阿美特克 (AME) 2006 Q1 法說會逐字稿

Good day, everyone, and welcome to the AMETEK, Inc.

First Quarter Earnings Release Conference Call.

Today’s call is being recorded.

For opening remarks, I would like to turn the conference over to Mr. Bill Burke, VP of Investor Relations.

Please go ahead, sir.

Thank you, Regina.

Good morning and welcome to AMETEK’s first quarter earnings conference call.

Joining me this morning are Frank Hermance, Chairman and CEO, and John Molinelli, EVP and CFO.

AMETEK’s first quarter results were released before the market opened today and have been distributed to everyone on our lists.

These results are also available electronically on your market systems and on our web site at ametek.com/investors.

A tape of today’s conference call may be accessed until May 4th by calling 888-203-1112 and entering the confirmation code number 7455915.

This conference call is also webcasted.

It can be accessed at ametek.com and at streetevents.com.

The conference call will be archived on both of these web sites.

I will remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward-looking statements.

As such, these statements are subject to change based on various factors and uncertainties that may cause actual results to differ significantly from expectations.

Those factors are contained in our SEC filings.

I will also refer you to the Investor section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call.

We will begin today with some prepared remarks and then we will take your questions.

I’ll now turn the meeting over to Frank.

Thank you, Bill.

AMETEK had an outstanding first quarter, establishing records for sales, operating income, net income, and diluted earnings per share.

Sales were up 27% to $423.9 million, an outstanding internal growth at 9%, and the contributions from acquired businesses.

Operating income was up 32%, driven by the top-line growth and operational improvements, resulting in a 70 basis point improvement in operating income margin.

Net income of $40.3 million was up 30% and diluted earnings per share of $0.57 were up 30%.

Cash flow from operations was $38.7 million, more than double last year’s first quarter level of $18.1 million.

Overall, we’re delighted with these results.

Our markets are very strong, our strategy of acquiring differentiated businesses is working well, and our focus on operational excellence continues to drive profitability.

Our process and analytic instrument businesses delivered 15% organic growth in the quarter.

Our oil and gas businesses led the way, driven by the high price of oil.

Our material analysis and nuclear businesses also had excellent quarters.

Our U.S. military business is doing extremely well, with sales up 10% for the quarter.

Numerous programs for both aerospace and ground-based vehicles are driving this strength.

One new program that has had significant demand this year has been cooling for the electronics on IED protection devices used by the U.S. military.

The application for these systems is to either jam or destroy IEDs, or improvised explosive devices, which are used by insurgents in Iraq and Afghanistan to target our troops.

We are supplying a large government contractor with these products.

This opportunity will add at least $5 million in sales this year, with the opportunity for much, much larger amounts.

Our commercial aerospace business continues to do well.

Sales were up nicely, supported by the higher build rates at Boeing and Airbus and continued strength in the after-market.

We continue to win business on Boeing 787.

Our content over the life of the aircraft has grown to $96 million, with outstanding quotes representing an additional $30 million opportunity.

This is a great aircraft for Boeing and for AMETEK.

The Homeland Security market remains a key focus for us.

As we expected, market opportunities are being created for both portal and nuclear -- or handheld nuclear radiation measurement devices.

Importantly, this will be an international market, not just a domestic market.

First, a status update on the advanced Spectroscopic Portal Monitoring System, the most immediate large-scale opportunity in front of us.

As you may recall, the Department of Homeland Security tested competing portal monitor designs at their Nevada test site last year.

AMETEK uses high-purity germanium as our detection technology, the gold standard for radioactive isotope identification.

This high-resolution technology can positively identify weapons-grade nuclear material, even when shielded by other radioactive sources which may fool lower resolution technologies.

As well, this high-resolution technology will eliminate false positives that are common with lower resolution technology.

False positives can slow down the flow of commerce or on many occasions force system operators to degrade the system capabilities, possibly allowing weapons-grade nuclear material to enter the country.

In February of this year, AMETEK submitted a bid, along with 9 competitors, to the Department of Homeland Security for over 1,800 portal monitor systems.

As we understand it, they will select up to 5 vendors who will be given development contracts.

We also understand that the selected vendors will receive a portion of the production contract as well.

The Department of Homeland Security is evaluating the bids now and has not communicated when they will make their decision, though our expectation is that it should be shortly.

We’ll keep you posted as this unfolds.

The government has begun a similar testing and bid process for handheld or portable devices.

Testing of handheld devices has also been completed at the Nevada test site.

The Department of Homeland Security is in the process of preparing a formal solicitation, expected in the second quarter, for the purchase of these devices.

No indication of quantity has been given, but it could be substantial.

Our detective family of handheld radiation detectors continues to sell well, both domestically and internationally.

In fact, during the first quarter, we shipped 4 detective EX-100s, the most sophisticated variant in this product family, to the United Kingdom Atomic Weapons Establishment.

