阿美特克 (AME) 2009 Q3 法說會逐字稿

Good day, everyone and welcome to the Ametek Incorporated third 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, Vice President of Investor Relations and Treasurer.

Please go ahead, sir.

Thank you, Laura.

Good morning everyone and welcome to Ametek's third 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 third quarter results were released earlier this morning.

These results are available electronically on market systems and on our Web site at the investor section of Ametek.com.

A tape of today's conference call may be accessed until November 10th by calling 888-203-1112 and entering the confirmation code number 224-0076.

This conference call is also webcasted and 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 risk factors and uncertainty that may cause actual results to differ significantly from expectations.

A detailed discussion of the risks and uncertainties that may affect our future results is contained in Ametek's filings with the Securities and Exchange Commission.

Ametek disclaims any intention or obligation to update or revise any forward-looking statements.

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 will now turn the meeting over to Frank.

Thank you, Bill.

Ametek delivered good financial results for third quarter, given the difficult conditions in our markets.

Sales were down 23% to $497.1 million, internal growth was a negative 26%, with the impact of foreign currency and additional 1% head wind.

Acquisitions added 4% to growth.

Operating income declined to $77.5 million from $120.1 million last year, reflecting the impact of the reduced sales, partially counterbalanced by our cost reduction activities.

Operating income margin was 15.6% in the quarter, net income was $43 million or $0.40 per diluted share.

These results include $0.02 per diluted share of restructuring costs, predominantly in the electronic instruments group.

Excluding these restructuring costs, third quarter earnings were $0.42 per diluted share.

Cash flow from operations was excellent at $72 million, up 15% over last year's third quarter.

In the face of difficult market conditions, we delivered good financial results.

We believe our overall business has stabilize, our restructuring initiatives are on track and we continue to focus on our key strategic priorities to drive value for our shareholders.

In the third quarter, we saw the opportunity to do some additional restructuring, predominantly in the Electronic Instruments group.

These actions will have little impact in 2009, but should provide a benefit of approximately $4 million in 2010.

Turning our attention to the individual operating groups, Electronic Instruments group experienced difficult market conditions in the quarter, but our team performed very well.

Sales decreased 24% to $271.8 million as we saw weakness in the aerospace aftermarket, process and industrial businesses.

Internal growth was down 25% with the impact of foreign currency an additional 1% head wind.

Acquisitions added 2% to revenue.

EIG's operating income was $47.9 million versus $80.2 million in last year's third quarter.

Operating margins were 17.6% reflecting the impact of lower revenues and costs associated with our restructuring actions.

Electromechanical had a solid third quarter given the continued impact of the economic downturn on their markets.

Revenues were down 22% with weakness in both the cost driven and differentiated businesses.

Internal growth was down 26% with the impact of foreign currency an additional 2% head wind.

Acquisitions added 6% to revenue.

Operating income for the quarter was down 24% to $38.2 million, operating margins were 17%, as very effective cost reductions and operational excellence initiatives were able to mitigate the impact of the lower sales volume.

Operational excellence is the corner stone strategy for the company, and our focus on cost and asset management has been a key driver to both our competitive and financial success.

We are realizing the benefits of the restructuring plan we announced in January as well as the follow on plan announced in April.

As part of these plans head counts have been reduced by approximately 2,000 people since the beginning of the year and more than 2700 people since June of 2008.

In addition to the restructuring activities we continue to drive lower costs through a global sourcing office and strategic procurement initiatives.

We are on track to generate more than $20 million in incremental savings this year from these activities.

In the third quarter, we realized $6 million of savings and year-to-date we generated $16 million of savings from these initiatives.

Overall, the total impact of the operational excellence outlined above will be approximately $135 million in reduced costs for 2009.

In the first nine months, we recognized approximately $90 million of these savings as anticipated.

We continue to invest in global and market expansion and new product development.

These initiatives will help our performance during the downturn, and position us to out perform during the upturn.

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

In the third quarter international sales represented 49% of our total sales.

Ametek Commercial Enterprise Shanghai or ACES, was opened in 2008 to enable Ametek to provide service and repair in China as with well as to promote the sales of our instrument businesses in that region.

