AMETEK Inc ($AME) Q2 2025 Earnings Call

Thank you, Kevin, and good morning, everyone. AMETEK delivered strong second quarter results highlighted by record level sales and EBITDA, strong core margin expansion, and excellent earnings growth. We also raised our full year sales and earnings guidance to reflect our second quarter results and the recent acquisition of Faro Technologies. The addition of Faro Technologies nicely complements our existing metrology and precision measurement businesses. Our ability to deliver strong operating performance is notable given the challenging macro environment and is a testament to the quality of our differentiated businesses, the strength of our operating capabilities, and the contributions from all AMETEK colleagues. Now, let me turn to our second quarter financial results. Sales were a record $1.78 billion, an increase of 2.5% from the second quarter of 2024. Organic sales were flat. Acquisitions added 1.5 points, and foreign currency translation was a 1-point benefit. Book-to-bill in the quarter was 1.00, and we ended the second quarter with a backlog of $3.47 billion, near record levels. Our operating performance in the quarter was excellent given the strong margin expansion and earnings growth. Operating income in the quarter was $462 million, a 3% increase over the second quarter of 2024. Operating margins were 26% in the quarter, up 20 basis points from the prior year. Core margins, excluding the dilutive impact from acquisitions and the impact of foreign currency, were very strong at 26.7%, up 90 basis points versus the prior year. EBITDA in the quarter was a record $565 million, up 4% versus the prior year with EBITDA margins an impressive 31.8%. This operating performance led to earnings of $1.78 per diluted share, up 7% versus the second quarter of 2024.

Now, let me provide some additional details at the operating group level. First, the Electronic Instruments Group. The Electronic Instruments Group delivered solid operating performance in the second quarter. EIG sales were $1.16 billion, up 1% from last year's second quarter. Organic sales were down 3%. Acquisitions added two points and foreign currency was a one-point tailwind. EIG operating income was $344 million and operating margins were 29.7% with core margins a very strong 30.7% up 40 basis points versus the prior year. The Electromechanical Group had an excellent quarter with strong sales and orders growth, record operating income and sizable margin expansion in the quarter. EMG's second quarter sales were a record $618 million, up 6% from the prior year. Organic sales were up 5% and foreign currency was a one-point tailwind. Additionally, orders were again strong in the quarter with notable order strength within our Paragon and Automation businesses. EMG's operating income in the second quarter was a record $144 million, up 17% compared to the prior year. EMG's operating margins were 23.3% up 210 basis points in the second quarter of 2024 with core margins up an impressive 260 basis points.

Our businesses continue to execute well, delivering strong operating results against the backdrop of a challenging macro environment. Our business model allows us to react quickly to changing economic conditions while ensuring we remain focused on delivering long-term sustainable growth. We're committed to making strategic growth investments across our businesses to help support and accelerate progress. For all of 2025, we continue to expect to invest an incremental 85 million dollars in strategic growth initiatives across the company. With these investments focused on research, development, and engineering, and sales and marketing. These efforts and our commitment to innovation ensure a steady stream of new products that support our customers' critical applications and position us for continued success. Our vitality index, which was 26% in the quarter, continues to reflect the success of our technology innovation strategy. I want to take a moment to highlight a recent new product introduction from our Spectro Analytical Instruments business. Spectro Analytical Instruments is a leading global provider of advanced instrumentation solutions for highly precise and accurate elemental analysis. This new product, the Spectro Green MS, is our latest solution designed for high-performance elemental analysis. It addresses a key challenge in environmental and pharmaceutical laboratories by simplifying the process of analyzing complex samples for trace elements. The new product incorporates several innovations that improve workflow and efficiency, including its ability to analyze both high concentration and trace elements in a single measurement, significantly reducing analysis time for busy labs. With this new product launch, Spectro Analytical continues to advance its technology leadership and provide customers with greater speed, accuracy, and ease of use for their critical applications. This is just one of the many innovative new product introductions across our business.

