Amphenol Corporation (APH) Earnings

Management highlights

### Overall Financial Performance - Record Q2 2026 sales of $8.8 billion, up 55% YoY in U.S. dollars, 54% YoY in local currencies, and 30% organic YoY; up 15% sequentially in U.S. dollars/local currencies and 13% organic sequentially. - Record orders of $10.732 billion, up 94% YoY and 14% sequentially, for a strong 1.23 book-to-bill ratio, with all end markets achieving a positive book-to-bill. - GAAP operating income of $2.6 billion with a 29.5% operating margin; adjusted operating margin of 29.8%, up 420 basis points YoY and 250 basis points sequentially. - GAAP diluted EPS of $1.37 (up 59% YoY); adjusted diluted EPS of $1.35 (up 67% YoY, a new record). - Operating cash flow of $1.6 billion, free cash flow of $1.2 billion; working capital metrics remained within normal ranges; $515 million total capital returned to shareholders via share repurchases and dividends. ### Acquisition Activity - Completed two acquisitions in Q2: Elcom (Italy, ~$150 million annual sales, a leading provider of complex interconnect and high-voltage cable assemblies for industrial, defense, and aerospace) and Wilder Technologies (U.S., ~$15 million annual sales, a key supplier of high-performance test and measurement solutions for high-speed IT datacom interconnects). - CommScope integration is proceeding better than expected: full-year 2026 sales guidance upgraded from $4.1 billion to $4.6 billion, and EPS accretion upgraded from 15 cents to 30 cents. - The company's acquisition program remains a core competitive advantage, creating long-term shareholder value. ### End Market Performance - **Defense (8% of Q2 sales):** 37% YoY sales growth in U.S. dollars, 24% organic YoY growth; 7% sequential growth. Geopolitical trends are driving increased global defense technology investment, and Amphenol is well-positioned to capture this demand. - **Commercial Air (4% of Q2 sales):** 22% YoY sales growth in U.S. dollars, 21% organic YoY growth; 6% sequential growth (better than expected). Growth is driven by higher aircraft production and expanding content on next-generation aircraft. - **Industrial (20% of Q2 sales):** 56% YoY sales growth in U.S. dollars, 18% organic YoY growth; 13% sequential growth (better than expected). Growth is broad-based across segments and regions, supported by CommScope's building connectivity business. - **Automotive (10% of Q2 sales):** 9% YoY sales growth in U.S. dollars, 6% organic YoY growth; 9% sequential growth (better than expected). Growth is driven by rising demand for electrified vehicles, with increasing electronic content per vehicle creating long-term opportunities. - **Communications Networks (11% of Q2 sales):** 55% YoY sales growth in U.S. dollars (driven by CommScope), 6% organic YoY moderation due to softening demand from network operators and OEMs; 5% sequential growth (slightly better than expected). - **Mobile Devices (4% of Q2 sales):** 17% YoY sales growth in U.S. dollars, 14% organic YoY growth; 19% sequential growth (significantly better than expected, against expectations of a sequential decline). Growth is driven by smartphones, laptops, and wearables. - **IT Datacom (43% of Q2 sales):** 89% YoY sales growth in U.S. dollars, 63% organic YoY growth; 22% sequential growth (substantially better than expected). Growth is driven primarily by surging demand for AI-related interconnect products, with CommScope's optical solutions rapidly penetrating this market, now expected to represent nearly half of CommScope's 2026 full-year sales.

Guidance

- Third quarter 2026 guidance (at constant currency, current market conditions, no additional material net tariff recoveries expected): sales of $9.3 billion to $9.4 billion, representing 50% to 52% YoY sales growth; adjusted diluted EPS of $1.40 to $1.42, representing 51% to 53% YoY EPS growth. - Q3 end market specific guidance: - Defense: Low double-digit sequential sales increase from Q2 levels - Commercial Air: Modest sequential sales increase from Q2 levels - Industrial: Sequential sales expected to hold steady at Q2's elevated levels - Automotive: Sequential sales expected to hold steady at Q2 levels (accounting for typical summer seasonality) - Communications Networks: Mid-teens sequential sales decline from Q2 levels - Mobile Devices: ~20% sequential sales increase from Q2 levels tied to new customer product launches - IT Datacom: Mid-teens sequential sales increase from Q2 levels, driven by accelerating AI data center investment

