藝達思 (IEX) 2006 Q1 法說會逐字稿

Good afternoon. My name is [Oryan] and I will be your conference operator. At this time, I would like to welcome everyone to the IDEX Corp first quarter earnings release conference call. [OPERATOR INSTRUCTIONS]

I would now like to introduce your host , Susan Fisher, Director of Investor Relations. Ma'am, you may begin your conference.

Thanks, Oryan, and good afternoon, everyone. Thank you for joining us for our discussion of the IDEX first quarter '06 financial results. Earlier today we issued a press release outlining our financial and operating performance for the three-month period ending March 31. That press release, along with presentation slides to be used during today's webcast, can be accessed on our company website at idexcorp.com.

Joining me today from IDEX management are Larry Kingsley, Chairman and CEO, and Dom Romeo, Vice President and Chief Financial Officer. The format for today's call is as follows. First Dom will take you through our financial results for the first quarter. Larry will then update you in our detail on our growth and innovation initiatives. He'll review the recent acquisitions of Airshore and JUNE-AIR. And, finally, our progress around operational excellence. Following our prepared remarks, we'll then open our call for questions.

If you should need to exit the call for any reason, you may access a complete replay, which begins approximately two hours after the call concludes, by dialing the toll free number, 800-642-1687, and entering conference ID number 4088283, or simply log on to our home page for the webcast replay. Before we begin, a reminder that this call will include our views of the business and, accordingly, may contain forward-looking statements that are subject to Safe Harbor language in today's press release and in our filings with the SEC.

With that, I'll now turn this call over to our Chief Financial Officer, Dominic Romeo. Dom?

Thanks, Susan, and again, good afternoon, everyone. We are very pleased with our first quarter performance, and we're off to just a very strong start to the year. For those of you following along on the presentation, I'm now on slide 5. For the quarter, orders were $303.3 million. That was a 14% increase from the first quarter of 2005. Organic order growth was 16% for the quarter, as foreign currency rates has a negative 2% impact. Within the quarter, monthly orders was $103 million in January, $93 million in February, $107 million in March, so fairly consistent, even if you look at average daily rates. On a consolidated basis, reported orders were up nin -- or sales were up 9%. Organically, sales increased 11%. U.S. organic order growth -- sales growth was 14% and International organic growth was 8%. So very strong organic growth. Larry will discuss some of the market trends and product innovations later in the presentation, but clearly we're executing here at a very high level in terms of both innovation and growth.

Turning next to operating margin, we are converting this organic growth at a very high rate, and we continue expand operating margin. For the first quarter, operating margin was 17.6%. That's up 150 basis points versus the first quarter of 2005. The Q1 operating margin, when you exclude the impact of stock to option expensing, was up 18.2%, so gross margin improved 70 basis points during the quarter to 41.1%. Total SG&A expense as a percent of sales decreased from the first quarter '05 by 80 basis points. In dollar terms, total SG&A increased due to volume and the adoption of FAS 123(R). So, again, even after the impact of stock option expense, we still see leverage on our investment in SG&A. And as you all know, we continue to closely monitor our flow through on incremental organic sales, and flow through was 31%. And when you adjust for stock option expense, it was 37%. So, again, well within our range in solid performance and operating leverage.

Now looking at net income and EPS on slide 7, net income was $30.1 million during the quarter. That was a 27% increase versus last year, and diluted EPS improved $0.11 to $0.56 a share. Moving to the balance sheet, we're now on slide 8. From year end, inventory increased by $10 million on a reported basis; however, seven of that $10 million was due to the acquisition of JUNE-AIR and Airshore. So comparable inventory was essentially flat, with higher volume. So, all in, we did achieve a slight improvement in inventory turns. On accounts receivable, again if we adjust for acquisition, the increase from year end follow sales, our DSO remains fairly consistent, in the mid-40s, actually at 45 days. CapEx was $4.1 million, and we see our full year in the range of $25 to $28 million. Our balance sheet remains extremely strong, with debt-to-cap at 16%. In the quarter, we generated $20 million of free cash flow and as we mentioned last year, due to incentive comp payments in the first quarter Q1, is generally our lowest quarter. That said, though, free cash flow was $9 million, or over 90% higher than the first quarter of last year. So, in summary, total Company performance for the first quarter was just outstanding. Great organic growth. We achieved nice operating leverage and generated great cash flow.

Now turning to segments -- we're on slide 9 with Pumps -- we continue to experience just terrific growth in the Pump group. During the fors -- first quarter Pump orders were up 20%. The organic sales growth was 14%, versus last year. Larry will take us through more of the details in a few minutes, but just besides just the obvious strong performance here, most impressive is the broad based growth within our business units and also within our product lines within the pump groups. And if you look at operating margin, 19 pers -- 19.1% is a 250 basis improvement versus last year. And our performance here on operating margin is excellent, but importantly, we still have the opportunity to leverage our cost structure. At the same time with continuing to add incremental high margin new business opportunities to the Pump growth.

Turning to Dispensing, net of organic orders -- or net of currency, our organic orders were up 2%, while organic sales was essentially flat. However, within that we experienced double-digit domestic growth, due to combination of increased market share and new product applications within our core paints and coatings market, and also Lubriquip. This was offset by European Dispensing and, again as we've mentioned, the first quarter performance for our European Dispensing business is consistent with our internal expectation for the quarter. And I would remind you all Dispensing is a project related business. The overall operating margin within Dispensing was 23%, and that was up 40 basis points over last year. And again we benefit from operating leverage, even on lower volume.

Turning to Engineered Products, I'm now on slide 11. Reported orders and sales up 10%, and adjusted for currency, organic growth was 14% in Other Engineered Products. Similar to the pump group, the organic growth in Engineered Products is not only impressive, but was consist within both our fire and rescue product offerings. In addition, we have some nice growth and innovation in BAND-IT. The Q1 operating margin for Engineered Products is another solid story. It increased to 22.3%. That's up 150 basis points over last year, so a very strong performance here.

With that, I'll turn it over to Larry to give you a progress report on innovation and ops excellence. He'll also take you through some of details on our recent acquisitions. Larry?

