It has been about a month since the last earnings report for Mettler-Toledo International, Inc. (MTD - Free Report) . Shares have lost about 4.7% 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.
Mettler-Toledo reported fourth-quarter 2017 adjusted earnings of $5.97 per share, which beat the Zacks Consensus Estimate by 3 cents and increased 13% year over year. The figure also came in higher than the guidance of$5.90 per share.
Net sales of $778 million beat the consensus estimate by 13 million and were up 9.6% year over year. In local currency, sales grew 6%, which was better than management’s expectation of 5.5% growth. In the quarter, reported sales increased 10%, of which 4% was attributed to favorable foreign exchange rate.
The better-than-expected results were driven by strong growth across Laboratory and Industrial segments in all regions. Mettler-Toledo’s strong product pipeline along with Field Turbo investments, marketing initiatives and Spinnaker sales contributed to its results.
In the last quarter, Mettler-Toledo acquired Biotix, a manufacturer and distributor of laboratory consumables and liquid handling solutions to the life science market. The acquisition is helping the company gain access to indirect distribution channels with robust secondary brands.
Overall, we remain positive about Mettler-Toledo’s leading market position, focus on product development and cost reduction, sales and marketing efforts and operational excellence programs. The company is expected to benefit from strong growth prospects in product inspection and services.
Geographically, Americas, Europe and Asia/Rest of the World increased 9%, 1% and 7%, respectively on a year-over-year basis.
Americas gained 2% from Biotix’s acquisition. Growth in Americas was driven mainly by high growth in industrial and Laboratory business, while Europe was affected by decline in product inspection business.
Growth in Asia/Rest of the World region was positively impacted by strong sales in China. Sales grew 13% in the country.
The year-over-year top-line growth was driven by strength across Laboratory and Industrial segments and contribution from acquisitions. Laboratory grew 11% of which organic growth contributed 9%. Industrial sales increased 1% in the quarter as growth in Core industrial business was offset by decline in the product inspection business.
Growth in Core industrial business was in mid-single digits driven by strength across all major regions. Moreover, the company saw tangible results from its investments in Field Turbo and Spinnaker sales. However, management expects competition to intensify in the quarters to follow.
Gross margin was 58.5%, down 50 basis points (bps) year over year. However, on a constant currency basis, gross margin increased 20%. The increase was driven by pricing and productivity gains, partially offset by mix and foreign exchange.
Research & development increased 5% year over year (in local currency) to $32.5 million driven by higher spending on product development. Selling, general & administrative (SG&A) expenses increased 6% (in local currency) to $204.9 million due to increase in variable compensation investments in Field Turbo programs and employee benefit cost.
Adjusted operating margin was 28%, down 20 bps year over year.
Balance Sheet and Cash Flow
The company exited the fourth quarter with cash and cash equivalents balance of $148.7 million compared with $169.1 million in the previous quarter. Long-term debt was $960.1 million compared with $1.1billion in the previous quarter.
Mettler-Toledo generated $165.1 million in cash from operating activities and spent $37.2 million on capex. During the quarter, the company returned nearly $65 million to shareholders through share repurchases.
Free cash flow was $130.6 million compared with $82.8 million in the year-ago quarter.
For the first quarter of 2018, Mettler-Toledo expects local currency sales to grow approximately 5%. The company expects Biotix to contribute 1% to this growth. Adjusted earnings are expected in the range of $3.65– $3.70 per share, up 9 year over year.
For the first quarter, the company expects currency to boost sales by approximately 5.5%.
For fiscal 2018, the company is implementing two new accounting rules, the first one being revenue recognition, which is not expected to have any impact on full year results. The other one is related to pension accounting and will transfer $6.5 million pension income from operating profit to other income.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.
At this time, MTD has a strong Growth Score of A and 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.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
MTD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.