Mettler-Toledo - High-quality precision instruments manufacturer

[Housumies]

I didn’t see a dedicated thread for Mettler-Toledo, and since I’ve been looking into the company more closely lately, I thought it would be a good exercise to start a thread about it.

Mettler-Toledo is a leading global manufacturer of precision instruments. The company describes itself as follows (AI-translated):

“METTLER TOLEDO (NYSE) is a leading global supplier of precision instruments and services. We have strong leadership positions in all of our business units and believe we are the global market leader in most of them. We are recognized as an innovation leader, and our solutions are critical in key R&D, quality control, and manufacturing processes for our customers, who operate in a variety of industries such as life sciences, food processing, and chemicals. Our sales and service network is one of the most comprehensive in the industry. Our products are sold in more than 140 countries, and we have a direct presence in approximately 40 countries. We have achieved strong long-term financial results thanks to proven growth strategies and our execution-focused operations.”

The company’s product offering is presented quite nicely in the 2023 annual report:

Here are some key figures for 2023:

Historically, the company has been able to grow its revenue by approximately 5%.

As seen in the images above, the 2023 revenue decreased compared to the previous year. According to the company, this was due to weaker demand from life sciences customers and a significant decline in China during the second half of the year. Customers apparently reduced their investments as the year progressed due to global economic growth concerns, higher interest rates, and increased geopolitical tensions. For next year, the company guides for approximately 2% revenue growth. In my view, it looks like there was an exceptional step-up in revenue in 2021, and now things are starting to return to historical trend growth.

Historically, the company has been able to grow free cash flow and EPS faster than revenue due to improved margins:

The current valuation is pretty much what you would expect from a high-quality US company:

The company is interesting to me in the sense that I am familiar with its products (e.g., scales) through my work history.

[Gadus]

@Housumies

The current valuation is pretty much what you can expect from a US quality company:

That says quite a lot about the current situation. The situation isn’t the same across all segments, of course, but looking at certain companies, you really have to wonder what people are actually paying for right now. If you pay 30-40 times earnings for a company growing a few percentage points faster than inflation, it’s a pretty surefire way to lock yourself into poor future returns.

The situation will resolve one way or another, but in the meantime, patience is required.

[Housumies]

@Gadus

If you pay 30-40 times earnings for a company growing a few percentage points faster than inflation, it’s a pretty surefire way to lock yourself into weak future returns.

Free cash flow growth is what matters, and for Mettler-Toledo, it has grown at an annual rate of 12.5% over the last 10 years. If the cash flow yield is now around 3%, with that growth rate it will be 5% in 5 years, 10% in 10 years, and ~32% in 20 years. Personally, I consider value traps like Tietoevry, Fortum, and Nordea—which are cheap but don’t grow—to be surefire weak future returns.

Of course, it’s up to everyone to determine what kind of growth rate they believe in and what they are willing to pay for it. I must admit that even for me, the limit is at that 3% cash flow yield, no matter how high-quality the grower is. Costco grows its cash flow at roughly the same pace, but you only get a ~1.7% cash flow yield from it. Although Costco’s future growth is more certain than Mettler-Toledo’s, Costco is outrageously expensive compared to this.

Looking at it historically, Mettler-Toledo’s P/E is somewhat elevated, which I would partly explain by improving margins. However, I don’t think we’re at nonsensical prices right now.

Quality is unfortunately expensive, and situations where high-quality growers can be bought under P/E 20 or over a 5% cash flow yield are very rare. Kone has always been expensive, and when Harvia was available for under €15 or a P/E of ~13 in November 2022, the sentiment around the stock on the forum was extremely pessimistic, even though I thought it was clear that the stall in growth was temporary, as growth during COVID had been much faster than historical growth. Of course, when a high-quality grower’s accepted valuation multiples are redefined as earnings decline, the share price drop is extremely violent. Harvia dropped ~75% from its 2021 bubble prices to those November 2022 lows.

In the case of Harvia, I also pondered this steep valuation about a month ago during the discussion around the comprehensive report: https://keskustelut.inderes.fi/t/harvia-foorumi-eli-haarumi-kansainvalista-kasvua-ja-hyvinvoinnin-megatrendeja/471/7844?u=housumies

[Housumies]

Mettler-Toledo released its Q3 results last night: https://s202.q4cdn.com/258391627/files/doc_financials/2024/q3/MTD-3Q24-Earnings-Release-Final.pdf

• Revenue grew ~1% to 954.5 million. Analyst expectations were 944 million.
• EPS grew ~8% to $9.96. Analyst expectations were for an EPS of $10.01.
• Free cash flow decreased ~6% to 237 million.

Since we live in the AI era, I also let ChatGPT create a summary of the CEO’s comments:

In summary, the company achieved moderate growth in the third quarter, supported particularly by strong performance in laboratory operations and the service sector, despite challenging market conditions, especially in China’s industrial sector. Both GAAP and adjusted earnings per share (EPS) increased compared to the previous year: GAAP EPS rose 8.1% and adjusted EPS 4.2%. Regional performance was varied, with growth seen in Europe as well as the Asia and other markets regions, while sales in the Americas decreased slightly.

Looking ahead to the end of the year, the company expects strong growth in the fourth quarter, influenced by the resolution of delayed shipments. The company forecasts full-year adjusted EPS growth of approximately 6%, although currency fluctuations are creating a slight headwind. For 2025, the company expects steady sales and EPS growth in local currencies, although the market situation remains uncertain. Management is optimistic and emphasizes strong performance, recent innovations, and business diversity as key strengths that help the company navigate challenging market conditions and capitalize on growth opportunities in the future.

[Housumies]

Mettler-Toledo published its Q4 earnings report on February 6th:

https://investor.mt.com/news/news-details/2025/Mettler-Toledo-International-Inc.-Reports-Fourth-Quarter-2024-Results/

Key highlights:

• Revenue grew 12% year-over-year.
• Earnings per share (EPS) grew 32% year-over-year (the comparison period for EPS was soft).

For 2025, guidance is for approximately 3% revenue growth and 3-5% EPS growth, which is soft guidance. However, this guidance takes into account a 2-4% headwind from foreign exchange fluctuations, as well as Q4 2023 delivery delays that benefited Q1 2024.