Mettler-Toledo International Stock

Hello, everyone. Thank you for joining us, and welcome to the Mettler-Toledo Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Adam Uhlman, Head of Investor Relations. Please go ahead.

Great, Jonathan. Thank you very much, 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 our website at 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, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statements, except as required by law.

On today's call, we will use non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website.

Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our second quarter financial results, the details of which are outlined for you on Page 3 of our presentation.

Our second quarter results were strong and reflected better-than-expected organic sales growth across our portfolio, including very good growth in China and emerging markets. It was driven by improved market conditions and our focused Spinnaker sales and marketing program. Combined with our productivity initiatives, this resulted in excellent adjusted EPS growth in the quarter. Going forward, we are optimistic market conditions will gradually improve.

Our team remains agile and focused on capturing growth opportunities, leveraging our sophisticated Spinnaker program and innovative product portfolio while benefiting from trends in automation, digitalization and onshoring investments. I am confident that strong execution of our strategic initiatives will continue to deliver solid financial performance.

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

Thanks, Patrick, and good morning, everyone. Before I review our Q2 results, I'd like to highlight a special item in our financials this quarter related to tariffs. As disclosed last quarter, we had a one-time gross benefit of $52 million from IEEPA tariff refunds in Q2 that benefited cost of sales, and was offset in part by a $28 million related refund to our customers that reduced our reported net sales by 3%. Discussion of our results today will exclude the impact of both of these items.

Sales in the quarter were $1 billion, up 7% in U.S. dollars. And in local currency, our growth was 6% and above our price -- our prior guidance of approximately 3% local currency sales growth. Acquisitions contributed approximately 1.5% to sales growth and organic local currency sales growth was 4%.

On Slide #4, we show sales growth by region. Organic sales, excluding acquisition and tariff refunds, increased 1% in the Americas, 4% in Europe and 9% in Asia/Rest of World, including 9% growth in China.

Slide #5 shows core organic sales growth by region on a year-to-date basis.

On Slide #6, we summarize sales growth by product area. Organic sales increased 4% in Laboratory and increased 3% in Industrial, which included 4% growth in Core Industrial and 1% growth in Product Inspection. Food Retail grew 11% in the quarter. Lastly, service revenue grew 9% or 7% organically.

Slide #7 details organic sales growth by product area on a year-to-date basis.

Let me now move to the rest of the P&L, which is summarized on Slide #8. Adjusted gross margin was 59.3% in the quarter, an increase of 30 basis points. Excluding unfavorable foreign currency and acquisitions, gross margin expanded approximately 90 basis points due to benefits from favorable price realization, lower tariff rates compared to the prior year, volume growth in our productivity and cost savings initiatives, partly offset by higher transportation costs.

R&D amounted to $53 million in the quarter and was up 3% on a local currency basis over the prior period. SG&A amounted to $263 million a 4% increase in local currency over the prior year and includes sales and marketing investments, offset in part by cost savings. Adjusted operating profit amounted to $309 million in the quarter, up 9% versus the prior year. Adjusted operating margin was 29.3%, an increase of 50 basis points versus the prior year or up 100 basis points excluding unfavorable currency.

Adjusted EPS for the quarter was $11.46, a 14% increase over the prior year. On a reported basis in the quarter, EPS was $11.55 as compared to $9.76 in the prior year. Reported EPS in the quarter included a $0.92 net tariff refund benefit, $0.26 of purchased intangible amortization, $0.22 of restructuring costs and a $0.04 tax headwind related to the timing of stock option exercises.

Finally, we had a $0.31 acquisition-related charge related to higher earn-out achievements on previous acquisitions. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $367 million on a year-to-date basis and was negatively impacted by the timing of tax payments, which were $55 million higher than the prior year. DSO was 35.6 days, while ITO was 4.2x.

Let me now turn to our guidance for the third quarter and the full year 2026. As you review our guidance, please keep in mind the following factors. First, we are encouraged by our Q2 results and improved market conditions, especially in China and emerging markets.

Second, conditions in the Middle East remain volatile. And while we have limited exposure to the region, this could impact customer decision-making should conditions significantly change. We are not currently seeing any change in related customer behavior and have not included an escalation of the conflict in our forecast.

Lastly, we are very confident in our ability to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment.

Now turning to our guidance for the full year 2026. We have increased our local currency sales growth from approximately 4% to approximately 4% to 5%, reflecting organic growth of 3% to 4%. Our forecast excludes the impact of the previously described tariff refunds.

Adjusted EPS for the year is forecast to be in the range of $47.15 to $47.50, which represents a growth rate of 10% to 11% or 11% to 12%, excluding currency. This reflects an increase from our previous guidance of 8% to 10% growth. At recent spot rates, foreign currency is estimated to be a 1% benefit to sales growth and a slight headwind to EPS for the year.

For the third quarter of 2026, we expect local currency sales to grow approximately 4%, which includes approximately 0.5% benefit from acquisitions. We expect adjusted EPS to be in the range of $12 to $12.15, a growth rate of 8% to 9% or 9% to 10%, excluding currency. Currency for the quarter at recent spot rates would be neutral to third quarter sales and a 1% headwind to adjusted EPS.

Some further comments on our 2026 guidance. We expect total amortization, including purchase intangible amortization to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $28 million on a pretax basis or approximately $1.07. Interest expense is forecast at $67 million for the year. Other income is estimated at approximately $24 million. We expect our tax rate before discrete items will remain at 19% in 2026.

Free cash flow is expected to be approximately $900 million in 2026, which represents 6% growth on a per share basis. Share repurchases are now expected to increase to $875 million for the full year as compared to our annualized repurchase level of $825 million during the first half of the year.

That's it 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 across most product areas. We saw improving trends across our biopharma customer base and continue to see strong growth in process analytics and bioproduction. Laboratory balances and analytical instruments growth was also strong and benefited from the many innovations we have brought to the market in the recent years, our LabX software and growing demand from hot segments like semiconductor, advanced materials and batteries.

Turning to industrial. Core Industrial did well this quarter with sales growth driven by strong demand for our solutions that enable automation. We saw strength across markets like biopharma, food manufacturing, semiconductor and new energy. As expected, Product Inspection organic sales growth this quarter was modest due to the timing of customer projects, but organic growth is expected to pick up again in the second half. Lastly, food retail sales growth was better than expected due to the timing of project activity.

Now let me make some additional comments by geography. Starting in the Americas, where sales grew 1%, excluding acquisitions. We had strong momentum in most Lab product categories and in our Core Industrial Automation Solutions and Product Inspection. These results were offset in part by timing of food retail and transportation and logistics project activity.

Turning to Europe. Sales growth this quarter was solid and included growth across most of the business, including strong growth in Core Industrial and food retail. Finally, Asia/Rest of the World had very good growth this quarter across the portfolio and in most major markets. Our business in China grew 9% and was stronger than expected as our team continues to do an excellent job identifying high-growth markets and leveraging our innovative portfolio.

Biopharma customers' demand was also healthy and contributed to our results. Markets outside of China also had strong growth this quarter. Emerging markets have been an important element of our long-term growth strategy for many years. India, Southeast Asia, Eastern Europe and Latin America offers excellent growth opportunities as these markets develop and mature, and we believe many of them will also benefit from near-shoring investments over the coming years.

Our company is uniquely positioned to capitalize on emerging market growth over the coming years. In the second quarter, emerging markets outside of China represented approximately 18% of our sales, slightly more than our business in China and grew high single digits in the quarter. Emerging markets, excluding China, have also grown high single digits on average in local currencies over the last 5 years, above the company average and are an important contributor to our growth.

To take advantage of these growth opportunities, we have long-standing dedicated market organizations in emerging markets, China and around the world. Our market organizations are a significant competitive advantage, allowing us to stay close to customers and better understand local market needs. We have dedicated growth plans for each major country and we leverage our broad portfolio of solutions across a range of price and value points to meet varying customer requirements.

Additionally, in markets like Mexico, we have further developed local assembly and manufacturing capabilities in recent years, which strengthen our ability to serve local market needs and enhance our competitive position. The market organizations and emerging economies also leverage the same Spinnaker sales and marketing programs we have developed in other countries, including various digital tools, value selling guides and sales enablement tools.

We have also rolled out Blue Ocean to most of our MOs and having a single instance of a global information technology infrastructure provides rich data, analytics and unique real-time business insights. This is a significant competitive advantage that allows us to target opportunities in various hot segments like bioprocessing, GLP-1s, semiconductor and battery in an agile way. As domestic and foreign direct investments continues to grow over the coming years, we expect emerging markets to remain a healthy contributor to our growth well into the future.

In summary, we are very pleased with our Q2 results and the solid growth our team has delivered. We remain focused on capitalizing on our customers' investments in automation, digitalization and onshoring around the world. After a few years of disruptions and uncertainties related to tariffs, governmental policies and geopolitics, we believe customers will continue to return to a more normal replacement activity going forward. We have maintained a strong focus on investing in innovation and growth in recent years while protecting profitability, which will serve us well as our markets recover.

This concludes our prepared remarks. Operator, I'd now like to open the line to questions.

[Operator Instructions] Your first question comes from the line of Dan Arias from Stifel.

Shawn or Patrick, last quarter, you raised the guide for China. So I guess not a surprise to see the pickup there, but it does seem like maybe it improved a bit sooner. Can you just dive into the acceleration a bit? What does the momentum there look like when it comes to pharma versus non-pharma and just sort of the consistency that you expect in the coming quarters? If I remember correctly, the improvement seemed like it was due more to core industrial last quarter. So to what extent do you have pharma improvement sort of baked into the outlook for the rest of the year here?

Yes. Thank you, Dan. And yes, of course, we are very happy with the growth we have seen in China, 9% in Q2 was really a very strong result versus the guidance we initially had for the quarter. I mean the growth has really been led by Industrial, which had double-digit growth in China. We are benefiting from many of the core segments such as biopharma, but also food as well as the hot segments like investments in battery that is happening in China.

For Lab, the growth was a bit more modest. We expect continued improvement there also in the second half, both also from biopharma and maybe also academia will pick up towards the end of the year. We see or we had at least some indications of some additional funding for academia in China as well. But then again, also the good hot segments and the strong investments in areas like lithium battery and new energy. So overall, I would say, really led by industrial, the growth across many segments and pharma was a good part of that as well.

Yes. Dan, then just to be specific, like in terms of the second half of the year, we're looking at high single digit now for China also for Q3 and for the full year. And we kind of -- this momentum that Patrick referred to on industrial, we feel very good about entering the second half. Also the trends around automation and digitalization that we talk a lot about, we're definitely seeing those benefits in China as well. And then I think as we kind of go into the second half of the year, too, we also feel like that the Lab business is gradually improving as well.

Yes. Okay. And then maybe just on product inspection. A little bit of growth in that piece. I think you had been pointing to that being down a touch this quarter on some timing elements that you referred to. Can you just maybe expand on that? Was there anything that got pulled forward from 3Q as it relates to that timing? And then if you put the timing aspect aside, maybe just talk about spending and demand relative to the way that you saw things last quarter in PI specifically.

Yes. No, thanks, Dan. So if you remember, we had a really good Q1 in PI, and then we were trying to caution people that Q2 would be a little bit lighter just given the timing of how the project activity was looking like it was playing out. But as we kind of like go into the second half of the year, I mean, we feel very good. I mean, we're probably looking at mid-single-digit growth in the third quarter. And for the full year, we're probably looking at high single-digit growth, which is probably more like mid-single-digit growth on an organic basis. But when you step back, 70% of that business is food manufacturing.

So the -- from an end market perspective, not quite like pharma. But when we look at how the team is executing, we actually feel really good. I mean we talked a lot about the benefits of innovation in this business over the last few years, and we kind of continue to see that. We're coming out with a couple of new products this year, which is pretty exciting. And then this general strategy that we've talked a lot about in terms of how to better position ourselves for the mid-market segment seems to be working very well and well received in the marketplace.

Your next question comes from the line of Tycho Peterson at Jefferies.

Just wanted to maybe unpack some of the other trends from 2Q. I guess as we think about the revised guide in the back half of the year, can you just talk a little bit more about some of the underlying assumptions by end market and segment? Obviously, you just covered PI in China, but maybe walk through where you're changing your assumptions otherwise.

Yes. Tycho, I'll take that one. Thank you. So I'll start with the product categories, and then I'll give you the division. So Lab for Q3 would be mid-single digit. Core Industrial, we're looking at low single digit. And I think it's important to remember that Core Industrial had a very challenging comparison to the prior year in Q3 of last year. It grew 10% organically. Product Inspection, mid-single digit, which I just said, and then Retail, we're guiding at flat.

In terms of the Americas, we're guiding at low to mid-single digit. Again, this one had a more challenging comparison, just to highlight in Q3 of last year, which was up, I think, 9% organically. Europe, up low single digit. China, we talked about high single digit.

And then maybe just to kind of wrap it up with the full year. Full year Lab would be low to mid-single digit. Core Industrial would be low to mid-single digit. Product Inspection would be high single digit. And of course, there's a little bit of acquisition from the -- largely from the first half of the year in these numbers.

So Core Industrial would be low single digit organically. PI would be mid-single digit. Retail would be low to mid-single digit. And if we look at the regions, Americas would be low single digit or about flattish organically. Europe would be low single digit and then China would be high single digit.

Okay. Very helpful. And then a follow-up, you've guided 2.5% on price for 2Q. Just curious where you landed and what you're thinking for the back half of the year? And then separately, did you capture -- recapture any of the delayed chemical orders?

Yes, sure. So on the pricing side, continue to be really pleased with the team's execution. But ultimately, pricing comes back to value proposition. I think a lot of the investments we've been making over the last few years on innovation continue to pay off well. So in the end, our price realization for the quarter was around 3%. So we're very happy with that. So a little bit better than the 2.5% that you were mentioning in terms of our original guidance.

Towards the end of the quarter, we also put in place some additional pricing measures isolated in a few areas where we were seeing a little bit of inflationary pressures. So our guidance for the second half of the year is more in the 2.5% kind of a range.

And again, we're -- as a reminder, we're also lapping a lot of the midyear price increase actions that we did last year in response to all the tariffs from last year. So when you kind of wrap that all up, our full year price realization is now approaching 3% for the full year.

I think the other part of your question was China -- I mean, not China, Chemical, Europe, do you want to take that one or...

I can take that one. Tycho, so yes, on chemical, just as a reminder, I mean, overall, it's under 15% of our total sales, and we had probably the biggest exposure across Industrial and Lab for chemical. It's -- for us, it's mostly specialty chemicals. And when we talked in Q1 about the pressures we have seen in the EU, it was mainly energy related. It's our view on things. Actually, the EU chemical results were better in Q2, so they recovered.

And -- but we still would say we take a bit more cautious stance on the overall segment still because they are more exposed to energy cost fluctuations than other segments that we're seeing. And -- but overall, of course, in the quarters to come, we will also have easier comps in the segment.

Your next question is from the line of Josh Waldman from Cleveland Research.

I think one for Patrick and one for Shawn. Patrick, nice to see the reacceleration in Lab. I guess, can you give more details on what drove this? It would be great to get a sense on what you're hearing from customers on the why behind the inflection in the second quarter following what would seem to be a softer start to the year. Was it budgets being delayed, concern around the war or other?

And then as you think about durability kind of going forward, the comps get more difficult, but it sounds like you're expecting mid-singles again in the third quarter. Do you think Lab kind of should stay in the steady state of mid-single digits here as we work through the second half and maybe into '27?

Yes. We will not talk -- thanks, Josh. We will not talk about '27 yet. But of course, we are actually quite delighted with how Lab is performing. And a lot of that is based not only on our strong go-to-market strategy and our local market teams that we have that are really very close to our customers. I think it's also based on the fact that we have really put a lot of effort into innovation over the last years. We launched a lot of new great products across the Lab portfolio.

And within Lab, at the moment, of course, the process analytics business is performing extremely well in biopharma, as you can imagine. So that drives a lot of the growth as well. And then you look at the rest of the portfolio that we have, analytical instruments have been very good in Q2, and we see that also moving forward.

We saw the pipette business coming back to growth as well last quarter, which is very promising. So I would say, yes, we're actually quite pleased with the momentum we have in Lab moving forward. We do expect, as Shawn said, for Lab mid-single digits growth about that range. And it's pretty broad-based. I think if there is even some upside to this, it would be potentially an acceleration in China that still has to materialize. Again, we saw some initial good momentum, but that was more in Industrial in China, and I think Lab is more to come.

Overall, extremely well positioned for lab products with our LabX software platform. As you know, we provide about 40% of the instruments that are used typically in the QA/QC lab and most of them are connected to our LabX portfolio, which gives our customers a really unique opportunity to do just their testing in a very compliant way and using LabX as a complete workflow control system and also aggregate the data to use AI on the next level if they want to. So it's -- I think we are very pleased with where we are with Lab, and I think there's more to come. Thank you.

Yes. Good to hear. Okay. And then, Shawn, can you give an update on how margins are tracking versus your plan? Any updated view on the full year margin expectation? I mean it seems like you're tracking ahead of plan. Is this reflecting moving pieces on the tariff refunds? Or are there other drivers you'd highlight?

Yes. So just to be clear, the tariff refund topic is excluded from our results, our adjusted results and our guidance. Now of course, changes in tariff rates is a different story. And so that can be a factor here. But we feel very good about the team's execution. We really -- I think we've been trying to like really focus on this always in the past. I think if you look at the different initiatives that we have kind of underlying margin expansion like the SternDrive program, productivity programs, cost savings initiatives, they're all, I think, very important. And I think it definitely highlights, I think, some of the culture in the company as well.

If we look at Q2, you kind of heard we -- if you look at the operating margin, we were up like 100 basis points if you exclude currency. If you look at that from a full year perspective in terms of what we're thinking for 2026, we'll probably be, excluding currency, probably up 60, 70 basis points, maybe modestly better than what we were thinking before. Now there's some currency in that. So on a reported basis or not excluding currency, it would be up slightly, maybe in the 10 to 20 basis point kind of range. And that's at the operating margin level, yes.

Your next question is from the line of Vijay Kumar from Evercore ISI.

I guess, Shawn, my first one, a quick housekeeping. What was FX in M&A contribution in the quarter?

Yes, it was about -- so in terms of -- you're talking -- I'm sorry, Vijay, you said -- did you say FX in M&A in terms of revenue?

Foreign exchange...

Yes, yes. So I usually don't think in terms of foreign exchange. So the acquisition contribution was about 1.5%. And then in terms of FX, I think if you kind of like look at our reported numbers versus our local currency, it implies 1%. But I think with rounding, it's north of 1%.

That's helpful. And I guess when I look at the updated guidance, Shawn, when you do the math, I think the implied exit rate for Q4 is somewhere between 4% to 5%, depending on the midpoint or high end of the guidance. That's a step-up, right? That's a sequential step-up from 3Q. I know in the past, you've spoken about the backlog and order visibility, right? Is that what's driving the sequential step-up? Like what gives the confidence in this fourth quarter exit rate?

Yes. So I think -- so Vijay, a couple of things. So first of all, I think if you look at it from a growth perspective, yes, the implied Q4 is a little bit higher than the Q3 guidance. I think a lot of that also has to do with the fact that Q3 has a much more challenging comparison to the prior year. I kind of called out a little bit the industrial business as an example, and also the Americas had a challenging comp. So I think that's kind of part of it.

But I think if you also just look at sequentials in terms of just like the flow of quarters and dollars from one quarter to another, I feel like the sequentials are pretty in line with historical sequentials. And then as we kind of like exit the year, we feel like we have some good momentum entering into the back half of the year. And I think, yes, when you look at what we're seeing in the business today, we definitely feel good about the momentum that we're kind of carrying into the second half.

Your next question is from the line of Michael Ryskin at Bank of America.

Maybe I want to dig a little bit more into biopharma. It sounds like that's one of the places you're feeling a little bit better this quarter. I had some comments on bioprocess analytics, bioproduction balances. Just would love to expand more on that. Did you see -- was it sort of like -- how big of a step-up was it? Was it above your expectations? Anything about where you're seeing that momentum the most and just expectations for that going forward? Do you feel like you're early on? Or you've already sort of like crested it, if you know what I mean?

Yes. Thanks, Mike. I'll take that question. Look, let's talk about biopharma and bioprocessing here. I'll start with bioprocessing, which is overall, I think, a low double digit of our total sales. It's mostly Pro, but also part of the Industrial Automation portfolio plays here. Pro had really good growth again in Q2, especially in the Americas with bioprocessing. And there's also some good equipment demand from industrial coming on from these automation providers where we serve them with our automation solution equipment from industrial products that we have. So there's really good momentum there.

When you ask about the investments in pharma and biopharma, you're probably referring here to the reshoring activities, I guess. We -- I think we are -- number one, we are extremely well positioned for that because about 50% of our sales go into production, plus about 20% QA/QC, where we cover a lot of the value chain there. And we are in an excellent position with our biopharma portfolio, but also helping on the industrial automation portfolio.

We see some good activities, some RFQs here related to reshoring, but I still would say it's early innings. I think this momentum will continue to pick up in the second half and also as we go into 2027. But yes, there are some activities and you probably all have heard about companies expanding their manufacturing in the U.S. I think until then, there will be really some groundbreaking of additional facilities that will still take some time, and then there will be more investment coming in the years '27 and '28. For now, again, most of what we see is facility investments and capacity expansion in the U.S.

Yes. Another interesting dynamic, too, is like there's been a lot of questions and talk about replacement cycles. And if you just look at our results in Q2 and one quarter doesn't necessarily make a trend, but it was encouraging to see very strong growth in the analytical instrument business as well as laboratory balances. And if you think about the types of instruments that are typically on a QA/QC bench, those categories actually did very well in the quarter here.

Okay. Okay. And then maybe just going back to what Vijay was just asking about in terms of the second half outlook. Yes, as you just touched on in that answer, you do have a little bit of a step-up. But you also talked about in your prepared remarks expectations for Middle East and geopolitics and the macro and all that. It sounds like you're not expecting -- you're kind of expecting status quo for that.

I guess what I'm trying to get at is, it feels like you did get bit by that a little bit in the first quarter. So I just kind of want to get at how much buffer there is in the guide if things do escalate, just maybe a degree of conservatism or areas of upside potentially to offset if the macro Middle East gets a little bit worse, just sort of a repeat of what happened in 1Q.

Yes. Mike, maybe I'll take that one and Patrick can add some color if you'd like. But I think there's a little bit of a difference right now. I think one is like there is very strong momentum that we're seeing in terms of customer activity. And so we feel very good about how we're sitting to the second half. Now we always acknowledge we're pretty short cycle with 1.5 months of backlog.

But when we look at everything holistically, we actually feel good, and we start to lap also some topics from a year ago like academia and biotech, which are smaller end markets in general, but we feel like some of these end markets are starting to improve. We're starting to see growth again in the pipetting, liquid handling business, which has also been really good. It's been a headwind for a while for us.

If you look at like the Q1 dynamic, like you mentioned, absolutely. And I think one of the issues there was that we had expected companies to maybe start the year slow. I think with all the uncertainty that was hitting companies right at the beginning of the year, one of the things we kind of felt was that a lot of customers were holding off on finalizing budget commitments within their organization. So a lot of things were also getting held up as kind of like a generic statement.

Right now, it seems like people have their budgets. They know what they want to do. There are the projects. And while things can always change, we feel like there's pretty good momentum going into the second half of the year. And then I think we'll learn a lot more about what it means over the next 3 months, and it might be more of a question on what it could mean for 2027. But I think the reality is that there's a lot of dynamic topics going on always in the world, and we'll continue to monitor them. But regardless of the environment, I feel like the team is trying to stay focused on what we can control and executing well.

Your next question is from the line of Jack Meehan at Operon Research.

I had a couple of follow-up guidance questions for you. The first is, so if I just look at EPS, you beat the second quarter by about $0.70 and the midpoint of guidance is going up by $0.70. So it seems like a lot of the raise is related to what you saw in the second quarter. So just trying to square that with your comment that overall, it seems like conditions are improving. Just is that conservatism? Or are there other offsets that you're building in at this point?

Yes. I think it's fair, Jack. I mean I think if you kind of like look at how we're -- how the second half -- like very happy with our Q2 results, of course, very happy to raise guidance for the full year, very happy with the momentum we're seeing in the business, acknowledge if you're trying to look at what your second half model looks like today versus 3 months ago. It looks like maybe there's a little bit of conservatism or moderation slightly. It's not reflecting anything we're seeing in the business, but we feel like maybe that kind of derisks any concerns out there for any of the geopolitical stuff, and we feel generally pretty good as we kind of go into the second half of the year.

Great. And then I wanted to poke a little bit more at the Core Industrial business. You talked about chemicals a bit. I'm actually not sure if some of that overlaps in the Lab, but we now have 6 months in a row of U.S. manufacturing PMIs over 50. So felt like we might see a little bit more momentum there. I was wondering if you could just talk about more like the macro sensitive stuff, like if you think there's still some of that correlation or if there's a reason why maybe it diverges for some reason?

Yes. No, it's a good question because if you kind of look at -- well, first of all, there's a couple of different things. The one thing that isn't necessarily evident in the results until you like look internally and unpack them is like the categories that are really supporting automation and digitalization around the world are actually growing very well, and we see that.

We also -- while we're less correlated to PMIs than we were 10 years ago, we also recognize that when the economy does better, we generally should do better as well, too. And even though there's a little bit of a delay. But the one thing that maybe doesn't jump out is that within Industrial, there can be small pockets of project activity. And one of those pockets is our transportation and logistics business. And the reality is there's just like some timing going on with larger customer projects, and that's kind of like mitigating some of the other positive results you're seeing in that business.

But overall, we feel actually quite good. And if you kind of like look at even our Q3 guide, despite lapping also some pretty large comps in industrial as well as the Americas from a year ago, we actually feel pretty good about our guidance and how the outlook is for the second half.

Your next question is from the line of Luke Sergott at Barclays.

Your next question is from the line of Casey Woodring at JPMorgan.

Now that we're in the back half of the year, curious just how reshoring conversations have trended, if those have picked up at all? And if you would expect orders to roll through here before the year-end?

Yes. Casey, I mean I think I partly at least addressed it in one of my former answers. Yes, we see some activity there with RFQs that are related to reshoring, again, as customers are expanding manufacturing in the United States, that is a good indication that there's more business to come. Again, the larger factories and investments still have to be made. So they are still early innings.

But we see -- we truly see the pharma, biopharma investments as largely incremental for us moving forward when you think about biopharma CapEx plans, especially when it comes to instrumentation, think about the tank scale, think about the QA/QC lab. So there will be moving forward, some good momentum. And we are, of course, in a lot of discussions with some of our key customers there about their plans. And it's still early innings, but yes, the momentum has picked up, and we are pretty positive that this will carry well into 2027, 2028.

Got it. That's helpful. And then, Patrick, can you just walk through how performance trended in the Americas by business segment and end market? Curious on how things like academia and government and biotech trended, right? Like you mentioned pipetting returned to growth. So within that 1% organic number in Americas, I would just be curious to hear what drove that and maybe what's still lagging and how you would see that region playing out in the back half?

Maybe, Shawn, you can repeat again how you guided Americas for Q3 and for fiscal year.

Yes. So the Americas, the guide for Q3 is low to mid-single digit. But again, we're lapping 9% in the prior year. And if you kind of like look at the different end markets, I don't know, Patrick, if you want to contribute here, but I can kind of run with it if you want, like in terms of like the end markets, we're certainly seeing improvement in some of the areas that have been softer like academia or biotech. And our pipetting business is a good example of that. It's larger exposures for that business, smaller for the Americas overall. So that feels pretty good.

Bioprocessing has been a very hot segment in the U.S. for us. A lot of the different like hot segments as well like process analytics particularly benefits from like power, semiconductor are also doing very well. And then if you think about like these trends around industrial automation, digitalization, good momentum there, as I mentioned. And like Patrick said, onshoring, we're well positioned for it, but still probably very early innings there.

And then what was also nice is just like I kind of commented on earlier about like if you think about the value chain, that QA/QC space where like analytical instrumentation, like that was a nice -- that was good momentum also in the quarter. So I think kind of like the setup, the trends continue to, I think, go generally in a good direction. We do get lumpiness from time to time from things like retail. But if you kind of look beyond that, the underlying business looks positive today.

Your next question is from the line of Kallum Titchmarsh at Morgan Stanley.

Maybe just following up on Tycho's question on price. Could you maybe just break out a bit more specifically which segments and geographies you've been more aggressive with on price just as we think about performance in the quarter? And then obviously, that 2%, I believe, is the long-term assumption for price. But just given the uptick in end market health and some of the innovation you've spoken to, any reason why that couldn't sit above 2% when we think about 2027 and beyond?

Yes. We'll talk probably more about those types of assumptions at our upcoming Analyst Day, but I certainly wouldn't expect us to come out with a higher price increase guidance than 2%. We feel pretty good about that one for the long term.

In terms of breaking it down, Kallum, we typically wouldn't get into too much detail, but maybe a good way to think about it is that we tend to do well in most geographies in the world. And -- but geographies where there's higher inflationary pressures are going to have higher price increases. And so for example, like in the United States, of course, we had a lot of the tariff pressures a year ago. So of course, the U.S. would have had a higher price realization than some of the other geographies.

Great. And I know they're relatively small portions of the business, but maybe just talk us through in a bit more detail what you've seen in the high-growth areas like bioprocess and semis. And then for those areas, I guess, are you comfortable with the portfolio you have today of products? Or would there be appetite to perhaps offer something broader for the future?

Yes. Thanks, Kallum. These hot segments, whether it's semiconductor, battery, GLP-1 and others, these are all low single-digit contributors to our overall sales, but they see really good growth. And of course, our market teams are really focused on solutions for these areas. So I would say we play well in them. If you look at the U.S., as Shawn said, semiconductor definitely is a really good segment, GLP-1s, the whole biopharma segment. If you go to other areas around the world, if you go to, for example, to China, the battery segment is really also back there to very good momentum and also investment in biopharma and GLP-1s.

