MTS SYSTEMS CORP. $56 (Nasdaq symbol MTSC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 14.9 million; Market cap: $834.4 million; Price-to-sales ratio: 1.5; Dividend yield: 2.1%; TSINetwork Rating: Average; www.mts.com) makes equipment and software that manufacturers use to test the behaviour of materials, machines and structures. This helps its clients reduce errors and costs. The company also makes sensors for industrial equipment.
MTS’s strong reputation continues to help it win new orders: in its fiscal 2015 third quarter, which ended June 27, 2015, it attracted $154.0 million worth of orders, up 2.9% from $149.6 million a year earlier.
However, the company’s sales declined 7.9%, to $133.9 million from $145.5 million a year earlier. Overseas markets account for 74% of MTS’s total sales, so the high U.S. dollar hurts their contribution. If you exclude currency rates, sales fell 2%.
Sales of testing equipment (82% of the total) declined 7.4%. That’s mainly because MTS received an unusually high number of orders for custom-made equipment, which takes longer to make. However, projects like these help the company build better relationships with its clients.
Sales fell 10.4% at the sensors business (18%), mainly due to lower foreign currency rates.
Overall earnings declined 23.8%, to $10.8 million from $14.1 million, while per-share earnings fell 21.7%, to $0.72 from $0.92, on fewer shares outstanding. Excluding a research tax credit in the year-earlier quarter, earnings per share fell 4.0%. MTS spends around 4% of its sales on research.
The company ended the latest quarter with a record order backlog of $343 million, up 11% from a year earlier.
MTS holds cash of $53.3 million, and has no longterm debt. That gives it plenty of flexibility to buy back more shares or raise its $1.20-a-share dividend, which yields 2.1%.
However, the stock is expensive at 18.1 times the $3.10 a share the company will probably earn in fiscal 2015.
MTS Systems is a hold.
