MTS Systems (MTSC) Misses Q4 EPS by 2c, Revenues Beat; Offers FY20 EPS Below Consensus, FY20 Revenues Above Consensus

MTS Systems (NASDAQ: MTSC) reported Q4 EPS of $0.37, $0.02 worse than the analyst estimate of $0.39. Revenue for the quarter came in at $224.1 million versus the consensus estimate of $218.07 million.

"We executed very well this year on our growth and diversification strategy, delivering record revenue with double-digit top-line growth, along with adding two important simulation and sensing businesses to our company, E2M and Endevco. These acquisitions, in combination with our ongoing R&D investments, promise to bring exciting growth and profitability expansion to our company for years to come.

For fiscal year 2019, our Test & Simulation business drove top-line growth of over 20% compared to the prior year, with expansion to their operating margin. Our Sensors business delivered another record revenue performance with 7% growth and finished the year with a strong backlog that positions us for significant acceleration of growth in Sensors for fiscal year 2020. This top-line performance demonstrates the continued benefits of our diversification strategy, our success with new product introductions across all of our major end markets, and our ability to capitalize on rapidly expanding market opportunities in our Sensors business.

While we are excited about our top-line momentum, we continue to focus on our cost structure and in driving operational efficiencies in both businesses. These efforts contributed to a net income margin of 4.8% for the year and a 15.4% increase in Adjusted EBITDA, equating to an Adjusted EBITDA margin of 14.9% for the year. This solid performance supports our continued investments in new product development, diversification, and capital structure optimization, all while returning cash to our shareholders through our quarterly dividend.

As we enter our new fiscal year, we are excited about the resilience of our markets, our record year-end backlog, which topped $420 million, and the customer reception to our new product offerings. Looking ahead, we continue to target quality order replenishment to further expand our backlog and to drive operating efficiencies that underpin our growth and margin expansion during fiscal year 2020."

OUTLOOK

Test & Simulation Business

Our performance for fiscal year 2019 sets us up for future growth in our Test & Simulation business. Future orders growth from strength in our simulation platforms, material testing and service offerings is expected to temper the headwinds experienced in the global economy. Overall, we anticipate challenges across all sectors stemming from a general weakening of the global economy, uncertainties surrounding tariffs and technology disruptions in the transportation market. We continue to benefit from the rapidly expanding use of advanced materials, such as carbon-fiber composites, the adoption of additive manufacturing methods for net-shape component fabrications, and the rapidly increasing complexity of ground and air vehicles which requires new simulation methods for determining product performance and life. Our energy and infrastructure markets remain robust, driven by continued growth in wind power and advanced building designs that are more resistant to damage from earthquakes, sea and storm events. The simulation market continues to benefit from increased demand for pilot training and rapid theme park expansions, which fits nicely with our expanded product offerings.

In addition to these growth opportunities, we continue to invest in operational efficiency initiatives to improve profitability, and to develop new products and technologies to drive margin expansion and to generate the highest demand for Test & Simulation products and services in the coming years.

GUIDANCE:

MTS Systems sees FY2020 EPS of $2.20-$2.55, versus the consensus of $2.84. MTS Systems sees FY2020 revenue of $955-995 million, versus the consensus of $948.38 million.

The above outlook includes:

• $12.0 million to $16.0 million for stock-based compensation, acquisition-related and restructuring expenses;
• Our most recent acquisition of Endevco sensors business;
• Our signing of the definitive agreement to purchase the six operating entities of R&D with an anticipated deal closure by December 31, 2019, subject to normal and customary closing procedures. If the deal does not close within our expected timeline, this could cause us to update our fiscal year 2020 guidance; 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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