阿美特克 (AME) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the AMETEK fourth-quarter and year-end 2012 results conference 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 24, 2013.

I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations.

Please go ahead, sir.

Great.

Thank you, Suzy.

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

Joining me this morning are Frank Hermance, Chairman and CEO, and Bob Mandos, Executive Vice President and Chief Financial Officer.

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

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

A tape of today's conference call may be accessed until February 7 by calling 800-633-8284 and entering the confirmation code number 21643345.

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 risk 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, and good morning, everyone.

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

We established quarterly and annual records for orders, sales, operating income, operating margins, net income, diluted EPS, and operating cash flow.

In addition, we acquired seven highly strategic businesses in 2012, establishing records for capital deployed and annual revenue acquired.

For the full-year 2012, sales were up 12%, operating income was up 17%, operating margins expanded 110 basis points to 22.4%, and diluted EPS ended at $1.88, a 19% increase over 2011's diluted EPS.

In the fourth quarter, orders were very strong, increasing 28% in total and 4% organically.

The core order trend within the quarter was positive, with December being very strong.

The book-to-bill ratio was 1.14.

Sales in the quarter were up 10% to $841.8 million.

Internal sales growth was down 2%, while acquisitions added 13% and foreign currency translation was a 1-point headwind.

Operating income for the fourth quarter increased 13% to $190 million from $167.4 million last year, reflecting the impact from our Operational Excellence activities.

Operating income margin in the fourth quarter was a record 22.6%, a 70 basis point improvement over the fourth quarter of 2011.

Net income was up 18% to $119.9 million, and diluted earnings per share of $0.49 were up 17% over last year's fourth quarter.

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

Operating cash flow was $192 million in the fourth quarter and $611 million for the year, up 25% and 20%, respectively.

Free cash flow was 140% of net income in the fourth quarter and 121% of net income for the full year.

Backlog at the end of the fourth quarter was over $1.1 billion, an all-time record high.

Working capital management was excellent; operating working capital was 17.5% of sales.

Before turning our attention to the individual operating groups, I would like to provide some perspective on the global macroeconomic environment.

Overall, we saw a continued sluggish global macro environment.

Customers delayed shipments in the quarter as a result of general economic uncertainty.

Despite the slightly weaker than expected core sales growth in the quarter, the overall orders and order trends during the quarter were excellent.

As is evident in our results, we were able to deliver exceptional operating performance and exceed our earnings estimates despite this weak macro environment.

As we have demonstrated in the past, we will continue to aggressively manage our costs through this period of softness, while continuing to make investments in strategic acquisitions, market expansion, and new product development initiatives.

In particular, our deal pipeline is strong, and we will remain active in acquiring businesses.

Now turning to the individual operating groups, the Electronic Instruments Group had a strong fourth quarter with tremendous operating performance.

For the quarter, sales were up 12% to a record $494.5 million on solid core growth in our upstream oil and gas and commercial aerospace businesses plus the contributions from the acquisitions of O'Brien and Micro-Poise.

Internal growth was down 1%; acquisitions added 14%; and foreign currency translation was a 1-point headwind.

EIG's operating income increased 16% to $134.9 million, and operating margins were up 100 basis points over last year's fourth quarter to a record 27.3%, reflecting the excellent work from our business teams.

The Electromechanical Group also had a good quarter.

Sales were up 8% to $347.2 million on solid core growth in our Precision Motion Control business and the contribution from the Dunkermotoren acquisition.

Internal growth was down 4%; acquisitions added 13%; and foreign currency was a 1-point headwind.

EMG's operating income increased 5% to $65.2 million, and operating margins were 18.8%.

Excluding the impact of the Dunkermotoren acquisition, EMG's operating margins would have been 19.8%, up 40 basis points over the fourth quarter of 2011.

Now turning to our four growth strategies of Operational Excellence, Global & Market Expansion, New Product Development, and Acquisitions.

Operational Excellence is the cornerstone strategy for the Company.

Our focus on cost and asset management has been a key driver to both our competitive and financial success.

The results we announced today reflect the tremendous impact of our various Operational Excellence initiatives, as we were able to expand operating margins 70 basis points in the fourth quarter to a record 22.6%.

Operational Excellence includes lean manufacturing, Six Sigma in our factories and back-office operations, design for Six Sigma in our new product development efforts, global sourcing and strategic procurement initiatives, and the movement of production to low-cost locales.

Through our global sourcing office and strategic procurement activities, we recognized $14 million in savings in the fourth quarter and $49 million in savings for all of 2012.

Overall, we realized $85 million in total cost savings in 2012 through our Operational Excellence initiatives.

