Products like this acoustic emissions sensor can help detect damage in structures before catastrophic problems occur. Image source: Mistras Group.

Testing specialist Mistras Group (NYSE:MG) caters to the need of its industrial clientele to ensure that its systems and equipment function smoothly. By providing ways for customers to monitor and evaluate their assets, Mistras hopes to help them make the most of the resources they have. The recent downturn in the industrial sector has weighed on Mistras, though, and coming into Wednesday's fiscal fourth-quarter financial report, investors weren't sure to what extent the company's prospects would prove vulnerable to tough times among its customers. Yet the report was generally favorable and showed Mistras' resilience even under less than stellar conditions. Let's take a closer look at how Mistras Group did and what we can expect going forward.

Mistras Group gives investors more earnings growth

Mistras Group's fiscal fourth-quarter results showed solid performance from the testing company. Revenue rose 5% to $184.2 million, easily topping the consensus forecast for a 3% rise. Costs from a legal settlement held back GAAP net income, but after adjusting for that one-time item, adjusted earnings of $0.22 per share matched what investors were expecting to see and represent a jump by nearly half from year-ago levels.

Looking more closely at the numbers, the settlement of Mistras' class action lawsuit was costly but puts a potential powder keg behind the company. Claims related to federal and California state wage and labor laws posed a threat to Mistras, and it decided to take a pre-tax charge of $6.3 million, or $0.13 per share, to settle the claims. Nevertheless, Mistras closed the year with record levels of net income.

One encouraging sign came from the fact that Mistras' two main segments both gave the company strong contributions to performance. The services segment posted a 5% rise in revenue, and the company said that gains in market share and the timing of turnaround and project-related work were able to overcome weakness in the key oil and gas market. International segment revenue jumped 11%, and the unit reversed a year-ago operating loss with modest income of $2 million. Only the tiny products and systems segment saw its top line decline, falling 20%, but it only makes up about 3% to 4% of Mistras' total revenue.

Overall, Mistras Group continued to see some of the favorable trends it has had in past quarters. Gross margin climbed 2.5 percentage points to 28.2%, and operating margin figures also climbed by a similar amount.

CEO Sotirios Vahaviolos was pleased with how Mistras overcame adversity. "Despite the uncertainty and turbulence in the oil and gas market," Vahaviolos said, "we continue to be there for our customers, helping to maintain the integrity of their assets with our wide ranging inspection techniques, our premier safety record and a focus on helping them save money."

Can Mistras Group keep improving?

Vahaviolos also pointed out that good news after the quarter ended points to a promising future. "After the fourth quarter ended," the CEO said, "we were awarded a multi-year contract to performa a wide range of nondestructive and destructive testing services for a major European aircraft engine manufacturer." Such relationships are valuable not just for their immediate impact but for building long-term opportunities as well.

Accordingly, Mistras gave guidance that many investors will see as positive. Revenue for the full 2017 fiscal year will be somewhat less than the current consensus forecast, coming in between $720 million and $735 million, up just 0% to 2% from fiscal 2016 levels. Yet earnings of $0.99 to $1.12 per share would be well above the current expectations among investors, and Mistras expects to use the resulting free cash flow to cut debt, make strategic acquisitions, and do further stock buybacks. First-quarter comparisons will be tough because of unusually strong performance in the first quarter of fiscal 2016, but the remainder of the year should benefit from market-share gains and other positive factors.

Mistras investors didn't immediately move the stock sharply in either direction following the announcement, choosing instead to wait for Thursday's regular trading session. Nevertheless, for its shareholders, Mistras' results show that even when its customer base isn't having the best time of it, the company can still find a way to keep itself healthy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.