AMETEK Inc ($AME) Q1 2025 Earnings Call

Thank you, Kevin, and good morning, everyone. AMETEK had a strong start to 2025 with excellent first quarter results. We delivered robust margin expansion, generated strong free cash flow, and delivered earnings above our expectations. Additionally, orders were again strong in the quarter. Our results reflect the strength of the AMETEK growth model, the quality of our niche differentiated businesses, and most importantly, the outstanding efforts from our colleagues. Now, let me turn to our first quarter financial results. Sales were $1.73 billion, essentially in line with the first quarter of 2024. Organic sales were down 1%, acquisitions added one point, and foreign currency was flat. Orders were strong in the quarter with overall orders up 8% and organic orders up 3% versus the prior year. Book-to-bill in the quarter was 1.04, and we ended the first quarter with a backlog of $3.47 billion, near record levels. AMETEK's operating performance to start the year was excellent. Operating income in the quarter was $455 million, a 2% increase over the first quarter of 2024. Operating margins were 26.3% in the quarter, up 60 basis points from the prior year. And excluding the dilutive impact from acquisitions, core margins were up 90 basis points in the quarter. EBITDA in the quarter was $559 million, up 3% versus the prior year with EBITDA margins an impressive 32.2%. This operating performance led to strong cash generation with free cash flow of $394 million in the quarter and free cash flow to net income conversion of 112%. Diluted earnings per share were $1.75 up 7% versus the first quarter of 2024 and above our guidance range of $1.67 to $1.69 per share.

Now let me provide some additional details at the operating group level. First, the electronic instruments group. Our electronic instruments group continues to deliver excellent operating performance resulting in robust operating margins. EIG sales were $1.14 billion down 1% from the first quarter of last year, organic sales were down 2%, acquisitions added two points and foreign currency was a one-point headwind. EIG operating income was up slightly to $354.1 million and operating margins were very strong at 31% up 50 basis points from the prior year while core margins were an impressive 110 basis points. EMG delivered strong growth and excellent operating performance in the quarter. EMG's first quarter sales were a record $588.3 million up 2% versus the prior year with organic sales also up 2%. In the quarter, we experienced improving order patterns especially within our Paragon Medical business. EMG's operating income in the quarter was $128.7 million up 7% compared to the prior year period. EMG's operating margins were 21.9% up a sizable 120 basis points from the first quarter of 2024. I'm pleased with our performance in the first quarter with robust margin expansion, strong order growth, excellent cash flow generation, and 7% earnings growth despite a continued uncertain economic environment.

We remain committed to making strategic investments in our businesses to best position them for long-term growth. These investments are supporting our global and market expansion and technology innovation strategies. For all of 2025, we continue to expect to invest an incremental $85 million in support of these initiatives with key investments in research, development, and engineering to help advance our product differentiation. Our vitality index, which measures the sales of new products introduced in the past 3 years, was a strong 26% in the first quarter. We are confident that these investments will further solidify our competitive positions in our core markets and help broaden our exposure within new attractive growth markets.

I wanted to take a moment to highlight just two of the many recent new product introductions across the company. First, from Gatan, a leader in electron microscope technology, they recently launched the EDAX Elite Ultra Energy Dispersive X-ray Spectroscopy System. The Elite Ultra solves a common challenge in advanced materials research by improving the ability to map and quantify elements in very thin samples. This system provides faster, more accurate results, allowing for deeper insights into material composition. One of the key features of the Elite Ultra is a larger sensor, which captures more x-rays and improves the system sensitivity to a wider range of elements, leading to better data and faster analysis. Gatan worked closely with another AMETEK business in the development of this advanced sensor technology. This is just one example of the ways our businesses partner together to help support and accelerate our technology innovation. With this new product introduction, Gatan continues to lead the way in developing advanced solutions that help scientists and engineers push the boundaries of their scientific research. Vision Research also launched a new line of small, powerful, high-speed cameras, the Phantom v-series. These cameras leverage a custom-designed high-speed sensor from Forza Silicon, another AMETEK business. These sensors provide superior image quality and performance, making them ideal for advanced applications. Their compact design makes them easy to use in a variety of settings, whether for industrial testing, motion analysis, or medical research. Through this latest innovation, Vision Research continues to lead the market in high-speed imaging technology, offering researchers powerful tools to capture and analyze fast-moving phenomena. These advancements, along with many others introduced in the quarter, highlight our continued commitment to our customers and position us well to drive long-term success and meet evolving needs across emerging applications.

