Q3 2024 AMETEK Inc Earnings Call
Music Music
Speaker Change: Hello, and welcome to the Matech 3rd Quarter 2020 4 Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone.
Speaker Change: You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations and Treasurer Kevin Coleman.
Kevin Coleman: Thank you Andrew.
Kevin Coleman: Good morning. Thank you for joining us for Amatex Third Quarter, 2024, earnings conference call.
Kevin Coleman: with me today, our Dave Zapico, Chairman and Chief Executive Officer.
Speaker Change: Executive Vice President and Chief Financial Officer.
Speaker Change: During the course of today's call, we'll be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations.
Speaker Change: and the detailed discussion of the risk and uncertainties that may affect our future results is contained in Amatex filings, the SEC.
Speaker Change: Amatech Disclamed Any Intention or Obligation to Update or Revise Any Forward Looking Statements.
Speaker Change: Any references made on this call to 2023 or 2020 for results?
Speaker Change: or to 2020 for guidance will be in an adjusted basis, excluding after-tax acquisition related and tangible amortization.
Speaker Change: and excluding a pre-tax 29.2 million or 10 cent per diluted shared charge in the first quarter of 2024. For integration costs related to the Paragon Medical Acquisition.
Speaker Change: Reconciliation between Gap and Adjusted Measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepare remarks and then open it up for questions on now turn the meeting today.
Speaker Change: Thank you, Kevin and good morning everyone.
Speaker Change: Amatech delivered strong results in the third quarter.
Speaker Change: Our businesses executed extremely well, resulted in earnings per share of our expectations, solved it's marginful performance, outstanding cash flow conversion, and double digit growth and overall orders with positive growth in organic orders.
Speaker Change: Dish Lane during the quarter we deployed approximately $60 million on share repurchases.
Speaker Change: Subsequent to the end of the quarter, we acquired First Tech Vision, an excellent strategic fit with our creative-oriented business.
Speaker Change: I'm very pleased with our teams performance. Our businesses remain focused on managing through short-term macro-edwins while ensuring we're positioned for long-term growth.
Speaker Change: We have a proven success with growth model and efficient operating structure, robust cash flows, a strong balance sheet and leading positions across the diverse set of these mothers.
Speaker Change: Now let me turn to our third quarter financial results.
Speaker Change: 3rd quarter sales were $1.71 billion, up 5% from the same period in 2023.
Speaker Change: Organic sales were down 2% acquisitions added 7.5 points in foreign currency was flat.
Speaker Change: Over a 1,5% order in the quarter, we're up 12%.
Speaker Change: Booktabill was 1.02 and organic orders were up to percent.
Speaker Change: Additionally, we saw solids sequential growth in orders.
Speaker Change: We ended the quarter with a strong back wall, go 3.44 billion dollars in your record levels.
Speaker Change: Amatex Operation Performance on the Third Quarter's Excellence, our discipline to approach to cost management and operational efficiency result of the strong margins.
Speaker Change: Auburn, income in the quarter was $446 million, a 2% increase over the third quarter of 2023, and operating margins were 26.1% in the quarter.
Speaker Change: Hormorgen's excluding the dilute of impact for macquisitions in the impact of foreign currency were very strong at 27.4% up 40 basis points versus a prior year.
Speaker Change: [inaudible]
Speaker Change: Cash on the third quarter is excellent with three cash low up 4% versus the prior year and free cash flow conversions are very strong 135%.
Speaker Change: Reflecting our asset-made business model and operating capability.
Speaker Change: This operating performance led to earnings of $1.66 per dilute is here. Up 1% versus a third quarter of 2023 and above our guidance range of $1.62 per share.
Speaker Change: Now let me provide some additional details at the operating group level.
Speaker Change: First, the Electronic Instruments Group.
Speaker Change: I.G. continues to perform well with strong margin expansion and overall outstanding levels of operating margins reflecting the quality of our businesses.
Speaker Change: He had G sales were $1.1 3 billion in line with a third quarter last year.
Speaker Change: Organic sales were down 2% and acquisitions contributed 2 points.
Speaker Change: Growth remains solid across our aerospace and defense businesses while our high end.
Speaker Change: Research, Intermittation Business, Kameka, also a small strong growth in the quarter.
Speaker Change: While we did see some temporary delays and projects spending across parts of our EIG business as we expected.
Speaker Change: Our new funnel pipeline remains solid and our businesses are very well positioned across a number of secular growth markets.
Speaker Change: I.G operating income was $339 million up 1% and operating margins were very strong. 29.9% up 40 basis points from the prior year.
Speaker Change: EIG Core margins were 30.2% of the 70 basis points versus last year's third quarter.
Speaker Change: Now switching to the Electrical Mechanical Group.
Speaker Change: EMGs, third quarter sales were $574 million, up 18% versus the prior year, with organic sales down 3% and acquisitions contrived over 20 points to growth.
Speaker Change: Strong growth across our aerospace and defense businesses in the quarter was offset by expected weakness within our OEM exposed businesses due to the impact of inventory destocking.
Speaker Change: EMG orders were very strong in the quarter, growing 12% organically.
Speaker Change: EMG's operating income in the quarter was $132 million, up 3% compared to the prior year period. While EMG's third quarter operating margins were 29, 22.9% with excellent quarter margins of 26.1%.
Speaker Change: and I'm a tech to live a strong performance in the third quarter. Effectively navigating the man head Winston delivered strong results.
Speaker Change: We remain focused on executing our growth model and positioning amotech for continued long-come growth while ensuring we deliver strong results in the face of a choppy macro environment.
Speaker Change: Now turning to our acquisition shredding.
Speaker Change: Strategic Acquisitions or a co-component of a growth model.
Speaker Change: We're committed to deploying our strong cash loan acquisitions to expand our portfolio and highly attract a market segment.
Speaker Change: with Adam excited to announce our newest acquisition, Burke Tech Vision.
Speaker Change: Burke Tech Vision is a leading provider of laser-based projection and inspection systems, offering a suite of 2D and 3D laser projectors, smart cameras and advanced measurement solutions, powered by the proprietary AI software.
