Amphenol Corporation (APH) reported stellar third-quarter 2014 results with record earnings and revenues on the back of solid organic and inorganic growth. Net income for the reported quarter was $182.2 million or 57 cents per share compared with $160.8 million or 50 cents a share in the year-ago quarter.
Excluding acquisition-related transaction costs of $2.5 million or a penny per share, recurring earnings were 58 cents compared with 49 cents in the year-earlier quarter. The recurring earnings marginally beat the Zacks Consensus Estimate by a penny.
Impressive growth in the quarter was primarily attributable to Amphenol’s technology leadership and market and geographic diversification. It further reflected the company’s balanced organic and inorganic growth model. This was achieved on the back of a lean and flexible cost structure and an agile and entrepreneurial management team.
Revenues
Quarterly revenues were record high at $1,358.7 million in third quarter 2014, up 17.8% year over year and exceeded the Zacks Consensus Estimate of $1,341 million. The year-over-year improvement was led by double-digit growth across diversified markets served by the company, which include automotive, commercial air, industrial, mobile networks and mobile devices markets. Revenues also improved 3% sequentially supported by growth in all the markets of the company. In addition, accretive acquisitions contributed significantly to the top-line growth.
Operating margin (excluding one-time items) improved 20 basis points year over year to 19.9%. The increase in operating margin was primarily due to focused operational execution and stringent cost-cutting measures.
Segment Performance
Segment wise, Cable business sales represented 6.6% of total sales in third quarter 2014 and were flat year over year. Sales from the Interconnect business, which accounted for 93.4% of total sales, were up 19.3% year over year to $1,268.6 million driven by accretive acquisitions.
Balance Sheet & Cash Flow
During the quarter, Amphenol purchased approximately 3 million shares pursuant to its 10 million shares repurchase program which expires in Jan 2015. Cash and cash equivalents stood at $873.0 million at quarter end compared with $886.8 million as of Dec 31, 2013. Long-term debt aggregated $2,023.2 million at Sep 30, 2014 compared with $1,431.4 million at year-end 2013.
Cash flow from operations for the first nine months of 2014 aggregated $607.4 million versus $557.7 million in the year-ago period. Effective fourth-quarter 2014, Amphenol brought about a two-for-one stock split. The split stock was paid in the form of stock dividend and each shareholder at the close of business hours on Oct 2, 2014 received an additional share on the record date.
The strategic move is expected to increase the liquidity of the stock and lead to more trading as the number of outstanding shares is doubled and share price halved. This in turn might further drive up share prices as more small investors buy the stock and boost demand.
Outlook
Despite the uncertainties prevailing in the global economy, Amphenol is bullish about its revenue and earnings expectations. The ongoing revolution in electronics enables the company to capitalize on these opportunities and strengthen its position in the market.
Amphenol projects sales between $1.341 billion and $1.381 billion in fourth-quarter 2014 and earnings per share between 58 and 60 cents. For full year 2014, management increased its revenue guidance from $5.210 billion and $5.270 billion to $5.260 billion and $5.300 billion, representing a year-over-year rise of 14%-15%. Recurring earnings per share for 2014 is pegged in a band of $2.20 to $2.22, up from earlier projections of $2.17 to $2.20, representing a year-over-year increase of 14%-15%.
Amphenol currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look in the industry include InvenSense, Inc. (INVN), Stoneridge Inc. (SRI) and Universal Display Corp. (OLED), each carrying a Zacks Rank #2 (Buy).
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