阿美特克 (AME) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Ametek, first quarter 2013, earnings 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, April 25, 2013.

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

Please go ahead, sir.

Great, thank you, Frank.

Good morning.

Welcome to Ametek's, first 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 first quarter results were released earlier this morning.

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

A tape of today's conference call may be accessed until May 9, by calling 800.633.8284 and entering the confirmation code number 21653552.

This conference call is also webcasted.

It can be accessed at ametek.com and streetevents.com.

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

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 call.

We will begin with some prepared remarks, and then we will open it up for your questions.

I will now turn the meeting over to Frank.

Thank you, Kevin, and good morning everyone.

Ametek had a solid first quarter.

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

Sales in the quarter were up 7%, to $882.9 million.

Organic sales declined 2%, while acquisitions added 9%, and currency was flat.

Operating income for the first quarter increased 8%, to $197.2 million from $182.8 million last year, reflecting the impact of the higher sales and our operational excellence activities.

Operating income margin in the quarter was 22.3%, a 20 basis point improvement over the first quarter of 2012.

Net income was up 14%, to $125 million and diluted earnings per share of $0.51 were up 13% over last year's first quarter.

Included in our first quarter, 2013 results are approximately $0.01 per diluted share in realignment costs, and approximately $0.01 per diluted share in costs related to the performance based accelerated vesting of restricted stock.

As a result of the continued weak global environment, we determined it was prudent to take additional cost reduction actions in the first half of the year, the first quarter charge reflects these actions.

We expect to see the majority of the benefits from these actions in the second half of 2013.

The performance based vesting occurred as a result of the stock price doubling in less than three years, reflecting the significant value created for Ametek shareholders.

If we adjusted earnings for both of these changes, the first quarter of 2013 earnings would have been $0.53 per diluted share, up 18% over the same period last year.

Orders in the first quarter were $878 million, up 2% overall from the prior year on a difficult comparison.

The book-to-bill ratio in the quarter was 1. Cash flow was excellent.

Operating cash flow was $157 million, up 11% over last year's first quarter.

Free cash flow was $146 million, or 117% of net income.

Working capital management was excellent.

Operating working capital was 17.6% of sales.

Turning our attention to the individual operating groups, the Electronic Instruments group had a very solid first quarter.

Sales were up 3%, to $484.5 million, on strength in our longer cycle aerospace and oil and gas businesses, plus the contributions from the Micro-Poise acquisition.

Organic sales were down 2%, while currency was flat.

EIG's operating income increased 7%, to $131.7 million and operating margins were very strong at 27.2%, up 100 basis points over last year's first quarter.

The Electromechanical group also had a solid quarter.

Sales were up 11%, to a record $398.4 million on strength in our third-party aerospace MRO business, and the contribution from the Dunkermotoren acquisition.

Organic sales were down 3%, acquisitions added 14%, and foreign currency was flat.

EMGs operating income increased 10%, to $78 million, and operating margins were 19.6%, excluding the impact of the Dunkermotoren acquisition, EMG's operating margins would have been 20.3%, up 50 basis points over the first quarter of 2012.

Focusing now on our four growth strategies, of operating excellence, global and market expansion, new product development, and acquisitions.

Operational excellence is the cornerstone strategy for the Company, and our focus on cost and asset management has been a key driver to both our competitive and financial success.

Operational excellence has many facets within our Company, including lean manufacturing, six Sigma in our factories and back-office operations, design for six Sigma in our new product development efforts, global sourcing and strategic procurement's, and the movement of production to low-cost locales.

At the beginning of the year, we targeted $85 million in total cost savings through our various operational excellence initiatives.

As a result of our global sourcing and strategic procurement initiatives to date, and the additional cost reduction actions we are taking, we are not targeting $95 million of cost savings in 2013.

In the first quarter, our global sourcing, office and strategic procurement initiatives recognized approximately $14 million in savings, exceeding our target for the quarter.

