阿美特克 (AME) 2010 Q1 法說會逐字稿

Good day everyone and welcome to this AMETEK Incorporated first quarter earnings conference call.

Today's call is being recorded.

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

Bill Burke, Vice President of Investor Relations and treasurer.

Please go ahead, sir.

Thank you, April.

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

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

AMETEK 's first quarter results were released earlier this morning, these results are available electronically on market systems and on our web site at the investors section of AMETEK.com.

A tape of today's conference call may be accessed until May 11th by calling 888-203-1112 and entering the confirmation code No.

2061433.

This conference call is also webcasted.

It can be accessed at AMETEK.com and at Streetevents.com.

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

I will remind you that any statements made by AMETEK during this 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 is contained in AMETEK 's filings with the securities an 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 had an excellent first quarter.

We performed much better than anticipated with broad based improvements in many of our markets.

When compared to the fourth quarter of 2009, the first quarter sales were up 6%, operating margins expanded by 140 basis points and diluted earnings per share were up 13%.

Orders were particularly strong totaling $582 million, with respect to the first quarter of 2009 this represents a 19% increase as reported and a 17% increase organically.

Cash flow was very strong in the first quarter.

Pre-cash flow was $86 million, representing 149% of net income.

When compared against the first quarter of 2009, sales were up 1%, to $556.7 million, internal growth was a negative 2%, foreign currency translation added another 2% to sales.

Operating income was $102.4 million as compared to $106.2 million last year, reflecting the impact of lower sales and our higher margin, longer cycle businesses.

Net income was $57.9 million or $0.54 per diluted share, down only slightly interest last year's first quarter of $59.1 million or $0.55 per diluted share.

Turning our attention to the individual operating groups, the Electronic Instruments group performed well in the first quarter with sequential sales of 4%.

Our power and process businesses were drivers of this strength.

Operating margins were exceptional at 23.1%, expanding 350 basis points sequentially from last year's fourth quarter.

Orders were strong, up 17% over last year's first quarter.

Compared against last year first quarter, sales decreased 1%, to $298.7 million, internal growth was down 3%, foreign currency added 2% to revenue.

The EIG's operating income was $69.1 million, unchanged from last year's first quarter while operating margins increased 30 basis points.

Electro mechanical group also performed well in the first quarter.

Sequential sales were up 9% with broad based improvements in both our Cost Driven Motor and differentiated businesses.

Operating margins were down 30 basis points sequentially, as a result of strong growth in our lower margin Cost Driven Motor business.

Orders were very strong, up 22% over last year's first quarter while sales increased 3% to $258 million.

Internal growth was down 1%, acquisitions and foreign currency each added 2% to revenue.

Operating income for the quarter was down 6% to $43.4 million.

Operational excellencies the corner stone strategy for the Company and our focus on cost arch assets management has been a key driver to both our competitive and financial success.

We continue to drive lower costs through our global source strategic.

We recognize $6 million in savings in the first quarter and expect to generate approximately $22 million in incremental savings this year from these activities.

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

These initiatives 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.

In the first quarter, international sales represented 51% of our total sales, sales in Asia were particularly strong.

As the economy and our markets have improved, we have selectively added resources to grow the business.

A key area of focus has been growth in the brick countries.

As part of our plan for this year, we budget 42 sales and engineering additions in the brick countries.

During the first quarter that number was increased to 67 people in addition of 25 people.

In 2009 we accrued two Indian companies, Unispec and Tulsia to quickly drive our capabilities to both sell and service our instruments in this important and attractive market.

These results have been very successful with our India sales up over 190% in the first quarter versus the same period last year.

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

We've consistently invested in RD&E.

This year we're forecasting $109 million, up significantly from last year's level of $101 million.

While no single new product is significant to AMETEK as a whole, we're excited about some recent introductions.

In March at the Fitcon 2010 trade show, Spectro introduced the Spectro MS, an inductively coupled plasma spectrometer with an advanced mass spectrometer detection system.

we are advanced spectrometer detection system.

The Spectro MS has application in R&D labs, the pharmaceutical industry, the nuclear power industry, and academic facilities for elemental analysis of liquid samples.

