藝達思 (IEX) 2005 Q3 法說會逐字稿

Good afternoon. My name is Lisa, and I will be your conference facilitator today. At this time I would like to welcome everyone to the IDEX Corporation third-quarter earnings release conference call. (OPERATOR INSTRUCTIONS). Ms. Ms. Fisher, you may begin your conference.

Thanks, Lisa. Good afternoon, everyone, and thank you for joining us today for our discussion of the IDEX third-quarter 2005 financial results. Earlier today our Company issued a press release outlining our financial and operating performance for the three and nine-month periods ending September 30. The press release, along with presentation slides to be used during today's webcast, can be accessed on our Company website at www.idexcorp.com.

Joining me today from IDEX management are Larry Kingsley, our President and Chief Executive Officer, and Dom Romeo, our Vice President and Chief Financial Officer. The format for our call will include management's review of the quarter and first nine months of '05. We will then open the call for your questions. If you need to exit the call for any reason, you can access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 800-642-1687 and entering the conference ID 1252311, or simply log onto our Company home page for the webcast replay.

As a last bit of housekeeping, I would remind you that this call may contain forward-looking statements that are subject to Safe Harbor language in today's press release and in our Company's filings with the SEC.

With that, I will now turn this call over to Larry Kingsley. Larry?

Thank you, Susan. Welcome, everyone. The agenda we will follow today is a review of our consolidated third-quarter and year-to-date 2005 financial results. Then a review of our segment performance. Following that, we will update you on progress with regard to new product innovation and operational excellence. I will then conclude with some brief comments on our Company's outlook as we move into the fourth quarter.

I'm pleased to report that we had another strong quarter in terms of orders, sales, income and free cash flow. Organic growth was just over 8% for the quarter, and our operating margin was 18.1%.

Looking first at the quarterly results, orders were $259 million, a 10% increase from the third quarter of '04. The 10% increase was all base growth. Within the quarter, monthly orders were 79 million in July, 85 million in August, $95 million in September. On a consolidated basis, sales were up 8%, again all base growth. U.S. based business growth was 10%, international based business growth was 6%. While we experienced strong growth in Asia, Europe, as we had previously discussed, continued to show weakness, specifically in dispensers.

Looking next at operating margin, for the third quarter, it was 18.1%. That is up 130 basis points versus the third quarter of '04 and up 40 basis points sequentially. Gross margin also improved during the quarter to 40.3%. As I mentioned on our Q2 call, we continue to offset material and indirect inflation by aggressively managing our spend and by selectively implementing price increases and price surcharges.

Our sourcing teams continue to execute very well in this challenging environment.

Total SG&A expense as a percentage of sales decreased from the third quarter of '04 by 100 basis points. In dollar terms, total SG&A increased due to volume and reinvestment in the business for growth.

As you know, we continue to closely monitor our flowthrough on incremental organic sales. Organic growth of 8% or $20 million flowed through at about 33% or $6.6 million of incremental margin.

Now taking a look at net income and EPS. Net income of $28.5 million reflects a 23% increase over last year. Diluted EPS improved by $0.10 to $0.54 per share.

Moving over to the balance sheet, as you can see, our balance sheet remains very strong. In the quarter, we generated $43.4 million in free cash flow. Working capital represents approximately 12% of sales. Inventory was essentially flat versus year-end, and despite the significant increase in volume, the inventory improvement on a turns basis was about a half a turn.

In summary for the quarter, on a year-over-year basis, great cash flow. Orders were up 10%, sales up 8%, net income up 23% and EPS up $0.10.

For the first nine months, excluding the impact of acquisitions and foreign exchange, we saw a 9% increase in base business orders and a 10% increase in base business sales. On a year-to-date basis, our free cash flow was strong at $84.7 million or 104% from net income. Through the first nine months, gross margin was 40.6%, up 50 basis points. SG&A was 23.3%, down 60 basis points. The nine-month operating margin was 17.3%, up 110 basis points. Year-to-date net income rose 27% to $81.1 million or $1.54 per share.

For the summary of our first nine months performance is as follows. Orders up 13% with base growth of 9%. Sales up 14% with base growth of 10%. Net income up 27%. EPS up $0.31.

We are pleased with our performance in the third quarter and for the first nine months of the year. Our Company continues to perform very well operationally, and we are delivering solid results to the bottom line.

So now let's look at the segments, starting with pumps. If we continue to experience solid -- we continue to experience solid increases in both orders and sales in the pump group. Orders and sales were up 11% versus last year and again all the growth is organic.

The operating margin for pumps of 19.5% increased 100 basis points versus the third quarter a year ago. We continued to make excellent progress in terms of new product innovation in the pump segment, and I will review some good examples here later in the call.

