Mettler Toledo International Inc/ Q3 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to the Mettler-Toledo's Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mary Finnegan. Please go ahead.

Thank you, and good evening, everyone. I'm Mary Finnegan, responsible for Investor Relations at Mettler-Toledo, and I'm happy to welcome you to the call. I'm joined today by Patrick Kaltenbach, our CEO, and Shawn Vadala, our Chief Financial Officer. Let me cover just a couple of administrative matters. This call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we referred to on today's call is also available on the website. Let me summarize the safe harbor language, which is outlined on page 2 of the presentation. Statements in this presentation that 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 results, level 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 our recent Form 10-K and other reports filed with the SEC. 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 sections of our filings. One other item on today's call, we may use non-GAAP financial information, and more detailed information with respect to the use of and differences between non-GAAP financial measures and the most directly comparable GAAP measures are provided in our Form 10-K. Let me now turn the call over to Patrick.

Thanks, Mary, and good evening, everyone. I am pleased to report another quarter of very strong results. Customer demand was robust, and our growth initiatives continue to be very effective. Our teams throughout the world are executing very well. I want to give a special acknowledgment to our global supply chain team, which is navigating a myriad of challenges with respect to raw materials, components, and transportation. Our ability to continue to meet heightened customer demand while overcoming the dynamic challenges in the supply chain is proving to be a competitive advantage in this environment. Now, let me turn to our financial results. The highlights on page 3 of the presentation show that we had another very favorable quarter. Local currency sales were 16%, and we had broad-based growth in all regions. Our Laboratory business had excellent growth, and our industrial product lines also performed very well. Food retail was a headwind, driving all our sales growth as we had a significant decline in the quarter. With our strong sales growth and good execution, we achieved a 19% growth in adjusted operating income and a 24% increase in adjusted EPS. Cash flow generation remained very strong in the quarter. Our end markets remain favorable, and our strategic initiatives are very effective at capturing growth. Our Spinnaker sales and marketing approach provides the framework to identify and pursue the most attractive market segments while also increasing our sales force exposure to the most strategic customers. We continue to invest in the strength and breadth of our product portfolio, further extending our technology lead and reinforcing customer trust through our global service offering, which supports customer productivity. We have successfully navigated the challenges of the global supply chain to date but are cautious as demand dynamics remain challenging and conditions can change rapidly. Although pockets of uncertainty exist in the global economy, we believe we are ideally positioned to gain market share. With proven strategies, good demand in our end markets, and continued focused execution on our growth and margin initiatives, we believe we are in an excellent position to deliver stronger sales in 2021 and 2022. Let me now turn it over to Shawn to cover the financial and guidance details, and then I will come back with some additional commentary on the business and our outlook for next year.

