阿美特克 (AME) 2013 Q3 法說會逐字稿

Welcome to the Ametek third quarter 2013 earnings call.

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

Afterwards, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded, Tuesday, October 29, 2013.

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

Please go ahead, sir.

Thank you, Mira.

Good morning, everyone.

Welcome to Ametek's third quarter earnings conference call.

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

Ametek's third quarter results were released earlier this morning.

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

A tape of today's conference call may be accessed until November 12 by calling 800-633-8284 and entering the confirmation code 21673738.

This 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 investor section of Ametek.com for a reconciliation of any non-GAAP financial measures used during this call.

We will begin today with 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 third quarter.

We established quarterly records for sales and operating income.

In addition, we ended the quarter with record backlog of $1.2 billion.

Orders in the third quarter were excellent, at $937 million, up 7% organically from the prior year.

The book-to-bill ratio in the quarter was 1.05.

Sales in the quarter were up 6% to $890 million.

Organic sales were up 1% and in line with our expectations, while acquisitions added 5% and currency was flat.

Operating income for the third quarter was strong.

It increased 9% to a record $204.7 million from $188.2 million last year, reflecting the impact of the higher sales and our operational excellence activities.

Operating income margin in the quarter was also strong, at 23%, a 60 basis point improvement over the third quarter of 2012.

Net income was up 11% to $127.9 million, and diluted earnings per share of $0.52 were up 11% over last year's third quarter.

Operating working capital was 18.2% of sales in the quarter.

During the quarter, we recognized an approximately $11 million gain on the sale of a facility.

This gain was offset in the quarter by increased organic growth investments and higher than normal acquisition related costs.

I will provide some color on these increased growth investments in a moment, but let me first discuss results of the individual operating groups.

The Electronic Instruments Group had a very good third quarter.

Sales were up 9% to $499.8 million on strength in our longer cycle Aerospace and Oil and Gas businesses, plus the contributions from the Micro-Poise and Controls Southeast acquisition.

We also saw strength in our Advanced Measurement Technology Business.

Organic sales were up 1%, acquisitions added 8%, while currency was flat.

Orders for EIG where also very strong in the quarter, up 6% organically.

EIG's operating income performance was excellent.

Operating income increased 14% to a record $138.9 million, and operating margins were 27.8%, up 120 basis points over last year's third quarter.

The Electromechanical Group also had a solid quarter.

Sales were up 2% to $390.2 million on strength in our precision motion control business, and in our floorcare and Specialty Motors Business.

Organic sales were up 1%, and foreign currency was a 1% tailwind.

Organic orders were very strong, up 9% in the third quarter.

EMG's operating income was $77.5 million, and operating margins were 19.9% in the quarter.

Given the low growth market environment, we felt it was prudent to redeploy a portion of the facility gain into targeted organic growth investments.

These growth investments are incremental to the $35 million of growth investments we had previously targeted for the full year.

The investments are focused on global and market expansion and new product development initiatives, and are being made in specific targeted projects in support of our growth strategies.

I will provide some examples of a few incremental growth investments as part of the update on our four growth strategies, which are global and market expansion, new product development, operational excellence and acquisitions.

First, global and market expansion.

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

In the third quarter, International sales represented 54% of our total sales, up from 52% of sales in the third quarter of 2012.

The increase in International sales percentage was driven by strong Aerospace and Process sales.

Our businesses have identified a tract of global and market expansion opportunities in service and after-market support for customers.

A number of the growth projects undertaken in the third quarter were targeted at expanding our capability within these areas.

Providing customers with high-quality service capabilities is increasingly being viewed as a key differentiator for our product sales, especially in China, India and Southeast Asia.

In addition to driving incremental after-market service sales, adding service and application engineers in these regions will support our product sales efforts.

Across our Process businesses, we initiated a number of service expansion projects in the quarter, including within our Taylor Hobson, Spectro and Oil and Gas businesses.

In our Programmable Power Business, we are investing in a growth project focused on expanding and strengthening our Sales Channel capabilities and effectiveness.

This project is focused in parts of Asia where we see excellent growth opportunities for our Power supply solutions within attractive test and measurement markets.

These markets include Semiconductor and electronic vehicles.