Speaker Change: for our tax-odermating systems and hands-predactivity and prove quality and reduce cost across a range of aerospace, defense, and industrial applications.
Speaker Change: PuriTech is an excellent strategic fit with our CREA Form Business, providing its technology offerings and enabling a wider range of automation and inspection capabilities for our customers.
Speaker Change: Tech is a headquarters in Waterloo, Canada and has annual sales are approximately $40 million.
Speaker Change: I would like to welcome the Vertec team to the Amitec family.
Speaker Change: Looking ahead, our acquisition pipeline remains robust. As noted, we have a strong, flexible balance sheet and anticipate remaining active in the
Speaker Change: Amatech also remains committed to investing in our business system, sure they are positioned for long-term sustainable growth.
Speaker Change: and 2024, we are investing an incremental 90 million in growth initiatives.
Speaker Change: and including our new product development efforts where our teams are focused on developing highly differentiated technologies to help solve our customers' most complex challenges.
Speaker Change: Throughout our business, we see countless examples of innovative products and technologies being developed as support customers and provide them with the advanced differentiated capabilities they need.
Speaker Change: One way we measure the success of our new product development activities is through our vitality index.
Speaker Change: which measures the sales from products introduced over the past three years. In the third quarter, Vitality Index was a mouse manning 28%.
Speaker Change: In addition to our internal development activities, I'm also pleased to announce that our
Speaker Change: and Micaharan Electrical and Metrology Instramitation, recently completed a small technology acquisition of Polygon physics.
Speaker Change: Polygon physics specializes in ultra compact, ultra low power electron, cyclotron resonance technology.
Speaker Change: This technology and answers Comicus Cape Abilities and Advancement Traology Instrumentation and Advance Chip Manufacturing.
Speaker Change: Polygon provides us access to cutting-edge ion source technology and expertise. The Wealth Accelerate can be because new product development, efforts and an answer technology portfolio.
Speaker Change: We're excited to welcome the Polygon team to Amatec.
Speaker Change: Now turning into our outlook for the remainder of the year.
Speaker Change: and our third quarter results, we're raising our earnings to guidance for the full year.
Speaker Change: We continue to expect overall sales to be up 5 to 7% versus a prior year.
Speaker Change: D'Aludic Ernest PuriCare for the Year and now expected to be in the range of $6.77 to $6.82. I'll be $6.7 per cent versus the prior year.
Speaker Change: This is an increase from our previous guidance range of $670 to $680 in the year.
Speaker Change: For the fourth quarter we anticipate overall sales to be up in a single digit with earnings in the range of $1.01 to $1.06 up up 8 to 11% versus the prior year.
Speaker Change: In summary, I'm pleased with the team's performance in the quarter in thus far in 2024.
Speaker Change: or managing through an uncertain macro environment that confident in our ability to navigate these challenges.
Speaker Change: and the Amatech has been very successful over a long period of time managing at the verse set of how he differentiated niche businesses.
Speaker Change: The Amatech Road model has allowed us to deliver double-digit earnings growth throughout different phases of the economic cycle.
Speaker Change: The strength of our portfolio, combined with our operation, excellence, capabilities and acquisition strategy has allowed us to deliver outstanding results.
Speaker Change: has also allowed us to successfully manage through periods of economic weakness or uncertainty and emerge even stronger with exceptional growth.
Speaker Change: We are excited for the future.
Speaker Change: will take us through some of the financial details of the quarter.
Speaker Change: and then we'll glad to take your questions.
Speaker Change: Thank you, Dave. I'm good morning, everyone. As Dave noted, I'm a tech delivered strong results in the third quarter, with excellent operating performance and high free cash flow conversion. Now let me provide some additional financial highlights for the quarter.
Speaker Change: 3rd quarter General Administrative Expenses were $25 million.
Speaker Change: Essentially Unchanged from the prior year.
Speaker Change: As a percentage of sales, DNA expense came in at 1.4% of sales, down from 1.5% and last year's third quarter. For fiscal year 2024, general and administrative expenses are expected to be approximately 1.5% of sales.
Speaker Change: Third quarter interest expense was $25 million, up 7 million from the third quarter of 2023 due to higher debt balances following recent acquisitions.
Speaker Change: Third quarter, other operating expenses were downed $4 million versus the prior period. Do you largely need to hire pension income and lower acquisition-related due diligence expense in the quarter?
Speaker Change: The effect it tax rate in the quarter was 18.8% up from 17.7% in the third quarter of 2023.
Speaker Change: For 2024, we anticipate our effective tax rate to be between 17 and 17 and a half percent. Driven by a lower fourth quarter tax rate due to statute expiration.
Speaker Change: Capital expenditures in the third quarter were $26 million and we expect capital expenditures to be approximately $135 million for the full year, or about 2% of sales.
Speaker Change: Dupreciation and amortization expense in the quarter was $90 million.
Speaker Change: for the full year we expect appreciation and amortization to be approximately $395 million. Including after tax acquisition related, intangible amortization of approximately $100 and $88 million or 81 cents per diluted share.
Speaker Change: Operating working capital in the third quarter was 19% of sales.
Speaker Change: Cashlow Generation in the third quarter was excellent.
Speaker Change: Operating cash flow was $487 million. Up 3% versus a third quarter of 2023.
Speaker Change: While Free Cash Flow was $461 million, up 4% over the prior year. This was a record third quarter level for both operating and free cash flow generation.
Speaker Change: Freak Haschwood conversion was also outstanding at 135% in the quarter.
Speaker Change: For the full year, we now expect free cash flow conversion of approximately 115 to 120% of net income.
Speaker Change: During the quarter, we spent $60 million on share repurchases, repurchasing approximately 370,000 shares of our common stock in the open market.
Speaker Change: Additionally, at the end of the quarter, we paid down a matureing $300 million private placement note.
Speaker Change: Total debt at September 30 was 2.34 billion, down 360 million in the quarter and down approximately 1 billion from the end of 2023.
Speaker Change: Offsetting this debt is cash and cash equivalents of $396 million.
Speaker Change: At the end of the third quarter, our gross debt to Eva Dar ratio was 1.1 times, and our net debt to Eva Dar ratio was 0.9 times.