Thanks, Patrick, and good evening, everybody. Sales were $952 million in the quarter, an increase of 16% in local currency. On a U.S. dollar basis, sales increased 18%, as currency benefited sales growth by 2% in the quarter. The PendoTECH acquisition contributed approximately 1% to local currency sales growth in the quarter, while we estimate that COVID testing was a headwind of approximately 1% to sales growth. Last year, the benefit in our pipette business from COVID testing labs was particularly strong. On slide number 4, we show sales growth by region. Local currency sales increased 20% in the Americas, 10% in Europe, and 16% in Asia, Rest of the World. Local currency sales increased 19% in China in the quarter. The next slide shows sales growth by region year-to-date. Local currency sales grew 20% for the 9 months, with a 21% increase in the Americas, 15% in Europe, and 23% growth in Asia, Rest of World. On Slide number 6, we summarized local currency sales growth by product area. For the third quarter, laboratory sales increased 23%, industrial increased 12%, with core industrial up 11%, and product inspection up 13%. Food retail came in worse than we expected, with a decline of 19% in the quarter. The next slide shows local currency sales growth by product area, year-to-date. Laboratory sales increased 26%, Industrial increased 16%, with core industrial up 21%, and product inspection up 9%. Food retail declined 1% for the 9-month period. Let me now move to the rest of the P&L, which is summarized on slide number 8. Gross margin in the quarter was 58.4%, a 20 basis point increase over the prior-year level of 58.2%. We benefited from volume and pricing, which was offset in part by the challenges in the global supply chain, namely higher transportation, logistics, and material costs, as well as the impact of temporary cost actions we undertook in 2020. R&D amounted to $42.3 million in the quarter, which is a 19% increase in local currency over the prior period. The impact of temporary cost savings undertaken last year and greater project activity contributed to this increase. SG&A amounted to $240.7 million, a 16% increase in local currency over the prior year. The impact of the temporary cost savings that we undertook last year, higher variable compensation, and increased investments in sales and marketing were the principal factors driving the increase. Adjusted operating profit amounted to $272.8 million in the quarter, a 19% increase over the prior year amount of $230 million. We're pleased with this increase, which reflects very strong sales growth combined with good execution. Adjusted operating margins reached 28.7%, a 20 basis point increase over the prior-year level of 28.5%. On a 2-year combined basis, our margins were up 270 basis points as the prior-year margin benefited from the cost actions we implemented due to the pandemic. A couple of final comments on the P&L. Amortization amounted to $16 million in the quarter. Interest expense was $11.8 million in the quarter. Other income in the quarter amounted to $3.3 million, primarily reflecting non-service-related pension income. Our effective tax rate before discrete items, adjusted for the timing of stock option deductions, was 19.5%. Fully diluted shares amounted to $23.4 million in the quarter, which is a 3% decline from the prior year. Adjusted EPS for the quarter was $8.72, a 24% increase over the prior year amount of $7.02. On a reported basis in the quarter, EPS was $8.71, as compared to $6.68 in the prior year. Reported EPS in the quarter includes $0.18 of purchased intangible amortization, $0.02 of restructuring, offset by $0.19 due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. The next slide shows our P&L year-to-date. Local currency sales grew 20%, adjusted operating income increased 35% with margins up 210 basis points. Adjusted EPS grew 43% on a year-to-date basis. That covers the P&L, and let me now comment on cash flow. In the quarter, adjusted free cash flow amounted to $243.1 million, which is an increase of 19% on