Mettler Toledo International Inc/ Q3 FY2025 Earnings Call

Hello, and thank you for joining us. My name is Mark, and I will be your conference operator today. I would like to welcome everyone to the Mettler-Toledo Third Quarter 2025 Earnings Conference Call. Now I would like to turn the call over to Adam Uhlman, Head of Investor Relations. Please go ahead.

Thanks, Mark, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer; and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcast and is available for replay on mt.com A copy of the press release and the presentation that we will 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 current reports filed with the SEC. The company disclaims any obligation or undertaking to update any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation to these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K. Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on Page 3 of our presentation. Our third quarter results were strong and reflected very good growth, especially in Industrial. I'm very pleased with our team's strong execution as we leverage our Spinnaker sales and marketing program and innovative product portfolio to drive growth while delivering solid EPS. Looking ahead, we are well positioned to capture growth opportunities while benefiting from trends like automation, digitalization and onshoring. We continue to remain very agile as we face several uncertainties in global trade disputes and governmental policies. We are confident that our strategic initiatives and strong culture of innovation and operational excellence will enable us to continue delivering strong performance in this dynamic environment. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook.

Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.03 billion, which represented an increase in local currency of 6% and was 5%, excluding several recently completed acquisitions. On a U.S. dollar reported basis, sales increased 8%. On Slide #4, we show sales growth by region. Local currency sales increased 10% in the Americas, including a 1% benefit from acquisitions, 6% in Europe and 1% in Asia/Rest of the World. Local currency sales in China increased 2% during the quarter. Slide #5 shows local currency sales growth by region on a year-to-date basis. On Slide #6, we summarize local currency sales growth by product area. For the quarter, Laboratory sales increased 4%, while Industrial increased 9% and included a 1% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 10% and Product Inspection grew 7%. Food Retail grew 5% in the quarter. Lastly, service grew 8% in the quarter and included a 1% benefit from acquisitions. Slide #7 summarizes our local currency 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 #8. Gross margin was 59.2% in the quarter, a decrease of 80 basis points, primarily due to incremental tariff costs, offset in part by positive price realization and benefits from our Stern Drive program. R&D amounted to $51.1 million in the quarter, which is a 4% increase in local currency over the prior year. SG&A amounted to $248.4 million, a 6% increase in local currency over the prior year, which includes sales and marketing investments. Adjusted operating profit amounted to $309.9 million in the quarter, up 5% versus the prior year. Adjusted operating margin was 30.1%, a decrease of 100 basis points or down 30 basis points on a currency-neutral basis versus the prior year. We estimate the gross impact of tariffs reduced our operating margin by 140 basis points. A couple of final comments on the P&L. Amortization amounted to $20 million in the quarter. Interest expense was $17.7 million and adjusted other income amounted to $4.3 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. Fully diluted shares amounted to $20.6 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $11.15, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 6%. On a reported basis in the quarter, EPS was $10.57 as compared to $9.96 in the prior year. Reported EPS in the quarter included $0.26 of purchase intangible amortization, $0.29 of restructuring and acquisition transaction costs and a $0.03 tax headwind related to the timing of stock option exercises. Slide #9 summarizes our year-to-date P&L. Local currency sales increased 2% for the 9-month period. Adjusting operating profit declined 2% and our operating margin contracted 130 basis points. Adjusted EPS increased 2%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% on a year-to-date basis, operating margin declined 10 basis points and adjusted EPS grew 7%. Gross tariff costs reduced operating profit by 3% and EPS by 4% on a year-to-date basis. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $689.5 million for the first 9 months, a 6% increase on a per share basis. DSO was 34 days, while ITO was 4.2x. As mentioned, we completed several smaller acquisitions that add to our North American distribution footprint, add new service capabilities and expand on our life science equipment offering. Overall, we paid approximately $75 million related to these acquisitions and may pay contingent consideration up to $31 million in the future. Going forward, they will approximate 1% of our sales and are modestly accretive to adjusted EPS. Let me now turn to our guidance for the fourth quarter and our initial thoughts on next year. As you review our guidance, please keep in mind the following factors. First, our guidance assumes U.S. import tariffs as well as the impact of retaliatory tariffs from other countries will remain in effect at recently announced levels. Trade disputes are dynamic, and there's a potential for new tariffs or retaliatory tariffs that we have not factored into our guidance. Second, while our third quarter results were better than expected, market conditions remain challenging with continued uncertainty related to trade disputes, governmental policies and geopolitical tensions. Our forecast does not assume a significant improvement in market conditions over the coming year. Third, we have continued to make important investments in our business to capitalize on our customers' investments in automation, digitalization and nearshoring. We believe this will position us to very effectively capture these opportunities over the coming years. And finally, please keep in mind that our third-party logistics provider delays negatively impacted our Q4 2023 results by $58 million, nearly all of which was recovered in our Q1 2024 results. For the full year 2025, this reduces our sales growth by 1.5% and is a headwind to operating margin expansion of approximately 60 basis points and a headwind to adjusted EPS of approximately 4%. Now turning to our guidance. For the fourth quarter of 2025, we expect local currency sales to grow approximately 3% Operating margin is expected to decrease approximately 200 basis points or down 130 basis points on a currency-neutral basis at the midpoint of our range due to higher tariff costs. We expect adjusted EPS to be in the range of $12.68 to $12.88, a growth rate of 2% to 4%. Included within the EPS guidance is a gross headwind of approximately 7% from higher tariff costs. Currency for the quarter at recent spot rates would be a benefit to the fourth quarter sales by approximately 2.5% and would be neutral to adjusted EPS. For the full year 2025, our local currency sales growth forecast is approximately 2% or up 3.5%, excluding the shipping delays. Adjusted EPS is forecast to be in the range of $42.05 to $42.25, which represents a growth rate of 2% to 3% or 6% to 7%, excluding the impact of prior year shipping delays. Adjusted EPS also includes a gross headwind of approximately 5% from higher tariff costs. We have also provided our initial guidance for 2026. And based on our assessment of market conditions today, we would expect local currency sales to increase approximately 4%. Adjusted EPS is forecast to be in the range of $45.35 to $46, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales and a slight headwind to EPS. Lastly, I would like to share a few other details on our 2026 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $77 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pretax basis or approximately $1 per share. Interest expense is forecast at $72 million, while other income is estimated at approximately $12 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $865 million in 2025 and $900 million in 2026. As mentioned earlier, we have recently completed several small acquisitions that approximate $75 million of consideration in 2025 and have adjusted our share repurchase program accordingly. Share repurchases are now expected to be $800 million for the full year 2025 and share repurchases in 2026 are expected to be in the range of $825 million to $875 million. Our capital allocation philosophy is unchanged, and you will see us continue to use our free cash flow primarily for share repurchases and small bolt-on acquisitions. Our Board has also authorized an additional $2.75 billion to be added to our share repurchase program, which had $1.1 billion remaining at the end of the third quarter. That's it from my side, and I'll now turn it back to Patrick.

Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had good growth in the quarter. We saw growth from pharma and biopharma customers with strong results in bioprocessing. These results were offset in part by softer demand from academia, biotech and the chemical sectors. We are optimistic that some of the market uncertainty could ease in 2026, but we have also not assumed a significant recovery next year. Amid the challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched the NineFocus pH Meter, our new high-performance multiparameter benchtop meter for pH, conductivity, iron concentration and dissolved oxygen measurements. When use of our broad offering of digital sensors, NineFocus provides consistent, accurate results that support regulatory compliance with automating data transfer to our LabX software. Our instrument can also be paired with our InMotion autosampler automation solution that allows users to calibrate, verify and measure over 300 samples fully automatically. Turning to our Industrial business. Growth in our core industrial business was very strong this quarter, especially in the Americas, although it benefited from easy multiyear growth comparisons and favorable timing of customer activity. Global market conditions for industrials are soft, and our sales are expected to grow low single digits in the fourth quarter. Looking ahead, our Industrial business is well positioned to benefit from increased replacement demand as market conditions improve, and it is also poised to benefit from near-shoring investments over the coming years. Turning to Product Inspection. Sales growth was very strong again this quarter despite challenging market conditions in the food manufacturing industry. Our unique go-to-market approaches and innovative portfolio are supporting market share gains, and we look forward to continued growth over the coming year. Lastly, Food Retail sales grew 5% against easy year ago comparisons. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our Industrial Solutions. Growth in our laboratory business was good and included strong bioprocessing growth. Turning to Europe. Our results were very good this quarter and better than we had expected. Our Industrial business delivered very strong results, while Lab had more modest growth. Finally, Asia and the Rest of the World grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter and included growth in our industrial business for the first time in over 2 years. Our team has remained highly agile and successful in identifying opportunities in China. And while we are monitoring efforts by the central government to reduce excess capacity across certain industries, we believe we are well positioned to continue to capture growth as conditions improve and should also benefit from trends such as the latest China Pharmacopoeia update. In summary, we are very pleased with the strong execution from our team that has allowed us to deliver very good results. I recently came off our annual budget tour and met with senior leaders across the globe, and I'm inspired by the excellent progress our teams are making on our initiatives. Throughout 2025, our team's resilience and agility have been important differentiators that have allowed us to successfully navigate very challenging market conditions. Our high-performance culture is a hallmark of our success and appears to shine the brightest during challenging times. Looking ahead, we are confident that our unique growth initiatives and focus on operational excellence will provide tangible benefits over the coming year. We continue to invest in global market trends around automation, digitalization, near-shoring and hot segments and believe we are well positioned to capture growth around the world. Our team's passion to pursue these opportunities is inspiring, and we have several initiatives that further strengthen our capabilities to serve customers as we also benefit from our significant digitalization investments over the past several years. Innovation is essential to our success, and we continue to advance the digital capabilities of our products, services and software to provide additional insights and productivity improvements to our customers with many examples throughout their value chain. Spinnaker 6 has strong traction, and our global teams are actively deploying new digital solutions to further increase our effectiveness and improve our customers' digital experience. We are also further increasing our ability to identify growth opportunities via our Spinnaker program and Top K initiative. And we are enhancing the capabilities of our sales force to leverage AI to further optimize our pipeline management. Service also remains a significant growth opportunity given our large installed base of instruments, and we continue to invest and leverage sophisticated analytics to identify and capture these opportunities. Internal productivity improvements from digital tools and automation also continue to be exciting opportunities. This is especially effective as we operate from a single instance of our ERP and CRM systems that are fully integrated under the Blue Ocean program. Blue Ocean provides globally harmonized processes with extremely rich data that is essential to effective digitalization. While conditions in China have been challenging over the past couple of years, our emerging markets outside of China have continued to grow and in total, are now larger than China. We see significant growth potential in these markets and expect to benefit from our strong market organizations around the world. Now let me share some additional insights into our outlook for 2026. As mentioned earlier, we forecast our growth next year to be in the range of 4%, which assumes market conditions do not significantly improve from current levels. We continue to face uncertainty in the global economy with trade disputes, U.S. governmental policies and geopolitical tensions. However, we expect conditions to gradually improve and replacement cycles will gain momentum again. While we continue to see short-term uncertainty in our end markets, we believe we are very well positioned to continue to gain market share with our broad portfolio of new innovations. We have also recently launched new initiatives to ensure resources are effectively focused and reallocated towards the most promising growth opportunities. I am very proud of the resiliency and strong execution from our global supply chain organization as we navigated new challenges with trade tariffs. Our team has been very agile and effective in implementing our supply chain optimization strategies. Our focus is to strengthen and evolve our in-region, for-region manufacturing capabilities to increase flexibility and resiliency, and we continue to expect to fully offset incremental tariffs costs in 2026. And lastly, as Shawn mentioned earlier, we also recently completed several small acquisitions that broaden our distribution and service capabilities and also expand our life science equipment portfolio. While these acquisitions are small and will add less than 1% to our sales growth in 2026, they add new products and services to our portfolio and increase our sales capabilities. We are very happy to welcome our new colleagues to our team. This concludes our prepared remarks. Operator, I would like now to open the line to questions.