Acquisitions continue to play a key part in AMETEK’s success.

We look to acquire differentiated businesses that compliment our existing businesses.

We employ a thorough due diligence process, pay reasonable prices, and focus on a rapid integration into AMETEK. 2005 was an excellent year for acquisitions.

We acquired approximately $260 million in annualized revenue.

We expanded our presence in analytic instruments with the acquisition of SPECTRO and the SOLATRON Group.

With the acquisition of HGC Industries, we added a new platform to our Electromechanical Group.

I am pleased to report that these acquisitions are doing great.

The integrations are going well and financial targets are being met or exceeded.

In fact, SPECTRO has already exceeded the initial goal of a 15% operating margin for the business, well ahead of schedule.

2006 is shaping up to be another great year, with one transaction already complete and another acquisition anticipated to close shortly.

In February, we acquired Pulsar Technologies.

Pulsar, with $10 million in revenue, is a mix focused business that provides specialized communications equipment to the electric power industry.

Pulsar is a great compliment to our existing power instruments business, which provides power quality monitoring and metering instrumentation.

Additionally, we have signed an agreement to acquire a business with annual revenues of approximately $55 million.

This is a differentiated business, but for confidentiality reasons I can’t provide any additional details.

The transaction is subject to normal closing conditions and is expected to close in the second quarter.

The pipeline of acquisition candidates remains full and we expect to have another great year.

Turning our attention to the individual operating groups, the Electronic Instruments Group had a great quarter, with sales up 31% to $236.4 million, strong internal growth of 10%, driven by our power, process, and analytic and aerospace businesses, together with the contributions from the acquisitions SPECTRO, SOLATRON, and Pulsar Technologies drove the top-line increase.

EID’s operating income was up 32% for the quarter to $47.7 million.

Operating margins were 20.2%, compared with 20% in the first quarter of 2005.

The Electromechanical Group also had a great quarter, with revenues up 22% to $187.4 million.

Their internal growth was 8%, driven by strong performances in both our differentiated and cost-driven motor businesses.

The HGC Industries acquisition also contributed to the revenue growth.

Operating income for the quarter was up 31% and operating margins were 17%, compared with 16% in last year’s first quarter.

Turning to our expectations for 2006, we expect 2006 to conform to our long-term business model of mid-single digit for growth, combined with approximately 10% acquisition growth, yielding a mid-teen percentage growth in overall revenue.

Our acquisition growth will result from the benefits of the SPECTRO, SOLATRON, HGC, and Pulsar acquisitions.

Our estimates do not include the new acquisition announced today since it has not closed.

Given our strong first quarter results and the expectation of continued strength in our markets, we have raised our estimated earnings to a range of $2.30 to $2.35 per diluted share, an increase of 19 to 21% over 2005 earnings of $1.94 per diluted share.

For the second quarter, sales were expected to be up in the high teens on a percentage basis from last year’s second quarter.

Earnings are expected to be approximately $0.57 to $0.59 per diluted share, an increase of 16 to 20% over last year’s second quarter of $0.49 per diluted share.

So, in summary, we’re very pleased with our performance in the first quarter.

Solid internal growth and the contributions from acquired businesses enable us to grow the top-line at a double-digit rate.

We’ve been able to translate the top-line growth into bottom-line performance, driving margin expansion and strong net income and earnings per share growth. 2006 is shaping up to be another great year.

Strong internal growth, a continued focus on operational excellence, and our ability to make additional acquisitions makes me very optimistic for the year ahead.

We look forward to building on our track record of success during 2006 and remain confident that our forward growth strategies will continue to create value for our shareholders.

John will now cover some of the financial details and then we’ll be happy to answer your questions.

Thank you, Frank.

As Frank has covered our financial results at a high level, I will provide some additional details.

First, on an overall note, in the first quarter AMETEK adopted financial accounting standard 123R to expense stock options using the modified retrospective method.

That means all relevant 2005, as well as 2006 numbers, are presented in accordance with this accounting standard.

Turning to the P&L, corporate expenses were $8.9 million in the quarter.

When compared with a year ago, G&A was unchanged at 2.1% of sales.

Year-over-year expenses are up on higher equity compensation costs and other costs required to grow the business.

Selling expenses were up 35% in the first quarter.

Excluding acquisitions, selling expense increased at a rate below our core growth rate.

The acquired businesses tend to have higher selling expenses, as the percentage of sales, and the base AMETEK businesses due to their differentiated nature.

Other expenses were up $900,000 in the quarter.

Lower gains on sales of securities in 2006 drove the increase over 2005.

The tax rate for the first quarter was 32.9%, up slightly from last year’s rate.

We expect our 2006 tax rate to be about 32%, plus or minus half a percent.

