this tour, we were looking at, you know, opportunities for incremental investment going into next year, just given the strength of momentum.

54:03 So we feel really good. And when you think about our, you know, this global footprint of all the emerging markets, including, you know, Eastern Europe and Latin America as well, you know, I think emerging markets outside of China are about 17%. of our sales and then you know China is going to be about you know 16 maybe this year probably around 17 percent so it's a very um you know it's a very chunky piece of business you know more than a third to maybe a little bit more than a third of our business in these you know faster faster growth areas right now so and, you know, if you think about these regions, of course, they're the ones benefiting a lot from, you know, nearshoring or China plus one strategies or, you know, India with a lot of the generics opportunities, et cetera.

54:53 Great. That's super helpful. And then on pharma, given the strength there, maybe just walk through biotech versus large pharma and then any particular instruments that are selling into that space that I've seen, you know, recent strength and then contributions from, you know, broader market improvement versus any new product launches.

55:11 Yeah, the one thing we saw in the quarter, as maybe I'll start the answer, is, you know, biotech had been under a lot more pressure, right, for several quarters in a row. And what was nice is that, you know, if you think about the one area, we don't have a significant exposure there, but the one area we do is liquid handling and pipettes. And we certainly saw, you know, and, you know, you know, Improved activity for sure with strong growth in the quarter there. So that was very encouraging for us to see. And in addition to that, it was kind of like a great one-two punch because as the market was recovering, we also have some new products that we're bringing to the market as well, too. So it's hard to say how much of it was market versus product, but clearly the market conditions have improved.

55:56 and uh but but you know hey these new products that are just being launched so it's still a little early but but very well received well and thank you for your question back to you maybe it's a set one sentence back to your question regarding the portfolio it is across the board from all the QAQC into manufacturing and manufacturing it's not only the sensors that go for example bioreactors but it's also industrial weighing applications uh that we sell in pharma as well so it's really driving a lot of Good contribution across portfolio. Your last question is from the line of Michael Polark from Wolf Research. Your line is now open. Please go ahead.

56:41 Good morning. Thank you. One topic, two-parter, China. If I have the math correct, the original guide for China in 26 was low single-digit growth. I think you're tracking to do something like 9% or 10%. How would you bridge that variance? Is that broad-based upside, or is there one or two things that deviated positively from your model? And the second part is for the mid-single-digit growth guide for China in 27. I understand it's a volatile geography, and your visibility is generally low regarding backlog, so things can swing. But as you reflect on a long history in China, What's a reasonable up-down band versus an initial Mettler forecast for, say, mid-singles?

57:29 I'd appreciate some perspective on that. Thank you.

57:32 Yeah, so I mean, when you look at the full year guidance and if you kind of squeeze out, you know, well, if you kind of apply this Q4 guidance that we talked about earlier, we're probably more in the 10% range for China, frankly, for this year. You know, this has been a great year for China, right? Like we saw things starting to gradually improve as every quarter. You know, with the industrial business, and now we're seeing it also in the laboratory business. So, like, it's really nice to see that. I like the fact that it's also been a little bit more gradual, even though it's a lot different than it was at the beginning of the year, instead of being very spiky. But at the same time, we've said for many years, things in China in particular can change very quickly.

58:18 More than other regions. And so it's just a little bit what we, you know, given that we only have about one and a half months of backlog at any point in time, that's why we're just a little bit more cautious as we look next year. But clearly there could be, you know, there clearly could be a swing factor going into next year and acknowledging that, you know, it's probably, you know, sitting here today, this probably looks like there's more upside there than downside. Thanks, Shawn. There are no further questions at this time. I will now turn the call back to Adam for closing remarks.

58:55 Great. Hey, thanks, Jonathan, and thank you, everybody, for your excellent questions. If you have any follow-ups, please feel free to reach out to me, and I hope you all have a great weekend. This concludes today's call. Thank you for attending. You may now disconnect.