Thanks, Dom. We're now looking at slide 12. I think you're all familiar are our business model. I'll make just a few comments relative to our progress year-to-date. As many of you know, we've been increasing our focus on innovation to drive niche market penetration and build sustainable in some of the higher-growth segments that we like so much. Through the first quarter, we're very pleased with our execution in that regard. And within Pumps, both our industrial businesses and the-- the precision flow businesses continue to expand their served markets and also to further penetrate existing segments, with what is more IDEX content in our customer's product. The same is true for our fire and rescue businesses.

As Dom mentioned, we're realizing excellent operating leverage from our -- our operational excellence initiatives, with mix model lean, in particular. Mix model is both enabling us to better serve our customers, but more importantly, it's also generating our ability to reinvest for growth. As we previously commented, we have the core infrastructure in place to grow. We have plenty of available capacity and a very strong set of growth initiatives, and those are yielding results today. So we're pleased with our business unit core growth and the performance for the first quarter, as well as the -- the business development progress that we're making here at corporate, and that is the acquisition opportunities that we're generating. In terms of the organic growth -- and I'm over on slide 13 -- we'll talk about Pumps. Just excellent performance from our Pump Products businesses. Organic growth at 14% for the quarter is just, obviously, outstanding. Most importantly, the growth is very broad based for the group, with all businesses experiencing solid orders and sales growth.

And we're -- we're seeing continued strong industrial demand, driven by capital spending within the process industries. And also within our Precision Flow businesses, we're seeing increased demand with the Life Science and pharmaceutical markets. The pharma spending associated with generice drug discovery work is quite good ,and Life Science spending is also very strong, much of it associated with the work on the proteomic and genomic products. So the Pump group is tracking also very well, year to date, with regard to their product innovation and their introduction plans, and obviously this is our -- our future growth. As we have mentioned before, we like the applications that require new custom product requirements. Most all of our ongoing new projects now are the, so-called, hard to design and produce variety. And again, we like that. So we continue to increase our presence in the selected OEM segments that we talked about historically beyond our core process industry segments. In fact, we did very well in the quarter in most of the end segments we serve, as Dom mentioned, at very attractive incremental margins, so in every aspect just very solid execution in Pumps.

Dispensing, for the segment sales were flat. We were up 12 % domestically and we're down about 7% internationally. We continue to see more challenging market conditions for dispersing in Europe, consistent with what we have been seeing. We see more challenging in Dispensing in Europe than we do for other European businesses and, for that matter, for Dispensing in other parts of the world. This is consistent with our plan for the year, and it's not unlike, as Dom mentioned, what we've seen historically in this project-driven spend pattern. Our outstanding domestic growth in Dispensing continues, and it's driven by a number of factors, but primarily, channel expansion. Among the expansion opportunities is Wal-Mart's entry into the market for point-of-sales automated paint tinting. They have selected our automated dispensers as the preferred solution as part of their paint department build-out plan. We're obviously very excited to have been selected, as they are a primary equipment supplier, and we're impressed with their commitment to the long-term expansion in paints and coatings.

In addition, we continue to experience excellent sales from paint specialty and hardware channels, such as Sherman Williams Ben Moore and Ace Hardware. And our service business in Dispensing also continues to perform very well. And also within, Dispensing Lubriquip continues to find new applications for mobile lubrication systems. We've mentioned our UPS and our USPS platform wins in the past. We have obtained some new applications within the U.S. post office now for various yard trucks and also tractor vehicles. So, Lubriquip's niche market focus is delivering excellent results, too. So while we remain concerned with the European customer short-term situation, we're very, very pleased with Dispensing, otherwise.

The performance for the Engineered Products group for the quarter was -- was just simply stellar. And remember that, 75% of Engineered Products is fire and rescue associated. Organic growth, in total, was 14%. We continue to see strong demand on a global basis for rescue tools. This business has done just a very nice job expanding the product line, both internally and way of their recent product line acquisitions. In Q1 we secured a couple of big orders for [Lucas], rerailing equipment in Germany and China and also in Japan. We also realized new customer orders for aircraft lifting bags during the quarter. Fire suppression also had just a terrific quarter. Growth was driven by a number of new city wins, including a multi-stage agreement with the London Fire Brigade for pumps and for foam systems. Our pump module business -- that's the fire pump full system versus the fluid components business -- continues to grow very nicely, and we received several new truck platform commitments for modules in the quarter. In addition, while it's still a small base, we're participating in some very interesting growth opportunities in China, for both the fire suppression and the rescue tools. So, with 14% organic growth and so many new wins, we're off to just a great start for the year.

Going now turn to talk a little bit about acquisitions. As you know, IDEX has a very disciplined business development strategy and that discipline continues. During the quarter we completed two strategic acquisitions. Both are highly comp elementary to our existing businesses, and I'll spend just a few minutes on each one. In early January we acquired Airshore International. Airshore is a strategic product line expansion within our hail product business, that's the fire and rescue group. Though Airshore is small today, through Airshore we are now able to provide a key new product, that is stabilization struts for collapsed buildings and vehicles, as well as high and low pressure lifting bags and forceable entry tools. Airshore's products, coupled with our infrastructure and channel access, enhance our first responder and Homeland Security market offerings accordingly. Airshore's production has already been moved and integrated into one of our existing fire and rescue facilities. Our team in the channel think it's a great fit and I think, while starting small, it's an excellent complement to our global fire and rescue business.

Now looking at JUNE-AIR which was acquired -- which was acquired in February. JUNE-AIR is based over in Denmark. It's a leading provider of low decibel vacuum compressors. Last year, JUNE-AIR's annual revenues were about $22 million. Strategically JUNE-AIR is a great addition to our Gas business, which focuses on air-moving products. They extend our range of product and technical capability into the ultra-quiet compressors, and we also see excellent opportunity for combined global channel leverage for both the JUNE-AIR and the gas businesses. And JUNE-AIR served a number of attractive segments. Among them, we especially like their position in several of the health and science equipment segments. The next steps now are for JUNE-AIR and Gas to work together to build out our product offerings, and they are moving in vacuum technologies; and particularly for what we're interested in, the lab and clinical equipment areas.