Prior to the opening of ACES service was provided by third parties.

This new capability is expanding our sales in the region and establishing a stronger linkage with our customers.

The strategy had been a tremendous success with bookings exceeding plan by 30 to 50% for a number of our divisions.

High brightness LEDs are rapidly gaining acceptance in such applications as mobile appliances, LCD displays and general lighting, given their greater efficiency and economic pay back as compared to traditional lighting sources.

The manufacture and process for these LEDs is complex and requires precision power systems such as the SG series of DC power supplies from our programmable power division.

In the third quarter, programmable power booked over $2 million in orders for these power supplies from a leading manufacturer of LED semiconductor manufacturing tools.

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

We have consistently invested in RD&E.

This year is total is expected to be approximately $103 million down slightly from last year but higher as a percentage of sales.

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

[Nano Sims] instrumentation from our [Kameka] business unit is playing an increasingly important roll in life sciences research.

SIMS or secondary ion mass [astroscopy] enables researchers to evaluate cellular material at the nanometric level.

Leading centers of research have been purchasing these Instruments which can cost up to $4 million each including one by the Technical University of Munich in the third quarter.

Our process instrument business booked orders for DyMaxiom process mass pectrometers from solar power a manufacturer of fin film, photo (inaudible) cells, and modules for power generation.

Our process mass pectrometers measure the physical parameters of the manufacturing processing process to detect contaminants.

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

The pipeline of acquisition candidates has definitely picked up.

At the end of the third quarter, we announced that we have acquired [Uni Spec Marketing and Tulsa Technical Services,] two privately owned and affiliated businesses, headquartered in Mumbai India.

These acquisitions provide us with an established sales distribution and service network with a total of 11 offices across India, serving the quality control, and analytical instruments market.

Uni Spec Marketing represents our spectral analytical instruments business in India, while its Tulsa Technical Services affiliate provides installation and postsale services for those instruments.

This acquisition provides Ametek an immediate sales distribution and service infrastructure in India that otherwise would have taken several years to build.

We plan to leverage this distribution structure across other Ametek business units to increase sales to this very important market.

We have the financial and managerial capacity to continue to do acquisitions, our balance sheet is strong and our cash flow and financial facilities provide us with ample liquidity to pursue this strategy.

We continue to look to add differentiated businesses to Ametek and remain a very disciplined yet aggressive acquirer.

Turning to the outlook for the balance of 2009.

2009 continued to be a very challenging year, but we believe that our overall business has stabilize.

For the full year, we expect revenue to decline in the high teens on a percentage basis, with core growth down approximately 20% for the company as a whole and in each of the operating groups.

We have narrowed our earnings estimates to be approximately $1.87 to $1.92 per diluted share for 2009 excluding the restructuring cost of $0.02 per diluted share in the third quarter, our guidance is $1.89 to $1.94 per diluted share.

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

We estimate our earnings to be approximately 44 to $0.49 per diluted share, a sizable improvement over the third quarter of this year.

As anticipated, our fourth quarter should have sequential improvement on better sales and our process and cost driven motor businesses, together with higher benefits from our cost reduction activities.

In summary, our overall business has stabilize.

We delivered good results for the third quarter in the face of difficult market conditions, our restructuring initiatives are on track and we continue to focus on our key strategic priorities to drive value for our share holders.

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

The pipeline of acquisition candidates is very good and we are actively working to bring deals to closure.

In addition to acquisitions, we will continue to make sizable investments in new product development as well as global end market expansion to position ourselves for growth.

John will now cover some of the financial details and then we will be glad to answer 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 on a core basis were down 22% in the third quarter, in line with the drop in sales.

Corporate G&A is running at 1.6% of sales year-to-date, and should be down 30% in dollars from the 2008 levels.

The effective tax rate for the quarter was 27.6%, down from last year's third quarter rate of 31.1%, driven primarily by state tax planning initiatives that benefited the quarter.

For the first nine months of 2009, the effective tax rate was 31%.

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

On the balance sheet capital spending was $6 million for the quarter and $21 million for the first nine months of the year.

