阿美特克 (AME) 2009 Q1 法說會逐字稿

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

first-quarter earnings conference call.

This call is being recorded.

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

Bill Burke, VP of Investor Relations and Treasurer.

Please go ahead, sir.

Thank you, Rhonda.

Good morning and welcome to Ametek's first-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.

Our first-quarter results were released before the market opened today and have been distributed to everyone on our list.

These results are also available electronically on your market systems and on our website at the investors section of Ametek.com.

A tape of today's conference call may be accessed until May 1 by calling 888-203-1112 and entering the confirmation code number 5429703.

This conference call is also being webcasted.

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

The call will also 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 risk 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.

Thanks, Bill.

Ametek had a good first quarter in this difficult economic environment.

Sales were down 10% to $552.9 million.

Internal growth was a negative 15% with the impact of foreign currency an additional 5 percentage points headwind.

Acquisitions added 10% to growth.

Operating income declined 9% to $106.2 million, falling less than sales as we accelerated cost-reduction activities to properly align our cost structure.

As a result, operating income margins improved 20 basis points.

Net income was $59.1 million or $0.55 per diluted share.

Cash flow from operations was excellent at $110 million, up 44% over last year's first quarter.

Overall we are pleased with these results given the difficult economic environment.

Although the global economy impacted our sales to a higher degree than anticipated, we are able to accelerate our cost-reduction activities and meet our earnings expectations.

Turning our attention to the individual operating groups, the Electronic Instruments group had a good quarter.

Sales decreased 11% to $302.5 million, driven predominantly by weakness in the Process and Industrial businesses.

Internal growth was down 14% with the impact of foreign currency an additional 4% headwind.

EIG's operating income was down 13% for the quarter to $69.1 million.

Operating margins declined only 50 basis points to 22.8% as compared to 23.3% in the first quarter of 2008, reflecting the excellent operational performance of the group and their strong focus on reducing costs.

Given the state of the economy, the Electromechanical Group also had a good first quarter.

Revenues were down 8%.

Not surprisingly, the Cost Driven Motor business struggled in the current economic environment.

Sales in the differentiated businesses were up due to the benefits from acquired businesses.

Internal growth was down 17% with the impact to foreign currency an additional 5% headwind.

Operating income for the quarter was down 2% to $46.2 million.

Operating margins improved 100 basis points to 18.4% on excellent operational excellence and cost-reduction activities.

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

The results we announced today reflect that focus and our goal of staying ahead of the cost curve.

We expanded operating income margins by 20 basis points, despite a much (inaudible) and steeper decline in sales than we had anticipated.

We are realizing the benefits of the restructuring plan we announced in January.

We are on pace to exceed the $75 million in savings in 2009.

Headcounts have been reduced by approximately 1000 people since the beginning of the year.

At each business unit, Ametek colleagues are implementing cost savings initiatives well beyond the restructuring plan we put in place to drive cost out of the business.

They have done a phenomenal job in what are very difficult circumstances.

As underlying demand has continued to weaken, we have outlined an additional $20 million in cost reductions to help align our cost structure to the current economic reality.

These actions include the acceleration of previously announced restructuring plans, as well as additional headcount reductions, reduced work schedules and reduced spending.

As well, our global sourcing and strategic procurement initiatives continue to be a key driver to reduce costs in 2009.

We expect to generate $20 million in incremental savings this year from these activities.

In the first quarter, we realized $4.4 million.

Thus, the total impacts of the operational excellence actions outlined above will be approximately $115 million in reduced costs for 2009.

We will continue to invest in acquisitions, global and market expansion, and research development and engineering expense.

This will help our performance during the downturn and position us to outperform during the upturn.

Turning to acquisitions, we acquired one company so far this year, High Standard Aviation, a Miami-based provider of aftermarket repair services to the aerospace industry.

The privately held High Standard Aviation has annual sales of approximately $30 million.

They strengthen our capabilities in electrical, electromechnical and hydraulic repair and provides us with a valuable presence in Miami, a key MRO hub for the southeastern United States as well as Latin America.

It also adds to our position in the air cargo segment of the MRO business, broadening our base with a number of key customers.

With this acquisition our third-party MRO business now has revenues of more than $150 million.

The pipeline of acquisition candidates remains good, and we expect it to improve as the year goes on.

We continue to look to add additional differentiated businesses to Ametek.

We remain a very disciplined yet aggressive acquirer.