The increased investments include additional sales and application engineering resources, increased training for our distribution partners, and increased marketing spend.

In addition to these incremental growth investments, 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.

Now on to new products.

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

We have consistently invested in RD&E, and in 2013, we expect to spend $178 million, a 15% increase over 2012.

A number of the incremental growth investments we made in the quarter were in new product development activities.

As an example, within our ultra precision technology Business, we are making an incremental investment to enhance an existing surface measurement product to expand its market opportunity.

The R&D investment will be used to increase the functionality, measurement capability and ease of use of the existing product, while also reducing cost.

The investment is being made in design and development, testing and production build-out.

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

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 within Ametek includes Lean manufacturing, Six Sigma in our factories and back-office operations, design for Six Sigma in our new product development efforts, and the movement of production to low-cost locales.

Operational excellence also includes our global sourcing and strategic procurement initiatives, where we continue to see excellent results.

In addition to the significant success of our global material sourcing initiatives, we continue to generate excellent results from our overall MRO and e-procurement initiatives, as well as our value engineering activities.

From these combined sourcing activities, we recognized approximately $16 million in savings in the third quarter, and have recognized approximately $46 million in sourcing savings year to date.

We continue to expect at least $100 million of total cost savings in 2013.

Now turning to acquisitions.

We've had a solid year thus far in 2013, and had a very active third quarter, with the acquisition of Control Southeast during the quarter, and the acquisition of Creaform, which was announced this morning.

In addition, our pipeline of deals remains strong, so we expect to remain very active over the balance of 2013.

Thus far in 2013, we deployed roughly $280 million in capital, acquiring approximate $100 million in revenue.

I will provide some more insight into the Creaform acquisition.

Creaform is a leading developer and manufacturer of innovative 3-D Measurement technologies and services.

They are the industry leader in standalone portable 3-D scanners.

Creaform's optically-based devices are used across a number of high-growth applications within the Aerospace, automotive, and general industrial markets.

Key applications for their products include reverse engineering, dimensional inspection, precision manufacturing, nondestructive testing, automated quality control, and 3-D printing.

Creaform is an outstanding acquisition for us, and an excellent strategic fit with our precision technology -- ultra precision technology division.

Its products expand the range of our metrology product and technology offerings in a high-growth niche market in portal non-contact metrology applications.

Creaform was privately held, and has annual sales of approximately $52 million.

The price paid was approximately $120 million.

The Business is headquartered near Quebec City, Canada.

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

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.

Now turning to the outlook for the remainder of 2013.

Our estimates for the balance of 2013 reflect the impact from the continued soft but slowly improving demand environment.

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

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

We expect our earnings to be approximately $2.09 per diluted share, up 11% from 2012.

Very importantly, fourth quarter 2013 sales are expected to be up high single digits from last year's fourth quarter, with organic growth up mid-single digits on a percentage basis.

We estimate our fourth-quarter earnings to be approximately $0.54 per diluted share, up 10% over last year's fourth quarter.

So in summary, our overall Business has performed well in the third quarter.

The core sales growth, operational excellence initiatives, and a strategic growth initiatives enabled us to deliver earnings at the high end of our guidance against the backdrop of a continued soft demand environment.

We remain 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 record level of backlog, strong portfolio of businesses, proven operational capabilities, and a successful focus on strategic acquisitions should enable us to perform well for the remainder of 2013.

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

Bob?

Thank you, Frank.

As Frank noted, we had a very good quarter, with solid operating performance and strong growth in orders.

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 up 1.3% of sales, in line with last year's third quarter.

The effective tax rate for the quarter was 29%.

For 2013, we expect our tax rate to be the low end of our prior full-year estimate of 29% to 30%.

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

On the balance sheet, working capital, defined as receivables plus inventory less payables, was 18.2% of sales in the third quarter.

Strong Working Capital Management will remain a key priority.

Capital expenditures were $16 million for the quarter.

Full-year 2013 capital expenditures are expected to be $60 million.

Depreciation and amortization was $30 million for the quarter.

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

Operating cash flow was $166 million in the third quarter, and free cash flow was $151 million, representing 118% of net income.

For the first time -- first 9 months of 2013, operating cash flow was $451 million and free cash flow was $414 million, representing 109% of net income.

