AMETEK, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results. AMETEK operates through Electronic Instruments Group (EIG) and Electromechanical Group (EMG).
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,386.3m | $1,011.9m | $2,602.1m | $2,214.1m |
| Operating income | $316.6m | $227.0m | $610.0m | $459.0m |
| Operating margin | 22.8% | 22.4% | 23.4% | 20.7% |
| Net income | $231.7m | $166.2m | $450.9m | $446.8m |
| Diluted EPS | $1.00 | $0.72 | $1.94 | $1.94 |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $571.4m | $585.4m |
- Q2 growth and margins: Sales rose 37.0% year over year, comprising 25% organic growth, 10% from acquisitions and a 2% favorable currency effect. Segment operating margin increased to 24.5% from 24.1%. Cost of sales was 65.8% of sales versus 66.1%.
- Six-month cash flow: Free cash flow, defined by the company as operating cash flow less capital expenditures, was $530.4m versus $558.4m. EBITDA was $742.5m versus $728.9m; 2020 EBITDA included the Reading Alloys sale gain.
- Liquidity and debt: Cash was $390.6m at June 30, down from $1,212.8m at year-end 2020. Total debt, net, was $2,962.1m versus $2,413.7m. Net debt-to-capital was 28.8% versus 16.8%; debt-to-capital was 31.8% versus 28.9%. The company reported $2,123.7m of available borrowing capacity, including the term-loan facility and accordion feature, and compliance with all debt covenants.
- Dividends: Quarterly dividend increased 11%, from $0.18 to $0.20 per share effective February 11, 2021.
Material changes versus prior comparable periods
- Q2 net income increased 39.4% and diluted EPS rose from $0.72 to $1.00, supported by organic growth, acquisitions and operational initiatives.
- For the first half, net income increased only 0.9% and diluted EPS was unchanged at $1.94. The comparison is affected by 2020’s $141.0m pretax gain on the Reading Alloys sale. 2020 first-half EPS included $0.47 from that gain and $0.15 from realignment costs.
- First-half operating margin improved to 23.4% from 20.7%; 2020 included $43.7m of realignment costs, which reduced margins by about 200 basis points.
- First-half operating cash flow declined 2.4%, primarily because of higher working-capital requirements.
- Investing cash use was $1,882.1m, principally reflecting $1,840.8m paid, net of cash acquired, for five 2021 acquisitions: Abaco, Magnetrol, NSI-MI, Crank Software and EGS Automation. These acquisitions increased goodwill by $922.8m and other intangible assets by $942.3m; purchase-price allocations remained preliminary.
Segments, outlook and risks
- Q2 segments: EIG sales were $933.9m, up 44.2%, and operating margin was 24.3% versus 24.6%; recent EIG acquisitions diluted margin by 200 basis points. EMG sales were $452.4m, up 24.3%, and operating margin rose to a record 24.9% from 23.2%.
- Demand indicators: Q2 orders reached a record $1,913.7m, up 91.8%; backlog was a record $2,511.5m at June 30, up 39.4% from year-end 2020. First-half orders rose 50.0% to $3,311.4m.
- Management outlook: Management expected the full-year impact of 2021 acquisitions, continued economic recovery and Operational Excellence initiatives to benefit results for the remainder of 2021. No specific full-year revenue or EPS guidance is provided in the supplied filing text.
- Operating pressures: Management cited material-cost inflation, logistics challenges and component shortages, expected to continue through the rest of 2021, while reporting no significant or widespread supply-chain or distribution disruption at the time. COVID-19 duration and effects remained uncertain.
- Contingencies: Environmental reserves were $33.8m; management did not expect environmental matters to materially affect results, financial position or cash flows. A $6.8m settlement of El Cajon groundwater lawsuits was paid in April 2021 and was covered by prior reserves. The company reported asbestos litigation and stated no judgments had been rendered against it.
- Other unusual items: Q2 other expense included higher acquisition due-diligence costs. The six-month effective tax rate was 20.1%, versus 19.9%, with UK tax-rate remeasurement cited as a factor.
Important facts for investors to verify
- Whether record orders and backlog convert to sales and cash flow, and how much reflects acquisitions versus organic demand.
- Acquisition integration, final purchase-price allocations, expected amortization (about $47m annually for the next five years for acquired intangibles) and the effect on margins and leverage.
- Working-capital trends, cash generation, remaining borrowing capacity and debt levels following acquisition spending.
- Whether inflation, logistics constraints and component shortages persist or affect costs, delivery schedules and customer demand.
- Developments in environmental and other legal contingencies, and any changes to established reserves.