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Text: This is Craig Lampo, Amphenol's CFO, and I'm here together with Adam Norwitt, our CEO.
The Company closed the third quarter with record sales of $2,323 million and record GAAP and adjusted diluted earnings per share of $1.12 and $1.09 respectively.
Sales were up 11% in US dollars and up 10% in local currencies compared to the third quarter of 2019.
Sales in the third quarter increased by 9% organically.
And sequentially, sales were up 17% in US dollars and 15% in local currencies and organically.
Breaking down sales into our two segments, the interconnect business, which comprised 96% of our sales was up 11% in US dollars and 10% in local currencies compared to the third quarter of last year.
Our cable business, which comprised 4% of our sales, was up 2% in US dollars and 5% in local currencies compared to the third quarter of last year.
Adam will comment further on trends by market in a few minutes.
Operating income was $476 million in the third quarter of 2020.
Operating margins were 20.5%, which was up a very strong 250 basis points sequentially and up 80 basis points compared to the third quarter of 2019.
The strong sequential improvement in margins reflected a healthy conversion on the higher sales levels, as well as an expected significant reduction in the impact of COVID-related costs.
The year-over-year improvement in operating margin reflected a strong conversion on the higher sales levels.
From a segment standpoint, in the interconnect segment, margins were 22.4% in the third quarter of 2020, which increased from 21.7% in the third quarter of 2019 and 20% in the third quarter -- sorry, in the second quarter of 2020.
In the cable segment, margins were 10.7%, which increased from 10.2% in the third quarter of 2019 and 9.4% in the second quarter of 2020.
Given the unprecedented challenges related to the COVID-19 pandemic, we are extremely proud of this quarter's performance.
Our team's ability to manage through all of the impacts of this crisis is a direct result of the strength and commitment of the Company's entrepreneurial management team, which continues to foster a high performance action-oriented culture and which has enabled us to capitalize on opportunities and maximize profitability in an uncertain market environment.
Interest expense for the quarter was $28 million, which was down from $30 million in the third quarter of last year.
The Company's GAAP effective tax rate for the third quarter of 2020, including excess tax benefit of $11 million associated with stock option exercises during the quarter, was 22.1% compared to 24.5% in the third quarter of 2019.
Excluding the excess tax benefit just mentioned, the Company's adjusted effective tax rate was 24.5% for both the third quarter of 2020 and 2019.
Adjusted net income of $336 million was 14% of sales in the third quarter of 2020, another confirmation of the strength of the Company's financial performance.
On a GAAP basis, diluted earnings per share increased by 22% to $1.12 in the third quarter of 2020 compared to $0.92 in the third quarter of 2019.
Adjusted diluted earnings per share increased by 15% to $1.09 in the third quarter of 2020 from $0.95 in the third quarter of 2019.
Orders for the quarter were $2,275 million, which was up 9% compared to the third quarter of 2019 and up 15% sequentially, resulting in a book-to-bill of 0.98 to 1.
The Company continues to be an excellent generator of cash.
Cash flow from operations was a strong $398 million in the third quarter or 119% of adjusted net income.
Our free cash flow was $330 million or 98% of adjusted net income.
From a working capital standpoint, inventory and accounts receivable and accounts payable were $1.4 billion, $1.9 billion and $1.1 billion respectively at the end of September.
And inventory days, days sales outstanding and payable days were 79, 72 and 61 days respectively.
All improved from the second quarter levels and all within our normal range.
During the third quarter, our cash flow from operations of $398 million, along with the proceeds from the exercise of stock options of $104 million, were used primarily to repurchase 1.9 million shares of the Company's stock for $202 million or an average price of $108, fund dividend payments of $75 million, fund net capital expenditures of $68 million, fund acquisitions of $50 million and fund net purchases of short-term investments of $9 million.
This increase is effective for payments beginning in January of 2021.
At September 30, cash and short-term investments were $1.5 billion, a majority of which is held outside of the US.
Total debt at September 30 was $3.8 billion with no maturities before the third quarter of 2021.
And net debt at September 30 was $2.4 billion.
Total cash on hand plus the remaining availability under our credit facilities was $4 billion at the end of the quarter.
And third quarter EBITDA was $568 million and our pro forma net leverage ratio was 1.2 times.