a per-share basis as compared to the prior year. We're very happy with our cash flow generation. DSO was 34 days, which is 2 days less than the prior year. ITO came in at 4.5 times, which is slightly better than last year. On a year-to-date basis, adjusted free cash flow amounted to $615.3 million, an increase of 48% on a per-share basis as compared to the prior year. Let me now turn to guidance. While our end markets remained favorable, forecasting continues to be challenging. There are pockets of uncertainty in the global economy, most notably in China. Furthermore, the widespread challenges within the supply chain and in transportation and logistics, coupled with the corresponding inflationary impact, also creates uncertainty. Finally, we have seen over the last several months how COVID variants and lockdowns can occur quickly. We recognize the importance of remaining agile and adapting to unexpected changes in the environment. We're very pleased with our ability to navigate the unprecedented challenges of the last 2 years, which we believe reflects the strength of our organization. While we remain cautious about factors outside of our control, we feel very good about our growth initiatives and our ability to continue to gain market share and drive margin improvement via our pricing and Stern Drive initiatives. Now let me cover the specifics. For the full-year 2021, we now expect local currency sales growth in 2021 to be approximately 17%. This compares to previous guidance of 15%. We expect full-year adjusted EPS to be in the range of $33.35 to $33.40, which is a growth rate of 30%. This compares to previous guidance of adjusted EPS in the range of $32.60 to $32.90. With respect to the fourth quarter, we would expect local currency sales growth to be approximately 8% and expect adjusted EPS to be in the range of $10 to $10.05, a growth rate of 8% to 9%. For the full-year 2022, based on our assessment of market conditions today, we expect local currency sales growth to be approximately 6% and adjusted EPS to be in the range of $37.25 to $37.65. Using the midpoint of 2021 guidance, this reflects a growth rate of 12% to 13%. Some further comments on 2022 guidance: we expect a slight headwind to sales growth from the impact of COVID testing on our pipette business. We expect interest expense to be approximately $50 million in 2022, in total amortization including purchased intangible amortization to be $65 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $24 million on a pretax basis or $0.79 per share in 2022. In 2022, other income, which is below operating profit, will amount to approximately $13.5 million. This is higher than the $10.7 million expected in 2021 due to an expected increase in pension income. Finally, we assume our effective tax rate before discrete items will be 19.5% in both 2021 and 2022. In terms of free cash flow for 2021, we now estimate it will reach $810 million, reflecting a 29% growth on a per-share basis. For 2022, we would estimate free cash flow in the range of $845 million. Cash flow in 2022 is impacted by higher variable compensation payments related to the very strong performance in 2021. Once we get beyond 2022, we expect free cash flow per share to grow in line with earnings per share, and Net Income conversion will be in the 100% range. We expect to repurchase approximately $1 billion in shares in both 2021 and 2022, which should allow us to maintain a net debt to EBITDA ratio of approximately 1.5 times. Some final details on guidance: with respect to the impact of currency and sales growth, we expect currency to increase sales growth by approximately 3% in 2021 and be relatively neutral to sales growth in Q4. In 2022, we would expect currency to decrease sales growth by approximately 1%. In terms of adjusted EPS, currency will benefit growth by approximately 4% in 2021 and be a slight headwind to adjusted EPS growth in 2022. We do not expect currency to impact adjusted EPS in the fourth quarter. That is it for my side, and I will now turn it back to Patrick.

