阿美特克 (AME) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to this AMETEK, Incorporated, first-quarter 2011 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, Corinne.

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

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

AMETEK's first-quarter results were released earlier this morning.

These results are available electronically on Market Systems, and on our website at the Investors section of ametek.com.

A tape of today's conference call may be accessed until May 12 by calling 888-203-1112 and entering the confirmation code number 7852169.

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 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 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 Investors section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call.

We will begin today with some prepared remarks and then we will take your questions.

I will now turn the meeting over to Frank.

Thank you, Bill, and good morning.

AMETEK had a tremendous first quarter.

We established quarterly records for orders, sales, operating income, operating margins, net income, and diluted earnings per share.

Orders in the first quarter were strong, up 37% to $799 million, with organic growth of 22%.

Backlog of $910 million was an all time high.

Sales in the first quarter were up 29% to $717.8 million.

Internal growth was very strong at 18%, while acquisitions added 11%.

Operating income for the first quarter increased 48% to $152 million from $102.4 million last year, reflecting the impact of the higher sales and our operational excellence activities.

Operating income margin of 21.2% was a 280 basis point improvement over the first quarter of 2010.

Net income was up 56% to $90.4 million and diluted earnings per share of $0.56 were also up 56% over last year's first quarter.

Cash flow was very strong.

Operating cash flow was $104 million for the quarter, up 13% over last year's very strong first quarter.

Turning our attention to the individual operating groups, the Electronic Instruments Group had a tremendous first quarter.

Sales were up 30% to $388.8 million on continuing strength in our process, power, and industrial businesses and the contribution from the Atlas Material Testing Technology acquisition that we completed in November.

As expected, our oil and gas businesses were very strong.

Internal growth for EIG was 22% with acquisitions adding 8% to sales.

EIG's operating income increased 45% to $100 million.

Operating margins were exceptionally strong at 25.7%, up 260 basis points over last year's first quarter.

The Electromechanical Group also had an excellent first quarter.

Sales were up 27% to $328.9 million on strength in our differentiated businesses and the contribution from the acquisitions of Haydon Enterprises and Technical Services for Electronics.

Internal growth was 13%, with acquisitions adding 14% to sales.

EMG's operating income increased 45% to $62.9 million and operating margins were very strong at 19.1%, up 230 basis points over last year's first quarter.

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.

Operational excellence has many facets within our Company, including lean manufacturing, Six Sigma in our factories and back office operations, Design for Six Sigma in our new product development efforts, and the movement of production to low-cost locales.

We also continue to drive lower cost through our global sourcing, office and strategic procurement initiatives.

From these sourcing activities we recognized $7 million in savings in the first quarter and expect $27 million in savings for all of 2011.

These efforts were key drivers in the record operating margins of 21.2% in the quarter.

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

In the first quarter of 2011 international sales represented 50% of our total sales.

Organic growth in the US, Asia and the Americas outside the US was very strong.

Through the investments we've made over the last several years order growth in the BRIC locations was excellent, at 44% in the quarter.

AMETEK's HDR Power Systems business unit received its first power supply order for the Oil and Natural Gas Corporation of India.

Our product will power an electrochlorination process for the production of hypochlorite used in the operation of an offshore oil platform.

This is a great new application for our power supplies, as new process plants built at or near the sea, including oil and gas platforms, will use electrochlorination, which is a more economical and environmentally friendly method for producing water.

The power supply is rated Class 1 Div 2 for use in hazardous areas, which is key in these applications.

We see significant revenue opportunities in this market and are actively talking with others about similar applications for our product.

Air technology, an Aerospace & Defense business unit, has received three prototype orders from a major Indian customer.

These systems, covering hydraulically-driven fans, manifolds, reservoirs and pumps, will be used in trials of the T-72 armored vehicle upgrade program.

India has 1,700 of these vehicles in service, so this could ultimately be a multimillion upgrade opportunity for air technology.

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

We've consistently invested in RD&E.

We expect to spend $131 million in 2011, up 16% over 2010.

And we're excited about some recent introductions.

Our Technical Services for Electronics business unit has won two new cable applications for a ZOLL medical system.

TSE's design and manufacturing capabilities, coupled with outstanding customer support, were the keys to this new product win.

