Amphenol Corporation (NYSE:APH) Q3 2023 Earnings Call Transcript

And this was driven by broad-based strength across all aircraft applications. On a sequential basis, sales did decline by just 1%, and that was a bit better than our expectations coming into the quarter. As we look into the fourth quarter, we now expect a modest seasonal sequential decline in sales. And for the full year 2023, we expect sales to increase in the mid 30% range compared to 2022. I’m truly proud of our team working in the commercial air market. With the ongoing recovery and travel and thus demand for jetliners, our efforts to strengthen our breadth of high technology interconnect products while diversifying our market position into next generation aircraft are paying real dividends. We look forward to realizing the benefits of these initiatives for many years to come.

The industrial market represented 24% of our sales in the quarter. Sales in the quarter did decline by 6% in U.S. dollars and 13% organically as growth in medical, oil and gas and rail mass transit applications was more than offset by declines in other segments of the industrial market. I did want to highlight that our sales into the distribution channel were particularly soft in the third quarter as many distributors have taken steps to reduce their inventory positions in the industrial market. Sequentially sales declined by 4% from the second quarter, which was somewhat worse than our expectations coming into the quarter. Looking into the fourth quarter, we expect sales to moderate slightly from these third quarter levels. And for the full year 2023, we expect sales to be roughly flat versus prior year as some organic moderations are offset by the benefit of our acquisitions.

Despite this near-term demand pause in the industrial market, I continue to remain so proud of our outstanding global team working in this important area. They continue to pursue growth opportunities across the many exciting segments of this truly diverse market. And I remain confident that our long-term strategy to expand our high technology interconnect, antenna and sensor offering, both organically and through complementary acquisitions, has positioned us to capitalize on the many revolutions that will no doubt continue to occur across the industrial electronics market. The automotive market represented 23% of our sales in the quarter, and sales grew by a very robust 13% in U.S. dollars and 12% organically. This was driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicle platforms.

Sequentially, our sales increase by 7% from the second quarter, and this was much better than our expectations that we had coming into 3Q. For the fourth quarter, we expect sales to remain roughly at these levels, and for the full year 2023, we expect sales to increase by approximately 10% compared to prior year. I’m really proud of our team working in the automotive market. Their performance so far this year is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles, including electrified drivetrains, as well as a multitude of other exciting new applications. With the addition of Connor to the Amphenol family, we now have an even broader array of products for global electric vehicle manufacturers, and we look forward to benefiting from this position for many years to come.

The mobile device market represented 10% of our sales in the quarter and our sales moderated by 20% in U.S. dollars and 18% organically, as strong growth in smartphones was more than offset by declining sales of products that are incorporated into laptops, tablets, and wearables. On a sequential basis, our sales increased by a much stronger than expected 25%, and that was really driven by higher than expected sales in smartphones and wearables. Looking to the fourth quarter, we expect sales to moderate in the high single digits sequentially. As strong growth in smartphones, we expect to be more than offset by continued declines in laptops and wearables. For the full year, we anticipate sales to decline in the mid-teens compared to 2022. While there’s no question that mobile devices remains our most volatile and market, our team once again in the third quarter did an outstanding job of capitalizing on opportunities to realize incremental sales.

Their agility and ability to adjust resources in real time with the changing levels of demand continues to create value for Amphenol. As we head into the end of 2023, our team stands poised as always to leverage their leading array of antennas, interconnect products, and mechanisms to capture any opportunities for incremental sales that may arise this year and beyond. The mobile networks market represented 3% of our sales in the quarter. Sales declined by 35% in U.S. dollars and 43% organically as we continued to manage through a broad base reduction in spending by network operators and wireless equipment manufacturers. On a sequential basis, our sales declined by 6%, which was a bit worse than our expectations coming into the quarter. For the fourth quarter, we expect sales to decline in the mid to high single digits sequentially, and for the full year, we anticipate moderation sales in the sort of mid 20% range versus 2022.

Despite this more challenging short-term wireless investment environment, our team continues to work aggressively to realize the benefits of our efforts to expand our position in next generation 5G equipment and networks around the world. When customers once again drive renewed investments in these next generation systems, we look forward to benefiting from the increased potential that comes from Amphenol’s unique position with both equipment manufacturers and mobile service providers. The IT datacom market represented 20% of our sales in the quarter, and while sales did decline by 12% in U.S. dollars and organically from prior year, our performance in the quarter was actually much better than we’d expected 90 days ago. In fact, on a sequential basis, our sales increased by a strong 13% in the third quarter, much better than previous expectations.

The growth in our sales from the second quarter was driven by an accelerating surge in demand from customers who are making significant investments in AI data centers. We also continued to see robust orders for AI related applications, a confirmation of our team’s success in positioning Amphenol as a leader in the complex interconnect systems that support alternative intelligence or artificial intelligence. As we look towards the fourth quarter, we expect sales to remain at these third quarter levels, and for the full year 2023, we expect the mid-teens decline in sales compared to prior year. While we’ve certainly had to manage through the inventory adjustments in the broader IT market, I am more encouraged than ever by the company’s position in the global IT datacom industry.

This revolution in AI is creating a true and unique opportunity for Amphenol, given our leading high-speed and power interconnect products. With machine learning applications driving a more intensive usage of our highest technology interconnect products, we’re very well-positioned for the future. In addition, our team just continued to do an outstanding job developing leading high-speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. This creates a continued long-term opportunity for the company. Finally, the broadband market represented 5% of our sales in the quarter, and sales were down 8% in U.S. dollars and organically as broadband operators continued to moderate their procurement levels.

On a sequential basis, sales were down by 6% in line with our expectations coming into the quarter. For the fourth quarter, we expect the modest sequential increase in sales, and for the full year 2023, we expect sales to decline in the mid-single digits from prior year. Regardless of the current demand dynamics, we remain encouraged by the company’s position in the broadband market. We look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high-speed data applications to homes and businesses. In addition, we’re very well-positioned to benefit from the broad array of government-funded initiatives, particularly in North America, thereby giving us confidence for the future.

Now, turning to our outlook, there’s no question that the current economic environment remains uncertain, and assuming market conditions do not meaningfully worsen, and also assuming constant exchange rates. For the fourth quarter, we expect sales in the range of $3.090 billion to $3.150 billion, and adjusted diluted EPS in the range of $0.75 to $0.77. This would represent a sales decline of 3% to 5%, and an adjusted diluted EPS decline of 1% to 4% compared to prior year. Our fourth quarter guidance also represents an expectation for full-year sales of $12.317 billion to $12.377 billion, and full-year adjusted diluted EPS of $2.94 to $2.96. This outlook represents full-year sales and adjusted EPS declines of 2% and 1% to 2%, respectively. I’m very confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current dynamic environment, and to continue to grow Amphenol’s market position while also driving strong profitability.