But don't think this is the larger part of our business. Again, the broader part of our business is in pharma, biopharma, in chemical and food and other areas, but these hot segments are important from us from a perspective that we really want to maximize our growth in these areas as well, and we do very strategic investments when it comes to solutions for these end markets and working very, very close with customers whenever they need specific tailored solutions for their segments.

For example, we had very good results there, working closely with some of the largest battery manufacturers over the last couple of years to make sure that we develop tailored solutions that really drove significant growth for us in these areas.

Your next question comes from the line of Evie Koslosky from Goldman Sachs.

So first, I guess, maybe touch on the Lab business and what's driving that improvement. Are you starting to see pharma invest more heavily in sort of lab in the loop and automation capabilities as they look to shore up some of their AI strategies? Or would you characterize the improvement in pharma and Lab as just kind of general certainty coming back to the market?

Yes. Look, when you look at Lab, I mean, a lot of it is, of course, driven by the innovation we have brought out, not only in terms of automation and digitalization capabilities, but that's a good part of it as well. You got that. I mean, when you think about how pharma companies are automating their experimental setup, they'll use a lot of our equipment together with some of the automation partners that we have, and to automate their experiments and to really drive towards higher throughput.

What is essential there is that they also have an informatics platform like LabX that collects all the information and then they can use that on an aggregated level to drive the next experimental conditions, et cetera. But Lab overall is benefiting across the board, not only from automation, but also from the number of new products and new features with the products, innovation that we released over the last years, and it goes almost across the entire value chain in Lab.

Because think about the more early research part, we launched a new semi-automatic pipette this year, which has really -- received really well in AutoChem, we just launched a new solution that we think will drive some good growth moving forward. And then on the Lab product categories, we have also launched a lot of new products. So I think there is given that we have also a big exposure to the QA/QC market, that will be a good momentum for us moving forward.

Yes. And I think the -- like part of your question was also the uncertainty. Like I think the increased certainty certainly helps, right? Like we hear that a lot in terms of like biopharma generally spending more than they -- where there was a lot of hesitation at the beginning of the year.

Great. That's super helpful. And then maybe touch on your service business, how that trended in the quarter and then updated expectations going forward?

Yes. Service in the quarter grew -- what was it 9%?

It was 9%, organically it was 7%.

Organic 7%. So again, really growing faster than our products at the moment, and we're really proud of that. We continue to make really strategic investment -- in our service business, we have still a good opportunity to continue to outgrow the rest of the market, #1. Our service is an important business for us because it drives a lot of customer loyalty. Our Net Promoter Scores are very high in this area. We launched also new capabilities in service.

For example, our service engineers have now access to an AI-supported knowledge base where they can basically use all of the internal information that we have regarding earlier service records, about R&D material, application notes, et cetera. So whenever they go out and service a product, they basically can use these AI-supported tools to do best-in-class service, which drives, of course, our first fix ratio a lot and also drives customer loyalty up.

There's a lot of things that customers can get, but I say only at MT because we have access to this data. We have access to solutions that none of our competitors have when it comes to servicing instruments that are in the installed base. And there's still a growing opportunity for us moving forward. So I'm very optimistic that services will continue to grow. Last year, we, for the first time, exceeded $1 billion revenues in services, and that's at a high single-digit growth rate.

Yes. So to put it in perspective, for the year, it's probably going to be high single digit for the full year. Q3 might be more like mid- to high. But when you step back for the full year, we're very happy with that performance.

Your next question is from the line of Michael Polark at Wolfe Research.

I just have one question. My understanding is the U.S. Pharmacopeia had some material revisions that went into effect earlier this year around pharmaceutical weighing requirements. I've seen some analysis that's describing this as quite significant. So -- and I believe the effective date for compliance started in the first quarter of this year. So is this an influence that you would spike out? If so, what sort of activities is it driving at customers? And how is Mettler exposed to such a change?

Yes. Thanks. That's a very good point. I mean it's not only the U.S. Pharmacopeia, we have seen already last year and early this year, the revisions of the Japanese Pharmacopeia and the China Pharmacopeia last year, which actually had the same revisions when it comes to weighing regulations, which helped to drive incremental growth. And we are extremely well positioned with our -- exactly with the recently launched portfolio of new Lab balances to help our customers to support them with complying with these regulations.

Your next question comes from the line of Dan Leonard at RBC.

Patrick, I would just like to revisit your comments on emerging markets outside of China, that high single-digit growth rate. Can you offer some more color? Is that all volume? Do you have pricing power? Anything to share on service attachment rate and the long tail of emerging regions?

Yes, very good question, Dan. Thank you. Yes, we are growing high single digits in these emerging markets outside of China. And of course, if you think about, for example, India has great momentum, if you think also regions outside of Southeast Asia, if you think about Latin America, Mexico, Brazil, et cetera, where we see pretty good growth and also good investments of many companies out there.

We -- there is also some reshoring onshoring, but let's say, reshoring ongoing also in these regions, which really helps us to benefit a lot from the growth opportunities across our platform. So this is a play that goes across -- I mean if you think about the end markets, it goes across pharma, but also chemical and chemical also if you think, for example, about investments into the battery segment, where manufacturers have expanded their footprint outside of China into other areas into Asia Pacific.

And that comes along with a lot of investment in new instruments but also, of course, related services. I wouldn't say that there's a significant difference in terms of connect rate when it comes to the laboratory instruments outside of -- or in these emerging markets compared to other regions. So that, of course, then also drives an additional incremental revenue opportunity for us moving forward and also recurring revenues.

And we also do well on price as well in these markets. It's like I said before, it's very much a global topic for us where the value proposition tends to resonate globally, which is great.

And then as a follow-up, does the opportunity in these emerging markets just map towards manufacturing GDP by country? Or are there any areas of disproportional opportunity that you would highlight?

I think India, I mean, certainly is a standout, right? I mean, at least the last couple of years, if you look at the growth, it's been really, really impressive. It's certainly a geography that we prioritize on. And we just think we have a lot of great opportunity there. And if you look at the underlying -- some of the near-shoring and opportunities with generics, those types of things, there's just a lot of good things on the horizon there.

But I mean, all the other areas, too, we differentiate on as we allocate resources and not to repeat them all, but Patrick mentioned a lot of them, but like -- but they're all -- whether they're in Asia, Eastern Europe, Latin, South America, there's a lot of great opportunity. And one of the strengths of Mettler has always been that we have direct sales organizations in these individual countries so that we can really understand the local markets and really have teams that really have that application know-how and work with the local customers, and that really makes a difference.

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Adam for closing remarks.

Thanks, Jonathan, and thank you, everybody, for joining us this morning. Please feel free to reach out to me if you have any follow-up questions, and I hope you all have a great weekend. Take care.

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

We're going to check off day 2 of the BofA Vegas Healthcare Conference. My name is Mike Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team. And I'm excited to be joined by Shawn Vadala, Chief Financial Officer of Mettler-Toledo.

Shawn, great to have you.

Hey, great to be here, Mike. Thanks for having us.

Always a pleasure. Format will be a fireside chat. If anyone in the audience has a burning question, don't hesitate to raise your hand and we'll throw you in.

Shawn, maybe just to kick things off, you reported 1Q results just a couple of days ago, it feels like in a lifetime, but I think it's a little bit 3 or 4 days. A lot of moving pieces in the quarter. A lot of debate on how it played out relative to expectations and sort of like what the moving pieces are. Maybe you could just start there and run us through high level what happened relative to your expectations or how it impacts your view going forward?

Yes, sure. So maybe a few comments. The first thing I don't want to get lost in the quarter is that we felt really good about our earnings growth in the quarter. We had very strong earnings growth, 9% growth. And I think a more difficult environment. And I think that really comes back to not only execution but really says a lot about the culture and the agility of the organization. And as we kind of talk through things today, we want some of the messages we want to leave people with is that we feel really good about our ability to drive strong earnings growth.

When we kind of go to the top line, so we delivered 3% growth. That was in line with our guidance, but we acknowledge it included a little bit more M&A contribution. So, at the beginning of the quarter, we were expecting M&A to be more about 1%. It was 1.5%. And so with rounding, the organic growth was 1% versus our 2% organic guide.

But maybe a couple of things I also don't want to get lost in the print is that we're seeing increasingly good trends in China. I'm sure we'll have an opportunity to talk a little bit more about that. But China was really good. Certainly better than our expectations. Our product inspection business, which we talked a little bit on the call, had very strong growth reported but also organically. The service business continues to do well.

We've talked a lot about in the past about how important that is as an opportunity. And within lab, there were pockets of some good things, bioprocessing being one of the examples. But of course, there was some softness in some of the other businesses, both in lab but also on our core industrial business. When we started the year, we did expect things to start a little slow, and we -- that's kind of how we communicated. We just felt like after last year, we felt like the companies might be a little bit more hesitant with releasing capital. And clearly, that's what we saw. And there was different things that happened in the quarter, starting with some tariff threats at the beginning. Of course, we had a war in the middle.

And those things obviously create a little bit of uncertainty for the market and probably had some effect as well. But when you step back from all that, our organization remains positive. We really do. I know we have a little bit more of a cautious outlook for the second quarter, probably reflecting a little bit the dynamic environment. But also when we look at our internal pipeline, we're very encouraged, and I'm sure we'll talk a little bit more about that in a little bit.

But then when you kind of look through all this, we feel like we are well positioned for the future. And we purposely talked about innovation on our call last week. We really believe that, that's the fundamentals, right? And when Patrick became CEO, that was one of the things he wanted to do was accelerate the pace of innovation in the company. It's no coincidence that we're talking more about it. We increased investments over the last few years. I thought we had a lot of nice examples of that. As you know, nothing moves the needle individually at Mettler-Toledo. But these are all good opportunities to also engage customers and to drive sales in the future.

No, that's great. Thanks, Shawn. I'm going to follow up on from there. Maybe a point you made earlier in terms of your thinking and your -- sort of how you laid out the outlook when you're going into the year. You said you anticipate companies will be hesitant to release capital. I think something we've certainly been aware of and kind of tracking closely. Is there any changes in that as you kind of -- you've gone through April and March -- April and May, with the tariff uncertainty with the Iran war, are there any moving pockets where companies are sort of getting over that hurdle and being a little bit more open to stepping up and deploying funds?

Yes. I mean, so maybe a couple of things here. So if you think about like last year, there were disruptions in the first half of the year and it kind of created a little bit of a shift versus normal purchasing patterns last year. I feel like this year, I don't want to say it's the same, but I think there's you can analogize it to it. Like there's more disruptions in the first half. That's probably going to shift things a little bit more to the back half. Maybe that's a little bit more than what we would have expected when we started the year.

But what encourages us is when we look at -- not only talk to the organization, but when we look at the pipeline. And earlier in the quarter, we were hearing a lot of great anecdotes about early pipeline building. As we kind of look at the last couple of months, we really see the pipeline really continuing to increase. I'm talking when I say pipeline, the sales funnel, and that's very encouraging for us.

And now I know we're a short-cycle business, and I know we still have a cautious outlook out for the second quarter. But probably, what's most important when you look through that is you -- when you look at things like earlier indicators like hot leads, but even more importantly, like opportunities, like the level of opportunities we have is growing very significantly in the organization. And that's something that's very encouraging. And then you kind of combine that with some of the areas where we see momentum building, like keep on talking about China, we really are seeing that developing in a very positive way.

I really feel like China is going to be a nice story for us this year. We went through -- we've gone through a little bit of a challenging period here over the last few years. But you really can see a lot of positive signs here. So hopefully, that will continue to play out.

Biopharma of course, is another area where we see good momentum as well, too. So there is some optimism. We will lap in Q3, we'll have like a more difficult comp in our core industrial business. But absent that, as we get into Q4, we'll also have some comp benefits as well, too, that will kind of probably be a little bit of a nuance.

I mean I'll stick with the pipeline there and the opportunities you're talking about. Can you talk about visibility into some of that pipeline and the funnel converting? You said you are a short-cycle business, but you tend to have pretty good visibility in customer decisions the 3, 6 months out? Do you feel like broadly, your visibility is better now than it might have been 3, 6 months ago or throughout 2025? Are there pockets where you're feeling a little more comfortable and sort of maybe weight the likelihood of some of those converted.

Yes. I mean it's always difficult in our business, right? Like we still, as everyone knows, we're still short cycle, things can change. But what we see is this momentum that's been continuously building. And the heart of the pipeline or the sales funnel is showing a lot of strength. Our conversion rates are also improving, which also is a sign of strength. So that's encouraging to us. And in terms of -- and then when you kind of combine that with maybe some of the external things, like PMI is getting better.

We're -- I think we're less cyclical today than we were 10 years ago, but it doesn't hurt, right, especially on the core industrial side. And then as you think about like replacement cycles and onshoring and all these things like that we didn't build into the guidance this year. They're still out there as opportunities.

And especially on the replacement cycle side, and then when you think about, again, where the hot segments the hot opportunities in the market are like trends towards automation as companies are reshoring or anything with inflation. Everyone is looking for more productivity, and we continue to see good growth in those areas as well as digitalization.

You think about as companies are doing their own AI programs, they're looking to extract information out of their instruments we're perfect for that. We provide solutions all the way through the value chain, whether you're in the laboratory where we have LabX to really facilitate that. And I think you know on a QA/QC bench, we can sell up to 40% of the instruments on a typical lab bench.

And then -- but with LabX, we can automate workflows but also collect data and also ensure data integrity. And then on the industrial side, there's all kinds of things that we're doing with process control with our terminals and enable a lot of things on the digital side. And when you can provide things in a structured manner for your customers, it's very effective. And I think it just is something that's very valued, especially when you can do it in a very cybersecure way, too.

One last point on that sort of like demand funnel and improving early opportunities. Just from a timing perspective, you mentioned second quarter more cautious outlook. Is that a second half opportunity then? You mentioned you do have some comps there. Will we see some of that flow through in the second half? Could that be more of a 1Q, 2Q '27 story, just or which part just the lead times on the improving pipeline?

I mean, hey, I would expect the things that we're seeing in the pipeline will be a second half story. Yes.

All right. Let's touch on some of the slightly more negative data points from the quarter. And one, obviously, the crisis in the Middle East. You talked about why it was an input cost. So both from a P&L perspective but also from a customer demand perspective, just where are you seeing maybe pockets of caution as a result of that? Is it tangible yet? Is it still more on the delay side of things? Maybe let's talk through that, both from a product segment perspective but also from a geographic perspective.

Yes, sure. So I mean, like you said, there's two parts to inflation, right? There's your direct cost on that one. Of course, we're seeing inflationary pressures. I think our organization does a great job of responding to those pressures. And whether it's through cost savings initiatives or through our pricing program. When we guided, we acknowledge that we have some benefits from tariffs this year at the lower rate, which is a number that is very similar to what we're seeing on the inflationary side.

And then so we -- as a result, we took a more cautious view on how we built in some of the mitigation actions. So as we kind of do those over the summer, we'll provide an update and perhaps that's a little bit of an upside in the second half. But it's a dynamic environment, as you know, too. And so I think it's better to be cautious at this point. The bigger question, I think, is what you kind of get to is what does it mean to our customers? I feel like within certain -- there's two elements is the uncertainty part but then there's also like the real cost, and is their wallet smaller.

Segments of the market that have been more affected by that in the past would be like the chemical market. And when I say chemical, for Mettler-Toledo, that means largely specialty chemical, and that's about a low double-digit part of our business. We talked a little bit about that on the call. And I think that could be a softer end market for us this year. We'll see how it plays out. But I would also acknowledge that we've been through higher energy costs in Europe is the one that stands out here.

They usually kind of get squeezed on these topics when it comes to energy. And we've seen that in the past like with the war in Ukraine, and we've still done very well. And I think part of it is for us is to, like on one hand, you don't stand still, right? You need to like look for where are the opportunities in the market and pivot towards where there are opportunities.

And there are plenty of opportunities still in Europe like biopharma is one of them. The other thing was encouraging to me is that despite that backdrop, I think Europe has actually an improved Q2 outlook. And so -- and when we talk about funnel and pipeline, they're right there. And so it's not like we're looking at the European pipeline and panicking it by any means at this point.

So I think as we go through the year, there's going to be some segments that are going to be have a lot more opportunity and hot. And then there's going to be some areas that are maybe a little bit weaker. And then I think comps will play out, too, depending on the quarter with the segment and things like that.

Okay. And especially chemicals a little over 10%, low double digits part of the business. That's global. It's not just in Europe.

Yes. Yes. That's a global number. I don't know the breakdown by region. It might be a little bit larger when we get into to China which is a good example of like maybe that's a weak segment there, but we're much more optimistic on China.

Yes. And you're seeing pressure there a little bit everywhere.

Yes.

Okay. Alright. I mean let's go over to China then. You mentioned a couple of times in your remarks already feeling more and more encouraged there. Can you dig a little bit more into that lab versus industrial where the pockets of strength sort of what's driving that?

Yes. I mean, so Europe has had, I think, a few quarters in a row of showing nice growth kind of improving from -- I'm sorry, did you ask about China?

China.

Yes. Did I say China?

You said Europe.

Sorry, sorry. I was thinking China. I'm sorry. Thanks -- so China has had 3 quarters in a row of increasing growth. Thank you for clarifying. The thing that probably stands out to me the most, we've always said in the past, hey, things in China can change quickly one way or another, I'm really hoping that this one is going in the good direction. We had a bit of a reset here a few years ago in the economy there kind of coming out of COVID and everything.

But the one thing that stands out is the industrial business. I would say when I -- when we started last year, 2025, when I was kind of like thinking about what am I really have my eye on. Chinese industrial was one of them because it was like one of those moments where what is going to happen in the economy there. It is going to be a little bit more correlated. And a lot of these other topics are at play there. And this business is actually doing very well.

And we've had 3 quarters in a row there. They -- the industrial business grew higher than the 4% that we reported. I think it was like mid- to high single digit. And as we think about China improving throughout the back half of the year, I think industrial will be a leader here. And one of the things that's interesting about that is I know there's been a lot of questions over the past year about local competition.

And in China, we have the most local competition on industrial. And so I think it shows the strength of our organization, the strength of our China for China strategy, and the things that we're doing locally to innovate and deliver solutions to the customers. And there's a lot of -- this is a great example of Spinnaker, right? Like I talked about one segment being soft, but you pivot to the ones that grow. And in China, there's a lot of hot segments, right? Like -- and our team is doing a great job of identifying them, pursuing them and capturing them.

Like the battery segment is heating up. Again, it went through really a pull back here a couple of years ago, but that's a good example of Clean Energy is another good example. Semiconductor is another good example. Biopharma in general, especially in the manufacturing side is showing improvements. I think there's a lot of opportunities there in the future when you start thinking about GLP-1 and generics going forward. So we're -- we continue to be optimistic here, and it's nice to see it start to show up in the results.

You mentioned a couple of quarters in a row, seeing some strength there. But as you also said, it can change a copilot really quickly. Are you still embedding some caution on the outlook there? Just in case it does turn given some of the...

Yes. I mean in this environment, it's always hard to like get it perfect. But I'd like to think there's probably more upside to that one than there is downside. From what I see right here, like when I think about momentum, when I think about funnel, and what's going on in that market. But like you said, like who knows what happens geopolitically going forward. But I'm more optimistic.

Okay. Sticking on the topic of China, but you also mentioned biopharma, moving beyond industrial, GLPs, local innovation, logo biotech infrastructure. That's been coming up more and more among other tools vendors as well that's -- you're seeing a nice turn there recently. What have you seen from more of the biopharma side of things in China? And we can probably pivot to biopharma.

On China? So I'd say lab overall has been slower in China relative to our other areas. Like on the industrial side, we're seeing actually better growth on pharma. On the lab side, I'd say it's not bad, but it's not at the levels that we've seen with industrial. Now when I look at the funnel, the funnel actually looks very good there. and I still think in the short term, industrial will do better.

But I think medium to long term, there's a really great opportunity there. Like you said, like with the GLP. And with just the government's focus on developing its own life science industry, I think we have a lot of opportunity there.

Okay. And let's pivot to bioprocessing lab a little bit more globally. You said the lab still remains under pressure for various reasons, but bioprocessing to be a bright spot. You've talked about that a little bit more over recent years. Remind us of your exposure to bioprocessing, sort of where are you positioned in the workflow stream and how well has that been going for you?

Yes. I mean very well. I mean -- so life sciences, in general, is about 40% of our business. That includes small and large molecule throughout the value stream. I think bioprocessing as just a category is probably low double digit. And a lot of our exposure here is in process analytics. And so -- but we also do a lot of things with some instrumentation and then also with our industrial process control solutions.

On the process analytics business, we were the first company to have sensors inside of a bioreactor. So we've always had a leadership position here. It's a very significant, more than half of our process analytics business. We're measuring a lot of different attributes in the reactor, PH being like a strong foot, but a lot of other parameters as well. We are upstream and downstream. Our historical strength was upstream with the PendoTECH acquisition. We kind of strengthened our downstream exposure.

And then PendoTECH also helped us strengthen our single-use exposure as well, too. So we're we -- like everybody else, I think we're very positive on this as an opportunity. We saw particularly good growth, I'd say, in the United States in Q1. And we were kind of hearing from our team at least that there was a little bit more prioritization on the U.S. in terms of investments from a lot of our customers. But what's encouraging is that when we look at our Q2 outlook, our European forecast for this business is -- looks quite good as well, too. And so I think this will be very much a global theme.

I think -- from our perspective, we feel very good about it. And I think a lot of the activity that we're seeing in our business is on the consumable side, and not quite yet getting all the benefits from facility expansion. So that could be a more positive one as we kind of look to the future.

I mean, on that topic, I assume you're talking about reshoring, onshoring at expansion. We have been talking about a lot as an out-year benefit. What are you seeing on that? Is there talk about it? Is -- are we in the planning stage? There's a lot of debate on brownfield refurbishment versus new greenfield opportunities. So what are you seeing in terms of what's happening on the ground?

Yes. I'm hearing more and more stories of engagement with some of the system integrators and the engineering firms that do a lot of these projects. So that's been a really good sign. Timing is still a little bit difficult to tell when it's going to happen.

Of course, there's been some activity. Like if you think about like semiconductor investments in like every country in the world, but like the United States as well, we sell a lot of different applications through their value stream, a lot of ultrapure water applications for cleaning, but also analytical instruments, industrial equipment. There's a lot of ways that we can help that industry, and we certainly have seen little pockets of that, and it resonates a lot in our process analytics business as well, too.

Okay. Earlier in your remarks, I think you talked about AI opportunity at pharma, sort of, how it's changing the game in terms of what pharma is able to do, where they're investing, where they're putting money. Are you seeing that being deployed already? Is that a hypothetical discussion? Is that being broadly adopted? Sort of where are we in the pharma leveraging AI? And when you do leverage it, how does Meta come into play? What do you benefit there?

Yes. I mean I don't know if I'm the best source for that one, but I know it's a topic, I know it's a priority. I do hear about conversations in R&D labs about how people want to make investments in this area for obvious reasons. From our perspective, I think Mettler is a great partner for these companies in this regard. When you think about it, like the first step is really collecting data, right? And when you have a very broad range of instruments, at a company, and we have a great software package.

And by the way, we just came out with the latest version of LabX, it really facilitates this to really collect information in a very structured and good way. And like data is everything when it comes to any technology, right? And so really, I think we're a great partner and enabler for this. But it's not only in the lab side, right? It's going to be also on the industrial side. And if you like look at our products, we're also doing things to our products to also leverage AI technologies like we'll have like AI wizards in some of our instruments, right, where it can like start to kind of get to the result a little bit faster.

We're using imaging technology in a couple of areas in the business. That's like really whether that's AI or not, it's digitalization and which is a broader theme for my perspective and we're doing a lot of great things there, too, that are really providing differentiated solutions that allowing customers to gain new insights and gain productivity.

And then we're doing a lot of these things in an automated or semi-automated way, right? And so like that's also the big hot topic in LabX is like we want to do more, but we want to do. But we also want more productivity. And so -- and so I think the companies that do a good job of enabling these trends are the ones that are going to be the most successful in the future.

Okay. Yes. I mean when you talk about data collection and just sort of more inputs going into the pharma R&D. I think that automation will be sort of the first way to do it, is that where you're seeing the most interest in pharma? Are you seeing any green shoots there?

I mean we already have a lot of things that we're doing with partnerships and collaborations that we've talked about in the past in that area. And I continue to think like those are going to be areas that you'll hear more and more about as we kind of go forward.

Okay. Okay. We've got a couple of minutes left. I want to ask, sort of, a little bit more of a bigger picture, longer-term question. We talked about the various moving pieces as you get through 2026. You've got the comp dynamic which you said a little bit softer 2Q guide, but potentially some opportunities and some better funnel for the second half. As you exit this year and go into next year, Sort of how do you see some of those swing factors for growth shaking out? And can you sort of bridge us from your exit rate this year into '27, '28 and beyond sort of what keeps you optimistic there?

Yes. I mean, I think I mean, of course, we don't want to provide any guidance or any insights on 2027 at this point in time. I mean pharma is going to be a big topic for us, and it's 40% of our business. I think these trends in automation as well as company's digital programs is going to continue to accelerate. We've been talking about it for a while. We continue to see good growth opportunities in these areas. I think that's going to be a really good one for us. I think China, we've talked a lot about today, but also broader emerging markets. Emerging markets last year outside of China were just slightly bigger than China.

And we see a lot of momentum in these countries, in India being a good example, Southeast Asia, Korea, and so I think there's a -- that's a good one for us going forward. I think this topic of replacement cycle, like certainly is something that I think we're all looking forward to seeing kicking in more and then, of course, the onshoring topic. Like 50% of our business is sold into the production area of a customer, 20% approximately is sold into QA/QC. We clearly will be a beneficiary as this trend kicks in. As a global company, we move well with these companies.

And especially on the industrial side, when you have a lot of local competition, I think it's going to really be a strength for us kind of going forward. So those are the things on our mind, probably no surprises there. And hey, we'll see how things play out. And of course, we'll provide more insights and thoughts as we kind of get to November of this year.

Okay. last comment. Let's talk a little bit about margins and operating leverage despite some of the pressures on top line and you talked about tariffs, input costs, you're still delivering healthy margins and EPS both in the first quarter and for the year. What's driving that what's driving that operating leverage this year? And again, sort of look at a healthy jumping off point for next year.

Yes. I mean -- so our operating margin guidance, just for those who are updating models, it's similar to what it was last quarter. Optically, there's a lot of currency, as you know. I think it's like 50 or 60 basis points on the full year in terms of a headwind. But when you subtract that, I think it actually looks quite good. I feel really great about the programs we have right now, whether it's stern dry, whether it's our cost, our productivity and cost savings programs but also our pricing program.

Like in the pricing program is great because it really is a great indicator of our value proposition and what customers appreciate. And if you're delivering value, then someone's going to be willing to pay because they're getting a payback on it. And I think that our whole setup has always been great where we're selling often directly to the end user, where our average price point is less than $10,000. That user -- when you sell directly, that person can articulate that value proposition. When you're selling to the end user, they understand it. And like I said earlier, we've been investing into that. And I think that whole flywheel has worked really well for us.

And of course, we have a really good program around it with a lot of analytics and stuff where we try to make sure we get the right price point, and we have a lot of our own digital tools that can help us make sure that we're providing the right point to our customer.

Okay. We're pretty much on the top of the slide, Sean. Any last concluding remarks or anything we missed anything you want to leave investors with as they will go ahead?

Yes, we fully recognize this as a dynamic environment, and it can be a little bit distracting. I hope people can look through that. And as we look to the future, we feel like we're really well positioned. I think Mettler-Toledo has a long history of execution. We have really great corporate programs that help drive these opportunities. But probably most important, we have a great culture.

I think the culture of Mettler-Toledo, I've been around for not quite 30 years. I'm getting there. Hard to believe, but I'm not the only one, right? And I think it says a lot about people are really passionate about our company, and there's a really great spirit of collaboration. And I feel like a lot of companies around the world, we've certainly become a lot more agile in the last 5 or 6 years, and I think that's going to ultimately be key for any company going forward is that agility muscle and just like, hey, things are going to change. It's okay. But how do you respond to it? That's what matters. And I feel -- that's what I feel best about.

Okay. Great. That's a good point on it. Thanks so much, everyone. Shawn, thank you.

Thanks, Mike. Appreciate it. Thanks.

Hello, everyone. Thank you for joining us, and welcome to the Mettler-Toledo First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now hand the conference over to Adam Uhlman, Head of Investor Relations. Please go ahead.

Thanks, Rebecca, 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 our website at 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 provide any updates or revisions to any forward-looking statements, except as required by law.

On today's call, we will use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K, and is available on our website.

Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our first quarter financial results, the details of which are outlined for you on Page 3 of our presentation.

We are pleased with our first quarter results, and we delivered good performance in an increasingly uncertain market environment. Solid execution of our margin initiatives supported very good adjusted EPS growth. Our investments in innovation continue to provide tangible benefits and we are well positioned to capitalize on our customers' investments in automation, digitalization and onshoring in the future. While we recognize increased uncertainty in the macroeconomic environment, we remain confident in our agility and strong execution of our growth and margin expansion programs to achieve solid adjusted EPS growth this year.

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

Thanks, Patrick, and good morning, everyone. Sales in the quarter were $947 million, which represented an increase in local currency of 3% or 1% excluding acquisitions, which contributed approximately 1.5% to growth. On a U.S. dollar reported basis, sales increased 7%.

On Slide #4, we show sales growth by region. Local currency sales increased 2% in the Americas, 1% in Europe and 5% in Asia/Rest of World, including 4% growth in China. Excluding acquisitions, local currency sales were flat in the Americas and increased 3% in Asia/Rest of World.

On Slide #5, we summarize local currency sales growth by product area. Local currency sales increased 1% in Laboratory, increased 5% in Industrial, including 1% growth in core industrial and 11% growth in product inspection. Food retail grew 7% in the quarter. Excluding acquisitions and currency, Laboratory sales were flat, while Industrial increased 2% and including core industrial, flat and product inspection up 6%. Lastly, service revenue grew 7% and 5% excluding acquisitions.

