安費諾 (APH) 2016 Q1 法說會逐字稿

Hello and welcome to the first-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, Mr. Craig Lampo.

Sir, you may begin.

Thank you.

Good afternoon, everyone.

My name is Craig Lampo, and I'm Amphenol's CFO.

I'm here together with Adam Norwitt, our CEO.

Wed' like to welcome everyone to our first-quarter conference 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, and then Q&A.

The Company closed the first quarter with sales and EPS of $1.451 billion and $0.59, excluding one-time items.

Sales were up 9% in US dollars, and up 11% in local currencies compared to the first quarter of 2015.

From an organic standpoint, excluding both acquisitions and currencies, sales in the first quarter decreased 1%.

Sequentially, sales were up 1% in US dollars and down 8% organically, after a seasonally stronger fourth quarter.

Breaking down sales into our two segments, our Cable business, which comprised 6% of our sales, was down 1% from last year primarily due to the effect of currency translation.

The Interconnect business, which comprised 94% of our sales, was up 10% from last year primarily due to the impact of acquisitions.

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

Operating income excluding one-time items increased to $270 million in the first quarter.

Operating margin excluding one-time items was 18.6%, compared to 19.6% in the first quarter of 2015.

The decline in operating margin is due primarily to the lower profitability level of the FCI business acquired in early January.

As discussed on our last earnings call, the FCI acquisition is accretive on an earnings-per-share basis, but reduces the Company's overall operating income percentage as the business currently operates at a lower level of profitability than the average of the Company.

We continue to be very excited about the potential of the FCI acquisition and expect their operating income margins to improve over time, based on the combination of their excellent management team, leading technology, and our strong operating discipline.

From a segment standpoint, in the Cable segment margins were 13.3% compared to 12.1% last year.

The increase in margins related primarily due to strong operating execution and some favorable impact from commodities.

In the Interconnect segment, margins were 20.6% compared to 21.8% last year, due to the acquisition of FCI.

We are very pleased with the Company's operating margin achievements.

This excellent performance is a direct result of the strength and commitment of the Company's entrepreneurial management team, which continues to foster a high-performance, action-oriented culture in which each individual operating unit is able to appropriately adjust to market conditions and thereby maximize both growth and profitability in a challenging market environment.

Through the careful fostering of such a culture in 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 one-time charges of approximately $30 million or $0.09 per share during the first quarter related to the FCI acquisition which closed in January.

These include acquisition-related transaction costs, amortization related to the value associated with acquired backlog, and postclosing restructuring charges.

The acquisition-related transaction cost includes professional fees, transaction taxes, and other external transaction-related costs.

Interest expense for the quarter was $18 million compared to $17 million last year, reflecting the impact of higher average debt levels resulting from the Company's stock buyback program.

The Company's effective tax rate was 26.5% in both the first quarter of 2016 and 2015, excluding one-time items.

On an as-reported basis the Company's effective tax rate was 28.7% and 26.5% for the first quarter of 2016 and 2015, respectively.

Net income excluding one-time items was a strong 13% of sales in the first quarter of 2016, although it was impacted as previously discussed from the acquisition of FCI.

EPS was $0.59 in the first quarter of 2016 excluding one-time items; and on an as-reported basis EPS was $0.50 and $0.57 for the first quarter of 2016 and 2015, respectively.

Orders for the quarter were $1.479 billion, a 10% increase over first quarter of 2015, resulting in a book-to-bill ratio of 1.02-to-1.

The Company continues to be an excellent generator of cash.

Cash flow from operations was $194 million in the first quarter or approximately 123% of net income.

The Company continues to target cash flow from operations in excess of net income.

From a working capital standpoint, inventory was $934 million at the end of March, and inventory days were 84 days, up five days compared to December and within the normal range for a first quarter.

Accounts receivable was approximately $1.2 billion at the end of March, and days sales outstanding was 75 days, up approximately four days from December and within the normal range.

Accounts payable was $615 million at the end of March.

And payable days were 55 days, up one day as compared to December.

The cash flow from operations of $194 million, along with commercial paper borrowings of $53 million and stock option proceeds of $19 million, were used primarily to fund acquisitions of $1.2 billion to purchase approximately $49 million of the Company's stock, to fund net capital expenditures of $38 million, and to fund dividend payments of $43 million, which resulted in a decrease in cash, cash equivalents and short-term investments of approximately $1.1 billion net of translation.

As we have mentioned previously, the purchase price for FCI was funded entirely with offshore cash.

During the quarter, the Company repurchased 1 million shares under its January 2015 10 million share stock repurchase program.

4.5 million shares remain available under the program through January 2017.

At March 31, cash and short-term investments were $714 million, the majority of which was held outside the US.

On March 1, 2016, the Company entered into a new $2 billion senior revolving credit facility, which replaced the previous $1.5 billion facility.

At quarter end, the Company had issued $877 million under its commercial paper program; and effective April 1, the commercial paper program was also increased from $1.5 billion to $2 billion.

The Company's cash and availability under our credit facilities now total approximately $1.8 billion.

Total debt at March 31 was $2.9 billion, and net debt is approximately $2.2 billion.

In Q1 2016 EBITDA was approximately $312 million.

From a financial perspective, this was an excellent performance, and Adam will now provide an overview of business and the current trends.

Well, thank you very much, Craig, and I'd like to add my welcome to all of you on the phone here today from sunny Wallingford, Connecticut.

As Greg mentioned, I'm going to highlight a few of our first-quarter achievements here.

I'll then discuss the trends and progress across our served markets, and then finally I'll make a few comments on our outlook for the second quarter as well as for the full year.

And then, of course, there will be time for questions at the end.

With respect to the first quarter, we're very pleased that our results in the first quarter were stronger than expected, as we exceeded the high end of our guidance in sales and earnings.

And that's despite continued market uncertainty.

Our revenues increased by 9% in US dollars and 11% in local currencies, reaching 1.451 billion.