This win represents a $2 million annual opportunity and positions us well to win content on next-generation designs.

Also during the first quarter, our Land Instruments business unit launched the advanced radiometric range of cameras for thermal imaging applications.

This series of cameras are rugged enough to withstand heavy industrial applications, while compact enough for use in R&D and automation applications.

Utilizing state-of-the-art digital processing, these high-resolution cameras provide detailed radiometric images with outstanding temperature accuracy over a wide temperature range, from minus 20 degrees to 1,000 degrees C.

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

This morning we announced the acquisition of Avicenna Technology, a privately-held supplier of custom components used in the medical device industry.

Avicenna provides us expertise in producing fine-featured catheter and other medical components for leads, guide wires and custom medical assemblies.

Avicenna adds to our growing portfolio of businesses that serve the highly attractive medical device market and is a good fit with our Technical Services for Electronics business, which we acquired in 2010.

The combination of these two businesses positions AMETEK as the only medical interconnect provider with integrated capabilities for the catheter, cardiac, and neuro-stimulation markets.

Avicenna is based in Montevideo, Minnesota, and has annual sales of approximately $25 million.

With this acquisition, medical applications comprise approximately 7% of AMETEK's total revenue.

Acquisitions will continue to be a focus for us during 2011, as we see this strategy as a key driver to the creation of shareholder value.

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

Our backlog of deals is very strong, 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 2011 we expect our businesses to continue to show solid growth in 2011, with our longer-cycle oil and gas, power and aerospace businesses showing particular strength.

Our record backlog, strong portfolio of businesses, proven operational excellence capabilities, and a successful focus on strategic acquisitions should enable us to continue to perform well in 2011.

We now anticipate 2011 revenue to be up high teens on a percentage basis from 2010, and organic growth to be up high-single digits.

Both are an improvement from our guidance in January.

Earnings for 2011 are expected to be in the range of $2.20 to $2.25 per diluted share, up 25% to 28% over 2010, reflecting the leveraged impact of core growth and our streamlined cost structure.

This guidance is in line with our April 15 announcement and up significantly from our January guidance of $2.00 to $2.07 per diluted share.

Second quarter 2011 sales are expected to be up approximately 20% from last year's second quarter.

We estimate our earnings to be approximately $0.53 to $0.55 per diluted share, an increase of 26% to 31% over last year's second quarter of $0.42 per diluted share.

Both the second-quarter and full-year guidance include $0.02 per diluted share of costs associated with the performance-based, accelerated vesting of restricted stock which resulted from a doubling of our stock price since the April 23, 2009, grant date.

In summary, our overall business performed very well in the first quarter of 2011, producing records for essentially all key financial metrics.

We expect top- and bottom-line growth to continue in 2011 as our longer-cycle, higher-profit businesses show particular strength and the benefits of our 2010 acquisitions are fully realized.

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 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'd be glad to take your questions.

John?

Thank you, Frank.

As Frank noted, we had an outstanding first quarter, with excellent financial performance and a high quality of earnings.

I will touch on some further details.

Core growth in selling expenses was approximately 12%, well below the 18% core growth in revenue.

General and administrative expenses improved to 1.5% of sales, down from 1.8% of sales in last year's first quarter.

The effective tax rate for the quarter was 32.2%, up slightly from last year's first-quarter rate.

We anticipate a tax rate of between 30% and 31% for the full year 2011.

As we have said before, actual quarterly tax 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 18.3%, substantially below our goal of 20%.

This excellent performance has freed up approximately $60 million in cash in the last year.

In addition, consistent performance at these lower levels enables us to minimize the amount of working capital needed to support the future organic growth of the businesses.

Compared to last year's first quarter, our collections cycle improved to 51 days from 53 days.

Inventory turns improved by 14%.

Capital spending was $10 million for the quarter.

2011 capital expenditures are expected to be about $45 million.

Depreciation and amortization was $20 million for the quarter.

2011 depreciation and amortization is expected to be approximately $83 million for the year.

Operating cash flow for the first quarter was $104 million, up 13% over last year's very strong first quarter.

Free cash flow was $93 million for the first quarter, representing 103% of net income.

