Mettler-Toledo International - Q4 2025
February 6, 2026
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. My name is Jericho, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mettler-Toledo Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. I would now like to turn the conference over to Adam Uhlman, Head of Investor Relations. You may begin.
Adam Uhlman (Head of Investor Relations)
Hey, thanks, Jericho, and good morning, everyone. Thanks for joining us. On the call with me today is Patrick Kaltenbach, our Chief Executive Officer, and Shawn Vadala, our Chief Financial Officer. Let me cover some administrative matters. This call is being webcasted and is available for replay on our website at mt.com. A copy of the press release and the presentation that we'll 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, 1934. These statements involve risks, uncertainties, and other factors that may cause our actual results, financial condition, performance, and achievements to be materially different from those expressed or implied by any forward-looking statements.
For a discussion of these risks and uncertainties, see our recent annual report on Form 10-K and quarterly and current reports filed with the SEC. The company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement, except as required by law. On today's call, we will use non-GAAP financial measures, and a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in the 8-K and is available on our website. Let me now turn the call over to Patrick.
Patrick Kaltenbach (CEO)
Thank you, Adam, and good morning, everyone. We appreciate you joining our call today. Last night, we reported our fourth quarter financial results, the details of which are outlined for you on page three of our presentation. We had a great finish to the year with broad-based growth by geography and product category. Our team continues to execute very well in a challenging environment and delivered strong adjusted EPS growth for the quarter, with excellent free cash flow conversion for the year. I'm very proud of our organization's resilience and agility over the past year as we successfully navigated challenges posed by global trade disputes and soft market conditions, and we remain agile in this dynamic environment.
Looking ahead, we are very well positioned to drive growth with our Spinnaker sales and marketing program and innovative product portfolio, while capitalizing on opportunities related to automation, digitalization, and onshoring investments around the world. Our strategic initiatives and strong culture of innovation and operational excellence are deeply embedded in the organization and will help us continue to gain share and deliver strong financial performance. Let me now turn the call over to Shawn to cover the financial results and our guidance, and then I will come back with some additional commentary on the business and our outlook. Shawn?
Shawn Vadala (CFO)
Thanks, Patrick, and good morning, everyone. Sales in the quarter were $1.1 billion, which represented an increase in local currency of 5% or 4%, excluding previously communicated acquisitions. On a US dollar reported basis, sales increased 8%. On slide number 4, we show sales growth by region. Local currency sales increased 7% in the Americas, which included a 3% benefit from acquisitions and increased 4% in Europe and 4% in Asia, rest of the world. Local currency sales in China increased 3% during the quarter. Slide number 5 shows local currency sales growth by region for the full-year 2025. On slide number 6, we summarize local currency sales growth by product area. For the quarter, laboratory sales increased 3%, while industrial increased 7%, and included a 3% benefit from recent acquisitions.
Excluding acquisitions, for industrial grew 2% and product inspection grew 7%. Food retail grew 19% in the quarter. Lastly, service revenue grew 8% in the quarter, including a 2% benefit from acquisitions. Slide number 7 summarizes our local currency sales growth by product area for the full-year 2025. Let me now move to the rest of the P&L, which is summarized on slide number 8. Gross margin was 59.8% in the quarter, a decrease of 140 basis points and included unfavorable foreign currency of 70 basis points in acquisition mix. Our organic gross margin declined 20 basis points, excluding foreign currency, and was impacted by incremental gross tariff costs of 190 basis points.
R&D amounted to $52.6 million in the quarter and was flat on a local currency basis over the prior period. SG&A amounted to $259.8 million, a 6% increase in local currency over the prior year and includes sales and marketing investments. Adjusted operating profit amounted to $363 million in the quarter, up 3% versus the prior year. Adjusted operating margin was 32.1%, a decrease of 160 basis points versus the prior year. Unfavorable currency was a 100 basis point headwind to operating margin in the quarter. We estimate the gross impact of tariffs reduced our operating profit by 7% and was a 190 basis point headwind to our operating margin. A couple final comments on the P&L.
Amortization amounted to $19.7 million in the quarter. Interest expense was $17.4 million, and adjusted operating income amounted to $4.1 million. Our effective tax rate was 19% in the quarter. This rate is before discrete items and is adjusted for the timing of stock option exercises. This also excludes a $19.5 million discrete tax benefit related to the settlement of a tax audit. Fully diluted shares amounted to 20.4 million, which is approximately a 3% decline from the prior year. Adjusted EPS for the quarter was $13.36, an 8% increase over the prior year. Incremental tariff costs were a gross headwind to EPS of 7%.
On a reported basis in the quarter, EPS was $13.98, as compared to $11.96 in the prior year. Reported EPS in the quarter included $0.28 of purchased intangible amortization, $0.18 of restructuring costs, a $0.14 net benefit from acquisition-related items, a $0.01 tax headwind related to the timing of stock option exercises, and a $0.95 discrete tax benefit. Slide 9 summarizes our full-year 2025 results. Local currency sales increased 3% for the year. Adjusted operating profit declined 1%, and our operating margin contracted 140 basis points. Adjusted EPS increased 4%.
Excluding the impact of 2023 shipping delays that benefited 2024 results, we estimate local currency sales grew 4% in 2025, operating margin declined 80 basis points, and adjusted EPS grew 8%. Unfavorable foreign currency negatively impacted our operating margin by 50 basis points in 2025. Gross incremental tariff costs was a headwind to operating profit by $50 million, operating margin by 130 basis points, and EPS growth by 5% in 2025. That covers the P&L, and let me now comment on adjusted free cash flow, which amounted to $878 million in 2025, a conversion ratio of 99% of our adjusted net income. DSO was 35 days, while ITO was 4.2 times.
Let me now turn to our guidance for the first quarter and the full-year 2026. As you review our guidance, please keep in mind the following factors: First, our guidance assumes U.S. import tariffs, as well as the impact of retaliatory tariffs from other countries, will remain in effect at current levels. Second, while we acknowledge that headlines from some end markets like life sciences have been more favorable recently, geopolitical tensions remain elevated, and we assume customers are more cautious with their investments to start the year, with gradual improvements throughout the year. However, on a full-year basis, our forecast does not assume a significant improvement in market conditions in 2026 versus last year.
