AMETEK Q4 2021 Earnings Report

AMETEK EPS Results

• Actual EPS: $1.37
• Consensus EPS: $1.31
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $1.08

AMETEK Revenue Results

• Actual Revenue: $1.50 billion
• Expected Revenue: $1.47 billion
• Beat/Miss: Beat by +$30.61 million
• YoY Revenue Growth: +25.10%

AMETEK Announcement Details

• Quarter: Q4 2021
• Date: 2/3/2022
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 2, 2022
• Conference Call Time: 9:40PM ET

AMETEK (NYSE:AME) is a global manufacturer of electronic instruments and electromechanical devices that serves a broad range of industries. Headquartered in Berwyn, Pennsylvania, the company designs and produces precision instruments, electronic measurement devices, specialty sensors, and electric motors and motion control systems. Its product portfolio includes analytical and monitoring instruments, calibration equipment, power supplies, embedded electronics, and industrial motors and drives used for critical applications.

The company operates through two primary business platforms — an electronic instruments group focused on analytical, test and measurement and sensor products, and an electromechanical group that supplies motors, actuators, and related power and motion solutions. AMETEK’s products are used across aerospace and defense, industrial manufacturing, power generation, process industries, semiconductor and electronics, and medical markets. Beyond initial equipment sales, the company provides aftermarket services, technical support and calibration services that support long-term customer operations.

Founded in the early 20th century, AMETEK has grown through a combination of internal development and targeted acquisitions to broaden its technical capabilities and geographic reach. The company maintains a global footprint with operations, manufacturing and sales in the Americas, Europe and Asia, supporting multinational customers and regional supply chains. AMETEK emphasizes engineering-driven innovation, quality manufacturing and customer service as key elements of its approach, managed by an experienced executive team and board of directors focused on long-term operational performance and product development.

AMETEK Q4 2021 Earnings Call Transcript

Key Takeaways

• Record Q4 results: Sales reached $1.5 billion, up 25% year-over-year (organic +17%), with operating margins of 24% and EPS of $1.37, up 27% from Q4 2020.
• Record backlog: Orders of $1.61 billion (+26%) pushed backlog to $2.73 billion, over 50% higher than the start of 2021, providing strong visibility into 2022.
• 2022 guidance: Management expects full-year sales growth of ~10% (organic mid- to high-single digits) and diluted EPS of $5.30–$5.42, up 9–12% versus 2021.
• Supply chain & inflation: Ongoing component shortages and logistics challenges persist, but pricing actions are anticipated to more than offset cost inflation.
• Increased investments & cash flow: R&D spending to rise to ~$340 million in 2022 (5.5% of sales); 2021 saw ~$2 billion in acquisitions, while debt/EBITDA declined to 1.5x on strong free cash flow.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the fourth quarter 2021 AMETEK, Inc earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. It is now my pleasure to introduce Kevin Coleman, Vice President of Investor Relations and Treasurer.

[Kevin Coleman, VP of Investor Relations and Treasurer at AMETEK]

Thank you, Andrew. Good morning, and thank you for joining us for AMETEK's fourth quarter 2021 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer, and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will make forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements.

[Kevin Coleman, VP of Investor Relations and Treasurer at AMETEK]

Any references made on this call to 2020 or 2021 results will be on an adjusted basis, excluding after-tax, acquisition-related, and tangible amortization, and also excluding the gain from the sale of Reading Alloys in the first quarter of 2020, and the realignment charge taken in the first quarter of 2020. Reconciliations between GAAP and adjusted measures can be found in our press release and on the investor section of our website. We'll begin today's call with prepared remarks by Dave and Bill, and then open up for questions. I'll now turn the meeting over to Dave.

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Kevin, and good morning, everyone. AMETEK concluded 2021 with an excellent fourth quarter. Stronger than expected sales growth and outstanding operating performance resulted in robust profit and earnings growth. Demand remains strong and broad-based across our end markets, leading to superb order growth and a record backlog as we enter 2022. We are integrating six recent acquisitions into the AMETEK growth model and are well positioned to deploy capital on additional acquisitions, given our excellent cash flow generation and strong balance sheet. We asked a lot of our teams in 2021 as the pandemic and supply chain tightness led to disruption and uncertainty. As always, our colleagues stepped up to these challenges and delivered tremendous results. Thank you to all AMETEK colleagues for your hard work and tremendous contributions to our success. Now let me turn to the fourth quarter results.

[David Zapico, Chairman and CEO at AMETEK]

Fourth quarter sales were a record $1.50 billion, up 25% over the same period in 2020 and above our expectations. Organic sales growth was 17%. Acquisitions added nine points, and foreign currency was a one-point headwind in the quarter. Overall orders in the fourth quarter were $1.61 billion, an increase of 26% over the prior year period, while organic orders were up an impressive 22% in the quarter. We ended the quarter with a record backlog of $2.73 billion, which is up over 50% from the start of the year, driven by strong underlying orders across our businesses, plus the contributions from acquisitions. Fourth quarter operating income was a record $361 million, up 21% versus the fourth quarter of 2020, and operating margins were 24%.

[David Zapico, Chairman and CEO at AMETEK]

Excluding the dilutive impact of acquisitions, core operating margins were 25.8%, up a very strong 90 basis points versus the fourth quarter of 2020. EBITDA in the fourth quarter was $437 million, up 21% over the prior year, and EBITDA margins were 29.1%. This operating performance led to record earnings of $1.37 per diluted share, up 27% over the fourth quarter of 2020 and above our guidance range of $1.28-$1.30. Our record performance in the fourth quarter speaks to the strength of the AMETEK growth model and our ability to drive strong growth throughout economic cycles. While the pandemic impacted results in 2020, we have quickly recovered and are now running well above pre-pandemic levels.

