AMETEK, Inc. (AME) Earnings & Analysis

Latest quarter

AMETEK’s third-quarter revenue and adjusted earnings per share exceeded the consensus. The company reported revenue of $2.2 billion, up 17.3% from $1.9 billion a year earlier. Its filing attributed the increase to organic sales growth and acquisitions, including Indicor.

The filing shows sales rose in both the Electronic Instruments Group and the Electromechanical Group, with organic growth and acquisitions contributing to each. Consolidated operating margin increased to 26.3% from 25.8%; the filing said acquisition integration costs and the effect of recent acquisitions weighed on segment margins.

AMETEK reported diluted earnings per share of $1.85, compared with $1.60 a year earlier. Free cash flow rose to $527.4 million from $420.0 million. The filing also said interest expense increased because of borrowing associated with the Indicor acquisition.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Dave Zapico said organic orders grew across AMETEK’s businesses and that Indicor contributed to overall order growth. Asked about the order pipeline, he said project activity had accelerated in Electronic Instruments as customer quotations became orders.

On end markets, Zapico said process instrumentation benefited from semiconductor and energy demand, while commercial aircraft manufacturing and aftermarket work led aerospace growth. He attributed power orders to investment in the grid and data-center infrastructure. In automation and engineered solutions, he said semiconductor and medical markets led organic sales growth.

Asked about inflation, Zapico said AMETEK’s pricing exceeded its inflation rate. He attributed that ability to differentiated, customized products and positions in niche markets. On margins, he said productivity and pricing above cost inflation helped the Electromechanical Group, with similar factors at work in Electronic Instruments. He also said research, development and engineering spending and new products helped the company compete.

Zapico said Indicor integration was still at an early stage. Responding to a question about its scale, he said the acquired businesses were being integrated into different parts of AMETEK, with experienced leaders working alongside Indicor’s teams. He also said FARO had exceeded the profitability assumed in its acquisition model during its first year of ownership.

Asked about the backlog, Zapico said his usual rule of thumb was that 80.0% could be shipped over the following 12 months. For the fourth quarter, he said Electronic Instruments sales growth could be higher than Electromechanical’s because Indicor contributes more to that group. CFO Dalip Puri said AMETEK had cash and available credit facilities to support growth initiatives and acquisitions.

Guidance

AMETEK raised its full-year sales outlook to mid-teens growth, including high-single-digit organic growth. Zapico said adjusted earnings per share are expected to be $8.53 to $8.57, up from the prior $8.20 to $8.30 range and including approximately $0.08 from Indicor.

For the fourth quarter, Zapico expects sales growth in the low 20% range and adjusted earnings of $2.26 to $2.30 per share. Puri raised the full-year free cash flow conversion expectation to 115.0% to 120.0% of net income.