安費諾 (APH) 2012 Q1 法說會逐字稿

Hello, and welcome to the First-Quarter Earnings Conference Call for Amphenol Corporation.

Following today's presentation, there will be a formal question-and-answer session.

(Operator Instructions)

Until then, all lines will remain in a listen-only mode.

At the request of the Company, today's conference is being recorded.

If you have any objections, you may disconnect at this time.

I would now like to introduce your host, Ms.

Diana Reardon.

Ma'am, you may begin.

Thank you.

My name is Diana Reardon and I'm Amphenol's CFO.

I'm here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our first-quarter call.

Q1 results were released this morning.

I will provide some financial commentary on the quarter, and Adam will give an overview of the business and current trends.

We'll then have a question-and-answer session.

The Company closed the first quarter achieving sales of $982 million, and EPS of $0.77, beating the high end of the Company's guidance.

Sales were up 4% in US dollars, and 5% in local currencies, compared to Q1 of 2011.

From an organic standpoint, excluding both acquisitions and foreign exchange, sales in Q1 2012 were about the same as last year.

Sequentially, sales were up 3% in US dollars and 2% organically from Q4.

Breaking down sales into our two major components, our cable business, which comprised 7% of our sales, was up 17% from last year, and 20% from last quarter.

The interconnect business, which comprised 93% of our sales was up 3% from last year and 2% sequentially.

Adam will comment further on trends by market in a few minutes.

Operating income for the quarter was $185 million, compared to $186 million last year.

Operating margin was 18.9% in Q1 2012, up from 18.5% in Q4, a strong sequential conversion margin of approximately 30% from Q4.

The Q1 2012 ROS of 18.9% compares to a very strong Q1 2011 ROS of 19.8%.

The year-over-year margin reduction in Q1 is mainly attributable to lower margins in our Interconnect business, which were 21% in the quarter, compared to 22.1% last year.

This was partially offset by an improvement in the margins in our Cable business, from 11.8% last year to 14.5% in the most recent quarter.

The reduction in interconnect margin relates primarily to the impact of increases in material input cost versus the prior year, particularly for precious metals and plastics.

These impacts were partially offset by the positive impact of cost reduction.

From a sequential standpoint, operating margins improved 40 basis points to 18.9%.

This margin improvement relates to good margin expansion on incremental volume in both the Interconnect and Cable businesses, with Interconnect margin increasing 20 basis points to 21%, and Cable margins increasing 140 basis points to 14.5%.

In addition, corporate expenses were essentially flat on higher sales, contributing 10 basis points to overall operating margin improvement.

We are very pleased with the Company's operating margin achievement this quarter.

2012 has begun with a more balanced operating environment from a cost inflation and demand perspective, and in that more normal environment, the Management team has achieved strong sequential improvement in margins, and remains fully committed to further margin expansion as business volumes grow.

Interest expense in the quarter was $13.7 million, compared to $10 million last year, reflecting higher average debt levels from the Company's stock buy-back program, and the higher interest expense associated with the Company's January senior note offering.

Other income was $2.2 million in the quarter, up from $1.7 million last year, primarily as a result of higher interest income on higher levels of cash and short-term cash investments.

The Company's effective tax rate in the quarter was 26.8%, compared to a rate of 27.5% in the first quarter of last year.

For the full year 2011, excluding one-time items, the Company's effective tax rate was 26.8%, and we currently expect a similar tax rate for the full year 2012.

Net income was approximately 13% of sales in Q1, a very strong performance.

Orders in the quarter were $1.028 billion, up 7% from last year, resulting in a booked-to-bill ratio of approximately 1.05 to 1.

In April of this year, the Company completed the acquisition of Nelson Dunn, a US manufacturer of high technology, value-added interconnect assemblies for the oil and gas market, with annual sales of approximately $45 million.

This acquisition complements and strengthens the Company's offering of harsh-environment products for the fast-growing energy markets.

The Company paid approximately $55 million for the company.

We continue to be excellent generators of cash.

Cash flow from operations was $164 million in the quarter, approximately 130% of net income, and we continue to target cash flow from operations in excess of net income.

From a working capital standpoint, inventory was at $659 million at the end of March, up 1% over the December quarter.

Inventory days declined one day to 88 days.

Accounts receivable was $771 million at the end of March, and days sales outstanding fell two days at the end of the quarter.

Accounts payable was $403 million at the end of March, and from a days perspective improved one day at the end of the quarter.

At the beginning of 2012, the Company issued $500 million of senior notes due 2022.

The notes were sold at a slight discount and carry a 4% coupon.

Proceeds from the notes were used to repay borrowings under the Company's revolving credit facility which matures in 2016.

At the end of the quarter, borrowings and availability under the facility were $216 million, and $784 million, respectively.

The note issuance has a number of benefits for the Company, including the extension and staggering of the Company's debt maturity schedule, the continued expansion of the Company's investor base, and an increase in the Company's availability and liquidity.

On the basis of the new debt structure, the Company expects Q2 interest expense to be up slightly from Q1 levels.

Our cash flow from operations of $164 million, along with net proceeds from the note sale of $494 million, cash and short-term investments of $12 million, and $28 million of option proceeds were used primarily for repayment of $481 million of borrowings under the Company's revolving credit and receivables facilities, net capital expenditures of $32 million, the purchase of approximately 1.5 million shares of the Company's stock for $82 million, dividend payments of $2 million, and an increase in cash of $106 million.

At the end of the quarter, the Company had approximately 5.1 million shares remaining for purchase under the $20 million share buy-back program that expires in January of 2014.

At the end of March, cash and short-term investments stood at $743 million, the majority of which is held outside the US.

