MTS Systems' CEO Discusses Q1 2012 Results - Earnings Call Transcript

MTS Systems (MTSC)

Q1 2012 Earnings Call

February 03, 2012 10:00 am ET


Susan E. Knight - Chief Financial Officer and Senior Vice President

William V. Murray - Interim Chief Executive Officer, Interim President and Director


John Franzreb - Sidoti & Company, LLC

Liam D. Burke - Janney Montgomery Scott LLC, Research Division



Good day, and welcome to the MTS First Quarter 2012 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Sue Knight. Please go ahead.

Susan E. Knight

Thank you, Jennifer. Good morning, and welcome to MTS Systems' fiscal 2012 first quarter investor teleconference. Joining me on the call today is Bill Murray, Interim Chief Executive Officer.

I'd like to begin by reminding you that statements made today, which are not historical facts, could be considered forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Future results may differ materially from these statements depending upon risks, some of which are beyond management's control. A list of such risks can be found in the company's latest SEC Forms 10-Q and 10-K. The company disclaims any obligation to revise forward-looking statements made today based on future events. This presentation may also include reference to financial measures, which are not calculated in accordance with generally accepted accounting principles or GAAP. These measures may be used by management to compare the operating performance of the company over time. They should not be considered in isolation or as a substitute for GAAP measures.

Bill will now begin his update on our first quarter results.

William V. Murray

Thanks, Sue. Good morning, everyone, and thank you for joining us on our call today. It is a pleasure to share with you our strong first quarter results and improved outlook for the year. Before Sue and I provide more detail, I would like to summarize the agenda for our briefing during today's call.

I will begin with the key messages, then I will review the order's results in Q1. Sue will review financial details. I will briefly comment on government matters. And finally, I will review our revised outlook for 2012.

To begin, I have 2 key messages. First, our momentum from 2011 is continuing into 2012. We achieved record revenue, earnings per share and backlog in Q1 driven by our Test business momentum, which is extremely strong, offsetting some softness in our Sensors business. Second, we are raising our full year revenue and earnings per share growth outlook based on the strength of our Test business backlog and order pipeline, along with the belief that the economy will remain volatile but improve modestly during the year.

Moving to orders and backlog. In Q1, total company orders were a robust $135 million, reflecting strong base orders in our Test business. Overall orders declined 3% versus last year, including a less than 1% favorable impact.

Looking at orders in more detail, Sensors orders grew a modest 1%. Adjusting for large orders, Test base orders grew 27%. We had no large orders greater than $5 million in the quarter, while last year, we had $29 million in large orders. Sequentially, orders are up 2% compared to Q4. Finally, our backlog is up 18% versus last year, setting a new record of $292 million.

Now I'd like to give you more detail by business beginning with Sensors. At $24.1 million in orders, we're up 1% over last year but less than a 0.5 point of favorable currency impact. While the growth rate slowed this quarter, it is noteworthy that Sensors achieved the highest order total in Q1 in the company's history. From a geographic perspective, the Americas was up 14%, while Europe declined 1%. Asia was down 4% driven by the decline in China.

From a market perspective, our mobile hydraulic growth story continues with a 34% growth over last year from $3.3 million to $4.4 million. Our Industrial segment was down 4% from $20.5 million to $19.7 million. Considering the broader context, Sensors has had 8 consecutive quarters of growth going back to Q4 of 2009 to Q3 of 2011. Q4 last year fell to 11% sequentially and Q1 was down 4% sequentially. While there's some order weakness related to cyclical worldwide manufacturing, we see no evidence of steep declines that we saw in early 2009.

There are 2 primary [indiscernible] quarter regarding sensors orders. First, mobile hydraulics continues to be a growth story. The U.S. results are particularly strong because of new design wins. Agriculture and heavy equipment for energy and raw material mining remain strong. We are seeing some weakness in road-building equipment due to government budget cuts.

Second, the industrial market growth slowed in Europe and the Americas, primarily due to large customer order pattern changes. For example, in Europe, when energy OEMs typically place blanket orders in Q1 and issue releases throughout the year. Their forecasts have actually increased from last year, but the historical blanket orders previously placed have been replaced by small orders with short delivery requirement. This suggests tighter inventory management is occurring.

We saw a similar behavior in Europe food and beverage markets, as well as the U.S. medical markets. China was down 6% consistent with 2 quarters of PMI below 50. Ongoing weakness in steel demand reduces the need for a high level of replacement sensors required in the harsh environment in steel production. Backlog was $16.3 million, down 4% year-over-year returning to historical levels.

Read the rest of this transcript for free on

If you liked this article you might like

Here's Why These 5 Stocks Have a Short Squeeze in Their Future

Here's Why These 5 Stocks Have a Short Squeeze in Their Future

As Economic Danger Looms, Will Entrepreneurs Come to the Rescue?

As Economic Danger Looms, Will Entrepreneurs Come to the Rescue?

Heavy Volume And Pre-Market Movement For MTS Systems (MTSC)

Heavy Volume And Pre-Market Movement For MTS Systems (MTSC)

Insider Trading Alert - ARQL, MTSC And PFNX Traded By Insiders

Insider Trading Alert - ARQL, MTSC And PFNX Traded By Insiders

4 Stocks Breaking Out on Big Volume

4 Stocks Breaking Out on Big Volume