安費諾 (APH) 2014 Q3 法說會逐字稿

Hello and welcome to the third-quarter earnings conference call for Amphenol Corporation. (Operator Instructions). At the request of the Company, today's conference is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce today's conference host, Ms. Diana Reardon. Ma'am, you may begin.

Thank you. Good afternoon. My name is Diana Reardon and I am Amphenol's CFO. I'm here together with Adam Norwitt, our CEO, and we'd like to welcome you all to our third-quarter earnings call. Q3 results were released this morning. I'll 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.

Please note that all the share and per-share amounts that we'll discuss today have been adjusted to reflect the Company's 2-for-1 stock split that was effective earlier this month. The Company closed the third quarter with sales of $1.359 billion and EPS, excluding one-time items, of $0.58, achieving strong growth and new records of performance in both sales and earnings per share. Sales were up 18% in US dollars and local currencies compared to Q3 of 2013. From an organic standpoint, excluding both acquisitions and currency impacts, sales in the quarter were up 11%. Sequentially sales were up 3% in both US dollars and organically from Q2 of 2014.

Breaking down sales into our two major components. Our cable business, which comprised 7% of our sales, was flat with last year. The interconnect business, which comprised 93% of our sales, was up 19% from last year, reflecting the benefits of both good organic growth and the Company's successful acquisition program. Adam will comment further on trends by market in a few minutes.

Operating income, excluding one-time items, increased to $270 million in the quarter. Operating margin, excluding one-time items, increased to 19.9% compared to 19.7% last year and 19.5% last quarter. The sequential increase of 40 basis points in operating margins over the second quarter represents an excellent conversion margin on incremental sales of over 30%. This strong performance resulted from an increase in operating margins in the interconnect business based on excellent operating execution and cost management on incremental sales volume.

From a segment perspective, in the cable business, margins were 12.5%, down from 12.7% last quarter and 13.8% last year primarily due to the impact of market pricing and some impact from product mix. In the interconnect business, margins were 22.1%, up from 21.6% last quarter and 22% last year. We're very pleased with the Company's operating margin achievement. We continue to believe that the Company's entrepreneurial operating structure and culture of cost control are a significant contributor to the Company's excellent operating performance, ensuring that the Company's resources and cost structure are appropriately and quickly adjusted to maximize profitability in what continues to be a dynamic environment. Through the deployment of these strategies, the management team has achieved industry-leading operating margins and remains fully committed to driving enhanced performance.

The Company has recorded acquisition costs in both the current quarter and in last year's third quarter of approximately $2.5 million, or $0.01 per share. These costs include professional fees, transaction taxes and other expenses relating to the acquisitions closed in the respective quarters. In accordance with current accounting rules, these costs are expensed as incurred.

In addition, at this point, we do anticipate approximately $6 million in one-time acquisition-related charges in the fourth quarter relating to the valuation of the acquired backlog of the Casco business as is required under US GAAP. These one-time charges will be separately disclosed as is our practice and are not included in our guidance.

Interest expense for the quarter was $21 million compared to $16 million last year due to higher average debt levels resulting from the Company's acquisition and stock buyback programs. Other income was $4.7 million in the quarter, up from $3.6 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 26.5% compared to 25.5% last year, both excluding one-time items. On an as-reported basis, the Company's effective tax rate was 26.8% this quarter and approximately 23.9% in last year's third quarter. The 2013 rate included the impact of a net benefit of $3.6 million relating primarily to the completion of prior-year audits.

Net income, excluding one-time items, was approximately 14% of sales in Q3 and EPS before one-time items increased 18% from last year, a very strong performance. Orders for the quarter were $1.342 billion, up 17% from last year, resulting in a book-to-bill ratio in the quarter of approximately 0.99 to 1.

The Company continues to be an excellent generator of cash and had strong cash flow in the quarter of $224 million or approximately 122% of net income. For the nine months, operating cash flow was $607 million or 117% of net income. The Company continues to target cash flow from operations in excess of net income.

The Company had good working capital management during the quarter. Inventory was $848 million at the end of September, up 2% from June, excluding the impact from the Casco acquisition, which was closed at the end of the quarter. Inventory days, also excluding the acquisition impact, were 80 days, down one day from June levels.

Accounts receivable was $1.1 billion at the end of September, up 3% from June, excluding acquisition impacts. Days sales outstanding was 70 days and consistent with June levels. Accounts payable was $600 million at the end of the quarter, up 8% from June levels, excluding acquisition impacts and payable days were 56 days, up 2 days compared to June.

The cash flow from operations, along with our net proceeds from our senior note offerings of $745 million, cash on hand of $192 million, $41 million in proceeds from stock option exercises were used to purchase 3 million shares of the Company's stock during the quarter for $151 million to fund net capital expenditures of $57 million. We funded acquisition payments of $449 million in the quarter relating to the Casco acquisition and repaid $469 million under our revolving credit facility. We also made $71 million in dividend payments during the quarter.

At the end of the quarter, the Company had 2.9 million shares remaining under its 20 million share stock repurchase program, which expires in January of 2015. As previously announced in September, the Company completed a $750 million note offering of three and seven-year notes. The notes were issued at 99.9% of their respective face values and have interest rates of 1.55% and 3 1/8% respectively. The Company incurred fees of approximately $5 million in connection with the sale. The notes were issued in anticipation of the Company's upcoming debt maturity of its $600 million, 4.75% notes, which are due in mid-November.

At the end of September, our cash and short-term investments balance stood at $1.245 billion, the majority of which is held outside the US. Debt at the end of September was $2.6 billion, bringing net debt to $1.35 billion. At quarter-end, borrowings and availability under the Company's $1.5 billion revolving credit facility were $22 million and $1.48 billion respectively and EBITDA in the quarter was $307 million. From a financial perspective, this was an excellent quarter.