Going to now turn our attention over to operational excellence, and we're on slide 18, if you're following along. As you know, we're driving process analysis and continuous improvement across the Company, and we're building an operating system that makes sense for our high production mix environment.. We're seeing the results now from mix model lean, as implemented both in the high mix standard product, as well as the application-specific or highly customized products that we -- we manufacture. We continue to move from the discrete application of operational excellence tools to an IDEX management play book. Again, that's the system in our world for how we manage the engineered product content that we have. I would say that, you know, while we're becoming one of the recognized operational excellence leaders, we think we have a very long way to go to fully realize the benefit of the IDEX operational excellence approach.

Flipping over to slide 19, we think we're about 20% deployed with mix model lean, and that's as it pertains to our existing businesses. While it's certainly delivering the P&L and the balance sheet improvement today. more importantly it's enabling our expansion, as I said. We have lots of examples of local successes,and I won't go into all of them, but just to give you a flavor for them Inventory reductions in some of our plants of 34 and 38%. Floor space reductions of up to 44%, in one case. Overtime reductions in the high 20% range. We have one example where mix adjusted. We've cut overtime by just under 50%. We have lead time reductions of between 40 and 55% in three-- three specific cases. So, it's-- it's working. Measurable improvements across the Company.

In summary, we're- - we're encouraged with the first quarter performance, as Dom said. You know, outstanding organic growth of 11%, 27% earnings growth, and solid free cash flow. We continue to realize just great operating leverage just performing extremely well within our business units. We're reinvesting for internal growth in a number of different initiatives, and also in the way of acquisitions. The acquisition pipeline is in good shape, and we like both the short-term, as well as the longer-term opportunities that are shaping up now very nicely. And we think we'll make some meaningful additions to the IDEX family. As we move ahead in '06, overall market conditions look very good across most of the un -- in the market segments that we serve. I'd say, in short, we're pleased with the quarter and we're bullish for the remainder of the year.

So with that Dom and I are happy to take your question. Oryan, we're ready for questions.

Oryan, we're ready for questions.

[OPERATOR INSTRUCTIONS] And your first question is from the line of Robert LaGaipa with CIBC World Markets.

Hi, good afternoon.

Good afternoon.

Just had a few questions for you. One obviously a very, very good performance during the quarter. And, you know, what I wanted to dig down into in a little more depth is the margin performance. You know, with sales, you know, certainly versus the last couple quarters up roughly five to 7% versus third and fourth quarter, even if we were to add back the impact of the stock options expense, it would be roughly flat operating margins. And maybe if you just give us a better sense of the operating leverage within the business. What might be constraining it? Is it just the acquisitions here in the last quarter, or what might be impacting the margin, especially given the robust growth, especially here in the states in the last quarter?

I think Robert you are referring to sequential margins?

Exactly.

Okay. Well, let me get started and Dom can jump in. Obviously, margins continue to grow. Our business tends to follow a bit seasonal of a pattern, so if you look year-on-year, operating margins are up, you know, on a constant basis some 210-basis points.

Adjusted for options.

It's adjusted, right. So on a year -- quarter year-over-year basis, they're up very big. And we tend to see performance that does accelerate to some degree through the year. We're seeing -- I can tell you down to the business unit, outstanding increment margins on our new opportunities, and we are definitely leveraging that, relative to the SG&A for the business units. So, Dom, you want to --

Sure. Robert, I think one way to look at the fourth quarter, if you adjust for option expense, the flow through, it's about 18.2, 18.3% operating margin for the first quarter, which versus out of the fourth quarter. If we look at flow through when we adjust for option, it's about a 25, 28% flow through, and there is an element of mix, as Larry mentioned, in the sequential. But the more important point on the op margin is the year-on-year. And we look at the incremental growth, the organic growth and the flow through there it's, 31% without options, and if you adjust for options 37%. So we feel very good about the leverage, and to some extent in the first quarter, we had some -- I won't call them start-up expenses, but expenses to our medical product line at [Sybecks] that we'll expect to see some more leverage for them in the second, third, and fourth quarter. But from a flow through on a performance perspective, it's right where we think we need to be.

Can you give us some sense of what the start-up expenses were and could you pos --

They're not big. It's the clean room and some of the related ramp-up expenses that we discussed in the past. The bigger impact sequentially, I would say, is mix.

Okay, last two questions. One, I guess given the strength here in the first quarter, in the March quarter, especially given the strong economic growth and you're coming off a weak December quarter, could you give us some sense of just from a seasonality perspective, does that mute any seasonality into the second quarter? Or you're expecting significant improvement, as we have seen in prior years, in the second quarter versus the first quarter?

Well, we don't provide guidance--

Sure.

I would just simply say to you that, you know, we feel good about where we are right now for the year. I don't think our seasonal patterns this year will be dramatically different than what we have seen historically, Robert.

Okay. Fair enough. And last question getting back to the acquisitions. Over the last several quarters, obviously -- or really over the course of your history, you've done a very good job of releveraging and now sitting at a debt-to-cap of, roughly, about 16% --and it's been 16, 17% for the last three quarters -- you mention opportunities for acquisitions. Maybe you can't give a sense of the timing, but what's precluding you from being more aggressive on the acquisition front? You know, obviously, you mentioned a number of opportunities. It sounds like the pipeline's fairly full, but if we look over the course -- of really the last year or so, with only two acquisitions, you know, when do you become more aggressive? And again, what's preventing you from getting more aggressive in the marketplace?

Yes. I'm sure you're familiar are some of the comments that we've made over the last year or so. But, one, there's nothing precluding us from being aggressive with respect to the right acquisitions. I would say over the last two years we've been really building the acquisition pipeline, and we've done a great job. What we have in the way of both proprietary and the deal opportunities now, as well as what we see in the way of attractive strategic additions based on things that are going to be out there and available is more robust than ever. And, you know, we've got a number of things, as I mentioned, that we feel good about, both short term, as well as long term. So I can just simply tell you that, one, we're going to remain an inquisitive Company. We think we've got some great opportunities now, and we know how to integrate them, so -- I beyond that, I wouldn't really go back down some of the discussion path that we've talked about in the last year. which is--

Yes I guess what I'm trying to get a better sense for, also, within the pipeline, would you say the pipeline's more filled with small category-type acquisitions, you know, $25, $30 million? Is it medium? Is it large, you know, $80, $100 million? I'm just trying to get a sense of the composition of the pipeline.