Very importantly, the Company booked a new record of $1.479 billion in orders, which represented a book-to-bill of 1.02-to-1.

As Greg went through and as we had anticipated, our margins after acquisition-related expenses were lower than prior year due to the impact of FCI, but reached a higher-than-expected 18.6% operating margin.

And operating cash flow in the quarter was again a very strong $194 million.

I just have to say once again how proud I am of this entrepreneurial Amphenol team, who once again has reconfirmed the value of both their discipline as well as their very important agility.

That has driven strong performance despite what are still very significant uncertainties in the worldwide economy.

Now turning to our trends across our served markets, I would just point out that once again in the quarter we continued to have a real tremendous balance across our end-market diversification, as no one of our markets represented more than 19% of our sales in the first quarter.

And that's after including FCI, which we acquired at the beginning of the quarter.

Turning first to the military market, the military market represented 10% of our sales in the quarter.

Sales were down slightly in US dollars and in local currencies from prior year, as growth in avionics, airframe, and ordnance was offset by moderated sales to communications and vehicle applications.

Sequentially our sales were down slightly from the fourth quarter.

At the end of the first quarter, we were instructed by the United States Defense Logistics Agency, or the DLA, to stop the shipment of several of our military specification connector products that are sold by one of our operations into the US military market.

This was due to the sourcing of certain noncritical piece parts from nonapproved locations, including China, as well as delays in regular product testing.

I'd just say that we understand that there are no alleged quality issues with respect to these products.

I would also just reaffirm that our practices, we believe, are common in the industry.

Thus we have expressed disagreement with the DLA's stricter rule interpretations.

Nevertheless, we have complied with the DLA's order, and we are currently executing on a plan to meet their requirements, which we expect to be completed within the next two quarters at the latest.

I would just also note that the specific products that are impacted represent less than 10% of our annual military sales.

Despite this short-term regulatory challenge, our team continues to do an excellent job of strengthening Amphenol's overall position in the military market.

Looking ahead, while we expect sales in the second quarter to moderate slightly from these levels due to this DLA issue, we do continue to expect growth in the low single digits for the full-year 2016.

Amphenol remains the leader in the military interconnect industry, with the broadest range of products across virtually all defense equipment.

This is a position of strength that we look forward to building upon into the future.

The commercial aerospace market represented 5% of our sales in the quarter.

Sales in this market were up slightly from prior year as stronger sales onto new airplane platforms were offset by continued reductions in commercial helicopter and business jet sales.

Sequentially, our sales were a bit softer than expected, as they were down slightly from the fourth quarter.

Looking ahead, while we expect a slight moderation of sales in the second quarter, we continue to expect growth for the full-year 2016 as production volumes of new airplane platforms ramp up.

I can just reaffirm that we are very pleased with our strong position in the commercial air market, and we continue to take excellent advantage of the proliferation of new electronics on next-generation commercial aircraft, which we're enabling with our broadened range of high-technology interconnect products.

The industrial market represented 18% of our sales in the quarter.

Sales in this market grew a very strong 16% in US dollars and 17% in local currencies, driven by contributions from the FCI acquisition together with growth in the hybrid bus and truck, instrumentation, medical, and alternative energy segments.

Organically, sales were essentially flat as growth in those segments was offset by continued significant declines in several markets, including oil and gas in particular.

Sequentially, our sales grew by 9% largely due to the benefits of FCI.

For the second quarter, we anticipate sales to increase moderately from these current levels.

We continue to expect very strong sales growth in the industrial market for the full year as we benefit from the contributions of FCI together with organic growth from a range of segments across the industrial market.

We remain very proud of our diversified industrial business, and we continue to make progress in selling an ever-broader range of interconnect, sensor, and antenna products into this exciting market.

In particular, I would just commend our team, who has done an outstanding job of continuing to unearth growth opportunities amidst the backdrop of what is clearly a more somber global industrial market outlook.

The automotive market represented 19% of our sales in the quarter.

Sales increased a strong 11% in US dollars, 13% in local currency, and 6% organically.

This was driven by expanded sales of our products used in a wide array of new vehicle electronics, as well as growth in hybrid electric vehicles in which we have strong content.

Sequentially, our sales increased by 6%.

We continue to have a positive outlook for the automotive market as we drive a broadened range of interconnect and sensor products across a more diversified array of vehicles and onboard electronics around the world, all while at the same time continuing to identify and leverage complementary high-technology acquisitions.

We look forward to realizing the benefits from this approach for many, many years to come.

Looking to the second quarter, we expect sales to again increase from these levels.

For the full-year 2016, we remain confident to achieve strong growth in the automotive market.

The mobile devices market represented 13% of our sales in the quarter.

As we had expected coming into the first quarter, our sales were down by 6% from prior year and just over 30% from the fourth quarter.

Just once again our team demonstrated incredible agility in this quarter, as they were able to flex their resources quickly in the face of this significant sequential reduction, all while staying poised to capitalize on any opportunities for incremental sales that may become available in the market.

We're very confident that our highly reactive and agile organization will continue to secure a strong position in the dynamic mobile devices market.

And we're encouraged by our excellent technology positions across a wide range of new mobile computing platforms.

While we do expect sales in the second quarter to increase sequentially by at least 20%, we continue to expect low to mid single-digit decline in our sales for the full year of 2016.

Regardless of this more muted outlook for the full year, we remain extremely confident that our team has positioned us to benefit from any increases in demand that may arise in this exciting market.

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

Sales were better than expected in the first quarter, growing from prior year by 19% in US dollars and 6% organically, as we benefited from the contributions of FCI together with stronger sales in particular to network operators across several geographies.

Sequentially, we grew by 22% from the fourth quarter, primarily driven by the addition of FCI.

We're very pleased in the first quarter to have achieved renewed organic growth in the mobile networks market.

I think that this is a strong reflection of the Company's ongoing efforts to expand our position with mobile network service providers as well as equipment makers around the world.

Those customers continue to drive their networks to higher levels of performance as mobile users, the end-users, ultimately demand ever-greater bandwidth and more comprehensive coverage.