Expenditures for capital in 2009 are expect to be approximately $30 million.

Depreciation and amortization was $17 million in the quarter, and $48 million for the first nine months.

For 2009, depreciation and amortization is expected to be approximately $66 million.

Operating cash flow for the third quarter was excellent, totaling $72 million, up 15% over last year's third quarter as working capital investments were reduced.

Reduced operating working capital defined as accounts receivable inventory and less payables were a source of cash of $16 million in the quarter driven by reductions in inventory receivables.

Further reductions in working capital remain an opportunity for us.

Third quarter free cash flow was $66 million, representing 153% of net income.

For the first nine months of 2009, operating cash flow was $256 million, up 25% over the first nine months of 2008.

And the free cash flow was 153% of net income.

Total debt was $1.06 billion at September 30th, unchanged from June 30th.

Offsetting this debt is cash and cash equivalents of $201 million, resulting in a net debt to capital ratio at quarter end of 37%, as compared with 44% at year end.

Over the past two years we have expended a significant amount of effort to improve the company's capital structure and 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 until 2012.

At quarter end we have approximately $635 million of cash and credit facilities to support our growth initiatives.

Clearly, liquidity is not an issue at Ametek.

As we see our business stabilize 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?

That concludes are prepared remarks, Laura, we'll be happy to take questions.

Thank you.

(Operator Instructions).

Our first question comes from Allison Poliniak with Wells-Fargo.

Hi.

Good morning.

Good morning, Allison.

Just a question on the EIG operating margins you talked about a lot of it being impacted by the restructuring action.

Can you quantify that, what the margin would have been without the restructuring cost.

The impact of the restructuring on EIG margins was about 100 basis points.

Okay.

And then looking at-- you talk about the 135 million in savings this year, can you talk about how much of that is permanent versus how much would eventually come back with volume as well.

I would say about 2/3 is permanent, and 1/3 might come back.

Okay.

Perfect.

Thank you.

You bet, Allison.

Our next question comes from Christopher Glynn with Oppenheimer Funds.

Looking at the fourth quarter, you didn't mention the military, just wonder not guilty that is still on track with a concentration of contract work and also in the fourth quarter, any comments on mix trends versus third quarter, and prospects for expedited customer shut downs?

Yes.

In term of the military shipments, as I mentioned in the third quarter conference call, we anticipated more military shipments or will anticipate more military shipments in the fourth quarter and in fact, that is true.

We expect that to in fact happen.

In terms of mix trends, the only negative impact to mix is that our aerospace aftermarket business, not the third party MRO business but the aerospace aftermarket business our OEM aftermarket business, if you will, is expected to be a little bit weaker than we had anticipated.

And that does have a higher contribution in terms of margin.

So there will be a little impact of that but we have covered that in our estimates, and yes, we are concerned that in the fourth quarter, there may be more shut downs right at the end of the year, and is one reason that we have been somewhat conservative in our guidance, but we think we have covered that.

Okay.

And then just broadly looking at guidance, you characterize it as a substantial improvement over the third quarter, certainly see that at the high end but if you look at the low end, up $0.02 versus the adjusted number, this quarter could you just maybe address that and the sensitivity between the high low ends?

Yes.

The way we were looking at that is again on a GAAP basis, about $0.40 in the third quarter and our guidance is $0.44 to $0.49.

So if you look at the midpoint of that range we feel it is a sizable improvement, and that's why I characterized it that way.

In terms of what could cause us to go to let's say the lower end of that range it would be what I talked about before, if the aerospace aftermarket business is weaker, due to the high contribution margin that would be on the lower end of the range but again, I think we have been relatively conservative on that particular item.

So, hopefully that will not occur.

In terms of the high end it would clearly be volume driven as well as maybe getting a little more out of cost reduction activities.

Okay.

Thanks for the color.

You bet.

Our next question comes from Jim Lucas with Janney Montgomery Scott

Thanks, good morning.

Morning, Jim.

John, first housekeeping question, payables?

Sure Jim, $171 million at the quarter.

Great.

Thanks.

