阿美特克 (AME) 2008 Q2 法說會逐字稿

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

second-quarter earnings conference call.

This call is being recorded.

For opening remarks and introductions, I would like to turn this call over to Mr.

Bill Burke, Vice President of Investor Relations and Treasurer.

Please go ahead, sir.

Thank you, Jody.

Good morning, everyone, and welcome to AMETEK's second-quarter earnings conference call.

Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer, and John Molinelli, Executive Vice President and Chief Financial Officer.

AMETEK's second-quarter results were released earlier this morning and have been distributed to everyone on our lists.

These results are also available electronically on your market systems and on our website at AMETEK.com\investors.

A tape of today's conference call may be accessed until August 6 by calling 888-203-1112 and entering the confirmation code number 865-4466.

This conference call is also webcasted.

It can be accessed at both AMETEK.com and at streetevents.com.

The conference call will be archived on both of these websites.

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 Investors 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 will now turn the meeting over to Frank.

Thank you, Bill.

AMETEK had an excellent second quarter.

Sales were up 25% to $648.8 million on strong internal growth of 7% and the contributions from acquired businesses.

If the effects of foreign currency are included, internal growth was 10%.

Order growth was very strong as well with total orders up 24% in the quarter, internal growth in orders was excellent at 6%.

By May 19 the Company announced a performance-based accelerated vesting of a restricted stock award made in April of 2005.

The accelerated vesting occurred as a result of the stockprice doubling in the three years since the issuance of the grant, reflecting the significant value that has been created for AMETEK shareholders.

In the quarter the Company recognized an after-tax non-cash charge of $7.3 million or $0.07 per diluted share related to the performance vesting.

Excluding this charge operating income was up 26%, driven by the topline growth and operational excellence improvements, resulting in a 20 basis point improvement in operating income margin.

Net income and diluted earnings per share were each up 26%.

Cash flow from operations was excellent totaling $142 million on a year-to-date basis, up 18% over last year's first-half.

Overall we are delighted with these results.

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

Turning our attention to the individual operating groups, the Electronic Instruments group had an excellent quarter.

Sales were up 22% on strong core growth of 9% and the contributions from the acquisitions of Cameca, California Instruments, Advanced Industries, B&S Aircraft Parts and Vision Research.

If the effects of foreign currency are included, internal growth was 11%.

EIG's operating income was up 26% for the quarter.

Operating margins improved 70 basis points to 22.8% as compared to 22.1% in the second quarter of 2007.

The Electromechanical Group also had a great quarter with revenues up 29%.

Solid internal growth of 6% and the contribution from the Reading Alloys, Hamilton Precision Metals, Umeco, Motion Control Group, Drake Air and Seacon Phoenix acquisitions drove the revenue growth.

If the effects of foreign currency are included, internal growth was 8%.

Operating income for the quarter was up 21% to $53.1 million.

Operating margins were 17.4% this year as compared to 18.4% last year with a dilutive impact of acquisitions a key driver for the change.

In addition to our excellent financial results, we continue to make significant progress in the implementation of our four growth strategies -- operational excellence, global and market expansion, new product development and acquisitions.

Operational excellence is the cornerstone strategy for the Company, and our relentless focus on costs and asset management has been a key driver to both our competitive and financial success.

At each business unit, AMETEK colleagues are implementing initiatives to improve plant productivity, reduce costs and increase capital efficiency.

In addition to these business unit level activities, there are some companywide initiatives that are driving significant financial benefits.

Our global sourcing office and strategic procurement initiatives are expected to be a key driver for increased profitability in 2008.

We expect to generate $19 million in incremental savings this year from these activities, up from our previous estimates of $16 million.

In the second quarter, we realized $6.1 million, and for the first-half, we realized $10.7 million from this initiative.

In 2008 we're continuing our migration to best cost manufacturing locales -- Reynosa, Mexico; Shanghai and the Czech Republic.

Revenue from these plants is expected to total approximately 365 to $375 million in 2008, an increase of 40 to $50 million from 2007.