Turning now to Dispensing Equipment, orders grew 8%, while sales growth was 2%. Within the sales growth rate, 1% came from base growth and the remainder from currency. We experienced double-digit domestic growth due to the combination of increased market share and new product applications within our core paints and coatings market. Our European operations were down in the quarter by 6%. The third-quarter performance for our European dispensing businesses, while disappointing from an organic growth perspective, was consistent with our internal view of these markets. The overall operating margin within dispensing was 19.3%, up 90 basis points over last year.

Looking at engineered products, orders were up 11%, sales growth was 6%, all base growth. Growth was driven by innovation of BAND-IT and Hale, as well as worldwide demand for our existing products. The operating margin for engineered products increased to 25.2% during the quarter. That is up 290 basis points over last year. The engineered products group also continues to do a very good job driving innovation, and again I will review some of those new offerings here later in the call.

So moving on now to innovation and operational excellence. As you know, both are well rooted within the IDEX culture. Our ongoing focus on process improvement, coupled with reinvestment in the Company, is driving our high margin organic growth today, while continuing to set the stage for long-term performance. Year-to-date more than 20% of our total sales come from new products and applications introduced since January of 2003. We continue to see the positive results of our innovation focus across all three business segments.

So now I would like to walk you through several of the examples of those product and market initiatives, and by the way, we are on slide 14. My review will cover some of the new OEM segments discussed on last quarter's call, plus some exciting new initiatives in three of our targeted fluidics growth segments. Those being medical, energy and food and beverage.

I will also speak briefly to new share gain initiatives in paints and coatings and in fire and rescue.

As you will remember, we have talked about BAND-IT's work with a major auto manufacturer to supply a tire pressure monitoring system. The product is performing well, and it is ramping up in line with our expectations since we moved into the '06 production model year. Meanwhile, our work to provide Hewlett-Packard with pumps for their new photo printer family and the all-in-one office product is also on track and ramping per our expectations. Again, what we like so much about this product is that it is a real prototype for us at IDEX and that we leverage our confidence globally. It was developed in Switzerland, engineered in Washington state and is now sourced and manufactured over in China.

Due to another similar IDEX cross business global effort, we will provide a valveless piston pump and a new beverage application. The pump is the same DVX that is integral to several of our new paints dispensers. This technology will enable more accurate and hygienic dispensing of juices and other beverages in new equipment that will be used in global fast food restaurant chains. The new equipment provides for a virtually dripless way to dispense juice and other beverages.

Now turning over to the medical market, Gast is building on its presence in the medical market to now provide an aerosol nebulizer system used in home medical applications. The Gast solution was selected based on our ability to provide an optimal combination of user benefits, which included size, weight, performance, sound and life. Like the medical oxygen concentrator products before it, this new OEM product will be manufactured in our China facility.

Also within our expanding served medical market, MedTech Devices from our Upchurch medical business, we continue to introduce highly engineered products like our new spinal cage components, which are used to fuse together vertebrate in the repair of ruptured discs. At Upchurch we've also introduced a new family of angiocatheter products as a result of our experience with the precise molding and extruding of several specialty biocompatible materials.

We will continue to invest for growth in our medical technology business. During the quarter we completed a new state-of-the-art cleanroom manufacturing facility to expand our available capacity. Year-to-date we secured several new Medtech customers based on our enhanced design capability. Now with the new manufacturing infrastructure, we are well positioned to continue to expand on this successful internal growth initiative.

Within the energy markets, we continue to focus on upstream applications, such as fuel additives and crude oil transfer where our industrial Loeb pumps are being used increasingly to displace progressive cavity pumping technology.

At the downstream end of the refined fuel supply chain, liquid controls has introduced a new in cab system for fuel delivery trucks to meet growing demand for the increased automation and efficiency of fuel delivery complete with GPS vehicle tracking, customer database management, on-site pricing and invoicing. This product is a further step towards IDEX supplied systems for LPG, fuel oil and avgas delivery.

Also in energy, BAND-IT has introduced a new side crimp banding system to the marine offshore subsea applications. Our new clamping system that is both the clamping device and it is also the tool is used to fasten specialty syntactic foam products such as straits and insulation jackets and a wide variety of underwater pipeline and drilling applications.

Within food and beverage, we have just introduced a new advanced chemical proportioning and distribution system. This system is used in the application of sanitizing chemicals for equipment used in food and beverage processing. The new modular system enhances food safety through a series of programmable features which limit user access to authorize personnel in the plant.

Also, within food and beverage, our sanitary pump platform has been tremendously enhanced with the recent addition of a complete new family of high purity centrifugal pumps. The addition of the centrifugal pumps to our sanitary positive displacement product allows us to participate now in a larger portion of the targeted food and beverage applications.

Year-to-date we secured global spec and supply positions with several of the major food and beverage consumer goods companies. And all-in we're very pleased with how our food and beverage fluidics strategy is beginning to take shape.

