Mesa Reports Better

On May 23, 2012, testing instrument maker-Mesa Laboratories Inc. (MLAB - Snapshot Report) reported its fourth quarter fiscal 2012 adjusted (excluding one-time expenses such as acquisition-related intangible amortizations) earnings of 76 cents per share, up 7% from the year-ago earnings of 71 cents. The earnings per share increased 20.6% on a sequential basis.

Profit rose 1% to $2.2 million (62 cents a share) from $2.18 million of the prior year quarter. The profit includes an unfavorable impact of a non-cash expense of $0.35 million for impairment of acquisitions during the fourth quarter.

For fiscal 2012, the adjusted earnings per share stood at $2.63, up 26.4% from the prior fiscal year. Profit rose 28% to $7.9 million ($2.29 per diluted share) for fiscal 2012.

Revenues

Revenues increased by 6% year over year to $10.5 million, buoyed by robust sales of its three largest product lines. The company crossed the $10 million revenue mark for the very first time. For the fiscal 2012, revenues improved 16% year over year to $38 million.

Segment Analysis

The company has two major business segments — Instruments and Biological Indicators. The Instruments segment revenue increased 5% and 10% during fourth quarter and full year, respectively.

The Biological Indicator segment revenue increased 6% and 21% during fourth quarter and full year, respectively. The organic growth of the products boosted segment revenue for the reported quarter and for the year. The acquisition of Apex in December 2010 accounted for the robust sales growth of the segment during fiscal 2012.

The organic growth rate for three largest product lines of Mesa Laboratories — Medical, Biological Indicators and DataTrace — exceeded 10% for fiscal 2012. It reflects optimum use of internal resources and enhanced sales.

Margins

Gross margin for the fourth quarter was 61.7% compared with 62.2% in the prior year quarter. Operating margin declined to 31.7% from 33.4% a year ago.

For fiscal 2012, gross margin of 61.9% increased slightly from 59.6% in the previous year. Operating margin increased to 32.9% from 30.1% a year ago.

Financial Position

Mesa ended fiscal 2012 with a healthy balance sheet. Cash and cash equivalents more than doubled from fiscal 2011 to $7.2 million.

Management expects healthy revenue growth for fiscal 2013 based on synergies from the acquisition of Bios International Corporation. The acquisition of the flow calibrator business of Bios will enhance the instrumentation product portfolio of Mesa.

Like Mesa, Bios also manufactures high margin products. The high profit margins of Bios products coupled with its strong market presence will benefit the company considerably. The acquisition will also allow Mesa to focus on developing quality control products for regulated industries. Mesa therefore expects the acquisition to be accretive to its net income and earnings per share.

Mesa, which competes with Cantel Medical Corp. (CMN - Snapshot Report), Danaher Corp. (DHR - Analyst Report) andThermo Fisher Scientific, Inc (TMO - Analyst Report), has a proven track record of healthy growth boosted by new product development and acquisitions. With the acquisition of Bios and a strong product pipeline, management expects the company to be well positioned for long-term growth.

The stock currently retains Zacks #1 Rank, which translates into a short-term Strong Buy rating.