Mettler-Toledo International Inc

NYSE:MTD

Earnings Call Transcript 2019-Q1

[Operator]

Good day, ladies and gentlemen, and welcome to our First Quarter 2019 Mettler-Toledo International Earnings Conference Call. My name is Jesse, and I'll be your audio coordinator for today. [Operator Instructions]. I would now like to turn our presentation over to your hostess for today's call, Ms. Mary Finnegan. Please proceed, ma'am.

[Mary Finnegan, Head, IR & Treasurer]

Thanks, Jesse, and good evening, everyone. I'm Mary Finnegan. I'm the Treasurer, and I'm responsible for Investor Relations at Mettler-Toledo. I'm happy that you're joining us this evening. I'm here with Olivier Filliol, our CEO; and Shawn Vadala, our Chief Financial Officer. I need to cover just a couple of administrative matters. This call is being webcast and is available for replay on our website. A copy of the press release and the presentations that we refer to is also on our website.

Let me summarize the safe harbor language that we have on Page 2 of the presentation. Statements in this presentation which are not historical facts constitute forward-looking statements within the meaning of the U.S. Securities Act of 1933 and the U.S. Securities Exchange Act of 1934. These statements involve risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. For a discussion of these risks and uncertainties, please see our recent Form 10-K. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under captions factors affecting our future operating results and in the business in MD&A in our Form 10-K.

Just one last item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and differences between non-GAAP financial measure and the most directly comparable GAAP measures is provided in our Form 8-K.

I will now turn the call over to Olivier.

[Olivier Filliol, President, CEO & Director]

Thank you, Mary, and welcome to everyone on the call tonight. I will start with a summary of the quarter and then Shawn will provide details on our financial results and guidance. I will then have some additional comments and we will open the lines for Q&A.

The highlights for the quarter are on Page 3 of the presentation. We had a very good start to the year with the first quarter results. Local currency sales growth was strong and better-than-expected as demand in our markets remained favorable and we continued to execute well. Total local currency sales grew 7% in the quarter. Food Retailing declined in the quarter. Excluding this business, our total sales grew 8%. We had excellent growth in our Laboratory and Industrial product lines, which more than offset the decline in Food Retailing. Growth in Europe and Asia was a strong and Americas, excluding Food Retail, also grew quite well. Our productivity and margin initiatives continue to drive good results, and despite a 7% gross headwind due to the adverse currency and tariff costs, we achieved a 10% increase in adjusted EPS in the quarter.

Our outlook for 2019 remains positive. This week has brought some noise surrounding the trades tariff dispute situation with China. For now, we have assumed that the second wave of tariffs will increase to 25% as indicated by the administration earlier this week. Shawn will go over this in more detail including the potential upside to our 2019 guidance if the tariffs situation improves.

We continue to be cautious on the global economy as economic data points have moderated in certain regions. However, we see no evidence of a downturn in our markets to date. We remain focused on execution of our growth initiatives and believe we are well positioned to continue to gain share regardless of market conditions. Assuming market conditions remain favorable, we believe we can generate good earnings growth in 2019.

Let me now turn it to Shawn to cover the financials and guidance, and I will come back later with additional comments on our business.

[Shawn Vadala, CFO]

Okay. Thanks, Olivier. Sales were $679.5 million in the quarter, an increase of 7% in local currency. As a reminder, all growth is organic. On a U.S. dollar basis, total sales increased 3% as currencies reduced sales growth by approximately 4% in the quarter.

On Slide 4, we show sales growth by region. Local currency sales grew 9% in both Europe and Asia/Rest of World. Local currency sales growth was 3% in the Americas but as Olivier indicated, sales were impacted in this region due to a decline in food retailing. Absent food retailing, Americas grew 6% in the first quarter. China had another excellent quarter with 13% local currency sales growth. We're executing well in Europe but also had some benefit from the timing of Easter this year versus last year.

On Slide 5, we outline local currency sales growth by product area. In the quarter, laboratory sales grew 8%, industrial also increased 8%. Within industrial, core industrial grew 9% and product inspection increased 6%. Food retailing declined 5% in the quarter. As you heard from Olivier, Food Retailing reduced our overall sales growth by approximately 1% in the quarter.

Slide 6 provides the P&L for the quarter. Gross margin in the quarter was 57.2%, a 50-basis point increase over the prior year level of 56.7%. Productivity and pricing continue to be strong contributors to margin growth. Partly offsetting these positives were tariffs from the U.S. China trade dispute as well as some initial cost and product launches. R&D amounted to $36.1 million, which represents a 9% increase in local currency. SG&A amounted to $204.4 million, a 6% increase in local currency over the prior year. The increase was driven by investments in our field force as well as higher variable compensation.

