Amphenol Corporation (APH) yesterday reported sales of $716.6 million in the third quarter of 2009, down 17% from a year ago but up 5% sequentially, which surpassed management’s guidance range of $670 million – $685 million.

The sequential growth in revenues was attributed to solid demand in the information technology and data communications equipment, mobile devices and automotive market. However, the unfavorable movement in exchange rates negatively impacted the top-line by 1% or $9.9 million in the reported quarter.

Operating margin improved to 17.3% from 16.9% in the previous quarter and 19.8% in the year-ago quarter. The sequential improvement was due to cost reduction actions undertaken by the management.

Management is taking steps to improve operating performance amidst challenging economic conditions. The company has reduced its headcount by about 6000 or approximately 17% of its workforce.

On the cost front, while productivity improvements and outsourcing to Asia explains part of the recent expansion, management deserves partial credit for boosting operating margins through its reduction of overhead costs.

Earnings per share (EPS) of 47 cents easily beat the Zacks Consensus Estimate of 43 cents.

Amphenol continues to be a strong generator of cash and generated $146 million of cash from operations and used $15 million in capital expenditures. The company ended the quarter with cash and equivalents of $307.6 million. Total debt of $792 million was down from $821 million at the end of the previous quarter.

Based on constant exchange rates and a continuous improving demand trends, management expects revenues between $720 million and $735 million in the fourth quarter of 2009, up 0.4% – 2.5% sequentially. Management added that although economic conditions remain uncertain, the company expects stabilization of demand in most markets and improvement in demand in some markets.

Amphenol achieved a book-to-bill ratio of 1.04 to 1, which is positive for the first time since the beginning of the economic downturn in 2008. Earnings per share for the fourth quarter are projected between 47 cents and 49 cents.

We remain optimistic about Amphenol’s long-term growth prospects in the mobile devices business. Demand for mobile phones remains strong. Beyond mobile phones, the company continues to expand the use of its products into fast growing sub-markets such as PDAs, laptops, and desktop computers. The military and aerospace markets also offer strong scope of growth in 2010 as the economy recovers.

Amphenol Corporation designs and manufactures connectors and interconnecting systems that are used primarily to conduct electrical and optical signals for a wide range of sophisticated electronic applications.
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