Mettler-Toledo International Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. Unaudited interim results; amounts below are in U.S. dollars unless noted. The company supplies precision instruments and related services. Management cautions that interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Net sales | $578.7m | $570.3m | $1,103.0m | $1,105.7m |
| Gross profit / margin | $308.8m / 53.4% | $299.0m / 52.4% | $588.1m / 53.3% | $576.1m / 52.1% |
| Earnings before taxes | $90.9m | $81.7m | $160.0m | $151.0m |
| Net earnings | $69.1m | $61.7m | $121.6m | $114.0m |
| Diluted EPS | $2.24 | $1.93 | $3.93 | $3.54 |
Q2 sales rose about 1% in both reported dollars and local currencies; first-half sales were flat in local currencies and slightly lower in reported dollars. Q2 and first-half net earnings increased approximately 12% and 7%, respectively. Gross margin improved in both periods, which management attributed primarily to better price realization, lower material costs and favorable business mix. Net margin was 11.9% in Q2 versus 10.8%, and 11.0% for the first half versus 10.3%.
Cash flow, debt and liquidity
- First-half operating cash flow was $114.6m, compared with $112.0m; capital expenditures were $36.8m, versus $43.2m. Cash and cash equivalents ended the period at $120.2m, up from $101.7m at year-end 2012.
- Total debt was $461.7m, including $17.9m current debt, compared with $388.7m at December 31, 2012. Long-term debt was $443.7m. The company reported $582.4m of remaining availability under its credit agreement.
- First-half share repurchases totaled $144.8m for 680,934 shares. Remaining repurchase authorization at June 30 was $292.5m; the board authorized an additional $750m in July.
- Management believes operating cash flow and available credit will fund anticipated working-capital needs and capital spending for the foreseeable future. It may incur additional debt in connection with potential acquisitions.
Material changes and business trends
- Services revenue grew 7% in Q2 and 6% in the first half in reported dollars; product sales were flat in Q2 and down 2% in the first half.
- Americas sales increased, while Asia/Rest of World sales declined. China external-customer sales fell 10% in Q2 and 6% in the first half in reported dollars, reflecting weak economic conditions. European external sales were flat in Q2 and down 2% for the first half.
- Swiss Operations segment profit rose substantially, while U.S. and Chinese segment profit declined. Consolidated segment profit increased to $106.4m in Q2 from $101.1m and to $191.8m for the first half from $181.9m.
- Q2 restructuring charges were $3.2m versus $7.8m; first-half charges were $8.2m versus $8.1m. The charges primarily related to employee costs and ongoing cost-reduction measures.
- First-half interest expense decreased to $10.9m from $11.5m, primarily due to lower average borrowings. The effective tax rate used for 2013 was 24%, compared with 24.5% in 2012.
Outlook, risks and contingencies
No specific revenue or EPS guidance is stated in the provided filing text. Management said global economic conditions remain uncertain and expected sales to continue to be adversely affected; it specifically noted continued uncertainty in China. Risks discussed include economic weakness, foreign-exchange and interest-rate movements, customer demand, and potential changes in costs and competitive conditions. The company estimates that a 1% strengthening of the Swiss franc against the euro would reduce annual pretax earnings by approximately $0.8m–$1.2m absent hedges; existing forwards reduce that exposure by about 75%. A 10% weakening of the U.S. dollar against the currencies of its debt would increase the reported dollar value of debt by about $4.6m.
The company is involved in ordinary-course legal proceedings, including environmental matters; management does not expect them to materially adversely affect financial condition, results or cash flows. The filing reports no material change in previously disclosed risk factors, no material change in market-risk disclosures, and effective disclosure controls.
Important facts for investors to verify
- Whether sales weakness in China and other uncertain markets persists, and how it affects product volumes and segment profitability.
- Whether gross-margin improvement and stronger service revenue continue to offset flat or declining product sales.
- How the $750m additional repurchase authorization is funded and its effect on debt, cash and share count.
- Debt levels, credit-facility availability, and exposure to currency movements and interest-rate changes.
- Future restructuring costs, pension contributions, and any material developments in legal or environmental matters.