For the full year we anticipate free cash flow to be approximately 115% of net income.

Total debt was $1.08 billion at March 31, down $85 million from year end.

Offsetting this debt is cash and cash equivalents of $155 million, resulting in a net debt-to-capital ratio at March 31 of 33.0%, down from 36.2% at December 31.

At March 31 we had approximately $585 million of cash and existing credit facilities to fund our growth initiatives.

In summary, we had an outstanding first quarter for 2011, establishing records for essentially all the key financial metrics.

We are well positioned for further growth, both organically and through acquisitions, with a strong balance sheet and cash flows.

Bill?

Corinne, that concludes our prepared remarks, so we'll be happy to take questions now.

Certainly, sir.

(Operator Instructions) Jim Lucas; Janney Capital Markets.

John, difficult first question -- payables?

$262 million, Jim.

All right, thanks.

Frank, now with the easy tuff.

First off, on the later-cycle businesses of aerospace and oil and gas in particular, could you provide a little more color?

Obviously it's broad-based, but are there any markets that are standing out more than others?

Yes, definitely.

The process businesses, which include the oil and gas part of the business, just performed unbelievably well in the first quarter.

In essence that business was up more than 35%, with 25% organic growth.

And it wasn't just in the oil and gas part of the business.

Also our material analysis, our ultra precision technology, our advanced measurement technology and also our measurement and calibration technology divisions, which are essentially all of the divisions in that group, were also very strong.

So we think this business for the rest of the year is going to be up probably on the order of 20% with organic growth of at least high-single digits.

And it would not surprise me if this ends up in the double-digit arena by the time that we're done.

So that part of our business was exceptionally strong.

And also the power and industrial businesses were very, very strong.

Organically in the quarter they were up about 30%.

And we would expect that that business would be up probably mid-teens organically in 2011.

With respect to aerospace, there's really another leg of the recovery coming in aerospace.

Our orders were very good in aerospace, with basically up low-teens on a percentage basis, with commercial, business jets, third-party MRO, all showing good growth.

And what's going to happen in that business is sales are going to sequentially go up throughout the year.

So we'll really start to feel the benefit of aerospace in the second half of this year into the first half of next year.

So in essence there will be another leg to our long-cycle businesses affecting the profitability of the Company, Jim.

Okay.

And geographically, you mentioned that the BRIC orders were 44%.

Within Europe and North America, could you comment on what you're seeing there?

(multiple speakers)

Yes, sure.

Yes, sure.

If you look, in essence, around the globe -- and the numbers I have in my head are actually sales and they'll be very similar from an orders viewpoint.

But it essentially followed the GDP of the various parts of the world.

Organically the whole Company, as I mentioned, was up 18% in sales.

And if you look at it regionally, it was about 6% in Europe, about 21% in the US, about 28% overall in Asia, and about 24% in the Americas outside of the US.

So Europe was the laggard, US extremely strong and obviously Asia just doing phenomenally well.

All right, great.

Thank you very much.

Allison Poliniak; Wells Fargo.

With margins this quarter reaching once again a new high, should we be looking at this as a sustainable level for the balance of this year, with maybe some incremental improvement?

Oh, we believe we can still continue to improve margins.

If you look at the drivers for margins in the Company, there's really two drivers.

One is the organic growth and, in essence, the contribution margin from our businesses is in the 35% to 38% region.

In the first quarter it was actually 36%.

So as our organic growth continues to do well, we see our margins improving.

And the second factor is the cost reductions that we talked about.

We've got about $50 million of cost reductions moving or into the P&L in 2011.

And these result from our sourcing activities, value engineering, as I mentioned, movement to low-cost locales, some plant consolidations, et cetera.

So you couple those two items and, in essence, our guidance initially in January was margins up 50 basis points and we think we're going to do better than that.

Be a minimum of 100 basis points and probably that's conservative.

Great.

And then, just on the defense market, I don't believe you guys are platform-dependent here, but any concerns about the budgetary talks around that?

Yes.

I mean, there's no question that the budgetary cuts in military are going to have some impact on us.

We believe that we can outperform the market in general because of the general way our portfolio is positioned.

In essence, on the electromechanical side of the business we're very heavy in products that basically cool electronics and those types of applications, which is basically any electronics that's used in the military will, in essence, outperform the base military budget.

