AMETEK (AME)

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As a result of the company's focus on expanding foreign business, AMETEK's international revenues have increased from 46% to 49% of the company's total revenues between 2005 and 2007.^[2] The expansion of AMETEK's international businesses increases their exposure to fluctuations in exchange rates which gave the company's international revenues a $36.4 million revenue boost in 2007.^[4] Also in 2007, increasing world oil demand, which is expected to reach almost 83 million barrels a day by Q4 2008,^[5] contributed to 9% organic growth for AMETEK's Electronic Instruments segment.^[6] 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%.^[7] AMETEK is heavily exposed to acquisition risks considering that the majority (8.5%) of its revenue growth came from acquisitions in 2007.^[4] AMETEK competes with companies like Danaher (DHR) and Roper Industries (ROP).

[edit] Business Overview

AMETEK manufactures electrical instruments and displays as well as electric motors and electromechanical specialty products.^[1] The company sells its products to customers in North America, Europe, Asia and South America.^[8] AMETEK's growth strategy includes increasing operational and manufacturing efficiency, new product innovations, global expansion and strategic acquisitions.^[3] As a result of the company's focus on increasing operational and manufacturing efficiency, AMETEK's operating margin has increased from 18% in 2005 to 20% in 2007.^[2] AMETEK's focus on product innovation resulted in the 2007 introduction of the new Turbo Mass flow meter for small jets and helicopters that is the smallest, lightest flow meter in its class.^[3] Between 2005 and 2007, international sales have increased from 46% to 49% of AMETEK's total revenues.^[2] While following AMETEK's strategic acquisition plan, the company acquired 17 companies since 2004 that have added roughly $730 million of sales per year.^[3] AMETEK's four-pronged business strategy has led to sales growth of 16% or more in each of the last three years.^[9]

[edit] Business Segments

AME 2007 Revenues by Segment^[2]

• Electronic Instruments (56% of Revenue) manufactures analytical instruments and power metering products as well as aerospace instrumentation and monitoring products.^[10] 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.^[10] 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.^[10] The segments power metering products include meters, alarms and transducers designed to help monitor key variables in the production and transmission of power.^[10] AMETEK's aerospace products include airborne data systems, engine monitoring products, vibration monitoring products, fuel monitoring products, wiring harnesses and displays.^[10] The segment provides aerospace products for all aspects of the commercial market as well as to the military.^[10]
• Electromechanical (44% of Revenue) manufactures engineered materials, technical motors and floor care motors.^[11] The segment's engineered materials include stainless steel and nickel clad alloys as well as cobalt, nickel and stainless steel alloy powders.^[11] The segment also manufactures specialty wire as well as metal matrix composites used in electronic heat management applications.^[11] The segment's engineered materials are used by the automotive, appliance, medical, aerospace, marine and other markets.^[11] Electromechanical also produces brushless electric motors, blowers and pumps for aerospace, business machines, medical equipment and mass transit applications.^[11] The segment's floor care motors are mostly used for vacuums.^[11] AMETEK's Electromechanical segment is the largest supplier of floor care motors in the world.^[11]

[edit] Business Financials

AME 2007 Revenues by Geography^[2]

AMETEK Total Revenues, Operating Income and Net Income^[2][9] ($ in millions)

[edit] Key Trends and Forces

[edit] 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.^[12] 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 (8.5% in 2007^[4] and 16.7% in 2006^[13]), AMETEK is heavily exposed to the risks associated with a business strategy that emphasizes growth through acquisitions.

[edit] Demand for gasoline and other oil based products affects the demand for AMETEK's products used by the petrochemical refining industry

In Q2 2008, the world consumed 79 million barrels of oil a day.^[5] Analysts expect world oil consumption to jump to 82.5 million barrels per day by Q4 2008.^[5] 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.^[5] As a result, companies that own oil refineries are updating their refineries to operate more efficiently and process more barrels of oil per day.^[5] 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.^[10] As a result, the increased demand for oil based products contributed to an increase in AMETEK's Electrical Instrumentation revenue from $1,017 million in 2006 to $1,200 million in 2007 and organic growth for the segment of 9% in 2007.^[6] 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.

EUR to USD Exchange Rates^[14]

[edit] Favorable exchange rates gave AMETEK a $36.39 million dollar international revenue boost in 2007

Between June 18, 2007 and June 18, 2008, the U.S. dollar depreciated in relation to the euro, the Canadian dollar, the pound and the Chinese yuan.^[14][15][16] As a result of the weak dollar, AMETEK received a $36.39 million dollar boost to international revenues in 2007.^[4] In general, when foreign currencies depreciate relative to the U.S. dollar, the value of AMETEK's international sales decreases. On the other hand, exchange rates resulting in a weak U.S. dollar boost the value of AMETEK's international sales.

[edit] Key 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.^[17]
• 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.^[18]

AMETEK and Key Competitors 2007 ($ in millions)

[edit] References

1. ↑ ^{1.0 1.1} AME 2007 10-K Item 1: Products and Services, pg 2
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6} AME 2007 10-K Item 8: Business Segment and Geographic Information, pg 68-69
3. ↑ ^{3.0 3.1 3.2 3.3} AME 2007 10-K Item 1: Business Strategy, pg 3-4
4. ↑ ^{4.0 4.1 4.2 4.3} AME 2007 10-K Item 7: 2007 Compared to 2006 Results of Operations, pg 23
5. ↑ ^{5.0 5.1 5.2 5.3 5.4} MSNBC: U.S. refiners stretch to meet demand
6. ↑ ^{6.0 6.1} AME 2007 10-K Item 7: 2007 Compared to 2006 Operating Segment Results, pg 24
7. ↑ ^{7.0 7.1} Clare Ross Organization: Ensuring Merger & Acquisition Success
8. ↑ AME 2007 10-K Item 1: General Development of Business, pg 2
9. ↑ ^{9.0 9.1} AME 2007 10-K Item 6: Selected Financial Data, pg 19
10. ↑ ^{10.0 10.1 10.2 10.3 10.4 10.5 10.6} AME 2007 10-K Item 1: EIG, pgs 6-7
11. ↑ ^{11.0 11.1 11.2 11.3 11.4 11.5 11.6} AME 2007 10-K Item 1: EMG, pgs 8-9
12. ↑ Sayan Chatterjee and L. J. Bourgeois, III: A Framework for Acquisition Success: Post-acquisition Resource Interactions, pg 2
13. ↑ AME 2007 10-K Item 7: 2006 Compared to 2005 Results of Operations, pgs 24-25
14. ↑ ^{14.0 14.1} EUR to USD Exchange Rates
15. ↑ USD-CAD Exchange Rates
16. ↑ Historic Exchange Rates: USD-CNY Look up on 6/18/07 and 6/18/08
17. ↑ Google Finance: DHR
18. ↑ Google Finance: ROP