Now switching to capital deployment. Strategic acquisitions remain our number one priority for capital deployment. We are managing a robust pipeline of attractive acquisition candidates. While our top priority for capital deployment remains acquisitions, we are also well positioned to deploy capital in share buybacks. We have a $1.25 billion share repurchase authorization. And as we have shown in prior periods of market dislocation, we are willing to opportunistically purchase shares. Given our robust free cash flow generation and strong, flexible balance sheet, we are well positioned to deploy capital in both strategic acquisitions and opportunistic share purchase.

Now, let me share our views on the rapidly evolving trade conflict and how AMETEK is approaching this period of heightened uncertainty. Taking a step back, during the first quarter, we saw improving order patterns and generally solid conditions across most markets and geographies. While there were still some cautiousness from customers, conditions were improving and we were encouraged with our start to the year. With the introduction of the tariffs early April and subsequent back-and-forth trade negotiations over the past month, the level of uncertainty around trade policy and its implications have increased. Although it is impossible to know how these trade conflicts will evolve, we are confident in our ability to successfully navigate an uncertain and changing economic environment. Our distributed operating structure empowers local teams to respond quickly and appropriately to the unique dynamics of their businesses, markets, supply chains, and customers. This level of flexibility is a meaningful advantage in a dynamic environment such as the current one. Our portfolio of highly differentiated products and mission-critical applications will allow us to effectively pass through higher input costs, including tariffs, while continuing to deliver strong margins and cash flows. Our broad exposure and diversification across end markets and geographies limit our dependence on any single customer, product, technology, supplier, or region. This diversification is a strategic strength that will shield the entire company from a concentrated risk. Our large global manufacturing footprint and supplier base, along with our asset-light business model, will allow us to localize production and adjust supply chains. And lastly, our strong balance sheet and outstanding cash flow generation provides us with the ability to continue playing offense through acquisitions and opportunistic share repurchases, while also continuing to invest in our businesses. During the first wave of the China tariffs in 2018, during COVID, and then again during the resulting supply chain crisis, through high levels of economic uncertainty, and each time our businesses quickly reacted and strengthened their positions. Our business is robust by design and resilient by nature. We use periods of disruption to make our businesses stronger and more efficient. We use our strong cash flows and balance sheets to better position AMETEK for accelerated growth following the period of uncertainty. We're confident we can do the same in this environment. More specifically, our businesses have responded quickly and have developed tariff response plans which include specific mitigation actions to offset the impact from tariffs. These mitigation actions include select pricing initiatives, localization of production operations, adjustments to our supply chain, and targeted productivity actions. We are also finding opportunities created by the tariffs to take advantage of our substantial US manufacturing footprint to broaden our customer base and support their growth in the US.

While uncertainty has increased as a result of the global trade dynamics, we believe we can offset tariff headwinds through the implementation of these mitigation actions. As a result, we continue to expect full year sales to be up low single digits on a percentage basis compared to 2024. We also continue to expect diluted earnings per shares to be in the range of $7.02 to $7.18 up 3 to 5% compared to last year's results. We expect the benefits from these various mitigating actions to build throughout the year. We remain confident in our full year outlook and our ability to deliver strong results in 2025. In summary, AMETEK delivered strong results to start the year. Our businesses executed exceptionally well, delivering strong margins, solid orders growth, and earnings ahead of our expectations. The durability of the AMETEK growth model, combined with our diverse end market exposures, outstanding cash flows, and proven management capabilities position us well to navigate through these uncertain economic times. We remain focused on delivering long-term growth and creating long-term value for our shareholders. I will now turn it over to Dalip, who will cover some of the financial details of the quarter, then we'll be glad to take your questions. Dalip.