Within paints and coatings, fluid management has expanded its automated paint dispenser line with the launch of our new Accutinter 2000. This new product is more compact than our larger automated models. It achieves the performance of our larger machine, yet gives the smaller lower volume pain retailers the ability to upgrade from manual to automatic equipment. The Accutenor 2000 is a global product which we are introducing concurrently in North and South America, as well as in Europe. This will address the needs of the smaller wholesaler and retailers that are typically lower volume paint suppliers.

For dispensing outside of paints and coatings, Lubriquip is experiencing solid growth in the industrial and mobile lubrication markets. During the third quarter, Lubriquip was awarded a contract with two new specialty vehicle builders. Lubriquip will provide mobile lubrication devices on a new tractor-trailer series and on specialty yard vehicles for the U.S. Postal Service.

Fire and rescue, innovation and geographic market expansion continues. As an example we just initiated delivery of our new S-key (ph) supernode control modules. An expansion of our S-key vehicle multiplex capability, these new modules allow us to address additional fire and rescue control applications in vehicle segments like ambulances and emergency rescue trucks.

Also within fire and rescue, we continue to achieve excellent market acceptance for our broad line of fire suppression equipment and high-performance rescue tools that we've introduced over the past 12 months. Reflecting the breadth and the truly global presence of our business, we continue to achieve expanded share coming from municipal governments all over the world including Eastern Europe, Asia and developing nations. These new products and market wins are an example of our continuing ability to execute new customer relationships in target growth areas and to continue to gain share in our home space.

Whether it's a better way to dispense fresh juices, new marine, subsea clamping systems or enabling new products like spinal cage components, they are all examples of our growth strategy at work. And again, as we have mentioned before, we are particularly pleased with the broad base of new customer positions.

I would like to now turn our attention to operational excellence. We are on slide 15. For the first nine months of '05, we generated $7.9 million in savings from Six Sigma lean and $9.9 million in savings from global sourcing. As we continue to keep score on savings from our Six Sigma lean processing improvements, we're migrating to an overall operational excellence scorecard to report savings based on integrated activities.

As I mentioned in our last quarterly call, we continue to roll out the use of our Web-based key process indicator dashboards within the Company. Again, this system allows us to tie current operations performance to customer expectations which provides us with more predictive metrics to anticipate operations problems and, of course, correct accordingly. Remember we integrated this system last year, and we have implemented this in several additional businesses year-to-date.

During the third quarter, we continued to aggressively deploy our new mix model manufacturing and business process tools. To date 22 business units have completed the training. These tools allow us to take the value stream mapping and other lean tools to the next level, to apply continuous flow to our typically lower volume, high mix manufacturing model.

With several business units having completed their initial applications, we're seeing excellent results in customer metrics like on-time delivery and lead time. We are also seeing improvements in productivity and working capital and in some cases dramatic reductions in floorspace. Our integrated approach to operational excellence is clearly having a measurable impact throughout our business, and that is in both our final assembly facilities, as well as in our more vertically integrated operations.

In a typical example, Lubriquip applied the mixed model tool to their core machining operations. The result has been a 44% improvement in process leadtime, a 50% reduction in setup time, significant labor savings and most importantly on-time delivery to the customers improved from the low 80s to the mid 90% range. The use of these more advanced tools is an actual evolution of our IDEX toolkit, and we believe that the longer-term impact on our operational efficiencies on our customer service performance will continue to be powerful.

In summary, we are pleased with our overall progress, most notably our organic sales growth, earnings expansion and solid free cash flow. Our operating margin continues to expand as our emphasis on new product innovation and continuous process improvement is clearly delivering top and bottom line growth. We are evolving our operational excellence toolkit to take our deep experience with lean and Six Sigma and tie it more closely to our performance management system. We are implementing the more advanced tools that will provide overall performance in our high mix operations.

As we enter the fourth quarter of '05, we're working to continue to drive organic growth and particularly to build on our ability to deliver applied engineering solutions to targeted higher growth customer segments.

And with that, we will be happy to take your questions.

(OPERATOR INSTRUCTIONS). Michael Schneider, Robert Baird.

I am wondering if you could just lead us through where you see incremental margins and flowthrough going from here. Because now that we have got a clean number this quarter with no acquisitions in it, I think the strength of the incremental margins really came through. And I'm wondering, again given where you are in the progression of all of the continuous process improvements, given where you are in the rollout of all the new products you ran through, I'm wondering if the number actually accelerates from here absent acquisitions or just given what is going on with raw materials and tougher comparisons, we should actually expect a deceleration.

Yes, that is a good question. As you know, we have been talking for sometime very consistently about incremental flowthrough targets on organic sales of 30 to 35%, and that is still very much the case. We absolutely think that we have got our organic opportunity in front of us. We believe that the margin opportunity for the new products that we are introducing are going to continue to be very strong. And, frankly, we don't see a lot of incremental fixed cost investment required to get there.

