Mettler-Toledo International Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Unaudited U.S. GAAP results; amounts below are in millions of dollars except per-share data. The company supplies precision instruments and related services. Management cautions that interim results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net sales | $608.3 | $582.1 | $1,148.0 | $1,117.8 |
| Gross margin | 57.1% | 55.5% | 56.4% | 55.6% |
| Earnings before taxes | $103.2 | $102.0 | $189.6 | $185.0 |
| Net earnings | $79.6 | $77.6 | $145.3 | $140.6 |
| Diluted EPS | $2.93 | $2.73 | $5.32 | $4.91 |
Q2 sales increased 5% in U.S. dollars and 6% in local currencies; first-half sales rose 3% and 5%, respectively. Q2 diluted EPS increased about 7% year over year, and first-half diluted EPS increased about 8%. Gross-margin improvement reflected favorable pricing, lower material costs and mix, partly offset by investment in field service. SG&A rose 8% in Q2 in U.S. dollars, reflecting higher incentive expense and sales and marketing investments.
For the first half, operating cash flow was $151.2 million versus $163.8 million; capital expenditures were $28.9 million versus $35.9 million. Cash and cash equivalents were $114.6 million at June 30, compared with $98.9 million at year-end 2015. Total debt was $714.2 million, including $20.9 million current and $693.3 million long-term, compared with approximately $589.6 million at year-end. The company reported $588.6 million available under its $800 million credit agreement.
Changes and operating trends
- Laboratory-related products, about 49% of sales, grew 9% in Q2 and 5% in the first half in U.S. dollars. Industrial-related products, about 43%, grew 1% in Q2 and were flat for the first half; food retailing, about 8%, declined 2% in Q2 and was flat for the first half.
- Segment profit increased to $129.1 million in Q2 from $118.3 million, and to $231.1 million for the first half from $215.6 million. China and Other showed particularly strong segment-profit growth; Swiss external-customer sales declined in both periods.
- First-half operating cash flow declined, primarily due to a $16.6 million adverse year-over-year change in accounts receivable, which management attributed mainly to timing and higher local-currency sales.
- Common-stock repurchases totaled $250.0 million in the first half for 732,245 shares. The company had about $1.2 billion remaining under its repurchase authorization.
Outlook, unusual items and risks
- Management said market conditions were generally favorable but remained cautious on sales growth because of uncertainty in global markets; it also described the China outlook as uncertain. No specific full-year revenue or EPS guidance is provided in this filing.
- Other charges included an $8.2 million one-time, non-cash pension settlement charge in Q2, associated with a lump-sum offer to former U.S. employees. A $14.6 million distribution was paid from plan assets.
- In May, the company agreed to acquire substantially all assets of Henry Troemner, a U.S. laboratory equipment and calibration supplier, for approximately $96 million. Closing was expected in Q3 2016, funded through the existing credit agreement; the filing does not report completion.
- Currency exposure is significant, particularly to the Swiss franc, euro and U.S. dollar. Management estimated that a 10% weakening of the U.S. dollar against debt currencies would increase reported debt by about $23.1 million. Foreign-exchange movements also affect earnings.
- The company stated that ordinary-course legal and environmental proceedings were not expected to have a material adverse effect. It reported no material change in previously disclosed risk factors and no material change in market-risk disclosures.
Important facts for investors to verify
- Whether the Henry Troemner acquisition closed as expected and its final consideration and funding.
- Whether working-capital movements, particularly receivables and inventory, affect subsequent operating cash flow.
- Progress in gross-margin gains versus higher commercial and field-service investment, and sales trends by product category and region.
- Debt growth, ongoing share repurchases, and the effect of currency movements on debt and earnings.
- Potential effects of the pension settlement and the company’s future pension contributions.