I want to emphasize that this is a full-year rate, and as we saw in 2005, actual quarterly rates can differ significantly, either higher or lower, than the 2006 average rate, as certain tax events are realized in a given quarter.

On the balance sheet, AMETEK’s working capital performance in the first quarter was very good.

Our operating working capital, defined as inventories plus receivables less payables, improved very nicely and ended the quarter at approximately 20.7% of first quarter sales annualized.

That’s down from 21.7% at last year’s first quarter.

We have a long-term goal of driving this number below 20% on a consistent basis.

Cash flow from operations more than doubled in the quarter, totaling $38.7 million, up from $18.1 million in the first quarter of 2005.

Cash flow in the quarter included a $10 million contribution to our defined benefit pension plans.

We expect operating cash flow for the Company to be in the range of $210 to $220 million in 2006, reflecting growth in earnings, better working capital management, and the additional working capital needs of a growing business.

Total debt was $618 million at March 31st.

Our debt-to-capital ratio at quarter-end was 42%, down from 44% at December 31, 2005.

Our strong cash flow enables us to quickly de-lever the balance sheet after a very large year of acquisitions in 2005.

Debt at the end of the quarter includes the purchase of Pulsar Technologies in February.

Capital spending was about $6 million for the quarter.

Depreciation and amortization was $11 million in the quarter.

For 2006, we expect that CapEx will approximate $33 million, while depreciation and amortization should be about $46 million.

In addition to the strong cash flow of the Company, we have substantial financial resources at our disposal to continue to fund our growth.

At the end of March, we had about $316 million under our existing credit lines.

In summary, we continue to manage our cost structure and balance sheet effectively, generating excellent cash flow and positioning ourselves for future growth.

Bill?

That concludes our prepared remarks.

Regina, we’ll be happy to take questions now.

[Operator instructions.] Jim Lucas, Janney Montgomery Scott

A couple of housekeeping questions, to get out of the way first.

John, accounts payable number?

$145 million, Jim.

All right.

And, Frank, I missed, I was a couple of minutes late joining, but the core growth for the overall business, I’ve got it on the segment level.

Yeah, why don’t I give you all the numbers, Jim.

For the overall business, core growth, and this is without currency, was 9%.

It was 8% in EMG, and 10% in EIG.

Okay.

And currency minus 2%; is that kind of the ballpark?

That seems to be where most companies are running these days.

Yeah, yeah.

It was 7% for the overall Company when we include currency.

Okay.

All right, thank you on that one.

On the IED product that you referred to in your prepared remarks, can you give a little more color of exactly what you’re providing from a technology standpoint?

We’re basically providing cooling fans for the electronic equipment that will essentially go in ground-based vehicles, such as Humvees, etc.

And there are 2 types of products; one is just a jamming mechanism so that you basically -- the insurgents are unable to detonate the device.

The second type of equipment actually will detonate it in advance of our vehicles coming into the area where it’s dangerous.

So there are two types of systems that we’re providing all the cooling on.

And as I’m sure you are aware, this is one of the most significant issues our military is facing.

So they have our fans deployed now in devices.

They are testing them in Iraq, and I believe Afghanistan, and if they work satisfactorily there could be significant volume that comes our way in a very short period of time.

Okay.

And then in the fourth quarter numbers you talked about the investments that you are going to make on the growth side this year.

Could you just give us an update on how that investment profile has started earlier this year and kind of how you see that ramping up as the year progresses?

Sure.

In quarter one; we spent about $1.3 million.

You may recall in the fourth quarter a phone call.

I talked about hiring 75 people.

We have hired -- we were very successful in the first quarter by hiring about 28 of those 75 people.

So we expect just a normal ramp through the year as all of those people come onboard and you have the normal quarter effect and then we’ll, obviously, hire more people.

And maybe just to refresh everyone’s mind here, we’re doing 2 main areas in terms of investment.

One is in engineering, where we’re focused on our high-end differentiated businesses, particularly our analytic instruments businesses in engineering with specific focus on nanotechnology and wireless leak detection and Homeland Security and oil and gas analysis.

And then the other part of the investment is in marketing and sales.

We’re expanding our distribution capability in China.

We have, in the first quarter, opened an office in Chengdu.

We’re in the process of opening an office in Russia and we’re going to continue to expand distribution in Japan and the Middle East.

So we’re pretty excited about these investments and we think they will add to our internal growth as we go forward.

And, finally, on the aerospace side, can you talk a little bit about after-market versus OEM in terms of what you’re seeing on the after-market side in particular?

After-market is very, very strong.

It has been ramping up literally every quarter over the last several years.

And, obviously, the profit margins on that part of the business are higher than our OEM business.

But that part of the business is strong and our OEM business continues extremely strong.

We’ve got strength really in all parts of the business – commercial aircraft being led by both Boeing and Airbus.

They are both going to be shipping about 400 airplanes this year, which is up substantially over last year.

In terms of business and regional aircraft, that business looks extremely strong.