In the second quarter, revenue from our best cost facilities was $88 million, an increase of 9% over the second quarter of 2007.

Global and market expansion continues to be a driver for AMETEK's growth.

In the second quarter, international sales grew by 21% and were 47% of our total sales.

This growth was driven by our process, aerospace, power and electromechanical products.

Our vehicle information systems business booked a $20 million four-year contract with Kamaz, a Russian heavy truck manufacturer, for the supply of instrumentation clusters.

To support the international growth of our Aerospace MRO business, in the quarter we opened a new sales office in Dubai to service the leading carriers in that region.

Another key avenue for internal growth is new product development.

We have consistently invested in RD&E.

This year the total is expected to be $116 million, up 13% over last year.

Internal growth reflecting the continued strong level of funding and the traction from our design for Six Sigma efforts was a strong 7% overall in the second quarter.

While no single new product is significant to Ametek as a whole, we are excited about some recent customer wins driven by our development efforts.

Our aerospace division has developed a dual-circuit air oil cooler for the General Electric [annex] engine.

This engine powers the new Boeing 747-8 aircraft.

There are four engines per aircraft and one cooler per engine, representing approximately $36 million in revenue over the life of the program.

Our ORTEC business unit was awarded a $1.3 million contract for radiation detectors to be used at the upcoming Beijing Olympics.

Our upstream oil and gas business unit has recently introduced a series of new subsea transmitters used to measure pressure and temperature in the natural gas industry.

These instruments, which support the trends toward deeper water drilling, sit on the ocean floor at depths up to 16,000 feet and provide important feedback to field operators.

We expect revenue of approximately $3 million per year from each of these products.

Solidstate Controls was awarded a $1.3 million contract from TransCanada for UPS systems for a major pipeline project that will ultimately connect the Canadian oilsands with refineries in the US.

Drake Air has received FAA approval for its new matrix recore process on the Boeing 777 primary heat exchanger.

This repair process involves replacing a damaged or faulty core with a newly manufactured Drake core yielding a like-new unit.

Drake has been endorsed by the OEM of the heat exchanger to service these units.

From an overall perspective, revenue from products introduced over the last three years was 20% of sales in the first-half of 2008, up from 18% last year, reflecting the excellent work of our businesses in developing the right products to serve their customers.

Turning to acquisitions, we have acquired five companies this year, representing approximately $160 million in annualized revenue.

These are all differentiated businesses that expand our market positions in analytical instrumentation, aerospace MRO, technical motors and engineered materials.

In the second quarter, we acquired two companies.

In April we announced the acquisition of Reading Alloys, a privately-held niche specialty metals producer.

With annual sales of approximately $80 million, Reading Alloys is a global leader in specialty titanium master alloys and highly engineered metal powders used in the aerospace, medical implant, military and electronics market.

Reading's titanium master alloys are experiencing outstanding growth, driven by increasing demand for titanium in the commercial aerospace, military aerospace and power generation markets.

80% of Reading's sales are in aerospace and defense applications.

In June we acquired Vision Research.

With annual sales of $37 million, Vision is a leading privately-held manufacturer of high-speed digital imaging systems used for motion capture and analysis in test and measurement applications, including aerospace and defense, general industrial and research and development.

Its highly differentiated products include a broad array of high-speed digital cameras for capturing data and product characterization and motion analysis applications.

Vision, a solidly profitable growing business, sells to a diversified blue-chip customer base, including GE, Boeing, Apple, Hewlett-Packard, Toyota and Nike.

Pipeline of acquisition candidates remains strong, and we continue to look to add differentiated businesses to AMETEK.

We have the financial and managerial capacity to continue to do acquisitions and believe this will be a great environment for us.

There is much concern among investors about the slowing US economy.

To date we have seemed only minimal impacts to our business.

Our diversified global customer base, significant exposure to long cycle markets, a lack of presence in certain very weak areas of the US economy, and our operational excellence capabilities provide AMETEK and US investors with a buffer against an economic slowdown.

