阿美特克 (AME) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the AMETEK fourth-quarter earnings call.

During the presentation all participants will be in a listen-only mode.

Afterwards we will conduct a question-and-answer session.

(Operator Instructions)As a reminder this conference is being recorded, Thursday, January 26, 2012.

It is now my pleasure to turn the conference over to Mr.

Kevin Coleman, Vice President of Investor Relations.

Please go ahead, sir.

Great.

Thank you Sylvana.

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

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

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 www.ametek.com.

A tape of today's conference call may be accessed until February 9 by calling (800)633-8284 and entering the confirmation code 21563559.

This conference call is also on webcast.

It can be accessed at www.ametek.com and at www.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, Kevin.

AMETEK had a strong fourth quarter to complete another outstanding year.

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

For the full year 2011, sales were up 21%, operating income was up 32%, margins were up 180 basis points and diluted earnings per share ended at $2.37, a 35% increase over 2010.

Focusing on the fourth quarter, sales were up 13% to $762.8 million.

Internal growth was strong at 6% while acquisitions added 7%.

Operating income for the fourth quarter increased 24% to $167.4 million from $135.5 million last year reflecting the impact of the higher sales and our operational excellence activities.

Operating income margin in the quarter was a record at 21.9%, a 190 basis point improvement over the fourth quarter of 2010.

Net income was up 25% to $101.9 million and diluted earnings per share of $0.63 were up 26% over last year's fourth quarter.

Orders in the fourth quarter were $748 million, up 4% over a difficult comparison from the prior year.

Operating cash flow was superb with both the fourth-quarter and full-year results representing records.

Operating cash flow was $153 million for the quarter and $509 million for the year, up 19% and 20%, respectively.

Free cash flow was 132% of net income in the fourth quarter and 119% of net income for the full year.

Turning our attention to the individual operating groups, the Electronic Instruments Group had a tremendous fourth quarter with strength across each of our major businesses.

For the quarter, sales were up 17% to a record $441.5 million on accelerating growth in our Aerospace business and continuing strength in our Process, Power and Industrial businesses.

The Reichert Technologies and EM Test acquisitions completed in the fourth quarter also contributed to the growth.

Internal growth was 9%, acquisitions added 8% and foreign currency translation had no impact on EIG.

EIG's operating income increased 29% to $116.3 million and operating margins were very strong at 26.3% up 240 basis points over last year's fourth quarter.

Both operating income and operating margins in the quarter were records.

The Electromechanical Group also performed well in the fourth quarter and for the full year.

Sales were up 7% to $321.3 million in the fourth quarter on strength in our differentiated businesses.

In particular, our Aerospace third-party MRO business was very strong.

The acquisitions of Avicenna Technology and Coining also contributed to the growth.

Internal growth was 1%, acquisitions added 6%, and foreign currency had no impact.

EMG's operating income increased 6% to $62.3 million and operating regions were 19.4%.

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 AMETEK, 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 are especially pleased with our working capital results which reached an all-time record level in the fourth quarter.

Working capital as a percentage of sales was 17% in the quarter.

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

From these sourcing activities we recognized $8 million in savings in the fourth quarter and $30 million in savings for all of 2011.

For 2012, we expect approximately $40 million in incremental savings through our material cost reduction initiatives.

All of this operational excellence efforts were key drivers in achieving record operating margin of 21.9% in the quarter, full-year margins were 21.3%, an all-time record for AMETEK and up 180 basis points from 2010.

Moving onto our second strategy, global and market expansion continues to be a driver for AMETEK's growth.

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

Due to the investments we've made over the last several years, quarter growth in the BRIC locations was very strong at 18% in the quarter and 35% for the full year.

We have also seen continued growth in our global oil and gas business as many new supply sources are being explored and developed.

In particular, the growth of the Canadian oil sands as an attractive source for proven crude oil reserves has led to a number of opportunities for our Solid-State Controls business unit.

The latest order awarded was the [UPS] system contract for the Kearl Oil Sands in Alberta Canada.

The initial order was valued at $2.3 million with additional orders expected to follow.

AMETEK Solid-State Controls was previously awarded orders for the supply of industrial UPS equipment totaling over $6 million related to other oil sands projects in Canada.

AMETEK has devoted considerable resources to this growing market including establishing a local service center to further enhance our position and serve our customers.

We are well-positioned to capture additional business in support of the development of the oil sands as the leading supplier of industrial UPS equipment in Canada.

In the fourth quarter, AMETEK's EM Test business booked their first order to supply compliance testing solutions into the hybrid and electric car market.

This order is for the supply of a compliance test system to test surge, harmonics, and flicker for e-car charging stations.

EM Test is in discussions with many of the leading automobile manufacturers and expects similar orders to follow.

As the hybrid and electric vehicle market develops, a set of compliance standards is emerging which will require electric automobile manufacturers and charging stations to comply with electronic discharge and compatibility standards.

Our EM Test business which we acquired in October 2011 is well-positioned to capitalize on this niche market opportunity.