Cessna is our largest customer and they are doing very, very well right now.

And then the U.S. military business, even exclusive of this IED device that we talked about a few moments ago, is very, very strong.

So it’s just a really good picture.

Matter of fact, if you look at our order intake in the first quarter for all of aerospace, this would be on both sides of the business, both EIG and EMG, we were up about 26% in order intake.

So we’re going to see some accelerated growth rates in the aerospace business as we go through the year.

Great.

Thank you very much.

Wendy Caplan, Wachovia Securities

Frank, I don’t think I’ve heard you sound so positive in a long time.

And my questions are, first, on the Homeland Security products, you mentioned that you weren’t sure when you would get the portal results but mentioned, you said “shortly.” The fact that it’s been in the news more, I know Bill was quoted in the Washington Post on Saturday, does that give you more comfort that it’s coming sooner?

Yeah, I think we believe it’s coming sooner rather than later, although we can’t be 100% sure.

But as you point out, it surely has been a focal point in the news.

We actually had an interview on CNBC regarding our technology.

We’re getting lots of inquiries.

So I think sooner rather than later is probably the best way to think about this.

We would hope it would happen in the next month, but again, cannot be 100% sure.

Okay.

And the handheld device, is this the first time you sold it outside of the U.S.?

No.

Actually, we have been selling a fair number of them outside the U.S.

It just seems to be accelerating at this point.

That there is significant interest in it outside the United States and our government is actually encouraging it for the obvious reason; that they prefer to detect any hazardous material outside the country rather than in.

And the real news in my opening talk was that the second solicitation that is coming out in the portable area could be very significant.

I mean, it’s possible that it could be on the same order of magnitude in terms of, surely, units and probably -- even possibly dollars in terms of the portal system that we’ve talked a lot about.

And this was relatively recent news for us.

The first thing we heard about the portable device was that the government was going to come out with sort of a brochure that would advise local agencies as to what units they should buy.

And then more recently, we heard from them that they’re actually going to do a full solicitation and probably go through a similar process to what they did on the portals.

So it’s pretty exciting what’s going on right now.

And have you quantified that in terms of dollars?

No.

We really have nothing to go on in terms of quantification.

All we know is that a solicitation will be coming.

That will be public information when it occurs and at that point we’ll be able to put some numbers on it.

Okay.

And your comment on SPECTRO surprised me that you’ve reached the 15% operating margin level, certainly way ahead of the 18-month time period that you gave yourself.

Can you talk about SPECTRO specifically in terms of what’s been going on to get you to that level and if we think about going forward this year where that margin could go?

And then a little update in terms of where the other two businesses are specifically?

Sure, Wendy.

Starting with SPECTRO, this is really a first-class business.

As a matter of fact, I took my entire board over there to view this company recently.

And the quality of the products in this company and the quality of the management team is just absolutely first class.

And they have integrated into AMETEK extremely well.

We’ve done, and are in the process of, significant consolidation in the distribution channel.

We have linked them with our EDAX business here in the United States and recently went through an organizational change where actually SPECTRO is reporting in to Alan Devenish, who I think you know, Wendy, out at our EDAX unit.

And there is going to be continual integration and continual additional cost synergies and volume synergies that come out of this.

So, clearly, one part of the equation here was on the cost side, but equally important is that their penetration in the market with new products has just been extremely good and their volume has done well.

And when you couple those two things together, which is what we had anticipated but we didn’t anticipate them happening as quickly as they did, we have actually exceeded that 15% operating tax level.

Our target for this business is 20% pretax and probably even a little higher than that.

I don’t think it’s unreasonable to think of this business at that level within the next 9 to 12 months.

I think that’s a very realistic target for this Company.

The other acquisitions also are doing just fine.

SOLATRON, you may recall, we essentially linked with 3 of our divisions.

There were 3 separate parts of SOLATRON and they were run as pretty much separate businesses.

So we linked them with 3 separate divisions within AMETEK and we’ve gotten substantial synergies from those.

Pretax margins here are north of 20% and growth is good.

So it’s a very, very positive situation there as well.

And the last one is HGC Industries, which is in the Electromechanical Group.

And that one, as well, they’re meeting their projections.

There is probably more synergy than we had originally anticipated with our Specialty Metals Division.

You may recall that our Specialty Metals Division is going to be able to ship them raw material, what HGC would consider raw material, that they can then use in their end products.

And HGC is being very positively impacted by the military market because a good part of their business is in defense and military.

So all 3 of these acquisitions are just doing fine, so we’re actually delighted and it’s, obviously, one of the drivers in our performance.

Yeah, and I guess that brings me to the question you’re raising your outlook for this year in terms of earnings per share.

My guess would be that a lot of that has to do with the performance of those 3 acquisitions.

Would I be correct in assuming that?

It is; no question.

