Mettler-Toledo International Q1 2022 Earnings Call Transcript

Participants

Corporate Executives

• Mary T. Finnegan, Head of Investor Relations and Treasurer
• Patrick K. Kaltenbach, President and Chief Executive Officer
• Shawn P. Vadala, Chief Financial Officer Conference Call Participants

Analysts

• Nisarg Samir Shah, Bank of America Securities
• Jordan S. Adler, Evercore ISI
• Joshua Paul Waldman, Cleveland Research
• Rachel Marie Vatnsdal Olson, JPMorgan Chase & Co.
• Unidentified Participant
• Matthew Carlisle Sykes, The Goldman Sachs Group, Inc.

Presentation

[Operator]

Good day, and thank you for standing by, welcome to the Mettler-Toledo First Quarter Conference Call. [Operator Instructions] I would now like to hand the conference over to Mary Finnegan. Please go ahead.

[Mary T. Finnegan, Head of Investor Relations and Treasurer at Mettler-Toledo International]

Thank you, and good evening, everyone. I'm Mary Finnegan and -- responsible for Investor Relations at Mettler-Toledo, and happy that you're joining us tonight. I am joined with Patrick Kaltenbach, our CEO; Shawn Vadala, our Chief Financial Officer; and Adam Uhlman, Senior Manager of Investor Relations. Let me cover a couple of administrative matters. This call is being webcast and is available for replay on our website. A copy of the press release and the presentation that we will refer to on today's call is also on the website. Let me summarize the safe harbor language, which is outlined on Page two of the presentation. Statements in this presentation, which are not historical facts constitute forward-looking statements within the meanings 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 any forward-looking statements. For a discussion of these risks and uncertainties, please see the discussion in our recent Form 10-K and other reports filed with the SEC. All of the forward-looking statements are qualified in their entirety by references to the factors discussed under the captions, factors affecting our future operating results and in the business and management discussion and analysis of financial condition and Results of Operations sections of our filings. Just one other item. On today's call, we may use non-GAAP financial measures. More detailed information with respect to the use of and differences between the non-GAAP financial measure and the most directly comparable GAAP measure is provided in the Form 8-K. I will now turn the call over to Patrick.

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Thanks, Mary, and good evening, everyone. I'm happy to be here with you tonight. Before I cover the quarter, let me make some overall comments on Ukraine. We are deeply concerned about the ongoing war in Ukraine and its impact on so many people. We are monitoring the situation closely, and it is a relief to know that our employees in Ukraine could find shelter in safe places. We sincerely hope that the war will stop soon and the suffering of so many will come to an end. Now turning to our results. We had a very strong start to the year with our first quarter results. The highlights are on Page three of the presentation. Local currency sales increased 14% as compared to the prior year. We had excellent growth in our Laboratory and Industrial businesses and generally saw broad-based growth in most regions. Food Retail was again a headwind to our growth. Our ability to navigate the challenges of the global supply chain and meet customer demand is again proving to be a competitive advantage. We did face higher costs associated with supply chain and transportation in the quarter. However, despite this, we had very good increase in adjusted operating profit and adjusted earnings per share. This growth is particularly impressive given the extraordinary growth we had in Q1 of last year. We feel positive about our outlook for Q2 and for the full year, although we are facing greater macro uncertainties as compared to the last time we spoke. We recognize our agility and resilience will be pivotal to navigate the challenges of these market conditions. Later, I will have some additional comments on our business, but let me now turn it over to Shawn to cover the financials and guidance. Shawn?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Thanks, Patrick, and good evening, everybody. Sales in the quarter were $897.8 million, which represented a local currency increase of 14%. On a U.S. dollar basis, sales increased 12%. PendoTECH contributed approximately 1% to local currency sales growth in the quarter, while we estimate the impact of reduced volume of tips and COVID testing was a headwind of approximately 1% to sales growth. On Slide #4, we show sales growth by region. Local currency sales increased 16% in the Americas, 10% in Europe and 15% in Asia Rest of the World. Local currency sales increased 16% in China in the quarter. On Slide #5, we summarized local currency sales growth by product area. For the quarter, Laboratory sales increased 18%, Industrial increased 12%, with core industrial up 15% and product inspection up 9%. Food Retail declined 14% in the quarter. Let me now move to the rest of the P&L, which is summarized on Slide #6. Gross margin in the quarter was 57.9%. We benefited from volume and pricing, which was offset by challenges in the global supply chain namely higher material and transportation costs. R&D amounted to $43 million in the quarter, which is an 11% increase in local currency over the prior period, reflecting increased project activity. SG&A amounted to $235.3 million, an 8% increase in local currency over the prior year. Investments in sales and marketing contributed to this increase. Adjusted operating profit amounted to $241.2 million in the quarter, a 15% increase over the prior year amount of $210.7 million. The increase reflects strong sales growth combined with good execution. Adjusted operating margins came in better than expected at 26.9%, which represents an increase of 70 basis points over the prior year.

