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Press release from PR Newswire

MTS Reports 2010 Fourth Quarter Financial Results

Thursday, November 18, 2010

MTS Reports 2010 Fourth Quarter Financial Results16:00 EST Thursday, November 18, 2010- Orders rose 37 percent sequentially to $129 million, including one $6 million order; backlog sequentially increased 14 percent to $214 million - Revenue of $106 million and EPS of $0.54 per share exceeded previously communicated ranges, reflecting strong execution in Test and a continuation of Sensors' excellent performance - 2010 full year performance positions company for growth in 2011EDEN PRAIRIE, Minn., Nov. 18, 2010 /PRNewswire-FirstCall/ -- MTS Systems Corporation (Nasdaq: MTSC) today reported fiscal 2010 fourth quarter and fiscal year financial results. (Logo:  http://photos.prnewswire.com/prnh/20020430/MTSCLOGO)(Logo:  http://www.newscom.com/cgi-bin/prnh/20020430/MTSCLOGO)"We are pleased with MTS' fourth quarter improvement in orders, backlog, revenue and earnings compared with third quarter," said Laura B. Hamilton, chief executive officer and chair. "Both businesses performed very well. During the period, MTS benefited from a number of factors including solid execution, improved order levels and favorable business mix in Test and continued outstanding performance in Sensors." Sequential Quarter ResultsOrders were $128.7 million, a 37 percent increase compared to third quarter 2010. Test orders were up 47 percent and Sensors orders rose 4 percent. The results for both quarters included one large Test order of approximately $6 million. The increase in base orders was led by strength in the Test ground vehicles market, wind energy growth in the structures market and a broad based increase in the materials market. Backlog increased 14 percent to $214 million.Revenue was $105.9 million, an increase of 25 percent compared to the previous quarter, including a 31 percent gain in Test and a 5 percent increase in Sensors, both primarily from improved conversion of backlog into revenue. Test had experienced some resource constraints in the late spring and summer, which MTS resolved in the fourth quarter, enabling the company to convert backlog to revenue. Gross profit was $44.8 million, up 35 percent compared to the prior quarter. The gross margin rate was 42.3 percent, up 3.2 percentage points, driven primarily by favorable product mix and increased leverage resulting from higher volume in Test. This was partially offset by $1.4 million of severance charges associated with the elimination of approximately 50 U.S. positions in Test.Income from operations was $13.3 million, compared to a loss of $1.5 million in the prior quarter. The change from net loss to net income reflected higher revenue and margin, as well as $3.3 million lower operating expenses due to a $6.3 million pre-tax legal settlement charge, or $0.24 per share, in the prior quarter. Net earnings were $0.54 per share compared to $0.00 per share last quarter.Cash PositionCash and cash equivalents at the end of the fourth quarter totaled $76.6 million, compared to $104.7 million at the end of the third quarter. Working capital requirements largely offset cash from earnings. Additionally, the Company invested $2.8 million in capital expenditures, paid $2.3 million in dividends and purchased approximately 992,500 shares of its common stock for $27.5 million during the quarter.Sequential Quarter Segment ResultsTest Segment:Orders were $106.1 million, up 47 percent compared to the prior quarter, due to an increase in worldwide base orders and a 3 percent favorable impact of currency translation. Approximately half or $17 million of the growth was in the ground vehicle market as demand for durability and tire equipment increased in the quarter. As noted above, orders in both the current and prior quarters included one large custom order of approximately $6 million. Backlog increased 14 percent to $198 million. Revenue was $84.4 million, up 31 percent. Currency translation favorably impacted revenue by 2 percent.Gross profit was $32.7 million, an increase of $11.2 million, or 52 percent, and the gross margin rate was 38.7 percent, a gain of 5.4 percentage points. This resulted from favorable product mix and increased leverage from higher volume, partially offset by the previously mentioned severance charges.Income from operations was $8.4 million, compared to a loss from operations of $6.7 million in the prior quarter. The change from operating loss to income reflects higher revenue and gross profit rate, and lower operating expenses resulting from the previously mentioned legal settlement charge in the prior quarter. Sensors Segment:Orders were $22.6 million, a 4 percent increase compared to the prior quarter, primarily due to a favorable impact of currency translation. Backlog was up 13 percent to $16 million. Revenue increased 