Third, we feel very confident in our ability to exclude, to execute on our growth and productivity initiatives and believe we are well positioned to gain market share regardless of the macro environment. Now, turning to our guidance. For the full-year 2026, our local currency sales growth forecast is unchanged at approximately 4%, or approximately 3.5%, excluding our previously announced acquisitions. Our operating margin is expected to be up 60-70 basis points, excluding the impact of currency, which is flattish to up slightly on a reported basis. Adjusted EPS is forecast to be in the range of $46.05-$46.70, which represents a growth rate of 8%-9%.
At recent spot rates, foreign exchange is estimated to be a 1% benefit to sales growth and a slight headwind to EPS. For the first quarter of 2026, we expect local currency sales to grow approximately 3%. Operating margin is expected to decrease approximately 100 basis points at the midpoint of our range, or flat, excluding unfavorable currency. We expect adjusted EPS to be in the range of $8.60-$8.75, a growth rate of 5%-7%. Currency for the quarter at recent spot rates would benefit first quarter sales by approximately 4% and would be neutral to adjusted EPS. Some further comments on our 2026 guidance.
We expect total amortization, including purchased intangible amortization, to be approximately $78 million. Purchased intangible amortization is excluded from adjusted EPS and is estimated at $27 million on a pre-tax basis, or approximately $1.04. Interest expense is forecast at $70 million for the year. Other income is estimated at approximately $19 million, which is up from our previous guidance and is due to updated pension accounting that is partly offset by higher pension costs that are included in operating profit. We expect our tax rate before discrete items will remain at 19% in 2026.
Free cash flow is expected to be approximately $900 million in 2026, which is an increase of 5% on a per share basis, with the first quarter approximately $100 million, which is impacted by the timing of tax payments. Share repurchases are expected to be in the range of $825 million-$875 million. That's it from my side, and I'll now turn it back to Patrick.
Patrick Kaltenbach (CEO)
Thanks, Shawn. Let me start with some comments on our operating businesses, starting with lab, which had modest growth in the quarter, again, strong growth in the prior year and good underlying organic sales growth for the full-year. Our results reflect robust bioprocessing growth, especially with single-use consumables, which was offset in part by softer demand from biotech, academia, and the chemical sector. While the headlines for pharma and life sciences markets have been more favorable recently, we expect customers to still be cautious with their investments to start the year. Our unique go-to-market strategies will ensure that we are very well positioned to capitalize on our customers' growing needs for equipment replacement going forward. Our innovative portfolio remains an important competitive advantage, and we continue to invest to further differentiate ourselves from the competition.
For example, we recently launched an entirely new electronic pipette called the Vero, that is lightweight and has a very compact design. It has an exceptionally long battery life and can complete 2,800 pipetting cycles on a single charge. It is also unique in that it allows scientists to adjust flow rates, which is very helpful when working with delicate cells or nucleic acids, for example. Our Vero introduction complements the many exciting lab innovations we've brought to market in recent years, and we have a deep pipeline for the future. Turning to our industrial, we had modest growth in our core industrial business this quarter, including strong growth in China against easy comparisons. Given the soft market conditions over the past year, we are pleased with the good sales growth core industrial delivered in 2025.
However, market demand in most geographies remains subdued, and we have maintained our full-year forecast for modest growth. Our teams remain active in identifying new growth opportunities, and we believe we are well positioned to capitalize on investments in automation, digitalization, replacement demand, and onshoring in the future. Our industrial portfolio is in excellent shape, and to support growing demand for automation applications, we recently introduced new high-speed data communication features and protocols across our smart automation weighing indicators that ensure the compatibility of our devices with our customers' IT and OT ecosystems. We have partnered with leading MES providers to enable seamless integration of our intelligent weighing devices through standardized interfaces into factory automation systems. Our solutions ensure GMP-compliant batch records and enable intuitive operator applications, helping customers increase efficiency and reduce errors as IT and OT environments continue to converge.
Turning to product inspection, sales growth in the fourth quarter was very strong as we have capitalized on our excellent portfolio, and we believe our organic sales growth in 2025 was well ahead of market growth. We continued to enhance our portfolio and recently introduced our new X3 series of X-ray solutions for end-of-line inspections of loose products like prescription tablets and pills or food items, for food items like nuts, fruits, and grains. The X3 series offers both single and dual energy capabilities and is very differentiated in the market. Lastly, food retail sales grew strongly against easy year-ago comparisons. While our food retail business tends to be lumpy, we were very happy with its growth in 2025. Now, let me make some additional comments by geography, starting in the Americas, which had good growth across most of the portfolio, especially with our industrial and retail solutions.
Growth in our laboratory business was good and included very strong bioprocessing growth. Turning to Europe, our fourth quarter results were better than expected due to very strong performance from our product inspection business. For the year, our European market organizations delivered good results despite soft economic conditions in some Western European countries, as we continue to benefit from our strategic sales and marketing initiatives and innovative portfolio. However, economic conditions in Europe are mixed, and we do not expect significant improvement in market demand in 2026. Finally, Asia, rest of the world, had good growth in the fourth quarter and was largely in line with our expectations. Our business in China grew 3%, led by good demand for industrial products from biopharma customers.
Lab products were flattish, and our team remains very engaged with helping customers to help them address new China Pharmacopoeia regulations, including stricter minimum weighing standards and quality audit, quality monitoring of ultrapure water, among others. Market conditions in China have recently been more steady, but as we know from the past, things can change quickly. In markets outside of China, we had very good growth against difficult comparisons in the fourth quarter. Emerging markets outside of China were 18% of our sales in 2025 and grew above our company average due to our dedicated resources and growth initiatives in these countries. Emerging markets are an important component of our growth strategy, and we expect above-average sales growth over the coming years.