Sure, Matt. Yeah, as you know, Paragon is a business that we acquired a little over a year ago. They specialize in single-use and consumable surgical instruments and implantable components in attractive med tech markets. And as you said, when we bought it, right after that they went through a destocking. And we took that period of time over the past year to really execute a multi-year improvement plan where we're dramatically improving the cost position of the business. The business is in growing markets that has excellent engineering capability. They have a leading additive manufacturing capability. Substantial number of new program wins. And we just viewed the softness as customers were realigning with the current market environment. There was some overbuying during the prior period. And what we saw in the quarter was very encouraging. The customers are beginning to destock. If you look broader at the OEM automation and the MedTech OEM businesses, those businesses that were really the places where we saw the destocking, in some, those orders were up 25% in the quarter. So across all of those businesses, 25%. And Paragon led all those businesses. So Paragon was greater than 25%, substantially greater than 25%. So the customers are destocking. The business also performed very well on a profit margin basis. It was 25% in the quarter. So we feel we have a new management team there. The business is executing. We're working through some of our business improvement plans. Those orders that we have in the first half of year are going to lead to us having some substantial growth in the second half of the year. So we're feeling really good about it. And the team's performing very well. And it's good that the market is performing exactly as we thought it would and we told you about the past few quarters.

Yeah, I'll take the second part first. I mean, during the quarter, we saw a couple of points of inflation and we were able to offset that with price. So it was a positive spread. In terms of orders, as I said in the prepared remarks, overall orders were up 8% in the quarter. Organic orders were up 3%. And so that shows continued improvement that we've seen for third quarter in a row. And sequentially they were up about 2% and we have a near record backlog, so that's very good. The gains in March was the strongest month for orders in the year. So it improved throughout the quarter. And we started Q2 and we were concerned because of all the tariff things going on, but our orders are still solid. We're really good and we feel good about it. So pretty typical quarter with March being the strongest and we also had a strong April.

Yeah, in the geography area, positive growth in the US offset by modest declines internationally. So we're up a bit in the US and just down a bit in Europe and Asia. Our China market was down about 10%. Asia excluding China was roughly flat. So it kind of played out how we thought it would, but again strengthened US offset by just modest declines in other areas. If I go around the horn on our process business, organic sales for that business declined low single digits in the first quarter. And sales were pretty much in line with our expectations, but long-term project activity remained solid. But customers are still remaining cautious about when they place the POs given the broader macro uncertainties and there were some delays in project timing in process and we now expect organic sales for our process businesses to be roughly flat for the year. Our aerospace and defense business had a strong start to 2025. Organic sales were up mid single digits in the first quarter. Growth was strongest in our commercial OEM business. And our aftermarket business also had a very good quarter as we have content across our broad range of commercial aerospace platforms and aftermarket capabilities really position us well. For the full year in A&D we continue to expect organic sales to be up mid single digits. And our third market segment commentary, organic sales for our power business were up low single digits in the quarter. We saw the growth really across our power platform. We continue to manage a strong growth funnel. Good new business pipeline. Good opportunities in power grid monetization and electrification. We are expecting some cautious customer behavior in the international markets in the near term given some of the tariff uncertainty. But for the full year, we continue to expect organic sales to be roughly flat versus the prior year. And then I'll lastly talk about our automation and engineered solutions business. The organic sales were down low single in the quarter. Continued solid sequential sales growth. Orders were strong in the quarter. I talked about our OEM customers already as a response to Matt's questions, but clearly the orders are normalizing with both year-over-year and solid sequential orders growth. And highlighted the performance of our Paragon Medical business. And for the full year, we continue to expect mid-single-digit organic sales growth. So, we got through the quarter. It was a good quarter. Pretty much as expected. But margins were good. Cash flow strength was good. Base earnings were good. Orders continue on a positive strength. Our balance sheet strength is really good. So, there's a lot of positives in this first quarter, Dean.