On the EIG side we've invested very heavily in helicopters which, again, is going to outperform the base military budget.

But having said that, when we look overall at our Aerospace & Defense business, the really strong elements this year are going to be the third-party MRO.

We expect that to be up high-single digits.

Commercial is very, very strong.

We're probably conservatively estimating that to be up high-single digits.

Military we think will be up.

We think it'll be up probably mid-single digits.

Not as strong as the other two.

And the laggard is really business and regional jets, although the first quarter was very, very interesting.

We actually had order growth in business and regional jets of about 23%.

And so we may be a little bit conservative on that one as well.

Great.

Thank you.

Wendy Caplan; SunTrust.

The laggard of Europe, can you talk about that in terms of what you're seeing in specific countries and how it's changed over the past three to six months, and what you're expecting over the next three to six?

Yes.

I think we're just seeing the results of the GDPs of those countries being laggards.

If you look at the world GDPs in general, Europe is talking about 1% to 2% GDP growth, and the US is 3% to 4%, and obviously Asia a much higher number.

So I think that's the fundamental driver.

And 6% organic growth in a -- overall is not that bad a number.

It's just that it's a laggard with respect to the other two, which are expanding more rapidly.

So it's not specifically any country.

It's more of a general situation.

Okay.

And on the aerospace, to talk a little bit more about that, you're talking about sales going up sequentially second half of this year, first half of next year being strong.

Again, commercial?

MRO?

Or what are we specifically expecting?

Yes, it would be the two that you mentioned.

The drivers are commercial and they are third-party MRO.

As I mentioned to the answer to Allison's question, we think they'll be up high-single digits this year, again accelerating through the year and accelerating into next year.

So they'll be very strong.

And with that strong first quarter in business jets, it's very possible that going into the beginning of next year we're going to see some significant improvement in business jets.

I think it will depend on the general economy and we'll have to see.

But I was very encouraged with the first quarter.

And the really key point, if I could just extend your question a bit, the really key point here is if you look at these three long-cycle businesses -- the process businesses, the power business and the aerospace business -- they represent about a third of our volume, but more than 40% of our profitability.

So we're going to see really strong profitability continue to flow through, I would say, mid next year.

So very, very favorable outlook from my viewpoint.

Okay.

And that possibility was my last question.

I know Allison asked you about whether this is sustainable.

But I looked back and was stunned to see that the margin you posted in EIG this quarter was 90 basis points above the 24.8% that you posted at the prior cyclical peak in the fourth quarter of '08.

And I guess I'm -- obviously 30% volume helps and cost cutting.

Is there anything else that would -- unusual that's in that number?

Or is it somewhat held back by any acquisition-related costs?

No.

There's nothing unusual.

Always in our numbers, because we're continually acquiring, there tends to be a little dilution of margins due to those acquisitions.

But it's not significant because they're not a significant part of the overall portfolio.

And essentially what has occurred here is we have had added, over time, better businesses to EIG.

And you couple that with the very strong effort that we've had in operational excellence to take cost out, and we're basically adding new margin points.

And it's true for the whole Company.

It really isn't just true for EIG; it's also true for EMG.

So we're pretty excited about the margins and the returns that we're going to be able to get.

We don't see that we have to inject huge amounts of cost to continue the growth.

We're going to selectively do it, like in the BRIC locations.

We're going to selectively do it in R&D.

But we don't have to put back substantial infrastructure to grow the Company.

So the margins are going to be a really, really good story.

Thank you very much.

Christopher Glynn; Oppenheimer.

Frank, was just wondering -- your latest comments on how your pipeline is looking and what you're seeing in terms of asset price inflation out there?

Yes.

The pipeline is excellent.

We announced, obviously, one small deal this morning.

We're working on a number of other deals.

Very, very encouraged.

As I'm sure you're aware, last year we spent about $540 million on acquisitions.

We've got a very strong balance sheet and my personal goal is to spend that type of capital this year in terms of buying companies.

And I think it's definitely within the realm of possibility.

In terms of pricing, it's still a seller's market and pricing is a multiple point higher than I would like to see it.

