MTS Systems Shares Plunged: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What:MTS Systems (NAS: MTSC) dropped 11% in intraday trading today after an update on a government investigation overshadowed inline earnings and confident guidance.

So what: EPS of $0.69 met the consensus estimate. Revenue of $117 million grew 38% year over year. Operating margin expanded to 13.4% from -1.8% in the year-ago quarter. Turning to the outlook, management said, "we have seen positive results in recent quarters and anticipate further gains in the future."

Now what: Assuming no change to economic conditions, MTS expects to modestly exceed its previous full-year guidance for revenue growth, EBIT margin, and return on invested capital. But the earnings release also disclosed that the U.S. Attorney's Office has recently expanded the scope of an investigation it is conducting with the Department of Commerce. It stated, "the Company is unable to determine the likely outcome or range of loss from these matters" but an "extended suspension or debarment from contracting with the U.S. Government or related fines or penalties, if any, could have a material adverse effect on MTS's business." That adds a lot of risk to otherwise confident guidance.

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At the time thisarticle was published Fool contributor Cindy Johnson does not own shares of any company named above. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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