And our first question comes from Luke Sergott with Barclays.

I wanted to begin by discussing the guidance for 2026. Can you provide a breakdown of how you are viewing that by segment, particularly regarding the industrial aspect and the insights you're gaining from PID and core industrial?

Yes, Luke, this is Shawn. I'll address that. For 2026, we anticipate low to mid-single-digit growth in our laboratory business. We expect better performance in our process analytics. We saw strong momentum in bioprocessing this quarter, which we believe will carry into next year. However, the early research area, like liquid handling, may experience some softness. In our industrial business, we project core industrial to grow low to mid-single-digit, and product inspection also to fall within that range. Both will benefit modestly from recent smaller acquisitions we mentioned. For retail, we expect it to remain flat next year. Geographically, we anticipate mid-single-digit growth in the Americas, with low single-digit growth in Europe and China.

Great. And then as I think about the overall consumer market and some of the more consumer-facing segments like PID and what you're seeing there as the consumer starts getting weaker, how is that kind of playing out when you're thinking about baked into that guide and how the pacing has been through the quarter and into 4Q?

We are very pleased with the results in that business this year. Despite the challenging end market, where 70% of our business is in food manufacturing, our investments in innovation over the past few years have allowed us to expand our portfolio, especially targeting the middle market. This segment presents significant growth opportunities. Our teams are executing effectively, and our recent product innovations are being well received in the market. Patrick and I recently completed our annual tour and engaged with our executives and the Board. Looking ahead, we are optimistic about the pipeline for this business and others, and we believe we are competing effectively, even amidst the challenging market conditions.

And your next question comes from the line of Vijay Kumar with Evercore ISI.

Congrats on a really nice sprint here. Maybe back off of Luke's question on fiscal '26. I think, Patrick, you mentioned macro you're not assuming any change from current environment. When I look at your back half of '25, you're averaging 4.5%. So that 4% for '26 seems a step down from back half. What changes in how you think of price versus volume?

Yes, I'll start and let also Shawn chime in there. Look, Vijay, when you look at how we guided for 2026, we said we don't expect any significant change to what we're seeing today. The market situation is still quite uncertain out there with global trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide to the 4% for 2026. We think it is a very prudent guidance in this environment. And well, there could be some upside, of course, I mean, again, if the market uncertainties become less, if the customer confidence increases, as we also mentioned in our remarks that we think there's a good opportunity in our replacement business. We have seen probably now 2 years of subdued replacement business that hopefully will come into play once customers' confidence comes back. But in terms of the overall sequence in terms of the growth first half versus second half next year, Shawn, I don't think we have...

Yes. One thing to note, Vijay, is that we will have more pricing in the second half of this year compared to next year. In the third quarter, we experienced about a 3.5% benefit from pricing, and we anticipate a similar benefit in Q4. Looking ahead to next year, we expect about 2.5% price realization for the full year, which includes some advantages from midyear pricing actions aimed at offsetting tariffs. However, when considering organic volume growth, we anticipate modest growth next year. If we examine the latter half of this year, Q3 showed slightly better performance, while Q4 may be slightly down, although I don't expect a significant change in our outlook. It's still early, and there's considerable uncertainty. Recent headlines have been more favorable, and if that trend persists, we remain optimistic that it could boost stability and confidence in our end markets. However, we are cautious due to the volatility and pressures we've faced in our core end markets over the past year.

That's helpful. And Shawn, maybe on margins for '26. I think your guide implies maybe modest operating margin expansion. Your tariff headwinds should abate quite meaningfully, but should we see a little bit more robust margin expansion?

Yes, that's a good question. One of the dynamics we are facing is that the way currencies have changed over the past quarter has provided us with more benefits on the sales side. However, this is being offset by rising costs and the Swiss franc strengthening against the euro. Even though this doesn't significantly affect EPS, it has a larger impact on operating profit as a percentage of sales. When you look at the calculations, our operating margin expansion for next year is expected to be around 60 basis points on a currency-neutral basis. Therefore, it's a much better story than the reported figure, which is likely in the range of 20 to 30 basis points. I'm optimistic about the execution within the organization and confident in our ability to mitigate these tariffs.

And your next question comes from the line of Dan Arias with Stifel.

Patrick, how do you see onshoring demand playing a role in 2026 compared to 2027 and beyond? You have some products that might be addressed sooner rather than later. However, I understand that you often don't get overly focused on these high-level concepts in the early stages. Can you share your thoughts on 2026?