Let me now move to the rest of the P&L, which is summarized on Slide #6. Gross margin was 58.7% in the quarter, a decrease of 80 basis points and was up 10 basis points, excluding unfavorable foreign currency and acquisitions. We continue to benefit from favorable price realization and supply chain optimization benefits that helped offset an incremental gross tariff headwind of 90 basis points. R&D amounted to $51 million in the quarter and was up 1% on a local currency basis over the prior period.

SG&A amounted to $258 million, a 1% increase in local currency over the prior year and includes sales and marketing investments, offset by cost savings. Adjusted operating profit amounted to $246 million in the quarter, up 4% versus the prior year. Adjusted operating margin was 26%, a decrease of 80 basis points versus the prior year or up 40 basis points, excluding unfavorable currency. We estimate the gross impact of incremental tariffs reduced our operating profit by 4% and it was a 90 basis point headwind to our operating margin.

Items below operating profit were $0.13 per share, better than our guidance and included benefits due to changes in interest rates and other income. Adjusted EPS for the quarter was $8.91, a 9% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 4%. On a reported basis in the quarter, EPS was $8.33 as compared to $7.81 in the prior year. Reported EPS in the quarter included $0.27 of purchased intangible amortization, $0.29 of restructuring costs and a $0.02 headwind related to the timing of stock option exercises. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $120 million and was negatively impacted by the timing of tax payments, which were $58 million higher than the prior year. DSO was 35 days, while ITO was 4.2x.

Let me now turn to our guidance for the second quarter and for the full year 2026. As you review our guidance, please keep in mind the following factors. First, while we have an immaterial exposure directly to the Middle East, the war has led to higher global energy costs and has increased uncertainty in our end markets, and we experienced customer delays in the first quarter. Second, we acknowledge improving global economic indicators and also see increased activity in our pipeline, which we believe will translate to better growth during the second half of the year. Third, our guidance includes a benefit from changes to U.S. import tariff rates in February, but also assumes tariffs in the second half of the year returned to consistent levels with prior IEEPA rates. We have also not included potential tariff refunds from the U.S. government in our 2026 guidance, which could benefit cost of goods sold, and we have also not included potential tariff refunds to our customers, which would reduce sales. We will exclude these items from our adjusted EPS and organic sales growth in future periods.

Fourth, our guidance includes higher costs due to inflation related to the war in the Middle East. We seek to mitigate these increases with cost savings initiatives and additional pricing actions, but have taken a cautious approach to guidance given the dynamic nature of the current environment. Lastly, we are very confident in our ability to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment.

Now turning to our guidance. For the full year 2026, our local currency sales growth forecast remains at approximately 4%. Our forecast includes a contribution from acquisitions, which will approximate 1.5% in the first half of the year and less than 8% for the full year. Adjusted EPS is forecast to be in the range of $46.30 to $46.95, which represents a growth rate of 8% to 10%. This reflects an increase from our previous guidance of 8% to 9% growth. At recent spot rates, foreign exchange is estimated to be a 2% benefit to sales growth and neutral to EPS. For the second quarter of 2026, we expect local currency sales to grow approximately 3%, including a benefit of approximately 1.5% from acquisitions. We expect adjusted EPS to be in the range of $10.70 to $10.85, a growth rate of 6% to 8%. Currency for the quarter at recent spot rates would benefit second quarter sales by approximately 2% and would be neutral to adjusted EPS.

Some further comments on our 2026 guidance. We expect total amortization, including purchased intangible amortization to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $28 million on a pretax basis or approximately $1.06. Interest expense is forecast at approximately $70 million for the year. Other income is estimated at approximately $25 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $900 million in 2026, which is an increase of 5% on a per share basis. Share repurchases are expected to be in the range of $825 million to $875 million.

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 modest growth across most product categories and strong growth in bioprocessing partially offset by a decline in pipettes due to soft demand from academia and biotech customers.

We see a growing need for replacement across our pharma and biopharma customers and expect to see a gradual increase in activity in the second half of the year. Additionally, our team has remained very active in identifying opportunities across various hot segments like biopharma, new energy, and semiconductor that will further fuel our growth in the future.

Turning to Industrial. Core industrial sales were up 1% or flat excluding acquisitions, as we have seen cautiousness in customers' purchasing patterns across most end markets given the dynamic geopolitical and macro environment. Product inspection sales growth was solid as it benefited from innovation and our mid-market strategy despite continued challenges facing the food manufacturing industry. Lastly, Food Retail had strong sales growth against easy year comparisons.

Now let me make some additional comments by geography. Starting in the Americas, where sales grew 2% or were flat, excluding acquisitions. Growth in our Lab business included strong bioprocessing growth, while product inspection also had strong growth. Core Industrial sales were soft this quarter and were impacted by customer delays related to increased market uncertainty. However, we remain optimistic for growth in the second half of the year.

Turning to Europe, strong growth in our product inspection and food retailing was offset in part by softer market conditions, especially chemical. Finally, Asia and the Rest of the World had good growth this quarter and included 4% growth in China, led by our Industrial business. In markets outside of China, we again had very good growth in India, Southeast Asia and many other emerging markets, which remain an important component of our long-term growth strategy. In summary, I am pleased that our team continues to execute very well in a challenging market environment. We also continue to make important investments in innovations to secure our future growth.

Our R&D accelerator and JetStream programs have helped us increase our pace of innovation while better meeting our customer needs. We are especially focused on bringing new innovations to high-growth segments such as bioprocessing. Our innovation helped our customers generate new insights improved workflows through automation and digitalization and to capture more precise and reliable measurements. Our dedication to bringing new innovations to market helps us increase our value proposition, stimulate replacement demand, gain market share and support our price premiums in the marketplace.

I'd like to share with you some exciting examples of new innovative products we have brought to market recently. First, our automated chemistry business recently launched our new EasyMax advanced automated lab reactor that help scientists with their process development by automating scale-up experiments. EasyMax controlled temperature, stirring, dosing, sampling that provides precise measurements with smart digital sensors for continuous unattended data capture, increasing throughput and ensuring consistent results. An embedded vision system continuously records experiments and captures critical events automatically documented -- documenting visual context to speed up understanding of reaction behavior. By utilizing Plug and Play peripherals, researchers can instantly automate complex tasks such as pH-driven dosing or pressure-dependent sampling ensuring that every protocol is executed with robotic precision.

Our Lab business also recently introduced our InMotion PX One autosampler that fully automated density, refractive index and UV/VIS measurements, expanding our broad portfolio of automation solutions for the lab. The new autosampler eliminates manual sample handling reducing variability, while increasing measurement repeatability and while minimizing contact with potentially dangerous or toxic substances.

Our powerful sampling, rinsing and drying features reduce the time for measurement cycles and enables high throughput and full data integrity and audit trail is enabled when connected to our LabX software. Our liquid handling business also recently came first to market with low retention by pipettes that do not use PFAS or [ forever ] chemicals. Our hydrophobic low retention by pipettes minimize retention of viscous liquids, proteins, enzymes and DNA without the use of [ forever ] chemicals reducing both the environmental impact and compliance uncertainty associated with PFAS.

Switching to our Industrial business. Our recent product inspection innovations have led to very strong sales growth and market share gains. We have further expanded our portfolio of X-ray solutions over the past year with additional coverage of the mid-market. We have also had excellent success with our high-end solutions including our proprietary dual energy X-ray solutions that utilize advanced photon counting technology for precise identification of physical contamination in food and pharmaceuticals. We have also recently introduced metal detectors solutions that further expand our market leadership in metal detection. Our new M50 R-Series delivers a 20% increase in detection sensitivity and is engineered to increase productivity in modern production environments.

I am very proud of our team's efforts to further build our portfolio of unique and highly competitive solutions. The breadth of our offering, the unique insights from our direct sales force and technical experts and the critical support of our service team provides with the largest service network of our main competitors are very important differentiators. These innovations will also ensure that we are well prepared to capitalize on the many significant growth opportunities over the medium term including increasing customer demand from automation and digitalization solutions as well as faster growing segments like biopharma, semiconductor, new energy and others. We also look forward to capitalizing on future growth opportunities with customer replacement cycles and investments in on the near-shoring activities over the coming years.

We also are fully committed to delivering on our margin expansion targets and have ample opportunity to deliver strong margin expansion this year and beyond. While there is increased uncertainty related to the conflict in the Middle East, our organization has remained highly agile, and I'm very proud of their efforts to balance the need to drive productivity gains and deliver strong EPS growth while investing for the future.

Now this concludes our prepared remarks. Operator, I'd like now to open the line to questions.

[Operator Instructions] Your first question comes from Michael Ryskin with Bank of America.

Great. Let me just start with the high level on the full year guide. You reiterated the 4% LC sales growth, but I believe you bumped up the M&A contribution a little bit. I think it was previously 1% in the first half, 0.5% for the year, and now it's like 1.5% for the first half, a little less than 1% for the full year.

So on the one hand, the deal's contributions trending nicely, and we'd love to talk about that. But I also want to see what's going on in the organic business. Is this something that you saw in the first quarter? Is this just adding a little bit of caution given the macro? And if you could expand a little bit on if it's more in lab or industrial, where you're taking down your assumptions, that would be great.

Okay. Mike, this is Shawn. Maybe I'll take that. So yes, you're right. So like in terms of the acquisitions, we're really pleased with how they're performing. The teams are really doing well, very good focus on integration. It was about a 1.5% contribution in the first quarter. We expect a similar contribution in the second quarter. So then when you kind of get into roundings, it's still going to be less than 1%, but it's going to be more than the 0.5% that we were thinking at the beginning of the year.

So of course, that implies maybe a modest reduction in the organic number. I think that largely reflects a little bit of this uncertainty in the first half of the year. We're taking still a cautious approach to the second quarter just given the environment. But we still feel very good about growth for the second half. I mean we'll talk a little bit more about that throughout the day. But I mean you kind of see a lot of positive indicators out there externally in terms of the PMIs. You see just global indicators looking positive. But when we look at our own pipeline, we also feel good about that as well. If we kind of like get into the businesses themselves, maybe I'll just kind of go through it just so that everybody has it.

So for the full year, we're looking at Lab at low to mid-single digit, which is similar to before but for the second quarter, we're also thinking low to mid-single digit. But on an organic basis, that's maybe more like low single digit for the lab business. One of the things we're kind of looking at for Q2 is maybe a little bit more in Europe. There's maybe -- when we just think about topics like bioprocessing, we see that as something that we expect to see a little bit better results in the second quarter in Europe.

When we get into core industrial, core industrial for the full year, we're still at like this low to mid-single digit at this one, but on an organic basis, it's low single digit. This one has maybe a couple of dynamics to it. On one hand, we're seeing our Chinese business really showing good improvement, and we feel good about that. But on the other hand, we had maybe some more softness in the first half of the year in some of our Western markets.

And then in terms of product inspection, we're a mid-single digit for the full year. That's maybe a little bit better than we were before. On an organic basis, low single digit, frankly, reflects the strong results we saw in Q1. And then on the geographies. And then for the second quarter, that one would be low single digit, which is down a little bit on an organic basis. And that kind of reflects a little bit the timing. We had a very, very strong start to the year, especially in the Americas, and we'll see maybe some of the other side of that in Q2. But overall, the business is executing extremely well.

And then on the Americas, we're thinking kind of low single digit for the full year. And also for Q2, on a Q2 basis, that would be flattish. There's a few dynamics there. We can talk more about it in a minute. But one of the things is our retail business is -- can be a little bit lumpy, and that's going to be down there in the second quarter. And then if you look at our European business, we're still at low single digit for the full year, with low to mid-single digit in the Q2 guide, that's a little bit of a step up. This is a little bit the slab topic that I was talking about before.

And then China has been a bright spot in the quarter, and we just feel like there's actually very good momentum there. We went through this period where they kind of went through this reset. We've now had a few quarters in a row of good growth on the industrial side with momentum continuing to build. So we're going to increase our growth expectations for China for the full year to mid-single digit. A lot of it is going to do with this Industrial business, which we kind of see building into the second half of the year. And then the guidance for Q2 is low to mid-single digit, which is a little bit more similar to what we saw in the first quarter.

Our next question comes from Luke Sergott with Barclays.

On the -- you mentioned the 2Q dynamics in the Americas. You mentioned some retail comps and issues there. Just kind of double click in there and give us a sense of what's going on and your outlook and how that's changed?

Yes. So retail is always a lumpy business. It always has been, always will be. If you kind of like look at Q1, I think it was like down double digit in the U.S., but we had like really strong growth in Europe, like -- and so it's like -- so overall, retail was up, I think, high single digit in the quarter. So that's kind of -- that's the business. You just have these kind of swings. So there's nothing to read into it.

I think when I step back from it, actually, I feel very good, like in the sense of like how the team is competing. We've introduced a lot of new innovation in the last few years, and it's really well received in the market. I think our team actually just won an award on one of the products. So yes, so a lot of good things going on. We're competing well, but it's just very lumpy. Yes.

Right. And then just a follow-up here on China, the particular strength. We've heard this other from peers as well, but you have a slightly more industrial lean. How much of this is due to the middle market strategy within the PID business and that kind of picking up and also leading to what you guys have been seeing there in that business over the last year and a quarter?

This is Patrick. Let me take that, Luke. I mean, again, as Shawn said, we are very pleased with momentum in China, but the strength is not coming necessarily out of the product inspection business is really the core automation business in our core industry business. There is a really nice momentum. There's a lot of investment going on in automation in China across many of the end markets. That is probably the preliminary momentum that is building up there and also has contributed to our good Q1 growth.

On top of that, I would say, in the pharma space, with the recent Pharmacopia changes, we see also good opportunities and good momentum for our high-end balances and others, where customers are replacing stuff in their QA/QC labs and R&D labs. So these 2 are the more important vectors. It's not a PI business. It's really industrial automation and also a good piece of pharma.

Your next question comes from Catherine Schulte with Baird.

Maybe first, you talked about increased activity in your pipeline supporting maybe some improved growth in the back half. Can you just elaborate on that a bit? I know you typically only carry 1.5 months or so of backlog, but maybe talk through what you're seeing from a funnel indicator standpoint?

Yes. Catherine. Yes. So you're right. Like we normally kind of deflect these types of questions with our 1.5 months of backlog, which is very true. But kind of sitting here today, we've been kind of hearing for the teams for a while. Like there's a lot of different KPIs in the in the pipeline from like the whole funnel, right, from opportunities all the way through orders. And I don't want to get too specific, but we have a lot of ongoing reviews with our teams. We -- Patrick and I spend a lot of time with the executive team earlier this week kind of going through those details. We reviewed it with the Board yesterday.

And just kind of coming out of that, we feel like there's you kind of compare that to what you see in some of these headlines and it kind of helps us feel better about like this growth in the second half of the year versus what we are seeing with the uncertainty in the first half of the year. I think we all kind of felt like the year would start off a little slower when we guided initially despite all the arrows pointing in a more positive direction exiting last year with the more favorable MFN agreements, biotech funding macro indicators. But we did expect the year to start slow.

And of course, what we didn't expect was some of the geopolitics, which created even more uncertainty in the quarter. But we're not seeing any cancellations from that. We're just seeing it feels like things are just getting pushed out a little bit. But when we look at the funnel, we're -- we need to still convert those in the sales, but an absent things deteriorating on a geopolitical scale, we're actually feeling pretty good.

Okay. Great. And then you called out some chemical softness in Europe. We've heard some other companies calling out similar dynamics. Can you just unpack a bit what you're seeing there when that softness started? Is it Ukraine related? Is it Middle East related? Is it something else? And maybe just talk through the outlook there.

Catherine, this is Patrick. Again, this is more related to, I would say, in general to higher energy cost in chemical. So many of these customers are actually seeing the pressure of high energy cost in Europe. They have -- they are really more cautious with their investments and also more cautious in expanding their facilities. So I would say it's not the Ukraine, it's a combination of the Ukraine and the Middle East. I mean the oil prices, we all know went up quite significantly and that weakness in chemical actually, we saw some of that in our process analytics business, which is very strong on the biopharma side. But on the chemical side, it has been softer. And then also on the lab business that actually had some impact.

Your next question comes from Dan Arias with Stifel.

Shawn, can you maybe talk about cost management in the current environment. It'd be great to just sort of hear about offsetting freight and then oil and input costs for the [ Roermond ] business, maybe just sort of a refresher on sensitivity in general there and any impact that you see here?

Yes.Thanks, Daniel. Of course, our team is highly focused on all these topics. It's a very dynamic environment. We have topics like fuel, transportation costs. We're looking at input costs as well, too. We certainly have a strong culture of agility, which always helps us during these times. So there's a lot of things that we can do on the cost side. There's things that we're looking at in terms of price mitigation as well, too.

We've been a little bit cautious with how we've kind of factored that into our guidance because in addition to all that, we have some -- we'll have some benefits on the tariff side a little bit. If you think about these IEEPA tariffs going away and then kind of going to the 10%. Now of course, we have new news yesterday. We'll see how that plays out. But we're assuming the IEEPA tariffs go back to what they were before kind of midyear. But in that few month period, there's a little bit of a benefit. So the way we're kind of thinking about it is like, we'll have that benefit, we'll have some of these headwinds. And they probably are in a similar kind of a range. But on top of that, of course, we're going to look at trying to do some mitigation, which could be an upside here.

Yes. Okay. And then maybe just a follow-up on Mike's question and then your answer there. When you were going through the moving pieces, I don't know, it just kind of felt like there was at least as much uptick stuff as there was downtick stuff. You guys have a pretty good track record of leaving yourselves room to beat and you have some pricing power. So I know we're only talking about a couple of bps of organic, but can you just maybe pinpoint where it is that you found yourself needing to adjust the outlook?

Yes. I mean these things get kind of into rounding sometimes. So like, of course, we -- when we kind of look through it, you debate is it this or that, but in the end, sometimes they're rounding. So I wouldn't try to read too much into the precision of it. But I'd say like where we felt like we had good momentum going into the second half of the year was this China situation. And then so modestly that kind of is offset by some of the other geographies. It might not change exactly how we say low single digit for this country or that country. But in the end, there's just kind of nuances between the countries.

And it didn't change in terms of how we maybe speak to the range, but modestly a little bit better in China. We have good momentum, I'd say, in emerging markets in general, like countries like India is a very good example. And then just modestly a little bit lower in the Western markets and more so in the first half of the year. And I think in the U.S., we see it as much as anywhere here in terms of Q1 in terms of customer behavior. So...

Your next question comes from Patrick Donnelly with Citi.

Maybe just a follow-up. I know you talked about the chemical side, Patrick. Can you just talk about just that core industrial piece. It sounds like China is maybe a little bit better. But on the Western side, how have those conversations changed with customers? What are you hearing given the macro backdrop? And just the right way to think about this impact and the visibility you guys have for that business going forward?

Yes. Very good question, Patrick. And clearly, as I said, China has already, I would say, taken a nice uptick there in terms of the automation piece in our industrial portfolio. And when you ask me what's shifting in core industrial, it's while in the past, we have sold probably a lot more discrete industrial balances and stuff like that to end users.

We see an increasing demand for automation and digitalization. And this is also done for our customers by a lot of automation partners. And so we see a lot of more engagement with [ EMEMs ] and others that are really using our portfolio to build higher automated manufacturing lines, et cetera, and we have an outstanding portfolio there and see a lot of engagement in China but also increasingly in the Western part in Europe, where we have seen good momentum.

And then also in the U.S., I mean, looking forward, what I anticipate is also there with the build-out of manufacturing capacities in the U.S., whether it's in pharma and industrial pieces, we will see also better momentum in Industrial. Our Industrial Automation Solutions going through these automation partners that build our manufacturing lines and other automation solutions for end customers. So I'm actually really, really optimistic about our solutions. We have put a lot of innovation in our products over the last years, and it really plays out nicely learned that we have a very strong portfolio in this place.

Okay. That's helpful. And then, Shawn, maybe one for you just on the guide. Can you talk about the price versus volume? I think the previous guide was 250 bps of price, maybe 100-ish of organic volume. Can you just update where we are there? And then staying on the topic of price, just how you're thinking about the moving pieces of margins with price and maybe some of the input costs?

Yes, sure, no problem. So, price came in pretty much as expected in Q1, and we're in that kind of 3.5% kind of a range. We feel really good about the value proposition in the company. I mean, Patrick talked a lot about innovation earlier in the prepared remarks. I mean that's ultimately the key, right? Like when you're providing value to your customers, then there's a willingness to pay. And I think our organization does a great job articulating that and so that we can kind of be compensated for the value.

As we think about like the rest of the year, Q2 will probably be in the 2.5% range or so, maybe a little bit better. Things start to step down now because we [ lap ] some of the midyear pricing that we put in place last year with some of the different topics from last year. For the second half of the year, we're still kind of holding this like normalized 2%. Frankly, I could see a little bit of upside here as we kind of think about inflation in this environment, but I wouldn't raise anything quite yet. We'll see what we do and we'll kind of evaluate that. So for the full year, we're still kind of in that like 2.5% range or so. Yes.

Your next question comes from Vijay Kumar with Evercore ISI.

Patrick, maybe my first one for you on looking at Q1 performance, it looks like Lab was where all the challenges happened. You did call out Middle East, maybe some customer delays. Talk about how Q1 phasing played out? Do you see trends improving exiting Q1? Like what was the issue in Labs? And was it all tied to Middle East?

Yes. Thanks. On the lab side, yes, we had a bit slower than expected to start with some headwinds and -- but the headwinds were mainly, say, in the research area, academia with pipettes. So our pipette business actually was negative in the first quarter. On the chemical side, it also was the delayed customer investments that we have seen in Europe that affected somewhat lab there.

But these were the 2 key areas where we saw good momentum and continue to see very good momentum is bioprocessing. It continues to be very strong, and we are also really well positioned here with our strong lab portfolio with LabX access as a workflow enabler, and key differentiator against many of our competitors.

So we expect, after this, I would say, a slower start in Q1, we expect conditions to gradually improve throughout 2026 for Lab. And again, on the pro side, anyway, bioprocessing really strong. We see also really good investments, as I said before, for example, in China with Pharmacopoeia role. We see there are also lots of investments of companies that build out manufacturing capacities for GLP-1s and others. And our team is really well connected to this buildout. So I think Lab will gain momentum. And when Shawn referred to the pipeline activity, that also, of course, includes, to some extent, what our Lab team is working with our customers on some of the better projects for the second half.

Understood. And when you think about the back half step up, Patrick, is that assuming academic and [ gown ] improves? You said it was down in Q1. Are you assuming the delayed orders from Q1, maybe catching up or perhaps a step-up in bioprocessing rate? And I think you mentioned something around automated chemistry as well performing well. So just what are the moving pieces from an end product perspective?

The bigger moving pieces is probably what you will see with our Industrial Automation Solutions. So core industrial will be strong. Again, we see all lab improving. But on academia, we do not factor in a big of improvement. I mean I think we are -- we'll continue to compete even better in that space and forecast probably more flattish for the -- instead of declines, for the second quarter and the rest of the year. Given also the strong portfolio that we launched, we just launched a very interesting new product on the pipette side, With the Vero pipette, we again, relaunched these new pipettes with PFAS, pre coating, et cetera.

So we have a lot of good stuff going there as well. So to step up again, they'll be more driven by industrial. A lot of it is also coming out of China in general, more across the business. PI remains to be strong. So that's a good move for us in the second half as well. And I think it's [ up to key pieces ]. Shawn, anything you want to add?

No, no, I think that's good. Yes. I think, like you said, I think there's softer market conditions, things will gradually improve, but there's also some things going on inside the company that will help, too.

Your next question comes from Kallum Titchmarsh with Morgan Stanley.

Maybe just talk us through the demand you're seeing on the service front and any stats you could just give us on the attach rate on the current installed base. Just a refreshed view there would be helpful given some of the bullish commentary in the past.

Yes. Well, thank you. Of course, we're really proud about the service growth. I mean you have seen us growing 7% in the first quarter. 2% of that was driven also through acquisitions we have done but even the core underlying growth of 5% in this environment, it really speaks to our incredible strength and service.

Our great connection of our customers through our service business. As I said before, I will see our service business, we continue to outgrow products as we have ample of headroom to grow to conduct more of the installed base that is currently not under service contract or even not covered today by our service organization, we launched about 2 years ago now, 2 years in a dedicated service growth initiative that we continue to fund to cover more of that installed base with not only going after the uncovered installed base, but also increasing the connect rate of services at the point of sales. Which is different across the product portfolio.

I cannot give you like an average number here because as you can imagine, for example, a business is like product inspection, which is end-of-line inspection fully automated. It's a very high connect rate, it's because these customers cannot afford any downtimes in the food manufacturing environment, whereas other areas like in lab or academia it's lower. But we have dedicated programs in place to increase these connect rates, and we see continued improvement there as well.

So again, I'm very optimistic about our service business internally. My team used me a lot speaking about how important it is for us to drive higher customer loyalty. Our NPS scores and services are outstanding when I compare this to the rest of the industry. And again, I think there's a lot of good stuff to come.

Great. And then just any update on the reshoring theme. Maybe just talk us through those discussions with customers if you had any and just to refresh on the time lines there.

Yes. Look, the reshoring, I mean, we're all excited about that, but it's still early innings for us. Remember, about 50% of our business is related to manufacturing and another 20% QA/QC, I would say, which if you think about manufacturing expansion is probablyof the biggest opportunity. But these reshoring activities while they're all in the news, and I just read an article this morning news from Switzerland that one of the companies in Switzerland actually decided to not expand the line in Switzerland, but build it out in the U.S. So this is exciting, but again, this will take time. I mean it's early innings. And I think it's a great opportunity for us moving forward to help our customers as they build out capacity with our highly automated and digitalized solutions.

Your next question comes from Josh Waldman with Cleveland Research.

Patrick, I wondered if you could comment on how durable you expect recent higher growth in PI could be? Any reason to think this like mid-single-digit growth for '26 could be sustainable into '27 when you think about kind of the upgrade cycle opportunity across mid-market and now the dual X-ray, right? I guess, have you guys started to road map out what you think the upgrade cycle could be?

No, we're not looking -- this is also a constant replacement business in many areas. I mean systems here, a lot of [indiscernible] in some areas. But we are even more excited about getting deeper in the midrange market. We've changed that strategy about 1, 2 years ago, expanding our portfolio in the midrange, where we are attacking very successfully with a new expanded portfolio.

So that makes quite optimistic that there's a lot of headroom for us to continue to grow. The team puts out a lot of great innovation on all fronts, whether it's JetStream, whether it's the metal detection, as I talked about it in my earning remarks, or with the photon counting in X-ray to drive even more sensitivity and with that also more application spaces for us. So I think this thing is a long runway.

Good to hear. And then I wonder if you could talk through what you're seeing in core industrial more at a product level. Any pockets of recent acceleration or decel? And then any more color on where the delays hit? And then I thought a portion of this business was kind of tied to kind of component sales, maybe the bioproduction equipment OEMs. Is that right? So can you remind us kind of the size of that business and trends you've seen there?

Yes. So maybe just giving you a couple of shades of flavor here. So like I think the thing that stands out to me the most is that the portfolio still seems to perform really well, and you see higher growth in the areas that support themes around automation and digitalization. Like we talked a lot about the portfolio strength in this area. We definitely see the opportunities globally. We see customers shifting into this direction, and that continues to do really well.

In other parts of the portfolio, sometimes there can be some lumpiness like we saw in Q3 of last year with some project activity in some of the dimensioning solutions that we provide for logistical people and things like that, our companies. But I'd say overall, the team is competing well now when you think about the end market exposures, about 60% of core industrial is sold to a combination of pharma, food manufacturing and chemical. And out of those 3, I'd say the one that's probably the softest right now is the chemical for kind of the obvious reasons with the impact of higher energy costs on their facilities and just probably kind of delaying.

But I'd say, in general, there's was just some caution in the broader end market space for Industrial. I just think it's like kind of like similar to how we started the year, we just felt like after all the -- when there's uncertainty, people pause a little bit, right? And that's how we expected the year to start. It definitely happened. And with the increased uncertainty, I think that was a factor. But the other side of this business, of course, is we talked a lot about that it's less cyclical than the past. But of course, improving PMI is something that we look at favorably as well, too, for the future. And when you factor in, I'm not talking -- timing of these things always is -- we'll see how it plays out. But as we kind of even go into the medium term, we'll have we'll have broader opportunities with this onshoring thing that Patrick talked about. And at some point, I think we'll see more on the replacement cycle.

And then what we're also seeing is like in some of the hot segments like if you kind of look into China, like China has a lot of very exciting hot segments that are -- seem to be really picking up momentum, like the battery segment being a good example there. And these are things that, again, play well to the portfolio.

Your next question comes from Doug Schenkel with Wolfe Research.

Two questions are really 2 topics. First, on pacing. Some of this has been covered in some of your answers to other questions, but I'm just curious if you'd be willing to distill a little bit when it comes to any product categories or geographies that got notably better or worse in April versus March? I think it was Dan Arias' question earlier where he kind of pointed out lots of moving parts, but that's fairly normal and there are some good guys and bad guys in the quarter, but it would be helpful to just see if there were areas where things changed over the last couple of months as we think about trends into the rest of the year. So that's the first one.

The second is specific to China grants. Could you elaborate a bit more on the grant proceeds recognized in the quarter. That seems like it could be something important in terms of being indicative of broader improvement in sentiment in the region. But I just want to make sure we're not putting too much emphasis on that.

Yes, sure. So in terms of getting into more granularity, Doug, hey, we're probably not going to -- we usually don't talk about months and certainly wouldn't want to talk about too much color. But I think you can -- just the fact that we tried to lay out what we thought for Q2 by product area and division and region and the full year, you could probably draw -- you can kind of see directionally how we're thinking of things in terms of Q1 to Q2 and then Q2 to the full year.

And I wouldn't want to kind of repeat kind of what I went through there before. But in terms of like the China grant, so this is a grant from local government there. The way I would read it is like they're just encouraging us from -- in terms of expanding our capacity there in the Shanghai area. They are also encouraging us for local manufacturing for things and also for research. And these are things that have always been priorities of the Chinese government. And so for us, it's consistent with our strategy. We're not necessarily doing things significantly different here in terms of how we think about our footprint. But I think everybody knows we have a very important Chinese business that we think has got a great growth opportunity for the future, and we have a great China for China story. And I'd say this is another chapter in that China for China story in terms of how there's investment in China for China.