The acquisitions are doing well, but I would say even a more important driver is the internal growth we saw in the first quarter.

We were actually looking this morning to see when and if AMETEK had hit 9% internal growth in any quarter in, say, the last 10 or 15 years.

We didn’t complete that analysis, but I’m pretty sure, as long as I’ve been CEO, which is about 6.5 years now, we have not done that.

So I think we’re really firing on all cylinders.

Obviously, the markets are helping us, Wendy.

But above and beyond that, I think the shift that we have gone through in terms of moving the Company to a much higher content of differentiated businesses is an underlying factor here.

I mean, this is a different Company than it was 3 or 4 years ago.

Which, of course, begs the question in terms of can this kind of growth, can it be a trend?

Is it sustainable in ’06?

Yeah.

I’m going to wait to see another quarter, but probably the best way I can answer it is the markets are relatively strong and I’m pretty optimistic but I’m not going to declare victory just yet.

I want to see another quarter or so, and if this continues, you may be seeing us raising our estimates again, but I’m not going to do it right now.

Okay.

And one final thing and I’ll get off.

You always kind of give us some help with the incremental margin, ex the acquisitions.

Can you walk through that for us?

Yeah, sure.

Incremental margins were fine in the quarter.

For the whole Company, they were about 30%.

For the Electromechanical Group, they were in the high 30s.

For the Electronic Instruments Group, they were a little bit south of 30.

And that is driven by -- actually, the question that Jim asked up front, in that that incremental investment that we talked about at $1.3 million was largely, as we had told you in Q4, in EIG, and that caused that incremental margin to be a little bit lower.

If you extracted, you would add another 10 to probably 14 points of incremental growth to EIG.

So we’re delighted with what’s happening on the incremental margin.

We feel this is the time to invest, when things are good, and we think it will help us substantially whenever a downturn in the business does occur.

[Operator instructions.] Matt Summerville, KeyBank

Another way of asking the same question, Frank, can you talk about what your margins would have been in EIG and EMG, excluding the acquisitions?

And then in the first quarter, were you still negatively impacted by inventory step-up with any of those businesses?

I don’t have the data for the first part of your question, Matt, so I can’t give you that.

And, John, if you can answer the second question.

I’m not sure what you mean about inventory step-up.

With HGC, I found in the fourth quarter you had a little inventory step-up, is that not the case?

You mean, in terms of just adding inventory to our --?

Purchase accounting adjustment.

Oh, purchase accounting.

No, no, no, there was no effect.

No.

No effect to purchase accounting.

Okay.

And then can you talk about what kind of growth rates you actually saw for the aerospace instrument business, the power instrument business, and industrial, and then run through the same stuff with the major pieces in EMG?

Yeah.

Why don’t I do this?

Why don’t I walk you through the Company and just give you a flavor at the sub-segment level as to what’s happening and I’ll give you an indication of internal growth rates and how I see those businesses?

How would that be?

Perfect.

Okay.

Let’s start with the electronic instrument side of the business.

As you heard in my opening talk, the process markets are extremely strong.

They are driven by the price of oil.

The analytic instruments are doing just great.

The nuclear business is expected to have an excellent year and had a great first quarter.

The new products that have been introduced in that part of the business have come on even stronger than we had anticipated.

So the internal growth in this particular part of our business was actually up 15%, the highest level that we’ve seen in a long time.

And we expect that good -- those kinds of trends to continue as we go in the future.

The power business, very similar story.

As you may recall, Matt, this was one of the last businesses to rebound for AMETEK and we have continued very strong performance in Q1 2006, strength in essentially all parts of the business.

Our transmission and distribution -- or instrumentation business was good.

The battery backup business was good.

And also the turbine business was showing some life.

You may have listened to GE’s recent release, where they are basically seeing turbines production up about 13%, where it was going down for the last number of years.

Q1 internal growth here was double-digits, and we see nothing on the horizon that this good trend is not going to continue.

As I mentioned before, our aerospace businesses, first on the EIG side, and then I’ll talk in a moment on the EMG side, very strong.

I mentioned Boeing and Airbus and Cessna and the U.S. military.

We saw internal growth here in the mid-single digits but very strong order inputs, as I mentioned, for the whole Company in aerospace.

Order input was up about 26%.

So we actually see that, the internal growth in our aerospace businesses, accelerating as the year goes on.

And we’re pretty excited about that.

In the industrial part of EIG, heavy truck business remains very strong.

We’re all aware it got a market peak, there could very well, and it’s predicted to be a downturn in 2007, but 2006 is good.

As a matter of fact, the latest industry watchers have just even raised their estimates from about, I think it was 2% growth, up to about 6% growth in heavy truck market.

Our Caterpillar business is good.

So we’re looking at strong markets and our growth here, we think over the year, is going to be in the sort of mid-single digits.