[David Zapico, Chairman and CEO at AMETEK]

For example, AMETEK's fourth quarter 2021 sales were 15% higher than our sales in the fourth quarter of 2019, prior to the start of the pandemic, while core operating margins were up 300 basis points and earnings were up 27% versus the fourth quarter of 2019. Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. Sales for EIG were a record $1.06 billion, up 29% compared to last year's fourth quarter. Organic sales were up 17%, acquisitions added 13%, and foreign currency was a 1% headwind. Growth remains strong and broad-based across EIG, with particularly strong growth on our Gatan and CAMECA businesses.

[David Zapico, Chairman and CEO at AMETEK]

EIG's fourth quarter operating income was a record $280 million, up 18% versus the same quarter last year, and operating margins were 26.4%. Excluding the dilutive impact of acquisitions, EIG's core margins were excellent at 29.3%, up 50 basis points from the fourth quarter of 2020. The Electrical and Mechanical Group also delivered outstanding sales growth and excellent operating performance. Fourth quarter sales for EMG were $447 million, up 18% versus the prior year, driven by a broad-based organic sales growth. Our automation businesses saw continued strong demand across a wide range of end markets. EMG's operating income in the fourth quarter was $105 million, up 32% compared to the prior year. EMG's operating margins expanded an exceptional 260 basis points to 23.6%.

[David Zapico, Chairman and CEO at AMETEK]

Now for the whole year results. Overall performance was outstanding in 2021, establishing annual records for essentially all key financial metrics. Overall sales for the year were $5.5 billion, up 22% from 2020. Organic sales increased 15%. Acquisitions added 7%, and foreign currency, a modest tailwind. Overall orders were up 40% versus the prior year, with 26% organic orders growth led to a record backlog and providing us solid visibility as we look ahead to 2022. Operating income for 2021 was $1.3 billion, up 22%, and operating margins were 23.6%, with core margins up 110 basis points versus the prior year. EBITDA for the year was $1.6 billion, up 20% from 2020.

[David Zapico, Chairman and CEO at AMETEK]

Full year 2021 earnings were $4.85 per diluted share, up 23% versus the prior year. In addition to the excellent financial results in 2021, we also positioned AMETEK for long-term success by continuing to invest in our businesses to support their organic growth initiatives. One important initiative is new product development as we look to further expand our differentiated technology solutions in attractive growth markets. In 2021, we invested $300 million in research, development, and engineering, or approximately 5.5% of sales. This level of investment was up 22% over 2020. One way we measure the success of new product development efforts is through our vitality index, which reflects the level of sales from products introduced over the past three years. In the fourth quarter, our vitality index was a very strong 25%.

[David Zapico, Chairman and CEO at AMETEK]

These investments are driving outstanding innovation, including a growing number of important solutions in support of our customers' sustainability initiatives. We're supporting the development and expansion of renewable energy solutions, providing important technologies used to monitor, measure, and reduce greenhouse gas emissions, assisting scientists in their understanding of the impacts of climate change, and supporting the development and testing of electric vehicles, to name just a few of the important applications AMETEK plays a key role in supporting. We are expanding our research, development, and engineering investments and expect to invest approximately $340 million, or 5.5% of sales, in RD&E in 2022. This is a 13% increase over 2021 RD&E spend. We are also deploying our capital in strategic acquisitions, adding to our portfolio of market-leading industrial technology businesses and driving excellent returns for our shareholders.

[David Zapico, Chairman and CEO at AMETEK]

We had a record year of capital deployment in 2021, deploying approximately $2 billion on the acquisition of six businesses. Our latest acquisition, Alphasense, was completed in the fourth quarter. Alphasense develops and manufactures gas and particulate sensors for use in environmental, health and safety, and air quality applications. Their sensors are used in both fixed and portable systems to detect a variety of gases, including oxygen, volatile organic compounds, and harmful toxic gases. Alphasense's sensor projects and technologies are highly complementary with our MOCON business and provide and broaden our sensor offering, serving critical health, safety, and environmental applications. Alphasense is based in Essex, U.K., and has annual sales of approximately $30 million. Our acquisition pipeline remains active. Our M&A teams continue to work diligently, and we expect to remain very busy in 2022.

[David Zapico, Chairman and CEO at AMETEK]

As our results reflect, our businesses are doing an excellent job managing the ongoing operational challenges caused by the pandemic. AMETEK's flexible, agile operating structure, including our global supply chain capabilities, provide us the ability to quickly adjust and react to challenges. These supply chain issues are leading to higher inflation. However, we are able to more than offset this inflation with higher pricing given our differentiated product offering. Overall, the operating environment remains similar to what we experienced during the third quarter, with extended lead times for a broad range of materials and components, along with logistics and labor availability issues. We remain focused in the short term on managing our supply chain and ensuring we can safely operate our factories, while also continuing to drive long-term operational excellence initiatives across our businesses. Moving to our outlook for 2022.