Thanks, Shawn. Let me start with some comments on our operating results. Our lab business had outstanding growth in the third quarter despite having more challenging comparisons than it faced in the first half of the year. Almost all product lines and regions had very strong growth. We expect good growth in the fourth quarter, but it won't be the same level we have seen year-to-date. As we look at 2022, we expect the strong biopharma trends to continue to be favorable and expect other end markets to do well. However, we will benefit from catch-up demand segments like chemical, which we benefited from this year. We also expect a bit of headwind in our pipette business from normal COVID testing activity, although we believe we are well positioned to continue to capture growth and gain market share in our laboratory business. An additional nice development within our lab business is that we obtained a $36 million grant from the U.S. Department of Defense to expand our pipette production in California. By the end of 2023, we will expand our global tip production by approximately 15%, and the grant will also allow us to enhance manufacturing, automation, and logistics surrounding our tips. We're happy with this grant, which allows us to cost-effectively increase tip capacity while at the same time improving productivity. Turning to our Industrial business, core industrial performed well in the third quarter as we are benefiting from some catch-up in demand and have been well positioned to benefit from increasing trends in automation and digitalization. Core industrial should have a solid fourth quarter. We will face tougher comparisons in Core Industrial in 2022, but expect to continue to drive market share gains overall. Product inspection grew 13% in the quarter. Growth was especially strong in the Americas. We expect good growth in the fourth quarter, and we're cautiously optimistic about solid growth in 2022, as we should benefit from some pent-up investments from large packaged food customers and our strong product portfolio. Finally, food retail declined 19%, with pronounced declines in the Americas, in Asia, and the rest of the world. Our production was impacted by shortages of electronic components, as these products use more standardized components that are also used in consumer electronic products. We were also impacted by the timing of project activity. You would expect food retail to also decline in the fourth quarter. We are not forecasting much growth in 2022 as we continue to manage this business for profitability. Now, let me make some additional comments by geography. Sales in Europe increased 10% in the quarter, with very strong growth in lab. You would expect solid growth in Europe in 2022 against very good growth in 2021. The Americas increased 20% in the quarter, with excellent growth in lab, core industrial, and Product Inspection. As mentioned earlier, food retail was down significantly in the Americas. While we will face challenging comparisons in the Americas in 2022, we expect overall good growth. Finally, Asia and the Rest of the World grew 16% in the quarter with outstanding growth in laboratory, and good growth in product inspection. Core industrial also did well. China had good growth, particularly given their strong growth in the prior year. We expect good growth in China in Q4 and in 2022, although it won't be at the same level we have seen year-to-date. We continue to feel good about China over the medium term but acknowledge that there can be volatility in the shorter term. We are very strongly positioned in China, and the team is executing well. One final comment on the business: Service and Consumables performed well, and were up 12% in the quarter. We continue to be very pleased with the growth in this important and profitable part of the business. That concludes my comments on the business, and now let me provide some context on our 2022 guidance. We believe we are emerging from this pandemic as a stronger Company and are further distancing ourselves from competition in several ways. During the last 2 years, we have accelerated our digital transformation in sales and marketing. We had already started on this path, but the disruption from COVID-19 allowed us to significantly accelerate our digital approach. Our use of demos, our vast and expanded digital library of selling materials, drill development of selling guides, and greater utilization of telesales and telemarketing services are clear differentiators for remote selling. While we expect our face-to-face customer interactions to continue to increase in 2022, these digital tools allow us to expand our customer reach in a cost-effective manner. In addition to the digital gains in sales and marketing, we have also made great strides in sharpening our focus on the most attractive market segments, allowing us to accelerate market share gains. Increasing sophistication in data analytics is fundamental to our ability to guide our sales force to the best growth opportunities. We continue to provide what we refer to internally as 'top alerts.' These alerts provide tailored, actionable information about potential sales opportunities, which our market organization qualifies and integrates into the territory planning and target setting. You see the trend for greater use and sophistication of data analytics continuing in 2022 and beyond. Our global service network and our ability to continue to service our customers during this period have led to steady increases in customer satisfaction. Service keeps us close to customers, builds trust, and the customer is much more likely to purchase additional products if they utilize our service offering. We continue to develop service tailored to specific customer needs. For example, we quickly developed a service tool for customers who utilized analytical balances in quality control to meet new requirements from the European Pharmacopeia that go into effect in January. In addition, as software is becoming integral to our solutions, harmonized services for software are becoming increasingly important. The new service offering supports our instrument control software LabX to enable customers to achieve consistent performance and meet regulatory compliance. These are just 2 examples. We have many more within our portfolio. We believe service will continue to provide a good opportunity for growth and differentiation from our competitors. We also used the same data analytics approach to leverage service opportunities within our install base. New product development also continues to be core to our growth potential. I am excited about the many launches that will take place over the coming year. Our product pipeline continues to be very strong, and product launches reinforce our technology leadership. While most product and software development will continue to be done in-house, we will also complement these with small acquisitions, like the one we completed in October. We acquired a software company, Scale-Up Systems, which is a leading provider of scale-up and reaction modeling software for pharma and chemical customers. It is a great addition to our AutoChem offering, and we now have a comprehensive offering for process development and scale-up for the pharma and chemical industries. Turning now to supply chain and margin initiatives. As already mentioned, our supply chain team has shown tremendous agility in adapting to very dynamic market conditions and continuing to support customers. There are risks and increasing inflationary pressures in the supply chain and transportation and logistics markets. We have mitigation strategies in place to help offset these, and we believe we can continue to manage effectively but are cautious as conditions can change quickly. Our pricing program and Stern Drive productivity initiatives have good traction and will help us to offset inflationary pressures that we will likely continue to face in the coming months. I trust this provides some context to our guidance and shows the confidence we have in our ability to continue to capture growth, gain market share and deliver solid earnings growth in 2021, in 2022, and beyond. I would now like to ask the Operator to open the line for questions.