Adjusted operating profit amounted to $147.8 million in the quarter, which represents a 6% increase over the prior year amount of $139.5 million. We estimate currency reduced operating income by approximately $5 million, which is about $1 million worse than what we had expected the last time we spoke. We also estimate that tariffs were a gross headwind to operating income by approximately $4 million. Absent adverse currency and the gross impact of tariffs, operating income would have increased 12% in the quarter.

Operating margins reached 21.8% in the quarter as compared to 21.1% in the prior year. We are pleased with this increase given the meaningful headwinds we faced in the quarter.

A couple of final comments on the P&L. Amortization amounted to $12.2 million in the quarter, interest expense is $9.1 million. Other income amounted to $670,000 compared to income of $2.4 million last year. As we mentioned on our last call, this line includes pension income, which for the full year, will be down versus the prior year. Our effective tax rate was 20.5% in the quarter before discrete items and adjusting for the timing of stock option exercises.

Moving to fully diluted shares, which amounted to 25.3 million in the quarter, and is a 3% decline from the prior year, reflecting the impact of our share repurchase program. Adjusted EPS for the quarter was $4.10, a 10% increase over the prior year amount of $3.74. Absent currency and the gross impact of tariffs, our adjusted EPS growth would have been 17% in the quarter.

On a reported basis in the quarter, EPS was $4.42 as compared to $3.58 in the prior year. Reported EPS includes $0.10 of purchased intangible amortization, $0.05 of restructuring and a $0.47 difference between our quarterly and annual tax rate due to timing of stock option exercises. That is it for the P&L and I'll now cover cash flow. In the quarter, adjusted free cash flow was $80.2 million as compared with $56.5 million in the prior period. Our working capital statistics remain solid with DSO at 44 days and ITO at 4.5x.

Let me now turn to guidance. We continue to feel very good about our growth and productivity initiatives. As Olivier mentioned, we remain cautious on the global economy as certain economic data points continued to moderate. We have seen no impact to our business to date and our guidance assumes demand in our markets remain favorable. There's been a lot of talk this week on the China trade tariffs situation. As we sit here today, there is no meaningful change to our assumptions since the last time we provided guidance. That is, we assume that tariffs rate on the second tranche of tariffs that were announced last September will increase from 10% to 25% effective tomorrow, May 10, as announced by the administration earlier this week. We'd assume in our February guidance that this will occur in March, so a slight delay but no meaningful impact to our guidance. Therefore, we still assume that gross negative impact of tariffs and operating profit will be approximately $25 million on an annualized basis. For 2019, we assume a gross EPS headwind of approximately 2.5%. If tariffs were eliminated completely, we would expect EPS to benefit by approximately 1% on a full year basis.

In addition to tariffs, currency also continues to be a headwind to earnings in 2019, particularly in the first half of the year. For the full year, we would expect adverse currency to reduce EPS by approximately 2%. However, in the first half, it will reduce EPS growth by approximately 4%. Now let me cover the specifics. We now expect local currency sales growth in 2019 to be approximately 5.5%. This is a 50-basis point increase from our previous guidance, largely driven by the strong Q1 sales growth. One additional factor I want to mention is that we now expect Food Retailing to be down low single digits for the full year. Previously, we had expected Food Retailing to be flat. Excluding Food Retailing, our full year sales guidance would be a growth of a little less than 6.5% in local currency, a level we are very pleased with.

Largely driven by our first quarter beat, we are increasing our adjusted EPS guidance to $22.55 to $22.75, which is a growth rate of 11% to 12%. This compares to previous adjusted EPS guidance of $22.50 to $22.70.

One final comment on tariffs. As mentioned, we have assumed that the 25% rate for the second tranche goes into effect tomorrow. However, if the 10% rate should remain in effect, our 2019 guidance would benefit by a little less than $0.10. With respect to the second quarter. We would expect local currency sales growth to be approximately 5.5% and adjusted EPS to be in a range of $5.05 to $5.10, a growth rate of 9% to 10%. Absent currency and the gross impact of tariffs, EPS in the second quarter would be approximately 16% to 17%. Furthermore excluding Food Retailing, Q2 local currency sales growth would be approximately 6.5%.

Some final comments on guidance. With respect to the impact of currency on sales growth, we expect currency to reduce sales growth by approximately 2.5% in 2019. For the second quarter, we expect currency to reduce sales growth by approximately 4%. That is it from my side and I'd now like to turn it back to Olivier.