This product has received rapid market acceptance based on the speed and unique analytical capabilities and won the Fitcon editor silver award for technology innovation in analytical instruments.

As part of our focus on driving retrofit sales in the military aerospace market, AMETEK aerospace and defense was recently awarded multi-million dollars order by L3 for the upgrade of the fuel gauging system on air borne command and control platform.

Orders for similar products on related airplanes are expected in the near future.

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

During the first nine months of 2010, we've made two acquisitions is that broaden our technology base in elemental analysis and ultra precision machining.

In the beginning of April, we acquired Amojo Systems privately held manufacturer of 3D atom probes based in Madison, Wisconsin.

This acquisition significantly broadens ours technical capabilities in differentiating high-end analytical instrumentation and is an excellent addition to our Komeka advanced elemental analysis business.

Amojo is a pioneer in the 3D atom probe technology which is used in advanced material science to conduct atomic level imaging and analysis.

The business provides us with additional technical capabilities, significantly broadens our customer base, and strengthening our global leadership in this high-end technology.

Their customers include many of the world's leading academic, government, and industrial research facilities that are engaged in nanotechnology and other material science research.

Early in the first quarter we acquired 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 lenses, contact lens molds, and intraocular lenses.

While this is a small acquisition 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 number of deals in 2010.

Our pipeline is strong.

We have the financial and managerial capacity an disciplined approach to support this acquisitions focus.

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

Turning now to the outlook for 2010, we're cautiously optimistic about 2010 and expect our markets overall to show good growth.

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

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

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

Earnings for 2010 are expected to be in the range of $2.20 to $2.28 per diluted share, up 15% to 19% over 2009 reflecting a leveraged impact of core growth and our streamlined cost structure.

This guidance is in line with our announcement last week and up from our January guidance of $2.10 to $2.20 per diluted share.

Second quarter are now expected to be up mid single digit on a percentage basis from last year's second quarter.

We estimate our earnings to be approximately $0.53 to $0.55 per dilute share as compared to last year's second quarters of $0.48, an increase of 10% to 15%.

Based on our stronger than anticipated performance, we will be adding 60 incremental people focused on growing our business.

The cost of these incremental resources is included in our guidance.

In summary, AMETEK had an excellent first quarter.

We performed much better than anticipated with broad based improvement in many of our markets.

As our sequential results have shown over the last two quarters, our streamline cost structure enables us to drive significant earnings growth with margin improvement as volume increases.

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

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

John will now cover some of the financial details and then we'll 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.

Our selling general and administrative costs were up 5% from last years' first quarter, driven by the higher level of sales activities and compensation related expenses.

The effective tax rate for the quarter was 32%, in line with our expectations.

We anticipate a rate of approximately 31% for the full year, and as we have said before actual quarterly rates can differ dramatically either positively or negatively from this full year rate.

On the balance sheet, working capital, defined as receivables plus inventory less payables, was 20.6% of sales in the first quarter, an improvement from last year's level of 24.1%.

Compared to a year ago, receivable days improved to 53 days from 58 days and inventory turns improved by 10%.

Capital spending was $6 million for the quarter as expected to be about $40 million for 2010.

Depreciation and amortization was $17 million in the quarter and is expected to be approximately $70 million for the year.

Operating cash flow for the quarter was strong at $92 million, resulting in free cash flow of $86 million representing 149% of net income.

First quarter results reflect a repurchase of approximately 1.8 million shares of common stock for a total purchase price of $67.3 million.

These repurchases are consistent with our stated capital allocation frame work in which stock repurchases will be used over time to offset the diluted impact of our benefit plans.

Total debt was $1.03 billion at March 31st, down slightly from year end.

While setting this debt is cash and cash equivalence of $256 million, resulting in a net debt to capital ratio at March 31 of 34%, unchanged from the end of last year.

We have expended a considerable amount of effort to improve the Company's capital structure to ensure that adequate liquidity is available to support our growth plans.

The result of this work is that AMETEK has significant liquidity available and only one debt maturity in 2010 of approximately 50 million-pounds.

At quarter end, we had approximately $700 million of cash and credit facilities available 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.

