AMETEK (AME) 2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-17) + Yahoo Finance

Auditor: Ernst & Young LLP — Clean opinion, auditor since 1930 (2 Critical Audit Matters)

One-line verdict: AMETEK delivered "record sales, operating income, net income, diluted earnings per share, orders, and backlog" in 2025. Revenue grew 6.6% to $7.40B (2% organic + 4% acquisitions + 1% FX), net income rose 7.6% to $1.48B, diluted EPS climbed 7.9% to $6.40, and orders of $7.58B grew 11.3% — healthy book-to-bill that suggests 2026 momentum. Backlog of $3.58B is a record. Operating cash flow of $1.80B was essentially flat, and free cash flow of $1.67B covered dividends ($285M) + buybacks ($443M) + acquisitions ($933M, net of cash acquired) with a $9M shortfall funded by small debt draws. Two red flags: cash of $0.46B covers only 20% of $2.28B total debt, and goodwill plus intangibles of $11.3B represents 106% of equity — tangible net worth is slightly negative. Two watch flags: accounts receivable grew 18.0% on 6.6% revenue growth, and "other assets grew 23.3% vs revenue 6.6%." Ernst & Young — AMETEK's auditor since 1930 (a 95-year relationship) — issued two Critical Audit Matters: impairment assessment of indefinite-lived intangibles ($1,103.3M of trademarks and trade names) and accounting for the customer relationship intangible from the July 2025 $1,023.7M FARO Technologies acquisition ($250.7M allocated to customer relationships).

Two Segments: EIG and EMG

Per the MD&A: AMETEK operates through two segments — the Electronic Instruments Group (EIG) and the Electromechanical Group (EMG). EIG is the larger segment, focused on advanced instruments for process, aerospace, medical, and power markets. EMG manufactures precision motion control, thermal management, specialty metals, and engineered solutions.

Segment results:

EIG segment operating margins DECLINED 130 basis points to 29.4% — per the MD&A: "EIG's operating income was negatively impacted 100 basis points by the dilutive impact of recent acquisitions and 50 basis points for acquisition-related integration costs in 2025. Excluding the dilutive impact of recent acquisitions and acquisition-related integration costs, EIG's operating margins increased 20 basis points in 2025 compared to 2024."

Notably: EIG had a 1% ORGANIC SALES DECREASE in 2025. The 5.6% segment growth came entirely from acquisitions and FX. Per the MD&A: "EIG's net sales totaled a record $4,919.1 million for 2025, an increase of $259.2 million or 5.6%, compared with $4,659.9 million in 2024. The net sales increase was due to a 6% increase from acquisitions and a 1% favorable effect of foreign currency translation, partially offset by a 1% organic sales decrease."

EMG expanded margins 330 bps to 23.3%. Per the MD&A: "EMG's operating margins were 23.3% of net sales for 2025, compared with 20.0% of net sales in 2024. EMG's operating income and operating margins for 2024 included $29.2 million of acquisition-related integration costs related to the Paragon acquisition, which negatively impacted segment operating margins by 130 basis points. Excluding the Paragon acquisition-related integration costs, EMG operating margins increased 200 basis points compared to 2024." EMG delivered 8% organic growth.

Translation: EIG's instrumentation business had a soft year that was masked by acquisitions; EMG's electromechanical business had an excellent year.

Results of Operations

Per the Consolidated Statement of Income:

Interest expense dropped 28.1% to $81.3M — per the MD&A: "Higher borrowings under the revolving credit facility related to the December 2023 Paragon acquisition resulted in higher interest expense in 2024."

Other expense, net grew from $5.1M to $30.7M — per the MD&A: "Other expense increased in 2025 primarily due to $12.0 million of acquisition-related transaction costs and increased environmental spend."

Effective tax rate: 17.7% (2025) vs. 17.2% (2024) — modestly higher.

The $37.3M of pre-tax FARO acquisition-related costs include $25.3M in Cost of sales (employee severance, change in control costs, fair-value inventory adjustments) and $12.0M in Other expense (investment banker fees, representation and warranty insurance).

The FARO Technologies Acquisition: $1.02B

Per the MD&A: "In July 2025, AMETEK acquired FARO Technologies ('FARO'), a leading provider of 3D measurement and imaging solutions." FARO joins EIG.