Before I turn the call over to Adam, I would like to make a few comments relative to the guidance. As noted in the press release, we have increased our 2014 guidance by $50 million in sales and $0.03 in earnings at the low end and $30 million in sales and $0.02 in earnings at the high end. The increase in guidance reflects the net positive impact of the addition of the Casco acquisition and a slight increase in organic sales, which is partially offset by the translation impact of the significantly stronger dollar.

The Casco acquisition that closed at the end of the quarter adds about $55 million in sales and $0.02 in earnings. The negative translation impact caused by the significant strengthening of the dollar towards the end of Q3 in relation to the euro and certain other currencies has the impact of reducing 2014 sales guidance by just under $30 million in sales and a $0.01 in earnings per share.

In addition, organic revenue is up about $5 million versus prior guidance with stronger operating execution adding about $0.01 of earnings in the second half versus our prior guidance with Q3 slightly up and Q4 slightly below the prior expectations. Our guidance for 2014 reflects a strong organic growth rate for the year of 7%.

I would also just note relative to the Q4 guidance that, from a sequential standpoint at the high end of guidance, sales are up 2% with the Casco acquisition increasing sales by 3% and the negative translation impact from the stronger dollar reducing sales by 1%. From an organic standpoint, Q4 sales are expected to be relatively flat, which is down slightly from our prior guidance for Q4, but slightly better, as I mentioned, for the totality of the second half of 2014.

The flat sequential organic performance in Q4 results primarily from an expected 18% or so decline sequentially in the mobile network market based on an expected pause in spending in this market in both China and North America after a somewhat stronger than expected Q3. The expected pause in spending in this market in the second half of 2014 is consistent with our prior expectations.

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

Well, thank you very much, Diana and let me also add my welcome to all of you here on the phone today. I'm going to spend a few moments to highlight our achievements in the third quarter. As Diana mentioned, I'll then discuss our trends and progress across our served markets and I'll just make some short comments on our outlook for the fourth quarter as well as for the full year.

With respect to the third quarter, I can just tell you that we're very pleased to have reported new records in sales and EPS, both of which exceeded the high end of our prior guidance. Sales increased 18% from prior year and 3% sequentially, establishing a new record for the Company of $1.359 billion in sales. As Diana mentioned, orders also reached a new record of $1.342 billion.

We're very proud of our profitability in the quarter, which was very strong as we generated excellent sequential conversion margins leading to an expansion of our already industry-leading operating margin to 19.9%. And with our successful third-quarter bond offering, we once again reaffirmed the financial strength of Amphenol. I can just tell you that I'm extremely proud of our global team who once again in the third quarter was able to react quickly to the many opportunities that are being created by the electronics revolution while continuing to exercise the discipline and drive necessary to achieve outstanding operating performance. Our record results in this third quarter clearly demonstrate the benefits of Amphenol's entrepreneurial culture.

As we already announced early in the quarter, we're very pleased to have completed at the end of the quarter the previously announced acquisition of Casco Automotive Group, which was completed at the very end of the third quarter. Casco is a global manufacturer of highly engineered, data connectivity, power charging and sensor products to the worldwide automotive market with annual sales of approximately $220 million, a very significant acquisition for us and really one of the three largest that we've made in our history.

Importantly, Casco represents a significant new platform for future expansion for the Company, in particular as we now have a leading position in automobile in-cabin data and power interconnect, as well as an expanded range of sensor products. We are very excited to welcome the outstanding Casco team to Amphenol and we look forward to continuing to create value in the future with our very successful acquisition program.

Now turning to the trends in our served markets, I just want to mention that, once again, we're very pleased that our balanced and broad end-market diversification supported very clearly the Company's strong performance in the third quarter. We're particularly pleased that no single market represented more than 17% of our total sales in the quarter, a great confirmation of the balance across markets that we participate in.

Now turning to the individual markets, the military market represented 10% of our sales in the quarter. Sales in this market increased 7% from prior year and 3% from prior quarter on stronger sales of products into military aircraft engine, communications, ordinance and avionics. We're especially encouraged that after essentially six quarters of year-over-year declines in the military market, in the third quarter, we were able to deliver strong performance despite continuing downward pressure on overall military budgets.

Looking towards the fourth quarter, we expect demand to continue to grow somewhat from these levels on increased volumes of new programs on which we have higher content. While military budgets overall are clearly not expanding, our technology leadership and broad program participation has enabled us to realize the growth that we experienced in the third quarter and has allowed us to benefit long term from the expanding adoption of electronics and military hardware, as well as from stronger spending trends that we see in emerging geographies.

The commercial aerospace market represented 6% of our sales in the quarter. Sales increased a strong 16% from prior year and declined seasonally as we had expected by roughly 6%. Our year-over-year growth was driven by benefits from last year's Ionix acquisition, together with our increasing content on new programs, which continue to ramp towards volume production.

For the fourth quarter, we expect demand to essentially remain at these levels and we retain a positive outlook for the commercial air market in 2014 and beyond. We're very pleased that we're now realizing the benefits from our long-standing efforts to gain position on the latest generation of airliners. As airlines continue to demand planes that are more fuel-efficient and that create a better flying experience for the traveling public, aircraft manufacturers are adopting complex, new technologies on their next-generation airliners. This is creating an exciting, long-term opportunity for Amphenol.