That concludes or prepared remarks.

April, we would be happy to take questions now.

Thank you.

(Operator Instructions).

We'll first hear from Jim Lucas of Janney Montgomery Scott.

Thanks.

Good morning, guys.

Good morning, Jim.

John, first a housekeeping question.

Payables in the quarter?

Sure, Jim.

$204 million.

Great.

Thank you.

And, Frank, I was wondering if you could give us a little bit of color on what you're seeing in the order book both geographically and by end market, and if you could maybe speak to the order trends that you saw in the first quarter sequentially January to February to March.

Okay, Jim.

Well, as you've heard from my opening remark : , orders were very, very strong being up 19% as recorded in 17% organically.

Geographically it's pretty much in tune with the GPD of the various parts of the word.

Asia was by far the strongest.

We had very, very good performance in Asia.

That was broad based I would say in most of our markets both in the cost driven businesses as well as the high end differentiated types of products.

So we are very pleased with that performance.

When I look at Europe, Europe was actually okay.

It was stronger than the US which is probably not in line with GDP as I think about it, and in the US we actually had the weakest by that was driven predominantly by aerospace.

.

If we look at end markets worldwide all of our sub-segments with the exception of aerospace were up with our Cost Driven Motor business and our power businesses being the strongest with substantial growth.

The aerospace businesses worldwide were essentially flat on orders.

So every sub-segment was up with the exception of aerospace.

And if we look at the trend, the trend is an improving trend from January was relatively strong, February on sales, I don't remember orders.

I don't know if

Yeah.

It subsided but it was a fewer workings days so.

Right.

And then March was incredible and so far in April it's very strong, Jim.

Okay.

And.

And I think that answers your three points.

No.

No.

That does.

That's helpful.

And you gave a lot of color on kind of how you're thinking about acquisition.

We have seen some technology deals.

Could you just comment on what you're seeing from a valuation perspective out there on acquisitions and have you gotten close to any deals and decided at the last minute just couldn't get comfortable with valuation.

Just wondering what the overall pipeline looks like these days.

Yes.

No.

good question, Jim.

The pipeline is very strong.

It has been strong.

As you know, at the end of last year we had a couple deals that did not occur and right now we're working on a number of deals.

I would say overall there's still somewhat of a disconnect between the bid and ask on acquisition pricing.

Multiples that some of these deals are going at are very, very high and it's hard to see how any buyer could get a reasonable return on the invested capital they put in but having said that there are also good deals that are available at more reasonable pricing, and those are the ones that we're picking and pretty optimistic that as the year goes on, you're going to hear from us on multiple deals.

We're working on a number as we speak it's difficult to say when and if they'll close, in case we finds problems as we go along, but I'm fairly optimistic.

I can say to your point about whether we got through a deal near the end end then found a valuation problem, no.

The deals that we have found near the end are more associated with major problems we found in the deal where pricing was not the issue and that's why at least one of the deals at the end of last year we decided not to do.

Okay.

Great.

Thank you very much.

Mark Douglass, Longbow Research.

Hi.

Good morning, everyone.

Good morning.

Hi.

Frank, can you please go through the various business units and how they did and what you're expecting in fiscal 10.

Sure I will be glad to do that, I will start with aerospace.

Our aerospace markets remain healthy.

During the first quarter, Boeing and Airbus raised their forecast for 2011 and 2012 which is really a clear sign that market conditions are stabilizing for commercial aircraft.

Our third party MRO and military businesses continue to perform well.

We spoke about that at the end of the fourth quarter.

While the business jet market remains week.

As we anticipated in Q1 our overall aerospace business was flat with respect to Q4 and down approximately 10% with respect to Q1 of 2009.

A very importantly, we expect aerospace to be roughly flat in 2010 versus 2009 as our military and third party MRO businesses essentially counter balanced a weaker commercial an business and regional jet.

With the significant cost reductions that we put in place in this business last year we expect profit for aerospace to be up nicely on that relatively flat revenue.

If you take a look at our process businesses, our process businesses performed better than we anticipated in the first quarter with sequential improvement in sales driven by our measurement calibration an ultra precision technology division, oil and gas business was stable.