We are very pleased with these results, particularly since our operating profit increased almost 50% and our margins were up more than 400 basis points in the first quarter of last year. A couple of final comments on the P&L. Amortization amounted to $16.6 million in the quarter. Interest expense was $11.3 million in the quarter. Other income in the quarter amounted to $3.7 million primarily reflecting non-service-related pension income. Our effective tax rate was 19% in the quarter. This rate is before discrete items and adjusting for the timing of stock option exercises in the quarter. Fully diluted shares amounted to $23 million in the quarter, which is a 3% decline from the prior year. Adjusted EPS for the quarter was $7.87, a 20% increase over the prior year amount of $6.56. In the first quarter of last year, adjusted EPS grew more than 60%. So we're very pleased to have such good growth on top of last year's performance. On a reported basis in the quarter, EPS was $7.55 as compared to $6.32 in the prior year. Reported EPS includes $0.22 of purchased intangible amortization, $0.14 of restructuring, $0.02 of acquisition costs and a $0.06 benefit due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. That covers the P&L, and let me now comment on cash flow. In the quarter, adjusted free cash flow amounted to $75.5 million, which came in pretty much as expected. As mentioned on our last call, first quarter cash flow was impacted by our variable cash incentives given our record year in 2021. We continue to make nice improvements on DSO, which declined approximately three days to 37 days as compared to the prior year. ITO came in at 4.1 times. Let me now turn to guidance. Forecasting is challenging.

On the positive side, momentum in our business is good and the team is executing well. However, there are greater challenges in the macro environment as compared to the last time we spoke. These include risks of COVID-related lockdowns in China as well as ongoing risk of COVID in general. It also includes tough dynamics within the global supply chain and in transportation and logistics and higher inflationary pressures. Foreign currency movements have also been volatile particularly with the strengthening of the Swiss franc versus the euro and the weakening of the renminbi versus the dollar. And finally, the global impact from the war in Ukraine is also a factor. A hallmark of our culture is agility, and we recognize the importance of being able to react to unexpected changes in the environment. We remain focused on the factors within our control and are confident in our initiatives. We believe we can continue to gain market share through our Spinnaker initiatives and our excellent innovative product portfolio. We will also drive margin improvement via our pricing and SternDrive initiatives. Let me make some general comments on the full year before covering the specifics. First, we are facing greater foreign currency -- foreign exchange headwinds to our earnings growth as compared to three months ago. Specifically, we now estimate that foreign currency will be a headwind to adjusted EPS growth of approximately 3.5% as compared to 1% headwind when we last provided guidance. We expect to increase operating margins on a currency-neutral basis by approximately 100 basis points.

