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Mettler-Toledo (MTD) Up 5.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Cabot (COG) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Mettler-Toledo (MTD). Shares have added about 5.1% 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 Q4 Earnings, Revenues Up Y/Y

Mettler-Toledo International delivered fourth-quarter 2018 adjusted earnings of $6.85 per share, beating the Zacks Consensus Estimate by 11 cents and also came ahead of management’s guided range of $6.72-$6.77 per share. The figure increased 15% on a year-over-year basis and 33.8% sequentially.

Net sales of $817.92 million were up 5.1% year over year and advanced 11.3% from the previous quarter. In local currency, sales grew 8% from the year-ago quarter, exceeding management’s expectation of 6% growth. Further, the figure surpassed the Zacks Consensus Estimate of $807.37 million.

The robust performance of Laboratory and Industrial product lines drove the top line. Further, the company’s solid momentum in China spurred growth.

Moreover, the company remains confident on its growth strategies that include productivity and margin initiatives. Moreover, Mettler-Toledo’s continued investments in product portfolio expansion, field force, Spinnaker sales and marketing programs are expected to continue benefiting its business growth.

Top Line in Detail

By Segments: The company reports in three segments — Laboratory Instruments, Industrial Instruments and Food Retail Weighing Solutions.

Laboratory Segment: This segment accounted for 52% of net sales in the reported quarter. The company witnessed 7% sales growth on a year-over-year basis. This can be attributed to robust product offerings which include LabX and One Click product. Moreover, acquisition of Biotix continued to benefit the segment.

Industrial Segment: The company generated 42% of net sales from this segment. Further, sales exhibited year-over-year growth of 10%. This can primarily be attributed to well performing product inspection and core industrial businesses, which exhibited growth of 7% and 13% on a year-over-year basis, respectively.

Food Retail: Mettler-Toledo generated 6% of sales from the food retail business. However, the sales declined 6% from the prior-year quarter in this segment. This was due to nature of the project and customer activity timings.

By Geography

The company reports total sales figure from Americas, Europe and Asia/Rest of the World.

Americas: Mettler-Toledo generated 37% of sales from this region, up 7% year over year. This was driven by robust performance of core industrial and Laboratory businesses of the company.

Europe: This region contributed 32% to the net sales of the company in the reported quarter. Sales in this region grew 6% year over year which can be attributed to strong performance of core industrial and product inspection businesses. Further, robust Laboratory product lines contributed well.

Asia/Rest of the World: The company generated 31% of sales from this region, reflecting growth of 10% on a year-over-year basis. This was primarily driven by strong performance of the company in China, where sales grew 12% from the year-ago quarter. Further, strong Laboratory and Industrial product lines drove sales.

Operating Results

Gross margin was 58.4%, contracting 20 basis points (bps) year over year. This was primarily due to tariff mix, and costs related to new product introduction and product inspection business.

Research & development (R&D) expenses were $36.2 million, up 12% from the year-ago quarter. Selling, general & administrative (SG&A) expenses decreased 2.4% year over year to $201.6 million.

Adjusted operating margin was 29.3%, expanding 140 bps from the prior-year quarter.

Balance Sheet and Cash Flow

As of Dec 31, 2018, the company’s cash and cash equivalents balance was $178.1 million, up from $137.4 million as of Sep 30, 2018.

Long-term debt was $985.02 million, decreasing from $988.9 millionin the previous quarter.

Mettler-Toledo generated $198.6 million of cash from operating activities, up from $149.7million in the prior quarter. Free cash flow was $157.2 million compared with $121.3 million in the third quarter.

Guidance

For first-quarter 2019, Mettler-Toledo expects sales growth of 5.5% in local currency.

Adjusted earnings are anticipated in the range of $4-$4.05 per share, reflecting year-over-year growth of 7-8%.

For 2019, the company expects sales to grow 5% in local currency.

Adjusted earnings are expected to be in the range of $22.5-$22.7 per share.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

At this time, Mettler-Toledo has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Mettler-Toledo has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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