Looking into the second quarter we expect our sales to remain essentially at these first-quarter levels.

While we continue to expect strong full-year growth with the addition of FCI, we think it remains still too early to predict organic growth for the mobile networks market for the full-year 2016.

Regardless, we remain well positioned to capitalize on any growth opportunities that should arise in this market.

The information technology and data communications market represented 19% of our sales in the quarter.

As expected, sales were up strongly from prior year and prior quarter, as contributions from FCI offset some organic moderation in sales.

Our sales overall were up 21% versus prior year.

With the broadened technology offering and expanded reach into customers that we have gained with the FCI acquisition, we continue to make excellent progress in our development of advanced, high-technology products as well as in our penetration of the many newly arising Web service and datacenter customers.

In particular, we're helping both these new customers as well as our traditional customers in their drive to raise the levels of performance of their equipment to support ongoing and dramatic increases in data traffic.

Looking ahead to the second quarter, we expect sales to increase slightly from these levels.

We remain confident in achieving strong double-digit growth for the full-year 2016 with the contributions from FCI.

The broadband communications market represented 6% of our sales in the quarter.

Sales increased from prior year by 2% in US dollars and 5% in local currencies, as multiservice operators, in particular in North America, began to expand their purchasing volume.

Our sales grew by 4% sequentially.

Well, we were very pleased to see these early signs of renewed growth in the broadband market.

And while we do expect a slight increase from these levels in the second quarter, we continue to believe that the broadband market in 2016 will remain at roughly last year's levels.

Nevertheless, as the industry eventually digests the many corporate consolidations that are ongoing, we are well positioned with our expanded range of Interconnect and Cable products to capitalize on any growth opportunities that may emerge.

So just in summary with respect to the first quarter, I just want to tell you how proud I am of the Company's strong start to 2016.

While the global market environment remains uncertain, the Amphenol organization is executing extraordinarily well, both organically and through our acquisition program, and expanding our market position while strengthening the Company's financial performance.

The Company's superior results are a direct reflection of our distinct competitive advantages: our leading technology, our increasing position with customers across a diverse range of markets, our worldwide presence, a lean and flexible cost structure and, most importantly, our agile entrepreneurial management team.

Now turning to the outlook for the second quarter and the full year, based on a continuation of the current uncertain economic environment and assuming constant exchange rates, we now expect in the second quarter and the full year of 2016 the following results.

For the second quarter, we expect sales in the range of $1.495 billion to $1.535 billion, and earnings per share in the range of $0.62 to $0.64, respectively.

This represents a sales and EPS increase excluding one-time items versus prior year of 11% to 14%, and 7% to 10%, respectively.

For the full-year 2016, we now anticipate sales in the range of $6.080 billion to $6.2 billion, and earnings per share excluding one-time items in the range of $2.56 to $2.62, respectively.

For the full year, this now represent sales and EPS growth excluding one-time items of 9% to 11%, and 5% to 8%, respectively, over 2015 levels.

We're very encouraged by the Company's robust start to 2016, and we all look forward to driving further strength going forward, even given the many dynamics in the global economy.

I'm confident in the ability of our outstanding management team to build upon that strength and to continue to capitalize on the many opportunities both to grow our market position and to expand our profitability throughout 2016.

Operator, at that point we'd be happy to take any questions that there may be.

(Operator Instructions) Wamsi Mohan, Bank of America Merrill Lynch.

Yes, thank you.

Adam, on the DLA issue, can you perhaps help us think through what percentage of the bill of materials is subject to these procurement restrictions?

And logistically does this in the long run affect the way you're going to have to source and where you're going to manufacture?

Does it affect your cost structure at all?

Or do you view this just as a transitory thing within a couple of quarters, where you overcome these supply chain issues?

And I have a follow-up.

Well, thank you very much, Wamsi.

I think with respect to the first part of your question, as it relates to the bill of materials, I don't know whether you mean the bill of materials in terms of our product range, or what we represent on the bill of materials of our customers.

So maybe I'll answer both.

On one, I would just tell you that connectors represent a small percentage of the overall bill of materials.

But we're the largest connector manufacturer in the defense industry, so we have a very, very broad presence across essentially every equipment that there is.

As it relates to our products, I think I mentioned that the products at issue here, number one, they come from one facility; and number two, they represent less than 10% of our overall military sales.

So from that perspective it is a relatively minor impact to the overall military business that we have, even if one or two of those products can end up on lots of different systems around the world.

We do believe this will be a transitory issue.

Let me just say that very clearly.

We're working very rapidly to address the demands of the DLA and our team is well, well along in that process.

As I mentioned, we expect this at most to be a two-quarter disruption at the extent that it is.

Will it mean that we will have to source certain things in certain different places?

Absolutely, because ultimately part of the issue arose from sourcing of components in a place that they now have decided is not appropriate to source from.

So we have already resourced those products.

I can tell you today that the vast majority of what we need to resource has already been resourced.

And ultimately I can tell you that our Company is very good at managing through any cost impact that would come from that.

We don't expect any material changes to our profitability in that business long-term.

All right, great.

Thanks, Adam; I appreciate that detail.

As a follow-up, on the mobile devices you noted -- if I heard you right -- 20% quarter-on-quarter increase.

I know obviously, like, 1Q was a fairly tough quarter across the entire mobile supply chain.

It seems as though your 2Q quarter-on-quarter increase was actually somewhat better than what a lot in the industry are witnessing.

I was wondering if you could share any color on what is driving that sequential growth here, from somewhat low levels arguably in 1Q.

Thanks.

Well -- no, appreciate that.

Look, I think the first quarter, we view that as a normal quarter.

The reality is if you look at our results over many years, the first quarter is usually down somewhere between, I don't know, 20%, 35%.

So was this at slightly the high end of that?

Maybe; but it was not out of the ordinary as far as we're concerned.

That is what it is usually in the first quarter.

I can't comment on what others are seeing in the second quarter.