Yes, sure. I'll tell you, we're looking at all of the above, and we've got a large set of what, in your description right there, would be small, medium and large. So, we like those more right now in the current valuation environment, but we're certainly also interested in larger ones ,and quite a few on the radar screen.

Terrific, that's very helpful.Thank you very much.

You bet.

And your next question's from the line of Wendy Caplan with Wachovia Securities.

Hi, quick question, first. Could you give us the vitality index that you usually give us quarterly -- the percentage of new products -- or percentage of revenue, rather, that comes from new products.

Wendy it's pretty consistent with last year in the 20, 21% range, still.

And your expectation relative to R&D spending for this year, as a percentage of sales?

It's also pretty consistent with what we saw last year. We're maybe going to edge it up a 10th or two-10th of point, Wendy. We're increasingly spending, reinvesting in the areas that we think are good growth opportunities. But remember, the way that we -- we managed that -- that metric is to move the bar once a year, and then you're looking three years in arrear against your total sales. But it continues to go the right direction, and I think relative to our product life cycle for the businesses that we've got, we're pretty pleased.

Okay. Thank you, and -- and a question about Dispensing, because I'm- not sure I understand the issues here. Can you remind us, for example, how big the international business is relative to the total business and, you know, certainly understanding the market weakness in Europe, but what has to happen here before this -- this part of the business turns? Do we have to see an improvement in Europe in terms of volumes? Or are there, you know opportunities on the cost side?

Sure, Wendy. The -- you know the international content for Dispensing is about 60% of the total. So 60% outside of the U.S., and most of that would be European, although there are some great new developing opportunities outside of Europe. And, you know, Dispensing continues to do extremely well domestically, and we -- and I think we've got a great opportunity set with some of the longer-term programs in Europe, for that man matter. $Remember that the dynamics for how Dispensing goes to market, how the demand is generated internationally in Dispensing versus domestically are definitely different. Internationally you have got the paint companies that essentially spec the machine and create the demand, and then they source it as an enabling product to the channel. Whereas here in the states, the channel essentially is the point of transaction for the equipment, and so they are creating the-- the spec, so to speak. They're the ones who would be the buyer of the product.

In the U.S., there's a number of things, as I mentioned, that are driving the outstanding growth. Among them is the channel expansion. And we think that longer term that plays out in Europe .as well. and in other parts of the world as is the case in most of the wholesale and retail channel structures. There's the tendency to move toward things like the big box solution, as well as some of the other larger channel entities versus the smaller independent. So we see the same dynamic playing out, long term. The issue is short-term in Europe, as this model continues, you know, where we are within the -- the function of the product life cycle for the current generation of Dispensing product and also given the product nature of the spend, our plans are pretty consistent with what we're seeing here for the first quarter.

Relative to cost opportunities, within Dispensing, we were definitely managing a number of them now. As you saw we expanded margins, even on the total -- total performance at flat for the quarter. And we think we have got some great leverage opportunities on both the variable cost opportunity set we've got, as well as some of the -- the-- you know, how we better leverage our fixed cost current position. So we feel good irrespective of the current European environment for how we can continue to improve the overall performance within Dispensing.

Thanks very much, Larry.

You bet, Wendy.

Your next question is from the line of Michael Schneider with Robert W. Baird.

Dom, Larry and Susan, how are you.

Good, Mike. How are you.

Very well. Great. Great quarter. I guess I want to focus on the orders, in particular, in Pumps. Could you give us a sense of how the organic growth in orders splits out between the precision flow businesses and the industrial businesses, if there was a marked discrepancy in the growth rates in either revenue or orders?

Without getting into the all of the hairy detail, Mike, I'll tell you that the orders growth rate in the precision flow businesses was outstanding. And, again, driven by what I mentioned with regard to actually improved pharma spending continued very strong Life Science spending, and a number of the other OEM segments that we serve. We -- we haven't, historically, broken out industrial versus the precision flow, so I guess I'd hesitate to do that right now, Mike. I will tell you that the industrial Pump businesses also performed extremely well. Really strong organic performance.

And I presume that's why you say some of the late cycle CapEx spending is beginning to benefit the Pump group? [Warren Rup], Viking, et cetera?

It would be Warren Rup, Viking, and really just a pretty broad base of industrial spend. CapEx base.

Okay. And the acceleration in precision flow, is it more driven by new product introductions that we've talked about any last few quarters, or is this just new momentum, as you've integrated, I guess, this portfolio of companies?

It's driven by, one, strong end-use demand, and, two, by, I think what's just great execution within our business units. And we have -- as you know, we've gotten into a number of good, new OEM segment opportunities that are continuing to drive the year-over-year performance pretty nicely, as well. But if you look at a break down, I would tell you that the majority of the growth rate within the precision flow business is coming from expanded market versus share gain.

Okay. And then to follow-up on Wendy's question about Europe. We have heard from everyone from GE in the large-cap land, to Graco today as mid-cap land, about better performance in Europe, better demand across almost every country and economy, maybe save France. Are you seeing -- ex the fluid management group, are you seeing better European demand --

Yes.

-- for example, out of Lucas and Hale and some of the other European businesses?

We are, Mike. If you exclude Dispensing, European performance for the quarter was actually quite good. And I think I can have Dom give you a little better break down on the European segments ex- Dispensing, but it was all up, Dom?

Yes, Mike, without Dispensing it's in the mid seven, 8% kind of number for or --

Organic.

-- for organic growth for the total Company without Dispensing.

And just on the acquisitions, Larry, you and I traveled recently and talked a lot about the acquisitions. It's nice to see the Denmark deal. I'm curious, in light of your past comments, was this an auction or a -- kind of a proprietary deal?

No, this was certainly more proprietary, and I'd tell you that more of the opportunities that we like, the ones that we are working hardest on right now, Mike, are proprietary.