We have the financial and managerial capacity to continue to do acquisitions.

Our balance sheet is strong, and our cash flow and financing facilities provide us with ample liquidity to pursue this strategy.

We believe this will be a great environment as the price for acquisitions recedes.

Global and market expansion continues to be a driver for Ametek's growth over the business cycle.

In the first quarter, international sales represented 48% of our total sales.

We continued the expansion of our distribution infrastructure in China with the opening of a new office in Guangzhou for our instruments group.

Ametek Commercial Enterprises Shanghai, or ACES, our sales, service and demonstration center, has come online very well.

ACES is a first-class customer demonstration facility, exhibiting the full range of Ametek instrument offerings.

This has proven to be a valuable cross-selling tool for our businesses as customers who come to our facility to see one instrumentation product can then see other Ametek instruments that will satisfy their needs.

ACES also gives Ametek the ability to drive service revenue growth in China by offering these services to our customers directly rather than relying on third parties.

In 2008 Ametek did less than $40 million in business in India, primarily through relationships with local distributors or agents.

We recently established Ametek Instruments India to provide business support for our divisions and to promote and expand our sales in that country.

We have opened a demonstration facility in Bangalore for our instrumentation products similar to what we have done for our ACES business in China.

We expect to use this facility and management structure to build a sales, service and distribution network in what is today an underserved market for Ametek.

New product development is key to our long-term health and growth.

We have consistently invested in RD&E.

This year the total is expected to be more than $116 million, up slightly from last year and higher as a percent to sales.

While no single new product is significant to Ametek as a whole, we are excited about some recent introductions.

Our Aerospace & Defense division won a contract to design and manufacture the engine data concentrator unit to be used in the US Air Force's upgrade of the KC 135 tanker fleet.

This contract has a total value of more than $20 million over the life of the multiyear program.

Ametek Power Instruments has introduced its broadband focus communications multiplexer and secured its launch customer.

The product meets the critical need of utilities to increase communication capabilities as part of the smart grid and data security initiatives.

This product is anticipated to generate more than $6 million annually.

From an overall perspective, revenue from products introduced over the last three years was 20% of sales, reflecting the excellent work of our business in developing the right products to serve their customers.

Turning now to the outlook for 2009, we expect 2009 to be a very challenging year.

As a result of the continuing global economic downturn, revenue is now expected to decline approximately 10% with core growth down in the mid-teens on a percentage basis for the Company as a whole and in each of the operating groups.

Earnings are expected to be approximately $2.10 to $2.25 per diluted share.

For the second quarter of 2009, sales are expected to be down in the mid teens on a percentage basis from last year's second quarter.

We estimate our earnings to be approximately $0.45 to $0.50 per diluted share.

In summary, we are pleased with our performance in the first quarter given the rapid and significant downturn in the economy.

We met our earnings expectations in the quarter despite a much lower sales level in the quarter as we aggressively attacked the cost structure.

The cost reductions we announced in the fourth quarter are ahead of plan, and we are accelerating many of these actions.

In addition, as the economy has weakened, we have taken additional actions to lower our cost structure.

Overall we are reducing costs $115 million in 2009.

We have a strong balance sheet and generate significant cash flow, providing us with plenty of liquidity to operate the business and pursue our acquisition strategy.

The pipeline of acquisition candidates remains good, and we believe this will be a good acquisition environment.

In addition to acquisitions, we will continue to make sizable investments in new product development and global and market expansion to position ourselves to outperform in the eventual upturn.

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

Thank you, Frank.

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

Selling expenses were down 12% in the first quarter.

That is greater than the 10% drop in sales.

Corporate G&A was down 10% from last year's first quarter, representing approximately 1.7% of sales as we have aggressively reduced spending.

For 2009 G&A is expected to be down about 25% from the 2008 level.

The effective tax rate for the quarter was 33.4%, down from last year's first quarter of 33.9%.

For the full year, the effective tax rate is expected to be about 32.5%, in line with last year's rate.

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

Pension costs will be a significant headwind in 2009.

Total pension costs for Ametek will increase approximately $18 million or $0.11 per diluted share.

These additional costs are included in the earnings guidance that we have given for 2009.

On the balance sheet, working capital was a source of cash of $34 million in the quarter, driven by a reduction in receivables as we reduced our days outstanding from 61 days last year to 58 days this year.

Capital spending was $6 million for the quarter.

