藝達思 (IEX) 2008 Q1 法說會逐字稿

Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the IDEX Corporation first quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS) I would now like to turn the call over to Heath Mitts, Vice President of Finance. Thank you. Mr. Mitts, you may begin your conference.

Thank you. Good morning, and thank you for joining us for a discussion of the IDEX first quarter 2008 financial results. Yesterday evening we issued a press release outlining our company's financial and operating performance for the three-month period ending March 31, 2008. 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, Chairman and CEO; and Dom Romeo, Vice President and Chief Financial Officer.

The format for our call today is as follows. First, Larry will update you on our overall performance for the quarter across our Company and the four business segments. Dom will then take you through our financial results for the quarter, and Larry will wrap up with the outlook for 2008 and the second quarter. Following our prepared remarks we'll then open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 800-642-1687 and entering conference ID 38180500, or simply log on to our Company home page for the webcast replay.

As we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the Safe harbor language in today's press release and in IDEX's filings with the Securities & Exchange Commission. With that, I will now turn the call over to our Chairman and CEO, Larry Kingsley. Larry.

Thanks, Heath. Good morning, everyone. I will provide a quick summary first of our operating performance for the quarter. Orders were up 12%, sales were up 12%, operating income was up 11%, EPS is up 11% to $0.50, and free cash flow was up to $22.1 million which is an 84% increase over last year. Our business unit performed well, and our new acquisitions are contributing to our growth and profitability per our expectations. So overall performance for Q1 of '08 was solid.

If you look at slide six, we used this slide in previous quarter to summarize our current view of the markets, those that we serve, our position in them and also to summarize our plans for expansion. In short our current view is relatively unchanged. The summary is, one, as we've said we're continuing to realize excellent growth in the markets that we've targeted, and particularly those where we have acquired better organic growth capability. Two, our diversified end market exposure in the international content are serving us quite well. Three, a couple of our domestic end markets will experience slower growth as we previously discussed, and that's particularly the U.S. fire expression market. All in, we anticipate strong organic growth in almost all of our industrial businesses, and from our core health and science segments. Innovation and global sales investment will continue to drive the organic growth. At the same time where we've experienced some slowing, we've gotten ahead of it and we've taken appropriate action.

I'll now further detail our end market views as I walk through the Q1 '08 performance and outlook by segment. I will begin with fluid metering. The next slide, slide 7. Fluid metering grew a total 25% in the first quarter with organic growth of 5%, operating margin was 20%. We continued to have a very positive outlook for the fluid metering end markets. The energy segments are very strong. Our water segments are doing just great, agriculture, food, most of the pharma, and most of the chemical process product lines are all forecasted to stay strong. As a matter of fact, those segments more specifically the refined fuels and gases and that's both the fossil and alternative fuels, primary chemical and petrochem, water and wastewater, ag, food, pharma, now make up over 75% of the segment.

ADS, the business we acquired in January, is doing very well. We have a solid order backlog which is driven by principally EPA regulations which are associated with wastewater flow monitoring, and the required infrastructure repairs. From a new technology perspective we've made significant progress with our initiatives both domestically and globally. We've introduced a new turbine meter building on our Faure Herman family. This new meter is designed to work in crude oil applications to counteract the performance impact that drag reducing agents that are in the crude have on flow measurement and control.

Our hydraulic diaphragm pumps that we introduced in China feature expanded flow and pressure capabilities enabling us to expand our mechanical diaphragm offering with the highest flow range in the industry to support key applications in power generation and water treatments in those emerging markets. Our universal magazine drive pump family, the sealless pump is being applied in a broad range of applications but particularly in situations where it is critical to prevent emissions of hazardous material from what is being processed. In February we introduced a new series of sealless product that enabled drop in replacements for existing pumps which enables the users to convert to systems without repiping or changing the driver put.

Our new food grade pumps enable global expansion in the sanitary end markets specifically within emerging markets, and we have solidified our position as a key supplier of positive displacement pumps in this segment. In Q1 we introduced a high viscosity upstream juice pulp processing solution which enables our customers to reduce process time and product loss.

If you turn now to slide eight, our health and science core markets are performing well. Total growth was 4% for the quarter, that was driven by strong growth in the core equipment markets of analytical instrumentation in vitro diagnostics and biotech. We're reinvesting in our highly engineered applied technologies to serve those segments. Operating margin for the group was 18%.

Our strategy to further integrate the components of the fluid pass to take advantage of our proprietary pump, valve, and filtering capability is yielding great results for our customers and facilitating solid growth prospects. Our new integrated solutions group within the health and science segment allows customers to focus their resources on their core technology to bring new instrument designs to market faster while also developing their enhanced lab workflow software products thereby enabling our customers the ability to achieve faster turn time on their new product platforms. In particular, in the in vitro diagnostics equipment space there is an opportunity to improve the performance and minimize the down time of the diagnostics equipment as they adopt our integrated fluid systems. So while we continue to anticipate strong core market growth, we also believe that we can increase our machine content, that is the fluid pass that we provide to our customers and at the same time provide better user features.

