Q3 2025 Earnings Call Transcript

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, please see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to update any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures and a reconciliation to these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K. Let me now turn the call over to Patrick.

Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our third quarter financial results, the details of which are outlined for you on Page 3 of our presentation. Our third quarter results were strong and reflected very good growth, especially in Industrial.

I'm very pleased with our team's strong execution as we leverage our Spinnaker sales and marketing program and innovative product portfolio to drive growth while delivering solid EPS. Looking ahead, we are well positioned to capture growth opportunities while benefiting from trends like automation, digitalization and onshoring. We continue to remain very agile as we face several uncertainties in global trade disputes and governmental policies. We are confident that our strategic initiatives and strong culture of innovation and operational excellence will enable us to continue delivering strong performance in this dynamic environment.

Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. 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% or 6% to 7%, excluding the impact of prior year shipping delays. Adjusted EPS also includes a gross headwind of approximately 5% from higher tariff costs. We have also provided our initial guidance for 2026. And based on our assessment of market conditions today, we would expect local currency sales to increase approximately 4%. Adjusted EPS is forecast to be in the range of $45.35 to $46, which represents a growth rate of 8% to 9%.

At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales and a slight headwind to EPS. Lastly, I would like to share a few other details on our 2026 guidance to help you as you update your models. We expect total amortization, including purchased intangible amortization, to be approximately $77 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $26 million on a pretax basis or approximately $1 per share.

Interest expense is forecast at $72 million, while other income is estimated at approximately $12 million. We expect our tax rate before discrete items will remain at 19% in 2026. Free cash flow is expected to be approximately $865 million in 2025 and $900 million in 2026. As mentioned earlier, we have recently completed several small acquisitions that approximate $75 million of consideration in 2025 and have adjusted our share repurchase program accordingly. Share repurchases are now expected to be $800 million for the full year 2025 and share repurchases in 2026 are expected to be in the range of $825 million to $875 million.

Our capital allocation philosophy is unchanged, and you will see us continue to use our free cash flow primarily for share repurchases and small bolt-on acquisitions. Our Board has also authorized an additional $2.75 billion to be added to our share repurchase program, which had $1.1 billion remaining at the end of the third quarter. That's it from my side, and I'll now turn it back to Patrick.

Thanks, Shawn. Let me start with some comments on our operating businesses, starting with Lab, which had good growth in the quarter. We saw growth from pharma and biopharma customers with strong results in bioprocessing. These results were offset in part by softer demand from academia, biotech and the chemical sectors.

We are optimistic that some of the market uncertainty could ease in 2026, but we have also not assumed a significant recovery next year. Amid the challenging market backdrop, Lab has benefited from the many innovations we have introduced into the market. Most recently, we have launched the NineFocus pH Meter, our new high-performance multiparameter benchtop meter for pH, conductivity, iron concentration and dissolved oxygen measurements. When use of our broad offering of digital sensors, NineFocus provides consistent, accurate results that support regulatory compliance with automating data transfer to our LabX software.

Our instrument can also be paired with our InMotion autosampler automation solution that allows users to calibrate, verify and measure over 300 samples fully automatically. Turning to our Industrial business. Growth in our core industrial business was very strong this quarter, especially in the Americas, although it benefited from easy multiyear growth comparisons and favorable timing of customer activity. Global market conditions for industrials are soft, and our sales are expected to grow low single digits in the fourth quarter.

Looking ahead, our Industrial business is well positioned to benefit from increased replacement demand as market conditions improve, and it is also poised to benefit from near-shoring investments over the coming years. Turning to Product Inspection. Sales growth was very strong again this quarter despite challenging market conditions in food manufacturing industry. Our unique go-to-market approaches and innovative portfolio are supporting market share gains, and we look forward to continued growth over the coming year.

Lastly, Food Retail sales grew 5% against easy year ago comparisons. Now let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our Industrial Solutions. Growth in our laboratory business was good and included strong bioprocessing growth. Turning to Europe.

Our results were very good this quarter and better than we had expected. Our Industrial business delivered very strong results, while Lab had more modest growth. Finally, Asia and the Rest of the World grew modestly and was slightly better than expected. Our business in China also grew modestly in the quarter and included growth in our industrial business for the first time in over 2 years.

Our team has remained highly agile and successful in identifying opportunities in China. And while we are monitoring efforts by the central government to reduce excess capacity across certain 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 Pharmacopoeia update. In summary, we are very pleased with the strong execution from our team that has allowed us to deliver very good results. I recently came off our annual budget tour and met with senior leaders across the globe, and I'm inspired by the excellent progress our teams are making on our initiatives.

Throughout 2025, our team's resilience and agility have been important differentiators that have allowed us to successfully navigate very challenging market conditions. Our high-performance culture is a hallmark of our success and appears to shine the brightest during challenging times. Looking ahead, we are confident that our unique growth initiatives and focus on operational excellence will provide tangible benefits over the coming year. We continue to invest in global market trends around automation, digitalization, near-shoring and hot segments and believe we are well positioned to capture growth around the world.