Our reported margins will be slightly higher as currency is a headwind to operating profit but benefits margins slightly. Now let me cover the specifics. For the full year 2022, we now expect local currency sales growth to be approximately 8%. And -- this compares to previous guidance of 7%. We are increasing our full year sales guidance primarily for our Q1b. We expect full year adjusted EPS to be in the range of $38.20 to $38.50, which is a growth rate of 12% to 13% and a growth rate of 16% to 17%, excluding foreign currency. We are bringing up the bottom end of our previous adjusted EPS guidance range slightly while leaving the top end unchanged. Our Q1 beat is more than offset by increased unfavorable currency in the remainder of the year. For the second quarter, based on market conditions today, we expect local currency sales growth of approximately 7% and expect adjusted EPS to be in a range of $8.70 to $8.80, a growth rate of 7% to 9% and growth of 11% to 13%, excluding currency. A couple of further comments. We would expect gross margins to be down slightly in Q2 due to higher supply chain and transportation costs, but we expect gross margins to be up for the full year. Some final details on guidance. With respect to the impact of currency on sales growth, we expect currency to decrease sales growth between 3% and 4% for the full year and decreased sales between 4% and 5% in Q2. In terms of cash flow, we continue to expect full year cash flow in the $855 million range and expect to repurchase approximately $1 billion in shares in 2022. We expect a net debt-to-EBITDA leverage ratio of approximately 1.5 times. That is it from my side, and I'll now turn it back to Patrick.

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Thanks, Shawn. Let me start with some comments on our operating results. Our lab business had excellent growth in the quarter with almost all product lines showing very robust growth. We expect another good quarter of growth in Q2 although it won't be at the level we had in the first quarter as comparisons are more challenging. We expect end markets to remain favorable. And with our excellent product portfolio and effective sales and marketing initiatives, we believe we can continue to gain market share in our laboratory business. Turning to our industrial business. Core industrial did very well in the quarter. We had expected a strong start to 2022, and it came in even better than we expected. Our strong product portfolio and good market demand which is driven in part by leveraging our Spinnaker sales and marketing initiatives are driving the good results. We will have solid growth in the second quarter and expect to continue to take share but will face tougher comparisons. Product inspection came in pretty much as we expected. We continue to be optimistic that we have good growth this year as large packaged food companies have shown strong interest in our product offering. Finally, Food Retail was again down meaningfully in the quarter as expected. We were impacted by a lack of project activity, weak market conditions, especially in China and shortage of electronic components. Now let me make some additional comments by geography. Sales in Europe increased 10% in the quarter with flat showing excellent growth, while Industrial had very good growth as well. Retail was a headwind to growth with a double-digit decline in the first quarter.

Our sales growth in Europe for the remainder of the year will be modestly impacted due to a lack of sales in Russia. Otherwise, at this time, we are not assuming a considerable impact of European sales growth due to the war in the Ukraine. Overall, we expect solid growth in 2022 in Europe. Americas had excellent growth in the first quarter. Lab had great growth, while Industrial also had very strong growth. Retail had good growth as well. Americas will have tougher comparisons in the second quarter, but we expect good growth for Q2 and for the full year. Finally, Asia and the Rest of the World had excellent growth in the first quarter with outstanding growth in Laboratory and co-industrial. Retail was down significantly. China grew 16% with excellent growth in lab and core industrial. With respect to the lockdowns in China, our main manufacturing facilities are in Zhangzhou, which is about 115 miles outside of Shanghai. These facilities were not subject to the strict lockdowns that occurred in Shanghai. We do have a smaller production facility and offices in Shanghai, which were impacted by the shutdowns. We are one of the first group of companies to receive approval to reopen in Shanghai which we did last week. We also have suppliers in Shanghai that have been subject to the lockdowns. Our team in China has done a great job in navigating these challenging dynamics, but the situation is very dynamic and can change quickly. Assuming market conditions remain as they are today, we believe we will deliver strong growth in China in 2020. One final comment on the business. Service and consumables performed really well and were up 15% in the quarter.