Some key points.

Our customer base is global with approximately 50% of our sales outside the US, up from 32% in 2001.

The international markets are doing very well.

We have significant revenue, approximately $750 million, concentrated in the long cycle aerospace and power markets.

These businesses should enjoy a number of years of solid growth.

In addition, it should be noted that these long cycle businesses have higher than average profitability.

We have minimal exposure to the residential housing and automotive markets, two particularly weak areas of the US economy.

Also, when necessary, we will react swiftly to align our cost base with economic realities.

This capability enabled us to improve margins throughout the last downturn, one of the few industrial companies to do so.

In addition, as a precautionary measure, we included general belt tightening improvements in our 2008 budget.

Putting all of this together, only about 25% of our sales and a smaller amount of our profitability are exposed to the short cycle US economy.

Our higher profit, long cycle businesses should continue to perform well in an economic downturn, and when needed we have the ability to react swiftly to properly size our operations to continue our strong profitability.

Turning now to the outlook for 2008, we are very optimistic about our prospects for the balance of 2008 and are increasing our guidance.

Our key markets continue to be very strong.

For the year revenue is estimated to increase approximately 20% on mid single digit core growth in each group and the annualized impact of acquisitions.

Internal growth for the Electronic Instruments group will benefit from continued strength in our aerospace, power and process businesses.

In the Electromechanical Group, the core growth will be driven by strong performance in our differentiated businesses.

The full-year impact of our 2007 acquisitions, as well as the impact of the acquisitions we have completed to date in 2008, will also be a key contributor to the top line growth.

We are raising our earnings guidance from our previous range of $2.42 to $2.47 per diluted share to approximately $2.50 to a $2.54 per diluted share, an increase of 18 to 20% over the 2007 level of $2.12 per diluted share.

For the third quarter of 2008, sales are expected to be up approximately 20% over last year's third quarter.

We estimate our earnings to be approximately $0.61 to $0.63 per diluted share, an increase of 15% to 19% over last year's third quarter of $0.53 per diluted share.

In summary, we are delighted with our performance in the second quarter.

Solid internal growth and the contribution from acquired businesses enabled us to grow the top line by 25%.

We have been able to translate the top-line growth into bottom-line performance, driving strong net income and earnings per share growth.

2008 is shaping up to be another great year.

Our key markets continue to be very strong.

Our operational excellence capabilities, global customer base, exposure to long cycle aerospace and power markets and the impact of our recent acquisitions should enable us to grow both the top and bottom-lines and meet our earnings estimates even as the US economy slows.

The pipeline of acquisition candidates remains strong, and we continue to look to add differentiated businesses to AMETEK.

We look forward to building on our track record of success during 2008 and remain confident that our four growth strategies will continue to create value for our shareholders.

John will now cover some of the financial details, and then we would be happy to take your questions.

Thank you, Frank.

The results we're reporting today demonstrate a high quality of earnings, strong margins and a balance sheet well-equipped to support our growth plans.

As Frank has covered our results at a high level, I will focus on some particular areas of interest.

Selling expenses were up 28% in the second quarter.

Excluding the effect of acquisitions, selling expense increased in line with our core growth.

After excluding the charge related to the accelerated vesting of restricted stock, corporate G&A fell to 1.5% of sales as compared to 1.8% of sales in last year's second quarter.

On a similarly adjusted basis, we expect G&A spend for the full-year 2008 to be about the same as last year in absolute dollars with 2008 decreasing to 1.6% of sales versus 1.9% of sales in 2007.

The effective tax rate for the quarter was 32.7%.

We expect the effective tax rate for the full-year 2008 to be approximately 32.5 to 33%.

As we have said before, this is a full-year rate, and actual quarterly rates can vary dramatically either positively or negatively from this full-year rate.

On the balance sheet, working capital defined as receivables plus inventory less payables was 20.5% of sales for the second quarter, down from last year's second-quarter level of 21.3%.

We continue to see an opportunity to reduce our working capital investment.