The first quarter or two, similarly to Q4 of last year, we had a flood in our HVAC facility that we talked about and we exited a number of low-margin businesses.

So our growth in Q1 was actually down.

But we expect that that’s going to normalize itself as the year goes on and we’ll enjoy the market dynamics that I mentioned.

The other side of the Company now, in the Electromechanical Group, the differentiated part of EMG is just doing great, again driven by strength in aerospace and specialty metals.

In particular, as I mentioned, our U.S. military business is just doing really well, even exclusive of this IED opportunity.

The HGC acquisition will give us about $80 million of incremental revenue.

And the Q1 internal growth rate here was up double-digits.

So, I mean, it was a really great quarter for the differentiated side of EMG and we expect strong performance of this as the year goes on.

And probably, you may have seen in my press release, I said the performance exceeded my expectations.

One of the key reasons was actually in cost-driven motors.

Our internal growth in cost-driven motors was mid-single digits.

And you may recall that my wonderful forecast at the end of the year said we were going to be down in this particular business.

So, so much for my forecasting ability.

But it basically was a very pleasant surprise.

As you are aware, we run this business for maximum profitability.

Our movement to low-cost locales is doing well.

We’re really focusing on lean and Six Sigma in this business and we surely are going to see profitability up in the double digits as we talked about.

So that’s kind of a walkthrough of the Company.

Probably the best quarter on organic growth, as I mentioned, in a long, long time.

I appreciate that.

Just one follow-up on -- can you talk about pricing trends in each business segment and then what level of concern you have over raw material prices at the present?

Oh, yeah, great question, Matt.

Our pricing is averaging up about 2.5% for the Company, versus last year we probably got about 1.5%.

So we got about another point in pricing that is coming through.

And when I say that I’m excluding the issues around raw materials, okay?

Just our base businesses are getting those kinds of increases.

The commodity prices, there are 3, actually now there are 4 things that impact AMETEK.

There is nickel, gold, now with HGC, copper, and steel.

And the nickel and gold are with our very high-end differentiated businesses and they are able to get the pricing.

They are able to push it through.

So it really hurts margins a little bit because, basically, you can’t get your normal margin on the increase in cost but you do get it covered so that you get the same profitability.

I mean, I don’t think it’s a substantial impact on margins, but just a hair, I would say, of an impact on margins.

And copper, we’re, through a combination of both price, but not as much price in the EMG cost-drive side, but some price and resourcing and our operational excellence initiatives basically the net of all of this is we’re not seeing any major issues on the bottom line due to the commodity increases.

As you know, this is sort of AMETEK’s strength and we deal with these issues and we’ll hopefully some day enjoy when they go the other way and maybe can hold onto some of the price increases.

But we don’t see it as a major risk or a problem to the business.

Scott Graham, Bear Stearns

Just one or two final questions here.

You’ve answered most of them.

John, could you tell us, relative to each segment and corporate, how they stock compensation expense worked through?

Are you speaking of the change in the accounting standards?

That’s correct, yeah.

Just a second here, Scott.

Are you looking for ’05 or ’06, Scott?

’06.

’06, well then, in ’06, we’ve got at the pretax, these are the operating level, we’ve got $490, roughly $500,000 in EIG, and roughly $270,000 of cost in the Electromechanical Group, and roughly $650,000 at the corporate level.

Excellent.

Thank you.

With respect to the handheld, could you tell us what the shipments of the handheld were this quarter?

Scott, before you move on there, just to be absolutely clear, ’05 has been restated to add stock compensation expense to ’05, so the two periods are presented same basis.

Everything we’ve said this morning has been on a retrospective, Scott.

So we’ve given you margin comparisons and earnings, etc. with all of these numbers dialed in for both years with that standard applied to 2005 as well as 2006.

Yes, I understood.

Good.

The handheld shipments?

I actually don’t have it for the quarter.

What I know, we shipped, I think, so far about 3 units, but I don’t have that data for the quarter.

Okay.

Last question is regarding acquisitions for ’06.

Obviously, you’ve got one almost -- about to close, but 2005 will go down in the books as, perhaps, one of the best years, if not the best year, for AMETEK in some time.

Is it -- can you get anywhere near that type of number in 2006, Frank, do you think?

It’s possible.

I mean, it’s definitely possible.

It’s very hard to predict, as I mentioned many times on these phone calls, as to what you can really close.

And we’re very careful.

And as you know from our history, if we find problems that we think are insurmountable, we’re not afraid to walk away from them.

So it’s very, very difficult for me to predict, but if you ask me the question is there enough teed up that is possible to make that number, my answer would be, clearly, yes, it’s possible.

If there is an additional way we can frame that, because this has become such a big part of your story now with your ability to integrate them so well.

Is it like a situation where somewhere between 2 and 7 are further along, further down the path than let’s say numbers 8 and 15.

I don’t know.

I’ll leave that up to you.