In summary, we delivered another year of solid growth despite ongoing market headwinds, as our team leveraged our sophisticated go-to-market strategies and strong product and service offering. Our team's resilience and agility in our pricing, supply chain, productivity, and cost-saving initiatives were pivotal in navigating tariff challenges and government policy uncertainties throughout 2025. We are squarely focused on driving growth in 2026. We will continue to benefit from our strong global leadership positions, diversified customer base, innovative product offering, and significant installed base. Service and faster-growing emerging markets will remain tailwinds, and we have accelerated our digital capabilities to identify and pursue growth opportunities, increasing the effectiveness of our global sales organization. Our market-leading solutions and innovative portfolio uniquely positions us to meet increasing customer demand for automation and digitalization solutions, as well as faster-growing segments.
We also look forward to capitalizing on future growth opportunities with customer replacement cycles and investments in on- and nearshoring activities over the coming years. Now, this concludes our prepared remarks. Operator, I'd like to open the line now for questions.
Operator (participant)
Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up. Our first question comes from Patrick Donnelly from Citi. Please, go ahead.
Patrick Donnelly (Managing Director)
Hey, guys. Thank you for taking the questions. Maybe on the 1Q commentary, Patrick, you talked about, you know, baking in that customers, in spite of some positive headlines, to your point on pharma and life sciences, customers, you're baking in a little more cautious to start the year. Is that something you're hearing, you know, through the first month and change here, or is it just obviously the typical management conservatism? Just wondering if that's, you know, something you're picking up in the market or more just, "Hey, we don't want to bake in any improvements just yet. Let's see how it plays out." So would be helpful to just talk through that 1Q guide.
Patrick Kaltenbach (CEO)
Yeah. Hey, thanks, Patrick, and I'll let Shawn comment on this as well. But maybe to my comment on the headlines, again, headlines have been still pretty volatile. And while they have been better on the pharma and life sciences side, we all appreciate there's still more uncertainty in the market out there. And this also across the broader portfolio and the broader markets we serve, still leads to longer deal cycles, et cetera. So we, as we said, also too, in our Q3 call and also at the J.P. Morgan conference, we think about customers, and we feel that they'll start the year a bit more cautious, and we have really built that into our guidance for Q1 and for the full-year.
Shawn Vadala (CFO)
Yeah, and hey, just to echo what Patrick said, you know, hey, we, of course, stepping back, we're of course, very pleased with the fourth quarter. You know, came in better than what we expected. Some, you know, good broad-based growth throughout the portfolio. We can kind of dig into that maybe in a minute. And we're also very pleased with our full-year guide, carrying forward that be into the, into 2026 full-year, maintaining the, the 4% organ, not organic, the local currency guide for the, for the full-year on, on sales. But like Patrick said, as we previously mentioned, we do kind of tend to think that customers will likely start the year a little bit more cautious in Q1. It's always difficult to have visibility into Q1. You know, every time you're starting a year, it's a new year.
You know, you almost have to get through the whole quarter and get through March to really get a feeling for how things are progressing. But just sitting here today, it feels like, you know, a prudent approach for us to take in terms of how we're looking at the first quarter. And as he says, we do expect things to kind of gradually get better throughout the year.
Patrick Donnelly (Managing Director)
Okay, that's helpful. And then, Shawn, maybe one for you, just in terms of the components of the guide. You know, would love if you could break out how you're thinking about pricing versus volume, you know, both on the revenue side and then if you could give a bit of a margin build with pricing, FX, et cetera, would be very helpful. Thank you, guys.
Shawn Vadala (CFO)
Yeah. So, hey, you know, we continue to feel really good about our pricing program. Of course, one of the things that I like about pricing the most is that it highlights the value proposition in the company. You know, we've been really investing a lot in innovation over the last few years and, you know, when you create value, you can realize pricing. So if you kinda, like, look at our pricing, you know, we're gonna start the year off a little bit stronger because of the benefit of mid-year pricing actions from last year. So I would expect Q1 to be in the 3.5% or so, kind of, range.
And then for the full-year, we're kind of maintaining that 2.5% for the full-year. You know, from an acquisition perspective, you know, we would expect to benefit about 1% during the first half of the year from acquisitions, which would be about 0.5 point for the full-year. And then that would kinda translate into organic volume for the full-year of 1%, but it would be down by about 1.5% for Q1.
This kinda just gets back to that same comment about, you know, just being a little bit more cautious and frankly, just not surprised if customers start the year a little bit more cautious with how they spend, just given the volatility that we experienced or they experienced last year, and just some of the uncertainty in the market. But hey, we also recognize headlines have been getting better, and hopefully, we'll start to see things that translate into business as we go through the year. You know, in terms of margins, you know, there's a few things, you know, in terms of affecting our margins, so, you know, maybe we'll start with operating margins. So on a reported basis... Well, maybe one comment first. Like, currency has a pretty significant effect on our margins.
It did in the second half of the year. If you remember, we were talking about this last quarter, and it's not a significant effect on, like, profit, but it is on sales. So just the, the math turn- you know, when you start, you know, calculating operating profit as a percentage of sales, of course, it's gonna have an optically look like a headwind. So that headwind is about 100 basis points for the first quarter, and it's about 50 basis points for the full-year of 2026. So excluding that, we would expect our operating margin to be up slightly in Q1, and we would expect it to be up by about 60-70 basis points for the full-year. But then, of course, on a reported basis, it's gonna be different.
You know, on a reported basis, Q1 will be down, you know, probably in the 100 basis point kinda range, maybe 90 basis points, and then, for the full-year, it would be up slightly.
Operator (participant)
Our next question comes from Vijay Kumar from Evercore ISI. Please go ahead.
Vijay Kumar (Senior Managing Director)
Hey, guys. Congrats on a nice quarter, and thank you for taking my question. Just back on the Q1 guidance, Shawn and Patrick, you guys did a 4% organic in Q4. I think your Q1 is implying 2% organic, correct me if I'm wrong. What causes that 4%-2% step down, and what are you assuming for end markets? When you say cautiousness, can you, can you walk us through on the different assumptions you're having industrial versus labs and pharma?
Shawn Vadala (CFO)
Yeah, yeah, sure. So hey, maybe I can walk through maybe, Vijay, kinda like the assumptions for Q1 full-year, but also Q4. But as I kinda do it, you'll see that, you know, you know, when we look at the beat, you know, there was a very good beat on the industrial side, especially process analytics. I mean, I'm sorry, not process analytics, product inspection. And then when you look at the geographies, you'll see Europe came in better than expected, also to a certain degree in the Americas. And as we were kinda entering the quarter, we, you know, we were a little bit more concerned about Europe, but our product inspection business in Europe did particularly well.