Our plans are to reduce this overall percentage in 2008.

Capital spending was $11 million for the quarter and $20 million for the year-to-date.

Depreciation and amortization was $16 million in the quarter and $30 million year-to-date.

For the full year of 2008, we expect that capital expenditures will total approximately $50 million, while depreciation and amortization is expected to be about $65 million.

Operating cash flow in the first half was excellent, totaling $142 million, up 18% over the first half of 2007.

We expect operating cash flow for the Company to be roughly $335 million for the full year, up 20% from last year.

In keeping with our previously stated strategy of opportunistically repurchasing common stock to offset dilutive impact of our benefit plans, during the first half we expended $57.4 million, repurchasing approximately 1.26 million shares of our common stock.

Approximately 260,000 of those shares were acquired in the second quarter.

At June 30, approximately $18.5 million remains under the current board authorization.

Total debt was $1.09 billion at June 30, up $186 million from March 31.

Offsetting this debt is cash and cash equivalents of $142 million, resulting in a net debt to capital ratio at quarter-end of 41%, up slightly from 38% at the end of the first quarter.

These ratios reflect the investment of $203 million in acquisitions and repurchase of $14 million of common stock during the quarter.

Subsequent to quarter-end, we paid off the maturing $225 million of public debt and received the final $80 million draw of the private placement we entered into in August 2007.

After affecting for the debt transaction subsequent to quarter-end, we had approximately $450 million of cash and credit facilities available to fund our growth initiatives.

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

Bill?

Thanks, John.

That completes our prepared remarks, so we will be happy to take questions now.

(OPERATOR INSTRUCTIONS).

Jim Lucas, Janney Montgomery Scott.

John, first housekeeping question.

Accounts Payable in the quarter?

Sure, Jim.

$253 million.

Alright.

Thank you.

And Frank, two questions.

First, on the aerospace and defense side, if you could just give us your quarterly update on what you're seeing in the markets, particularly on the commercial side.

And secondly, you have been making a number of investments in China and Russia, now Dubai.

Could you maybe just give us a little insight into the thought process of how you go about identifying where these geographies you want to make the investments in and what we could expect to see going forward?

Sure.

Let me start with aerospace and defense.

Those businesses are doing just great right now.

The markets are very strong.

There is a strength in all parts of the business.

Boeing and Airbus are producing at high levels as is Cessna.

The combined backlog for Boeing and Airbus is more than 7300 aircraft and represents more than $750 billion.

For 2008 Boeing deliveries will be up about 9% and Airbus up about 5%.

Cessna's backlog is $16 billion, and it is up $3.4 billion since year-end and has sold out for the next three years.

The military business is very strong, especially given our focus on helicopters and electronic schooling.

For the quarter organic growth was up double-digits actually for our full aerospace business.

And total growth with acquisitions was even a much higher number.

And for 2008 we are very optimistic.

We think there is going to be continued growth, and the internal growth should be at least high single digits and maybe a little bit higher.

Now there is two points that I want to comment on specifically addressing commercial aerospace.

One is there has been concern expressed throughout the industry about capacity reductions, particularly in the US.

We went back and looked at our commercial MRO business in the US, and it is less than $50 million.

It is actually around $45 million.

And the reductions that they are talking about, potential reductions in capacity, which would not take effect into well into next year are about 10%.

Which means the impact on us has sort of been the rounding of our aerospace business.

It just is not a major factor.

And the other point is there also have been some press comments regarding backlog reductions at the large commercial OEMs, namely Airbus and Boeing.

We have taken a look at that, and I think the first point is that only about 12% of their backlogs is in the US environment.

Most of their backlog is outside the US.

And the second point is, even if there were some reductions, which actually Boeing and Airbus are saying there will not be on the short-term, those reductions they would be filled by other spots.

As a matter-of-fact, I read something over the weekend where the CEO of Airbus basically said, if they had to reduce capacity, it would not be until 2010.

So we're feeling very, very confident in our aerospace and defense business with commercial being very strong.

