Amphenol Corporation (APH)

APH 
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Amphenol (APH)

Q4 2012 Earnings Call

January 17, 2013 1:00 pm ET

Executives

Diana G. Reardon - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

R. Adam Norwitt - Chief Executive Officer, President and Director

Analysts

Sherri Scribner - Deutsche Bank AG, Research Division

Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division

Brian John White - Topeka Capital Markets Inc., Research Division

Shawn M. Harrison - Longbow Research LLC

Steven Bryant Fox - Cross Research LLC

Mike Wood - Macquarie Research

Amitabh Passi - UBS Investment Bank, Research Division

Jim Suva - Citigroup Inc, Research Division

Amit Daryanani - RBC Capital Markets, LLC, Research Division

Ruplu Bhattacharya

Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Hello, and welcome to the Fourth Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions] At the request of the company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to introduce today's conference host, Ms. Diana Reardon. Ma'am, you may begin.

Diana G. Reardon

Thank you. My name is Diana Reardon, and I'm Amphenol's CFO. I'm here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our fourth quarter earnings conference call.

Q4 results were released this morning. I will provide some financial commentary on the quarter, and Adam will give an overview of the business and current trends. We'll then have a question-and-answer session.

The company closed the fourth quarter, achieving new records in both sales and earnings per share with sales of $1.146 billion and EPS before onetime items of $0.94, beating the high end of the company's guidance. Sales were up 21% in both U.S. dollars and local currencies compared to Q4 of 2011. From an organic standpoint, excluding both acquisitions and FX, sales in Q4 2012 were up 15% versus last year. Sequentially, sales were up 4% in U.S. dollars and 1% organically from Q3.

Breaking down sales into our 2 major components, our Cable business, which comprise 7% of our sales, was up 40% from last year and 22% from last quarter, primarily as a result of the acquisition closed at the end of Q3. The Interconnect business, which comprise 93% of our sales, was up 19% from last year and 3% sequentially, and Adam will comment further on trends by market in a few moments.

For the full year 2012, sales were $4.292 billion and up 9% in U.S. dollars and 5% organically over last year, a very strong performance in a challenging market. Operating income, excluding onetime items, was $223 million in Q4 2012 compared to prior year operating income of $175 million. Operating margin, excluding onetime items, was 19.5% in Q4, up 100 basis points from 18.5% in Q4 of last year and equal to the 19.5% reported in Q3 of 2012. The company achieved a good conversion margin on incremental sales of approximately 24% over the prior year levels.

From a segment perspective in the Cable segment, margins were 13.2%, up slightly from last year and up 80 basis points from last quarter. The improvement in margin over last year -- over last quarter, excuse me, relates primarily to the favorable product mix from the recent acquisition.

In the Interconnect business, margins were 21.7%, up from 20.8% last year and equal to last quarter. The year-over-year Interconnect operating margin improvement primarily reflects the positive impacts of higher volume and cost reduction actions.

For the full year 2012, the company achieved operating income margins of 19.3%, up 10 basis points from last year, achieving a year-over-year conversion margin on incremental sales of 21%.

We're very pleased with the company's operating margin achievement. We continue to believe that the company's entrepreneurial operating structure and culture of cost control allows us to react in a fast and flexible manner, thereby constantly adjusting the business to maximize profitability in what certainly continues to be a dynamic environment. Through the deployment of these strategies, the management team has achieved sequential improvement in operating margins during 2012 and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $15.6 million compared to $11.1 million last year, reflecting higher average debt levels from the company's stock buyback program and the higher interest expense associated with the company's January 2012 senior note offering.

Other income was $2.7 million in Q4 2012, up from $2 million last year primarily as a result of higher interest income on higher levels of cash and short-term cash investments.

The company's effective tax rate, including the impact -- excluding the impact of onetime items, is approximately 26.4% in both Q4 of this year and Q4 of last year. For the full year, excluding the impact of onetime items, the rate was approximately 26.8% both in 2012 and 2011. And we currently expect a similar rate in 2013, again excluding the impact of any onetime items.

On an as-reported basis, the company's effective tax rate was 32% in the fourth quarter of 2012 and 28% for the full year 2012 and included income tax costs of approximately $11 million, or $0.07 per share, resulting from the delay by the U.S. Government in the reinstatement of certain federal income tax provisions for the year 2012 relating primarily to research and development credits and certain U.S. taxes on foreign income. Such tax provisions were reinstated on January 2, 2013, with a retroactive effect to 2012. Under U.S. GAAP, the related benefit to the company of $11 million, or $0.07 per share, relating to the 2012 tax year will be recorded as a onetime benefit in the first quarter of 2013 at the date of reinstatement. As such, between the 2 quarters, there's no net impact on the company from an income statement perspective.

Net income, excluding onetime items, was approximately 13% of sales both in Q4 and for the full year 2012.

Earnings per share, excluding onetime items, increased 29% in the fourth quarter to $0.94 and for the full year 2012 was up 14% to $3.47, a very strong performance.

On an as-reported basis, EPS was $0.86 and $0.69 in the fourth quarter of 2012 and 2011, respectively, and included certain onetime items. The 2012 period includes onetime charges of $0.08 per share comprised of the $0.07 in taxes I just described and $0.01 relating to 2012 acquisition-related transaction costs.

The 2011 period, including one -- included onetime charges of $0.04 per share comprised of $0.03 per share relating to the previously reported flood damage at the company's Sidney, New York facility and $0.01 per share relating to acquisition-related transaction costs for 2011 acquisitions.

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