I can only comment on the fact that our team continues to do a wonderful job to take advantage of every opportunity that is present in the market whether that is on new programs, taking share on other programs, developing new products, expanding the range of products that we sell, expanding the range of customers to whom we sell those products, and the different types of platforms that are there -- because you're dealing with platforms, everything within mobile computing devices.

That can be tablet computers, that can be laptops, that can be phones, that can be accessories, wearables, all those kind of things.

I think our team just does a fabulous job of continuing to diversify their business, expand and deepen their presence with customers.

And ultimately that's what we see going into the second quarter with that robust sequential outlook that we have.

Jim Suva, Citi.

Thank you; and congratulations to you and your team there at Amphenol.

I think most are aware of your very good acquisition strategy and how strong it's been.

With interest rates so low, can you talk a little bit about your comfort level for continuing to do acquisitions?

Or maybe are there debt-to-capital or debt-to-EBITDA levels or something you are mindful of?

It seems like the cash-flow generated nature of this industry really supports a meaningful -- still room for M&A.

So can you talk about -- sometimes we get pushback about, oh, the Company can't lever up any more, or things like that.

But can you just talk about where your comfort level is from a financing perspective?

Thank you.

I'll let Craig talk first about the capital structure and the comfort, and then I'll maybe make a few more comments.

Sure.

Jim, at the end of the quarter we had about $1.8 billion of capacity under our revolver and cash from availability perspective, after we did the new revolving credit facility that we entered in the first quarter, that I mentioned in my comments, which certainly we believe is very strong capacity and certainly doesn't even take into account the strong operating cash flow that the Company continues to generate.

From a pro forma leverage perspective, we're at approximately 1.5 times at the end of the quarter, which is certainly well within our comfort level, certainly giving full and appropriate consideration to the importance of our investment-grade rating.

So I would say that we're very comfortable and certainly have sufficient flexibility from a leverage standpoint, and believe that we had plenty of capacity for future acquisitions as well as any stock repurchases that may be warranted.

I think that's a very important backdrop, which is, we continue to be a very aggressive acquirer in the industry.

We have a lot of capacity.

We made -- just at the beginning of the year closed the largest acquisition in our history.

Last year we completed three other acquisitions, and we continue to have a strong pipeline.

At the same time, we will always be a disciplined acquirer.

So we look for companies that have great people, that have great technology, that have a strongly complementary market position.

And then we look to pay fair prices for those companies.

The fact that interest rates are low or not low doesn't necessarily enter into our calculus so much in terms of the price we're willing to pay on things and how much of our capital we're willing to put to work.

We view acquisitions as a very, very long-term initiative.

This is not a short-term approach to say, well, it can be accretive in the year and thus we will do the acquisition.

We're very, very thoughtful about that.

Thus we spend a lot of time; we date many, many, many companies over time; and then eventually the select few of those that we date ultimately become strong acquisitions for the Company.

We will continue to follow that same approach, regardless of what short-term interest rates do or what the overall market multiples will do.

Sherri Scribner.

Hi, thanks.

Adam, it sounded from your commentary that the macro continues to be challenging.

Looking at the guidance for the full year for many of your segments, the growth seems to be somewhat challenged.

I guess I'm trying to think about the outlook with the FCI business, obviously in there.

How should we think about organic growth for you guys this year?

It seems like it's maybe low single digits.

And how should we think about the connector industry market growth at this point?

Yes, well, thank you very much, Sherri.

I think we don't have a different view about our organic growth this year than we did when we came into the year.

I think at the time we talked about the organic growth being at the midpoint, just a hair above flat; and I think at the high point it was somewhere between flat and I think down 2% to up 1% or something in that range.

We don't have a different view about -- or down 1%, up 2%, I guess it was.

We don't have a different view about the organic growth of the Company this year.

Now, when you look at the different markets, it's not that every market has that somber outlook.

I think this really speaks to the value of the diversification of the Company.

We have one market, mobile devices, which is not a small market for us.

Last year, in particular, it was a significant 18%, 19% of sales market; and we do expect that that market will be down in the coming year, and that's all organic.

On the other side, we have a positive organic outlook for markets like automotive, industrial.

We have a positive outlook for commercial aviation.

And others are more flat.

So I think the value of the diversification in a time like this, where there is no question that the overall growth environment is more muted, is really coming through in 2016.

What does that mean in terms of the overall growth of the interconnect industry?

There are many studies about that.

I think when you compare us to others you see still a more favorable outlook and a more favorable, ultimately, result in terms of the organic growth compared to the overall industry.

Our goal as a Company continues to be to outgrow the industry in every environment and through every cycle.

If you look over the course of the last 10, 15 years, we have outgrown the industry by a significant margin and we still have a long-term conviction to continue to do that going forward.

That's helpful.

Thanks, Adam.

Then just thinking about the margin profile as we move forward with FCI, is there a point when you think that FCI's business can get to your corporate average levels?

And how long does that take?

Thanks.

Yes.

No, I think, Sherri, what I would say on that is we've taken some great actions I think in the first quarter that provide a real solid foundation for future performance for FCI.

As a management team we continue to be committed to improving that overall profitability of FCI and are confident over time that we will be successful in bringing up that preacquisition average for the Company.

I would say in regards to our full-year guidance, it's only been three months since we acquired the Company; and certainly it takes some time to see the impact of these actions.

But I would say that -- so I would say that our current guidance really isn't so different than what we guided to in January from both a top-line and bottom-line perspective.

But I think over time we are committed to getting them -- I wouldn't necessarily give you a specific time frame for doing that, but I think if you look at our history and our success at prior acquisitions I think you can feel confident, as we do, that we will be successful in doing that over some period of time.

Shawn Harrison, Longbow Research.

Hi; afternoon, everybody.

Adam, I guess the mobile infrastructure market you cited a better start to the year than maybe previously anticipated; but then echoing some caution about the year getting better.

So maybe if you could just characterize what you're seeing out there, is there something regionally that's giving you pause?