And then when we go through it, you'll also see that, you know, kind of what steps down a little bit from Q4 to Q1 in terms just in terms of growth rates. You'll see that, you know, you'll see a little bit on the industrial side. You'll also see a little bit on the retail side, and then, and also maybe this cautiousness in the Americas, as well as to a certain degree in Europe. So in terms of the fourth quarter, I think this might be out there, but I'll just kind of go through it quickly. So Q4, Lab grew 3%. Our guide for Q1 is up low single digit, and our guide for the full-year is growing low to mid single digit.
Core industrial grew 4%, and our guide for Q1 is flattish, and our guide for the full-year is up low- to mid-single-digit. Product inspection grew 11% in Q4. Of course, that was 7% organic, and then the industrial, by the way, was 2% organic, core industrial. And then our Q1 guidance for product inspection is up mid- to high-single-digit, and our full-year guidance is up low- to mid-single-digit. And then retail grew 19% in Q4, and our guidance for Q1 is up high-single-digit, and then our guidance for the full-year is flattish. And then, if we kinda, like, look at the, at the regions, Americas was up 7%, which was 4% organic.
If you look at Q1, we're guiding up low single-digit, and we're guiding for the full-year up mid-single-digit. Then Europe was up 4% in Q4, and then for Q1, we're guiding up low single-digit, and then for the full-year, also low single-digit. Then China was up 3% in Q4, and then for Q1, we're guiding also up low single-digit, and for the full-year, up low single-digit.
Vijay Kumar (Senior Managing Director)
Hey, that's very helpful, Shawn. One, on just on your EPS for its composition. I think my math looks like maybe half of it came from below the line trade between interest expense and higher pension income. What's the other, I guess, $0.30 or so raise coming from? 'Cause it looks like top line didn't change.
Shawn Vadala (CFO)
You're talking the full-year 2026, Vijay?
Vijay Kumar (Senior Managing Director)
Yes. Yes.
Shawn Vadala (CFO)
Yeah, yeah. No, no, no, no. I think just to clarify, we. You know, so our, our beat, you know, the beat in Q4 was related to sales. I think some of the below OP stuff might be a little confusing, but we excluded that, some of those benefits, from our, from our adjusted EPS. Like, so for example, the one-time tax benefit. When you look at our 2026 EPS guidance, we, we kinda carried forward the beat, the EPS beat from 2025. We also increased our EPS for the benefit from Swiss tax rates, so I mean, tariff rates. So you're right, remember, the Swiss tariff rate, decreased from 39% to 15%. That had a benefit of just under 1% of EPS. And then, you know, aside from that, there was a little bit of noise.
You know, we had foreign currency, which was a slight headwind, and we updated for that. And then we had a little bit of noise with better pension income that's gonna help out a little bit below OP. But that's also, you know, that's based on, like, how you do your actuarial accounting at the end of the year. But there's also maybe an offset in some of the pension stuff above OP and just some basic fine-tuning at the end of the year. But, you know-
Vijay Kumar (Senior Managing Director)
Thank you, guys.
Shawn Vadala (CFO)
Stepping back, you know, we're very pleased with raising EPS by $0.70 for the full-year, which is about 2%, and maintaining our 8%-9% EPS growth.
Vijay Kumar (Senior Managing Director)
Helpful. Thanks, Shawn.
Shawn Vadala (CFO)
Yep.
Operator (participant)
Our next question comes from Dan Arias from Stifel. Please, go ahead.
Dan Arias (Managing Director)
Hey, good morning, guys. Thanks for the questions. Sean, food retail is pretty strong here. Is something picking up, or is that just sort of the inherent lumpiness of that business? The outlook, I think, for the year is flat, so I'm not sure if spending improvement makes that easier or if the big 4Q just kinda creates a tougher comp, which makes that harder to reach.
Patrick Kaltenbach (CEO)
Hey, Dan, this is Patrick. Look, I mean, with retail, of course, we are very happy with the performance we have seen from retail in Q4 and also in 2025 as it was growing. But we also want to remind you that the retail business is a pretty lumpy business, a lot of project business. And as we still guide retail for Q1 for high single digit, I think, fiscal year 2026, we'll see a tough compare, but that we also guided to the flattish growth in 2026. Again, it's a lot of ups and downs, big project business there. We compete really well. We actually spend quite some amount of innovation and build a lot of good products, new products, over the last two years, and we compete extremely well.
But again, it's more lumpy than it was. As proud as we are of the 2025 growth, we see the full fiscal year 2026, given the tougher compares, rather flat.
Dan Arias (Managing Director)
Okay. And then maybe on China, I mean, I know, no one thing changes the growth picture for you guys, but how would you characterize, the pharmacopeia opportunity over there that you talked about a little bit last quarter, just in terms of what might be tangible when it comes to demand, and then when you think that purchasing might ramp up, if in fact it does?
Patrick Kaltenbach (CEO)
Yeah, that's a good question, Dan. Look, I mean, in China, again, we are really well positioned with our team there, where we have an outstanding portfolio, and pharmacopoeia is one of the opportunities. We have seen some really good customer engagement also in Q3 and Q4 of last year. We expect this to continue, but it's not like a step change, right? This is continued upgrade of system existing balances in customers of customers' labs as they want to comply with, you know, things like minimum wage requirements, et cetera. So I think it's supporting our ongoing growth in China and the lab business in 2026, but it's not a huge step change that comes all at once.
Dan Arias (Managing Director)
Yep. Makes sense. Okay. Thank you.
Operator (participant)
Our next question comes from Michael Ryskin from Bank of America. Please go ahead.
Michael Ryskin (Managing Director)
Great. Thanks for taking the question. And congrats on the quarter and the guide. First, I wanna touch on, you know, you talked about the reshoring or onshoring opportunity a number of times in the past, and you flagged it again today. Just curious, you know, if you could give us an update on that, any change in conversations or in tone. I know it's still really early, but just sort of what's your sense around timing on when you might start seeing at least the beginning of the orders of late 2026 or still more of a 2027 or 2028 dynamic?