Total debt was $1.4 billion, bringing net debt to approximately $652 million at the end of March.

The Company's leverage and interest coverage ratios remain very strong at the end of the quarter at 1.5 and 20 times, respectively.

Our EBITDA in the quarter was about $224 million.

From a financial perspective, this was an excellent quarter.

Before I turn the call over to Adam, I wanted to give you an update on our progress in the flood recovery at our Sidney, New York, facility.

As we have previously discussed, the Company, together with state and local government, is in the process of constructing a new facility in the local area outside of the flood zone to house the majority of the Company's Sidney manufacturing activities.

We expect the construction progress to take approximately 18 to 24 months and require an investment by the Company of approximately $40 million to $50 million, offset by government incentives of approximately $25 million to $35 million, for a net investment of approximately $15 million.

A portion of the government incentives will be paid out to the Company over an eight- to 10-year time period.

The Company has full support of its customers for the move and does not anticipate any business disruption as a result.

Relative to sales, we experienced no disruption in manufacturing activity or sales in the first quarter of 2012, and continue to expect the full recovery of approximately $18 million or so in lost sales as we go through this year.

Adam will now provide an overview of the Business and current trends.

Thank you very much, Diana, and I'd like to extend my welcome to all of you here on the phone today.

I'm going to spend a couple of minutes to highlight some of our achievements in the first quarter that are notable from my perspective.

Then I'm going to discuss some of our trends and progress in our served markets, and then finally I'll comment on the Company's outlook for the second quarter and the full year 2012.

We're very pleased to report results in the first quarter above the high end of our guidance, despite continuing uncertainties in the global economic environment.

As Diana mentioned, revenues increased 4% from prior year, and 3% sequentially.

Importantly, orders in the quarter reached a new record, $1.028 billion, representing a 1.05 booked-to-bill, certainly creating confidence for the future.

We find it especially rewarding that our Management team's intense focus on managing all elements of profitability led to stronger sequential conversion margins and resulted in our operating margins expanding to 18.9% in the first quarter.

I'm very proud of the agile and entrepreneurial Amphenol organization, all of whom are capitalizing on the many opportunities created by the revolution in electronics, and are continuing to demonstrate the strength and discipline necessary to drive strong operating performance for the Company.

In addition, we're very excited that our acquisition program continues to create significant value for the Company.

As Diana mentioned, in early April we completed the acquisition of Nelson Dunn.

Nelson Dunn is a US-based manufacturer of high technology, value-added interconnect product products for the oil and gas market, with annual sales of approximately $45 million.

This important acquisition builds upon our industry-leading offering of products to oil and gas exploration and drilling customers, allowing us to offer total interconnect solutions to this important and dynamic market.

This is a market where Amphenol has very clear leadership position in the interconnect industry.

It's also consistent, this acquisition, with our ongoing and successful strategy to acquire complementary companies with strong management, leading technologies, and excellent market presence.

As we welcome this strong new team to Amphenol, we remain very confident that our successful acquisition program will continue to be a great contributor to Amphenol in the future.

Turning to the trends and progress in our served markets.

Once again, our results in the first quarter confirm that the end market diversification of Amphenol is a tremendous asset for the Company.

First, the military market represented 15% of our sales in the quarter.

Sales in that market declined by 9% from prior year, on continued conservatism by defense customers, but increased by 5% sequentially as customer demand stabilized, and as our flood recovery efforts were completed.

While there is still some uncertainty in the defense budgets of many developed economies, we are actually very encouraged to be seeing many clear indications of expanding investments in new electronic functionalities in military equipment.

We expect demand in the military market to strengthen further in the second quarter, and we believe that the increase in military electronics creates the real opportunity for continued long-term growth in this important market.

The commercial aerospace market represented 6% of our sales in the quarter, and sales increased a very strong 27% from prior year, and 15% sequentially on increased jetliner production, as well as growing content on new airliner platforms.

We continue to be encouraged by the technology transition that is occurring in the commercial air market.

New airplanes are adopting innovative electronic features, and are incorporating in particular new, higher-technology interconnect solutions to enhance fuel efficiency.

Looking forward, we expect stable sales at these higher levels in the second quarter, and we continue to have a positive outlook for this market in 2012.

Our sales into the industrial market represented 12% of total Company in the first quarter, and sales increased 9% from prior year, as well as 9% sequentially, on stronger demand across most areas of this market.

We continue as a Company to make excellent progress, broadening our technology offering, and increasing our penetration of many exciting growth segments of the industrial markets, including in particular alternative energy, oil and gas, heavy equipment, and factory automation.

In particular, we are very excited and anticipate strong momentum in the oil and gas segment with the addition of Nelson Dunn.

We expect the overall industrial market to strengthen further in the second quarter, as new interconnect technologies are adopted across a wide variety of applications and segments in this market.

Our sales into the automotive market represented 12% of the Company in the first quarter.

Sales increased a very strong 66% from prior year, and 27% sequentially, as we continued to benefit from an increase in vehicle production volumes and new electronics applications, together with the significant contributions from our recent automotive acquisitions.

We have been very successful in our drive to broaden the Company's automotive product offering, both through internal technology developments, and our continued focus on acquiring complementary companies in this market.

In particular, we're very pleased that that has resulted in the automotive market now representing 12% of our total sales in the first quarter.

We expect demand to remain stable at these higher levels in the second quarter, and look forward to continued long-term progress in this exciting market.

The mobile devices market represented 17% of our sales in the quarter.

Sales decreased 5% from prior year, as stronger sales of products into new tablet computer platforms was more than offset by reductions in sales of mobile phone products due to dynamics in that segment.

Sales declined 16% sequentially as expected, on normal seasonality.