Given the continued strong effort by our management teams and employees in this area, we now expect approximately $54 million in savings for all of 2013, up from the $50 million we targeted at the beginning of the year.

Moving to our second strategy, global and market expansion continues to be a driver for Ametek's growth in the first quarter of 2013, international sales represented 55% of our total sales.

This was up from 51% of sales in the first quarter of 2012, and represents our highest ever percentage of international sales.

The increase of international sales percentage was driven by strong growth in our European commercial and third party MRO aerospace businesses, and the contribution from the Dunkermotoren acquisition.

Overall, sales growth in the BRICs regions in the first quarter was very strong, up 18% over last year's first quarter, with especially strong growth in China.

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

Our Power Instruments business has expanded its international growth opportunities, with the development of transient power recorders that are compliant with IEC communications standards for electric substation automation equipment.

Along with these IEC compliant devices, we have increased our direct sales representation, and entered into a number of strategic alliances to further extend our international market reach.

In the first quarter, Power Instruments successfully secured a number of new wins worth approximately $3.5 million for their transient recorders in the Middle East, additional opportunities are expected given our increased investments in the region.

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

We have consistently invested in RD&E.

In 2013, we expect to spend $173 million, a 12% increase over 2012.

We are excited about some recent new product introductions, driven by our RD&E efforts.

Spectroscout the latest ED-XRF elemental analyzer from SPECTRO Analytical Instruments, was officially unveiled in March, at the Pittcon Conference.

This compact, portable instrument represents a major step forward for end users.

The versatile instrument is able to perform rapid laboratory class elemental analysis in the field, or at remote locations.

The Spectroscout is light enough to be carried, and yet has as much analytical power as a top grade bench top laboratory analyzer.

It is the ideal tool for environmental and geological field analysis, and for highly accurate on-site precious metal analysis.

Ametek's Process Instrument business recently introduced the Thermox WDG-IV combustion analyzer, for measuring oxygen, combustibles, and methane levels in flue gas.

This product is the fifth generation combustion efficiency gas analyzer from Thermox, building upon a long history of over 30,000 products installed in the field.

It offers a reliable, cost effective solution for lowering knocks, carbon monoxide and carbon dioxide emissions, reducing excess oxygen, and improving operating efficiency for customers in refinery's, power plants, and chemical plants.

Along with maximizing fuel efficiency and introducing emissions, the WDG-IV combustion analyzer is designed to play an increasingly important role in plant control and safety, by reducing the risk of an uncontrolled combustion event.

From an overall perspective, revenue from products introduced over the last three years was 22% of sales in the first quarter, up from 19% the prior year, reflecting the excellent work of our businesses in developing the right products to serve their customers.

On our fourth strategy of acquisitions, Ametek had a very strong year of acquisitions in 2012, deploying nearly $750 million in capital, and acquiring seven businesses with approximately $400 billion in annual revenue.

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 remains excellent.

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

Turning to the outlook now for the remainder of 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.

We expect stronger organic growth in the second half of the year.

Earnings for 2013 are expected to be in the range of $2.08 to $2.12 per diluted share, up 11% to 13% over 2012.

We raised the low end of the guidance range we provided last quarter.

Second quarter 2013 sales are expected to be up mid to high single digits from last year's second quarter, with organic growth flat to up low single digits, reflecting the existing soft demand environment.

We estimate our earnings to be approximately $0.51 to $0.52 per diluted share, up 9% to 11% over last year's second quarter.

So in summary, we delivered strong results in the quarter, and are well positioned for the remainder of 2013.

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.

Our excellent backlog, strong portfolio of businesses, proven operational excellence capabilities, and a successful focus on strategic acquisitions, should enable us to perform well for the remainder of 2013.

I would like to take a moment to acknowledge the tremendous effort and contributions from all of our management teams and employees, to thank them for their hard work and dedication.

Our success has been, and will continue to be, a direct result of their efforts.

