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Morningstar | Ametek Posts Strong Q2 Performance, But No Real Surprises In Latest Results

Nothing in narrow-moat-rated Ametek’s results materially alters our long-term, fundamental outlook of the firm. That said, we are encouraged by near-term performance in its electromechanical segment, both in terms of the top line and margins. As such, we think the most recent increase in guidance is justified based on this greater-than-anticipated outperformance, and we plan to raise our fair value estimate by about $1, to $60 per share. EPS guidance for 2018 rose to $3.16 to $3.20 from $3.06 to $3.12, with the firm expecting organic sales to increase in the high single digits year over year. For the overall firm, sales rose 14% year over year, to $1.21 billion, versus 7% organically. Overall, operating margins rose 70 basis points to 22.3% versus the prior year, allowing operating income to rise to $270.1 million.

The electromechanical segment is a supplier of automation solutions exposed to some strong secular trends, so we’re not surprised to see recent outperformance and the expectation of high-single-digit organic growth for the rest of the year. These solutions serve diverse end markets, including, among others, aerospace, energy, and industrial. Pricing has run ahead of inflation in this business. We think this pricing power supports our view of a narrow moat partially supported by research-and-development-driven intangible assets. Revenue for the segment rose 14% year over year to $464.5 million, and margins remained relatively stable at 20.3%.

Management also provided an update on the tariffs questions and provided a similar answer to a few other calls we’ve heard across the diversified industrials. Specifically, that tariffs have had a minimal impact on Ametek’s business thus far. That said, it does require Ametek to adjust some portions of its supply chain to mitigate a modest headwind for the balance of 2018.

Finally, management also provided an update to some recent acquisitions, specifically MoTec and SoundCom. Historically, Ametek targets bolt-on acquisitions with technically differentiated products and services. For MoTec, management is particularly enthused with the company’s position in emerging markets and said that the firm has been growing there at 20%-plus annually for the past three years. To us, the acquisition also fits with Ametek’s traditional framework of finding companies with highly engineered solutions, as MoTec produces vision systems combined with ruggedized cameras, specifically for harsh environments.