It is 40% of our total aerospace business.

And even if it weakened a slight bit, our military and business and regional aircraft business is so strong that we're just not concerned about it.

We think it is going to be a phenomenal few years of continued good performance in aerospace and defense.

Your second question regarding international expansion, as we have talked about for a number of years, our intent is to continue to incrementally expand internationally.

When I first came with AMETEK, about 10% of our sales were outside the US, and we're now hovering around 50% of our sales.

Our objective is to move the Company in an incremental fashion to about 60% outside the US.

And that is driven by the fact that when we sum up all of our markets, we think 60% of the opportunity is outside the US.

In your specific question of how do we identify where we do this and where we expand, we basically do strategic planning meetings with every one of our operations, and we ask them to identify where the major growth opportunities are for their business.

And then at the corporate level, we look at that and say, where are the areas in the world that service the larger numbers of our divisions and/or the highest profit potential for multiple divisions and decide to invest there.

And that has driven the China expansion.

It has driven the Russia expansion.

And now what is happening in Dubai, it is just unbelievable what is occurring over there.

They are putting major infrastructure into Dubai, and we just see it as a super opportunity, so we're going to continue to expand there.

And we will just continue this process of incrementally putting investments in to move the Company into that higher content region in international type markets.

And to that point, are there any of those geographies that you have identified where you are not participating today?

Yes, I would say the one area that we need and will over time incrementally invest is India.

We have looked at the manufacturing infrastructure there, and it is just not good at this point in time.

It is hard to even travel from city to city in India.

So we decided not to invest heavily in manufacturing in India at this point in time.

But that will change over time because they will improve that, and we will see an opportunity to expand there, but we put it a little bit lower on the list.

We are doing backoffice stuff in India.

We have distribution capability there as well.

But we have not taken the step to go a little bit further in that part of the world.

So it is probably the next one that you will be hearing from us on.

Amit Daryanani, RBC Capital Markets.

Just to follow up on the commercial aviation MRO side of the business, I think the platforms about $100 million revenue first.

How much of that is US-centric versus international?

Yes, it is about 45% in the US and 55% outside the US.

That is how I got to that $45 million number that I mentioned in response to Jim's question.

Got it.

And so, too, that is a part of the business we could potentially see a little bit of softening as it takes some capacity out down the road?

Yes, it is possible.

That is what I'm saying.

There could be maybe a 10% shift in that business, which could be on the order of 4 or $5 million, which is in the rounding of our Aerospace business.

Right.

Fair enough.

And then just on the inventory side, it looks like it trended up about 35%.

How much of that was ex acquisitions and FX?

Have you got that, John?

I do.

Just give me just a second to find that.

The inventory grew in line with our core growth, and I can give you the absolute dollars quickly.

But we had a 7% growth in our core inventory associated with our core businesses.

I think that is your point you're looking for?

Yes, I can back into the (multiple speakers) dollar number.

Acquisitions (multiple speakers) drove $29 million of that change.

Perfect.

Alright and then just finally, can you just talk about commodity inflation and how that is impacting you guys?

On a net price pricing basis, are we still positive?

Yes, no question we are still positive.

We looked at this very strongly in the second quarter, and our pricing was very, very good in the second quarter, and it more than offset the commodity impacts on the input side.

And there are some different forces happening on the commodity input side.

The three key commodities that impact us are steel and to a higher degree copper and nickel, and steel and copper did actually go up.

But nickel went down quite significantly.

So there was a counterbalance in our commodity impacts in the quarter.

And I just want to make the point that I made before, that we are impervious to this because the way we manage the business, we simply are able to offset what occurs on the input side through other initiatives.

As an example, in our specialty metals business, we actually quote and when we take an order, we use the spot price of the metal on the day we essentially take the order, and then we buy forward on that material.

We don't speculate.

We have the order, it is in our backlog, but we buy forward, and therefore, the profit on that particular order is locked in.

So we take the risk out of the equation.

And that is why in general you have heard no issues from us as the commodities have swung all over the place in the last several years.