EM Test is currently the clear leader in providing conducted immunity solutions to the automotive test industry, enabling car manufacturers and their supply chain to ensure compliance to ISO standards.

This opportunity is a great example of AMETEK's strategy to expand our existing capabilities into new market areas.

Moving onto our third strategy, new product development is a key to our long-term health and growth.

We have consistently invested in RD&E.

In 2011, we spent $137 million, which was up 22% from 2010 and in 2012, we expect to spend $155 million, a 13% increase over 2011.

We are excited about some recent new product introductions.

Our Vision Research business introduced a third generation of their Phantom MRO high-speed imaging camera line, the MRO M series.

The Phantom MRO line is targeted at scientists and engineers for use in applied research applications, product development and quality monitoring of high-speed processes.

The new MRO M series delivers a price-to-performance ratio which sets a new benchmark in the industry.

In addition it provides for a new level of performance and ease-of-use which will open new segments of the market to high-speed imaging.

Our Medical Interconnects business recently received their first order for the supply of highly engineered cables and cable harnesses for use in portable medical imaging products.

This order was received from Varian Medical Systems, an existing customer of our Medical Interconnects business.

Demand for portable products such as portable ultrasound and x-ray equipment has increased due to the improvements in imaging quality along with the continued focus on reducing medical costs and improving access.

Our Medical Interconnects business is well-positioned to capitalize on further opportunities in this developing niche market given our strong technical and engineering capabilities along with our excellent relationships with many of the key medical OEMs.

From an overall perspective, revenue from products introduced over the last three years was 21% of sales in the fourth quarter, up from 19% last year, reflecting the excellent work of our businesses in developing the right products to serve their customers.

Turning our attention to acquisitions, which is our core strategy, we had another tremendous year for acquisitions in 2011 and with the announcement this morning of the acquisition of O'Brien Corporation, we have started 2012 strong.

I will discuss O'Brien in a moment but first wanted to address our 2011 acquisitions.

We deployed nearly $475 million in capital on five acquisitions in 2011 and acquired approximately $215 million in annual revenue.

We acquired an excellent set of highly differentiated businesses that expanded our market opportunities and technology base in the areas of electrical interconnects, [Ophthalmic], diagnostics, programmable power and high-end analytical instrumentation.

In the fourth quarter alone, we closed three acquisitions, Reichert Technologies, EM Test and Technical Manufacturing Corporation.

Over the last two years we have deployed over $1 billion in capital on acquisitions and acquired approximately $430 million in annual revenue.

The last acquisition completed in 2011 was Technical Manufacturing Corporation which we closed in December.

TMC is a global leader in high-performance precision vibration isolation systems for use in ultra-precision measurement applications where vibration isolation is critical to accuracy.

AMETEK has and will use these products in conjunction with our high-end metrology instrumentation.

TMC was privately held and has annual sales of approximately $30 million.

TMC's products include piezoelectric vibration cancellation systems which are based on TMC's patented active Piezo technology.

They also provide passive vibration cancellation systems, optical test benches and acoustic and magnetic isolation hoods.

Its customers include the leading manufacturers of life sciences, photonic and semiconductor equipment along with testing laboratories and universities where vibration isolation is critical to the quality of their testing work.

TMC is an excellent acquisition for AMETEK and fits well with our ultra-precision technology business.

It's the leader in its market niche and has unique differentiated technology.

It also provides compelling market synergy opportunities across many of our high-end analytical instruments businesses, given the complementary nature of its product offering and the common customer base.

Now turning to the acquisition of O'Brien Corporation which we announced this morning.

O'Brien is a leading manufacturer of fluid and gas handling solutions, sample conditioning equipment and process analyzers used in critical applications in the process industries worldwide.

O'Brien was privately held and has annual sales of approximately $80 million.

The price paid was approximately $175 million.

O'Brien's product offering includes pre-insulated tubing bundles, sample conditioning equipment, specialty electro-polished tubing for use in high-purity applications, instrument enclosures and process analyzers.

Its products are used to enable the capture, transport and analysis of liquids, gases, vapors and emissions in challenging process environments such as oil and gas production, refining, petrochemical processing, power generation, pharmaceutical manufacturer and semiconductor fabrication.

O'Brien's product lines are both highly differentiated and highly complementary to AMETEK's process instrument businesses.

Combined with our analytic instrument solutions, AMETEK can now offer its customers a complete solution for most of their process analysis needs.

In addition, we expect to leverage the strong customer relationships of the combined businesses and AMETEK's global capability to further extend O'Brien's market reach.

Acquisitions will continue to be a focus for us during 2012 as we see this strategy as a key driver to the creation of shareholder value.

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

Our backlog at deals is excellent, 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 2012.

We expect our businesses to continue to show solid growth in 2012 with our longer cycle of oil and gas, power and aerospace businesses showing particular strength.

Our solid backlog, strong portfolio of businesses, proven operational excellence capabilities and a successful focus on strategic acquisitions should enable us to perform well in 2012.

