阿美特克 (AME) 2009 Q4 法說會逐字稿

Good day, everyone and welcome to this AMETEK Inc.

fourth 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 fourth 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 fourth quarter results were released earlier this morning.

These results are available electronically on market systems and on our website at the investor section of ametek.com.

A tape of today's conference call may be accessed until February 9th by calling 888-203-1112, and entering the conformation code number 4746267.

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 websites.

I'll 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.

A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filing with the Securities & 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'll now turn the meeting over to Frank.

Thank you, Bill.

All of the comparisons that I will discuss in my prepared remarks will be made against the 2008 results excluding the fourth quarter restructuring charge.

Our press release tables detail our 2008 results with and without this charge.

AMETEK had a good fourth quarter.

As anticipated we saw sequentially higher sales in a number of key markets, improved earnings, and continued excellent cash flow generation.

Perhaps most importantly we saw significantly higher order rates from our customers.

Orders in the fourth quarter were strong totaling $577 million, a 20% sequential improvement over the third quarter of 2009 and a 4% increase over the fourth quarter of 2008.

Sales increased 5% sequentially, and operating margins expanded 140 basis points to 17%.

Cash flow was excellent for both the fourth quarter and the full-year 2009.

Operating cash flow was $109 million for the quarter, and $365 million for the year, up 155%, and 47% respectively.

Free cash flow was 161% of net income for 2009.

When compared against the fourth quarter of 2008 sales were down 16% to $523.5 million, internal growth was a negative 20%.

Acquisitions and foreign currency translation each added another 2% to sales.

Operating income declined to $89.2 million from $122.3 million last year, reflecting the impact of the reduced sales partially counter balanced by our cost-reduction activities.

Net income was $51.9 million or $0.48 per diluted share.

Turning our attention to the individual operating groups, electronic instruments group performed well in the fourth quarter.

As anticipated sequential sales of instruments for research and metals applications improved while our oil and gas-related businesses stabilized.

EIG sales were up 5% sequentially, and orders were up low double digits.

Operating margins were strong at 19.6%, a 200 basis point sequential improvement over the third quarter.

Compared against last year, fourth quarter sales decreased 21% to $286 million.

Internal growth was down 23%, foreign currency added 2% to revenue.

EIG operating income was $56.1 million, versus $89.6 million in last year's fourth quarter.

The Electric-Mechanical group also performed well in the fourth quarter.

Sequential sales were up 5% with improvement in both our cost-driven motor and differentiated businesses.

Sequential orders improved in EMG by approximately 30%.

Operating margins improved to 17.1%, a 10 basis point sequential improvement.

When compared to the year-ago fourth quarter, sales declined by 9% to $237.5 million.

Internal growth was down 16%, acquisitions added 5% to revenue, while the impact of foreign currency added an additional 2% to revenue.

Operating income for the quarter was down 8% to $40.7 million.

Operational excellence is the cornerstone 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 last January as well as the follow-on plan announced in April of last year.

As part of these plans headcounts have been reduced by approximately 1900 people since the beginning of the year, and more than 2600 people since June of 2008.

In addition to the restructuring activities, we continue to drive lower cost to our global sourcing office and strategic procurement initiatives.

We generated approximately $22 million in incremental savings this year from these activities, with $6 million the fourth quarter.

Overall the total impact of the operational excellence initiatives outlined was approximately $135 million in reduced costs for 2009.

We continue to invest in global and market expansion and new-product development These initiatives have helped our performance during the downturn and position us to perform well during the upturn.

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

In the fourth quarter international sales represented 50% of our total sales.

As an example of global expansion, [Tenaga] National Power, or TNP, the national power company of Malaysia, has approved solid-state controls, solar digital process power inverter, for use in their micro solar power systems.

TNP has been steadily deploying micro-solar power plants to various villages and school systems throughout the remote regions of Malaysia.

They have concluded that our power inverter is a superior product to handle the rugged environment in those -- that these micro-solar plants must operate in.

