AMETEK Corporation (AME)
Q4 2011 Earnings Call
January 26, 2012, 8:30 a.m. ET
Kevin Coleman, VP, IR
Frank Hermance – Chairman and CEO
John Molinelli – EVP, CFO
Bill Burke – Treasurer and VP
Allison Poliniak – Wells Fargo
Robert Berry – UBS
Jim Lucas – Janney Capital Markets
Scott Graham – Jefferies & Company
Christopher Glynn – Oppenheimer
Mark Douglass – Longbow Research
Jamie Sullivan – RBC Capital Markets
Matt Summerville – KeyBanc Capital Markets
Elana Wood – Bank of America
Richard Eastman – Robert W. Baird
Previous Statements by AME
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It is now my pleasure to turn the conference over to Mr. Kevin Coleman, Vice President of Investor Relations, Please go ahead, sir.
Thank you, Savanah. Good morning, and welcome to AMETEK’s fourth quarter earnings conference call. Joining me this morning are Frank Hermance, Chairman and CEO, John Molinelli, Executive Vice President and Chief Financial Officer, and Bill Burke, Vice President and Treasurer.
AMETEK’s fourth quarter results were released earlier this morning. These results are available electronically on Market Systems and on our website at the investor section of www.ametek.com. A tape of today’s conference call may be accessed until February 9, by calling 800-633-8284 and entering the confirmation code number 21563559.
This conference call is also webcasted. It can be accessed at www.ametek.com and at www.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 will now turn the meeting over to Frank.
Thank you, Kevin. AMETEK had a strong fourth quarter to complete another outstanding year. We established quarterly and annual records for sales, operating income, operating margins, net income, diluted earnings per share, and operating cash flow.
For the full year of 2011, sales were up 21%, operating income was 32%, margins were up 180 basis points, and diluted earnings per share ended at $2.37, a 35% increase over 2010.
Focusing on the fourth quarter, sales were up 13% to $762.8 million; internal growth was strong at 6%, while acquisitions added 7%.
Operating income for the fourth quarter increased 24% to $167.4 million, from $135.5 million last year, reflecting the impact of the higher sales and our operational excellence activities.
Operating income margin in the quarter was a record at 21.9%, a 190 basis points improvement over the fourth quarter of 2010.
Net income was up 25% to $101.9 million, and diluted earnings per share of $0.63 were up 26% over last year’s fourth quarter.
Orders in the fourth quarter were $748 million, up 4% over a difficult comparison from the prior year.
Operating cash flow was suburb with both the fourth quarter and full-year results representing records. Operating cash flow was $153 million for the quarter and $509 million for the year, up 19% and 20% respectively. Free cash flow was 132% of net income in the fourth quarter and 119% of net income for the full year.
Turning our attention to the individual operating groups; the Electronics Instrument group had a tremendous fourth quarter with strength across each of our major businesses. For the quarter, sales were up 17% to a record $441.5 million, on accelerating growth in our Aerospace business, and continuing strength in our process, tower, and industrial businesses. The Reichert technologies and EM Test acquisitions completed in the fourth quarter, also contributed to the growth.
Internal growth was 9%, acquisitions added 8%, and foreign currency translation had no impact on EIG.
EIG’s operating income increased 29% to $116.3 million, and operating margins were very strong at 26.3%, up 240 basis points over last year’s fourth quarter. Both operating income and operating margins in the quarter were records.
The Electromechanical group also performed well in the fourth quarter and for the full year. Sales were up 7% to $321.3 million in the fourth quarter on strength in our differentiated businesses. In particular, our aerospace third-party MRO business was very strong. The acquisitions of Avicenna Technology and Coining, also contributed to the growth.
Internal growth was 1%, acquisitions added 6%, and foreign currency had no impact.
EMG’s operating income increased 6% to $62.3 million, and operating margins were 19.4%.
Operational excellence is the cornerstone strategy for the company and our focus on cost and asset management has been a key driver to both our competitive and financial success.
Operational excellence has many facets within AMETEK, including lean manufacturing, Six Sigma in our factories and back office operations, designed for Six Sigma in our new product development efforts, and the movement of production to low cost locales.
We are especially pleased with our working capital results, which reached an all-time record level in the fourth quarter. Working capital as a percentage of sales was 17% in the quarter. We also continue to drive lower cost through our global sourcing office and strategic procurement initiatives. From these sourcing activities, we recognized $8 million in savings of the fourth quarter, and $30 million in savings for all of 2011.