As a reminder, please stand by while we compile the Q&A roster. Our first question will come from the line of Eric Chung from Stifel. Please proceed with your question.

Good afternoon, guys. This is Eric Chung, on for Dan Arias today. Thanks for taking the question. First, can you separate organic growth in China lab versus industrial? And within China, are you seeing any changes in competitive dynamics emerge, coming out of the pandemic within China, and if there are any market share opportunities that look different, pre-COVID versus post-COVID?

Yeah, hey Eric, this is Shawn, I'll take that one and maybe Patrick can add some color at the end of it. In terms of the third quarter, China was up overall 19%. We had strong growth on the laboratory side of the business, in the high 30s, but we also had double-digit growth on our Industrial business. We're really thrilled with how well both businesses are performing. And as a reminder, our Industrial business grew particularly strong in Q3 of last year, particularly, core industrial business was up by 24% in Q3 of last year. When you look at these numbers on a 2-year basis, we feel really good. Overall, we feel very good about the competitive environment. I feel like our supply chain, in general, has been a competitive advantage in China as well as globally, as Patrick mentioned in the prepared comments. When you look at the competitive landscape in China, I feel like we continue to take market share there, and we're positioned well. Our team there is a very strong experienced team in the region, and they're just executing extremely well.

Right, Shawn. If I may add some flavor here, for both businesses, lab and industrial, the investments in lab are driven by investments in new labs and research that we see in China. That’s a very healthy business for us. I think our team is exceptionally well positioned to serve that market. We follow products that we have at the high end as well as local products that will be manufactured in China. I think we have the right portfolio to continue to see growth in the lab side as well. And on industrial, the demand in China is actually not similar to what we see in the rest of the world. There is a lot of demand for automation and productivity solutions, and with our industry solutions, especially new products that we have launched, we are extremely well positioned to help our customers drive productivity in automation. What I'm hearing from China is that this demand will not continue to slow down. They continue to upgrade installed systems and are looking for ways to become more productive.

Great. That's helpful. And to pivot to the product inspection business, I think it's been about a year or so since you got step-up and running at the Tampa product inspection site. That was something you guys saw as a driver of operational efficiency when you talked about it. How has that translated into recognized benefits this year, and are you seeing any concerns in that business over the next quarter given the Delta variant emergence in the U.S. along with rising cases in China?

I can take that. Look, we're very pleased with the business, and the Tampa site is really operating extremely well. The output is great, and we see strong demand for the products. Operations are running at full capacity right now. We have no concerns regarding the operations on this site; it's very effective. When we consolidated a couple of sites a couple of years ago in Tampa, of course, there was some initial effort to pull everything together, but now we are very well positioned to serve the market from that site. In terms of demand for Q4, we still see good momentum for product inspection. Looking forward to 2022, we are cautiously optimistic that there is additional pent-up demand in the market that we can continue to serve. We have an extremely strong product portfolio. We recently launched several new additions to the portfolio, which align with our technology leadership in the market, and we continue to do that in China as well. In China, we launched products, particularly the Ex-12 system, which is a mid-range market system to help us also serve the mid-range market in China and is also a great door opener for us.

Your next question will come from the line of Vijay Kumar from Evercore. Please proceed with your question.

Hi. This is Kevin on for Vijay. Looking at guidance for 2022. Can you talk to the pricing assumptions behind the guidance? And what is being implied for operating margin expansion in 2022?

Yes. Sure. Kevin, I'll take that one. So for pricing for next year, we're targeting something in the 3% range. Of course, we acknowledge we're in an inflationary environment, and so we'll adjust as necessary as we proceed into the year. When we look at our operating margin expansion, we expect to be in the 100 basis point range on top of this year. When you start to compound that on a multi-year basis, we feel particularly good about that. This year, we'll be 120 basis points higher than the previous year. We feel very good about our various margin expansion initiatives, pricing, as well as our Stern Drive program. But at the same time, we acknowledge there's also a lot of challenges out in the world in terms of material costs and transportation costs that we talked about in our prepared remarks.

And the follow-up. Looking at food in the quarter being down 19%, can you talk more about the segment and outlook going forward?