And Frank, on the stabilization comments you made, was wondering if you could expand a little bit what you are seeing geographically North America versus Europe and Asia, and you gave a little bit of color on aerospace but in the process and analytical, particularly the process side, any update of what you are seeing sequentially would be appreciated.

Sure, Jim.

In terms of the geographical mix of our businesses, I think we are seeing trends that are very similar to what other companies are seeing.

In essence, the most positive part of the geographic content is in the Far East and particular in China, that particular area of the world has recovered almost unbelievably faster than would have been expected, and we are definitely a part of that recovery.

So, that market is doing well for us.

The US market-- probably the best way I can characterize it is that it has stabilize and that will link to my comments in a moment about process in answer to your second question.

Europe and that part of the world is, the weakest area but we are seeing a little bit of life over there.

So if I had to rank these Asia first, US second, Europe third.

In terms of the process businesses, we are seeing an improving trend in the third quarter conference call, I had talked about the fact that we expected the third quarter to be our weakest quarter of the year.

And a key factor in that was the process businesses because we were seeing a decline in the oil and gas businesses as we entered the third quarter.

And, in fact that happened.

As we go into the fourth quarter, the trend is definitely improving.

The oil and gas business has stabilize and the other parts of the business which are a sizable portion of our process segment which relate to research related businesses which are about 20% of the overall process segment, and our metals related analytic instruments business which about 25% of the total process segment, are both improving.

This is what we anticipated, the order patterns support that, and we believe we are going to see increased sales in the fourth quarter over the third quarter from those businesses.

Okay.

And finally just on the acquisition pipeline, which we are hearing from a lot of companies as the environment is improving.

As you look at the pipeline, to the extent you can, could you give us color of the type of deal that you are seeing, are there particular geographies, smaller versus larger, valuations, and what the competitive environment on some of these deals look like?

Yeah, sure, Jim.

Basically, the deals we are looking at are sort of right down the center of the type of acquisitions that Ametek does.

These are, basically acquisitions that are in the 50 to $75 million kind of sales range, not real large.

These are the type of deals we like to do.

Multiples are still a little bit higher than I would like, they have definitely regressed, but not as much as we would have expected given the severity of this economic downturn, hopefully we will see those multiples come down a little bit more over the next quarter or two, but the multiples are not crazy.

They're definitely within the range of what we have been paying historically, but not as low as I would have, I would have hoped for.

In terms of international content versus US content, the majority of the deals we have on the table are US centric.

As you know, we have done a lot of international-- a lot of international deals over the last several years, but right now, the deals that are-- we're actively engaged with are US based.

In terms of the business, it is the deals we are looking at are in aerospace, they're in our process businesses.

So, you know right in the center of our strategy.

Okay.

Great.

Thank you for the color.

Sure.

Our next question comes from John Balliotti of FTN Equity Capital Markets

Good morning, Frank.

Good morning.

I was curious if just on one housekeeping, how is order, if you look at the sub segments, is there a way to characterize or just rank the order patterns that you are seeing?

Let me think about that.

We typically don't view it that way, but the total orders for the quarter were $479 million.

And, if I look at the trends process, is up, cost driven motors would be up.

Aerospace would be relatively flat, maybe slight decomped (inaudible) due to that aftermarket.

So if I ranked them, I would put the process and cost driven at the top, I would put aerospace second, and I would probably rank the other business which is the industrial businesses in EIG at about sort of flattish to same as aerospace.

Okay.

And if you in a longer term view, if you think about what you guys have done since the last cycle, in terms of the M&A and both on acquisitions and also adjustments you have made to the efficiency of the company, is there a way, do you guys think about where you have moved the company in term of the long term growth rate of the company, the core growth and also the profitability like as you do deals and think about how the portfolio is shifted, is there a way for you to think about in the big picture how you think the growth has changed.

I think I can give you an outline on, without maybe specifics.

But just to give you a view of the trends, first of all, we have done a sizable amount of restructuring.

If you look at it on the basis of the kind of numbers that we are talking about in terms of cost reductions, say as a percentage of sales versus other companies, we are clearly at the high end, in term of restructuring.

That means that as volume returns, the contribution margin of the company is going to be superlative.