We are very pleased with the growth in this important and profitable part of the business. That concludes my comments on the business. The teams continue to show great agility in adapting to challenges in the macro economy, which has contributed to our strong results. Also contributing to these results is our continued focus on what we can control, namely providing solutions with clear value to our customers. New product development is an important component of our strategy and we are constantly coming to market with new products that enhance our customers' productivity, reduce their cost and support their data integrity requirements. With no one product by itself a significant to sales growth, together, our new product launches strongly support our organic growth strategy and market share gains and reinforce our innovation leadership. There are two important trends to our customers in both the lab and in industrial are facing, namely the need for greater automation and digitalization. Our solutions play very well in these prevailing trends. Let me give you some examples. I will ask customers are under increasing pressure for productivity improvement, while at the same time, facing labor challenges. Automated solutions can increase the productivity of workflows, minimized errors, improved safety and lower costs. We have some good examples of our products that support our customers' need for automation in the lab.

Last year, we introduced our new automatic balance which sets a new standard for weighing by providing automated dispensing of powders and liquids, which speeds up and simplifies the often tedious and error-prone manual weighing process. The desired target amount is simply ended on the balanced terminal and the substance is dispensed directly into the container in a fully automated process. The balance is flexible and easy to use, can allow for smaller sample size and is a fully integrated benchtop system with a sample change that can be added to dispense up to 30 samples in a fully automated drum. This automated balance also supports digitalization needs of customers when paired with our instrument control software LabX, which can provide automatic data handling workflow guidance and central data storage, thereby meeting data integrity requirements of our lab customers. We also have good service opportunities in terms of installation, qualification and ongoing calibration. This balance is a unique solution and is a great example of how our innovation can support customers seeking to increase automation in their everyday operations. Another lab example is our automated liquid handler for titration that we recently launched. Titration for example, is used to measure concentrations, and requires fast and precise handling of sample solutions for analysis. Our new instrument allows for automated sample preparation and precise dilution. Importantly, it eliminates cross-contamination and delivers highly accurate dispensing, thereby allowing for continuous processing of complex workflows.

The instrument allows for a quick and easy switch between application setups and automatic recognition of an RFID tag. LabX can also control the instrument secure data and support regulatory needs of the customer. Turning to Industrial. The trends of our automation and digitalization are also very relevant for our customers in manufacturing. Labor shortages and targets for increased output continued to accelerate the demand for industrial automation. Customers need easy-to-use, strongly guided solutions that drive tangible productivity improvements. At the same time, increased demand for higher speed, more data, life device status and real-time control drive digitalization needs, particularly around Ethernet-based plant floor connectivity. In the second half of the year, we introduced a new compact automation weighing indicator that exactly fulfills these customer demands. Our instrument seamlessly feeds weight data and system status for any of our scales and sensors into an end user automation system. Thereby helping customers automate very precise processes like pharmaceutical filling. It is easy to use with a quick system start-up, increased system running speed simplified programming and instantaneous and very reliable data transfer to more precise control. Customer response has been very positive, given the strong value proposition this new instrument provides. Software is important to our industrial customers as well as our lab customers.

Our statistical control and process control software freeway reduces cost overfilling and support of our customers' demands for data integrity in regulated environments. Deviations during manufacturing, can be immediately corrected to achieve optimum field quality while meeting all regulatory compliance requirements. For food and chemical customers, our new Forms + Recipe management software helps customers replace paper-based recipe workflows, guiding operators to precisely weigh ingredients for perfect batches and of course, full traceability for regulatory compliance. These are just a couple of examples how our technology development is supporting the trends our customers are facing. Understanding these trends, in combination with our in-depth knowledge of customer processes underpins our new technology developments. New product launches, combined with our highly effective Spinnaker sales and marketing initiatives are key drivers for our organic sales growth and market share gains. That concludes our prepared remarks. While challenges exist in the world today, -- we are convinced that with our well-ingrained growth initiatives and our agility and focus on execution, we can continue to gain market share. I would now like to ask the operator to open the line for questions.

Questions and Answers

[Operator]

[Operator Instructions] Your first question comes from the line of Derek De Bruin from Bank of America.

