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Electronic products manufacturer AMETEK (NYSE:AME) missed analysts' expectations in Q2 CY2024, with revenue up 5.4% year on year to $1.73 billion. It made a non-GAAP profit of $1.66 per share, improving from its profit of $1.57 per share in the same quarter last year.
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AMETEK (AME) Q2 CY2024 Highlights:
- Revenue: $1.73 billion vs analyst estimates of $1.78 billion (2.6% miss)
- EPS (non-GAAP): $1.66 vs analyst expectations of $1.64 (in line)
- EPS (non-GAAP) Guidance for Q3 CY2024 is $1.61 at the midpoint, below analyst estimates of $1.73
- EPS (non-GAAP) Guidance for the full year is $6.75 at the midpoint, missing analysts' estimates by 1.3%
- Gross Margin (GAAP): 36%, in line with the same quarter last year
- Free Cash Flow of $360 million, similar to the previous quarter
- Market Capitalization: $40.16 billion
Started from its humble beginnings in motor repair, AMETEK (NYSE:AME) manufactures electronic devices used in industries like aerospace, power, and healthcare.
Internet of ThingsIndustrial Internet of Things (IoT) companies are buoyed by the secular trend of a more connected world. They often specialize in nascent areas such as hardware and services for factory automation, fleet tracking, or smart home technologies. Those who play their cards right can generate recurring subscription revenues by providing cloud-based software services, boosting their margins. On the other hand, if the technologies these companies have invested in don’t pan out, they may have to make costly pivots.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, AMETEK's sales grew at a mediocre 6.2% compounded annual growth rate over the last five years. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AMETEK's annualized revenue growth of 7.4% over the last two years is above its five-year trend, but we were still disappointed by the results. We also note many other Internet of Things businesses have faced declining sales because of cyclical headwinds. While AMETEK grew slower than we'd like, it did perform better than its peers.
This quarter, AMETEK's revenue grew 5.4% year on year to $1.73 billion, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 9.4% over the next 12 months, an acceleration from this quarter.
Operating Margin AMETEK has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.3%. This result isn't too surprising as its gross margin gives it a favorable starting point.
Looking at the trend in its profitability, AMETEK's annual operating margin rose by 3.6 percentage points over the last five years, showing its efficiency has improved.
This quarter, AMETEK generated an operating profit margin of 25.8%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
AMETEK's EPS grew at a solid 11% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into AMETEK's earnings to better understand the drivers of its performance. As we mentioned earlier, AMETEK's operating margin was flat this quarter but expanded by 3.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For AMETEK, its two-year annual EPS growth of 11.3% is similar to its five-year trend, implying strong and stable earnings power.
In Q2, AMETEK reported EPS at $1.66, up from $1.57 in the same quarter last year. This print was close to analysts' estimates. Over the next 12 months, Wall Street expects AMETEK to grow its earnings. Analysts are projecting its EPS of $6.62 in the last year to climb by 8% to $7.14.
Key Takeaways from AMETEK's Q2 ResultsWe enjoyed seeing AMETEK beat analysts' EPS guidance expectations for next quarter. On the other hand, its revenue unfortunately missed and its EPS guidance for the full year fell short of Wall Street's estimates. Overall, this quarter could have been better. The stock traded down 1.4% to $170.90 immediately after reporting.
