Amphenol (NYSE: APH) once again generated records for quarterly sales, adjusted operating margin, free cash flow (FCF), and adjusted EPS. Amphenol’s Q3:2025 sales increase 52% (and 41% organically), its adjusted operating margin expanded 560 basis points, and its adjusted EPS increased 86% year-over-year. The large margin increase was driven by operating leverage on strong sales volumes, pricing power (more on that below), and Amphenol’s ability to improve margins at acquired businesses. Importantly, on the earnings call Amphenol’s CFO Craig Lampo said, “I think all of the segments have the ability to continue to grow their margins and continue to expand over time.”
Amphenol’s third-quarter FCF grew 156% from the same period in the prior year, which equates to an FCF margin of nearly 20% and FCF conversion on GAAP net income of 97%. It increased its quarterly dividend per share by 52%. Amphenol generated a trailing twelve month return on equity (ROE) of 34%. Amphenol expects full-year 2025 sales to increase 49%-50% and adjusted EPS to grow 72%-74%. Amphenol’s growth is being driven by strong technology tailwinds and its differentiated acquisition platform, and the company is clearly executing at an exceptionally high level.
On the call Amphenol’s CEO Adam Norwitt explained (see underlined quotes below) that Amphenol’s pricing power is being driven in part by the increasing complexity of the interconnect and sensor products it is manufacturing for its clients across all of its end markets. Amphenol’s interconnect products are typically custom made and designed into various technology platforms for the life of the platform (could be an AI data center, an aircraft, an automobile, a spaceship, an automated industrial factory, a farming combine, etc.) where the cost of failure is high, but the cost of the Amphenol product is only a small percentage of the overall project cost. These products are mission critical and expected to operate reliably and without failure in harsh environments (such as extreme heat, extreme cold, extreme speeds and vibrations, etc.). This combination of design build-in, high cost of failure, but low cost relative to overall project budget provides Amphenol with high switching costs, predictable revenue streams, and the pricing power that Norwitt is talking about. In other words, there is no incentive for customers to take on incremental risk of failure for small cost savings. At the end of the day, Amphenol is selling trust and reliability…that is the Amphenol value proposition, and that proposition becomes even more compelling as the world becomes more electronic and interconnected, technology becomes more complex to manufacture, and Amphenol’s customers expect product delivery faster than ever to support high levels of demand in an increasingly digital world. This setup allows Amphenol to price to the value proposition it is providing. You can listen to more about Amphenol’s moat and pricing power in this excellent episode of Business Breakdowns.
Key quotes from the call…
(note: bold and highlights are my own)
“There’s no doubt that our results in the third quarter were much stronger than expected, exceeding the high end of our guidance in sales and adjusted diluted earnings per share.”
“Given our good progress on the path towards closing, we now expect to close CCS by the end of the first quarter of 2026, about a quarter sooner than originally anticipated. We remain confident that our acquisition program will continue to create great value for Amphenol. In fact, it is our ability to identify and execute upon acquisitions and then to successfully bring these new companies into the Amphenol family that remains a core competitive advantage for the company. Now, turning to our trends across our served end markets, I would just note that we continue to be very pleased that the company’s end market exposure remains diversified, balanced, and broad. This diversification continues to create great value for the company, enabling us to participate across all areas of the global electronics industry, while not being disproportionately exposed to the volatility of any given market or application.”
“The defense market represented 9% of our sales in the quarter, and sales grew from prior year by a strong 29% in U.S. dollars and 23% organically… For the full year 2025, we expect sales to increase by more than 25%. I would just note that this outlook does not include any impact from the Trexon acquisition. We remain encouraged by the company’s leading position in the defense interconnect market, where we offer the industry’s widest range of high-technology products. Amidst the current dynamic geopolitical environment, countries around the world continue to expand their investments into both current and next-generation defense technologies. With our existing offerings, as well as the complementary capabilities that Trexon will bring, we’re positioned better than ever to capitalize on this long-term demand trend.”
