AMETEK Inc.’s (AME) third quarter 2014 earnings of 62 cents per share beat the Zacks Consensus Estimate by a penny and were ahead of management’s guidance. Earnings also increased 1.5% sequentially and 18.5% on a year-over-year basis. A higher revenue base primarily led to the increase in earnings.
Total Revenue
AMETEK reported revenues of $1.03 billion for the quarter, up 4.1% sequentially and 15.9% on a year-over-year basis. Moreover, it was ahead of the Zacks Consensus Estimate of $1.02 billion. The increase in revenues was driven partly by acquisitions and partly by solid execution of its four growth strategies.
The company has two operating segments — Electronic Instruments Group ("EIG") and Electromechanical Group ("EMG"), which generated 61% and 39% of total revenue, respectively in the quarter.
Revenues by Segment
EIG revenues were up 10.2% sequentially and 26.4% on a year-over-year basis to $631.6 million. The strong sales growth was attributed to broad-based strength across the Aerospace, Process and Power & Industrial businesses. The contributions from the eight recent acquisitions completed in this Group also aided growth.
EMG sales were down 4.1% from the previous quarter but up 2.6% on a year-over-year basis to $400.2 million. The year-over-year increase was attributed to the company’s strength in the Precision Motion Control and Engineered, Materials, Interconnects and Packaging businesses.
Operating Performance
AMETEK’s gross margin for the quarter was 34.3%, down 203 basis points (bps) from 36.3% in the preceding quarter and 140 bps from the year-ago quarter’s 35.7%.
The company reported operating income of $231.8 million, which was higher than the previous quarter’s $231.7 million as well as the year-ago quarter’s 204.7 million. Its operating margin of 22.5% was down 92 bps from the prior quarter and 53 bps from the year-ago quarter.
Operating Profit by Segment
Operating income in the EIG segment of $148.3 million was up 6.8% from the year-ago quarter.
EMG operating income increased 10.4% on a year-over-year basis to $82.0 million.
Net Income
AMETEK’s pro forma net income was $152.5 million or a 14.8% net income margin, compared with $150.1 million, or 15.1% in the previous quarter and $127.9 million or 14.4% net income margin in the year-ago quarter. The adjusted earnings in the last quarter exclude Zygo integration costs on a tax-adjusted basis. Reported earnings per share were 62 cents per share compared with 61 cents in the previous quarter and 52 cents per share in the same quarter last year.
Balance Sheet
The cash and cash equivalents balance at quarter end was $369.6 million, up from $282.8 million in the previous quarter. Accounts receivables were $593.5 million versus $594.2 million in the prior quarter. Total debt was $1.47 billion versus $1.6 billion at the end of the prior quarter.
Outlook
Management provided limited guidance for the fourth quarter and for the year.
For the fourth quarter, management expects revenues to be up in high single digits on a percentage basis from the year-ago quarter. Earnings per share are expected to be approximately 60 cents to 62 cents. This earnings guidance represents an increase of 9% to 13% on a year over year basis.
For 2014, management expects revenues to be up low double digits on a percentage basis from 2013. This is attributed to solid core growth and the contributions from recent acquisitions. Earnings for 2014, excluding Zygo integration costs, are expected to be in the range of $2.40 to $2.42 per share, up 14% to 15% on a year-over-year basis.
Recommendation
AMETEK reported better-than-expected third quarter results with both the top and bottom lines beating the Zacks Consensus Estimate. Moreover, both revenues and earnings increased year over year.
The company believes that strong execution of its four core growth strategies of operational excellence, global market expansion, new product development, and strategic acquisitions will continue to play an important role in driving growth. This in combination with excellent backlog and strong portfolio of businesses will help the company post better results quarter after quarter.
Currently, AMETEK has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the technology sector include Charter Communications, Inc. (CHTR), AXT Inc. (AXTI) and Silicon Motion Technology Corp. (SIMO), all carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment