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Why Is Ametek (AME) Down 9.7% 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 lost about 9.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ametek 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 catalysts.

AMETEK Beats Q4 Earnings Estimates, Lags Revenues

AMETEK reported fourth-quarter 2019 adjusted earnings of $1.08 per share, which beat the Zacks Consensus Estimate by 4.8% and also surpassed management’s guidance of $1.01-$1.03. The figure improved 13% from the year-ago quarter and 1.9% sequentially.

Net sales improved 3% on a year-over-year basis and 2.2% sequentially to $1.30 billion.

Strong performance by the company’s Electronic Instruments Group (EIG) segment drove sales growth during the reported quarter. Further, positive contributions from strategic acquisitions remain a positive. Additionally, improved operational activities drove the results.

However, the top line figure fell short of the Zacks Consensus Estimate of $1.34 billion.

Notably, the company faced weakness in its Electromechanical Group (EMG) segment during the fourth quarter, which remains a concern.

Nevertheless, the company’s proper execution of the four core growth strategies of operational excellence, global market expansion, investments in product development and acquisitions are expected to continue benefiting business growth in the near term as well as the long haul.

Segments in Detail

EIG (67.5% of total sales): The company generated $880.2 million of sales from this segment, reflecting growth of 7% from the year-ago quarter. The benefits from acquisitions of Gatan, Telular and Spectro Scientific drove year-over-year sales within this segment.

EMG (32.5% of sales): This segment generated $424.7 million of sales in the fourth quarter, which decreased 5% on a year-over-year basis. Nevertheless, the company witnessed strong operational performance within the segment.

Operating Details

For the fourth quarter, operating expenses were $1.01 billion, up 1.8% year over year. However, the figure contracted 60 basis points (bps) from the year-ago quarter as a percentage of net sales.

Consequently, operating margin was 22.8%, which expanded 60 bps from the year-ago reported figure.

Segment wise, operating margins for EIG and EMG were 26.1% and 19.9%, expanding 10 bps and 60 bps, respectively, on a year-over-year basis.

Balance Sheet

As of Dec 31, 2019, cash and cash equivalents were $393.03 million, down from $735.4 million as of Sep 30, 2019.

Further, inventories amounted to $624.6 million at the end of the fourth quarter compared with $623.8 million at the end of the prior quarter.

Long-term debt was $2.3 billion, up from $2.2 billion in the previous quarter.

Guidance

For first-quarter 2020, AMETEK expects sales to improve by a low-single digit on a year-over-year basis.

Adjusted earnings are anticipated to be $1.01-$1.04 per diluted share, reflecting year-over-year growth of 1-4%.

For 2020, the company anticipates total sales to improve by low-single digit from 2019.

Further, AMETEK expects adjusted earnings per share in the range of $4.24-$4.38 per share, reflecting growth of 1-5% from 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Ametek has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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