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Q3 2012 Earnings Call
October 17, 2012 1:00 pm ET
Diana G. Reardon - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
R. Adam Norwitt - Chief Executive Officer, President and Director
Jim Suva - Citigroup Inc, Research Division
Amit Daryanani - RBC Capital Markets, LLC, Research Division
Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division
Wamsi Mohan - BofA Merrill Lynch, Research Division
Shawn M. Harrison - Longbow Research LLC
Sherri Scribner - Deutsche Bank AG, Research Division
Anthony C. Kure - KeyBanc Capital Markets Inc., Research Division
Amitabh Passi - UBS Investment Bank, Research Division
Michael J. Wherley - Janney Montgomery Scott LLC, Research Division
Craig Hettenbach - Goldman Sachs Group Inc., Research Division
Steven Bryant Fox - Cross Research LLC
Brian John White - Topeka Capital Markets Inc., Research Division
Previous Statements by APH
» Amphenol Management Discusses Q2 2012 Results - Earnings Call Transcript
» Amphenol's CEO Discusses Q1 2012 Results - Earnings Call Transcript
» Amphenol's CEO Discusses Q4 2011 Results - Earnings Call Transcript
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 everyone to our Third Quarter Call.
Q3 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 third quarter achieving new records in both sales and earnings per share, with sales just over $1.1 billion and EPS of $0.90, meeting the high end of the company's guidance. Sales were up 7% in U.S. dollars and 9% in local currencies compared to Q3 of 2011.
From an organic standpoint, excluding both acquisitions and currency effects, sales in Q3 2012 were up 4% versus last year. Sequentially, sales were also up 4% in both U.S. dollars and organically from Q2 of 2012.
Breaking down sales into our 2 major components our cable business, which comprised 6% of our sales, was down 7% from both last year and last quarter due primarily to lower demand of specialty cable and international markets. The interconnect business, which comprised 94% of our sales, was up 8% from last year and 5% sequentially, and Adam will comment further on trends by market in a few minutes.
Operating income for the quarter was $216 million compared to prior year operating income, excluding onetime items of $199 million. Operating margin was 19.5% in Q3 2012 compared to 19.3% last year and 19.4% last quarter, a good conversion margin on incremental sales of approximately 22% sequentially and 24% from last year. Operating income is net of stock option expense of approximately $8 million or 0.7% of sales in both Q3 2012 and Q3 2011.
From a segment standpoint in our cable business, margins were 12.4%, down from 13.1% last year and 13.8% last quarter. The margin decline relates primarily to lower volume of somewhat less favorable pricing environment and some impact from product mix.
In the interconnect business, margins were 21.7%, up from 21.5% last year and 21.6% last quarter. The interconnect operating margin improvement primarily reflects the positive impact of higher volume and cost reduction actions.
We're very pleased with the company's operating margin achievement in the quarter. We continue to believe that the company's entrepreneurial operating structure and culture cost control allows us to continue 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 demand environment. To the deployment of these strategies, the management team has achieved sequential improvement in operating margins each quarter in 2012 and remains fully committed to driving future enhanced performance.
Interest expense in the quarter was $15 million compared to $10 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 senior note offering. Other income was $2.6 million in the quarter, up from $2.3 million last quarter primarily as a result of higher interest income on higher levels of cash and short-term cash investments.
In the third quarter, the company had an effective tax rate of 26.8%. This is approximately the same rate we had in the third quarter of 2011 and for the full year 2011, excluding the impact of onetime items, and we currently expect a similar rate in 2012.
Net income was approximately 13% of sales in Q3. And EPS grew 11% over last year, excluding onetime items from the prior year number; a very strong performance. Orders for the quarter were just under $1.1 billion, resulting in a book-to-bill ratio of approximately 0.99:1.
The company continues to be an excellent generator of cash and produced strong cash flow from operations of $176 million in the quarter. For the 9 months, operating cash flow stood at $468 million or approximately 112% of net income. The company continues to target cash flow from operations in excess of net income.
From a working capital standpoint, inventory was $712 million at the end of September, up 5% over the June quarter. From an inventory days perspective, excluding the impact of acquisitions, inventory days were 83 and were comparable to prior year levels. Accounts receivable was $903 million at the end of September. And days sales outstanding were 72 days, excluding the impact of acquisitions, also comparable to prior year levels. Accounts payable was $478 million at 9/30 and from a days perspective, was up about 1 day to 56 days at the end of the quarter.
Our strong cash flow from operations of $176 million, along with borrowings under the company's credit and receivables facilities of $63 million and proceeds in related tax benefits from option exercises of $46 million were used primarily to fund $33 million of capital expenditures, the purchase of 0.5 million shares of the company's common stock for $28 million, $97 million related to payment for the acquisitions of both Holland and Griffith in the quarter, dividend payments of $17 million and an $80 million increase in cash and cash investments in the quarter.
The company has approximately 2.5 million shares remaining under the 20 million-share buyback program that expires in January of 2014.
At the end of September, cash and short-term investments stood at $893 million, the majority of which is held outside the U.S. In addition, the company had availability under its revolving credit facilities of approximately $600 million at the end of the quarter.