Expenditures for capital in 2009 are expected to be approximately $44 million.

Depreciation and amortization was $17 million in the quarter.

For 2009 depreciation and amortization is expected to be approximately $67 million.

Operating cash flow for the first quarter was excellent, totaling $110 million, up 44% over last year's first quarter as working capital investments were reduced.

Free cash flow was $104 million, representing 176% of net income.

Total debt was $1,090,000,000 at March 31, down $17 million from December 31.

Offsetting this debt is cash and cash equivalents of $136 million, resulting in a net debt to capital ratio at quarter end of 42% as compared with 44% at year end.

These ratios reflect the $37 million paid for acquisitions in the first quarter.

Over the past two years, we have expended a significant amount of effort to improve the Company's capital structure to ensure that adequate liquidity was available to support our growth plans.

The result of this work is that Ametek has plenty of liquidity available and no significant debt maturities in 2009.

At quarter end we had more than $600 million of cash and credit facilities to fund our growth initiatives.

Clearly liquidity is not an issue for Ametek.

We are in excellent shape from a debt covenant perspective as well.

Our current debt to EBITDA ratio of two times is well under the bank covenant limit of three times.

Given the strong cash flows and disciplined acquisition strategy, we should remain comfortably below this covenant.

In summary, we continue to manage our cost structure and balance sheet effectively, maintaining a strong liquidity profile and positioning ourselves to navigate through the current economic downturn.

Bill?

Okay.

That concludes our prepared remarks.

Rhonda, we will be happy to take questions now.

(Operator Instructions).

Jim Lucas, Janney Montgomery Services of America.

Janney Montgomery Scott.

A couple of housekeeping questions first.

John, Accounts Payable?

Sure, Jim.

$182 million.

$182 million, great.

And Frank, just making sure we have got -- we are all speaking the same here.

The $20 million of cost reductions, is that $20 million of incremental spending or savings?

You talk about the $115 million of total cost savings in '09.

What is the total cash expenditure to get to that $115 million?

Okay.

Let me see if I can quantify this for you.

The $20 million is additional savings that when added to the original $75 million that we did at the end of the year that gets you to $95 million.

And then on top of that, we had another $20 million of material cost reductions.

That is how we get to the $115 million.

Now let's talk about what the costs are to get that.

If you look at the incremental $20 million in savings, there is an additional $0.02 of costs to get that, and that $0.02 is all in quarter two.

You might ask the question, why is that so small to get so much savings?

And the answer to that is that we have accelerated a bunch of our savings that were already covered by additional -- by the original restructuring charges.

So there is only $0.02 of additional cost to get the $20 million of savings all in Q2.

In addition, if we look at the original restructuring, the $40 million that we took in charges to get to $75 million, going forward there is another $0.025 in 2009 to get that.

Those are basically non-accruable charges.

We could not accrue them at the end of last year, and $0.01 of that is in Q2.

So not to try to confuse you, but that is the stream of what is going to happen.

If you total that, there will be about $0.03 of restructuring activities in Q2, which in our estimates and about $0.045 ongoing for the rest of the year for everything.

Okay.

Does that clear it up?

Yes, yes.

I just wanted to make sure we were all on the same page.

Absolutely.

And switching gears then to bigger picture questions, one, could you give us an update on what you're seeing on the Aerospace side of the business given all the headlines out there these days that show that the late cycle is beginning to decelerate pretty quickly?

And on the acquisition side, you alluded to the pipeline being full.

There's clearly going to be a lot of properties that are likely to surface later in the year.

Is the Ametek strategy of the $50 to $100 million deals where you want to continue to be, or would you entertain looking at a larger transaction were the right one to present itself?

Okay.

Let me walk you through Aerospace first.

There is no question that Aerospace was weaker in the first quarter than we had anticipated it was going to be, although it remains relatively healthy.

Now let me walk you through the various parts of Aerospace.

Due to our focus on helicopters, coupled with numerous military retrofit and upgrade programs, our military markets remain strong and are expected to be strong in 2009.

Also, the recent announcements by Defense Secretary Gates are a net positive for Ametek.

If we look at Airbus and Boeing, their backlogs are healthy, and commercial OEM shipments in 2009 should actually be up.

Boeing deliveries will be up due to the strike last year, and Airbus deliveries are expected to be flat.

If you sum those two, basically you're looking at a market that is up in the 12% to 15% region for 2009.

