Mettler-Toledo International Inc. — Q1 2017 Form 10-Q
Period: Three months ended March 31, 2017; unaudited. Mettler-Toledo supplies precision instruments and related services across laboratory, industrial, food-retailing, packaging and process-analytics markets.
Financial performance
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Net sales | $594.6 million | $539.7 million | +10% reported; +12% local currency |
| Gross profit / margin | $342.9 million / 57.7% | $299.9 million / 55.6% | Margin +2.1 percentage points |
| Earnings before taxes | $113.8 million | $86.4 million | +32% |
| Net earnings | $92.5 million | $65.7 million | +41% |
| Diluted EPS | $3.48 | $2.40 | +45% |
| Operating cash flow | $67.6 million | $41.5 million | +$26.1 million |
| Capital expenditures | $21.0 million | $14.3 million | +$6.7 million |
Operating cash flow less capital expenditures was approximately $46.6 million, versus $27.2 million a year earlier. Product sales rose 11% in U.S. dollars (13% local currency); service revenue, including spare parts, rose 9% (11% local currency). Gross-margin improvement reflected higher volume, productivity gains and favorable pricing. Segment profit was $127.3 million, up from $102.0 million.
Balance sheet and liquidity
- Cash and cash equivalents were $164.9 million at March 31, 2017, compared with $158.7 million at year-end 2016.
- Total debt was $963.7 million, including $19.5 million current debt and $944.2 million long-term debt; debt was approximately $894.0 million at December 31, 2016. Net debt was approximately $798.8 million.
- Availability under the $800 million credit agreement was $333.6 million. Management said operating cash flow, credit-facility capacity and local working-capital facilities should cover anticipated working-capital and capital-spending needs for the foreseeable future.
- The company repurchased 275,088 shares for $125.0 million during the quarter. Approximately $858.4 million remained under the repurchase program.
Changes, outlook and notable items
- Sales increased across regions and segments. Local-currency sales to external customers grew 14% in the Americas, 12% in Europe and 9% in Asia/Rest of World. Troemner contributed approximately 1% to total sales growth.
- Management described global market conditions as generally favorable but remained cautious about economic uncertainty in some regions and warned of more difficult prior-year comparisons in the second half of 2017. No full-year sales or earnings guidance was provided.
- The company expects $65 million to $75 million of net investment in new or expanded manufacturing facilities over the next two years.
- Other charges (income), net included a $3.4 million one-time gain from the sale of a Swiss facility as part of an operations-consolidation initiative. The quarter also included $1.4 million of restructuring charges.
- Adoption of ASU 2016-09 reduced the estimated 2017 annual tax rate to 22% from 24%; the reported Q1 tax rate was approximately 19%. Management attributed the lower quarterly rate primarily to excess tax benefits from stock-option exercises.
- Currency exposure is material: management estimated that a 1% Swiss-franc strengthening against the euro would reduce annual pretax earnings by $1.5 million to $1.7 million; a 1% strengthening against the U.S. dollar would reduce them by a further approximately $0.2 million. A 10% U.S.-dollar weakening against debt currencies would increase reported debt by approximately $31.4 million.
- Management did not expect pending legal proceedings, including environmental matters, to have a material adverse effect. No material changes to previously disclosed risk factors or market-risk disclosures were reported. Disclosure controls were judged effective, with no material internal-control changes during the quarter.
Important facts for investors to verify
- How much of sales and earnings growth reflects underlying demand and execution versus the Troemner acquisition, foreign exchange, and the one-time facility-sale gain.
- Whether gross-margin gains and segment-profit growth persist amid increased sales, service, and R&D investment and tougher second-half comparisons.
- The sustainability of cash generation relative to planned facility spending, ongoing share repurchases, and the increase in debt.
- The effect of ASU 2016-09 tax benefits on reported earnings and the expected full-year tax rate.
- Exposure to Swiss-franc, euro and other currency movements, and the company’s ability to maintain available borrowing capacity.