Ametek's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Ametek (AME)

Q2 2012 Earnings Call

July 24, 2012 8:30 a.m. ET

Executives

Kevin C. Coleman - Vice President of Investor Relations

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

Bob Mandos - Chief Financial Officer and Executive Vice President

Analysts

Allison Poliniak - Wells Fargo

R. Scott Graham - Jefferies & Company

Christopher Glynn - Oppenheimer

Jamie Sullivan - RBC Capital Markets

D. Mark Douglass - Longbow Research

Matt Summerville - KeyBanc Capital Markets

Richard C. Eastman - Robert W. Baird

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the AMETEK second quarter 2012 earnings conference call. [Operator Instructions] 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

Good morning, and welcome to AMETEK's second quarter earnings conference call. Joining me this morning are Frank Hermance, chairman and chief executive officer, and Bob Mandos, executive vice president and chief financial officer.

AMETEK's second quarter results were released earlier this morning. These results are available electronically on market systems and on our website at the Investors section of www.ametek.com. A tape of today's conference call may be accessed until August 7 by calling (800) 633-8284 and entering the confirmation code number 21597870.

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

We will begin today with prepared remarks by Frank and Bob, and then we will take your questions. With that, I will turn the meeting over to Frank.

Frank S. Hermance

Thank you, Kevin, and good morning, everyone. In the quarter, we established records for orders, operating income, operating margins, net income, and diluted earnings per share. Orders in the second quarter were a record at $916 million, up 15% from the prior year. The book-to-bill ratio in the quarter was 1.11.

Sales in the second quarter were up 9% to $825.9 million. Internal growth was flat due to a weak international environment, while acquisitions added 10% and currency was a 1% headwind. Excluding the cost-driven motor business, which was impacted by weakness in Europe and the impact of a very difficult comparison in Asia, our internal growth was 3% in the quarter.

Operating income for the second quarter was superb. It increased 18% to a record $185 million from $157 million last year, reflecting the impact from our operational excellence activities and our longer cycle, higher-margin businesses.

Operating income margin in the quarter was a record at 22.4%, a 170 basis point improvement over the second quarter of 2011. Net income was up 21% to $113.7 million, and diluted earnings per share of $0.47 were up 21% over last year’s second quarter and above the top end of our prior guidance of $0.45. Both net income and diluted earnings per share were records.

Backlog at the end of the second quarter was over $1 billion, an all-time record high. Working capital management was excellent, operating working capital was 17.7% of sales.

Turning our attention to the individual operating groups, the electronic instruments group had a solid second quarter. Sales were up 11% to $452.1 million on strength in our aerospace, oil and gas, and power instruments businesses in addition to the contributions from the acquisitions of O’Brien, TMC, EM Test, and Reichert Technologies. Internal growth was 1% while acquisitions added 12% and currency reduced sales by 2%. EIG’s operating income increased 16% to $117.7 million and operating margins were very strong at 26%, up 110 basis points over last year’s second quarter.

The electromechanical group also had a good quarter. Sales were up 6% to a record $373.8 million on strength in our differentiated businesses and the contributions from the acquisitions of Avicenna, Coining, and Dunkermotoren. Internal growth was down 1%. Acquisitions added 8%, and foreign currency reduced sales by 1%. ENG’s operating income increased 14% to $78.8 million, a record level, and operating margins increased 140 basis points to a record 21.1%.

I’d like to provide some perspective on the broader macroeconomic environment and what impact we are seeing on our business. We did see weakening in our business during the second quarter, in particular in Europe and Asia. Sales trends softened as customers turned cautious and delayed or pushed out shipments. Our process businesses, with approximately 70% of sales outside the U.S., had been impacted by the slowing as well as our cost-driven motors business, given its sizable European exposure. We now expect 2012 organic sales growth to be up low to mid-single digits versus our previous guidance of mid-single digits.

As we have demonstrated in the past, we will tighten our belts and 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.

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