5 percent to $21.5 million from higher beginning backlog in the quarter and a favorable impact of currency translation. Gross profit was $12.1 million, up $0.4 million or 4 percent. The gross margin rate was 56.6 percent, a decrease of 1.1 percentage points.Income from operations was $4.9 million, a decrease of $0.3 million, due to higher operating expenses, partially offset by higher gross profit.Full Year ResultsHamilton said, "We're very pleased that orders were up 24 percent year over year, reflecting the improvement in the economy and progress in our growth initiatives. As a long cycle company, revenue was expected to lag orders but we managed to hold the decline to 9 percent. EPS on a reported basis was up 11 percent, with both years including significant non-operating costs. We managed costs to minimize the volume impact this year."   Hamilton continued, "In the context of a year in which economic conditions were ? and remain ? capable of producing varying degrees of upside opportunity and downside risk, our second half fiscal 2010 results demonstrate our performance strengths and establishes a good starting point for fiscal 2011. The work we have done over the past year to further position MTS in high-opportunity geographies and applications was instrumental in helping us navigate this initial stretch of economic recovery and enables us to meet the challenges ahead."  Fiscal Year 2011 OutlookIn a stable economic environment, the company's long-term performance goals are to achieve a 5-year compounded annual revenue growth in the range of 6 to 9 percent with bottom line growth exceeding top line growth. In addition, the expectation for return on invested capital (ROIC) is to achieve rates which are greater than or equal to 20%. If economic conditions remain steady through 2011, the company expects to achieve its revenue and earnings performance goals and make measurable progress toward historical profitability and ROIC rates. Hamilton concluded, "Global economic recovery is expected to be a long process which requires flexibility, responsiveness and vision. As we enter 2011, uncertainty remains regarding the world economy but our investments in growth geographies, like China, and in key end markets such as wind and mobile hydraulics, combined with our technology leadership and commitment to cost competitiveness, position us to capture opportunities as they arise and be successful in 2011 and over the long term." Fiscal Year 2010 Conference CallA conference call will be held on November 19, 2010, at 10 a.m. EDT (9 a.m. CDT). Call +1-719-325-4878 (Toll Free: +1-877-857-6161); and reference the conference pass code "3828436." Telephone re-play will be available until 12 p.m. CDT, November 26, 2010. Call +1-719-457-0820 (Toll Free: +1-888-203-1112); and reference the conference pass code "3828436".A transcript of the call can also be accessed from the MTS website at http://www.mts.com/en/InvestorRelations/index.asp. It will be available on November 29, 2010.About MTS Systems CorporationMTS Systems Corporation is a leading global supplier of test systems and industrial position sensors. The Company's testing hardware and software solutions help customers accelerate and improve their design, development, and manufacturing processes and are used for determining the mechanical behavior of materials, products, and structures. MTS' high-performance position sensors provide controls for a variety of industrial and vehicular applications. MTS had 1,948 employees and revenue of $374 million for the fiscal year ended October 2, 2010. Additional information on MTS can be found on the worldwide web at http://www.mts.com.This release contains "forward-looking statements" made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995 that are subject to certain risks and uncertainties, as well as assumptions, that could cause actual results to differ materially from historical results and those presently anticipated or projected. The Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Important risk factors are delineated in the Company's most recent SEC Form 10-Q and 10-K filings.MTS SYSTEMS CORPORATION Consolidated Statements of Income (unaudited - in thousands, except per share data) Three Months EndedYear EndedOctober 2,October 3,October 2,October 3,2010200920102009 Revenue $    105,879$      93,841$    374,053$    408,881 Cost of sales 61,04462,563222,259257,265 Gross profit 44,83531,278151,794151,616 Gross margin 42.3%33.3%40.6%37.1% Operating expenses: Selling, general and administrative 27,75830,188108,504110,700 Research and development 3,7394,99014,94516,322 Total operating expenses 31,49735,178123,449127,022 Income (loss) from operations 13,338(3,900)28,34524,594 Operating margin 12.6%-4.2%7.6%6.0% Interest expense, net (262)(226)(1,052)(916) Other income (expense), net 338333(81)225 Income (loss) before income taxes 