10-QPeriod: Q1 FY2016

AMETEK INC/ Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 4, 2016For Securities:AME

Summary

AMETEK Inc. reported first-quarter 2016 results showing a modest decline in net sales, down 4.0% year-over-year to $944.4 million, impacted by internal sales declines and foreign currency headwinds. However, the company saw an increase in orders and ended the quarter with a higher backlog of $1.17 billion. Significant strategic investments were made, including the acquisition of Brookfield Engineering Laboratories and ESP/SurgeX for $294.6 million, which are expected to contribute to future growth. Despite the top-line dip, the company managed its costs effectively, with operating income and diluted EPS showing a slight decrease to $208.5 million and $0.57, respectively, partly due to the absence of prior-year realignment charges. Financially, AMETEK strengthened its liquidity by increasing its revolving credit facility to $850 million, providing ample capacity for strategic initiatives. The company's focus remains on operational excellence and integrating recent acquisitions, with management expressing confidence in its ability to navigate a challenging global economic environment and deliver value to shareholders. The significant investment in acquisitions, coupled with a robust credit facility, positions AMETEK for potential future growth, though investors should monitor the integration of these new businesses and the impact of ongoing economic uncertainties.

Financial Highlights

50 data points
Beta

Revenue

$944.40M

34.0% Gross Margin

Net Income

$134.17M

14.2% Net Margin

EPS (Diluted)

$0.57

Total Assets

$6.99B

Cash & Equivalents

$386.94M

Free Cash Flow

$140.50M

Financial Statements
Beta
Revenue$944.40M
Cost of Revenue$623.68M
Gross Profit$320.72M
SG&A Expenses$112.19M
Operating Expenses$735.88M
Operating Income$208.52M
Interest Expense$23.40M
Net Income$134.17M
EPS (Basic)$0.57
EPS (Diluted)$0.57
Shares Outstanding (Basic)234.98M
Shares Outstanding (Diluted)236.22M

Key Highlights

  • 1Net sales for Q1 2016 decreased by 4.0% to $944.4 million compared to Q1 2015, primarily due to internal sales declines and foreign currency effects, partially offset by acquisitions.
  • 2Orders increased by 2.6% to $967.9 million in Q1 2016, leading to an increased backlog of $1.17 billion.
  • 3The company completed two significant acquisitions in January 2016: Brookfield Engineering Laboratories and ESP/SurgeX for a combined $294.6 million.
  • 4Diluted earnings per share (EPS) decreased slightly to $0.57 in Q1 2016 from $0.59 in Q1 2015.
  • 5Operating income decreased by 5.7% to $208.5 million, with operating margins at 22.1% compared to 22.5% in the prior year.
  • 6AMETEK amended and restated its credit agreement, increasing its revolving credit facility to $850 million, enhancing financial flexibility.
  • 7The company repurchased approximately 2.4 million shares of common stock for $116.7 million during the first quarter of 2016.

Frequently Asked Questions

The primary drivers of the sales decrease were a 9% internal sales decline, largely attributed to the company's Process businesses facing challenges in oil and gas markets and commodity price deflation impacting certain Electromechanical Group businesses, along with an unfavorable 1% foreign currency translation effect. These were partially offset by a 5% increase from acquisitions.

AMETEK amended its credit agreement in March 2016, increasing its revolving credit facility to $850 million, with an additional accordion feature allowing for up to $300 million more. This provides enhanced financial flexibility. Total debt, net, increased to $2.22 billion at March 31, 2016, from $1.94 billion at December 31, 2015, reflecting borrowings to fund acquisitions.

In January 2016, AMETEK acquired Brookfield Engineering Laboratories and ESP/SurgeX for $294.6 million. These acquisitions contributed 5% to net sales in the first quarter of 2016 and are expected to drive future growth. The purchase price allocation resulted in significant goodwill and other intangible assets, with approximately $100 million of the goodwill expected to be tax-deductible.

Despite the sales decline, AMETEK focused on cost management. Cost of sales, excluding depreciation, decreased proportionally with net sales. Selling, general, and administrative (SG&A) expenses saw a slight increase as a percentage of sales, primarily due to the acquisition strategy which often involves businesses with higher selling expenses. The company also benefited from Operational Excellence initiatives and the absence of significant realignment costs incurred in the prior year's first quarter.