AMTEK, Inc. (AME)

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Ametek (AME)

Q1 2013 Earnings Call

April 25, 2013 8:30 am ET

Executives

Kevin C. Coleman - Vice President of Investor Relations

Frank S. Hermance - Chairman of the Board, Chief Executive Officer and Chairman of Executive Committee

Robert R. Mandos - Chief Financial Officer, Executive Vice President and Comptroller

Analysts

Allison Poliniak-Cusic - Wells Fargo Securities, LLC, Research Division

Christopher Glynn - Oppenheimer & Co. Inc., Research Division

R. Scott Graham - Jefferies & Company, Inc., Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

John Anthony Baliotti - Janney Montgomery Scott LLC, Research Division

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Mark Douglass - Longbow Research LLC

Matthew W. McConnell - Citigroup Inc, Research Division

Jamie Sullivan - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the AMETEK First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, April 25, 2013.

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

Kevin C. Coleman

Great. Thank you, Frank. Good morning. Welcome to AMETEK's First 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 first 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 May 9 by calling (800) 633-8284 and entering the confirmation code number 21653552. This conference call is also webcasted. It can be accessed at ametek.com and streetevents.com. The conference call will be archived on both of these sites.

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 Investors section of ametek.com for a reconciliation of any non-GAAP financial measures used during this call.

We will begin with some prepared remarks, and then we will open it up for your questions. I'll now turn the meeting over to Frank.

Frank S. Hermance

Thank you, Kevin, and good morning, everyone. AMETEK had a solid first quarter. We established quarterly records for sales, operating income, net income and diluted earnings per share. Sales in the quarter were up 7% to $882.9 million, organic sales declined 2%, while acquisitions added 9% and currency was flat.

Operating income for the first quarter increased 8% to $197.2 million from $182.8 million last year, reflecting the impact of the higher sales and our Operational Excellence activities. Operating income margin in the quarter was 22.3%, a 20 basis point improvement over the first quarter of 2012. Net income was up 14% to $125 million, and diluted earnings per share of $0.51 were up 13% over last year's first quarter.

Included in our first quarter 2013 results are approximately $0.01 per diluted share in realignment cost and approximately $0.01 per diluted share in cost related to the performance-based accelerated vesting of restricted stock.

As a result of the continued weak global environment, we determined it was prudent to take additional cost reduction actions in the first half of the year; the first quarter charge reflects these actions. We expect to see the majority of the benefits from these actions in the second half of 2013. The performance-based vesting occurred as a result of the stock price doubling in less than 3 years, reflecting the significant value created for AMETEK shareholders.

If we adjust the earnings for both of these changes, the first quarter 2013 earnings would have been $0.53 per diluted share, up 18% over the same period last year.

Orders in the first quarter were $878 million, up 2% overall from the prior year on a difficult comparison. The book-to-bill ratio in the quarter was 1.

Cash flow was excellent. Operating cash flow was $157 million, up 11% over last year's first quarter. Free cash flow was $146 million or 117% of net income.

Working capital management was excellent. Operating working capital was 17.6% of sales.

Turning our attention to the individual operating groups. The Electronic Instruments Group had a very solid first quarter. Sales were up 3% to $484.5 million, on strength in our longer cycle Aerospace and oil and gas businesses, plus the contributions from the Micro-Poise acquisition. Organic sales were down 2%, while currency was flat.

EIG's operating income increased 7% to $131.7 million, and operating margins were very strong at 27.2%, up 100 basis points over last year's first quarter.

The Electromechanical Group also had a solid quarter. Sales were up 11% to a record $398.4 million, on strength in our third-party Aerospace MRO business and the contribution from the Dunkermotoren acquisition. Organic sales were down 3%, acquisitions added 14% and foreign currency was flat.

EMG's operating income increased 10% to $78 million, and operating margins were 19.6%. Excluding the impact of the Dunkermotoren acquisition, EMG's operating margins would have been 20.3%, up 50 basis points over the first quarter of 2012.

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