Amphenol Corporation (APH) reported phenomenal fourth quarter 2013 results with record revenues and recurring earnings per share. Net income for the reported quarter came in at $167.9 million or $1.04 per share compared with $140.4 million or 86 cents in the year-ago quarter. Excluding a one penny charge for acquisition-related transaction costs, recurring earnings for the reported quarter touched an all-time high of $1.05 per share. Recurring earnings comfortably beat the Zacks Consensus Estimate by 7 cents.
Impressive bottom-line 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.
For full year 2013, net income came in at $635.7 million or $3.92 per share compared with $555.3 million or $3.39 in the year-earlier period. Recurring earnings for 2013 were $3.85 per share compared with $3.47 per share in 2012. Recurring earnings for full year 2013 well exceeded the Zacks Consensus Estimate of $3.79.
Quarterly sales hit a record high of $1,245.7 million in fourth quarter 2013 versus $1,146.0 million in the year-earlier quarter. The top line exceeded the Zacks Consensus Estimate of $1,166.0 million. For full year 2013, sales were $4.615 billion, up 7.5% from $4.292 billion in 2012. The year-over-year growth was led by strength across diversified markets served by the company, which include commercial aerospace, automotive, broadband, industrial and information technology and data communications markets.
Amphenol received orders worth $1.237 billion in the reported quarter, representing a book-to-bill ratio of 0.99 to 1. For full year 2013, orders aggregated $4.679 billion, resulting in a book-to-bill ratio of 1.01 to 1. Operating margins (excluding one-time items) improved 20 basis points and 30 basis points year over year to 19.7% and 19.6% respectively for the reported quarter and full year.
Segment-wise, Cable business sales represented 7% of total sales in fourth quarter 2013 and were down 5% year over year due to adverse market pricing and a negative impact from product mix. Sales from the Interconnect business, which accounted for 93% of total sales, were up 10% year over year driven by accretive acquisitions and healthy demand. Margins in the cable business were 12.2% in the reported quarter, down from 13.2% in the prior-year period, while Interconnect business margins were 21.8%, up from 21.7% in fourth quarter 2012.
In terms of end markets, revenues from Information Technology and Data Communication Equipment accounted for 19% of total sales in the reported quarter, up 10% 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 fourth quarter 2013, down slightly year over year due to reduced purchasing activity from defense equipment manufacturers.
Commercial Aerospace: Aerospace market comprised 6% of total sales in the reported quarter and increased 30% year over year due to an increase in production volumes of existing and next-generation commercial aircraft.
Handset/Mobile Devices: Sales from this end market declined marginally year over year and accounted for 22% of total sales. The decrease in sales was attributable to three factors – a shift toward lower content white-box tablets, a faster-than-expected shift toward Wi-Fi only devices and lower unit sales of higher content new programs.
Industrial: Sales accounted for 14% of the total revenue in fourth quarter 2013, up 21% year over year due to growth in instrumentation, rail mass transit, heavy equipment and accretive acquisitions.
Broadband Communications: Sales were down slightly on a year-over-year basis, accounting for 7% of the quarterly revenues. The year-over-year decrease was blamed on traditional seasonality as build-out activity slowed down.
Automotive: Sales from this end market accounted for 12% of total sales in the quarter and jumped 40% year over year primarily driven by an increase in production volumes along with growth related to new electronics applications and acquisitions.
Mobile Networks: Sales from this end market declined marginally year over year in the reported quarter and accounted for 9% of the total revenue. The year-over-year decrease was primarily due to a moderation in sales to equipment manufacturers.
Amphenol aims to focus on its market and geographic diversification strategy and develop enabling technologies for its customers in all markets through both organic and inorganic means. In accordance with this strategy, the company acquired four companies for a sum of $455 million.
These included the acquisitions of the Advanced Sensors business of General Electric Company (GE) for approximately $318 million. Advanced Sensors unit is a supplier of highly engineered sensors and sensor-based instruments. The sensor and sensor-based product offerings complement Amphenol’s core interconnects offering and is expected to deliver long-term expansion opportunity.
Amphenol also acquired Ionix Aerospace Ltd, a U.K.-based high technology cable assembly company focused primarily on the commercial aerospace market. In addition, the company purchased Tecvox LLC, a U.S.-based provider of value-added components and assemblies to the automotive infotainment connectivity market, along with Hangzhou Jet Interconnect Technology Co., a China-based manufacturer and supplier specializing in high precision and fine pitch mechanical components and tooling.
The acquired companies are a strategic fit and are consistent with Amphenol’s ongoing strategy to acquire complementary companies with strong management, leading technology, and solid market presence. The company is optimistic on these purchases, which it believes will create significant shareholder value going forward.
Balance Sheet & Cash Flow
During the quarter, Amphenol purchased 329,000 shares for $28 million and currently has 5.7 million shares remaining under the 10 million share buyback program, scheduled to expire in Jan 2015. Cash and cash equivalents stood at $886.8 million at year-end 2013 compared with $690.9 million at year-end 2012. Long-term debt aggregated $1.43 billion at year-end 2013 compared with $1.61 billion in the year-ago period.
At quarter-end, Amphenol had $573 million available under its $1.5 billion revolving credit facility with $927 million in borrowings. Leverage and interest coverage ratios remained very strong at 1.9x and 18x. Cash flow from operations for the year aggregated $769.1 million, equating to 120% of net income.
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 $1.180 billion and $1.210 billion in first quarter 2014 and recurring earnings per share between 93 cents and 96 cents. For full year 2014, management projects revenues between $5.0 billion and $5.12 billion. Recurring earnings per share for 2014 is pegged in a band of $4.15 to $4.27.
Amphenol currently has a Zacks Rank #2 (Buy). Some other players in the industry worth reckoning include IEC Electronics Corp. (IEC) and Universal Display Corp. (OLED), both of which carry a comparable Zacks Rank #2 (Buy).