Patrick Kaltenbach (CEO)
Yeah. Thanks, Mike. Look, I mean, yes, there's a lot of good news, I would say, out there, but think about our product portfolio. I mean, a lot of significant part of our portfolio, over 50% of our portfolio is actually for manufacturing, then you have another 25% or 20%-25% is for QA, QC. So as, if the thing about is reshoring, homeshoring, specifically for pharma, I mean, these factories still have to be built, right? And then we come into play with our portfolios to build it out. So we see it as more as a 2027 and beyond opportunity for us. So of course, it's important that we are out there in discussion with our existing customers.
We help our existing customers a lot with our portfolio, make sure that they are well aware as they plan then of building out potential additional facilities in the US, to make sure that we are their preferred supplier for these opportunities. And it's pharma, but it's also other areas. If you think about, you know, for example, the battery segment and others. So there around the world, I would say in the coming years, a lot of good opportunities when it comes to reshoring, where customers build redundant setups to make sure that they also de-risk the setup that they had in the past. And I see this for the coming years as a good opportunity, but we have not factored it in as a big growth opportunity for 2026.
I think we're still very early innings.
Michael Ryskin (Managing Director)
Okay, all right. That's helpful. And then, I want to touch a little bit on Europe. It feels like that's been doing a little bit better than expected. I think it stands out a little bit more for us, last couple of quarters, despite tough comps. Just talk about, you know, what you see driving that on the ground there and, you know, how sustainable that is, going forward? Thanks.
Shawn Vadala (CFO)
Yeah. Hey, Mike, maybe I'll take that one. So as I kind of was alluding to before, you know, kind of coming into the quarter, we were a little bit more cautious on Europe. We've been extremely proud of our European organization over the years. If you just look at the economy in Europe, it's, you know, it's the softer economy in the world, you know, in more recent times. But, you know, PMI is kind of in the low forties at times, and we've continued to, I think, do extremely well, you know, with that kind of a backdrop.
I think a lot of it, we benefit from, of course, a strong organization, but also, you know, our Spinnaker program really allows you know, with the combination of us going most direct in Europe, you know, I think allows us to, to also be a little bit more precise in terms of the, that ability to gain a little bit of market share, each year. If we just kinda, like, look at the fourth quarter, though, you know, one thing that I mentioned before that really stood out was our Product Inspection business.
You know, we just had really strong growth in that business, and I think it's a theme we've seen in other regions, you know, throughout the year, which is, you know, some of the innovation that we've introduced to the market and, you know, recently has been just very well received. And, you know, a lot of that innovation is really trying to go more specifically at the mid-market segment, and we're doing quite well there. Otherwise, I'd say we're competing well in the other product categories in general, but, you know, with a, I'd say, a more challenging backdrop than some of the other regions.
Operator (participant)
Our next question comes from Catherine Schulte from Baird. Please go ahead.
Catherine Schulte (Senior Research Analyst and Director)
Hey, guys. Thanks for the questions. Maybe just on service, I think you said up 8% in the quarter or 6% organic. You know, what's the outlook for that side of the business in 2026, both including and excluding acquisitions?
Shawn Vadala (CFO)
Yeah. Do you want me to take it? Yeah. So, yeah, so yeah, you're correct, Catherine. So we grew 8%... Just, like, looking at my notes to make sure I got it right. We grew 8% in the quarter, 6% organic. As we kind of think of about next year, we're thinking about, about mid- to high-single-digit growth overall for the business for the first quarter in the full-year. And, and, you know, when you look at the first quarter, there's some acquisition growth in that. So, Q1 would be more, mid-single-digit. I think the full-year probably still rounds to, mid- to high-single-digit. And, you know, as we've talked about in the past, we just continue to see service as a great opportunity.
The team kind of recently celebrated the fact that they achieved $1 billion in sales for the first time. And so that was a nice milestone. It's a business that we've been really focusing on in terms of trying to penetrate. But I think you're familiar, like, if you look at the serviceable addressable base that we have available to us as an opportunity, it's about $3 billion. So we've penetrated about one-third, and we continue to see opportunities to go after that. And as we do that, you know, we have been putting additional resources into that business, and we continue to be, you know, optimistic kind of going forward for the medium to long term here.
Catherine Schulte (Senior Research Analyst and Director)
Okay, great. And then for China, another quarter of modest growth there in the fourth quarter. Sounds like maybe some easy comps in core industrial and lab about flat. Can you just unpack a bit more what you're seeing in that market and the outlook for lab versus industrial and the low single guide for the year?
Shawn Vadala (CFO)
Yeah. So, yeah, so China overall came in as expected. You know, you know, we're, we're pleased with that. You know, yeah, we recognize that industrial had an easier comparison, but, you know, we'll, we'll still take it. You know, they actually had quite strong growth in the quarter. You know, when we kind of came out of the budget tour last year, kind of we were in China in September, and, you know, one of the takeaways for me was you could just feel that there was a lot more positive energy, you know, coming out of our industrial team. So it's really kind of cool to actually see it translating into the results here.
So I think they're doing very well there at the moment, and that's good in the context of an economy that still, you know, has some challenges. And when you kind of cut through and look at the markets, you know, one of the markets that really is doing better there is the pharmaceutical end market. You know, we see that in both sides of the business. You know, maybe the one area that is more challenging is on the chemical side. And for us, chemical means mostly specialty chem, but that's a more challenging end market at the moment. But you know, when we look forward to China for this year, we're still looking to guide-...
in that low single digit range for Q1, for the full-year. You know, right now, I'd probably think, you know, lab and industrial will probably both be in that kind of a range. You know, maybe some quarters better than others, depending how things play out here a little bit. But you know, big picture, I think, you know, we've had at least a year of things have moderated there. We've had some modest growth. You know, I think it's a good base, hopefully, to now grow on. We're not building anything too significant to get over our skis. As we know, things in China can change quickly in either direction, but hopefully we'll start to see things pick up at some point. I think longer term, we still feel, you know, very optimistic.
