AMETEK, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. AMETEK reports Electronic Instruments (EIG) and Electromechanical (EMG). Results are not necessarily indicative of the full year.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $1,215.7 million | $1,202.2 million | Up 1.1%; 1% organic growth and 2% favorable currency, partly offset by the 2% Reading divestiture impact |
| Operating income | $293.3 million | $232.0 million | Up 26.4% |
| Operating margin | 24.1% | 19.3% | Improved 4.8 percentage points |
| Net income | $219.2 million | $280.6 million | Down 21.9% |
| Diluted EPS | $0.94 | $1.22 | Down 23.0% |
| Operating cash flow | $284.4 million | $270.8 million | Up 5.0% |
| Free cash flow | $266.9 million | $253.8 million | Operating cash flow less capital expenditures |
| Cash and cash equivalents | $1,123.7 million | $1,212.8 million at Dec. 31, 2020 | Quarter-end balance |
| Total debt, net | $2,351.6 million | $2,413.7 million at Dec. 31, 2020 | Debt-to-capital 27.8%; net debt-to-capital 16.7% |
Segment operating income was $206.9 million for EIG (sales $790.9 million; margin 26.2%) and $105.0 million for EMG (sales $424.8 million; margin 24.7%). Total segment operating margin was 25.7%, versus 20.6% a year earlier. Record first-quarter orders were $1,397.6 million, up 15.5%, and backlog reached a record $1,984.1 million at March 31, up 10.1% from year-end.
AMETEK had $1,930.2 million of available borrowing capacity under its revolving credit facility, including its accordion feature. It reported compliance with debt covenants and said it expects available cash, cash generation, credit facilities, and capital-market access to meet foreseeable operating needs and obligations.
Material changes versus Q1 2020
- Net income and EPS declined despite higher sales and operating income, principally because Q1 2020 included a $141.0 million pretax gain on the Reading Alloys sale. Q1 2020 diluted EPS included a $0.47 net gain from the sale and $0.15 of net realignment costs.
- Q1 2020 included $43.7 million of realignment costs ($35.3 million severance and $8.4 million asset write-downs). AMETEK attributed improved 2021 operating results and margins partly to Operational Excellence actions, including those realignments.
- International sales rose 9.9% to $616.7 million, or 50.7% of sales, with strong demand in Asia. EIG sales increased 2.2%; EMG sales declined 0.7%, including a 5% Reading divestiture impact.
- Operating cash flow increased, while investing cash flow shifted to a $284.5 million use, primarily reflecting $263.9 million spent on three acquisitions. Q1 2020 investing cash flow benefited from Reading sale proceeds.
- The effective tax rate was 19.5%, compared with 20.1% in Q1 2020; the prior-year rate reflected tax expense associated with the Reading sale.
Outlook, significant events, and risks
- Management cited return to organic sales growth and strong order momentum, and expected benefits from the 2021 acquisitions and Operational Excellence initiatives. It provided no specific full-year financial guidance in the filing.
- AMETEK said the duration and impact of COVID-19 remained uncertain. Some product demand was recovering more slowly in certain markets and geographies; facilities remained operational, and the company continued to monitor costs, capital spending, inventory, and capital resources.
- In March, AMETEK acquired Magnetrol International, Crank Software, and EGS Automation for $263.9 million net of cash acquired. Their impact on Q1 reported results was immaterial; purchase-price allocations were still being finalized.
- After quarter-end, AMETEK acquired NSI-MI Technologies and Abaco Systems for approximately $1.58 billion in cash combined. It also amended its credit agreement to add a five-year delayed-draw term loan of up to $800 million; the loan had not been drawn through the filing date.
- Key risks include COVID-19 and broader economic conditions, acquisition integration, international operations, raw-material and component availability and pricing, and environmental and regulatory matters. The filing added supply-chain disruption, shortages, and input-price increases as a risk factor.
- Environmental reserves were $33.2 million at March 31, 2021. Management said reserves were adequate and related matters were not expected to materially affect results, financial position, or cash flows. The company also reported asbestos lawsuits, for which it cited defenses and, for certain acquired-business claims, seller indemnification. A global $6.8 million settlement of El Cajon groundwater cases was covered by previously established reserves.
- Gross uncertain tax benefits were $110.1 million, of which $68.4 million would affect the effective tax rate if recognized. Management reported disclosure controls and procedures were effective.
Important facts for investors to verify
- Whether record orders and backlog convert into revenue and cash flow, and how demand recovers across markets and regions.
- The final purchase-price allocations, integration progress, and contribution to results from the Q1 and post-quarter acquisitions.
- Funding and leverage effects of the approximately $1.58 billion April acquisitions, including any future use of the delayed-draw term loan and revolving facility.
- Whether supply-chain constraints, component shortages, or input-cost inflation affect deliveries, margins, and customer demand.
- Whether environmental, tax, and other contingencies remain within recorded reserves and management’s stated expectations.