Both the global sourcing and overall Operational Excellence savings for 2012 exceeded the guidance we provided at the end of the third quarter.

Looking forward for 2013, we expect approximately $85 million in total cost savings through our Operational Excellence initiatives, including $50 million in savings from our global sourcing office and strategic procurement initiatives.

Global & Market Expansion continues to be a driver for AMETEK's growth.

In the fourth quarter, international sales represented 52% of our total sales; this is an increase from 50% of sales in the fourth quarter of 2011.

We continued to make international investments to develop and expand our sales channels, service capabilities, and manufacturing footprint in order to position our business to capitalize on the attractive global growth opportunities.

AMETEK's advanced measurement technology division has been awarded a multimillion-dollar contract to deliver ORTEC's new Detective SPM -- spectroscopic portable monitors -- as the primary radiation and nuclear threat inspection solution for Abu Dhabi's new flagship state-of-the-art maritime port.

The Detective SPM portable monitoring system is a modular solution that detects, identifies, and locates fissionable nuclear material; that is material that you can build a nuclear bomb from.

The AMETEK system incorporates the commercially available IDM-200, the latest addition to its Detective family of high-resolution radiation identifiers for Homeland Security.

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

We have consistently invested in RD&E.

In 2012 we spent $155 million, which was up 13% from 2011.

In 2013 we expect to spend $172 million, an 11% increase over 2012.

We're excited about some recent product introductions.

AMETEK Aerospace & Defense has been selected by Snecma to provide pressure sensors and transducers for the newly developed LEAP-1B engines that will be used to power the Boeing 737 MAX.

AMETEK's sensors and fluid management systems will provide the oil filter differential pressure sensor and the oil and temperature transducers.

The value of the contract is estimated to be $35 million over the life of this program.

AMETEK Aerospace was previously awarded contracts to provide heat exchangers and sensors for the LEAP-1A and LEAP-1C engines being developed by Snecma for the Airbus A320neo and COMAC C919.

The total value of those contracts was $175 million over the life of the program.

AMETEK's Precision Motion Control division recently introduced high-performance brushless DC motors, which are slotless and used for medical applications requiring precision motion control, such as high-speed surgical instruments and dental tools.

As the medical industry trends away from pneumatic devices in favor of DC motors, the industry requires a new level of performance from these motors.

AMETEK's high-performance brushless DC motors offer a number of benefits that make them especially suitable for demanding medical applications, including small size, high-speed performance, little or no EMI emissions, long life, and low audible noise.

From an overall perspective, revenue from products introduced over the last three years was 22% of sales in 2012, up from 20% the prior year, reflecting the excellent work of our businesses in developing the right products to serve their customers.

Turning our attention now to acquisitions, we had a record year for acquisitions in 2012.

We acquired an excellent set of highly differentiated businesses that expanded our market opportunities and technology base in the area of precision motion control, high-end analytical instrumentation, cryogenic cooling, and aerospace MRO.

For the year, we acquired seven businesses, deployed approximately $750 million in capital, and acquired approximately $450 million in annual revenue.

In the fourth quarter, we acquired five businesses -- Micro-Poise, which we acquired in October and highlighted during our third-party conference call, and four small technology acquisitions in December.

I will provide a brief overview of the technology acquisitions.

In mid-December we acquired Aero Components International and Avtech Avionics and Instruments, both privately held providers of third-party MRO services to the global aerospace market.

Both businesses are based in Miami.

Aero Components and Avtech are strategically important as they provide AMETEK with worldwide fuel repair capabilities and next-generation avionics capabilities, both key technology gaps in our global MRO portfolio.

These acquisitions are consistent with our stated strategy to expand our global third-party aerospace MRO repair capabilities organically and through small, targeted acquisitions.

Also, in mid-December we acquired Sunpower, a leader in the design and development of high-reliability Stirling cryocoolers and externally heated Stirling engines for medical, scientific, telecommunications, and space applications.

Sunpower's cryogenic cooling technology provides a critical enabling technology for use in our highly successful ORTEC Detective family of portable radiation identifiers.

It also provides a technology platform to support the continued growth of this product family.

Sunpower will become part of our Advanced Measurement Technology division.

Lastly, we closed the year with the acquisition of Crystal Engineering on December 31.

Crystal Engineering provides AMETEK with key pressure measurement technology as well as high-end portable digital calibration instruments which nicely complement AMETEK's test and calibration instruments businesses.

Crystal strengthens our technology and product offerings in the calibration instrument market, while its product line benefits from the global reach and resources of the Electronic Instruments Group.

