AMTEK, Inc. (AME)

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Ametek Inc. (AME)

Q4 2012 Earnings Call

January 24, 2013 8:30 am ET

Executives

Frank Hermance – Chief Executive Officer

Robert Mandos – Chief Financial Officer

Kevin Coleman – Vice President, Investor Relations

Analysts

Allison Poliniak – Wells Fargo

Matt McConnell – Citi

Scott Graham – Jefferies

Mark Douglass – Longbow Research

Richard Eastman – Robert W. Baird

Christopher Glynn – Oppenheimer

Jamie Sullivan – RBC Capital Markets

Joe Radigan – KeyBanc

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ametek Fourth Quarter and Year-End 2012 Results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time, if you have a question please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star, zero. As a reminder, this conference is being recorded Thursday, January 24, 2013.

I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations. Please go ahead, sir.

Kevin Coleman

Great, thank you, Susie. Good morning and welcome to Ametek’s fourth quarter earnings conference call. Joining me this morning are Frank Hermance, Chairman and CEO; and Bob Mandos, Executive Vice President and Chief Financial Officer.

Ametek’s fourth quarter results were released earlier this morning. These results are available electronically on market systems and on our website at the Investors section of Ametek.com. A tape of today’s conference call may be accessed until February 7 by calling 800-633-8284 and entering the confirmation code number 21643345. This conference call is also webcasted. It can be accessed at Ametek.com and at StreetEvents.com. The conference call will be archived on both of these websites.

I will remind you that any statements made by Ametek during the call that are not historical in nature are to be considered forward-looking statements. As such, these statements are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in Ametek’s filings with the Securities and Exchange Commission. Ametek disclaims any intention or obligation to update or revise any forward-looking statements. I will also refer you to the investor section of Ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call.

We will begin today with some prepared remarks and then we will take your questions. I’ll now turn the meeting over to Frank.

Frank Hermance

Thank you, Kevin, and good morning everyone. Ametek had a solid fourth quarter to complete another outstanding year. We established quarterly and annual records for orders, sales, operating income, operating, margins, net income, diluted EPS, and operating cash flow. In addition, we acquired seven highly strategic businesses in 2012, establishing records for capital deployed and annual revenue acquired. For the full year 2012, sales were up 12%, operating income was up 17%, operating margins expanded 100 basis points to 22.4%, and diluted EPS ended at $1.88, a 19% increase over 2011’s diluted EPS.

In the fourth quarter, orders were very strong, increasing 28% in total and 4% organically. The core order trend within the quarter was positive with December being very strong. The book-to-bill ratio was 1.14. Sales in the quarter were up 10% to $841.8 million. Internal sales growth was down 2% while acquisitions added 13% and foreign currency translation was a one point headwind.

Operating income for the fourth quarter increased 13% to $190 million from $167.4 million last year, reflecting the impact from our operational excellence activities. Operating income margin in the fourth quarter was a record 22.6%, a 70 basis point improvement over the fourth quarter of 2011. Net income was up 18% to $119.9 million and diluted earnings per share of $0.49 were up 17% over last year’s fourth quarter. Operating cash flow was excellent with both the fourth quarter and full-year results representing records. Operating cash flow was $192 million in the fourth quarter and $611 million for the year, up 25% and 20% respectively.

Free cash flow was 140% of net income in the fourth quarter and 121% of net income for the full year. Backlog at the end of the fourth quarter was over $1.1 billion, an all-time record high. Working capital management was excellent and operating working capital was 17.5% of sales.

Before turning our attention to the individual operating groups, I would like to provide some perspective on the global macroeconomic environment. Overall, we saw a continued sluggish global macro environment. Customers delayed shipments in the quarter as a result of general economic uncertainty. Despite the slightly weaker than expected core sales growth in the quarter, the overall orders and order trends during the quarter were excellent. As is evident in our results, we are able to deliver exceptional operating performance and exceed our earnings estimates despite this weak macro environment.

As we have demonstrated in the past, we will continue to aggressively manage our costs through this period of softness while continuing to make investments in strategic acquisitions, market expansion, and new product development initiatives. In particular, our deal pipeline is strong and we will remain active in acquiring businesses.

Now turning to the individual operating groups, the electronic instruments group had a strong fourth quarter with tremendous operating performance. For the quarter, sales were up 12% to a record $494.5 million on solid core growth in our upstream oil and gas and commercial aerospace businesses, plus the contributions from the acquisitions of O’Brien and Micro-Poise. Internal growth was down 1%, acquisitions added 14%, and foreign currency translation was a one point headwind. EIG’s operating income increased 16% to $134.9 million and operating margins were up 100 basis points over last year’s fourth quarter to a record 27.3%, reflecting the excellent work from our business teams.

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