So this is evidence that the new M&A team you have in place is indeed generating some unique deals?

Absolutely Mike. As I just mentioned, I feel very good about the work that our corporate team is doing here. I think that we're building a very strong pipeline, and it's taken some time to build the number of companies, such that we have such a good set to choose from, given the valuation environment. But where we're headed now, strategically, and how we're executing tactically, I think we're definitely going to set ourselves up pretty nicely.

And the return thresholds that you've had in place for these acquisitions, both of these deals --

Yes. Matter of fact, without going into any specific, the Airshore post-integration will be off the charts, and JUNE-AIR will be just fine.

Okay. And the operating margining of JUN-AIR today versus the -- maybe the Pump segment average, are they above, below, or in line?

Mike, they'll be in line. I would tell you, though, for Q2, we've got son integration activity, so I'd expect to see that more in a second half performance for both -- for both companies. Airshore, as Larry mentioned, we're in the completed stage of moving the product lines to one of our existing facilities. And then, JUNE-AIR, we've got a bit of integration activity, so in the second half you will see both of those at or slightly above the Pump group average.

And has -- I guess what is the-- say the three-year growth rate of JUNE-AIR been?

Good. Very good. And we -- we anticipate with what I mentioned in terms of what we think we can combine in the way of current Gas product plus what they've got and some great channel opportunities, that JUNE-AIR's got excellent channel in Europe and, obviously, Gas has a great channel in the U.S.; and for that matter, JUNE-AIR has some pretty strong means-to-market in the U.S., too. We think we've got a very high grower, accretive to kind of IDEX rates.

Accretive to the rates. Okay. We didn't get a full cash flow statement, but what number will be reported for cash spent on acquisitions?

That's a great question. Give us a minute, and we'll tell you. I don't have it in front of me, Mike.

Thank you and thanks again.

You bet, Mike, thank you.

Your next question is from the line of Scott Graham with Bear Stearns.

Hi, Scott.

Good afternoon. Could you give us the old detail that you used to on the cost reductions for lean and sic sigma versus global sourcing?

Sure. Sure. The short answer first, Scott, is that we are going to track this year pretty consistently to where we ended up last year, so if you think about somewhere between $20 and $23 million from a P&L standpoint in the way of incremental savings, the -- the split this year because-- mainly it's an internal metric slight shift, it'll be a little more in the way of material versus labor, and that's just because of the way we're measuring it. But all up, the number will be close to the same.

Okay, so you're not going to put this that in the press releases any more?

We didn't put it in this earnings call release, but that wasn't -- you know, we can certainly continue to comment on.

Yes, it would be helpful just to see how these projects are running, particularly now with new mix model --

Yes, I will tell you that we're definitely seeing the productivity improvement, and we're also seeing the working capital improvement. The-- the opportunity for us to take mix model forward now, even versus where I thought we were six months ago, looks to be even -- you know, like it's even a greater opportunity over a longer period of time.

Very good. Larry, I know --

Scott, to answer the last question on acquisition cash, when we report our Q, you'll see $27.3 million towards these two acquisitions.

Okay. Larry, would you mind going around the horn here on each of the three businesses, and talk about the one or two new products that are really -- really lighten it up?

Sure. I can tell you about some great new things. Maybe we're start in fire and rescue first. We've introduced a new, even higher force cutting tool within fire and rescue. It's a 212,000 pound cutting force tool. It's the mother of all cutters, ultra cutter, and that's going to take us even further into some of the SUV and truck applications that we couldn't do with any of our tools, nor could anyone else. We're introducing, or just have introduced a new insulated tool for use with the hybrid vehicles, so that the user of the tool doesn't risk in form of electrocution during the extrication process. The fire suppression business has introduced a number of new customer specific-products in the module category, as well as even more advanced, easier to use foam systems. A lot of them following on our one-touch control capability. BAND-IT, still within Other Engineered Products, has done a nice job introducing new brand clamping systems -- new form clamp systems that are continue to take us into some more of the higher growth offshore applications that we started to work on in late '05.

If you go back into Dispensing, it's introducing some very nice new products within Dispensing for some of the smaller volume retail applications, and I think we've talked before about the AT 2,000 machine, that is a machine that's taking hold quite nicely in the U.S., and that will be one of the machines, for instance, that Wal-Mart will use. They are going to be using it, as well as their -- the higher end, the 7,000 series product. So Dispensing, as you know from the way the business is modeled, tends to be a little bit more of a standard product business than most of the rest of ours, but a number of new things coming out that are actually going to be next generation of equipment. And probably things that we'll talk about in the next quarterly call that are pretty -- they're very exciting there for the global Dispensing application set.

In Pumps there's -- there's always a lot to talk about, Scott. The eclipse product that we talked about first in the fourth quarter call, which is the non-metallic gear pump that we have been basically designing as a family of products to displace centrifugal pump applications for low to mid-volume and low pressure applications. That product has done extremely well, and continues to pace well ahead of our plans, so we're very, very pleased with it, just kind of by way of example. We've introduced a number of new products in the high pressure valve applications for a number of the instrumentation applications within the precision flow businesses. And they're all doing well, securing our position on some of the next generation HPLC products that are coming out. And we've got a number of new Med Tech implantables and Med Tech instrument products, that we have been working together with various OEM specifiers that we've introduced in the first quarter, and a number of them they're going to come out during the course of the year.

So that give you a flavor. There's quite a few. We pulled out some of the laundry list kind of approach to new products out of the standard description, just because tended to lose folks during the coarse of the call.

Understood. If you could just sharpen me on something. Larry, who is buying these non-metallic gear pumps.

It's a variety of applications, but it tends to be things like chemical industry applications or food applications, where you may have some kind of natural tendency for corrosion. Obviously, the product is not going to corrode if there's not metal on the wetted surfaces. So anywhere in a continuous process application where the system may be exposed to a potentially corrosive media.

Very interesting. Thanks, Larry. Thanks, Dom.

You're welcome.

Your next question is from the line of Charles Brady with Harris Nesbitt.

Hi, thanks. Good afternoon, guys.

Hi, Charles.