We expect demand to strengthen from these levels in the second quarter and remain excited by our strong position in new smart mobile devices, in particular tablet computers, and the potential that these create in this year.

We have a very strong technology position in this important end market due to our comprehensive portfolio of products for mobile devices, as well as our preferred supplier relationships with all major device makers.

The mobile networks market represented 10% of our sales in the quarter.

Sales decreased 21% from prior year, but increased by 6% sequentially.

Although wireless spending remains at lower-than-anticipated levels, we are encouraged by this recent uptick in demand, as equipment makers are working through their over-inventory positions, and as mobile operators resume spending on system upgrades on expansions.

We expect demand in the mobile networks market to increase further in the second quarter as operators ramp up their network build-outs in order to relieve the pent-up demand for increased coverage and capacity which exists on virtually all wireless networks.

And, we look forward to further long-term strength, driven by our broad designing positions on the many new base-station platforms, as well as by our strong position with the diverse range of global wireless operators.

The information technology and datacom communications market represented 20% of our sales in the quarter.

Sales increased 8% from prior year, with strength in particular in networking equipment and servers, and declined slightly from the fourth quarter on a continued moderation and procurement activity by customers in this market.

As our customers continue to strive for new levels of equipment performance in order to handle the dramatic expansion of data traffic that's ongoing, our pipeline of new design opportunities with our next generation products has strengthened significantly.

We believe that the recent pause in procurement activity should moderate going forward, leading to higher levels of demand in the second quarter, as these next generation systems are released to the market.

The broadband market represented 8% of our sales in the quarter, and sales in that market increased a very strong 14% from prior year, and 19% sequentially, as we benefited from increased spending by cable operators, as well as from accelerating sales of new value-add products into both cable systems and head-end equipment.

We're encouraged by our increasing position with new cable and interconnect products, as well as by our strong position in international markets.

In particular, these high-technology products helped in part to support the increase in our cable margins to 14.5% in the first quarter.

We expect demand to further improve in the second quarter, and look forward to realizing the further benefits of our diversification efforts.

In summary, with respect to the first quarter, I'm extremely proud of our organization, as we continue to execute well in what is still a very challenging and no doubt dynamic market environment.

In particular, we're pleased with the Company's renewed expansion of our industry-leading margins, as well as our sustained financial strength.

Amphenol's superior performance is a direct reflection of our distinct competitive advantages, our leading technology, our increasing positions with customers across a diverse range of markets, our worldwide presence, a truly lean and flexible cost structure, and most importantly, an agile and entrepreneurial Management team.

Looking forward, based on constant exchange rates, as well as based on normal seasonal patterns, we now expect for our guidance in the second quarter, as well as for the full year of 2012 the following results.

We expect sales in the range of $1.040 billion to $1.055 billion, and $4.105 billion to $4.190, respectively.

We expect EPS in the range of $0.82 to $0.85 for the second quarter, and $3.30 to $3.38 for the full year.

For the full year, this guidance represents sales and earning per share growth of 4% to 6%, and 8% to 11%, respectively.

We're very encouraged by this strong outlook in sales and earnings, especially given the many continuing uncertainties in the global economy.

There is still an ongoing revolution in electronics, and that revolution continues to create many opportunities for Amphenol.

I am confident in the ability of our outstanding Management team to continue to capitalize on these opportunities and to grow our market position and expand the Company's profitability, and thereby, to drive the continued superior performance of Amphenol.

Thank you very much, and operator, at this time we'd be very happy to take any questions.

Craig Hettenbach, Goldman Sachs.

Thank you.

Adam, can you touch on capital allocation?

It looks like M&A is coming back a bit, but you're also buying back stock, you recently increased the dividend.

Just an update on your overall approach there as you go forward?

Sure.

Maybe I can take that one.

I think that we certainly continue to feel that the Company's financial strength is an important strategic advantage that lets us take -- really take advantage of opportunities that come along to deploy that strength as they present themselves.

This bond deal that we did at the beginning of the year I think further strengthened the Company from a liquidity position perspective.

As you know, we used most of that to pay down revolver borrowings, and so at the end of the quarter we had about $1.5 billion of capacity between the cash and revolver availability, not to mention the strong operating cash flow that the Company continues to generate.

From a prioritization perspective, to get to your question, I think that we continue to prioritize the use of that financial strength, certainly towards our acquisition program.

This, I think, we both believe that this remains the best strategic and return potential for the Company.

We closed the acquisition in April that Adam just referred to, and we continue to see a lot of potential for acquisitions as the industry continues to consolidate.

This continues to be a very important focus for the entire team.

Last year, as you know, acquisitions contributed just shy of a third of our growth, and we expect to continue to have the program make a strong contribution in 2012 and beyond.

In addition to prioritizing the financial strength for use in the acquisition program, we continue to view both stock buy-back and the dividend as good options to return value to shareholders.

Last year we bought about 13 million shares, in Q1 we bought about 1.5 million shares.

We've got just over $5 million left on the current program, and we, in addition to that increase, we approved an increase in the dividend to just under 1% yield, I think back in the fourth quarter at the time of the announcement.

As we go along, I think on a quarter-to-quarter basis, we're going to be looking both to continue to fund the acquisition program, and I think you'll also see us look at stock buy-back as a good option.

We will also continue to reconsider the dividend level as we go along, and I think that you'll see us just deploy a very thoughtful and balanced approach to using the Company's financial strength.

Let me just also add, Craig.

What does this all come down to?

You have heard many times us refer to the agility of our Management team, and no doubt about it, as Diana works and I work together with her on our capital structure, we also strive to have agility and flexibility, and importantly, relative to the acquisition program.

We continue to see excellent opportunities in that program.

We're very excited that in the last two quarters, each of those quarters we've had a very nice acquisition and a real diverse array of markets, and we still have in our pipeline great opportunities looking out into the future.

It is a market, the interconnect market, which naturally creates these great acquisition opportunities, and it is through that financial flexibility that we have, together with the organizational flexibility, and the unique structure that we have, that makes those acquisitions so viable and creates so much potential value for the Company.

Got it.

Thank you.

If I could just ask one follow-up, Adam.

You commented on the record bookings and 1.05 to 1 booked-to-bill.

Can you talk about just the visibility that you're seeing from your customers today, and maybe how that compares to recent months?

Yes.

No, we're very excited by the bookings in the first quarter, and we had a positive booked-to-bill in the fourth quarter as well, and that's really what gives us the confidence to have this strong sequential outlook looking into the second quarter.

I wouldn't tell you necessarily that visibility has gotten noticeably better or worse compared to the fourth quarter, the third quarter.

I think customers continue to be cautious.

We see across all the markets still caution.

I mean, every one of our markets you hear every day about some sort of dynamic.

Let's put it that way, that it's happening.

I think in such an environment where the macroeconomic environment is uncertain, and where there continue to be internal dynamics to those markets, customers don't want to over-extend themselves.

What does that mean for us as a Company?

It means that we've just t got to be reactive.

We've got to have our operational excellence at such a stage that we can convert those orders in the short time that sometimes they're given to us.

I would not tell you that the orders are due to customers just pulling out the lead times because they now feel very different than they did three months ago.

Amitabh Passi, UBS.

Hi.

Thank you.

Adam, my first question just had to do with a couple of your end markets.

I think the first one on everybody's mind is an explosion at a chemical facility in Europe.

Just wondering if you're hearing or seeing anything from your automotive supply chain, how concerned are you about this?

Just related, or on the wireless infrastructure side you talked about some strengthening late in the quarter.

Just curious how broad-based that was, or whether it was specific to any certain geographies.

Sure.

Well, with respect to this unfortunate explosion in Germany, we have not seen any impact to certainly our products.

It's not -- the resin that was involved has nothing to do, we understand, with any of the connector or cable assembly products that we make.

We don't have any direct impact.

What I understand is that some of the automotive OEMs, in particular those outside of Europe, are somewhat concerned about the availability, but that the Europeans are not so concerned.

Our product is predominantly sold into the European market.

Europe is still the large portion of our automotive business, and we have not heard anything from any of our customers suggesting that this will have any significant ripple effect into our business at this point.

Obviously, it's unfortunate.

I think some people died in the explosion, and I know that the auto makers are convening to try to find a quick solution here.

Relative to wireless infrastructure, it is true, we saw some strengthening in the quarter, certainly from a sequential basis, even if it is still down quite significantly on a year-over-year basis.

I think there was significant inventory positions that were built.

We talked about this last quarter, where the expectations of our customers going into the fourth quarter were just very different than in the end the demands from their operator customers.

I think that is starting to work its way out.

I think we've seen some of those benefits.

Then we're starting to see the early signs, sort of the proverbial green shoots of the build-outs of some of these next-generation networks in certain markets, and I think that is manifesting itself as well in that sequential performance.

We look forward to further sequential strength in that market, even if still that is -- we're not happy where it is on a year-over-year basis.

Then just as my follow-up, Adam, I was listening to a semiconductor Company this morning and they were talking about the mood in Europe being marginally better.

Just wanted to get your perspective, talking to industrial automotive, your broad set of customers, how would you say the general overall mood, spending environment, is thus far this year, in particularly Europe?

I think it's very hard to say off the top.

I'm not sitting in Frankfurt at the Central Bank here to tell you exactly what's going on.

Our customers sell a lot of their products outside of Europe.

You look at the automotive market, you look at the machine tool industry in a place like Germany, their big market is no longer only in Europe.

I think that the impact on our business and on our customers relative to whether that is Spain or Greece or whichever country of the week is causing some problems in the debt market, we have not seen any significant impact.

We saw in the fourth quarter some moderation in demand in the industrial market, predominantly driven by distribution, where I think the distributors more saw, hey, there was a macro issue, we should trim back our stock.

We see actually still continued good performance in Europe, and in particular the growth being driven by sales into countries like China of cars and of automation equipment and robots and things like that.

We have not seen any market change in that, and the kind of clouds that you read about in the paper, yes, they may impact somewhat the mood of customers, but we still see that there's good opportunities there.

Matt Sheerin

Yes thanks, and good afternoon.

Just a question, another end market Adam for you on the military and aerospace.

You talked about the differences there, and obviously sounded more encouraging on the commercial aerospace side.

Are you starting to see more stabilization in terms of the military business, and what's your outlook this year for the defense portion of your business?

I think as I mentioned, the military business on a year-over-year basis was down, and certainly we don't like any market to be down, but we were pleased to see there was a stabilization in the demand, and that we actually grew on a sequential basis by 5% in the military market.

Our outlook for the second quarter would be to have a further sequential improvement in our sales into that market, and not all of that came just from flood recovery.

It came really also from a stabilization.

The one thing that I will just reiterate is yes, we know that the budgets are what they are.

There's no doubt about it that there will be budget cuts in certain markets, the US being certainly the most notable one, but clearly our engineering teams, the front-end marketing organizations that we have in of our military businesses, they are working at a pace actually that is quite significant on new electronics applications with customers in the military market -- I mean, applications that you would normally think well, that's probably going to get cut.

In fact, the military is striving to find new electronics that can allow them to save, in the end, money.