Now, switching to capital deployment. As noted, we acquired Faro Technologies subsequent to the end of the second quarter for approximately $920 million. Faro is a leading provider of advanced 3D metrology and digital reality solutions. Their technology solutions, which include measurement arms, laser scanners, and integrated software platforms, enable customers in end markets, including aerospace and defense, public safety, and architecture and engineering, to precisely measure and visualize physical environments for a wide range of critical applications. Faro's product suite nicely complements our existing metrology and precision imaging capabilities, particularly within our Creaform business, providing the most comprehensive portfolio of automated 3D metrology, laser projection, and digital reality solutions. This acquisition provides AMETEK with a significant presence in the fast-growing digital reality market, and has a strong recurring revenue profile through its service and cloud-based subscriptions. We see significant potential to expand operating margins through integration into AMETEK's global infrastructure and operating model. Faro has annual sales of approximately $340 million. We're very pleased to welcome the Faro team to AMETEK and excited for the future. Strategic acquisitions are a core component of the AMETEK growth model, and we are committed to deploying our strong cash flow to expand our portfolio in highly attractive market segments. Looking ahead, our acquisition pipeline remains robust. And on detail, we have a very strong and flexible balance sheet. We anticipate remaining active in this area.

Finally, a comment on the global trade landscape. While the situation remains fluid, our businesses have been proactive in addressing the potential impacts of tariffs. As we highlighted last quarter, we have well-defined mitigation plans that are being executed across the organization. These actions are multifaceted and include targeted pricing initiatives, strategic adjustments to our global supply chains, and leveraging our worldwide manufacturing footprint to localize production. Our teams are also identifying opportunities to utilize our US manufacturing presence to support global customers looking to localize or reshore their supply chains. AMETEK's diversification across end markets and geographies limits our dependence on any single region, and our decentralized structure allows for the flexibility needed to implement these mitigation actions quickly and effectively. We have a proven playbook for navigating through these uncertain environments, and we are making outstanding progress. Our focus remains on supporting our customers, delivering strong results, and utilizing our strong financial position to invest in our long-term growth initiatives and strategic acquisitions.

Now turning to our outlook for the remainder of the year. Given our results in the second quarter and the closing of Faro Technologies, we now expect full-year sales to be up mid-single digits on a percentage basis compared to 2024. Diluted earnings per share for the year are now expected to be in the range of $7.06 to $7.20, up 3 to 5% versus the prior year. This is an increase from our previous guidance range of $7.02 to $7.18 per diluted share. For the third quarter, we anticipate overall sales to be up mid-single digits with earnings in the range of $1.72 to $1.76 per share, up 4 to 6% versus the prior year. Our full-year and third quarter guidance incorporates the expected contributions from the Faro acquisition. In summary, AMETEK delivered strong second quarter results. Our businesses are well-positioned with differentiated technology solutions serving a diverse set of growing niche markets. We have a durable operating model and an ability to react quickly to changing market dynamics. Our strong cash flows provide us with the opportunity to deploy meaningful capital on strategic acquisitions. AMETEK remains firmly positioned to deliver long-term sustainable growth and strong returns for our shareholders. I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions. Dalip.