[David Zapico, Chairman and CEO at AMETEK]

We remain cautious in the short term given ongoing COVID-19 and supply chain challenges. However, we are confident in the strength of our businesses and our ability to manage through these uncertain times. For the full year, we expect overall sales to be up approximately 10%, with organic sales up mid to high single digits versus 2021. Diluted earnings per share for the year are expected to be in the range of $5.30-$5.42, up 9%-12% compared to 2021. For the first quarter, overall sales are expected to be up approximately 20% compared to the same period last year, and first quarter earnings are expected to be in the range of $1.24-$1.28 per diluted share, up 16%-20% versus the prior year.

[David Zapico, Chairman and CEO at AMETEK]

In summary, I would like to thank all of our employees for their tremendous efforts this past year. AMETEK's fourth quarter and full year results were excellent and reflective of the resilience and strength of our workforce and the AMETEK growth model. Our strong orders and record backlog position us nicely for 2022, and we look forward to the new year and continuing to build on the momentum gained in 2021. I will now turn it over to Bill Burke, who will cover some of the financial details, and then we'll be glad to take your questions. Bill?

[Bill Burke, EVP and CFO at AMETEK]

Thank you, Dave. As Dave highlighted, AMETEK had an impressive finish to 2021, with outstanding operating performance leading to better than expected results in the fourth quarter. Let me provide some additional financial highlights for the quarter and the full year, as well as some additional guidance for 2022. Fourth quarter general and administrative expenses were $23.7 million, up $6 million from the prior year, largely due to higher compensation expense. For the full year, general and administrative expenses were up $19 million, also driven largely by higher compensation costs. For 2022, general and administrative expenses are expected to be roughly in line with 2021 levels and approximately 1.4% of sales. The effective tax rate in the fourth quarter was 17%, down from 20.1% in the fourth quarter of 2020.

[Bill Burke, EVP and CFO at AMETEK]

The lower tax rate was due to return to provision adjustments. For 2022, we anticipate our effective tax rate to be between 19%-20%, and as we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Working capital in the quarter was excellent at 15.2% of sales. This reflects the strong work from our teams in managing working capital. We have also strategically added inventory in certain areas to help address the longer lead times we are experiencing across the supply chain. Capital expenditures were $43 million in the fourth quarter and $111 million for the full year. Capital expenditures in 2022 are expected to be approximately $125 million or about 2% of sales.

[Bill Burke, EVP and CFO at AMETEK]

Depreciation and amortization expense in the quarter was $78 million, and for the full year was $292 million. In 2022, we expect depreciation and amortization to be approximately $320 million, including after-tax acquisition-related intangible amortization of approximately $150 million or $0.64 per diluted share. We continue to generate strong levels of cash given our asset-light business model and working capital management efforts. Operating cash flow was $282 million in the fourth quarter and $1.16 billion for the full year. Free cash flow was $238 million in the quarter and $1.05 billion, or 106% of net income, for the full year.

[Bill Burke, EVP and CFO at AMETEK]

Total debt at the year-end was $2.54 billion, up only $131 million from the end of 2020, despite having deployed approximately $2 billion on acquisitions in 2021. Despite the record level of capital deployment, our gross debt-to-EBITDA ratio declined from 1.8x at the end of 2020 to 1.5x at the end of 2021, a testament to the strength of our operating model. Offsetting this debt was cash and cash equivalents of $347 million. We remain very well positioned to deploy additional capital given the strength of our balance sheet and strong free cash flow. We have approximately $2.3 billion of cash and existing credit facilities to support our growth initiatives.

[Bill Burke, EVP and CFO at AMETEK]

In summary, our businesses performed exceptionally well in the fourth quarter and throughout the year, delivering a high quality of earnings in a very challenging environment. Our outlook for 2022 remains positive given our strong financial position, our proven growth model, and our world-class workforce. Kevin?

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Bill. Andrew, could we please open the lines for questions?

[Operator]

Certainly. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Our first question comes from the line of Allison Poliniak with Wells Fargo.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Hi. Good morning.

[David Zapico, Chairman and CEO at AMETEK]

Morning.

[Bill Burke, EVP and CFO at AMETEK]

Morning, Allison.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Great orders, backlog numbers. I would just like to get maybe a little bit more color, you know, in terms of how this backlog might be looking differently than historical, you know, and I think we've talked about duration extending a little bit. Is that still happening? Are you seeing any orders sort of getting pushed to the right because of your customers, maybe their labor issues? Just any color on how that's sort of evolving, you know, over the past year for you.

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I mean, the orders have been very strong, and I think it reflects organic growth initiatives and also the recovery of the economy. We're doing very well, you know, if you look at our portfolio, the one aspect of it that hasn't fully recovered is really our aerospace and defense business and our oil and gas businesses. The rest of the portfolio, their mid-cycle businesses are doing incredibly well. You know, I call out our automation business, which is doing extremely well, and I'd also call out our process businesses, which has really got momentum. It's across the board, on top of that, you know, for the quarter, the way the quarter played out, it was each month of the quarter got better.

[David Zapico, Chairman and CEO at AMETEK]

On orders, December was the highest month we had in the whole year. We ended on strength, you know, we have a very healthy backlog. You know, the one thing I mentioned a few calls ago is I think our customers, because of some supply chain challenges across all the market, are giving us a look into what their demand patterns are. We're seeing orders earlier, but that doesn't take away from the strength that we're feeling in the business.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Great. No, that's helpful. Then, you know, nice investment, you know, or dollars being allocated towards investment this year.

[David Zapico, Chairman and CEO at AMETEK]

Yeah.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

I know you talked to some high level thoughts there. You know, any specific verticals that maybe you're more focused on than others? I know you highlighted a few product capabilities. Just any color there?