We are well positioned as a global company to take advantage of onshoring activities. There are significant opportunities coming from sectors like pharmaceuticals and semiconductors. Approximately 50% of our sales are directed towards production and quality assurance, which will play a crucial role as these companies begin reshoring and expanding their capacities in the U.S. and Europe. While there have been substantial announcements, it will take several years to construct these new facilities, so we expect a gradual impact. Some effects may be felt in 2026, with possibly more in 2027. We are actively engaging with our key accounts who have indicated plans for building capacity in the U.S. We are prepared to assist them with establishing labs, manufacturing areas, and quality assurance facilities using our products. This will be a multi-year process. Reflecting on the Semiconductor Act, it took time before we saw real momentum in the market. The impact for 2026 is likely to be moderate, but it's essential for us to support our customers early in the design of their labs and manufacturing spaces, ensuring they receive our latest innovations to enhance their productivity and efficiency, along with our digital capabilities.

Okay. That's helpful. And then, Shawn, maybe on the comments that you guys made on China, can you maybe just compare what you expect on the lab/biopharma side versus more of the industrial side? I'm trying to understand just the macro headwinds and what that might translate to for China for you guys next year.

Yes, we're expecting low single-digit growth in both of those sectors. As Patrick noted earlier, one of the positive aspects on the lab side is the recent update of the Pharmacopoeia in China, which presents a good opportunity. The investments taking place in the country with GLP-1s serve as a strong example. While we see some medium to long-term potential here, we are feeling a bit more cautious in our current outlook. Regarding the industrial side, one of the highlights of the third quarter was our industrial business, where we experienced solid growth across all regions. It was particularly encouraging to see growth in core industrial in China during the quarter, marking the first time in two years that we've seen growth in that area. At the beginning of the year, we had concerns about this segment due to the uncertainties surrounding the Chinese economy, so it’s reassuring to witness some growth now. I feel optimistic about our ability to maintain our performance there. After our visit 1.5 months ago, we left with a positive outlook, and the team seemed very motivated and engaged. It was great to see this progress.

And your next question comes from the line of Brandon Couillard with Wells Fargo.

Patrick, I mean, it's atypical for Mettler to do one deal, much less a handful of them. I'd love if you could just kind of elaborate on how this came about, some background on the assets and really what you think they add to the portfolio.

Yes. Thank you, Brandon. Yes, of course, normally, we do not do this amount of deals in one quarter, but to be honest, the deals also take a long preparation time. And we always look to expand our portfolio at new technology vectors or adjacencies that we don't own and also expand our distribution. In this quarter, we acquired a few North American distribution partners that gave us additional sales and service capabilities including some new services. We also acquired the Genie Vortex mixers, which is a really strong brand and expands our life science equipment portfolio that complements, for example, our pipette business and the businesses, shakers and others that we sell through our house business. So it has been a good number of smaller acquisitions, not one big one, but the small acquisitions that we will continue to do in the future. And as Shawn mentioned before, the revenue contribution was less than 1% this quarter and about 1% through the first half of next year.

And then just one follow-up, Shawn, did you provide the growth for the China lab in the quarter? What is included for '25 regarding China and those two segments specifically?

For Q3, it increased by a low single digit. To confirm, it was indeed a low single digit rise in Q3. For next year, we also project a low single digit increase.

And your next question comes from the line of Patrick Donnelly with Citi.

Maybe one just on the core industrial side, can you just talk about what you're seeing there, what the trends are, conversations with customers? Obviously, it's helpful to hear a little bit about the go forward on that front. I would love just to hear what the trends look like there and the visibility as you work your way forward on core industrial.

Yes. Okay. I'm happy to take that. Look, I think we are performing extremely well with our innovative portfolio in a market that is still very challenging. As you know, most of the PMIs are still below 50. But we are benefiting from the demand for automation, digitalization, and this is where our innovative products play strong and it also helps us differentiate nicely from our competitors, including China. As Shawn mentioned, it was good to see that China came back to growth for the first time in 2 years. We think these soft market conditions probably will continue for some time, but we are very well positioned then in the future also from the onshoring investments in the future because those will demand a lot of digital capabilities and automation solutions that we have developed and that we either implement directly with end customers or through system integrators. So long story short, I think the market will continue to be challenging in many areas. It probably will benefit next year and the year after from the onshoring activities. But for us, it's most important that, again, we have a very competitive portfolio and continue to help our customers with their demand for automation and digitalization in a fully compliant environment and also with products that also have very strong capabilities when it comes to cybersecurity, which we spend a lot of activity as well.