Segment performance

1. Communication Solutions Segment: Q2 2026 sales were $5.4 billion, an 85% increase year-over-year (YoY) in U.S. dollars and 42% organic growth YoY. This segment accounts for 61.4% of total company revenue, with an operating margin of 33.6%. 2. Harsh Environment Solutions Segment: Q2 2026 sales were $1.9 billion, a 28% increase YoY in U.S. dollars and 22% organic growth YoY. This segment accounts for 21.6% of total company revenue, with an operating margin of 30.1%. 3. Interconnect and Sensor Systems Segment: Q2 2026 sales were $1.5 billion, a 17% increase YoY in U.S. dollars and 13% organic growth YoY. This segment accounts for 17.0% of total company revenue, with an operating margin of 21%.

Risks & headwinds

No material, company-wide operational risks or failures were explicitly discussed during the call. Management acknowledged ongoing industry-level challenges including demand uncertainty in the automotive sector, softening demand in communications networks, and supply chain constraints for fiber optics, but noted that Amphenol's decentralized operational structure, proactive capacity expansion, and diversified supplier base have mitigated these issues enough to avoid meaningful impacts on Q2 results or Q3 guidance.

Analyst Q&A

• Q: What is driving CommScope's stronger than expected revenue and EPS upside, and what is the margin profile of the business? /

  A: Upside is broad-based, with IT Datacom (specifically AI-focused optical interconnects) as the key driver, but growth also appears across communications networks and building connectivity. CommScope's profitability has outperformed initial expectations across all areas, not just gross margin: the team has delivered strong operating leverage from higher sales, and successfully cut SG&A and operational costs while improving factory and vendor cost management. The integration has benefited from CommScope's strong existing team, which has fully embraced Amphenol's culture and cross-organization collaboration.

• Q: How should investors think about the AI interconnect opportunity, specifically the copper vs. fiber dynamic, and what is the scale of Amphenol's fiber business? /

  A: Management states the copper vs. fiber framing is inaccurate: AI customers need more of every type of interconnect, including high-speed copper, fiber optics, and power connectivity. CommScope's entire IT Datacom business is focused on AI-related optical solutions, and its AI optical business has nearly doubled YoY, making Amphenol one of the global leaders in AI optics, while the company also holds leading positions in high-speed copper and power interconnect for AI, with all three categories representing large, meaningful pieces of the overall AI opportunity.

• Q: Can you provide more context on your power interconnect portfolio for IT Datacom, and the long-term opportunity in this segment? /

  A: Power interconnect is a core legacy Amphenol capability, originating from the company's early defense and industrial work, that now covers the entire power delivery chain from data center entry all the way to direct chip connection. Current innovation in the space includes higher voltage systems, liquid cooling compatibility, and sensor-embedded smart connectors. AI fundamentally converts electricity (electrons) into AI output (tokens), and efficient power delivery reduces energy use, creating clear customer value; Amphenol adds value across the entire electron-to-token chain via power, copper, and optical interconnect solutions.

• Q: What is the appropriate long-term range for Amphenol's capital expenditure, and is incremental CapEx specifically for CommScope? /

  A: CommScope's CapEx as a percentage of sales is similar or modestly lower than Amphenol's overall corporate range. Amphenol typically runs CapEx at 3% to 4% of sales; with the company's current high growth pace, CapEx will remain at the high end of this range, and may be modestly above it in the second half of 2026, which is still well within normal historical ranges. Capacity additions are driven by general manager assessments of specific customer program demand, which management views as appropriately prudent for the current growth environment.

• Q: Are there any material supply chain bottlenecks, specifically for raw fiber, that could constrain growth? /

  A: CommScope has successfully proactively managed its fiber supply chain, expanding sources and securing enough material to deliver its current strong results. While there are always individual day-to-day operational challenges across Amphenol's 150 global facilities, decentralized general manager empowerment and accountability means there are no systemic bottlenecks that meaningfully constrain the company's ability to meet customer demand or deliver on guidance. The company has proactively invested in capacity and developed multiple vendor sources to support its 2-year doubling in size (two-thirds organic, one-third acquisition-based).