Our team's passion to pursue these opportunities is inspiring, and we have several initiatives that further strengthen our capabilities to serve customers as we also benefit from our significant digitalization investments over the past several years. Innovation is essential to our success, and we continue to advance the digital capabilities of our products, services and software to provide additional insights and productivity improvements to our customers with many examples throughout their value chain. Spinnaker 6 has strong traction, and our global teams are actively deploying new digital solutions to further increase our effectiveness and improve our customers' digital experience.

We are also further increasing our ability to identify growth opportunities via our Spinnaker program and Top K initiative. And we are enhancing the capabilities of our sales force to leverage AI to further optimize our pipeline management. Service also remains a significant growth opportunity given our large installed base of instruments, and we continue to invest and leverage sophisticated analytics to identify and capture these opportunities. Internal productivity improvements from digital tools and automation also continue to be exciting opportunities.

This is especially effective as 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 to effective digitalization. While conditions in China have been challenging over the past couple of years, our emerging markets outside of China have continued to grow and in total, are now larger than China. We see significant growth potential in these markets and expect to benefit from our strong market organizations around the world.

Now let me share some additional insights into our outlook for 2026. As mentioned earlier, we forecast our growth next year to be in the range of 4%, which assumes market conditions do not significantly improve from current levels. We continue to face uncertainty in the global economy with trade disputes, U.S. governmental policies and geopolitical tensions. However, we expect conditions to gradually improve and replacement cycles will gain momentum again. While we continue to see short-term uncertainty in our end markets, we believe we are very well positioned to continue to gain market share with our broad portfolio of new innovations.

We have also recently launched new initiatives to ensure resources are effectively focused and reallocated towards the most promising growth opportunities. I am very proud of the resiliency and strong execution from our global supply chain organization as we navigated new challenges with trade tariffs. Our team has been very agile and effective in implementing our supply chain optimization strategies. Our focus is to strengthen and evolve our in-region, for-region manufacturing capabilities to increase flexibility and resiliency, and we continue to expect to fully offset incremental tariffs cost in 2026. And lastly, as Shawn mentioned earlier, we also recently completed several small acquisitions that broaden our distribution and service capabilities and also expand our life science equipment portfolio.

While these acquisitions are small and will add less than 1% to our sales growth in 2026, they add new products and services to our portfolio and increase our sales capabilities. We are very happy to welcome our new colleagues to our team. This concludes our prepared remarks. Operator, I would like now to open the line to questions.

[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?

Yes. 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 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 and 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 as the consumer starts getting weaker, how is that kind of playing out when you're thinking about baked into that guide and how the pacing has been through the quarter and into 4Q?

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 tour that he talked about in his prepared remarks, and we also spent time with the our executives and the Board this week.

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

Yes, I'll start and let also Shawn chime in there. Look, Vijay, when you look at how we guided for 2026, we said we don't expect any significant change to what we're seeing today. The market situation is still quite uncertain out there with global trade politics and tariffs in place, which leads to a lot of customer uncertainty. And that led us to really guide to the 4% for 2026. We think it is a very prudent guidance in this environment.

And well, there could be some upside, of course, I mean, again, if the market uncertainties become less, if the customer confidence increases, as we also mentioned in our remarks that we think there's a good opportunity in our replacement business. We have seen probably now 2 years of subdued replacement business that hopefully will come into play once customers' confidence comes back. But in terms of the overall sequence in terms of the growth first half versus second half next year, Shawn, I don't think we have...

Yes. I mean the one thing to keep in mind, Vijay, is that we do have more pricing in the second half of this year than 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 Q4. 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 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 -- and the pressures on some of our core end markets over the past year.

That's helpful. And Shawn, maybe on margins for '26. I think your guide implies maybe modest operating margin expansion. Your tariff headwinds should abate quite meaningfully, but should we see a more -- 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 just over the past quarter, we have a lot more benefit on the sales side, but we have -- that's being offset by cost increase and 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 can 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 the earlier stages. So can you just maybe think a little bit about -- 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 homeshoring 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 production and plus QA/QC.

So that's a big part of the portfolio as these companies will start reshoring or building out capacities 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 have an 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 of our key accounts at the moment who 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, the QA, QC labs, 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 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 and the manufacturing floors 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 digital 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 upsides, I think we have on the lab side is the latest update of Pharmacopoeia 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 think about things today. And then on industrial, one of the one of the highlights of the third quarter was our industrial business. And within that, we had good -- 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. I'd love if you could just kind of elaborate on how this came about, some background on the assets and really what you think they add to the portfolio.

Yes. Thank you, Brandon. Yes, of course, normally, we do not this amount of deals in one 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 gave us additional sales and service capabilities including some new services.

We also acquired the Genie Vortex mixers, which is a really strong brand and expands our life science equipment portfolio that complements, for example, our pipette business and the businesses, shakers and others that we sell through our house business. So it has been a good number of smaller acquisitions, not one big one, but the small acquisitions that we will continue to do in the future. And as Shawn mentioned before, the revenue contribution was less than 1% this quarter and about 1% through the first half of next year.