Whether that is a UAV, where you don't have to train the pilot; whether that is an early warning radar system that is different from an AWACS plane; you name it, there are a lot of new technologies that the military is developing today, actually with a real sense of urgency, that will create budget savings over the next decade.

I think it's those areas, where electronics create a real bang for the buck, that we see the true opportunity to continue to sustain that business, and to have that business be a contributor to Amphenol in the future.

I think what's encouraging over the last couple of quarters is that the design activity, the activity engineer-to-engineer with our customers is not slowing down, and to the contrary appears to be moving at a pace that would suggest that there's great opportunities ahead.

Okay.

That's very helpful.

Just as a follow-up, looking at the incremental margin contribution in the last quarter, pretty strong at 30%.

Looking at your revenue and EPS guidance for the June quarter, that implies sort of a mid-20s number, which is still pretty strong.

As we look at through the rest of the year on the higher volumes, do you expect similar contribution, or would that be lower because you're coming off of a lower base here?

I think, Matt, from a sequential perspective, we're looking to sort of meet or beat this 25% sequential conversion margin target.

We did very well from an execution standpoint in the first quarter.

I think the operating team really came through with a strong performance.

As you said, that's incorporated also at the -- around that 25%-plus level in Q2, and we would expect to continue that type of a performance on a sequential basis as we move through the rest of the year.

Wamsi Mohan, Bank of America.

Yes, thank you.

Diana, you noted that the interconnect margins year-on-year were pressured by raw material headwinds which were offset by some cost reductions.

I was wondering if you could talk a little bit about pricing as a lever to offset that pressure?

Is the demand environment such that it's extremely difficult at this point to push through price increases?

What are your expectations for price increases as you go through the course of the year, given that the recent booked-to-bill trends have somewhat improved?

I think in general, we feel that the overall environment economically is a lot more balanced than it was last year.

I think that last year there was a real disconnect between the inflationary pressures and demand, so I think we feel better in general about the environment, which I think means that we would expect the relationship between cost and price to be more normal.

In terms of what is the aggregate impact of pricing on the business, this isn't typically a number that we compute or disclose because the business is so diverse diversified and the markets really vary.

Pricing trends tend to follow the pricing trends that the end equipment that we sell in to have.

You have what is typically some relatively significant price pressure in the communications pieces of the market, and it's less so when you get into the industrial and then into the defense market.

I think that we do feel that the environment is more balanced.

We feel good about the profitability we were able to achieve in the first quarter.

Our guidance reflects a continuation of what we would view as more normal conversion margins, allowing us to continue to expand margins sequentially as we go along during the year.

I think that balance between cost and pricing we expect to be better in 2012 than it was last year.

Okay.

Thanks, Diana.

As a follow up, maybe a quick one for Adam here.

For the commercial aerospace market, Adam, can you give us some sense of what the incremental contribution would be if we split it from unit growth and content growth.

It's great if you can give that level of detail.

If not, can you comment at least on which will be a larger driver, will it be sort of the unit growth, or is it sort of more the content growth on top of that?

I'm not going to go into a lot of specifics for competitive reasons, but let me just tell you that as we look forward, obviously we have some content on existing platforms, and as the units go up, that can be a good contributor.

As I've talked about in the past, the new airplane platforms have not only a tremendously higher degree of interconnect content, but the technology underlying that product is also more complex, and thereby it's something where our engineering know-how has really proved to show a lot of value with our customers, and thereby our participation is broader.

I would just tell you as new platforms ramp up, as they get released, clearly there is a more multiple -- multiplier effect on that, because the units will grow together as the content grows.

I think that that contribution, when those plains reach a full volume, would certainly be more than the contribution of growth of legacy platforms.

Today those new airplanes are still really more in their infancy, and so our growth is probably more balanced between that.

Mike Wood, Macquarie Capital.

Good afternoon.

Great job on the margins, Adam and Diana.

Thank you.

Thank you very much.

Historically, you've done a great job leveraging SG&A and lowering it as a percentage of sales.

Recently it seems to be tracking sales growth or be above it.

Just given the restructuring you've done late last year, what should we expect from this in the near, intermediate future?

Sure.

Look, I think that we have historically, as you mentioned, have done a very good job in terms of managing SG&A cost, and we certainly believe that getting a return on that very important investment is important to the performance of the Company.

In Q1 as you point out, SG&A was about 12.6% of sales, and this is about the same percentage that we had in Q4, and actually a little bit higher than Q1 of last year.

We do try to target SG&A to grow at a slower pace than sales, and we've been pretty successful in doing that, I think.

On a quarter-by-quarter basis, we do sometimes have quarters that are a little bit higher.

About a third of the increase over last year is really due to higher stock option expense, which is included in SG&A.

It also includes the amortization of intangibles relating to the acquisitions that we do.

Those two items put a little bit more pressure on SG&A growth on a year-over-year basis.

12.6% is not the lowest level that we've ever achieved as a Company, but relatively speaking it's still a very low SG&A level and continues to reflect excellent cost control and efficiency by our operating units and certainly the benefit of expansion of SG&A in low cost places.

We do continue to deploy a very strong return on investment philosophy with both our sales and engineering efforts.

We also believe that having these costs in profit centers will continue to sharpen the focus and align these costs much better with the overall business objectives of growth and profitability.

We do still expect when we would look out at the full year to see SG&A grow at a slower pace than sales, but as I said, this can vary sometimes quarter to quarter.

We've historically operated with a very efficient and effective SG&A structure.

It's driven great new product development, technology expansion, and we continue to believe that that's going to be the same as we move ahead.

Very helpful.

The cable segment operating margins had a big move up.

How much would you attribute to internal actions versus just the competitive landscape?

The increase in margins in cable was certainly influenced by some degree by the big increase in volume that they experienced.

