Mettler-Toledo (MTD) Q2 Earnings and Revenues Top Estimates

Mettler-Toledo International MTD reported second-quarter 2018 adjusted earnings of $4.65 per share, which beat the Zacks Consensus Estimate of $4.58 and increased 18.6% on a year-over-year basis.

Net sales of $722 million beat the Zacks Consensus Estimate of $714.9 million and were up 10.5% year over year.

In local currency, sales grew 7%. Further, favorable exchange rate contributed 3% to year-over-year growth.

The top-line growth was driven by robust performance of Laboratory business across all geographies and benefits from Biotix acquisition. Also, strong performance in China propelled growth.

Top Line in Detail

Laboratory Segment (50% of net sales) witnessed 10% sales growth on a year-over-year basis driven by strong product portfolio, Field Turbo investments, marketing initiatives and improving Spinnaker sales. Moreover, acquisition of Biotix benefited the segment. Moreover, the company’s process analytics business showed remarkable growth this quarter. It derived 40% of its revenues from consumables and service and generated 10% of total sales.

Industrial Segment (42%) revenues grew 3% year over year. The company’s core industrial business grew 7%. However, it was offset by a 3% fall in product inspection. Robust growth of product inspection in the year-ago quarter led to a tough year-over-year comparison.

Revenues from Food Retail Segment (8%) grew 6% on a year-over-year basis and surpassed management’s expectation on the back of strong project growth in United States. The segment witnessed modest growth in Asia/Rest of the World, while growth in Europe faltered.

Geographically, Mettler-Toledo generated 38% of sales from Americas, up 4% year over year. This was driven by robust performance of core industrial, Laboratory and food retail business.

Sales from Europe, contributing 31% to net sales, increased 7% from the prior-year quarter on the back of solid core industrial business.

The company generated 31% of sales from Asia/Rest of the World, up 9% on a year-over-year basis. This was primarily driven by strong performance of the company in China where laboratory and industrial businesses grew 20% and 10%, respectively.

Operating Results

Gross margin was 57.2%, which contracted 30 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 was a positive.

Research & development (R&D) expenses were $35.3 million, up 6% from the year-ago quarter in local currency. Selling, general & administrative (SG&A) expenses increased 3% in local currency to $208 million. Increase in investments in field resources outweighed the cost-saving initiatives of the company.

Adjusted operating margin was 23.4%, up 80 bps year over year. There was no impact from currencies this quarter.

Mettler-Toledo International, Inc. Price, Consensus and EPS Surprise

Mettler-Toledo International, Inc. Price, Consensus and EPS Surprise | Mettler-Toledo International, Inc. Quote

Balance Sheet and Cash Flow

As of Jun 30, 2018, the company’s cash and cash equivalents balance was $183.2 million compared with $98.9 million in the previous quarter.

Long-term debt was $1.02 billion, which increased from $978.7 million in the previous quarter.

Mettler-Toledo generated $140.2 million of cash from operating activities, up from $76.6 million in the prior quarter. Free cash flow was $120.8 million compared with $56.5 million in the first quarter.

Guidance

For third-quarter 2018, Mettler-Toledo expects sales growth of 6% in local currency. Adjusted earnings are expected in the range of $4.97-$5.02 per share, up 14-15% year over year.

The company expects gross margin to remain flat in the third quarter owing to the tariff headwind that it is likely to face. Mettler-Toledo plans to counter the tariff issue by raising prices, which it does not view as a challenge as competitors have also resorted to the same thing.

For 2018, the company continues to expect sales to grow 6% at local currency. Adjusted earnings are still expected to be in the range of $20.01-$20.25 per share

Further, Mettler-Toledo expects share repurchase worth $475 million in 2018.

Zacks Rank and Stocks to Consider

Mettler-Toledo currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader technology sector are YY Inc. YY, Science Applications SAIC and Verint Systems VRNT, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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