MTS Systems (MTSC) Misses Q1 EPS by 8c, Revenues Miss; Provides FY20 EPS/Revenue Guidance

MTS Systems (NASDAQ: MTSC) reported Q1 EPS of $0.37, $0.08 worse than the analyst estimate of $0.45. Revenue for the quarter came in at $205.8 million versus the consensus estimate of $225.84 million.

• Revenue of $205.8 million, an increase of 1.3%
• Sensors revenue growth of 9.7%
• GAAP diluted earnings per share of $0.27
• Adjusted diluted earnings per share of $0.37, including $0.20 of amortization expense
• Demand outlook strengthening with growth in orders anticipated for the remainder of the fiscal year
• Executed agreement to acquire R&D entities
• Declared 152nd consecutive quarterly dividend

EXECUTIVE COMMENTARY - DR. JEFF GRAVES, PRESIDENT AND CHIEF EXECUTIVE OFFICER

"We continue to execute on our long-term strategy of delivering consistent top-line growth and margin expansion, recognizing that individual quarters may be volatile. Central to this strategy is the contribution from our Sensors business, which is delivering near double-digit revenue growth at highly accretive margins to our consolidated operations. In the first quarter, this growth was driven by strength in our Sensors test sector, and by the continued ramp-up of volume associated with our U.S. Department of Defense contract. We expect this strong performance to continue to strengthen throughout the fiscal year, especially as our integration of the Endevco product line continues. With the strong fundamental demand trends in both the test and automation markets, we expect our Sensors business to continue to grow on average at double-digit annual rates, with incremental margin expansion.

As anticipated, we continue to experience weakness in the top line for our Test & Simulation business mainly due to delays in order timing from the second half of fiscal year 2019. Despite the volume impact, profitability in our Test & Simulation business was largely maintained at prior year levels due to improved quality of backlog and the increasing impact of our efficiency initiatives that have been our priority over the last two years. These efforts are continuing and anticipated to be increasingly felt with accelerating volume growth in the second half of the fiscal year.

Based upon our opportunity pipeline, we anticipate a strong rebound in order rates, and corresponding growth in backlog as we move into and through the second half of fiscal year 2020. We expect this to be driven primarily by increased strength in our non-automotive markets for both of our businesses. This growth in backlog will ultimately translate to accelerated revenue growth and increased profitability in subsequent quarters.

Subsequent to quarter-end, we were pleased to formally close the acquisition of certain entities of the Danish company R&D ("R&D") as previously announced in November 2019. R&D brings us a very talented engineering team, a proven capability to deliver state-of-the-art testing solutions for wind power, aero propulsion and other very demanding applications, an excellent customer base, and a strong backlog of business stretching into fiscal year 2021. With the increasing strength in our business, coupled with this complementary acquisition, we look forward to a positive fiscal year 2020."

GUIDANCE:

MTS Systems sees FY2020 EPS of $2.20-$2.55, versus the consensus of $2.36. MTS Systems sees FY2020 revenue of $955-995 million, versus the consensus of $976.89 million.

The above outlook includes:

• $12.0 million to $16.0 million for stock-based compensation, acquisition-related and restructuring expenses;
• Our most recent acquisitions of Endevco in Sensors and R&D in Test & Simulation; and
• An anticipated effective tax rate, excluding discrete tax items, of 15-19% for fiscal year 2020.

For earnings history and earnings-related data on MTS Systems (MTSC) click here.

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