MTS Systems stock leaps after strong quarter

  • Article by: STEVE ALEXANDER , Star Tribune
  • Updated: November 18, 2011 - 7:58 PM

The stock of the Eden Prairie maker of test systems rose 10.7 percent.

MTS Systems Corp. stock climbed 10.7 percent Friday, a day after the Eden Prairie company reported fourth-quarter and full-year earnings and revenue that substantially beat expectations. MTS, which makes sophisticated test systems and sensors, earned $14.9 million in the fourth-quarter, up 74 percent, on revenue of $131.6 million, up 24 percent.

Earnings per share beat an average of analysts' expectations by 42 percent, and revenue exceeded predictions by 15 percent. The earnings were announced after Thursday after the market closed.

MTS said fourth-quarter revenue was driven by an increase in orders and a higher-than-usual backlog of orders at the beginning of the quarter. Profit was helped by higher gross margins, which resulted from improved volume and lower warranty expense, the company said.

For the year, MTS earned $50.9 million, up 174 percent, on revenue of $467.4 million, up 25 percent. Earnings beat analyst expectations by 9 percent, and revenue beat expectations by 3.9 percent. If economic conditions remain steady, the company said it expects low double-digit revenue and earnings per share gains for the current fiscal year.

The earnings growth came despite what the company said were $15 million in costs and lost revenue opportunities as a result of the company being temporarily banned from bidding on federal contracts as part of a probe of possible export law violations. The Air Force lifted the suspension in September, after MTS agreed to tighter contract conditions, including ethics standards, compliance, reporting and monitoring.

Analyst Mark Henneman of St. Paul investment firm Mairs and Power said the unusually strong earnings and revenue at MTS might be explained by a backlog of government orders that accumulated while the company was banned from government bidding.

"That would leave some unmet demand for the short term," Henneman said. "There are not a lot of companies these days that are beating expectations to the extent MTS did."

MTS also said there was an indirect benefit of the lifting of the ban on federal government bidding: other customers that followed the government's lead, such as the University of Minnesota, were free to do business with MTS again.

However, MTS remains under investigation for possible export law violations by the U.S. attorney's office in Minnesota.

Steve Alexander • 612-673-4553

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