Bob Mandos 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 solid first quarter.

With very strong 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 1.4% of sales, slightly above last year's first quarter level of 1.3% of sales, driven by the accelerated vesting of restricted stock in this year's first quarter.

The effective tax rate for the quarter was 29.1%, down from last year's first quarter rate of 31.9%.

As we have expected, the lower tax rate in the quarter was the result of the retroactive reinstatement of the R&D tax credit, as well as our ongoing international tax activities.

For 2013, we expect our tax rate to be approximately 30%.

As we've said before, actually 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, of 17.6% of sales in the first quarter, compared to 17.7% for the full-year 2012.

Strong working capital management will remain a key priority.

Capital expenditures were $11 million for the quarter.

Full-year 2013 capital expenditures are expected to be $65 million.

Depreciation and amortization was $29 million for the quarter.

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

Our cash flow was excellent in the first quarter.

Operating cash flow was $157 million, up 11% over last year's first quarter.

Free cash flow was $146 million for the first quarter, representing 117% of net income.

Total debt was $1.32 billion at March 31, down $130 million from the 2012 year-end.

Offsetting this debt, is cash and cash equivalents of $177 million, resulting in a net debt to capital ratio at March 31 of 30.4%, down from 33.8% at the end of 2012.

At March 31, we had approximately $840 million of cash in existing credit facilities to fund our growth initiatives.

Our highest priority for capital deployment remains acquisitions.

In summary, we had a strong first quarter, establishing record levels of sales, operating income, net income, and diluted earnings per share.

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

Great, thank you, Bob.

Frank, we are now ready to open it up for questions.

(Operator instructions)

Allison Poliniak, Wells Fargo.

So revenue in Q1 a little lighter than you were anticipating when we talked last.

Was there a specific end market or region that came in a little bit lighter than you were thinking at this point?

No, I would say it was fairly broad-based, Allison.

Things were just a little weaker as most industrial companies are, in fact, reporting.

So that's one of the reasons that we took the increased cost reduction activities in the quarter.

Okay, great.

And then obviously, Boeing, the 787 I know it's a small component for you guys, but any impact from that and how should we think about that for the year?

Really, there's very minor, if any impact from the 787.

As I think you are aware, we fly on most of the commercial aircraft that fly today.

No one platform is a sizable impact to Ametek.

And actually, Boeing kept the production of the 787 going during their few months of difficulty.

So even if it did have a more sizable impact on our volume, you wouldn't have seen it for that reason.

So really, Boeing released earnings yesterday.

They had a great quarter, and I think they're going to have a great year.

Matter of fact, if you look at commercial aerospace overall they're forecasting production rates to be up about 7% this year, with Boeing up about 8% and Airbus up about 5%.

So we're seeing some really good tailwind's, if you will, from commercial aerospace.

Great.

And then on sort of the second-half core improvement, is that mainly due to comparisons, or is there real core volume improvement that you are expecting at the end of the year?

Yes, it is no question.

Largely due to easier comparisons, our first quarter is one of our toughest comparisons of the year.

So we expect that as we go through the year we're going to see that improved organic growth due to the easier comparisons.

Buy I think the key here is that we have significant confidence in our year-end EPS guidance.

We've taken a little bit of additional cost reduction activities as I mentioned and we feel very well positioned throughout the remainder of the year, even if volume comes in a little bit on the short side as we saw in the first quarter.

Perfect, thank you.

Christopher Glynn, Oppenheimer.

A little further to the second-half bridge, I get the comparisons, it still looks like some material -- materially higher sales run rate versus the second half I mean versus the first half, Frank, if you could comment on that observation?

It's just a bit up, it's not sizeably up.

It's just a few points higher in terms of the overall top line.

So as I mentioned, we are pretty comfortable with the bottom line and even if the top line comes in a bit softer.

We feel that the bottom line is going to be secure.

Okay.

Is there a visibility, some project letting that's been deferred in the near-term?