AMETEK expects to become the primary source of supply to TNP with with a solar inverter with several million dollars of potential sales.

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

We have consistently invested in RD&E.

This year the total is $101 million, down slightly from last year.

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

Aerospace and defenses use (inaudible) unit has been selected to provide the surface cooler package for the Pratt-Whitney pure power engine to be used for the Mitsubishi regional jet.

The surface cooler package consists of four double sided oil coolers per engine on this twin engine aircraft.

The value for aircraft ship set is $34,000, and potential revenue is $25 million over the life of the program.

During the quarter our Ortec business unit released and delivered the first laboratory detector module for measuring nuclear radiation.

This module is a mechanically cooled, high purity germanium detector based on the micro detector technology deployed for homeland security applications.

The laboratory detector module is designed for use with our traditional counting laboratory customers, such as nuclear power plants.

Mechanically controlled cooler eliminates the need for liquid nitrogen providing lower cost and ease of maintenance..

From an overall perspective, revenue from products introduced over the last three years was 19% of sales, up from 18% last year, reflecting the excellent work of our business in developing the right products to serve their customers.

In the fourth quarter, we announced that we acquired the pressurized gas systems business of Amron Global.

This business is the manufacturer of highly engineered pressurized gas components and systems for commercial and military aircraft customers.

In addition, they are a leader in the maintenance, repair, and overhaul of fire suppression and oxygen supply systems.

The business had annual sales of approximately $20 million.

This acquisition broadens the reach of our aerospace and defense business.

The business serves a wide variety of commercial aircraft and defense customers.

Their products complement our existing aerospace safety products, and offer us important growth opportunities in fire detection, fire suppression, oxygen supply and other safety systems.

Ameron Global operates three facilities across the United States for the maintenance, repair, and overhaul of fire suppression and oxygen supply systems, adding complementary and differentiated capabilities to our existing global MRO network.

Coupled with other recent AMETEK MRO acquisitions and expansion activities, we have a significant and growing presence in this attractive market.

For the year, we closed four acquisitions, totaling more than $50 million in annual revenue, a relatively light year for us.

Closing only the Ameron deal in the fourth quarter was a disappointment.

At the time or our third quarter call, we had two additional deals and due diligence that we expected to close or announce by the end of the year.

However, as we approached year end, both of these deals were terminated.

One due to issues raised in due diligence, and in a second case, the private seller decided not to sell at this point in time, we are now focused on other deals in our backlog.

In fact, we announced today, the acquisition of Sterling Ultra Precision, a small privately held reseller of machine tools for the optic lens market located in Tampa, Florida.

Sterling currently bundles AMETEK's Precitech Optiform machine tools with proprietary software and specialty fixtures that are used in the design and manufacture of contact lens, contact lens molds and interocular lenses.

While this is a small acquisition, the acquisition of Sterling Ultra Precision provides us with an attractive opportunity to gain direct access to the highly profitable niche optic lens market.

I would expect us to close a larger number of deals in 2010.

We have the financial and managerial capacity and disciplined approach to support this acquisition's focus.

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

Turning to the outlook for 2010.

We expect our markets overall to show modest growth during 2010.

With this growth becoming more evident as we move through the year.

We believe that AMETEK's strong portfolio of businesses, proven operational capabilities, lower cost structure, and a successful focus on strategic acquisitions, will enable us to perform well in 2010.

We anticipate 2010 revenue to be up low to mid-single digits on a percentage basis from 2009.

Earnings for 2010 are expected to be in the range of $2.10, to $2.20 per diluted share, up 10 to 15% over 2009, reflecting the leveraged impact of core growth and our streamlined cost structure.

First quarter 2010 sales are expected to be down mid-single digits on a percentage basis from last years first quarter.

We estimate our earnings to be approximately$0.45 to $0.47 per diluted share as compared to last year's first quarter of $0.55.

In summary, our overall business has stabilized and shown signs of improvement.

We delivered good results for the fourth quarter in the face of better but still challenging market conditions.