Crystal will become part of AMETEK's Measurement and Calibration Technologies division.

Acquisitions will continue to be a focus for us during 2013 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 of 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 2013, we expect our businesses overall to show solid growth during 2013 with our longer-cycle oil and gas, power, and aerospace businesses showing particular strength.

We anticipate organic growth to accelerate throughout the year, with the second half stronger than the first half.

Our solid backlog, strong portfolio of businesses, proven Operational Excellence capabilities, and a success focus on strategic acquisitions should enable us to perform well in 2013.

We anticipate 2013 revenue to be up high single digits on a percentage basis from 2012.

Organic growth is expected to be up low to mid single digits for all of AMETEK and for both operating groups.

Earnings for 2013 are expected to be in the range of $2.07 to $2.12 per diluted share, up 10% to 13% over 2012, reflecting the leveraged impact of core growth, our Operational Excellence initiatives, and the benefits and contributions from recent acquisitions.

First-quarter 2013 sales are expected to be up approximately 10% from last year's first quarter.

We estimate our earnings to be approximately $0.49 to $0.51 per diluted share in the first quarter, up 9% to 13% over last year's first quarter.

So in summary, our overall businesses performed very well in the fourth quarter and in 2012, producing records for essentially all key financial metrics.

Although the macro economic conditions created a more challenging environment in 2012 than expected, we were able to deliver exceptional operating results through a focus on executing our growth strategies.

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

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

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

Bob?

Thank you, Frank.

As Frank noted, we had a strong fourth quarter with excellent operating performance.

I will provide some further details.

In the quarter, total selling expenses were up less than total sales on a percentage basis due to good cost containment.

General and administrative expenses were 1.2% of sales, below last year's fourth-quarter level of 1.5% of sales, driven primarily by lower compensation and consulting spend in this year's fourth quarter.

The effective tax rate for the quarter was 29.8%, down from last year's fourth-quarter rate of 30.7%.

The full-year tax rate was 30.7% versus last year's rate of 30.9%, and in line with our expectations.

For 2013 we expect our tax rate to be between 30% and 31%.

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 17.5% of sales in the fourth quarter.

This near-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 Operating Excellence.

Strong working capital management will remain a key priority.

Capital spending was $24 million for the quarter and $57 million for the full year.

Full-year 2012 capital expenditures were 1.7% of sales.

2013 capital expenditures are expected to be about $65 million.

Depreciation and amortization was $28 million for the quarter and $105 million for the full year.

2013 depreciation and amortization is expected to be approximately $118 million.

Our cash flow was excellent in the quarter and for the full year.

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

In the fourth quarter, operating cash flow was $192 million, up 25% over last year's fourth quarter; and full-year operating cash flow of $611 million was up 20% over 2011.

Free cash flow was $167 million for the fourth quarter, representing 140% of net income.

For the full year, free cash flow was $553 million, approximately 121% of net income, continuing our strong free cash flow generation.

Our strong cash flow was deployed to support our acquisition strategy, where we expended approximately $750 million on transactions in 2012.

Total debt was $1.45 billion at December 31, up $190 million from 2011 year-end.

Offsetting this debt is cash and cash equivalents of $156 million, resulting in a net debt-to-capital ratio at December 31 of 34%, down slightly from 35% at the end of 2011.

At December 31, we had approximately $710 million of cash and existing credit facilities to fund our growth initiatives.

Our highest priority for capital deployment remains acquisitions.

In summary, we had an outstanding 2012, establishing records 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 flows.

Great, thank you, Bob.

That concludes our prepared remarks and we will now open it up for questions.

(Operator Instructions) Allison Poliniak, Wells Fargo.

Hi, guys.

Good morning.

Just touching on the order trends, Frank, obviously you talked about the progress in December being actually surprisingly stronger.

Were the orders -- I guess the strength in orders weighted towards one industry or a few industries that you can talk about?

Well, it was pretty broad-based.

If you actually look at some of the key drivers, the process businesses were particularly strong, the power businesses were particularly strong, and surprisingly our floorcare business was also very strong.

Aerospace on a quarter-over-quarter basis was not as strong as the three I just indicated, but that was because we had a very, very strong Q4 of last year.

So the order trends in the quarter were surprisingly strong.

Great.

Then as you look into '13, obviously a lot of uncertainty out there; and you mentioned the areas where you are expecting to see strength.

But are there any areas that are still weak now that you're starting to get the sense might be turning the corner as we head out into '13 at this point?

Yes, that's a great question, Allison.

I would say the key factor is probably geographic in nature where, if you look at the fourth quarter, organic growth in sales for the Far East was not that strong but orders were.