So we're selectively looking at the deals, for those that we can add more than the normal amount of synergy to essentially get similar returns to what we had when pricing was a multiple point lower.

Okay.

And then, looking at the second-quarter revenue guidance, it looks maybe a little on the conservative side versus orders in backlog.

Are you seeing -- is that kind of expressing what you're seeing in lead times at all?

Is there any material stretching out there in the backlog?

Yes.

It is somewhat lead-time-related.

In essence, we had tremendous order growth in the first quarter, but when you look at how that's scheduled it's more in the second half.

And also, we're being a little conservative, because the first quarter was so strong.

But it would not surprise me if we did a bit better in the second quarter.

Okay.

And then, just lastly, with the orders so strong and just this continued sequential ramping, I'm wondering, we're coming off quite a trough, maybe some probable pent-up demand there, but do you think we're kind of borrowing a little from later cycle in some of your markets, maybe hit some early plateaus in some of your markets?

I don't think we're borrowing, but I do think that we're coming back, starting to come back, to a more normal cycle, if you would, or a more normal business trend.

And you can see it in our businesses, because we have short-cycle, medium-cycle, and longer-cycle-type businesses.

And we can feel that our very short-cycle businesses are starting to basically come back to a more normal trend.

And I think you're going to see that now move through the portfolio with right now, as I mentioned, the process and power businesses are extremely strong.

I think that ramp has still got some legs.

I think it's going to go for another 6 to 9 months.

But that will come back to a more normal trend.

And then the aerospace, which is our longest of the long-cycle businesses will be the one that is further out.

So I actually think we're seeing a very normal recovery here.

And we're going to see the strength of the AMETEK portfolio versus a number of our peer companies, because we've got this mix of cycles in our businesses.

Great.

Thank you for that color.

Matt Summerville; KeyBanc.

On the aerospace side, Frank, can you give us just a little more color between what you're seeing in the traditional spares business on the commercial side versus OE, what you saw in Q1, and what your outlook is for the year there?

Yes.

On the -- well, the aftermarket business, which is our spares, it's not as strong.

It's definitely improving and it looks a lot better than it did.

But it's not as strong as the third-party MRO businesses.

And the reason for that is simply that we are gaining share with the third-party MRO businesses.

It isn't just sort of following the market.

But we've been very aggressive in rolling up companies in the third-party MRO world and we've selectively looked at asset purchases where we can gain share.

There's a very interesting dynamic in this business that it isn't just the product capability that you have where you have a competitive advantage.

It's also location.

So if you're next to a major airport, for instance, you can be a major supplier and essentially be able to get more business than the original OEM because they may not have a facility at that particular airport.

So we're gaining share.

That strategy is just working phenomenally with us.

And I think over time we're always hopefully going to see that the third-party MRO business will outperform our inherent aftermarket business.

And then just a follow-up on oil and gas -- if we can get a little more granularity there.

Can you talk about upstream versus downstream?

And then what you're seeing kind of US versus non-US in that important end market?

Yes.

I mean, upstream is clearly stronger than midstream and downstream, as you would expect.

I looked, actually, yesterday and the worldwide rig count is now just back to the peak that we had in 2008.

It's 3,500 rigs.

And it came off a very low base during the recession.

So it's doing extremely well.

And we're seeing that predominantly in our upstream types of applications.

And in terms of geographics, it's much stronger outside the US than it is inside the US.

To a large degree -- not fully, but to a large degree -- in the US it's a replacement business more than major rig kinds of activities.

So the strength is very, very good outside the US.

Have you seen refinery spending in North America begin to improve yet?

Yes.

Yes.

Definitely seen improvements, so things are better.

But they're not accelerating at the same rate that, in essence, things are happening in the upstream business, particularly outside the US.

Got it.

Thanks, Frank.

Mark Douglass; Longbow Research.

Frank, can you touch on the effect of material price increases on you?

I mean, certainly you probably have a fair amount of metals with your connectors businesses and the like.

Did you institute some price increases to handle this?

What are you seeing there as far as the effect of the material cost headwinds?

Yes, we're in great shape.

In essence, if you look at our pricing versus the input side, we're up net a point.

So that in essence we put to the bottom line a point, which means our pricing has been extremely strong.