Or is it just let's wait and see how the June quarter plays out before getting a little bit more bullish on that market?

Well, Shawn, as you know, one swallow does not make a summer.

I think this is a market which had a very challenging year last year.

There is still volatility in the market; there is still a lot going on from a corporate perspective in that space.

We had a great quarter in the first quarter, and it was better than we had expected.

There is no question about that.

But I think it's still a little too early to say that that is going to be then a trend of growth in the year.

Should the opportunity present itself to have that growth in the year, our organization is so well positioned.

The one thing that we felt very good about in the first quarter is that the growth -- that did not just come out of one place.

We saw strength in North America; we saw strength in some places even like in India; we saw some strength in Europe.

We didn't see so much strength in Asia in the quarter.

And I would say that we probably saw more strength coming out of our sales of our product direct to service providers as opposed to the equipment manufacturers.

You know that there have been many widely reported corporate combinations among the OEMs in that space.

So there's still a lot going on in the industry that makes one take maybe a more prudent outlook for such a market.

But to the extent that there is spending that is going to be there, there is no question in my mind that we will capture more than our fair share of it.

That's helpful.

As a follow-up just on mobile devices, it's tough to actually say what seasonality is in the back half, given it's varied significantly for you over the past couple years.

But at least with a strong second quarter it implies a muted ramp into the back half versus maybe what you've seen -- what you saw last year, even a few years before.

Are you seeing a shift in terms of how that market is ramping?

Or are you just taking a more cautious view on what those devices will grow overall for the year?

Yes.

No, look, I think we still have an outlook for second half to be much stronger than the first half.

But you're correct in your calculation that it would be a lower ramp.

Last year our second-half sales in mobile devices were, I think, 40%, 45% compared to the first half.

I think our guidance here would imply something more into the mid to high 20%s; so, no doubt about it.

Now, in a given year, is there some years where it's more like this year and some years more like last year?

I think we've seen all those different scenarios over time.

I think that the growth that we're seeing in the second quarter, maybe that's a little more than we would normally see in the second quarter; and maybe the second half is a hair less than we would see in other years.

So maybe that's a little bit more in balance from that perspective.

But I can tell you that we do always take a prudent approach to our outlook in this market.

These are products that sometimes have lifecycles of less than a quarter, and so we want to be very careful in terms of representing what our customers tell us, while also taking some of our past experience in terms of how those ramp-ups ultimately go.

And that's how we craft the guidance.

I think what everybody knows who's followed the Company for a long time is, to the extent that opportunities do arise -- either a competitor falls down on the job, or a customer sells more of their products -- our team has always been impeccably able to capitalize on those opportunities.

And we'll no doubt be in that same position this year should those opportunities arise.

Amit Daryanani, RBC Capital Markets.

Perfect; thanks.

Good afternoon, guys.

I have a question and a follow-up as well.

I guess, Adam, when you think about this stop-shipment impact from the DLA, do we think about this 1% revenue -- $10 million, $1 million a quarter, call it -- essentially ceasing in June and September; and then you having a potentially snap-up effect in the December quarter?

Is that the way to think about it?

Is that what you've baked into your model?

Do you run a risk of share loss in this market, given the fact that it [may] take two quarters to resolve it?

Well, thank you very much, Amit.

I think that I would not anticipate any material snap-back in the fourth quarter.

I think the thing is still playing out.

We are just over 30 days or so into this wonderful experience with the DLA.

But no doubt about it, our team will be poised as soon as we are off that stop-ship to satisfy every one of our customers as much as they need to be.

But I wouldn't necessarily assume some massive snap-back.

Look, relative to share, in the next two quarters are some people going to take some orders that otherwise we would have taken?

I guess by definition that's the case.

But I can tell you, as a Company who has been through two floods -- and this is the same facility which was having a flood in the past -- and by the way, I could tell you that these issues relate back even to the time of the flood, but that's not for regulators to sympathize with -- I can tell you that this is an organization who does not accept to lose a position.

Period.

With our breadth of technologies, with our program presence, a two-quarter stop-shipment is not going to hurt Amphenol in the medium- or long-term in our market position.

In fact, I can tell you we're going to come back so much stronger after this that I would expect over the long term we will further build our leadership position in the military market.

Perfect; that's really helpful.

I guess, Adam, I heard you guys talk about the M&A discussion with Jim.

I'm curious.

You guys have plenty of liquidity, as you sit today.

What drove the decision to expand the commercial paper program, increase your revolver further at this point, given the fact you have enough liquidity and it doesn't seem like M&A is any more imminent today than it's ever been in the history of the Company?

Sure.

I'll take that one, Amit.

I think the reasoning for doing that is really just more based on the size of the Company today.

We thought it was very prudent to increase the capacity of the Company.

We're a much bigger Company than we were when we initially entered into the credit facility at the $1.5 billion size.

We wanted -- we use most of our cash from a domestic perspective, we use for our share repurchase and dividend program.

So domestically we generally use our facilities for that in addition to any M&A that may come along.

So there wasn't any other reason other than to just increase our capacity and, given the size of the Company, so to put us in a better position long-term.

But I wouldn't read so much into that.

In regards to our overall capacity, again this $1.8 billion that I mentioned before, which includes the $1.1 billion of availability at the end of the quarter under our credit facility and then the additional $700 million of cash that we had on our balance sheet at the end of the quarter.

Matt Sheerin, Stifel.

Yes, thanks; just a couple of quick ones for me, Adam.

Just regarding the auto business, sounds like the momentum is continuing there.

You talked about good growth rates for the year.

But within that business, the heavy truck and off-road vehicle area I know has been mixed to weak for other suppliers, and I know that tends to be a good margin business relative to the rest of your auto.

How are things tracking there?

What's the outlook versus geographies for that business?

Sure.

Well, first, I would just make one clarification, which is we don't classify heavy truck as part of our automotive business.

That's part of our industrial business.

Got it.

Okay.

I certainly wouldn't assume that our margins are different on a heavy truck than it would be on overall automotive.