The industrial market represented 17% of our sales in the quarter. We once again achieved extremely strong sales growth in the industrial market of 44%, driven by contributions from the Advanced Sensors acquisition completed at the end of last year, as well as by a very robust 18% organic growth in the industrial market. In fact, sales increased 3% sequentially in a quarter that would normally be seasonally softer. Our excellent organic growth was driven by strength in the medical, rail mass transit and oil and gas segments in particular, which again is a clear confirmation of the value of our diversification strategy across the industrial market.

Looking towards the fourth quarter, we expect our sales to remain at these high levels and we look forward to continued progress as we broaden our interconnect and sensor technology offering while increasing our penetration of the many exciting growth areas of the industrial market.

The automotive market represented 15% of our sales in the quarter. Sales increased significantly from prior year, growing also by 44% and a very strong 21% organically. As we continue to benefit from the diverse range of new sensor and infotainment automotive products provided by our acquisitions last fourth quarter of Advanced Sensors and Tecvox, and as we continue to grow our sales of new products, (technical difficulty) and emissions management, as well as drivetrain control among other applications.

Our sales in the market grew by 3% sequentially even with the impact of a typical third-quarter seasonality. We're very proud that we're outgrowing the overall automotive electronics market and really by a wide margin as we're capitalizing on our broadened suite of interconnect and sensor technologies, which are being incorporated into a wide array of new and complex vehicle electronics. Now with the addition of Casco, we have further expanded our product offering and are positioned in several new high-growth applications within the car, including data and power connectivity, as well as temperature, sun and rain sensors. Casco also strengthens our position with a diverse set of highly complementary vehicle manufacturers, thereby bolstering our overall position in the automotive, interconnect and sensor market.

Looking towards the fourth quarter, we expect a significant increase from these sales levels as we benefit from the contributions of Casco and we look forward to an overall excellent 2014 and beyond for our rapidly expanding automotive business.

The mobile devices market represented 17% of our sales in the quarter. Sales increased as we had expected by a robust 13% from prior year and 14% sequentially, driven by higher demand essentially across all mobile device product types. Once again, our mobile device team was able to quickly flex our production resources to capitalize on increased volume requirements from our customers, demonstrating that our organizational agility remains a core advantage of Amphenol in this very dynamic end market.

Looking ahead to the fourth quarter, we expect sales to grow further from these levels as we benefit from a range of new program launches. We remain confident that, despite the ever-changing landscape in the mobile device market, our leading technology, our preferred supplier relationships with the broadest range of device makers, as well as, most importantly, the excellent execution of our outstanding agile organization positions us well for the future in this exciting market.

The mobile networks market represented 12% of our sales in the quarter and we continue to support significantly higher levels of demand for wireless network buildouts in the quarter with sales increasing a stronger than expected 38% from prior year. This was driven by growth in both OEM and service provider sales essentially across all major geographies. While we had anticipated some sequential slowdown in sales going into the third quarter, our sales actually grew slightly from the second quarter.

Consistent with our prior expectations of a somewhat lower second half compared to the first half, and as Diana mentioned earlier, we now expect a roughly 18% sequential reduction of sales in the fourth quarter as operators around the world are planning a moderation of their recently strong buildout activities. Regardless of this end-of-the-year pause in activity levels, we're very pleased with our overall performance in the mobile networks market in the full year of 2014 and we remain extremely confident that with our industry-leading breadth of interconnect, as well as antenna products, we will continue to participate broadly in ongoing next-generation mobile network deployment around the world. We look forward to further building on this excellent platform in the long term.

The information technology and data communications market represented 16% of our sales in the quarter. As we had expected, sales decreased by 6% from prior year due to lower levels of sales of products that are incorporated in particular into networking equipment. Sequentially, our sales increased slightly from the second quarter as stronger growth in storage and servers was almost all offset by lower sales of networking-related products.

Given the continued uncertainties in the IP datacom market, in particular related to networking equipment, we do expect a slight moderation of sales in the fourth quarter and we continue to anticipate sales to be slightly down for the full year in this market consistent with our prior guidance. While there are no doubt a great deal of changes occurring in the IT datacom world, we remain encouraged by our industry-leading high speed and power products, our preferred relationships with leading equipment suppliers, as well as our enhanced focus on service provider and data center customers, all of which are creating a platform for us to outperform in the future in this important market.

The broadband market represented 7% of our sales in the quarter and sales declined slightly from prior year on a moderation of spending from US cable operators and were essentially flat to the second quarter. Looking out towards the fourth quarter, we expect a slight reduction in demand, which is due to normal year-end seasonality in this space. Although the demand and pricing environment for traditional bulk cable continues to be challenging, we are seeing still the emerging benefits of our product and customer diversification and ultimately, our future success in this market rests on the Company's proven capability to create innovative solutions for our customers to support the rapid growth in high-speed data delivery. As we drive further efforts to create these enabling technologies, we look forward to maintaining our leading position in the broadband market.

So in summary, with respect to the third quarter, I can just tell you very simply put, I am extremely proud of the Amphenol organization as once again we executed so well in a challenging and dynamic market environment. Our performance in 2014 so far has been a clear reflection of our distinct competitive advantages, our leading technology, our increasing position with customers across our diverse array of markets, our worldwide presence and our lean and flexible cost structure. But above all these strengths, our greatest asset remains -- our high performance culture that is reinforced every single day by Amphenol's agile and entrepreneurial management team.

Now turning to the outlook, and Diana has already spoken at length about this, but let me just say that, based on stable economic conditions, as well as on constant exchange rates, including the impact of the relatively weaker overseas currencies that we now see, we now expect in the fourth quarter and the full year 2014 the following results. We expect sales in the range of $1.341 billion to $1.381 billion in the fourth quarter and $5.260 billion to $5.3 billion for the full year respectively. And we expect EPS for the fourth quarter and full year in the range of $0.58 to $0.60 and $2.20 to $2.22 respectively. For the full year, this represents both sales and EPS growth, excluding one-time items, of a very strong 14% to 15%.