For the full year, we anticipate free cash flow to be approximately 113% of net income.

Our strong cash flow was deployed to support our acquisition strategy, where we expended approximate $160 million in the quarter.

Total debt was $1.3 billion at September 30, down $154 million from the 2012 year end.

Offsetting this debt is cash and cash equivalents of $255 million, resulting in a net debt to capital ratio at September 30 of 26.3%, down from 33.8% at the end of 2012.

At September 30, we had approximately $950 million of cash and existing credit facilities to fund our growth initiatives.

Subsequent to the end of the third quarter, we acquired Creaform.

Capital deployed was approximately $120 million, which brings our cumulative expenditures for acquisitions in 2013 to approximately $280 million.

Our highest priority for capital deployment remains acquisitions.

In summary, we had a strong third quarter, establishing record levels for sales and operating income.

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

Great.

Thank you, Bob.

Mira, now happy to open it up for questions.

Thank you.

(Operator Instructions)

The first question comes from Allison Poliniak with Wells Fargo.

Please go ahead.

Good morning.

Hi, Allison.

On the $11 million, the gain on sale, is there any way to quantify what, terms of that, went to the incremental growth investments?

(multiple speakers) Yes, sure, Allison.

Of that $11 million, approximately $7 million went to incremental growth initiatives, and the remaining $4 million was higher than normal acquisition-related costs.

As I mentioned in my opening remarks, we have been very active in the acquisition environment, not only on the deals that we have already closed, but on other deals that we hope to close in the relatively near future.

So if you look at what actually went through the P&L, about $5 million of acquisition-related costs went through the P&L, but we are saying that $4 million were incremental, because we always have some residual level going through the P&L.

Got you.

Perfect.

Can you touch on EMG margins?

They were bit pressured this quarter.

Was there something with mix?

Or just elaborate what's going on there?

Yes, sure, Allison.

Yes, you right, it was a mix issue.

Our floorcare and Specialty Motors Business had a tremendous quarter.

Their organic sales were up about 15%, and that was one of the drivers in the performance of EMG.

And as I believe you are aware, the margins in floorcare and Specialty Motors, although very good, are below the group average.

So that mix shift is what drove that slide decrease in EMG margins.

Should we assume that mix shift continued into Q4 to some extent?

I think you're going to find Q4 better.

We are expecting good margins in Q4.

We expect Floorcare and Specialty Motors to continue to do well, but we also expect the differentiated businesses to do better.

So therefore, maybe there will be a slight mix shift, but not of the same magnitude.

Perfect.

Thank you.

Okay, Allison.

Thank you.

Our next question comes from Nigel Coe with Morgan Stanley.

Please go ahead.

Yes, hi, this is Drew (inaudible) in for Nigel Coe.

Hi, Drew.

Just want to get a sense for what end markets were driving the order growth in the quarter?

And then how that's going to flow into your 4Q guidance?

Yes, great question.

It really was across the board.

If you look at the five sub segments that we talk about, which are basically Aerospace, and the Process businesses, and Power and Industrial on the EIG side, and the differentiated and the Floorcare and specialty Motors sub-segments on the EMG side, all of those sub segments had mid-single digit or greater than mid-single digit organic growth in orders.

So it was a very, very encouraging sign for us to see that sort of broad-based improvement.

Within each segment, the higher than the mid single-digit levels on the EIG side were in Aerospace, where they were up in the low double digits, and in Floorcare -- or in the EMG segment, Floorcare was actually up organically around 20%.

So very, very strong performance, really across the Company, and in particular in those two groups.

So your follow-on point is, obviously, as we look to the fourth quarter, we are feeling very, very good about the organic growth of the Company.

And you can see the progression of organic growth through the year.

I think we started at about minus 2% in the first quarter, and then we went to flat, and now we are at 1%, and we are saying mid-single digits for the fourth quarter.

So the trend is actually similar to what we laid out at the beginning of the year.

Maybe a little fourth quarter oriented than what we had expected, but the end result is excellent, and we feel good about the fourth quarter.

And we also feel good going into next year as a result.

Okay.

Great.

And then, if you could, on the Creaform acquisition.

Yes.

Just give us a sense for the competitors in this space, and then maybe the margin profile as it compares to the rest of the segment?

Yes, sure.

The margin profile is less -- a little bit less than the Ametek's margins.

And we see opportunity to basically grow those margins, as we do with most deals.

The prime driver for this Business, and why we acquired it, is that it has a very high organic growth rate.

Over the last five years, it has grown at a compounded annual growth rate of about 20%.

There are not a lot of what I would call direct competitors to Creaform in this 3-D Portable non-contact metrology area.

But in the broader noncontract metrology area, competitors would be people like Hexagon, Nikon has some Business here, Faro has some Business here.

So those are the type of competitors that you will see, although somewhat tangential to Creaform.

All right.

Thanks, Frank.

You bet.

Thank you.

Our next question comes from Matt McConnell with Citi Research.

Please go ahead.

Thank you.

Good morning.

Hi, Matt

Just to follow-up on that 20% organic growth.

What's your expectation when you come up with your deal plan, when you model this out?

What are you expecting over the next couple years or so?

We are expecting low single -- low double-digit types of organic growth rates.

We actually modeled it a bit lower than that, to make sure we were paying a proper price for it, but I think that's the expectation.

And obviously, that's on the high end of the businesses that we have.

So we are pretty excited about this particular deal.

Great.

Thanks.

And switching gears a little bit, you've done a great on the cost savings year to date, and I wonder whether growth investments were ever put on hold, or maybe pushed out, that target has gone up a couple of times this year, as end markets look slow.

So are you re-initiating any growth investments, or is this facility gain really funding new projects?

No, is definitely funding new projects.

We stated, I think that the beginning of the year, that we were putting $35 million in growth investments, and we have not in any way tailored that $35 million as we made other cost improvements.

Our cost improvements were more focused on the materials side, on consolidation of facilities, things of that nature, not the key growth initiatives in the Company.

So this extra $7 million that I talked about in response to Allison's question is truly incremental to that $35 million.

So we are now saying we are going to invest $42 million in growth investments during full 2013.

Okay, great.

Thanks very much.

Sure.

Thank you.

Our next question comes from Scott Graham with Jefferies.

Please go ahead.

Hello, Scott.

Good morning.

One question for Bob, and then two for you, Frank.

Did the additional acquisition cost roll through the other line?

Is that where we are seeing it?

Yes, Scott.

That's where it rolled through.

There was piece that rolled through the other line, and there's also some that's above the line as well.

But the majority of it flowed through the other line.

Got it.

Frank, how was pricing in the quarter?

It was great.

Very pleased with pricing.

It was up 1.8% in the quarter, and we look at a metric, as I think you are aware, Scott, of pricing minus total inflation, which includes salaries, materials, MRO activity, essentially everything.

And that ratio of price minus cost was actually up about 0.8%.

So in essence, that went to the bottom line.

And obviously, there's other give and takes in terms of the growth investments, etc.

But if you look at just the pricing minus inflation, that's the impact of it.

Okay.

And is there any way to parse out what pricing is.

Is it kind of the same level in the order number?

You know, I cannot answer that off the top of my head.

I would not expect any major difference, but I actually did not look at pricing in the orders that were coming in.

We can -- but usually, there isn't a major difference, but I really didn't look at it.

We can get that information to you, Scott.

But bottom line is that, with volumes apparently, then, down a little bit in the quarter, you are expecting that to reverse course in the fourth quarter?

Yes, that's exactly right.

Okay.

And then lastly, could you just go through your typical five Business unit sales, Frank?

Yes, sure.

Thanks.

Okay, we will start with EIG.

In Aerospace, in EIG, the Business really had an excellent quarter.

Sales were up high single digits on a percentage basis, driven by continued strong performance in our Commercial Aerospace Business and from continued strength in our Business and Regional jet businesses.

We remain really very well-positioned to capitalize on the growing OEM build rates, increasing content on the Next-Generation aircraft, and also the improving trends in the Aerospace after-market.

So for all of 2013, EIG Aerospace organic growth should be up mid-single digits.

And as I mentioned, order growth in the quarter was up low double digits.

So Aerospace looks solid going forward.

Moving on to Process, our Process businesses also had a very strong quarter, with overall sales up mid teens on a percentage basis, and organic sales were also strong, up mid-single digits.

Organic growth in the quarter was driven by continued strength in Oil and Gas, which we have talked about for a number of quarters, and also our advanced Measurement technology Business had a solid quarter.

Overall growth obviously benefited from the Controls Southeast and Micro-Poise acquisitions.

And for the full year, we expect our Process businesses to grow low double digits on a percentage basis, with overall organic growth up low single digits, maybe edging up to mid single digits.

Power and Industrial sales.

For Power and Industrial, we're down 10% on a percentage basis, on a difficult comparison to 2012.

In 2012, we had a number of large Power and Industrial projects that went through the sales line and therefore this number is depressed based on that.

And for all of 2013, we expect sales for Power and Industrial to be down mid single digits.

So if you sum those three parts of Aerospace for all -- or three parts of EIG, for all of EIG, we expect overall 2013 sales to be up mid-single digits, with organic growth up low single digits.

And then, Scott, moving to the other part of the Company, in EMG, the differentiated businesses, overall sales were flat during the quarter from the prior year.

We had solid growth in Precision Motion Control and third-party Aerospace MRO businesses, but it was offset by softness in our EMIP Business.

For all of 2013, we expect the differentiated businesses to be up mid-single digits on a percentage basis, with approximately flat organic growth.

And the last part of the Company, Floorcare and Specialty Motors, had a really great quarter.

As I mentioned, their orders were up organically on a about 20% basis, and overall sales were up mid teens on a percentage basis in the quarter.

And this is driven by new program wins.

It is not driven by an easy comparison, et cetera.

It is really driven by new program wins.

That team has a superlative job in finding new Business where not only we can grow the top line, but also grow the bottom line.

And for all of 2013, we expect sales for this Business to be up mid-single digits.

So if you sum those two parts of EMG, for all of Ametek, we are expecting mid-single digit sales growth, with organic growth up just low single digits.

But as I mentioned, the fourth quarter we expect to be really good, with overall sales up high single digits and organic growth up that mid-single-digit level.

So Scott, that's the Company.

Frank, thank you.

You bet.

Thank you.

The next question comes from Mark Douglass with Longbow Research.

Please go ahead.

Good morning, gentlemen.

Hi, Mark.

Frank, when you talk about the really strong orders in Aerospace, how does that break down as far as when you expect to deliver -- is it a mix of some short cycle, maybe MRO, as well as longer cycle -- longer-term projects that are going to be delivered in 2014?

Yes, it is a combination of both, Mark.

Orders were particularly strong in the Business and Regional Jet Business.

They were up mid teens, actually, and most of that Business is on the EIG side.

Those shipments tend to be quicker than Commercial Aerospace, and the Commercial Aerospace orders were also strong.

But that tends to be longer-term.

And to your point, moving over to the EMG side of the Business, we had good order growth in our third party MRO Business, and that tends to be, obviously, much shorter term.

So it is a pretty good outlook for Aerospace, both on the short term and the long term.

You look at the backlogs at Boeing and Airbus, they are very, very strong.

Boeing just had a great quarter.

They are shipping at higher levels.

They are, this year -- overall, Boeing is going to be up about 7% in OEM shipments.

Airbus is going to be up about 5%.

So roughly 6% in Commercial Aerospace, looking at those in two major providers.

Business and Regional jets, the market isn't as strong, but as I have mentioned on previous calls, we've won some major Business, in particular with Gulfstream, so that bolt-in orders and in shipments, this is one of our highest growth areas right now.

So we are really outpacing the market there.

And the trends in third-party MRO seem to be on the improving side.

So it is a really good outlook for Aerospace.

And when you mix all that together, is there going to be -- there is probably going to be significant shift in margins in the Aerospace?

I assume your MRO is more profitable than the OEMs, but if they are both growing, do you think the mix is going to be relatively stable?

It depends on what part of the MRO Business we are talking about.

I was actually referring to the third-party MRO Business that we have.

And actually, our OEM margins are higher than the third-party MRO margins by a bit.

If you look at our after-market Business, in other words, products that we sell to the after-market that we also have the OEM Business on, then you are right that in essence, there is going to be a margin improvement.

So I would expect, as we look forward, a bit of a market -- margin improvement, but not as significant as your question suggests.