And first and foremost, I hope that all of you on the call here today, together with your family, your friends and your colleagues, are staying safe and healthy throughout the pandemic.
As Craig mentioned, I'm going to highlight some of our achievements in the third quarter, and most importantly, discuss the trends and progress across our served markets.
I'll then make a few comments on our outlook for the fourth quarter as well as for the full year of 2020.
With respect to the third quarter, amid what has been clearly an unprecedented and volatile year, I'm truly proud that we at Amphenol achieved record sales and adjusted earnings per share in the third quarter, realizing levels significantly above our guidance that we issued just 90 days ago.
Sales reached $2,323 million, an increase from prior year of 11% in US dollars, 10% in local currencies and 9% organically.
This strong growth was driven by increases in mobile devices, IT-datacom, industrial, military, broadband and the automotive markets, and was offset partially by declines in the commercial air and mobile networks markets.
We are particularly proud to have achieved a very robust 17% sequential growth from the second quarter, which was significantly higher than our original expectations.
As Craig mentioned, the Company booked $2,275 million in orders, and that represented a book-to-bill of 0.98 to 1.
Now, despite experiencing some continued operational challenges related to the pandemic, we generated excellent operating margins of 20.5% in the third quarter, and this was a full 250 basis point increase from our second quarter levels.
Just want to say that the Company's financial position remains extremely strong with our operating cash flow of $398 million, and that was particularly notable given the stronger-than-expected sequential growth from the second quarter.
And we continue to leverage that financial strength to return capital to our shareholders, both through our repurchase last quarter of 1.9 million shares of the Company's stock as well as the Board of Directors' approval of a 16% increase in our quarterly dividend that we are announcing today.
I'm extremely proud of the Amphenol team.
No question in my mind that the record results this quarter clearly demonstrate the true value of the agility, the discipline and the drive of our entrepreneurial organization.
Now, turning to the trends across our served markets, I would just comment that as we've seen this year so far, Amphenol's balanced and broad end market diversification is a uniquely valuable asset, especially in times of heightened economic uncertainty.
As many of our markets began to recover in the third quarter, we were able to quickly capitalize on the growth opportunities in those markets, while still retaining our broad exposure to new opportunities and new technology developments across all areas of the electronics industry.
The military market represented 12% of our sales in the third quarter.
Sales in this market increased by 6% from prior year, driven in particular by growth in military vehicles, naval, space, communications and airframe applications.
Sequentially, our sales increased by a strong 30% as we recovered from the impact of production restrictions that hit certain of our facilities related to government measures implemented in the second quarter to control the COVID-19 pandemic.
Looking into the fourth quarter, we expect sales to increase slightly from these levels.
And for the full year 2020, we expect a low-single digit increase in sales from prior year.
This full year performance reflects our leading market position and strong execution, offset in part by the impact of the pandemic-related production restrictions we experienced in the first half of 2020.
I'm very proud of our team working in the military market around the world.
They have maintained a singular focus on ensuring that our defense industry customers have uninterrupted access to our leading high technology interconnect products, which are critical to our customers' equipment.
We are encouraged both by the accelerating adoption of electronics in these systems, together with the overall favorable defense spending environment.
The investments that we've made over the last several years in both new technologies and the capabilities to produce them at volume have positioned us very strongly to be able to capitalize on these trends for many years to come.
The commercial aerospace market represented 2% of our sales in the third quarter.
Sales were down by 40%, a very significant level, as the commercial aircraft market once again experienced unprecedented declines in demand for new aircraft due to the pandemic-related disruptions to the global travel industry.
Sequentially, our sales were a bit better than expected, rising 4% from the second quarter.
As we look ahead, though, we expect the commercial air market to continue to be negatively impacted by the significant reduction in demand for air travel, which is occurring around the world.
Accordingly, we expect an approximately 20% sequential reduction in our sales to this market in the fourth quarter.
And for the full year 2020, we expect a roughly 35% decline from prior year due to the unprecedented demand disruptions that our customers are experiencing.
It's no question that these are difficult times for the entire travel industry and that that's having a serious impact on the market for commercial airplanes in the near term.
Nevertheless, our team remains committed to leveraging the Company's strong technology position across a wide array of aircraft platforms and next-generation systems integrated into those airplanes.
