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Why Is Ametek (AME) Down 3.7% Since Last Earnings Report?

Zacks Equity Research
·4 min read

A month has gone by since the last earnings report for Ametek (AME). Shares have lost about 3.7% 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 drivers.

AMETEK Beats Q3 Earnings Estimates

AMETEK has reported third-quarter 2021 adjusted earnings of $1.26 per share, which beat the Zacks Consensus Estimate by 5.9%. Further, the bottom line rose 25% on a year-over-year basis.

Net sales of $1.44 billion surpassed the Zacks Consensus Estimate of $1.41 billion. Notably, the top line rose 28% year over year.

Top-line growth was driven by strong performances of Electronic Instruments Group (“EIG”) and Electromechanical Group (“EMG”) segments in the reported quarter.

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 to aid financial growth in the near and long terms. The AMETEK Growth Model is likely to continue driving the company’s business performance.

Segments in Detail

EIG (67.4% of total sales): AMETEK generated sales of $981.8 million from the segment, reflecting growth of 31% from the year-ago quarter. This can primarily be attributed to organic growth and positive contributions from acquisitions.

EMG (32.6% of sales): The segment generated $458.9 million of sales in the third quarter, which improved 21% on a year-over-year basis. The company witnessed broad-based sales growth in the segment.

Operating Details

For the third quarter, operating expenses were $1.1 billion, up 28.8% year over year. The figure contracted 70 basis points (bps) from the year-ago quarter as a percentage of net sales to 76.6%.

Consequently, the operating margin was 23.4%, which contracted 60 bps from the year-ago figure.

The operating margin for EIG contracted 220 bps year over year to 25%, whereas the same for EMG expanded 270 bps from the year-ago quarter to 25%.

Balance Sheet

As of Sep 30, 2021, cash and cash equivalents were $358.7 million, down from $390.6 million as of Jun 30, 2021.

Inventories amounted to $738.7 million at the end of the third quarter compared with $711.6 million at the end of the prior quarter.

Long-term debt was $2.23 billion in the reported quarter, down from $2.26 billion in the prior quarter.

Guidance

For fourth-quarter 2021, the company expects sales growth in the low-20% range on a year-over-year basis.

AMETEK expects adjusted earnings of $1.28-$1.30 per share, suggesting year-over-year growth of 19-20%.

For 2021, the company expects year-over-year sales growth in the low-20% range.

The company raised the guidance for adjusted earnings from $4.62-$4.68 per share to $4.76-$4.78 per share, suggesting an increase of 21% from that reported in 2020.

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How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, Ametek has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Ametek has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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