So I think we are definitely starting to see a turn in Asia, and in particular in China.

Now, it will take a few more months to verify that trend.

But when you read the fact that China is in fact improving, their PMI was better recently, that is a key factor for us, because we have got about 18% to 20% of our sales in that part of the world.

So that is probably a key factor in how well we are going to do from an organic viewpoint next year.

As you I think are aware in Europe, although that is probably one of the weakest global areas, our business tends to outperform because we have got aerospace businesses there that perform very well.

And we also roll up the oil and gas business from the Middle East in our European results; so when you look at Europe, we tend to outperform.

So that is probably the best way to look at it, Allison.

Great.

Thanks so much, guys.

You bet.

Matt McConnell, Citi Research.

Thank you very much.

Just on the quarter specifically, could you give a little more insight into the several end-markets in EMG where customers turned cautious?

And then what are your assumptions for whether that caution persists into the start of the year?

And maybe along with that, what is the first quarter of '13 organic revenue growth assumption?

Yes, sure.

Why don't I just walk through EMG and give you a perspective of what happened in the fourth quarter and how we see it going into 2013?

As you know, in EMG, we break that business down into differentiated and cost-driven motors.

If you look at the differentiated side of that business, for all of 2012 our differentiated businesses performed quite well, really on strength in our Precision Motion Control and military businesses.

If you look at the quarter, overall sales were up 10%, driven by the contributions from the Dunkermotoren acquisition and strength in our core Precision Motion Control business.

Organic sales in the differentiated side were actually down mid single digits in the quarter.

And as I mentioned in my opening comments, we saw customers actually delayed shipments across several parts of the differentiated business.

In particular answer to your question, our EMIP division, which has specialty metals types of focus, was one of those areas.

And the other was our third-party MRO business in aerospace.

As we went through the quarter we saw push-outs, but the order trend was good.

So it is kind of a mixed message from that viewpoint.

So looking ahead to 2013, we expect these differentiated EMG businesses to be up approximately 10%, with organic growth up mid single digits.

So we do think the trends are going to get better.

Looking at the other side, the cost-driven motors, organic growth in the fourth quarter was actually flat for the cost-driven motor business.

But actually that was the best organic growth of the year for that business, and that strength came out of North America.

For 2013, we expect this business to be approximately flat.

Specifically with respect to your question around the first quarter, what we are assuming is sales to be up approximately 10%, and what we have budgeted is a flat core sales growth.

I'm hoping that things are going to get better and we are going to exceed that in the first quarter.

But given some of these push-outs we saw in the fourth quarter, we have decided to take a conservative view of the first quarter.

But we have good reason to believe that as we go through the year things will improve.

As I mentioned in Allison's question or my answer to Allison's question, Asia in particular seems to be an improving trend.

And also aerospace as the OEMs increase their build rates, we see that improving through the year.

It's very strong now, but we see it even getting better as the year goes on, and we think that will be a driver to our performance.

So does that answer your question?

Absolutely.

That's very helpful.

Thank you.

If I could just follow up on the 2013 guidance, is it correct to assume incrementals are probably around the 30% range, may be a tick below that?

And then with growth led by some of the higher-margin business plus $85 million of the next wave of cost take-outs, are those factored into that 30%?

It seems like there could eventually be upside to that if growth is in the very low single-digit range led by some more profitable businesses.

Yes, that's a great question.

I think it is fair to assume a 35% contribution margin for next year -- or for this year, excuse me, 2013.

But when we talk about contribution margins we exclude the effect of acquisitions, because obviously you are not going to get that level of contribution margin on the deals themselves.

So I think using a 35% contribution model, extracting acquisitions in your model, is a reasonable projection.

We actually did much better than that in 2012 because of the cost take-outs.

And yes, your point regarding the cost take-outs, you know, there is really an equation here that involves pricing and the cost take-outs in one hand, and on the other would be inflation and investments in the business.

So I will just give you some rough numbers.

These are just sort of averages.

If you took the middle of our guidance that we are looking, obviously, for the $85 million in cost take-outs.

We are looking for pricing to be in the order of 1.5% to 2% of sales.

In terms of investments, we are going to -- well, we have got budgeted right now is about $35 million of investments.

So then, obviously the balance to that equation is inflation and of course the earnings that come from it.

So it is definitely possible that we could exceed the numbers that I am talking about.

But we usually take a fairly conservative view as to our earnings, and I think most of you are aware that we are very good at making our earnings estimates and hopefully exceeding them.

So, we'll see what happens as the year transpires.

Okay, great.

Best of luck.

Thank you.

You bet.