So from an operating margin expansion perspective, I think we are still going to stick to our 30 to 35% incremental target.

And raw materials does not back you off of that at all given that we've seen the new price increases in resins and other products as a result of crude surging?

Well, if you add it all up for IDEX, certainly the more recent energy-based increases, including the surcharges, are going to represent issues for us to tackle through the remainder of the year and through '06 in terms of price and surcharge activity for how we offset those. We have been very capable of achieving not just the cost offset, but also, frankly, margin offset.

I think we can continue to do what we have done very well. We are very well tuned in across all of our business units to what it is costing us in the way of resin-based increases. On the composites, polyethylenes and polypropylenes, we're looking at 12 to 15% increase right now year-over-year. And on the indirect costs associated energy issues, we think we have got those pretty well understood, and it comes down to some aggressive pricing actions that we believe we can make happen.

So yes, back to your first question with the impact even of the current energy inflation, we still think we're in good shape to drive that kind of incremental margin.

Well, in fact, on the pricing issue, if you look at sales this quarter of 8%, what contribution is actually units versus price?

Price in the quarter was just over 2% and year-to-date is about 1.8. So consistent with our prior two quarters.

Okay, and then just final question, just some color on maybe the momentum of business. Because we have seen the orders meet or exceed now organic growth. This quarter you've got 10% organic overgrowth versus 8 sales growth. Do you actually sense the business is accelerating for you because it appears that you guys have not lost momentum even as the comparison stiffened?

Well, I would tell you if you look at the quarter, obviously orders of 79, 85 million to 5$95 million respectively by month through the quarter represent solid continued quarter activity. If you think through where we have been year-to-date and even on a tougher comp basis, we still see, frankly, a lot of good signs out there. The tone is quite positive out of our business units and out of our customers. As you know, we remain watchful on Europe, particularly for the dispensing business. But all off, we feel pretty good about what we're seeing and what we're hearing irrespective of some of the headlines right now.

Okay. Fair enough. Great quarter. Thanks again.

Wendy Caplan, Wachovia Securities.

A couple of things. The year-to-date number in terms of the operational excellence programs is now about 18. You said 20 was sort of your target. It looks like that will beat this year, Fair?

Fair.

Okay. And second, one of the -- the margin in all of your segments improved year-over-year, but the margin in Other Engineered Products was particularly stunning. Can you help us -- can you walk through that for us?

Sure. There is a couple of components to it. One, we are seeing the year-over-year benefit of a facility integration. Two, we have focused on higher margin products within that business, and we are no longer in some customer relationships that we were in a year ago that were lower margin on a relative basis. And we are seeing just outstanding results as we are driving both the material and labor productivity. So all up, it's obviously generating incredible margin expansion for us.

Thank you and I guess the logical question is, is this sort of mid 20% margin sustainable for this segment?

Yes.

Okay and one last question if I might. As one of the things that has been -- although your performance has been stellar -- one of the things that I think has disappointed me is the lack of acquisitions or meaningful acquisitions I should say. Can you talk about the environment today, Larry, what you are seeing, what you're thinking? So far this reporting season we have heard a lot of companies talk about improved quantity and quality of products of properties out there. Can you give us your perspective?

Absolutely. Now there is certainly no shortage of opportunity out there. As we have spoken before in previous calls, what we do very well at IDEX and what I'm committed to us continuing to do is to acquire really good companies. And those are companies that are valuable to us strategically and represent good long-term growth opportunities. You know, we are after the proprietary technology that is going to continue to drive the kind of outstanding results that we're seeing now.

And obviously the issue is valuations, and if you think about ,it there is a pretty broad range of valuations that we are seeing and you're probably hearing about. There are industrial bolt-on acquisition kinds of opportunities that can be acquired for 8 to 9 times EBITDA, and there are some what we think are strategically attractive opportunities that are out there that are considerably more than that right now.

We absolutely want to make sure we are focused on what are growth opportunities, and so that is where the majority of our mind share is being spent. We are committed to making acquisitions and absolutely will remain an inquisitive company.

The short-term comment for you would be I would not anticipate that we are going to close anything that you may be defining as meaningful in the next 60 days. But I do think we remain very very bullish on our ability to continue to acquire outstanding companies. So I hope that gives you a sense for how we are thinking about it.

Maybe just to add on, we've talked about our discipline before, but we think that some of the prices that are being paid by industrial companies right now for less than stellar acquisition candidates is not a good decision on their behalf, so.

Thank you very much. That is real helpful.

Ned Armstrong, Friedman Billings Ramsey.

In the past you have mentioned a big source of your European weakness from a geographic perspective is the Germanic companies. Is that still the case, and are more companies involved in that weakness, or is it more centered in the Germanic companies?