Speaker Change: We have significant financial capacity and flexibility with over $2 billion of cash and available credit facilities to support our acquisition strategy and growth initiatives.
Speaker Change: In summary, Amatech delivered strong results in the third quarter.
Speaker Change: Our operational excellence initiatives and our strategic focus contributed to strong earnings, robust margins, and excellent free cash flow.
Speaker Change: with a strong balance sheet near record backlog and leadership across our key markets. We are well positioned for continued long-term growth. Kevin, thank you, Dawab. Andrew, could we please open the lines for questions?
Speaker Change: Zernily, as a reminder to ask a question, please press star-11 on your telephone and wait for your name to be announced. To withdraw your question, please press star-11 again.
Speaker Change: A moment, please.
Speaker Change: First question comes from the line of Matt Summerville with DA Davidson.
Matt Summerville: Thanks for joining us. Thank you, Martin. David, can you maybe do a little bit more of a detailed update specifically on what you're seeing in your medical and life sciences?
Matt Summerville: and Markets across both EIG and EMG and work in some commentary on what you're seeing in those businesses specifically around the stopping and the NAVICOL.
David: Yeah, sure.
David: We saw it in terms of the desktop, we saw demand largely in line with our expectations in the quarter.
David: Actually, as both our OEM customers and our automation and paragraph on businesses continue to work down excess levels of inventory.
David: and these talking headwins are going to continue.
David: and we remain well positioned on a range of attractor programs within both the automation business and the pair of on business. And we're really encouraged by the trend in recent order rates.
David: and EMG, where the main destocking areas was up plus 12 organically.
David: and again we had a positive book to bill of 1.02 and if you just look at the trends, the trends are heading in the right direction. So we stabilize, we saw solids to quaint your growth in orders and we're going to go to the world. I'm pretty good about that.
Speaker Change: and then as a fall-off you mentioned in your prepare-to-marts when talking about the you that you're still seeing.
Speaker Change: and a little bit of customer tentative this with respect to some delays in that portion of the business. He just talked through maybe which divisions are being most impacted by that, which and markets, etc. And if you're able, and all the kind of ring crimson and quantify the impact.
Speaker Change: Sure, yeah, I'll do that man.
Speaker Change: and in terms of the project delays that we spoke about last quarter, this quarter played out largely as expected.
Speaker Change: Customers remain cautious given the impact of various economic geopolitical and election on surgeries. And these project delays are specifically in our EIG test measurement businesses.
Speaker Change: and we'll be talking about last quarter. And...
Speaker Change: The key point here is our new opportunity, final remains strong. So things are definitely not going to worsen. In fact, the EIG orders trend went from minus 11 organic in 2, 1, 2, minus 4 organic in 2 organic.
Speaker Change: and Q3. So we're feeling pretty good about the encouraged by the positive trend there.
Matt Summerville: Got it, thanks David. Thank you, Matt.
Speaker Change: and our next question comes from the line of Dean Dre with RBC Capital Markets.
Speaker Change: Thank you, good morning everyone, good morning Dean.
Dean Dre: David, David, you can take us through the in markets, geographies and...
Dean Dre: You know, if you extend that, you can some comments on China. I don't think there's ever been more mixed messages, most of them negative, but each company has got different views based upon their exposures, but maybe we can start there, thanks.
Speaker Change: At Grace, what are the questions I'll try to get them all on if I forget anything, pull me back to it. Of course, I'll go around the warm first.
Dean Dre: Both, and talk about a process in this.
Speaker Change: Bo, overall, and organic sales for our process businesses, decline low single digits in the quarter.
Speaker Change: Growth remains solid across our energy businesses with a good quarter in energy and also our high-end research business we talked about Comica also at a very strong quarter than the quarter.
Speaker Change: and looking ahead we continue to expect organic sales for our process businesses to be flat to up low single digits for the full year.
Speaker Change: Next, switching the aerospace and defense, aerospace and defense is about the 18% of amotech. Deliver strong performance in the quarter, both overall and organic sales, we're up in mid-single digits.
Speaker Change: Brokeless strongest across our commercial OEM and...
Speaker Change: Commercial Aftermarket Businesses.
Speaker Change: Reminder, we have a good balance between sales and defense and we have a good balance between OEM products and aftermarket.
Speaker Change: and additionally, want a wide range of applications and not dependent on any one platform. So, we're positioned well to benefit from the long-term growth across these markets. And for the full year, we continue to expect high single-digit organic growth for our aerospace and defense businesses.
Speaker Change: and next I'll go to Power and Industrial.
Speaker Change: Um...
Speaker Change: and Power Industrial Businesses were up in Missingle ditch in the quarter.
Speaker Change: and driven by the contributions of amplifier research and UBI.
Speaker Change: and recent acquisitions, both of them. Organic sales were down, low single digits in the quarter.
Speaker Change: We expect organic sales for our power and industrial businesses to be down low single digits for the full year.
Speaker Change: Now finally our automation and engineer solutions, market segment.
Speaker Change: Oval Fale Thayer, increased in the low 20% range.
Speaker Change: Driven primarily by the contributions of Paragon Medical.
Speaker Change: Organic sales were down, high single digits due to continued normalization of inventory across our OEM customer base.
Speaker Change: and for the four-year we continue to expect organic sales to decline. Miss single digits as the headwinds from the stocking continue.
Speaker Change: Talking about the geography.
Speaker Change: Yeah, a little different to mix there. We have strong growth in Europe and Asia, I'll set by some of the clients in the US.
Speaker Change: You talked specifically about China, or Asia business did well in China was actually up 10%.
Speaker Change: We have strong growth in our U.P.T. or ultra-position technology division.
Speaker Change: Amatech products are used by our customers in China to improve from manufacturing processes. Automate processes make the environment cleaner, produce energy, so very well positioned. But that market will remain choppy and there's been some stimulus announced.
Speaker Change: the results that we're seeing now aren't from stimulus or just from, you know.
Speaker Change: Marketshire Wins and making good headway in the markets, but it's very difficult to predict what's happening in China. So it's, you know, just waiting to see what happens to the score.