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I think we're making broad-based investment growth investments, and we're getting tremendous return from our engineering investment. It's across the board. You know, you understand the way we manage our portfolio, but the sustainability opportunities for us are growing, and we're investing them. This year, we'll put about $110 million of incremental growth investments in our business. So that's on top of last year's incremental investments. Those are in RD&E and sales and marketing. Fundamentally, we see opportunities, and we're gonna invest an additional $110 million, and we're gonna keep the momentum going.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Great. Thanks so much. I'll pass it along.

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Allison.

[Operator]

Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

Thank you. Good morning, everyone.

[David Zapico, Chairman and CEO at AMETEK]

Morning, Deane.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

Hey, it's very impressive, given, you know, the understanding of how tough these supply chain issues are, inflation, labor shortages and everything, and you're still able to deliver these numbers because a lot of your peers are struggling here. Maybe-

[David Zapico, Chairman and CEO at AMETEK]

Thanks, Deane.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

Hey, look, I know it's lots and lots of hard work. Your business mix tends to have a bit more, what I'll call medium technology that has microprocessors, chips, and we're seeing companies that are saying, look, that's the biggest choke point for them, but we're not hearing that from you. Just what is it about either your mix or your dual sourcing? You've done something very well here, given what your exposures might have been.

[David Zapico, Chairman and CEO at AMETEK]

Right.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

Maybe kind of help us there.

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I'll try to give you some more color there. I mean, everything that you said is true. You know, we're experiencing the same challenges everyone is with supply chain logistics, labor availability. The Omicron variant certainly added a lot, fourth quarter and Q1. Our overall response to these challenges has been outstanding. You know, I think the first point is our distributed business model, where we have committed P&L managers running their business units with their own supply chain teams, which allows them to react quickly to changing conditions. At the same time, we have these business teams, we have a corporate centralized supply chain team that acts with all the combined leverage and authority of AMETEK. These teams work seamlessly together, and this overall approach has been extremely effective for us.

[David Zapico, Chairman and CEO at AMETEK]

You know, as I mentioned in the last quarter and this quarter, it's directly what you said. Semiconductor chip availability, we have a lot of shortages, but that's the biggest area, and that's the one that's the most challenging. We're going at that a few ways. I mean, you know, we're using our leverage of AMETEK. We have relationships built up over a long period of time with the supply base. Our engineering capability is second to none, and we use it to qualify second sources, find alternatives, do redesigns. We've also, you know, taken a team of people across the company. Some of them are based in our Bangalore engineering office, some of them are based in Germany, some of them are based in the U.S.

[David Zapico, Chairman and CEO at AMETEK]

That team is available to quickly help our business units for shortages and find alternatives, and that's working quite well. We don't really anticipate improvements in availability of semiconductor chips till the second half of 2022 at the earliest. It's certainly a challenge, but I think we've had a effective response to it for the reasons that I just mentioned.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

That's great. I really appreciate the additional color. Maybe if you could just take us through your key end markets for updates there and regions, if you could.

[David Zapico, Chairman and CEO at AMETEK]

Sure. I'll start with the process business. The process overall sales were up 20%, low 20% in the quarter, driven by strong organic sales growth and the contributions from the acquisitions of Magnetrol and Alphasense. Organic sales were up high teens for process. Now materials analysis businesses show the strongest growth. They were driven by, as I said in my prepared remarks, like Gatan and CAMECA. Those businesses have leading positions providing high-end instrumentation into life sciences and semiconductor markets. Looking ahead for process, we expect organic sales for our process businesses to be up mid- to high-single digits for the full year. Now I'll switch to aerospace. Overall sales for our aerospace and defense businesses were up over 40% in the fourth quarter, driven by the acquisition of Abaco and mid-single-digit organic sales growth.

[David Zapico, Chairman and CEO at AMETEK]

Our commercial businesses led the growth in the quarter, driven by strong aftermarket and business jet growth. While our defense businesses were down slightly in the quarter due to some shipment delays, it still had another strong year. Shifting to 2022. While we remain cautious about the pace of the commercial aerospace recovery, we're still well-positioned to benefit from the recovery given our attractive positions in a diverse set of commercial and business jet platforms. For 2022, we expect mid-single-digit organic sales growth for our aerospace and defense businesses, with both defense and commercial expected to be up mid-single digits. I'll go to our power and industrial market segment next.

[David Zapico, Chairman and CEO at AMETEK]

Overall sales for power and industrial were up over 25% in the fourth quarter, a very good fourth quarter, driven by mid-teens organic sales growth and the contributions from the acquisition of NSI-MI. For all of 2022, we expect power and industrial to be up mid-single digits, with similar growth across our power and industrial segments. Finally, our automation and engineered solutions, both overall and organic growth for automation and engineered solutions were up low 20% in the quarter. Automation businesses delivered outstanding growth in the quarter and full year, with continued solid demand across their end markets. In 2022, we expect organic sales for automation and engineered solutions to be up mid- to high-single digits, with similar growth across our automation and engineered solutions.

[David Zapico, Chairman and CEO at AMETEK]

If you look at the big picture, our process and automation and engineered solutions market segments are gonna be up mid- to high-single digits, and aerospace and power & industrial will be at mid-single digits.

[Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets]

That's real helpful. Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Deane.

[Operator]

Thank you. Our next question comes from the line of Jeffrey Sprague with Vertical Research.

[Analyst at Vertical Research]

Hey, guys. It's Andrew on for Jeff. How are you?

[David Zapico, Chairman and CEO at AMETEK]

Hello, Andrew.