[Nisarg Samir Shah, Analyst at Bank of America Securities]

This is Nisarg on for Derek. So I wanted to start on the margins. What was the pricing contribution? How much did pricing add to margins in the quarter? And kind of just looking at the rest of the year, has anything changed in regards to your confidence on the gross margin expansion for the full year?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

This is Shawn. I'll take that one. So in terms of price realization, pricing came in pretty much as expected, maybe slightly better, just north of 3% for the quarter, which resulted in an impact on the gross margin of about 140 basis points. Of course, we also benefited from sales volume as well, but both of those factors were offset by higher material costs as well as higher transportation costs. Overall, if you remember, like last quarter, we were -- in Q4, the margin was down 110 basis points. And at that time, we're saying we thought that the gross margin in Q1 would be down at maybe a similar level. So overall, it's actually a little bit better than what we expected. As we kind of like look for towards the rest of the year, we kind of see our price realization continuing to improve, given increases in inflation that we've kind of continued to see here during the first quarter. We will continue to do things throughout the year as we deem appropriate. At the moment, we're kind of thinking that our overall gross margin will still be slightly down in Q2, maybe like in the 20 basis point kind of range. But then by the end of the year, we're expecting our gross margin to be positive probably in the 20 basis point range, maybe even 30 basis points for the full year. And kind of behind that, we would be assuming about a 4% price realization for the full year, which is a little bit better than what we were looking at last quarter when we spoke, which we were saying about 3.5%. And then I think it's also worth looking also at the operating margin. I mean if you look at -- we're talking margins, it's also important to look at our full year operating margin, which we think currency neutral will be up about 100 basis points, which we're pretty happy with because that's pretty much the top end of our typical guidance. And the way currencies work in this environment, the actual number will actually be a little bit higher, but adjusted for currency will probably be 100 basis points.

[Nisarg Samir Shah, Analyst at Bank of America Securities]

Great. Yes. That was really helpful. One more. So with the core sales guide raise that's two consecutive quarters, what kind of gives you the confidence with the macro uncertainty looking towards the last three quarters of the year?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

I mean, hey, I think we feel really good about our business. I mean, we came off of a very strong Q1, much better than what we expected. We -- as we kind of observed our markets and we also observed the execution around the organization, we have a really great momentum on our initiatives, whether it's our sales and marketing initiatives, our service program is doing really well and then -- and all the things that we do from an innovation perspective with product development, et cetera. I mean, we just feel like we have a lot of great things coming out. So the things that we control, we feel actually really good about. Of course, there is a lot more uncertainty in the world. and we'll see how things play out. But I think if you look at our multiyear CAGRs, we feel good about where we are in Q1, and we feel good about our guidance for the rest of the year. But we acknowledge there's uncertainty in the world, but we feel like we feel very good about our guidance.

[Operator]

Next question comes from the line of Vijay Kumar with Evercore ISI.

[Jordan S. Adler, Analyst at Evercore ISI]

This is Jordan Adler on for Vijay Kumar. I was just wondering EPS wasn't raised despite the sales growth raise. I was wondering if this was an incremental FX impact or if anything changed on the margin or pricing assumptions for the year?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Yes. Shawn, I'll let you take this question again.

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Yes, sure. Yes, no problem. Yes, I think you kind of answered it for us. I mean we had the Q1 beat, but then as we mentioned in the prepared remarks, foreign currency actually more than offset that. I mean if you -- if we kind of go back three months ago, we were expecting about or estimating a 1% headwind to EPS in regard to currency, we're now estimating about a 3.5% headwind and a lot of that has to do with -- well, there's a few things. One is the strengthening of the Swiss franc versus the euro, the second is the weakening of the Chinese renminbi versus the U.S. dollar. And then there's probably just this general factor of the strengthening of the dollar generally versus most countries in the world.