And then just one follow-up, Shawn, did you 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. Let me just -- I'm sorry, let me just confirm that. Yes, it was up low single digit in Q3. 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. I'm happy to take that. Look, I think we are performing extremely well with our innovative portfolio in a market that is still very challenging.

As you know, most of the PMIs are still below 50. But we are benefiting from the demand for automation, digitalization, and this is where our innovative products play strong and it also helps us differentiate nicely from our competitors, including China. As Shawn mentioned, it was good to see that China came back to growth for the first time in 2 years. We think these soft market conditions probably will continue for some time, but we are very well positioned then in the future also from the onshoring investments in the future because those will demand a lot of digital capabilities and automation solutions that we have developed and that we either implement directly with end customers or through system integrators.

So long story short, I think the market will continue to be challenging in many areas. It probably will benefit next year and the year after from the 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 with products that also have very strong capabilities when it comes to cybersecurity, which we spend a lot of activity as well.

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

Yes. I'll go a little bit through the macro of Europe. Again, it's, I would say, a tale of many cities 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 northern at the moment or in the mid, I think -- the biggest stress in Europe, I would -- as you can imagine, is probably right now in Central Europe with a large economy in Germany that is under significant pressure still from higher energy costs, et cetera.

You all hear the news about them also offshoring some of their manufacturing in other areas to try to address the cost issues. Nordics has performed well, but then we also had the news coming out of Denmark in the last quarter or 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 we leverage our tools to be 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 again. 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 slower 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 talked a little bit about what you're seeing there, but I'm just wondering how much of this was driven by PA process analytics versus traditional lab equipment? And maybe more specifically, are you seeing increased demand for bioprocessing sensors as several large CDMOs start to build out brownfield plants in the U.S.

And then that's on the lab side. On the industrial side, 9% organic growth is impressive. As I've talked about with you guys, I mean, some of this is a function of maybe the name industrial being a little bit of a misnomer given how the business has evolved. But that being said, still impressive.

And last quarter, you said you had visibility into certain projects that would drive maybe a better than typical quarter. And I think this was even better than that. So long lined up to, does this start to normalize? Were there timing dynamics?

Or is there some real momentum here?

Yes. 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 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 we -- 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 how this business is -- while it's exposed to the macro, it also has a lot of opportunity with all these onshoring needs. And as companies are onshoring, 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.

Great. I want to follow just kind of what you were just touching on, on the 4Q moving pieces. I had a lot of questions on sort of comparing 3Q, 4Q. First of all, maybe you could just give us sort of the segment results.

You gave us a little bit here in there, but I want to make sure we have all the numbers together. And then just anything on pull forward timing? What are you seeing for government shutdown? Just are there any other moving pieces you touched on the comp in core industrial just now, but we would love to flesh out the 3Q to 4Q dynamic?

And then I've got a quick follow-up.

Yes. Mike, 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 Q3, 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, 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% in Q3, and our expectation is that business grows high single digit in Q4. There's a little bit of -- 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%, and our guidance for Q4 is to grow mid-single digit. Europe was up 6% in constant currency in Q3, and 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% 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 and the mechanics behind it.

Yes, yes. So I mean, we're extremely happy with the organizational's 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 in 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, it 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 is 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-involution campaign have an impact on the business over there? The macro data seemed to get worse intra-quarter, but it didn't seem like they were impacted much at all. So I would appreciate any additional granularity on the core industrial side and what you saw in terms of activity.

Very good. Thanks, Jack. Look, China has struggled with overcapacity for some time now. And if you look at the anti-involution 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 a decade ago, it doesn't mean that we are totally immune to 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 plays really strong there. We have a strong R&D and manufacturing organization in the market that 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-involution for us, probably not as big as a topic as you would think because we are not playing in these market segments that are under most pressure or most 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 with commentary getting better around MFN 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 are in the very, very early innings with that. I mean it still will take time to build these manufacturing sites and build 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 volumes strengthened throughout the quarter?

And then I guess on the portfolio exposure piece, I believe you have bioreactor equipment exposure within core industrial. Were there any signs of strength there?

Yes. Very good questions, Josh. And yes, you're absolutely right. We see this across the portfolio.

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

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

Yes, we saw it in both. I mean, probably more on -- a bit more on the bioprocessing sensor side, but also, again, really good customer engagement and also are building momentum on the tanks going, et cetera. As these customers will build out their manufacturing capacities or do green home shoring, again, they will look at us to help them to put in the newest 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, 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. And we are really confident that the long-term growth will be above the 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, help making sure that we really capture the full opportunity out there. And we have great programs 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 MFM 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 that the most favored nation discussion has been out there. I think it 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 the reshoring, home shoring 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 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?

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

I think it's upside potential, but we have not factored that fully into our 2026 guidance.

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

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

Yes. 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 to see how the pace of change there and just -- and 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 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 fiscal 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, that 7% growth number in the quarter. I understand the comp dynamic you mentioned earlier.

But in the past, you've talked about the sort of strategy shift towards focusing on the midrange market there that's really driving growth. So just curious if that's a tailwind that you're assuming extends into 2026 and the sustainability there.

Yes. 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.