The problematic area of Aerospace is the business jet market, which is down about 20%.

Regional jets are in better shape where they are only down slightly.

We are fortunate that we have good content on new Embraer and Cessna aircraft, which should allow us to outperform the market.

The business jet and regional jet business is less than 20% of our overall Aerospace business, but it is the one that is causing our expectations in the first quarter to not be met in terms of overall volume.

So for our overall Aerospace business, first-quarter sales were up midteens.

We expect double-digit growth through the full year in Aerospace.

Organic sales were up low single digits in Q1 and are expected to be up low single digits for the year.

We were initially expecting in the first quarter mid single-digit organic growth.

So again, it was weaker than we had anticipated, and this is one of the areas where we accelerated cost reductions that we had in the latter part of the year expecting a downturn, but later in the year, and we are doing some of those cost reduction activities now.

Your second question with regard to acquisitions, I could not agree more with you that I believe acquisitions are going to become cheaper, and there's going to be a lot more properties available in the second half of the year.

As John mentioned, we have got the liquidity, we have got the management talent, and we intend to be aggressive as those properties become available.

And if the right property is available and it makes sense to do a little bit larger acquisition, we would definitely consider that.

We are not going to lever the Company to the point where we have any potential issues with covenants, but we can do a much larger acquisition than $150 million kind of range and meet that criteria.

Okay.

Great.

And then just following up on the Aerospace side, with that MRO business now being north of $150 million and an amalgamation of acquisitions, has that pretty much performed to your expectations?

Can you just comment on the early read of your strategy of putting those MRO businesses --?

Yes, it has been really a good story.

If we look at the first quarter, our third-party MRO businesses were up double digits, and that was based on large wins at Delta and American Airlines and also the benefit of the ramp-up of a service center that we put in Singapore last year.

So the performance of these MRO businesses, even in this weakening economy, has done extremely well for us.

Antonio Antezano, Macquarie Capital.

I was wondering if you could provide the same or I mean more color on the other end markets outside from the Aerospace similar to what you did last quarter in terms of describing performance and a bit of outlook for the other end markets.

Sure.

I would be glad to do that.

Since I covered Aerospace, lets cover the other markets in EIG.

Our Process markets weakened significantly in the first quarter with sales down low double digits organically.

Our oil and gas related businesses fared somewhat better than our other analytic businesses, which were down sharply.

For 2009 we expect low double-digit negative organic growth for the Process businesses.

Our Power & Industrial business was down mid-single digits in Q1.

The Industrial business was extremely weak.

Industry data has showed that heavy trucks were down 42% in the first quarter.

2009 deliveries are now forecasted at about 135,000 trucks, which is a 34% decline from 2008.

The overall market conditions are really expected to continue, and we estimate overall volume will be down high single digits for 2009, and organic growth is expected to be down 20% to 25%.

So a very weak segment for us.

Switching to the other half of the Company in EMG, for our differentiated businesses in EMG, Q1 sales were down about 5%.

Our Aerospace business that is part of those differentiated businesses remains healthy and is expected to be strong in 2009 given our focus on electronic cooling and the military and defense portions of Aerospace.

The economic downturn, however, had a significant impact on our technical motor and [EMIT] businesses, and we expect the full-year 2009 results will be down mid-single digits, and organic growth will be down midteens.

For Cost Driven Motors, not surprisingly, we struggled in the first quarter given the current economic climate.

Q1 organic growth was down approximately 25%.

For 2009 we expect this business to be down approximately 20%.

And just a quick follow-up.

Also, if you could comment on your performance in the US versus Europe or Asia.

Yes, that is a very interesting question.

If you look at the total sales of the Company, we were down about 5% in the US and down about 15% outside the US.

However, if you look at organic growth, the organic growth in the US was about the same as it was in international.

Both were down about 15%.

And if you look at the various parts of the world on an organic basis, Europe was a little bit better than that negative 15%, and Asia was a little bit worse than that 15%.

So when you step back from that entire situation, this is truly a global downturn, and it is just down everywhere.

There is no other way to state it.

And in my 30 years of running PNLs, I have never seen something happen so fast and so deep as what essentially all industrial companies are facing at this point in time.

And that is why the cost reduction side, which we are reasonably good at, is so key to maintaining your profitability during these downturns.

John Baliotti, FTN Equity Capital Markets.