Scott Graham, Jefferies.

Hey, good morning, everyone.

I just wanted to ask -- Frank, I am hoping that you will do your typical unbundling of each of the business units as part of this question.

But I think even more specifically I was wondering if you could tell us -- I know that international continues to be a big thrust for you guys.

But has that maybe changed form a little bit here to the extent that maybe we are deemphasizing Europe a little bit and maybe reemphasizing the BRIC's sales?

And at 50%, a little over 50%, are you looking to bring that number up into the 60%s?

Or are you happy with 50% to 60% range?

I was just wondering what the intermediate-term view on that was strategically.

Okay, Scott, let me take the international growth question first.

And then I have already giving your breakdown of EMG; I will give you a breakdown of EIG so you have a better sense of what is going on there.

But if we look at the international growth, you are absolutely right that our focus is in BRIC.

It is not as much in Western Europe or in the US.

We see the growth coming out of the BRIC areas.

Just to give you some numbers, in the fourth quarter BRIC orders were up 24%; and they were actually up organically 16%.

So that bodes well, as I mentioned in response to Allison's question, that things are improving, and that's where a large part of the growth is going to come from.

Doesn't mean that we are not going to continue to put investments in the US and continue to put investments in Europe in those areas that we think are good areas to invest.

But clearly the focus is going to be in BRIC.

Rolled up in our budgets for this year, we are planning to add about 70 people, predominantly and sales and some in engineering in India, into those areas to maximize our potential.

With regard to your specific around the percent of sales, we are inching that up.

It was at 52% in the fourth quarter; it was 51% for the entire year of 2012.

And, yes, we would like to inch that up.

If you look at our market opportunities, having 55% to even as high as 60% of our sales in international areas makes sense.

It is difficult, though, to grow that international -- the BRIC content, I should say, the BRIC content, because there aren't a lot of acquisition opportunities there.

So while it's doing very good organically, it is not as good from an acquisition viewpoint.

We tend to do the acquisitions more in baseline Europe and in the US; and therefore there is an offsetting dynamic that happens there.

But in general, yes, we would like to increase that.

Then, the first point you made -- let me walk you through EIG since I already did EMG, and then you will have the full picture.

In aerospace, our aerospace business had a strong year, with really broad-based strength across all of its businesses.

We won sizable new content on a number of new commercial and business and regional jet platforms and continued to expand our third-party MRO capabilities on a global basis.

In the fourth quarter, EIG aerospace sales were up mid single digits.

We saw continued strength in commercial aerospace and business and regional jets.

Looking to 2013, we expect solid growth for our EIG aerospace business as our internal growth initiatives combined with trends in OEM build rates support really good commercial sales.

And our business and regional jet business is also expecting to do very well, really driven more by key program wins on new aircraft than it is by a change in the marketplace.

So included in our budget and outlook for 2013, we are expecting EIG aerospace to be up mid to high single digits in 2013.

Taking a look at the process businesses, our process businesses had a strong year in 2012.

We completed a number of key acquisitions during the year, O'Brien, Micro-Poise, and the recent technology acquisitions of Sunpower and Crystal.

These acquisitions, coupled with the continued investment in R&D and global expansion initiatives, position us pretty good for 2013.

In the quarter, overall sales for process were up high teens on a percentage basis, with flat organic growth.

Overall growth was driven by strength in our oil and gas and ultraprecision technology businesses, combined with the contributions from the O'Brien and Micro-Poise acquisitions.

What we are expecting in 2013 for our process businesses is to have them grow approximately 10% overall, with organic growth probably conservatively estimated at low to mid single digits.

And we really expect the oil and gas business to continue to do well.

The last part of EIG is powered industrial.

That business also did well in all of 2012.

It was driven by strength predominantly in the power side of the business.

In the fourth quarter, organic sales were actually down mid single digits; but that was against a very difficult comparison.

For 2013, we are expecting sales for power and industrial to be up low to mid single digits.

So if you sum all of EIG, we are expecting sales to be up high single digits, with organic growth of low to mid.

And actually for EMG we are expecting very similar results, with overall growth of high single digits and organic growth of low to mid single digits.

So that gives you a perspective across the Company.

Right, thanks.

Does that get at all your questions, Scott?

Yes, you did.

That was terrific.

Thanks very much.

Mark Douglass, Longbow Research.

Hi, good morning, gentlemen.

Okay.

Well, housekeeping.

Payables?

$321 million.

$321 million?

Okay, thank you.

Frank, as you were going through aerospace, was that just EIG aero that you were talking about?

And if so, what happened with overall aerospace in the quarter and what are your expectations for overall aero in 2013?