We are very encouraged by our continued strong outlook in sales and earnings, especially given the many uncertainties that are clearly present in the global marketplace. The ongoing revolution in electronics is continuing to create tremendous opportunities for Amphenol and I am confident in the ability of our outstanding management team to continue to capitalize on these opportunities, both to grow our market position and to expand our profitability and thereby to drive continued superior performance for Amphenol. Thank you very much and at this time, operator, we'd be happy to take any questions that there may be.

Amit Daryanani, RBC Capital Markets.

Good afternoon, guys. Two questions for me. Maybe to start with, Adam, in the press release, you talked about seeing some increased level of uncertainty on a geopolitical basis. I'm actually struggling to understand where in your guide are you factoring this in, other than the mobile networks, which I realize is down a fair amount. But if I look at all the other segments, kind of flat to up a little almost. Can you maybe just talk about where are you seeing these uncertainties? Where do you see a downtick from order pattern across these end markets?

Yes, thank you very much for the excellent question. First of all, let me say that the level of uncertainty in the marketplace -- we are not seeing anything different than anybody else is seeing in the newspaper. You read anything and there is certainly a more complex array of incidences and circumstances around the market and I think that's reflected in some of the movements you see in things like exchange rates and interest rates that clearly have moved more significantly in the quarter than anybody would have anticipated three months ago.

Look, we give a range for our guidance and we always do that. But, as you know, we certainly always strive to get to the top end of that range and that's certainly the goals that we have within the Company. But to the extent that we show a range, one could anticipate that if there were greater accelerating problems, that's why we have a low end of such a range and I think it's not necessarily that we're seeing specific things coming from customers but rather that there just appears to be as indicated by some of these movements a greater level of uncertainty around the world and that is whether it is political, whether that is economic or whatever that is, you see a flight to quality as evidenced in particular by the strength of the dollar and the interest rates today.

Fair enough. I appreciate that. And then just on the mobile devices, you obviously had a nice Q3, but how do we think about the growth in Q4? Because I was looking at the last five years and it's gone from as good as plus 30% to as bad as 20%. I know you said you expect growth, but is there a way to think about what do you think seasonal growth is? Is it low teens again in December and is it more tablet-centric or more broad-based this time around?

Again, thanks very much for that question. I think that -- let me just put this in some perspective. We had excellent performance here in the third quarter, growing 13% year-over-year, 14% sequentially and as I mentioned, we expect that to be somewhat higher in the fourth quarter. I think we would expect that kind of (technical difficulty) high single digits sequentially.

If you put that in perspective compared to last year, in the second half this year, our growth is essentially going to be somewhere around the low 20% growth second half to first half and that's essentially what we saw also last year. And you may also recall that last year in the fourth quarter, we had a very significant uptick in demand, which was essentially us picking up marketshare when others could not support the demands of certain new program ramps for customers. So we actually think that our performance this year in mobile devices is very consistent with prior years and very consistent with what we see in the marketplace where you have clearly a wide array of different results and expectations among customers, but our strong growth here across all the productlines that we're participating in. Again, to grow by more than 20% second half to first half and to grow in the third quarter by 13% is we think not only consistent, but a very strong reflection of our excellent position in that mobile devices market.

Steven Fox, Cross Research.

Thanks. Good afternoon. Just backing up on some of the acquisitions that you've done this year, Adam, I was curious, especially around the GE business and some of the momentum you're seeing in auto, could you talk about how you've been able to leverage the acquisition into those end markets, how it's translating into organic sales growth now? And then what those deals are doing in terms of adding to earnings for the full year? And then I had a follow-up. Thanks.

Well, I'll talk a little bit about the leverage and then I'll let Diana comment to some extent on how those are contributing. But let me just say that we're so happy with the Advanced Sensors acquisition and I think that's the one you mentioned. Obviously, we did five acquisitions last year. Four of them completed in the fourth quarter. That included Advanced Sensors and Tecvox to name two and we're just very, very pleased in particular with Advanced Sensors.

As we've talked about from the day that that company joined Amphenol, it's a fabulous company from numerous respects. Number one, great technology and I think now as we're coming upon soon the first year anniversary of that company joining Amphenol, we feel even stronger about the value of the technology of the company across the range of sensors that they supply because it is a very diversified company.

I think the second thing that we talked a lot about was the fact that it is a very diversified company. About two-thirds of the sales in industrial and one-third in automotive, but within those markets has a very, very diversified array of applications and then customers from medical, heavy equipment, to advanced smart building, Internet of Things type applications and then within the car, from pressure and temperature, CO2 and all of those type of sensing applications. And all that I can tell you is, again, our great expectations have been really surpassed in terms of the depth that that brings us with the customers.

I myself have been to a number of these customers over the course of the year and in each time I go to those customers, you hear a very common refrain and that is that the challenges that the customers are experiencing relative to sensors very frequently revolve around the mechanical interface of the connector and how to integrate that sensor into the interconnect system that then allows that to perform its desired functionality. Again, that was our theory going into it, more than a theory actually, that we felt was true, but that has been truly confirmed as we go on.