Okay. That's helpful. And then maybe one on the geography side. I think Europe flattish year-to-date. It seems like it's been improving a little bit. I think Shawn talked about low single digits next year. What are you guys seeing there? Has it been kind of steady improvement? Is it just comps? And again, the confidence level there going forward would be helpful.

Yes. I'll touch on the macro situation in Europe. It’s a mix across different regions. Currently, Southern European markets are doing better than the Northern ones. The most significant challenges are in Central Europe, particularly Germany, which is facing substantial pressure from increased energy costs. There have been reports of some manufacturing moving offshore to tackle these cost challenges. The Nordic region has performed well, but recent news from Denmark about Novo Nordisk resizing has created some pressure in that part of the market. Overall, it's a mixed picture, but we are satisfied with our performance in Europe. It's crucial that we utilize our tools to guide our sales teams toward the growing segments, such as bioprocessing, which is seeing strong activity, along with new energy markets and some areas in semiconductor. The situation is more challenging than before, but we are seeing better momentum in the U.S. as well as in Europe. We're eager to seize all growth opportunities to offset the slower macro trend in Europe, which we expect will continue to lag behind the U.S. next year.

And your next question comes from the line of Doug Schenkel with Wolfe Research.

I'm going to try to just throw out 2 and then get back and just listen given I'm out of the office. So on the industrial side, lab came in, as we've talked about, pretty well above our model and your guidance at mid-single-digit organic growth. You talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by PA process analytics versus traditional lab equipment? And maybe more specifically, are you seeing increased demand for bioprocessing sensors as several large CDMOs start to build out brownfield plants in the U.S. And then that's on the lab side. On the industrial side, 9% organic growth is impressive. As I've talked about with you guys, I mean, some of this is a function of maybe the name industrial being a little bit of a misnomer given how the business has evolved. But that being said, still impressive. And last quarter, you said you had visibility into certain projects that would drive maybe a better than typical quarter. And I think this was even better than that. So long lined up to, does this start to normalize? Were there timing dynamics? Or is there some real momentum here?

Yes, I'll begin here. On the laboratory side, we were very pleased with the quarter. A key highlight was process analytics, with strong growth in bioprocessing. This segment also benefits from investments in the power grid, particularly concerning future opportunities in data centers. However, the main driver was bioprocessing. Additionally, we have ultra-pure water solutions that support power plants. In terms of the rest of the business, we also saw good growth, especially in our analytical instrument portfolio. We were encouraged by the growth in that area, and weighing solutions also performed well. The only area where we experienced some weakness was in our liquid handling business, which is currently facing significant challenges due to funding issues related to research in biotech, academia, and the ongoing government shutdown. While these challenges are smaller for Mettler-Toledo, liquid handling is more affected due to its larger impact and the consumable nature of that segment. We did see modest growth on the consumables side, though the instrument side showed weakness. On the industrial side, we had much better activity than expected during the quarter. We entered the quarter with a positive outlook, and various global factors aligned favorably. For instance, our transportation and logistics business, which focuses on automating factories, has shown effective solutions in dynamic dimensioning that deliver strong paybacks to our customers, and that momentum contributed in the quarter. We also observed positive trends across the portfolio that support customers' automation and digitalization efforts, with growth across all regions. It’s worth mentioning that we likely had an easier comparison in Q3, which may make the fourth quarter a bit more challenging. From discussions with our organization and customers, it seems that the timing of activities skewed more toward Q3. Therefore, we're approaching our core industrial projection for the fourth quarter with caution, anticipating low single-digit growth. We do see a quarter-on-quarter step down. However, looking at the second half of the year collectively, we're optimistic about our execution and position as we head into the next year. The portfolio is performing well and is positively received globally. Although this business is affected by macro trends, numerous opportunities arise from onshoring needs. Companies are investing more in automation and digitalization, and we continue to enhance our portfolio to leverage these opportunities.

And your next question comes from the line of Michael Ryskin with Bank of America.

Great. I want to follow just kind of what you were just touching on, on the 4Q moving pieces. I had a lot of questions on sort of comparing 3Q, 4Q. First of all, maybe you could just give us sort of the segment results. You gave us a little bit here in there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you seeing for government shutdown? Just are there any other moving pieces you touched on the comp in core industrial just now, but we would love to flesh out the 3Q to 4Q dynamic? And then I've got a quick follow-up.