And this one is nice because the local government's encouraging it. And so the $6 million was just -- there's 2 dynamics to the grant. There's some of its CapEx related and some of it is OpEx related and the OpEx is mostly on the research side. And from a cash flow perspective, there's going to be timing differences between when we receive grant funds and when we actually spend against the grant. And then so we'll exclude both of those from our cash flow statement as we kind of report on our NCO or free cash flow going forward.

Your next question comes from Tycho Peterson with Jefferies.

I want to actually hit on the customer delays again. Can you quantify how large those were? And how you think about the path to recoup? And then the chemical softness, is this a pushout? I mean -- or is it more CapEx budgets getting cut, which obviously has longer-term implications?

Yes. Tycho. So hey, on the customer delays, I mean, it's not like we have a quantification of that. It was a general theme that we saw in some of the Western markets in the quarter, especially earlier in the quarter. So I can't put a specific number on that. But as we kind of like provided some of the insights to our pipeline and stuff like that. I think you can read into that we're feeling more confident about things converting here as we kind of like go towards the second half of the year.

In terms of chemical, I think it's -- we'll see how it plays out. I think it's still too early to kind of to judge like exactly how it's going to play out. Certainly, out of the core end markets, it's the softer one certainly out of the big 3 for us. I mean China chemical to put it in perspective, is about [ 10 ] to low teens kind of a percent growth, but most of it's specialty chem for us. But there's also sectors of that, that also participate in some of these hotter segments too. And so it's not necessarily all bad in terms of how we think about. Yes, and I think we'll have some easier comps here in the second half on chemical as well, too.

Okay. And then a follow-up on Europe. You've had a couple of months of PMIs in an expansionary territory. I know you took up kind of the near-term guide a little bit. But is there a chance that, that could actually come back sooner?

Yes, we'll see. I mean, right now, in the short term, we're still a little bit more taking a more cautious profile, but we'll see how it plays out. We'll see how it plays out.

Your next question comes from Evie Koslosky with Goldman Sachs.

So I think in the past, you've talked about your exposure to the semiconductor industry with the ultra-pure water business. Can you remind us what your exposure there is as a percentage of revenue? And then how that business trended to start the year?

Yes. So Evie, this is Patrick. I mean if you think about -- it's part of our Process Analytics portfolio, and I think in total, is a low single-digit contribution in revenues. But it's doing extremely well. I mean all these build-outs in semiconductor, including [ by the way ], data centers where these things are also used for cooling systems. This is a great business opportunity for us, and we have a really strong go-to-market team there and really strong connection to customers. So that's growing really well. But in total revenue contribution, I mean, of course, it's one of the hot segments that I highlighted, but it's low single digits in total.

Okay. Great. And then on bioprocessing, I think that saw a good growth in the quarter. I guess what sort of demand are you seeing for your bioreactor sensors as people look to drive automation in their facilities? And then how do you feel your portfolio is competing relative to the broader market?

How are we competing in bioprocessing.

Yes. Well, we're competing extremely well. We also launched -- we continue to launch also new products. We just launched also recently a new [ glycose ] sensor, for example, we are very strong there for all our digital [ sensors ] for like our integrated intelligent sensor management systems, fully digital, which really is highly differentiated from our competitors.

We see good demand. I would say, across the world around the world in bioprocessing. No slowdown there, and I would expect that with the build-out for major important drugs like GLP-1s that have continues.

Your next question comes from Brandon Couillard with Wells Fargo.

Patrick, did I hear you break out Lab versus Industrial within China in the quarter? And then are there any pockets of Lab that are doing better like bioprocess there? Or are they all kind of generally in the same sort of similar flattish range?

I'll start with the numbers and then Patrick can answer the question. So in terms of the quarter, we were up, like we said, hold on a second, I'm looking at the wrong thing here. I just want to make sure I'm giving you the right number. Yes, we were up 4% in China in the quarter. Industrial was up high single digits. So to put it in perspective, this is like the third quarter in a row with good growth on the industrial side in China. And the second quarter in a row with like more like high single-digit kind of growth here. Lab was just down slightly, some different dynamics going on there, but it depends a little bit on the product category. But I'd say overall, the market is a little bit softer than the industrial side, but I think that we're kind of optimistic as we kind of look into the second half of the year here.

Maybe you can add a little more color, Patrick.

Yes. Look, I mean, specific to Lab, I mean and the -- let's say, the phama end markets as well as the pharma, the biopharma piece is doing well, the small molecule market or some people call it chemical pharma our area is softer at the moment. That has impact on some of the product categories that we have. For example, if you think about in Lab about our auto chem business, has been also impacted by that. Two vectors there, one vector is, I would say, the softer end market in small molecule chem, but then also we launched a new product and some customers knew about that. So that also caused a little bit of delay in terms of growth there as well.

Your next question comes from Casey Woodring with JPMorgan.

Great. Maybe I'll just ask one last one. I wanted to clarify the incremental tariff piece. Is the March change in harmonized tariff schedule codes included in that? Maybe just unpack the tariff component a little bit more.

Yes, sure, Casey. So yes, we -- so there's kind of like 2 dynamics here. Like on one hand, we have like a good guy with the lower rate from February and tariffs. We'll see some of that kind of in the second quarter, but we assume that, that kind of goes back to the previous like rates similar to the previous IEEPA rates kind of in the summer here.

But on the other side of that, we also have higher inflationary pressures. And as I mentioned before, like, of course, we're working on different mitigation actions, but we're a little bit cautious about putting that all into the guide. So the way I kind of think about it is you have like some of these inflationary topics, kind of largely offsetting the tariff benefit with an upside on how we approach some of the mitigation kind of in the second half of the year.

This concludes the Q&A session. I will now turn the call back to Adam for closing remarks.

Thanks, Rebecca, and thanks, everybody, for joining us this morning. If you have any follow-up questions, please feel free to reach out to me, and I hope you all have a great weekend. Take care.

This concludes the call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Jaco, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo's fourth quarter 2025 earnings conference call. [Operator Instructions]

I would now like to turn the conference over to Adam Uhlman, Head of Investor Relations. You may begin.

Thanks, [ Jericho ], 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 our website at 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, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates, or revisions, to any forward-looking statements, except as required by law.

On today's call, we will use non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K, and is available on our website.

Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our fourth quarter financial results, the details of which are outlined for you on Page 3 of our presentation.

We had a great finish to the year with broad-based growth by geography and product category. Our team continues to execute very well in a challenging environment and delivered strong adjusted EPS growth for the quarter with excellent free cash flow conversion for the year. I'm very proud of our organization's resilience and agility over the past year, as we successfully navigated challenges posed by global trade disputes and soft market conditions, and we remain agile in this dynamic environment.

Looking ahead, we are very well positioned to drive growth with our Spinnaker sales and marketing program, and innovative product portfolio, while capitalizing on opportunities related to automation, digitalization and onshoring investments around the world. Our strategic initiatives and strong culture of innovation and operational excellence are deeply embedded in the organization and will help us continue to gain share and deliver strong financial performance.

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

Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.1 billion, which represented an increase in local currency of 5%, or 4% excluding previously communicated acquisitions. On a U.S. dollar reported basis, sales increased 8%.

On Slide #4, we show sales growth by region. Local currency sales increased 7% in the Americas, which included a 3% benefit from acquisitions, and increased 4% in Europe, and 4% in Asia, Rest of the World. Local currency sales in China increased 3% during the quarter. Slide #5 shows local currency sales growth by region for the full year 2025.

On Slide #6, we summarized local currency sales growth by product area. For the quarter, laboratory sales increased 3%, while industrial increased 7%, and included a 3% benefit from recent acquisitions. Excluding acquisitions, core Industrial grew 2% and product inspection grew 7%. Food retail grew 19% in the quarter. Lastly, service revenue grew 8% in the quarter including a 2% benefit from acquisitions. Slide #7 summarizes our local currency sales growth by product area for the full year 2025.

Let me now move to the rest of the P&L, which is summarized on Slide #8. Gross margin was 59.8% in the quarter, a decrease of 140 basis points, and included unfavorable foreign currency of 70 basis points in acquisition mix. Our organic gross margin declined 20 basis points, excluding foreign currency, and was impacted by incremental gross tariff costs of 190 basis points. R&D amounted to $52.6 million in the quarter, and was flat on a local currency basis over the prior period. SG&A amounted to $259.8 million, a 6% increase in local currency over the prior year and include sales and marketing investments.

Adjusted operating profit amounted to $363 million in the quarter, up 3% versus the prior year. Adjusted operating margin was 32.1%, a decrease of 160 basis points versus the prior year. Unfavorable currency was a 100 basis point headwind to operating margin in the quarter. We estimate the gross impact of tariffs reduced our operating profit by 7%, and was a 190 basis point headwind to our operating margin.

A couple of final comments on the P&L. Amortization amounted to $19.7 million in the quarter. Interest expense was $17.4 million, and adjusted operating income amounted to $4.1 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. This also excludes a $19.5 million discrete tax benefit related to the settlement of a tax audit. Fully diluted shares amounted to $20.4 million, which is approximately a 3% decline from the prior year.

Adjusted EPS for the quarter was $13.36, an 8% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 7%. On a reported basis in the quarter, EPS was $13.98, as compared to $11.96 in the prior year. Reported EPS in the quarter included $0.28 of purchased intangible amortization, $0.18 of restructuring costs, a $0.14 net benefit from acquisition-related items, a $0.01 tax headwind related to the timing of stock option exercises, and a $0.95 discrete tax benefit.

Slide #9 summarizes our full year 2025 results. Local currency sales increased 3% for the year. Adjusted operating profit declined 1%, and our operating margin attracted 140 basis points. Adjusted EPS increased 4%. Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% in 2025, operating margin declined 80 basis points, and adjusted EPS grew 8%. Unfavorable foreign currency negatively impacted our operating margin by 50 basis points in 2025. Gross incremental tariff costs was a headwind to operating profit by $50 million, operating margin by 130 basis points, and EPS growth by 5% in 2025.

That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $878 million in 2025, a conversion ratio of 99% of our adjusted net income. DSO was 35 days, while ITO was 4.2x. Let me now turn to our guidance for the first quarter and the full year 2026. 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 retail tory tariffs from other countries will remain in effect at current levels. Second, while we acknowledge that headlines from some end markets like life sciences have been more favorable recently, geopolitical tensions remain elevated and we assume customers are more cautious with their investments to start the year with gradual improvements throughout the year. However, on a full year basis, our forecast does not assume a significant improvement in market conditions in 2026 versus last year. Third, we feel very confident in our ability to exclude -- to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment.

Now turning to our guidance. For the full year 2026, our local currency sales growth forecast is unchanged at approximately 4%, or approximately 3.5%, excluding our previously announced acquisitions. Our operating margin is expected to be up 60 to 70 basis points, excluding the impact of currency, which is flattish to up slightly on a reported basis. Adjusted EPS is forecast to be in the range of $46.05 to $46.70, which represents a growth rate of 8% to 9%. At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales growth, and a slight headwind to EPS.

For the first quarter of 2026, we expect local currency sales to grow approximately 3%. Operating margin is expected to decrease approximately 100 basis points at the midpoint of our range or flat, excluding unfavorable currency. We expect adjusted EPS to be in the range of $8.60 to $8.75, a growth rate of 5% to 7%. Currency for the quarter at recent spot rates would benefit first quarter sales by approximately 4%, and would be neutral to adjusted EPS.

Some further comments on our 2026 guidance. We expect total amortization, including purchased intangible amortization, to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $27 million on a pretax basis, or approximately $1.04. Interest expense is forecast at $70 million for the year. Other income is estimated at approximately $19 million, which is up from our previous guidance, and is due to updated pension accounting that is partly offset by higher pension costs that are now -- that are included in operating profit.

We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $900 million in 2026, which is an increase of 5% on a per share basis, with the first quarter approximately $100 million, which is impacted by the timing of tax payments. Share repurchases are expected to be in the range of $825 million to $875 million.

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 modest growth in the quarter, again, strong growth in the prior year, and good underlying organic sales growth for the full year. All results reflect robust bioprocessing growth, especially with single-use consumables, which was offset in part by softer demand from biotech, academia and the chemicals sector.

While headlines for pharma and Life Sciences markets have been more favorable recently, we expect customers to still be cautious with the investments to start the year. Our unique go-to-market strategies will ensure that we are very well positioned to capitalize on our customers' growing needs for equipment replacement going forward. Our innovative portfolio remains an important competitive advantage, and we continue to invest to further differentiate ourselves from the competition. For example, we recently launched an entirely new electronic [indiscernible] called [ Avero ] that is lightweight and has a very compact design. It has an exceptionally long battery life and can complete 2,800 [ pipetting ] cycles on a single charge. It is also unique in that it allows scientists to adjust flow rates, which is very helpful when working with delicate sales [indiscernible] nucleic acids, for example.

[indiscernible] for introduction complements the many exciting lab innovations we've brought to market in recent years, and we have a deep pipeline for the future.

Turning to Industrial. We had modest growth in our core industrial business this quarter, including strong growth in China against easy comparisons. Given the soft market conditions over the past year, we are pleased with the good sales growth core Industrial delivered in 2025. However, market demand in most geographies remain subdued, and we have maintained our full year forecast for modest growth. Our teams remain active in identifying new growth opportunities, and we believe we are well positioned to capitalize on investments in automation, digitalization, replacement demand and onshoring in the future.

Our industrial portfolio is in excellent shape. And to support growing demand for automation applications, we recently introduced new high-speed data communication features and protocols across our smart automation [ weighing ] indicators, that ensure the compatibility of our devices with our customers' IT and OT ecosystems. We have partnered with leading [ MES ] providers to enable seamless integration of our intelligent weighing devices through standardized interfaces into factory automation systems. Our solutions assure GMP-compliant battery [indiscernible] and enable intuitive operator applications, helping customers increase efficiency and reduce errors as IT and OT environments continue to converge.

Turning to product inspection. Sales growth in the fourth quarter was very strong as we have capitalized on our excellent portfolio, and we believe our organic sales growth in 2025 was well ahead of market growth. We continue to enhance our portfolio and recently introduced our new [indiscernible] of X-ray solutions for end-of-line inspections of loose products like prescription tablets and bills of food items -- for food items like nuts, fruits and grains. The [ X3 series ] offers both single and dual energy capabilities and is very differentiated in the market. Lastly, food retail sales grew strongly against easy year-ago comparisons. While our food retail business tends to be lumpy, we were very happy with its growth in 2025.

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 and retail solutions. Growth in our laboratory business was good and included very strong bioprocessing growth.

Turning to Europe, our fourth quarter results were better than expected due to a very strong performance from our product inspection business. For the year, our European market organizations delivered good results despite soft economic conditions in some Western European countries, as we continue to benefit from [ most clinical ] sales and marketing initiatives and innovative portfolio. However, economic conditions in Europe are mixed, and we do not expect significant improvement in market demand in 2026. Finally, Asia/Rest of the World had good growth in the fourth quarter and was largely in line with our expectations.

Our business in China grew 3%, led by good demand for industrial products from biopharma customers. Lab products were flattish, and our team remains very engaged with helping customers help them address new China pharmacopeia regulations, including stricter minimum waiting standards and quality monitoring of [ ultrapure water ] among others. Market conditions in China have recently been more steady, but as we know from the past, things can change quickly.

In markets outside of China, we had very good growth against difficult comparisons in the fourth quarter. Emerging markets outside of China, where 18% of our sales in 2025, and grew above our company average due to our dedicated resources and growth initiatives in these countries. Emerging markets are an important component of our growth strategy and we expect above-average sales growth over the coming years.

In summary, we delivered another year of solid growth despite ongoing market headwinds as our team leveraged our sophisticated go-to-market strategies, and strong product and service offering. Our team's resilience and [indiscernible] and our pricing, supply chain productivity and cost-saving initiatives, we're pivotal in navigating tariff challenges and government policy uncertainties throughout 2025.

We are squarely focused on driving growth in 2026. We will continue to benefit from our strong global leadership positions diversified customer base, innovative product offering and significant installed base. Service and faster-growing emerging markets will remain tailwinds, and we have accelerated our digital capabilities to identify and pursue growth opportunities, increasing the effectiveness of our global sales -- increasing the effectiveness of our global sales organization.

Our market-leading solutions and innovative portfolio uniquely positions us to meet increasing customer demand for automation and digitalization solutions, as well as faster growing segments. We also look forward to capitalizing on future growth opportunities with customer replacement cycles and investments in all the near-shoring activities over the coming years.

Now this concludes our prepared remarks. Operator, I'd like to open the line for questions.

[Operator Instructions] Our first question comes from Patrick Donnelly from Citi.

Maybe on the 1Q commentary, Patrick, you talked about baking in that customers in spite of some positive headlines to your point on pharma and lifestyle customers [indiscernible] it a little more cautious to start the year. Is that something you're hearing through the first month and change here? Or is it just, obviously [indiscernible] typical network conservatism. Just wondering if that's something you're picking up in the market or more just, hey, we don't want to bake in any improvement just yet. Let's see how it plays out? So it would be helpful to just talk through that 1Q guide.

Yes. Thanks, Patrick, and I'll let Shawn comment on this as well. But maybe to my comment on the headlines. Again, headlines have been still pretty volatile and why they have been better on the pharma and Life Sciences side. We all appreciate there's still more uncertainty in the market out there. And this is also across the broader portfolio, and the [ product ] markets we serve, still leads to longer deal cycles, et cetera. So we -- as we said also in our Q3 call, also at the [indiscernible] conference, we think of our customers, and we feel that we'll start a year a bit more cautious, and we have really build it into our guidance for Q1 and for the full year.

Yes. And just to echo what Patrick said, hey, of course, stepping back, we're, of course, very pleased with the fourth quarter. Came in better than what we expected, some good broad-based growth throughout the portfolio. We can kind of dig into that maybe in a minute. And we're also very pleased with our full year guide, carrying forward that beat into 2026 full year, maintaining the 4% organic -- local currency guide for the full year on sales.

But like Patrick said, as we previously mentioned, we do kind of tend to think that customers will likely start the year a little bit more cautious in Q1. It's always difficult to have visibility into Q1. Every time you're starting a year, it's a new year. You almost have to get through the whole quarter and get through March to really get a feeling for how things are progressing. But just sitting here today, it feels like a prudent approach for us to take in terms of how we're looking at the first quarter. And as he says, we do expect things to kind of gradually get better throughout the year.

Okay. That's helpful. And then, Shawn, maybe one for you, just in terms of the components of the guide. I would love if you could break out how you're thinking about pricing versus volume, both on the revenue side and then if you could give a bit of a margin build with pricing, FX, et cetera, would be very helpful.

Yes. So we continue to feel really good about our pricing program. Of course, one of the things that I like about pricing the most is that it really highlights the value proposition in the company. We've been really investing a lot in innovation over the last few years. And when you create value, you can realize pricing.

So if you kind of like look at our pricing, we're going to start the year off a little bit stronger because of the benefit of midyear pricing actions from last year. So I'm kind of -- would expect Q1 to be in the 3.5% or so kind of a range. And then for the full year, we're kind of maintaining that 2.5% for the full year.

From an acquisition perspective, we would expect to benefit about 1% during the first half of the year from acquisitions, which would be about 0.5 point for the full year. And then that would kind of translate into organic volume for the full year of 1%, but it would be down by about 1.5% for Q1. And this kind of just gets back to that same comment about just being a little bit more cautious. And frankly, just not surprised if customers start the year a little bit more cautious with how they spend just given the volatility that we experienced, or they experienced, last year into some of the uncertainty in the market. But hey, we also recognize headlines have been getting better, and hopefully, we'll start to see things that translate into business as we go through the year.

In terms of margins, we -- there's a few things in terms of affecting our margins. So maybe we'll start with operating margins. So on a reported basis -- well, maybe one comment first. Like currency has a pretty significant effect on our margins. It did in the second half of the year. If you remember, we were talking about this last quarter. And it's not a significant effect on like profit, but it is on sales. And so just the math -- when you start calculating operating and profit as a percentage of sales, of course, it's going to have an -- optically look like a headwind. So that headwind is about 100 basis points for the first quarter, and it's about 50 basis points for the full year of 2026. So excluding that, we would expect our operating margin to be up slightly in Q1, and we would expect it to be up by about 60 to 70 basis points the full year.

But then, of course, on a reported basis, it's going to be different. On a reported basis, Q1 will be down probably in the 100 basis point kind of range, maybe 90 basis points. And then for the full year, it would be up slightly.

Our next question comes from Vijay Kumar from Evercore ISI.

Congrats on a nice [indiscernible] Just back on the Q1 guidance, Shawn and Patrick. You guys did 4% organic in Q4. I think your Q1 is implying 2% organic, correct me if I'm wrong. What causes that 4% to 2% step down? And what are you assuming for end markets? When you say cautiousness, can you walk us through on the different assumptions you're having industrial versus Labs in pharma?

Yes, sure. So maybe I'll I can walk through maybe, Vijay, kind of like the assumptions for Q1 full year but also Q4. But as I kind of do it, you'll see that -- when we look at the beat, there was a very good beat on the industrial side, especially process analytics. I mean, I'm sorry, not process analytics, product inspection. And then when you look at the geographies you'll see Europe came in better than expected, also to a certain degree in the Americas. And as we were kind of entering the quarter, we were a little bit more concerned about Europe, but our product inspection business in Europe did particularly well.

And then when we go through it, you'll also see that kind of what steps down a little bit from Q4 to Q1 just in terms of growth rates. You'll see that you'll see a little bit on the industrial side. You'll also see a little bit on the retail side. And then -- and also maybe this cautiousness in the Americas as well as to a certain degree in Europe. So in terms of the fourth quarter, I think this might be out there, but I'll just kind of go through it quickly.

So Q4 Lab grew 3%. Our guide for Q1 is up low single digit. And our guide for the full year is growing low to mid-single digit. Core Industrial grew 4% and our guide for Q1 is flattish. And our guide for the full year is up low to mid-single digit. Product Inspection grew 11% in Q4. Of course, that was 7% organic. And then the industrial, by the way, was 2% organic core industrial. And then our Q1 guidance for product inspection is up mid- to high single digit, and our full year guidance is up low to mid-single digit. And then retail grew 19% in Q4, and our guidance for Q1 is up high single digit, and then our guidance for the full year is flattish.

And then if we kind of like look at the regions. Americas was up 7%, which was 4% organic. And if you look at Q1, we're guiding up low single digit, and we're guiding for the full year up mid-single digit. And then Europe was up 4% in Q4. And then for Q1, we're guiding up low single digit and then for the full year, also low single digit. And then China was up 3% in Q4. And then fourth, Q1, we're guiding also up low single digit and for the full year, up low single digit.

That's very helpful, Shawn. One on just on your EPS composition. I think by my math, looks like maybe [indiscernible] came from below the [indiscernible] rate between interest expense and higher pension income. What's the other, I guess, $0.30 or so [ rates ] coming from? Because it looks like top line didn't change.

So the -- you're talking the full year 2026, Vijay?

Yes, yes.

Yes. Yes. No, no, no. I think, just to clarify, we -- so our beat -- the beat in Q4 was related to sales. I think some of the below [ OP ] stuff might be a little confusing, but we excluded that some of those benefits from our adjusted EPS, like so for example, the onetime tax benefit.

When you look at our 2026 EPS guidance, we've kind of carried forward the beat, the EPS beat from 2025. We also increased our EPS for the benefit from Swiss tax rate. So -- I mean tariff rates. So you might remember the Swiss tariff rate decreased from 39% to 15%. That had a benefit of just under 1% of EPS. And then aside from that, there was a little bit of noise. We had foreign currency, which was a slight headwind, and we updated for that. And then we had a little bit of noise with better pension income that's going to help out a little bit below OP, but that's also -- that's based on like how you do your actuarial accounting at the end of the year, but there's also, maybe, an offset in some of the pension stuff above [ OP ] and just some basic fine-tuning at the end of the year. But [indiscernible] back, we're very pleased with raising EPS by $0.70 for the full year, which is about 2%, and maintaining our 8% to 9% EPS growth.

Our next question comes from Dan Arias from Stifel.

Shawn, food retail was pretty strong here. Is something picking up? Or is that just sort of the inherent lumpiness of that business. The outlook, I think, for the year is flat. So I'm not sure if spending improvement makes that easier, or if the big 4Q just kind of creates a tougher comp, which makes that harder to reach?

Dan, this is Patrick. Look, I mean, with retail, of course, we are very happy with the performance we have seen from retail in Q4, and also in 2025 as it was growing. But I also want to remind you that the retail business is a pretty lumpy business, a lot of [ project ] business. And as we still guide retail for Q1 for high single digit, I think fiscal year '26, we'll see a tough compare, and that we also guided to the flattish growth in 2026. Again, it's a lot of ups and downs, big project business there.

We compete really well. We actually spent quite some amount of innovation and got a lot of good products, new products over the last 2 years and that we compete extremely well. But again, it's more lumpy and it was -- as partly as we are after 2025 growth, we see the full fiscal year '26 given the top of compares rather flat.

Okay. And then maybe on China, I mean, I know no one thing changes the growth picture for you guys. But how would you characterize the pharma [ Copia ] opportunity over there that you talked about a little bit last quarter just in terms of what might be tangible when it comes to demand? And then when you think that purchasing might ramp up if, in fact, it does?

Yes, that's a good question, Dan. Look, I mean, in China, again, we are really well positioned with our team there. We have an outstanding portfolio and [indiscernible] one of the opportunities but we have seen some really good customer engagement also in Q3 and Q4. Last year, we expect this to continue, but it's not like a step change, right? This is a continued upgrade of existing balances and [ customers' labs ] as [indiscernible] want to comply with things like minimal [indiscernible] requirements, et cetera. So I think it's supporting our ongoing growth in China and the Lab business in 2026, but it's not a huge step change that comes [ all at once ].

Our next question comes from Michael Ryskin from Bank of America.

Congrats on the quarter [ on the guidance ]. First, I want to touch on -- you talked about the reshore -- onshore opportunity a number of times in the past and you cited again today. Just curious if you could give us an update on that, any change in conversations or in tone? I know it's still really early, but sort of what's your sense around timing on when you might start seeing, at least the beginning of [indiscernible] dynamic?

Yes. Thanks, Mike. Look, I mean, yes, there's a lot of good news, and I would say, out there, but think about our product portfolio. I mean a lot of -- a significant part of our portfolio, almost 50% of our portfolio actually for manufacturing, then you [indiscernible] another 25% -- or 20% to 25% for [indiscernible] If you think about is reshoring, [indiscernible] specifically for pharma, I mean, these factories still have to be built, right? And then we come into play with all portfolios to build it out. So we see this more as a 2027 and beyond opportunity.

For us, of course, it's important that we are out there in discussions with our existing customers. We help our existing customers, a lot of our portfolio, making sure that they are well aware as they plan then of building out of general facilities in the U.S. to make sure that we are the preferred supplier for these opportunities. And it's pharma, but it's also other areas.

If you think about the -- for example, the battery segment and others. So they are around the world I would say, in the coming years, a lot of good opportunities when it comes to reshoring, where customers build [ redundant setups ] to make sure that they also devise setup that they had in the past. And I see this for the coming years as a good opportunity, but we have not factored it in as a big growth opportunity for 2026. I think it still very early innings.

Okay. That's helpful. And then I want to touch a little bit on Europe. Feels that that's been doing a little bit better than expected. I think it stands out a little bit more for us the last couple of quarters despite tough comps. Just talk about what you see driving that on the ground there? And how sustainable that is going forward?

Yes. Mike, maybe I'll take that one. So as I kind of was alluding to before, kind of coming into the quarter, we were a little bit more cautious on Europe. We've been extremely proud of our European organization over the years. If you just look at the economy in Europe, is the softer economy in the world in more recent times. [ PMI ] is kind of in the low [ 40s ] at times, and we continue to, I think, do extremely well with that kind of a backdrop.

I think a lot of it would benefit from, of course, a strong organization, but also our Spinnaker program really -- with the combination of us going most direct in Europe, I think, allows us to also be a little bit more precise in terms of that ability to gain a little bit of market share each year.

If we just kind of like look at the fourth quarter, though, one thing that I mentioned before that really stood out was our product inspection business. We just had really strong growth in that business. And I think it's a theme we've seen in other regions throughout the year, which is some of the innovation that we've introduced to the market, and recently has been just very well received. And a lot of that innovation is really trying to go more specifically at the mid-market segment, and we're doing quite well there. Otherwise, I'd say we're competing well in the other product categories in general. But with, I'd say, a more challenging backdrop in some of the other regions.

Our next question comes from Catherine Schulte from Baird.

Maybe just on service. I think you said up 8% in the quarter, 6% organic. What's the outlook for that side of the business in '26, both including and excluding acquisitions?

Yes. Do you want to take it?

Yes. So yes, you're correct, Catherine. So we grew 8%, like looking at my notes to make sure I got it right. We grew 8% in the quarter, 6% organic. As we kind of think about next year, we're thinking about mid- to high single-digit growth overall for the business for the first quarter in the full year. And when you look at the first quarter, there's some acquisition growth in that. So Q1 would be more mid-single digit. I think the full year probably still rounds to mid- to high single digit.

And as we've talked about in the past, we just continue to see service as a great opportunity. The team kind of recently celebrated the fact that they achieved $1 billion in sales for the first time. And that was a nice milestone. It's a business that we've been really focusing on in terms of trying to penetrate. I think you're familiar, like if you look at the serviceable eye base that we have available to us as an opportunity, it's about $3 billion. So we penetrated about 1/3, and we continue to see opportunities to go after that. And as we do that, we have been putting additional resources into that business, and we continue to be optimistic kind of going forward for the medium to long term here.

Okay. Great. And then for China, another quarter of modest growth there in the fourth quarter. Sounds like maybe some EV comps in core industrial and Lab about flat. Can you just unpack a bit more what you're seeing in that market and the outlook for Lab versus industrial in the low single guide for the year?