Yeah, I'll try to hit all three of those and I'll start with the tour around the company. Our overall sales for our process businesses were flat year-over-year as a contribution from recent acquisitions offset a 4% decline in organic sales. The trade dynamics and back-and-forth negotiations continued to create uncertainty and hesitation in project spending. But we remain very encouraged by strong pipeline of underlying project activity across our businesses. And given this, we now expect organic sales for our process businesses to be flat to down low single digits for the full year. Switching to aerospace and defense, our aerospace delivered businesses delivered another very strong quarter with both overall and organic sales growth increasing high single digits. Growth was broad-based across all subsegments in the quarter. All subsegments, I'll underline that, with commercial OEM seeing the strongest growth. For the full year 2025, we now expect organic sales for our aerospace and defense businesses to be up high single digits. So, we increased that from mid-single digits. Feeling really good about that. Our power businesses reported low single digit increase in both overall and organic sales for the quarter. Given our strong positions serving energy, grid monetization, electrification applications, we're well-positioned for long-term growth. And for the full year, we now expect organic sales for our power and industrial businesses to be up below single digits compared to the prior year. So, we increased that also from flat. So, good strength in our A&D business, good strength in our power and industrial businesses. And then finally, our automation and engineered solutions returned to growth this quarter with both overall and organic sales up below single digits. We once again saw strong orders growth across our Paragon business and our automation businesses in the quarter. So, excited about that. And we continue to expect mid-single digit organic growth for this subsegment. So, overall, that's a picture around the horn. Your second question was related to the trade environment. And you know, what's going on there. You know, our businesses responded quickly and developed tariff response plans to mitigate the impacts. And as a reminder, we have a comprehensive plan to go after it. We have select pricing increases. We have supply chain adjustments. We have some manufacturing localization. We have some targeted cost reductions and we saw direct benefits from these actions in the second quarter. Including, you know, pricing, supply chain changes and some of our localization efforts and we expect to see these benefits throughout the year. And you know, it's a testament to our operating capability. We really are managing through it well and you know, I think in our last call, we noted we were confident in our ability to offset these direct costs. And now I just add very confident to it. And you know, I think we're in good shape regarding tariffs. And then the last question was you know, how are we doing, you know, how did the quarter play out? How did that all play out? And the cadences, I think you asked about, Dean. Yeah. And the cadence for June was the strongest month for orders and for the year. So, you know, normally we step through the quarters with the final month of the quarter being highest, so that was pretty typical. But June was strong, it was the strongest of the quarter, strongest year to date. And July it's not finished yet, but you know, your month to date is looking very good. So pretty typical quarter with June being the strongest of the quarter. Both sales and orders, no slowdown.

Thank you, Dean.

Yeah, that's a great question, Jeff. I'll start with We think it'll be a couple of penny benefit in 2025. So, we have a partial quarter in Q3 and then Q4, so we think we'll pick up a couple pennies there. When you take a step back and look at the acquisition, you know, it's as I mentioned in my prepared remarks, it's an excellent fit with what we do. And we think we can add meaningful value to Faro. You know, they were public companies, so we have the elimination of the public company costs and the integration into AMETEK's global infrastructure. And we have a little higher than typical synergies. We have mid-teens cost synergy. So, if you think about Faro, it's the last couple of quarters it's been operating at about 15% EBITDA. And we think that'll be a 30% EBITDA in about 3 years. So, significant potential to expand operating margins through integration into the AMETEK infrastructure and operating model. And we're really pleased that we were able to add the highly differentiated adjacent products and technologies to AMETEK's Ultra Precision Technologies division. The products nicely complement ours. We have a leading market share now, number one or number two in many key verticals. Measurement arms, laser scanners, laser trackers. We have a new presence in fast-growing digital reality scanning market. We have an emerging SaaS solution enabling the digital reality capture workflow. And they have a good recurring revenue profile for service, about 60% of its hardware, 25% of its service, and 15% of its software. And the teams have come in and done a great job. We're working very well together. So, we're excited about it. When I look at this business, it reminds me a lot of the Zygo acquisition. Very similar in Zygo and Faro in name, but also it went into our UPT division, the same as Zygo. And if you look at Zygo, it was a smaller public company. And they were always trying to swing for the fences, hit grand slams, because they want to get noticed. And they took on some things that were outside of their core. And you have a very similar situation with Faro. And you know, if I look at what we did with Zygo, the sales averaged 9% CAGR over the first 10 years. EBITDA grew over five times. EBITDA margins increased two and a half times. And we reduced working capital by 50% over the first five years. So, I think we have that kind of potential here. There's a lot of talent there. Need to give it some focus. The current management team did a good job cleaning up the business in the last 12 or 18 months. And we're extremely excited about what the future brings.

