It has been about a month since the last earnings report for Amphenol (APH). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Amphenol due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Amphenol Q4 Earnings Beat Estimates, Revenues Down Y/Y
Amphenol reported fourth-quarter 2019 adjusted earnings of 98 cents per share that beat the Zacks Consensus Estimate by 7.7% but declined 6.7% from the year-ago quarter’s figure.
Net sales decreased 3.3% year over year to $2.15 billion, which was slightly better than the consensus mark of $2 billion. Unfavorable foreign exchange impacted sales by $14 million.
At constant currency (cc), net sales declined 2%. Excluding acquisitions and currency impacts, sales decreased 8% year over year.
Orders were worth $2.2 billion, which resulted in a book-to-bill ratio of 1.02:1.
The year-over-year decrease in revenues was primarily due to weakness in communications end markets, particularly the mobile devices and mobile networks markets.
Interconnect Products and Assemblies (95.4% of net sales) sales declined 3.3% from the year-ago quarter to $2.05 billion. At cc, net sales declined 3% on a year-over-year basis.
Moreover, Cable Products and Solutions sales were $99.7 million, down 2.5% year over year. At cc, net sales declined 1% on a year-over-year basis.
Gross margin contracted 60 basis points (bps) on a year-over-year basis to 31.6%.
Selling, general and administrative expenses (SG&A), as a percentage of revenues, increased 40 bps to 11.6%.
Adjusted operating margin contracted 100 bps on a year-over-year basis to 20%.
Segment-wise, Interconnect Products and Assemblies operating margin shrank 80 bps to 22%, while Cable Products and Solutions operating margin contracted 190 bps to 10%.
Interconnect Products and Assemblies margin contracted due to a negative impact from acquisitions that are currently operating at a profitability level below the company average.
Cable Products and Solutions margins shrank due to lower volumes and unfavorable product mix.
Amphenol recently bought EXA Thermometrics, a provider of high technology temperature sensors based in Bangalore, India, with annual sales of approximately $10 million.
Balance Sheet and Cash Flow
As of Dec 31, 2019, Amphenol had cash and cash equivalents worth $908.6 million, lower than $986.7 million as of Sep 30.
Cash flow from operations was $424 million compared with $412 million in the previous quarter.
During the quarter, the company repurchased 0.4 million shares for $43 million.
For the first quarter of 2020, Amphenol projects sales between $1.960 billion and $2 billion.
Adjusted earnings are expected between 85 cents and 87 cents per share.
For 2020, Amphenol expects sales between $8.240 billion and $8.400 billion (flat to up 2% on a year-over-year basis).
Moreover, the company expects adjusted earnings of $3.76-$3.84 per share, which indicates a year-over-year increase of 1-3%.
Military end-market sales are expected to decrease slightly from the reported figure in fourth quarter. For 2020, sales growth is expected to be mid-to-high-single digit over 2019.
Commercial aerospace end-market sales are expected to increase modestly from fourth-quarter levels. For 2020, management expects sales similar to 2019’s level.
Moreover, for the first quarter, slowing demand in Europe is expected to hurt sales from the industrial end market. For 2020, Amphenol expects growth in low-single digits.
Additionally, sales from the automotive end market are expected to be moderate in the first quarter on a sequential basis, while full-year sales are expected to increase low-single digit year over year.
Mobile devices end-market sales are expected to decline roughly 25% in the first quarter on a sequential basis. For 2020, Amphenol expects flat sales on a year-over-year basis.
Further, the mobile networks end market’s first-quarter sales are expected to increase modestly on a sequential basis. For 2020, sales are expected to decline low-single digits year over year.
Information technology and data communications end-market sales are expected to be moderate from fourth-quarter levels in the first quarter. For 2020, management anticipates flat sales on a year-over-year basis.
Broadband sales are expected to be moderate on a sequential basis in the first quarter. Moreover, 2020 sales are expected to increase in the low-double-digit range year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Amphenol has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. It's no surprise Amphenol has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.