It is most specifically for us the dispensing businesses. It is Germanic. But there are other Continental European signs of weakness there as we saw in the quarter.

Really for us the issue with dispensing is more the fact that it is a lumpy business. And if you look at at year-to-date, which is not inconsistent with the way we have been talking about, the European businesses are actually up in dispensing 8% and up 6% organically. So all up it is still a pretty darn impressive performance.

We saw some modest improvement in some of the other IDEX businesses in Europe through the quarter. So we do remain kind of watchful and at the same time cautiously optimistic regarding what we're going to see out of Europe.

Do you anticipate that the leadership change in Germany will have any effect over the intermediate or longer-term?

I don't know. I don't know about you, but I think that Angela Merkel and her bipartisan coalition have a huge task ahead of them and a pretty difficult task to get some of the leadership in that organization on the same page before they really get started. So no, I'm not betting on short-term improvement as a function of the federal government changes in Germany.

Okay. When you were talking about lean, you mentioned at one point how it was helping inventory turnover. Is there a particular goal or a particular level of inventory turnover that you think is achievable over the next, say, two to three years for the Company as a whole?

We have not stated a three-year out goal for inventory turns improvement. If you look at our performance year-to-date, essentially keeping inventory flat while ramping sales so dramatically, that is where we want to be. We want to focus on growth as what is most important. That is where we get our real leverage long-term. Inventory management is absolutely critical, and in my own eyes, it's one of the -- it's a very important metric for our operating teams because it's a good determination of whether we are achieving flow in the businesses.

The working capital impact on the inventory improvement alone obviously is less so relative to some of the other working capital components. So you know it's a very critical metric. It's better as a determinant of how well we are running our operations. If we can continue to get the kind of improvement that we are this year between a half and a full turn a year and even ramp that up over time, we will be doing very well.

Scott Graham, Bear Stearns.

I just wanted to ask a question having seen you and Dom and Susan over the summer, this mixed model approach that you are introducing here sounds very interesting. I was wondering if you can unbundle that a little bit more for us, Larry.

Sure. To start with, how is IDEX different? We have talked many times over the past about the fact that IDEX has a lot of plants. IDEX produces a very high mix of products. Not a lot of volume of a given type of product. The challenge for us is how to create efficient operations, continually improve margins and also cash output as a function of that profile.

We have zeroed in on a process which we're calling mixed model. That is a combination of some base lean tools -- the kind of lean tools that have been used in traditional lower mix kinds of applications, coupled with some specific things that are IDEX developed that I won't go into excruciating detail here, that allow us to create a more continuous flow pattern out of dissimilar kinds of products.

In short, it comes down to creating product families that we then can take multiple product types through a given type of manufacturing sale or operation or even off the factory floor.

So if you're interested, Scott, we would be happy to have you come visit us in a plant. We can kind of walk you through it and show you how it is done and give you a real hands-on half-day kind of view.

That would be great. I will take you up on that. Thanks.

Jamie Cook, Credit Suisse First Boston.

My first question pertains -- I'm sort of building off of Wendy's question on acquisitions. I wanted to get a sense of whether you are seeing a difference in multiples across geographies, so the U.S. versus Europe or Asia first.

And then my next question is, are you seeing a lot of competition from the private equity guys?

The range relative to North American and Europe has tightened up considerably over the course of this year. So I would say to you that the multiples for both of those categories that I described, the industrial bolt-on perhaps not as high potential growers, as well as the ones that we think anyway are much better potential growers, for both of those categories that range relative to the two continents has tightened up. So slightly lower multiples in Europe. And Asia tends to be more of a one-off discussion, so I don't know that it would be proper to try and align it relative to the other two regions of the world. So yes, anyway that would be our view of the global view.

Now the second part of your question?

Relates to if you're seeing a lot of competition from private equity guys who are driving up the multiples on potential acquisitions?

Yes, we don't always see that competition directly in the form of what we might be looking at. But certainly the private equity groups are driving up the overall valuations in the marketplace.

And then my next question, I just want to build on a question about Europe. Could you just talk a little bit about -- I guess the weakness obviously is more concentrated in dispensing versus the other (inaudible). Is that because of dispensing geographic, their stronger presence in Europe? Or why is other engineered and pumps doing a little bit better? Is it product innovation, or are you expecting improvement in the overall economy, or is it geography concentration?

You got most of it yourself. There was -- if you look at dispensing, about two-thirds of the business is in Europe. So much higher proportion from an IDEX standpoint of our business for dispensing is in Europe versus our other businesses.