[Olivier Filliol, President, CEO & Director]

Thanks, Shawn. Let me start by providing some additional comments on our operating results. Our lab business continues to perform very well, with 8% local currency sales growth in the quarter, which was against good growth in the prior year. Analytical instruments, pipettes and Process Analytics did particularly well. Market demand is good and this business benefits from these proper investments in field resources: Spinnaker sales and marketing initiatives and R&D. We also see the nice benefit from good spending in biopharma in our Laboratory business and biopharma is a good example of how our Spinnaker sales and marketing strategy are targeting the most attractive and fastest-growing segments of the market. We serve both the upstream and downstream processes in biopharma that is R&D, quality control, process development, in-line process monitoring, such as bio reactors and pure water analytics.

Our pipettes Process Analytics and certain analytic instruments, such as UV/VIS and pH benefit from strong market dynamics in biopharma. We have also expanded our offering to biopharma in Process Analytics through new product launches in - with CO2 sensors to monitor bio production and new in-line micro bio detection for pure water solution. Our AutoChem business had also expanded their solutions in process development targeted to large molecules.

Finally, our biotech acquisition expanded our offering into biopharma market as this the launch of UV/VIS few years ago. Overall, we would expect lab to have strong growth in the second quarter and good growth in the remainder of the year, although they will face tougher comparisons in the back of the year.

Our Industrial business did quite well in the quarter. Product inspection was up 6% in the quarter, a little better than we expected. We have put the internal challenges we faced last year behind us with our move and Blue Ocean implementation. We continue to feel very good about this business over the medium term but have not seen large package food companies to return to investment mode. We think it will take a little longer for this to develop. While we expect full year sales and product inspection to be in the mid-single digit range, we expect growth in the second quarter will be below Q1. Core Industrial did very well in the quarter with growth of 9% in local currency. We had some project activity in transportation and logistics but even excluding this benefit, our Industrial business grew quite well. We were particularly pleased to see another quarter of solid growth in each region with particular strong results in Europe and China. Our Core Industrial business is benefiting from our Spinnaker sales and marketing programs as well as product innovation and strong execution from our teams. Overall, we would expect continued good growth for core Industrial for remainder of the year.

Although we wouldn't expect it to be at the level of Q1 and will face a difficult comparisons in Q4. The final piece of our company is the retail business which was down 5% in the quarter. Similar to the comments I made last quarter, we are not overly concerned given that we manage this business for profitability, not sales growth. We would expect further sales decline in Q2 and probably a little worse than in Q1. For full year, we would expect Food Retailing to be down low single digits. Overall, Food Retailing is a little more challenging than we had expected the last time we spoke given the softness in this market and the timing of customer investments.

Now let me make some additional comments by geography. Europe did very well with 9% growth in the quarter. Lab had good growth and product inspection, Food Retailing also had good growth. As already mentioned, Core Industrial had excellent growth in Europe.

Turning to the Americas, lab had very good growth while core Industrial had solid growth. Product inspection was up slightly, while retail was down significantly as previously mentioned. Finally, Asia/Rest of the World had another quarter of very strong growth. All business lines did well. China had another quarter of excellent growth, both lab and Industrial were up double digits. One final comment on the business, service had great growth in the quarter, up 8% in local currency. We had excellent growth in both lab and Industrial, reflecting traction on our growth initiatives surrounding service. We also benefited a bit from the timing of Easter.

That concludes my comments on the different pieces of the business. Two additional topics I want to cover briefly today. Our initiatives surrounding investments in field resources as well as update on our productivity and cost initiatives in Stern Drive.

We continue to make great progress in our sales force activities, specifically in generating more leads and recognizing more penetration gap opportunities. We want to continue to invest to capitalize on these opportunities. We are now in their fifth year of our Field Turbo program, in which we invest front-end resources in markets where we are underpenetrated in specific product lines. We are complementing our Field Turbo investments by also increasing our front-end resources by shifting market organization resources from nonselling, nonservice activities to front and field activities. Internally, we refer to this program as Shift 5, which targets a 5% shift in our market organization resources to more productive growth activities over a 3-year period. Some examples of resource shifting we are doing, we move sales and service back-office functions to field, telesales and inside sales resources in high potential strategic business units. We are shifting service technicians from less profitable business areas to higher growth, higher potential business. We're also shifting our marketing and IT and logistic resources to more front-end growth areas. A fundamental part of our continuous improvement focus is reallocation of resources to our most attractive markets. Going hand in hand with shifting more resources to the front-end and to the most attractive markets is furthering our initiatives surrounding optimizing our overall sales force activities. Central to our sales and marketing strategies to gain share in our fragmented market is the efficient use of our front-end sales team.

We continue to further our sales force guidance programs which utilize our sales resources in a sophisticated, go-to-market approach that capitalizes on big data analytics to guide our sales reps to the most promising market opportunities. I'm pleased with the continued development of these sales and marketing programs and initiatives.