There's no question that there have been some projects deferred.

In particular, our process businesses, and we're starting to see activity in terms of some of those projects being released.

So that is definitely encouraging to us.

Aerospace, if you look at the projected build rates for 2014 over 2013, they are projected to be up, and we lead that by about six months.

So we would expect strength in the second half of the year in Aerospace.

So, we feel our estimates are reasonably conservative, given a few of those positive factors that we are seeing.

Thanks.

And then just a question on tax rate with 55% International, your tax rate compares a little high.

Do you consistently repatriate cash or is there a longer-term opportunity to drive that down?

The tax rate was 29.1%.

And do we consistently repatriate?

Not really.

I mean, we do enough to -- we actually prefer to keep our cash offshore for acquisitions.

So we do just a small amount on a consistent basis.

And longer-term opportunity to have that comparable to some others with half their sales outside the US?

Yes, for sure.

I mean, we've done a lot of things over the last several years.

And actually if you look at our tax rate from the beginning of last year to where we are now, you can see there is a consistent decline.

So, our initiatives there are really providing some significant benefit, and we view that as a positive going forward.

Thanks Bob.

Scott Graham, Jefferies.

The first question is for Bob.

Bob, could you split the charges, the two charges by segment in corporate for us on a pretax basis?

In large part, it's all -- when you look at the charge, it's largely in the operating side of the segments, and when you look at the restricted stock, it's a little bit less than a 50/50 split.

I don't understand the first part of your answer.

The charge for the cost realignment?

Yes.

That would be in the operating segments rather than in general and administrative expenses.

Right, but I'm asking for the split between the segments.

Okay, I've got that number, it's $2.2 million in EMG and $1.2 million in EIG.

And the second one on a restricted shares, advanced issue that we talked about, basically if you look at how that's broken out, it's roughly $0.6 million in EMG.

It's about $1 million in EIG, and about $1.1 million below the line.

G&A --.

Yes, I guess it the other question is on the realignment.

That's different than you're normal fare.

I assume that's why your calling it out because typically, Frank, you guys incur expenses pretty much every quarter to lower costs and for productivity.

So this is a little bit different from that, right?

Just a little bit in the sense that normally after first-quarter results, we are not looking to do additional cost reduction activities.

And in this case, because of that weaker top line, we decided to do that.

So that's the only reason that we're calling it out.

And there are sizable other costs that flow through the P&L all the time.

And you may have noticed in our release, we're not really calling it adjusted earnings.

We like to take those charges as they come and not really look at it from an adjusted earnings viewpoint.

Right, the charges are within the guidance.

I get it.

That's exactly right.

Can you tell us what the core orders were in the quarter?

Core orders were down about 5%, and that was against a very difficult comparison.

As I mentioned, Q1 was very strong last year.

Okay.

The last question is really on the acquisitions.

So we have the three big ones in particular from last year, and I was just wondering on the integration side, with those things expected to be accretive offshore internally, how are those integrations going?

Is there any way you can quantify for us the degree of accretion that we should see from those in 2013, if you're willing to do that?

Yes, we just had updates, actually, on all of the acquisitions that we did last year, and the acquisitions are meeting the targets that we had set.

So we are pretty comfortable with where we are.

We typically don't give guidance in terms of the accretion from each of those deals, but I can say is they have met the objectives that we've outlined.

Very good.

Thought I'd try.

Matt Summerville, KeyBanc.

Can you talk about kind of the linearity you experienced over the quarter from January, February, March, and kind of what the early read is on April in terms of what you saw for incoming orders?

Yes.

It was essentially flat.

If you look at it January, February, and March were essentially similar.

I would say that March is normally a bit higher.

So if you looked at it with respect to that comparison, you could say that it was weaker, but not in an absolute sense.

And somewhat surprisingly, I would say, and as other companies in the industrial space have indicated, April looks good.

So there just seemed to be a bit of a slowdown, I would say, at the end of March.

Some of it may be related to the fact that the Easter holiday was right at the end of March, and although it's different to put any quantification around that.

And then Frank, can you talk about specifically in the process group of businesses a little more granularity on end market trends and where you see relative strength, where you are seeing the more pronounced weakness?

Sure.

In the process businesses, oil and gas is clearly the strongest part of that business.

It has been growing consistently now for a multitude of quarters, and it continues to do that.

Order trends are good.

It looks quite positive.

Some of the other parts of the process business, in particular, some of our metal analysis businesses, those businesses are weaker, clearly, than the oil and gas business.

So overall, the business is doing fine.

The margins are incredibly good.

But there is a mixture between certain parts of the process segment, as I've indicated.

And then just one last one, Frank.

Sure.

Can you sort of talk about the magnitude of relief, maybe, you're experiencing in terms of input costs, and then what you're seeing in the price environment?

Thank you.

Yes.

Basically, in the first quarter, we had about 1.5 points of price.

And when you look at price minus inflation, and that's not just material, that's all inflation, including labor inflation, etcetera, that was about 0.5 point.

So in essence pricing minus inflation was about 0.5 point.

Thanks a lot.

John Baliotti, from Janney Capital Markets.

Frank, could you go through, just give us some color on the sub segments within EIG and EMG, how the sub businesses performed?

Sure.

I'd be glad to do that, John.

So why don't we start with EIG, and I'll start with EIG Aerospace.

They had a very strong quarter on continued strength in our commercial business as well as the business in regional jet business.

Sales were up low double digits on a percentage basis in the quarter.

And we expect continued solid growth for both the commercial and the business and regional jet side of that business.

And on the business and regional jet side, it's more due to our internal growth initiatives than it is general market.

On the commercial business side, the general market, obviously, is quite positive right now.

So for all of 2013, we are expecting EIG Aero to be up mid to hi single digits.

We talked a little bit about process already, but let me put some rough numbers behind it.

Overall sales for the process businesses were up mid single digits on a percentage basis.

Organic sales were down low single digits, on a very difficult comparison to the first quarter of 2012.

Overall growth in the quarter, as I've indicated already, was driven by oil and gas, and obviously the contributions from the acquisitions that we did last year.

For the full year, we expect our process businesses to grow about 10%, with organic growth up low to mid single digits.

And the last part of EIG is our power and industrial business.

For that part of EIG, we were down mid single digits on a percentage basis, it was driven largely by weakness as we had anticipated going into the quarter, in the heavy truck market, and for all of 2013 we expect sales for power industrial to be up low single digits with strength in power being partially offset by a weakness in industrial.

So if you sum those three parts of Aerospace, John, for all of EIG, we expect sales to be up high single digits and organic growth up low to mid single digits.

Right.

Moving to EMG, if we look at the differentiated part of EMG, overall sales for those businesses were up mid teens on a percentage basis.

On strength in our third-party Aerospace MRO businesses, as well as the contribution from the Dunkermotoren acquisition.

Organic sales were down mid single digits in the quarter, driven by weakness in our EMIP business.

For all of 2013, we expect these differentiated businesses to be up high single digits on a percentage basis, and organic growth in the low to mid single digits.

And the last part of the Company is our cost-driven motor business.

That performed actually very well in the quarter.

Sales were flat, but profit margins were really excellent.

The operational excellence initiatives in cost-driven motors have been really good.

And for all of 2013 we expect sales for this business to be approximately flat.

So if you sum those two parts of EMG, we are expecting for 2013 overall growth of mid to high single digits and organic growth similar to EIG in the low to mid single digit arena.

And in both of these segments, as we have already said, we expect second half organic growth to be stronger than the first half.

So that sort of gives you a rundown of the segments.

Great.

And I was just curious on the cost takeout's that you scheduled for the year, is there a way to parse them in terms of the ones that you think you're going to get volume leverage out of?

The cost that really has long-term lasting benefits.

Is that most of it?

Yes.

I would say in terms of, will these the benefits go into future years, the answer is definitely yes.

We expect the annualized impact due to that $0.01 of charge we talked about to be around $10 million, and roughly we're going to get half of that in this year.

Great.

Thanks very much.

And just want to add one thing to that comment, John, that we're also, and we talked about in the year-end conference call, that we are continuing to make sizable investments in growth.

We are putting about $35 million through the P&L to basically drive organic growth.

And with these cost reductions that we have put in place, we have not done anything that's going to impact the longer term growth of the Company.

So we've been very careful to target the reductions so that the organic growth of the Company remains intact.

Okay.

Thank you.

Richard Eastman, Robert W Baird.

Frank, could you just address for a minute, in EIG the acquisition contribution looks maybe lower than we would have thought.

Are all those acquisitions on track from a revenue standpoint or was something -- was there a first-quarter impact their somewhere?

No it's pretty much on track.

We said, or we felt, that the impact of Dunkermotoren would improve as we went through the year.

And in essence, it is doing that.

So it had about, on the EMG segment, it had about a 70 basis point impact.

But we think over time we will get those Dunkermotoren profit margins up very close to the other businesses of that type in the segment.

Okay.

And again, within EIG, though, it looks like the acquisition contribution in terms of revenue, again, it would seem Micro-Poise alone should have contributed maybe a bit more than the total revenue --?

Okay.

I see what you're getting at.

Maybe my math is wrong?

Richard, no you had some math that was right.

We had some technology deals that went through here, and they're very small.

And I think that's probably where your calculations may not exactly line up.

Kevin can go through that with you after the call if you would like.

Okay, and then also, Frank, could you just talk to, given our core growth rate for the quarter of minus 2%, you come in at about international, and particular the BRIC countries being very strong.

But I'm curious, when you look at some of the project push outs, maybe the small marginal sales miss for Ametek in the quarter, would you attribute that then to US and Europe given Asia looks pretty strong?

That's a very interesting dynamic.

I will -- first I'll give you the top line answer, that definitely we saw some weakness in the US that was a factor in this.

And there was strength in particular in China.

But let me back up and talk about each of the geographic regions of the world because the numbers I'm going to tell you are not initially going to sound logical until I explain them.

Actually, our strongest organic growth was in Europe.

And the reason for that was really twofold.

One was that we have our commercial and some of our business and regional aircraft.

European businesses were very strong, and the MRO business in Europe was very strong.

That was one factor.

And the second factor was CAMECA, which is one of our highest and EIG businesses had very large shipments into Europe in the first quarter.

Conversely, when we look at Asia, even though my comment about China being strong was a very accurate comment, when we look at all of Asia, Asia was actually down organically.

And the reason was, it was just the antithesis from the viewpoint of CAMECA.

They had shipped a large number of systems.

And as you may recall, Richard, these systems are $2 million, $3 million, $4 million each.

And we had a large number of them, not in China but into last year into Taiwan and into Japan which we didn't have this year.

So the CAMECA business actually overall was pretty good.

It's just that there was a geographic switch between Asia and Europe.

And in general, the US businesses were not all that strong.

They were down sort of a mid single-digit type organic growth rate.

So that's sort of what happened around the world.

But China sales just in themselves were up, like, 18% or 19%.

So I hope that's not too confusing.

That's okay.

Was Europe then, was it a plus, low single-digit type number on the core?

Yes.

Core growth was up about 4%.

Okay.

And then just one last question then.

Well, let me just -- so the US business was a minus mid single digit.

Was that EIG related or EMG or was there any particular market that surprised you on the soft side?

The one that surprised us on the soft side, and I have mentioned it in some of my comments previously, was our engineered materials interconnect and packaging businesses, which is in the differentiated part of EMG.

That business was weak during the quarter, and weaker than we had anticipated that it was going be.