Our contribution margins had run when volume was going up on the order of say low 30s, and we are in the process now of putting our budgets together for next year.

But obviously, the contribution margin is going be substantially higher than that.

So, for every dollar to the top line, what goes to the bottom line is going to be significant.

I can't wait for that to happen in term of seeing that volume increase, but the fact that we have stabilized now, hopefully, we are not too far away from seeing some major up ticks in our markets.

In term of the structure of the company, it really depends on the time frame in which I look at it.

But in general as I think you know, when I became CEO of the company, we had-- the majority of our business was in cost driven businesses and we have made, a fundamental shift to much more differentiated businesses, and that is continued, through the last round of acquisitions so we have moved the entire portfolio of Ametek to much more differentiated businesses.

The last number I saw had our businesses, about, over 80% now, excuse me over 90% are differentiated type of businesses.

So, a very, very significant change in the portfolio, and as that change happens, the internal growth of the company goes up.

Just by definition having less of the cost driven businesses in term of the percentage of your total revenue, means-- and that's a lower growth business, means the overall growth of the company is going to go up.

So, I think, as the economy improves we will see an improved organic growth rate, there will be some negative impact of potentially in term of margins as you bring in you new acquisitions because you obviously don't bring them in at the contribution level but we have always been able to overcome that and show good margin improvement and I think that will happen as well as we go into the future.

John I think you have a point too.

Yeah, I would chip in, Frank, that the picture you are painting, we anticipated our capital expenditures to be reduced and we are seeing that clearly this year with conservative estimates of only $30 million in capital spend this year, and I think that bodes well for the future needs of the company.

Because we are not trying to manage that number at all.

I think that's just a natural flow from the way we have constructed the business pattern.

And, John, would you think as you guys expect your own spending behavior coming out of this and your customers, are you expecting more,what sort of pace are you expecting for your, I would imagine that you will react similar to your customers in terms of your own, your CapEx and other types of spending.

Do you think it is more of a gradual.

It would be, it will be very gradual, John.

We have got plenty of bricks and mortar around the world.

I don't see those needs hitting us at all.

We will have incremental capital needs on basically a project by project basis.

So I think the trends of this year of $30 million I might be-- people are so busy saving money that they're not spending there.

But, slightly, but I just don't see capital needs being a major part of our dynamic going forward.

Just to add to that, that also reflects this change in portfolio that we have gone through, and that I can remember a number of years ago when we were looking at 5 and 6% of sales in terms of capital ingestion of the business, and as we changed the portfolio, the capital appetite for these businesses is substantially less.

It is not just the current environment but structurally going forward..

Structurally.

That will stay, and okay.

All right.

Thanks very much, guys.

You bet, John.

Our next question comes from Jamie Sullivan with RBC Capital Markets.

Good morning.

Good morning.

Wondering if you can just clarify on the end market views and your different businesses, if the aerospace aftermarket is that the only real change that you have seen since 3Q.

Well, it is not the only change we have seen from the view point.

As I mentioned in answering Jim's question our process businesses are also going to improve.

Now, we did talk about that in the third quarter.

So I guess it is how you characterize that.

But yeah I would say that the only change from what we talked about in Q3 is a little bit weaker business in the aerospace aftermarket.

Okay.

You still see aerospace overall as flattish as we go into next year.

Yes.

That's a great question.

If you look at our overall aerospace business that encompasses both halves of the company, the outlook for next year, obviously we are putting the budgets together right now and we will get a much better call on that as we go through the process.

But the outlook right now is that basically our military business which is about 40% of our sales, and our third party MRO business which is about 25% of our sales will have positive growth, and we'll have negative growth in the commercial business, which is about 20% of our sales and our business and regional aircraft business which is about 15% of our sales, and they will roughly counterbalance one another, say within plus or minus 5%.

And on the oil and gas side, you mentioned orders improving into 4Q.

Last quarter you talked about the tone of customers getting somewhat incrementally positive, can you give us an update there, kind of as we start to think about 2010, with the tone of customers and their budgets look li like?

Yeah, it is definitely a little bit better.

I don't want to say it is off the charts positive.