The view that we have for the dispensing business at this point is that yes, macro induced and yes, there are particular issues of weakness that apply to the European DIY and other paint channels, as well as the paint companies themselves. We think we are on a product line basis doing all the right things to make sure that we continue to steal share. And I kind of point back to the lumpiness in terms of both orders and sales, because the issue is if you still think about even dispensing in Europe as our year-over-year performance is concerned, we are still looking at about 6% organic growth. So you can measure that against just about any other industrial gear out there. That is pretty strong European performance, and we think we still got a great business in dispensing.

And then I am sorry, just it seems like pumps and the other engineered was okay versus dispensing. Was that just because it's less focused in Europe, or was that because of new product innovations or share?

It is both. You know, we have a much, on a relative basis, smaller share for other products in Europe than we do in North America. So we have a natural share gain growth opportunity.

But also we're doing some fantastic things that is driving both the domestic, as well as the European growth, for pumps and for the other engineered products.

And just one quick follow-up question. In terms of the tax rate for the third quarter, it was a little lighter than I had anticipated. What should we expect for the fourth quarter?

We are going to use 35% for the full year, and so what you see in the third quarter is the impact of getting the 35% versus the 35.5 we used for the first half of the year. 35 is where I think we will end up. (multiple speakers)

Okay. Great. Nice quarter.

Walt Liptak, KeyBanc Capital Markets.

My question is a follow-up on the price unit volume comment that Dom made about the 2% of the volume where the organic growth was priced. I wonder if we can drill down and go through that by segment. By that I mean I imagined dispensing is a little bit tougher to get priced, maybe a little bit easier than other products. Can you talk about the price by segment?

We've never really disclosed it by segment. I would tell you it is never easy, but we do a good at it. It has probably been a little higher in other engineered only because BAND-IT is there, and that is one of our -- steel is one of the commodities that is prevalent to that segment.

But if you look, for example, within the pump group and I won't give you by unit, but it is fairly consistent. I think our units have done a nice job across the board achieving the kind of price that we would expect. So slightly lower in dispensing primarily in Europe, so you're right there with Europe. But there's no major swing by segment that I could highlight other than Europe.

Okay. And in the other engineered when Larry was going through and talking about the reasons for the margin improvement and sustainability, price was not mentioned. So I was thinking of the 25%, is some of that price, or are you just catching up with the raw material price increases?

Price would be a component of that as well. I did not mention it, but that, of course, that would apply for fire and rescue and for the rest of the other engineered products.

Okay. I guess the question is, of the margin improvement in other engineered, is it weighted more towards price, or is it, you know --?

(multiple speakers). Larry mentioned our figure is well and above more than the price impact in the quarter. They were true operational activities.

Okay. Good. Thanks. Good quarter.

Barry Hanes (ph), Sage Asset Management.

Just a follow-up question on pumps. I wonder if you could give us a little bit more color by end markets within pumps. You know, refinery, chemical, petrochemical, water, what have you. If there are certain end markets there were driving the strong growth you saw versus some of the others? Thanks.

Sure. Well, I would start by telling you that during the quarter we saw growth as a result of both the industrial end segments, as well as what we typically refer to our position fluidics sort of segments, life sciences and things of the sort.

We were very pleased, frankly, with what we saw out of, for sure, petro and chem, but also out of food and beverage. The broad base of essentially all the process industries has served us very well year-to-date as well for pumps.

The medical segment, which would be an end segment of pumps, is extremely strong, and some of that is in segment performance, but a lot more of it has to do with us. And for things such as clinical diagnostic applications within medical, you could even exaggerate that where the growth in the segment is GDP plus 2 or 3 points, but we are up dramatically more than that.

So within pumps, it was reasonably broad-based. There was not any given end segment that was down dramatically, and both the industrial, as well as the precision fluidics pieces, were strong for the quarter.

And just one quick follow-up. Do the hurricanes provide any opportunity in terms of incremental repair or what have you, or is that not that big an issue for the group?

It is not as large an issue as you might think, and that is why we did not include it in my prepared remarks. We did see some orders during the quarter, small orders, for things like dewatering pumps that folks have been using, fire pumps on skids, and we have already begun to see some infrastructure revealed applications. And we will continue to see that through '06.

Now it's a net positive for us, all up as a company, but I think to talk about it in a disproportionate fashion, it's not going to be a huge contributor to sales growth.

Charlie Braid (ph), Harris Nesbitt.

I just want to come back to the Pump Products. Obviously the margins on engineered products was fantastic, but the margins on Pump Products looks pretty good, too. I think you've got to go back about five years to see that level. Can you just talk a little bit more about what's really driving the margins in pumps? Is it any more than obviously the end market you just talked about, and do you think you can get back up to that 21.5 to 22% margin you saw back in the late '90s?

Charlie, I will tell you the following. We feel very good about our ability to continue to drive margin in pumps. Obviously the great growth that we are seeing is going to continue to be leveraged as I mentioned relative to Mike's question.