I think, you know, when you look at, like, the five-year plan, and you look at all the investments going into the pharmaceutical industry and life science industry in China, it's very encouraging. And then you look at some of these trends about GLP-1s and the number of companies in China that are investing in that, it's also a good opportunity, just as an example. So I think our team is well-positioned for that. Yeah, as you know, we have a really great China-for-China story, you know, with us making most of our products in China for China and and selling mostly to Chinese private companies. I think that's just a good setup for us, and we've always performed well there relative to the market.
Catherine Schulte (Senior Research Analyst and Director)
Great. Thank you.
Operator (participant)
Our next question comes from Luke Sergott from Barclays. Please go ahead.
Luke Sergott (Director of Healthcare Equity Research)
Great. Thanks for the question, guys. I just wanna kinda touch on some of the more of the pharma side and, and also the, the A&G weakness that you talked about. And also, I guess part of that in 4Q is the biotech weakness as well. So, you know, we're, we're starting to see some green shoots in biotech, and pharma's doing a lot more M&A, and I know that it's probably gonna track a different cycle than, obviously, the clinical research. But, you know, how are you guys thinking about when that funding starts coming back? And, you know, where in that cycle would you guys start to see some of the pickup? Or if this biotech or, like, the early stage pharma, where you're seeing weakness now, is more just associated with kind of the academic funding environment.
Patrick Kaltenbach (CEO)
Yeah, maybe I'll take that, Luke. Luke, we are, I think, quite excited about the overall biopharma, specifically biopharma processing activities that are going on, and Shawn made a comment here on GLP-1 and others. I think that's actually where we see good momentum in the market, almost around the world. So, yeah, that's what I would say is a growth driver for us as well. When you mentioned academia and government and biotech, they have actually pretty small exposure in the areas, mainly in the area of liquid handling and, you know, with the pipette business, et cetera. Otherwise, we are not really prominent in that segment. It's hard to say when we really would see a pickup there.
Of course, depends on some real good funding that's should come back into the biotech and academia area. Again, we would first see that on the pipette business if that is picking up again. And right now, we saw that business in Q4 still a little bit under pressure. I think it was slightly declining in Q4. And we have to wait and see again, when the funding is really coming back and when we see more momentum. But that's... I think, I would say that the indicator there for us would be more on the pipette business. But as a reminder, it's a smaller part-
Luke Sergott (Director of Healthcare Equity Research)
Yeah
Patrick Kaltenbach (CEO)
... of our overall business.
Luke Sergott (Director of Healthcare Equity Research)
Got you. And then one for Shawn. On the GMs, and I understand this is a completely fluid tariff environment for you guys, but more generally, we've kinda seen this kinda tick down in gross margins across the space. And, you know, is there a dynamic going on with you guys where your tariff mitigation efforts outside of pricing, you know, those are ongoing, and then you're starting to get some pressure here from your suppliers, and there's just gonna be a mismatch between timing of when you can pass that on to your customers? Is, like, you know, just trying to figure out where this kind of ultimately shakes out, or if you guys are just being forced right now to kinda eat it until things normalize.
Shawn Vadala (CFO)
No, actually, we're doing quite well in terms of managing the input costs. I think the SternDrive program has really been helping us out. You know, that program has a lot of sophistication, like a lot of our programs, when it comes to, like, digital capabilities and our ability to, like, really look at what should something cost. So it's called should costing, and, and we can, like, really diagnose opportunities that we can leverage as we, as we look at our, our cost structure. I think what's making, you know, what it was already a confusing year with tariffs more confusing is that currencies have changed, you know, quite a lot more here in the second half of the year, and I was trying to explain that earlier in the call. But I wouldn't dismiss that, right?
Like, it's like a 70 basis point headwind to gross margin in Q4. And, you know, as I mentioned before, we're gonna see that kinda carry forward to the first half of next year. And then, some of these recent acquisitions, while on an OP basis, they're fine, just when you start to look at some mix effects, we start to get a little bit of unfavorable mix in terms of gross margins. Kinda like the way you think about the service business, right?
It's like good when it comes to OP, but in terms of of gross margin, it might be a little bit dilutive, and that's because a lot of these recent acquisitions were distributors, which were largely service businesses, and then any incremental product sales is gonna be smaller, just by the virtue of the fact that they were a distribution partner. But when you kinda cut through all that, you know, like I was trying to say, I don't know if we got into this before or not, but like if you cut through FX, and you cut through the organic, the acquisition side, the organic gross margin was down 20 basis points for the quarter and for the full-year. And that's you know that's despite a very significant headwind, gross headwind on tariffs, right?
It was like 190 bps in the quarter. And if you think about it, you know, while we were mitigating things throughout the year, you know, we did have this topic of the Swiss tariffs that kicked in at 39%, and then we were, you know, we're gonna have we're having to absorb that during the fourth quarter. So the step down to 15% tariff rate in List tariffs, that's something that will that benefit will happen more in 2026, not in Q4. And I think there's even maybe a little bit of bleeding into the first part of Q1, just given stuff that was maybe in inventory already. So hope that helps a little bit. Yeah.
Luke Sergott (Director of Healthcare Equity Research)
It does. Thank you.
Shawn Vadala (CFO)
Yep, thanks.
Operator (participant)
Our next question comes from Tycho Peterson from Jefferies. Please, go ahead.
Tycho Peterson (Managing Director)
Hey, thanks. Wanted to dive in a little more on the industrial strength, you know, product inspection. Shawn, I appreciate your comments that, you know, some of this is new product intros and opening up the mid-tier market. Is there any way to kind of delineate how much of this is kind of broader market, you know, recovery versus actually, you know, opening up new markets? And then I know in the past-
Patrick Kaltenbach (CEO)
Mm-hmm
Tycho Peterson (Managing Director)
... you've talked about replacement cycle here, in particular, you know, the industrial portfolio well-positioned. Is, you know, that business benefiting at all from replacement cycle at this point?
Patrick Kaltenbach (CEO)
I'll take that, Tycho. I think the growth you're seeing in our product inspection business, we cannot point you to any underlying market recovery or market strength. Actually, we think the market is still under considerable pressure, the food market, but we are really so I would say very well positioned with our portfolio and all the innovations we have pushed across the portfolio, whether it was in X-ray detection or in checkweighing, and there's more to come. Again, we have a clear dedicated plan to not only dominate the high end, but also attack the mid-range market. That strategy is playing out really well. So yeah, I would say it's mostly innovation about just the growth that you see there.
