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Mettler-Toledo (MTD) Up 17.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Mettler-Toledo (MTD). Shares have added about 17.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Mettler-Toledo due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Mettler-Toledo Beats on Q1 Earnings Estimates

Mettler-Toledo International reported first-quarter 2020 adjusted earnings of $4 per share, beating the Zacks Consensus Estimate by 0.50%. The bottom line declined 2% on a year-over-year basis and 48.6% sequentially.

Net sales of $649.2 million were down 4% on reported basis and 3% on currency neutral basis from the year-ago quarter. The top line also fell 23.1% from the prior quarter.

Notably, the top line missed the Zacks Consensus Estimate of $650 million.

Coronavirus pandemic significantly impacted the company’s sales in China, other Asian countries and Europe negatively. This, in turn, led to decline in the company’s top line.

Further, weak performance by Industrial and Retail segment during the quarter remained a concern.

The company has not provided full year 2020 guidance citing market uncertainties related to coronavirus pandemic.

Nevertheless, the company remains confident on its margin and productivity initiatives. Further, its temporary cost containment measures and declining discretionary spending are expected to aid the performance in the near term.

Top Line in Detail

By Segments: The company reports in three segments — Laboratory Instruments, Industrial Instruments and Food Retail, which accounted for 55%, 39% and 6% of the net sales in the first quarter, respectively. While Laboratory segment experienced 1% year-over-year growth, Industrial and Food Retail segments were down 5% and 16% from the year-ago quarter, respectively.

By Geography: The company reports total sales figure from Americas, Europe and Asia/Rest of the World (ROW). All these regions contributed 41%, 30% and 29% to net sales in the first quarter, respectively. While sales in Americas were up 3% year over year, the same in Europe and Asia/ROW were down 5% and 8% from the year-ago quarter, respectively.

Operating Results

Gross margin was 57.7%, expanding 50 basis points (bps) year over year.

Research & development (R&D) expenses were $34.4 million, down 4.6% from the year-ago quarter. Selling, general & administrative (SG&A) expenses decreased 2.8% year over year to $198.7 million.

As a percentage of sales, R&D expenses remained flat year over year and SG&A expenses contracted 50 bps from the year-ago quarter.

Adjusted operating margin was 21.8%, which remained flat on a year-over year basis.

Balance Sheet and Cash Flow

As of Mar 31, 2020, the company’s cash and cash equivalents balance was $323.6 million, up from $207.8 million as of Dec 31, 2019.

Long-term debt was $1.5 billion, increasing from $1.2 billion in the previous quarter.

Mettler-Toledo generated $65.5 million of cash from operating activities, up from $201.7 million in the prior quarter. Free cash flow was $48.3 million during the reported quarter.

Guidance

For second-quarter 2020, Mettler-Toledo anticipates sales to decline between 8% and 12% on year-over-year basis in local currency.

Adjusted earnings are anticipated in the range of $4.05-$4.45 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 15.84% due to these changes.

VGM Scores

At this time, Mettler-Toledo has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Mettler-Toledo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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