Now let me say things don't happen overnight. Rome was clearly not built in a day in terms of leveraging the typical things that people talk about, synergies and all of that, but we are getting leverage. We're getting leverage at customers who now see us as a broader supplier. We're getting penetration at customers with whom we previously had maybe a smaller presence and today, now we're viewed as a more broad strategic partnership where our access to decision-makers in those customers is greater than it was before. And conversely, the Advanced Sensors business gets viewed now under -- in the kind of patina of an Amphenol who is known as a powerful and leading component supplier as opposed to sort of a company within a big conglomerate like a GE that really was viewed as an adjunct to their core business. And I think all of that together has acted to create really a truly fabulous first year and the honeymoon has certainly not ended yet for us in Advanced Sensors.

And Steven, in terms of the impact of the acquisitions on a year-over-year basis, if we look at the high end of guidance, our sales growth is expected to be about 15%. About 8% or so is the contribution from the acquisition program on the top line and I would say it's a little bit less than that from a bottom-line perspective, but certainly a very strong contribution all the way around from the program in 2014.

Great. That's very helpful. Then just a quick follow-up. In terms of two of the markets, auto and industrial, and I think you touched on this a little bit in just what you talked about, Adam, but those two markets seem to be drawing more attention relative to some of the geopolitical concerns in Europe. Can you just give us a base case for how you see those markets right now and whether you're more concerned about end demand or how maybe you're able to overcome it a little bit more given some of these acquisitions? Thanks a lot.

Again, thank you very much. I think relative to Europe, clearly, I've been in Europe a couple times in the last month and you don't want to read the paper if you want to have a smile on your face. But I can tell you that our team has executed fabulously in Europe and in fact, if I look at our performance by region, truly in local currency and organically, however you want to look at it, Europe was actually our fastest-growing region in the quarter on a year-over-year basis.

So clearly, the Amphenol team is not putting their head in the sand after reading every morning the Financial Times or Le Monde or Der Spiegel or whatever that is going to be. So I think from that standpoint, we are doing outstanding in that space compared to what the overall macro is performing. And I think there's no doubt about it; our strength in industrial and automotive, as well as in commercial air, which is another space where we do have more business in Europe and mobile infrastructure, our teams there have just done an outstanding job at executing on the opportunities at hand and then refocusing the resources towards those places where there is growth opportunity. Because regardless of what happens in the macro environment, the electronics revolution is continuing without missing a beat. You've just got to find where that is and I think our ongoing strategy of diversification, in particular in the industrial market, the automotive market, I mean these are areas where we're constantly plumbing for new places where technology is taking hold and not trying to take share from others, but trying to enable something that is new. And I think that has been really the recipe that we have followed. In Europe, we follow it obviously on a global basis, but I think the impact of it compared to the macro indicators is certainly magnified in Europe to the positive for Amphenol.

James Kisner, Jefferies.

Hi, thanks for taking my question. I'm just wondering again about mobile devices. Obviously, there was some very strong demand at some large OEMs recently and perhaps even a surprise in mix shift towards larger phones at one major OEM. I'm just wondering if you could comment on leadtime or supply chain dynamics, mobile devices. Is there any potential for double ordering, tightness in supply chain and perhaps also what are the key puts and takes that we might think about entering into Q1 seasonality? Thanks.

Sure. Let me answer the last part, which is it's too early to say about Q1. I think we're not in a position yet, especially in a market like mobile devices, where visibility is not necessarily the longest in that space. I can't tell you that we have seen ourselves any double ordering or tightening of supply chain. Obviously, we're making certain products, antennas and interconnect products and we certainly ourselves don't have any tightening of our supply chains and we are more than able to satisfy very quickly our customers. And that has been a real hallmark and a benchmark of Amphenol for a long time.

Again, I mentioned earlier in the call, last year in the fourth quarter when we had sort of a real unexpected uptick in demand and we were able to do that really flawlessly when our competitors were not. So I think from that standpoint, we are not stretching leadtimes. We are not a bottleneck and to the extent that customers can take more, we will be there to support them with that. Otherwise, what other components are doing relative to that, I can't tell you that I have great visibility on it.

Great, thank you. Very helpful.

Amitabh Passi, UBS.

Hi, thank you. Diana, my first question was for you. I was curious how are you thinking about OpEx into the calendar fourth quarter, particularly now with the integration of Casco?

Sure. I think that you probably saw in the financials in Q3 that we had a good performance in terms of operating costs or SG&A in Q3 and they've now come kind of back down to the level they were at last year at that time. We had some increase in the first quarter when the Advanced Sensors acquisition came in as they were running at a higher level, but I think they've started to manage some of those expenses down. I think as we look into Q4, I would expect kind of a normal Amphenol pattern where we would see less SG&A growth from a percentage standpoint than we would see in sales growth. And I think that the Casco acquisition has a cost structure that I would say more mirrors our own, so I wouldn't expect any significant impact there.

Okay. And it seems like the last couple of quarters you've had an attractive conversion margin of greater than 30%. I'm just wondering do you think that's sustainable over the next couple of quarters, particularly as you continue to integrate and optimize the sensors business or do you think you revert back towards the mid-20%s target? I'm just trying to get some rough sense of how we think about what you're seeing in conversion margins, which has been quite attractive the last couple of quarters.

Sure. I guess I would say two things. One is our long-term goal is still 25% and to your point, we have been doing better than that the last couple of quarters. There have been a number of factors contributing to that. Certainly very good operating execution across the Company. I think in this quarter, we'll also start to see some impact as the acquisitions come closer to the average of the Company, so we have a lot of good strong contributions going on there. I think that when you look at Q4, the sales volume, as I said when I walked through the guidance in the prepared remarks, the incremental sequential sales growth is really coming from the Casco acquisition with some offset from the foreign currency translation. So as we look there, we wouldn't expect, because of the components of the sales change, for that to be at that high conversion margin level. We would expect more ROS in Q4 to probably be closer to that Q3 level.