So automotive is for us really automotive, as it is called.

No, we're so happy with our automotive business.

You've followed us long enough to have seen the trajectory of that business over the last six, seven years, going from I think at its low point 5%, 6% of sales, to today 19% of sales.

We've done that both through some wonderful acquisitions together with some just outstanding technology program wins that we've had over those many years.

Where we used to be a safety device company with a little bit of telematics, today we have a very broad high-technology automotive offering ranging everything from engine control to antilock braking to electronic transmission to high-voltage products into sensors, starting even to make penetration in things like antennas along with the RF products that we've sold for so many years -- and together with hybrid and electric vehicles.

So that breadth that we have into the high-growth content opportunities in the car, that has really been for us what has differentiated in terms of our performance.

Geographically, our automotive business has also really transformed from a predominant two-thirds European business to today a less than half of the business in Europe, and really equally spread on the rest between North America and Asia.

When we look at our results in the last quarter actually we had really strong performance, for example in the first quarter, coming out of an Asia, where there was some talk last year at least in terms of some warning signs in that space.

But our team in Asia has just done a fantastic job.

We made a nice acquisition as well last year that positioned us with some of the local manufacturers in Asia.

So I would just tell you we continue to grow in our satisfaction with the breadth and the depth of our automotive business.

We're still small on any relative and comparable basis, but we certainly are getting more and more than our fair share as things go on.

Got it.

Just another question on FCI.

It looks like the results there came in to plan.

But there is a disproportionately higher percentage of distribution sales for FCI than there is, I know, for Amphenol.

And there's been talk among other suppliers, particularly the semi suppliers, that inventory correction is largely played out in distribution and there's some refresh going on.

Are there signs from FCI's perspective that that's happening?

Yes, I would just tell you that FCI didn't necessarily see a meaningful inventory maybe at the time that everybody else was talking about it.

And not surprisingly they don't see necessarily a correction or a refresh that comes sometimes on the tail of that.

So we don't see anything meaningful, plus or minus, relative to changes in the distribution channel.

What we do see, and that's for sure, is in now having owned FCI for just over three months, the relationships, the presence, the discussions that we're having with the distributors have really gone to a next level.

I think that that is just a testament to the strength that FCI had.

You correctly point out roughly 40% of their sales was on distribution.

But what's more important is not that 40%, but rather where that 40% resides with the distributors.

We have traditionally been more in the industrial, the aerospace, the harsh environment products with those distributors.

FCI takes us much more into the more commercial products, a lot of which end up in embedded computing applications and the industrial space.

I think that's an area really of excitement among all of our distributors.

So we go from maybe a more traditional position with them to a position that is really right in the wheelhouse of many of their strategies.

I think we really see already the benefits of that in terms of the dialogs that we have had with our distributors and that we continue to have with them.

So we thought all along that FCI would be a great asset as it relates to our distribution channel, and I can just tell you three months in that that has been clearly confirmed for me.

Mark Delaney, Goldman Sachs.

Yes, good afternoon and thanks very much for taking the question.

Question is on the industrial segment.

Adam, in your prepared remarks, you talked about some varied trends between different portions of industrial.

I was hoping you could elaborate a bit more on some of those subsector trends within industrial that you're seeing.

And if you could help us reconcile at all some of the differences in indicators we see, there's been some improvement in some of the indices -- like the ISM index has started to pick up.

But there is still quite a bit of volatility at a macro level on the industrial -- from the industrial companies.

So any granularity or color you could give us on industrial would be helpful.

Yes.

No, thank you very much, Mark.

Look, we're not too wedded to all of these macro indicators in the industrial market.

I read the same papers and see some of these things.

I think there's no question -- I mentioned in my prepared remarks -- that that is a relatively somber overall industrial market.

That being said, I can tell you our industrial team is far from somber.

I think the reason is we continue to plumb for those opportunities that are there.

We're not just stuck to things that aren't growing.

But as soon as we see that the opportunity is not there, our team is quickly pivoting towards those areas where there are opportunities.

So we talked about last quarter one example where we've seen a really great growth out of something like a hybrid bus and truck.

We've also seen great growth coming out of alternative energy in areas like new lighting applications.

We saw strength in instrumentation in the quarter.

Conversely, a market like an oil and gas continues to not be a great place to be.

That is what it is, and our team who's involved in oil and gas is doing all the things that you would expect an Amphenol management team to do at a time when sales are down very significantly.

It is just kind of a microcosm of how we view our business overall within industrial, that we drive every day to make sure that we are appropriately diversified and agile such that we can pivot towards the opportunities that are there in the industrial market.

I think our team has shown consistently the ability to really ferret out those growth opportunities wherever they may be.

That's helpful.

A follow-up question on commodities.

There's been some rebound in commodity prices, especially in gold.

Can you just talk about to what extent you're starting to see that in your cost structure and if that's something we need to be keeping in mind as we think about modeling costs going forward?

Yes, I'll take that; thanks.

Yes, good question.

I think that as we said before, there are certainly many contributors to margin.

In terms of the rebound of gold or copper or the other commodities, we've always said that you have to look at the top-line growth opportunities in terms of the marketplace versus the bottom line in terms of commodities and other things.

We haven't seen really a significant -- although certainly a positive commodity environment is helpful, we haven't seen that significant improvement other than in the Cable segment, which I talked about a little bit.

I wouldn't say that we would -- I would say that we would also see a negative trend right now based on where the prices are.

Certainly if the markets didn't overall become more robust in the future, like in 2011 when the commodities had a significant increase, there could be some impact at that point.

But we don't see that at this point in time.

Michael Ward, Macquarie Capital.

Hi, good afternoon.

Auto remains one of your strong growth markets.

Curious if you can give us more color just in terms of what's actually been driving the content, and based on your platform visibility where you see some of the content, if there is maybe one or two areas that you could point to of strong growth there.

Well, good afternoon, Mike.

I think I mentioned earlier that we have really broadened our automotive business.