On the cost side, we have made great progress on Stern Drive, our global program for continuous improvement in supply chain, manufacturing and back-office functions. Since the launch 2 years ago, we have completed more than 700 projects and we have annual targeted cost savings of approximately $20 million. While Stern Drive focuses on cost savings, we also focus on cost avoidance at the front-end of our product development. We have developed initiatives surrounding value engineering, which is - also incorporates design for x. The x stands for areas including manufacturing, assembly, logistics or service. By developing and using standard parts and modular design and integrating, assembling our service requirements into the design of our product, we can avoid nonvalue added activities and reduce costs.

Value engineering focuses on the product, specifically, how we can generate the highest functionality for our customers at the lowest cost. We are still in the early stages of value engineering and expect to see additional developments in the future.

That concludes our prepared comments. We're very pleased with the strong start to the year. Assuming market conditions remain favorable, we believe we are well positioned to generate good sales growth, capture market share and deliver strong earnings growth. With that, I want to ask the operator to open the line for questions.

[Operator]

[Operator Instructions]. Your first question comes from Ross Muken with Evercore ISI.

[Ross Muken, Evercore ISI]

Just maybe starting out on China, it seems like performance in the quarter was quite good and most of our checks on the ground there are pretty constructive but obviously this week a little bit of a curveball relative to some of the trade and tariff debate. I guess, are you more concerned about domestic demand if something negative were to transpire on tariffs and they were actually going to be implemented tomorrow? Or do you think about it more in the context of what it does for global growth in general? I'm just trying to think through like where risk really lies relative to your business. I'm guessing more the Industrial than the lab side if at all and how you're just thinking through sort of some of the machinations there?

[Olivier Filliol, President, CEO & Director]

Ross, it's more the latter one and I'd say so because when I look at our business mix today in China, we are less exposed to the manufacturing side - sector and, particularly, discrete manufacturing sector that is more exposed than again to the export business. So I feel really that we have today a very favorable business mix in China with many industries that we serve that will depend on the domestic demand rather than export business. But of course, the global economy could be impacted here. We would probably see the effects throughout Asia, not just China. I think South East Asia, Japan, but also Europe would be impacted if this has further escalation.

[Ross Muken, Evercore ISI]

Makes sense. And then maybe I think you sort of gave us some comments on product inspection. Obviously, the traditional package food guys have had particularly in the U.S. some volatility. I guess, the emerging market opportunity there given how far behind in their country seems obvious. But I guess, how are you thinking through how temporal some of these disruptions are and there's also been an uptick a bit in M&A in that world or consolidation. Does that matter? Is that a positive for you because it sometimes will stimulate the desire to upgrade and/or new hold. I guess, how are you just thinking through that backdrop?

[Olivier Filliol, President, CEO & Director]

I think the challenge is a temporary one. I mean long term, I think actually, this business offers excellent growth. The market dynamics are very good. We are very well positioned. And so I'm very positive about this business. It's a business that I think will contribute above the group average in terms of growth. But the things that you just mentioned will continue to have an impact here for a few more quarters. I don't think this is an immediate turnaround of the market environment. But I don't also want to portray here that the whole market is just challenging. For example in emerging markets, in Asia, we had good growth and I expect this to go on. But maybe in the West, it's where you have big companies there. We feel it - particularly where we feel it is the global roll outs. We had in the past this big global companies that were committed to very significant investments for global roll outs. We see fewer of these and that's the kind of impact that we have to go through, particularly this year.

[Operator]

Your next question comes from Dan Leonard with Deutsche Bank.

[Daniel Leonard, Deutsche Bank]

The geographic distribution of your growth is a bit different than what we've seen from others this earnings season, particularly in Europe. So Olivier, heard the comments on the businesses. But could you elaborate further on what you think you're doing well in Europe and why your performance would be so discordant from the macro?

[Olivier Filliol, President, CEO & Director]

Yes. Hey, I definitely feel that team is executing very well. We have these different programs in place, and they very well resonate also in Europe. All this topics that I mentioned at the end of the prepared remarks about Spinnaker approach, its sales force guide, big data analytics, very much applies to Europe. And so that's one effect but I don't want to also ignore the fact that it against an easier comparison. We have a 9% growth. We will not repeat this kind of growth going forward. And if you look at 2-year growth, however, I'm still very pleased. I like it. And particularly because it was across all the core businesses, the lab did very well, Core Industrial did excellent and product inspection actually did also well. So happy about that. And last, I would also mentioned there was a certain Easter impact that helped us this year. Yes.

