AMETEK Inc.’s (AME) fourth quarter 2014 earnings of 63 cents per share beat the Zacks Consensus Estimate by a penny and were ahead of management’s guidance. Earnings also increased 2.4% sequentially and 14.7% on a year-over-year basis. Strong operating performance and synergies from acquisitions primarily led to the year increase in earnings.
Total Revenue
AMETEK reported revenues of $1.02 billion for the quarter, down 0.7% sequentially but up 8.7% on a year-over-year basis. It however lagged the Zacks Consensus Estimate of $1.04 billion by a slight margin. 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 63% and 37% of total revenue, respectively, in the quarter.
Revenues by Segment
EIG revenues were up 2% sequentially and 13.7% on a year-over-year basis to $644.4 million. The strong sales growth was attributed to broad-based strength across the Aerospace businesses. The contributions from the recent acquisitions also aided growth.
EMG sales were down 5.1% from the previous quarter but up 1.1% on a year-over-year basis to $379.8 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 35.2%, up 90 basis points (bps) from 34.3% in the preceding quarter but down 8 bps from the year-ago quarter’s 35.3%.
The company reported operating income of $232.3 million, which was higher than the previous quarter’s $231.8 million as well as the year-ago quarter’s $210.5 million. Its operating margin of 22.7% was up 21 bps from the prior quarter and 34 bps from the year-ago quarter.
Operating Profit by Segment
The EIG segment reported operating income of $162.9 million, up 7.3% from the year-ago quarter.
EMG operating income increased 9.2% on a year-over-year basis to $77.0 million.
Net Income
AMETEK’s pro forma net income was $155.2 million or a 15.2% net income margin, compared with $152.5 million, or 14.8% in the previous quarter and $135.7 million or 14.4% net income margin in the year-ago quarter. Adjusted earnings in the last quarter exclude Zygo integration costs on a tax-adjusted basis. Reported earnings per share were 63 cents per share compared with 62 cents in the previous quarter and 55 cents per share in the same quarter last year.
Balance Sheet
The cash and cash equivalents balance at quarter end was $377.6 million, up from $369.6 million in the previous quarter. Accounts receivables were $585.5 million versus $593.5 million in the prior quarter. Total debt was $1.43 billion versus $1.47 billion at the end of the prior quarter.
Outlook
For the first quarter, management expects revenues to be up mid-single digits on a percentage basis from the year-ago quarter. Earnings per share are expected to be approximately 61 cents to 63 cents. This earnings guidance represents an increase of 7% to 11% on a year over year basis. The Zacks Consensus Estimate for revenues for the March quarter is pegged at $1.05 billion. The Zacks Consensus Estimate for the earnings for March quarter is currently 64 cents (above the guidance range).
For 2015, management expects revenues to be up mid-single digits on a percentage basis from 2014. This is attributed to solid core growth and contributions from recent acquisitions. Earnings for 2015 are expected to be in the range of $2.58 to $2.63 per share, up 7% to 9% on a year-over-year basis.
Recommendation
AMETEK reported mixed fourth quarter results with the bottom line beating the Zacks Consensus Estimate while the top line missed the same. But 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, investments in 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.
AMETEK has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the technology sector include Sohu.com Inc. (SOHU) sporting a Zacks Rank #1 (Strong Buy), and Inuvo, Inc. (INUV) and LivePerson Inc. (LPSN), both holding a Zacks Rank #2 (Buy).
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