Okay.

And then finally, when you talk about strong Oil and Gas, can you go little deeper as to maybe what products are particularly strong for you there?

And are you talking more up, mid, downstream, what you're seeing in those markets?

Yes, I think the best way I can characterize it is that our upstream Business is doing extremely well.

It has done extremely well for an extended period of time.

A major part of that Business is outside the United States.

About 70% is outside United States, about 30% inside the United States.

So we are enjoying the International growth aspects of the Oil and Gas Business.

Midstream is doing fine.

It is not growing at the same rate, but it is doing fine.

And then the downstream part of that Business, which has lagged, is starting to show some life.

So overall, when you look at the three segments, it is a very good picture, but it is clearly being driven by the upstream portion.

Okay.

Finally, Bob, what were payables?

$331 million.

Thank you very much.

Thank you.

Your next question comes from Jamie Sullivan with RBC Capital Markets.

Please go ahead.

Hi, good morning.

Good morning, Jamie.

On Creaform, can you talk about the multiple on the deal and what you are seeing out there in terms of multiples in general?

You talked about a pickup in activity, it seems like.

Yes, Jamie, we paid approximately 10 times EBITDA for this Business.

And that is a bit higher than we normally pay, but as I've already mentioned, this is a very high growth kind of Business.

So taking that into account, it is sort of a normal type of deal for Ametek.

In terms of your more general question, deal multiples have gone up a bit.

They basically, if I had an to average it, they are probably of about a point from where they were one or two years ago.

And what we are doing is parsing the deals that we are looking at, either to where we have more than the norm of synergies or more than the norm of organic growth.

And with Creaform, it was clearly a growth picture for CSI.

The other deal we announced at this year, it was more of a cost type of picture, with high synergies.

So that's the way we are viewing it, and thus we are getting a very good internal rate of return on these businesses, good ROIC in year three, and some accretion out of these businesses, as well.

So does it seem a little bit tougher to get deals closer to the finish line, giving the filters a little bit more fine now, from what you are looking at?

Given the multiples?

I would say maybe a little bit, but the other side of that is our team.

And as I think you may be aware, we have about 10 people throughout the Company who are spending 100% of their time on deals, and a large number of other people who are spending part-time on deals.

So many of our deals are coming from our internal efforts and tend to be more proprietary.

And on those deals, I'd say there hasn't been any significant change.

There might be a slight impact, mainly due to the deals that come in from the investment banking community, but I'm pretty bullish right now on deals.

We are as busy as we have ever been.

So hopefully, we can close the deals that we have in the hopper.

And if we can, we are not only going to have a very good year this year, we are also going to go into next year with some sizable upward thrust due to those deals.

That's helpful.

And maybe, if you can, just talk through the geographic organic growth you saw around the world?

And given the strong orders, if there was any notable trends by geography as well?

Yes, I can give you the organic growth in sales.

Basically, when we look around the world, the weakest part for us was actually the US.

It was down about 4%.

Asia was roughly flat, and Europe, surprisingly, I guess, was up about 4%.

So when you average those, you get to that plus 1% organic growth for the Company.

And if you look at the detail underneath those numbers, I would say both the US and Asia were just due to this somewhat lethargic return that we are seeing in the general economy.

Our strength in Europe was driven by both our Aerospace and our Process businesses, where in our Process businesses, Oil and Gas, as we just recently talked about, was very strong, and our Aerospace businesses are doing very well in Europe.

So that is sort of the picture around the globe.

When I step back and look at the whole demand environment, I characterize it as a slowly improving demand environment.

No question, it feels better today than it did three months ago, but somebody mentioned to me recently, you are seeing a major uptick.

And I would say that is not the case.

It is not a major uptick.

It is a slowly improving demand environment.

The follow-up on your question of orders, we were actually pretty strong -- stronger in all of the regions, so orders were encouraging.

Things are, in fact, picking up a bit.

I don't have the numbers in my head for each area, but I do know that each geographic area was good on orders.

Thank you.

(Operator Instructions)

Our next question comes from Richard Eastman with Robert W Baird.

Please go ahead.

Yes, good morning.

Hi, Richard.

Frank, just two questions, maybe some follow-ups on the Aerospace side.