[Daniel Leonard, Deutsche Bank]

And maybe just a quick follow-up. Is it possible to quantify how much you think the Easter timing benefited you?

[Shawn Vadala, CFO]

Dan, this is Shawn. Hey, it's of course difficult to estimate was it 1% to 2% maybe. But probably the best way to look at it is if you look at our guidance for Q2, we're thinking of more like low single-digit for Q2 in Europe. So on a year-to-date basis for the first 6 months of the year, Europe is going to be approximately mid-single-digit.

[Operator]

You're next question comes from Tycho Peterson with JPMorgan.

[Ruizhi Qin, JPMorgan Chase & Co.]

This is Julia on for Tyco. So regarding China, obviously you still have very strong results Industrial and lab, both up double-digit like you said. So given that I mean do you think there is room for updates to your full year outlook which I think assumes high single-digit for lab and low single-digit for Industrial? I mean, I understand you - why you might want to invent some conservatism there but given the Industrial performance so far, do you think low single digit is still a reasonable expectation for full year?

[Shawn Vadala, CFO]

Julia, this is Shawn. Thanks for the question. So for Industrial, I think you're right. I think given the start to the year, we would look at more like a mid-single-digit on the Industrial side in China. And on the lab side, probably a high single-digit. So overall, we are now looking at more high single-digit for China for the full year.

[Ruizhi Qin, JPMorgan Chase & Co.]

Okay. Got it. And then regarding the front office resource shifting initiative, could you maybe give a little bit more color on the magnitude of the benefit both in terms of top line and bottom line? And how soon you expect to generate that benefit? And if any of those benefits are embedded in your current guidance?

[Olivier Filliol, President, CEO & Director]

So the way you need to look at it - this is a multiyear program that we are running here. We have started with the Field Turbo program already a few years ago, and then started to expand it with the Shift 5 program. The way I look at it is how many additional field resources we have versus the previous year as a combined program. And here, we are talking about roughly 200 resource for 2019. This is not so different to what we did in the past, and I would - in that sense, I'm not suggesting that this is - you can see an incremental benefit that is not already built into the guidance or I'm not suggesting here that you will see a further acceleration next year. It's a part of our overall Spinnaker 5 program and it's an enabler also for all the other things that we are doing. Internally, we - when we look at these programs, we look at reasonable payback times because sometimes you have some pre-investments like recruiting and so on. But yes, it's not - this would be on top of what we have budgeted or guided.

[Ruizhi Qin, JPMorgan Chase & Co.]

Got you. That's helpful. And then lastly, I think last quarter, you noted that some of your competitor price increases were higher than yours in light of the tariffs which facilitated some share gain. Have you seen that dynamic continue to play out in the first quarter?

[Shawn Vadala, CFO]

Yes. So hey, Julie, just to maybe clarify, I think what you're referring to. So when we were talking about specifically about our midyear pricing last summer in some of our Industrial product categories in the United States, we had noticed that we went out with a robust price increase midyear. Some of our local competition went out with a slightly higher increase in that particular business. We went out with another robust increase during the 2019 annual increase. We're off to a very good start with pricing. And I think we're probably just under 2.5% for the first quarter results, very much in line with what we expected and kind of feel good in terms of where we stand versus competition.

[Operator]

Your next question comes from Daniel Brennan with UBS.

[Daniel Brennan, UBS Investment Bank]

I was just hoping to - Olivier, I think you touched upon possibly some of the knock-on effects from the China trade, if there isn't one, maybe impact on global growth. Maybe you could just speak to, I mean, is there any risk around kind of relation the ability for China to look for local suppliers again to maybe company like yourself if in fact, it was a retaliation investments? Maybe a high-level question about the competitive dynamics between what you offer and maybe what some local suppliers offer?

[Olivier Filliol, President, CEO & Director]

I think we are well positioned here. Mettler-Toledo is viewed as a local company in China. We have been there for so many years. We have excellent relationships. We have so many plants there. So I feel really confident on that side and the fact that we have - as a company, we have always been viewed as a global company - there is this Swiss element in it. So I'm not worried about that. It's - we are well positioned also in terms of well differentiated products. They've not - we will not be easily substituted. I think the bigger topic is just the economic development, the global economic evolution.

[Daniel Brennan, UBS Investment Bank]

Got it. and then you spent a fair amount of time discussing your offerings within pharma, probably more than we've heard you elaborate in the past. Maybe can you just address kind of collectively, you're kind of pharma end-market, what that grows at today and possibly with some of the investments you're making, could we see a benefit to you forward growth rate given the fairly strong dynamics within pharma?