Obviously you are not -- you don't seem pleased with the way the revenues are going, and that is understandable.

But I think it is impressive that you can -- you are able to do what you did with the margins in this environment.

Because obviously things got worse from when we first started looking at 2009.

Are those things you're able to do now -- obviously you would prefer things to be going better on the revenue line -- but are there things you're able to do now in this environment that you might not have been able to do if your revenues were coming in a little bit higher?

I mean are there things that structurally you're getting ahead of the long term that you're not going to have to reverse as we get -- when the cycle starts to turn?

Yes, absolutely.

That was part of my opening talk, that we have been very, very careful in terms of these reductions, which obviously are quite significant, to maintain the growth elements of the Company.

As I mentioned, our research, development and engineering expense is actually anticipated to be up from last year, which means obviously as a percent of sales, it is quite significantly up, and we are going to continue to invest.

That will help us in the downturn, and it will obviously position us well for the upturn.

And we have been very, very good at not affecting that level of investment to any large extent.

And similarly, as I mentioned in my opening remarks, our expansions in India and other parts of the world, we are going to continue to do that for exactly the same reason.

That, as I mentioned, India is an underserved market for Ametek, we have invested in China substantially.

We have invested in South America and Eastern Europe, and India is one of the last major environments for investment.

So we're putting -- it's about $1 million investment, to quantify it -- and we see tremendous opportunity, which again should help us some during the downturn.

But the real purpose of doing this is for the long term.

And also, as I mentioned in answer to Jim's questions, we see an opportunity in acquisitions.

So that is the way I would answer your question versus specific restructuring activities that we have done that we would not do if things were better.

It is really more of ensuring that those investments are in place, and we did this during the last downturn, and it served us extremely well in the upturn, and that is what we are expecting this time.

So when you do acquisitions, obviously the timing is not something you can predict.

But as those come in in this environment, does this type of environment enable you to integrate them faster?

I mean all things being equal, if things were going very well or if you had positive core growth, would it be a little it harder to integrate a deal in the same period of time because you are producing and they may not want to interrupt the business activity?

Yes, I can see situations where it would be what you are saying and also just the reverse.

Obviously you are in an under-capacity situation now, so being able to bring in companies and be able to integrate them into our operations in some cases would be easier.

However, I can envision other scenarios where in essence our talent is extremely busy doing some of these restructuring costs, and it could be actually a little bit more difficult to do it.

So it is difficult for me to answer your question on sort of a global basis and say it's one way or the other.

Ned Borland, Next Generation Equity Research.

Just a quick question on the guidance.

You called out some of the cost issues with regard to restructuring in the second quarter.

It does seem to imply the second half is better.

Is that more of a function of the restructuring actions taken kicking in in the second half, or are you seeing some sort of greater degree of pinch on the top line in the second quarter?

We are feeling obviously as these reductions occur throughout the year, they are going to accelerate especially this last $20 million in savings that I talked about it.

So we are definitely expecting more improvements in savings in the second half of the year.

And also in the second quarter, we have a situation where the normal timing of some of our Aerospace businesses, predominantly the military side, is such that Q2 is going to be weaker than the rest of the year.

It is not a situation where it is an impact of the economy.

It is really just the normal scheduling of those products.

So we do expect Q2 to be our weakest quarter of the year.

Our Aerospace shipments will naturally come back in Q3 and Q4.

We had those orders booked.

It is not a question of getting the orders, and then you put the cost reduction activities that result in the higher savings in the second half and we expect our earnings to go up.

Okay.

And then just following up on the acquisitions, can you give us a sense of where you're seeing some of the more attractive deals out there either by business segment or geography?

Well, we are looking at deals.

To a large degree, it is a result of a strategic methodology we have put in place over the last couple of years where we have a methodology that is basically expanding from the core where each of our businesses looks at their core and then looks at potential acquisitions that are adjacent to that call with the thought process being, the closer you are to that core to acquire companies, the lower the risk in doing it.

And using that methodology and also increasing the number of people we have looking at acquisitions, we have got a database now that is much larger than any time I think in the history of the Company, and our people are actively talking to those companies.

And what we're hearing right now is a lot of interest in talking to us, but not the level of pulling the trigger I would say that I think is going to happen in the second half of the year.

I would say there is no particular area that has more acquisitions than the others.

Aerospace has got a fair number; Process has got a fair number.

Even we are finding some in our differentiated EMG businesses.