Can you go back on this opportunity with Wal-Mart, can you give us any sort of detail as to timing, potential size, and really sort of what that means to Dispensing over the next, you know, 12 to 24-months.

We -- we can't go into a lot of detail. We're -- we're bound by a number of agreements. I will tell you that, obviously, Wal-Mart has a very large number of locations, and you know the number that would be applicable within what they are doing to remodel their stores, to enhance their stores, and as part of their new store build-out is an extremely big number. Paint is a very interesting new kind of focus for them. They've been in some of their stores, and they -- kind of a standard paint product business, but they view this as one of the mechanisms to help them serve the population that they're trying to attract and doing quite a bit to build that out over the next several years. It's not just a 12 to 24-month type of plan, Charles. We've been underway with this, netted supplying both dispensers and the shakers now for a number of months. We just really haven't been in the position to talk about it. And we feel very good about the relationship with the Wal-Mart folks. They're -- they've been great to work with.

Okay. Thanks. Switch gears a little bit on -- if you look at incremental operating margins going forward, is it fair to say that -- in the past you've mentioned a 30 to 35% range would be a reasonable expectation. Does that still hold true today?

Absolutely. You know, as Dom mentioned, when you pull the noise out at 37% for the first quarter on a quarter, year-over-year basis, I think that's representative of what we think is possible, and we'll still sticking to the 30 to 35% number, a we model our business going forward. Again, that's on the organic incremental [inaudible].

Right. Okay. Thanks and my final question if we look at fire rescue products, and- the modules business, can you just maybe talk a little bit more about what you are doing there as far as sort of how much more of business is being gone through the models? What the demand for the modules is looking like, and sort of what that business is going to look like over the next, you know, couple of years, and how you are sort of managing that business.

Sure. The number of questions, first in terms of the content opportunity. The content in terms of IDEX, you know, value per truck is going to increase on a versus components basis between two and as much as kind of 3.5 times, if I recall correctly from our recent meetings. Depends somewhat on what we got historically before we got the entire module. Again, the module is an opportunity for us to work with the truck OEMs, such that they can basically, together with us, specify what they want in the way of a complete water or water and foam system, and what we bring to the party is, you know, a tremendous advantage in terms of ease of use. We build in, obviously all of our -- our branded product, but we even will connect the dots with whatever else is necessary from a control system's standpoint, and all of the rest that is necessary for them to have, you know, a completely installed and, as we call it, fully operational fire truck module.

And we've dedicated a new section within our plant in Ocalla to the design and the build of these products. We've been working this very vigorously now for going on about 12- - actually more than 12 months, 15 months now, and very pleased with not just the reception of the customer base, because they're obviously seeing the value proposition, but the means for which it is helping us get even an earlier advantage on what we think the industry requires. I'd say with the -- you know, the ongoing broadening customer base for modules, you know, we're becoming recognized as a much higher order -- higher level supplier of product to the truck platform.

Great. Thanks very much. Appreciate the detail.

You bet/

Your next question is from the line of Jim Lucas with Janney Montgomery Scott.

Thanks, good afternoon.

Hi, Jim.

A lot of your focus on the operation side is on lean. Can you -- and you've -- to your credit, talk a lot about you still have a long way to go, despite all the improvements you made. Can you talk a little bit about any of the growth tools that you're working on internally, especially with new products such a key focus of the growth model going forward?

Sure. Well, I would first say that I think if you think about our model, again, which is this -- you know, a very high mix environment, where what we're trying to always incorporate in the design of the product and, frankly, it helps us sort through those customer opportunities that we're most attracted to, in many cases, it's at kind of the beginning of the -- you know, the overall customer thought process, a means for us to differentiate ourselves versus just about anyone else. Because, again, we like these products that -- you know in our products segments that are fairly difficult to design, and for that matter, many of them would not necessarily have the ability to think through how they could manufacture them, either because the volume isn't there, or the total mix compliment of the products that will being suggested as the solution requirement doesn't make sense, given how they know how to make products.

So I would say right up front, Jim, we're very focussed on how do we manage this unique -- I think fairly unique business model, and it's working very well, in that it's not just allowing us to gain in terms of productivity and to improve our fundamental flow through the plans. But it's allowing us to clearly respond faster to new customer opportunities and to -- to be able to tackle things that other people wouldn't. In terms of you know what it's doing, and what we're doing fundamentally to tackle growth, we had essentially all of our leadership together this quarter, and we spent the majority of that entire time talking about what we're beginning to term as marketing excellence and how we build marketing excellence into our program in the same fashion that we have operational excellence. So you know, we've been doing good things with tactical sales growth tools and a lot of the tools that essentially are share gain-associated for a couple of years.

What I think we're capable of now is essentially thinking much more strategically about all of the niche kinds of opportunities that are out there, so that we have that many more to choose from. And the focus right now for our leadership is how do we become that much better at the analytical marketing? And there's a number of tools that we're driving across the entire Company for how we think through and very carefully measure and chase the things that are most attractive to us. You know, I think what it comes down to, Jim, in any Company, certainly one that's as complex as ours, is how do you think through the entire business model and the natural complement of what you have got to do from the front end all the way through how you make it, so it's kind of with that mind in that we're building the growth tool set into what wa already know how to do pretty well with the operational excellence tool set..

Okay, that's really what I was getting towards is that it seems there was an informal process, but the marketing excellence, just trying to get an idea of what the next step in the evolution was.

Yes, you're going to hear a lot more from us with regard to marketing excellence, as we feel we're in a position to properly speak to it. But it's a great new opportunity for us to complement what we do tactically so well.

Okay. And then on a one specific niche, could you expand just a little bit more on some of the pharma opportunities that you're seeing emerge, and where specifically geographically you are seeing that?

Most-- let me take it in reverse, sort of. Most of our transactions would take place in either North America or Europe. The instrumentation will end up then in any any part of the world. And what we are seeing right now from our customers is their business is extremely strong, obviously, in India and China, with a lot of the government-based funding that's going on in those two countries. But also we're seeing quite a bit of healthy spend out of Korea, some of the other Asian countries, and here at home. So, our transactions would be reflected as thigh would be here in North America or in Europe. In terms of what's driving it, as I said, generic drug discovery is certainly what's driving a lot of the HPLC instrumental growth, and we think that those customers of ours -- the OEM customers that are going to win most in the drug discovery -- excuse m,e the generic drug discovery side will be the ones that will grow the faster.