And as we look into next year and give guidance for next year when we close the fourth quarter, I think we will talk more about what to expect at that point. But I think I can tell you that our 25% conversion margin goal certainly still remains the goal for the management team.

Shawn Harrison, Longbow Research.

Hi, two questions. The first just being on mobile networks, it looks that the absolute dollar level of sales for this year is probably in line with maybe where you previously guided. It's just the shape of the back half is different. Is that true? And second, within that is it just a pause in spending? Did you see was it more of a pull-ahead, and does this in any way impact your view on 2015 and what could be another good year for the mobile networks business in 2015?

Thank you very much, Shawn. I think you correctly characterize if we think about how we had guided to the mobile infrastructure market going forward, we had said that we would expect the market to be somewhat down in the second half compared to the first half. Our Q3 sales were a little bit higher than expected, and thus I think the fourth quarter is maybe a little bit more of a drop-off than we would have expected coming from the third quarter.

But if you look at it, first half to second half based on our outlook, it would be down 1% or 2% in the second half to the first half, which I think on any industry comparable basis is a very, very strong performance. And when we think about the performance this year, we expect still to be up in that market and kind of the mid-20% range. Again, very, very strong performance and much stronger than you see in kind of the OEM reports that are available and I think it compares very favorably on any peer basis.

What does that mean, the fourth quarter relative to looking out into next year? We have not given guidance about next year, but I don't think that our change in guidance here would change any degree our outlook long term in the market. We have an outstanding position. I think one thing that has been very favorable for us this year has been that regardless of what spending happens, we have demonstrated this year to our customers that when they need us, we are there for them. With very strong upticks in demand -- you may recall in the second quarter, we had just an outstanding second-quarter sequential growth, somewhere close to I believe 20% quarter-to-quarter and to react so quickly as we were able to do when our customers needed it, that is something that they don't forget going forward.

In particular in this market where oftentimes you're not talking about factories, you're talking really about crews in the field waiting for parts. And you don't want to be the guy who is holding those crews up in the field waiting for parts and we have never been and in fact, we've just executed so well in that strong growth this year that whatever happens in the overall spending market, I think our position and our ability to capture more than our fair share of that going forward has been very much confirmed this year and will create a great platform for us in the future.

Okay. And then a brief follow-up. It's not part shortages holding anything up right now and then just on Casco, that $0.02 of accretion for the fourth quarter, should we expect that to normalize to maybe like a $0.03 plus range as we head into 2015 per quarter?

I'll answer about -- there was not a parts shortage, if that's what you're asking relative to mobile devices. There's no impact. It's just in the quarter we see somewhat less buildout activity and I'll let Diana talk about Casco.

Sure. I think that the $0.02 in the fourth quarter is within a margin of what we would expect to see in 2015. I think we're not giving guidance for next year yet and we don't ordinarily specifically call out EPS contribution from individual acquisitions. I did it in this case; I thought it would be helpful because we had a lot of moving parts in the guidance. But I don't think the $0.02 would be misrepresentative of the level that we would see next year.

Sherri Scribner, Deutsche Bank.

Hi, thanks. Diana, I think that you, or maybe, Adam, you said that growth in the fourth quarter on an organic basis is probably about flat. I wanted to understand if that is more sort of a timing issue. I think you said for the full year you expect to grow revenue about 7% on an organic basis, but wanted to think about your views of organic growth going forward and if you still think you can grow 2X the market?

Sure. Maybe just to say the numbers and then maybe Adam can talk about the growth versus the market, but that flat organic growth I was talking about was the sequential performance between Q3 and Q4. If we look at, on a year-over-year basis, which is what the 7% for the full-year is year-over-year, in the fourth quarter from an organic standpoint is somewhere in the sort of the 3% range and it is somewhat impacted by the fact that while the mobile device market is growing sequentially between Q3 and Q4 on a year-over-year basis, we did have a huge fourth quarter in 2013 for the reasons that Adam already described and so that does have some impact in terms of the year-over-year organic growth discreetly in the fourth quarter.

And Sherri, relative to our target and history, long history of outperforming the market and really growing at 2 times the market, we continue to have a great degree of conviction around our ability to do that and we believe not only do we have the ability, but we've really built the platform to do that going forward. Ultimately what is the market growing, that we'll only be able to assess when the dust has settled on 2014. But I think this year our performance is really outstanding given this guidance that we have and we continue to look forward to pursuing and achieving on that 2 times the market goal going forward.

Okay, great. And then, Diana, you gave some detail on the impact of the stronger dollar relative to foreign currencies in the fourth quarter and just wanted to understand how much will that continue into 2015 and is it sort of the same magnitude as the fourth quarter? Thanks.

Sure. When we would look at 2015, if rates stay roughly where they are, we would expect it could be something like a 1% year-over-year drag from a translation perspective if that helps.

William Stein, SunTrust.

Thanks. One question and one follow-up. First, I want to just ask a follow-up on the wireless infrastructure business. There has been pretty widespread understanding that there have been some component shortages, not from Amphenol, but in the RF power amp area that have caused some other companies to have kind of inconsistent results in this market. So I'm wondering if you see this as more of a pause in buildout by the carriers or is this an inventory adjustment by the equipment vendors and then I had a balance sheet question as well.

Yes, sure, thanks very much, Will. It's very true. I think in the first half of the year, there were these component shortages and you correctly point out I mean what we hear also related to RF power amps in particular. I don't know whether there were others, but the RF power amp was certainly something that was widely discussed in the industry. And I think we talked about last quarter and even before that, because of that, we probably would have anticipated this year the second half to be even more down compared to the first half. But they were not able, many of our customers, to truly get the build rates of the base stations up because they didn't have these -- they were missing these components.

