AMETEK, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. AMETEK reports Electronic Instruments Group (EIG) and Electromechanical Group (EMG). Unless otherwise noted, figures below are in millions of dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First 9 months 2023 | First 9 months 2022 |
|---|---|---|---|---|
| Net sales | $1,622.8 | $1,551.8 | $4,866.1 | $4,524.9 |
| Operating income | $438.1 | $384.5 | $1,262.5 | $1,102.6 |
| Operating margin | 27.0% | 24.8% | 25.9% | 24.4% |
| Net income | $340.4 | $297.6 | $970.3 | $852.5 |
| Diluted EPS | $1.47 | $1.29 | $4.19 | $3.68 |
| Segment operating margin | 28.5% | 26.4% | 27.5% | 25.9% |
Q3 sales rose 4.6%; operating income increased 13.9%, net income 14.4%, and diluted EPS 14.0%. For the first nine months, sales grew 7.5%, net income 13.8%, and diluted EPS 13.9%. Cost of sales was 62.9% of Q3 sales versus 64.7% a year earlier, and 63.6% for the nine-month period versus 65.0%. The effective tax rate was 17.7% for Q3 and 18.4% for nine months, down from 19.0% and 18.8%, respectively.
Segments and demand
- EIG: Q3 sales increased 7.8% to $1,136.1 million; operating income rose 22.9% to $335.2 million and margin expanded to 29.5% from 25.9%. Nine-month sales rose 10.4% and operating margin was 28.1%, versus 25.5%.
- EMG: Q3 sales declined 2.2% to $486.7 million; operating income fell 6.6% to $127.5 million and margin was 26.2%, versus 27.4%. Nine-month sales increased 1.6%, but operating income declined 1.2%; margin was 26.0%, versus 26.7%.
- Q3 orders declined 6.5% year over year, including a 10% organic decline; nine-month orders increased 0.2%, with organic orders down. Backlog at September 30 was $3,369.7 million, up 4.7% from year-end 2022.
Cash flow, debt and liquidity
For the first nine months, operating cash flow was $1,194.6 million, up 56.3%, which management attributed primarily to improved working-capital management and higher net income. Free cash flow, defined by the company as operating cash flow less capital expenditures, was $1,118.1 million versus $683.5 million. Capital expenditures were $76.5 million. Investing activities used $326.3 million, including $246.7 million for acquisitions; financing activities used $364.8 million.
At September 30, cash and equivalents were $841.9 million, compared with $345.4 million at December 31, 2022. Total debt, net, was $2,160.6 million, versus $2,385.0 million at year-end. The debt-to-capital ratio was 20.6%, down from 24.2%, and net debt-to-capital was 13.6%, down from 21.4%. Available revolver capacity was $2,972.3 million, including a $700 million accordion feature. The company reported compliance with debt covenants and said it expects available cash generation, credit facilities, and capital-market access to cover foreseeable operating needs and obligations.
Developments, outlook and risks
- Management reported record Q3 operating income, operating margin, net income, and diluted EPS, citing higher-margin sales mix and Operational Excellence initiatives, alongside contributions from acquisitions.
- Management said strong backlog, the full-year contribution of 2022 acquisitions, 2023 acquisitions, and continued Operational Excellence efforts were expected to benefit the remainder of 2023. No numerical full-year guidance is provided in the supplied filing text.
- Management cited material-cost inflation, supply-chain constraints, global economic uncertainty, and customer inventory normalization as factors being evaluated for their possible effects.
- Q3 other expense was $6.3 million, versus $3.2 million of other income a year earlier; the change reflected lower pension income and higher acquisition-related due-diligence expense. Nine-month other expense was $15.3 million, versus $7.8 million of other income, including $15.4 million of lower pension income and higher due-diligence expense. The prior-year nine-month segment results included a $7.1 million facility-sale gain.
- In March and August, AMETEK acquired Bison and UEI for a combined $246.7 million net cash consideration; their reported-period impact on sales, net income, and diluted EPS was immaterial. After quarter-end, it acquired Amplifier Research for approximately $105 million and entered into an agreement to acquire Paragon Medical for approximately $1.9 billion, subject to customary closing conditions and regulatory approvals.
- Environmental reserves were $39.7 million at September 30. Management said reasonably possible remediation-cost variances were not expected to materially affect the financial statements. The filing also describes asbestos litigation; the company reported no judgments to date and intends to defend the claims.
- Other disclosed risks include acquisition execution and integration, international operations and supply disruptions, raw-material availability and pricing, product development, regulation, competition, liquidity, and general economic conditions. Disclosure controls were assessed as effective at a reasonable-assurance level; no materially affecting control change was identified during the quarter.
Important facts for investors to verify
- Whether the Q3 organic order decline and customer inventory normalization persist, and how they affect sales and backlog conversion.
- Whether margin gains—particularly EIG’s—are sustained amid inflation and supply-chain constraints, and the pace of EMG recovery.
- Funding, closing conditions, integration, and expected returns for the post-quarter acquisitions, especially the proposed Paragon Medical transaction.
- Cash conversion and working-capital trends, alongside debt levels and liquidity after acquisitions and shareholder distributions.
- Potential outcomes and reserve adequacy for environmental matters, asbestos claims, and uncertain tax positions; the filing reports $207.4 million of gross uncertain tax benefits.