Why Is Amphenol (APH) Down 11.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Amphenol (APH). Shares have lost about 11.1% 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 catalysts.

Amphenol's Q1 Earnings Benefit from Strong End-Markets

Amphenol reported first-quarter 2019 adjusted earnings of 89 cents per share that beat the Zacks Consensus Estimate by a penny and increased 7.2% from the year-ago quarter.

Net sales increased 4.9% year over year to $1.96 billion, which comfortably surpassed the Zacks Consensus Estimate of $1.94 billion. Unfavorable foreign exchange negatively impacted sales by $47 million.

Quarter Details

The year-over-year increase in revenues were driven by strong organic growth across the company’s end markets, including military, commercial air, IT datacom, industrial and mobile networks.

Interconnect Products and Assemblies (95.1% of net sales) sales increased 5.2% from the year-ago quarter to $1.86 billion. However, Cable Products and Solutions sales were $95.8 million, down 1.1% year over year.
 
Gross margin contracted almost 50 basis points (bps) on a year-over-year basis to 32.1%.

Selling, general and administrative expenses (SG&A) as percentage of revenues declined 30 bps to 12%.

Consolidated operating margin contracted 10 bps on a year-over-year basis to 20.1%, driven by improved operational efficiency.

Segment wise, Interconnect Products and Assemblies operating margin declined 10 bps to 22%. Cable Products and Solutions operating margin contracted 70 bps to 11%.

Acquisitions

In April 2019, Amphenol bought Huizhou, China-based Aorora Technology. Aorora designs and manufactures fine pitch and input-output connectors for the automotive and IT datacom markets. The company is expected to generate annual sales of roughly $20 million from this technology.

Most recently, Amphenol completed the acquisition of Schaumburg, Illinois-based Charles Industries, which designs and manufactures fiber optic, power and other outdoor interconnect enclosures and related accessories used primarily in the mobile networks and IT datacom markets. Charles Industries is anticipated to contribute annual sales of roughly $120 million.

Balance Sheet and Cash Flow

As of Mar 31, 2019, Amphenol had cash and cash equivalents worth $1.29 billion, higher than $1.02 billion as of Dec 31, 2018.

Cash flow from operations was $344 million compared with $378 million in the previous quarter.

During the quarter, the company repurchased 1.8 million shares for $160 million.

Guidance

For the second quarter of 2019, Amphenol projects sales between $1.980 billion and $2.020 billion. Adjusted earnings are expected between 91 cents and 93 cents per share.

For 2019, Amphenol expects sales between $8.130 billion and $8.250 billion, down from the previous guidance of $8.190-$8.350 billion. The latest guidance range indicates sales to be down 1% to up 1% in 2019.

Amphenol expects the mobile devices end-market sales to decline more than its previous outlook.

Moreover, the company now expects adjusted earnings of $3.80-$3.86 per share, down from the previous guidance of $3.88-$3.96. The latest guidance indicates an increase of 1-2% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Amphenol has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Amphenol has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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