Yes. Yes. So China overall came in as expected. We're pleased with that. Yes, we recognize that industrial had an easier comparison, but we'll still take it. They actually had quite strong growth in the quarter. When we kind of came out of the budget toward last year, kind of we were in China in September, one of the takeaways for me was you could just feel that there was a lot more positive energy coming out of our industrial team. So it's really kind of cool to actually see it translating into results here. So I think they're doing very well there at the moment, and that's good in the context of an economy that still has some challenges.

And when you kind of cut through and look at the markets, one of the markets that really is doing better there is the pharmaceutical end market. We see that in both sides of the business. Maybe the one area that is more challenging is on the chemical side. And for us, chemical means mostly specialty chem. But that's a more challenging end market at the moment.

But when we look forward to China for this year, we're still looking to guide in that low single-digit range for Q1, for the full year. Right now, I'd probably think Lab and Industrial will probably both be in that kind of a range. Maybe some quarters better than others, depending on how things play out here a little bit. but big picture, I think we've had at least a year of things have moderated there. We've had some modest growth. I think it's a good base, hopefully to now grow on. We're not building anything too significant to get over our skis as we know, things in China can change quickly in either direction.

But hopefully, we'll start to see things pick up at some point. And I think longer term, we still feel very optimistic. I think when you look at like the 5-year plan, and you look at all the investments going into the pharmaceutical industry and life science industry in China, it's very encouraging. And then you look at some of these trends about GLP-1s, and the number of companies in China that are investing in that. It's also a good opportunity just as an example.

So I think our team is well positioned for that. As you know, we have a really great China for China story with us making most of our products in China for China, and selling mostly to Chinese private companies. I think that's just a good setup for us. And we've always performed well there relative to the market.

Our next question comes from Luke Sergott from Barclays.

I just wanted to kind of touch on some of the more of the pharma side and also the [ ANG ] weakness that you talked about. And also, I guess, part of that in 4Q is a biotech weakness as well. So we're starting to see some green shoots in biotech, pharmas are doing a lot more M&A. And I know that it's probably going to track a different cycle than obviously the clinical research.

But how are you guys thinking about when that funding starts coming back, and where in that cycle would you guys start to see some of the pickup? Or if this biotech, or like the early-stage pharma where you're seeing weakness now is more just associated with kind of the academic funding environment?

Yes. Maybe I'll take that Luke. Look, we are, I think, quite excited about all biopharma specifically, biopharma processing activities that are going on and Shawn made comment here on GLP-1 and others, I think that that's actually where we see good momentum in the market, almost around the world. So that's what I would say is a growth driver for us as well.

When you mentioned academia and government and biotech that actually pretty small exposure in there is mainly in the area of liquid handling and [indiscernible] business, et cetera. Otherwise, we are not really prominent in that segment. And it's hard to say when we really would see a pickup there, of course, depends on some real good funding that should come back into the biotech and academia area. Again, it would pursue that on the [indiscernible] business. So if that is picking up again. And right now, we saw that business in Q4 is still a little bit under pressure. I think it was slightly declining in Q4. And we have to wait and see again when the funding is really coming back and then we've seen more momentum.

But that's -- I think I would say that the indicator there for us would be more on the pipeline business. But as a reminder, it's a smaller part of our overall business.

Got you. And then one for Shawn. On the GMs, and I understand it's a completely fluid tariff environment for you guys. But we're generally -- we've kind of seen this kind of tick down in gross margins across the space. And is there a dynamic going on with you guys where your tariff mitigation efforts outside of pricing, those are ongoing, and then you're starting to get some pressure here from your suppliers. And there's just going to be a mismatch between timing of when you can pass that on to your customers?

Is it -- just trying to figure out where this kind of ultimately shakes out for you guys just being forced right now to kind of eat it until things normalize?

No, actually, we're doing quite well in terms of managing the input costs. I think the SternDrive program has really been helping us out. That program has a lot of sophistication, like a lot of our programs when it comes to like digital capabilities and our ability to like really look at what should something cost so it's called [indiscernible] and we can really diagnose opportunities that we can leverage as we as we look at our cost structure.

I think what's making -- what was already a confusing year with tariffs more confusing is that currencies have changed quite a lot more here in the second half of the year. And I was trying to explain that earlier in the call, but -- but I wouldn't dismiss that, right? Like it's like a 70 basis point headwind to gross margin in Q4. And as I mentioned before, we're going to see that kind of carry forward to the first half of next year.

And then some of these recent acquisitions, while on an OP basis, they're fine. Just when you start to look at some mix effects, we start to get a little bit of unfavorable mix in terms of gross margins. Kind of like the way you think about the service business, right? It's like good when it comes to OP, but in terms of of gross margin, it might be a little bit dilutive, and that's because a lot of these recent acquisitions were distributors, which were largely service businesses, and then any incremental product sales is going to be smaller just by the virtue of the fact that they were a distribution partner.

But when you kind of cut through all that, like I was trying to say -- I don't know if we got into this before or not, but like if you cut through FX, and you cut through the organic -- the acquisition side, the organic gross margin was down 20 basis points for the quarter and for the full year. And that's despite a very significant headwind -- gross headwind on tariffs, right? It was like 190 bps in the quarter.

And if you think about it, while we were mitigating things throughout the year, we did have this topic of the Swiss tariffs that kicked in at 39%. And then we were going to -- we're having to absorb that during the fourth quarter. So the step down to 15% tariff rate in Swiss tariffs, that's something that will that benefit will happen more in 2026, not in Q4. And I think there's even maybe a little bit bleeding into the first part of Q1 just given stuff that was maybe an inventory already. So hope that helps a little bit.

Our next question comes from Tycho Peterson from Jefferies.

I wanted to dive in a little more on the industrial strength product inspection. Shawn, I appreciate your comments that some of this is new product intros and opening up the mid-tier market. Is there any way to kind of delineate how much of this is kind of broader market recovery versus actually opening up new markets?

And then I know in the past, you've talked about replacement cycle here, in particular, the industrial portfolio well positioned. Is that business benefiting at all from replacement cycle at this point?

I'll take it Tycho. I think the growth you're seeing in our product inspection business, we cannot point here to any underlying market recovery, or market strength. Actually, we think the market is still under considerable pressure, the food market, but we are really -- so I would say, very well positioned with our portfolio and all the innovations we have pushed across the portfolio. Whether it was in x-ray detection, in [indiscernible] there's more to come. Again, we have a clear dedicated plan to not only dominate the high end but also attack the mid-range market. That strategy is playing out really well. So yes, I would say it's mostly innovation about the growth that you see there.

And when it comes to the installed base and replacement market. What we are seeing across the board, across the portfolio, and that is not only true for product inspection businesses. We see a little bit of aging of installed [indiscernible]. I think we have now seen probably 2 years of subdued replacement and what it needs really [indiscernible] to pick up is what I mentioned at the beginning is more certainty in the market, more confidence of customers that they can invest.

I mean, they, of course, cannot hold off forever, but I think once the market gets a bit more stable and there's more certainty in the market and less noise. We will see a gradual pickup again in the replacement business to more normal levels and probably also a bit more, but it will not be again a step change. This will be a credible phasing in [indiscernible] replacement business again.

Okay. That's helpful. And then following up on the pharma onshoring, reshoring comments earlier, I appreciate that's more of a '27 and beyond story. Fair to assume Lab will see that later, but maybe you'll see it on the industrial side earlier, weighing in dimensioning for transport, logistics, things like that?

Yes. That's a good way to think about it. As you know, for the onshoring, reshoring, of course, also we will with industrial partners with automation solution providers, et cetera, that use our equipment. And I think they will pick up [ 4 ] as they prepare for the manufacturing solutions there, the automation lines and everything that is needed, and also our own products for production. And then Lab, including the QA/QC products that we deliver for these markets will be probably a bit later.

Okay. And then maybe just one last one on bioprocess. I know it's a smaller part of the business. Maybe just touch on what you're seeing there, how do volumes look? And what are you baking in this year?

I'm sorry, Tycho, can you repeat the question?

Just bioprocessing, and consumables, single-use. Can you just talk a little bit about volumes and what you're baking in on the bioprocessing side this year?

Yes. So we didn't bake in specific guidance for it. But certainly, on the bioprocessing side, we had a very strong fourth quarter, especially when we -- geographically, we look at the Americas, the U.S. bioprocessing did especially well. Single use also did particularly well in that market as well, too. We kind of look at that as an above-average growth driver in the Lab business and certainly feel good about the momentum they're kind of carrying in and through 2026.

Our next question comes from Doug Schenkel from Wolfe Research.

So I guess another question on Lab. I think in Tycho's last question, you got at the bioprocessing component there. But again, Q4 results came in pretty well ahead of estimates. You grew solid mid-single digits on a really tough comp, and you accelerated on a 2-year stack basis.

What would you call out as driving the underlying improvement? So not just in process analytics and bioprocessing, but more broadly, what's driving underlying improvement? Did you see any signs of budget flush? And then I'm just kind of underlying in there. Was there anything that you would call out in terms of just the change in trend in key end markets?

Yes. I think, Doug, in terms of the pharma, biopharma market overall, it's a little of it is biopharma processing, which is more a process analytics piece. And then we -- to your question regarding the budget [indiscernible], we have seen, I would say, some budget [indiscernible], it's always hard for us to clearly assess how much is budget [indiscernible] but we have seen better momentum towards the very end of the quarter, which points to a budget flush. And that was also affecting the Lab portfolio. So we saw some flush coming there as well.

I mean if you think about Lab and where we play and how we play, a lot of it is also linked to our strong software solution that we have there with LabX, which really helps us to connect a broader portfolio of our products in either R&D labs or [ QC ] labs, it helps our customers to also automate more workflows. And I think that's kind of the trend that we see overall, that helps us to compete very effectively and drive momentum also forward.

That's something where we have really a stronghold where we invest a lot to not only drive automation in the industrial piece, but also on the lab side. And I think that's probably one of the -- the things that also helps us to pick up more momentum in the market.

Our next question comes from Dan Leonard from UBS.

I want to revisit, Patrick, the comments you made on your emerging market view. You commented that you have an expectation for above-market sales growth from emerging markets. And I want to clarify, does that comment include China? Or were you speaking to emerging markets outside of China?

Yes. A very good question, Dan. Yes, and thanks for that question. I think it's an important one. We really speak about outside of China. So we expect for the emerging markets, which we also said is, in the meantime, may make about 18% of our total revenues versus China is like 15% or 16% of total revenues, but above average growth, and above corporate growth rate is specifically pointing towards the emerging markets ex China.

Appreciate that clarification then. And then what is your updated view on growth in China over the medium term? Is that fleet accretive or fleet neutral?

Yes. So we're not necessarily formally updating guidance on China. I think we are very optimistic still about the medium to long term. We clearly acknowledge that it doesn't need to grow at the rates that it grew in the pre-COVID era. The last time we updated our algorithm for growth, we were kind of looking at high single digits for China. But sitting here today would be very comfortable if it was mid-single digit with our ability to still hit our 6%-plus long-term sales growth algorithm.

And just as one example, the emerging markets outside of China are now bigger than China, and we kind of see a lot of growth opportunity there, but there's also a lot of other things going on inside the company that we feel good about, so.

Our next question comes from Jack Meehan from Nephron Research.

I had a couple of questions on core industrial. The first is called out, seeing some signs of life on the PMI side. I was just curious, in that context, can you unpack the first quarter guide? I think you're assuming flat growth. Is there some timing dynamics going on? Or just piece those together for me.

Yes. So yes, you're right. I mean it's definitely a little bit of a step down here from what we did in the second half of 2025. I think as we kind of look at it, it is a little out of all of our businesses. It has a little bit more sensitivity to the economy. Some of the recent PMIs. Nice to see the direction. Certainly, there's a lag in terms of when we would see that in our business.

Kind of as a reminder, about 60% of core industrial is sold into a combination of pharma, biopharma, food manufacturing and chemical. And out of those 3 sectors, the chemical sector has been under more pressure this year, probably expect it to continue to be under pressure in Q1. And we're just assuming as the typical company starts the year, they're just going to be a little bit more cautious with how they release funds.

And we'll see how it plays out. As you know, we only we only sit on 1.5 months of backlog typically at any point in time. So -- but that's just kind of how we were thinking about it when we guided last quarter for this year. We've tried to try to communicate on that, that we wouldn't be surprised if things start off a little bit slower this year. And certainly, that's how we feel sitting here today.

Got it. Okay. And let's say there's a scenario where we continue to see positive trends on the PMI front. Can you talk about -- just remind us like what the drop-through is, like if we did see incremental organic growth, what the flow-through would be on the margin line?

I think on the core Industrial side, it's going to be right around corporate average. It depends, of course, what part of the portfolio you're in. But like if you're into the part of the portfolio that's really serving the opportunities regarding automation and digitalization, which is the faster-growing sector, that's above corporate average. But some of the stuff that's a little bit more cyclical tends to be below corporate average.

Our next question comes from Josh Waldman from Cleveland Research.

One for Shawn and then one for Patrick, I think. Shawn, can you talk through how you're thinking about the organic growth progression through the latter 3 quarters of the year? I guess, are you factoring in a larger than normal ramp off of the Q1 to get to the full year? And then on the embedded caution to start the year, I guess, are you seeing this in the order book when you consider normal kind of order seasonality for January?

Yes. So maybe I'll take the first part of the question first. So I think if you look at our ramp up, it's not like a significant ramp. Like yes, we're going to be down a little bit, organic volume in Q1 per our guidance. But if you, like, look at the second half of the year, it probably implies something in the 2% kind of a range in terms of organic growth. Now in the second half of the year, we'll have a little bit less pricing and a little bit less acquisition benefit. So that number might not be as high as just simply adding the increment of organic volume.

But that's kind of like how I would probably sitting here today, but certainly, I wouldn't want to get into specific quarters. I think every year is the same, and this year is no different, and probably even has a little bit less visibility as you started, just given all the volatility from last year. But -- but we're going to learn a lot more here over the next couple of months. And I think once we get through the full quarter, we'll have a much better perspective on what Q2 looks like, and what the rest of the year looks like.

And then in terms of orders like [indiscernible], we never comment on months and particularly in Q1, I mean, January is always a goofy month, right. February is a goofy month. You have Chinese New Year timings. Seasonality-wise, these are lower months in the year. So we'll see. And like I said before, we only sit on about 1.5 months' worth of of backlog. So we'll see how it plays out. And we're executing well. We feel really good about how we're positioned. We have, I think, a really good balance of looking at growth opportunities and also keeping an eye on productivity topics, and we'll continue to have that balance going forward.

Got it. Okay. And then, Patrick, on service, I think you said the group reached $1 billion in sales. Can you remind us how that's dispersed across the Lab and Industrial segments? And then in the past, I think you've talked about service as an area of strategic investment. I wondered if you could talk through what you see as the near-term opportunities in service to drive incremental share growth on the hardware side?

Very good. Thanks, Josh. Yes. Look, I'm very excited about services and also the growth rates we have seen over the last years, we made a really conscious decision to overinvest in service as well and then drive that opportunity. As Shawn said, we currently cover about 1/3 of the installed base, there's ample of opportunity for us to continue to cover more of that with strategic programs. Been making good progress.

When you think about the breakdown between Industrial and Lab, for example, it's almost a longer revenue line because in Industrial would have to differentiate between, for example, PI where you have a stronger service business versus core industrial as a bit less. But I think it almost balanced without cost portfolio, in terms of the contribution and comparison to the product business. But we are very excited about where we stand. It's a great strategic program for us as a company, and we are, of course, super proud that the team achieved is a major milestone of $1 billion revenues in services.

That concludes the question-and-answer session. I would now like to turn the call back over to Adam Uhlman for closing remarks.

Thanks, everybody, for joining us today and for your excellent questions. Please feel free to reach out if you have any follow-ups. And have a great weekend. Take care. Bye.

This concludes today's conference call. You may now disconnect.

All right. Great. Thank you for joining us, everybody. I'm Casey Woodring from the Life Science Tools team here at JPMorgan. Welcome to our Healthcare Conference. Pleased to be joined by the management team of Mettler-Toledo. We'll do the standard 40-minute presentation slot Patrick will go through the corporate presentation, then we'll do time for Q&A at the end. Patrick, go ahead.

Yes. Thank you, Casey, and good afternoon to everyone in the room and those joining us on the webcast. Thank you for being here today.

Similar to the past, I'd like to start off by providing an overview of the business, our competitive advantages, a review of our growth strategies and why we are well positioned to deliver excellent shareholder returns going forward.

Before we get started, please notice our disclosure regarding forward-looking statements in the slides. To start off, for those of you that are not familiar with our company, Mettler-Toledo is a global market leader in precision instrument measure, in precision measurement instruments used in laboratory and industrial applications around the world. We generated about $4 billion in revenue, and a significant majority of our sales are in segments in which we are our #1 global market share position.

Our business is very diversified in terms of the products we sell throughout our customers' value chain, MD markets and geographic markets that we serve. The fragmentation and diversity business provides significant opportunity for growth and market share expansion.

We are well known for our track record of delivering excellent financial results, and we are very much focused on continuing to build on this track record going forward. We do this by leveraging our many competitive advantages, our well-developed and proven growth strategies and our unique culture of innovation, collaboration, focused execution and continuous improvement.

In recent years, we have also introduced the next generation of several corporate programs such as Spinnaker and SternDrive while accelerating our pace of innovation that will help us to continue to deliver strong financial performance.

Now turning to our market share exposure. We target highly attractive end markets that prioritize solutions delivering exceptional acuity, driving automation, boosting productivity and facilitating digital transformation. We estimate that more than 70% of our sales come from attractive market sectors such as pharma and biopharma, fruit manufacturing and specialty chemicals. Among these, bioprocessing is a particularly promising segment, accounting for a low double-digit percentage of our global sales. We support bioprocessing customers with our comprehensive range of laboratory and industrial solutions.

Our business mix has improved over the years as our Spinnaker sales and marketing program has guided our sales teams to our most attractive opportunities, and we have expanded our portfolio into faster-growing segments.

We are also very well positioned to capture onshoring opportunities throughout the world. As today, we are already well established with many of the relevant companies, and the majority of our revenues support production and QA/QC labs. Our solutions are ideally suited for these investments, and we are agnostic between small molecule and large molecule production facilities, given the breadth of our portfolio.

Our business is highly diversified geographically with products sold into 140 countries worldwide, and we have a direct sales presence in about 40 of them. China represents about 16% of our sales. We compete very effectively in China, where we design and manufacture products specifically for the Chinese market, and most of our sales are to local private companies.

We also believe we are poised to capture growth opportunities related to governmental priorities and investments in life sciences, technology, new materials and clean energy. Emerging markets outside of China account for roughly 17% of our sales and are an important component of our long-term growth strategy. We expect these markets to benefit from near-shoring investments throughout the world. Our direct sales teams in these regions enable us to fully capitalize on these opportunities.

We operate around 25 strategic business units, each representing a key product category. This extensive portfolio enabled us to deliver comprehensive solutions that support our customers from research and development through scale up and quality control, all the way to production, final inspection and logistics. Our broad and diverse product offering provides a unique opportunity to help our customers gain insights and drive productivity throughout their value chain.

Now let's briefly review our product offering, starting with laboratory instruments, which represent approximately 56% of our total sales. You probate scientists and chemists the most frequently used solutions in biopharma chemical and food labs for research and development and quality control applications. We are the worldwide leader in laboratory weighing and recently celebrated 80 years since launching our first analytical balance. Over the decades, we have significantly broadened our product range and now provide the most extensive array of laboratory instruments available in the industry, complemented with a strong software offering. This slide here highlights our laboratory offering for R&D labs. The life science industry is an important customer for our laboratory products, and we estimate about 1/3 of our sales to the life science customers would be to R&D labs.

These customers require a high degree of precision and flexibility, which we support pipettes, balances, analytical instruments and automated chemistry solutions. We are well known for our innovation, high quality and deep application know-how.

Our laboratory instruments are also very important in QA and QC labs, and we provide these customers approximately 40% of the bench instruments typically found in an analytical quality control lab. We continue to expand our portfolio of instruments with automation features which provide tangible productivity gains and better data management.

Our LabX instrument control and data management software is unique in its ability to connect our broad portfolio of instruments in a highly compliant and audit proof manner, which will be also automating workflows.

Now the final segment of our lab business is process analytics, where we are the market leader in continuous in-line monitoring of critical process control parameters such as pH, oxygen and CO2 as well as analyzers for ultrapure water applications.

Our consumable sensors are seamlessly integrated with our advanced transmitters to provide highly accurate measurements for applications like bioprocessing as well as other industries such as chemical, fruit, semiconductor and power generation.

This next slide is an overview of several of our industrial products and solutions, which represent about 40% of our total sales. The largest portion of Industrial is our core industrial business, which is approximately 24% of our total sales and includes our bench and floor scales, way modules, terminals, and software that are used for process control and applications like formulation, filling and dosing. Our largest end markets for core industrial are pharma and biopharma, food and specialty chemical while we also serve a wide variety of many others. The mix of this business has shifted over time with approximately 60% of our sales are to these more attractive end markets, and our product mix has shifted towards automation and digitalization solutions and products that provide enhanced operator guidance.

We also provide a comprehensive portfolio of product inspection solutions, which is approximately 15% of our total sales. Our advanced metal detection and x-ray systems are designed to detect physical contaminants at the end of a production line, ensuring product quality and safety. Additionally, our high-speed check weighing solutions enhance productivity and quality control by preventing over and underfilled packages.

Our primary customers are food manufacturers as well as pharmaceutical companies who rely on these critical end-of-line inspections to protect their brands, maintain the highest quality standards and boost productivity.

Now this slide outlines our competitive advantages and why we are so confident in our long-term growth prospects. First, we are very proud of belong and rich history of innovation, which has been fundamental to our success and has helped us become a market leader across approximately 75% of our businesses. At the same time, we serve very niche and highly fragmented markets, and our market share overall is only in the range of 25% or more. Our price points are relatively low and on average less than $10,000, and our customer base is highly fragmented with no one end customer representing more than 1% of our sales. Our strong brand and excellent product portfolio provides ample of room for continued market share expansion.

Now we engage with these diverse and fragmented customer base through our internally developed sales and marketing excellence program, Spinnaker. This program is highly sophisticated compromising various digital tools that guides and helps prepare our specialist sales force of approximately 3,000 employees to the most attractive growth opportunities in the market. Having a direct sales force with deeper application know-how is a significant competitive advantage. We also have a very large installed base of over $16 billion of instruments in the field with a serviceable revenue opportunity of approximately $3 billion, supported by the largest global service organization among our direct competitors. This installed base provides steady growth for our service business and creates opportunities for future instrument replacement.

Our global scale is a powerful competitive advantage, further strengthened by our Blue Ocean program, which harmonizes data and processes worldwide. This enables considerable visibility across our global supply chain and sales and marketing teams and having a single instance of a global information technology infrastructure, provides us with rich data, analytics and business insights so we can execute with speed and agility. And lastly, we have a strong culture of teamwork, collaboration and focused execution that is critical asset of the company, we have nurtured over many years. Our continuous improvement mentality is a hallmark of the organization and has allowed us to drive consistent sales and strong earnings growth over many years.

Now I'd like to share some additional insights on our growth initiatives starting with Spinnaker. As mentioned earlier, the diversity of our businesses and fragment the customer base means we need sophisticated processes, tools and analytics to identify the most attractive and profitable growth opportunities for our sales teams to pursue.

Spinnaker is our sales and marketing excellence program that over the past 20 years has evolved from a collection of marketing tools into sophisticated initiatives and digital capability that increases the effectiveness of our sales, marketing and service processes by identifying, guiding and preparing our sales force for the most attractive market opportunities across about 40 market organizations around the world. Spinnaker has been developed and deployed in waves over the many years. In our most recent wave, Spinnaker 6, started in 2024. This wave focuses on advancing digitalization and expanding our big data analytics capabilities to enhance lead generation and sales force guidance programs. Cleaner ships include integrating new capabilities and databases to support our topK program, which delivers timely investment alerts to our sales teams. These alerts highlight high growth targets with significant opportunities such as investment in GLP-1s, CDMOs and reshoring investments. Additionally, we are introducing innovative tools to elevate customer experience, including digital sales rooms for seamless online collaboration and enhanced features within our customer portals.

An important component of our value proposition is a comprehensive service offering that helps our customers maintain reliable readings from our instruments and maximize uptime in a production environment. Service represents approximately 25% of our sales and is an important competitive advantage and a significant growth opportunity.

Our goal is to grow our service business faster than the company average over the medium term, and we continue to make dedicated investments in tools and field technicians, tailor sales and data analytics resources to support these growth targets. Additionally, we have also recently acquired several channel partners that not only expands our direct service network but also brings new services we have not previously offered.

Our greatest growth opportunity in service is expanding the service coverage of our existing installed base. Currently, we cover about 1/3 of the $3 billion market opportunity within our installed base. Leveraging our extensive data such as purchase dates, user profiles and specific applications of each instrument, we can design highly targeted sales campaigns tailored to meet the unique requirements of our customers. Additionally, we have had good success in selling service packages at the time of new product sales, further driving our growth in this important area.

Now complementing our growth initiatives is our commitment to technology leadership and innovation. We have accelerated our rate of innovation in recent years to help our customers generate new insights, improve workflows through automation and digitalization and to capture more precise and reliable measurements. Our dedication to bringing new innovations to market helps increase our value proposition, stimulate replacement demand, gain market share and support our price premiums in the marketplace.

Now on this slide, you will see many examples of recent innovations across our lab and industrial portfolios, and there are many more that we have that we have launched but have not included on this slide.

Our team has continued to lean into our customers' needs for automating processes and workflows, and we are uniquely positioned to support needs for high-quality data capture and analysis from our instruments. Our corporate program for innovation, which we call JetStream provides a structured process to identify, validate and document customer needs and support rapid development to capture hidden market opportunities. And while no one product launch is material to our results overall given the significant diversity in our business, we believe we are very well positioned with our innovative portfolio to capture even more market share as market conditions improve in the future. And while we are fundamentally an organic growth sales growth company, we also continue to look at inorganic growth opportunities. We believe we are a great platform for small- and medium-sized bolt-on acquisitions that expand our portfolio and technology leadership, product offering and channel reach. We look for complementary technologies or businesses that would benefit from our global supply chain and manufacturing capabilities and from our global direct sales force.

In the second half of last year, we completed the acquisition of several small distribution partners that expanded our direct sales and service capabilities and also brought new service offerings. Additionally, we also acquired a small life science equipment product line that complements our house portfolio.

Now let's turn to our margin expansion initiatives. where we have an excellent track record and look to continue to build on this track record over the coming years. We are confident in our ability to expand our operating margins by 100 basis points or more per year for the foreseeable future. The margin the main driver of our margin expansion is organic sales growth, which we target at 6% or better on average over the medium term. Our global pricing SternDrive and Blue Ocean programs are also important drivers and enablers of margin expansion, while business mix is also a tailwind as our faster-growing businesses have higher margins. We have also accelerated our pace of innovation that further enhances our value proposition, which is fundamental to our pricing program.

Over the past year, our SternDrive program and our global supply chain organization was critical in helping us navigate complex global trade disputes and tariffs. Our team has been very agile and effective in accelerating and implementing our supply chain optimization strategies, and we continue to focus on evolving our in-region, for-region manufacturing capabilities to increase flexibility and resiliency. At the same time, our team has also introduced the majority of our business units onto our third wave of our SternDrive initiative which has a specific focus on smart manufacturing strategies and automation projects in 2025 that helped to drive material cost reductions and productivity improvements. We have also introduced increased digital sophistication that allows us to better diagnose and drive operational improvements.

Digitalization has been at the core of our strategic brokers over 15 years via our Blue Ocean program. Blue Ocean is a unique competitive advantage as we have harmonized our global processes that are enabled by a single instance of a fully integrated IT infrastructure. This program provides rich data that provides deep insights into our business and also supports the rapid development deployment of new technologies across our global business.

We have also continued to introduce digitalization technologies across our business to increase our organizational knowledge, capture productivity benefits, enhance and accelerate product innovation and to improve our customer experience.

In recent years, we have already launched solutions across our organizations that provide significant productivity benefits, and we also brought to market products and software solutions that leverage artificial intelligence capabilities. This include, for example, our fresh AI food retail scales that use AI-based image recognition to identify items placed in checkout scales or our AI business software for thermal analysis that identifies thermal effects automatically and our QuickPredict moisture analyzer that reduces measurement by almost 80%.

So let me summarize the key points from my presentation today. First, we have a significant competitive advantage, including a very strong product portfolio, highly sophisticated go-to-market strategy, an excellent service organization and a fully integrated global supply chain and IT environment that supports significant agility across our business. Our culture of innovation, collaboration, agility and continuous improvement makes a tremendous difference and is a key competitive differentiator.

Secondly, our team is clearly focused on driving growth. Following a few years of below-average demand across our end markets, we believe customers will gradually return to more normal replacement patterns as we move through 2026. We serve very attractive end markets that benefit from secular growth tailwinds and our global footprint will allow us to continue to benefit from above-average growth in emerging markets over the coming years. Additionally, we are uniquely positioned to capitalize on our customers' onshoring investments with our unique portfolio and solutions. Our innovative portfolio supports their automation and digitalization needs in their existing environments and is even more important as they build out new capabilities. And lastly, while we remain fully committed to delivering on our medium-term over-the-cycle financial targets. This includes 6% of better sales growth and 100 basis points or more of margin expansion annually. We have an excellent cash flow story and continue to aim to convert approximately 100% of our net income into free cash flow and returned this to investors through our share repurchase program, contributing to mid-teens level of EPS growth.

Now that concludes my comments. Thanks, everyone, for being here today.

Great. Thank you, Patrick. Maybe to kick it off here, 2025 was a challenging year for the life science tools sector with ongoing policy changes and trade disruptions, creating significant headwinds. So could you elaborate on some of these challenges and share what specific actions Mettler-Toledo took to adapt and mitigate some of those disruption impacts? And additionally, how do you see the market dynamics evolving here as we move into 2026.