(multiple speakers) Is the defense side, military side getting affected by sequestration?

Anything like that?

Yes, what I was referring to, since I was responding to the EIG part of the business, was essentially EIG.

If you look at the full aerospace businesses, what we are expecting in 2013 is to be up mid to high single digits.

We expect it to be quite strong.

If you break it down by the various subsegments, we are expecting the commercial business to be up low double digits.

We are expecting the third-party MRO business to be up low double digits.

We are expecting business and regional jets to be up mid single digits.

And for military, we are assuming in the overall mid to high single-digit guidance a negative 5% for military.

And, yes, we are seeing some impacts from sequestration; but actually our order intake and where we stand right now is pretty strong and it would surely beat that organic down 5%.

But it is pretty difficult to come up with an assumption as to what really is going to happen as Congress goes through its deliberation, so we took a conservative view of the military business.

So if the military business actually does better than that, then we could be approaching the double-digit arena for all of aerospace.

Okay.

Then has the breakdown in aerospace shifted over the last year or two with some of the strength out of the other businesses versus, say, military?

Well, that's a great question.

You would think the answer would be yes, but the answer is actually there hasn't been a dramatic change.

And that is because the military business has continued to perform well.

So the mix has remained pretty much the same.

If you look at the mix, about a third of our business is military in aerospace; and the other two-thirds is commercial and business and regional jets and third-party MRO.

So it has not changed -- a little bit, but not substantially.

Okay.

Then final question on the power side, it sounds like industrial side of power, which I think there is -- you have some exposure to oil and gas there as well, but also you have a military exposure to power.

How is power looking, if you can maybe break it up that way in 2013?

Yes, we don't have a sizable amount of our power business that is related to military.

There is a little bit of that, but that was not a prime driver to the performance.

Most of the power business is much more commercially oriented.

We do have some military content, but it is not a significant part of power overall.

Okay, thank you.

Richard Eastman, Robert W. Baird.

Yes, good morning.

Frank, could you just talk for a minute or two about the Dreamliner production disruption and how you are thinking about that for the first quarter and into next year?

Sure.

I would think that would have a measurable impact on your growth rate there in aero power, aerospace.

It's another great question, Richard.

Actually, when you look at our content on aircraft, we have a very varied content.

We fly on just about every commercial plane there is.

So this disruption that is occurring with the Boeing problems really is not going to have a major impact on our instrumentation business.

It could have a little impact, but it is not significant in the grand scheme of things.

The key for us on actually all of these new platforms is that you need to be on them, because eventually the new platforms are going to be the business.

So we have put a lot of effort on getting on the 787, the 350, the 380, the MAX, the Neo, all of those airplanes.

But again, no one of them is significant.

There is another part of our business, which is the EMIP over in EMG, that makes master alloys for titanium.

There has been some disruption in that business, but it is not really driven by this recent problem on the 787.

There was actually some buildup in the supply chain.

So that business has been a little bit softer the last three months and will be a bit soft in the first quarter.

But that is included within the estimates that we have given you.

So I think that is the best way I can characterize the 787.

Now obviously, if the 787 is off the market for an extended period of time, as I think about it I still don't think there would be a huge impact, because what will happen is it will shift to other aircraft and we will just put product on different aircraft.

But hopefully, Boeing will get their arms around this and get it fixed.

Okay.

Then just a question on the geography.

Can you just rough out the size of China itself for '12 and maybe what the expectation is there for growth in '13?

Yes.

If you look at all of our Far East business, on a rough order it's about 19% of our sales, and the China piece is about half of that in rough numbers.

These guys are looking up the exact numbers, but I know that is in the ballpark.

The growth rates that we are assuming in our budget and in our rollup is really like a mid single-digit number.

It is not really aggressive.

Actually, when we put our numbers together we didn't have privy to how strong the orders were in the fourth quarter and therefore we took a more conservative view.

So as I said in my response to one of the questions, if that really comes back and you start to see the normal kind of growth over there, which would be more in the high single-digit arena, we will do better than the estimates that I provided to you.

Okay.

Then again, if we look at '13 and maybe the core growth assumption for '13, if we have got maybe a mid single digit for Asia, can you just fill in the blanks there?

Is Europe expected to be up?

Flat?

And then where does that leave US for '13?

Yes, actually what we are assuming is similar growth in Europe and in the US.

The reason for that, which might be surprising, is what I mentioned before, is that we happen to have some businesses in Europe that will outperform the macroeconomic trends.

Because we in essence have aerospace businesses there, both OEM and third-party MRO, that are performing reasonably.

And we also roll up the oil and gas businesses from the Middle East there.