That would be definitely an overstatement.

But we are hearing a little better trends, there's a lot of controversy as to why the price of oil is at $80.

But that can't hurt having the price of oil a little bit higher.

So we do expect some improvement as we go into the fourth quarter as I shouldn't say improvement but sort of, in that business, more of a flattish kind of environment but people are more positive about that segment is probably the best way to say it.

Okay.

And then just lastly, I guess, as we think about M&A and the portfolio of businesses, that you have, if you think about short, mid and long cycle, do you think about that when you think about putting together the portfolio about waiting a little more toward short, mid or long, or is that not really something you consider.

It is absolutely something we consider.

Just in general, this is obviously just a high level comment, the very short cycle businesses that meet with our portfolio tend to have a more of a commoditization tone to the businesses so that in general it is because we want to acquire differentiated businesses with a higher technological content.

They tend to be more medium and longer cycle businesses, they tend to be more in the process side of the business, more if the aerospace side where the process businesses are-- I characterize them as mid cycle and aerospace more long cycle.

So there is a tendency for the portfolio to move in that direction.

And you can see that as,the economy here dipped, the impact to us was delayed because of that, and the recovery is probably a little bit delayed from what you have heard from other companies.

So it is part of the make up of Ametek right now.

Thank you.

You bet.

Our next question comes from Mark Douglass with Longbow Research.

Good morning.

Good morning, Mark.

If we can talk about EIG again and the restructuring, is there anything in particular that precipitated the additional restructuring here.

Any part of the process in analytical or just give a little more indication as to what precipitated that.

Sure.

It was purely opportunity based as we looked at EIG, we saw an opportunity that came out about our thoughts about next year as we go into the budgeting process.

We felt it was in the best interest of everyone to basically make that change, it was not huge obviously, it was quite small in comparison with the major restructuring that we did.

And as I mentioned in my opening remarks the charge was only a couple of pennies and we expect about $4 million of savings next year from that activity.

So we just, the real answer to your question is it was an opportunity.

That $4 million is on top of,-- can you go through what you expect in 2010.

We are in the process now of obviously rolling all of those cost reductions up.

But yes, this is clearly incremental to anything else that we have talked to you about.

Okay.

So, right now, I forget what you said in the past.

But we can go back and see what you were expecting 2010.

Right, I don't have that number in front of me right now.

I think it was maybe 190 in total .

Okay.

And then if we again look at the analytical side of EIG, what do you see as the opportunity going forward there, is it a lot of new products, new developments in [Singer mass spectrometers], or is there, are you expecting some stimulus impact, people just increasing CapEx budgets because they want more quality control.

Can you go a little more into what you are seeing in analytical.

Yes.

Absolutely.

There are several prongs to what we are going to be seeing in analytical.

Definitely this is an area where we put sizable dollars into development of new products.

So that is a key driver and I talked about a couple of those in my opening remarks.

We are looking to bring out new instruments at the higher end of those portfolios, that have excellent margins and good growth characteristics.

Another very important part of the analytic instruments strategy is the continual globalization of that platform.

And the fellow that runs this business, Dave [Zabeco] has done a great job of in essence getting his fair share of the international market.

The India acquisition that I talked about in my opening remarks and also the fact that earlier this year, we talked about the fact that we are opening our own office in Bangalore basically we are going to use that as a center of our operations in India.

We'r going to do both distribution from that office, manage the distribution links, as well as we are going to put R&D capability in there, and use it as a low cost Research and Development facility.

And in essence we have just hired actually an R&D manager for that facility.

Now we are going to hire engineers into that operation.

With the acquisition I have talked about we now have offices throughout India.

So we will really go after this and our analytic businesses are the ones that are driving that, They see substantial opportunity in India.

It is one of the last areas in the world that we have not put as much energy in.

We put a lot of energy in China and the Far East.

A lof of energy in Europe, and both western Europe and eastern Europe and the Middle East.

And now, India is a great opportunity for us.

In terms of stimulus, absolutely, part of the research improvement that I talked to and answered to a previous question is stimulus driven.

It is not totally stimulus driven but partially stimulus driven because funds are going to the various universities and research organizations around the world: and we can capitalize on that.