And there's two types of pricings that we look at here.

For those businesses that are commodity-oriented -- and for us that essentially means copper, steel and nickel, those three commodities -- we have either contracts with our customers where they automatically -- automatically we will adjust pricing based on an index that's associated with those commodities.

Or for others, we will basically take, at the time we quote the business, we will buy forward on what we've quoted.

We're not speculating because we have the order, but we've basically locked in the profit margin.

So that in essence we're impervious to the movement of the basic raw materials.

On other parts of our business, predominantly in the instrument side of the business but also in parts of the differentiated part of EMG, there it's more component-related.

And we just have to make sure that our pricing is ahead of any changes on the input side.

So we've been very aggressive on the pricing.

And, as I mentioned, we're ahead of it in terms of the overall performance of the Company.

And obviously the net result is the margins that you saw on the first quarter.

They were phenomenal.

And obviously, if we had major input problems and weren't covering it we wouldn't have had those kind of margins.

Right.

Have you ever mentioned what percentage of COGS is materials?

For the Company, it's probably in the 30% range.

But that's an amalgamation of businesses that run from below 20% to 50% or 55%.

So it's really not a metric we focus on.

It's really at the business unit level we look at those material contents.

Okay, that's helpful.

And then finally, Frank, you touched on your outlook for cost-driven and differentiated businesses, and just a little more insight as to what went on in the differentiated businesses in the [quarter]?

Yes, sure.

Sure, Chris.

Differentiated businesses were extremely strong in the quarter.

In essence, the sales were up more than 35% in Q1 and organic sales were up in the high teens, so very, very good performance.

It was driven by our technical motors, EMIP and the aerospace third-party MRO businesses.

And if you look for all of 2011 we'd expect this business to be up approximately 20% overall, with organic growth in the low-double digits.

And obviously this is the major part of EMG now, with sales up in that $1 billion level on an annualized basis.

The cost-driven motor businesses, which are now less than 10% of AMETEK's overall volume, have returned to a more normal trend in 2011.

Q1 organic sales were essentially flat and we expect for 2011 will be up low-single digits.

The good news here is that we put sizeable cost improvements into this business.

The team that's running this business, they were just in yesterday, have done an incredible job with this business.

So we expect that the profit growth will be double digits this year, based on that volume.

So if you look at all of EMG then, putting those two pieces together, we're expecting high-teen growth on a percentage basis for all of 2011, with organic growth of high-single digits.

So you're still seeing savings in the cost-driven motors?

Oh, yes.

Oh, yes.

Absolutely, absolutely.

Okay, thank you.

Jamie Sullivan; RBC Capital Markets.

Frank, I was just wondering, the trends that you've seen recover in the fourth quarter and into the first quarter, it seems like it's just a little bit faster than you expected.

They've been accelerating.

Were there any areas that really surprised you or that you're starting to see turn that may be a little bit different from what we've seen?

I would say -- the best way I can characterize the answer to your question is that we were surprised at how fast the overall business went down and we were surprised at how fast the overall business came back.

And I mean, the rate of change here from, say, mid last year to where we are now is pretty much unprecedented.

It was just very, very significant.

And it's broad-based.

And it happened in a very natural way, with our shorter-cycle businesses coming back first and now more of our mid-cycle businesses are really humming.

And we've got this additional leg with the aerospace business that's going to come back later.

So very normal, but very rapid.

And there's nothing in particular that I can point to that would say there's some -- one phenomena that's causing it.

It's basically a global improvement in the business.

Good.

Thanks.

Then I guess just moving to SG&A, it looks like that was down sequentially, despite revenues being up.

Can you maybe talk about that trend a little bit and how we should expect that to move throughout the year?

Yes.

We're expecting really good performance below the line.

If we look at G&A for the whole year, what's rolled up in our estimates is that G&A will be down mid-single digits.

We've been very aggressive again on the cost side and that's showing in that line.

Same with interest expense, that we expect that -- again, barring future acquisitions, which we hope will do.

But if you exclude future acquisitions it's only going to be up 3%, 4% for the year.

So we got substantial leverage below the line.

And, as John said, on the selling expense we grew at about 12%, when our organic growth was 18%.

So there's leverage.

