Amphenol delivered solid results that were within our range of expectations.  Sales grew to $1.15 billion in the third quarter, a 5% increase year over year. Revenue rose across the board relative to the year-ago quarter through a combination of organic and inorganic growth. On the operating front, gross margins expanded by 40 basis points, to 31.6%, from the year-ago quarter, and operating margins came in roughly flat at 19.5%, yielding $224 million in operating income, 4% higher than a year ago. Diluted earnings per share came in at $1.01 versus $0.91 generated in last year’s third quarter.

During the quarter, Amphenol acquired cable-assembly maker Ionix Aerospace, adding $35 million in annual revenue to the firm’s existing base, and repurchased 1.5 million shares of stock. While we like Amphenol’s tuck-in acquisition strategy and disciplined capital allocation approach, we view shares as modestly overvalued. As such, we would prefer to see the firm return excess cash to shareholders in the form of higher dividend payments, rather than share repurchases, at this point in time. Still, management has been judicious with its use of excess cash over time, maintaining a balance between dividends, share repurchases and tuck-in acquisitions, and we may be splitting hairs on this point.

Management expects fourth quarter revenue to come in at roughly $1.2 billion and earnings to come in at $0.96 to $0.99 per share, which would put the firm on track to achieve 5.5% top-line growth and 8% to 9% EPS growth for the full year. We view these results as solid given the uncertain macroeconomic environment.