Our restructuring initiatives have resulted in a streamlined cost structure that should enable us to drive higher margins going forward.

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..

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

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

Thank you Frank.

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

Similar to Frank, all comparisons will be made against the 2008 results excluding the fourth quarter restructuring charge.

Selling expenses were down 14% in the fourth quarter, in line with the sales decline.

Corporate G&A was down 34% fourth quarter in absolute dollars, and fell to 1.4% of sales as compared to 1.8% of sales at last year's fourth quarter.

The effective tax rate for the quarter was 27.5%, and was 30.2% for the full year, both in line with our expectations, and driven by worldwide tax planning initiatives.

We anticipate a rate of between 31 and 32% for 2010, with the first quarter having, as is typical, the highest rate of the year.

Our defined benefit plans are overfunded as a result of excellent investment performance and contributions we made in 2008 and 2009.

We expect that the 2010 contributions to our defined -- defined benefit plans will be minimal, totaling about $3 million.

On the balance sheet, working capital, defined as receivables, plus inventory less payables, was 21.2% of sales for the fourth quarter, a sequential improvement and down from last year's level of 21.8%.

We continue to see an opportunity to reduce our working capital investment and this will be an area of focus for us in 2010.

Capital spending was $12 million for the quarter, and $33 million for 2009 or 1.6% of sales.

Expenditures for capital in 2010 are expected to be about $40 million.

Depreciation and amortization was $17 million in the quarter, and $66 million for 2009.

For 2010, depreciation and amortization is expected to be approximately $70 million.

Operating cash flow for the quarter was $109 million, up from $43 million in the fourth quarter of 2008.

Fourth quarter free cash flow was $97 million, representing 187% of net income.

For the year, 2009, operating cash flow was $365 million, up 47% over 2008, and the free cash flow was 161% of net income.

Total debt was $1.04 billion at December 31st, down $70 million for the year.

Offsetting this debt is cash and cash equivalents of $246 million, resulting in a net debt to capital ratio at year end of 34%, as compared with 44% at the end of last year.

Fourth quarter results reflect the repayment of $17 million of debt and expenditures of $32 million for acquisitions.

We expend -- we have expended a significant amount of effort to improve the Company's capital structure and to insure that adequate liquidity was available to support our growth plans.

Result of this work is that AMETEK has plenty of liquidity available, and only one debt maturity in 2010 of approximately $80 million.

At quarter end, we had approximately $700 million of cash and credit facilities to fund our growth initiatives.

Clearly, liquidity is not an issue for AMETEK.

In summary, we continue to manage our cost structure and balance sheet effectively maintaining a strong liquidity profile and positioning ourselves to support our four growth strategies.

Bill?

Thanks, John.

Laura, that completes our prepared remarks and we would be happy to take questions now.

Thank you, Mr.

Burke.

(Operator Instructions) And we'll take our first question from Jamie Sullivan with RBC Capital Markets.

Good morning, everyone.

Hi, Jamie.

Hey, Jamie.

Wonder if you could just talk a little bit more as we think sequentially with the first quarter guidance revenues flat to up sequentially, just what some of the puts and takes are on the cost side that we should be thinking about?

Sure, Jamie, if you look at the first quarter, as you indicated, sales will be relatively flat from the -- from the fourth quarter, and with those, essentially flat sales, our cost reductions are in place, and the main change in earnings is due to the tax rate that John talked about, where the first quarter tax rate is going to be higher as is typical in any first quarter for AMETEK.

So that's the prime driver as to what is causing that.

Okay.

That's helpful.

And then just wondered if you could talk about the orders in the quarter improving pretty significantly, where -- where you saw particular strength in the orders?

It was very broad based, Jamie, which was actually a delight for us to see.

Prior to the fourth quarter we had seen a few pockets that were encouraging, but in the fourth quarter it was very, very positive across the company.

As I mentioned in my prepared remarks, in EIG orders were up low double digits, and -- EIG, excuse me -- up low double digits, and EMG they were up about 30%.

