Amphenol Corporation (APH)

APH 
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Amphenol (APH)

Q1 2013 Earnings Call

April 18, 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

Amit Daryanani - RBC Capital Markets, LLC, Research Division

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

Jim Suva - Citigroup Inc, Research Division

Amitabh Passi - UBS Investment Bank, Research Division

Wamsi Mohan - BofA Merrill Lynch, Research Division

Shawn M. Harrison - Longbow Research LLC

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

Adam Baumgarten - Macquarie Research

Sherri Scribner - Deutsche Bank AG, Research Division

Mark Delaney - Goldman Sachs Group Inc., Research Division

Steven Bryant Fox - Cross Research LLC

Presentation

Operator

Hello, and welcome to the First Quarter Earnings Conference Call for Amphenol Corporation. [Operator Instructions] At the request of the company, today's conference is being recorded. If you have 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 first quarter earnings call. Q1 results were released this morning. I will provide some financial comments on the quarter, and Adam will then give an overview of the business and current trends, and we'll then have a question-and-answer session.

The company had a good start to 2013, with first quarter sales of $1,080,000,000 and EPS before onetime items of $0.87 cents, meeting the high end of the company's guidance and growing sales 10% and EPS 13% over last year. Sales were up 10% in both U.S. dollars and local currencies compared to Q1 of 2012. And from an organic standpoint, excluding both acquisitions and foreign exchange impacts, sales in Q1 2013 were up 4% from last year. From a sequential perspective, sales were down 6% in U.S. dollars and 7% organically from a record Q4. Breaking down sales into our 2 major components, our cable business, which comprised 8% of our sales in the quarter, was up 14% from last year, with sales from a 2012 acquisition offsetting lower sales in our traditional cable products. The Interconnect business, which comprised 92% of our sales, was up 10% from last year as a result of both increased demand and prior-year acquisitions, and Adam will comment further on trends by market in a few minutes.

Operating income was $207 million in the quarter compared to $185 million last year. Operating margin was 19.2% in Q1, up from 18.9% in Q1 2012, a good conversion margin on incremental sales of approximately 22% from last year. From a segment standpoint, in the cable segment, margins were 13.8%, down from 14.5% last year. The decline in margins from last year relates primarily to a favorable product mix in the prior-year quarter.

In the Interconnect business, margins were 21.4%, up from 21% last year. The year-over-year interconnect operating margin improvement primarily reflects the positive impact of higher volume and cost reduction actions. We are very pleased with the company's operating margin achievement, and 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 clearly continues to be a very dynamic environment. Through the deployment of these strategies, the management team has achieved industry-leading operating margins again in Q1, and remains fully committed to driving enhanced performance.

Interest expense for the quarter was $15.5 million compared to $13.7 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 note offering. Other income was $2.8 million in the quarter, up from $2.2 million last year, primarily as a result of higher interest income and higher levels of cash and short-term cash investments.

The company's effective tax rate, excluding the impact of onetime items, was approximately 26.7% in Q1 of 2013 and Q1 of 2012, and we currently expect the same rate for the full year of 2013, again, excluding the impact of any onetime items. On an as-reported basis, the company's effective tax rate was 20.9% in Q1 2013 and included income tax benefits of approximately $11 million or $0.07 per share, resulting from the delay by the U.S. government and 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 of $11 million or $0.07 a share was recorded as a onetime benefit in the first quarter of 2013.

Net income, excluding onetime items, was approximately 13% of sales, and EPS, excluding onetime items, increased 13% to $0.87 this quarter from $0.77 last year, a strong performance. On an as-reported basis, EPS was $0.94 in the first quarter of 2013 and included that onetime tax item that I just mentioned. Orders for the quarter were a strong $1,120,000,000, resulting in a book-to-bill ratio in Q1 of approximately 1.04:1. The company continues to be an excellent generator of cash and achieved cash flow from operations in the quarter of $180 million or 118% of net income. The company continues to target and achieve cash flow from operations in excess of net income. From a working capital standpoint, inventory declined 3% from December and was $712 million at the end of March. Inventory days were at 86 days, up 3 days from December and down 2 days from prior-year levels. Accounts receivable was $862 million. Days sales outstanding was 73 days, up 3 days from prior year levels and 1 day from December. Accounts payable was $446 million at March 31 and 54 days, down 2 days from last quarter and comparable to last year.

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