Ned Borland, Next Generation Equity Research.

Just one question on the EMG operating margins 100 basis points below last year.

Can you give us some color on what is going on there?

Yes.

As to our stated thought process was going into this year, we're going to be very aggressive on acquisitions.

We see an opportunity to significantly use the cash flow from the Company to do more acquisitions than our norm, and we have already met our target for the whole year in the first six months, and we're surely not going to stop here.

So it is going to be a very, very good environment for acquisitions.

One of the impacts when you do those acquisitions, especially with our stated philosophy where we like to buy companies that are 10% kind of pre-tax and we move them up to the 20% number in very short order, one of the negatives is that there is some dilution to the margins of the Company.

However, when you look at that on a return on invested capital viewpoint, the return on invested capital is off the charts.

So we believe that's the right economic equation to use.

And, in fact, that is what happened in EMG.

We did a large number of acquisitions.

It was unbalanced in terms of revenue in the second quarter with a much higher amount of revenue in EMG than EIG, and therefore, we basically had some margin dilution, and that was the prime driver.

Okay.

So because of the accelerated activity in the EMG and the acquisitions, it weighed down the margins but that should lift over time?

It should lift over time unless we continue to do more acquisitions in EMG of the magnitude that we have done on a sort of percent of sales basis.

John Baliotti, FTN Midwest Securities.

Frank, I was wondering if you could do your quarterly subsegment discussion?

You know you go through the sub pieces of the EIG, EMG.

And when you do that, could you also maybe comment on some either by end market or by geography if there's anything that changed as you entered versus exited the quarter?

I think some companies with similar characteristics of yours, the market has been very positively surprised.

I think they have expected these end markets to have changed so dramatically in three months, and I'm just curious to see what kind of color you have on that.

Right.

Well, let me sort of address your second question first, and then I will come back as I walk through the Company.

But I have seen no fundamental change in the end markets with potentially one somewhat minor exception in terms of the overall Company.

But I think it is worth mentioning, and that is the heavy truck business.

As you know, we have 20, $30 million of exposure to heavy trucks, and one of the dynamics that has happened there is that although for all of 2008 versus 2007, the markets -- the market itself is going to be roughly flat, up slightly.

The dynamic was that the first quarter was down substantially in terms of truck production.

It was down like 30% plus, which actually means on a quarter-over-quarter basis going forward it is going to be much better.

So we're seeing a better performance out of our business.

And you'll hear that in the numbers when I walk through each of the subsegments.

So if anything, the markets are a little bit better than what they were.

Okay.

Thank you.

Okay.

So let me walk through.

I will start with EIG.

As I mentioned in my opening remarks for EIG overall, sales were up 22% in the quarter.

Organic growth was 9%.

It was 11% if currency is included.

I have already walked generally through aerospace, so I won't spend any more time on it.

It is obviously very, very good, and we're expecting internal growth to be in the high single digits for the year.

The process businesses, the markets are very strong.

They are driven by the price of oil.

Our material analysis, ultra-precision, metrology and measurement calibration instrument businesses were particularly strong in the quarter.

The new products -- you heard some of those in my opening comments -- are doing very well.

Q2 internal growth was up high single digits.

Total growth with acquisitions was up more than 20%.

And we expect the good growth to continue.

And obviously having oil where it is is a very, very significant factor for this business.

So for 2008 we're saying the internal growth should be up conservatively mid single digits.

I actually think there's a very, very good chance it is going to be higher than that.

For power and industrial in EIG, the power and industrial businesses continue to do very well.

Q2 was up high single digits organically.

It was driven by strength in power and then the improved conditions that I talked to you about in terms of heavy trucks.

In the first quarter, all of power and industrial was only up mid single digits, and now we're up in a sense high single digits because of that comparison item in the heavy truck market.

So for all of 2008, we're expecting power and industrial to have high single digit organic growth.

So we're very, very positive on that business.

Switching over to EMG.

For all of EMG, sales were up 29% in the quarter.