Speaker Change: That's really helpful and it is remarkable how...
Speaker Change: really depends on what your exposures are and shine. You just can't paint it all with the negative brush there. And it just is a quick follow-up.
Speaker Change: the context of these stalking. The longer it lands, I always get this.
Speaker Change: Depression that it's really a lower demand.
Speaker Change: as opposed to just an inventory correction. So, what's your sentence? There are a reset, let's say a paragon, or is it still? You can see, fell in versus, fell through, and that there is...
Speaker Change: really like an inventory worked down coming through, just kind of, you know, how do you separate those two dynamics? That's a great question and it's obviously, you know, difficult to parse but we're pretty confident that
Speaker Change: We're working through a supply chain crisis level of inventory that, and we have some math you can see when we're working through that and there's the same kind of growth on the other end of it and the same thing is happening in the medical space as the automation space.
Speaker Change: Show, Show.
Speaker Change: We're seeing the other factor that implements our decision is the new business activity.
Speaker Change: and the Pipeline Activity. Our customers are very active. We're working on new programs and they're getting delayed. But there's no program cancellations and there's some uncertainty when they're going to go forward. But we're full of work on tremendous number of opportunities. So we think it's a...
Speaker Change: It's a these talking issue and it's not an overall end-to-men issue and we think we'll work through it and you can see some of that starting to happen with the order trends in our business.
Speaker Change: Excellent. Leave it there just a quick shot out. That was nice, pretty casual this quarter. Thank you. Thank you, thank you. Thank you, team that are great job.
Speaker Change: Our next question comes from the line of Jeff Spray with Vertical Research Partners.
Jeff Spray: Hey, thanks for morning everyone. Good morning Jeff.
Jeff Spray: and I was on a little late, so I don't know if you're answering to Dean. I don't know if you already specifically commented on Paragon, but...
Jeff Spray: and just in terms of the sales trajectory there, if you wouldn't mind repeating it. And then just on EMG overall, right?
Jeff Spray: Certainly kind of interesting set across currents, right, with D-stock going on, but orders of 12, more organically. Maybe you could just unpack a little bit more kind of the moving pieces inside that if you haven't already.
Speaker Change: Yeah, I haven't gone deeper, but I can say that every division at EMG was up substantially in order, so it wasn't one area. So it was a cross-the-board all parts of the EMG were up in order, so we're really encouraged by that. Speaking of Paragon,
Speaker Change: It has a high likelihood of happening, but when you talk about 2025.
Don't give guidance at this time of the year, So we're going to stay away from that and.
Speaker Change: Talking about next year, but but.
Speaker Change: The things that you're pointing to or correct. I mean, it's a tough time, we are improving the business significantly theres some plant closures in there and.
Speaker Change: And continuing to fund all the new products phases in so.
Speaker Change: It's going to be a very very positive scenario as we move forward with that business.
Speaker Change: Great. Thank you for the insight appreciate it.
Speaker Change: Thank you Jeff.
Speaker Change: Our next question comes from the line of Rob Wertheimer with Melius research.
Rob Wertheimer: I had a couple of cleanups.
Rob Wertheimer: Just to kind of put a bow on the Destocking I mean, you guys were clear the Destocking should continue through the end of the year and I think you mentioned that it continues again nowadays.
Speaker Change: The orders seem to indicate that we're getting there I don't know whether your comment was implied it was intended to apply any any continuation in the next year.
Speaker Change: I think.
Speaker Change: We've definitely stabilized in the last couple of orders, we're seeing quarters, we're seeing incremental orders growth we're encouraged by that.
Speaker Change: We're seeing it in EMG, where the Destocking was occurring we're seeing it in all of our businesses. So that's all positive but.
Speaker Change: Yeah.
Speaker Change: For our project businesses and AIG assumes a normal.
Speaker Change: Calendar Q4, Thats pretty strong so we'll see a sequential.
Speaker Change: The increase from Q3 to Q4 related to seasonality related to two projects in that business. So it feels like.
Speaker Change: But there is definitely some year end spending on so thats positive.
Speaker Change: Okay, Great best of luck. Thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Nigel Coe with Wolfe Research.
Nigel Coe: Thanks, Good morning, everyone.
Nigel Coe: Just wanted to come back to orders.
Nigel Coe: Plus 2% organic I think is what you said.
Nigel Coe: That's that's that's great news.
Nigel Coe: I don't think you are signaling in the return to growth until the fourth quarter.
Nigel Coe: Some.
Nigel Coe: I am mistaken so just anything happening during September that changed.
Speaker Change: Okay change that any callouts with some aerospace.
Speaker Change: Just any color there and then maybe answer.
Speaker Change: On the back end of that if if we kind of like look at the implied organic orders. It seems like there's about 100 appointments.
Speaker Change: Or thereabouts at one point.
Speaker Change: <unk> of.
And I kept backlog growth that's not organic.
Speaker Change: That's a big number so I'm just wondering what the book to Bill Waltz for Paragon and whether the spur tech acquisitions, having an influence as well.
Speaker Change: Yeah. The first point is.
Speaker Change: Can you just what lessons being learned and what has the speed of restructuring being relative to I'm sure have very high expectations. Thank you.
Speaker Change: Because the environment is regulated and we know that because we have another business in this space that we move we move factories, so our EMC businesses.
Sister business to Paragon, So we're very experienced with the regulatory environment and our timing is adjusted for it and you have to move slow.
And you have to be <unk>.
Speaker Change: Careful when it takes a bit longer just like moving an aerospace business or just like moving at defense business are just like moving a utility business. So we operate in a lot of regulated markets.
Speaker Change: That's really our focus we like regulated markets.
This isn't new for us it's kind of core.
If you look at our whole portfolio and but you are right. It does it does take time and.
And we're going to do it right.
So on time really appreciate it.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joe Giordano with TD Cowen.
Speaker Change: Hey, guys good morning.
Speaker Change: Morning, Joe.
Joe Giordano: Just curious on the Aero you mentioned Mike.
Joe Giordano: Taking everything into consideration.
And I know youre very balanced there, but is your Boeing OE exposure like are you essentially assuming zero in the fourth quarter or are you still selling to like maybe.