How did the military Aerospace piece hold up, not just in the quarters, but orders?

Okay.

Military was strong.

It was strong.

It was low single digits.

I'm saying that's strong in terms of organic growth, because we had been running down a few points.

So this quarter, we were actually up a few points on sales, and orders were roughly in that same magnitude.

Actually, I think orders where a little bit better -- Kevin is actually looking it up.

Do you have it there, Kevin?

Yes.

(multiple speakers)

So kind of a mid single digit on the quarter side.

(multiple speakers) Pretty positive surprise for you, as we head into the back part of this year?

Yes.

Do you think that -- as just a quick thought on '14, on the military Aerospace side, does it just -- is flat a good assumption?

Or should we be more cautious than that?

Yes, I think, with what I know right now, and we are just going into the budget season, and one of the first businesses actually is our military Business that we are going to take a look at.

So barring the fact that I don't know exactly what they are going to say in that budget meeting, my gut is, flat is a good assumption.

Clearly, this Business is not going to be down 5% or 10%, which was our fear maybe a year ago.

But right now, I would say flat is a reasonable assumption.

And I will update you in the call at the end of the first quarter as to exactly how we're feeling about the year.

Sure.

Thank you.

And then in terms of Europe, again, I'm curious.

Aerospace has been strong in Europe for the year, and is the obvious conclusion there that our Airbus exposure is driving that strength?

Yes, there's two parts to that.

There's definitely our Airbus exposure, which has been very, very helpful.

And now, with winning new Business on all of the major Airbus platforms, it is going to be very positive for Ametek, because we are going to be sort of agnostic as to whether Boeing is winning in the end market or Airbus is winning in the end market.

In addition, though, our third party MRO Business there is doing very, very well.

We've got a strong management team there.

They have been winning share in that part of the world.

And as a result, it is really the combination of those two things that is driving the strong European performance.

Okay.

And then just the last question.

On EMG, we touched on the margins there, the 19.9% margins.

And again, I understand the mix of Business today may be pressuring the margins a little bit.

But what seems interesting here is that, with these new wins and the volume gains on the Floorcare side, I presume when the differentiated Businesses recover that the margin potential of this segment will be higher?

No question, Richard.

When we step back and look at the margin profile of the Company, the differential in group margins is significant between EIG and EMG.

And the potential is definitely in EMG.

On the longer-term, there's absolutely no reason that we cannot raise the EMG margins to start approaching the EIG margins.

And just the natural migration in EMG, where we are going to do deals, and where we are going to put the majority of the investment, is going to be on the differentiated side.

So as that differentiated side of EMG first comes back, and then as we increase their volumes through acquisitions and organic growth investments, the margins on EMG are going to work in our favor.

So in a way, this was a bit of abnormal quarter, where the Floorcare and Specialty Motors part of the Business just performed so well that it did have a bit of a slight deterioration on the margin impact in that Business.

But is the cost driven Motors Business, with these new wins and the volume that they bring, and obviously a new market niche, I would think, if you just segment out the cost driven Motors Business, that the margins a year or two from now are going to be better than the cost driven margins were a couple years ago?

Yes, I think there isn't any question about that.

But that is, in fact, a true statement that those margins are going to improve, because there's no question the margins on the new wins is much better than the base Business.

However, they are still not going to be at the level of the differentiated businesses.

Got you.

Understood.

Okay, great.

Thank you.

You bet.

Thank you.

The next question comes from Matt Summerville with KeyBanc.

Please go ahead.

Good morning, Frank, this is actually Joe Radigan on for Matt.

Hi, Joe.

In process, are you still seeing orders drift to the right for the mid and higher end instrumentation that you sell?

I'm assuming the funding environment there is still pretty challenging.

And then maybe a second part to that.

Do you typically benefit from a year end budget flush?

Or what sort of visibility do you -- are you getting from your customers?

Yes, that's a good question.

I would say there is still a bit of a shift to the right.

I would say it is not as significant as what we saw at the end of the third quarter, but I still detect some cautiousness with our customers.

At the year end, there are some of our Businesses that, in their weekly reports, are definitely talking about customers that normally would take shipments in the fourth quarter, are just being hesitant and trying to shift some to the first quarter.

