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Why is Mettler-Toledo (MTD) Down 4.2% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Mettler-Toledo International, Inc. (MTD - Free Report) . Shares have lost about 4.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is MTD 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 drivers.

Recent Earnings

Mettler-Toledo International, Inc. reported first-quarter 2018 adjusted earnings of $3.74 per share, which missed the Zacks Consensus Estimate by 2 cents but came ahead of the management’s guided range of $3.65-$3.70 per share. The figure increased 12% on a year-over-year basis but decreased 37.3% sequentially.

Net sales of $660.8 million beat the Zacks Consensus Estimate of $651.1 million and were up 11.1% year over year but down 15.1% from the previous quarter. In local currency, sales grew 5%, which was in line with the management’s expectation of 5% growth. Further, favorable exchange rate contributed 6% to the year-over-year growth

The top-line growth was driven by robust performance of Laboratory business across all the geographies and benefits from Biotix acquisition. Also, Mettler-Toledo performed well in China which propelled the growth further.

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 10% sales growth on a year-over-year basis, which was driven by strong instrument portfolio. Especially balances, auto-chem and process analytics instruments performed well. Further, Field Turbo investments, marketing initiatives and improving Spinnaker sales also contributed to sales growth in this segment. Moreover, acquisition of Biotix benefited the segment.

Industrial Segment: The company generated 40% of net sales from this segment although revenues dipped by 1% year over year in the first quarter. Sales in this segment were down due to weak performances of product inspection business which declined mid-single digit and core industrial business which also fell low-single digit. Product inspection business suffered in this quarter from shifting of U.S. inspection unit to Tampa and implementation of new ERP system in German inspection operations. Further, core industrial was negatively impacted by fewer orders received by transportation and logistics business and flat sales due to Easter season.

Retail: Mettler-Toledo generated 8% of sales from the food retail business. However, the year-over-year sales growth remained flat in the reported quarter. This was due to nature of the project. Further, strong performance of the business in the U.S. was offset by its large decline in European market.

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

Americas: Mettler-Toledo generated 38% of sales from this region, up 5% year over year. This was driven by robust performance of core industrial, Laboratory and food retail business.

Europe: This region contributed 31% to the net sales of the company in the reported quarter. Core industrial business continued to perform well in Europe. However, sales dropped 1% from the prior year quarter due to unfavorable timing of Easter holidays and weak performance of food retail business in this region. Moreover, Laboratory business also reflected average growth which also impacted sales in this region.

Asia/Rest of the World: The company generated 31% of sales from this region, which reflected growth of 10% on a year-over-year basis. This was primarily driven by strong performance of the company in China where, sales grew 15% from the year-ago quarter. This was attributable to robust laboratory and core industrial businesses.

Operating Results

Gross margin was 56.7%, which contracted 110 basis points (bps) year over year. The contraction was due to unfavorable mix, consolidation cost related to product inspection and negative impact of foreign exchange. However, effective pricing remained positive.

Research & development (R&D) expenses were $34.7 million, up 5% from the year-ago quarter in local currency. Selling, general & administrative (SG&A) expenses increased 2% in local currency to $200.7 year over year million due to decrease in variable compensation investments.

Adjusted operating margin was 21.1%, up 10 bps year over year on a constant currency basis.

Balance Sheet and Cash Flow

As of Mar 31, 2018, the company’s cash and cash equivalents balance was $98.9 million compared with $148.7 million as of Dec 31, 2017. Long-term debt was $978.7 million which increased from $960.1 million in the previous quarter.

Mettler-Toledo generated $76.6 million of cash from operating activities, up from $67.6 million in the prior year quarter. Free cash flow was $56.5 million compared with $59.2 million in the year-ago quarter.

Guidance

For second-quarter 2018, Mettler-Toledo expects sales growth of 6% in local currency. The Zacks Consensus Estimate for sales is currently pegged at $714.9 million.  

Adjusted earnings are expected in the range of $4.55-$4.60 per share, up 16-17% year over year. The Zacks Consensus Estimate is pegged at $4.55 per share.

The company expects favorable economic condition will continue to benefit the company’s position in Americas, Europe and China as well. Additionally, Mettler-Toledo expects product inspection and food retail business to perform well in the second quarter. Moreover, improving Spinnaker sales and marketing programs are likely to drive both top line and bottom line of the company.

For 2018, the company expects sales to grow by 6% at local currency. The Zacks Consensus Estimate is projected at $2.98 billion.

Adjusted earnings are anticipated to lie in a range of $20.10-$20.25 per share, up from the previous guided range of $19.95-$20.15. The Zacks Consensus Estimate is projected at $20.24.

Further, Mettler-Toledo expects free cash flow of $450 million and share repurchase worth $475 million in 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, MTD has a nice Growth Score of B, however its Momentum is doing a bit better with an A. 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.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, MTD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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