Mettler-Toledo International Inc. (MTD) Earnings Call Transcript & Summary

All right, everyone, thanks for joining us. Welcome to the Jefferies 2021 Global Healthcare Conference. I'm Brandon Couillard. I cover the life science tools and diagnostics sector here at the firm. Very pleased to have Mettler-Toledo with us back at the conference today, and joining us for the company for this conversation is, CFO, Shawn Vadala. Shawn, thanks for being here.

Yes. Thanks, Brandon. Thanks for having -- hosting us today. And great to see everybody virtually on the call today.

I put my rally hat on just for this conversation.

I know. I just told everybody I'm jealous. I feel like I need a hat. Next time, I'll have to bring my own hat.

Maybe jumping into things, Shawn. Just in terms of the leadership transition, and Patrick taking over the CEO position, curious to get your views as to what degree his leadership style will necessarily be any different from Olivier's? He, obviously, came from outside the company. So he's new to the Mettler organization. And how involved is Olivier still, if at all, in kind of the day-to-day business?

Yes, sure. So he -- maybe before I touch upon that, too, I just also want to acknowledge Olivier really had a great tenure as CEO, and we're really happy that he's continuing to stay on the Board. And he's also helping us out in the background on some different marketing activities. And maybe I'll come back and loop back to that to -- into your question after. Olivier also leaves a great legacy behind these different initiatives whether they be Spinnaker, Blue Ocean, Stern Drive. They have a lot of momentum and really provide a great foundation for Patrick to pick up on. And then if you look at Patrick, I mean, Patrick brings tremendous experience. The job description of a CEO is a very unique job description, and Patrick brings over 30 years of life science and analytical instrument experience. He also brings a lot of functional experience as well, too, whether it be in R&D and product development or whether it be in sales and marketing. He even ran a global service business in the past and also has a really strong track record for talent development. In terms of leadership style, I mean, of course, this was extremely important to the Board. And when Robert, our Chairman, first called me to talk about this and Olivier as well, they really couldn't emphasize enough about how they felt like Patrick was a really strong cultural fit for Mettler-Toledo. And they even commented on his leadership style that they had picked up on during their process. And what's been really kind of interesting for me and the colleagues here is just to see how strong of a cultural fit really he has been, and he has a really great inclusive leadership style. It's very highly effective. He's been very well received by the organization. And it's really impressive to see how quickly he's been able to hit the ground running here. So yes, off to a really great start. In terms of Oliver's involvement, Oliver officially retired on April 1, took a little bit of time off in the month of April to recharge, I think. And he kind of stays behind the scenes a little bit. And as you would expect as any Board member in the situation, he's available for Patrick for questions. I'm sure Patrick bounces things off of him from time to time. And Olivier is also going to stay involved with some of our digital marketing topics in the background with Spinnaker.

Got you. That's helpful. The -- I mean, the first quarter organic growth was just -- I mean, it was shocking, especially given you don't make any COVID tests, and you don't have a big vaccine manufacturing business. Clearly, the end markets are strong. There's probably some degree of unquantifiable catch-up demand. But your market share has also been kind of a hallmark of Mettler's historically. I'm curious if you sort of perceive the competitive environment as more favorable today, post-COVID, for some reason? And what areas of the business do you think you're picking up the most share in?

