Why MTS Systems Shares Fell

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: Shares of MTS Systems (NAS: MTSC) , a supplier of test systems and industrial position sensors, is slumping 13% as of this writing after reporting its second-quarter earnings results.

So what: For the quarter, MTS reported a 14% year-over-year increase in sales to $129 million, due largely to a 15% increase in new orders. That did not, however, stop net income from falling 9% to $0.69. Compared to Wall Street's expectations for a profit of $0.90 on sales of $131.6 million, MTS wasn't even in the ballpark. The company cited the timing of test backlog conversion and increased investments as the reason for the earnings shortfall.

Now what: The key point here is that MTS CEO William Murray (cue the Bill Murray jokes) kept the company's previous guidance unchanged. He sees investment expenses returning to their normal levels by next quarter, which should, in his own words, "provide revenue growth ... in the mid- to high teens, with growth in earnings per share expected to be in the low to mid-teens." MTS is highly profitable and instrumentation is typically a high-margin business. If this is indeed just a single-quarter event, then MTS could be a sweet buy on this dip.

Craving more input? Start by adding MTS Systems to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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