[Olivier Filliol, President, CEO & Director]

Just one additional comment and I wanted to make in China about this whole trade. Of course, there is currency movements that also come with that. We talked about global recession but the currency movements are always very important too and can have ripple effect on other economies, including the Southeast, Asia economics and so on. So I just wanted to also highlight that effect. Now back to pharma, life science industry. What I tried to highlight here is the prepared script is particularly also the subsegment of biopharma. Often we have in previous calls, talked about the pharma and the life science customers of us. In this call, I highlighted the biopharma because, of course, that's one that has a particular dynamic and a good growth momentum. And I wanted to share with you that we have a nice exposure there, that it's growing nice.

We have, for example, the Process Analytics business where it's a very significant share. That business has been growing very nicely for us for many years. And we benefit that there's a lot of investments going in biotech and in particular, also on the production side. We - in terms of investment in these and returns, I think this is a gradual thing. We are, today, with our sales force programs in place, with our shift resources and so on, we all are focusing more on pharma, chemical and food industry. And I think that's one of the benefits that we translate in good growth that we have here in Q1 and previous quarters. It's multiple effect. I would be hard-pressed to give you a specific number that would just come from pharma or biopharma in isolation.

[Operator]

Your next question comes from Brandon Couillard with Jefferies.

[Brandon Couillard, Jefferies]

Olivier, a question on the product inspection business, specifically. Could you sort of give us a breakdown between what the service side is doing versus the equipment side? And with some of your food packaging customers kind of let's say lengthening out their budgets or with muted budgets right now, are you seeing them leaning more on service needs?

[Olivier Filliol, President, CEO & Director]

Yes. So we don't specifically break out within a business line. But I certainly can share that the service business continues to outperform the product side, that's a trend that we have now for many years. And service does actually, particularly well it's also very nicely profitable. We care very much about the service business and product inspection because it's a key differentiator that we have. You might remember when we were down in Tampa

for the Investor Day, we had also a session on the topic where we highlighted the fact that we have about in U.S., for example, 7x more service technicians than our nearest competitor. That's a unique differentiation and so part of the package. So again, this is going very well and nicely profitable. In terms of the exact impact of the large food companies and their evolution, no, I could not give you here a specific breakout. It's - I would want to refer to the point that I made before about this big global rollout that are missing. It's on an individual account and local size. It's less of a topic. It's more the global rollout that are missing at this point.

[Brandon Couillard, Jefferies]

One from Shawn. Cash flow off to a pretty good start in the first quarter here. Any updates to your free cash flow expectations for '19?

[Shawn Vadala, CFO]

No. Our free cash flow expectations for the full year is still kind of like in the $510 million range. Yes, we got off to a great start. Some of that is timing of how things are going to play out during the year on different topics. But overall, feel very good about it. Our working capital statistics are at an excellent level, very similar to where they were a year ago. So no change in terms of guidance.

[Operator]

Your next question comes from Jack Meehan with Barclays.

[Jack Meehan, Barclays Bank]

Shawn, I was hoping you could give us - help us quantify some of the changes on the gross margin line, at least the expansion year-over-year. It looks like one of the strongest in about 1.5 years. So I think we have the tariffs number, how much did price contribute and how much was FX year-over-year?

[Shawn Vadala, CFO]

Yes. Sure. So if I just kind of walk it down. So yes, pricing came in pretty much similar to what we expected as I mentioned earlier. That's probably like about 100-basis point improvement on the margin, kind of offsetting that was the gross tariff impact, which was about a 60 basis point headwind on the margin. Currency had about a 20-basis point benefit, and then we had a bunch of other stuff kind of lumped together that went kind of 20 basis points the other way or whatever - however, the math works. Maybe that's 10 basis points. But you kind of get the picture so that's kind of I think the highlights.

[Jack Meehan, Barclays Bank]

Great. And then just to clean up on the buyback. Is your expectation still $545 million and look like you're off to maybe a quicker start for the year? Just what's driving the pacing there?

[Shawn Vadala, CFO]

So for the full year, it is going to be just under $750 million. So sorry as a reminder, it would be a free cash flow plus estimated option proceeds plus an incremental $200 million to increase our net debt-to-EBITDA leverage to 1.5 by the end of next year. So just to clarify for everybody, we'll do an incremental $200 million on our share repurchase program this year and next year, and this is consistent with what we've previously communicated to you back the last couple of quarters.

[Operator]

Your next question comes from Patrick Donnelly with Goldman Sachs.

[Patrick Donnelly, Goldman Sachs Group]

Maybe just one on the Core Industrial growth continues to be strong, in spite of some macro signs pointing a little down. Does that mix shift seem less sensitivity to general macro trends compared to the historical certainly seems to be the case. So maybe just help us think about what kind of has driven this dislocation again softer macro yet the core Industrial results continue to be pretty robust.