Sales were up mid single digits sequentially in the quarter on a quarter over quarter basis, sales were down low single digit for this sub segment.

In 2010 we now expect this business to grow mid single digits, which is an improvement from the guidance we gave you in January.

For power industrial Q1 sales were up mid teens sequentially with growth across all parts of this sub-segment.

With respect to the first quarter of 2009, power industrial sales were up approximately 20% reflecting a very strong rebound in the programmable power and industrial businesses from last year.

Industry data showed heavy trucks were up 8% in the first quarter.

We now respect sales from power and industrial to be up 20%, again an improvement from our guidance in January.

Thus, we're all of EIG we're expecting mid single organic growth in 2010, which is up a few points from what we talked about in January.

Moving I don't know to EMG for our differentiated businesses EMG businesses in that segment in Q1 sales were up sequentially mid single digits.

The improvement was driven by our technical motors, EMIP, and our aerospace third party MRO businesses.

With respect to the first quarter of 2009, sales were down approximately mid single digits.

And if we look out into the rest of 2010 we now expect for all of 2010 this business to be up high single digits.

Again, an improvement from our guidance in January.

For our Cost Driven Motor business, as anticipated the business improved with first quarter sales up nearly 20% on both the sequential and a year-over-year basis.

For 2010, we now expect this business to be up mid single digits an improvement from our guidance in January.

So thus for all of the EMG, we're now expecting mid single digit in 2010.

So like my answer to Jim on orders, basically all of our sub-segments are doing well.

We've raised the forward looking sales growths in all of them, with the exception of aerospace which we kept the same, and we're saying that that's roughly flat and, again, with the improved cost structure we expect earnings to be up very nicely.

Well, thank you.

Any of those call sub-segments, which ones were the greatest surprise and what other kind of potential for even acceleration versus your current expectations at this point?

Yes.

Even though we expected the cost driven businesses to rise, we did not expect them to rise as much as they did.

So that was very, very good news to us and I would say the same about our power business, in particular the programmable power division came back much more strongly than what we had anticipated, and on the other side in terms of risk, one of our risks going into this year is what was going to happen with aerospace.

And although we did not change our guidance, I think we have a lot more confidence now around aerospace in that the forecast that we gave you at the end of the fourth quarter we feel very good about now.

We're fairly confident that we're not going to see major deterioration in that business, and so I would say fairly broad based feeling right now.

Just feels a heck of a lot better how than it did three months ago.

And finally on the programmable power, what was behind the real strong there?

Is it broad base or is it--

Yes.

It's very--

Deferred shall deferred spending that is now finally loosened up after things feel better for everybody or --

Yes.

I think when you look at that business, it's got a very broad portfolio of end use customers that service the general electronics industry, serve the semi conductor, general industrial businesses.

So there's a wide dispersion of the customer base and, therefore, I think the prime driver was just a general improvement in the economy.

I've asked the question, not only in that business but across all of our businesses as to how much restocking is going on and whether this improvement in orders that we're seeing is a blip and, will that essentially dissipate, and I get very little feedback that what we're seeing now is a restocking activity.

This feels real.

It's been six months now that our order trends have improved and looking at April is another indicator that April has been pretty good.

So the confidence level is going up almost on a day by day basis.

However, as I said in my remarks we're still cautiously optimistic.

We'll watch this I think in another quarter we'll know for sure whether there was a little bit of a bubble due to inventory and restocking types of phenomenon.

Very helpful.

Thank you.

You bet.

Next we'll hear from Elana Hordon of Bank of America.

Good morning, everyone.

Hello.

I just want to circle back on the programmable power business.

I don't really want to harp on it, but just can you give us a sense of how you know the decline versus the peak.

What the magnitude is roughly.

Well, I continue on an order intake view point, that whole sub-segment power and industrial, was up quarter over quarter about 60%.

Quarter over quarter.

Okay.

Yes.

Quarter over quarter is up about 60% and that 60% was driven by power.

Okay.

And where does power and industrial volume stand relative to where they were at the peak?

I don't know that I have that.