Okay.

And then finally, again going back to the acquisitions, if when you close some deals, what kind of-- what are we looking at as far as accretion possibilities, is there going to be when the types of deals you are looking at do you think there's a significant amount of amortization that's going to hit in the first year and chew up accretion possibilities or can you just describe a little bit about what you might expect there?

Oh, as you know, we do essentially all of our deals with debt, the cost of debt right now is very minimal.

So, in essence, any deal that we do will have accretion associated with it.

So again we are not looking at the mega deal here.

We are looking at (inaudible) and those types of deals but yes we will clearly expect accretion from the deals that we close.

We don't expect sizeable amortization , there will be some, but it won't be sizable.

One negative to what I'm saying is that with some of the accounting rule changes you do have to expense more of the restructuring costs of these deals.

So that detract but I can tell you the deals we're looking at will still be nicely

In the first year.

In the first year.

Okay.

Thank you.

You bet.

Our next question comes from Elana Wood with Merrill Lynch.

Good morning.

Good morning.

Would you mind running through the organic growth by platform or by end market like you usually do.

Okay.

Or maybe comment where there are changes perhaps versus the second quarter if that's easier?

Yes Probably the easiest way is just quickly run through the businesses.

For process, in the third quarter, organic growth was down about 25%, and for the full year, we expect it to be down about 20%.

For aerospace, it is basically approximately 10% down for both the quarter and the year.

For power industrial, let me see.

I have to get that out of my data here.

It is around 25% down for both.

Okay.

For the differentiated part EMG it is down about 20%.

And for our cost driven for the year, it will be down about 25%.

So those are the numbers and as I mentioned in my opening talk we expect the groups for the year and the company to be down about 20%.

So 20% for the company, 20% for EIG, 20% for EMG.

Terrific.

Question on the tax rate, you talked about some state tax planning helping the third quarter.

Is there any benefit in the fourth quarter, or how should we think about the tax rate for the fourth quarter?

The tax rate you see year-to-date would be about the level we will end up for the final for the year.

Okay.

Approximately, don't see much changing in the fourth quarter at all.

This was more of a one-time event from a benefit standpoint.

Okay.

Then did you buy back any stock this quarter?

It looks like your share count is a little lower.

No, no.

No?

Okay.

Currency, just wondering what you're baking in in terms of currency benefit to EPS next quarter it looks to me like translation may boost EPS around the order of 2 to $0.03 sequentially assuming the dollar remains roughly where is it is today.

We don't see that in our forecast.

So you are not baking in any sequential currency benefit.

No.

We don't see anything at all of that magnitude in our forecast.

Just lastly if you couldn't mind commenting on order trends since the quarter has closed, so in October how that might compare to September's order trends?

Yes First of all if I talk about Q3 and there was definitely a sequential improvement in orders, with September being sizably more than the first two months.

You have to take somewhat into account that the first two months are vacation months et cetera.

But even taking that into account, we definitely saw some improvement in September and so far in October the trend has continued.

John and I were actually just commenting yesterday that orders are started off in October very, very good.

The thing that we are concerned about, though is in the fourth quarter, whether we are going to see some plant shut downs of our customers.

And so we have been a little conservative in the forecast based on that possibility.

Okay.

Then just lastly on the restructuring, I don't know if it has been announced yet to your employees, if it has can you just comment on which businesses are going to be impacted sort of broadly, aerospace or would you prefer not to comment.

I would prefer not to comment.

It was in EIG.

Okay.

Okay.

Thank you very much.

You bet.

Our next question comes from Matt Summerville with Keybanc.

Most of my questions have actually been answered.

Frank, I was wondering if you could maybe just provide a little more color on some of the businesses you don't specifically talk about in EMGs such as the differentiated motor businesses outside of military and aerospace, and what you are seeing in the specialty metals business.

Yes, what we are seeing in the specialty metals business is an improvement trend, Q3 was weak, no question about it.

But orders and specialty metals SMP, are showing some life, and we are feeling better about that business.

Our ready alloys business still is somewhat weak.

And haven't seen the improvement trends there.