[Olivier Filliol, President, CEO & Director]

Yes. We never really know if we are early or late cycle and all of these things. It's really difficult to measure. I think first, we need to look at us on a comparable basis, I talked before about how Europe and core Industrial was extremely strong, but it was against a little bit weaker comparisons. But I am very happy how we do in Industrial. I think it's a reflection of a good execution in the market organization. We have also a very strong product portfolio. We have this effect that I mentioned before, so that it's focused more on pharma can food that it is playing out. So different factors. I wouldn't attribute it too much to the economic cycle.

[Patrick Donnelly, Goldman Sachs Group]

Okay. And then maybe just one on lab, another strong quarter even against 10% comp as you mentioned. This type of growth has almost become standard for you guys. So it seems broad-based, areas like liquid handling and process analytics. Anything else to call out on this kind of sustained strength that we've seen for the past couple of years here?

[Shawn Vadala, CFO]

Yes. We were particularly pleased with our analytical instrument growth in the quarter. As you mentioned, we tend - we've been seeing really good trends on some of the biopharma categories like liquid handling and Process Analytics. But we are seeing excellent growth throughout the portfolio. I think one of the standouts in my mind is our analytical business in all areas of the analytical business. And then as I think you're familiar we've had a lot of product introductions throughout the entire lab portfolio with - so I could also comment on Laboratory balances which has particular - a very strong momentum at the moment too. So we feel really good about the lab business when you look at the portfolio of products as well as the execution of the market organization, combined.

[Operator]

Your next question comes from Derik De Bruin with Bank of America Merrill Lynch.

[Michael Ryskin, Bank of America Merrill Lynch]

This is Mike on for Derik. Most of the question have been asked, I'll just throw in two quick ones. One was I thought you mentioned something in the prepared remarks about you had some benefit from timing in core Industrial. I was wondering if you could clarify that a little bit sort of the magnitude there and whether that was tied to the Easter comment on Europe or whether that was a separate event.

[Shawn Vadala, CFO]

Yes. Mike, I'm not - we're kind of looking at each other. I'm not sure when you mentioned timing of core Industrial. I think maybe what you could have referred to is that we did mention something about a little bit of benefit in our transportation and logistics business. Yes, that business has a tendency to be lumpy with projects when it has an impact we bring it to your attention and call it out. So we kind of acknowledged that, that's had some benefit in the quarter. But even, excluding that, we were still high single-digit in our core Industrial business. So still feel good about it.

[Michael Ryskin, Bank of America Merrill Lynch]

Yes, that is exactly what I was referring to so appreciate the color. And then another quick one. Just thinking broadly, I was ignoring all the - trying to ignore all the things happening this week and potentially some of the headlines that could or could not happen tonight as far as the tariffs are concerned. Could you just speak broadly to your view on sort of the visibility you have in your key end markets going through the rest of the year? In the past, you've talked to, you know you want to take a cautious stance because of some increased volatility in the macro picture. Has that changed broadly excluding the tariffs story over the last year or so? Is it a 3, 6 months visibility appropriate to comment on in market conditions?

[Olivier Filliol, President, CEO & Director]

We still feel the same as we - when we talked last time. Actually, we are recognizing that there are clouds out there, but it's not that we are seeing it in our numbers. I feel confident with early indicators. What I hear from my teams pretty much around the world is actually positive, is encouraging. But we do recognize that things are fragile when it comes to the economy and that there are signs, like PMI, things like that, that are - that could make us feel a little bit more cautious. I think we are alert, we are agile to react if anything would happen. But we have no internal indications, and that's why we continue to invest. That's why I was talking about Field Turbo's and all these things. Very confident in that sense about what the upside is. But prepared if things would change.

[Operator]

Your next question comes from Richard Eastman of Baird.

[Richard Eastman, Robert W. Baird & Co.]

Olivier, could you elaborate just a little bit when you were talking about the lab earlier, the lab segment earlier, you did call out this biopharma production, the bio process production applications that you are growing within the Process Analytics business. Could you just - is that business big enough at this point to move the needle? And is that a newer effort because I didn't really - I haven't placed you guys in the bio process manufacturing process before and I'm just curious if you could maybe shed a little bit of color on that and if you are large enough, is the method of production within biopharma. Is that a benefit to you, or is it more about absolute level of investment?