“The commercial aerospace market represented 5% of our sales in the quarter. Sales increased by 17% from prior year and 16% organically, as we benefited from increasing production levels of our customers, together with our continued progress in expanding our content on next-generation commercial aircraft. Sequentially, our sales grew by 7% from the second quarter, which was better than our expectations coming into the quarter. Looking into the fourth quarter, we expect a mid-single-digit sales increase from these third-quarter levels. For the full year 2025, we expect sales to increase in the high 30% range from last year, helped by the acquisition of CIT back in 2024.”
“The industrial market represented 18% of our sales in the quarter, and sales in this market grew by 21% in U.S. dollars and 11% organically. That was really driven by organic growth in all three geographies. In particular, our organic growth was driven by strong performance in factory automation, medical, instrumentation, industrial electric vehicles, and our heavy equipment segments. On a sequential basis, sales grew by 5% from the second quarter, which was better than our expectations coming into the quarter. As we look into the fourth quarter, we expect sales to moderate slightly from these third-quarter levels. For the full year 2025, we expect our sales to grow by approximately 20%, reflecting both strong organic growth as well as the benefit of acquisitions.”
“The automotive market represented 14% of our sales in the quarter, and sales in the third quarter grew by 13% in U.S. dollars and 12% organically, as we once again drove growth in all regions. Sequentially, our sales grew by 8% from the second quarter, which was actually much better than our expectations coming into the quarter. That really reflected the ability of our team to quickly execute on a wide range of opportunities around the world. For the fourth quarter, we expect a moderate sales decline from these third-quarter levels. For the full year 2025, we expect sales to increase in the mid to high single-digit range from 2024.”
“The communications networks market represented 11% of our sales in the quarter. Sales grew from prior year by 165% in U.S. dollars and a strong 25% organically, as we benefited from the ANDREW acquisition that we completed earlier this year, as well as from increased spending by both communications network operators and equipment manufacturers. Sequentially, our sales grew by 8% from the second quarter, which was better than our expectation for sales to remain flat. As we look into the fourth quarter, we do expect sales to decline in the low teens range on normal seasonality. For the full year 2025, we expect more than 130% growth driven by the acquisition of ANDREW, together with robust organic growth.”
“The mobile device market represented 6% of our sales in the quarter, and sales moderated by 3% in U.S. dollars and organically, as growth in wearables, as well as basically flat sales enhanced year-over-year, was more than offset by moderations in sales related to laptops and tablets. Sequentially, our sales did grow by 18% from the second quarter, which was much better than our expectations coming into the third quarter. As we look into the fourth quarter, we expect sales to increase modestly from these levels. For the full year 2025, we expect sales to grow in the low single-digit range compared to 2024.”
“Finally, the IT Data Comm market represented 37% of our sales in the quarter. Sales in the quarter grew by a very strong 128% in U.S. dollars and organically, and that was driven by the continued acceleration in demand for our products used in artificial intelligence applications, together with continued robust growth in our base IT Data Comm business. I’m really proud of our team’s outstanding execution here in the third quarter, as we were once again able to significantly outperform our expectations in this very exciting market. On a sequential basis, sales increased by 13% from the second quarter, and that was substantially better than our expectation for mid to high single-digit decline. This outperformance is actually driven both by sales of AI-related products as well as by growth in our base IT Data Comm business. As we look towards the fourth quarter, we expect sales to increase slightly from these very strong third-quarter levels. For the full year of 2025, we expect our IT Data Comm sales to more than double compared to prior year. We are more than ever encouraged by the company’s position in the global IT Data Comm market. There’s no doubt that our team has done an outstanding job securing future business on next-generation systems with a broad array of customers. The revolution in AI continues to create a unique opportunity for Amphenol, given our leading high-speed and power interconnect products. Whether high-speed power or fiber optic interconnect technologies, our products are critical components in these next-generation systems, and that creates a continued long-term growth opportunity for the company.”
“This outlook represents full-year sales and adjusted EPS increases of 49% to 50% and 72% to 74% respectively.”
