R. Adam Norwitt
President & Chief Executive Officer at Amphenol
Well, Craig, thank you very much, and I'd like to extend my welcome to everybody on the phone here today.
And I hope that you're all having an enjoyable fall so far. It's a pleasure here in Wallingford to see the beautiful orange and red hues out of our windows. As Craig mentioned, I'm going to highlight our third quarter achievements. I'll then discuss our trends and progress across our diversified end markets, and then I'll comment on our outlook for the fourth quarter and for the full year of 2023.
Turning to the third quarter. Our results in the third quarter were better than expected as we exceeded the high end of our guidance in sales and adjusted diluted earnings per share. Sales declined by 3% in US dollars and local currencies, reaching just under $3.2 billion with growth in the commercial air, military and automotive end markets as well as contributions from our acquisitions, which were more than offset by moderations in the mobile networks, mobile devices, IT datacom, broadband and industrial end markets. On an organic basis, sales declined by 5%, but sales did increase sequentially by 5% from second quarter levels. We're pleased that the company booked orders of $3.164 billion, and that represented a book-to-bill of 0.99:1. I'm especially encouraged that our orders in the third quarter did exceed prior year levels, and that's an encouraging sign going forward.
Profitability was very strong in the quarter. We generated adjusted operating margins of 20.8%, and that was down just 20 basis points from prior year. Sequentially, our margins improved by 40 basis points. And as Craig already mentioned, these operating margins in the third quarter reflected just outstanding execution by our global management team, who continue to manage dynamically and effectively even in the face of moderating sales. Adjusted diluted EPS in the quarter was $0.78, and that declined just 3% from prior year and increased by a strong 8% on a sequential basis. And then finally, we're very pleased with the company's cash flow generation in the quarter with operating and free cash flow of $618 million and $544 million, respectively, in the third quarter, clear demonstrations of the high quality of Amphenol's earnings.
I come out of this quarter extremely proud of the Amphenol team. And I'll just say that our results this quarter once again reflect the discipline and agility of our entrepreneurial organization as we continue to perform well amidst the dynamic and challenging environment. Our acquisition team has been extremely busy this year so far. And I'm really pleased that since our last earnings call, we've closed on 3 acquisitions: Connor Manufacturing, Q Microwave and XMA Corporation. In addition, we signed an agreement to acquire PCTEL. With its headquarters in Illinois, Connor is a global manufacturer of power interconnect products, including especially high-voltage busbars for the automotive and industrial markets with annual sales of approximately $100 million.
Based in California, Q Microwave is a designer and manufacturer of mission-critical radio frequency components utilized in military platforms with annual sales of approximately $20 million. And based in New Hampshire, XMA is also a provider of RF components for the military as well as the IT datacom market with annual sales of approximately $15 million. We're very pleased that we signed a definitive agreement to acquire PCTEL. PCTEL is a leading global provider of antennas for a broad array of markets as well as purpose-built industrial IoT products and test and measurement solutions. We expect the PCTEL transaction to close by early 2024.
I'm very excited to welcome the Connor, Q Microwave and XMA teams to Amphenol. And I certainly look forward to welcoming the PCTEL team once that deal closes. Most importantly, I remain confident that our acquisition program will continue to create great value for the company. In fact, our ability to identify and execute upon acquisitions and then to successfully bring these companies into our entrepreneurial organization, this remains a core competitive advantage for Amphenol.
Now turning to our served markets. We're very pleased that the company's end market exposure remains highly diversified, balanced and broad. And that creates great value for the company, particularly amidst these dynamic times. So turning to each of our served markets. The military market represented 11% of our sales in the quarter. Sales grew from prior year by a very strong 26% in US dollars and 22% organically. And this is really driven by broad-based strength across virtually every segment of the military market. Sequentially, our sales grew by 3%, which was better than our expectations coming into the quarter. And as we look into the fourth quarter, we expect sales to remain roughly at these robust third quarter levels. And for the full year of 2023, we expect a high teens increase in sales from prior year.