Right, I'll go through the entire tariff mitigation what we're working on. So, I'll cover China specifically a couple of different ways what we're sourcing there and what we're selling there. So, I think it'll be a good summary. You know, we estimate our annual tariff impact direct impact of tariffs to be about $100 million. And we expect to be able to offset this direct impact through our mitigating actions and that's why we feel comfortable to reaffirm our full year sales and EPS guidance. Given our strong start to the year and some of the things I talked about. Now, if I break down that $100 million it comes from really three sources. There's a 10% across the board tariffs for all countries. The second component includes the 145% tariffs on China imports to the US. Now, we have fairly limited exposure here given the proactive actions we started back in 2018 to shift sourcing away from China. We've talked about that multiple times over the years and in fact, the remaining sourcing costs in this category are from recently acquired businesses. So, the bulk of AMETEK is not sourcing from China. When we source from China, we sell in China. But we have some new acquisitions that we have to work on, like the Paragon deal, some of the more recent deals where we're doing some work in China, but it's relatively modest to get that 145% tax on trade. The other element of it is in terms of Mexico. We're glad to find out we're over 98% compliant with the USMCA guidelines. So, very little exposure. So, we feel really good about our ability to offset the $100 million of direct tariff exposure through our various mitigating actions. Now, the other element I want to make you aware of is separate from those direct impacts, we have the 125% retaliatory tariffs imposed by China on the US. And as you know, we do about 9% of our sales in China. A lot of it's local for local, but we do have approximately 4% of our sales. So, in the case of the second quarter, that would be about $70 million. They're direct US to China. And we expect we're seeing short-term delays there given the magnitude of the tariffs. Our customers are taking a wait-and-see attitude. They're confirming to us that they still want the products, but they're waiting for lower tariff levels. Much of this product is our higher-end instrumentation and optics business, where there's really limited alternatives to AMETEK with similar capability products. And as you may know, we've been very careful to protect our IP for this product for many years. So, we're building the product in the US, we're shipping it around the globe. Our Chinese customers desire our products, but that $70 million in Q2 is very difficult to predict the outcome near term. And we don't have control over that situation. But we may be able to ship it all in Q2. We may not be able to ship it in Q2 because those are risks beyond our control and they're related to country-to-country dynamics. So, when we looked at that risk, we have ways to fix it. We understand that some of our products are so specialized that there is an opaque process in China where customers can go and get exemptions. We understand that some of our products are qualifying for those exemptions, but we're monitoring the situation.

But we don't have more detail than that. We're also initiating an element of a manufacturing localization plan that will change the value-added nature of some of our production processes so that we don't run into this problem. So we're going to use our footprint to change some source things, some assemblies, some test and calibration processes so we get substantial transformation in markets that aren't subject to tariffs. And finally, I mean, we can sell these products outside of China. This isn't an issue where we can't sell them. They're just in the queue. They've been started. There's a $70 million plan for Q2. So we're really dealing with a shorter-term issue here, and how that's going to turn around in Q2, I'm not certain. It could turn out well. It could be delayed. We're comfortable that we can offset the problem in the year. The balance of year is still very good with a very good plan that I can talk a little bit more about, but that is the issue that we're dealing with very near term in terms of Q2 and it could swing either way. It could go in Q2. It could shift to Q3. We just got uncomfortable dealing with the uncertainty in the near term with something we didn't really control. And that's why we're confident in the year, but the swing between Q2 and Q3 we're not certain of.

Thank you, Dean.

Yeah, no, Jamie, you didn't. The response to Dean in my prior question, the uncertainty around the Q2 sales and whether that's going to shift to later in the year is why we didn't guide for Q2. We affirm the full year, but we didn't guide to Q2 because of the uncertainty. Related to the Paragon margins, we're going to see upside in the second half of the year for sure because we're continuing to work through our improvement plans, and now we have some volume. So we have some upside in margins for sure in Paragon in the second half of the year.

Yeah, I think that the way EMG margins are extremely good and they're performing extremely well. I think if you want to think about it from your perspective, we have a hedge on EMG margins. There's some upside there given the acceleration of business.

Yeah. We have a very robust pipeline and we're very active in the pipeline. Some of the deals, the uncertain nature of it, there's been some delays and some of them are going forward. Over the history of time we've been buyers in up markets and down markets, and we've been able to buy some of the best businesses, the best returns for our shareholders in down markets. So we're very active. If you think about this, we're ideally positioned to deal in this changing environment. We're very good operators. We've been through challenge before as we talked about with Dean. We have an experienced management team. We have a distributed operating structure that really empowers local management. We have our portfolio of essential, mission-critical businesses that allow us to pass through higher input costs. We expect to differentiate our performance and M&A is going to be part of that. It's very difficult to predict if we sign a deal in a couple weeks or we sign a deal at the end of the year. But we're not backing off at all. We're in the fortunate position that we can do two things at once. We're going after M&A and we also have a balance sheet, and in periods of dislocation we've used our balance sheet to initiate buybacks also.