If you look at the sub-segments, they were really up in each of the major sub-segments that we talked about.

So it was good performance.

Okay.

And -- and any sense for how much stimulus spending or incentives may have contributed to those end markets.

Very, very difficult to quantify that, Jamie.

I would say the one area where we definitely -- as anticipated saw some impacts of, not just the stimulus spending, but also the year-end government spending activities was in the research part of our process businesses, but that wasn't the prime driver of why we saw this increase.

I believe we are seeing a global improvement in our businesses.

Okay.

Thanks a lot.

I'll get back in queue.

Okay.

Jamie.

Our next question comes from Jim Lucas with Janney Montgomery Scott.

All right.

Thanks, good morning.

Good morning, Jim.

Hi, Jim.

John, a couple of quick housekeeping questions payables at year end.

$192 million, Jim.

Okay.

And when you were talking about liquidity, what was the total available under the revolver that you referenced?

Well, the total I gave you was $700 million, which combines cash and revolver and --

Okay.

-- it's a combination of everything, Jim.

Okay.

Thanks.

We have nothing drawn against our revolver, Jim.

I just wanted to -- I had missed that number.

Thank you.

And Frank, wanted to -- a couple of strategic questions here.

We have seen a couple of the acquisitions that you -- including Sterling this morning, the -- more of a distribution-related type.

Has there been any change in terms of how you are looking at the -- some of the smaller bolt-on acquisitions, as well as could you give us any color of what you are seeing out there?

Would also be interested, if you could give any color, what specifically came up with in the due diligence that made you walk away from the deal in the fourth quarter?

Yes, sure, Jim, in terms of the bolt-ons, first there's no real change in our strategy.

We're continuing to pursue those acquisitions that are in the 50 to $100 million -- $150 million in annual sales types of levels.

But, yes, we do see opportunities within that strategy, if you will, to do some of these smaller deals that basically expand our distribution capabilities, and several of the acquisitions we've recently announced, particularly the one in India, is -- is a real attempt to gain sales and distribution infrastructure in places where we don't have it.

The Sterling announcement this morning, this was a company we have worked with for a number of years, and this gains us direct access to their customers.

So this is not a change in our strategy, but really, an opportunity to -- to gain distribution capability around the world.

Matter of fact, when we look at some of the added investments that we're going to put in place in 2010, one of the areas that we're going to substantially invest in is the BRIC countries, and in particular distribution.

So we will be spending money to expand in India to continue our expansion in China, to do some expansion in Russia, et cetera, because we see great opportunities to gain share and take advantage of the market growth rates in some of those countries.

In terms of -- of what we're seeing in the backlog, the backlog and the deal environment has definitely improved.

I think I referenced that in my third quarter conference call, and I feel even more strongly about it today.

It's not back to where it was, before the downturn, but in essence it's much better than what it was during the beginning of 2008, and while 2008 we didn't do any deals of the size and quantity that we would like, it wasn't because we didn't want to.

Those deals simply weren't available, or as I mentioned, we did run into some issues with a couple of those deals at the end of the year.

So to expand a little bit on the last part of your question.

One of those deals fell out of bed simply because the private seller decided he did not want to sell the business.

There were really no problems with, in essence, the negotiation, or the approach that was taken by actually either party.

That was just a personal decision.

The second one, as you know, Jim, we do very extensive due diligence work on the deals that we look at.

And I don't think it's appropriate to get in to the detail of that, but we found some fairly significant problems that would have not been in the best interest of our shareholders, and they were significant enough that we felt that even a sizable price reduction on the deal was not the right approach, so -- although we were disappointed, on the other hand, it's the right decision, and I think it shows our disciplined approach, that we're not afraid to walk away if in essence something is not in order.

Okay.

And one quick follow-up, on your -- you mentioned some increased investment in 2010, and on the BRIC, you have spoken in the past of Russia, India and China, updates you can give us on your Brazil strategy?

