METTLER TOLEDO INTERNATIONAL INC quarterly report, Q1 FY2022

Mettler-Toledo International Inc. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with the three months ended March 31, 2021 unless noted. The company supplies precision instruments and related services across laboratory, industrial, food retail and other applications.

Financial performance

MetricQ1 2022Q1 2021Change
Net sales$897.8 million$804.4 million+12% reported; +14% in local currencies
Gross profit / margin$519.6 million / 57.9%$471.7 million / 58.6%Margin down 0.7 percentage points
Earnings before taxes$213.0 million$185.4 million+15%
Net earnings$174.0 million$149.7 million+16%
Diluted EPS$7.55$6.32+19%
Operating cash flow$90.8 million$158.9 millionDown $68.0 million

Net margin was 19.4%, compared with 18.6%. Product sales increased 13% reported and 15% in local currencies; service revenue grew 8% reported and 11% in local currencies. Laboratory sales grew 16% reported, industrial sales 11%, while food retail sales declined 17%. The PendoTECH acquisition contributed about 1% to total sales growth.

Segment profit was $241.2 million, up 14% from $210.7 million. Reported external sales increased 20% in U.S. Operations, 10% in Swiss Operations, were essentially flat in Western Europe, increased 17% in Chinese Operations and increased 6% in Other Operations.

Cash flow, balance sheet and capital allocation

  • Operating cash flow was $90.8 million; capital expenditures were $19.2 million, implying cash flow after capital expenditures of approximately $71.7 million. Operating cash flow was lower mainly due to higher cash incentive payments tied to the prior year’s performance.
  • Cash and cash equivalents were $116.9 million at March 31, 2022. The company reported $601.7 million of additional borrowing capacity under its credit agreement.
  • Total debt was $1.872 billion, including $105.3 million current and $1.767 billion long-term, compared with approximately $1.682 billion at year-end 2021. Cash less total debt was approximately negative $1.755 billion. The company stated it was in compliance with debt covenants.
  • Current assets were $1.310 billion and current liabilities $1.087 billion; working capital was approximately $222.5 million and the current ratio approximately 1.20.
  • Share repurchases totaled $275.0 million for 190,593 shares, versus $262.5 million for 224,808 shares in Q1 2021. Remaining authorization was approximately $1.8 billion.
  • Investing cash flow included $18.0 million of government funding toward a U.S. production-capacity and automation project; $35.8 million in total funding is expected through 2023.

Material changes and management commentary

Revenue growth was broad-based, with strong demand in most businesses and regions. Product gross margin declined to 59.1% from 60.9%, primarily reflecting higher transportation and material costs; favorable pricing and higher volume partly offset those pressures. Service gross margin improved to 53.4% from 50.7%. SG&A fell as a share of sales to 26.2% from 27.6%, while R&D was 4.8% versus 4.9%.

Other charges (income), net was income of $3.7 million, compared with expense of $0.7 million a year earlier. This line includes foreign-currency and hedging activity, non-service pension benefits and other items. Restructuring charges increased to $4.0 million from $1.2 million. Interest expense rose to $11.3 million from $9.5 million.

The company issued $150 million of 15-year notes at 2.81% in March 2022 and planned to issue a further $150 million at 2.91% in September 2022, for refinancing and general corporate purposes. It provided no specific full-year revenue or earnings guidance in this filing and cautioned that quarterly results are not necessarily indicative of full-year results.

Risks, contingencies and outlook

  • COVID-19-related restrictions, including lockdowns in China, could disrupt manufacturing, supply chains and customer demand. The company cited component shortages, supplier and transportation delays, and higher material and freight costs.
  • The invasion of Ukraine and related sanctions, countermeasures, inflation and energy or transportation cost increases could adversely affect results. The company suspended shipments to Russia; Russia and Ukraine represented approximately 1% of 2021 sales, with immaterial assets and liabilities and no manufacturing in either country.
  • Currency movements affect earnings and reported debt. Management estimated that a 1% strengthening of the Swiss franc against the euro would reduce annual pretax earnings by about $1.9–$2.1 million; a 1% weakening of the renminbi against the U.S. dollar would reduce annual pretax earnings by about $3.0–$3.2 million.
  • Management did not expect pending legal proceedings, including environmental matters, to have a material adverse effect. No material changes to previously reported risk factors were identified other than the added Ukraine-related risk.

Important facts for investors to verify

  • Whether supply constraints, China restrictions and inflation continue to pressure product margins and delivery performance.
  • Whether the decline in operating cash flow reflects incentive-payment timing or develops into a sustained working-capital or cash-generation issue.
  • Debt refinancing, the planned September 2022 note issuance, and the company’s continued covenant compliance and available credit capacity.
  • The durability of demand by region and product category, especially the weakness in food retail and the outlook for China.
  • The extent to which foreign-exchange movements, Ukraine-related developments and acquisition contributions affect reported results.