Despite a challenging macroeconomic environment, diversified electronics manufacturer Amphenol Corporation APH reported strong third-quarter 2016 results with healthy year-over-year increases in both earnings and revenues. GAAP earnings for the reported quarter were 71 cents per share compared with 65 cents in the year-earlier quarter. The upside was primarily driven by higher revenues.
Net income (GAAP) for the quarter came in at $224.3 million, compared with $204.5 million in the year-ago quarter. The year-over-year increase in GAAP earnings was largely attributable to top-line growth.
Excluding non-recurring items, adjusted earnings for the reported quarter were 73 cents per share compared with 65 cents in the prior-year quarter. Adjusted earnings for third-quarter 2016 comfortably exceeded the Zacks Consensus Estimate by 5 cents.
The company recorded revenues of $1,635.9 million, up 12% year over year and well ahead of the Zacks Consensus Estimate of $1,571 million. The improved revenue performance was mostly driven by organic growth across all markets except mobile devices and healthy inorganic growth.
Adjusted operating margin reached record high of 20.3% for the quarter due to diligent cost-management efforts.
Segment-wise, Cable business sales were $92.7 million compared with $81.4 million in the year-ago quarter. Sales from the Interconnect business, which accounted for 94.3% of total sales was $1,543.2 million compared with $1,378.2 million in the prior year.
Operating income from the Interconnect business improved to $342 million during the quarter from $307.4 million a year ago. Operating income from the Cable business increased to $13.8 million from $10.2 million in the prior-year period.
In order to fuel its growth engine, Amphenol aims to acquire on a global basis in the high-growth segments that have complementary capabilities from a product, customer and/or geographic standpoint. During the quarter, the company acquired All Systems Broadband as a part of its strategic acquisition program. Based in California, All Systems Broadband is a leading manufacturer of cable assemblies and value added fiber optic products for the broadband market with annual sales of approximately $40 million.
Subsequent to the end of the quarter, Amphenol also acquired SGX Sensortech (SGX), a Switzerland-based manufacturer of air quality sensors that are used in a variety of automotive and industrial applications. It has annual sales of approximately $15 million.
The company expects these acquisitions to strengthen its global foothold and enhance its product offering in strategic markets.
Balance Sheet & Cash Flow
Amphenol generates solid cash flow, which gives management the opportunity to invest in product innovations, acquisitions and business development. At the same time, the company has historically returned significant cash through a combination of share repurchases and dividend to its shareholders. During the quarter, Amphenol repurchased approximately 2 million shares pursuant to its stock repurchase program, bringing its tally to over 8.5 million shares to date. At the same time, the company increased its quarterly dividend by 14% year over year to 16 cents per share.
Cash and cash equivalents were $853.6 million as of Sep 30, 2016, while long-term debt (excluding current portion) was $2,598 million. Cash flow from operations for the first nine months of 2016 was $728.7 million compared with $708.2 million in the prior-year period.
Despite the uncertainties prevailing in the global economy, Amphenol has bullish revenue and earnings expectations. The ongoing revolution in electronics enables the company to capitalize on the opportunities and strengthen its position in the market. Amphenol also expects to leverage on the solid growth potential of the acquired companies to drive robust performance in the future.
Amphenol expects fourth-quarter 2016 sales in the range of $1.585 billion to $1.625 billion. GAAP earnings are expected to be in the range of 71 cents to 73 cents per share.
For 2016, the company increased its guidance on the back of favorable growth dynamics. Amphenol currently expects sales in the range of $6.220 billion to $6.260 billion, representing a year-over-year increase of 12%. The company had earlier expected sales to be in the range $6.120 billion to $6.200 billion. It currently expects GAAP earnings per share in the range of $2.57 to $2.59, an increase of 7% year over year. Previously, the company had expected GAAP earnings for 2016 to be in the range $2.51 to $2.55 per share. Adjusted earnings are expected to be within $2.68 and $2.70 per share, an increase of 10% to 11% year over year, compared to earlier projections of $2.60 to $2.64.
Amphenol carries a Zacks Rank #2 (Buy). Some other favorably ranked stocks include Barnes Group Inc. B, Altra Industrial Motion Corp. AIMC and Chart Industries Inc. GTLS, each carrying the same Zacks Rank as Amphenol. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Barnes has a long-term earnings growth expectation of 9% and is currently trading at a forward P/E of 15.6x.
Altra Industrial has a positive earnings surprise history with an average of 9.2% in the trailing four quarters, comprehensively beating estimates in each quarter.
Chart Industries has a long-term earnings growth expectation of 20% and is currently trading at a forward P/E of 38.3x.
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