Organic growth was 6%.

8% of currency is included.

And if I segment this into the differentiated part of EMG versus the cost-driven part of EMG, in the differentiated part of EMG the business continues to be very strong.

It is now 72% of EMG sales.

So a very significant shift in the makeup of EMG essentially diversifying away from the cost-driven motor business.

In the differentiated part of EMG, our aerospace and defense-related businesses were very strong in the quarter.

Our engineered materials, interconnect and packaging business also had an excellent quarter.

Q2 internal growth was up high single digits.

Total growth with acquisitions was up approximately 40%, and that goes to the question about some of the margin dilution because of the very high content of acquisitions in the EMG part of the business, and we expect very good growth in 2008 with organic growth up at least mid single digits and possibly higher.

In terms of cost-driven motors, it is doing fine.

Q2 growth was down just slightly.

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

We are continuing the movement of production to lower-cost locales, including China, Mexico and the Czech Republic.

As I mentioned in my opening remarks, last year we did about $325 million for the whole company in those low-cost regions, and we're going to add another 40 to $50 million this year, and we're right on target to make that happen.

And also in the cost-driven motors area, we have a very strong focus on lean efficient manufacturing and low-cost region sourcing.

And the low-cost region sourcing is just starting to really, really take on some energy in the Company.

Again, as I mentioned in my opening remarks, we're now forecasting across the entire Company from both the low-cost sourcing region activities, as well as the strategic procurement initiative we have about $19 million of savings for the year, and that is up from our previous estimates of $16 million, and I expect we're conservative on the $19 million number.

So for cost-driven motors for 2008, sales are expected to be flat, and profits are again expected to be up double digits.

So a pretty consistent theme from us.

Matt Summerville, KeyBanc.

Two questions first.

Can you comment, Frank, on what you saw in terms of order tempo as we moved through the quarter and what you are seeing thus far in July across the Company?

Sure.

The order tempo was interesting.

The first month was very strong.

When we saw the May results, they were down a little bit, and I was actually starting to get a little nervous that we were starting to see some of the slowdown that AMETEK has been able to sort of circumvent, and then June was gangbusters.

There is just no other way of saying it.

It was extremely strong.

Part of that is also due to the number of days in each of the months as well.

But so when I sum all this up, orders were great.

We were up 24% on orders.

We had 6% organic growth on orders, and it was across the board.

We really did not have sizable weaknesses anywhere, and July has started off great.

I get weekly reports from each of our divisions, and I'm feeling optimism around the loop right now.

So I am feeling pretty good about it.

And then can you talk about a little more color in terms of what you are doing or what you have done or what you're going to do in terms of general belt tightening and how much has flowed through the P&L with regards to that?

Yes, I mean it is a very difficult question to answer because each one of our divisions has very extensive cost reduction activities that offset the investments and volume and/or margin issues that are occurring in each business.

But in general, at the end of last year, we just had concern as to how strong this year was going to be.

So we went ahead and put in about $5 million of what I would call incremental cost reductions, more than what was in essence in the initial budget.

And we've watched that as the year has gone on, and we obviously added $3 million more with the sourcing activity that I just talked about.

And we have not really accumulated the rest of it that has been done through the year.

Because we really don't need to in a sense.

Our energy is really focused on growth because our business is growing so fast right now.

So that is probably the best way I can answer your question.

Christopher Glynn, Oppenheimer.

A question on just looking ahead what commodities might do -- take the case of a deflationary commodity cost environment, and how would that be managed?

What would be some of the possibilities around that?

I guess related to that, can you estimate what you got from price in the quarter?

Yes.

Let's handle the deflation issue first.

We will get some uplift in terms of profitability for those contracts where we have fixed pricing in place.

So that if, in essence, there is a deflationary impact, we will get some improvement on the bottom line from that.

However, as I mentioned before, for many of our businesses we actually have cost adjustments and/or we do hedging, again not hedging in the sense of speculation but hedging in the sense of buying forward on material where we have orders.