Yeah, absolutely.

Yeah, I mean you know Paragon had another excellent quarter, Jeff. Orders growth was again robust. Sales were strong and we continue to drive outstanding margin expansion. The orders were the largest increase in AMETEK by far. We also have a situation where the Paragon EBITDA margins are now in line with AMETEK's. So they're at 30-plus percent EBITDA margins and we see meaningful margin runway ahead. So outstanding work by the entire Paragon team. The destock and we are very excited about what we're seeing. So very pleased with what's going on there. They're in a good position with their customers and consumable surgical instruments, implantable components, and attractive market segments and we're through the destock. We took some time to do some hard work cleaning up the business. It has excellent engineering capability. They have new programs wins and really pleased with where we're at now.

You too.

Yeah, I'll start with the margins and I do think you're thinking about it correctly. I mean, there's excellent performance in the quarter. Up 200 basis points, up 210 basis points on a reported basis, 260 on a core margin basis. So, EMG really had a good quarter in margins and in the back half of the year, I think it's going to stay the same way. There's good margin expansion there. And in both our EIG and EMG businesses, the core margin expanded 90 basis points. The reported margins were up 20, but core was up 90. We had a fantastic quarter. We're excellent at driving the operations of the business. There was excellent productivity. There was positive price cost and really strongly performing acquisitions. When I look at the OpEx, I mean, our people are getting it done. We raised our OpEx guidance, we're going to be working through the P&L to 155 million. That's about 25 million from where we started the year and up 5 million from last quarter. So, the OpEx side of this thing is working extremely well and we're pleased with that. Going back to the guide, we beat our earnings, we boosted our guide for the year and we have a big boat on and we talked about a couple of cents from Faro and that's all built into the model. I think there's a bit of conservatism in the Q3 guide. As we get through all these changing dynamics, we feel very confident, but there's a bit of conservatism in the near-term guide. In terms of China, you mentioned the 70 million that we had flagged as in the second quarter. We got a good portion of that. Later in the quarter, it opened up. We didn't get it all, but we got a good portion of that. And the 70 million that we identified as a tariff impact that we would offset, we're not going to constantly change with that changing environment. We're not going to constantly update the exposure, but what I'm telling you in real time, we got it and we don't have a problem this year. So, the 100 million that was a negative headwind is not a negative headwind. That's the best way I can explain it.

Yeah. Yeah, the automation business it's in the same category as Paragon. It the destock is over. And we're seeing strong growth in orders. There's you know, Paragon and the automation business drove the profitability increase in EMG. So there's a continued upside there, but the both Paragon and automation the two the medtech and Paragon which Paragon's in and automation that dealt with the destock is done. So we're feeling good about that. It's driving profit growth and that's why the EMG margins are up 260 basis points on a core basis. Okay?

Yeah. Yeah, I think the EMG business is the automation and engineered part of EMG is inflecting up. So I think it's going to lead us in our next phase of growth and we're saying this year that we'll be up mid single digits. So, I think that's positive from last year and obviously, if the order rates continue, there's going to be some upside there. In terms of the acquisition pipeline, this year we got two deals done. Deployed a billion dollars and acquired 400 million of revenue and we're excited about these acquisitions. They're high-quality businesses that expand our presence in attractive growth markets. We have a clear path to add value in both the businesses I talked about, the recent acquisition of Faro in detail. And to your question, our pipeline remains strong. We're very actively looking at a number of high-quality deals. As Dalip mentioned, we have 2 billion of existing cash and credit facilities. As always, we're going to remain disciplined, but we did some analysis and if we levered up to 2.5 times, then we got about 4.5 to 5 billion dollars to spend. And I think that we have the opportunity to differentiate our performance with the M&A element of our growth strategy combined with our balance sheet and combined with our strong cash flow. So, we excel at this and especially when markets are choppy and the combination of our operational excellence and M&A, I think we're really focused on the pipeline and the pipeline is strong. All right. Thank you, Matt.