Tier ones or something where you can still ship.
Yes, yes, I think you've got it right I mean to the where we have confirmed orders to lower levels of the supply chain is zero and if there was anything direct it's removed.
Speaker Change: Got it.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: And the margins.
Operating income in the quarter was $446 million, a 2% increase over the third quarter of 2023 and operating margins were 26, 1% in the quarter.
Core margins, excluding the dilutive impact from acquisitions and the impact of foreign currency were very strong at 27, 4% up 40 basis points versus the prior year.
EBITDA in the quarter was $553 million up 4% versus the prior year with EBITDA margins, an impressive 31, 2%.
Speaker Change: Cash flow in the third quarter was excellent with free cash flow up 4% versus the prior year and free cash flow conversion, a very strong 135%.
Speaker Change: Reflecting our asset light business model and operating capability.
This operating performance led to earnings of $1 66 per diluted share up 1% versus the third quarter of 2023 and above our guidance range of $1 60 to $1 62 per share.
Now let me provide some additional details at the operating group level.
Speaker Change: First the electronic instruments group.
EOG continues to perform well with strong margin expansion and overall outstanding levels, those operating margins, reflecting the quality of our businesses.
AIG sales were $1 3 billion in.
In line with the third quarter of last year.
Organic sales were down 2% and acquisitions contributed two points.
Growth remains solid across our aerospace and defense businesses, while our high end.
Research instrumentation business Kamika also saw strong growth in the quarter.
While we did see some temporary delays in project spending across parts of our <unk> business as we had expected.
Our new funnel pipeline remains solid and our businesses are very well positioned across a number of secular growth markets.
<unk> operating income was $339 million up 1% and operating margins were very strong 29, 9% up 40 basis points from the prior year.
AIG core margins were 32% up 70 basis points versus last year's third quarter.
Speaker Change: Now switching to the electromechanical group.
Amg's third quarter sales were $574 million.
Up 18% versus the prior year with organic sales down, 3% and acquisitions contributing over two points to growth.
Speaker Change: Strong growth across our aerospace and defense businesses in the quarter was offset by expected weakness within our OEM exposed businesses due to the impact of inventory destocking.
Speaker Change: EMG orders were very strong in the quarter growing 12% organically.
Emg's operating income in the quarter was $132 million up 3% compared to the prior year period, while Emg's third quarter operating margins were $29 22, 9%.
With excellent core margins of 26, 1%.
Speaker Change: AMETEK delivered a strong performance in the third quarter effectively navigating demand headwinds and deliver strong results.
Speaker Change: We remain focused on executing our growth model and positioning AMETEK for continued long term growth, while ensuring we deliver strong results in the face of a choppy macro environment.
Now turning to our acquisition strategy.
Strategic acquisitions are a core component of our growth model.
We're committed to deploying our strong cash flow on acquisitions to expand our portfolio in highly attractive market segments.
With that I am excited to announce our newest acquisition vertex visits.
Speaker Change: Vertex vision is a leading provider of laser based projection and inspection systems offering a suite of <unk> and <unk> laser projectors, smart cameras and advanced measurement solutions powered by their proprietary AI software.
Vertex automated systems enhanced productivity improve quality and reduce cost across a range of aerospace defense and industrial applications.
<unk> is an excellent strategic fit with our <unk> business.
As technology offerings, and enabling a wider range of automation and inspection capabilities for our customers.
Speaker Change: <unk> is headquartered in Waterloo, Canada, Canada and has annual sales of approximately $40 million.
I would like to welcome the vertex team to the AMETEK family.
Looking ahead, our acquisition pipeline remains robust.
As noted we have a strong and flexible balance sheet and anticipate remaining active in this area.
AMETEK also remains committed to investing in our businesses to ensure they are positioned for long term sustainable growth.
In 2024, we're investing an incremental $90 million in growth initiatives, including our new product development efforts, where our teams are focused on developing highly differentiated technologies to help solve our customers' most complex challenges.
Throughout our business, we see countless examples of innovative products and technologies being developed to support our customers and provide them with the advanced differentiated capabilities they need.
One way, we measure the success of our new product development activities is through our vitality index.
Which measures the sales from products introduced over the past three years.
In the third quarter, our vitality index was an outstanding 28%.
In addition to our internal development activities I'm also pleased to announce that our kamika business.
A leader in micro analytical and metrology instrumentation recently completed a small technology acquisition of polygon physics.
Polygon physics specializes an ultra compact ultra low power electron cyclotron readiness technology.
This technology enhances <unk> capabilities, and advanced metrology instrumentation and advanced chip manufacturing.
Polygon provides us access to cutting edge <unk> technology and expertise that will help accelerate <unk>, new product development efforts and enhanced our technology portfolio.
We're excited to welcome the polygon team to AMETEK.
Now turning to our outlook for the remainder of the year.
Given our third quarter results, we're raising our earnings guidance for the full year.
We continue to expect overall sales to be up 5% to 7% versus the prior year.
Diluted earnings per share for the year are now expected to be in the range of $6 77 to $6 82 up 6% to 7% versus the prior year.
This is an increase from our previous guidance range of $6 70 to $6 80 per diluted share.
For the fourth quarter, we anticipate overall sales to be up mid single digits with earnings in the range of $1 81 to $1 86 up 8% to 11% versus the prior year.
In summary, I'm pleased with the team's performance in the quarter and thus far in 2024.
We're managing through an uncertain macro environment and confident in our ability to navigate these challenges.
Speaker Change: AMETEK has been very successful over a long period of time, managing a diverse set of highly differentiated niche businesses.
The AMETEK growth model has allowed us to deliver double digit earnings growth throughout different phases of the economic cycle.
Speaker Change: The strength of our portfolio combined with our operational excellence capabilities and acquisition strategy has allowed us to deliver outstanding results.
It has also allowed us to successfully manage through periods of economic weakness or uncertainty and emerge even stronger with exceptional growth.
We are excited for the future.
I will now turn it over to <unk>, who will take us through some of the financial details of the quarter.
Speaker Change: And then we'll be glad to take your questions.
