Diversified electronics manufacturer Amphenol Corporation APH reported record earnings of 65 cents per share for third-quarter 2015, in sync with the Zacks Consensus Estimate and growing an impressive 12.1% year over year.
Net income for the quarter came in at $204.5 million, compared with $182.2 million in the year-ago quarter. The year-over-year increase in earnings was driven by a rise in revenues.
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
The company reported revenues of $1,459.6 million in the quarter, up 7.4% year over year, and marginally ahead of the Zacks Consensus Estimate of $1,459 million. The year-over-year improvement was led by growth across diversified markets served by the company, especially automotive and mobile device markets.
Operating margin (excluding one-time items) for the quarter improved 30 basis points year over year to 20.2%. The increase in operating margin was primarily due to a focused execution of operational plans and stringent cost-cutting measures.
Segment Performance
Segment wise, Cable business sales represented 5.6% of total sales in the quarter and were down 9.7% year over year. Sales from the Interconnect business, which accounted for 94.4% of total sales, were up 8.6% year over year to $1,378.2 million.
Operating income from the Interconnect business improved to $307.4 million during the quarter from $279.8 million in the year-ago quarter. However, operating income from the Cable business declined to $10.2 million from $11.3 million in third-quarter 2014.
Acquisitions
Early in the quarter, Amphenol inked a definitive agreement to buy out the full ownership of FCI Asia Pte Ltd from the affiliates of alternative investment firm Bain Capital for $1.275 billion. The transaction, expected to be completed by the end of the current year subject to customary closing conditions, will be financed through a combination of cash and debt.
FCI manufactures interconnect solutions for the telecom, datacom, wireless communications and industrial markets. This complimentary product portfolio will enrich the service offerings of Amphenol to better serve its customers in a broad array of end markets. The acquisition is expected to be accretive to Amphenol’s earnings from the first year of its integration and result in synergistic benefits with advanced technological support and experienced management team.
Balance Sheet & Cash Flow
Amphenol generates solid cash flow, which gives management the opportunity to invest in product innovations, acquisitions and business development. At the same time, the company has historically returned significant cash through a combination of share repurchases and dividend to reward shareholders with risk-adjusted returns.
During the quarter, Amphenol repurchased approximately 1 million shares pursuant to its stock repurchase program. Cash and cash equivalents stood at $1,575.6 million as of Sep 30, 2015 while long-term debt (excluding current portion) aggregated $2,853 million.
Cash flow from operations for the first nine months of 2015 aggregated $708.2 million versus $607.4 million in the year-ago period.
Outlook
Despite the uncertainties prevailing in the global economy, Amphenol has bullish revenue and earnings expectations. The ongoing revolution in electronics enables the company to capitalize on the opportunities and strengthen its position in the market.
Amphenol expects fourth-quarter 2015 sales in the range of $1.33 billion to $1.37 billion. Adjusted EPS is expected to be in the range of 58 cents to 60 cents. For full year 2015, the company expects sales in the range of $5.468 billion to $5.508 billion, representing a year-over-year increase of 2% to 3%. The company expects adjusted EPS for 2015 in the range of $2.38 to $2.40, an increase of 6% to 7% year over year.
Amphenol currently has a Zacks Rank #4 (Sell). Some better-ranked stocks that look promising and are worth a look now include Harte-Hanks Inc. HHS, Publicis Groupe SA PUBGY and TubeMogul, Inc. TUBE, each carrying a Zacks Rank #2 (Buy).
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