And I think, from that perspective, that's one of the factors that allows -- in our second half, we're down only really by about 1% or 1.5% compared to the first half. Otherwise that could have been a more significant falloff in demand as there really was quite a wave of buildout happening that was intended at least to happen in the first half. None of those -- I have not heard recently that those component shortages are continuing. I think there's a relatively normal degree of demand. Whether there was double ordering of those components or whatnot, I mean we're not close enough to really judge.

Now one thing to understand is we're shipping -- some portion of our business in mobile infrastructure goes to OEMs, but another portion and really a roughly equal size goes direct to service providers. And so when we're selling to service providers, you don't really have inventory corrections per se. That's much more in a real, almost just-in-time delivery where they say we're going to have a crew there in a week and we need your parts there also on that same week. And from that standpoint, you don't get those inventory bubbles that you can get more related to a traditional OEM manufacturing process.

That's helpful. And the follow-up, maybe, Diana, for you, capital expenditures as a percent of revenue has been a bit elevated and it was again this quarter and I'm wondering if that's related to Sidney. I thought that that had been already kind of resolved and built out. Maybe there's something else going on. Thank you.

Sure. Actually you're correct; it has been higher for the last few quarters. And in this third quarter, there was the last of the spending relating to the project that you mentioned where we were building a new facility to replace the flood-damaged one from a couple years back. So we have been spending more at 4% of sales over the last few quarters in order to accommodate that additional spending. We would expect the spending to come down in the fourth quarter to a more normal level and would expect the same as we move into 2015 and that normal level would be somewhere in the 3%, 3.5% of sales range.

Jim Suva, Citi.

Thank you and congratulations, Adam and Diana, to you and your team there at Amphenol. When we look at your recent acquisitions, I think it's fair to say they're kind of going as an extension, so to speak, beyond your traditional cable and connector business when we start talking about sensors and all this. And then when we did some work looking at the industry of sensors, it actually looks like sensors are more profitable than traditional connectors. So is it fair to say that there is a chance that these recent acquisitions could actually be accretive to your companywide margins and if not, maybe is there something wrong with my logic or what I see in the sensor industry versus connectors?

Thank you very much. I think it's very true. I mean we have been, over the last essentially three years, we've now made 11 acquisitions and of those, two of them have a sensor component. One was the Advanced Sensors business that we acquired close to a year ago, which was exclusively sensors and then we acquired here Casco, which has a sensor productline, as well as their interconnect productline.

I think the sensor market is for us one that we feel very good about because of its wonderful leverage that you can get between the sensor and the interconnect product, combined with its great diversification. Much as we love so much the diversification of the interconnect market, we feel the same way about the diversification within the sensor market.

Now are sensors by definition more profitable than connectors? I wouldn't necessarily say that. I think there have been examples in the sensor industry of some who make more money and some who make less. I think when we acquired the Advanced Sensors business, we did talk about the fact that, at the time we acquired it, that company was operating at a level that was meaningfully below our corporate average and that we certainly had the aspiration and the goal to bring it up to our corporate average over time.

Is there something empirically different about sensors that means you can make more money than connectors? I don't know that that is true, but I do know that there's certainly at least the equal opportunity to make great returns in the sensor market because, at the end of the day, we're able to make our fabulous returns into the interconnect market by enabling the technologies of our customers, by creating for them something that ultimately makes their system perform better, either have a better performance, be able to sell more of them, get a better marketshare, whatever they can do with their end equipment.

And I think sensors have very much the same property to them. You embed technology in the sensors and that is either with the sensing element or very interestingly you embed the technology in the packaging of the interconnect. And by embedding that technology, which creates value for the end customer, you're thereby able to charge a price that allows you to make a fair return on that business. And so to that standpoint, we certainly feel that the sensor market has at least as good of an opportunity to make the returns that we like to make and we'll see over time whether it's better than we think.

Great. And a quick follow-up for Diana. Diana, for currency changes, is it mostly like the euro or the yen or what particular denomination should we be most mindful of because someday down the road, I'm sure currencies will change a little bit again?

Sure. The euro would be the biggest one that would have an impact on us. Others have some impact as well, but they are smaller.

Mike Wood, Macquarie.

Hi, thanks for all the detail you've provided. In terms of going back to automotive. 21% organic growth is very impressive and significant outgrowth. You've called out some synergies from Advanced Sensors. My understanding of the automotive business, there's typically very long leadtimes to get on programs before you actually get those synergies. Can you talk about how you're getting them so quickly and with Casco, would that be the similar type of immediate synergies?

Thank you very much. I think, again, we're very pleased with this 21% organic growth. I don't think I attributed that growth necessarily to these so-called synergies between the sensors and the connectors. Even if we have actually started to see some early opportunities a little bit even quicker than we expected them to leverage a connector in a sense or in a single application, but clearly that's not the main driver or even a significant driver of the 21% growth.

The 21% growth is really coming from new applications in the car and when we look at these applications -- again, I mentioned a few -- emissions, telematics, drivetrain control, things like antilock braking. Essentially where ever you see in a car new electronic functionality that maybe was not there in the past, those are the type of systems that are really creating this outsized growth for us.