With the acquisitions last quarter of both Q Microwave and XMA, we further broadened our industry-leading RF product offering into this important defense market. And in general, we remain encouraged by the company's strengthened position across the defense industry, where we continue to offer the market's widest range of high-technology interconnect products. Amidst today's dynamic geopolitical environment, countries around the world are expanding their investments in both current and next-generation defense technologies, thereby increasing the long-term demand potential for Amphenol. We're going to continue to accelerate our new product development while also increasing our capacity and thus are well positioned to support this increased demand long into the future.
The commercial aerospace market represented 4% of our sales in the quarter, had another really strong quarter with sales increasing by a very robust 40% from prior year and 37% organically. And this was driven by broad-based strength across all aircraft applications. On a sequential basis, sales did decline by just 1%, and that was a bit better than our expectations coming into the quarter. As we look into the fourth quarter, we now expect a modest seasonal sequential decline in sales. And for the full year 2023, we expect sales to increase in the mid-30% range compared to 2022.
I'm truly proud of our team working in the commercial air market. With the ongoing recovery in travel and thus demand for jetliners, our efforts to strengthen our breadth of high-technology interconnect products while diversifying our market position into next-generation aircraft are paying real dividends. We look forward to realizing the benefits of these initiatives for many years to come. The industrial market represented 24% of our sales in the quarter. Sales in the quarter did decline by 6% in US dollars and 13% organically as growth in medical, oil and gas and rail mass transit applications was more than offset by declines in other segments of the industrial market. I did want to highlight that our sales into the distribution channel were particularly soft in the third quarter as many distributors have taken steps to reduce their inventory positions in the industrial market. Sequentially, sales declined by 4% from the second quarter, which was somewhat worse than our expectations coming into the quarter.
Looking into the fourth quarter, we expect sales to moderate slightly from these third quarter levels. And for the full year 2023, we expect sales to be roughly flat versus prior year as some organic moderations are offset by the benefit of our acquisitions. Despite this near-term demand pause in the industrial market, I continue to remain so proud of our outstanding global team working in this important area. They continue to pursue growth opportunities across the many exciting segments of this truly diverse market, and I remain confident that our long-term strategy to expand our high-technology interconnect, antenna and sensor offering, both organically and through complementary acquisitions, has positioned us to capitalize on the many revolutions that will no doubt continue to occur across the industrial electronics market.
The automotive market represented 23% of our sales in the quarter. And sales grew by a very robust 13% in US dollars and 12% organically. This was driven by broad-based strength across most automotive applications, including electric and hybrid electric vehicle platforms. Sequentially, our sales increased by 7% from the second quarter, and this was much better than our expectations that we had coming into 3Q. For the fourth quarter, we expect sales to remain roughly at these levels. And for the full year of 2023, we expect sales to increase by approximately 10% compared to prior year. I'm really proud of our team working in the automotive market. Their performance so far this year is yet another confirmation of the benefits of their focus on driving new design wins with customers who are implementing a wide array of new technologies into their vehicles, including electrified drivetrains as well as a multitude of other exciting new applications.
With the addition of Connor to the Amphenol family, we now have an even broader array of products for global electric vehicle manufacturers. And we look forward to benefiting from this position for many years to come. The mobile device market represented 10% of our sales in the quarter. And our sales moderated by 20% in US dollars and 18% organically as strong growth in smartphones was more than offset by declining sales of products that are incorporated into laptops, tablets and wearables. On a sequential basis, our sales increased by a much stronger-than-expected 25%. And that was really driven by higher-than-expected sales in smartphones and wearables. Looking to the fourth quarter, we expect sales to moderate in the high single digits sequentially as strong growth in smartphones we expect to be more than offset by continued declines in laptops and wearables. For the full year, we anticipate sales to decline in the mid-teens compared to 2022.
While there's no question that mobile devices remains our most volatile end market, our team once again in the third quarter did an outstanding job of capitalizing on opportunities to realize incremental sales. Their agility and ability to adjust resources in real time with the changing levels of demand continues to create value for Amphenol. As we head into the end of 2023, our team stands poised as always to leverage their leading array of antennas, interconnect products and mechanisms to capture any opportunities for incremental sales that may arise this year and beyond.
