Mistras Group (NYSE:MG) aims to make it easier for its customers to monitor the assets that drive their businesses forward and make sure that equipment problems don't turn into big financial problems. That's an especially big concern in the energy industry, and that's where Mistras gets a substantial portion of its overall business. However, with oil and natural gas prices still at relatively low levels, Mistras has seen its customer base come under financial pressure, and that has reduced demand for its services.

Coming into last month's first-quarter financial report, Mistras investors were prepared to see continued weakness from the business. Mistras did indeed face big challenges during the quarter, and even though the company kept its full-year guidance unchanged, investors are nevertheless concerned that it's taking longer than expected for a rebound in the industry to help boost key results. Let's look more closely at Mistras Group and what its results mean about its future.

A Mistras monitoring system, used for early leak detection.

Image source: Mistras Group.

Mistras Group can't get things moving

Mistras Group's first-quarter results were consistent with sluggish industry conditions. Revenue fell 3% to $163.3 million, and that was actually slightly better than the 4% drop that most investors were expecting to see. However, net income fell by half to $1.69 million, and that resulted in earnings of $0.06 per share, missing the consensus forecast among those following the stock by $0.02 per share.

Taking a closer look at the numbers, Mistras noted that a bad debt provision resulting from one of its larger customers in the nuclear industry filing for bankruptcy weighed on profits during the quarter. Yet similar one-time items pulled down earnings in last year's period as well, and adjusted net income was therefore down by more than a quarter from year-ago levels once you take those provisions into account.

Some of Mistras Group's segments fared better than others. In services, segment sales dropped 4%, cutting operating income by more than a third. Soft market conditions led to organic sales declines in the mid-single-digit percentage range, and gross margin for the division was weaker because of poor seasonal conditions. However, in the international segment, operating income more than tripled from year-ago levels, as a solid performance in the aerospace industry led Mistras higher. Conditions in Germany and France were especially noteworthy, and gross margin internationally posted a nice gain. The products and systems segment rounded out the company's overall results with a fall of 17% in volume that led to a modest decline in operating income.

CEO Sotirios Vahaviolos once again cited the harshness of the energy sector. "The fall 2016 and spring 2017 seasons were especially challenging in North America," Vahaviolos said, "as workloads from many customers were less than in the prior year." The CEO said that these poor conditions outweighed the strength in the international arena.

What's ahead for Mistras Group?

Still, Mistras thinks it can bide its time and make long-term progress. As Vahaviolos put it, "We are using this time to make further adjustments to our cost structure and to enhance our competitive position by adding capabilities that will help our customers in new and exciting ways." By doing so, Mistras expects it can get profit growing again in 2018 and thereafter.

Mistras' guidance for the full year reflects that wait-and-see approach to a large extent. The company expects sales of $670 million to $700 million for the full year, and the current consensus forecast among investors is squarely in the middle of that range. Similarly, net income of $20 million to $23 million and earnings of $0.68 to $0.78 per share are consistent with what investors were generally expecting.

Mistras investors seemed relatively comfortable with the news, but since last month's announcement, Mistras stock has moved lower as prospects for the energy industry have once again begun to deteriorate further. Until its customer base gets healthier financially, Mistras will struggle to find ways to grow.