So again, this is not us just capturing a marketshare from an incumbent on something that is there already; it is us working long term, and this is over many, many years of effort to work to design in on new applications, as you correctly point out, over a relatively long cycle time and you see those new programs and those new functionalities and those new feature sets in the car starting to roll out. And I think the one thing that I would say is that the automakers around the world, they have clearly woken up to the fact that electronics helps them make money, number one and sell more cars, number two. And so I think that cycle of implementation of electronics into cars -- if anything, that cycle is compressing to a shorter cycle than the traditional sort of platform cycles that you see in the automotive industry. You have really what I would almost call mid-platform upgrades that happen on things like lighting systems and infotainment systems and otherwise, new things like LEDs in the car and all of that. I think these are all the areas where our team is heavily focused both in the short and the long term to make sure that we're participating at more than our fair share of those applications.

Great. And just to be thorough, the only area I don't think we discussed is just the decline recently into metals like silver and gold to a lesser extent. Can you comment on what you'd expect to happen on the pricing erosion side going forward?

From a pricing erosion standpoint, I think that we put the guidance together based on the costs that we see at the particular time. I think as we've talked before, we do certainly a great job from an operating management standpoint to maximize overall profitability in the Company and that's the combination of managing sales price and then managing cost and from a cost perspective, the current environment is certainly better relative to the trends in commodities than what we've seen in a few of the prior years, but we certainly wouldn't expect any particular windfall from any specific metal. The Company uses a lot of different metals, a lot of different plastics and I think does a very good job of really getting the most bang for the buck from a profitability perspective. And I think you've seen two really strong quarters of excellent conversion margin here during 2014. We hit 19.9% ROS in the quarter and so we're really very pleased with the profitability performance of the Company and the team is very committed as we look out into the future to continuing to work towards a 25% conversion margin goal and certainly good procurement practices is part of that, but there are many different factors that go into achieving that kind of profitability at the end of the day.

Mark Delaney, Goldman Sachs.

Thanks very much for the opportunity to ask the question. I was hoping you could help me understand the reason for the softness in the networking portion of your IT segment and then how we should think about that as we go into 2015.

Thank you very much. I think -- I talked about the fact that in the IT datacom market, there is clearly a lot of dislocation happening and change happening in that market. And I'm sure you know as well as I do some of the macro factors that are happening there, the rise of data centers and web service providers, the challenges that many companies are facing in other markets, including places, for example, like China where, for a wide range of call them political considerations, certain legacy suppliers are having more trouble to sell in particular their core networking equipment into those spaces. And so for whatever reason it is, I think there has clearly been some moderation of the sales of these networking equipment.

But, look, at the end of the day, that is not going to be a perpetual situation because those are the equipment, this networking equipment and the IT, which is really forming the backbone of the Internet and the data rates that are going, that we see, the expansion of data rates that we see in our server and our storage business and that we see in particular with these new LTE and 3G networks that are being built up over the course of -- in the wireless market, these things are creating tremendous end demand for data that ultimately is going to flow through these core networks and through the switches and the routers and all of those things that drive the core networks. And ultimately will create let me just call it more of a pent-up demand for that equipment.

It actually reminds me somewhat of -- for a number of years, we saw, in the mobile infrastructure market, not great spending trends and over that time, there was that pent-up demand that grew and grew and ultimately developed into real demand. And whether that will happen in networking equipment and whether there will be that kind of real demand that comes as a result of this pent-up demand, that I can't tell you and I can't certainly predict what is the timing of that. But I think the empirical requirements of data on the network, those are not changing.

And now it relates to us, and if I look at our position and our position really on a global basis with customers who are creating that next-generation networking equipment, we have a position that is truly second to none. And that starts with our high-speed products and those high-speed products, which are really enabling the highest level of data transport through these systems. It goes to our power products. It goes to our fiber optics and others and the real broad suite of products that we supply into high-end IT datacom, no doubt about it, even if there is that kind of pause this year in that -- due to the changes that are happening in that market, our position long term with our high technology products is really second to none.

That's helpful. I appreciate the context there. For a follow-up question, I'm hoping you can help me think about the capital allocation strategy going forward. This year, the Company has done some larger acquisitions in GE, Advanced Sensors, in Casco. You also stepped up the buyback a little bit this quarter and did the nice job buying back 3 million shares. Should we expect going forward that the Company is planning to be a little bit more aggressive on the capital allocation strategy there in terms of the size of the potential companies you may tuck in or the way you're thinking about doing the buyback or is this just you had a couple of larger deals that came to fruition as you executed upon those?

Look, I think the Company has had a very consistent strategy for many years relative to the deployment of the financial strength and the prioritization there clearly is towards the acquisition program, which we believe provides the Company with the best long-term return both from a growth and profitability perspective. We do also though feel that a balance is important and I think whether or not you look at the last five years, you look at this year, you look at last year, I think what you see is really quite some balance if you would look at the free cash flow of the Company with about half going back to shareholders in various forms and the other half being deployed towards the acquisition program.

I think as Adam has said on many occasions, the size of the acquisitions is not really the important criteria as far as we're concerned; it's much more about the fit from a technology standpoint, about the strength of the management team, about the potential that we see for both top and bottom-line growth. So we would certainly, if there was an appropriate acquisition that fit all of those criteria that was bigger, that would be something that we would prioritize that financial strength towards because, as I said before, we do feel as a management team that that's what makes the most sense for the Company.

So I think what you'll see us continue to do as we look into the future is to continue to have a balanced approach, but certainly to err on the side of funding the acquisition program as those opportunities present themselves.

Thank you. At this time, I'll turn the call back over to the speakers.

Well, thank you very much and I'd like to thank all of you for spending some time with us today on what is here in New England a blustery fall day and we certainly appreciate all of your attention and I hope it's not too early as we will not speak to you until next year to wish all of you a great holiday season and a successful fourth quarter. Thank you again and we'll talk to you in January.

Thank you.

Thank you for attending today's conference. Have a nice day.