[Jordan S. Adler, Analyst at Evercore ISI]

And just one more. I was curious if you could go into detail on some of the supply chain pressures that you felt this quarter, if anything, trending better or worse from previous quarters?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Yes. I can take that. Look, on the supply chain, of course, we're still facing headwinds like many other companies as well. The majority of the headwinds are still coming from electronic components. There's a shortage in the market on several fronts. So we have to go into broker buys trying to mitigate it. Sometimes we have to redesign some of our boards to other alternative electronic components, et cetera. But overall, the manufacturing team and our supply chain team is handling the situation extremely well. Those headwinds, we think will remain for the remainder of the year. There's not a lot of hope that the, let's say, the parts issue and components issue will resolve throughout the year. So we are taking care of that again by our flexibility in terms of being able to really sign boards or to ultimately increase inventory for some of the critical components that we need for our boards. Otherwise, on transform and logistics, I mean, you see the same news that we are seeing. There's definitely in China, in Shanghai, we see a lot of vessels in [Indecipherable] waiting in front of the poll to be unloaded. There will be some stress there as well. And be able to anticipate that the overall logistic challenges will not cool off in Q2, maybe towards the later part of the year, but it remains to be seen. But again, we are very confident in our ability for Q2 with what we have so far on the way, we think we will be able to feed on a few numbers.

[Operator]

Next question comes from the line of Josh Waldman from Cleveland Research.

[Joshua Paul Waldman, Analyst at Cleveland Research]

Maybe one for Patrick and one for Shawn. Patrick, 18% growth in lab was well ahead of the low double digits, I think you guided to for the first quarter, guided that level kind of in early February. I mean any more context you can provide on what drove the upside here in the quarter? I mean was it burning down backlog? Was it stronger than expected pricing gains? And then I guess, a follow-up, what is the guide now assumed for the second quarter and full year for lab?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Okay. Good. Let me take the first part of the question, and then Shawn will cover the second one. Look, we are extremely pleased with our growth in the first quarter. And again, that's coming on 18% growth in Q1 last year. So it's not an easy compare. Same, by the way, is true for Q2. When you look at last year, we had 27% growth. And this year, we also forecast a very solid growth for Q2. We think that it's clearly driven by our strong product portfolio and our strong go-to-market strategies and the Spinnaker sales and marketing tools, which are really, really strong and helping us to guide our sales force to the most attractive targets, being very agile in identifying where the growth is, and this is going across all end markets. We see strong growth in the lab area. We see excellent growth still in the industrial area where we see a lot of demand for automation. And our portfolio is perfectly positioned to address the demand. So I would say it clearly reflects some of our market share gains that we are seeing right now. We have a strong portfolio. We have excellent strategies, bringing this innovation to market. And it's also why we are confident on the rest of the year. Shawn?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Yes. In terms of the guidance, we're guiding lab to high single digit for the second quarter. As a reminder, we grew, I think, 45% in Q2 of last year in lab. And then for the full year, we're guiding approximately 10% for the full year in lab.

[Joshua Paul Waldman, Analyst at Cleveland Research]

Got it. And then, Shawn, a follow-up on the guide. Could you give us a bridge to the new earnings guide? I think you beat your Q1 guide by something like $0.52, but FX, I think, is something like an incremental dollar of a headwind for the full year. I guess, is that right? And what are the other moving pieces in the -- to the reiterated guidance?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Yes, it would be less than $1, Josh. But you're right, there's a little bit of a gap between those two numbers. And hey, I just think there's a lot of things that we're working on in the company where we can mitigate these things, whether it's productivity or other things we do with our margin program. So we feel like it's early enough in the year for us to make up that small gap.

[Operator]

Next question comes from the line of Rachel Vatnsdal from JPMorgan.

[Rachel Marie Vatnsdal Olson, Analyst` at Mettler-Toledo International]