The opportunity for us is to continue to do what we are doing well now, which is on a well-developed cost structure base, and that is most all the fixed costs that we think we need within pumps as we reported to drive new customer opportunities. And we have seen that just consistently now for the first three quarters of the year.

As far as what we are seeing in the way of end market contribution to that, I think I've talked a bit before about the fact that there is just some fundamental underlying nice aspects to the pump businesses in that there are GDP plus growth opportunities to begin with. People are applying positive displacement pumps in our industrial pump applications versus other forms of pumps because they are more efficient, they are more accurate and issues an opportunity that apply accordingly.

On the precision fluidics side, there is again great core growth opportunities there just based on the fact that the OEM segments we serve are growing, and we are doing a very good job in tackling those applications.

So it is a growth story by and large and a how we leverage it story. It will be a different mix of products than five or more years ago for sure, but I can tell you if you think about pumps today versus pumps a number of years ago, we are confident we're going to continue to expand margins, and I would not allow us to stop at the numbers that you talked about.

Great. Looking at the slides talking about the innovation and your comments about medical and medical tech, it sounded as though that was an area you wanted to build up the platform. Is that an area that is being targeted maybe more so than some other areas via acquisitions?

I don't want to get too far into it, but let me just say we really like some of the MedTech served segments that are derivatives of what we do in some of the other high precision fluidics applications that we have entered over the last several years. So we do like certain segments within Medtech, and yes, we are pursuing those both internally and through some of our acquisition targeting.

Thanks. And on -- the new Accutinter coming out being a smaller footprint, you mentioned allowing a smaller operating (inaudible) manual. What is the price point on that versus the prior products?

The price point on this would be between 7500 and $9000 depending on how it is specifically configured. The whole opportunity here is to allow the smaller volume paint wholesaler and retailer to move from what has been typically manual dispensers in their shop to a fully automated dispenser and to not have to go to such a large automated dispenser platform like the AT 7500 (ph), which I think you are familiar with.

So it is a great steppingstone, and we feel very good about its applicability in both the North American and European markets. So as I mentioned in my remarks,it's going to be a global launch for us.

Okay. Just one final question and I will get back in the queue. On R&D spending,any significant changes year on year? Are dollars being spent or about the same as what you're doing last quarter?

More. Year-over-year, Dom, correct me if I'm wrong, but we are up about 30 basis points?

Yes, about 2.5% of sales and more dollars obviously with the growth.

A lot more dollars since the sales growth denominator.

Ned Borland, Next Generation Equity.

Just another quick acquisition pipeline question here. Geographically and I guess segment-wise, what type of candidates are you looking at?

Well, first geographically, we look globally. So we would not be thinking about at this point any reason to not look at business opportunities in any given part of a world.

From a segment standpoint, we are interested in basically the businesses that we have today if they represent meaningful good add-on growth opportunities. And pump products is a very strong focus for us, both industrial as well as what we again I call the position fluidics side of pumps, and we're looking at new business opportunities altogether, new platform opportunities that again leverage some of the core competence that we've got in applied products that are high mix in nature where we think we can apply our IDEX toolkit very effectively. And at the end of the day, we're looking at the valuations as a function of what we can bring to those businesses post-acquisition.

So, there are a number of different categories if you take it down to the next level that we would talk about internally. But, you know, it's a reasonably broad field, but all are within that applied engineered product, typically high mix and high-growth set of attributes.

But globally you're not using acquisitions as a way to break into new geographic markets?

No, we certainly do look at different acquisitions that represent on top of what our core global opportunities that they may have, as also strong channel plays for instance. And to give you just an example, if we thought there were a good opportunity in industrial pumps for an acquisition in Europe that would further enhance our sales channel capability there, we would think about that in a very attractive fashion.

Alexander Paris, Barrington Research.

I know if I waited long enough, I could answer all my questions, which you did. You got to the bottom of the list with the hurricane effect.

Good.

But just one follow-up question on this new mix model and processed tools initiative of yours. It sounds like there is not additional sales or software, but you are really just reorganizing the product lines and retraining people so that you can more flexibly change over from one product to another or within one family within the family of products. Is that what you're doing, or is it more involved than that? Is there more technology?

Yes, it's a lot more involved than that from a how you go get it done. In terms of the capital investment or the expense, that is pretty minimal. There is not a lot there in terms of what you have to go do for infrastructure, say, to be able to remap a plant in most cases to take advantage of what improved flow opportunity there is.

So there is not a front end investment that is very large, certainly not once you get beyond the training and deployment of it, and we think at the end of the day it's going to continue to free up a lot of capacity for us. So it will create integration opportunities for us that will further lever our fixed overhead.

Well, I was assuming that you're already using ways to maximize throughput in KanBan and all the other things like that. But what are you adding that is new that they have not been talking about elsewhere in terms of flexible manufacturing?