I can tell you that that total business is about $200 million.

I don't have the peak.

We'll have to get that for you.

I'll follow up.

He'll follow up with you Elana, okay?

Okay.

Can you give us a flavor for the new hires that you spoke of the of, the 16 new people, what their responsibilities are going to be?

Rights.

Of the 60 people 25 of those are going to go into the brick countries.

That's where we see the opportunity for growth, and we're going to continue to invest as our business improves in that part of the world.

Of the 25 people, roughly half are going to be essentially feet on the street selling products.

Most of the people that we put in the budget the brick countries, which as I mentioned in my opening remarks were 42, they were predominantly feet on the street, but of these 25 with half of them being feet on the street the other half are going to go into engineering activities in India.

Okay.

We basically have started an engineering program, if you will, we've got a new facility there.

I was just there a month or so ago.

We've got an entire floor that can probably house up to 100 engineers, and we're going to incrementally add engineers to that activity.

So the other whatever 60 minus 25, is I guess is 35 people, are in various parts of the world including the United States.

Many are, again, feet on the street.

Many are, again, at engineering types of activities.

All of these people are focused on growing the business, maybe with the exception of a few that are involved in manufacturing, as our volume ramps up we're going to need more indirect resource and I should make the point that these 60 people or all indirect salary people that I'm talking about.

They're not direct labor people, which we will increment as the volume goes up.

Mm-hmm.

Did your engineering head count go down much over the downturn?

Didn't go down much.

We went down overall in engineering for about eight $8 or $9 million, so it was not significant and we also took a very judicious look at our programs and really removed some of the programs that were not essential to really lever the growth as we go forward.

So now, this year, we're back to roughly where we were before the downturn in terms of overall engineering, and I feel we've got a much stronger portfolio of products that we're going to get from that investment.

Okay.

And just lastly I jus waned to ask a question on margin.

Would you expect margins to sequentially increase as the year unfolds, or would you expect the normal seasonality to maybe impact the progression of margins throughout the year?

I think what's going to happen with margins is they are going to increase.

We're expecting 2010 over 2009 for margins to be up 150 basis points.

So we definitely see an improvement trend in the margins and also in the comparisons.

We were very pleased with our performance on margins both last year and in the first quarter.

Operating income margin was very strong, 18.4% in the first quarter, and so we're looking at probably some kind of number that's approaching oh, probably 19% kind of number.

Maybe a little higher for the year.

Okay.

But would you expect on a quarterly basis the improvement to be linear or --

It's probably going to be a little more in the third and the fourth quarter than in the second quarter.

Okay.

Thank you so much.

You bet.

Next we'll hear from Richard Eastman at Robert W.

Baird.

Yes.

Good morning.

Just a question, Frank, when you laid out your cost savings objectives here for the year, they seem a bit lower than what we exited the fourth quarter.

And my real question is the mindset here to basically exchange if you will cost savings and growth investment for the incremental margin that's coming out of the higher core growth rate that you're now forecasting?

Are we managing their incremental margin here, towards kind of a 35% or say 40% number?

That might be the result, but that's not what we're managing to.

In essence when you look at the incremental growth that we're getting, which is going to be on the order of the mid single digits I talked about, the cost savings have not reduced from what we're talking about.

We had said at the end of the year that we were going it put through about $75 million in total costs improvements, $45 million was incremental year-over-year and the other impacts were due to the GSO activities that I talked about in my opening remarks, and also some improved pension expense.

So we expect to get that full $75 million, and there are some level of additional growth objectives going into the business.

They're not totaling $75 million.

They're a smaller movement but it is what I just talked about, et cetera, et cetera.

So we think the incremental margins to your point, Rick, are in that high 30% region and if you look from Q4 to Q1, we had our 40% incremental margin.

So we feel we're getting it.

Yeah.

No.

That's fair.

I was just trying to understand how you're maybe regulatingor monitoring the growth investments that you're putting back into the business, and it sounds like you're doing that just to support an accelerating core growth.

That's exactly what we're doing.

Frank, could you also just explain maybe your comment on Europe is a little bit curious as to maybe different from what we've heard from many of the other multi industries companies in the sector about Europe.