“I think the overall profitability of the company is kind of hitting on all cylinders. It’s the execution related to the growth of the company [operating leverage], in addition to the acquisitions that we’re starting to see real progress on from a profitability perspective. These are things that we’re certainly proud of. I think that certainly the value we’re adding to our customers, the technology that we’re bringing to the table here is being reflected in these margins [pricing power], and that’s kind of the results you’re seeing here and these really great results.”
“Look, you saw a slice of our products there, which certainly reflect an increasing complexity, primarily related to the IT Data Comm market. There’s no doubt that as interconnect products have become more fundamental to the performance of the systems, the networks into which they’re incorporated, there is more being demanded of those products. They become more complex, whether those are higher speed products, whether those are high-power products. To make those products, to design those products, to innovate around those products, to develop the manufacturing processes to make these and to ramp those products up at scale and at the speed that our customers in the market would like to have, this is not a trivial task whatsoever. I’m just so proud of our team for really working over many, many years to build the fundamental building blocks that have ultimately allowed us to be so successful. I would also say this, it’s not confined to that market. We see interconnect products across all of our end markets becoming increasingly high technology, having increasing complexity around them. Whether you’re talking about in the defense market, in commercial aerospace, where we can now offer a broader suite of value-add interconnect products to our customers, in part because of the CIT acquisition and what that brought. If you look at the Trexon acquisition that we announced this quarter, which brings us into even more advanced, complex interconnect assemblies for customers in the defense market, we see that across the industrial market as well, the automotive market, and certainly in the communications networks with the complexity of the products, the antenna products, the interconnect products that came along with the ANDREW acquisition. I would tell you that today, more than ever before, customers recognize the importance. They rely upon the technology value of interconnect products, and they represent a bigger hurdle for many of our customers, one that we can solve. You asked, interestingly, that question around margin out of the same breath as that question around product complexity. I don’t think the two are unrelated…If you are creating more value for your customers through the technology of your product, by creating that value, then maybe those customers will be willing to share some small part of that value also with you that’s embedded in that complex technology of the products. I think that’s something that Amphenol is, that we certainly as a company are seeing more of today than ever before.”
“Why we have been so successful in establishing ourselves as a leader in this unique and high-value architecture of interconnect products in accelerated compute, AI, machine learning, however you want to term it, is a very long-term, multi-decade build-up of our capabilities on high-speed and also power products. Also, commensurate with that, building up the capabilities to make these advanced products and to ramp those products up when our customers need them. Those capabilities have enabled us to continue to win with customers up and down the stack of the AI ecosystem. People want to talk about one or another platform, but there are lots of things going on in AI. We treasure our relationships with each of those customers, and we work directly with customers up and down the stack, from the folks who are really the service providers all the way down through the equipment manufacturers, the data center builders, and down through to the folks who are designing and specifying the chip-based architecture. I can tell you that we have a strong position today, and we have a strong position in future platforms, really up and down that stack.”
“Power is a big story here. I’m not saying anything none of any of you don’t know. There’s no doubt that power in these next-generation architectures is a really fundamental part of the operating of the systems. We’ve been involved in power connectors essentially since the birth of the company. If you think about our legacy back into military and industrial, high-power, high-voltage, we’ve been making interconnect products related to really high-power consumption systems for most of the modern history of Amphenol, which means that we have dialed in the knowledge of what it means to be handling so much power, the safety, the efficiency, the throughput of the power, this concept of millivolt drop, and all of that that goes along with it. We’re involved in a very complex way across a lot of different interconnect products, complex interconnect assemblies, bus bars, board-level, circular interconnect, bringing power. As soon as the power gets to the side of a building, we’re helping it get all the way around there, all the way until it gets to the board of the chips. As you mentioned, AI is only going to increase in the needs of power.”