Per the MD&A: "During 2025, the Company spent $933.2 million in cash, net of cash acquired, to purchase two businesses: In January 2025, AMETEK acquired Kern Microtechnik ('Kern'), a leading manufacturer of high-precision machining and optical inspection solutions. In July 2025, AMETEK acquired FARO Technologies."

Ernst & Young's second Critical Audit Matter is specifically about FARO's $250.7M customer relationship intangible asset: "Auditing the Company's accounting for its acquisition of FARO was complex due to the significant estimation uncertainty, particularly in estimating the fair value of the customer relationship intangible asset. The significant assumptions used to estimate the fair value of customer relationships included the forecasted EBITDA margin and customer attrition..."

Subsequent event: "In January 2026, the Company acquired LKC Technologies, a leading provider of innovative technology to enable effective diagnosis and management of ophthalmic conditions. LKC Technologies will join EIG."

AMETEK is a serial acquirer. The 10-K confirms this is working: free cash flow comfortably funds acquisitions while allowing dividends and buybacks.

Orders and Backlog: The Leading Indicator

Per the MD&A: "Orders for 2025 were a record $7,579.4 million, an increase of $769.1 million or 11.3% compared with $6,810.3 million in 2024. The increase in orders was due to a 4% increase from acquisitions, a 4% organic order increase, as well as a 3% favorable effect of foreign currency translation."

Book-to-bill: $7,579M orders / $7,401M sales = 1.024x — positive. Backlog of $3,581.5M (record) grew 5.2% from $3,403.2M.

Organic orders grew 4% while organic sales grew 2%. The order acceleration suggests 2026 organic growth is likely to re-accelerate.

Cash Flow: Flat CFFO with Healthy FCF

Per the MD&A Liquidity section:

Per the MD&A: "Cash provided by operating activities totaled $1,801.8 million in 2025, a decrease of $27.0 million or 1.5%, compared with cash provided by operating activities of $1,828.8 million in 2024. The decrease in cash provided by operating activities for 2025 was primarily due to higher working capital investments, partially offset by higher net income."

Higher working capital investments — particularly inventory and receivables — absorbed some of the net income growth. The screening engine flagged A2 (AR growth 18.0% vs revenue 6.6%) as a watch. The FARO acquisition adds 6 months of receivables to the Q4 balance; Kern adds a full year. Q1 2026 AR trajectory will show whether this is integration timing or something structural.

Balance Sheet: $2.28B Debt, $0.46B Cash, $11.3B Intangibles

Per the MD&A: "At December 31, 2025, total debt, net was $2,283.3 million, compared with $2,079.7 million at December 31, 2024. In 2025, total borrowings increased by $6.4 million, compared with a decrease of $1,189.7 million in 2024."

Debt composition:

Cash of $458.0M at year-end ($374.5M international, $83.5M domestic) covers only 20% of debt — the C4 red flag. But per the MD&A's non-GAAP metric: "The debt-to-capital ratio was 17.7% at December 31, 2025 and December 31, 2024. The net debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders' equity) was 14.7% at December 31, 2025, compared with 15.0% at December 31, 2024."

14.7% net-debt-to-capital is very moderate leverage. The C4 flag is mechanical — AMETEK runs a lean cash balance because it can. FCF of $1.67B is more than sufficient to service the debt stack.

Goodwill plus intangibles of $11.3B represents 106% of equity — the D1 red flag. AMETEK has been an acquisition machine for decades. Note that indefinite-lived intangible assets alone are $1,103.3M (trademarks and trade names) — the subject of the first E&Y Critical Audit Matter.

Per the MD&A: "At December 31, 2025, the Company had available borrowing capacity of $1,489.2 million under its revolving credit facility, excluding the $700 million accordion feature." Plus the $2.3B commercial paper program (of which $740M was used). Total liquidity headroom is comfortable.

The 18-Point Screening

Key Risks from the 10-K

1. Cyclical End Markets

Per Item 1A Risk Factors: "A number of the industries in which we operate are cyclical in nature and therefore are affected by factors beyond our control. A downturn in the U.S. or global economy, and, in particular, in the aerospace and defense, oil and gas, process instrumentation or power markets could have an adverse effect on our business."

EIG's 1% organic sales decline in 2025 reflects exactly this — process instrumentation markets were soft.