In addition to that, I think as Adam said in his comments, the mix of product there was a mix that included some more value-added type products where we're able to achieve higher margins, and in addition to that, the particular materials that are used in that particular business, particularly in the cable, which are aluminum and copper, these are two materials that are somewhat better than they were on a year-over-year basis.

But from a sequential improvement, this is really the volume and the mix of products.

Shawn Harrison, Longbow Research.

Just a quick follow-up to that last point before I get to my other question.

With the mix benefit from the more value-added this quarter, do you expect cable margins to hold within this range going forward?

Then the follow-up question is just considering the implied organic growth within the updated guidance for the year still around 2%, which while good in an uneven market is maybe a little bit less than what I think people maybe believe Amphenol's potential is to do.

I guess the question is, what end markets could drive upside to that organic growth as we look out for the rest of the year, just to maybe get you a little bit above, say, where the industry forecast is right now, which I think is around 3.5%, and Amphenol typically doesn't under-grow the industry?

Sure, I'll take the first part of the question.

I think that we expect in the second quarter to see some volume growth relative to cable and the broadband market.

I think that we would expect at this point the cable margins to be somewhere within the same kind of a range that we see in the first quarter.

Adam, if you want to take the second question?

Yes, Shawn, appreciate the question.

I think relative to the Company's organic growth, first of all we are always prudent in how we look at the performance in the year.

We continue to see that there are uncertainties across the markets and the macro environment, and so we believe that this guidance today is actually still a very strong and prudent guidance.

To your question of what markets could drive growth and what markets do we have good expectations for, obviously some of our markets have great momentum right now.

The industrial market, in addition to the acquisition that we made, has had very strong organic growth.

I mean, growing last quarter by 9%, growing sequentially as well by that same amount, and we see in the industrial market just tremendous opportunities across the board.

Automotive, another market where we believe the expansion of electronics, together with not such a bad unit growth really creates for Amphenol tremendous opportunities here.

I think the commercial air market is one that we've spoken about, as well, where we see that that's a market that should out-perform the total Company, and clearly has potential beyond even those expectations, obviously dependent on the timing of when platforms fly, and which platforms those will be.

Clearly, the order intake by the commercial air industry continues to be very strong.

They really do not let up in terms of the number of orders that are being given to the major plane makers.

Those are markets where I think we have good potential.

We obviously would hope that an IT market where we've had a couple of quarters of more of what I would call a pause, there is absolutely the demand among enterprises and carriers and institutions to upgrade their data networks to deal with the flood of data that is hitting them.

I mean, whether it is the mobile devices that are there, whether it is cars that are now connecting to the Internet, you name it, there is just a tremendous increase in the type and the quantity of data that is going through these systems, and that's at every step of the chain, so-to-speak.

I believe that the IT market is one where the spending has to come.

What is the timing of that spending is very hard to predict.

Is that going to be all at once?

Probably not.

But our companies and service provider is going to wake up and say we've got to increase our capacity.

I think that will happen at some point.

I also believe that that same dynamic is true in wireless infrastructure, even if today we are at much lower levels than that market was in the past.

You just have to be a consumer, like I'm sure we all are on the phone, to know that the service is still terrible, and that the potential of what the wireless networks can do, and the experience that they can provide to their customers is far beyond where they're today operating.

That just means they need to upgrade the equipment.

I think those are markets where you could have performance.

At the same time, in light of the uncertainties that are around them, this is what we believe is a very strong and very prudent outlook for the Company.

Sherri Scribner, Deutsche Bank.

Hi.

Thank you.

Adam, just following up on some of your comments about the sort of pent-up demand for improved networks, I know that the telecom market has been weak for a number of quarters.

We've had a bit of an inventory build.

It sounds like a lot of companies are a bit more positive on the second half of the year, and I wanted to get a sense from you, are you seeing more design activity, more interest, and are you getting a sense from your customers that we might see some improvement in the second half, or what are your customers telling you?

You're talking here about the wireless market in particular?

Well, not just the wireless market but also the carrier market and -- yes.

Sure.

No, I think we saw in this quarter, as I mentioned before in the wireless carrier market, a sequential up-tick in demand, which was very pleasing to see because that had not performed to our expectations previously.

We saw good year-over-year growth in the IT market, which includes carrier telecommunications type equipment.

Is that going to be kind of a second-half boom?

I don't know that I would predict that there would be a boom in the second half.

Clearly, in the fourth quarter there was a tremendous over-inventory position in both of those markets.

I think they're working through that inventory in both those markets.

I know that empirically there is a demand for the equipment, a demand for the capacity that that equipment can create.

I do believe that there can be good potential for those markets on a sequential basis going forward in the year.

Again, what does that mean?

Is there kind of a hockey stick?

Certainly, we don't anticipate in our guidance any kind of such a hockey stick in terms of massive ramp-up in growth in the second half, but I certainly would hope that there would be better performance in the second half than in the first half.

Okay, thanks.

Then just looking at your growth rate and the implied growth for this year, clearly well below your historical growth levels.

Would you anticipate that as we move through sort of the slow economic recovery and into more of an expansionary period, would you expect to be able to get back to your past growth levels, or do you think we're sort of in a slower growth environment for the Company?

Thanks.

No.

Look, we have always had a very clear mission as a Company, and that is to out-grow the interconnect market, and we have done that over the better part of a dozen years by more than double, and while doing that, to grow our margins at also a faster pace.

We do not at all give up on that mission, far from it.

I think our team has a tremendous conviction to continue that out-performance on the broader market.

The interconnect market alone is also has a great long-term potential.