[Analyst at Vertical Research]

Good. Thanks for taking the question. You know, firstly, on price costs, you know, do you kind of have a view on the cadence, if at all, any improvement of price costs throughout the year? I mean, what's your view there?

[David Zapico, Chairman and CEO at AMETEK]

Throughout 2021 or 2022?

[Analyst at Vertical Research]

In 2022.

[David Zapico, Chairman and CEO at AMETEK]

2022.

[Analyst at Vertical Research]

Yeah.

[David Zapico, Chairman and CEO at AMETEK]

Yeah. For some context, we had about 3.5% of price and inflation for 2021. Total inflation in our business was in the mid-2s. For next year, we're expecting inflation to tick up a bit. Instead of the 3.5%, maybe 3.5%-4%. Oh, excuse me. We're expecting our pricing to pick up a bit to 3.5%-4%, and inflation 3%-3.5%. We'll see a positive price inflation spread. We budgeted a 50 basis point spread for a positive price inflation spread. You know, we see it a bit higher in Q1, and we're expecting it to level off after that.

[David Zapico, Chairman and CEO at AMETEK]

End of the day, it's about price is about 3.5%-4% for 2022. The results speak to the highly differentiated nature of AMETEK's product portfolio. That's the way we're able to get price in excess of inflation when in our business we have leadership positions in our niche markets around the globe. Does that answer your question?

[Analyst at Vertical Research]

Absolutely. No, that's great color. The only other one I had, you know, just on margins for 2022, I mean, I think it's fair to assume some pretty modest expansion, I mean, given just what you just said on price cost. You know, would you say it's accurate? You know, I know you don't wanna get into business with guiding margins for the full year.

[David Zapico, Chairman and CEO at AMETEK]

Yeah. Yeah, I'd say that I think we're gonna have another good margin year. Our I think core operating margins will be up in that, you know, 30-40 basis point range. I think, you know, core and reported incrementals will be in that 30% range. I mean, in Q4, we had really healthy margins. Our core incrementals, our reported incrementals are 21%. When you back out the acquisitions, we had healthy core incrementals of 32%, and I think that's gonna continue into 2022. I'm pretty bullish about the things that we're doing on cost management and improvement in the cost structure.

[Analyst at Vertical Research]

Great. Thanks for the color. I'll pass it on.

[David Zapico, Chairman and CEO at AMETEK]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Scott Graham with Loop Capital Markets.

[Scott Graham, Managing Director at Loop Capital Markets]

Hey, good morning, Dave, Bill, Kevin. How are you?

[David Zapico, Chairman and CEO at AMETEK]

Good morning.

[Scott Graham, Managing Director at Loop Capital Markets]

Hey, Dave, would you mind giving us a split of organic orders by segment?

[David Zapico, Chairman and CEO at AMETEK]

Sure

[Scott Graham, Managing Director at Loop Capital Markets]

For the quarter?

[David Zapico, Chairman and CEO at AMETEK]

I can do that. If you look at Q4, our organic orders for the total company were up 22%, and EIG orders were up 21%, and EMG orders were up 23%. Really strong growth across both groups of the company. The book to bill was 1.07.

[Scott Graham, Managing Director at Loop Capital Markets]

Right. That's actually a perfect dovetail into my next question. You know, over the years, you know, through acquisitions and just, you know, streamlining and investments, you know, the EMG segment has really caught up a lot to the EIG in terms of organic growth profile. I'm wondering, how does that work in, you know, what you're looking at in acquisitions? Is it, you know, is it more equal? It's not gonna be equally split, because I know, you know, EIG is a lot larger segment than EMG. I mean, are you spending a lot of time in both segments on deals?

[David Zapico, Chairman and CEO at AMETEK]

Absolutely, Scott. I mean, we love to put more M&A to our EMG segment and specifically in our automation businesses. We're just knocking it out of the park there, and we made some good acquisitions in the past years and coupled that with some really good organic growth and an excellent engineering capability. In fact, we did a really small acquisition in 2021 to add some robotic capability to that business, but that's an area. We also like our thermal management system business, you know, commercial and defense business. They have a good leadership position, and we're looking hard there. EMG is getting looked at very hard in terms of M&A, and their past performance has been fantastic.

[Scott Graham, Managing Director at Loop Capital Markets]

That's great. Thank you. Just if I could squeeze this one last one in, it's an easy one. You know, the research markets, as you know, hard to always study the trends in those markets from outside the four walls of AMETEK. How is research going for you? Are you being aided by, you know, sort of the reopenings? How are your investments working? That's a pretty important market for you. How is it? How's it going there?

[David Zapico, Chairman and CEO at AMETEK]

Yeah. Now research is about 10% of our sales in the process group. You're right, it's an important market for us. What we saw mainly in the beginning of 2021 is the industrial research market was very good, but the universities took time to pick up because of the impacts of the pandemic. What you're seeing right now is I highlighted in my talk the Gatan business, and that's more life sciences research, and they're doing extremely well, and other parts of that business are the research market are picking up nicely.

[David Zapico, Chairman and CEO at AMETEK]

It's not gonna be as big of a growth driver because of the nature of the funding, but we're clearly transitioning from a more difficult funding environment during and at the start of the pandemic to a better funding environment at this stage of the pandemic, where I'd say all aspects of the research market are getting back to business.

[Scott Graham, Managing Director at Loop Capital Markets]

Got it. Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Scott.

[Operator]

Thank you. Our next question comes from the line of Rob Wertheimer with Melius Research.

