Mettler-Toledo Beats Q1 Earnings, Revs - Analyst Blog

Shares of Mettler-Toledo International Inc. MTD climbed 1.7% following its 2014-first-quarter earnings release. Adjusted earnings per share scaled up 8.7% to $2.00 from $1.84 in the first quarter of 2013 and also beat the Zacks Consensus Estimate by 4 cents.

Reported net earnings rose 10.5% to $58.1 million from $52.5 million in the year-ago quarter. On a per share basis, net earnings spiked 14.2% to $1.93 from $1.69 reported in the same quarter of last year.

Revenues

Revenues improved 5% to $550.6 million, surpassing the Zacks Consensus Estimate of $536 million. In terms of local currency, revenues increased 4% year over year. The upside was led by strong growth in Europe and the Americas, partly hurt by lower revenues from China.

On a geographic basis, local currency revenues increased 9% in Europe, 3% in the Americas, and 1% in Asia/Rest of World as compared to the prior year.

Expenses and Margins

Gross profit increased 4.8% to $292.6 million on the back of favorable pricing and lower raw material costs. However, gross margin slid 10 basis points (bps) to 53.1% from 53.2% in the year-ago quarter due to unfavorable mix, currency and higher inventory charges.

Research & development (R&D) expenses went up 6.5% to $29.5 million, principally driven by project development activities. As a percentage of sales, R&D expenses rose 10 bps to 5.4% from 5.3% in the prior-year quarter.

Selling, general & administrative expenses increased 3.7% to $172.2 owing to higher sales and marketing costs and elevated variable compensation expenses, partially offset by cost savings initiatives and lower employee benefit costs.

Adjusted operating earnings improved 6.5% to $91.0 million while adjusted operating margin expanded 20 bps to 16.5% from 16.3% in the first quarter of 2013. Mettler-Toledo estimates that currency had a negative impact on operating earnings to the tune of $3.7 million.

Financial Position

Mettler-Toledo had cash and cash equivalents of $115.8 million as of Mar 31, 2014, up 3.5% from $111.9 million as of Dec 31, 2013. Long-term debt stood at $465.8 million as of Mar 31, 2014, reflecting an increase of 12.8% from $413.0 million as of Dec 31, 2013. Consequently, the debt-to capitalization ratio expanded 290 bps to 33.5% from 30.6% as of Dec 31, 2013.

Cash flow from operations surged 81.0% to $42.8 million from $23.7 million in the prior-year quarter.

Guidance

For the second quarter of 2014, Mettler-Toledo forecasts adjusted earnings per share in the band of $2.50–$2.55, reflecting an increase of 6−9% over last year. The present Zacks Consensus Estimate of $2.55 coincides with the upper end of the guided range. Local currency revenue growth for the second quarter is projected in the 3−4% range.

Mettler-Toledo anticipates adjusted earnings per share in the band of $11.45 to $11.60 for 2014 as compared to the prior range of $11.40 to $11.60. The upgraded earnings guidance represents a year-over-year growth of 8−10%. The current Zacks Consensus Estimate of $11.58 lies within the guided range. Mettler-Toledo projects local currency revenue growth of approximately 4% for the year as compared to the prior guidance of 3−4%.

Our Take

Despite the challenging currency headwind encountered during the quarter, Mettler-Toledo's first-quarter results beat estimates at both fronts. Mettler-Toledo also updated its outlook for 2014.

We remain confident on the stock as the developed market conditions improve and Mettler-Toledo focuses on new product launches as well as sales and marketing programs. Though Mettler-Toledo continues to face short-term challenges in emerging markets, particularly in China, growth in these markets is expected to accelerate going forward.

Currently, Mettler-Toledo carries a Zacks Rank #2 (Buy). Some other stocks from the broader medical instruments industry that are worth a look include RTI Surgical Inc. RTIX, Globus Medical, Inc. GMED and Accuray Inc. ARAY. While RTI Surgical sports a Zacks Rank #1 (Strong Buy), both Globus Medical and Accuray carry a Zacks Rank #2 (Buy).