I've referred a couple times to what I term this revolution in electronics, and that is a revolution that drives new functionalities, it creates new applications, and thereby creates higher technology requirements for interconnect products.

So we think that the long-term growth opportunity in the industry and the opportunity for Amphenol to out-perform that industry is as strong today as it ever was in the past.

You're right, we are in -- there is sort of a slow recovery time period that we are in today, but no doubt about it -- this team, this Management team around the world is fully committed and confident to be able to continue the track record of growth and success that we've had in the past.

Jim Suva, Citi.

Thank you, and congratulations to you and your team.

First question is regarding the M&A process, or M&A pricing environment.

Have you seen any change in pricing over the last few years, especially with Tyco Electronics buying Deutsche, and the low interest rates -- any change in pricing?

Second question is, you talked about no change in auto from the resin explosion.

What about from the Kansas tornadoes, does that impact your commercial aerospace outlook at all?

Thank you, and again, congratulations.

Sure, thank you very much, Jim.

Relative to your first question on M&A pricing -- look, every Company has a negotiation around it, and an appropriate price.

I think we don't always pay exactly the same price, and what our competitors pay for their price, they certainly all have great reasons to do that, so I wouldn't necessarily say that there is any sort of empirical change in the M&A pricing, or the multiples that companies will pay.

Our strategy for M&A is a very long-term strategy, it's one where we incubate relationships with companies and we eventually reach a meeting of the minds with the owner of that Company with a price that is a fair and reasonable price from both of our perspectives.

There is not a page in the newspaper that you can find that says now the new multiple is X, Y, or Z.

I don't see necessarily that there's a big change.

The one thing that certainly we hear some of is that is there a different willingness of people to sell, given certain entrepreneur's expectations of tax law changes.

That may be something that could happen.

Not that we have seen in any significance, but it's something that you can sort of understand as an outsider.

If people think tax rates are going to go up significantly, maybe they would choose to sell at a different moment.

Now, you mentioned as well this unfortunate tornado that hit, I think, Spirit Aero Systems in Kansas.

This doesn't have any meaningful impact to us, and we certainly wish them all well in their recovery.

We have our own history in dealing with natural disasters.

Not tornadoes, fortunately, but floods.

I know that that is a very, strong team out in Wichita, and I would be shocked if they did not recover at a much faster pace than the outside world would expect.

William Stein, Credit Suisse.

Thanks.

Also on M&A, actually.

It seemed at the end of last year that prices were going a bit nuts with that Deutsche deal, and there was also (inaudible) that was very high multiple.

I think the deal you did, Adam, that you announced last quarter looked to be at a higher multiple, but the one that you announced today looks actually less costly.

I'm wondering if you can comment on profitability or growth on this deal, and then also maybe comment a little bit on the backlog.

I know it's always full of many different types of deals, but I'm wondering if there's been any shift in terms of the size or timing or growth or margin profile of the deals that you see as potentially closing in the next year?

Sure.

No, I think our deal that we closed in the fourth quarter, FEP, we paid a very reasonable multiple for.

It would not have been a multiple like the ones that you're quoting of the other deals.

The one that this quarter we also paid what I would consider a reasonable and fair multiple for the Company.

Different markets have different multiples, as well.

Different companies have different dynamics and risks to them.

Both of these companies were good contributors from a margin standpoint.

There was not a massive difference in terms of the profitability or growth profile of those companies.

They're both excellent companies, and we're very proud to have them both now as part of Amphenol.

Again, with the Management teams together that were running that Company before, we have all the same people as part of Amphenol today.

I think that is a unique aspect to how we do our acquisitions, and it also gets more to that value question.

Because for us, what is critical in an acquisition is technology and people, and then is it complementary?

As you look at these two recent acquisitions, and you go back even to the [Semtomi] acquisition which we did earlier last year, all of those companies have not had one change in the management team as they have joined Amphenol.

They continue to run it, but they run the Company in the broader context of Amphenol, with the broader opportunities that we can create for those companies.

Our goal, truly as it relates to these multiples, is that in hindsight the multiples should not matter, because we will have created a lot of value with those companies, long-term, on the backs of the same individuals who created that successful business before.

Now, relative to the backlog of our M&A pipeline, we still feel that's a very good backlog.

I wouldn't say that there's any difference to it.

I mean, obvious there have been some big companies who have been acquired recently, but that doesn't change the nature of our backlog as a Company.

It is a fabulous industry from the standpoint of the opportunities to acquire entrepreneurial companies with excellent technology that are still complementary to Amphenol.

Despite the tremendous breadth that we have as a Company, having really industry-leading breadth of products and technologies and markets, every day we happen upon, it seems, a new Company that is in fact complementary, despite the incredible scope that we have already built as a Company.

That gives me a lot of optimism for the fact that that program can have good continuation in the future and will continue, as Diana referred to in her remarks, will continue to be a good contributor to the growth of the Company long term.

Great.

Thank you very much.

Thank you very much, Will.

Amit Daryanani, RBC Capital Markets.

Thanks.

Good afternoon, guys.

Two questions from my side.

First, I was just trying to understand the fiscal year guide a little bit better.

When I look at the mid-point of your fiscal year guide, looks like you're basically implying revenues to grow flat to 1% from June to September, September to December.

Yet when you talk about end markets, you seem to be fairly positive I think in terms of growth expectations in those end markets.

I'm trying to reconcile the delta between a positive commentary on the end markets versus a guide that implies flattish back half.

Is that typical Amphenol conservatism, or am I missing something there?

I think, Amit, this is -- as you know, we guide based on what we see at the time.

We do a very bottoms-up forecasting process at all of our units and all of our markets.

