Amphenol Beats on Q1 Earnings,Revs - Analyst Blog

Amphenol Corporation APH reported net income of $158.5 million or 98 cents per share in first quarter 2014 compared with $153.0 million or 94 cents a share in the year-ago quarter. Excluding one-time items, earnings stood at 99 cents per share versus 87 cents in the year-ago quarter. Recurring earnings beat the Zacks Consensus Estimate of 95 cents.
    
Impressive growth in the quarter was primarily attributable to Amphenol's technology leadership and market and geographic diversification. It further reflected the company's balanced organic and inorganic growth model. This was achieved on the back of a lean and flexible cost structure and an agile and entrepreneurial management team.
    
Revenues

Quarterly revenues stood at $1,246 million in first quarter 2014, up 15% year over year. The top line exceeded the Zacks Consensus Estimate of $1,199 million. The year-over-year growth was led by strength across diversified markets served by the company, which include automotive, commercial air, industrial, mobile networks and IT and datacom markets.

Bookings were strong at $1,310 billion in the reported quarter resulting in book-to-bill ratio of approximately 1.05 to 1 for the quarter. Operating margin, excluding one-time items, was down about 40 basis points from the prior year to 18.8%. The decline in operating margin was primarily due to the lower profitability level of the Advanced Sensor business acquired in Dec 2013.

Segment Performance

Segment wise, Cable business sales represented 7% of total sales in first quarter 2014 and were up 4% year over year. Sales from the Interconnect business, which accounted for 93% of total sales, were up 16% year over year driven by accretive acquisitions. Margins in the cable business were 12.2% in the reported quarter, down from 13.8% in the prior-year period due to the impact of market pricing and product mix. Interconnect business margins were 21.0% down from 21.4% last year.
 
In terms of end markets, revenues from Information Technology and Data Communication Equipment accounted for 17% of total sales in the reported quarter, up 6% year over year, primarily due to robust contributions from servers and storage equipment.

Military: Sales from this end market accounted for 11% of total sales in first quarter 2014, down slightly year over year due to moderate purchasing activity from defense equipment manufacturers.

Commercial Aerospace: Aerospace market comprised 6% of total sales in the reported quarter and increased 26% year over year due to increased production levels of new airliners.

Handset/Mobile Devices: Sales from this end market declined marginally year over year and accounted for 16% of total sales. The decrease in sales was attributable to reduced content opportunity in certain Wi-Fi and white-box tablet devices

Industrial: Sales accounted for 17% of total revenue in first quarter 2014, up 47% year over year due to growth in instrumentation, rail mass transit, heavy equipment and accretive acquisitions.

Broadband Communications: Sales were flat on a year-over-year basis, accounting for 7% of quarterly revenues as increased demand by international cable operators was offset by a moderation in cable spending by customers in the US.

Automotive: Sales from this end market accounted for 15% of total revenues in the quarter and jumped 47% year over year primarily driven by diverse range of new automotive products provided by Advanced Sensors and Tecvox.

Mobile Networks: Sales from this end market accounted for 11% of total revenues in the quarter and jumped 19.0% year over year driven by a pick-up in demand from both base station manufacturers as well as mobile operators.

Balance Sheet & Cash Flow

During the quarter, Amphenol purchased approximately 1.4 million shares for $121 million. At quarter end, the company had 4.3 million shares remaining under its 10 million shares repurchase program which expires in Jan 2015. Cash and cash equivalents stood at $1,023.3 million as of Mar 31, 2014 compared with $886.8 million as of Dec 31, 2013. Long-term debt aggregated $1.5 billion at Mar 31, 2014 compared with $1.4 billion at Dec 31, 2013.

At quarter-end, Amphenol had $1.2 billion available under its $1.5 billion revolving credit facility with $270 million in borrowings. Leverage and interest coverage ratios remained very strong at 1.9x and 17x. Cash flow from operations for the quarter aggregated $202.7 million versus $180.3 million in the year-ago period.

Outlook

Despite the uncertainties prevailing in the global economy, Amphenol is bullish about its revenue and earnings expectations. The ongoing revolution in electronics enables the company to capitalize on these opportunities and strengthen its position in the market

Amphenol projects sales between $1.255 billion and $1.285 billion in second quarter 2014 and recurring earnings per share between $1.03 and $1.06. For full year 2014, management projects revenues between $5.110 billion and $5.200 billion. Recurring earnings per share for 2014 is pegged in a band of $4.25 to $4.34.

Amphenol currently has a Zacks Rank #4 (Sell). Other stocks that look promising and are worth a look in the industry include Rambus Inc. RMBS and Freescale Semiconductor, Ltd. FSL, both carrying a Zacks Rank #1 (Strong Buy), and Rubicon Technology, Inc. ( RBCN that carries a Zacks Rank #2 (Buy).