But is there a number of acquisitions that you would be willing to say that you are in the final stretch on?

Well, no, I don’t want to go and say we’re on the final stretch in 6 or 7.

I mean, obviously, the one we announced -- we did Pulsar.

We announced one today that should close in a relatively short period of time.

I can tell you that on 1 or 2 others, we are well into the process and the backlog behind that is good.

And maybe that’s the best way I can characterize it.

That’s exactly what I was looking for.

Thanks a lot.

Rich Eastman, Robert W. Baird

Frank, just a quick question.

When you look at your organic growth rate and your confidence as it lays out for the balance of the year, could you just give us a perspective, are you at all encouraged by non-U.S. growth?

We tend to talk in end-markets, and I understand that, but I’m curious geographically what your perspective is.

Are you seeing some added strength in Europe and how is the Asian market relative to last year?

Great, great question, Rick.

As a matter of fact, I almost modified my presentation this morning to put in some data around this, so I happen to have it right in front of me.

The growth rate in Asia in the quarter was up 54%.

The total growth rate internationally was up 34%.

We’re seeing just tremendous, tremendous activity in China and in the Far East, which is one of the reasons that we’re putting this added investment in that I talked about before.

Just a side story here, Rick, when I go over there, we like to get our sales and marketing people together, essentially the management.

When we started this, maybe 7 or 8 years ago, I can remember doing this in a room with 5 or 6 people.

The last time I went, we had a room and there were probably 150 people.

I mean, we had just dramatically increased our penetration ability there.

And so we are just pretty excited.

The other thing that’s happened is that, and one of the reasons why you saw some of this growth in the motor business, is that our AM -- I should say our -- I was going to say AMS, that’s our internal acronym for our motor business and the plant in Shanghai, it just won the [Dr.

Lux] award, which is an award we have internally for the operation that has the best performance from an operational excellence viewpoint in terms of inventories, etc., etc., which is almost unbelievable for an operation in China, and that’s helped our volume because customers come in and see that and they want to put their motors in there.

So Asia, you can hear my excitement around it.

It’s expanding.

We’re going to put more energy into that part of the world, etc.

In Europe, I know the economies there are probably the weakest of the major areas of the world, but we’re getting good performance in that part of the world.

And it’s probably because our share, particularly on the instrument side, has been smaller in that part of the world than other parts of the world.

And we didn’t have our fair share, if you would, of the instrument business there.

And now, with all of the acquisitions we’ve done there, the few we’ve talked about today, plus Taylor Hopson and others in Europe, we’ve got a base, and we’ve leveraging that base.

So Europe is doing fine for us.

And we also, in our Europe numbers, we roll up the Middle East, and also Russia.

Again, I mentioned before, we’re going to be opening an office in Russia.

We have an internal employee, who is right now considering, who’s Russian, who may want to go over and run that, which would be great for us.

And, obviously, this is driven by oil and our process businesses as well.

So I’m just bullish internationally right now.

Very good.

And then I’m going to test your forecasting ability again here.

Oh, no.

The cost-drive motors business.

Yeah.

Given the first quarter, should we be kind of backing off on the sales decline forecast for the year.

I mean, is it possible that business just runs flat again?

Yeah, actually, your forecasting is as good as my peoples’ because that’s what they have said.

Their latest forecast essentially calls for flatness in this business.

The question is, are they going to be -- are they conservative or not and time will tell.

But I think for your models, if you used flat, I think you’ll be fine.

Okay.

How about if I put it up 10%, can you guys get there?

No.

I can get there, but I won’t make any money.

No.

And then also, I’m trying to get a sense of within the differentiated motors piece of the business, how much aerospace exposure do you have there?

Let me add it up now.

There is -- let me give you aerospace and defense.

So about 150 plus about 70, so that’s about $220 million in rough numbers.

Okay, and that’s just in the EMG piece?

That’s just in the EMG piece.

Okay.

And then just a last question.

Can you just give us a little bit of a breakdown or the breakdown on FX within EIG and EMG?

Yeah, sure.

Just a second.

Let me grab a piece of paper.

Just so I can get there.

Yeah.

The 8% of EMG becomes 6 when you include currency.

Okay.

And the 10% in EIG, it rounds down to 7, but it really isn’t a full 3%, it’s less than that, but that’s how it rounds.

Okay, well, very good.

Well, thanks again.

[Jim Collins, Fidelity & Co.]

Good quarter, guys.

Just a couple of quick questions.

Frank, on the handheld detection system, do you also germanium technology in that device?

Yes, we do.

It’s the same technology.

The crystal size is obviously smaller because it’s handheld, which means it wouldn’t have the same sensitivity as a larger instrument.

But the sensitivity is still extremely good.

Okay.

And then how many manufacturers are in the handheld market?

Because in [the core], I think you were benching about 10 suppliers.

Do you have more suppliers in the handheld market?