Yeah, thank you, Matt.

Yeah. The one thing, Chris, I talk about FX a little bit and we're going to see for the year a top-line FX tailwind of about one percentage point. And we saw that same one percentage point in Q2. So, on the top line is a little bit of a tailwind, but on the bottom line, we're largely naturally hedged. I mean, when our currencies go either way, you never hear us talking about it, you never hear us as a positive from it, you never hear a negative from it. And we've run our businesses differently than most and we have a natural hedge at the bottom line given the general balance of revenues and costs across key currencies. So, generally we don't see meaningful impact to our profit results from FX movements. Now, the FX is a dollar as weakened and we do export quite a bit of high-technology products from the US. So, I think the lower dollar because we build our higher-tech technology products many of them in the US is going to make us more competitive. So, we understand our competitive positions. We're very well positioned to deal with currency fluctuations and it's a positive situation. Yeah, I think organic growth for the year is still plus LSD. So, we're assuming positive LSD. We're assuming both groups are positive. And then we got the acquisitions that get us to MSD for the year. So, that's where we are versus our prior guide and we think that it's reflective of the situation that we're operating in.

Yeah, Creaform's grown like a weed. When we acquired it, it was about a $40 million business and it's grown at double digits since then. And the team has done an excellent job. So, it's a much bigger business than when we acquired it. I made the analogy to our Zigo acquisition because I think it's really key. There's a lot of capability at Faro and a lot of talent and they were just unfocused. They went down a path and spent a lot of money and didn't get a return for it. And we're going to do the same thing we did with Zigo. We get the team together, we're going to focus on their core advantages. We're not going to swing for the fences, we're going to look for incremental wins and that business is going to grow nicely for us. So, we have a bottom line chance to double the EBITDA margins in 3 years and at the same time with the technology and capability in that business, we're going to grow the top line, too and we have a good analogy with the Zigo acquisition.

Yeah, in terms of China, the country was down low single digits for us for the quarter. So, it was down a bit. I don't think there's really a pull ahead there. It's a situation where we're doing some projects and the projects require funding and the tariffs have just caused a lot of delays in getting the proper funding. So, there's still strong demand for our projects and we got a good portion of the stuff out in the second quarter that we flagged last time, so that was a positive. And there's still a bit of uncertainty in the market but we're well positioned and our customers are working with us. But I wouldn't characterize it as a pull ahead in metrology. I don't think we saw that. Your other question was related to has the cycle bottomed and or guys feeling better about organic growth? Yeah, I think the med tech market and the automation market as mid cycle. But we are seeing a specific destock end and we're feeling really good about the orders there. So that's true. So yes, I think that where we're at is our strength in our A&D business, broad base, improved outlook. Our power business is starting to accelerate with grid spending, improved outlook. I think we talked about the automation and engineered solutions, Paragon, strong growth, highest in the company. Also our automation business now inflecting upward. And our process business in process and analytical is definitely not incrementally weakening, but the markets are still sluggish. And we have a pipeline of potential orders that is solid. We're beginning to see quotations there related to reshoring, related to new opportunities, related to existing opportunities. But that's where those the project business is dealing with a bit of the uncertainty. So we have to work our way through that, but in the other three market segments it feels like we're in a positive situation.

Thank you, Andrew.