So first off, it was great to hear that you guys grew 16% in China, just given the dynamics there. So could you just walk us through what's assumed for growth in China for the guidance in 2Q. And then you also mentioned that you expect China can still grow this year. So can you just talk about your confidence in that outlook? And when you think that China will fully return to growth this year?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Yes. I'll start and then Shawn feel free to chime in. So let me start with, again, repeating to China is really off to a great start. As you said, 16% growth in local currency, and that's an excellent growth of more than 40% in the prior year. And despite the challenges that you hear in the country, we are -- our outlook for Q2 and for the full year is very good. And I think there are many factors that contribute to this. But it's the diversity of our business in China and that should not be overlooked. I mean we have a very broad footprint in industry, very broad footprint in lab. And we've got tremendous diversity in customer's end markets and product lines. That's actually a great advantage, particularly when the market conditions are more challenging like they are at the moment. So the lockdowns, as I mentioned in my remarks before, it also didn't affect us too much in Q1 given that our major manufacturing centers are outside of Shanghai. And then also our logistics hub in China has not -- was not materially impacted either in this quarter. So again, that gives us a lot of confidence for Q2 and Q3. We see strong interest in our products. We have a broad-based portfolio that is in China, still a lot of demand for automation. On the lab side, a lot of demand for new products, especially by small labs and the biolabs and data into equity, as I mentioned, is driving a lot of demand for our pharma products. So overall, confident in China moving forward because we also have a very strong team that applies our go-to-market strategy seamlessly. Our Spinnaker sales to marketing opportunities, really looking for the hot segments in the market like the battery segment and also that we can clearly identify very early. We have AI buys mark-to-market search tools in place where we identify the customers that are going to invest using different data sources and intelligence behind that we identify that. And then we have very dedicated sales force guidance tools in place to drive our sales force to these new investment targets. And that agility, I think, speaks of that drives a lot of our growth that we see in China.

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

In terms of the guidance, Rachel, we're looking at high single-digit growth for Q2. That compares to 35% growth last year in Q2. And for the full year, we're still maintaining our full year guidance of approximately 10%.

[Rachel Marie Vatnsdal Olson, Analyst` at Mettler-Toledo International]

Great. That's helpful. And then on PendoTECH, that contributed about 1% during the quarter, you said. So I was wondering, could you just walk us through how that asset is performing versus your internal expectations? And just any general update on integration process so far?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Well, yes, PendoTECH is performing extremely well. We are very, very happy with that acquisition. It's clearly exceeding our expectation. If at all, I would say, we're running sometimes hot in terms of our capacity because there's such strong demand, but the team does an outstanding job and really trying to address all the customer demands that we're seeing. And we do not really see a slowdown in the demand moving forward. So really happy with the acquisition. Integration is going really well. We could really leverage the synergies between method leaders, go-to-market strength, the stronger manufacturing footprint, the buying power we have and bringing this smaller company and that was at an inflection point to reach out to a broader global market that all came to fruition. So extremely happy with the acquisition and how the integration is going. The same, by the way, is true for the software company that we acquired last year, Scale-up Systems. but also helps to drive a lot of sales with our AutoChem business and just shows that when you bring these smaller companies in and you are the right partner for them with the right portfolio that can accelerate the growth.

[Operator]

Next question comes from the line of Patrick Donnelly with Citi.

[Unidentified Participant, at Mettler-Toledo International]

For Patrick. I was just wondering, you talked a little bit about the chip shortage impacting food a little bit. Could you share some more color around that? And I guess what your outlook is for the year, is it something that you see is sustained or not?

[Patrick K. Kaltenbach, President and Chief Executive Officer at Mettler-Toledo International]

Yes. Thanks. I'm happy to take that question. So regarding chip shortage, yes, I mean I would say the product line of the division that was most affected by it actually was our retail business, and I think we had it in our remarks as well. And that has to do with the fact that we're using some specific chips that are also used in the consumer industry for some of the displays, for example. There have been some significant shortage, which introduced delays for us. In other product areas, we could mitigate mostly by broker buys, which drives up, of course, cost of goods, but we also try to compensate that on pricing, et cetera. So to your question whether we see this easing up for the rest of the year? Not really. I think the market will remain to be hot on semiconductor and microprocessors. Again, our agility to redesign boards and part of your R&D team is, of course, always busy in making sure that we have design alternatives in place to go to alternative microprocessors for our Boards, wherever possible to make sure that we can fulfill customer demand, which is still very, very healthy.

[Unidentified Participant, at Mettler-Toledo International]

Great. And then just one more. In terms of the second quarter, I was just wondering, I know you said that you expected lab to grow high single digits. Do you mind sharing what the other two segments as well what you're seeing there? And I guess, across geographies as well? I know you've talked about China already.