And our technical motor business which is part of the differentiated segment is flattish, is the best way to describe that not yet seen an up tick.

And then just a question on pension, John can you remind us what your pension expense is for 2009, and what you think it might be in 2010?

Yeah.

The 2009 is $18 million increased costs this year for the year.

That's spread relatively evenly throughout the year.

Next year we are hopeful we will get relief there but it is too soon to make a prediction about what that will turn out to be.

Okay.

Thank you.

The next question comes from Richard Eastman with Robert W.

Baird.

Yes.

Good morning.

Morning.

John or Frank could you just talk through the gross margin on a consolidated basis a little bit?

We lost about 200 basis points there.

And I am curious, the decremental didn't look too bad.

But is that primarily mix or did any of the restructuring hit that?

All of the restructuring we talk about obviously hit that.

The degradation is largely due to the large volume drop.

That's really what drove it.

The internal growth and the growth of the business and the third quarter as we said is going to be the weakest.

And that was the primary driver.

Although we are pleased with the absolute level of that given the volume drop to as you said the incremental-- detrimental margins were good.

We are pretty pleased with it but that's what drove it, Richard.

Does, for instance the aerospace aftermarket presumably that would be a higher gross margin,.

Oh yes

Mix also.

Yes.

I mean that's in that equation, when I say the volume went down and obviously that's going have a disproportionately higher impact on the gross margin.

The gross margins in that business run on the order of 70, 75%.

So they're very high.

I see.

And then also just a question on pricing, Frank, are we flattish year-over-year on price or have we had any give backs here, how did pricing look overall.

Yes, it varies by business, Richard.

But I would say overall we are slightly up about a point.

Okay.

The pricing environment is not easy.

It is tougher but if you step back and think about the-- what's happened in the economy to be able to get a point of pricing is still relatively good.

But the environment is not easy to get pricing.

Okay.

And then just a last question, with sales maybe for the fourth quarter, I think given your guidance, maybe around $515ish million and your orders, Q3 orders were $479 million , is the difference there, this improving trend that we have seen, or are you comfortable that the military business can spike up off the backlog?

How do we make up the difference

It is a little of both.

Obviously we are seeing improving trends in the process businesses as I talked about.

We're seeing an improving trend in the cost driven businesses and yes we have backlog to ship not just in the military side of the business, but aerospace overall has good backlog.

And, we also expect those order rates in aerospace to come up but that stuff will not necessarily be shippable in the fourth quarter.

So you feel pretty good about the visibility on sales for Q4 with the exception of the possible plant shut downs at the very year end.

That's exactly right.

Very well characterized.

Okay.

Thank you.

Sure.

Our next question comes as a follow up from Christopher Glenn with Oppenheimer.

Thanks.

Going back to aerospace aftermarket, could you talk about your different exposure to the supply chain channel versus the airlines.

What you are seeing in the relative state of destocking in those two sides, and what your thoughts are around when you might come up against a flat comparison in the aftermarket?

What we are seeing from the airlines is obviously they're having financial difficulties right now.

So they are trying not to order anything that they don't need.

So there's definitely a significant push back from the airlines.

And at some point, that string will run out where in essence they have to order.

So if we look at the--- I will give you some market data overall, the aerospace aftermarket business is expected to be down this year on the order of 20, 25% those kind of numbers but next year there's actually all of the forecast that I have looked at show growth into next year.

And we expect our aftermarket will be better than-- you are going to see some better performance there and another very important thing, if I just switch the conversation for a moment to our third party MRO business, there we have a tremendous opportunity to gain share, and in my overall view of aerospace, that I mentioned before, we are expecting mid single digit to high single digit organic growth in the third party MRO business because of our ability to gain share.

Sounds good.

Thank you again.

You bet.

It appear there is are no further questions at this time.

Mr.

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

Okay.

Thank you, Laura.

I would like to thank everyone for joining our call.

As a reminder the replay can be heard by calling 888-203-1112 and entering the confirmation code 224-0076 and it is also on the internet at ametek.

com, and streetevents.com.

Thank you.

That concludes today's conference.

Thank you for your participation.