So food retailing was down 19% in the quarter. That business, as you know, is a business that we manage for profitability and not necessarily for growth overall; it's only about 5% of our total business. That business can be lumpy, impacted by the timing of projects or customer orders. It is important to note that this business was negatively impacted by some component shortages because we use common electronic components in our retail scales that are also used in certain consumer products. We expect, going forward, to be down similarly in the fourth quarter, but then for 2022, we don't expect much growth in the business, probably low single-digit growth. Over a longer-term period, it's probably a low single-digit business, but it will be lumpy every now and then from quarter to quarter.

Our next question will come from the line of Patrick Donnelly from Citi. Please proceed with your question.

Hi, guys. This is Elizabeth, on for Patrick. I'm just wondering, you guys talked a little bit about inflation in general. I was wondering if you could talk about internally if that's affecting wages and what you're seeing in labor in general. Thanks.

Yes. So, in terms of wage inflation, we're going to experience higher wage inflation. Like every Company in the world, it's a competitive labor market in all parts of the world. As we look at our cost structure for next year, our overall cost structure will go up about 4%. Of course, wages are a significant component of our overall cost structure. By geography, it will be highly differentiated based on local labor markets.

Our next question will come from the line of Jack Meehan from Nephron Research. Please proceed with your question.

Hey, good afternoon. This is Nisarg on for Jack. To start, the lab segment performed well despite supply chain challenges. Are you expecting heightened impact here in the fourth quarter?

Can you repeat that? I'm sorry, we didn't catch it. What was the question?

Sorry. The lab segment performed well despite supply chain challenges in the third quarter. Are you expecting a heightened impact in the fourth quarter?

Okay. I can take that. Sorry, we didn't get that part about supply chain. Now, look, the business, actually, we don't expect a bigger impact in the fourth quarter than what we saw in Q3. It is a very dynamic situation as I say out there; both in trends and logistics on the material supply side for the products we have in lab. You will notice we are exposed as we are in the retail business. So we are not overly concerned for the lab business, to be honest.

Great. Thanks.

Our next question comes from the line of Derik De Bruin from Bank of America. Please proceed with your question.

Hey. Good afternoon. I've been bouncing around between calls, so my apologies if I'm being redundant here. But how do you think about any of your digital marketing and campaigns, and your field turbo, and some of the other ones where you put a lot of feet on the street, and now those costs are expanding. Is there a higher return now or emphasis on pushing more into the electronic and digital? How much more do you need to spend on building out electronic e-commerce capabilities versus hiring people?

Thanks. That's an excellent question. You have to look at it from two different angles. You mentioned both digital closures as well as field forces. We see a lot of demand at the end as well, and we have actually invested quite a bit this year in field forces and made significant investments there, putting more feet on the street, because we saw demand, and that is paying back very quickly for us with great returns. On the digital side, we continue to enhance our overall marketing engine, our direct sales engine, etc. We've been very effective in that. It has provided for us great returns. We will always have both approaches: a direct consolidated sales force that interacts closely with customers for high-end products needing more consolidated selling, and we continue to build out our digital capabilities to serve more transactional sales and strengthen our digital marketing capabilities. I think this year we increased the volume of interactions with customers, which has been extremely well received. These are great tools to increase leads despite everything we do. We are monitoring the number of leads generated by these capabilities, and we are very pleased with how well they perform and how well they are received by the customers.

Great. Thank you very much.

Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.

Thanks. Good afternoon. There really is a small acquisition, small software deal in the Third Quarter, but any material revenue tied to that? Touch on whether that fills the hole in the portfolio and your thoughts on appetite for similar types of bolt-on deals.

Look, the software company, Scale-Up Systems, is not a large company but it complements our portfolio in AutoChem very well. We are a very strong player in AutoChem, and that business has been growing double digits for a long time now. We are extremely pleased with that. We certainly see the combination of our existing portfolio together with this new software capability allowing us to serve our customers and additional customers much better in the future. We will have a much better reach into regions where Scale-Up Systems couldn't go with force. I think it's a very well-received solution by our customers. In terms of bolt-on acquisitions, we will continue down that line. We will make small and medium-size acquisitions either in technology areas or parts of the portfolio that we think are necessary for overall customer workflows.

