AMETEK, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. AMETEK supplies electronic instruments and electromechanical products through its Electronic Instruments Group (EIG) and Electromechanical Group (EMG). Results are unaudited.
Financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,458.5 million | $1,215.7 million | +20.0% |
| Operating income | $353.2 million | $293.3 million | +20.4% |
| Operating margin | 24.2% | 24.1% | +0.1 percentage point |
| Net income | $272.4 million | $219.2 million | +24.3% |
| Diluted EPS | $1.17 | $0.94 | +24.5% |
| Cash from operating activities | $201.3 million | $284.4 million | −29.2% |
| Free cash flow | $175.0 million | $266.9 million | Lower year over year |
| EBITDA | $433.6 million | $355.5 million | Higher year over year |
Revenue increased 14% organically and 7% from acquisitions, partly offset by a 1% unfavorable currency effect. Cost of sales was 65.1% of sales versus 64.9%; SG&A was 10.7% versus 10.9%. The effective tax rate declined to 19.0% from 19.5%, primarily due to a favorable foreign tax rate differential.
Segments, orders, and margins
- EIG: Sales of $987.8 million, up 24.9%; operating income of $244.8 million, up 18.3%. Segment margin declined to 24.8% from 26.2%, reflecting dilution from 2021 acquisitions; excluding that dilution, core margin improved 130 basis points.
- EMG: Sales of $470.8 million, up 10.8%; operating income was a record $128.2 million, up 22.1%. Record segment margin was 27.2% versus 24.7%; excluding a facility-sale gain, margin improved 100 basis points.
- Orders rose 21.8% to $1.70 billion, and backlog reached a record $2.97 billion at March 31, 2022, up 8.9% from year-end.
Management attributed results to organic growth in both segments, contributions from the 2021 acquisitions of Abaco Systems, Magnetrol International, and NSI-MI Technologies, and Operational Excellence initiatives. Segment operating income included a $7.1 million gain on sale of a facility.
Cash, debt, and liquidity
- Operating cash flow fell principally because of increased inventory investment to support sales and backlog growth and mitigate supply constraints. Capital expenditures were $26.4 million, versus $17.5 million a year earlier; free cash flow is defined as operating cash flow less capital expenditures.
- Cash and cash equivalents were $340.3 million at March 31, versus $346.8 million at December 31, 2021. Total debt, net, was $2.536 billion, versus $2.544 billion at year-end. Debt-to-capital was 26.8%; net debt-to-capital was 24.1%.
- Available borrowing capacity was $2.431 billion, including the $500 million accordion feature. The company reported compliance with debt covenants and said it believes cash generation, credit facilities, and capital-market access can meet foreseeable operating needs and contractual obligations.
- Financing outflows included $156.7 million of share repurchases and $50.8 million of dividends. The quarterly dividend was raised 10%, to $0.22 per share from $0.20.
Outlook, risks, and contingencies
Management anticipated a challenging global economic environment for the remainder of 2022; the filing provides no numerical earnings or sales guidance. Identified pressures included material and transportation inflation, supply-chain constraints, COVID-19 uncertainty and China lockdowns affecting facility access and customer sites, and geopolitical uncertainty from Russia’s invasion of Ukraine. Management said Russia and Ukraine represented an insignificant portion of the business, but a broader conflict could worsen conditions. Pricing actions were being used to mitigate inflation.
Other disclosed risks include general economic and competitive conditions, international operations, acquisition integration, product development and facility or product-line transfers, raw-material availability, regulation, and liquidity and financing access. Environmental reserves were $36.9 million; management judged the provision adequate and did not expect these matters to materially affect consolidated results, financial position, or cash flows. Asbestos claims had produced no judgments against the company; certain claims are indemnified by a seller. Gross uncertain tax benefits were $154.1 million, of which $113.8 million would affect the effective tax rate if recognized. The company’s ability to draw the remaining delayed-draw term loan expired April 26, 2022, with no additional borrowing.
Important facts for investors to verify
- Whether record orders and backlog convert to revenue on schedule, particularly given supply-chain constraints and China lockdowns.
- Whether inventory investment and weaker operating cash flow normalize, and how working capital affects free cash flow.
- Underlying segment margin trends after separating acquisition dilution and the $7.1 million facility-sale gain.
- The effects of persistent inflation, pricing actions, foreign exchange, and geopolitical developments on costs and demand.
- Debt capacity and capital returns, including share repurchases, dividend growth, and the expiry of the delayed-draw borrowing window.
- Developments in environmental remediation, uncertain tax positions, and acquisition purchase-price accounting for Alphasense.