And we remain well positioned when this market eventually does return to growth.
The industrial market represented 22% of our sales in the quarter.
And our sales to the industrial market exceeded our expectations, increasing by 21% in US dollars and 18% organically, a very strong performance.
This robust growth was driven especially by the instrumentation, medical, industrial battery, heavy equipment, alternative energy and rail mass transit segments, really a broad base of growth that we saw in the industrial market.
Although we had expected sales to be modestly lower than the second quarter, we actually realized 11% sequential growth here in the third quarter, a very strong performance.
Looking into the fourth quarter, we expect a modest decline from these third quarter sales levels.
Nevertheless, for the full year 2020, we expect a low-double digit increase in sales from 2019 levels, an outstanding performance given the overall market environment.
I'm truly proud of our team working in the industrial market.
Whether enabling the growth in volumes of a wide array of medical equipment, managing through significant increases in demand for semiconductor capital equipment or executing on unprecedented demand for next-generation batteries, our global organization has reacted quickly to ensure that our customers around the world are fully supported, regardless of the many operational challenges that have arisen throughout the COVID-19 pandemic.
As we look toward the long term, I'm confident that our performance through this crisis has positioned us very strongly for the future.
And importantly, we continue to drive our leading development of next-generation interconnect, sensor and antenna products in support of our customers in the industrial market, who in turn are accelerating their adoption of next-generation technologies.
The automotive market represented 17% of our sales in the third quarter.
After a truly challenging second quarter during which the global automotive industry was deeply impacted by the COVID-19 pandemic, we were very pleased to have seen a very strong recovery here in the third quarter with results much better than we had originally anticipated coming into the quarter.
Our team's outstanding execution led to an increase in sales from prior year by 4% in US dollars and 1% organically, well ahead of our expectations.
Sequentially, our sales increased by truly significant 78% from the second quarter as our team was able to execute quickly on a recovery in demand from automotive customers in all regions.
Looking now into the fourth quarter, we expect automotive sales to further increase in the mid-single digits from these levels.
For the full year 2020, we expect a low-double digit reduction in sales, which does reflect the severe and sudden pandemic-related downturn in demand from automotive OEMs that we saw in the first half.
I'm extremely proud of our team working in the automotive market, who has clearly demonstrated both agility and resiliency in realizing these strong sequential growth levels.
In fact, our performance through this crisis makes me even more confident in our long-term prospects in the automotive market.
We've continued to expand our range of interconnect, sensor and antenna products, both organically and through acquisitions, all with the goal of enabling a wide array of onboard electronics across a diversified range of vehicles made by auto manufacturers around the world.
This consistent strategy will no doubt continue to benefit us as the automotive market recovers.
The mobile devices market represented 16% of our sales in the quarter.
And our sales to mobile device customers increased by a stronger-than-expected 25% from prior year, driven in particular by increased sales of products incorporated into laptops, tablets and wearables, and this was offset in part by slightly lower year-over-year sales to smartphones.
Sequentially, our sales increased by a much stronger-than-expected 37%.
And this was driven by higher sales across all the products that we serve.
Looking to the fourth quarter, we expect a slight increase from these already strong third quarter levels.
And for the full year, we anticipate sales to grow in the low-double digits from 2019.
And I would just note that this is well above our original expectations as we came into the year before we were hit with the pandemic.
While mobile devices will always remain one of our most volatile markets, our outstanding agile team is poised as always to capture any opportunities for incremental sales that may arise here in the fourth quarter or beyond.
Our leading array of antennas, interconnect products and mechanisms continues to enable a broad range of next-generation mobile devices, and this positions us well for the long term.
The mobile networks market represented 6% of our sales in the quarter.
And sales decreased as we had expected from prior year by 19% in US dollars and 21% organically, driven by lower sales to wireless operators, as well as some continued impact from the US government restrictions on certain Chinese entities that we have previously discussed.
Looking into the fourth quarter, we expect a further seasonal sales reduction of approximately 25% related to both OEMs and service providers.
And for the full year, we expect a high-teens reduction in sales, which reflects the impact of the US government restrictions as well as the COVID-19 pandemic.
Regardless of the near-term challenges in the mobile networks market, we're confident in the Company's long-term position in this important and exciting industry.
