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Why Is Mettler-Toledo (MTD) Up 5.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Mettler-Toledo (MTD - Free Report) . Shares have added about 5.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Mettler-Toledo Beats on Q3 Earnings Estimates

Mettler-Toledo International reported third-quarter 2019 adjusted earnings of $5.77 per share, beating the Zacks Consensus Estimate by 1.1% and also came ahead of management’s guided range of $5.65-$5.75 per share. The figure improved 13% on a year-over-year basis and 11.8% sequentially.

Net sales of $753.9 million were up 3% year over year and 3.1% from the previous quarter. The figure came in line with the Zacks Consensus Estimate.

Further, the top line improved 4% from the year-ago quarter in local currency. This matched the lower end of management’s guided range.  

The robust performance of Laboratory and Industrial product lines drove the top line. Further, the company’s solid momentum across Americas, Europe and Asia contributed to the quarterly results.

However, unfavorable foreign exchange fluctuations and tariffs remained overhangs. Further, sluggishness in the food retail business continued to affect the results, without which net sales would have exhibited growth of 6% year over year in local currency.

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 driving business.

Top Line in Detail

By Segments: The company reports in three segments — Laboratory Instruments, Industrial Instruments and Food Retail which accounted for 51%, 42% and 7% of the net sales in the third quarter, respectively. Further, Laboratory and Industrial segments witnessed year-over-year growth of 7% and 5% in the quarter under review, respectively.

However, Food Retail business was down significantly 15% from the year-ago quarter.

By Geography: The company reports total sales figure from Americas, Europe and Asia/Rest of the World. All these regions contributed 40%, 28% and 32% to the net sales in the third quarter, respectively. Further, sales in these regions went up 7%, 2% and 4% on a year-over-year basis, respectively.

Operating Results

Gross margin was 57.7%, expanding 60 bps year over year.

Research & development (R&D) expenses were $36 million, up 3.4% from the year-ago quarter. Selling, general & administrative (SG&A) expenses increased 0.2% year over year to $202.8 million.

 As a percentage of sales, R&D expenses expanded 10 bps year over year to 4.8%. However, SG&A expenses contracted 70 bps year over year to 26.9%.

Adjusted operating margin was 26%, which expanded 120 bps from the prior-year quarter.

Balance Sheet and Cash Flow

As of Sep 30, 2019, the company’s cash and cash equivalents balance was $120.5 million, down from $124.4 million as of Jun 30, 2019.

Long-term debt was $1.12 billion, increasing from $1.08 billion in the previous quarter.

Mettler-Toledo generated $175.9 million of cash from operating activities, up from $127.1 million in the prior quarter. Free cash flow was $151.6 million during the reported quarter.

Guidance

For fourth-quarter 2019, Mettler-Toledo anticipates sales growth of 3% on a year-over-year basis in local currency.

Adjusted earnings are anticipated in the range of $7.66-$7.71 per share, suggesting year-over-year growth of 12-13%.

For 2019, the company anticipates sales growth of 5% in local currency.

The company’s guidance for adjusted earnings lies in the range of $22.65-$22.70 per share. Notably, management has raised the lower end of the guidance, which stood at $22.60, but lowered the higher end that was $22.75 previously. Further, the bottom line is expected to indicate an improvement of 11-12% from the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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