We anticipate 2012 revenue to be up low double digits on a percentage basis from 2011; organic growth is expected to be up mid-single digits for all of AMETEK and for both operating groups; earnings for 2012 are expected to be in the range of $2.65 to $2.70 per diluted share, up 12% to 14% over 2011, reflecting the leveraged impact of core growth and our operational excellence initiatives.

First-quarter 2012 sales are expected to be up mid-teens on a percentage basis from last year's first quarter.

We estimate earnings to be approximately $0.63 to $0.65 per diluted share, up 13% to 16% over last year's first quarter.

In summary, our overall businesses performed extremely well in the fourth quarter and in 2011 producing record results for essentially all key financial metrics.

We expect top and bottom line growth to continue in 2012 as our longer cycle, higher profit businesses show particular strength and the benefits of our 2011 acquisitions are fully realized.

We have a strong balance sheet, generate significant cash flow that provides plenty of liquidity to operate the business and pursue our acquisitions strategies.

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 future growth.

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

Thank you, Frank.

As Frank noted, we had a strong fourth quarter with excellent financial performance and a high quality of earnings.

I will provide some further details.

Core growth and selling expenses in the quarter was in line with growth in core sales.

General and administrative expenses were 1.5% of sales, below last year's fourth-quarter level of 1.9% of sales, driven primarily by lower consulting spend in this year's fourth quarter.

The effective tax rate for the quarter was 30.7%, up from last year's fourth-quarter rate of 29.4%.

The full-year tax rate was 30.9% versus last year's rate of 30.1% and in line with our expectations.

For 2012, we would expect our tax rate to be between 30% and 31%.

As we've said before quarterly tax rates can differ dramatically either positively or negatively from this full-year rate.

On the balance sheet, working capital to find as receivables plus inventory less payables was 17% of sales in the fourth quarter, down from 18% in last year's fourth quarter.

This record low level of working capital positions AMETEK as one of the top performers in our peer group and is a direct reflection of the tremendous strides our business units have taken in driving towards operational excellence.

Strong working capital management will remain a key priority.

Capital spending was $18 million for the quarter and $51 million for the full year.

Full year 2011 capital expenditures were 1.7% of sales.

2012 capital expenditures are expected to be about $60 million.

Depreciation and amortization was $24 million for the quarter and $87 million for the full year.

2012 depreciation and amortization is expected to be approximately $100 million.

Operating cash flow for the fourth quarter and full year were records.

In the fourth quarter operating cash flow was $153 million, up 19% over last year's fourth quarter.

And full-year operating cash flow of $509 million was up 20% over 2010.

Free cash flow was $134 million for the fourth quarter representing 132% of net income.

For the full year, free cash flow was $458 million, approximately 119% of net income continuing our strong free cash flow generation.

Our strong cash flow was deployed to support our acquisition strategy where we expended nearly $475 million on transactions in 2011.

In addition, we repurchased $59 million in stock in 2011.

Total debt was $1.26 billion at December 31, up $95 million from 2010-year end.

Offsetting this debt is cash and cash equivalents of $170 million, resulting in a net debt-to-capital ratio at December 31 of 34.8% down from 36.2% at the end of 2010.

At December 31, we had approximately $915 million of cash and existing credit facilities to fund growth initiatives.

Subsequent to the end of 2011 we acquired O'Brien Corporation for approximately $175 million.

Our highest priority for capital deployment remains acquisitions.

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

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

Kevin?

Thanks, John.

That concludes our prepared remarks.

We are now happy to take questions.

Thank you.

(Operator Instructions)

Allison Poliniak, Wells Fargo.

Good morning, guys.

Obviously concerns about Europe and emerging market growth is certainly on the forefront of investors' minds.

Could you just give us a little color on what you're seeing geographically as well as how you're thinking about it going into 2012?

We saw a little impact of Europe in the fourth quarter.

It was predominantly in our for-care motor business.

If you look at the organic growth numbers for the Company at 6% over all, the organic growth in Europe was about 3% and the organic growth in Asia was about 9% and in the US it was around 6%.

Europe was a little weaker but not significantly and probably very importantly, our order intake so far in January has been nothing short of superb.

Europe looks fairly good.

I'm not overly concerned at this point, but obviously we are going to watch it very, very closely and as you know, we are very aggressive if revenue starts to show weakness in terms of removing costs and keeping our profitability up.

So far, so good, but I would say some slight weakness in Europe.

Great.

Obviously you guys have done a great job on margins in 2011 and historically, how should we think about the margin profile going forward?

We believe even though we have hit record levels on margins that there is definitely more runway.

I have consistently said through the course of 2011 to model about 30 basis points as we go forward and as we have rolled up the budgets, we feel confident in another 30 basis points of improvement in 2012.

It really comes from two places.

First, with the organic growth that we have talked about in 2012 of mid-single digits and with the contribution margins that we have which are superb.

In the fourth quarter, our contribution margin was greater than 40% so you take that organic growth with that kind of contribution margin, and obviously that's going to be a positive impact on the overall margins in the Company.

Secondly, as always, we will be aggressive on the cost reduction side.