Our team continues to work aggressively to expand our opportunity with next-generation equipment and networks.
As customers ramp up investment of these advanced systems, we look forward to benefiting from the increased potential that comes from our unique position with both equipment manufacturers and mobile service providers around the world.
The information technology and data communications market represented 21% of our sales in the quarter.
Sales in the third quarter were once again much better than we had anticipated, rising from prior year by a very strong 24% in US dollars and 21% organically.
And this growth was really driven from increased demand for data traffic that continued to prompt both our OEM and service provider customers to increase their demand across virtually all segments of the IT-datacom market.
Sequentially, sales were down by less-than-expected 10% from our extremely strong second quarter.
As we look toward the fourth quarter, we expect a mid-teens sequential decline from these very strong third quarter levels.
And for the full year 2020, we expect sales to increase in the low-teens, reflecting the significant upside in demand we experienced in both the second and third quarters, offset in part by the pandemic-related disruptions we saw in the first quarter.
Our team working in support of the IT-datacom market has clearly distinguished themselves this year, reacting quickly to capitalize on unprecedented demand for our industry-leading high-speed and power products.
At the same time, we've not slowed down our efforts to further develop our broad range of industry-leading interconnect products in support of data communications networks around the world.
Indeed, we remain very encouraged by the Company's strong technology position in the global IT-datacom market.
Our customers continue to drive their equipment to ever-higher levels of performance in order to manage the dramatic increases in demand for bandwidth and processor power.
In turn, our team remains singularly focused on enabling this continuing revolution in IT-datacom.
The broadband market represented 4% of our sales in the quarter.
Sales increased by 5% from prior year, driven by stronger demand for home installation-related equipment from broadband operators.
On a sequential basis, sales increased by a stronger-than-expected 13% as our customers continued to upgrade their networks in support of the increased demand for high-speed data.
We expect sales in the fourth quarter to moderate from these levels on typical end-of-the-year seasonality.
And for the full year 2020, we expect sales to be roughly flat with prior year.
And this reflects the pandemic-related disruptions we experienced in certain geographies, offset by increased investments by our customers in support of higher bandwidth demand.
Now, turning to our outlook for the future, while our performance in the third quarter was very strong, there still remain significant uncertainties in the global market related to the COVID-19 pandemic, which does appear to be worsening in some regions of the world.
Assuming no new material disruptions from the pandemic, as well as constant exchange rates, for the 4th quarter, we expect sales in the range of $2,160 million to $2,200 million and adjusted diluted earnings per share in the range of $0.98 to $1.00.
This represents both sales and adjusted diluted earnings per share growth versus prior year of flat to up 2%.
Our fourth quarter guidance also represents an expectation for full-year sales of $8,333 million to $8,373 million and full year adjusted diluted earnings per share of $3.59 to $3.61.
This outlook represents sales growth versus prior year of 1% to 2% and an adjusted diluted earnings per share decline of 3% to 4%.
The expected decline in our earnings relates directly to the significant cost and disruptions associated with the COVID-19 pandemic that the Company faced particularly during the first half of 2020.
Now, let me just say that I'm extremely pleased by Amphenol's performance in the third quarter, especially our team's achievement of these new quarterly records in both sales and earnings.
Most importantly, I remain very confident in the ability of our outstanding management team to adapt to the continued challenges in the marketplace and to capitalize on the many future opportunities to grow our market position and expand our profitability.
I just want to assure you that our entire organization remains committed to fighting hard to secure the Company's financial performance, all while dedicating ourselves wholeheartedly to protecting the safety and health of each of our employees around the world.
And with that, operator, we'd be very happy to take any questions.

user
amphenol corp q3 adjusted earnings per share $1.09.
third quarter 2020 record results and dividend increase reported by amphenol corporation.
q3 adjusted earnings per share $1.09 excluding items.
q3 gaap earnings per share $1.12.
for q4 2020 expect adjusted diluted earnings per share in range of $0.98 to $1.00.
for full year 2020 expect adjusted diluted earnings per share to be in range of $3.59 to $3.61.
on oct 20, board approved 16% increase in co's quarterly dividend, from $0.25 to $0.29 per share to be first paid on jan 6, 2021.

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