Yeah, thanks, Jamie.

Good morning, Jeff.

The 145% is built into the $100 million. It's 125%.

Again, we just have a couple of recent acquisitions. So that goes into the $100 million. And we're also saying the $100 million is the total amount of things going to the US.

Yeah, I think you're thinking about the right way. It's our high-end products. That capability is not available in many places in the world. It's higher margin business, and I think you're thinking about it right.

Yeah, our total research exposure is about 10% of sales. It's international. A lot of the DOJ stuff has been in life science research and we have some exposure there, but not much. There's some delays with our government customers, but at this point for us it's relatively modest.

You're exactly right. When we rolled up the whole year, the volume was down a little bit, but the pricing was up a little bit as part of our tariff mitigation plan, and we felt comfortable keeping the full year guide of plus low single digits. In terms of the specific price, we're not going to give out that specific number, but I can tell you that we covered all inflationary costs in Q1. We had a good positive spread, and we expect that to continue throughout the year.

Thank you, Jeff.

Good morning, Andrew.

Yeah, it's a great question, Andrew. We have a good structure, good bones to deal with this situation. We have 100 plants approximately in the US and we have 50 internationally. We're already working with some customers that we haven't worked with in the past on some opportunities in the US to use our infrastructure in the US to win market share. So we're clearly focused on tariff mitigation, but there are opportunities to use our structure in the US. And I think that structure of 50 plants outside the US gives us flexibility to look at localization at a different level and the transformation of the value-add so that as we move through the course of the year we'll be able to mitigate the impact of tariffs. I think it's a comprehensive plan. One of the things Dal and I have done a good job with over the years is having a great operating system, great business system, providing our structure and then getting all of our teams to execute within it, and we learn from that. Dal and I went through plans with every one of our businesses and we're going to continue that for a period of time. Those plans talked about tariff mitigation, sourcing changes, select pricing opportunities, going on offense. We spent a lot of time understanding where our competitors are located and where we're located, and areas of advantage we're going to have in the new structure. We're working on those now and we're getting positive feedback from our customers.

I think the board is very pleased that we started to reduce our risk from China supply chain 5 years ago. We were constantly acquiring businesses, so we're working on exiting those businesses and that's in process. In terms of our manufacturing footprint, I think having expanded localization in various countries so that longer term we're less dependent on some of the tariffs is the right thing to do. We're not changing maybe where we build the core technology, but we're shifting the value-add to more locals around the world and we've been doing that over time. That's why we have 50 plants outside the US. That's why we've been so successful in international markets. In the quarter, high 40% sales were international and we're going to continue doing that. We think that's the right strategy. In terms of CapEx, we're not reducing our CapEx. We have some very aggressive digital programs going on right now. We're looking to improve our sourcing with AI. We're looking to improve our e-commerce capabilities. So we have some very long-term strategic plans around improving our capability through software investments and we're going to continue those. We also have a good footprint already, so it's largely effectively utilizing that footprint. I feel good about that and I see no reason at this time to change our capital spending plan.

Thank you, Andrew.

Hey, Brett.

Yeah, in terms of the timelines, I talked about a little bit in our process business. We are not seeing projects canceled, but we're seeing uncertainty, some projects are delayed. We made an adjustment in our annual outlook related to that business because of that. So that's definitely happening. Regarding the OEM inventory, what we're seeing is that the destock is not completed for all customers. But when it ends, you see a pop. Those customers are recalibrating to the demand levels. You'll see that as we work through the course of 2025. By the time 2025 is completely over, I think all the destocking will be done. It's starting to happen now and it drove strong orders in the first quarter.

Are you talking about our sales, orders, or what part of our business?

Okay, I see. Yeah, I think in the automation area, that's working itself through. We're seeing the US is kind of finished. Some of the destocking is still occurring in Europe, places like Germany. So that's automation. In terms of the MedTech OEMs, I think it's OEM dependent. They all have different supply chains. They seem to not really have very tight control on their inventory, so it's difficult for them to predict and for us to predict. But as they work through their process, the destock is ending and there's more normalization of inventory. We saw a big chunk of that in Q1. That's like what we saw with the Paragon orders, right? Paragon orders were up much more than 25% in Q1. That was customers getting to the point where they're recalibrating, normalized, setting their plan for the year. As we go through the year, we're going to see other MedTech customers do that. But it's happening as we thought it would.