Maybe outperforming the US.

Is it EIG dominants or EMG or --

It's EIG dominant, and we saw very, very good growth in several of our process businesses.

The UPT business in the UK was very, very strong in the quarter, as well as our Spectro business in Germany showed a rebound so I agree with you that as I listen to other conference calls, Europe seemed to be weaker which is really more in line with the GDP, which is expected to be down in that 1%, 1.5% region for Europe overall, but we're seeing very, very good growths and probably a good part of it is related to some of our new products that have just come to market in the last six to nine months, I would say.

And that's also reflected in the bookings number as well.

Yes.

Just from a sustainability standpoint?

Yes, it is.

Okay.

And then just a last question.

Just these aren't huge numbers but when I look at the incremental margin in EIG and I look at it sequentially, since we're talking a lot of sequential numbers here, the increments all the margin was well over 100% in EEG.

Just not a number that we would typically model.

Is that a mix issue?

You say well over 100%.

Yes.

The incremental.

The incremental margin was up 350 basis points in EIG from our fourth quarter to first quarter.

Yes.

And if you do that shall if you do that math in dollars you're looking at about a $13 million improvement at the EBITDA line over about a little less improvement in sales that's sequential, is that mix or--

It's a combination of mix and we did have some more cost improvements that we are coming through the P&L that we did later in the year.

So it's a combination of those two factors.

Okay.

All right.

Thank you.

You bet.

Next we'll hear from Jamie Sullivan of RBC capital markets.

Hey.

Good morning everyone.

Good morning, Jamie.

Question on the guidance.

I'm wondering if you could give us a sense of magnitude on any changes in currency and how that impacted the earnings outlook at all.

Very minor impact on currency.

It's really on the order of a penny or two.

It just is not significant, and the reason is that we are very well balanced in terms of our costs in the major currencies, and our sales in the major currencies.

So our bottom line is fairly impervious to currency changes in the major economies.

We do have a little imbalance with the pound, but it is not significant.

Okay.

That's helpful.

And then wondering your comments on the aerospace end market.

It sounds like you know what you're seeing looks a little bit more positive but you're keeping your guidance there the same.

Is that just conservatism or because it's a longer cycle of business.

You got it.

It's really the longer cycle business.

And that even though as I indicated we're just feeling much better in terms of what Boeing and Airbus are doing, and also what's actually happening in the military.

We've done a lot of work on the military aerospace and defense business and we're feeling better about it, but I think it relates more to what might happen at the very he end of this year going into next year.

So we have not raised our guidance and we think that's prudent.

I would not put the word conservative on it at this point.

Maybe a little bit in commercial aerospace.

Maybe we're being a little conservative there, but in general I think this is a realistic outlook for aerospace.

Okay.

Thanks.

And then last one on the acquisition front, any changes to the times of deals in the pipeline, and then just curious your outlook what do you think raise the valuation disconnect that's been around for it almost seems like you know 12 to 18 months at this point.

Yes.

That's a great question.

I would say that in terms of the deal availability, we felt very good coming into the year.

I saw some softening as we went through the first quarter, and just in the last month or so there's been a lot of deals that have come to the table, some with that disconnect between bid and ask, but some more reasonable but still higher than you would have expected.

So, I can't actually answer your second question.

I wish I knew the answer, but it was actually very surprising to me that the multiples stayed up as high as they did during the downturn.

When you go back to the last downturn, the multiples really subsided substantially I would say two or three EBITDA multiple points and that didn't happen this time.

One possible logic for that is that the EBITDA's got so low on these companies that there was a little bit of counter balance between the multiples and the lower EBITDAs.

So it's a interesting question, and it's going to be interesting to watch it for the rest of the year, but it's very hard to say.

I mean another possible explanation, I'm just throwing out possibilities here is that there is a lot of cash out there now.

There is a lot of cash, and when there's a lot of cash available from many companies, sellers may finds somebody who's going to buy a company at a ridiculous multiple an I think you know us well enough that we just don't do that we are a he very cautious on what we pay.

We feel the cardinal mistake in acquisitions is overpaying because no matter what you do with the business, you're not going to make it successful in the long term.