Okay.

So one last question.

On the military business, the military aerospace business, excuse me, that held up longer than we might have thought through the end of last year.

How did that perform in the first quarter, was it still negatives on us --?

It's continued to do amazingly well, it's -- we had -- it was down 1 point or 2 points, and that's all, and the orders are continuing to come in at a very strong clip.

And when we look at that, we believe that a good part of that is related to the fact that we are in areas where the part of the DOD budget that we are linked to has a higher growth rate than the base DOD budget itself.

And if you just looked at sequestration, although some of those reductions haven't really taken hold yet, it would be down maybe 5%, 6%, 7%.

And what we're seeing is this negative 1%, negative 2%.

So that's what we think.

We think it will hang in there at that rate for the rest of the year.

And even if we are a little optimistic on that side, we believe that the commercial side is going to just continue to do extremely well.

You.

Okay, great.

Thanks for the color.

Mark Douglass, Longbow Research.

Frank, going back to the regions, how they're doing now, what are you seeing in the second half?

I assume you're not anticipating CAMECA shipping all these systems for the full year?

Maybe you are.

Is Europe going to be kind of trend down to where everybody else is having Europe right now, kind of flat to down, but US, you think is going to pick up?

Yes, I think as we go through the year, Mark, that you're going to see a more realistic growth rate that lines up with the GDP parts of the world.

I think you will see that Europe will be the weakest of the three major regions, that the US will be in the middle, and Asia will still be the best performer.

So it seems like 1Q is a little bit of an anomaly where you're doing well in Europe but poorly in the US.

Expect that to flip?

Yes, I think you will see some flip, but I don't think it's going to be at the magnitude that you're suggesting.

And the reason is that we still have very strong organic growth in Europe from the aerospace [there].

So we would be different than many other industrial companies that don't have that aerospace component.

So I think we will be stronger in Europe, but -- than other companies, but still, of the three areas, it would be the weakest.

Okay.

And Bob, what were payables?

$343 million.

$343 million?

Yes.

Okay, and then lastly, Frank, haven't had a deal in a little while, what are the expectations right now between buyers and sellers?

Have things gotten a little out of whack so you haven't been able to close deals that maybe you thought were ready to go?

Just talk a little bit about the environment.

Yes, sure.

As you know, we had a phenomenal year last year.

We closed seven deals, and we closed four of them in the fourth quarter.

So we feel very good about what we have done.

And as we look forward, we also feel very good.

The backlogs are strong.

We've got a lot of deals on the table.

In terms of multiples, I would say it's a mixed bag.

I think you probably have heard me say this before.

There are some deals that are very overpriced, and matter of fact, I don't fully understand how other companies could acquire at the multiples that are at least being posted on those deals, and really get an economic return.

But then, there are other deals that are very reasonable.

And we are obviously parsing our deals along the side that's reasonable.

We view the worst thing you can do on a deal is overpay.

Because no matter what you do from the viewpoint of the operating side, growth, whatever, you are just never going to get out of the fact that you've overpaid.

So given that environment, we feel pretty good about the rest of the year.

We think growth will have a fine year, and stay tuned.

Okay, so we get the sense that there is too many people chasing too few properties?

Well, I think if you get to larger properties, there would be some truth to that.

But in the area that we are focused on these deals that are in that $50 million, $150 million to $200 million region, we are seeing a fair number of good candidates, and we think we can close them with reasonable multiples.

Okay, great.

Thank you.

Matt McConnell, Citi Research.

Just to follow-up on that question on the pipeline, are those frothy multiples, are those from strategics or is it private equity you find kind of grossing that up?

Is stable financing kind of an issue again?

Any insight there?

Yes, sure my comment was directed more to strategics that are buying some of these businesses.

I don't want to talk about specific companies, but we just saw one come across our desk that the multiple was 15 times drilling.