13,414(3,793)27,21223,903 Income tax provision (benefit) 4,854(814)8,6366,509 Net income (loss) $        8,560$       (2,979)$      18,576$      17,394Earnings (loss) per share: Basic- Earnings (loss) per share $           0.54$         (0.18)$           1.14$           1.04 Weighted average number of common shares outstanding - basic  15,76316,65616,28116,793 Diluted- Earnings (loss) per share $           0.54$         (0.18)$           1.14$           1.03 Weighted average number of common shares outstanding - diluted 15,86316,65616,34716,831MTS SYSTEMS CORPORATION Consolidated Balance Sheets (unaudited - in thousands, except per share data) October 2,October 3,20102009 ASSETS Current Assets: Cash and cash equivalents $           76,611$         118,885 Accounts receivable, net 66,36972,553 Unbilled accounts receivable 26,38927,246 Inventories 51,79247,969 Other current assets 23,54118,905 Total current assets 244,702285,558 Property and equipment, net 56,44456,118 Goodwill 15,42915,206 Intangibles, net 24,75323,826 Other assets 5,0776,206 Total Assets $         346,405$         386,914 LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Short-term borrowings $           40,229$           40,182 Accounts payable 21,81818,630 Advance payments from customers 44,00046,739 Other accrued liabilities 55,79362,441 Total current liabilities 161,840167,992 Other long-term liabilities 18,45914,957 Total Liabilities 180,299182,949 Shareholders' Investment:     Common stock, $.25 par; 64,000 shares authorized:      15,264 and 16,564 shares issued and outstanding 3,8164,141 Retained earnings 147,609174,301 Accumulated other comprehensive income 14,68125,523 Total shareholders' investment 166,106203,965 Total Liabilities and Shareholders' Investment $         346,405$         386,914Exhibit A MTS SYSTEMS CORPORATION Segment Financial Information (unaudited - in thousands) Three Months EndedOctober 2,July 3, Test Segment 20102010% Variance Orders $               106,103$                  72,05747% Revenue $                  84,424$                  64,60231% Cost of Sales 51,73343,08220% Gross profit 32,69121,52052% Gross margin 38.7%33.3% Operating expenses 24,26528,262-14% Income (loss) from operations $                    8,426$                  (6,742)225% Sensors Segment Orders $                  22,594$                  21,6844% Revenue $                  21,455$                  20,3425% Cost of Sales 9,3118,6138% Gross profit 12,14411,7294% Gross margin 56.6%57.7% Operating expenses 7,2326,50111% Income from operations $                    4,912$                    5,228-6% Total Company Orders $               128,697$                  93,74137% Revenue $               105,879$                  84,94425% Cost of Sales 61,04451,69518% Gross profit 44,83533,24935% Gross margin 42.3%39.1% Operating expenses 31,49734,763-9%Income (loss) from operations(1)$                  13,338$                  (1,514)981%(1) Income from operations for the three months ended October 2, 2010 includes severance charges of      $1,776 thousand, of which $1,416 thousand and $360 thousand are reported in Cost of Sales and      Operating Expenses, respectively.Exhibit B MTS SYSTEMS CORPORATION Segment Financial Information (unaudited - in thousands) Year EndedOctober 2,October 3, Test Segment 20102009% Variance Orders $               340,691$               275,04124% Revenue $               296,230$               342,595-14% Cost of Sales 187,746227,389-17% Gross profit 108,484115,206-6% Gross margin 36.6%33.6% Operating expenses 97,28097,7120% Income from operations $                  11,204$                  17,494-36% Sensors Segment Orders $                  82,834$                  65,79826% Revenue $                  77,823$                  66,28617% Cost of Sales 34,51329,87616% Gross profit 43,31036,41019% Gross margin 55.7%54.9% Operating expenses 26,16929,310-11% Income from operations $                  17,141$                    7,100141% Total Company Orders $               423,525$               340,83924% Revenue $               374,053$               408,881-9% Cost of Sales 222,259257,265-14% Gross profit 151,794151,6160% Gross margin 40.6%37.1% Operating expenses 123,449127,022-3%Income from operations(1)$                  28,345$                  24,59415%(1) Income from operations for the year ended October 2, 2010 includes severance charges of      $1,624 thousand, of which $1,390 thousand and $234 thousand are reported in Cost of Sales and      Operating Expenses, respectively.      Income from operations for the year ended October 3, 2009 includes severance charges of        $12,085 thousand, of which $6,770 thousand and $5,315 thousand are reported in Cost of Sales        and Operating Expenses, respectively.SOURCE MTS Systems CorporationFor further information: Susan Knight, Chief Financial Officer of MTS Systems Corporation, +1-952-937-4000