Yeah, we're still feeling really good about the aerospace business. It grew mid-single digits in the quarter. We're expecting it to grow mid-single digits for the year with balance of growth across both our commercial segment and our defense segment. When I think about the commercial segment, you have the OEM multi-year backlogs. That drove a significant part of our growth in Q1. They have 8-10 year backlogs depending on what you look at, so we feel good about that. In the defense area, the funding is solid and we feel good about that. In terms of the aftermarket, a lot of older planes are flying now because there's been some delays on the OEM side, and that plays to our strength with slower fleet retirements. That business is good domestically but also good internationally, and older planes are flying. In the US, there's some dislocation now at the airlines, but they're still flying older planes, fuel costs are coming down. The dynamic there is if we don't get the OEM sale, it's okay because we have such a strong aftermarket presence. The team running that business is doing a great job. It for us, we're in some niches in this aerospace business, it's about 17-18% of our company. I would say it's very stable, strong, growing business for us right now.

Thank you, Brett.

Yeah, great question. Specifically on defense, we're expecting growth, balanced growth across all subsegments. We're expecting defense to grow in the second half of the year. We'll see what gets passed in Congress, but it's pretty optimistic right now. We're well positioned there and there are long-term threats, obviously. In terms of the aftermarket, you're exactly right. You're seeing some airlines with some stress, but again, the planes are still flying. Older planes in particular are flying longer because fleet retirements have slowed. I just think our aerospace business and aftermarket is a US and international business. In our international business, we have operations all over. I have a feeling that if the US slows, the international market will strengthen or stay strong because they're in a little bit different cycles. But right now, what we're looking at is all sides of the business are strong.

Yeah, I think we're well positioned, Scott. Our net debt to EBITDA is 0.7. When you go through dislocations like this a couple times in your career, you realize that opportunities are going to be there. We're working with people. I think good assets are still demanding good prices, so it's not like you're seeing tremendous bargains. They've come in a bit, but we have a really good pipeline. We have a good reputation. We have a lot of processes going on. I think we're in an ideal position to acquire some businesses and also act on the dislocation in stock price that could have been occurring. When I put the two together, in a time where you can be on your back foot, we're not on our back foot. So definitely a spring in our step to forward lean. I think you got that right. This is a time where we can differentiate our performance.

That's a great question, Rob. It's deal specific. For example, if you're going to acquire a business that has a huge supply chain from China, that may be a wait right now and delay because you see how that thing's going to play out. But it's deal specific. We've been doing this for a long time. It is an uncertain time, especially when you look at it month to month, but we're looking at it in the long term. We've been through this before and there are opportunities arising. We have some issues we're managing through. We talked about them, gave a tremendous amount of detail on them. But overall, I think we're well positioned to do well. You're correct that some deals are moving ahead, some deals have been sidelined for a period of time because of the trade dynamics, but there's enough in our pipeline that we're still working aggressively on them. Does that answer your question, Rob?

Okay. Thank you.

Hello, Joe.

Yeah, I think the impact on our business is relatively muted. The aftermarket piece of the business is a smaller part compared to the OE piece and compared to the financial business. We could see a downturn in that part of the business. We're not seeing it now, but we're very diversified in specific areas. If there is a future downturn, we'll deal with it, but right now it's not happening in our business.

Yeah, we build customized products, so we didn't see a lot of pre-buying. There could have been some, but I think we'd see that less than most. In terms of inventory purchases, we're certainly doing the smart things. We have operators in our distributed model that run their businesses like they own them, and if they think they want to bring some inventory in because it makes sense, they're making those decisions.

Good morning, Andrew.

Yeah, I think the backlog is at high levels. There are some delays related to tariffs. We talked about some of the delays for the products that were shipping directly to China. We're talking about other situations where the tariffs are causing customers to go back and get more money to buy products. So I think the tariffs are going to cause some delays. We have a good tariff mitigation plan and good localization plans. There's some comfort in having that backlog as we navigate through this over the next few quarters. But you're right, there are some delays caused by the tariffs.

No, I don't think it's concentrated. I think you hit the areas. A&D backlog is a longer cycle business. It's strong. The big change is MedTech with Paragon backlog increasing.

Okay, thank you.