Yes, that's an excellent point, and we spent some time at the end of last year in our strategic acquisition, and strategic work, and we feel as well in Brazil, there is an opportunity for us.

We have an operation in Brazil, and we see an opportunity to expand that, as matter of fact as we speak, we're looking at another one of those smaller acquisitions that would in fact expand our capability there, and some of the investments that I have talked about will go in to adding additional sales and resources in that part of the world.

We have prioritized over the last several years where we want to make these investments.

China was clearly number one because of the growth there.

We then went to the Middle East and Russia, mainly because of our concentration in oil and gas.

We think next is obviously India, and we're make those sizable investments.

We did it last year.

We're going to do more this year.

And not because the opportunity isn't there, but Brazil is the next one on the list.

We're going to do some investments there, but as time goes on, you'll hear more and more from us about Brazil.

Great.

Thank you very much.

You bet, Jim.

Our next question comes from Mark Douglass with Longbow Research.

Hi, Good morning gentlemen.

Hi Mark Frank, could you drill down into the sub-segment details in the quarter and then as well as what you are baking into your 2010 for those sub-segments?

Sure, Mark, I can do that.

Let's start with the aerospace.

Our aerospace markets are relatively healthy as anticipated in Q4, our overall aerospace business was flat with respect to Q3.

With respect to the fourth quarter of 2008,aerospace saw mid-single-digit negative growth due primarily to the weakness in commercial aircraft and business and regional jet markets.

Very importantly, I would say for 2010, we expect aerospace to be roughly flat predominantly as our military and third-party MRO businesses counter balance weaker commercial and business and regional jet markets.

So this is pretty much what we outlined for you at the end of the third quarter.

I think we're even more convinced now that the performance of aerospace for 2010 is not going to take a major dip as is pretty much characteristic of previous downturns in aerospace, so we're actually very delighted that we're looking at growth that is roughly flat with 2010, and obviously with the sizeable cost reductions we've put in place, we're going to see improved earnings out of our aerospace businesses.

In terms of the process markets.

Our process markets performed as we expected in the fourth quarter, with sequential improvement in sales of instruments to the research and metals market.

While our oil and gas businesses stabilized.

And I think when I was asked about risk in the third quarter conference call, we had anticipated the oil and gas businesses to stabilize, but there was some risk in that, and in essence it has happened, so we're very encouraged by that, and our order intake as I mentioned in response to a previous question was also very strong.

So we're feeling much better about this segment.

In terms of numbers, sales were up high single digits sequentially in the quarter.

On a quarter-over-quarter basis, sales were down approximately 20% for this sub-segment.

And what our expectations are for 2010, to the point of your question, is that we expect this business to grow in the low single digits.

For power and industrial Q4 sales were up sequentially high single digits.

That improvement was driven by our power business.

With respect to the fourth quarter of 2008, power and industrial sales were down approximately 20%.

Just as a point of reference, industry data showed heavy trucks down 26% in the quarter, 2010 truck builds were expected to be 123,000 trucks, up about 4% over 2009.

And looking forward to 2010, we expect sales for power and industrial to be up approximately 10%.

Switching over to EMG, and looking at those two sub-segments, for our differentiated EMG businesses, Q4 sales were sequentially up mid-single digits.

The improvement was driven by aerospace, technical motors, and our EMIT businesses, which are essentially all of the businesses in that sub-segment.

And with respect to the fourth quarter of 2008, sales were down approximately 10%.

For 2010, we expect this business to be up mid-single digits.

And the last part of our company is the cost-driven motor businesses.

As anticipated, and what we said at the third quarter conference call is that this business improved on a sequential basis, sales were up actually low double digits for this business on a quarter-over-quarter basis, Q4 organic growth was down low double digits for 2010 we expect this business to be up low single digits.

I think -- even though I have given you a fair amount of detail here, I think one of the most important things is that we were able to call in the third quarter exactly what occurred in the fourth quarter within, very modest fluctuations, so there is no question that our business has stabilized and it's -- doesn't feel the same as it did in the first half of 2008, where at times we, as well as many companies, felt they were almost in free fall.