Yes, Mike, I’ll compare Q3 and Q4 as you suggested and share some additional insights. In Q3, the lab segment grew by 4%, and we expect it to increase by a low single digit in Q4. We're being a bit more cautious regarding budget flush as we move into the fourth quarter. Last year, we experienced a favorable budget flush, but that’s not typically our trend. We do have seasonal fluctuations in our business, and currently, there seems to be some caution due to uncertainties surrounding governmental policies. For our core industrial business, it increased by 11%, with 10% being organic growth. Our guidance for Q4 is a low single-digit increase. The product inspection segment saw a 7% growth in Q3 and we anticipate high single-digit growth in Q4, which will include some benefits from acquisitions. The retail sector also experienced growth of 5%. It tends to be unpredictable, but they have managed to show positive results and we expect about 10% growth in the fourth quarter, though this is against possibly easier comparisons. This segment is doing well with some exciting innovations, particularly in imaging technologies. Geographically, our business in the Americas grew by 10% in Q3, and 8% if we exclude acquisitions, with a mid-single digit growth forecast for Q4. In Europe, growth was 6% in constant currency in Q3, but we expect a more flat outlook moving forward, indicating our cautious stance in that region. As Patrick mentioned, execution in Europe is strong, and our Spinnaker programs help us due to our extensive direct sales force. However, the economic environment is softer, and uncertainties regarding trade issues could affect customer behavior. Lastly, China grew by 2% in Q3, and we're projecting a low single-digit increase for Q4.

Okay. That's all incredibly helpful, Shawn. For a follow-up, if I could just touch on tariffs in 2026. You said a couple of times you're going to fully offset. But just walk us through exactly what that means. Is that fully set over the course of the year, fully offset as of Jan 1? Is there like a net tariff impact on EPS next year that you could point to? Just walk us through sort of exactly how that's happening and the mechanics behind it.

We are very pleased with the organization's performance in this area. As Patrick mentioned earlier, our culture shines brightest in challenging times, and I am incredibly proud of how our colleagues have responded to these challenges over the past year. The effort to offset these tariffs began earlier than 2025. Coming out of COVID, similar to many companies, we aimed to create more flexibility and reduce risks in our global supply chain. We had already initiated certain projects that we could accelerate in the past year. Additionally, we have the opportunity to adjust our pricing to mitigate some impacts. We have invested significantly in innovation and the value we deliver to our customers, which has allowed us to reassess pricing in certain areas over the last year. Looking ahead to next year, we expect to be in a strong position at the beginning of Q1, and we will provide further details at the end of this year. If you prefer to take a conservative approach in your models, that's understandable. However, we anticipate starting the year in a solid position, and certainly on a full-year basis as well. Regarding tariffs, currently, we are facing approximately a 6% gross headwind in 2026 due to the tariff rate increases that will take effect, which is the scale of what we are working to offset.

And your next question comes from the line of Tycho Peterson with Jefferies.

This is Jack on for Tycho. Just wanted to double-click on China industrial for a minute. Did China's anti-involution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like they were impacted much at all. So I would appreciate any additional granularity on the core industrial side and what you saw in terms of activity.

Thank you, Jack. China has been dealing with overcapacity for quite a while. The anti-involution policy aims to mitigate price wars and tackle overcapacity in sectors like solar and steel, which are not significant markets for us. Since we moved away from heavy industrial infrastructure markets over a decade ago, we are more focused now on automation and digitalization opportunities in a broader industrial portfolio. That focus has contributed to some growth in Q3. Our portfolio is well-suited for a market striving for productivity improvements and cost reductions, achievable through automation and digitalization. We have a robust R&D and manufacturing team that is in tune with local market dynamics and customer needs. This positions us well to seize available opportunities. Consequently, we believe we will continue to outperform the overall market in China with our strong portfolio. The anti-involution issue is not as critical for us because we are not involved in the market segments facing the most pressure from the government, and the broader market is still seeking the solutions we offer.

And your next question comes from the line of Josh Waldman with Cleveland Research.

Patrick, a follow-up on the bioprocessing side. I'm curious where all you're seeing the impact of stronger demand across the portfolio? And I guess, any sense on durability into Q4 and '26? Did it seem like volumes strengthened throughout the quarter? And then I guess on the portfolio exposure piece, I believe you have bioreactor equipment exposure within core industrial. Were there any signs of strength there?