On the Life Science side. Life Science has been you know strong, but probably underperforming, for those folks that-- that are in that business. What we've seen in the quarter was pretty strong spending out of some of those Life Science-served applications. I think what's good and what's actually pretty exciting going forward is a number of those instrumentation applications, which were developed originally lLife Science applications and some of the pharma applications are actually migrating over to industrial segments. So I think we'll actually see increased spend in some of the industrial segments for some of the instrumentation that you typically find in some of the pharma and Life Sciences application.

What would an example of that be?

They're using similar kinds of equipment, and as it relates to us, [microfoitics] that would be used for some of the research associated with how they are looking at different oil and alternative fuels.

Okay. Great thank you very much.

You're welcome.

Your next question is from the line of [Walt Liptah] with Barrington Research.

Thanks, and good afternoon. Most of my questions have been answered, but I wondered, you know, your order trend going, into the second quarter looks pretty strong. Wonder what the monthly trend was and if things did accelerate maybe because of the Europe business that you talked about or municipal spending?

I think Dom spoke to it, but I'll turn it back over to Dom. It -- it didn't accelerate dramatically, right, Dom, through the quarter. It was pretty consistent on kind of an average daily basis.

It was, Walt. We provided that and I'll dig it up here in a second.

Okay. Yes, I must have missed it.

And remember, Walt, February is a short month. January was a hund -- in terms of orders January 1, 103, February, 93 and March 1, 107. So when we look at it from a weekly and daily basis, we saw fairly consistent order input pattern throughout the entire quarter.

Okay. All right. That's good. And in your commentary, you called out the fire and rescue in China. And you know, my understanding of it was that in China, you know the municipalities are somewhat unsophisticated, so I wondered -- the products you are selling, are these truck-mounted water pumps, or is this the hydraulic product, and can you characterize the market there for me?

Sure, Walt. It's -- it's actually been a decision that emanates out of the central government that they're committed to, you know, increasing their spend, associated with both fire suppression and rescue tools. And the fire truck, kind of standard truck platform in China, is now being created. We're doing extremely well, in that we're on the forth front of that and we actually got kind of a nice new order -- I won't go into too much detail -- in the quarter for on truck fire pump commitment in China. It's a small base, so at this point you are trying to create the spec position and get the brand established. But we're pretty encouraged by what we saw in the quarter for early signs for fire suppression future sales growth.

For the rescue tools, as you know we acquired Ding Lee, and Ding Lee is really the preeminent brand for rescue tools in China. And what we've done very well in terms of our operational execution is we brought in what we think is the right complement of product, inclusive of what we have out of the other rescue tool brands, such that now we have got, we think by far, the best product portfolio for China for rescue tools and air bags and now struts, As China quickly adopts western practice in terms of fire and rescue and a lot of other things, we think we're in a great position to take advantage of that. Our work to get us, you know, further established in China with our complete manufacturing capability in Tin Gin is coming along very nicely, and we think by the end of the year we'll have a full capability to manufacture -- including full metal capability for rescue tools manufacture on the ground in Tin Gin. So everything's coming along just according to plan at this point, for what the fire and rescue business is doing over in China.

Since the -- you know, it's a centralized government program, it is possible to quantify the opportunity there over the next year to five years?

I wouldn't quantify, I would simply tell you that there were some public statements made last year that there could be fire and rescue associated growth opportunities in China for a longer period of time, that would average 30% kinds of growth rates on an annual basis. So, small base, but certainly, fastest potential growth rates anywhere in any world.

Okay. All right. Thanks you.

You bet. Thanks, Walt.

Your next question is from the line of Jack Kelly with Goldman Sachs.

Good afternoon, Larry.

Hi, Jack.

Just a couple of follow-ups on Dispensing. While I realize you can't give us the number of stores you might be going into in Wal-Mart, just as you think about remodeling a store or installing equipment in the store where it wasn't, can you give us maybe an average installation price might be?

Sure. Well-- let me try to help a it will bit here, so we can all be in a sense of the magnitude. Wal-Mart has 3,800 stores that would be applicable. The Dispensing equipment opportunity would range from ninety -- say $9,500 for the AT 2,000 product to somewhere in the $15,000 range for the higher-end equipment. And that's somewhat dependent on how that particular piece of equipment is spec'd. So in their case it would be consistent for the two pieces, respectively, to cross all their stores. Beyond that, there's mixer-shaker opportunities, which we're anticipating as well. And I would state that we shouldn't probably incorporated a number that we're going to use in that formula if we're going to add a mixer-shaker component for the -- I'd say a couple thousand dollars, depending on the number of shakers per store.

So the agreement really -- the formal agreement it sounds like just extends to dispensers, and maybe there's mixer-shaker business there?

The agreement pertains to both.

Okay. Got it.

It's a great opportunity, Jack. I don't want to- - I'm not trying to, you know, hold back, but we're very excited about it. The Dispensing team is doing a supper job, together with Wal-Mart, to help them think through what they're going to do in all of the stores and how we're supporting them. They're really, I think, committed to this for the long haul, so we feel like we've got a very good opportunity here to tremendously expand the channel, North America, at first, in Wal-Mart.

Great. And then just on Europe again. I think you indicated in one of the prior calls you expected at least the first half of the year to be flat in terms of Dispensing in Europe. You referred earlier to it being a project business. It sounds like maybe you're getting some feedback from the paint companies that, you know, their project they're involved might click in the second half. Is that -- am I putting words in your mouth or is that a possibility?

You would be putting words in my mouth, Jack.

Okay.

I would say the following. We feel good, long term, about our position with all of the paint companies in Europe. We feel good about the tracking of those product opportunities that we have with them now. It's just that their spend pattern, as far as looking through the course of '06, doesn't entail the same kind of large project opportunity that we participated -- certainly in the first half of '05. Part of what we have got '06 versus '05 here in the first quarter is a pretty difficult comp in Europe, as well.