Okay.

Thank you.

And then just -- just a question on your -- on your profitability.

If you look at the fourth quarter versus second quarter '09 -- sales were on par, yet your earnings were down, but there was restructuring in between the two quarters.

Can you explain, what -- is it a mix?

Yes.

There is definitely a mix shift that I think were not picked up by some people on the street in that, we were shipping from backlog for aerospace and our process businesses, which, in essence got weaker as the year went on, and now we're building up the backlog in those businesses again, and they are obviously very high margin businesses for the company.

That is the predominant driver for that shift.

There may have also been -- is there any tax rate there John?

A little bit.

A little bit, but not a lot on tax rate.

So predominantly, it was the aerospace and process businesses.

Yes, I guess I was just looking operating margin, it declined 80 basis points from second quarter.

Right.

And that's driven, and obviously with the sizable cost reductions we put in place, the impact would have been significantly more if those improvements were not put in place.

Okay.

And then the -- finally, just on process, I guess I'm almost surprised you thinking low single digits in 2010.

Did you just not see instrumentation getting picked up by oil and gas as strongly as maybe would be implied with oil back to 70, $80?

Yes, I think the best way to answer that question is we are not yet declaring victory.

We have had one very good quarter of order intake, we feel better about next year, and we want to just see another quarter of performance at that level before, in essence, we consider raising what we think we can do next year.

Hopefully, if things continue the way they have, we will be in a position to possibly improve our outlook as we go through the year.

Okay.

Thank you.

You bet.

Your next question comes from Christopher Glynn of Oppenheimer

Thanks, good morning.

I'm going to go further into the orders and top line outlook.

I think if you extrapolate the orders it leads to much higher run rates.

So, I'm just wondering if-- particularly in EMG, with a lot of OE customers, I believe, maybe you experienced the significant restocking and then any color on the January follow through?

Yes, it's a great question, and there definitely was some restocking impact, but that was not the -- the predominant driver.

I think one thing that you do need to keep in perspective is that when we look at any given year and you look at our historical performance with last year, I would say, being an exception, typically our first quarter in terms of EPS is the weakest quarter that we have.

And we are definitely seeing some of that impact here, and there's also -- as I mentioned some potential conservatism in the fact that in essence, we have only seen a quarter of this, sort of order improvement, and we want to make sure that it is real.

So I think -- that's the best way that I can answer your question.

January follow through, any comments there?

Yes, it was quite good.

So far very good.

Okay.

And then just last one, as far as the -- some of the cost factors in to next year, just if you could, kind of run a little laundry list in terms of pension, corporate expense, any temporary cost cuts coming back?

Yes, let me give you a flavor of this.

In essence, we're saying that the organic growth is going to be somewhat minimal in the full year, and basically, if you look at the cost improvements that we're looking at in our budget, they total about $75 million, about -- roughly $45 million of that is the impact of the restructuring charges that we had previously outlined and done in 2009 that are essentially carry over to 2010.

The pension impact is about $10 million.

In terms of add-back, there's -- sort of on the other side of the ledger, we're going to see some improvement from the fact that the STI, and LTI compensation levels were, in essence much lower in 2009 than they will be in 2010, but you also have inflationary impacts that are in here, and some of the added investments that I talked about, where we're going to make additional investments in China, India, et cetera.

So that should give you a rough feel as to the kind of number we're looking at.

And we're going to focus on that $75 million of cost reduction.

Thanks a lot.

You bet.

Your next question comes from Matt Summerville with KeyBanc

Most of my questions have been answered but Frank you mentioned two deals sort of got tabled in the fourth quarter, was there any cost that kind of flowed through the P&L that is meaningful to talk about related to those deals not getting done.

Yes, there is probably, Matt, probably a little less than half a cent of share working through the fourth quarter.

Okay.

And then I -- I guess, Frank, I just want to make sure I understand this.

