Jim Smith's Defense Market Report

Ametek posts record earnings

Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
November 27, 2006

New York Stock Exchange-traded Ametek, a manufacturer of electronic instruments and electromechanical devices with a strong profile in aerospace and defense, posted a record third quarter with annualized sales of approximately US$1.8 billion.

The Company’s aerospace and defense business includes manufacturing engine sensor suites, aircraft data management systems, cooling and ventilating systems, environmental control systems, and a variety of sub-assemblies for military and aerospace customers.

The Company’s third quarter 2006 revenues of US$464.2 million were up 35 per cent from the US$344.5 million recorded in the third quarter of 2005. Operating income for the third quarter of 2006 was US$79.8 million, up 39 per cent from the third quarter of 2005. Net income in the third quarter of 2006 increased 38 per cent to US$47.4 million, or US$0.67 per diluted share, from the third quarter 2005 level of US$34.4 million, or US$0.49 per diluted share.

Following a strong performance for the third quarter, Ametek declared a three-for-two stock split. The Company also decided to increase the quarterly common stock dividend 50 per cent, to an indicated annual rate of US$0.24 per share on a post-split basis.

For the first nine months of 2006, Ametek sales increased 30 per cent to US$1.34 billion from US$1.03 billion in the same period of 2005. Operating income totaled US$229.7 million, a 35 per cent increase from US$170.1 million earned in the first nine months of last year. Net income for the first nine months of 2006 was US$134.1 million, up 35 per cent from US$99.5 million in the same period of 2005. Diluted earnings per share were US$1.89 for the first nine months of 2006, up 33 per cent from US$1.42 per diluted share in the first nine months of 2005.

The Company has not been standing still.

With Democrats controlling the US Congress, expect to see more emphasis on airport and seaport security, including the inspection for radioactive materials of all 11 million US-bound cargo containers that pass through US ports annually.

President Bush has been asked by a bi-partisan coalition of senators to provide US$400 million for port security grants in the fiscal 2008 budget.

Recently, the Domestic Nuclear Detection Office (DNDO) of the US Department of Homeland Security (DHS) announced US$113 million in competitive awards to enhance the detection of radiological materials at US ports of entry through the Human Portable Radiation Detection Systems (HPRDS) program

One of those companies is Ametek.

DNDO anticipates purchasing and deploying roughly 1,000 next-generation handheld systems and 200 backpack systems through the HPRDS program. The portable technology will be used primarily by US Customs and Border Protection officers for secondary screening of cargo to identify and localize radiological material after a primary alarm has been triggered. It is also anticipated that the devices could be used by US Coast Guard officers aboard vessels prior to an arrival at port. There are more than 14,000 handheld devices in use at US ports.

For Ametek, the award is a drop in the bucket but further positions the company in a growing market.

The HPRDS contract calls for a base year award of US$2.4 million for research and development. As well, the contract contains option years for both research and development and production. If all option years are exercised by the government, the total value of the contract will range from approximately US$5 million to US$50 million over a five year period.

This award from DHS follows a number of recent wins for Ametek’s radiation detection systems. In recent months, the Company has been awarded contracts totaling more than US$12 million by the US Departments of Defense and Energy and the UK Ministry of Defence. These include standard handheld detective radiation identifiers and a transportable portal system.

The death in London of ex-Russian spy Alexander Litvinenko has underscored concerns about dangers stemming from the import and use of radioactive materials as weapons.

While it is impossible to qualify or quantify the impact of the Litvinenko affair, it is certain that the US government will step up the pace of a detection program.

Based on the strong performance of Ametek, this is one company that is thinking out of the box.

Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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