And when it comes to the installed base and replacement market, what we are seeing across the board, across the portfolio, and that is not only true for the product inspection business, is we see a little bit of aging of installed base. I think we have now seen probably two years of subdued replacement. And what it needs really to for that to pick up is what I mentioned in the beginning is more certainty in the market, more confidence of customers that they can invest.
I mean, they, of course, cannot hold off forever, but I think once the market gets a bit more stable and there's more certainty in the market and less noise, we will see a gradual pickup again in the replacement business to more normal levels and probably also a bit more, but it will not be, again, a step change. This will be a gradual phasing in of the replacement business again.
Tycho Peterson (Managing Director)
Okay. That's helpful. And then following up, you know, on the pharma, you know, onshoring, reshoring comments earlier, I appreciate that's more of a, you know, 27 and beyond story. Fair to assume lab will see that later, but maybe, you know, you'll see it on the industrial side earlier, weighing and dimensioning for transport, logistics, things like that.
Patrick Kaltenbach (CEO)
Yeah, yeah, that's a, that's a good way to think about it. As you know, for these, onshoring, reshoring, of course, also we work with industrial partners, with automation solution providers that use our equipment. And, I think they will, they will pick up for as they prepare for the manufacturing, solutions. They are the automation lines and everything that is needed, and also our own products for production. And then lab, including the QA, QC products that we deliver for these markets, will be probably a bit later.
Tycho Peterson (Managing Director)
Okay. And then maybe just one last one on bioprocess. I know it's a smaller part of the business. You know, maybe just touch on what you're seeing there. How does volumes look, and what are you baking in this year?
Shawn Vadala (CFO)
I'm sorry, Tycho, can you repeat the question?
Tycho Peterson (Managing Director)
Yeah, just bioprocessing, you know, and single-use consumables. Can you just talk a little bit about, you know, volumes and what you're baking in on the bioprocessing side this year?
Shawn Vadala (CFO)
Yeah. Hey, so we didn't bake in specific guidance for it, but certainly on the bioprocessing side, we had a very strong fourth quarter, especially when we, you know, geographically, we look at the Americas, the US, bioprocessing did especially well. Single-use, you know, also did, particularly, particularly well in that, market as well too. You know, we, we kind of look at that as an above average growth driver in the lab business, and, you know, certainly feel good about the momentum there kind of carrying into, you know, in and through 2026.
Operator (participant)
Our next question comes from Doug Schenkel from Wolfe Research. Please, go ahead.
Douglas Schenkel (Managing Director)
Hey, guys. Thank you for taking the questions. I guess another question on lab. I think in Tycho's last question, he got at the bioprocessing component there. But, you know, again, Q4 results came in pretty well ahead of estimates. You grew solid mid-single digits on a really tough comp, and you accelerated on a two-year stack basis. What would you call out as driving the underlying improvement? You know, so not just in process analytics and bioprocessing, but more broadly, what's driving underlying improvement? Did you see any signs of budget flush? And then I'm just, you know, kind of underlying in there, was there anything that you would call out in terms of just a change in trend in key end markets? Thank you.
Patrick Kaltenbach (CEO)
.Yeah, I think, Doug, in terms of the pharma, biopharma market overall, it's a lot of it just biopharma processing, which is more the process analytics piece. And then we, to your question regarding the budget flush, yeah, we have seen, I would say, some budget flush, and it's always hard for us to clearly assess how much is budget flush. But we have seen some better momentum towards the very end of the quarter, which points to a budget flush that was also affecting the lab portfolio. So we saw some flush coming there as well.
I mean, if you think about lab and where we play and how we play, a lot of it is also linked to our strong software solution that we have there with LabX, which really helps us to connect a broader portfolio of our products in either R&D labs or QA, QC labs. It helps our customers to also automate more workflows, and I think that's kind of the trend that we see overall that helps us to compete very effectively and drives momentum also forward. That's something where we have really a stronghold, where we invest a lot to not only drive automation in the industrial piece, but also on the lab side. And I think that's probably one of the things that also helps us to pick up more momentum in the market.
Operator (participant)
Our next question comes from Dan Leonard from UBS. Please go ahead.
Dan Leonard (Managing Director and Research Analyst)
Thank you very much. Hi, Patrick. Hi, Shawn. I want to-
Patrick Kaltenbach (CEO)
Mm-hmm
Dan Leonard (Managing Director and Research Analyst)
Revisit, Patrick, the comments you made on your emerging market view. You commented that you have an expectation for above-market sales growth from emerging markets, and I want to clarify: does that comment include China, or were you speaking to emerging markets outside of China?
Patrick Kaltenbach (CEO)
Yeah, a very good question, Dan, and yeah, thanks for that question. I think it's an important one. We really speak about outside of China. So we expect for the emerging markets, which we also said is in the meantime make about 18% of our total revenues, versus China is more like 15% or 16% of our total revenues. But above-average growth and above corporate growth rate is specifically pointing towards the emerging markets, ex-China.
Dan Leonard (Managing Director and Research Analyst)
Mm-hmm. Appreciate that clarification then. And then what is your updated view on growth in China over the medium term? Is that fleet accretive or fleet neutral?
Shawn Vadala (CFO)
Yeah. So, hey, we're not, you know, we're not necessarily formally updating guidance on, on China. You know, I think we are very optimistic still about the medium to long term. We clearly acknowledge that, you know, it doesn't need to grow at the rates that it grew, you know, in the pre-COVID era. The last time we updated our, our algorithm for growth, we were kind of looking at high single digits for China. But, you know, sitting here today, we'd be very comfortable if it was mid-single digit with our ability to still hit our, you know, 6%+ long-term sales growth algorithm. And, you know, just as one example, the emerging markets outside of China are now bigger than China, and we kind of see a lot of growth opportunity there.
But there's also a lot of other things going on inside the company that we feel good about, so.
Operator (participant)
Our next question comes from Jack Meehan from Nephron Research. Please go ahead.