So it is not like one part of our business has more than the other, and in terms of international versus US content, there is probably more US-based companies now, whereas I think you are aware we have done a lot of international acquisitions in the last few years.

But right now the backlog is probably more US-based than it is internationally-based.

Christopher Glynn, Oppenheimer.

Frank, I just wanted to get your thoughts on how you see the depth and duration of the process cycle shaping up, even as it pertains to 2010 potential dynamics?

I wish I knew, is probably the best answer to that question.

As I mentioned with the Aerospace businesses, the Process businesses also surprised us somewhat in the first quarter.

We had anticipated a slowdown, but we did not anticipate it until midyear, and actually we saw it in the first quarter.

And obviously when you look at a bunch of the oil and gas companies, the Halliburton's of the world, etc., they are struggling now.

I did see in some of their earnings releases that they are expecting some pickup by Q4.

I'm not as confident maybe as they are that that will happen.

So it is very, very difficult for me to answer that question.

What we do is we really just look at the trends in our business.

Since it is very difficult to predict exactly what is going to happen, if we see the business is weakened, we do exactly what we did in the first quarter.

We get very aggressive with costs and we keep our earnings up, and it is the best way I think to manage these businesses rather than trying to forecast.

I mean if you step back, the Ametek portfolio right now with these differentiated high-end businesses is phenomenal with the Process businesses, with Aerospace businesses, with our high end motor businesses.

When in essence the economy returns with the cost structure we now have in place, the incremental margins are going to be very, very good and a question of when, and it is very difficult to predict that.

Okay.

And then on the full-year guidance, it looks to me like there's implied a little bit of an improvement in organic trends in the second half.

How much of that might be a little bit of a macro call versus something you know about your products that may be some deferred maintenance cannot be held off indefinitely?

Yes, there is no question that there's inventory adjustments going on right now in the second quarter, and I saw some in the first quarter.

So you are going to see some improvements in business, I believe, as the second half picks up.

But it is probably more of what I said in answer to one of the other questions, that we're looking at a weaker Q2 due to natural timing.

That means our second half is going to be better on the top line than on the bottom line.

Again, not so much because of the economy, just due to the natural flow of that business.

Okay.

Thanks.

And then just lastly and I will get off, the $75 million initial targeted cost plan, are you more or less at the run-rate with that?

Yes.

We did -- well, we are not at the run-rate.

We did about $15 million in the first quarter, so it is going to be an accelerated run-rate.

And as I said in my opening remarks, we expect to do more than the $75 million.

What was the rollup, 82?

I think the rollup was 82 as to what our divisions are telling us right now.

Impressive.

Thank you.

Matt Summerville, KeyBanc.

Just a follow-up to your last comment, Frank.

That $15 million, just to clarify, was cost savings Ametek realized in Q1 as it pertained to the original $75 million as opposed to pertaining to the $115 million?

Yes.

I mean we -- no, that is not right because the material costs are in there as well.

So it is $15 million for the $95 million excluding the material costs, and the material costs in the first quarter savings were $4.4 million.

So the actual answer to your question would be 15 plus 4.4.

Okay.

Thank you.

Then I was wondering if you could comment, I believe you have given color around this historically.

As you went through the quarter, can you provide some color around monthly order trends?

I guess are you seeing any signs of the businesses that have been weaker starting to bottom out at all or at least not getting worse?

Well, let me answer the first part of your question.

Orders were essentially flat by month.

There was no improvement as we went through the quarter.

However, a little bright spot, if you want to pick out a bright spot, is that our forecast for April are at a higher run-rate, and so far for the first few weeks of April, our businesses have a tone that is more positive than what it has been for the last three or four months in terms of making that forecast.

So I'm feeling a little bit better now than I did three weeks ago is probably the best way to describe it.

Time will tell whether, in fact, that is going to happen.

You could speculate that there was some inventory adjustments going on with our customers in the first quarter.

I have heard a number of our business people say our customers just have no more inventory.

They depleted it, so they have to reorder.

So I suspect some of that is happening and that maybe things are getting a little bit better.

I think if you look at it a little bit more globally to your point of, am I seeing bottoming, yes, I think in some of our businesses I'm feeling that.

I'm actually feeling that in the Cost Driven Motor business that I think we may have bottomed out, and that was one of the first businesses to go, which is not surprising in terms of going down because it is a short cycle business.

And that business itself is in essence feeling like it has bottomed out.