The mobile networks market represented 3% of our sales in the quarter. Sales declined by 35% in US dollars and 43% organically as we continue to manage through a broad-based reduction in spending by network operators and wireless equipment manufacturers. On a sequential basis, our sales declined by 6%, which was a bit worse than our expectations coming into the quarter. For the fourth quarter, we expect sales to decline in the mid- to high single digits sequentially. And for the full year, we anticipate a moderation in sales in the sort of mid-20% range versus 2022. Despite this more challenging short-term wireless investment environment, our team continues to work aggressively to realize the benefits of our efforts to expand our position in next-generation 5G equipment and networks around the world. When customers once again drive renewed investments in these next-generation systems, we look forward to benefiting from the increased potential that comes from Amphenol's unique position with both equipment manufacturers and mobile service providers.
The IT datacom market represented 20% of our sales in the quarter. And while sales did decline by 12% in US dollars inorganically from prior year, our performance in the quarter was actually much better than we had expected 90 days ago. In fact, on a sequential basis, our sales increased by a strong 13% in the third quarter, much better than previous expectations. The growth in our sales from the second quarter was driven by an accelerating surge in demand from customers who are making significant investments in AI data centers. We also continued to see robust orders for AI-related applications, a confirmation of our team's success in positioning Amphenol as a leader in the complex interconnect systems that support alternative intelligence or artificial intelligence. As we look towards the fourth quarter, we expect sales to remain at these third quarter levels. And for the full year of 2023, we expect the mid-teens decline in sales compared to prior year.
While we've certainly had to manage through the inventory adjustments in the broader IT market, I am more encouraged than ever by the company's position in the global IT datacom industry. This revolution in AI is creating a true and unique opportunity for Amphenol, given our leading high-speed and power interconnect products. With machine learning applications driving a more intensive usage of our highest technology interconnect products, we're very well positioned for the future. In addition, our team just continues to do an outstanding job developing leading high-speed power and fiber optic interconnect products that are enabling our OEM and web service provider customers to continue to drive their equipment and networks to higher levels of performance. This creates a continued long-term opportunity for the company.
Finally, the broadband market represented 5% of our sales in the quarter. And sales were down 8% in US dollars inorganically as broadband operators continued to moderate their procurement levels. On a sequential basis, sales were down by 6%, in line with our expectations coming into the quarter. For the fourth quarter, we expect a modest sequential increase in sales. And for the full year 2023, we expect sales to decline in the mid-single digits from prior year. Regardless of the current demand dynamics, we remain encouraged by the company's position in the broadband market. We look forward to continuing to support our service provider customers around the world, all of whom are working to increase their network coverage and bandwidth to support the proliferation of high-speed data applications to homes and businesses. In addition, we're very well positioned to benefit from the broad array of government-funded initiatives, particularly in North America, thereby giving us confidence for the future.
Now turning to our outlook. There's no question that the current economic environment remains uncertain. And assuming market conditions do not meaningfully worsen and also assuming constant exchange rates, for the fourth quarter, we expect sales in the range of $3.09 billion to $3.15 billion and adjusted diluted EPS in the range of $0.75 to $0.77. This would represent a sales decline of 3% to 5% and an adjusted diluted EPS decline of 1% to 4% compared to prior year. Our fourth quarter guidance also represents an expectation for full year sales of $12.317 billion to $12.377 billion and full year adjusted diluted EPS of $2.94 and to $2.96. This outlook represents full year sales and adjusted EPS declines of 2% and 1% to 2%, respectively.
I'm very confident in the ability of our outstanding management team to adapt to the many opportunities and challenges in the current dynamic environment and to continue to grow Amphenol's market position while also driving strong profitability. In addition, I just want to reiterate that our entire Amphenol team around the world remains committed to delivering long-term sustainable value. And I would like to finally take this opportunity to thank each and every one of our 90,000 employees around the world for their truly outstanding efforts here in the third quarter.
And with that, operator, we'd be very happy to take any questions.