Jack Meehan (Equity Research Analyst)
Thank you. Hi, everyone. Had a couple questions on core industrial. The first is called out, you know, seeing some signs of life on the PMI side. I was just curious in that context, can you unpack the first quarter guide? I think you're assuming flat growth. Is there some timing dynamics going on? Or, just piece those together for me.
Shawn Vadala (CFO)
Yeah. So yeah, you're right. I mean, it's definitely a little bit of a step down here from what you know what we did in the second half of 2025. I think as we kind of look at it, it is a little out of all of our businesses, it has a little bit more sensitivity to the economy. Some of the recent PMIs, nice to see the direction. You know, certainly there's a lag in terms of when we would see that in our business. You know, kind of as a reminder, about 60% of core industrial is sold into a combination of pharma, biopharma, food manufacturing, and chemical. And out of those three sectors, you know, the chemical sector has been under more pressure this year.
Probably expected to continue to be under pressure in Q1. And, you know, we're just assuming as the typical company starts the year, they're just gonna be, you know, a little bit more cautious with how they, you know, release funds. And, you know, we'll see how it plays out. As you know, we only sit on, you know, 1.5 months of backlog, typically, at any point in time. So, but that's just kind of how we were thinking about it when we guided it, you know, last quarter for this year. You know, we've tried to, you know, try to communicate on that, that we wouldn't be surprised if things start off a little bit slower this year, and, and certainly, that, that's how we feel, you know, sitting here today, so.
Jack Meehan (Equity Research Analyst)
Got it. Okay. And, you know, let's say there's a scenario where we continue to see, you know, positive trends on the PMI front. Can you talk about... Just remind us, like, what the drop-through is? Like, if we did see incremental organic growth, what the flow-through would be on the margin line.
Shawn Vadala (CFO)
You know, I think, I think on the core industrial side, it's gonna be, you know, right around corporate average. You know, it depends, of course, what part of the portfolio you're in. But, like, if you're, you know, if you're into the part of the portfolio that's really servicing, you know, serving the opportunities regarding automation and digitalization, which is the faster-growing sector. You know, that's above corporate average. But, you know, some of the stuff that's a little bit more cyclical tends to be, you know, below corporate average.
Operator (participant)
Our next question comes from Josh Waldman from Cleveland Research. Please go ahead.
Josh Waldman (Senior Equity Research Analyst)
Hey, good morning. Thanks for fitting me in. One for Shawn and then one for Patrick, I think. Shawn, can you talk through how you're thinking about the organic growth progression through the latter three quarters of the year? I guess, are you factoring in a larger than normal ramp off of the Q1 to get to the full-year? And then on the embedded caution to start the year, I guess, are you seeing this in the order book when you consider normal kind of order seasonality for January?
Shawn Vadala (CFO)
Yeah. So, hey, maybe I'll take the first part of the question, you know, first. So, I think if you look at our ramp up, it's not like a significant ramp, you know? Like, you know, yes, we're gonna be down a little bit organic volume in Q1 per our guidance, but if you, like, look at the second half of the year, it, you know, probably implies something in the 2% kind of a range in terms of organic growth. Now, in the second half of the year, you know, we'll have a little bit less pricing and a little bit less acquisition benefit, so that number, you know, might not be as high as, you know, just simply adding the increment of organic volume.
But, but that's kind of, like, how I would probably see it sitting here today, but certainly wouldn't want to get into specific quarters. I think, you know, every year is the same, and this year is, you know, no different and probably even has a little bit less visibility as you started, just given all the volatility from last year. But we're gonna learn a lot more here over the next couple months, you know? And I think once we, you know, get through the full-quarter, we'll have a much better perspective on what Q2 looks like and what the rest of the year looks like.
And then in terms of orders, like, hey, you know, we never comment on months and particularly, you know, just, you know, in Q1, I mean, January is always a goofy month, right? You know, February is a goofy month. You have Chinese New Year timings. Seasonality-wise, these are lower months in the year. So we'll see. You know, and like I said before, you know, we only sit on about 1.5 months worth of backlog. So we'll see how it plays out. And, you know, we're executing well. We feel really good about how we're positioned. We have, I think, a really good balance of, you know, looking at growth opportunities and also keeping an eye on, you know, productivity topics, and we'll continue to have that balance going forward.
Josh Waldman (Senior Equity Research Analyst)
Got it. Okay. And then Patrick, on service, I think you said the group reached $1 billion in sales. Can you remind us how that's dispersed across the lab and industrial segments? And then, in the past, I think you've talked about service as an area of strategic investment. And I wondered if you could-
Patrick Kaltenbach (CEO)
Mm-hmm
Josh Waldman (Senior Equity Research Analyst)
... talk through what you see as the near-term opportunities in service to drive, you know, incremental-
Patrick Kaltenbach (CEO)
Yeah
Josh Waldman (Senior Equity Research Analyst)
-share growth on the hardware side.
Patrick Kaltenbach (CEO)
Yeah, very good. Thanks, Josh. Yeah, look, I'm very excited about services and also the growth rates we have seen over the last years. We made a really conscious decision to over-invest in services as well and drive that opportunity. As Shawn said, we currently cover about one third of the installed base. There's ample opportunity for us to continue to cover more of that with strategic programs. We've been making good progress. When you think about the breakdown between industrial and lab, for example, it's almost along the revenue line, because in industrial, you would have to differentiate between, for example, PI, where we have a stronger service business versus pure industrial, that's a little bit less.
But I think it almost balances out across the portfolio, in terms of the contribution and comparison to the product business. But we're very excited about where we stand. It's a great strategic program for us as a company, and we are, of course, super proud that the team achieved this major milestone of $1 billion revenues in services.
Josh Waldman (Senior Equity Research Analyst)
Great. Thank you.
Operator (participant)
That concludes the question and answer session. I would now like to turn the call back over to Adam Uhlman for closing remarks.
Adam Uhlman (Head of Investor Relations)
Hey, thanks everybody, for joining us today and for your excellent questions. Please feel free to reach out if you have any follow-ups, and have a great weekend. Take care. Bye.
Operator (participant)
This concludes today's conference call. You may now disconnect.