Jim, I couldn’t hear your question.

Could you say it again?

How many manufacturers are in the handheld market?

How many suppliers?

There are really only 2 suppliers of the kind of technology that we have that we consider to be the gold standard, and that’s us and a company call Cambera (ph).

That’s also in the handheld too then, right?

Okay.

They don’t actually have a handheld at this point with that technology.

We are the only people that have it.

I think they may have pre-announced something, but we really have had it out and in the marketplace for an extended period of time.

Okay.

And how much does the handheld sell for?

It varies, depending on the sensitivity of it.

There is also the capability of putting a neutron detector in it.

But it can go from $70,000 a unit to $100,000-plus.

Okay.

That’s great.

And let me just shift gears just on the IED product.

Yes.

You are selling fans to cool the electronics.

That’s correct.

And then what electronics are you cooling?

Are they in the IED devices?

Well, no, they are not in the IED devices themselves.

This is electronic equipment that, for instance, would go under the seat of a Humvee.

And this electronic equipment, if you can picture a Humvee coming down the road and there are IEDs that insurgents have put on the side of the road, one of those devices that would go under the seat would basically jam signals so that if an insurgent was a half a mile away and going to push a button to explode that, that equipment would jam that signal so that it could not explode the IED.

The other type of device would have the capability of actually exploding the IED, so that it would explode well before the vehicle reached the IED.

And so there are two basic approaches to the technology that is being tested right now and our fans are used on both.

Okay.

So they’ll either deploy one, both, or if it doesn’t work well, none.

Right.

And that is yet to be determined.

Who is making those devices now?

I mean, they are using those electronic equipments, right?

I’m not privy to tell you who we sell this to, but I can tell you it’s one of the primes for the military.

Okay.

And are you selling your fans to the primes or directly to the military?

We’re selling it to the contractor who is doing the electronic equipment design.

Okay.

And do you have a kind of potential market size for this product, how big it might be for you?

It could be large, but I’m really not feeling like I can give quantities out because of the confidentiality around this product.

All right.

So it’s another pre-potential business.

Sizeable potential, yes.

Great.

Thanks a lot.

Ned Borland, Next Generation Equity Research

Just one quick one.

Just sort of a housekeeping question.

On the pace of the growth spending going forward, does that change at all since you made 28 hires in the first quarter, if I heard that correctly?

Yeah, sure.

I mean, it’s going to ramp up quarter-over-quarter.

Just the fact that we hired those people in the first quarter, we didn’t have them all on for the first quarter, so the run rate on those people will be higher in the second quarter than it would be in the first.

And in addition, we are going to be hiring more people.

So, yeah, it definitely is going to ramp up.

I don’t actually have a forecast in front of me and it also depends on how many people we hire.

But you can just picture a trend there where it increments up and for the full year it will come out around that $9 million or $0.08 a share that we talked about in Q4.

Right, right.

Okay.

Okay?

That’s it.

Thanks.

[Linda Weekling, Reeds Associates]

Fran O’Konesky: Actually, it’s [Fran O’Konesky].

Great quarter, guys.

I was just curious, earlier you were talking about the core growth internationally picking up pretty nicely.

Can you talk a little bit about the overall profitability contribution from some of those areas?

Will we also see some improvement there as well?

The profitability, when you look at our business around the world and properly normalize expenses that would be located in the various regions, there is not a substantial difference around the world in the profitability of our businesses.

As a matter of fact, if anything, they are slightly higher internationally than in the U.S.

We’re able to get a little bit better pricing in certain parts of the world.

Fran O’Konesky: And then on the HPG portal monitor, can you talk a little bit more about -- are there any sorts of issues in terms of cooling or the ability to deploy or how portable this technology is?

I guess I’m hearing that some of the HPG crystals are difficult to be made portable and deploy widely in areas that traffic flows.

Anything like that that --

I would say just the reverse.

This is the core of our technology, is that we not only can produce these very high sensitive crystals but we have low-power cooling capability that is part of our system design.

And it’s really the combination of the cooling device and the crystal that gives you this ultra high sensitivity.

As I mentioned before, we’ve shipped over 200 of these portable devices using this cooling mechanism and it works super and it’s not been a problem.

We think it’s one of the key advantages that we have over other competitors.

Fran O’Konesky: That’s what we’re hearing as well and congratulations, great quarter, keep up the great work, and thanks for the clarification on the HPGs.

[Operator instructions.] There are no further questions.

Mr. Burke, I’ll turn the call back to you for closing remarks.

Thank you, Regina.

I’d like to thank everyone for joining us today.

It’s my understanding we’re having a little bit of phone system problems, so if you need to get in contact with me please e-mail me at bill.burke@ametek.com and I’ll be sure to get back to you.

Thank you.

Thank you.

That does conclude today’s conference call.

We thank you all for your participation.

Have a great day.