In 2012 we're going to put approximately $60 million of cost improvements through the P&L.

You take those two dynamics and it does lead to improving margins.

Normally what we do is give you some estimates at the beginning of the year and then the margins get better as we go through the year and I hope that will be the case this year.

The 30 basis points is probably a conservative number.

Thank you.

Robert Barry, UBS.

Good morning.

First on O'Brien, is there any assumed accretion this year from it?

There is a few cents of accretion that's in our estimates, but nothing substantial.

There will be costs that will run through the P&L as we integrate that business.

The real affect on the bottom line will come more in 2013 than 2012.

Got you.

You called out areas of strength, aerospace and also oil and gas.

I was wondering if you could unpack each of those a little bit for us in terms of what your outlook is in the various areas within aero and also within oil and gas, particularly up versus downstream.

Sure Robert, I would be glad to do that.

Why don't I start with our overall aerospace business.

That business completed a solid year with high-single-digit organic growth in the fourth quarter and it was on strength in the third-party MRO business, the commercial and the business and regional jet businesses.

We expect to really see strong growth for all of aerospace in 2012 and that is going to be based on the OEM build rates.

You look at Boeing -- they are projecting to be up about 18% on build rates; Airbus is expected to be up about 9%.

So overall we are looking at 13% build-rate growth in the 2012 timeframe and also revenue passenger miles support strong growth.

Our business in regional jet business as well is expected to do very well, but that is mainly due to program winds on new aircraft, not as much by market as it is by the engineering efforts we have put in place.

So, to give you some specifics on the various segments, in 2012 we expect our commercial and third-party MRO businesses will be up high single digits.

Our business and regional jet business we actually expect to be up low double digits so it's going to be, actually, our strongest growth area.

Our military business is expected to be up low single digits.

When you sum all of that up, we expect our overall aerospace business should be up in the mid- to high-single digits region in 2012.

As I mentioned, our orders look really good in January and aerospace is one of the drivers for that.

Talking about the process businesses and oil and gas, I will talk first about the process businesses overall and then I will come back to address your upstream, midstream, downstream question.

The process market performed extremely well in Q4, both in the quarter and the full year with strong growth across most of the businesses in process.

In the quarter, our growth was driven by oil and gas, ultra-precision technology and advanced measurement technology businesses so it is broader than oil and gas, although oil and gas was a key driver.

Sales were up high single digits organically in the quarter and high teens overall.

If you look to 2012, we expect the business to grow high teens overall and with organic growth at mid-single digits.

If you look at the later cycle oil and gas businesses, that is going to be a driver for this.

If you look at the various segments of upstream versus midstream versus downstream, the growth is clearly being driven more by upstream than it is by midstream or downstream.

However, the midstream business is still reasonably good.

If you look at the downstream business outside of the US, and about 70% of our process businesses are outside the US, it is pretty good.

This has been a driver to the Company in 2011 and we expect it to do extremely well in 2012.

Thank you very much.

Jim Lucas, Janney Capital Markets.

Thanks, good morning.

First a housekeeping question, John, the payables number?

Sure, Jim.

$283 million.

Great.

Thanks a lot.

Frank, first question.

With regards to the EMG core of 1% in the fourth quarter, could you walk us through the dynamic there given the commentary about the aerospace and differentiated businesses.

What was the dynamic behind the slower core in the fourth quarter in EMG?

Sure, Jim.

Basically the driver there was Europe, as I mentioned.

It was predominately in the floor care and motor business.

That particular business was weaker than we had anticipated.

It was down about mid-single digits and we were forecasting more flattish for that particular business.

That had an impact on the organic growth in that portion of our business.

But the good news is that January is starting off quite strong.

It is actually a bit hard for us to understand exactly what happened.

It was really at the end of the fourth quarter; it just looked like things slowed but then it popped back.

We are going to watch that closely but that was the key driver and the answer to your question.

Okay, so the other components of EMG were in line or better than your forecast?

The other components were fine.

Okay.

A follow-up on the emerging market question.

You made a lot of investments there through the years.

Could you give us an update of what you're seeing in the three key emerging markets of China, India and Brazil going into 2012?

Yes.

The BRIC countries in general look very exciting to us.

I know there has been a lot of talk in the press about slowing growth rates in those countries, but our market shares are low and all of those countries are doing well for us.

Overall for the BRIC countries in 2012, we are looking at approximately 20% growth for the Company.

They will be a key driver -- actually it is 22% is the actual way that our budget rolls up.

They are going to be a driver to our growth.

If you look at our concentration, it is heavily in China.

That market continues to do well for us.

India, we've made some major investments over the course of the last three or four years.

We saw excellent growth in 2011 and we expect that to continue in 2012.

If you look at Brazil, we don't have as much volume in Brazil, but we have decided to put significant investments in Brazil.

We have been working in China for many, many years.

We have done a lot in India.

Our attention now is focused more in Brazil.

I may have mentioned in our last conference call, Jim, that we now have a 140,000-square-foot facility in Brazil.

We have won some major business with Petrobras which we are going to produce in that facility.

