Mettler-Toledo International Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited U.S. GAAP interim results. The company supplies precision instruments and related services globally.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales | $535.7 million | $550.6 million | -3% reported; +5% in local currencies |
| Gross profit / margin | $298.8 million / 55.8% | $292.6 million / 53.1% | Margin +2.7 percentage points |
| Earnings before taxes | $83.0 million | $76.4 million | +9% |
| Net earnings | $63.1 million | $58.1 million | +9% |
| Diluted EPS | $2.19 | $1.93 | +13% |
| Operating cash flow | $58.6 million | $42.8 million | +$15.8 million |
| Capital expenditures | $18.5 million | $16.7 million | +$1.8 million |
Gross margin improved with contributions from hedging gains and currency translation, pricing, volume, lower material costs and favorable mix, partly offset by investment in field service. SG&A was $173.0 million, broadly flat in reported dollars but up 8% in local currencies; management cited investment in field sales, higher cash incentives and employee benefit costs. Interest expense rose to $6.7 million from $5.7 million, primarily due to higher average borrowings.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $75.4 million at March 31, down from $85.3 million at year-end. Total debt was $523.9 million, including $114.7 million current and $409.2 million long-term; unused credit-agreement capacity was $611.4 million.
- Operating cash flow of $58.6 million, less capital expenditures of $18.5 million, implies approximately $40.1 million of operating cash flow after capex. Cash declined by $9.9 million during the quarter.
- Repurchased 400,845 shares for $123.7 million at an average $308.69 per share. $354.6 million remained authorized under the repurchase program.
- In March, the company agreed to issue €125 million of 1.47% senior notes, due in 2030, in June 2015. Proceeds/debt are intended in part to hedge euro-denominated net investments.
Business trends, outlook and risks
- Reported sales were down 3%, while local-currency sales grew 5%, reflecting substantial currency effects. Local-currency growth was 7% in the Americas, 2% in Europe and 5% in Asia/Rest of World.
- Laboratory-related sales grew 8% in local currencies; industrial-related sales grew 1% and food retailing grew 5%. U.S. segment external sales rose 9%; Western Europe external sales rose 7% in local currencies. Chinese external sales declined 5% in local currency, and Russia remained weak.
- Management said global market conditions remain uncertain and expressed caution about sales growth. Chinese industrial demand was weak, with recovery timing uncertain. No specific full-year sales or earnings guidance is provided in the filing text.
- Currency exposure is significant, particularly to the Swiss franc, euro and U.S. dollar. The Swiss National Bank abandoned its euro exchange-rate floor in January 2015; the company reported forward contracts intended to reduce Swiss-franc/euro exposure through 2016. It estimated that, absent those forwards, a 1% Swiss-franc strengthening against the euro could reduce annual pretax earnings by $1.1–$1.3 million.
- Q1 restructuring charges were $0.9 million. Management did not expect pending legal and environmental proceedings, individually or in aggregate, to materially affect financial condition, results or cash flows. The filing reported no material change to previously disclosed risk factors.
- Management stated that operating cash flow and available credit were expected to meet anticipated working-capital and capital-spending needs for the foreseeable future. Results for the quarter are not necessarily indicative of full-year results.
Most important facts to verify
- Whether local-currency sales growth and improved gross margin persist despite currency translation and uncertain markets.
- Demand trends in Chinese industrial markets and Russia, and any recovery in those regions.
- Cash generation relative to substantial buybacks, capital spending and debt obligations, including the $100 million notes due June 2015.
- Execution and terms of the planned €125 million note issuance, and the company’s ongoing foreign-exchange and interest-rate hedge exposure.
- Whether higher SG&A and field-service investment translate into sustainable revenue and profit growth.