Why MTS Systems Shares Fell

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of MTS Systems (Nasdaq: MTSC  ) , a supplier of test systems and industrial position sensors, is slumping 13% as of this writing after reporting its second-quarter earnings results.

So what: For the quarter, MTS reported a 14% year-over-year increase in sales to $129 million, due largely to a 15% increase in new orders. That did not, however, stop net income from falling 9% to $0.69. Compared to Wall Street's expectations for a profit of $0.90 on sales of $131.6 million, MTS wasn't even in the ballpark. The company cited the timing of test backlog conversion and increased investments as the reason for the earnings shortfall.

Now what: The key point here is that MTS CEO William Murray (cue the Bill Murray jokes) kept the company's previous guidance unchanged. He sees investment expenses returning to their normal levels by next quarter, which should, in his own words, "provide revenue growth ... in the mid- to high teens, with growth in earnings per share expected to be in the low to mid-teens." MTS is highly profitable and instrumentation is typically a high-margin business. If this is indeed just a single-quarter event, then MTS could be a sweet buy on this dip.

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