Yes. Very good questions, Josh. And yes, you're absolutely right. We see this across the portfolio. Bioprocessing is a strong segment for us, of course, especially for the process analytics piece. But as you think about the entire value chain of these customers when it comes to QA, QC solutions, where our lab products play well or in the Industrial Solutions that tank scale weighing, et cetera, play a big role, we will definitely continue to benefit from the strong momentum in this market. We actually, we anticipate this to continue into 2026 as well. This is a market that shows strong momentum and also we have very strong engagement of our sales teams with the customers in this space.

Did you see strength in the tanks and weighing side as well? Or was it more on the consumable side here in the third quarter?

Yes, we observed it in both areas. It was probably a bit more pronounced on the bioprocessing sensor side, but we also had very good customer engagement and are gaining momentum with the tanks. As these customers expand their manufacturing capacities or pursue reshoring initiatives, they will turn to us for the latest and most efficient solutions.

And your next question comes from the line of Catherine Schulte with Baird.

This is Josh on for Catherine. I just wanted to unpack a little bit. Have you seen any change in sentiment from pharma customers since some of these MFM deals? I'm just wondering what those have kind of looked like since some of these announcements have been rolling out.

I'll address this question. The discussion around the most favored nation has been ongoing and might have initially caused some uncertainty regarding its implications. However, our Pharma segment has performed exceptionally well. Customers are eager to explore reshoring and home shoring opportunities and are conscious of their commitments to the U.S. government. They also recognize the strong demand for biopharmaceuticals and other products. While there is some lingering uncertainty, it doesn't primarily revolve around the most favored nation issue. When we engage with customers, that's typically not the first thing they mention. Instead, they're focused on optimizing their processes for greater efficiencies and continuing to expand their manufacturing capabilities with our support to implement the most effective and profitable solutions.

Great. And then you talked through the replacement cycle opportunity here maybe starting to ramp up a little bit. Just wondering if any of this is baked in the 2026 guidance? And how should we think about the impact here longer term?

Yes. Well, look, I mean, I would have to give you a glass wall to really see what's going to happen. What we do know is that we have 2 years of a little bit subdued replacement business. We also see our installed base aging a bit more, but I cannot really tell you when the customers are ready to pull the trigger and replace the equipment. I think it's upside potential, but we have not factored that fully into our 2026 guidance.

And your next question comes from the line of Casey Woodring with JPMorgan.

Maybe the first one, you mentioned that you were in China recently. Just what's the latest there on the ground in terms of potential stimulus and what that could mean for 2026?

Yes. We had a very positive visit with our colleagues in China. It's quite a dynamic environment, and it was interesting to see the rapid pace of change there. Our teams demonstrated impressive agility in the marketplace. It's a fast-moving market, and it’s exciting to witness how effectively our teams are identifying and pursuing opportunities. Regarding stimulus, as we've discussed before, it’s not a major focus for us. There may be some small benefits, and our teams do pursue those, but considering our portfolio and customer base in China, it doesn't align closely with the current stimulus program. However, we have gained from broader fiscal stimulus programs with larger packages in the past, but the current program offers limited opportunities.

Got it. That's helpful. And then maybe if you could just unpack the product inspection performance, that 7% growth number in the quarter. I understand the comp dynamic you mentioned earlier. But in the past, you've talked about the sort of strategy shift towards focusing on the midrange market there that's really driving growth. So just curious if that's a tailwind that you're assuming extends into 2026 and the sustainability there.

Yes, we are very pleased with our performance. We are confident in our portfolio and have introduced new products in recent years. The pace of product launches will continue, and we anticipate more exciting developments throughout next year. This contributes to our confidence in maintaining our momentum, despite the challenging environment. We also see potential synergies from some of our acquisitions, particularly one that offers additional services we hadn't provided before, which we believe presents a valuable opportunity.

There's no further questions at this time. I will now turn the call back over to Adam for closing remarks. Adam?

Okay. Great. Thanks, Mark, and thanks, everybody, for joining our call today. If you have any follow-up questions, feel free to reach out to me. I hope you all have a great weekend, and we'll talk to you soon. Thank you.

That concludes today's call. You may now disconnect.