So, we are expecting a low single digits from Europe, low single digits from the US, mid single digits from Asia; and that is where this low to mid level comes from.

I think we have got the opportunity to outperform that, but we are taking sort of a cautious view with all the uncertainty that is going on in the world right now.

Sure, okay.

Thank you very much.

You bet, Richard.

Christopher Glynn, Oppenheimer.

Thanks, good morning.

An interesting mismatch between the organic growth in the quarter and the orders resilience.

I guess what it points to is a dynamic of project deferrals.

I am wondering what signs you are seeing of that resolving.

It doesn't seem like you factor much into the first quarter on that dynamic shifting.

Yes.

No, you're right on.

The fourth quarter was interesting because we did see these push-outs occur and the orders were extremely strong.

But we have been cautious on the first quarter.

We just -- we want to see it play out.

You would hope that with the orders as strong as they were that we will see some better growth in Q1.

But I want to run the business assuming that is not going to happen and make darn sure we get the earnings; and then if we get a little bit better growth and some of those push-outs in effect land in Q1 and there isn't more push-outs into Q2, we will obviously overperform.

Okay.

In that dynamic of orders good, sales a little soft, can you break the US out in that sense?

Actually, when you look at the fourth quarter by region of the world in sales, they are all about the same.

They are all about the same.

They are all in this minus 1%, minus 2% region.

And it is because of all the dynamics I have talked about, where there were push-outs but aerospace tends to over perform the market, and we didn't see the sales growth yet in Asia.

What we saw was the order growth.

So that is the dynamic.

Yes, I guess --

It's interesting, very interesting.

I guess the question was, so the US did participate in that dynamic where orders growth outperformed sales growth as well?

Yes.

Yes, I'm sorry, I didn't answer the question in the right way.

Yes, if you are asking by region where did we get the outperformance, yes, we definitely got outperformance in the US.

Okay.

Then lastly on the operating margin, very strong in the quarter.

What was the contribution of temporary belt-tightening?

I don't think we have that rolled up, so I really can't answer it that specifically.

But there definitely was belt-tightening, because as we went in the quarter and we saw some of these project deferrals that you are referring to, we definitely tightened our belts.

And as I mentioned, the actual cost savings overall that went through the P&L for the full year was actually higher than what we told you in the third-quarter estimates, which means we actually did more than we had anticipated.

Some of that is temporal, but also some of it is permanent; and that will help us as we go into 2013.

But we have got significant confidence that this additional $85 million that I am talking about that will roll through the P&L in 2013 will happen.

I think you know we are very good at this.

We have got very detailed plans by division, by business unit, by product line in essence, as to what we are going to do and how we are going to achieve that $85 million.

I have noticed that.

Thanks, Frank.

You bet.

(Operator Instructions) Jamie Sullivan, RBC Capital Markets.

Hi, good morning.

First question, just a follow-on there on the margin.

EIG obviously record levels.

It sounds like that may be sustainable.

Just wanted to confirm that in your view.

Yes.

No, I do believe the EIG margins are high, obviously, but they are sustainable kinds of levels.

As I mentioned before, we think there is opportunity on the EMG side of the business, because obviously the absolute level of those margins are lower; and that is obviously part of our 2013 plan.

If I were going to give you some guidance for 2013, when you roll all of the things up -- the costs, the incremental effect from low to mid single-digit organic growth, inflation, investments, etc.

-- what we have running through this is about 30 to 50 basis points of margin improvement.

Great, that's helpful.

Then, just a follow-on on the oil and gas business, where you're expecting to see some positive trends in '13.

Can you talk a little bit more about maybe some of the applications and geographies where you are expecting to see some of that strength?

Yes.

I mean it is clearly going to be driven from the international front versus the US front.

A good indicator of how well the oil and gas businesses will do is rig counts, and if you look at the worldwide rig counts they are essentially at record highs.

There is about 3,500 active rigs on a worldwide basis.

But, if you look at the growth that has occurred and is expected to occur, the US rig count is actually going down while the international rig count is going up.

So there is a dynamic below the top line of what is happening.

And that plays well to us because about 70% of our business is outside the US -- we have in this particular business.

We have particularly focused internationally because there is a lot of expansion going on in that area.

There is also this dynamic of fracking which is a hot political topic in the US.

At some point I think we will bust through that because we have got enough both oil and gas below us right here in the US to really become energy independent, and we really need to capitalize on that.

But the rig count is going down in the US right now.

Thanks.

If I could just sneak one more quick one in.

On the cost-driven motors business, comp is starting to turn flat, potentially turning positive.