When I go back and look historically, first quarter revenue for AMETEK is typically higher than what you have in Q4, and again, understanding that you probably want to be conservative with your guidance, you are looking for something relatively flat.

I guess I'm trying to get a feel for -- the backlog you are building, the orders that aren't going to ship near term, I guess how does that duration of backlog look?

And should we expect, then, further backlog build in Q1 based on where your order intake level is currently?

Yes, I would say that is the case, we expect that in essence, we will see higher backlog build in the first quarter.

Remember my comments before, where we were taking backlog down in our longer-cycle businesses, so what 's happening is that backlog is being restored in those businesses, so you'll see shipments out of that, beginning in the second quarter, and going through the rest of the year, and with respect to your comment on volume, my comments before were really focused on EPS.

What tends to happen, and is pretty much our historical pattern is that that tax rate goes up in the first quarter as we're anticipating in 2010, and therefore, if you look at our EPS on an historical basis, it is typically lower in the first quarter.

Okay.

And then I apologize if you talked about it and I missed it, but what was your average price realization in 2009 versus 2008, and then what are you expecting for 2010 in terms of pricing?

Yes, in terms of 2009 with respect to 2008, the effective pricing was up about 1%.

We are shooting for the same number in 2010, and what we have actually budgeted is flat, so we're shooting for a point, and we're budgeting flat.

Great.

Thanks a lot.

You bet.

Our next question comes from Richard Eastman with Robert W.

Baird.

Hi, just a couple of things.

One is, Frank could you just talk for a second or two about the gross margin, not only in this quarter, but just for -- for all of '09?

It's lower.

Is that a function of, volumes, and mix?

How much does mix play in to the gross margin?

And how should we think about that as we move in to '10?

Yes, that's a good question.

We're going to probably have to get your answer offline to the detail, but in general, your observation is correct; that this is an impact of the volume and the mix of what is occurring, and again, it is flavored by those longer-cycle businesses, which, we expect are going to pick up in the second half of next year, and that's -- that position is more strongly felt right now, given the strong order performance in the fourth quarter.

So it's definitely what you are seeing.

I don't have a quantification of it here.

Okay.

But the backlogs maybe given the shipping cycle, and the book-- the order book to ship cycle.

Right.

Seems to favor, maybe -- the backlog seems to favor the higher-margin businesses, process and maybe aerospace.

Absolutely.

Okay.

And then also, Frank, in the past you have maybe gotten a little bit granular on what you consider to be your earlier-cycle businesses.

For instance the specialty metals business.

Do those respond any different from the overall order number in the fourth quarter?

Yes, they were extremely strong.

The short-cycle businesses, when I look across the company, did extremely well.

It's the one you picked specialty metals, in particular, had a dynamite quarters.

One of the bell weathers that I use is our chemical products division, that's -- I call that my double -- or our double derivatives business, because when the economy comes back, we just usually get a really strong pop, and that business also had a phenomenal fourth quarter, and when I look at one of the process businesses, that shorter cycle, our measurement calibration, and technology division, that one also had a -- a very, very strong fourth quarter.

So when -- when you look at this -- what we're seeing is actually what you would expect in a normal cycle.

AMETEK held in longer on the front end of the downturn because of the long cycle businesses.

When our short cycle businesses were falling off very rapidly, and now as the economy improves, the short cycle businesses are coming back first, and the indications are there that our long-cycle businesses would follow.

Hum.

Okay.

And just last, Frank, when you look at the -- the sub-segments within EIG, and EMG, and you gave, the calendar '10 guidance there, which of those, maybe five segments, broad segments would you say maybe poses the greatest revenue risk to that guidance?

Are you still thinking -- it is possible, the aerospace business still questionable, whether it be flat or-- which of those businesses do you feel least comfortable with the guidance on?

Well, it is probably is aerospace the way you have worded your question, but let me give you some rationale for our comfort level with aerospace, which has dramatically improved over the last five or six months.

If we look at the sub-segments, within aerospace, we're basically saying that the military business, which is about 40% of our overall aerospace business is going to be up mid-single digits.