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Yes, so why don't I just run down the divisions and the geographies for the quarter and full year just so that everybody has that. So I'll start from the top and repeat labs. So lab, we said high single digit for Q2, approximately 10% for the full year. for core industrial, our guidance is mid- to high single-digit growth for both Q2 and for the full year. For product inspection, our guidance continues to be high single-digit growth for both Q2 and for the full year. And for food retailing, our guidance is to be down low single digit in Q2 and to be down slightly for the full year. If we look at the geographies for Europe for Q2 is we're guiding low single digit. And for the full year, we're guiding low to mid-single digit. Keep in mind that will be impacted a little bit by Russia. And then Americas will be up high single digit for Q2 and also for the full year. And then for China, as I already mentioned, we're guiding high single digit for Q2 and approximately 10% for the full year.

[Operator]

Your final question comes from Matt Sykes with Goldman Sachs.

[Matthew Carlisle Sykes, Analyst at The Goldman Sachs Group]

Maybe just on the industrial side, I would just love to hear some of the feedback you're hearing from customers in terms of some of the capital equipment decisions. I assume you're more insulated just given a lot of decisions are OpEx rather than capex based. But just given the growth concerns over the back half of the year, I just would love to hear any kind of feedback you're hearing from those industrial customers as you're -- as you're working with them.

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

Yes. I mean, Matt, this is Shawn. We're feeling -- I mean, it's interesting, despite what you read in the headlines, we're not hearing anything particular from our industrial customers. I mean we had a really good first quarter and good momentum going into Q2. And we saw really good momentum, I would say, globally, particularly including in China. Now I don't want to pretend like we're immune to the economy, we're not. But I think if you just look at our business, we're just very well positioned from a couple of perspectives. One is there's this trend in automation and digitalization that we talked a lot about and mentioned in the prepared remarks. And I feel like that trend is really we're very well positioned for that trend. And we just continue to see very strong momentum globally in that area. And so I think that's a good one for us. And then I think what we talked about in the past, is in terms of Spinnaker the ability to guide our sales force to the most attractive opportunities. And if you think about like the diversity in the market as well as in our business, having that focus really makes a big difference. And I feel like our teams have done an excellent job over the last few years of really targeting these more attractive market segments. And if you look at the mix of the business, it's a better mix of business than it was five years ago, let alone 10 years ago. So a little bit less cyclical. But again, not immune to the economy, but probably less cyclical than it used to be. And then I think the teams have also done a really great job in terms of the product portfolio. If you just look at a lot of the things that we've been coming out with over the last few years, it really has been well received in the marketplace.

[Matthew Carlisle Sykes, Analyst at The Goldman Sachs Group]

Great. And then just maybe my last one is just a broader question on pricing. Just given I realize you're very thoughtful in terms of geography, segment, et cetera. But as you look over the course of the last couple of quarters, when pricing has really picked up. Has there been a certain segment or geography where you've leaned in more on pricing? Or is it pretty well balanced over the course of your segments and also geographies?

[Shawn P. Vadala, Chief Financial Officer Conference Call Participants at Mettler-Toledo International]

I mean, we're always differentiating, like you say. But we are generally seeing -- getting price in all the different product categories and end markets. If I had to differentiate a little bit, I'd say we get a little bit more on the laboratory side of the business. But I would say there's pockets of industrial where we've done exceptionally well also. So I really wouldn't want to try to differentiate that one too much. And then geographically, I'm really pleased with how we've performed globally in terms of price realization as well and wouldn't necessarily call anything out.

[Operator]

This concludes the Q&A portion of the call. I will now turn the call back over to Mary Finnegan, who will make a few closing remarks.

[Mary T. Finnegan, Head of Investor Relations and Treasurer at Mettler-Toledo International]

Hey, thanks for joining us tonight. We appreciate you being on the call. If you have any questions or any follow-up, please don't hesitate to reach out. Take care. Bye-bye.

[Operator]

[Operator Closing Remarks]