We have opened it up now to the other AMETEK divisions that they can put production down there.

We've got the infrastructure to support that, and our businesses are looking at it aggressively as they have in China, for instance.

It's very important to be able to manufacture in Brazil because of the tariff situations that are a factor in that business.

And in that plant, we're also going to beef up our distribution capability.

Were going to have our divisions, as we have in China and in India, put people down there in all of these BRIC countries, if my recollection is correct, we're going to add just under 60 people that are predominately in the distribution network, a few in engineering in India just to continue that growth profile.

We are pretty encouraged with all of the BRIC countries and we think it's going to be a key driver to our growth so we are going to continue those investments.

Thank you very much.

You bet, Jim.

Scott Graham, Jefferies.

Good morning.

From what I heard you say, Frank, and correct me if I'm wrong, I think you said fourth-quarter organic orders were up 4%?

That's correct.

Well, all orders were up 4%, right, and organic--.

Would you be able to split between the two segments?

Actually, I don't have that information here so I can't split it.

We don't look at orders as fundamentally a key driver, Scott, because aerospace orders just come in in lumps and -- actually I don't have that data here, we can get it for you.

We'll get it for you, Scott.

Long cycle, always lumpy, I get that.

Was there anything -- you mentioned there were tough comps and you were kind of talking about the floor care, were there any other businesses that maybe contributed to that number maybe being a little bit below but we have seen?

Not really.

There was maybe a little weakness in our TMC business which is the higher technology motors that are more in the differentiated segment.

But again, those orders came back very good in January.

I would just say it was sort of the normal ebb and flow, not anything that would be any different than a normal recovery because we're coming back from sort of a recession.

We have had huge organic growth over the course of the last year and now we are coming back to what I would call more normality, so there is some movement up and down.

We are fairly encouraged right now.

We think 2012 is going to be a fine year.

Yes, definitely.

My sense is that you are sensing that the fourth quarter 4% was just something more of lumpiness more than anything else, I don't want to paraphrase here but that's--?

That is true.

If you wouldn't mind going through some of the other businesses, power, industrial, and is there any way -- would you mind, if you can do this, great -- to split floor care versus technical versus EMIP on the fourth-quarter organic?

Let me talk to your question the way that I typically talk about the various subsegments in the business.

Looking at EIG, I think we've handled aerospace and we've handled the process businesses, so the one remaining part of EIG is the power and industrial.

That business was very strong in Q4.

Sales were up low teens organically and more than 20% overall with excellent growth across both the power and the industrial parts of the business.

Strength really across that whole subsegment.

Looking forward, in 2012 we expect sales for power and industrial to be up low teens overall and mid-single digits organically.

If you sum what we talked about for aerospace, for process and for power and industrial, for all of EIG, we are expecting sales to be up about mid-teens overall and organically to be up mid-single digits.

Hopefully that mid-single-digit organic is a conservative number.

We will see how that goes as the year unfolds.

Moving to the other half of the Company where we really talk about this in two subsegments, the differentiated EMG businesses and our cost-driven motor business.

For the differentiated EMG businesses, overall sales were up about 10% in Q4.

Solid growth in the third-party MRO business and obviously we had contributions from acquisitions which were Avicenna Technology and Coining which helped to drive that business.

Looking into 2012, we would expect this business to be up again about 10% and organic growth in the mid-single digits arena.

Business is doing very good and we expect it's going to continue.

The cost-driven motor business which is the other piece of EMG was weak in the fourth quarter, as I mentioned.

Q4 sales were down mid-single digits which was weaker than we had anticipated, primarily due to Europe.

For 2012, we expect this business to be up low to mid-single digits.

The January orders support that growth.

If you sum those parts of EMG, for all of EMG we are expecting high-single-digit growth in 2012 and organic growth of mid-single digits.

And the last thing I'd comment is, if you then look at both halves of the business and sum them up, as I mentioned in my overall talk, we are expecting low double-digit sales growth.

So we're expecting another just fine year from a sales growth picture with organic growth in that mid-single digit arena.

That gives you some color.

That gives a lot of color, Frank, thank you.

My last question is this, are you have a specific FX impact within your budget, are you expecting minus one, two, three?

Is there something you could offer on that?

On what?

Are you talking about pricing?

On FX.

On currency.

Oh, on FX.

There's probably, as we go into 2012, about a point of negative headwind.

Thanks very much.

Okay.

Christopher Glynn, Oppenheimer.

Thank you, good morning.

I have a question on what price was in the quarter and your 2012 outlook and overall update and complexion on how you view your pricing power in the portfolio.

Yes.

Basically in the fourth quarter, our pricing was up about 2 points.

We have rolling in our -- board it this way.

We asked our divisions to get 2% in terms of pricing while we rolled through our budgets and what is in the forecast we gave you is 1 point.

Obviously we are hoping that will be conservative, but that is the way we gave the estimates.

Okay.