[Olivier Filliol, President, CEO & Director]

Interestingly, the bio piece is the region and the core of Process Analytics. I know it well because I started there 18 years ago. It was the pH measurement, in-line measurement with pH and very much this was a parameter used in the fermentation particularly for bio reactors but then also in the beer industry and that has always been an important customer segment for us. And there are parallels between the beer industry and the bio reaction industry with cell growth. And pH measurement and [indiscernible] oxygen have always been a strength of ours. We are clearly the leader in that segment. And then over the years, we have expanded the portfolio and we have added for example, CO2 measurement, which is a similar technology, but we have also added TLC, for example, and more recently - bioburden and these are parameters that you use to - for water purity, and the water purity is very important in pharmaceutical processes, but including also in the bio processes. So the answer is we have been in this business for a long time and we have benefited from the growth of that industry not just in the recent quarters but actually in the recent years. We are also in the business of the single use bags where we provide the sensor for. And I think we highlighted it just on this call because there are multiple products we think Mettler-Toledo portfolio, not just Process Analytics that goes into that end-user industry, we feel that we have actually also good marketing programs to it. We have good databases. And we wanted to highlight it because it had a little bit more attention in the analyst and investor community in recent quarters.

[Richard Eastman, Robert W. Baird & Co.]

Yes, yes. Okay. Is there - in lab and total in the 8% local currency growth that you referenced in the first quarter, is pricing in lab above the 2.5 corporate average? Did that contribute at all?

[Shawn Vadala, CFO]

Maybe, probably. I don't think there's a significant difference this quarter between lab and Industrial. We did more bolder increases on the Industrial side given the tariff situation between the midyear stuff and the stuff we did for the annual price increases as we entered this year.

[Richard Eastman, Robert W. Baird & Co.]

Okay. And then just the last question if I may. Within your European business, was there any positive benefit from the Brexit, let me just say push? In other words any buy forward or inventory levels or anything that you saw we've seen that in a number of companies?

[Olivier Filliol, President, CEO & Director]

Not really. No. We - basically, we have prepared ourselves with safety stock, absolutely. But from a customer standpoint, I have no indication at all and I visited actually the U.K. just a few weeks ago, and this was a non-topic with the team. In general, I'm surprised how that Brexit, so far, has a limited impact on our business, other than what we take precautions of safety stock. But from a customer's reaction, not much impact. It's also not that we see that many of our customers are shutting down their investments or so, lucky enough not too much impact.

[Operator]

Your next question comes from Steve Willoughby with Cleveland Research.

[Stephen Willoughby, Cleveland Research Company]

Just one question for you, Shawn. Just sort of question on guidance here. You beat your first quarter guidance by $0.05, you've obviously raised by $0.05, but you took up the full year organic growth by 50 bps so I just was wondering why there wasn't more flow through into earnings.

[Shawn Vadala, CFO]

Yes. No good question, Steve. So I think that best way to think about it is that the 5.5% or the 50 basis points improvement on sales had largely - was largely related to our Q1 beat. Similarly, our EPS increase was largely related to the Q1 beat. But the one thing that probably stands out in our minds as we were giving the guidance that kind of goes the other way is the currencies have worsened a little bit over the last quarter, particularly in the last couple of weeks. We didn't necessarily adjust for 100% of that, but certainly, it's something to call out.

[Stephen Willoughby, Cleveland Research Company]

One quick follow-up, Shawn. Just to confirm, there is no M&A contribution in the quarter?

[Shawn Vadala, CFO]

That's correct. Entirely organic.

[Operator]

[Operator Instructions]. Your next question comes from Paul Knight with Janney Montgomery.

[Paul Knight, Janney Montgomery Scott]

Congratulations Olivier on the quarter. On the bio production side of the business, are you applying the original - are you implying systems direct or are you going through DE Sartorius network into part of their systems?

[Olivier Filliol, President, CEO & Director]

So the big majority of our business also for Process Analytics is direct but there are relationship with system integrators that are building whole plans. And for single use applications, we are working with multiple companies in that space. However, it's always important, even when we go to any system integrators or partners or so, the decision are normally done by the end user and in that sense we have, strong relationship with the end user and the end users know the Mettler-Toledo brand very well.

[Paul Knight, Janney Montgomery Scott]

And Olivier, what do you think your market share is in the [indiscernible] area and then also, in the beer side of the market?

[Olivier Filliol, President, CEO & Director]

Let's say, I feel we are a strong leader in all these applications. Again, this fermentation, bio reactor for the specific parameters, the specific analytical parameters, we are viewed as a global leader.

[Operator]

There are no further questions. I turn the call back to the presenters for any closing remarks.

[Mary Finnegan, Head, IR & Treasurer]

Thanks, Jesse, and thanks, everyone, for joining us tonight. As always, if you have any questions, don't hesitate to give us a call or easy as we're traveling, or easiest to send us an email. Take care, guys. Bye-bye.

[Operator]

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