We broadened it both from an application, we broadened it geographically, we broadened it by customer.

I wouldn't point to just one or another application.

I mentioned earlier that we've seen solid growth coming out of hybrid electric vehicles.

Look, hybrid electric vehicles has been something that people have been talking about for pretty close to a decade now; and I would tell you that today that seems to be a bit more of a reality than was earlier just the prognosis for hybrid electric vehicles.

So we're happy to see that.

We're happy to see that we continue to win and gain new content.

We've seen a lot of great content in other areas like electronic transmissions, for example.

That's something I've talked about in the past.

It's an area where customers have one of the harshest environments -- electronic systems in the car -- and where there's a unique interconnect requirement in a very inhospitable part of the car, which is ultimately the transmission.

It's part of a category of applications that I would almost refer to as halfway to hybrid.

Because that's one area -- whether that's electronic transmissions, whether that's start/stop motors, whether that's engine management control -- these are all areas which allow automakers to improve the fuel efficiency of the car without having to stick a heavy battery and add all of the cost of a hybrid drive into the car.

So I think in general that is one area, that hybrid-ish or half-hybrid area, that we have seen good growth and we continue to see good progress with our customers.

Great.

Also, could you talk about how you view the diversity targets of the Company with the acquisition strategy?

In terms of having now multiple segments that are approaching 20%, is there a number cut-off where you would exclude large acquisitions from your pipeline just to maintain the diversity?

Look, we believe that the diversity of the Company is a great asset for Amphenol.

I think we see it here in the first quarter; we've seen it over recent years.

I think this is really a strategy that is, from my perspective, really without reproach.

Today, we have an outstanding balance across the various markets, with two markets representing 19% of sales, one representing 18%, and a few others in the double digits.

I think that balance is really a great asset for the Company.

But we have had in the past in a given quarter, even in a given year, markets be higher than 20%, even up into the mid-20%s, even flirting maybe close to 30%.

Is there a bright line that we would have?

I wouldn't tell you that there is a bright line; but I would tell you that there are areas -- there are levels where we would not be comfortable.

I think that would really mean that one market would have a disproportionate impact on the Company.

Is that 35%?

Is that 40%?

Is that 30%?

I think it's hard to pin a number onto it; but I would definitely know it when I saw it.

Steven Fox, Cross Research.

Yes, good afternoon; just one question for me please.

Just getting back to the FBI acquisition, you mentioned how you're getting a handle on the distribution strength of the business.

My understanding is there's other product synergies, whether it's backplane connectors with some of the stuff you do in datacom, etc.

So I was wondering, Adam, if you could just talk a little bit about -- I'm sure you're not including sales synergies in your guidance -- but the potential for that to ramp, and what kind of rough timeline before you could pull some of those synergies together and we could see that in the top-line numbers.

Thanks.

Well, thank you very much, Steve.

Look, we're just owning the company now for one quarter.

We're very, very pleased with the results here in the first quarter; and I can tell you that there is a lot of activities ongoing across the Company.

Some of those activities -- and Craig alluded to them -- are to get the cost structure in order.

We had significant actions here in the first quarter to do so.

But there's other activities, which is to really identify collaborative opportunities for growth.

Those collaborative opportunities fall into a few different categories.

One is from a market standpoint, working with customers, where we may have a strength with a certain customer in a certain geography and FCI may not, or vice versa.

Another may be just into a new market; for example, taking FCI's embedded computing products and seeking to proliferate those into an area like an aerospace, for example, where they didn't have so much presence in the past.

And a third and equally important area is that technology collaboration.

What I can just tell you is here in the first 90, 100 days we have really attacked all of those areas in a very thoughtful way.

Because at the same time as you want to be impatient, as you want to get all that stuff done, you have an organization of 7,000 people who have a new family, and they need to adjust to that new family.

We're very thoughtful about how we do that, how we bring the people in, what we ask of them, what we drive them.

This is not an easy process for someone coming into a company.

But the initiatives that we have already we start to already see the prospect of value creating between us on those incremental initiatives.

When are they going to result in extra sales per se?

I think it's too early to pin that onto a day, to a quarter, or an outlook.

But there's no doubt in my mind that long term we will have significant opportunities to realize incremental growth because of those very strong initiatives that are really being embraced across the Company.

Great; I appreciate the color.

Good luck.

Brian White, Drexel.

Yes, I'm wondering if you could talk a little bit about IT and data and how you're thinking about the second half of the year.

I wasn't clear.

Are we expecting organic growth in that area?

And second part would be China communications infrastructure.

What are you seeing in the comm infrastructure market in China?

Thank you.

Thank you very much, Brian.

Relative to IT datacom, I think when I talked about our guidance both at the beginning of the year as well as just now, we did talk about the fact that while we expect a very strong growth because of FCI, we do expect the market overall on an organic basis to be roughly at the same levels of last year.

Now, that does incorporate in the second half some growth compared to the first half.

And that's not abnormal in the IT datacom market, and that is really organically growing from the first half to the second half of the year.

We look forward to that, and we feel that that is not only a normal but it is something that should happen given our real strength with customers.

I think the overall IT datacom market is a market that is going through a lot of transition right now.

You see that in some of the public releases that already come out.

But you see that really in terms of the shift of power in the industry -- and something that I've talked about in the past -- that shift of power towards the operators, the service providers, and a little bit away from some of the traditional OEMs.

I can tell you that our team, and in particular our team as it relates to the acquisition of FCI and the breadth of products that we have from FCI, has done an outstanding job of ensuring that we take advantage of that shift as opposed to get injured by that shift.

We're doing a great job to pivot towards some of those new customers.

So while our overall outlook for the year for IT datacom is a more muted outlook organically, the strength that we have in that space is going to pay great dividends for us.

The reality is we have a lot of confidence in the importance of that market relative to the interconnect market long-term.

This is a market where they're pushing the limits of performance to enable data delivery, whether that be video, voice, or other data forms around the world.

The challenges the customers are facing in that space are significant, and many of those bottlenecks reside in interconnect.