All right I agree with you, Frank.

I think someone could be sitting in my shoes someplace looking at excess cash and in effect getting negligible returns on that and feel pressured to deploy it in a way that does something to the top line or bottom line and I think that's a little bit of short term thinking, but I think that's a very likely a factor out there.

All right.

That's very helpful.

Then just one last one just on any trends in pricing that you're seeing?

Pricing.

For the core business.

Excuse me what was yours last point?

On your core business, not the acquisition front.

Yes.

Sure.

Our pricing in the first quarter was up about a point and that's the kind of pricing environments that we are seeing.

It's not as good as it was when times were really good back in the 2007 beginning of 2008 time period, but it's also not as pressured as it was during the downtown, so it probably relates to the upturn that we're starting to see that we can get some pricing but not of substantial magnitude.

Thanks very much.

You bet.

Ned Borland of Hudson Securities.

Good morning.

Two questions here.

First, if we could circle back to the discussion about how margins are going to improvement, I was wondering we saw a sequential down-tick in the margin in the EMG, is that mostly just a function of the surprising growths in the cost driven business and does that sort of normalize as the differentiated businesses gather some steam here?

Absolutely.

Absolutely.

We saw this very strong growth in our lower margin cost driven types of businesses that drove that margin down sequentially about 30 basis points.

It wasn't substantial.

And just as we go through the year that is going to improve as the business normalizes.

So you've got the formula exactly.

Okay.

And then on the SG&A line, I think you referred to some compensation related items in the first quarter.

You're adding heads.

I just want to think of SG&A on a quarterly run rate basis as we go forward here.

The number I can give you, for the full year we expect SG&A to be up about13%.

I don't have it dollars, John.

Maybe you have it in dollars there.

It's about $4.5 million dollars when you go through the whole picture frame.

13% is right.

So it's up about 4 and a half million.

On the SG&A.

On the SG&A line.

Okay.

Thank you.

You bet.

(Operator Instructions).Allison Poliniak of Wells Fargo.

Hi good morning.

Hello Allison.

Frank you, talked about the oil an gas market.

I think it's been stable now for a few quarters.

I mean are there any concerns out there that you still have for the year?

No I would say it's in the opposite direction.

That we're starting to see some improvement in orders, just a little bit longer cycle business, so I believe as those orders improve we're going to see improved performance out of our oil an gas business.

So I would say any downside to this is minimal as we're looking at our order intake right now.

Okay.

Great.

Thank you.

You bet, Allison.

Next we'll hear from Joe Radigan of Key Bank.

Good morning.

This is Joe on for Matt.

Hi Joe.

I just have a couple questions.

On aerospace, in particular the third party MRO are you starting to see any sort of in negotiation point there and end market demands or are we still just seeing market share gains from your roll up strategy?

I would say we are seeing more of the market share gains right now, but there is an expectation that we're going to see market growth as we move into the second half of the year, but I would say the majority now is really the results of our consolidation and gaining share, and incidentally of those various sub-segment I would say within aerospace the third party MRO was our best performer.

It was up about 9% quarter over quarter.

So it did very, very well for us so we're replaced with the roll up of those third party MRO businesses.

Okay.

And then just so I'm clear on the additional people that you're embedding in your guidance.

There's 60 additional, that's in addition to the 42 that you had originally budgeted in for the brick countries, right?

Yes.

That is exactly right.

Okay.

And then did any of those hit in the first quarter or what's the caidance going to be in terms of how you see those coming online throughout the course of the year.

All of them or the additional?

Just all of them.

Yes, it's going to be incremental through the year.

Okay.

We started to hire them and is just going to build through the year, so as we can find the right people we're going to add them, but I've given my divisions the green light, so as soon as they can get them on boards they'll do it.

Okay.

Great.

That's all I have.

Thanks a lot.

You bet.

(Operator Instructions).

We will weigh pause for a moment.

And Mr.

Burke it appears there are no further questions at this time.

I will turn the conference back over to you for any additional closing comments.

All right.

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Thank you.

That does concludes today's teleconference, thank you all for your participation.