There's leverage between the Group income line and the bottom line.

And that's rolled up in our estimates and we're pretty excited about that.

Great.

Thanks.

And then just last one on Japan and any -- are there any supply chain impacts that you're seeing for components, electronics, anything like that?

Not yet.

We've been watching this like a hawk because as I'm sure you're aware, when you look at the wafer production in the world, about 60% of it comes out of Japan.

We have not seen any impact at this point in time.

But we're watching it.

And I've listened to other CEOs on their calls say they don't have a problem for the rest of the year.

I don't quite know how they can say that, because I'm not sure anybody really knows.

And so we're going to watch it and I hope that no one has a problem as we go into the second part of the year.

One of the good things here is there was a fair amount of inventory on wafers before this crisis occurred.

So it's going to give other suppliers of wafers the opportunity to increase their production to offset this.

If it was immediate, if there was no wafers sort of in the inventory, supply chain -- there could have been a bigger problem.

So hopefully we will not have an issue and clearly we're not having one yet.

And we have visibility through the second quarter so we're not going to have one in the first half of the year.

So we're really focused on whether there will be any issues in the second half.

Great.

Thanks a lot.

That's all I had.

(Operator Instructions) Richard Eastman; Robert W.

Baird.

Frank, just to follow up on the Japan question and the supply chain, people are watching that.

And the question I might have is if you flip that around, is there any demand that you see out of Japan or within their export markets that perhaps would be beneficial?

One product area in particular is just the nuclear detection, particularly.

Yes, absolutely.

That's a great question, Richard.

In essence, we are seeing increased demand and it's in exactly the area that you're talking about.

We make products that basically can detect and analyze nuclear radiation.

And we've seen a spike as a result of the disaster.

It's not something that is going to materially change AMETEK's performance, but it's a nice spike that we'll take advantage of.

And there could be some other business that comes out of this, as other countries in the world tighten their safety regulations.

China has come out and said they're going to tighten their regulations.

I'm sure it'll happen in the US.

We make a lot of equipment that is related to nuclear power plants that help the safety of those plants.

So bad as this disaster was, and obviously we're all very sympathetic to what happened in Japan, it's probably going to be a net positive for AMETEK from a business viewpoint.

Is there also -- I think on the instrument side of the business in EIG and even on the process piece, is there any growing mindset that we have to somewhat recapitalize, if you will, the instrument infrastructure in Japan as we rebuild?

Is that just kind of too far off in the future here?

Yes.

I don't -- I haven't seen anything that speaks to that of any appreciable magnitude.

Yes.

Okay.

And then just a question here as well for John -- was there any FX impact in the quarter?

And if there was could you just give us that by segment?

None.

There's none, Richard.

There was no [trend.]

All right.

And then lastly, Frank, just in EMG, is there an increased effort here at some point to grow out the specialty metals and connectors piece of the business?

We had the acquisition today.

But I'm kind of thinking along the lines of valuations; they seem like they might be more attractive there.

Are you seeing any more opportunities kind of in that part of the business rather than --

Oh, yes.

Absolutely.

Absolutely.

We had a very strong specialty metals business in the Company from many, many, years back.

And we have grown that appreciably and we're going to continue to do that.

And the valuations on those companies as we acquire them tend to be lower.

For instance, the deal we announced this morning, although a very small deal, we paid about 6.5 times first-year EBITDA, so very, very attractive return on those types of businesses.

And they're very good margin businesses and very good growth businesses, provided you take the approach that they have to be niche-focused with custom types of applications.

So, yes, we see it as a growth area for the differentiated part of the business.

We'll grow that.

The technical motors business with the acquisition last year of Haydon Kirk gives us a really strong platform.

And that business is doing phenomenally well.

And also a large part of the aerospace third-party MRO business is in that differentiated piece that you're referring to.

And obviously, as we've already talked about on the call, that's one of our higher growth areas of aerospace.

So that whole differentiated part of EMG is a very, very attractive area for us.

I see.

Okay, very good.

Thank you.

We have no further questions at this time.

All right.

Thank you, everyone, for joining our call and we look forward to speaking with you at the end of the second quarter.

Thank you.

Ladies and gentlemen, that does conclude today's conference.

Thank you for your participation.