“Look, there’s no doubt that, as I mentioned earlier, we see interconnect becoming increasingly embedded with more technology, increasingly complex, and thereby increasingly creating value for our customers across the entire gamut of this wonderful array of markets that we serve. You know, how is that happening and why is that happening? It gets to just the intensity of electronics that our customers are embedding in their products to create more functionality, more value for the end customers. Everything from a combine that is cutting down soybeans or corn in the Midwest now operating as an autonomous vehicle where one driver can drive five of these massive farming machines as opposed to having to have five drivers to do that. Mining equipment, the same, with autonomy, with hybridization of the drivetrains. Across the defense industry, we just see so much more complex adoption of electronics that thereby then requires a more complex interconnect system. The density, the number of different nodes, the sensors, and the processes that are being associated therewith, all of this adds up together to create a complexity and a need and ultimately an opportunity for us to create value for our customers. We have a lot of competition to your second question and everywhere that we operate. It’s up to us to create a sustainable advantage for our company through our technology, number one, through our capability and capacity to build that technology, number two, and then ultimately through our agility, reactivity, and speed. That last piece of it, that last piece of it comes from that unique Amphenolian culture that I talk till I’m blue in the face about because it ultimately is the nucleus of what makes this company successful. We will always have competition, and we respect those competitors. There are some wonderful companies, large, medium, and small around the world with whom we have really wonderful competition. At the end of the day, if we can develop a better product, if we can build that product at scale, and if we can do that in an agile, fast, and flexible fashion, I believe that we’ll continue to be able to win more than our fair share and thereby be able to outperform the market.”
“We’re really pleased with our commercial air business, and in particular, the really quantum increase in the breadth of our products that came from the CIT acquisition a year ago. As we have conversations with customers around the global commercial air market, you can imagine we’re having conversations at every part of the plane where there’s electronics. Today, there’s very few parts of a big airplane that don’t have some degree of electronics, from the engines to the avionics to the entertainment systems, cabin management systems, safety systems, all the way to something as mundane as a coffee maker or a lavatory. These things all have now electronics on them. With CIT joining Amphenol, together with our interconnect, our wonderful value-add business that we already had, the connector products, the cable and wire products that CIT brings, and very complex interconnect assemblies as well that we can now do together with them, we really have the broadest product offering of interconnect products for the commercial air market at a time when that technology and the push of electronics into planes continues to grow.”
“M&A is something near and dear to our hearts. There’s no doubt that over the last three years, the company has made more acquisitions and also more fundamentally large acquisitions. I don’t want to use the word transformative because none of these are at that level that you would say that’s a merger of equals or anything like that. We’ve clearly accelerated the expansion of our offering for our customers across our end markets. At the same time, even with the growth that we have had and the great array of wonderful new companies that we have brought into the Amphenol family or we will soon bring into the Amphenol family in terms of those that haven’t closed yet, like CCS and Trexon, there’s a lot of opportunity in this industry. This is a highly fragmented industry. The interconnect industry is just such a wonderful place when you think about the fact that interconnect products go into every place where you have electronics. I mean, we estimate it’s a market of more than a quarter trillion dollars in size. Even with our superlative growth this year, we still see a lot of room to grow both organically as well as through our M&A program. Do I have a wish list of companies? I’m certainly not going to articulate names of companies here, but I can tell you this. We look at great companies across all of our end markets. We never put all our eggs in one basket. We don’t chase a thing of the moment in M&A. We take a very, very long-term view of our acquisition program. We look for companies. We develop relationships with them for many, many years. I have been developing certainly relationships with companies since I was an intern in the company 27 years ago. We’ll continue to do that, and my team will continue to do that. We take a very, very long view on M&A because, at the end of the day, when we make an acquisition, it’s for life. We’re not a trader. We’re not buying and selling things all the time…we develop long-term relationships, and we’re not chasing what’s the right thing in the market at that moment. I think that’s been a great recipe for us for a long time. It’s been a great return on the wonderful cash that we have generated, and it’s one where we continue to see great potential for many years to come.”
Disclosure: John Rotonti is an investor in and the portfolio manager of the Bastion Industrial and Infrastructure Portfolio, which owns shares of Amphenol.
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