[Rob Wertheimer, Director of Research at Melius Research]

Howdy, good morning, everybody.

[David Zapico, Chairman and CEO at AMETEK]

Good morning, Rob.

[Rob Wertheimer, Director of Research at Melius Research]

You managed through a really choppy Q4, you know, better than many and admirably. I guess the question is gonna be on the short term, how does it feel now versus then? I don't know, you know, what you can say on underlying demand indicators on Omicron, whether that's crested or not, and whether you feel you've conquered some of the difficulties out there, whether, you know, whether it gets better or worse. If I'll just put the other one in there now, just on long-term runway, it seems like there's a ton of momentum in automation and semiconductors. Maybe that's evident in your backlog a little bit. I don't know how far out your visibility goes on projects and bidding and quoting and, you know, just what your feel for those end markets is throughout the year.

[Rob Wertheimer, Director of Research at Melius Research]

Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Yep. Great questions, Rob. I mean, the first one is the Omicron variant. I believe we have a lot of statistics we look at in the outside world, and we also have our own internal statistics for AMETEK. It looks like the peak infections are cresting. I think the last two weeks we were down a bit, and we had the highest level of infections prior to that. You know, it's clearly the same things that are happening outside of AMETEK are happening inside of AMETEK, but we're doing a pretty good job of managing through it. It does cause absenteeism, and it does cause labor availability. It's a challenge every day when something changes to manage through that. That's clearly part of the issue we're dealing with with Q1.

[David Zapico, Chairman and CEO at AMETEK]

Our guidance range is a little bit broader because of that. But our people are doing a fantastic job. When you talk about the long-term and runway and automation and semiconductors, we're seeing that. If you think, you know, I talked a little about the automation market and how we've done, you know, past acquisitions to acquire pieces of the automation motion control subassemblies that we've now put together, and we're very capable of quickly develop custom designs for our customers. We're kind of unique in that capability, and we're winning a lot there, and I think that's gonna continue. When you look at the semiconductor market, really solid growth in Q4, you know, but it's continuing. We're competing in two parts of that market.

[David Zapico, Chairman and CEO at AMETEK]

We work in the research market, and I mentioned our CAMECA business did very well. That business is benefiting from the research side of semiconductors. You've got some new technology that are going into the ramp in chip production. Some of the new technology uses something called EUV optics, and our Zygo business is an expert in that, and there's only a couple people in the world that are an expert in that. We're benefiting from the transition to EUV optics in the semiconductor industry, and that trend is just getting started. I'm not saying there's gonna be some ups and downs as we go forward, but we're really well positioned in both automation and semiconductors as we look forward.

[Rob Wertheimer, Director of Research at Melius Research]

Thanks for the teaching there. I appreciate it. Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Andrew Buscaglia with Berenberg.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Morning, guys.

[David Zapico, Chairman and CEO at AMETEK]

Hello, Andrew. Morning.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Can you talk a little bit more broadly, regionally, and specifically, I'm looking for maybe some context around China, just given it seems like there's some increased risk there. Maybe not direct risk, but indirect impacts from, you know, a number of things, supply chain risks and

[Andrew Buscaglia, Senior Analyst at Berenberg]

Yeah, for component shortages, et cetera.

[David Zapico, Chairman and CEO at AMETEK]

Yeah, sure. I'll talk to that. The first point is, I'll give a whole geographical look at our business first in Q4.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Okay.

[David Zapico, Chairman and CEO at AMETEK]

It was a strong broad-based growth across all geographies. In the U.S., we were up 18%, with notable strength in our automation businesses. In Europe, we were up mid-30s%, so we bounced back nicely there and we had notable strength in both our automation and process businesses. In Asia, we were up 4%, with notable strength in process and automation there also. Broad-based, firing on all cylinders. Your point is a good one. You know, the reaction to COVID is handled differently in parts of the world, so you can have, you know, semiconductor plants being shut down or blocking access to certain countries at times, and we've been managing through that at the start of the pandemic. In particular, you asked about China, and we were up 2% in China.

[David Zapico, Chairman and CEO at AMETEK]

Very solid because we had a really strong comparison, and we had a really strong year. You know, notable strength in Zygo, notable strength in process, and China is strong for us, has been strong all year, and it put in a strong quarter. As the outlook, you know, we see for our types of businesses in our niche markets where we're competing, solid pipeline of growth in China continuing.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Okay. Yeah, that's helpful. You know, maybe one last one with, you know, commercial aerospace, that was strong. As I see that really strong growth exiting the year. I might have asked this question every other quarter for like the past two years, but what is kind of your sense with this demand building for like a reopening in the back half of the year? Is it or is it kind of more of the same?

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I think we're seeing some strength in our commercial businesses for sure. They were up low double digits in the quarter, driven by aftermarket and business jet. We're being cautious for the year, because of the pandemic's impact on travel and different impacts in different parts of the world. We think we're still gonna have a good year. We're gonna be up mid-single digits. We're ready for that market to inflect upwards. It might happen in the second half of this year, but it might be 2023 also. We're not sure.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Is that aftermarket typically a leading indicator for that for you guys?

[David Zapico, Chairman and CEO at AMETEK]

It is.

[Andrew Buscaglia, Senior Analyst at Berenberg]

When that starts to pick up?

[David Zapico, Chairman and CEO at AMETEK]

I think you see two things. I mean, the aftermarket is a leading indicator, and the industry went through a hard shutdown, and now it's recovering and we're seeing good aftermarket. Business jets are a function of people deciding to travel differently.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Yeah.

