Mettler-Toledo (MTD) Down 8.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Mettler-Toledo (MTD). Shares have lost about 8.1% 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 Q4 Earnings Estimates

Mettler-Toledo International reported fourth-quarter 2019 adjusted earnings of $7.78 per share, beating the Zacks Consensus Estimate by 1.2%. The figure improved 14% on a year-over-year basis and 34.8% sequentially.

Net sales of $843.97 million were up 3.2% year over year and 11.9% from the prior quarter. The figure surpassed the Zacks Consensus Estimate of $840.17.

The well-performing Laboratory and Industrial product lines drove the top line. Further, the company’s solid momentum across Americas 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 act as a headwind.

Market uncertainties, coronavirus impact, trade was between the United States and China, and foreign currency risks remain headwinds.

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 anticipated to continue driving business.

Top Line in Detail

By Segments: The company reports in three segments — Laboratory Instruments, Industrial Instruments and Food Retail Weighing Solutions.

Laboratory Segment: This segment accounted for 53% of net sales in the reported quarter. The company witnessed sales growth of 6% in local currency on a year-over-year basis. This can be attributed to portfolio strength and solid demand across pharmaceutical and life science end-market.

Industrial Segment: The company generated 41% of net sales from this segment. Further, sales reflected year-over-year growth of 2%. This can primarily be attributed to well performing core industrial business, which improved 4% year over year owing to solid market demand, and growing momentum across Spinnaker sales and marketing initiatives.

However, the product inspection business remained flat year over year due to sluggish spending by large food manufacturers.

Food Retail: Mettler-Toledo generated 6% of sales from the food retail business. However, the sales declined 2% from the prior-year quarter on account of sluggish market demand.

By Geography

The company reports total sales figure from Americas, Europe and Asia/Rest of the World.

Americas: Mettler-Toledo generated 38% of sales from this region, up 6% in local currency year over year. This was driven by well-performing Laboratory segment and core industrial business.

Europe: This region contributed 31% to the company’s net sales in the reported quarter. Sales in this region increased 1% year over year, owing to strong performance by Laboratory segment.

However, sluggish performance of core industrial and product inspection businesses in this region was an overhang.

Asia/Rest of the World: The company generated sales of 31% from this region, reflecting growth of 5% on a year-over-year basis. This can primarily be attributed to strong performance of the company in China owing to strong momentum across digital lab business and Industrial segment.

However, softness in retail business remains a headwind.

Operating Results

Gross margin was 59%, expanding 60 basis points (bps) year over year.

Research & development (R&D) expenses were $35.3 million, down 2.5% from the year-ago quarter. Selling, general & administrative (SG&A) expenses increased 2.5% year over year to $206.7 million.

As a percentage of sales, both R&D and SG&A expenses contracted 20 bps each on a year-over-year basis.

Adjusted operating margin was 30.4%, which expanded 110 bps from the prior-year quarter.

Balance Sheet and Cash Flow

As of Dec 31, 2019, the company’s cash and cash equivalents balance was $207.8 million, up from $120.5 million as of Sep 30, 2019.

Long-term debt was $1.23 billion, increasing from $1.12 billion in the previous quarter.

Mettler-Toledo generated $201.7 million of cash from operating activities, up from $175.9 million in the prior quarter. Free cash flow was $186.2 million during the reported quarter.

Guidance

For first-quarter 2020, Mettler-Toledo anticipates sales growth between 0% and 1% on a year-over-year basis in local currency.

The company expects coronavirus outbreak to hurt sales in China in the fiscal first quarter significantly.

Adjusted earnings are anticipated in the range of $4.20-$4.30 per share, suggesting year-over-year growth of 2-5%.

Foreign exchange headwinds and negative impacts of tariffs thanks to U.S.-China trade dispute remain concerns.

For 2020, the company anticipates sales growth of 4% in local currency.

The company’s guidance for adjusted earnings lies in the range of $24.85-$25.10 per share, reflecting year-over-year growth of 9-10%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Mettler-Toledo has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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.

Outlook

Mettler-Toledo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.