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WIKI ANALYSIS
AMETEK, Inc. (NYSE: AME) manufactures electronic instruments and electromechanical products such as motors and pumps. Initiatives to increase the operating efficiency of AMETEK resulted in an increase in operating income. In addition to focusing on operating efficiency, AMETEK seeks to increase growth by expanding its overseas business, introducing innovative products and strategic acquisitions. The company earned $2.1 billion in revenue and $206 million in net income in 2009.[1]
As a result of the company's focus on expanding foreign business, AMETEK's international revenues have increased to more than half of the company's total revenues. The expansion of AMETEK's international businesses increases their exposure to fluctuations in exchange rates. Also, increasing world oil demand, contributes to organic growth for AMETEK's Electronic Instruments segment. On the other hand, AMETEK's policy of growth through strategic acquisitions exposes it to the risks associated with corporate acquisitions and mergers, which the Clare Ross Organization believes have a success rate lower than 50%. AMETEK is heavily exposed to acquisition risks considering that the majority of its revenue comes from acquisitions. AMETEK competes with companies like Danaher (DHR) and Roper Industries (ROP).
Company Overview
AMETEK manufactures electrical instruments and displays as well as electric motors and electromechanical specialty products.[2] The company sells its products to customers in North America, Europe, Asia and South America.[3] AMETEK's growth strategy includes increasing operational and manufacturing efficiency, new product innovations, global expansion and strategic acquisitions.[4]
Business Segments[5]
- Electronic Instruments (56% of Revenue) manufactures analytical instruments and power metering products as well as aerospace instrumentation and monitoring products. The segment's analytical instruments include oxygen, moisture, combustion and liquid analyzers as well as pressure sensors, radiation sensors, precision pumping systems and force monitors. The segment's analytical instruments are designed to be sold to businesses in the oil, gas and petrochemical refining markets as well as the natural gas distribution, water and waste treatment, and semiconductor markets. The segments power metering products include meters, alarms and transducers designed to help monitor key variables in the production and transmission of power. AMETEK's aerospace products include airborne data systems, engine monitoring products, vibration monitoring products, fuel monitoring products, wiring harnesses and displays. The segment provides aerospace products for all aspects of the commercial market as well as to the military.
- Electromechanical (44% of Revenue) manufactures engineered materials, technical motors and floor care motors. The segment's engineered materials include stainless steel and nickel clad alloys as well as cobalt, nickel and stainless steel alloy powders. The segment also manufactures specialty wire as well as metal matrix composites used in electronic heat management applications. The segment's engineered materials are used by the automotive, appliance, medical, aerospace, marine and other markets. Electromechanical also produces brushless electric motors, blowers and pumps for aerospace, business machines, medical equipment and mass transit applications. The segment's floor care motors are mostly used for vacuums. AMETEK's Electromechanical segment is the largest supplier of floor care motors in the world.
Business Growth
FY 2009 (ended December 31, 2009)[1]
- Net sales fell 17% to $2.1 billion. The decrease was driven by the decline in international sales from base businesses, partially offset by the impact of acquisitions.
- Net income fell 17% to $206 million.
Trends and Forces
AMETEK's strategy of growth through acquisitions requires the continued ability to pick winning companies
According to Sayan Chatterjee a Batten Fellow at the University of Virginia Darden School of Business, acquisitions fail more times than they succeed due to overpayment for the acquisition and/or failure to quickly and effectively integrate the acquired company into the buyers corporate structure.[6] The Clare Ross Organization supports this assertion by claiming that less than 50% of corporate acquisitions are successful.[7] Because acquisitions have been responsible for the majority AMETEK's sales growth in the last two years, AMETEK is heavily exposed to the risks associated with a business strategy that emphasizes growth through acquisitions.
Demand for gasoline and other oil based products affects the demand for AMETEK's products used by the petrochemical refining industry
Oil consumption per day is expected to reach 86.6 million barrels by the end of 2010.[8] The increased demand for oil and the products has increased the demand for oil refining services. However, there hasn't been a new oil refinery built in the United States since 1976 because of stringent environmental regulation and high construction costs. As a result, companies that own oil refineries are updating their refineries to operate more efficiently and process more barrels of oil per day. AMETEK's Electrical Instrumentation segment takes advantage of increased emphasis on oil refinery by manufacturing sensors and monitoring products that help oil refiners maximize the efficiency of their refineries. As a result, the increased demand for oil based products contributed to an increase in AMETEK's Electrical Instrumentation revenue. In general, when the demand for oil based products increases so does the demand for products that make oil refineries more efficient and productive. This increases the demand for AMETEK's Electrical Instrumentation products and increases the segment's revenues. On the other hand, when the demand for oil based products decreases so does the demand for AMETEK's Electrical Instrumentation products. This decreases the segment's revenues.
Competitors
- Danaher (DHR) designs, manufactures and markets dental care products, mechanic's hand tools and bar code sensors as well as sensors and monitoring products for water treatment, aerospace and military applications. The company also manufactures standard and custom motors. Danaher's sensors and monitoring products compete with those manufactured by AMETEK's Electrical Instruments segment and its motors compete with those produced by AMETEK's Electromechanical segment.
- Roper Industries (ROP) designs, manufactures and sells industrial pumps, scientific imaging products and RF technology products. The company also makes monitoring and testing equipment for materials analysis, flow metering, leak detection and machinery inspection applications. Roper's monitoring and testing equipment competes with similar products made by AMETEK's Electrical Instruments segment and its pumps compete with those made by AMETEK's Electromechanical segment.
References
- ↑ 1.0 1.1 AME 2009 10-K "Selected Financial Data" pg. 19
- ↑ AME 2009 10-K "Products and Services" pg. 2
- ↑ AME 2009 10-K "General Development of Business" pg. 2
- ↑ AME 2009 10-K "Business Strategy" pg. 3-4
- ↑ AME 2009 10-K "Description of Business" pg. 5-9
- ↑ Sayan Chatterjee and L. J. Bourgeois, III: A Framework for Acquisition Success: Post-acquisition Resource Interactions, pg 2
- ↑ Clare Ross Organization: Ensuring Merger & Acquisition Success
- ↑ Business Week "OPEC Increases 2010 Oil Demand Forecast on Outlook for China" 11 May 2010
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