It has been about a month since the last earnings report for Mettler-Toledo (MTD). Shares have lost about 0.8% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Mettler-Toledo 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 catalysts.
Mettler-Toledo Beats on Q3 Earnings, Revenues Up Y/Y
Mettler-Toledo International delivered third-quarter 2018 adjusted earnings of $5.12 per share, beating the Zacks Consensus Estimate by 13 cents and also came ahead of management's guided range of $4.97-$5.02 per share. The figure increased 17.4% on a year-over-year basis and 10.1% sequentially.
Net sales of $734.85 million were up 5.1% year over year and 1.8% from the previous quarter. In local currency, sales grew 7% from the year-ago quarter, exceeding management's expectation of 6% growth.
The robust performance of Laboratory business drove top-line growth. Further, strengthening Food business also contributed well. Further, Mettler-Toledo performed well in China which propelled growth.
However, revenues missed the Zacks Consensus Estimate of $739.76 million.
Nevertheless, the company remains confident on its 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 benefiting its business growth.
Top Line in Detail
By Segments: The company reports in three segments - Laboratory Instruments, Industrial Instruments and Food Retail Weighing Solutions which accounted for 50%, 42% and 8% of the net sales in the third quarter, respectively. Further, these segments witnessed year-over-year growth of 11%, 1% and 14% in the quarter under review, respectively.
By Geography: The company reports total sales figure from Americas, Europe and Asia/Rest of the World. All these regions contributed 38%, 30% and 32% to the net sales in the third quarter, respectively. Further, the sales in these regions went up 5%, 3% and 11% on a year-over-year basis.
Gross margin was 57.1%, contracting 30 basis points (bps) year over year.
Research & development (R&D) expenses were $34.8 million, up 8.2% from the year-ago quarter. Selling, general & administrative (SG&A) expenses decreased 2.2% year over year to $202.4 million.
Adjusted operating margin was 24.8%, which expanded 170 bps from the previous-year quarter.
Balance Sheet and Cash Flow
As of Sep 30, 2018, the company's cash and cash equivalents balance was $137.4 million compared with $183.2 million as of Jun 30, 2018.
Long-term debt was $988.9 million, decreasing from $1.02 billion in the previous quarter.
Mettler-Toledo generated $149.8 million of cash from operating activities, up from $140.2 million in the prior quarter. Free cash flow was $121.3 million compared with $120.8 million in the second quarter.
For fourth-quarter 2018, Mettler-Toledo expects sales growth of 6% in local currency.
Adjusted earnings are expected in the range of $6.72-$6.77 per share, up 13% year over year.
However, management assumes that high tariff costs and unfavourable currency fluctuations are likely to bring 5% negative impact on earnings growth.
For 2018, the company continues to expect sales to grow 6% at local currency. Further, adjusted earnings are expected to be in the range of $20.20-$20.25 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Mettler-Toledo has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions 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.