Yes. I mean we feel like we've done very well throughout the crisis. I feel like all the programs that we had in place pre-crisis and investments, frankly, we've been making for several years like Blue Ocean and Spinnaker, really have paid tremendous dividends during COVID, and we'll continue to pay dividends post COVID. If you think about like our ability to use data to identify opportunities and then -- to then really deliberately guide the sales force towards those opportunities and then summarize the information in terms of a profile, where you can provide information to the sales force to make them more effective in front of a customer and then how we then provide the sales force with different digital tools, we have a whole library of digital tools, whether it be sales force -- I mean, I'm sorry, value-selling guides or different types of e-demo capabilities, cross-selling guides. All these tools make them much more effective in terms of closing the sale, and we've seen conversion rates also increase from that. And then there's a bunch of different digital marketing strategies in terms of how to better engage customers. And so that's just -- it's just one example of how, I think, we're more effective in terms of our ability to gain share. And I think we feel like we've gained a little bit more over the past year than we typically do. But I think we're also really well positioned to continue to do that post COVID. And if you look at our different businesses, I think we're performing very well throughout the portfolio. I think our core industrial business probably stands out a little bit more in terms of relative performance. And I think a lot of that has to do with our core industrial business is in very highly fragmented markets. And then from a market share perspective, there's just a little bit more to gain there. But also, with that fragmentation, there's also a lot of different types of applications that they could pursue in terms of an addressable market, and we really help them to better focus on the best opportunities and the most attractive opportunities. But at the same time, I don't want to diminish. Our lab business has also benefited significantly from these tools within the Spinnaker umbrella, and you've seen really good results also in our laboratory business. And so I think if you kind of look forward, our end markets are healthier, but I think we're also competing well. And then I think our ability to serve customers has also been a differentiator. If you think about all the challenges you hear in supply chains around the world, that has become also another competitive advantage in this environment, and we've been able to pick up some new customers just from our ability to supply. And then, of course, that builds trust and enhances our brand. And so we come out of the situation generally feeling stronger.

I think on the last call, you alluded to plans to do another field turbo hiring round later this year. Can you remind us when the last time you did a field turbo sales expansion? And any numbers you can put around as far as kind of the magnitude of investment or expansion of the team that's planned for this year?

Yes. So we put the program on hold last year, but we would have been doing some field turbos back in 2019. If we look at the plan that we're looking to implement this year, Patrick and I are still going through a lot of details. We have a lot of individual business cases behind it. One of the interesting things about the field turbo program is that we literally have a business case for every individual investment that we're making. So as a reminder, this is a program to pursue growth opportunities, and specifically, where we believe we're underpenetrated. And then there's a business case behind it, which really helps us to prioritize our investments, but also control the investments. And yes, we're very happy that we're in this position to be in the investment mode, again. The program that we're looking at is -- it's very global. It's going to be -- have a bias towards China. China is clearly going to be a priority in terms of where we want to invest. And then from a product perspective, you can imagine we're going to invest much more on the laboratory side of the business as well.

Okay. If we sort of look at your revised guidance, it kind of suggests mid-single-digit growth in the back half of the year, against about a 6% or 7% comp. Obviously, the comps get a lot tougher as we move through the year. Can you just help us sort of think about kind of the areas that could be sources of upside versus downside as you move through the year?

Yes. Yes. No. So if you look at the first half of the year, we're going to -- our guidance suggests close to 20% growth at the midpoint of our Q2 guidance. And like you say, for the second half, it's a little bit more moderate. And for us, it's frankly difficult to have visibility in the second half of the year. It's also difficult to really assess the amount of pent-up demand and benefits from topics like stimulus that we're receiving in the first half of the year. So the second half of the year very much is kind of looking more like our historical multiyear growth stacks. But in terms of like opportunities, China, I would say, is always an upside or a downside in our guidance. Things in China always can move a little bit faster than other geographies, just given the central control of the government on the economy. But certainly wouldn't be surprised if we were to see some upside there, just given all the momentum that they had in Q1 coming into Q2. But the other side of that, and there's so many different favorable things going on in the country from our perspective in terms of growth investment. But at the same time, they're going to hit some more difficult comparisons also in the second half of the year, where we have 17% growth to overcoming Q3, and I think it was 12% growth in Q4. And then if we look at product inspection, we've talked a lot about this one being an opportunity for pent-up demand. PI was -- out of all of our businesses was the one that was probably the most negatively affected by COVID, given all the different operational challenges that they faced with the virus. I think as we start to see vaccines kind of become more prevalent throughout the world and facilities and -- facilities open up and protocols become relaxed, and we start to have more access to the food packaging plants because about 70% of that business is sold in the food -- processed foods, then I think we'll start to see maybe a nice pent-up opportunity, especially as restaurants start to open, which is also another source of demand for these customers. So the timing there is still difficult to tell. We kind of talked on our recent call about that we're starting to see some improvements in the pipeline there. And so it usually takes time. It's a longer selling cycle product, but that could be another opportunity for us as we kind of look towards the second half or at least for next year.

Clearly, supply chain issues are wildcard a bit for you guys and everyone else, clearly. But what does the picture look like on that front based on where you stand today? And how worried are you about that kind of over the next few months? Is that a situation that's getting worse? Or is it stable?