Okay. Very good. Thank you. Well, look, I'm very proud of how our team really handled all these challenges that we had in 2025. I mean one of the hallmark of our culture is really our agility and our resilience, and we have demonstrated it over and over again. Look at 2025, of course, 1 of the key things was the tariffs that we had to face and how we really address that challenge. We our team really stepped up very quickly, and we used our global footprint and optimized our supply chain strategies to make sure that we can mitigate these tariffs as much as possible. We said in 2026, we will fully mitigate these there will be no headwind anymore. Then you saw also how some of the policy implementations really disrupted would say, academia and smaller biotech, which is not a big market for us, but still it also has some consequential impact on our end markets. And again, our team has stepped up very quickly to mitigate this. I think in all of these challenges, there's also a big opportunity for Mettler-Toledo over and over on that the in challenging market conditions actually really thrive, and we continue to take market share. Our commitment to innovation and bringing new solutions to customers faster than competition really pays back big time, and we are looking forward to actually to 2026 and hoping that there will be more stability in the market and that, of course, will also then continue to gain to put more confidence with our customers and then we can bring back to the replacement cycle. So I would say, to more normal pattern. And if you think about mid and long term, with all the announcements that have been made for reshoring home onshoring and investments into the U.S. economy by larger European companies and others, we are very well positioned to really work with these companies. We are connected with these companies today and help them to build out their facilities, the QA/QC labs, et cetera. So I see that actually has quite some tailwind in the years to come. So I'm optimistic what we're looking for, again, is more stability in 2026. We probably -- as you know, we guided 2026 to about 4% growth. And if there is really good stability and the replacement cycle kicks in, the potential is more upside.

Okay. That's helpful. One of those aforementioned challenges, you just mentioned on tariffs. What are your latest thoughts on tariff impact both from your perspective and then from your customers' perspective? Shawn, we were just talking about some of the most recent tariff noise over the last few weeks. It seems like the talk track changes every day but anything to call out as it pertains to tariffs moving into 2026?

Yes. So like maybe I'll try to like walk from where we were when we gave our guidance at to where we are now to where we could be later this week. So when we provided guidance at the end of Q3, we had assumed a 6% gross headwind to 2026 EPS related to tariffs. That compares to a 5% gross headwind and in 2025, and we expect it to fully offset those tariffs in 2026. Shortly thereafter, there was a trade agreement with Switzerland, okay? And so reducing the Swiss rate from 39% to 15%. So we had estimated the gross headwind to EPS would be reduced from 6% to 4%, and but the net benefit to EPS would be less than 1%, just given the nature of the mitigation actions that we had already put in place to offset the Swiss tariffs.

Now today, there's new news. We're still, I think, trying to all understand it and digest it. And I think there could be some questions in terms of ultimately how it's defined in terms of by country. But when I think about it, probably the easiest way for everyone to draw their own conclusions is for us to maybe just give an update on what are our key import statistics or key imports into the United States. And so you can see like what's exposed here. So China, of course, has been a topic in the past in this area. Our supply chain team, as Patrick mentioned, has done just a fantastic job of of creating a lot more flexibility in our global supply chain, having more region-for-region supply chains as well, too. And we've accelerated a lot of topics over the past year. This is something that we had started working on coming out of COVID, and we're able to kind of lean into it over the past year given the nature of this topic.

So now if we look at our import our estimated imports in 2026, from China, it's now closer to $30 million. And so that's a much different number than it was, say, 2 years ago. our largest import exposure is now Mexico. And so that's kind of gone the other way. Now Mexico is more than $100 million that we would estimate in 2026. And then our second largest import exposure would be Switzerland, and that's also reduced quite a bit, but it's and it's less than $100 million.

So now as we kind of go forward, there's a lot of speculation what's going to happen in the Supreme Court. We'll see how things play out in the court. but we can imagine Adam's phone is going to ring if something happens there. And so maybe we can try to proactively answer the question. So if the courts rule against tariffs and if there are reclaims, of course, we're going to pursue that reclaim process, okay? If and when we receive a reclaim or refund, we would share that refund with our customers to the extent that we had raised prices to them related to tariffs. So like an easy example is if we had a surcharge for tariffs, of course, you would expect to receive that back. But the other side of this is that the administration has also made a lot of comments that they or at least the speculation that they're going to replace the tariffs with new tariffs. So I think from our perspective, we're not assuming any changes going forward. The mechanics might be different of how we get there, but we're assuming that there will likely be some form of new tariffs to replace it. So we're not expecting or planning for any changes. But of course, we don't know. This is a very dynamic topic as we all know. And I think in the end, we'll stay agile. I think we've demonstrated a lot of organizational agility in the past, particularly over this past year. These topics can create a little uncertainty with our customers that we've seen, which can create some short-term market softness potentially, but they also create longer-term opportunities and kind of going back to that first question, there's a lot of challenges last year, but there's also a lot of opportunities for us in the future. And we're actually in the page of being very excited about those opportunities. We've spent a lot of time over the last several months with our teams implementing new initiatives of how to pursue those opportunities. We believe we're extremely well positioned for topics like reshoring. And it's not just a U.S. topic. I mean these are global topics. And so as a global company, we just feel like we're really well positioned here. And when you think about our business, Patrick had it on one of the slides, but approximately half of our business is sold into production process. And about 20% of our business is sold into QA/QC processes. So I think we're well positioned as a global company, especially when we look at that value chain and where our sweet spot is.

Super helpful. Yes, maybe on a related point, reshoring, can you just talk about how you guys are thinking about that opportunity just in terms of the timing and magnitude here for Mettler-Toledo? And how our portfolio is positioned relative to others if reshoring does translate into a material growth driver for the industry in the next few years?

Thanks, Jane. Look, I mean, Shawn mentioned and I fully support, I mean, the answer, we are fully engaged with a lot of the companies that have outlined that they will invest in reshoring or investments in the United States. We know these customers. They benefit from our solutions today. And when they think about building out capacities or even opening new factories, they really look also at us as a supply answer and can you help us to read it and fully automate these processes. Can you help us to drive the digitalization needs that we need, et cetera?

Now regarding timing, this is still very early innings. I mean a lot of announcements have been made. Again, we are also excited about the opportunity to come. But I think this is something Mettler-Toledo and long term, where we will see some tailwind coming probably as far as the company. The most important before is now also through our key account program that we have the discussions with all these companies that make the announcements that we understand their needs and if we help them to repair the steps they are taking when they are building new factories or expanding capacities.

Okay. Helpful. Maybe touching on 2026. You guys have guided already pointing to LC revenue growth of 4% or 3.5% organic, call it. Within that, you're assuming lab growth of low singles to mid-singles both core industrial and product inspection growth of low singles to mid-singles and then food rounding it out at around flat next year or this year.

You unpack the growth segments or the segment growth expectations and highlight the drivers in each for 2026? A question that we've received a lot is on the industrial side. And then just relative to the 10% organic growth rate you've seen in 3Q, how you're thinking about that for 2016?

Yes, sure. Maybe I'll take that one here. So yes, so as you think about next year, the 4%, I think a lot of people are familiar with our key assumptions, but I think it's good to always break it down. So the 4% assumes 2.5% of price increases so that's kind of like a, call it, a 2% normalized plus some extra benefit from some of the midyear pricing actions that we did in 2025 to mitigate tariffs. It also includes some acquisition benefit. You'd mentioned about 0.5 point. So that would be like 1 point benefit in the first half of next year. So that kind of puts our organic volume growth at about 1%. And when you think about that, it's implicitly saying that we're not expecting market conditions to significantly improve. We do expect things to gradually improve throughout the year. We've kind of said last quarter that we wouldn't be surprised if things start off a little slower at the beginning of the year as people are in a little bit of a wait-and-see mode, but it's still too early to make that call, but we'll see. But then as you kind of look at it by the different product categories, on the laboratory side, we if you think about the third quarter, we had really good momentum in bioprocessing, right, like our process analytics business, doing very well. We continue to expect that to be to do well in 2026. When we guided the other side of that was our liquid handling business. So if you think about like biotech and research, academia like just a softer end market for us in the third quarter. and that kind of factored into how we were thinking next year. On the industrial side, you mentioned like we were the 10% growth in Q3. We're of course, very happy with that. Certainly not a sustainable number. benefited a little bit from comparisons benefited also a little bit from some timing. Always difficult to say. Like was there a pent-up topic from Q2 in the first half of the year with the uncertainty? Was there a couple of things from Q4 that just happened to close out in Q3. But regardless of all that, we feel like the teams are executing extremely well. I think our portfolio is very well positioned for these trends in automation and digitalization. and onshoring, but we didn't really build anything incremental into our guidance for onshoring as well as some of these other topics. So we'll see.

I think there's some upsides, but we weren't intentionally trying to go low here. We just generally felt like last year was a very dynamic year, a lot of uncertainty, a lot of volatility. We'd like to see things stabilize a little bit before we start to increase expectations. But we think we're overall well positioned going into next year or this year.

And then thinking about China, you noted minimal pressure from anti evolution policies as you've exited a lot of those more cyclical businesses in the region over a decade ago. And in 3Q, you actually saw growth in the Industrial segment in China for the first time in 2 years. So can you just walk through your assumptions for China in 2026 and that industrial piece in China as well? And when do you think you'd see China kind of return to historical growth levels or if we should expect kind of a re-rating in China growth moving forward?

Yes. So we were happy with our third quarter in China. As you mentioned, it was the first time we saw growth on the industrial side in 2 years. Patrick and I were just with the team in September. I feel really good about our meetings there and the team, how the team is performing and just how their outlook kind of coming into this year. We feel like as a business, we're really well positioned in China. We have a great China for China story in terms of making stuff in China for China, who we're selling to largely private companies, as you saw on the slide, about 60% of the sales, and we're pretty well aligned, I think, with the priorities in the country in terms of the 5-year plan.

But as you kind of look to the future, always difficult to say. We're still cautious in terms of how we guide this year. Our guidance for 2026 is low single digit. We're expecting growth in both our laboratory in our industrial businesses. We do feel like we're well positioned going forward there. I mean there's a lot of opportunity, I think, on the lab side going forward. I know GLP-1s is a hot topic in the West.

It's also a hot topic in China. And there's a lot of research going on there, especially as generics come out and CDMOs play a bigger role. So we think there's a lot of good things there. But on the industrial side, like we said, we saw some early signs there in the third quarter. I think it's too early to make a call about when things are going to turn. But we'll continue to see how things play out in the course of the year.

And then, Patrick, during the presentation, you mentioned Mettler-Toledo's continued commitment to R&D and innovation even in the face of challenging marketing conditions, right? So could you just share where your current R&D efforts are focused right now? What new product launches investors should be looking forward to in 2026 and how you're thinking about that moving forward?

Yes, sure. I mean let me start with giving you kind of of the size of investment, we spent about $550 million over the past 3 years in R&D and really have stepped up there as well. And even when the market turned south and we can we didn't see volume growth, and we saw reluctance in the market to pick up new instruments. We said we stay fully committed to invest into R&D because we are convinced that companies that invest through a down cycle will actually accelerate growth once the market picks up and I want to be in that position. So we have launched over the last years a lot of great new products that really resonate well with our customers in terms of technology, automation features, digitalization, things like cybersecurity that we order dress with our portfolio.

I think it will play that will pay back well for us once the market picks up. Even today, I would say, comparing ourselves with most of the numbers we hear from competitors, we continue to take market share in this typical environment. Our customers look at us and being a leader in this market, we lead, as I said, in about 75% to 80% of the market segments that we own. And we want to continue to be in a position where we never customer thinks about a measurement problem. He thinks about Mettler-Toledo first, and I want to have the most competitive portfolio. And when you think about 2026 in the following years, you can expect more of the same. I mean we will have the funnel of new products fully loaded. We launch more products, and we are looking forward with that to gain more market share.

Okay. Great. Looks like we only have 10 seconds left. Maybe just last one quickly. What are you most excited for in 2026?

2026, again, I'm really excited about our agility as a company of how we deal with the challenges and the opportunities we have in these hot market segments. And hopefully, the market will get to see more stability and come back to more normal growth, and we will just accelerate even more.

Great. Well, it looks like we're absolutely good at that. Thank you guys for joining us today. Thank you, everybody, for coming for, joining us for the conference.

Thank you.

Thank you.

All right. I think we can look to get started here. So thanks, everyone, for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Shawn Vadala with us from Mettler-Toledo. Shawn, thanks for coming down.

Maybe we start with a little bit of end markets, and then we can kind of run through some different trends. Obviously, you guys already got the '26 guide out of the way, which was appreciated. Maybe we start on the industrial piece. That actually held in quite well in 3Q. Obviously, you guys have a few different layers of pieces inside the industrial side. Maybe we start there, what you guys are seeing on the industrial side and then the expectations as we go forward to 4Q and '26 there.

Yes, sure. So hey, good to be here, Patrick. Good to see you. We were extremely pleased with our third quarter results, particularly our industrial business. If you think about it, like there's always a lot of questions around industrial when the economy is softer. And over the years, we've done a really nice job of increasing the mix of this business towards the more attractive segments. So if you think about industrial, there's 2 parts, right? There's the core industrial part and then there's the product inspection part. So 60% is core, 40% is product inspection. And then core industrial is 25% of our global business. Product inspection is about 15% of our global business. And then on the core industrial side, if you think about it, like 60% of that business is sold into our core end markets like pharma, food manufacturing, chemical, which happens to be more specialty chemical.

And the other thing with that business is that we've done a nice job of like enhancing our solutions through automation and digitalization, like as we kind of like help customers automate their processes or we help customers with their own digitalization initiatives, that's the strength of our portfolio. And then when we look at the third quarter, right, much better than we expected. Like we expected it to be a strong quarter. We -- I think we had guided core industrial to be up high single digit, and we ended up doing 10% organically. So a lot of things just kind of came together in the quarter better than what we expected. And I think some of it was really good execution, but I think some of it was just some favorable timing. Now whether that was some pent-up topics from the first half of the year with all the uncertainty, whether that was maybe things closing in Q3 that we otherwise would have closed in Q4, probably a little bit of both. But what kind of stood out was that we did have some strength throughout the world.

We had very strong double-digit growth in the Americas. We had double-digit growth in Europe. And then we grew a little bit in China. And that's -- for us, that was favorable because that was the first time we had growth in the industrial business in China in 2 years. So that was like a nice data point. So overall, good execution, feeling well. And with like those core end markets, we felt like pharma was certainly doing a little bit better in the quarter there versus some of the other end markets like chemicals, maybe a more softer end market. On the product inspection side, product inspection's had a very good year. I feel like we've strung together a lot of good quarters now in a row. The outlook there still is also favorable. About 70% of that business is sold to food manufacturing companies. And then the other 30% is sold to a combination of like pharma and cosmetics and some other industries. So we tend to think about food manufacturing when we think about product inspection. So when you think about food manufacturing, it's a softer end market, right?

Those customers are under a lot of challenges over the last few years with inflation and other challenges. But we're competing really well. And it's a good example of an area where we've benefited from some innovation. We've come out with some new products over the last few years. They're very well received in the marketplace. We're competing really well. Some of the products are also specifically targeting segments of the market that we weren't necessarily participating in, in the past. So for parts of product inspection, historically, we were very much focused on the high end in the market, but there's a very strong mid-market segment there, too. And as you can imagine, as customers are under more pressure, maybe they're moving to mid-market solutions or we're just hitting a bigger market there as well, too. And so by doing that, I think we've been able to like capture some share that we weren't capturing before. And so yes, so very, very pleased with those results as well.

Yes. And maybe the core industrial, we can pick up. I mean that's an area I think people always historically have viewed you as a little more cyclical. You guys have obviously moved away from that for the most part, particularly in China, right? That's been a nice evolution on the industrial side, to your point, that core piece was a little bit pressured, finally turned positive this quarter. I guess what have you seen on the China industrial side? And maybe break down that exposure a little bit because, again, I do think there's maybe a little bit of misunderstanding of what you guys do there relative to what you did 10, 15 years ago?

Yes, sure. So like 10 or 15 years ago, you might remember, we had a lot of heavy industrial applications when China went through kind of a softer time frame there like 2013, '14, '15, we exited some of those businesses that would have been more like correlated to steel and things like that. In today's world, we have a much more attractive business, much more -- looks more similar to the global mix in terms of like exposure to pharmaceutical, food manufacturing, chemical and again, chemicals, more specialty chem. We do have exposure to some infrastructure projects there, but it's maybe less than it was 15 years ago. And so I think that's a really good one for us. And I think the other thing is like the world has just evolved a lot, right? Like so if you look at the needs of our Chinese customers, they're very similar to the needs of our Western customers.

And in fact, China is very proactively and aggressively pursuing their own digitalization journey. Like we were just there in September. And honestly, you feel a lot of energy when you're there in terms of like how they embrace digital technologies. And so our customers are doing that as well. And so our products really facilitate that. It's a strength of our products, the way that we can connect to our customer systems, the way that we can have structured data that can flow into their system, the way that our products are cybersecure, like all these things are -- resonate -- or features that resonate with our customers.

So in China, like it's no different. And then -- and like I said, I think the life sciences and industries like that will be favorable over the medium to long term there. So like both our lab and our industrial businesses will benefit from it. Now of course, there's other industries there as well, too, like when you start thinking about like the battery segment, like that was a hot segment a few years back. That was kind of cooled off with some capacity issues over the last few years. And so -- but as segments become hot or not, those are the types of things that we do in Spinnaker. We can pivot into them and lean into them when they're hot, and then we can pivot away when they're not. And so that's an example.

Yes. No, that's helpful. And then I guess, as you think about the industrial piece going into '26, I guess, what's the visibility look like? And then how are you thinking about the potential growth there? And again, if you could break out product inspection versus core even better?

Yes. So for next year, I mean, we typically sit on only like 1.5 months' worth of backlog. So always a little bit challenging to provide guidance at the beginning of November for the following year. But we always feel like that's a good practice, right? Like we feel like it's appropriate to share what we're thinking, what we're seeing at that point in time, but acknowledging that we don't have the perfect crystal ball for the future. For next year, if I look at both of those businesses, we're -- overall, we're still -- we're kind of like prudently, cautiously positioned for next year. Like we're -- if you look at how we're thinking about those businesses, we're low to mid-single-digit growth for both of them for next year.

But acknowledging there's a little bit of acquisition benefit in both of them from some of these acquisitions we just did. So excluding that, maybe it's closer to low single digit organically. So what does that imply? That implies that we're basically saying next year, and this is going to be a comment for the whole business, is that we're just not assuming things get back to normal next year quite yet. Now maybe it does, maybe that's a nice upside scenario for us. But we think that things will gradually improve throughout the year. But just given the year we've come off with just all the volatility, we just think at this point, it's better to plan a little bit more cautiously.

Yes, that's fair. And you mentioned the acquisitions maybe a good time to cover those. I mean you guys are not the most acquisitive. You obviously -- you buy back a lot of stock, very formulaic on that piece. It kind of popped up this quarter. You had, I think, 100 bps of acquisition in there. And I guess it will be 50 bps next year, if I have the numbers right, I guess, half the year, 100 bps or so. Maybe just talk about the acquisitions, what they -- what attracted you and again, the impact as we work our way into next year.

Yes, it's funny because we're always looking at bolt-ons, right? And then all of a sudden, we have a handful of them all happening at the same time. And we were just kind of talking about it a few minutes ago offline about like, hey, some of these had started discussions a year ago. And -- but they all just kind of came together at the same point. But they're all -- we never do anything that we don't think is going to strengthen the franchise and that's strategic, but we also tend to do things that are smaller, right? And so they're all kind of small individually, but we like them all individually, too. They're all like really nice additions to the team. So some of them are indirect distribution partners, right?

And so these are partners we've known for many years, great partners, know our business well, really part of the family, and they'll fit in extremely well. But by acquiring them, we're in a position now where we also have more direct access to the market. We have that -- so all the advantages we have with Spinnaker, right, it now gets a little -- goes to another level. We can do a lot more once we have that direct access. It also increases our service business. So now we get the service business as well. With one of the acquisitions, they actually have a whole new line of services that we haven't historically provided in the area of product inspection. So that's kind of exciting, very interesting to us during the due diligence phase, and we've already had some large customers here in the United States asking us about that.

We're already quoting on some work. So like -- so the team is very excited to already see some of their -- upside to their synergy case. And then there's one acquisition that is an expansion of our life science equipment portfolio. So we -- so under our Ohaus brand, right, we go through indirect distribution. And over the years, we've kind of had this initiative where we are building out a life science equipment portfolio. So think about like we have a centrifuge there. So then -- so this would be the Genie vortex mixer, which is kind of like an iconic brand out in the market. And so it's a great home for that brand. It fits in very well, and it just kind of enhances that offering that fits nicely into that indirect distribution model.

Okay. And is that the right number to think about 100 bps a quarter? Obviously, I think it was 100 bps in 3Q, same in 4Q, 1Q and 2Q, and then it will kind of wear off.

Exactly.

And is it spread -- it seems like heavier on the industrial side? Is it -- maybe just kind of lay out where we should think about it?

Yes, it's going to be -- there's very little on the -- there's a little bit like with this Vortex mixer on the lab side, but it's -- especially given labs such a much bigger business, it's going to be minimal to the numbers, but it's -- think about it as more on the industrial side.

Okay. Yes. And then maybe we can flip to the lab piece. You guys, I think, put up 4% growth in 3Q. A lot goes into that, right? I mean, process analytics, instruments, liquid handling, -- maybe just talk through the different segments, what you saw in the quarter? And then again, we can kind of flow that into the '26 commentary as well.

Yes. So also happy with the lab results, but a little bit more of a mixed picture. So like one of the strengths of our company, I think, is that we have a lot of diversity, right? And part of that diversity is we sell all the way through the value chain, like right from research all the way through logistics and everything in between. And with Spinnaker, you -- again, we can kind of pivot in and out of like what areas are hot. And with lab, we could very much see like the areas that we're doing better from a market condition perspective and those that are softer. So on the better side, bioproduction, bioprocessing did very well. And so it's -- we've been seeing now a trend here with our process analytics business, where we're competing really well and just the market conditions are very favorable. And we're seeing it kind of throughout the portfolio, like the reusable sensors, single use, single-use doing particularly well, upstream applications, but also downstream applications, which downstream also did particularly well.

So very nice to see that strength in that end market, probably not a big surprise as we've been also reading about others. And so it's a nice -- I think, a nice trend kind of going into next year. Our process analytics business also benefits from other industries. It's predominantly bioprocessing, but if you think about like semiconductor, right, we have a pure water business that is -- ultrapure water is very important for the semiconductor industry, and we're definitely seeing good activity in that business as well. And then they also sell into the power industry, too. And so now you think about AI and data centers. So we'll have opportunities there in the future as those data centers are built.

But right now, we see a lot more spending in the power generation for those data centers. So we're also getting some opportunities there also. So it's a very attractive business at the moment for a lot of different reasons. Kind of the other extreme is now let's go to research. And so under a lot of pressure. Biotech funding is still a topic, academia being soft this year, even more recently, the government shutdown. So academia and government are relatively small part of our global business. But when you start talking about research and you start talking about liquid handling, it's going to be a bigger part of that business. And so we definitely are feeling that in the pipette business. We saw softer results throughout the year and also into the quarter.

We did have some growth on the consumable side, but on the instrument side, we're still down a bit. And then kind of in between, I'd say, LabX continues to be the headline. Like we -- LabX has been and continues to be a real competitive advantage for us. It really helps our customers address their data integrity needs. It helps them as they think about automating their workflows. And it's -- and when you can sell up to 40% of the instruments on a typical lab QA/QC bench and you can connect a lot of them with one software solution that handles both of those things, it's a really nice value proposition. So we feel really good about the portfolio. We've come up with a lot of stuff in the last few years as well.

Yes. And you mentioned the pipettes that we saw -- obviously, the stocking piece was a while ago at this point, a little bit of noise now to your point. Can you remind us, is it 10% of the business or so on the pipette side? Is that about right? And I guess, what is the right way to think about that as we work our way into next year? And obviously, we can talk to the labs business overall, too.

We don't give specific guidance on each product category, but the expectation right now is that, that's going to be below corporate average. So I see these trends kind of continuing into next year. We're going to be above average on the process analytics side. We'll be below average on the liquid handling pipette side.

Yes. And altogether, labs are somewhere in that low to mid-single as well. Is that the right way to think about '26 for that business?

Yes, yes. Yes.

Okay. Perfect. And then maybe the service side, that's been an emerging story for you guys for a long time, continue to become a bigger piece. I think that was a high single-digit grower recently. Can you just talk, I guess, what the service offering is, where you guys are in this evolution? I know there's always a big push to drive the attach rate higher and get service to be a bigger piece of the pie. So where are we there? And again, it's been a pretty good story in terms of the growth.

Yes. I mean, hey, this has been a good one, right? Like we've always had it on our radar as an area of focus. I've kind of shared in the past when Patrick became -- our Patrick became CEO, he had this clear message to the organization of like, hey, I really just want to double down on the strategy. He was very bought in. I think that was very important to our Board as well. But there was a couple of areas that he did challenge us and thought, hey, I think we can do a little bit better. And one of them was service. And so when you look at our installed base of services, and when I say do better, just grow more. It wasn't like we're doing bad. But I think with more focus and maybe a little more investment, we could do more. And so when you look at our opportunity, if you look at our installed base and you said, okay, if we service everything, what would that equate to in service dollars?

That number would be about $3 billion. If you look at our service business in terms of sales and revenue, it's about $1 billion. And so we don't expect to service everything, but you can see there's opportunity to do a little bit more. And so what we've been doing is we've kind of like been working with our -- so we have a global service team. They have a lot of analytical capabilities, very sophisticated, and they've really tried to analyze every geography around the world and by product category and try to identify where do we think we have the best penetration opportunities. And through that process, we've launched an incremental initiative where we're investing a little bit more into that business, trying to lean into that and kind of going after that installed base. As you said, we're also trying to like just focus on service at the point-of-sale attachment rate stuff, too, but we're doing both.

And I think kind of going forward, we do expect to see services growing higher than the corporate average. I think there's still an opportunity here for a while. And when you think about it, we're typically competing against in-house maintenance, right? And so we just need that opportunity to talk to a customer and explain the value of our services. It's not just a break fix, right? There's a lot of value that comes with making sure you're getting the most out of your equipment. We can do some very advanced things, too, like certifying your application and your process as well, too. And so there's a lot of things we can do in addition to ensuring uptime, if you think about in a production environment, how important that is. So there's a lot that we can do in terms of providing value to customers. And when we get that opportunity, we have pretty good conversion rates.

Yes. And it sounds like one of the acquisitions, I guess, tilted a little more on the service side. Is that right?

Yes. I mean all the indirect acquisitions, indirect distribution partners like we'll get service with that. And then like I mentioned, one of them even had a new line of services in the product inspection area that will expand our offering and something that will be interesting to see how that develops.

Yes. Great. Okay. I would love to talk through the end markets and maybe we can get to '26 in a little more detail. But I guess when you think about the biopharma market overall, what are you guys seeing there? I know we've talked a little bit about reshoring. Has the tone changed there from your guys' perspective over the past couple of months? It feels like this policy overhang has been removed to a degree, maybe the tone is a little improved. What are the conversations like with that end market for you guys? Are you expecting improvement? And then, yes, maybe we can flow that into some of the reshoring discussion.

Yes. I mean, hey, the headlines certainly have been better. For me, it's always hard to measure the degree of uncertainty out there, right? It's been, I think, a challenging year. Our feeling is that our largest end customer in the world is only 1 percentage point of our sales, right? And so clearly, within that portfolio, you're going to have some customers that have a lot more clarity right now. And I think they're going to be off and running with their investment commitments. But there's going to be other customers where they quite don't know what MFN means for them. And so maybe they're optimistic, but they're still a little bit more in a wait-and-see mode. And so when we look at the whole thing, we're optimistic, but we're kind of cautious with how we're guiding. In the short term, we had a very strong budget flush last year. So we have this dynamic of Q4 versus Q4. We were much more cautious about how we see this budget flush evolving for this year's cycle given the strength that we saw last year.

If you think about it, Europe was particularly strong last year. So we're -- and I think Europe is a spot in the world where there's probably a little bit more uncertainty. I mean it's been an economy where it's been faced with a lot of more difficult economic conditions. But at the same time, we've been performing really well in Europe. But I think in the short term, we're, I think, flattish with our guidance there for Q4 overall for Europe. And I think part of it is maybe just a little bit of this uncertainty. But as we kind of go into next year, we're really well positioned for these onshoring trends. I mean, about 2/3 of our exposure to pharma, biopharma is manufacturing and QA/QC labs together, right? And so both of those should really benefit here from the onshoring. And so whatever the number is, we've seen the numbers, whatever is incremental, it's more than we had in the past.

Like if you go pre-COVID, we were a business that is pretty much a replacement business. 80% to 90% of our business in the Western markets was replacement. So we're happy with anything we get, and we're optimistic. It's kind of intuitive as well, like regardless of the trade disputes and all the policies over the last year, I think companies also were just looking at their supply chains coming out of COVID. How do I have more resiliency? How do I have more flexibility? And I think this trend towards region for region was already in motion. I think that things have just accelerated a lot more given the political environment. And so that's, in the short term, are going to be a favorable opportunity for us. So like when you think about these trade disputes, I always say that there's kind of 3 chapters to it, right?

Chapter 1 is what does it mean to your business in terms of the direct cost and how do you mitigate that? Chapter 2 is the short-term uncertainty, what does it mean to your customers' purchasing timing. But then Chapter 3 is the onshoring. And I think we're definitely optimistic about that. When we look at ourselves, we feel well positioned as a global company. A lot of these companies want their global partner to move with them around the world. And then when you think about their needs when they move, they want to have more automated processes because they just spend a lot of money and they need to optimize. They want to rethink their own digitalization strategies and making sure they're getting the latest technologies to get all the information and insights out of their experiments or their manufacturing processes, and we're just really well suited for all that with our portfolio.

Sure. And I guess on the budget flush point, to your point, you guys saw some last year with Europe. Is there a view that now that there's this level of certainty and visibility on the pharma side, do they loosen up into year-end? Is that a conversation you guys are having? What's the view in terms of how the budget flush could develop this year?