Thank you, Dave and good morning, everyone as Dave noted AMETEK delivered strong results in the third quarter with excellent operating performance and high free cash flow conversion.
Now, let me provide some additional financial highlights for the quarter.
Third quarter general and administrative expenses were $25 million.
Essentially unchanged from the prior year.
As a percentage of sales G&A expense came in at one 4% of sales down from one 5% in last year's third quarter for fiscal year 2020 for general and administrative expenses are expected to be approximately one 5% of sales.
Third quarter interest expense was $25 million up $7 million from the third quarter of 2023 due to higher debt balances following recent acquisitions.
Third quarter other operating expenses were down $4 million versus the prior period due largely to higher pension income and lower acquisition related due diligence expense in the quarter.
Speaker Change: The effective tax rate in the quarter was 18, 8% up from 17, 7% in the third quarter of 2023.
Speaker Change: For 2024, we anticipate our effective tax rate to be between 17, and 17, 5% driven by a lower fourth quarter tax rate due to statute expirations.
Speaker Change: As we have stated in the past actual quarterly tax rates can differ dramatically either positively or negatively from the full year estimated rate.
Speaker Change: Expenditures in the third quarter with $26 million and we expect capital expenditures to be approximately $135 million for the full year or about 2% of sales.
Depreciation and amortization expense in the quarter was $90 million for the full year, we expect depreciation and amortization to be approximately $395 million, including after tax acquisition related intangible amortization of approximately $188 million.
Speaker Change: Or <unk> 81 per diluted share.
Operating working capital in the third quarter was 19% of sales.
Cash flow generation in the third quarter was excellent operating cash flow was $487 million.
Up 3% versus the third quarter of 2023, while free cash flow was $461 million.
Up 4% over the prior year. This was a record third quarter level for both operating and free cash flow generation free.
Free cash flow conversion was also outstanding at 135% in the quarter for the full year, we now expect free cash flow conversion of approximately 115% to 120% of net income.
Speaker Change: During the quarter, we spent $60 million on share repurchases repurchasing approximately 371000 shares of our common stock in the open market.
Additionally, at the end of the quarter, we paid down our maturing $300 million private placement note.
Speaker Change: Total debt at September 30 was 234 billion down $360 million in the quarter and down approximately $1 billion from the end of 2023.
Offsetting this debt is cash and cash equivalents of $396 million.
Speaker Change: At the end of the third quarter, our gross debt to EBITDA ratio was one one times and our net debt to EBITDA ratio was 0.9 times.
Speaker Change: We have significant financial capacity and flexibility with over $2 billion of cash and available credit facilities to support our acquisition strategy and growth initiatives.
Work down excess levels of inventory.
And these destocking headwinds are going to continue.
Speaker Change: We remained well positioned on a range of attractive programs within.
Speaker Change: Both the automation business and the Paragon business and we're really encouraged by the trend in recent order rates.
Speaker Change: We had.
In AMG, where the maintenance the main destocking areas was up plus 12 organically.
Again, we had a positive book to Bill of 1.02, and if you just look at the trends.
The trends are heading in the right direction. So so we stabilized we saw solid sequential growth in orders and we're feeling pretty good about that.
Speaker Change: Yeah.
And then as a follow up you mentioned in.
In your prepared remarks, when talking about ESG that youre still seeing a little bit of customer tenant of this with respect to some delays in that portion of the business can you just talk through maybe which divisions are being most impacted by that which end markets et cetera, and if you're able at all to kind of ring fence and quantified the impact.
Sure Yeah, I'll do that Matt.
In terms of the.
Project delays that we spoke about last quarter. This quarter played out largely as expected.
Speaker Change: Customers remain cautious.
Even the impact of various economic geopolitical and election uncertainties.
And these project delays are.
Speaker Change: Specifically in our <unk> test and measurement businesses.
So what we talked about last quarter.
Speaker Change: And.
The key point here is our new opportunity funnel remains strong.
Things are definitely not getting worse in fact, the AIG orders trend went from minus 11 organic in Q1 to minus four organic in Q2 to minus two organic in Q3 so.
We're feeling pretty good about the encouraged by the positive trend there.
Got it thanks, David Thank.
Matt Summerville: Thank you Matt.
Speaker Change: Next I'll go to power and industrial.
Speaker Change: Power and industrial businesses were up mid single digits in the quarter.
Driven by the contributions of amplifier research and <unk>.
Speaker Change: Our recent acquisitions both of them organic sales were down low single digits in the quarter.
We expect organic sales for our power and industrial businesses to be download single digits for the full year.
And finally, our automation and engineered solutions market segment.
Overall sales there increased in the low 20% range.
Driven primarily by the contribution of Paragon on medical.
Organic sales were down high single digits due to continued normalization of inventory across our OEM customer base.
And for the full year, we continue to expect organic sales to decline mid single digits as the headwinds from Destocking continue.
Speaker Change: Talking about the geographies.
Yeah, a little different the mix there we had strong growth in Europe, and Asia offset by some declines in the U S.
You talked specifically about China.
Our Asia business did well in China was actually up 10%.
Speaker Change: We had strong growth in our <unk>, our ultra precision technology Division.
Speaker Change: <unk>.
AMETEK products are used by our customers in China to improve their manufacturing processes automate processes make the environment cleaner produce center as usual very well positioned but that market will remain choppy and there's been some stimulus announced but.
The results that we're seeing now arent arent from stimulus or just from.
Speaker Change: Market share wins, and making good headway in the markets, but it's very difficult to predict what's happening in China. So it's a.
It's wait and see what happens each quarter.
Speaker Change: Just on the EMG overall right. It's certainly kind of interesting set of crosscurrents right with destock going on but orders up 12 organically maybe.
Speaker Change: Maybe you could just unpack a little bit more kind of the moving pieces inside that if you haven't already.
Yeah, I haven't gone deeper, but I can't say that every division at AMG.
Speaker Change: One is up substantially in order so it wasn't.
One area. So it was across the board all parts of EMG or up in order. So we're really encouraged by that speaker.
Speaking of Paragon.
Speaker Change: Again, it's a single use consumable surgical instruments business implantable components and attractive med tech markets with solid growth rates and and.
