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Ametek (AME) Down 6.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Ametek (AME). Shares have lost about 6.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ametek due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

AMETEK Beats Q2 Earnings Estimates, Lags Revenues

AMETEK, Inc. reported second-quarter 2019 adjusted earnings of $1.05 per share, which beat the Zacks Consensus Estimate by a couple of cents and came ahead of management’s guided range of $1.00-$1.02. The figure also increased 14.1% from the year-ago quarter and 5% sequentially.

Robust organic growth and positive contributions from acquisitions drove the bottom line.

Net sales increased 7% on a year-over-year basis and 0.13% sequentially to $1.29 billion. However, revenues missed the Zacks Consensus Estimate of $1.32 billion.

The company recorded organic sales growth of 3% in the reported quarter. Notably, improved operational activities and strong segmental performance aided the results.

We believe that the proper execution of its four core growth strategies of operational excellence, global market expansion, investments in product development and acquisitions is expected to lead to business growth in the near term as well as in the long haul.

Top Line in Detail

AMETEK reports sales under two organized segments — Electronic Instruments Group (“EIG”) and Electromechanical Group (“EMG”).

EIG (63.6% of total sales): The company generated $820.2 million of sales from this segment, which reflected 10% growth from the year-ago quarter. Benefits from acquisitions of Motec, Forza, Telular and Spectro Scientific drove year-over-year growth in this segment. Organic sales in the reported quarter remained positive in this segment.

EMG (36.4% of sales): This segment generated $469.2 million of sales in the second quarter, which increased 1% on a year-over-year basis. Top-line improvement in this segment can be primarily attributed to solid organic sales growth.

Operating Details

In the second quarter, operating margin was 22.9%, up 60 basis points from the year-ago figure. Segment wise, operating margins for EIG and EMG were 26% and 21.5%, respectively.

Selling, general and administrative expenses —as a percentage of sales —were 12.1%, expanding 5.6% from the year-ago quarter.

Balance Sheet

At the end of the second quarter, cash and cash equivalents were $567.9 million, up from $368.1 million in the comparable prior-year quarter.

Long-term debt was $2.37 billion, flat withthe first quarter.

Guidance

For third-quarter 2019, AMETEK expects sales to grow in high-single digits on a year-over-year basis. 

For 2019, the company anticipates total sales to grow in high-single digits and organic sales to rise 3-5% from a year ago. 

AMETEK has upwardly revised its adjusted earnings per share guidance from $3.98-$4.08 to $4.04-$4.10, indicating growth of 10-12% from the 2018 reported figure.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Ametek has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ametek has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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