Mettler-Toledo International Inc. — Q2 2018 Form 10-Q
Business context and period. The company supplies precision instruments and related services for laboratory, industrial, food retail, packaging and other applications. This unaudited quarterly report covers the three and six months ended June 30, 2018; financial comparisons are to the corresponding 2017 periods. Amounts below are in U.S. dollars unless noted.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net sales | $722.0 million | $653.7 million | $1,382.8 million | $1,248.2 million |
| Gross profit | $412.6 million | $375.6 million | $787.6 million | $719.0 million |
| Net earnings | $111.5 million | $101.6 million | $204.8 million | $194.0 million |
| Diluted EPS | $4.31 | $3.84 | $7.88 | $7.32 |
| Operating cash flow | Not separately reported | Not separately reported | $216.8 million | $205.4 million |
- Sales increased 10% in Q2 and 11% year to date in reported dollars; local-currency growth was 7% and 6%, respectively. Biotix contributed about 1.5% to local-currency sales growth in both periods.
- Q2 net earnings rose about 10% year over year; six-month net earnings rose about 6%. Diluted EPS increased about 12% and 8%, respectively.
- Gross margin was 57.2% in Q2 versus 57.5% a year earlier, and 57.0% for the first half versus 57.6%. Management cited currency translation, initial costs at a new manufacturing facility and Biotix as pressures, partially offset by favorable pricing. Service margins improved, while product margins declined.
- Six-month operating cash flow was $216.8 million. Capital expenditures were $61.6 million, implying approximately $155.2 million of operating cash flow less capital expenditures, compared with approximately $156.8 million in the prior-year period.
Liquidity, debt and capital allocation
- At June 30, cash and cash equivalents were $183.2 million; current assets were $1,003.3 million and current liabilities $688.8 million.
- Total debt was $1,072.5 million, including $52.1 million current and $1,020.4 million long-term. Cash less total debt was approximately negative $889.3 million.
- The amended revolving credit agreement increased capacity to $1.1 billion and matures June 2023. Availability at quarter-end was $566.9 million; the company reported compliance with its covenants.
- Six-month share repurchases totaled $237.5 million for 396,218 shares. A further $345.9 million remained authorized at June 30. Capital expenditures were higher than last year, primarily from manufacturing-facility investments.
Changes, outlook and risks
- Growth was broad, with particularly strong Chinese external-customer sales growth of 23% in Q2 and 24% year to date in reported dollars. Chinese local-currency external sales grew 15% and 16%. The company warned of difficult China comparisons in the second half and noted that the market can be volatile.
- Segment profit increased overall to $169.3 million in Q2 and $308.8 million year to date. U.S. segment profit declined, reflecting new-facility start-up costs and field-organization investment; Western Europe’s first-half segment profit also declined, including Blue Ocean program roll-in costs.
- Restructuring charges were $7.3 million in Q2 and $11.7 million year to date, primarily for employee costs and facility consolidation. The prior-year first half included a one-time $3.4 million gain on a Swiss facility sale.
- Management said market conditions were generally favorable but cautioned that regional economic uncertainty and changing conditions remain. It expects $20–$30 million of net investment in new or expanded manufacturing facilities over the next two years, and approximately $25.9 million of employer contributions to non-U.S. pension plans in 2018.
- No numerical full-year sales or earnings guidance is provided in the supplied filing text. Management said operating cash flow, credit facilities and local working-capital facilities should be sufficient for anticipated needs and capital spending for the foreseeable future.
- Key exposures include currency movements—particularly the Swiss franc, euro and Chinese renminbi—and foreign-currency-denominated debt. The filing estimates that a 1% Swiss franc strengthening against the euro could reduce annual pretax earnings by $1.6–$1.8 million; a 1% renminbi weakening against the U.S. dollar could reduce annual pretax earnings by $1.1–$1.3 million.
- The company paid $4.2 million toward the U.S. tax-law Transition Tax in April. Its accounting for certain Tax Cuts and Jobs Act effects remained under evaluation. Management did not expect pending legal proceedings, including environmental matters, to have a material adverse effect; no material risk-factor changes were reported.
Most important facts for investors to verify
- Whether sales growth and profitability can be sustained against tougher second-half China comparisons, and how much growth is attributable to acquisitions and currency.
- Whether gross-margin pressure from facility start-up costs, acquisition effects and foreign exchange eases, and how restructuring and Blue Ocean costs develop.
- Capital spending, cash generation, share repurchases and debt levels relative to the company’s stated liquidity and covenant capacity.
- Final tax-law accounting and payment obligations, alongside currency exposure and the planned pension contributions.