Speaker Change: We continue to be excited about the future growth opportunities.
Excellent engineering capability.
Leading additive manufacturing capability, many many new program wins, which will provide upside as these things get phased in.
Speaker Change: The business is really well positioned when the destocking headwinds abate.
At the same time, we're working on substantial efficiency improvements in the business and the team is really doing.
Speaker Change: An excellent job of doing that because of some difficult things that are going on and but that process is proceeding well so.
Speaker Change: Please.
Speaker Change: Paragon menace expectations for Q3.
Speaker Change: They had a similar sequential order improvement that we talked about in our other businesses and overall.
Speaker Change: Very pleased with it.
Speaker Change: David then on sort of the margin recovery plan itself, obviously, the the restructuring in Q1.
Speaker Change: Comprehensive budgeting process, we look at market conditions, and sales opportunities and cost reduction opportunities.
Decide what investments to fund in the.
It's very important to follow this process right now given all the macro geopolitical.
Speaker Change: Uncertainty because.
Speaker Change:
Speaker Change: That's why we're.
Firm on doing on working through our process and.
<unk> given you a good look at our best information, we have at the beginning of next year.
Perfect. Thank you and then if I may on the acquisition pipeline and your balance sheet looks great. Obviously, the pipeline's robust are you seeing any similar hesitation to commit among amongst your potential inquiries.
It is slowing things down or should we just assume things come unstuck as normal process. Thank you Scott Yes. That's a good question excellent question Robin and.
This is just my subjective read on the market, but I feel like things are coming on stock.
In a period, where we are.
Speaker Change: Things were.
Speaker Change: Everybody was dealing.
Dealing with higher interest rates and trying to get their businesses in order, but our pipeline is full our pipeline is robust and.
And we're talking to a lot of people about a lot of things so I feel like.
Sometime next year or sometime early next year it feels like things are moving.
And it feels like they're moving an accelerated pace.
Speaker Change: Thank you.
Thank you.
Our next question comes from the line of Scott Graham with Seaport Research partners.
Hey, good morning, Thanks for taking the question guys.
Scott Graham: So it's really just a couple of them.
Youre doing a lot of.
Investing internally the vitality is up to.
28% you gave you mentioned that you are really heavily focused on.
You know hopefully.
Scott Graham: Some of the larger customers can work through some of the situations that we're in but we think we have a call properly for the rest of this year.
Speaker Change: Great. Thank you thank.
Thank you Scott.
Our next question comes from the line of Brett Linzey with Mizuho.
Hey, good morning, Al Hello, Brett.
Hey, just wanted to come back to the to the OEM dynamic in the destock. Once morrisey you noted some of the internal exercises or that or the math. The teams were doing to gauge that pressure I guess is there any way to quantify and revenue dollars are order per said how much of the pressure on results. This.
This year has been related to OEM destock.
I would say that.
Yes, if you go back to Q2, we talked about it pretty significant.
It is significant so if that reverses.
Speaker Change: That's clearly not a headwind it's a headwind that's not there for next year. So yes. It was.
You know in our automation business and with Paragon that destock was substantial.
Speaker Change: Okay got it and then just on the project delays. So I think you noted it was various verticals I guess what are you hearing from customers in terms of project readiness and when these might return are you contemplating any catch up in the fourth quarter as part of the guide or review Slim that XP.
<unk> 2025.
Speaker Change: I think our Q4 guide.
Speaker Change: For our project businesses and AIG assumes a normal.
Calendar Q4 pretty strong so we'll see a sequential.
The increase from Q3 to Q4 related to seasonality related to projects in that business. So it feels like.
There's definitely some year end spending going on so that's positive.
Speaker Change: Okay, Great best of luck.
Speaker Change: Thank you.
Our next question comes from the line of Nigel Coe with Wolfe Research.
Scott Graham: Okay.
Nigel Coe: Thanks, Good morning, everyone.
Just wanted to come back to orders.
Plus 2% organic I think is what you said.
Nigel Coe: So that's that's that's great news.
Thank you were signaling in the return to growth until the fourth quarter.
Unless I'm mistaken so just anything happening during September that changed.
Okay change that any call outs with some aerospace.
Any color there and then maybe.
Speaker Change: On the back end of that if if we kind of like look at the implied organic orders it seems like there's about $140 million.
Nigel Coe: Or thereabouts.
Scott Graham: <unk>.
Scott Graham: Of.
And I kept backlog growth that's not organic.
That's a big number so I'm just wondering what the book to Bill Waltz for Paragon and whether the split second physicians have an influence as well.
Yes, the first point is.
We don't give guidance on orders so so.
Scott Graham: I don't know how you got your.
Scott Graham: Your information.
Scott Graham: On the.
Q3, being a quarter late but.
In any event.
Scott Graham: What it was.
Scott Graham: The second point was was.
Scott Graham:
Scott Graham: Backlog the backlog build.
Speaker Change: Yes, we don't have that number in front of us that's not something we look at it was 344 1 billion for the company and pretty healthy and it's.
And the orders turn positive.
Scott Graham: So I think it's.
I wouldn't read too much into it is just positive we're just.
Scott Graham: Encouraged by the positive trends and maybe it occurred earlier than you thought it would be in.
We think we're going to have a good quarter in Q4.
Okay, Okay, maybe maybe I'm, maybe I'm, just kind of thinking that and then.
Scott Graham: Looking at parallel on the Odyssey.
Speaker Change: I think you asked about the tool.
Scott Graham: But.
Scott Graham: The <unk>.
We've seen in sales this.
This year is really inventory draw should we consider that to be sort of onetime in nature and therefore, we spring back to original plan.
And trying to make five or do you think it might take a little bit longer to achieve that.
Speaker Change: So nigel.
Speaker Change: Question broke up on our end we couldn't hear you.
Scott Graham: Okay.
Okay Paragon the inventory impact.
Scott Graham: Basically in 2008.
Yes, yes, I mean is that is that.
Scott Graham: That inventory situation that base, it's definitely going to improve in 2025 and <unk>.
Scott Graham: Hopefully.
In 2025, and we are a low cost lower cost structure and we also have a lot of new products that we're facing and it's kind of you know.
