Chief Financial Officer at Mettler-Toledo International
Thanks, Patrick, and good evening, everyone. Sales in the quarter were $985.8 million, which represented a local currency increase of 10%. On a U.S. dollar basis, sales increased 4% as currency reduced sales growth by 6%. We estimate that the impact of reduced sales in Russia due to the war was a headwind of about 1% to sales growth. On slide number four, we show sales growth by region. Local currency sales increased 11% in the Americas, 1% in Europe and 15% in Asia/Rest of World. Local currency sales increased 15% in China in the quarter. Excluding Russia, our sales in Europe grew 5%. On slide number five, we show sales growth by region on a year-to-date basis. Local currency sales grew 11% for the first nine months with 13% growth in the Americas, 5% growth in Europe and 15% growth in Asia/Rest of the World. Local currency sales increased 15% in China on a year-to-date basis. Excluding Russia, our sales in Europe grew 7% on a year-to-date basis. On slide number six, we summarize local currency sales growth by product area. For the quarter, laboratory sales increased 10%, industrial increased 10% with core industrial up 13% and product inspection up 6%. Food retail grew 7% in the quarter. The next slide shows local currency sales growth by product area on a year-to-date basis. Laboratory sales increased 13%, industrial increased 10%, including 12% growth in core industrial and product inspection up 7%. Food retail declined 2% on a year-to-date basis.
Let me now move to the rest of the P&L, which is summarized on slide number eight. For the third quarter, gross margin was better than expected at 59.3%, an increase of 90 basis points. we benefited from favorable pricing and volume growth, which was offset in part by higher material costs. R&D amounted to $44.1 million in the quarter, which is a 10% increase in local currency over the prior period, reflecting increased project activity. SG&A amounted to $233.4 million, a 3% increase in local currency over the prior year and includes increased sales and marketing investments. Adjusted operating profit amounted to $307.2 million in the quarter, a 13% increase. Currency reduced operating profit growth by approximately 6%. Adjusted operating margin was 31.2%, which represents an increase of 250 basis points over the prior year. A couple of final comments on the P&L. Amortization amounted to $16.7 million in the quarter. Interest expense was $14.5 million in the quarter. Other income in the quarter amounted to $1.9 million, primarily reflecting nonservice-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. We expect to maintain this rate in Q4 and in 2023. Fully diluted shares amounted to 22.6 million in the quarter, which is a 3% decline from the prior year. Adjusted EPS for the quarter was $10.18, a 17% increase over the prior year or a 24% increase excluding unfavorable foreign currency. On a reported basis in the quarter, EPS was $9.76 as compared to $8.71 in the prior year.
Reported EPS includes $0.22 of purchased intangible amortization, $0.07 of restructuring and $0.13 headwind due to the difference between our quarterly and annual tax rate due to the timing of stock option exercises. We're very happy with our year-to-date results, which are summarized on the next slide. Local currency sales grew 11% for the 9-month period. Adjusted operating income increased 13% or 17% excluding unfavorable foreign currency. And our operating margin expanded 150 basis points. Adjusted EPS grew 17% on a year-to-date basis or 22% excluding unfavorable currency. That covers the P&L, now let me cover cash flow. In the quarter, adjusted free cash flow amounted to $224.7 million. DSO was flat compared to prior year levels at 35 days, while ITO was 3.7 times. Let me now turn to guidance and begin with some overall considerations for our guidance for the remainder of this year and next year. First, forecasting remains very challenging. There is greater uncertainty in the macro environment, including the impacts of the global economy from higher interest rates, the war in Ukraine and China's Zero COVID policies. We recognize the importance of being agile and able to react quickly if market conditions change. We're basing our guidance for Q4 and 2023, assuming market conditions remain as they are today. Second, we feel very good about our business. In particular, we believe we have strategies in place to identify and pursue growth opportunities.
And we have an innovative product portfolio that supports these growth initiatives. We also continue to benefit from a more favorable business mix as well as global market trends in automation, digitalization and investments in on and near shoring. We also believe we will continue to execute well on our margin initiatives. Third, supply chain challenges remain but are improving. Our team has done an outstanding job of overcoming the various dynamics of the supply chain over the last three years. We believe our ability to continue to meet customer demands is a competitive advantage, but acknowledge risks remain in the global supply chain. Finally, we have significantly greater headwinds with respect to currency as compared to the last time we spoke. In particular, as I know you are all aware, currency has moved dramatically since early September, creating significant headwind for Q4 and for 2023. To a lesser degree, higher interest rates are also a bit of a headwind. Fortunately, we have limited floating rate debt. However, the significant movement in rates has increased our expense. I thought it would be helpful to provide this guidance overview, and now let me comment on -- cover the specifics. For the full year 2022, we now expect local currency sales growth to be approximately 10%. This compares to our previous guidance of 9% to 10%. We expect full year adjusted EPS to be in the range of $38.95 to $39.05, which represents a growth rate of about 15%.
The midpoint of our adjusted EPS guidance is slightly higher than our previous guidance as stronger-than-expected Q3 performance has been largely offset by greater currency headwinds in the fourth quarter. Specifically, we expect currency to be a headwind to adjusted EPS growth in the fourth quarter of approximately 10% and 6% for the full year. At the time of our last earnings call, we had expected earnings -- we had expected currency to be a headwind to fourth quarter adjusted EPS growth of approximately 6% and 4.5% for the full year. With respect to the fourth quarter, we would expect local currency sales growth to be approximately 7% and adjusted EPS to be in the range of $11.55 to $11.65. This represents a growth rate of 10% to 11% and, as I just mentioned, includes a currency headwind of approximately 10%. For the full year 2023, based on our assessment of market conditions today, we would expect local currency sales growth to be approximately 5% and adjusted EPS to be in a range of $42 to $42.40, which represents a growth rate of 8% to 9%. This includes an estimated currency headwind of approximately 4.5%. Some further comments on our 2023 guidance. We expect interest expense to be approximately $73 million; total amortization, including purchased intangible amortization, to be $71 million; purchased intangible amortization is excluded from adjusted EPS and is estimated at $24 million on a pre-tax basis or $0.83 per share.
Other income, which is below operating profit and reflects nonservice pension income, is forecast to be approximately $12 million. We expect our tax rate before discrete items will be 19% for both 2022 and 2023. Now let's turn to cash flow. For 2022, we now expect full year free cash flow in the range of $780 million, which is below our previous guidance. While our supply chain team has done an exemplary job in overcoming challenges in meeting customer demand, it has required us to hold a higher inventory level than we had expected. We believe it has been necessary given the challenges in the global supply chain and expect we will return to more normal levels in 2023. I also want to remind you that our free cash flow in both 2020 and 2021 was excellent, exceeding 25% growth on a per share basis in each year. For 2023, we expect free cash flow in the range of $900 million, which represents a growth rate of 19% on a per share basis and a conversion rate of 97% on -- of net income. We would expect to repurchase approximately $1 billion of shares in 2023, which would allow us to maintain a net debt to EBITDA ratio of approximately 1.5 times. As we have done in the past, we will aim to repurchase our shares evenly throughout the year. We have also announced today that our Board has authorized an additional $2.5 billion to the share repurchase program to be utilized over the next few years, which is in addition to the $1.2 billion remaining on our previous year repurchase authorization. Lastly, with respect to the impact of currency on sales growth, we expect currency to reduce our sales growth by 5.5% in 2022, including an 8.5% sales growth headwind in Q4. At today's foreign exchange rates, currency would reduce our sales growth by an additional 4% for the full year 2023.
That is it from my side, and I now turn it back to Patrick.