Our Aerospace business I think is going to do good this year, and it's probably going to have some downturn next year, you know, to be very open about it.

And what else have we got?

Process has not bottomed out yet, probably has not bottomed out.

Okay.

I guess with respect to the Process business with oil prices kind of hovering around that $50 a barrel range, occasionally going over that, you have talked about somewhere in the range of $50 to $55 sort of defining a healthier, incrementally healthier level of demand versus prices below that level.

I guess can you sort of put that in the context of what you are seeing in that piece of your business right now?

Well, as I mentioned in my opening remarks, the oil and gas part of Process fared better than the other parts of our Process businesses, the other analytic instruments parts of the business, and it is for exactly the reason you are talking about.

If oil is down at a $30 level, we are going to see more severe contraction in those businesses.

And with it up around $50, it is not great, but it also is better than our other Process businesses.

So we are right sort of at that breakpoint, and it is going to be interesting to see what's going on.

John, do you have a point you wanted to add?

No, I think there is so much fluctuation, and it is hard to really predict that.

But it feels like the $50 is the breakpoint to the tone of the conversations from the people we have talked to.

Yes, I would agree.

So if oil and gas fared better comparatively, can you just sort of touch on what the weaker end markets in Process were for you guys in Q1?

Yes, I mean it was our other instrument businesses, particularly the analytic instruments businesses that focus in the metals area.

It would be companies like Spectro for instance that has a large content in the metals market.

Their business was very, very weak.

Also, our European-based ultra precision technology business, larger capital equipment that goes into a little bit of automotive, but also other types of industrial businesses since those capital investments are a little bit higher.

Their business was off and weaker.

So it was definitely those type of businesses fared worse than the oil and gas-related businesses.

And then just one final question on Aerospace.

I think you had mentioned in response to one of the first questions that deliveries out of the big commercial guys are looking up 12% to 15%.

Is that sort of run-rate you are baking into your guidance, or are you using a number lower than that?

And I guess (multiple speakers) what is also underpinning your business and regional forecast?

Are you assuming it gets a lot worse or sort of stable -- is more stable at down kind of 20?

Yes, in the commercial business, in our forecast we are unassuming like Boeing and Airbus are saying in terms of their present in our forecast we are assuming like Boeing and Airbus are saying in terms of their present deliveries.

Both are saying they are going to ship approximately 480 aircraft in 2009.

They are purchasing at that rate to do that, and we are pretty confident that, in fact, that will happen.

And even if they have some minor tweaks down, we don't think it is going to be significant.

So that is baked into our forecast, and yes, your estimates are right.

For Boeing it is up about 28%, and for Airbus it is roughly flat in terms of number of aircraft.

So that is baked in.

What was the second part of your question again?

With regards to -- I mean it sounds like the military business is doing fine and will continue to give good visibility there.

So I'm just looking at the business in regional space.

I think you indicated the run-rate was looking down maybe 20%, and I guess I was assuming how much worse or I was wondering how much worse you are unassuming that business could get?

We are assuming that that 20%, 25% is about where that business will be for the remainder of the year, and that is what is assumed in our -- in our ongoing forecast.

Richard Eastman, Robert Baird.

Frank, could you just address pricing?

Have you seen any change in the marketplace in any of the product lines that would suggest some very competitive pricing on these kind of volume numbers?

Yes, no question that in the first quarter -- we rolled it up yesterday -- and pricing was flat.

We had hoped for when we put our budgets together being up a point or two.

So no question as the economy continues to weaken pricing becomes more significant, and it is happening in our businesses just as you would expect.

The less differentiated businesses are having the higher issues with pricing, and the more differentiated businesses are having less of an issue with pricing.

But it is a difficult, more difficult environment out there, and that is why the cost side becomes so critical.

And do you feel -- you obviously have a confidence level that you can achieve that kind of cost savings with those cost actions.

Do you think pricing will be able to hold flat so as to not absorb some of those cost savings initiatives?

We assumed minus 1% in our ongoing forecast.

We assumed it was going to get a little bit worse.

Okay.

And then also on the military, if you could just remind us Aerospace in total I think is about $700 million of annualized revenue?

Yes, that is about right.

Is about -- how much is military?

40%.

40%?

Okay.

And is there any -- do you do any MRO business for the military?

Well, that is an interesting question.

The way we characterize it, you can almost characterize it almost all MRO or no MRO.