[David Zapico, Chairman and CEO at AMETEK]

Good position on both of those and seeing strong demand.

[Andrew Buscaglia, Senior Analyst at Berenberg]

Okay. Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research.

[Analyst at Wolfe Research]

Hey, good morning, everybody. This is Brian on for Nigel.

[David Zapico, Chairman and CEO at AMETEK]

Hey, Brian.

[Analyst at Wolfe Research]

Hey. Maybe just the growth investment, $110 million. Any more color on where that's going, like within R&D and engineering? Just any specific kind of initiatives.

[David Zapico, Chairman and CEO at AMETEK]

Sure.

[Analyst at Wolfe Research]

New products?

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I'll start with the money first. We're putting about $40 million into increased R&D, and we're putting about $70 million into increased sales and marketing. On the R&D side, it's across a wide range of platforms. We're not dependent on any one platform, and our business leaders put forth where they wanna spend our incremental growth investments. It's spread out amongst good opportunities across our business. In terms of the sales and marketing, we're doing a lot of work on e-commerce, on digitization, and those are investments that'll pay off very quickly and they're already providing return for us because we sell to our customers differently now through the pandemic, and we're expanding on our capability in that area.

[Analyst at Wolfe Research]

Great. Thanks for that. When I think about the bridge into 2022, outside of kind of the price cost dynamics and this growth investment, is there anything else to be thinking about at the margin? Also just kind of on a similar note, do you expect kind of normal seasonality to hold? 'Cause some of your peers are kind of talking about a tale of two halves as far as depressed margins in the first half, but it just feels like you're navigating the supply chain better, so you might not see that same dynamic. Thanks.

[David Zapico, Chairman and CEO at AMETEK]

Yeah. I think with our budget, it increases sequentially each quarter, which is typical of an AMETEK budget. We're seeing strong growth in Q1, so your point's taken. When I look at our budget, just based on simple economics, we've guided to be up about 10%, and that's about $500 million. If you apply a 30%-35% contribution margin on that increase, you'll get a number that's in the range of the guidance that we gave you. Now, in that number, there's a lot of, you know, new investments, there's cost savings, there's acquisitions that we did last year. There's some headwinds with, you know, below the line type things, taxes, shares, a little bit higher interest costs.

[David Zapico, Chairman and CEO at AMETEK]

When you bake the cake and you put it all together, it's a pretty simple picture. Sales are up 10%. That's about $500 million, and we're gonna get a 30%-35% contribution margin on it. It's pretty clear from that perspective.

[Analyst at Wolfe Research]

Got it. Thanks.

[David Zapico, Chairman and CEO at AMETEK]

Yep. Thank you.

[Operator]

Thank you. Our next question comes from the line of Joe Giordano with Cowen.

[Joe Giordano, Managing Director at Cowen]

Hey, good morning, guys.

[David Zapico, Chairman and CEO at AMETEK]

Good morning, Joe.

[Joe Giordano, Managing Director at Cowen]

Yeah, apologies if I ask questions that have already been asked or answered. It's been a bit of a busy one this morning. On the order side, I mean, obviously really strong and it has been so. Like, what's your view on book-to-bill as the year progresses? I know you're less susceptible to this than others, but like, how the early ordering kind of, like, what are you seeing as. Is there any kind of, like, inventory at customers or, like, you know, ordering so far in advance that it could set up like a vacuum at some point? Like, how are you kind of thinking about your customer order patterns here?

[David Zapico, Chairman and CEO at AMETEK]

Right. Yeah, I mean, we have customized products, so

[Joe Giordano, Managing Director at Cowen]

Yeah.

[David Zapico, Chairman and CEO at AMETEK]

I don't think that people are investing in. You know, we're not gonna run into a distributor problem or things like that. At the same time-

[Joe Giordano, Managing Director at Cowen]

Right.

[David Zapico, Chairman and CEO at AMETEK]

We've talked about our customers being aware of the supply chain issues and giving us increased visibility and placing orders on us to go out to the future. We're seeing that in our backlog, and at some point, that may roll over. Right now, it looks very strong. We mentioned in the prior remarks before you got on that our organic orders were up 26%, and it was both strong in EIG and EMG. EIG orders organically were up, you know, similar spread across the businesses. You know, we are. I think the month of January was strong, and it supports our guide, but the order rates have not changed into January. Anything else, Joe?

[Joe Giordano, Managing Director at Cowen]

Okay, interesting. Yeah, maybe. Again, if you, I mean, you may have answered this, but did you give the core incremental ex like M&A dilution for EIG in 4Q?

[David Zapico, Chairman and CEO at AMETEK]

Yeah, we did. We did talk about the. It was 32% core for the whole company, and it was reported 21%, so we really had a good performance core.

[Bill Burke, EVP and CFO at AMETEK]

It was up 50 basis points margins ex acquisitions in EIG.

[David Zapico, Chairman and CEO at AMETEK]

Yeah, EIG was up 50 basis points ex acquisitions, and we had-

[Joe Giordano, Managing Director at Cowen]

Is that fourth quarter?

[David Zapico, Chairman and CEO at AMETEK]

Our EMG business was up 230, so it was good. The margins across the board were good for the company. You look at EIG, you look at EMG, there's some acquisitions that depress EIGs, but the incrementals were 32% for the whole company. The EIG core incrementals were 33%, and the EMG core incrementals were 38%. You know, you have, you know, the reported incrementals for EIG were a little bit lower because of the acquisitions, but really strong core incremental margins across the company.