Interested in a little more detail on the globalizing opportunity for the two recent deals, O'Brien and TMC as now part of AMETEK and then more broadly, how much of a role did those strategies play in 2011 do you think with realizing synergies with your global channels in recent acquisitions.

It's a huge factor, Chris and excellent question.

If you look at the two acquisitions that I talked about this morning in detail, TMC and O'Brien, both of those businesses have about 70% of their volume in the US.

That is an advantage of buying companies of the relative size that we buy in that they don't have as significant amount of international exposure because it is expensive for a small company to put the infrastructure in is difficult.

So, we put the infrastructure in place for our acquisitions so that, in essence they can come right out on day one and simply put people in our infrastructure.

Those people report back to the acquired business, but we know how to pay those people, we've got the legal structure set up, we've got the facilities, et cetera.

It is very, very easy for those acquired companies to immediately gain access to distribution in China, distribution in India, shortly we will have that capability in Brazil as I talked about, and we have that capability in Europe as well.

It is definitely a sizable factor when we think about deals, and especially businesses like O'Brien, for instance, where the market opportunity outside the US is huge for that business.

As I mentioned for our process businesses, about 70% of our volume is outside the US and that is where a sizable amount of growth comes.

We're going to capitalize on that.

We've set the Company up in a way to capitalize on it and we are pretty excited about it.

Thanks.

The last one, some clarification.

You noted the $60 million cost savings in the plan.

Is that a gross number that nets against natural inflation and all kind of rolls up into the leverage targets?

That's exactly right, Christopher.

That $60 million is just the costs we are taking out of the business.

Pricing is going to be a positive.

On the other side of the balance sheet, there's going to be inflation and there is going to be investments and I can give you a rough flavor.

On the investment side, we planned to put in about $37 million in 2012.

We sum all of that up with the contribution margins of the Company and that is in essence how we get to the bottom line and the estimates you are talking about.

It is a gross cost number when we speak to it.

Another measure just to go a little bit further on your question is we do look internally at just cost minus -- excuse me, price minus inflation, just as another measure.

I have some numbers.

In the fourth quarter price minus inflation was 0.8% of sales.

The budgets are rolling up in that same kind of region.

Great, thanks, Frank.

Hey, you bet.

Mark Douglass, Longbow Research.

Good morning, gentlemen.

Frank, that $60 million gross savings, that is including the $40 million of your global sourcing initiatives?

Is that right?

That's correct.

Okay.

Initial $20 million is just kind of operational improvements?

Yes.

It's operational improvements, it would include a few plant consolidations that we are going to do and netted in that number is any costs associated with any restructuring that is going on.

That is a net number on the cost improvements going through the P&L but it doesn't include inflation and it doesn't include other investments that we are making.

Okay.

Great.

Can you bridge the EPS in 2012 for us, how much for volumes, acquisitions, and you talked about operational improvements, is there a way to break it out that way?

That's a very tough question.

John, do you have any thoughts on that?

No, I don't.

I think when you get the EPS, you're getting into tax effect of some of these things.

That's not how we break down the -- how we look at the businesses, Mark.

Okay.

You're talking about BRIC countries.

What were they as a percentage of sales in 2011?

About 11% of our total sales are in the BRIC countries.

11%.

Okay.

And then, finally, when you talk about process, how big was that in '11 and then, on the oil and gas side, how much are you tied to the fracking, natural gas phenomenon going on particularly in the US?

And are you seeing any potential pull backs in investments with the slide in the natural gas prices?

Is that some chatter going on (multiple speakers) assuming you're tied to that market?

This segment was on the order of $1 billion, that whole process business.

If you break it down, about 1/3 of that is in oil and gas.

About 25% is related to the metals industry where we do analytic instrumentation in metals.

About 20% is in what we would call research and development and the remaining, whatever it is, 22% I think, is basically in varied industries.

So within that 1/3 that is oil and gas, there is roughly an equal component of oil and gas in that 1/3 of the business.

And, no, today, although natural gas being under $3 which is incredibly low and there's a lot of talk about some reductions in drilling, if you actually look at the data, the recount in Q4 actually reached a higher level than it was back in 2008.

There's about, I think it's 3700 active rigs that are working at the present time.

There could be some impact in the fracking area.

I did see an article where Chesapeake is discussing, or has actually decided that they're going to cut back some drilling.

But oil is doing just fine.

It is pretty strong, I meant, it's pretty good.

Okay.

Thank you.

Yes.

And just another point, Bill dropped me a note.

That is correct, that I should have mentioned.

Remember 70% of our business is outside the US as well.

Again, you're not going to have that major an impact, even if the fracking goes down a bit in the US.

Thank you.

Okay.

Jamie Sullivan, RBC Capital Markets.

Good morning.

I think you talked about the BRICs and the growth you are expecting out of those regions in '12, 20%-plus, and I think you said it was in the high teens in the fourth quarter.

I'm just wondering, you do have some difficult comps coming up in the first through the third quarter, I'm just wondering how to think about where you see that growth coming from and your confidence level there?

We've got pretty high confidence in the first two quarters of the year.

It is not as clear in the second half of the year, but we've got excellent backlog.