In dispensing on slide nine, we achieved 4% total growth in Q1 '08 and operating margin was over 22%. Our focus in dispensing continues to be integrating new technology that improves our machine capability to enable the most accurate and repeatable point of view fluid dispenser. Our core markets continue to be the paints and coating segment, but we're also continually evaluating other point-of-sale dispensing applications. We are projecting solid global performance for dispensing for '08 based on the following which are the primary dispensing growth drivers.

New country markets are increasingly interested in architectural paint. We received first time orders from Russia, Romania, Turkey, Poland, and Slovenia a so far this year. The Latin America markets are continuing to adopt automated dispensing technology as well. As a matter of fact, the conversion from the manual dispensers to what we manufacture, the automatics, as our primary product line all over the world continues.

In the U.S. retail segment, as you know we continue to anticipate project-driven demand as the various retailers commit to store upgrades, the replacement programs, and their full fleet outfitting.

I will move now to fire and safety on slide 10. Total segment sales growth was flat in FSD while operating margin was strong at just under 26%. As you know, we provide highly engineered pumps, valves, and control devices as well as full systems for fire suppression. We also manufacture a broad line of rescue equipment used in first response as well as industrial applications. Lastly, we include our engineered band clamping business in this segment. The three, fire suppression, rescue equipment, and band clamping each contribute roughly one third of total sales to the segment. In the quarter growth in both our rescue tools and band clamping business was offset by the decline in fire suppression.

For 2008 we expect continued negative sales performance for the fire suppression portion that's that one-third of the segment driven principally by softer, North American municipal demand. Rescue tools, the second piece of this segment, will grow very nicely as we continue to drive innovation and grow internationally. We're winning new project from the developed countries and the new developing markets all over the world. In addition to the base business, we continue to expand in adjacent industrial segments. The third piece of the business, the band clamping business is performing very well. We continue to win new business based on our expanding product base of systems that address oil and gas exploration, rig and ship board applications, under water pipeline installation, and repair as well as other new infrastructure applications.

So again the three businesses within the segment each contribute about a third of the segment sales. In total we anticipate low single-digit organic growth for the segment driven by expansion in the band clamping business and rescue tools business that's partially offset by the domestic fire suppression performance. With that I will turn it over to Dom to run through the Q1 financials.

Good morning, everyone. Thanks, Larry. I am on slide 11, orders and sales. First quarter orders of $402 million increased 12% from last year. Increases of 25% at FMT and 7% within fire suppression were offset by lower orders within health and science and dispensing equipment. Sales increased 12% in total, and that was 8% from acquisition, and 4% from currency.

By segment organic growth was as follows. FMT posted an increase of 5% in the first quarter, health and science was down 2%, dispensing was down 6% due to timing of orders, and lastly fire safety and diversified products was down 4% in Q1 and as Larry mentioned, increased revenue within both the band clamping and rescue tool businesses was offset by lower demand within fire suppression. Overall, organic revenue growth was in line with our expectations for both FMT and HST was impacted by timing as dispensing and slightly below our expectations at FSD due to fire suppression.

Turning to page 12, operating margin, reported operating margin at 18.3% was down by 20 basis points from last year driven by the impact of acquisitions and to a lesser extent foreign currency translation. EBITDA of $80.3 million was an all-time high, and that increased 13% compared to last year and expanded 20 basis points. We'll walk through these components by segment in a few slides.

Turning to net income on page 13, income from continuing operations was up more than 12% and EPS of $0.50 is 11% higher than last year, and again that's versus our guidance of $0.46 to $0.49. The first quarter effective tax rate was 34%, and again full year ETR will be in that range of 34 to 35%. Currently we're using 35% for our estimates for the year.

Page 14, fluid and metering technologies. As Larry mentioned, FFT continues to post solid financial results and is well-positioned. Orders were up 25% in the quarter, sales also increased 25%, that was 17% from recent acquisitions and 5% organically. Operating income of over $34 million was a 15% increase from last year, operating margin of 20% was down 180 basis points from Q1 of 2007 excluding the impact of acquisition, operating margin was 21.7% or down about 10 basis points largely due to product mix within the segment.

Page 15, health and science technologies. For the quarter orders were up 2%. Sales were up 4%, but down 2% organically. As we mentioned in the release, growth in core, analytical instrumentation, IVD and Biotech markets as well as the impact from acquisitions drove the growth in the segment. Operating income was up 9%. Operating margin of 18% reflected an increase of 80 basis points compared to the prior year, and that was driven primarily by favorable mix.

Turning next to dispensing, page 16, orders in the quarter were down 2%. Sales increased 4%, and organically we're down 6, due mainly to timing. Margin of 22.5% was down 190 basis points compared to the prior year due to volume and currency.