Okay. Then just looking at price increases and kind of cost increases. Can you give us a sense, on a weighted basis, or if not weighted, just some sense of what price increases were year-over-year in the first quarter? And the second part of that is, on the cost side do you feel confident that you recouped all of the absolute dollars? Or can you even go further and say you're actually recouped -- or maintained margin?

Sure. We did well for the first quarter in terms of price. Pretty consistent with what we have been doing and slightly better, perhaps. All of the Company we're about 2.1, 2.2% in terms of price help for the quarter. And we see no reason why we can't sustain that. The opportunity for kind of the material variable margin, you know, comp rate basis we think is certainly there, so we think we're maintain rate beyond dollar.

Okay.

So there's -- I really haven't heard much this week from our industrial peers in terms of what they're seeing out of their row materials for the quarter, but ours, frankly, have been very well managed. And there's always exceptions, but we've seen, you know, an excellent, you know, cost position at this point that I think creates a good opportunity for the year. The only category that we're very watchful on right now is stainless again, Jack. We have seen nickel track higher than stainless first quarter came up a little bit, so we're watching stainless closely. But [BAD SOUND QUALITY]

Okay. Good. Just one last question. I know I'm probably not coming -- I'm getting some feedback on the phone, so hopefully you can hear me okay, but is there a way you can kind of give us a sense for maybe your four or five major markets, Larry, which would obviously cut across the whole Company. It's kind of the way you describe the Company sometimes in the annual or on presentation. If we would look at machinery, chemical processing, fire rescue, et cetera, in terms of what orders were in those end markets or -- or is it too early for you to have done that kind of roll up for the quarter?

We actually don't have that role up by those end segments, Jack, so we wouldn't be able to give you that right now.

Jack, I think one of the comments that we made earlier was it was very consistent so the order rates follow the growth rates that you see within the quarter. And then, Pumps and other engineered specifically, both domestic and international growth, is almost equal to the total. So [BAD SOUND QUALITY]

Okay. Good. Thank you very much.

Sure thing, Jack.

Your next question is from the line of Gregory Macosko with Lord Abbett.

Yes, thank you. Could you speak just about the potential in the mix model? You talk about it's 20% employed. What's the maximum potential and kind of what is that rollout expected to be?

Well, that's a long answer, Greg, but I would say you know just six months ago I thought that we would be able to see the full benefit of mix model probably by the -- kind of the midpart of '07. I would say now, just on the existing business space, let alone acquisition opportunities, we're fining more and more opportunity to go back and redeploy mix model where we have already done it once, and get that much more in the way of benefit out. In terms of its full P&L benefit to us, I think the right way to think about it is we have been generating this 20- - as much as 20 -- actually $3.5 or $4 million in the way of incremental savings, on a year-on- year basis. I think that's very possible.

And really what mix model allows us to do is sustain for a longer period of time. Because in essence, what it does, Greg, is it allows us to go after, you know, smaller volume production sales. Smaller volume plant kind of situations that you might not normally think would be capable of the same kind of productivity opportunity that you see in some of the traditional lean approaches. So, really what lean brings to the table is how to get you at a more constant flow set of production and supply chain opportunities. What mix model enables, in our particular case, is for us to go after some of the things that typically get left and unattended to in some of the plants where you just don't the tool set to get down to that kind of volume, that lower volume and higher mix. The -- the nice thing about mix model, too, well beyond what it does in terms of just cost and productivity generation is that it allows us to really create a standard means for how we manage the business, so that you know the play book is clear. We can bring new people into a business. We can migrate people from one business to the next, and it becomes a more standard, you know, means for how we know we want to lead a particular -- a particular business in any of our manufacturing environments.

On the material side, the -- you know the opportunity is basically to take what we've done well with our global sourcing initiatives and to move, again, into some of the lower volume commodities. We have done a nice job over the years at getting at some of the larger volume opportunities, such as castings and a variety of different forms. Now what we're doing is kind of taking an analogous mind set to materials and supply chain that we've done a nice job of developing for our internal manufacturing capability. So we think that if we can continue to couple what we have done on the internal manufacturing side with the most logical supply chain strategy, this is going to yield benefit to us for a long time to come. And I think in terms of how you think about it, how you model it, it's going to be an extenuation of what we've done on the incremental savings base for some good long time to come.

But you have applied it to 20% of the operations. Is it applicable to 100% of the operations?

It's probably applicable to 85.

Okay. Good. Thank you.

Thank you, Greg.

Your next question a follow-up from the line of Robert LaGaipa with CIBC World Markets.

Hi, just had two additional questions, mostly just housekeeping-related questions. One is just related to the acquisitions. Can you give us a sense of what the contribution from the acquisitions were in the quarter, from a sales perspective? I know you mentioned the margin performance might be hindered, somewhat, as you integrate them in any second quarter, but if you can give us any sense of what they might have been in the first quarter, both from a sales and a margin perspective?

Right. In the first quarter, almost zero. Airshore was acquired early in the quarter. It's a fairly small transaction. And JUNE-AIR was very late in the quarter, so from a sales and margin perspective in Q1, it's very small. Q2, as I mentioned, we have some integration activities for both companies to complete, so we view the accretion to margin will happen in the third and fourth quarter and those rates will be at or above the Company average.

Okay, terrific. One more question, Dom. Can you just tell us what the tax rate you're expecting, on a go-forward basis? Obviously it dipped down a little by about a percent in the first quarter. What caused that, and are you expecting 34% here on out or is typical at 35?

We use 34, and to be honest, it can very anywhere from 33 to 35, so I'll leave it there. But, you know, we'll have a variety of different issues, none of which big, but we look at the rate every quarter and basically now do a discrete tax calculation, so this quarter was 34. For our internal modeling, we're using 34 to 35 for the balance of the year.

Okay. Terrific. Thank again.

Sir, I'm showing no further questions at this time.

Well, thank you all very much. Again, we're very pleased with our results for the quarter, and very proud of how the business units continue to perform. Thanks for joining us today, and we look forward to talking to you a quarter from now.

This concludes today's IDEX first quarter earnings release conference call. You may now disconnect.