So to me, it just lines up with the slowly improving demand environment, that everybody is a bit cautious.

It feels a bit better now than it did a quarter ago, but this is not an all out, let's go for the gold here.

It just isn't that kind of environment.

And I haven't heard anything, when it comes to specifically budgets, but I think it is all wrapped up in that equation of a slowly growing economic environment.

Okay.

And then on the EMIP Business, have you anniversaried the destocking that's been a headwind there?

It seems like you've been calling out softness there for some time now.

Can you update us on the situation in that Business?

Yes, no, that's been a disappointment to us.

In fact, the destocking impact on that Business has dragged on a bit longer than we expected.

And that was a bit of a drag on our performance in the third quarter.

And -- but it is definitely getting better.

And I think it is going to cycle out as we get to the fourth quarter and into the first quarter.

There just was more of a build up, because the OEMs had really take or pay contracts with many of the titanium producers.

And as a result, they were forced to take the products when they didn't need it.

For instance, when the 787 was grounded for a period of time, obviously there was some backup in the supply chain.

But I think it is getting better.

I think we are going to see much better performance out of this unit next year.

And so it's really -- I'm viewing it as upside from this point on.

Okay.

And then lastly, on the incremental growth investments, you talked about service opportunities.

Can you give a little more color there?

Is this greenfield stuff, or is it expanding the footprint that you already have, just a little more on the after-market service side?

Yes, no, it is a great question.

In general, this is service in areas where we are presently selling products, and where service is particularly important to the customers.

And that tends to be in Southeast Asia, China, that part of the world.

And you can imagine, you put a high end analytic Instruments into a factory in the middle of China, and if it fails and they cannot get a replacement product, they are going to have a problem with their output.

And so what we are doing is putting more sales and service people in those geographic regions, a little bit in the US, but predominantly outside the US.

And what that does is, when something fails, they call our service people, we are there.

We are there within a few hours or 24 hours, and we can get their plants back up.

And that is highly valued, and it isn't just the fact that we get the revenue on that sales call, which is high and the margins are good.

It is very important for the next level of sales from those customers.

There's going to be a strong bias to buy the products from people who have those service capabilities.

So that's why we are putting that investment in.

It is almost, from an economic return viewpoint, a no-brainer.

It's just -- you can put the people in, they pay for themselves in a very short period of time, and it essentially helps the organic growth of the Business.

Great.

Thanks, Frank.

Sure.

Thank you.

(Operator Instructions)

Next question comes from Andy Noorigian with Vertical Research.

Please go ahead.

Hi, good morning, everyone.

Good morning, Andy.

Frank, I was wondering if you could touch on the Power and Industrial Business a little bit more.

Have you have seen any signs, in the heavy truck and off road, of an inflection in orders?

Or just underlying improvement in demand trends there?

Maybe a little bit of an upturn.

And if you look at that market data, and the North American market, which is the primary market that we serve, in 2013, the forecast are about 244,000, if I remember the number correctly, in truck sales.

But that's down about 9% to 11% over 2012.

The market forecast for 2014 is actually up.

It is up about 16%.

Now that number does tend to fluctuate, but it does suggest market improvement next year, and I would say we are starting to see some of that right now.

Great.

And then on the US down 4%, I was wondering if anything in particular stood out that drove that?

And has some of that softness continued into October?

I would say there was really no specific area in the Company that I can point to.

It was just general slowness in the US.

So there was nothing that I can point to that says, that's it, that that's the reason for that.

And your second question was?

Just how that's trended into October?

Yes.

Cannot answer that question, because I look at overall orders.

I haven't looked at US orders in particular.

We are only a few weeks in, but again, Kevin can get that data for you.

Great.

Thank you.

All right.

Thank you.

I'm showing no further questions at this time.

Mr. Coleman, I will turn the conference back to you.

Please proceed with your presentation or closing remarks.

Okay, thank you so much, Mira.

Thanks, everyone, for joining the call today.

As a reminder, a replay of the call may be accessed at Ametek.com and the Streetevents.com.

And as always, I'm available today if anyone has follow-up questions.

Thanks again.

Thank you, ladies and gentlemen, that concludes our conference call for today.

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

Have a good day.