The Internet of Things has made it easier to keep track of how vital equipment is performing, even when it's far away from a company's headquarters or local offices. Many enterprise customers turn to Mistras Group (MG -3.35%) to ensure that they can monitor their key business assets effectively, and as the underlying technology for such monitoring evolves, the value proposition that Mistras offers has become more enticing for potential new clients.
Coming into Monday's first-quarter financial report, Mistras investors were looking forward to better financial results than they've seen lately. The company's numbers were once again mixed, but Mistras is convinced that thanks to rising prospects for two key customer groups -- energy and aerospace -- it's in position to deliver even stronger performance as 2018 moves forward.
Image source: Mistras Group.
How Mistras Group fared to start the year
Mistras Group's first-quarter results once again had some good points and bad points. Revenue jumped sharply, with a 15% rise to $187.6 million that almost doubled what most investors following the stock were looking to see. Yet even with a 70% jump in net income to $2.9 million, earnings of $0.10 per share fell short of the consensus forecast among investors for $0.12 per share on the bottom line.
Looking at the company's different segments, Mistras enjoyed fairly well-balanced contributions across its business to its revenue growth. For the key services segment, sales matched the 15% rise for the company overall. Acquisitions played a slightly larger role in driving revenue gains, but Mistras also posted mid-single-digit percentage organic growth metrics as well. Segment operating income jumped by two-thirds from year-ago levels, and net income before adjusting for special items was higher by 33%.
The smaller international segment also added to sales gains, with revenue rising 12% from the prior year's first quarter. Most of the gain came from favorable currency impacts, as the U.S. dollar was notably weak during the period. Mistras noted that although operating income for the segment was down from year-ago levels, it improved compared to the fourth quarter of 2017, during which the company suffered an operating loss. Meanwhile, the tiny products and systems segment saw revenue increase 11%, and a modest operating profit reversed a corresponding loss in the year-ago period.
CEO Dennis Bertolotti was happy with the way that Mistras has been able to promote growth. "Our services segment also reached an all-time high in Q1 revenue," Bertolotti said, "even after excluding the effect of all 2017 acquisitions." The CEO called out a substantial improvement in operating margin, thanks largely to substantial cost-cutting measures that have helped enhance profitability.
What's next for Mistras Group?
Looking ahead, Mistras thinks that the rest of 2018 could be even more favorable. As Bertolotti put it, "Market conditions have also improved over 2017 with higher petroleum prices and a growing aerospace business. We have also continued our push into expanding our mechanical services." The monitoring specialist sees favorable macroeconomics also contributing to better performance throughout 2018.
Even with those comments, Mistras didn't choose to make any changes to its 2018 guidance. The company still sees full-year revenue of between $715 million and $730 million, with adjusted pre-tax operating earnings finishing in a range of $78 million to $83 million. Mistras also added more detailed information based on its analysis of the recent tax law changes. Surprisingly, the company expects its effective tax rate to be between 30% and 32% for 2018, well above the new 21% corporate tax rate for U.S. businesses. That led Mistras to project earnings of $0.83 to $0.95 per share for the full year, slightly above the consensus figure of $0.82 per share among those tracking the stock.
Mistras Group investors didn't immediately react to the news, and shares didn't move in pre-market trading following the announcement. Yet with the prospects for energy and aerospace continuing to pick up, Mistras has a golden opportunity to use technological innovation to its advantage and provide the services that an increasing number of current and potential future customers want and need for their businesses.
