Mettler-Toledo International Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Unaudited U.S. GAAP results. The company supplies precision instruments and related services for laboratory, industrial, food retailing, logistics, and process applications.
Key financial results
Amounts below are in millions of U.S. dollars, except per-share data. Comparisons are with the corresponding 2014 period.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $604.2 | $629.1 | $1,721.9 | $1,788.6 |
| Gross profit | $339.5 | $343.6 | $961.2 | $964.4 |
| Gross margin | 56.2% | 54.6% | 55.8% | 53.9% |
| Earnings before taxes | $116.9 | $111.8 | $301.9 | $285.6 |
| Net earnings | $88.9 | $85.0 | $229.5 | $217.1 |
| Diluted EPS | $3.16 | $2.89 | $8.07 | $7.30 |
- Sales declined 4% in reported U.S. dollars in both periods, but increased 3% in local currencies in Q3 and 4% for the nine months. Currency movements, especially the weaker euro, weighed on reported sales.
- Net earnings rose about 5% in Q3 and 6% for the nine months. Gross margin improved 1.6 percentage points in Q3 and 1.9 points year to date.
- Management attributed gross-margin improvement to hedging gains and currency translation, favorable pricing, higher volume, and lower material costs, partly offset by investment in field service.
- Operating cash flow was $289.8 million for the nine months, versus $278.2 million. Capital expenditures were $56.8 million, versus $61.4 million; operating cash flow less capital expenditures was approximately $233.1 million.
Balance sheet, debt, and capital allocation
- At September 30, cash was $123.3 million; total debt was $622.8 million, including $21.1 million current and $601.7 million long-term. Cash less total debt implies net debt of approximately $499.5 million. Total debt at December 31, 2014 was approximately $452.0 million.
- Current assets were $868.3 million and current liabilities $593.4 million, for a current ratio of approximately 1.46. The company reported $683.4 million of availability under its $800 million credit agreement and compliance with its covenants.
- Nine-month share repurchases totaled $371.2 million for 1.17 million shares. Remaining program availability at September 30 was $107.2 million; in November, the board authorized an additional $1.5 billion. Repurchases may be funded with cash, borrowings, and operating cash flow.
- September acquisitions totaled $16.6 million, including a water-purity monitoring technology acquisition with an estimated $14.7 million purchase price. Additional earn-out payments may be due.
Performance, outlook, and risks
- U.S. operations grew, while external-customer sales were pressured in China, Russia, and Brazil. China, Russia, and Brazil had unfavorable market conditions and slower customer investment; management said timing of stabilization or recovery was uncertain and that it remained cautious on sales outlook.
- Laboratory-related sales grew 7% in local currencies in both periods. Industrial-related sales were down 1% in local currencies in Q3 and flat year to date, with declines in China, Russia, and Brazil partly offset by U.S. growth.
- Foreign exchange remains a material exposure, particularly the Swiss franc, euro, and U.S. dollar. The filing estimates that a 1% Swiss franc strengthening against the euro could reduce annual pretax earnings by $1.1–$1.3 million absent the relevant forwards; a 1% strengthening against the U.S. dollar could reduce earnings by $0.5–$0.7 million. A 1% weakening of the renminbi against the U.S. dollar could reduce annual pretax earnings by $0.7–$0.9 million.
- Management believed operating cash flow, credit-facility availability, and local facilities would fund anticipated working-capital needs and capital spending for the foreseeable future. The filing gives no specific earnings or sales guidance. Management cautioned that interim results are not necessarily indicative of full-year results.
- Restructuring charges were $2.6 million in Q3 and $5.2 million year to date. Routine legal and environmental matters were not expected to have a material adverse effect; the filing reports no legal proceedings under Part II. No material risk-factor changes were reported.
Important facts for investors to verify
- Whether local-currency sales growth can persist and whether demand improves in China, Russia, and Brazil.
- Whether gross-margin improvement is sustainable, particularly given currency movements, hedging, pricing, and ongoing service and sales investments.
- How increased borrowings and the expanded repurchase authorization affect leverage, interest expense, and liquidity.
- The outcome and potential earn-out cost of the September acquisitions, and progress on restructuring actions.
- Foreign-exchange sensitivity and the effects of the company’s hedges, including their timing and coverage.