AMETEK, Inc. — Q1 2024 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2024, compared with Q1 2023. AMETEK reports two segments: Electronic Instruments (EIG) and Electromechanical (EMG). Results include contributions from acquisitions completed in 2023, including Paragon Medical.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $1,736.2 million | $1,597.1 million | +8.7% |
| Operating income | $417.2 million | $405.5 million | +2.9% |
| Operating margin | 24.0% | 25.4% | Down 140 basis points |
| Net income | $310.9 million | $305.7 million | +1.7% |
| Diluted EPS | $1.34 | $1.32 | +1.5% |
| Operating cash flow | $410.2 million | $386.5 million | +6.1% |
| Free cash flow | $382.6 million | $366.5 million | +4.4% |
Cost of sales was 65.9% of sales versus 64.0%; excluding $29.2 million of Paragon integration costs, it was 64.2%. The effective tax rate declined to 18.5% from 19.5%. Interest expense rose to $35.3 million from $20.6 million. EBITDA was $512.8 million versus $481.7 million.
Segment results. EIG sales increased 3.5% to $1,156.8 million; operating income rose 13.9% to $352.9 million and its margin expanded to a record 30.5% from 27.7%. EMG sales increased 20.7% to $579.4 million, largely from acquisitions, but operating income fell 24.7% to $90.7 million and margin declined to 15.7% from 25.1%. Paragon integration costs and acquisition-related dilution affected EMG results.
Balance sheet, cash flow and liquidity
- Cash and cash equivalents were $373.8 million at March 31, 2024, down from $409.8 million at year-end. Cash held outside the U.S. was $337.3 million.
- Total debt, net, was $2,933.2 million, down from $3,313.3 million at December 31, 2023. Net debt-to-capital declined to 22.2% from 25.0%; debt-to-capital was 24.6% versus 27.5%.
- Available borrowing capacity under the revolving credit facility, including its $700 million accordion feature, was $2,187.5 million. The company reported compliance with all debt covenants and believes available cash, credit facilities and access to capital will meet foreseeable operating needs and obligations.
- Operating cash flow less capital expenditures yielded free cash flow of $382.6 million. Investing activities used $21.4 million, compared with $122.2 million in Q1 2023, which included the $99.3 million Bison acquisition payment. Financing activities used $417.5 million, including $363.1 million of net debt repayment and $64.7 million of dividends.
- The quarterly dividend was increased 12% to $0.28 per share from $0.25, effective February 9, 2024.
Material changes, outlook and risks
Management reported record quarterly sales. Acquisitions and Operational Excellence initiatives supported results; management expects the full-year impact of the 2023 acquisitions, continued Paragon integration and Operational Excellence efforts to benefit 2024 results. The filing provides no quantified full-year earnings or revenue guidance.
Orders fell 8.2% to $1,662.7 million, reflecting a 10% organic decline and a 2% unfavorable currency effect, partly offset by 3% growth from acquisitions. Backlog was $3,460.7 million, down 2.1% from December 31, 2023. EMG organic sales decreased 4%, which the company attributed to customer inventory normalization in automation and engineered solutions. Excluding acquisition dilution and Paragon costs, segment operating margin increased 200 basis points year over year; consolidated operating margin increased 180 basis points on the same basis.
Paragon integration costs were $29.2 million pre-tax, including $22.4 million of employee severance, and reduced net income by $22.2 million, or $0.10 per diluted share. The initial purchase accounting for Paragon and the measurement of assets and liabilities for Amplifier Research were still being finalized; amounts could change, potentially materially.
Principal disclosed risks include acquisition completion and integration, international operations and supply-chain disruption, new product and facility execution, raw-material prices and availability, regulation and environmental matters, competition, liquidity and financing access, and general economic conditions. Environmental reserves were $35.6 million; management stated the ultimate costs are not expected to materially affect results, financial position or cash flows. The company also disclosed asbestos litigation, with no judgments rendered to date, and stated that certain claims are indemnified by a seller.
Most important facts for investors to verify
- Whether lower organic orders and EMG inventory normalization persist, and how backlog converts to sales.
- Progress and final costs of Paragon integration, and whether acquisition-related dilution fades as management expects.
- Underlying margin performance: reported operating margin was down year over year, while management’s adjusted comparison excludes acquisition dilution and integration costs.
- Debt repayment, cash generation and liquidity after the quarter, including access to the revolving facility and cash held outside the U.S.
- Final acquisition purchase accounting and any developments in environmental, asbestos or uncertain-tax-position exposures.