It is over $900 million.

Aerospace is accelerating so we are very excited about it.

If you look at the profit margins in aerospace, in process and in the power industrial businesses, they have got very high contribution margins.

We've got, I would say, significant confidence in the first half of the year.

We have been a bit conservative on our estimates for the full year and it's really based on, it is not as clear in the second half.

We want to watch that.

Although I don't think Europe is going to crash, if it did, obviously that's going to have an impact on us on the second half.

So we don't want to be too aggressive at this point.

I think the fundamental answer to your question is, we've got high confidence in the first half of the year.

That's helpful, thanks.

On the EMG side, the margin is down a touch from last year, is that really just a drag from the cost-driven motor--?

There is a drag there.

We were, I think 20 basis points -- but still those margins are darn good at just under 20%, 19.4% in the quarter.

We feel pretty good about that.

Right.

Thanks.

Lastly, on the M&A side, what areas is the deal pipeline weighted today?

First of all, the deal pipeline is just great.

We have obviously been very successful over the course of the last 15 months, in not only buying companies but in buying good companies that are really close adjacencies to what we do that we can leverage those companies in terms of increasing their reach, et cetera.

The backlog really has deals in all of the major areas.

We will acquire in aerospace, we will acquire in the process businesses, we will acquire in the power part of our business and also in the differentiated part of EMG.

The only part of the Company that we don't intend to do any acquisitions is in the floor care and sort of cost-driven part of EMG.

It is hard to predict where the deals are actually going to come from as we take each deal and sort of wrestle it to the ground.

I think you could assume we're going to do the kind of deals we have done over the last 15 months.

We did, for instance, Avicenna and Coining rolled up into EMG.

Reichert, TMC and EM Test rolled up in EIG.

You had three in one part of the Company and two in the other.

And O'Brien this morning, the first one out of the box is going to be in EIG.

I can also tell you that we are working on another good-sized deal in the EMG side of the business.

I'm not specifically answering your questions because it is varied, but there's lots of opportunity.

Great.

No, that's helpful.

I appreciate it.

Thank you.

Okay.

Matt Summerville, KeyBanc.

Good morning.

Just a couple questions.

Frank, you had indicated I think in your remarks that you expected the military side of aerospace to still be up in the low single digits in '12.

What was it in '11 and what gives you the confidence in that viewpoint just given everything that's going on with defense?

It was about the same.

It was in that low single digit kind of arena in 2011.

We feel that even with some of the reductions, I know there's going to be some more color on that today, there was a little bit in the Wall Street Journal.

But you look at what they're doing -- this morning they were talking about increasing the number of drones by about 30% due to the success we've had.

Obviously we have got content on drones.

I think the two drivers for us are that the electronic content in military, either ground-based vehicles or aircraft is going up and we are the prime provider to the military of cooling solutions for those electronics.

Even if the overall military budgets is going to wane some, we believe we can and have shown that we can outgrow that.

We think positively about that.

The other side is in EIG more, is that we have invested very heavily in helicopters and they have to change this fleet to a more helicopter-based fleet.

Just this recent situation in Somalia -- they were using aircraft to parachute the SEALs in and then using helicopters to get them back out.

Those investments also are going to sort of outgrow the military budget.

We've got pretty good visibility in this business so we think that low single-digit rate is reasonable.

If we wanted to look at it negatively, I'm saying the overall aerospace is going to grow in that mid- to high-single digits if we didn't have the drag of military at low single digits we would be probably up in double digits.

It's not all good but we also don't feel that there's a major problem there.

I hope that helps, Matt.

Yes, that does.

Another question on the aerospace side of the business, could you maybe differentiate a little bit between what your expectations are for third-party MRO growth versus the traditional civilian aftermarket-related piece and how much is share gain playing a role in your outlook there?

Actually, if we look at the third-party MRO business, we are saying that is going to be up high-single digits and we are also saying that commercial aviation is going to be up high-single digits.

For that third-party MRO piece, the market is estimated to be up about 4%, just to put a flavor on it.

Therefore, a good part of the remainder is share gain.

There is some price in there, but a good part of it is in essence share gain.

If you look at the commercial side, that is more driven by the OEM production and just taking advantage of the market conditions, as I mentioned Boeing and Airbus combined are going to be up 13% in build rates.

And obviously we have to lead them because they need our parts to build their airplanes and that is why as we went into the second half of last year, we saw this accelerating growth.

That is less share gain than it is market.

Does that help?

Thanks, Frank.

Absolutely, thank you.

Okay.

Elena Wood, Bank of America.

Good morning everybody.

I'm wondering if you had calculated incremental margins ex acquisitions for the fourth quarter?

We did.

They were superb.

They were in excess of 40%.

Okay.

What is your baseline assumption for the total Company this year in terms of organic growth in Europe?

It is about the same number we talked about in the third quarter, it's like a 3% kind of number, a little bit less than the US, for instance, and significantly less than Asia.

Okay.

Do you see it dipping into negative territory in the first quarter or do you expect it to remain positive?