Yeah, the timelines, they are difficult. I mean, there are definitely some delayed shipments. I think the certainty around the trade back and forth is important to get it resolved. So, as we're seeing the high number of trade deals get negotiated, get concluded, that takes the uncertainty off the table to a degree and we can go forward. So, I don't think it's the level of the tariffs, it's the uncertainty of the tariffs. And I think as we rapidly got some trade deals done, I think that uncertainty is reducing. But as those play through and we understand the impacts of them, I think the uncertainty is going to reduce. I mean, in the US, we have the overall positive outcomes as Diallo mentioned from the tax bill. So, it helped clarify those go-forward tax rules, but the immediate expensing of R&D, the capital equipment purchases, the spur customer capital investments, and at the same time, we have the tariffs where we have people looking to reshore to the US and we're in a very good position to help them do that. So, that's a positive and, you know, but the tariffs have to get settled and as we move through this and more of those get settled, I think the cloud's going to be removed from some of those projects.

I think a good majority of it shipped. And there's still some of it that's unresolved and that'll get resolved in Q2 and Q3.

Thank you.

Yeah, I think the A&D market is certainly a market we would like to deploy more capital in. So, we're actively looking at the market. We're actively looking at some deals and my viewpoint it's been a great profit generator from AMETEK. We have unique differentiated positions. It's a really good management team. They continue to perform and I love to deploy capital in that area.

Yeah, I say with the increase in orders we're going to have a solid second half. So, there might be a little bit of a different tilt than a typical year. You saw the orders coming in in the first half of the year and you might have the shipments coming out 3 to 6 months later. So, it might be a little bit different. Makes sense. Thank you. Okay, thanks, Chris.

Yeah, in terms of the pull forward, we're typically manufacturing customized systems that are higher dollar value. So, I'm sure there was a little bit of pull forward, but it's not of a meaningful quantifiable number in our respect. So, we are probably less affected by pull forward than most companies because of the nature of our product portfolio. In terms of the orders, overall orders were up 6% in the quarter. The EMG business was up double digits. EIG was up single digits. In terms of book to bill was one. EMG was a little above one and EIG was a little below one. And as I mentioned, the cadence of the orders, June was the strongest month of the quarter and also the strongest month of the year.

No, thank you.

Yeah, they'd be above one, but that's a backlog business, okay? So, a lot of those orders are booked three, six, and nine months, even a year in advance, but yes, they were above one.

Yeah, that's a good question. If you just look at our verticals, the med tech was positive, A&D as I talked about was positive, automation was positive, and food was positive. And the two negatives will be the semiconductor market and the research academia market. And it'll be in the USA globally, so that would be how I look at it from the verticals and obviously our process business plays in a lot of those, but semi and research were headwinds in the quarter.

Yeah, research market is about 10% of AMETEK. That's a good estimate for size. In the US, there is a redefining a little bit of the spend and the projects have been reduced, but they still want to go forward with the projects. There are some delays, and those delays are happening. I think that those in the research market there's some parts of the world where the research market's very strong. About 25 to 30% of our research market's in the US. The balance of it's internationally. So, we had a little issue in China there that we talked about, and the smaller part of it's in the US where there is some delay in research academia funding, and we're seeing that as a bit of a headwind to our process business. I think that'll be around for definitely quarter three. As we get into the fourth quarter, I'm not sure.

Yeah.

Yeah, a lot of that's into the detailed discussions in our business units. I'll say that in the quarter we had positive price cost spread. We didn't guide to a price exactly, but we had a positive price cost spread. I think we'll have that for the year. The price increases I would define them as selective. We're trying to work with our customers. At the same time, I'm confident that the impacts of tariff and inflation will be offset by price. And it speaks to the results related to the highly differentiated nature of the AMETEK product portfolio and our leadership position in niche markets around the globe. So, that's how I'd characterize it.

Yeah, I was going through that a little bit before. So, there would be positives on the Med Tech space like our Rauland business is there. They had a really good quarter. Positive in the food business, we have a Mocon business that's about 3% or 4% of our business is food. That was very positive. The oil and gas market, that was kind of nothing really positive, nothing really negative. And then in the semiconductor and the research markets, those were our headwinds. That's how I characterize it.

Thank you. Thank you, Scott.