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Why Is Ametek (AME) Up 6.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Ametek (AME - Free Report) . Shares have added about 6.9% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ametek due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AMETEK Beats Q2 Earnings & Revenues Estimates

AMETEK reported second-quarter 2020 adjusted earnings of 84 cents per share, which beat the Zacks Consensus Estimate by 16.7%.

However, the bottom line declined 20% from the year-ago quarter and 17.6% from the previous quarter.

Net sales of $1.01 billion surpassed the Zacks Consensus Estimate of $974.6 million. Notably, the top line was down 22% year over year and 15.8% sequentially.

Disruptions caused by the COVID-19 pandemic led to decline in the company’s top line. The coronavirus crisis affected both Electronic Instruments Group (EIG) and Electromechanical Group (EMG) segments during the reported quarter.

Nevertheless, the company delivered strong operational performance during the second quarter.

We believe AMETEK’s proper execution of the four core growth strategies — operational excellence, global market expansion, investments in product development and acquisitions are expected to continue aiding its financial growth in the near term and the long haul. Moreover, the AMETEK Growth Model is likely to continue driving the company’s business performance.

Segments in Detail

EIG (64% of total sales): The company generated sales of $647.9 million from this segment, reflecting a decline of 21% from the year-ago quarter. This can primarily be attributed to the coronavirus pandemic. Nevertheless, the segment witnessed strong operating performance during the reported quarter.

EMG (36% of sales): This segment generated $364.04 million of sales in the second quarter, which declined 22% on a year-over-year basis. Coronavirus-induced headwinds were major negatives. Nevertheless, the segment delivered strong operational results on the back of proper execution of operational excellence initiatives.

Operating Details

For the second quarter, operating expenses were $784.9 billion, down 21% year over year. However, the figure expanded 50 basis points (bps) from the year-ago quarter as a percentage of net sales.

Consequently, operating margin was 22.4%, which contracted 50 bps from the year-ago reported figure.

Although operating margin for EIG contracted 130 bps year over year to 24.6%, the same for EMG expanded 170 bps from the year-ago quarter to 23.2%.

Balance Sheet& Cash Flow

As of Jun 30, 2020, cash and cash equivalents were $1.13 billion, significantly down from $1.25 billion as of Mar 31, 2020.

Further, inventories amounted to $621.5 million at the end of the second quarter compared with $654.3 million at the end of the prior quarter.

Long-term debt was $2.75 billion in the reported quarter, up from $2.74 billion in the prior quarter.

The company generated $314.6 million of cash from operation during the second quarter compared with $271 million in the previous quarter.

Further, AMETEK generated free cash flow of $304.5 million in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Ametek has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ametek has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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