Well, the traditional approach to how you go after lean improvements on the factory floor typically via (inaudible) or change is taking a look at what you can improve at the sale level. And you can get some nice improvements out of that, and you can on a sale by sale basis make your way through to both income statement, as well as balance sheet improvements as a function of how you improve the flow in the plant.

The bottom line is that most plants don't see the real benefits of flow unless you look at the entire set of activities because you tend to build pockets of efficiency if you do it in the former fashion. And particularly when you take it into our world again, this is the time mix world, that is what we have been finding.

What this allows us to do is take a more plantwide supervisory view of what we want to do and make sure that when we create flow it continues to flow. And so it is in a plantwide fashion.

But did you say it is more within sales? You already have the optimum number of manufacturing sales, which helps you increase the throughput in the first place. But now you're going another step and focusing more within each sale?

We really don't constrain our sales to the current layout of the plant when we are attacking a plant opportunity. We basically don't look at just how the manufacturing sales are set up today, how they are organized, how they are staffed, how we load them. We look at what we want to do to run a variety of products through a given set of processes, minimize setup time, maximize the use of share resources, and that is both machine, as well as people. And that, in many cases, will change, completely change, the layout of the plant. In other cases, it may be more in the way of modifying how flow goes through existing sales.

So there's really not a kind of a standard cookie-cutter approach. It depends on how we envision the entire mix of the plant, what we want to do to run it from beginning to end, and then we will look at what the right layout of that plant is. But the typical output of all that is there is not a huge machine investment required. There may be things like cables and assembly benches and things of the sort that you need to go invest in, but on an overall basis, it's a pretty small incremental investment.

I was just going to ask if I saw a plant a year ago and then you put it in, and I came afterward, it probably has most of the same machines, the same sales, but the whole layout of the plant might look different. Is that right?

Yes. (multiple speakers). We have already gotten there in many of our plants through the course of what we have done this year.

Michael Schneider, Robert Baird.

Just a follow-up on actually the capacity concerns or capacity potential here. Dom, maybe first you can update us on what the CapEx forecast is for this year, and then maybe what the outlook is for next year given the projects in motion?

Right. Mike, year-to-date we spent just over 17. I think the number I have been providing is about 30 million. I would tell you that it's probably a little bit aggressive as Larry mentioned as some of our units are doing the value stream process. We are not relooking some of our requirements, but we're actually able to minimize some of those.

So from a budgetary perspective, we're still sticking with 30, but I won't be surprised if we spend a little less than that. We're still in the process of completing our '06 plan, so we are not in a position to provide any guidance for next year yet.

Well, 30 million would be substantially more than the run-rate over the last five years both in dollars and percent of sales. Where is the money going right now? What are the big projects?

The 30 million represents -- the big increases were additional capacity in China at our Dinglee facility, a new facility actually as part of that acquisition. In addition for our medical business in Scivex, we've put a new cleanroom in this year, so those are the two big additions that occur in the number this year.

Are there equivalent sized projects, though, possible for '06, or do we come back to the run-rate of 20 to 23 million?

Mike, I think you can assume the reinvestment rate is not going to change dramatically over where it has been for the last few years. The issue this year with having two new plant investments was obviously to take advantage of the lower-cost opportunity we've got to really give Dinglee a home. Most of that money is '05 money, so they won't be repeated obviously.

The medical business is continuing to grow very nicely. So I hope we have to go find a new building again, a bigger building, but I don't think it will happen in '06.

Okay. And then just on the margin targets, we have talked in the past that you think you can get back to the historic run-rate of 21%. You are there this quarter on an EBITDA margin 20.9, and granted this is a seasonally strong quarter, but as you look now going forward, given that the prior peak had that type of margin and at that time you were not implementing all of these continuous process improvement initiatives, it would seem to me you've got more capacity than you did at the prior peak just by virtue of those initiatives. You have got better productivity. So are you ready now to start admitting that 21 is doable and you have proven it this quarter and where the next stop is?

I will to you this, Mike, we've got 45 of our business leaders next week for a meeting. I can pretty much guarantee you that most of what you just said is going to be verbatim. What I come to them with is the opening set of comments in that discussion. There is no reason why we need to be constrained with thinking that 21% is where we cap out. We've got an opportunity to continue to drive cost. There's no question that we will, and we're going to continue to grow.

So we can't and we don't provide any guidance, but we think we've got a good opportunity to continue to expand margin.

Well, the assumption I'm making, and you seem to be agreeing with, is that you do have plenty of capacity today such that you are not hitting a spending threshold on the capital equipment side?

Absolutely. We have got plenty of capacity.

(OPERATOR INSTRUCTIONS).

Okay. Well, thank you all very much for joining us. We will look forward to talking with you in the new year.

This concludes today's conference. You may now disconnect.