Image source: Mistras Group.

Making sure equipment and systems work correctly is essential for major companies in the industrial field, and testing specialist Mistras Group (NYSE:MG) aims to provide its clients with the resources they need to monitor and evaluate their productive assets. Yet many industrial companies face their own challenges with sluggish economic conditions worldwide. Still, coming into Wednesday's fiscal third-quarter financial report, Mistras Group investors were optimistic that the company would find a way to boost its profitability, and the results Mistras gave today were even stronger on the bottom line than most had expected.

Let's look more closely at the latest from Mistras Group and what its results say about the company's future.

Mistras Group sends earnings soaring
Mistras Group's fiscal third-quarter results were mixed from the perspective of investor expectations. Revenue was disappointing, falling 1.7% to $160.4 million and missing the consensus estimate for about $164 million in sales. However, Mistras made up for lost time on the earnings front. GAAP net income doubled to $3.6 million, and that produced earnings of $0.12 per share. That was far above the nickel per share investors had expected.

As we've seen in past quarters, Mistras' segments performed differently from each other. The services segment did relatively well, enjoying a 1% rise in revenue despite the adverse impact of a weaker Canadian dollar and seeing operating income jump almost 40% from the year-ago quarter. The international segment suffered a 5% revenue decline due largely to the strong U.S. dollar, but the segment reversed a year-earlier loss. The big hit came to products and systems, where revenue fell 20%, and operating income declined by two-thirds.

Still, Mistras Group's overall figures included some encouraging signs. Gross margins rose three full percentage points to 26.7%, largely from an eight-percentage point improvement from the international segment. Operating margins more than doubled to 3.5%, and measures of cash flow and net debt improved.

CEO Sotirios Vahaviolos was happy with the results, especially given the challenges Mistras faced. "Market conditions have been difficult for the last year," Vahaviolos said, but "we have listened carefully to our customers and tailored our offerings and our cost structure accordingly." The CEO believes efforts to streamline operations should pay off with margin improvement in the future.

What's ahead for Mistras Group?
Looking forward, Vahaviolos noted that even though top-line growth hasn't materialized, he's confident that Mistras is gaining market share. "The Mistras value proposition has become even more resonant in these challenging times," Vahaviolos said, and he's confident in his team's ability to keep producing good results going forward.

That optimism showed in Mistras Group's updates to guidance. On the revenue front, Mistras was conservative, narrowing its guidance to a range of $710 million to $715 million. That represents the lower end of the previous wider range, reflecting continued foreign-exchange pressure but with the expectation of low- to mid-single digit organic growth by the fourth quarter. Mistras is more excited about its earnings prospects, setting its adjusted pre-tax operating earnings range upward by $9 million to $12 million to a new range of $84 million to $87 million. That would represent growth of 17% to 21%, further expressing confidence in Mistras' ability to capitalize on its opportunities.

Mistras investors didn't react strongly to the news, leaving shares unchanged within the first half hour following the announcement. With the stock having nearly doubled since late September and climbing back toward all-time highs, that reaction isn't surprising. However, if Mistras Group can keep its profits rising, then further gains for the stock could be inevitable.