It has been about a month since the last earnings report for Mettler-Toledo (MTD). Shares have lost about 13.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Mettler-Toledo due for a breakout? 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 catalysts.
Mettler-Toledo Beats on Q2 Earnings, Revenues Up Y/Y
Mettler-Toledo International delivered second-quarter 2018 adjusted earnings of $5.16 per share, beating the Zacks Consensus Estimate by 7 cents and also came ahead of management’s guided range of $5.05-$5.10 per share. The figure improved 11% on a year-over-year basis and 25.8% sequentially.
Net sales of $731.4 million were up 1.3% year over year and 7.6% from the previous quarter. In local currency, sales grew 5% from the year-ago quarter. However, the figure was below management’s growth expectation of 5.5%.
The robust performance of Laboratory and Industrial product lines drove the top line. Further, the company’s solid momentum across Americas and Asia aided growth.
However, the top line missed the Zacks Consensus Estimate of $736.34 million.
Foreign exchange headwinds had an impact of 4% on the top line during the reported quarter. Further, the company’s weak performance in Europe remained an overhang.
Nevertheless, the company remains confident on 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 aiding 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 sales growth of 8% in local currency on a year-over-year basis. This can be attributed to strong investments in Spinnaker sales, marketing initiatives, field resources and R&D.
Industrial Segment: The company generated 41% of net sales from this segment. Further, sales exhibited year-over-year growth of 3%. This can primarily be attributed to well performing core industrial business, which improved 5% year over year. However, the segment witnessed sluggish product inspection business, which was down 1% from the year-ago quarter.
Food Retail: Mettler-Toledo generated 7% of sales from the food retail business. However, the sales declined 8% from the prior-year quarter owing to tough market conditions and timing of customer project activity.
The company reports total sales figure from Americas, Europe and Asia/Rest of the World.
Americas: Mettler-Toledo generated 40% of sales from this region, up 7% in local currency year over year. This was driven by well-performing industrial business, especially core industrial business. Further, robust Laboratory segment contributed to the first-quarter results. However, food retail business underperformed in this region excluding which sales would have exhibited year-over-year growth of 9%.
Europe: This region contributed 28% to the net sales of the company in the reported quarter. Sales in this region fell 1% year over year on account of sluggish performance of product inspection business excluding which sales would have improved 3% year over year. Further, softness in retail business was a headwind. These effects offset the strong performance of laboratory and core industrial businesses in this region.
Asia/Rest of the World: The company generated sales of 32% from this region, reflecting growth of 7% on a year-over-year basis. This can primarily be attributed to strong performance of the company in China where sales grew 9% from the year-ago quarter. The company experience strong momentum across all the businesses in this region during the reported quarter.
Gross margin was 57.4%, expanding 20 bps year over year, on the back of productivity and pricing.
Research & development (R&D) expenses were $36.6 million, up 3.6% from the year-ago quarter. As a percentage of revenues, the figure expanded 10 bps year over year.
Further, selling, general & administrative (SG&A) expenses decreased 1.3% year over year to $205.2 million. However, the figure contracted 70 bps from the year-ago quarter as a percentage of revenues.
Adjusted operating margin was 24.3%, expanding 90 bps from the prior-year quarter.
Balance Sheet and Cash Flow
As of Jun 30, 2019, the company’s cash and cash equivalents balance was $124.4 million, down from $126.5 million as of Mar 31, 2019.
Long-term debt was $1.1 billion, rising from $1 billion in the previous quarter.
Mettler-Toledo generated $127.1 million of cash from operating activities, up from $98.8 million in the prior quarter. Free cash flow was $113.42 million during the reported quarter.
For third-quarter 2019, Mettler-Toledo anticipates sales growth between 4% and 5% in local currency.
Adjusted earnings are anticipated in the range of $5.65-$5.75 per share, suggesting year-over-year growth of 10-12%.
For 2019, the company anticipates sales growth of 5% in local currency.
The company’s guidance for adjusted earnings lies in the range of $22.60-$22.75 per share. Notably, management has raised the lower end of the guidance which stood at $22.55. Further, the earnings figure is expected to indicate year-over-year improvement between 11% and 12%.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Mettler-Toledo has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
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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