Because basically there are only a few military planes being produced or being designed right now that are new aircraft.

So we assume all of that military business is OEM.

That is the 40%.

Okay.

All right.

Just the last question, I'm curious with the Reynosa facility being one of your low-cost manufacturing centers or regions, did the weak peso have a material impact on your cost out of Reynosa?

The weak peso improved our earnings by $1.3 million, basically $0.01.

A little less than $0.01 was what Bill said.

A little less but it's roughly $0.01.

(Operator Instructions).

Jamie Sullivan, RBC Capital Markets.

Looking at where your cost structure stands today, do you feel that you have additional measures you can take if you needed to, or do you feel that you're cutting pretty close to the bone here and running out of room to cut?

I'm going to use John Molinelli's statement.

There is no thing that is called fixed cost.

And in essence, there is always more things that you can do.

But obviously it becomes more and more difficult as you move down to what you typically call the fixed line, and we are obviously being very aggressive here, but there is more that could be done if we needed to.

I'm just hoping we don't need to.

Right.

Okay.

And can you update us on what contribution you expect from your low-cost regions this year?

You mean in terms of volume?

Right.

It will be roughly 10% of our sales.

Phil Friedman, PW Partners.

I just wanted to talk about commercial aero and business aviation again for a second.

Remind me what are your lead times on the large side?

Just because when you look at Boeing, they did take down 777 rates starting in June of 2010 by 29%.

Most analysts expect their narrow body rates to come down by similar amounts, but they don't have to make those announcements yet because they have longer lead times on the wide bodies.

In business aviation most -- if you look at Cessna and Gulfstream and Bombardier, I mean a lot of those guys are taking down rates more than 20%.

In some cases it is 35%.

Gulfstream midsize are down 50%.

So help me understand your lead times to understand what is going to happen in the latter part of this year and into 2010?

Yes and --

And do you disagree with those numbers?

No, I don't -- I think those numbers are in the ballpark of what is going to happen.

I mean our lead times are probably in the four-month kind of average region.

So we might start to see some impact on that part of our business in the latter part of the year.

However, our military business is actually projected to improve in the latter part of the year.

It is obviously a large part of our business and makes significant contribution margins in terms of profitability.

So I think you will see some weakening in commercial, but I'm also pretty confident that our overall volumes are not crazy.

As I mentioned, I do think there will be some deterioration next year, and part of the cost reduction activities we are doing now is to help that situation, and they will incrementally occur during the year.

So we will get some of the savings this year, but a lot of those savings will accrue to next year.

And on the military side, what are the -- are there any specific drivers to that increase taking place later this year?

Yes, I mean helicopters is a very, very key area, and there is additional funding that is going into helicopters.

The announcement by Secretary Gates put more emphasis on helicopters.

Also, the MRAP vehicle is another one that we expect to accelerate in the second half of the year.

So there are definite programs.

Many of these we have got the orders in place right now.

There will be some balancing in the second half as the military business strengthens.

I'm sorry, the MRAP, is that on the aftermarket or is that the new -- (multiple speakers)?

That is a new vehicle that they are upping the production on.

That is the new MATV, or is that the one they are competing for, or is that --?

No, this unit is now being shipped.

It is going to increase.

Right.

But I mean remind me, are you on the MATV?

Because MRAP also is going to end soon.

It may bump up this year, but it is going away soon.

We have content on that device as well.

The MATV?

Yes.

On all three contestants, or are you just on --?

Two.

Two?

Can you tell me which two?

No, I don't have it.

Matt Summerville, KeyBanc.

I just had one quick follow-up.

I looked through my notes, and I did not see any specific comments on Power.

You went into the heavy truck part of Industrial.

Can you just give a quick overview on what you're seeing in your three main power markets?

Absolutely.

Power was up about 28% in the quarter, and if you look at the various parts of Power, the generation, transmission and distribution part was up slightly.

The battery backup business was up significantly.

And the TNM part, which is the programmable power part, was down significantly, and that is sums to that 28% kind of number.

What would the core number have been?

The core number was not good.

It was on the order of 17%?

I have got it here.

Just a second.

I don't have it in my head.

Yes, minus 17.

17.

I got it right.

At this time there are no further questions.

I will turn the conference back over to Mr.

Burke.

Okay.

I would like to thank everyone for joining us, and see you next quarter.

That does conclude today's conference.

Thank you for your participation.