AMETEK had a successful second quarter of 2023, setting records for sales, operating income, operating margins, earnings per share, EBITDA, and backlog. Kevin Coleman, Vice President of Investor Relations and Treasurer, welcomed the conference call, and Dave Zapico, Chairman and Chief Executive Officer, and Bill Burke, Executive Vice President and Chief Financial Officer, joined him. The conference call was subject to forward-looking statements and references made to 2022 or 2023 results were on an adjusted basis.

In the second quarter of 2023, AMETEK saw record sales of $1.65 billion and record operating income of $419 million. The Electronic Instruments Group had sales of $1.13 billion, up 10% from the previous year, with organic sales up 8% and acquisitions accounting for the remainder of the growth. EBITDA was a record $496 million, up 12% from the prior year, and earnings per share were $1.57, up 14% from the second quarter of 2022.

AMETEK achieved strong performance in the second quarter of 2023, with sales growth across each of their divisions and robust profit growth and margin expansion. The Electromechanical Group achieved record sales of $511 million, up 5% from the prior year, and operating income of $136 million, up 10%. AMETEK is investing over $100 million in organic growth initiatives in 2023, and their businesses are well-positioned in attractive niche markets and strong secular growth drivers.

AMETEK has invested in expanding sales, marketing, and engineering initiatives, as well as research and development. Abaco, a business unit of AMETEK, was recently awarded for their high-performance PCBAs and introduced a next-generation integrated computing and graphics car. AMETEK has also deployed $530 million on the acquisition of three businesses: Navitar, RTDS, and Bison Engineering. These investments position the company for continued success in driving sustainable long-term growth.

AMETEK has a strong acquisition pipeline and is confident in its ability to capitalize on value-creating opportunities in the future. The company is increasing its earnings guidance for the full year to $6.18 to $6.26 per diluted share, and anticipates mid-single digit sales growth and adjusted earnings of $1.56 to $1.58 per share for the third quarter. AMETEK's businesses are performing well, driven by differentiated technology solutions that cater to diverse and growing niche markets.

In the second quarter, general and administrative expenses were 1.5% of sales, other income and expense was a $6 million headwind, the effective tax rate was 18.2%, capital expenditures were $28 million, and depreciation and amortization expense was $82 million. William Burke then provided additional financial highlights for the quarter, such as an expected full year effective tax rate of 19-19.5%, capital expenditures of approximately $145 million, and depreciation and amortization of $335 million.

In the second quarter of 2023, operating working capital was 19% of sales, cash flow was up 42% from the prior year, free cash flow was up 47%, and total debt was down from $2.4 billion to $2.2 billion. The gross debt-to-EBITDA ratio was 1.1x and the net debt-to-EBITDA ratio was 0.8x. The company has excellent financial capacity with $2.9 billion of cash and existing credit facilities. The overall demand environment is still solid.

The company had a strong 12th quarter in a row with a record-breaking book-to-bill of $3.44 billion, and a backlog of over 50% of their annual sales. The company expects to return to more normal ordering patterns, but is well-positioned to handle the situation. Their pipeline remains strong and they are actively looking at a number of high-quality deals, but remain disciplined in their approach.

In the second quarter, Dave Zapico reported that the Process businesses experienced mid-single-digit organic growth and contributions from the recent acquisition of Navitar, while the Aerospace and Defense businesses experienced low double-digit overall and organic sales growth driven by strong performance in all subsegments and particularly strong aftermarket businesses. For the full year, Zapico expects mid-single-digit organic growth for the Process businesses and low double-digit organic growth for the Aerospace and Defense businesses.

Dave Zapico expects the normalization period of the automation business to last a couple of quarters and bottom near the end of the year. He also notes that the end markets for automation are very interesting. In terms of geography, Zapico provides color on organic growth and incoming order rate.

AMETEK saw strong growth across all segments in the first quarter, with mid-single digit growth in the US, high single digit growth in Europe, and 3 point growth in Asia. Notable strength was seen in the process, aerospace and defense, and power businesses. The inventory correction is steepest in medical technology and semiconductors, but AMETEK is well-positioned to manage through that and increase guidance due to productivity programs, acquisitions, and price inflation. There is an opportunity for normalization that is not very disruptive.

AMETEK is focused on reducing inventory and more than offsetting inflation with pricing of 5%, while costs in commodities and logistics are decreasing. New products are being well-received, with 24% of sales coming from their vitality index. This is due to significant product introductions, such as Abaco and Word Day 1, which are not home run-type swings but are spread out across the business. Dave Zapico states that AMETEK's strategy is to get to the Hall of Fame with lots of singles and doubles.

Dave Zapico discussed the trends in their businesses, such as predictive maintenance, taking measurements to the field, and using analytical computational power to provide users with actionable intelligence. Christopher Glynn asked if there were any areas that were reaching an inflection or peak juncture, specifically mentioning the Aero defense market.

Dave Zapico has stated that demand for their Aerospace and Defense products is still strong, with a low double-digit outlook for the year. He also noted that orders in the second quarter were solid, with June being the highest month of the quarter. He further mentioned that the orders were mainly from OEMs, rather than end users, and that when accounting for acquisitions, June was the second highest booking month in the last couple of years.

Dave Zapico of the company states that there will only be a small amount of price giveback, and the company will retain the vast majority of pricing. He also predicts that sales will outpace orders in the second half of the year, but it will only have a moderate impact. The company is expecting a core incremental margin of 40%, higher than the prior expectations of 30-35%.

Dave Zapico reported that AMETEK had strong margin performance in the second quarter, with core incrementals of 52% and reported Anchor up 130 basis points. He also mentioned that the full year incrementals are expected to be similar in both groups, at around 40%. In terms of the medical business, excluding the automation portion, they had mid-teens growth in the second quarter. Kevin Coleman concluded the conference call by thanking everyone who joined and reminding them that a replay of the webcast can be accessed on ametek.com.

The conference call has come to an end and participants are thanked for their participation. They are then asked to disconnect.

This summary was generated with AI and may contain some inaccuracies.