So, in essence, you will see no positive impact in terms of the profit that comes out of that.

You will see a positive impact on profit margin, though.

But you will not see it in terms of profit dollars.

So the best way to think of AMETEK is, we're relatively immune to changes in commodity prices either up or down.

In terms of the price escalators in the second quarter, it was roughly 2% in terms of price second quarter over second quarter, which we were pleased with.

Okay.

And then just a bit on the third-quarter EPS guidance.

Typically the second quarter, third quarter are roughly in line, and the comparable number this year would maybe be the $0.68 adjusted for the second quarter and the $0.61 to $0.63 a good bit below that.

Could you just speak to that a little bit?

Yes.

Our third quarter with such a large portion of our business in international and particularly in Europe is a little bit weaker.

So you have to be careful looking at the trend from second quarter to third quarter when you look at us over a number of years.

So if you look at the second half, the $0.61 to $0.63 we think is a reasonable kind of number for the second quarter.

And obviously if you look at our year -- excuse me, the third quarter.

And if you look at our year guidance, we are obviously expecting a very strong fourth quarter as we also had last year.

And I have never been accused of being accused of being aggressive on our estimates either.

Right.

Okay.

So no incremental activity or notable impact from acquisition integrations in the third quarter versus the second?

No, that is exactly correct.

Richard Eastman, Robert Baird.

Just two questions.

Frank, could you just break down the geographic sales, maybe core LC growth versus that 7% corporate number?

How did that look in the second quarter?

No, I don't have that actually broken out.

The numbers that I have in my head are the total growth.

And in international overall, it was up 21, 22%, and it was very strong in Europe.

It was up about 24% in Europe.

It was up about 23% in Asia.

So overall it was good.

I don't have the core growth by region, not in my head.

Okay.

And then secondly, we talked a little bit about price.

We talked about the purchase price variance in the quarter.

When you look at the gross margin line and you look at that year-over-year, how much do you think you netted in price?

Would you have a sense for that?

(multiple speakers) 1%?

Yes, we're guessing here, to be honest.

John and I both came up with the same number, probably 1%.

About 1% in gross margin?

Yes.

It is not an analytic number.

It is a number just from listening to our operations, etc.

that is probably about half of that 2% kind of number.

(OPERATOR INSTRUCTIONS).

Wendy Caplan, Wachovia.

A couple of questions just to give us a sense of the underlying business strength.

Could you comment on the incremental margin, the core incremental margin?

Sure.

Extremely good.

It was up almost 40% in the quarter.

So the businesses that we have acquired just substantially increased the contribution margins from the core business.

Okay.

And I guess along those lines, John, have you done the exercise in terms of working capital percentage, excluding recent acquisitions?

Yes, they are a little bit -- I have not -- let's see.

I have got a 20.5% that we gave you excludes the acquisitions this year.

So that is the core business.

That is the core business.

There is a little drag on acquisitions we have done, but it is not material to the Company.

Okay.

And you said, Frank, that June was gangbusters.

For those of us who may not be sure what gangbusters means, can you walk through April, May, June and kind of give us some sense of was it 2X of April or May or just that kind of comparison?

I will actually have to dig out the numbers here.

Can you guys dig out those numbers for us?

Just give the numbers.

I do not have them in my head.

Give us a second.

We have got too many piles of paper here.

Make sure you get orders.

Okay, let's see.

(multiple speakers) Orders were April 224; May 206; June 282.

Okay.

That is great.

And so far in July, would you say we're tracking gangbusters or less?

We're doing well.

We're doing well.

(OPERATOR INSTRUCTIONS).

It appears we have no further questions.

Mr.

Burke, I would like to turn the conference back to you for any additional or closing remarks.

Well, I would like to thank everyone for joining our call.

As a reminder, a replay of this call can be heard by calling 888-203-1112 and entering the confirmation code number, 865-4466 or on the Internet at AMETEK.com and streetevents.com.

Thank you.

This does conclude today's conference.

We thank you for joining us today and hope that you have a lovely rest of your day.