I can tell you that's a good recipe to have a good business behind it.

When we see customers who struggle with performance, and when we can go in and solve those performance problems, that's a great long-term place to be.

We believe very strongly in the importance of the IT datacom market.

Relative to the communications infrastructure market, specifically in China as you discussed, I think I mentioned that in the first quarter we saw good strength in the mobile infrastructure market, in particular from North America and Europe.

We didn't yet see that strength building in Asia.

It doesn't mean that it's not going to come.

I think it's too early to call this year is Asia going to be a helper or a hurter in the mobile infrastructure market?

Right now we continue to have what I would call a more prudent outlook.

But there's no doubt about it, that the growth of mobile data is happening as well in Asia.

I mentioned in one place in particular, which is India, where we have seen really some beginnings of a buildout and we're capitalizing very well on that.

It won't surprise me if that ultimately spreads to other parts of the region.

Okay, great.

Thank you.

Craig Hettenbach, Morgan Stanley.

Great; thanks.

Just a follow-up question on automotive, given the increased breadth by geography and following up on your comments of robust growth for 2016.

Any differences that you're seeing by geography in terms of the automotive growth?

Yes.

I think I mentioned that in the first quarter actually we saw our strongest growth coming out of Asia in the automotive space, and we were really pleased to see that.

We saw some growth coming out of North America and some, maybe a more muted performance coming out of Europe, at least in that quarter.

I think one quarter is not always perfectly reflective.

I think for the year, we continue to see opportunities in all of the geographies in automotive.

It's really great for us, given that we are now a much broader geographical presence in the automotive market.

That is a big change from where we were six, seven years ago, and we're very, very pleased to have that position.

Got it.

Then as my follow-up on the sensor market -- and granted, you're a relatively new entrant to the space.

But just from what you've seen so far after the first couple acquisitions, anything you could distinguish in terms of some of the growth drivers in that, for those technologies relative to connectors?

Or if you can even go so far as growth rate opportunities?

Sure, look, we've now been in the sensor market for just over two years.

I think it's two years and a quarter now since we made our first acquisition of GE's Advanced Sensors business.

I think originally when we made that acquisition there was always the question: Is sensors naturally a higher-growth area than interconnect?

We always said we certainly don't think it's a lower growth than interconnect.

And I haven't changed my opinion.

Is it necessarily higher growth than interconnect?

I don't think by definition it is.

But is it at least as good of an opportunity as the interconnect market?

We think no doubt about it.

Which makes some sense, when you get down to it, because every time you have a new application for a sensor -- and that's whether it's in automotive or industrial or in aerospace -- ultimately that sensor's got to connect into the system.

So you may have so many new applications in a plane or a car or a train or a bus; each time you have that new application that's going to require then some way to get that signal back into the overall system.

And that usually is happening through an interconnect product.

So the reality is the two are not necessarily disconnected in terms of their trends.

We feel very good about that market.

I think as we've now gotten a little bit more mature in our experience in the sensor market, and as we've gotten out with more customers, and as we've learned more about the space, we're really excited to be part of the sensor industry and to have our presence in the sensor industry.

Now we're still small.

There's no question about that.

Bigger than we used to be, but smaller than we will be in the future.

I think that we see so many potential growth opportunities in the long-term, either organically or through acquisitions over time -- and it is just a really exciting technology space.

It's one that really gets to a lot of the underlying technology trends in the various markets that we serve, whether that's emissions control, or whether that's performance, or autonomous driving, or whether that's more control and more analytics that goes on in industrial equipment.

You name it, there's no question about it: sensors have a great future there.

Got it.

Thanks for all that color.

William Stein, SunTrust.

Great; thank you for squeezing me in.

Adam, I was hoping you could spend a minute talking about military end-market ex- this DLA issue, and maybe looking towards the back half of this year and into next.

There is an expectation amongst some investors that the sequestration is off, we have the first up DoD budget in maybe seven years.

Would Amphenol expect to see an acceleration of growth in this end market?

Maybe you can characterize the trends and the projects that are going on in that end market, please.

Sure.

Well, thank you very much, Will.

Look, we take away this issue that we already talked excessively about, and you look at our outlook for the market, which is still to have a positive growth in the military market despite that DLA issue, I think you get the answer right there to the question.

Which is that we do have a positive outlook.

I think that positive outlook speaks to the breadth of presence that we have across the military market, whereby we are really participating on essentially every program in those geographies where we're allowed as a US company to participate.

I think whether that is new airplane platforms, whether that is upgrade communications systems, whether that is new avionics and radars, there is definitely growth opportunity that we see starting in this year and long term.

Now is this a snap-back or a spike in growth?

I would not advocate taking that view of it.

But is there really maybe a more solid footing under the trends of the military market today than there was a couple of years ago?

I feel like there is.

You look at our performance even last year in the military market, where we had a relatively flat performance in a market where I think you would have thought was overall down.

There's no doubt about it that we continue to grow our position in the military market -- and that's despite any of these mild regulatory hiccups that may come our way.

So long term I think that's a great market to be in.

It's a market where we have tremendous presence.

And it's a market where there is a lot of innovation around the technologies and around the electronics that are there.

We see also in the military market that there is a subtle shift that appears to be happening just more geopolitically.

That subtle shift is that subtle shift away from a more tactical focus, getting a little bit back towards a more strategic focus.

That's a geopolitical topic that you could spend hours to review, but the net-net of that is that, when you get to more strategic priorities in military, the answer very often comes down to new technologies and new systems and what can be done with radars, with surveillance, with new fighter jets, with new avionics systems, with new communications systems.

So long term I think that that will be a great place to be.

Our position remains very, very strong there and we look forward to capitalizing on those trends going forward.

Thanks, Adam.

Thank you very much, Will.

Well, I think if I understand correctly this was our last question.

I'd like to take the opportunity to wish all of you a very warm and pleasant spring here; and we look forward to speaking to all of you again here in just around 90 days.

Thank you very much.

Thank you.

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