2. International Operations

Per Item 1A: "International sales for 2025 and 2024 represented 48.2% and 47.4% of our consolidated net sales, respectively... As of December 31, 2025, we have manufacturing operations in 22 countries outside the United States, with significant operations in Canada, China, France, Germany, Mexico, Serbia, Poland and the United Kingdom."

3. Tariffs and Trade Policy

Per the MD&A: "During 2025, the United States government announced additional tariffs and trade restrictions on goods imported into the U.S. from various nations. Our businesses have been proactive in addressing the potential impacts of tariffs, including targeted pricing initiatives, strategic adjustments to our global supply chains, and leveraging our worldwide manufacturing footprint to localize production and adapt to changing demand patterns. The recent tariff modifications did not materially impact our results for 2025, however, as the situation continues to evolve, we cannot be certain of the outcome."

AMETEK's diversified global manufacturing footprint (22 countries) is partial protection — much of its international production serves local markets. But cross-border shipments remain exposed.

4. Operational Excellence Execution

Per Item 1A: "We may not properly execute, or realize anticipated cost savings or benefits from, our Operational Excellence initiatives. Our success is partly dependent upon properly executing and realizing cost savings or other benefits from our ongoing production and procurement initiatives."

5. Acquisition Integration

AMETEK acquired Kern (January 2025), FARO ($1.02B, July 2025), and LKC Technologies (January 2026) in a 13-month span. Integration execution and customer retention for FARO in particular is important — E&Y's second CAM specifically highlights FARO customer relationship valuation as a judgment area.

6. Customer Concentration and Capital Spending

Per Item 1A: "Demand depends on customers capital spending budgets, as well as government funding policies. Matters of public policy and government budget dynamics, as well as product and economic cycles, can affect the spending decisions of these customers."

7. Aerospace and Defense Dependence

EIG has significant exposure to aerospace and defense markets, which are subject to government procurement cycles.

8. Environmental Matters

Per the MD&A: "Other expense increased in 2025 primarily due to... increased environmental spend." AMETEK has acquired companies over decades with various environmental liabilities. These spending levels can fluctuate.

Ernst & Young's Two Critical Audit Matters

E&Y has audited AMETEK since 1930 — a 95-year auditor relationship. For the 2025 audit:

1. Impairment Assessment of Indefinite-Lived Intangible Assets (other than Goodwill) ($1,103.3M of trademarks and trade names): "Auditing management's indefinite-lived intangible asset impairment tests was complex and highly judgmental due to the significant measurement uncertainty in estimating the fair value of the trademarks and trade names. In particular, the fair value estimates were sensitive to significant assumptions such as discount rate, forecasted revenues and royalty rates."

2. Accounting for the fair value of the customer relationship intangible asset from the acquisition of FARO Technologies, Inc. ($250.7M of FARO's $1,023.7M purchase price): "Auditing the Company's accounting for its acquisition of FARO was complex due to the significant estimation uncertainty, particularly in estimating the fair value of the customer relationship intangible asset. The significant assumptions used to estimate the fair value of customer relationships included the forecasted EBITDA margin and customer attrition..."

Both CAMs are about intangible asset valuation — the single most judgment-laden area of AMETEK's accounting, given the $11.3B combined goodwill + intangibles balance. Neither CAM suggests anything is wrong; both reflect E&Y devoting specialized valuation procedures to these assets.

Key Financial Trends (3-Year)

Summary

Grade: F. Two structural red flags against a strong operational year and a 95-year auditor relationship.

AMETEK's 2025 results are genuinely strong by any operational measure:

Two red flags:

Two watch flags:

Yellow flags:

What to watch:

AMETEK is a best-in-class industrial conglomerate with a 95-year audit relationship, a disciplined acquisition playbook, and strong capital allocation metrics. The two red flags are both structural artifacts of the acquisition-driven business model rather than indicators of accounting manipulation or financial stress. In a healthier operating environment for EIG's instrumentation markets, AMETEK would likely grade C or B on this framework. The F grade reflects the mechanical firing of C4 + D1, not an underlying quality problem.

**Disclaimer**: This report is based on AMETEK's fiscal year 2025 10-K filed with the SEC on February 17, 2026. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade F means major red flags were detected that warrant thorough investigation.