The MRO, third-party MRO business, which is about 25% of our business is going to be up high single digits, and that growth is going to counter balance, if you will, commercial, which is now about 20% of our business, and -- and the business in regional jets, which is about 10%.

So if I then quantify that risk, within those various sub-segments of aerospace, the predominant one that we were concerned about was commercial aircraft.

And our estimates assume a 15% decline in that 20% of our business, which is commercial.

If you look at the estimates by Boeing, which will come out tomorrow, it will be interesting to see what they say, but their previous estimates were flat on aircraft and Airbus has recently come out and said their shipments are going to be flat.

So in essence they're assuming flat and we're assuming down 15%.

Reality may be somewhere in between.

We may even be on the conservative side, but because we have focused on that sort of sub-element of the risk, we feel pretty good that the down side risk on volume is pretty minimal.

Okay.

Very good.

Well thank you.

You bet.

Our next question comes from Elana Wood with Banc of America

Good Morning

Hi, Elena.

I just have some follow up questions on the orders.

The EIG orders sequentially up low double digits EMG up 30%.

How would that compare to more, historical, just kind of historical pattern, the sequential build, fourth quarter versus third quarter.

It's substantially more.

Substantially more.

We normally see a little bit of improvement from Q3 to Q4 in our cost-driven motor business.

Mainly because many of our operations are in -- in Europe.

But, that's not the predominant driver here.

This was a broad-based change, I would say.

John, you have got another point?

Yes, Elena, I would make the point though that beyond -- in addition to what Frank said, in the fourth quarter, the month of December was the strongest month which is unusual for us.

We tend to really go into December wondering what is going to happen because of the obvious impact of vacations and holidays.

And we didn't see any of that this quarter.

December was a very strong month for us, and we were very pleasantly surprised with that.

And it was across the board as Frank said.

And then your guidance, are you assuming any currency translation benefits in 2010?

Very minimal, Elena, about 1%.

My recollection.

On the top line, and even nothing on the bottom line.

Okay.

And I was just looking -- corporate expense in the fourth quarter was down sequentially by about a million.

Wondering what that was attributable to.

That's the continuation of our cost-reduction activities.

We had said that we were going to get more cost-reduction sequentially in the fourth quarter than the third and in fact that was part of it, but we also saw some in our other operations as well.

Okay.

And just lastly, RD&E.

How much of an increase are you budgeting for 2010?

The budget right now for RD&E is $109 million and this year we're expecting to spend about $101 million.

So that's and $8 million change and hopefully, if the year improves as we go along, we would probably even increase that further.

Okay, thank you, all my questions have been answered.

Elena, thanks.

(Operator Instructions) And we'll take our next question from Allison Poliniak from Wells Fargo.

Good morning.

Good morning, Allison, welcome back.

Thanks.

Just a quick question on the oil and gas in (inaudible) I know you guys are pretty broad-based there, and you talk about it stabilizing.

Are there any areas within that market that you still have concerns about?

Yes, there's still some concern, predominantly in the US If you look at this business, about 65% of it is outside of the United States, and that business did not go down as much during the economic malaise, and also is really showing signs of improvement right now, where in essence, a lot of the longer contracts that are needed in the -- outside of the United States, which were shifted way to the right are now coming back into play, so I feel some energy, if you will, in that international part of the business.

So the US is the part that is feeling better.

But there's still some risk, there is no question that there is some risk.

The -- although the price of oil has clearly stabilized in that mid-$70 a barrel level, the price of US natural gas -- although higher than it was in the summer months is still substantially lower than it was, say, a year ago.

So -- so that's probably -- if there's any risk un, it would be in that part of the business, but, again, we think we balanced that.

The international side we think can offset any of that risk.

Great.

Thank you.

You bet.

It appears there are no further questions at this time.

Mr.

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

Thank you, Laura.

Folks thank you 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 474-6267 or on the internet at ametek.com or streetevents.com.

Thank you.

That does conclude today's conference.

Thank you for your participation.