Just wondering your perspective there on -- does that make you potentially more positive on early-cycle recovery?

Or do you see that as less of -- as a canary in the coal mine indicator business at this point?

Yes.

No, we do have -- I have more confidence this year than I have over the past several years in our floorcare business.

It is not because of a fundamental change in the market dynamics; it is really driven by the fact that we have won some business, major business with one large customer.

I can't speak to who that is, but it is a substantial amount of business that -- you may recall, I mentioned that our orders were strong in the fourth quarter, and that also was driven by this major customer.

So I think we are going to see better results out of that business over the course of actually the next few years, based on the relationship that we have developed with this customer.

Also, these are high-end motors, which means that the profits margins are higher than the base business.

So you detected a positive signal from me, but it is not because of the market.

Okay.

Thanks very much.

Appreciate it.

You bet.

Matt Summerville, KeyBanc.

Hey, good morning, Frank.

This is actually Joe Radigan on for Matt.

I just had a quick follow-on on the order rates, just in terms of the sequential cadence during the quarter.

I believe you said you saw a ramp up to where that peaked in December.

Can you comment on what you've seen so far in January?

Have you seen a continuation of that progress in order rates into 2013?

I don't have -- on a sequential basis, I actually don't have that information.

What I can tell you is we are on target for our January orders.

We get those on a daily basis.

Do you guys know?

I don't have that.

(multiple speakers) sequentially.

Okay, so we will have to get that for you.

I just don't have it at my fingertips.

But I think the key point is we are surely in line with the guidance that I have given you for the first, say, three weeks or whatever of January.

Okay, perfect.

Thanks.

That's all I had.

Matt McConnell, Citi Research.

Great, thank you.

I wonder if I could slip in a quick follow-up on Dunkermotoren.

I know it has been probably two or three quarters since that closed.

Could you give an update on how that integration has been going and maybe profitability?

I think it was a 1-point drag to the EMG margin.

Was that roughly in line with your expectation?

Yes.

No, it's now performing very good.

I'm very, very pleased with the operating team there.

We just did a review recently, and that team has embraced the AMETEK culture and they are very good.

Their profits margins are lower, there is no question.

We knew that when we acquired them.

And as we do with most acquisitions, we are going to continue to work and improve those margins.

Your analysis is right; it was about 100 basis points improvement.

Actually, just to expand on your question, this is not going to be an atypical situation as we go forward.

Because obviously if you look at our margins with respect to peer companies, our margins are very high, so there is going to be an impact on the margins when you bring in deals.

Our preference is actually to bring in deals that have lower margins, because part of the value we can create is to increase those margins.

So, I would say, Dunker is a typical example of that.

So we view that from a return on invested capital viewpoint, because we buy these businesses at, say, 10% pretax profits; and over the course of a relatively short period of time we can make many of these businesses 20%-plus pretax.

And that just means the return on invested capital is off the charts.

Okay, great.

Helpful.

Thank you.

You bet.

Mark Douglass, Longbow Research.

Just real quickly, Frank, we talked about $85 million in gross savings in 2013.

Yes,

And you had $85 million in '12, correct?

That's correct

Now if I remember, you guided $60 million at the very beginning of 2012, so you've outperformed.

That's correct.

Right, that's correct.

So how much of that was -- I mean certainly some of that is probably due to acquisitions you made over the year, and then you got some additional savings there.

But how much can you say was organic, if I can put it in that way?

Does that make sense?

Yes, it does.

A great question.

I can give you a gut feel.

I can't give you exact numbers.

Okay.

But, my gut feel is that probably 70% of that was organic.

What happened in 2012 -- and your numbers are correct.

When we started the year, we assumed $60 million, but then as we were going through the year with the macroeconomic uncertainty, we saw that we weren't going to get as much top line, as was true for most industrial companies.

We focused on increasing that number from the $60 million region up to what ended up to be $85 million.

So I think there is some room as we go through this year.

It would not surprise me if, as we get into the year, our businesses do better than the $85 million.

There probably is not as much leverage as we got in 2012.

In other words, going from $60 million to $85 million.

I doubt we will go from $85 million to $85 million plus $25 million, but I think the number could be higher.

Right.

Does that help?

Very much so.

Thank you.

Thank you.

Mr. Coleman, there are no further questions at this time.

I will now turn the call back to you.

Okay, great.

Thanks, everyone, for joining our conference call.

As a reminder, a replay of this call may be accessed at AMETEK.com and at StreetEvents.com; and I am obviously available all day for any questions at 610-889-5247.

Thanks so much.

Ladies and gentlemen, that does conclude the conference call for today.

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