Amphenol (APH) Beats On Q2 Earnings, Ups 2016 Guidance

Despite a challenging macroeconomic environment, diversified electronics manufacturer Amphenol Corporation (NYSE:APH) reported strong second-quarter 2016 results with healthy year-over-year increases in both earnings and revenues. Earnings for the reported quarter were 65 cents per share compared with 56 cents in the year-earlier quarter. The upside was primarily driven by higher revenues. Quarterly earnings exceeded the Zacks Consensus Estimate by a couple of cents.

Net income (GAAP) for the quarter came in at $206.5 million, compared with $179 million in the year-ago quarter. The year-over-year increase in GAAP earnings was attributed to top-line growth.

Revenues

The company recorded revenues of $1,548.2 million, up 15% year over year and well ahead of the Zacks Consensus Estimate of $1,515 million. The improved revenue performance was mostly driven by strength in the automotive, mobile networks, data communications and industrial markets, partially offset by declines in the commercial aerospace markets and military markets.

Operating margin for the quarter declined to 19.4% from 19.7% in the year-ago quarter.

Segment Performance

Segment-wise, Cable business sales were $92.2 million compared with $82.8 million in the year-ago quarter. Sales from the Interconnect business, which accounted for 94% of total sales was $1,456 million compared with $1,268.7 million in the prior year.

Operating income from the Interconnect business improved to $309 million during the quarter from $277.9 million a year ago. Operating income from the Cable business increased to $13.7 million from $9.7 million in the prior-year period.

Acquisition

After the end of the quarter, the company acquired two companies, AUXEL FTG (Auxel) and Custom Cable, as a part of its strategic acquisition program. Based in France, Auxel is a leading manufacturer of power busbars and power interconnect solutions worldwide. The company has annual sales of approximately $50 million. On the other hand, Custom Cable is a Florida-based firm with annual sales of approximately $30 million, offering fiber optic and copper cable assemblies.

The company expects these acquisitions to strengthen its global foothold and enhance its product offering in strategic markets.

Balance Sheet & Cash Flow

Amphenol generates solid cash flow, which gives management the opportunity to invest in product innovations, acquisitions and business development. At the same time, the company has historically returned significant cash through a combination of share repurchases and dividend to its shareholders. During the quarter, Amphenol repurchased approximately 1 million shares pursuant to its stock repurchase program, bringing its tally to over 6.5 million shares to date.

Cash and cash equivalents were $794.0 million as of Jun 30, 2016, while long-term debt (excluding current portion) was $2,834.6 million. Cash flow from operations for the reported quarter was $437.8 million compared with $422.8 million in the prior-year quarter.

Outlook

Despite the uncertainties prevailing in the global economy, Amphenol has bullish revenue and earnings expectations. The ongoing revolution in electronics enables the company to capitalize on the opportunities and strengthen its position in the market. Amphenol also expects to leverage on the solid growth potential of Auxel to drive robust performance in the future.

Amphenol expects third-quarter 2016 sales in the range of $1.543 billion to $1.583 billion. Earnings are expected to be in the range of 67 cents to 69 cents per share, representing a year-over-year increase.

For 2016, the company currently expects sales in the range of $6.120 billion to $6.200 billion, representing a year-over-year increase of 10% to 11%. The company had earlier expected sales to be in the range $6.080 billion to $6.200 billion. It currently expects earnings per share for 2016 in the range of $2.60 to $2.64, an increase of 7% to 9% year over year, including the accretive effect from the Auxel acquisition. Previously, the company had expected earnings for 2016 to be in the range $2.56 to $2.62 per share.

Amphenol currently has a Zacks Rank #3 (Hold). Some better-ranked stocks that look promising include Core-Mark Holding Company, Inc. (NASDAQ:CORE) , WageWorks, Inc. (NYSE:WAGE) and PRGX Global, Inc. (NASDAQ:PRGX) , each carrying a Zacks Rank #2 (Buy).