Yes, we'll see. We're not the best company to read into that. We're a pretty low price point company. Our average price point is less than $10,000. Sometimes the stuff comes in pretty late in the quarter for us if it happens. So like I said, we're pretty cautious with our guidance for the quarter. And at this point, we'll kind of see how it plays out. And I don't know for our business if it's going to be so digital. I don't think it's -- I think it might take a little time for this uncertainty cloud to kind of be fully lifted.

Yes. And then the reshoring piece, to your point, maybe it helps you guys a little bit in '26. What's the view in terms of the timing? I think a lot of people have very differing views as to when this could show up how big it is, to your point, some people have thrown numbers out, we'll see how accurate they are. But what's your view in terms of when you guys could start to see the benefit? Is there anything in the '26 guide for this? Would it be upside? How do you frame it?

It's primarily upside to our guide. Again, we're kind of like cautiously positioned for next year. We very much believe in the trend. And hopefully, we start to see more developing in the second half of next year. But keep in mind, a lot of this will be -- if you look at our portfolio, yes, maybe some of the stuff happens earlier, but probably most of it is going to happen towards the end of these projects. So for the stuff that's greenfield, they're going to have to build it first. And then they're going to like equip their lines and then they're going to equip their QA/QC labs. And so -- and those types of things, we might be having conversations over the next year on some of those things, but the actual purchasing might not happen for a couple of years.

Sure. And then maybe academic government, you guys aren't the biggest proxy there, obviously, but you mentioned parts of the business have some exposure there. It sounds like relatively cautious on that market into next year. It's been a journey, right, between the NIH cuts that were proposed, where we landed or where we think we landed, the shutdown. I guess take that all together, how are you feeling about that market? And what's the view of the go forward in that piece?

Yes. Like you said, specifically to the United States, I mean, academia and government together are like low single-digit percentage of our global total business. So like you said, probably not the best read for that. But our view is we're still kind of -- we still expect conditions to be soft going into next year, but also benefiting from a much easier comparison this year. So I certainly wouldn't expect the negative results that we saw over the past year.

Yes. Okay. And then maybe we can talk a little bit on some of the guide. I mean 4Q, I think maybe we can start on the margins. I think you guys are talking about margins down. I think gross margins down a couple of hundred bps, op margins down maybe 130 bps. I assume a lot of that's tariffs. So maybe you can give us a little bit of a bridge in terms of how to think about the 4Q setup. And then we can -- maybe we can talk tariffs a little bit in terms of the impact. And obviously, Switzerland matters for you guys. So -- but maybe we can start with the margins, just how you're thinking about the 4Q setup and work our way into '26.

Yes, sure. So I mean, if you look at our gross margin and our operating margin for the fourth quarter, we have like a gross headwind of about 200 basis points due to tariffs. So it's been a pretty significant topic for us, right? The other thing that kind of started in the second half of this year is the currencies. So -- and this one is kind of an interesting one because if you think about it, the euro has strengthened, right? And so we have more sales. So that's a good thing. But the Swiss franc has also strengthened where we have costs, and that's kind of offset the benefit from the sales in terms of operating profit. So in terms of dollars, let's just assume for the sake of the discussion, it's neutral on operating profit, but we have higher sales. So then that profit as a percentage of sales is dilutive.

And so currencies are now about a 70 basis point headwind in Q4 to operating margin, and it was also in Q3. And that will kind of continue into the first half of next year. So when you think about -- if I pivot a little bit to next year's margin, the operating margin on a reported level might be up 30 bps, 20 bps. But then when you look at it on a currency-neutral basis, now we're up 50, 60 bps. So start to look a little bit more Mettler-ish, a little bit more in the range. Probably what's keeping us from getting to 100 bps is really that volume, getting that volume back. But when I kind of step back from it, I mean, I'm very proud of our organization.

I just think like there's a lot of great work that's gone into offsetting these tariffs. The teamwork, the culture, the agility, it's really been phenomenal. The systems that we have that allows us to like really see data and diagnose issues and then react has been tremendous. We've kind of seen this throughout COVID, and this past year was just another year of that required a lot of agility. And so I always like feel good about those things. I often say I feel like our culture shines the brightest in challenging times. And I think we kind of saw that over the past year. Now maybe the numbers don't always look like it shows it, but behind the scenes, the fact that we could like mitigate these tariffs as quickly as we did, I think, was a very positive attribute of our organization going into next year.

Yes. Now speaking of agility, I mean, the Swiss tariffs, I think the announcement came out a quarter ago, after you guys put out the press release before your call, that was a late night for you and Adam. But you guys came out and gave an impact the next morning. Where are we on that front? There's discussions of rolling back Swiss tariffs. Can you just talk through that piece, what it means to you guys, what the right way to think about the tariff situation is?

Yes. So really pleased with our team's response on that evening, but also more -- probably even more pleased with the organizational response. We had a lot of things in motion that could give us the confidence to make the statements that we did the next morning. And so we were already looking at ways to mitigate our -- and reduce our exposure to some of these tariffs, and we were able to then accelerate a lot of those topics here over the second half of the year. And so it put us in a position where we could say like, hey, we're going to mitigate these tariffs. in 2026, the incremental tariffs specifically to Switzerland. So we feel very good about that. Now like you said, the rate looks like it's going to come down to 15% at some point this month.

So that's certainly still favorable. In terms of now what does it mean to next year's guidance, I mean, we'll update things more precisely on our next earnings call because there's a lot of other moving parts with it, too, because like with the Swiss discussion, you also have -- you have the currencies too, like you have the Swiss franc being actually pretty volatile in the last few weeks since these announcements against the euro and others. And so we'll see kind of where that plays out as well. But just looking specifically at the benefit of the tariffs, we'd say that it's -- there's going to be a benefit, but it's probably going to be a more modest benefit just given the nature of a lot of the mitigation actions that we've already put in place. So to kind of maybe put like a box around it, it would probably be something less than 1% of EPS.

Okay. Okay. That's helpful. And then maybe staying on '26. You mentioned still expecting a muted environment. Maybe we can talk a little bit about the volume versus price. I mean price is always a great lever for you guys, whether it's tariffs, inflation, whatever it may be. So the guide, 4% for next year, let's call it, 50 bps of acquisitions, so 3.5% kind of core. How do you think about price versus volume in there? Is it still very little volume, mostly price? And what could get the volume going in terms of picking up a little bit?

Yes. So the 4% includes 2.5% of price realization. It's a little bit higher than like the normal quote because we have 0.5 point that we're assuming from our midyear pricing actions this year that we kind of benefit from into next year. We'll get a little bit of benefit from some of these acquisitions. So like I think we said earlier, it will be about a 1% benefit in the first half of the year. So call it, 0.5 point for the full year. And then that would put like organic volume at like 1 point. So certainly lower than what we would expect in a normalized environment, reflects a little bit of this caution that we've talked about. We haven't built in anything particular for reshoring.

We haven't built in anything particular for the replacement cycle starting to really come back. And it's a bit of a reflection of the year that we've been through, and we'll kind of -- we kind of feel like we'll see how this uncertainty cloud kind of lifts over the next couple of quarters. We expect conditions to gradually improve as we kind of go through the year. But there's a lot of opportunity for upside here, right? I mean pharmaceutical biopharma is about 40% of our business. If that really starts to come back with more clarity, that could be a really good catalyst for us. The China, right? China is always a swing factor, right? 15% of our business.

We were there. I think there's a lot of good things going on in the country. I think we're really well positioned in China. Like not everyone is going to have the same China experience. But we've been there a long time. You know we have a strong team there. We -- but we also are -- most of our sales are produced in China. And if they're not, they're coming from Switzerland. So -- and -- but most of them are made in China. We're largely selling to Chinese private companies. We sell probably more than 60% of our sales to private companies, less than 15% to multinationals with the residual being state-owned companies and the government. And I just think from a sustainability perspective, that's a category that's going to be probably the most attractive out of the 3 from a longer-term sustainable.

And then we talked about like the trends in the country, right, like life sciences, the government's commitment to that as well as technology, clean energy, I think we can really support them on a lot of these. And then you think about like hot topics like GLP-1s, right? And China has a tremendous opportunity. We were looking at numbers earlier this year, and our read was that half the companies in the world developing GLP-1s are based in China. And so when you think about the generic market starting to open up soon, you start to think about the whole ecosystem with CDMOs, tremendous opportunity there. So hopefully, at some point, we'll start to see that one as an upside factor as well. And then you kind of touched upon some of the other things out there about if onshoring comes earlier or replacement cycle kicks in a little bit earlier, these could also be some upsides to the guide.

Yes. And then China, I mean, it sounds like a little bit of optimism. I think the guidance is for low single in China next year. I know you guys, to your point, you're kind of there somewhat recently. Is that conservative in your view? And again, what should we be looking for to kind of feel better about China picking up a little bit for you guys? I mean it sounds like the tone overall across Life Sciences in China is a little bit better, but what's your guys' perspective?

I think low single digits is an appropriate guide at this point in time. Of course, we're going to try to do a little bit better than that. But there's still a lot of uncertainty there, right? It's a challenging market. It's a challenging economy. It's a country that's going through a lot of change right now. And so we'll see how it plays out. But I do think that there's an upside case here as well, too. And we compete well there. And I just think we have a strong team in place, and I think that's part of the winning formula.

Yes. And Shawn, I know you went on this. I know you guys do your annual budget tour and kind of see all the different spots. I mean the emerging markets are now a bigger piece of the pie for you guys. I guess as you did that a couple of months ago, any interesting findings, any regions that kind of popped out that you feel a little better about? Any areas of caution? What did you guys see in here as you go along...?

Yes, it's a great question because it was clearly one of those things that excited Patrick and I on the budget tour. I mean we kind of saw it in the year before, but you continue to see the momentum like countries like India, Southeast Asia, even Eastern Europe with a lot of the near-shoring activities and opportunities with Europe. But then you have the whole Central South America opportunity as well, too. And so we kind of walked away from the budget tour and like immediately approved some incremental investments into some of these territories. We have very strong direct market organizations there that we can invest in and kind of continue to capture some of these opportunities. And when you look at these emerging markets outside of China, they now are total about 17% of our sales. So they're now slightly larger than China is. And so that's -- I think as we think about China in the future, this is another lever that we're going to have for growth into the future.

Yes. And to your point, in terms of the expense side, I know you guys have Blue Ocean and Spinnaker and these initiatives where you can be quite nimble. It sounds like currently feeling a little bit better about allowing some of those investments to go out versus tightening up and protecting the margins. Is that just the top line feels a little bit better, the backdrop is healthy. What's the right perspective in terms of how you guys are managing...?

No, we always try to have a balanced approach. Like we were very conscious about continuing to invest in the business over the last 3 years. On the R&D innovation side, we actually introduced a couple of new programs to accelerate R&D, but also on the growth side. But we do that with a balance, right? Like so we're still driving productivity. We're still driving cost savings. We're reallocating resources to the best opportunities. And so it's a very balanced approach in terms of how we think about things. And so -- and that's -- that was also a big theme of the budget tour, right? And how do we -- we literally launched a couple of initiatives. One of them is called wind what about like when you have a lot of wind in your face, right, like how do you optimize that wind to your advantage. So -- and a lot of it has to do with tactics and how do you shift resources.

Yes. Okay. I think we're out of time, Shawn. Thank you so much. Take care.

Yes. Thank you, Patrick.

I'm Vijay Kumar, the Life Science and Med Device analyst at Evercore. A pleasure to have with us the team from Mettler-Toledo. We have CFO, Shawn Vadala. Shawn, thank you for being with us this morning.

Yes. Thanks for hosting us, Vijay.

Great. And for you guys, I think given that you have the guidance or the initial fiscal '26 outlook out of the way, right, and you guys go early, I just want to maybe take a different tack with you guys. When I look back at Mettler, you guys have always -- I think the term that comes to my mind is execution. Pricing for you guys, so 1% to 2%, very consistent, probably at the higher end of industry. For those of us not familiar with Mettler, right, can you talk about what makes Mettler, Mettler, right? What are the different end markets you serve? How is it that Mettler is able to realize 1 to 2 points of pricing that's probably at the higher end of industry consistently?

Yes. Thanks, Vijay. So maybe I'll start with some of our competitive advantages, and then, I'll kind of go into some of those more specific questions about pricing and the end markets. But I think it starts with innovation. Like at Mettler, we're very proud of our long and rich history of innovation. If you kind of go back in our history, I think the Mettler brand has been around for about 80 years. The Toledo scale brand was around for about 120 years. And we've always had a competitive advantage when it came to innovation. It's really fundamental inside the company. It's part of our DNA, and it's the ability to create value for customers, which ultimately is going to enable share gains as well as pricing.

And so we've been able to then kind of take that innovation strength, and that's translated into market leadership, okay? So about 75% of the time, maybe 80% of the time, we're the global #1 company, okay? So we're global #1. But we're serving pretty niche markets. If you look inside Mettler-Toledo, it's probably about just close to 25 different product categories. And so they're very niche markets that we're serving.

But at the same time, our market share in these markets tends to only average in the 25% or so kind of a range. We're going to be higher in certain categories like laboratory balances, but a lot of categories were maybe in that 20% to 25% range. So highly fragmented markets despite being the market leadership. So now we just need to gain just a little bit of market share to kind of like to grow faster than the market growth. And so we do that through our Spinnaker program.

So Spinnaker is a program we've talked about for many years. It's operational excellence in sales and marketing. If you think about it, inside the company, we have about 3,000 direct salespeople. So that's a strength, right? It's having a direct sales force. So if you think about these 25 categories, we're not -- we don't have generalists. We have dedicated application experts in each one of those categories. And that's important because they can ultimately articulate that value proposition, okay?

But then the question is how do you then use them most effectively? And so Spinnaker is helping to direct them towards the most attractive parts of the market, the fastest growing, the most profitable. And so over many years, we've developed a lot of tools and training. And in today's world with the newer technologies, you can only imagine how sophisticated we can get when we do that. And we can maybe talk a little bit more about that later. But then -- but by doing that, we're ultimately directing them towards the most attractive opportunities. And you can imagine in a world that's pretty dynamic right now, that's important. And so -- and then that's how we gain a little bit more extra market share.

And then, if we think about things like pricing, for example, right, so in the end, we're selling -- our average price point is less than $10,000, okay? And so it's not as significant of a decision for our customers. It's not going through CapEx approvals, but we're also selling often to the end user, okay? So we have a direct application expert that can articulate the value proposition, but they're selling it to someone who understands it and ultimately is going to use the product. And it happens to be something they can handle with an operating expense budget. So that's kind of like a nice setup that we have in terms of our business. But then, we supplement that with a lot of analytics and tools and KPIs to monitor the program.

We try to be very thoughtful and surgical with how we approach pricing in terms of not only price increases, but looking through the entire process of pricing in terms of different points of leakage, the way we administer pricing, the whole thing, and we look at it pretty holistically. And we have a very strong team of people all around the world. And I think it's very well ingrained in our marketing organizations as well around the world. And I think through that, we have a culture of articulating that price and capturing the value that we provide to our customers.

In terms of the end markets we serve, we're also selling to, I would say, attractive end markets. Now, I know our end markets have been under pressure in the last couple of years. But I think long term, these are very attractive end markets. About 40% of our business is sold to pharma, biopharma companies, okay? About 20% is sold to food manufacturing companies and about 10% to 15% would be sold to chemical. And for us, chemical means mostly specialty chemical that really -- the companies that really value precision.

And so if you step back and look at these end markets, we think they're attractive. We think that they will follow world populations, but there's also a lot of human need around these end markets, but also regulation and a need for precision and a need for service and support. And so when you look at these end markets, we think that they're attractive. They also are going to invest. They're going to invest in automation. They're going to invest in digitalization. And frankly, a lot of these companies, especially in the pharmaceutical are the ones that are making a lot of commitments in terms of capital for onshoring and research and reshoring in the future.

And if you just think about pharma, in particular, you're more of an expert, but the new modalities and a lot of the different exciting things that are going on with the development in the future, I think we're very well positioned for it.

That's fantastic. I did have one pharma question, but maybe we'll circle back to that later on. Just the key products that you sell. I know you do pH meters, scales, et cetera, sensors, maybe relative sizing of these product categories. How big are your key product lines?

Yes. I wouldn't want to try to size every product category, but maybe I'll give you a little bit of a flavor. So I'll talk about our global business and then -- and set a specific to pharmaceutical because there also is frankly a lot of overlap as well, too. So 55% of our business is laboratory products, okay? Now, one of the strengths of Mettler-Toledo is we sell all the way through the value chain, right, right from research and through development, scale up, production and logistics. And then -- and we even have a small food retail business for the food business. So it's a huge strength being able to sell all the way through the value chain. I think that's also a lot of opportunity in the future for us to continue to leverage that capability as we provide data points to customers through their value chain.

So now, if you look at -- you try to break it down into these like silos of product categories, so lab would be 55% of our business, okay? The largest product category is going to be laboratory balances, where we have a very strong market leadership position and rich history.

We then have analytical instruments like you mentioned. Within analytical instruments, you have titration, you have thermal analysis, you have pH meters, even some smaller and newer categories like cell counters and things like that.

We also have liquid handling, so pipettes and pipette tips. We sell automated chemistry equipment that's sold into -- that helps with process development. So once you've discovered a chemical compound, you then need to determine how to make it safely and efficiently. And so our AutoChem equipment is used for that.

And then, you get into production, and so, like bioprocessing, so process analytics. So we were the first company to actually sell in-line process analytics and bioreactors under our Ingold brand many years ago, and that gave us a competitive advantage. And over the years, we've been able to expand the parameters of -- that we can measure inside of a bioreactor, okay? And so now, we have several parameters we can measure. We can actually then feed that information back to our transmitters, and that really gives the -- our customers the opportunity to really monitor what's going on inside of the reactor.

And one of the interesting things for me was like maybe coming back to this point of selling through the value chain, so if you think about COVID, right, in February 2020 when Moderna first was -- felt like they had a vaccine potential, right, the Wall Street Journal ran an article on that. And I remember seeing it, and I remember because they showed a big picture of scientists at Moderna using our pH meters. And so people probably wouldn't have thought of Mettler-Toledo as the company that would have been in that picture, but we were.

And then, a few months later, there was an article, I think it was also in the journal with Pfizer, and they were showing, hey, they're getting close to production, they're developing the drug. Where are they with the development? And they were showing our automated chemistry equipment in the journal.

And then, a few months later, another article. And this time, we have -- it was now President Biden was at Pfizer in front of a big bioreactor making the drug, and it showed our Mettler-Toledo process, the analytics terminal, monitoring what was going on in the reactor. And again, it's like -- it was a great example of just a story of how we were able to help these companies throughout the whole process from discovery all the way to production.

If you look at our business, though, for life sciences and pharma, I'd say about 3/4 of it actually is helping in production in QA/QC labs. And on a QA/QC lab, we can sell up to 40% of the instruments on a typical quality bench, okay? And so that's a good value proposition for our customers. But we can also -- we also have a strength in our software. So our LabX software is also sold to many of those products. So if you think about meeting the needs of data integrity or the needs of trying to automate workflows with an instrument, but also between instruments, it's a huge value proposition. And so LabX is a huge differentiator for us in the marketplace. And I think this theme of automating labs and digitizing labs is certainly a theme that we continue to see into the future.

Then, let me go to our industrial business. So our industrial business is about 40% of our business, and there's 2 parts of that. There's the core industrial business, which is 25% of the global business, and there's the product inspection business, which is 15% of the global business. So core industrial is 60% of industrial, product inspection is about 40%.

So what you see in our core industrial business is actually a lot of overlap with our same core segments that we see in the laboratory side. About 60% of our business in core industrial is sold to a combination of pharma, biopharma, food manufacturing and chemical. And as I said, that's mostly specialty chemical.

And when you look at core industrial, probably the best way to think about this business is process control, like that's effectively what we're largely doing. So if you think about like a bioreactor, right, you need to fill that bioreactor. You need to monitor that bioreactor. Well, all those filling and formulating processes are based on weight. And that's also monitored through our terminals and our softwares -- and our software that's also integrated into our customers' processes. And so that's a lot of what that business is.

That business also is -- can be sold into other industries. It's less cyclical than it used to be. But certainly, when you think about the economy, it's going to have a little bit more exposure. But this business also is going to benefit significantly from trends around onshoring as well as trends towards automation. As companies are onshoring, they're looking for more automation. And then, most companies in the world today are also looking to extract more information out of their instruments or their processes. And so we enable that as well, too, and that's a strength of our portfolio also.

And then, on the product inspection side, like I said, that's about 15% of our business. And with PI, about 70% of that business is sold into food manufacturing companies. So that business is -- that's been a more challenging end market over the last few years with higher inflation, input costs, et cetera. But we're actually competing really well, and it's a really good story of innovation.

If you look at some of the things we've been able to come out with over the last few years we're very proud of. They're very well received in the marketplace. And also just how we're looking at that business strategically. And there was a day where we were kind of sitting in the premium space pretty exclusively, not that there wasn't competition, but that's kind of where we've spent a lot of our energy. But over the years, we've really tried to think about it a little bit more holistically and looking at the middle market opportunities.

And that's really -- the markets shifted a little bit there as well, and that's really helped us to grow, not only domestically here in the U.S., but globally in emerging markets as well, too. And so we -- you've seen some pretty good numbers in that business over the last year. And then, our last business would be our food retail business, which is about 5% of our business and tends to be a little bit lumpier, but does a nice job of leveraging a lot of the infrastructure inside of the company.

Great. And then maybe switching gears to the macro, shutdown has been topical. Budget flush, I think, comes up. How would you characterize the macro? Any change in sentiment?

Yes. So, it's been an interesting year, right? I mean, we -- when we were sitting here a year ago, Q4 was actually looking pretty good. We had a strong budget flush. And then, there's been a lot of uncertainty this past year with between trade disputes, different governmental policies affecting our core end markets and then just a little bit more uncertainty on the economy as well as our core end markets.

The headlines have been better. And so I think we're all hopeful that that's going to create an environment that gives companies more confidence to invest again. But we're still a little cautious. I think it's maybe our nature to be a little cautious, but we're a little bit cautious as we kind of guided here for next year.

We do see things improving. We're optimists. We do believe that a lot of these policies are going to create a lot of incremental investment. It's just -- it's a matter of timing and when. But I think in the short term, we're just a little bit more cautious with some of this uncertainty. And as you can appreciate, it's very dynamic, right? Like it's -- certain companies are already probably feeling a little bit out of the woods and maybe they're going to start to move a little bit faster. There's other companies that are probably still dealing with some of these topics.

And if you think about it, we're a global business. And so I can imagine that there's -- if you look at our guidance, we're a little bit more cautious on Europe, as an example, compared to other parts of the world. Now, part of that is because Europe has a more difficult comparison to a year ago in Q4. But I also think that the economy is a little softer there right now. And I think that there's a little bit more uncertainty in that part of the world in terms of what does some of these policies mean for them.

Got you. Sorry, just on shutdown, Shawn. Have you seen any impact from the shutdown at all, government shutdown?

Very little. We would feel that in our liquid handling business, especially given the consumable nature of it. So I heard a couple of anecdotes about that, but it's an extremely small part of our overall business.

Got you. And then, for year-end budget flush, when do you typically see that? Should we have seen that by now? Or is that...

For us, we are more very late in that cycle. I think it's because -- well, we're never the biggest budget flush company, and I think it's probably because of the nature of our products being such small ticket items that can be procured pretty quickly towards the end of the year as companies have more clarity on what they want to spend or don't want to spend.

Got you. And, one of your peers, I think, on the recent earnings call, they quantified a dollar number for onshoring. This is more for biopharma. They're more in the QA/QC area. They put a $1 billion number, and their assumption was low single-digit percentage of the overall whatever announcements by biopharma should go towards tools companies for QA/QC kind of instruments, right? Is there some math on what it means for Mettler? Have you tried to size what onshoring means for tools and for Mettler?

We haven't tried to size it for our business. Of course, we're seeing a lot of the things that you're seeing about commitment levels, which is very encouraging, especially the time over the next 3 years, but to try to break that down to our business, we haven't done that math.

Got you. But suffice to say, I know like during the earnings calls, Patrick sounds a little bullish on onshoring, right? Have you seen customers bring up onshoring and start placing orders?

Well, I mean, we have a lot of customers, right? So our largest customer -- end customer in the world is still not more than 1% of our sales. So it's hard to like try to relay like one conversation and try to extrapolate. But I feel like we're very much in the early innings of this topic. I have heard anecdotes of our -- literally companies in China talking to our team asking, can we work with them if they want to move to Mexico or if they want to move to Singapore or they want to move to another part of the world. And I almost purposely say that just to show you like it's a very broad topic. It's not just the United States.

And as a global company, I think we're very well positioned for it because a lot of times customers don't want to just start with a new company. And so I think we're well positioned to move with them when they move around the world. And there's going to be stuff moving to Europe as well, too. There's going to be stuff moving into India. But of course, we see locally a lot of the commitments in the United States, which is very exciting because when you think about historically what our business looked like, I'd say about 80% to 90% of our business in North America and Europe as well was replacement business.

We didn't have a lot of green fields. Now, we're going to have -- whatever that number is, I'm sure it's going to be more than it was in the past, right? And so it's a very exciting opportunity, I think, going forward. And then, when you combine that with a replacement cycle that's a little bit stretched at the moment, our installed base is a little bit older than it usually is, that could be a very powerful combination as we kind of look over the next 3 to 5 years.

That's very helpful, Shawn. On the replacement cycle, what is like a typical replacement cycle for Mettler? Would customers start replacing those instruments after a certain number of years? And when you say stretch, like how stretched are we relative to the normal replacement cycle?

Of course, it's going to always depend on the product and the application and how it's being used, what conditions it's under, but we would typically estimate that our average life cycle of a product would be about 7 years. And so if you just think about COVID being like a high watermark of purchasing, it feels like we're starting to get there in terms of that replacement cycle at some point in the foreseeable future.

If you look at our installed base, we look at it by different categories, of course, but it's a little bit longer than it normally is. I don't want to be so precise to try to measure it, but it's a little bit longer than it normally is. And so that's another indication.

Now, do customers now decide to use things longer than normal? Like we'll see. But I think -- but personally, I feel like there historically always has been this dynamic, and it's our job to bring new innovation to the market to give them a reason to buy a new product as well, too. And I think we've done a lot of things with our R&D programs to accelerate development and to be a little bit more agile with our development.

And you've seen probably an increased cadence of new products coming out over the last year or 2. And that's -- when we look at our pipeline, we actually feel very good about that as well, too. And that was always very important to Patrick was how do we come out of this downturn as a stronger company and a very strong belief that companies that invest into these cycles in the right areas are going to come out stronger. And so if anything, we actually increased R&D over the last few years with an intention of coming out stronger.

Got you. And I know on the 3Q call, you guys spoke a lot about AI digital initiatives. What are these? And how are they helping Mettler?

Yes. So for us, the broader topic of digitalization is not new, right? Now, AI is new. But I think it's a pretty broad topic. And I feel -- when I look back, I feel very good about our journey here, like -- so over 15 years ago, we started this journey on Blue Ocean, right? So Blue Ocean was a program that looked at our very complex global company with very fragmented systems and had an aspiration to try to say, how do I take this complicated company and harmonize its processes, and then, how do I enable that with a single instance of an ERP in a single instance of a CRM that's fully integrated? Super ambitious goal, like anybody that's worked in a multinational company can appreciate that's very ambitious.

And it's taken us a while to get the entire business onto this program. And we're pretty much there. There's just a few units that are not on the Blue Ocean program. And I think they will be by the end of next year. So now, with Blue Ocean, so why is that important? Well, that's the enabler. And so with that setup, you have the data. And we have very, very rich data. And we started to see some of the true fruits of that during COVID.

When the market started getting very dynamic and things started changing very quickly, the ability for us to see through our supply chain and react was, to me, really cool, like that agility. And we're developing, frankly, new muscles throughout the whole process with the trade wars, et cetera. And so with that data, we can now do a lot of things.

So when you think about digitalization, I'd say there's like 3 pillars to it, right? There's -- Pillar 1 is what does it mean internally to Mettler-Toledo. Pillar 2 is what does it mean with how we interact with our customers. And then, Pillar 3 is what does it mean to our products and services to our customers.

And so on Pillar 1, now that you have this Blue Ocean program, you have shared services and things like that, but now with harmonized processes and -- when I say harmonize as best as you can be as a global company, you have the ability to automate. And so I think we were early on the automation bandwagon, and we have a very significant number of bots out there today. We have more under development and more to come. And so I think there's a lot that we're doing in terms of our own internal automation and productivity.

But then, we're doing a lot with how do we gain more -- well, this is also a combination of insights and productivity, this next thing, but with generative applications, now we get a little bit more AI, right, so large language models. Like so every function within Mettler-Toledo has its own list of use cases, and it has its own list of, I'd say, AI strategy, if you will.

So Adam and I were just at an internal finance conference a couple of weeks ago, and that was a huge theme of our conference, right? It was how do we embrace and accelerate digitalization in our finance community, and we launched several tools in this regard. Some of them are generative applications, some of them get into predictive analytics, some of them are into how do you process, mine your -- how do you mine through your processes and identify opportunities for efficiencies.

And then, some of them are basic things about like how do you best summarize your financial results or how do you best -- if you have a question. And so we have like our own version of chat. We have -- we call it ChatMT. We've had it for a couple of years. And so that's been something that's been helping our organization to be more efficient, productive. And I give the finance just because it's more topical for us coming out of that thing. But you can imagine it has even more power when you think about how do you prepare to meet with the customer, how do you -- we have technologies that are also helping us go through our pipeline to prioritize our pipeline, to guide our sales force to the -- how they should best use their time, but also to prepare for those interactions. So if you think about all the collaterals we have inside the company, it can leverage all those types of things.

If you look at like our service business, we have tools that allow our service technicians to be dispatched in a more efficient way, like it can look at what's the average time to go from point A to point B, what's the average time to do that type of a service call. And so we have technologies that help us to automatically dispatch.