I think mathematically, what you say I think is correct, and we obviously have given guidance specifically for Q2, and then for the full year and not having given it specifically for Q3 and Q4.

Q3 can sometimes be -- go sort of either way versus Q2, depending a lot on how the communications markets flow, depending on product introductions, timing, and these types of things.

I think that the guidance as we've put it together at this point is what we believe is prudent and makes sense and it's what we expect at the time.

As we go along, as we go through Q2 and close out that quarter we'll certainly update the guidance when we get to that point.

I guess could you just talk about the debt that you guys refinanced in third quarter?

Could you talk about -- maybe I missed this -- what impact did that have on the EPS for the quarter, and really for the full year?

Sure.

The $500 million of notes is at about a 4% rate.

These are 10-year notes.

Borrowings under the revolver are probably less than half that from a rate perspective, so it did have some impact.

I think you can see that in the increase in interest expense, excuse me, between Q4 and Q1.

This is something that we felt made a lot of sense to take advantage of these rates and put in a longer piece of financing than we've done in the past, to give us really more liquidity in the short term under the revolving credit facility, to allow us to take advantage of different types of opportunities than may come along during the year 2012.

Tony Kure, KeyBanc.

Hi.

Good afternoon.

Thanks for taking my questions.

Thank you.

Just a couple quick follow-ups.

On the interest expense line, just want to follow up.

I think Diana you mentioned that interest expense should tick up a little bit here in the second quarter.

With that number as a place holder, is that sort of the balance or the level at which we can expect interest expense here going forward for the balance of the year, then?

Yes.

I mean, if you -- under this current structure, the bulk of the debt is fixed.

So yes, I mean, that would be a good assumption to make.

Okay.

Obviously, we talked geographically a little bit about Europe, but there's some concerns about a decelerating China, too.

Just wanted to get your take on what your outlook would be, or what maybe you've heard recently in regards to demand trends along the lines of deceleration there, if you've seen that?

Yes, I think that we read the papers like you do.

Deceleration from 8% to 7.5%, or from 9% to 8%, whatever these numbers are, honestly, we don't see necessarily that reflected in our business, because we don't care so much about the broader macro trend as much as we care about our people buying electronics, and our companies buying electronics.

I think there are certain trends in China which long term have tremendous positive potential for our Company and for our industry.

Just think about the automation that has to happen in China because of the increases in labor rates.

We have talked about these increases in labor rates in China.

One of the answers to that is a dramatic influx of automation equipment that has to happen.

That's just one example.

I mean, the high speed rail that is being installed, the oil exploration that is happening in China, the automotive industry continues to grow, and even if the growth in units is down, the sophistication of the cars, the electronics that goes into the cars, is greater.

The domestic commercial air market is one that clearly has tremendous potential going forward.

So I think that macro number shifting from 8% to 7.5%, or even if it were to go lower than that, that is not something that I believe necessarily moves our business towards a more negative outlook.

We continue to have a very positive outlook for that market.

Okay, great.

That's helpful, thanks.

Just a last one on the acquisition, you said it closed in early April.

From a revenue standpoint adding to the year, is it fair to just assign a small growth number to that, or factor that into your revenue guidance, that's included in your revenue guidance, right?

Would that be a fair linear way to look at the revenue additions for the acquisition?

Yes.

Okay, great.

Thank you.

Thank you very much.

Steve Fox, Cross Research.

Thanks.

Good afternoon, just one question from me.

When you look, go back over your prepared remarks, Adam, it seems like you highlighted new product momentum in three areas, one being mobile phones, another being information datacom, and the third being broadband.

Can you just maybe give us a little bit more color on the types of products you're talking about, where they're going into, and why you're so excited about those areas?

Yes, absolutely.

I'm happy to do that.

I think the one where I emphasize it the most was clearly in IT datacom.

That is a market where, because of the data demands that are being pushed onto the networks at either the carrier, the enterprise, or the institutional level, there is just a real -- for lack of a better word -- a need for speed by our customers.

Our innovations that we have been promoting in back-plane connectors, in high-speed I/O, in high-speed cable assemblies, have really taken strong hold with customers who are just scrounging to find every way possible to pump more data through the same bits of equipment.

So as the new releases of these equipment come on, and there are releases in servers, in new storage systems, in new networking hardware, as those new releases come, and as they fill their pipeline of product, those high-speed products are one area where we see a lot of potential.

Another potential is really in power, where again, as related to that data center and the expansion of data center equipment, the efficiency of power that customers are asking for is really accelerating in very much a logarithmic fashion.

We have been working just intensively with customers to help them enable more efficient power interconnect systems.

Those are two related to IT.

Related to mobile devices, obviously our strength in antennas is one area where as customers have to have new devices, like a tablet computer which have to have multiple access points to multiple networks, the interaction of those antennas with each other, the sort of isolation of the signal, the ability to fit those products into very challenging form factors, these are the kind of new product momentum and innovations that have been very, very significant in that market.

I think relative to broadband, Diana mentioned that we have seen really strength as well in some of our value-add products.

These are new innovative value-add products that help either in home install or in addition in the head end.

The head end is an area where the interconnect creates a bottleneck, because especially with the cable-based high-speed Internet, it is really the number of access points in a given piece of hardware that drives the ability to service those high speeds.

If you can collapse those access points through a smaller form factor, through a higher-density solution as one example, that creates then value for your customers in the broadband.

Those are just some examples.

I could go on, Steve, for hours here, but would not want to take everybody's time.

That's very helpful, thanks.

Thank you very much, Steve.

I think at that point we would wish everybody well, and appreciate again all of your interest in the Company, and wish you a pleasant continuation into the second quarter.

Thank you.

Thank you very much.

Thank you for attending today's conference, and have a nice day.