[Joe Giordano, Managing Director at Cowen]

Yep, I agree. Thanks, guys.

[David Zapico, Chairman and CEO at AMETEK]

Yep, thank you.

[Operator]

Thank you. Our next question comes from the line of Rob Mason with Baird.

[Rob Mason, Senior Research Analyst at Baird]

Yeah, good morning, guys. Thanks for taking the question.

[David Zapico, Chairman and CEO at AMETEK]

Sure. Good morning, Rob.

[Rob Mason, Senior Research Analyst at Baird]

Just maybe to stick on the topic around acquisitions. I'm just curious. I could probably do this math at some point, but just what did the acquisitions contribute to earnings in 2021, and what's the component in the bridge in 2022 in terms of EPS?

[David Zapico, Chairman and CEO at AMETEK]

I believe it was 16 cents in the bridge for EPS for 2022, and I believe it was about the same for 2021, so. That bridge, that $0.16 is included in the economics of the budgets that I talked about just a few minutes ago.

[Rob Mason, Senior Research Analyst at Baird]

Sure, sure. Dave, yeah, I mean, you noted it was a very busy year for you on the-

[David Zapico, Chairman and CEO at AMETEK]

Rob, I.

[Rob Mason, Senior Research Analyst at Baird]

Yes.

[David Zapico, Chairman and CEO at AMETEK]

Kevin just told me I said $0.16. It's actually $0.18. It's $0.18.

[Rob Mason, Senior Research Analyst at Baird]

For.

[David Zapico, Chairman and CEO at AMETEK]

In 2022, and it happened.

[Rob Mason, Senior Research Analyst at Baird]

Okay

[David Zapico, Chairman and CEO at AMETEK]

To be $0.18 in 2021, so it's $0.18 for both of them.

[Rob Mason, Senior Research Analyst at Baird]

Okay, I understand. As you mentioned, a very busy year on the acquisition front, and I'm just curious, you know, integration-wise, with all the challenges around supply chain, has that helped or hurt you in terms of your ability to integrate that? Has it forced you to move a little bit faster on the supply chain front?

[David Zapico, Chairman and CEO at AMETEK]

Yeah, I think.

[Rob Mason, Senior Research Analyst at Baird]

I assume. Yep.

[David Zapico, Chairman and CEO at AMETEK]

It's forced us to move faster in getting the AMETEK culture installed and getting the AMETEK processes installed. You know, the differences are obvious and we're working with teams, and integration in AMETEK is going very well. You know, it's early in the ownership, but we usually take it slower, but the environment's made us go faster and they're integrating nicely into the company. You know, the benefits of our distributed operating model is we can take on a bunch of deals like that and be able to integrate them all. You know, they're fantastic businesses. I mean, they each fit perfectly with our acquisition strategy.

[David Zapico, Chairman and CEO at AMETEK]

They're leaders in niche markets, each have strong differentiated technology positions, and they're expanding our presence in attractive markets. The acquisitions are going very well, and myself and Bill and the group presidents have been spending a lot of time on them.

[Rob Mason, Senior Research Analyst at Baird]

Yep. Yep. Just one last one just to follow on there. You know, Abaco was your largest one ever, I think. You know, I noticed a nine-digit order recently. I'm just you know, within a business like that, what does an order like that or a win, I should say, you know, what would that ship? Over what timeframe would something like that ship?

[David Zapico, Chairman and CEO at AMETEK]

It could be years. It really could be years. You know, specifically with Abaco, I mean, that team there is really talented, and we're into the high 90% of the integration, and it's a high quality management team. In terms of the org structure, we've combined it with our AMETEK Aerospace PDS business unit. When we looked at this business, we think there's a lot of synergies, so we formed one division, and we now have a seasoned AMETEK P&L leader running the division, along with a seasoned AMETEK CFO and along with a seasoned AMETEK HR person. We've installed some people there to help them, you know, Abaco understand the AMETEK culture, and at the same time, we're learning a lot from Abaco also because they have a lot of talent.

[David Zapico, Chairman and CEO at AMETEK]

I think this combination over the long run is gonna be good for both businesses and it's gonna drive sales and cost synergy for both the AMETEK PDS business and Abaco.

[Rob Mason, Senior Research Analyst at Baird]

Excellent. I'll pass it back. Thank you.

[David Zapico, Chairman and CEO at AMETEK]

Thank you, Rob.

[Operator]

Thank you. I'm showing no further questions. I will now turn the call back over to Vice President of Investor Relations and Treasurer, Kevin Coleman, for any closing remarks.

[Kevin Coleman, VP of Investor Relations and Treasurer at AMETEK]

Thank you again, Andrew, and thank you everyone for joining our call today. As a reminder, a replay of today's webcast may be accessed in the Investor section of ametek.com. Have a great day.

[Operator]

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Participants

Executives

• Bill Burke, EVP and CFO
• David Zapico, Chairman and CEO
• Kevin Coleman, VP of Investor Relations and Treasurer

Analysts

• Allison Poliniak, Director and Senior Analyst at Wells Fargo
• Andrew Buscaglia, Senior Analyst at Berenberg
• Deane Dray, Managing Director and Equity Analyst at RBC Capital Markets
• Joe Giordano, Managing Director at Cowen
• Rob Mason, Senior Research Analyst at Baird
• Rob Wertheimer, Director of Research at Melius Research
• Scott Graham, Managing Director at Loop Capital Markets
• Analyst at Vertical Research
• Analyst at Wolfe Research