No.

No.

We expect it to remain positive.

I think the growth there, where we are very strong is in the process businesses.

I think we are going to be just fine.

Okay.

And then just circling back on the O'Brien acquisition, what was the purchase price multiple EBITDA, in terms of EBITDA?

The multiple on that deal was about 9 times trailing.

On the TMC deal it was about 6.5 times trailing.

Actually, that was good news to me that we are starting to see some better deals out there, a little bit more reasonable multiples.

Okay, and then just lastly, I was wondering if there's any unusual items in your 2012 guidance, how much pension is embedded in the guidance?

I know this question has some--?

No, we are in good shape there.

I will let John answer that question.

Okay.

Thanks.

Yes, Elena.

First of all, we are overfunded on the more prominent part of our pension numbers.

We are looking at probably about a $0.03 headwind going into 2012, if you just look at the pension.

But we've got a couple other accounts, the restricted stock investment in 2011, obviously that expense is not part of our 2012 outlook, that is a couple cent to the good.

If you put a couple of those types of things together, it is sort of a push, maybe a little bit, a slight headwind but it's just not significant at all so we really don't see that as an overall distraction from running the business.

Okay.

Terrific.

Thank you so much.

Richard Eastman, Robert W Baird & Company.

Good morning, just two questions.

Frank, I was doing the math here on the backlog and I think you alluded to this, is the backlog up around $912 million, something like that?

Yes.

You got it, it is $911 million, it's up about $83 million since the beginning of last year.

About 10% year-over-year, is that -- would you think of aerospace and maybe process, those maybe a little longer cycle businesses, would their backlog be up greater than that?

Is that where there is some confidence coming from?

Yes.

I think if you look at the breakdown of that backlog, it does have a higher component of the longer cycle businesses and therefore, you couple that with the fact that the orders have been, even the first part of this year have started very strong.

We just feel pretty confident in the short-term outlook, the six-month outlook.

Even if we had some weakness in other parts of the business, we feel our estimates will more than cover that.

Okay.

I wanted to double back for a second on the geographic thoughts for '12, we are expecting some modest Europe growth.

And then I presume for '12 if we think US and Asia, rest of the world we are probably in the same general growth rates that we saw in the fourth quarter?

Yes.

That's exactly right.

We are saying mid-single digits for the Company, a little bit weaker in Europe, stronger, much stronger, actually, in other parts of the world but they are a smaller part of the business.

So that is where you sum up to this mid- 6% kind of number.

Is the BRIC waiting, the sales waiting that goes into the BRIC countries -- it sounds like it is towards process, maybe aerospace.

Which businesses do your BRIC exposure weight towards?

They weight towards the process businesses.

There's definitely an aerospace component but process is a key driver.

It is because of the international markets that we talked about with oil and gas and those kinds of businesses being largely outside the US.

Our metrology businesses are very strong in China, so those businesses -- and in Russia as well.

Our process businesses are the strongest in Russia.

Those are the drivers for the growth.

We feel pretty good about that.

There is no general degradation in incremental margins on process instrument sales into those emerging markets, is there?

No.

Absolutely not.

As a matter of fact, we looked at this very closely during our strategic planning activities.

If you roll up and look at the bottom line profits in the BRIC countries as a percentage of sales versus the rest of AMETEK, they are almost identical.

Almost identical.

Less than a point difference.

In the BRIC countries, they are actually higher.

Very good.

Thank you.

Very nice quarter.

Thank you.

Thank you, Richard.

(Operator Instructions)

Scott Graham, Jefferies.

The 4% -- I'm sorry to ask about this question again, but the 4% orders number for the fourth quarter, Frank, was that a total number or was that organic?

That was a total number and organic was slightly less that.

So organic was that less than that.

If I factor in that BRICs was a real good number, it would be fair to say then that US, Europe was flat to only slightly up.

Fair?

You're talking about orders now or you talking about sales?

Orders.

Organic orders.

Yes.

That's right.

I think that's right, Scott.

All right, so then on that -- the next question that stems, you've got an outlook of let's say plus 3% in organic Europe -- I was wondering what businesses would you expect to contribute to that 3%?

It's really a similar answer to Richard's question in that it is predominately going to be the process businesses.

One thing you have to also realize is that we roll up the Middle East and we roll up Russia in that part of the world.

The process businesses are doing very well.

They will be a key driver.

Also we have sizable aerospace content.

We have a major company, actually several companies in Europe that service that part of the world and aerospace is doing fine in Europe.

You take this two factors and you say okay, maybe floor care is not going to be as good and we feel pretty comfortable with these numbers.

As a matter of fact, it would not surprise me if we even exceeded this guidance that I'm giving you.

That's very helpful.

Thanks a lot.

Okay, Scott.

There appear to be no further questions, please continue with your presentation or closing remarks.

I think we are all through, thanks Sylvana.

Thanks everyone for joining our conference call.

A replay of this call can be accessed on the Internet at AMETEK.com and streetevents.com.

Thank you so much and have a great day.

That does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.

Have a great day, everyone.