Take some time like I said, you don't throw a switch, but yeah I really think it is going to improve in 'twenty five.
Scott Graham: Thank you.
And our next question comes from the line of Christopher Glynn with Oppenheimer.
Thank you good morning, everybody.
Scott Graham: So.
A lot of time spent on the EMG orders and Dave you gave the kind of sequential improvement in the year over years for AIG, but wondering if we could.
Go a little further into the.
Scott Graham: Yeah.
Scott Graham: Sequential <unk> orders pattern for AIG, maybe anything on book to Bill there.
Scott Graham: Yeah.
Speaker Change: Yes the book.
Speaker Change: Book to Bill for.
The whole company was a 1.0 to.
And it was above one for both of the groups.
Speaker Change: What I can.
I gave you there.
Okay that covers all of that.
And then last quarter, you had talked about defense delays and you had a couple of mid single digit quarters for A&D versus the high single digit guide is what's the status update on the defense.
Speaker Change: Is that something that you have factored in pretty strong in the fourth quarter.
Speaker Change: Yes, we had a Q2 and Q3 is a little bit of project timing on that and we think that's going to reverse and there are some good things scheduled for us in Q4 that businesses.
Speaker Change: Excellent because it's growing the defense business is growing but it is as.
As project based so it.
It can be lumpy, but it's.
Speaker Change: It is lumpy and headed in the right direction. So.
Speaker Change: Youre looking at the right way.
Great. Thanks.
Lastly, I'm not sure if it was asked multiple companies coming through here, but.
The deal pipeline, just curious mix of small larger action ability.
Now that the deal pipeline remains strong.
We're actively looking at a high number of quality deals.
Speaker Change: Obviously, you've got the cash and the credit facility is to execute that's recognized by sellers.
Speaker Change: The pipeline.
Speaker Change: There's a variety of deal sizes.
Speaker Change: And we're very active in.
You know what I had mentioned before it feels like things are starting to move a little bit more in that area than they were maybe in the last six or nine months.
Great. Thanks, a lot thanks, Chris.
Speaker Change: As a reminder, ladies and gentlemen to ask a question. Please press star one on your telephone once again to ask a question. Please press star one on your telephone.
And our next question comes from the line of Andrew <unk> with Bank of America.
Speaker Change: Good morning can you hear me Andrew Yeah.
Hey, good morning.
Speaker Change: I appreciate.
Dave that you don't guide on orders, but just just checking if my math is correct. If I do look on a two year stack.
Speaker Change: <unk>.
Third quarter of last year organically it was the easiest comp.
In the year and I think sort of a rider was minus <unk> and it shows goes to minus two by Q4, and if I look at Q2 and Q3 on a two year stack.
For orders I'm, just wondering is it reasonable to assume that we've bottomed and by fourth quarter, we could return to.
<unk> growth is just arithmetic it would suggest that we'll probably continue to be well go back.
The order decline and I know you don't guide it but we're just getting a lot of questions from investors when do orders implied for the short cycle.
I got it Thats macro you don't have a specialist your crystal ball I appreciate all these things.
Our crystal ball is no better than anyone else's, but we don't look at the two year stack number so I can't comment on your numbers, what I can't comment.
It is that theres been healthy sequential increases from Q2 Q3, So and we also saw a sequential increase from Q1 to Q2, so along with the.
Two year stack on a year over year, and we gave the organic numbers already so point your numbers are and they were up mid single digits in the quarter. So.
Speaker Change: Uh huh.
Speaker Change: Encouraging.
Speaker Change: <unk> from our viewpoint.
No really appreciate it more than I expected and just a follow up question on Paragon.
Speaker Change: And.
Speaker Change: It's a different business I mean, it's metic right. So a lot more regulation.
Can you just give us an update on the timeline of your restructuring and obviously AMETEK playbook is as good as anyone in the industrial world, but how do you apply.
Speaker Change: This playbook on timing of the restructuring and getting things out fast.
In terms of cost in a regulated environment, where you can't just move production from one facility to another camp.
Speaker Change: It's all subject to regulatory approval can you just what lessons being learned and what has the speed of restructuring been relative to I'm sure very high expectations. Thank you.
Yes, because the environment is regulated and we know that because we have another business in this space that we move we move factories, so our EMC businesses.
Sister business to Paragon, So we're very experienced with the regulatory environment and our timing is adjusted for it and you have to move slow and you have to be.
Careful when it takes a bit longer just like moving an aerospace business or just like moving a defense business are just like moving a utility business. So we operate in a lot of regulated markets.
That's really our focus we like regulated markets.
This isn't new for us it's kind of core.
If you look at our whole portfolio and but you're right. It does it does take time and.
And we're going to do it right.
So on time really appreciate it.
Speaker Change: Thank you.
Our next question comes from the line of Joe Giordano with TD Cowen.
Joe Giordano: Hey, guys good morning.
Speaker Change: Morning, Joe.
Just curious on the Aero you mentioned Mike.
Taking everything into consideration.
I know youre very balanced there, but is your Boeing OE exposure like are you essentially assuming zero in the fourth quarter or are you still selling to like maybe.
Tier ones or something where you can still ship.
Yes, yes, I think you've got it right I mean to the where we have confirmed orders to lower levels of the supply chain is zero and if there was anything direct it's removed.
Speaker Change: Got it.
And then I apologize if I missed this added joined a little bit late but Im Paragon did you give us an updated 2020 for like revenue number that you said you expect from them or a contribution number no.
No we didnt, we didnt give the number and the number that we gave.
Last quarter still holds and <unk>.
Paragon executed in line with what they thought they did for this quarter. It was a good quarter for them.
And also talk about the sequential orders growing in Paragon too.
Speaker Change: Thank you.
Our next question comes from the line of Jeff Sprague with vertical research partners.
Hey, Thanks for letting me back in just a really quick follow up Dave can you just give us an update on price and then what youre seeing on kind of price cost spread in the quarter and you think that changing as we move into Q4 or the early part of 'twenty five.
Yes, that's a good question, Jeff I mean price.
It seems as though we're getting back to more normal patterns in the quarter.