And to buy a company, unless it's got unbelievable growth, which is kind of questionable in the environment we are in, it's hard to get an economic return at that level.

Now, in fairness, in the private equity world, there is more capital available, and they can nip at some of the low-end of the strategic deals.

But we haven't found it to be a major problem.

We have not lost any substantial number of deals.

As a matter of fact, I can't even think of one that we have lost recently that was because of a private equity buyer.

Okay, great.

Thanks.

And could you discuss the kind of level of visibility that you have to that higher cost takeout target the $95 million?

And then I know that would not be considered like a maximum, but what's your flexibility to move that higher, if you see any market softness through the end of the year?

Great questions.

First, the visibility is excellent.

We are going to have no problems in being able to achieve the $95 million of savings that I have talked about.

And I think many of you have followed us for a long time, and our view is there is always additional cost activity.

As a matter of fact, an internal philosophy we use is that there is no such thing as fixed costs.

Because in essence, you can take out fixed cost.

And therefore, if need be, we would take actions if the volume did come in lower than we're hoping that it does, or what we think our present forecasts are.

So there are other actions that we can take.

We always have a list of actions, and we will make those decisions as we look at the incoming order rate and look at our earnings for the year.

And I think I can say that in my 13 years as CEO, we have never missed a quarter in 13 years.

So we've got a pretty good internal process that allows us to modulate, even within the quarter, to ensure that we make our earnings.

Okay, great.

Thanks very much.

Jamie Sullivan, RBC Capital Markets.

Frank, maybe you can talk about a couple of the end markets within the businesses that you talk about.

You've mentioned that power and industrial and EIG was a bit soft.

It sounds like the differentiated businesses in EMG were also.

Just sort of your thoughts on the drivers for the pickup throughout the year in those areas and how you feel about the visibility?

Yes, I think if I look at the power and industrial businesses, the weakness in the first quarter was driven by the heavy truck market, which has been weak.

If you look at the number of North American heavy vehicle, heavy trucks that are going to be produced, the present estimates by most of the industry forecasts are in the order of 240,000 trucks, down about 12%.

And I would say that's consistent with what we are seeing.

The comps do get a bit easier as we go through the year, which will help on the organic side, but in terms of total top line revenue, I don't think we're going to see a huge change in that power and industrial segment.

It's different in the differentiated side.

When we look at the differentiated side of EMG and talk to the weakness in EMIP, which is our engineered materials interconnected packaging business, there is a specific market phenomenon that is occurring there that we believe is going to correct itself as the year goes on.

And that is this particular business makes master alloys that are used in the production of titanium for the aerospace industry.

And what is occurring there is that there was a build up in inventory that happened, really, starting let's say in the beginning of the fourth quarter, and as a result, the shipments came down in the first quarter, as they bled off that inventory.

And obviously, with commercial aircraft production being very strong, we're going to see that trend correct itself as the year goes on, and that business, due to that market dynamic will improve.

So that we will see stronger -- stronger top line performance as the year unfolds.

Okay.

That makes sense.

And then maybe just a follow on -- on China.

We've certainly heard a mixed bag from a lot of companies this quarter.

Just wondering kind of where you are seeing the strength, which businesses, products, or applications?

Just some color there?

Yes, sure.

Our process businesses were good in China.

Even our floor care business was strong.

So I wouldn't say there's any particular part of the portfolio.

And strong is maybe a relative word.

Because if we were growing organically in China at a 20%, 25% clip, if we go back 1 year, 1.5 years ago and now we're calling strong mid single-digit kind of growth in terms of organics.

So, you know, it's not where it was, but in relationship to other parts of the world, it's definitely strong.

Thanks very much.

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

Please continue with your presentation or closing remarks.

Great, thank you, Frank.

Thanks, everyone for joining our call today.

Our replay of the call may be accessed on Ametek.com and at streetevents.com.

And if anyone has further questions I'm available all day, 610-889-5247.

Thanks again.

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

Have a great day everyone.