AMETEK, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing.
Business context
AMETEK is a global manufacturer of electronic instruments and electromechanical products. Its two reportable segments are Electronic Instruments (EIG) and Electromechanical (EMG). The company’s strategy emphasizes operational excellence, acquisitions, global and market expansion, and new product development.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net sales | $5,158.6 million | $4,845.9 million | Up 6.5% |
| Operating income | $1,177.4 million | $1,075.5 million | Up 9.5% |
| Operating margin | 22.8% | 22.2% | Up 0.6 percentage points |
| Net income | $861.3 million | $777.9 million | Up 10.7% |
| Diluted EPS | $3.75 | $3.34 | Up 12.3% |
| Cash from operations | $1,114.4 million | $925.5 million | Up 20.4% |
| Free cash flow | $1,012.1 million | $843.4 million | Up 20.0% |
| Orders / year-end backlog | $5,274.3 million / $1,717.9 million | $5,051.8 million / $1,602.1 million | Orders up 4.4%; backlog up 7.2% |
Sales growth reflected 2% organic growth and a 5% contribution from 2018 and 2019 acquisitions, partly offset by unfavorable currency translation. EIG sales increased 9.7% and EMG sales increased 1.0%. Segment operating margin rose to 24.3% from 23.6%; EIG margin was 26.0% and EMG margin was 21.1%.
Fourth-quarter 2019 sales were $1,304.8 million, operating income $297.7 million, net income $220.8 million and diluted EPS $0.96. The filing provides these quarterly values but does not present a specific fourth-quarter year-over-year comparison in the cited data.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $393.0 million; current assets were $2,025.8 million and current liabilities were $1,425.9 million at year-end.
- Total debt, net was $2,768.7 million, compared with $2,632.7 million in 2018; net debt was $2,375.7 million. Debt-to-capital was 35.1%, down from 38.3%, and net debt-to-capital was 31.7%, down from 34.9%.
- AMETEK reported $1,580.5 million of available revolver capacity, including the accordion feature, and stated it complied with all debt covenants and expected its cash generation and financing access to meet foreseeable needs.
- Capital expenditures were $102.3 million. The company paid $127.5 million in dividends and repurchased $11.9 million of shares, versus $367.7 million of repurchases in 2018.
Material changes, outlook and unusual items
- AMETEK spent $1,061.9 million, net of acquired cash, on two acquisitions: Pacific Design Technologies (PDT) in September and Gatan in October. The 2019 acquisitions had an immaterial impact on reported 2019 sales and earnings. A further acquisition, IntelliPower, closed in January 2020 for approximately $115 million.
- The company said record backlog, the full-year contribution from acquisitions and operational-excellence initiatives were expected to support 2020 results. It did not provide numerical 2020 sales or EPS guidance in the filing. 2020 capital expenditures were expected to be approximately 2% of sales.
- Effective February 12, 2020, the board approved a 29% increase in the quarterly dividend, from $0.14 to $0.18 per share.
- The effective tax rate declined to 19.5% from 21.2%, reflecting, among other factors, higher share-based payment tax benefits and lower tax cost on foreign-source income. Tax benefits from releases of uncertain tax position liabilities were $23.3 million in 2019 and $11.4 million in 2018.
- AMETEK agreed to sell its Reading Alloys business for $250 million in cash; closing was expected in the first quarter of 2020, subject to customary conditions. Assets held for sale were $119.6 million and related liabilities were $23.4 million at year-end.
Risks and contingencies
Key risks include economic and cyclical downturns in served markets, unpredictable order timing, acquisition integration and financing, foreign exchange and trade exposure, supplier and raw-material disruption, competition, cybersecurity, regulatory compliance, and covenant restrictions. Goodwill and other intangible assets totaled $6,810.4 million, or 69% of total assets, making impairment assumptions significant; annual testing found no impairment in 2019.
Environmental reserves were $28.9 million. The company is a potentially responsible party at 13 former disposal sites and faces groundwater-contamination lawsuits relating to a former California site; management stated it did not expect these matters to materially affect results, financial position or cash flows. Contractual obligations totaled $4,029.3 million, including debt, interest, leases, purchase obligations and restructuring obligations.
The company and its auditor reported effective internal control over financial reporting. However, the controls of PDT and Gatan, which together represented 11.2% of year-end assets and 1.0% of 2019 sales, were excluded from the 2019 assessment.
Important facts for investors to verify
- Whether organic growth and segment margin gains persist apart from acquisition contributions and operational-excellence savings.
- Integration performance and returns on the 2019 acquisitions, IntelliPower, and the company’s broader acquisition spending.
- Debt, liquidity and covenant capacity after acquisitions, scheduled maturities and the dividend increase.
- Assumptions supporting the carrying value of goodwill and intangible assets, which represent a substantial share of total assets.
- Completion and proceeds of the Reading Alloys sale, and developments in environmental and other legal contingencies.
- Any changes to the outlook: the filing gives qualitative expectations, but no numerical 2020 revenue or EPS guidance.