And then, if you look at our supply chain, we have things that help us to determine what the cost of something should be. So we call it should costing. And so this gets into big data analytics and things like that. And I could go on for a long time here because there's a lot of things. Spinnaker has a lot of -- has for a long time leveraged big data in terms of topK and how we guide our sales force to the most attractive opportunities.

The second part, the pillar that I referred to, was the customer pillar. So in the customer pillar, it's really about how do you enhance the digital journey with your customer, right from when they're trying to do their own research on Mettler-Toledo to the whole -- evaluating our capabilities and our products to ordering to even after they placed an order. They have access to their installed base, and they can have their own personal portal, and they can look at all their service certificates for their own compliance programs and those types of things. So there's a lot of things we're doing with them to better interact digitally. Some of those are live, some of those are in process, but it's actually very interesting to see what our teams have here. It's a big part of this last wave of Spinnaker 6 as well.

And then the last part is -- the third pillar that I referred to is our product. So I think there's like 2 elements to that. One is, if you think about our instruments, they're a source of collecting information. And so our instruments by nature are enabling our customers' own AI and digital programs, okay? And so as we do that, we need to make sure that we have structured data, okay, in a way that facilitates their analysis. We need to make sure that we have good connectivity into their systems, and we need to make sure that it's cybersecure. And those things might sound basic, but they're not.

And I think the fact that our teams have done a very good job on these types of areas and have been kind of out in front on these areas has created a competitive advantage for us with our customers. And you see it, like, for example, in our core industrial business.

But then the other part of it is like what are we actually doing to our products to make them AI-enabled? And so we have things like vision technologies, like where we could like look at imaging and like so a good example would be like in our food retail business. So as a consumer, it's a product that you would be more familiar with. So you go to self-checkout, you want to put on -- you put on some apples on the scale. It automatically knows they're apples. It automatically can weigh them. It can be in a plastic bag. And our technology is much faster and much more accurate. And it's a relatively new technology, and it's just in the process I think of being introduced into the U.S. at this moment.

But I just remember being in Europe in last year's budget cycle and hearing stories of how European companies were reacting to this technology. It's a huge value proposition for them. And that's just 1 example. You can imagine we can use image technologies and other applications as well. But then, on the data side, some of our products have what we call AIWizards embedded in them as well, too. And then, a really good example of where we use software for predictive applications for our customers is in AutoChem.

So if you think about automated chemistry, you're kind of in that process of like, okay, I've discovered a chemical compound, how do I make it most efficiently and most safely, so they would in our -- with our products, we have like these mini reactors, and we have all these sensors going into the reactors. They would then do the experiment, the reactors would feed the in situ information into a computer. And then, historically, a chemist would then have to spend sometimes hours trying to analyze that information. But we have software now that can look at that reaction and basically provide a recommendation of the best way to do it, and then, they can rerun the reaction based on the recommendation, and it saves them tremendous amount of time. And so that's just yet another example.

Fantastic. And maybe switching gears to your 3Q and sort of Q4 assumptions in '26. When I look at Industrials, that was a highlight in that 3Q, right? Your core industrial up high singles at -- core, I think it was up 10%. With global PMIs being anemic, was there anything one-off that drove the 10% core industrials in 3Q? And I think your Q4 assumes that number to step down to low singles. So what causes this step down?

Yes. I mean, when we entered the quarter, we knew that -- we felt that core industrial was going to be strong. I think we -- I think our guidance might have been high single digit going into the third quarter. And then, we ended up with this, I think it was, 10% organic number. And so clearly exceeded our expectations.

There was an element of things going well in a lot of parts of the world at the same time. We did have -- we did feel like we benefited a little bit from some timing topics, just some -- there are some projects in that business that can kick in from time to time. Some of those projects completed in the third quarter versus the fourth quarter. That's a little bit also why our fourth quarter guidance is a little bit more cautious compared to the third quarter.

But I think if you just look at the second half of the year together, we feel really good about that as a print for just the second half. So maybe a little bit of timing going on there. But at the same time, I also feel like we are benefiting from some of these trends in automation and digitalization.

Got you. Sort of maybe a similar question on PID. Again, PID, I think was high singles in 3Q. What is Q4 assuming -- and why should -- when you look at both PID and core, right -- I mean, core, I understand that PMIs have lagged. But why should PID slow down when you look at Q4 into '26, right? I think your guidance looks at low to mid-singles for the segment.

Yes. So Q4 for product inspection, we -- our guide is high single digit. But you're right, for next year, it's low to mid-single digit. And we're -- that business, I think we feel like it's a tougher comparison. We acknowledge it's a more challenging end market. 70% of it is food manufacturing. And so the combination of those 2 things kind of fuels a little bit of our cautiousness going into the year. And keep in mind that's on a reported basis. So that number also includes a little bit of acquisition benefit as well.

What are -- I know the business is less cyclical now when you look at the combined industrial portfolio, right? Our PMI is still a relevant metric for us to be looking at when we try to forecast the business?

I mean, there's not 1 great KPI out there externally to try to compare us to. I'd say we're less correlated to PMIs than we used to be, but I also would say we're not immune to the economy. And so we still look at them ourselves, but we certainly have also noticed that we're less correlated than we were maybe 5 or even 10 years ago. And I think part of that is because through Spinnaker, we've really kind of shifted the mix of business more towards our core markets. If you think 10 years ago, pharma, biopharma would have been probably 30% or 1/3 of our business. Today, it's about 40%. And so that's a good example that we just have more secular exposures today than we would have 10 years ago.

Got you. And then, maybe on the lab side, lab did about 4% in 3Q, anything that stood out? Look, I know you have those different theses within lab between analytics and scales and pH meters, AutoChem. What stood out for you in lab?

And then given the macro situation, right, like why is Q4 assuming a slight moderation to low singles? And what went into your fiscal '26 sort of low to mid-singles assumptions?

Right. So we felt -- overall, we felt good about lab in Q3, but I think when you peel it back, there were mixed results. And so on one hand, we had very strong growth in our process analytics business that we talked about earlier. We really saw great growth in bioprocessing, both in upstream and downstream applications, but also in reusable, but single-use sensors. I think on the single-use side, we saw particularly strong growth in the quarter.

But within process analytics, there's also other end markets that we're benefiting from, like, for example, the semiconductor industry. We have ultra-pure water applications, which is important for semiconductors. So we've seen -- we experienced very good growth there.

And then, another like smaller hot segment is power. And so as you think about AI and the building of data centers, this business will benefit from that. Now, that's still to come. But right now, there's a lot of investment in power generation for those data centers. And so we're starting to see some benefits in that business as well.

But then, the other side of lab is on the research side, which is softer. And so pipettes were down in the quarter. It's been a softer business. Consumables is -- does better than instruments. But on the instrument side, it's still down a little bit. I think that business has just been hit with a lot of the negative trends that we've kind of seen in the headlines, the challenges with biotech funding, the challenges with academia and grants. And then, even more recently, the government shutdown certainly didn't help.

So I feel good about that business in terms of like what we're doing, what we can control in terms of innovation and how I think about the future. But right now, it's just a more difficult environment for that product category. And then, as we think about next year kind of low to mid-single digit, we kind of -- we're not expecting trends to significantly improve next year. We certainly see an upside case to that. As pharma kind of comes back, that business will obviously come back.

As I mentioned before, we've been really trying to invest for the future. So we have a lot of exciting things when it comes to research and development and new product introductions, and that should help us in the future. And as you think about trends around automating labs and digitizing labs, our LabX software really is a competitive advantage, and we continue to invest in that for the future as well, too.

Got you. Just on the pharma. I don't know if you track growth by end markets. Like do you look at what did pharma overall grew for you guys in '25? Is that a relevant number for you guys?

We look at it, but we -- yes, we do look at it, but I don't have the number in particular off the top of my head. Yes.

Fair enough. On academic and government, how big is academic and government? What is your NIH exposure? Maybe talk about recent trends within that market.

Right. So it's a much smaller market for us. Academia globally is about mid-single digit. Government would be a low single-digit number. If you look at specifically to the United States, together they're low single-digit part of our global business. So the stuff that's been going on here locally is a much smaller impact on our global business.

And then, if you look at NIH, it's closer to 0 than it is to 1. It is very, very small. The market has clearly been under pressure. Academia, I think, was somewhat better in the third quarter in the U.S. than it has been, but against a much easier comparison, but would still kind of consider it a more softer market for us compared to our other markets. And we're still a bit cautious on it kind of going into next year.

Got you. One on China. I think you guided low singles outlook for next year. Are you seeing any stimulus? Or what could change the China story relative to your guidance assumptions?

Yes. So I mean, China -- so in the most recent quarter, one of the interesting data points for us is that we saw growth on industrial. It was the first time we had growth on the industrial side in 2 years. It was modest growth. Both lab and industrial were up low single digit. But it was a nice indication that things are starting to slowly move in the right direction. Patrick and I were just there in -- recently in September. And I think the industrial team felt a lot better than it did a year ago in terms of like maybe some of the challenges in the local market.

The economy is clearly under a lot of pressure. But I feel like our teams are competing extremely well. I feel like we have a very strong China-for-China strategy there in terms of making goods in China for China. I think we're well aligned with the Chinese government's priorities in terms of the -- where they're investing. And then, if you look at where we -- who we sell to, it's mostly Chinese private companies, it's not so much multinationals or even the government.

In terms of stimulus, it's less of a topic for us there. But I think, overall -- I think these priorities of the government will yield results in the future. And I think if you look at topics like GLP-1s, there's a lot of investment. I think half the GLP-1 drug candidates in the world are being developed in China at the moment, and that's an exciting opportunity for us going forward as well.

Got you. Maybe last 30 seconds, Shawn. Would services grow for you guys in '25? And what is guide assuming for '26?

I think mid- to high single digit for both. And we feel like services a great opportunity to outgrow the corporate average given that our serviceable iBase is about $3 billion, and our total business is about $1 billion. So we're certainly making it a priority in how we invest in the business as well to kind of go after that opportunity.

Fantastic. With that, we're out of time. Thank you so much.

Thank you, Vijay.

Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

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, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement, except as required by law.

On today's call, we may use non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website.

Let me now turn the call over to Patrick.

Thank you, Adam, 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. Shawn?

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% and 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've 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 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 a challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched a focused pH meter, our new high-performance multiparameter benchtop meter for pH, conductivity, hiring concentration and dissolved oxygen measurements. In use of our broad offering of digital sensors, 9 focus 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 auto sample 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 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 rest of the world grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter 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 industry, 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 pharmacopeia 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 affective as MT 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 of effective 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'm 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 tariff 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. We add new products and services to our portfolio increased our sales capabilities. We are very happy to welcome our new colleagues to our team.

Now this concludes our prepared remarks. Operator, I would like now to open the line to questions.

[Operator Instructions] And our first question comes from the line of Luke Sergott with Barclays.

I wanted to start talking -- start off with the guide for 26. Can you just kind of give us a breakdown of how you're looking at that by segment particularly around the industrial side and what you're seeing there from PID and core industrial?

Luke, this is Shawn. I'll take that one. So for 2026, we're looking at low to mid-single-digit growth in our laboratory business. Of course, we'd probably expect to do better than the average on our process analytics. We saw a really good momentum in bioprocessing in the quarter that we expect to kind of continue into next year. Maybe the other side of that is that the early research area like where we participate like liquid handling will be a little bit softer.

In the Industrial business, we're estimating core industrial to be low to mid-single digit in product inspection to also be low to mid-single digit. Both of them will have like a modest benefit from some of these smaller acquisitions that we talked about. And then retail would be -- we estimate it to be flat for next year. And then if you break it down by geography, we're assuming the Americas at mid-single digit 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 is the consumer starts getting weaker, how is that kind of playing out when you're thinking about based on that guide and how the pacing has been through the quarter and into 4Q.

Yes. I mean, we've been really pleased with the results in that business this year. I mean if you think about the end market, the end market still is challenging. I mean 70% of that business is sold into food manufacturing. But the dynamic we've seen is that we've invested a lot in innovation over the last few years, and we've really been able to build out our portfolio, particularly targeted towards the middle market. And we find that to be a sweeter spot in terms of where there's growth opportunities as well.

And so when we step back from that, our teams are executing really well and the recent product innovations are being very well received in the marketplace. And Patrick and I just came out of our annual core that he talked about in the prepared remarks, and we also spent time with the our executives and the Board this week. And as we just look at the pipeline for the future in that business as well as our other businesses, we feel really good about what we have coming out in the future as well, too.

So I feel like we're competing very well. But you're right, the backdrop is still more challenging market conditions..

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

Congrats on a really nice sprint here. Moving 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 now there with local trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide 2% to 4% for 2026. We think it's a very prudent guidance in this environment.

And well, there could be some upside, of course. I mean, again, if the market's 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 of this versus second half next year, Shawn I don't think we have...

Yes. I mean one thing to keep in mind, Vijay, is that we do have more pricing in the second half of this year, then we'll have next year. We had about we benefited about 3.5% or so in the third quarter. On pricing, we expect to benefit by a similar amount in as we kind of go into next year, we're assuming about 2.5% for price realization for the full year. That includes some of the benefits from these midyear pricing actions to mitigate tariffs. But when you step back from that, the assumption on organic volume growth, it's going to be certainly, it's going to be modest growth next year.

And I think if you look at the back half of this year, yes, Q3 was a little bit better, Q4 is maybe kind of go down a little bit. but I don't think it's a significant change in terms of how we're seeing things. And I think the reality is it's early, right? There's still a lot of uncertainty. Headlines are more favorable in the last few weeks, if that continues. We're optimistic that, that can help increase the stability and confidence within our end markets. But we're just a little bit cautious given all the volatility we've seen with our the pressures on some of our core end markets over the past year.

That's helpful. Shawn, maybe on the 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. One of the -- it's a good question because one of the dynamics we face is that the way currencies have evolved and just over the past quarter, we have a lot more benefit on the sales side, but we have a -- that's being offset by cost increase in the Swiss franc strengthening against the euro. And so even though it's not having a significant impact on EPS, it has a bigger impact on operating profit as a percentage of sales.

And so when you kind of do that math, our operating margin expansion for next year is about plus 60 basis points on a currency-neutral basis. So it's not -- it's -- so I think it's a much better story than the reported number, which is probably in the 20 to 30 basis point kind of a level. And I do feel very good about execution in the organization, and I do feel good about our ability to mitigate these tariffs.

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

Patrick, to what extent do you think onshoring demand work itself into the picture for 2026 versus 2027 and beyond. You guys have some products that seem like it could be part of what's done earlier rather than later but I also know you guys tend to not get too worked up about some of these high-level ideas in your earlier stages. So can you just maybe think a little bit about and tell us a little bit about your thoughts on '26 there?

Very good. Look, I think we are very well positioned as a global company to benefit from the rein home showing activities. There are big numbers out there, as you know, from pharma, from semiconductor and other places. And as you know, we -- about 50% of our sales are sold into both production and plus QA/QC. So that's a big part of the portfolio as these companies will start restoring or building out capacity in the United States and in Europe as well.

Again, there have been large announcements, but it will take multiple years to build these new plants. So I think it will not happen immediate effect. It will be a gradual effect. We expect some of it in 2026, probably even more in 2027. But again, we make sure that we are ready to work with our customers. We're talking to all our key accounts at the moment. We have also made some of these statements. So if you think about the pharma companies that they will build out capacity in U.S., we are ready to help them with establishing their labs, their manufacturing floors, like QA, QC, et cetera with our products.

But this will be a multiyear journey. I mean if you think back even on the semiconductor act, how long that to take took until really we saw some momentum in the end market. I think the impact for 2026 will be moderate. But again, for us, it's important that we are very early for our customers to help them as they design the labs, the manufacturing flows that they get the latest of our innovation to help them to drive productivity and efficiency, which they are looking for together with all the dual capabilities that we have.

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. I mean we're assuming low single-digit growth in both of those businesses. As Patrick mentioned in the prepared remarks, one of the upside, I think we have on the Lab side is the latest update of pharmacopea in China, which I think is a nice opportunity. All the investments that are going on in country with GLP-1s is a really good example. And so we feel like there's medium to long term, some upside here, but we're a little bit more cautious as we as we think about things today.

And then on industrial, one of the highlights of the third quarter was our industrial business. And within that, we had good region and -- we had good growth in each region, but it was nice to see growth in core industrial in China in the quarter. It's actually the first time we've had growth in that business in 2 years. And so when you think back to the beginning of the year and some of the things that were on our mind, that was a bigger -- an area where we would have like had placed more risk, just given all the uncertainty with their economy, and it's nice to see that they had some growth.

And I feel very good about our ability to continue to execute there. We kind of walked away from our visit there just 1.5 months ago, feeling optimistic and the team was really motivated and engaged. So it was good to see.

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. But would love if you can 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. Good. Thank you, Brandon. Yes, of course, normally, we do not -- this is the amount of deals in 1 quarter, but to be honest, the deals also take a long preparation times 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 give us really additional sales and service capabilities, including some new services.

We also acquired the [ Genie-Vortex ] mixers which is a really strong brand that expand our life science equipment portfolio that complements, for example, of our pipette business and the businesses shakers and others that we sell to our old house business. So it's has been a good number of smaller acquisitions, not on a 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 give the Lab -- the China Lab growth in the quarter? And what is embedded for '25 for China and those 2 segments specifically?

Yes. So for Q3, it was up low single digit. I mean just -- I mean, I'm sorry, let me just confirm that, yes, it was up low single digit in Q3. And then for -- and then for next year, we also expect it to be up low single digit as well.

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. 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 a 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 I will implement it directly with end customers all 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 [indiscernible] and homeshoring activities.

But for us, it's most important that again, that 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 these products that also have very strong capabilities when it comes to cycle security, which we spend a lot of activity as well.

Okay. That's helpful. And then maybe 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 in next year. What do you guys see in there? Has there been kind of steady improvement? Is it just comps? And again, the confidence level there going forward would be helpful.

Yes, I'll go a little bit to the macro of Europe. Again, it's I would say, a tale of many city series, if you look at our -- how we see the end markets, I would say the Southern European markets actually are performing better than the Norther at the moment or mid think the biggest stress in Europe, as you can imagine, it's probably right now in Central Europe, it's a large economy in Germany, that is under significant pressure still from higher energy costs, et cetera. You all hear the news about the offshore showing some of the manufacturing in other areas to try to address the cost issues. Nordics has performed well, but then we also had a news coming out of Denmark in the last quarter. So about Novo Nordisk going through some resizing there, and that puts that piece of the market under pressure right now.

So it's really a mixed bag but overall, we are pleased with our own performance in Europe. I think it's very important that the leverage of our tools to always guide our sales teams to the hot segments that we see there, like bioprocessing, there's a lot of good activities in bioprocessing, for example, some of it in the new energy markets as well. and also in pockets also in semiconductor.

And I think really the story is here, yes, it's a more difficult environment. We see definitely better momentum right now in the U.S. and in Europe. But we're still very keen on capturing all the growth opportunities to compensate the macro trend that Europe is probably slow at the moment and probably will also be next year a bit slower than the U.S.

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've talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by DI 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 wind up to does this start to normalize? Were there timing dynamics? Or is there some real momentum here.

Yes, maybe I'll start here. So on the laboratory side, we were very pleased with the quarter. As you mentioned, certainly a highlight in the laboratory portfolio was process analytics. We saw really good growth on bioprocessing. This business also benefits from some of the investments that are being made to the power grid as you think about data centers as an opportunity in the future. But a lot of it was pretty much bioprocessing. And the power is like we have pure -- ultra-pure water solutions, et cetera, that help with power plants.

On the rest of the business, we also saw some good growth, like, for example, within our analytical instrument portfolio, we were very pleased with growth in that business. If you look at weighing solutions also really good growth. The one soft spot that kind of -- I think I alluded to earlier was in our liquid handling business, we still see a lot of softness in that business. And that business really is in the crosshairs of a lot of the topics out there regarding funding and research, whether it's with biotech, whether it's with academia, whether it's with currently the government shutdown.

Now these are smaller exposures for Mettler-Toledo, but when you get into liquid handling, they tend to be a little bit bigger and they tend to feel, especially the consumable nature of that business. But we did have modest growth on the consumable side. It's really more on the instrument side where we saw softness.

On the industrial side, we did have some good -- much better activity, as you mentioned, in the quarter than we expected. I think we were kind of walking into the quarter feeling pretty good. And then just a lot of things happened in different parts of the world that just all came together. As an example, we have some activity in our transportation and logistics business, which is selling -- it's part of how facilities are trying to automate their factories, and we have these solutions around dynamic dimensioning, that's super effective, provides strong paybacks to our customers, and a lot of that kind of caught on in the quarter.

But it's not only that. If you look at the rest of the portfolio where we are facilitating customers' automation and digitalization needs. We saw some good trends there. We also saw good growth in each region of the world. But we also probably had in fairness, a little bit of an easier comp in Q3. If you look at it on a longer-term CAGR basis. And so that comp is maybe a little bit more difficult in the fourth quarter. And as we kind of listen to the organization and customers, just the timing of activity seems to have been a little bit more skewed towards Q3 versus Q4.

We're actually a lot more cautious on our core industrial projection for the fourth quarter. We're probably looking at more like low single digit in the fourth quarter. So we do see a step down there quarter-on-quarter. But when you like look at the second half of the year and combined, we actually feel really good about how we're executing and how we're positioned going into next year.

And I just think that the portfolio is doing well. It's being really well received globally, and we always talk about of this businesses, while it's exposed to the macro, it also has a lot of opportunity with all these onshoring needs. And as companies are ensuring they're investing more in automation as well as digitalization and we continue to invest in our portfolio to optimize these opportunities.

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

I want to follow just kind of when you were just touching 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 there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you assuming for government shutdowns?

Just are there any other moving pieces you touched on the comp in core industrial just now, but would have to flesh out the 3Q to 4Q dynamic? And I've got a quick follow-up.

Yes. Mike, maybe I'll walk down the Q3 versus Q4, like you said, so everybody has that, and then I can make a couple of comments on it as well. So in and lab was up 4%, and our guidance for Q4 is to be up low single digit. As we think about lab, we're a little bit more cautious here on budget flush going into the fourth quarter. I mean last year, you recall, we actually had a pretty good budget flush. We're not such a budget flush company, but the reality is we do have seasonality in our business. And as we just sit here today, we're -- there seems to be a little bit more caution with some of the uncertainties out there around governmental policies.

In terms of our core industrial business, as you know, it was up 11%, that was 10% organic. And our guidance for Q4 is up low single digit. We just talked about that. Product inspection was up 7% and in Q3, and our expectation is that business grows high single digit in Q4. The there'll be a little bit of acquisition benefit in that number as well. And then retail actually had growth in the quarter, 5%. They've -- it's always a lumpy business. They've been on the other side of the lumpiness now for the last couple of years, but it was nice to see growth and they're actually looking at good growth here in the fourth quarter of about 10%, but it's also against maybe softer comparisons.

But that business is actually competing really well. There's some really neat examples of innovation in that business with some like imaging technologies, et cetera. And I think we're competing really well. In terms of the geographies. Our business in the Americas grew 10% in Q3. If you exclude the acquisitions, it was $8 million, and our guidance for Q4 is to grow mid-single digit. Europe was up 6% in constant currency in Q3. And we -- our guidance is more flattish here. So we're definitely a little bit more cautious on Europe.

I mean, as Patrick mentioned, we're executing well there. Europe tends to benefit the most from our Spinnaker programs just given the magnitude of our direct sales force with -- in terms of our go-to-market strategy. But the economy is a little bit more softer. And I think there's just more uncertainty with a lot of the different topics around trade disputes, et cetera, that have a potential impact on customer behavior. And then China was up 2% and in Q3, and we're estimating it up low single digit in the fourth quarter.

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 in the mechanics behind it.

Yes, yes. So I mean, we're -- we're extremely happy with the organizational performance in this area. As Patrick said in the prepared remarks, our culture does tend to shine the brightest during challenging times. And I just couldn't be more proud of the colleagues in terms of how they've responded to these challenges over this past year. The journey towards offsetting these tariffs also didn't start in 2025. We had also coming out of COVID, like a lot of other companies, we wanted to create more flexibility in our global supply chain, and we also wanted to derisk our global supply chain.

So we already had some things that we were working on and that we could accelerate over the past year. And then the other thing is that we also have the opportunity and pricing to mitigate. And I think that comes down to we've been investing a lot in innovation and the value proposition that we're providing to customers. And so fortunately, with strong value propositions that gave us an opportunity to take a look at pricing in a few areas over the course of the past year.

So as we kind of go into next year, I think we should be in pretty good shape at the beginning of the year in Q1, we'll provide more color on that at the end of this year. If you want to be a little conservative in your models, that's okay, but I think we'll probably be I think we should be in pretty good shape kind of as we start the year next year and certainly on a full year basis.

In terms of what it means, which I can anticipate as a question out there, so tariffs right now are about -- if you look at the tariff rate increases that were put in place in 2025. we're probably looking at about a 6% headwind -- gross headwind on 2026 that we -- and that's the magnitude that we're talking about offsetting.

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-evolution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like you 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.

Very good. Thanks, Jack. Look, China has struggled over with overcapacity for some time now. And if you look at the Intervolution policy, I think it's mainly focused on trying to stop price wars and address overcapacities in areas like solar, steel and other areas. These are, for us, not really large markets. And as we exited the heavy industrial infrastructure-related markets over decade ago, doesn't mean that we are totally immune this, but we are now more focused with our industrial portfolio on a broader market is really looking for automation capabilities, digitalization features.

And that's why we also saw some growth in Q3, frankly, I think our portfolio competes really well in a market that is fighting also for continued increases in productivity, driving cost down and you only can achieve that through automation and digitalization. I think our portfolio is plays really strong here. We have a strong R&D and manufacturing organization in the market. It really also understands the local dynamics and the needs of our customers.

So I think we are set up well to capture these opportunities. And with that, again, we think we will continue also in China to perform -- to outperform the underlying market dynamics with our strong portfolio. So again, anti evolution for us, probably not as big as a topic as you would think because we are not playing in these market segments that are on the most pressure or mostly focused by the government. And the rest of the market still is looking for the portfolio opportunities that we can deliver to them.

Okay. Great. That's really helpful context. I guess, second, you talked a bit about onshoring in the call. curious how conversations there, particularly among pharma customers have evolved in the past 45 days or so, commentary getting better around and other issues sort of clearing up.

Yes. I don't want to repeat myself. But again, there's a lot of big announcements out there, but we end very, very early in experiments. I mean it still will take time to build these manufacturing sites and build up the labs, et cetera. Most important for us, as I said, is to really be with the customers in the planning phase to help them to implement the right solutions to not only replicate of what they have seen in other places or have in other places as they try to onshore it, but really go to the next step in terms of automation digitalization.

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 volume 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. Good. 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, got tank scale, waiting et. cetera, play a big role, we will definitely continue to benefit from the strong momentum in this market. 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 of 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 saw it in both. I mean probably more on -- a bit more on bioprocessing sensor side, but also, again, really good customer engagement and also up building momentum on the tank scoring, et cetera. As these customers will build out their manufacturing capacities or do win home sharing. Again, they will look at us to help them to put in the news and most effective solutions.

Got it. Okay. And then as a follow-up, I was curious if you could talk through what you're seeing on the service side, maybe how service performed versus expectations, your thoughts going into '26? And then if there's been any update on attach rates or change in strategy to drive better attach rates would be helpful.

Good. Yes. We actually -- we are very happy with the 8% service growth that we have seen in the quarter including about -- that includes about 1% through the acquisitions we made. Service is really strong. We have also a great growth initiative in the company to build out not only our service portfolio, but also the coverage in the markets. We continue to target mid- to high single-digit growth in both 2025 and 2026.

Again, we are really confident that the long-term growth will be above company average for services. And that's actually, again, a segment that will -- that I'm also putting a lot of energy as a CEO, making sure that we really capture the full opportunity out there, and they have great progress in place, and I'm looking forward to continued growth there.

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 MFN deals? I'm just wondering what those have kind of looked like since some of these announcements have been rolling out?

I'll take this question. Look, I think the most Frankfurt Nation discussion has been out there. I think it's probably created some initial uncertainty of what that means. But overall, the Pharma segment performed for us really well. I think the customers are really now looking forward how they address reshowing home showing opportunities for them, also what they have the commitments they have made to U.S. government and they also see the underlying demand for biopharmaceuticals and others.

I think that the uncertainty -- there's still some uncertainty there, but it's not around the most favorite topics, at least when we talk to our customers, that is not the first topic that comes up. They are really looking forward to optimize their processes to drive efficiencies and also as they continue to expand their manufacturing sites that they can work with us on implementing the best efficient and most profitable solutions for them.

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?

Well, look, I mean, I would have last really see what we're 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 it 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.

Casey, maybe I'll take that one. So we had a really great visit with the Chinese colleagues. As you can imagine, it's a pretty dynamic environment, but what's interesting is just to see how the pace of change there and just our teams like their effectiveness in terms of like really being agile in the marketplace really stood out to us. It's a very fast-moving market, and it's really exciting to see how, like I said, agile our teams in terms of are identifying and pursuing those opportunities.

In terms of stimulus, as we've kind of talked about in the past, it's not so much of a topic for us. I mean, yes, there's maybe a little bit of benefit. Our teams do go after that. But if you just think about the nature of our portfolio and our customers in China. It doesn't lend itself as much to the current program for stimulus. Now when we start talking about broader programs about physical stimulus with bigger packages, we've benefited a lot from those in the past, but the current program is a little bit more isolated in terms of opportunity.

Got it. That's helpful. And then maybe if you could just unpack the product inspection performance, the 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 mid-range 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. I mean, like I said earlier, we feel very good about the performance here. We feel really good about the portfolio. We have come out with new products over the last few years. And the nice thing is that the cadence of product introductions will continue, and we'll start -- we'll continue to see some nice things coming out over the course of next year as well to help -- and I feel like that's what gives us a little bit of confidence in our ability to sustain here.

Now it's, of course, against a more challenging backdrop, but we do have good momentum. And I think there's even some synergy opportunities with some of these acquisitions as well. One of them, in particular, has like some additional services that we didn't provide in the past and that we feel like is an opportunity that we can leverage.

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.