Thanks. Shawn, it would be helpful if you could walk us through, changing your top-line assumptions by segment for next year, and be able to quantify the impact of the lower demand on lab growth next year?

Yes. Sure. Hey, maybe I'll start with the lab business, and you want me to do Q4 as well as next year, Brandon?

That'll be helpful?

I'll go through this for everyone. For the lab in Q4, we're anticipating low double-digit growth, which would result in a 20% growth range for the entire year. Next year, we expect high single-digit growth for the lab. For core industrial, we project high single-digit growth for Q4, placing us in the mid to high teens for the full year. Next year, we expect to see more of low to mid-single-digit growth. For product inspection, we anticipate high single-digit growth in Q4, which would also yield high single-digit growth for the full year and for 2022. In food retailing, we're expecting a decline in Q4 similar to what we experienced in Q3, resulting in a mid to high single-digit drop for the full year. Next year, we expect low single-digit growth. By geography, we expect Europe to show low to mid-single-digit growth in Q4, leading to low double-digit growth for the full year, with low to mid-single-digit growth next year. In the Americas, we project low double-digit growth in Q4, resulting in mid-teens growth for the year, and mid-single-digit growth for next year. For China, we expect low double-digit growth in Q4, which will place us in the mid-20s for the full year, with approximately 10% growth anticipated next year. Regarding COVID testing headwinds for next year, we expect a slight headwind of probably less than 1%.

Excellent, thank you.

You're welcome.

Our next question will come from the line of Josh Waldman from Cleveland Research. Please proceed with your question.

Hi, guys, thanks for taking my question. I appreciate all the detail on the outlook. Just two for you, I guess. First, a quick follow-up on Product Inspection. I wonder if you could provide more context on what you're seeing from an orders and quoting activity. It sounds like the U.S. was strong; what are you seeing in other geographies? As you look forward, I mean, it seems like there's a bit of cautious optimism in the commentary, but the high single-digit seems pretty strong here based on the comp from 2021. Just any more detail on what’s giving you confidence for next year would be helpful.

Yes, that's a great question, Josh. We're very pleased with the current quarter. Shawn indicated that we are looking at high-single-digit growth for Q4. Demand in the Americas and Europe is strong, and we are also experiencing good momentum in China, where we launched a new product about a quarter ago. Overall, there is significant pent-up demand, especially in the U.S., and when I look at previous situations along with the leads we're receiving, we're experiencing a high level of lead activity right now. We're seeing a lot of requests coming from both Europe and the U.S., and the U.S. numbers are even higher than in Europe. That said, we remain cautiously optimistic about 2022 and believe we can capitalize on this pent-up demand. Our product portfolio positions us well, and our manufacturing capabilities are operating effectively, with minimal impact on the supply chain for that product line. Regarding our exposure to semiconductors and components, it’s not as significant as we've noted for retail.

Got it. Thank you. I also wondered if you could give us an update on what portion of your revenue now is coming from bioproduction, in light of some of the recent acquisitions, thinking PendoTECH. And maybe what's built into your assumptions for 2022 from that business.

Yeah, sure. Overall, we don't have a precise number on that, but we typically like to say that life sciences overall is about a third of our business. I think that is probably a bit more right now just given some of the acquisitions we've done in the last few years in the high growth we’ve had in that area. If you break that down into pieces, large molecule, in general, is an important piece of that and then bioproduction in particular is also an important part of that. If you like, just the pieces of bioproduction, the area that we benefit the most would be in our process analytics business, which is probably in the 10% range of our total business, maybe a little bit more, with an important part of process analytics in bioproduction. But we also sell industrial scales in other applications in the bioproduction environment as well.

At this time, there are no further questions in queue, and I would now like to turn the call back over to Mary for closing remarks.

Thank you, and thank you everyone for joining us this evening. As always, if you have any questions or follow-ups, please don't hesitate to reach out. Take care. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.