Turning to page 17, fire, safety, and diversified products. For the quarter orders were up 7%, sales were flat, and organic sales were down 4%, and as Larry mentioned, growth in this segment is driven by global market expansion of our rescue tool business combined with new product innovation within our banded clamping business. For the quarter this portion of the segment grew at double-digit rates, and that was offset by a decline within fire suppression. Operating income of 15% versus last year and operating margin at 25.8% was up 360 basis points due primarily to favorable mix.

In summary, as Larry mentioned we're off to a good start for the year. With that I'll turn the call back to Larry.

Thanks, Dom. Before we review our guidance for the year and for the second quarter, I will update on you our capital deployment strategy. We have an outstanding opportunity to deploy capital to increase shareholder value over our strategic planning horizon, that's the three-year horizon, conservatively when you look at our cash flow generation and our balance sheet we have the capability to deploy over $1 billion dollars of capital over the next three years. While still maintaining our investment grade rating obviously. At the same time given the short-term volatility in the market we believe that a small share repurchase authorization enables us to optimized our capital position as well as our short and long-term shareholder return. Again, this does not represent a changed capital deployment focus toward acquisitions, and obviously our business model more than funds the organic needs of the business.

Our primary areas of focus for acquisitions are certainly the fluid and metering segment which is a large market opportunity for us to continue to grow in as well as the health and science targeted segments. We continue to build out our energy associated product scope. As you know, we're also building on the recent ADS acquisition with a solid list of additional water and wastewater measurement monitoring products as well as infrastructure service acquisition kinds of candidates. Within HST we also see nice opportunities within the core analytical and IVD markets as well as some of the other IDEX like opportunities within the segment.

So to be clear, the signal here and our decision to move forward with the repurchase is simple. Acquisitions are definitely priority one. However, we also think it is prudent to have a modest buyback program in place.

Moving on now to the slide titled the 2008 outlook, and that's slide 19, based on the results and assumptions we just reviewed, we reaffirm our growth rate of 13 to 15% for the year. Organic growth is expected to be 4 to 6%, acquisitions will contribute 6%, and FX is assumed to contribute 3%. Based on that volume range, we reaffirm our EPS estimate of $2.10 to $2.18, and while we do not want to set a precedent for communicating quarterly guidance, again, given the volatility in the market now, we believe it is important that we communicate our short-term outlook.

For Q2 of '08 we anticipate total sales growth of 14 to 16% with organic growth in the fluid and metering and dispensing segments that are both anticipated to be high single-digit organic rates, and HST, that's health and science, as well as fire and safety in the low single-digit organic range. We anticipate acquisitions will contribute 7% and FX is assumed to add 3%. Based on this we estimate that second quarter EPS will be between $0.53 and $0.56 a share. With that, we'll go ahead and open the line for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Mike Schneider.

Good morning, everyone. Just wondering if we can start out, Larry, with the dispensing segment and the outlook for accelerating growth? Can you reconcile for us, looks like orders and certainly organic growth were down in Q1. What is it that you know about the order book, I guess in April, really that gives you confidence you're going to accelerate this business from negative organic growth to high single-digit, and I would even note against the double-digit comparison a year ago in Q2?

Sure, Mike. Let me run through it. I will start with the global view of the segment, and we'll talk more specifically about some of the elements within. As I mentioned in the prepared comments, we see that the foundation frankly, for ongoing pretty solid base order rates globally is quite strong. We saw as I mentioned great new business opportunities materialize in the first quarter over in Europe. We see evidence of some solid orders in the developing country markets around the world, and some of that folks are going to architectural paints for the first time, and going right to automatic dispensers as part of that process. Others who have been in the broader color pallet and are going from manual dispensed processes to the automatic driven processes. That's all good.

There has been some concern obviously folks have raised questions in the last call with respect to the domestic resi construction market and how that impacts the the DIYs and the mass retailers for this year. Essentially, long story short, on a new store openings component to that equation it it has come in pretty much as we had anticipated, and no real change of expectation there for the current quarter or for the remainder of the year. New store openings among the larger retailers are definitely down, but the replenishment programs continue. As we mentioned in the last call, call, there are a number of machine replacement programs, not just in the U.S. but globally as well, but particularly in the U.S. that we have included within our internal plans and are executing through the course of the year. We feel quite good frankly, about this quarter based online of sight visibility to those programs, and obviously for the remainder of the year we continue to work those programs, and we obviously earn every one.

The real issue with dispensing as we've indicated in the past is it is lumpy. It comes in the way of projects, and while we definitely see a strong short-term outlook for the quarter, we continue to work to make sure that we earn every little piece of business on a go-forward basis, both all the global pieces as well as the domestic ones.

Larry, I am sorry, in the second half -- I am sorry, the second quarter project shipments, wouldn't they have already hit the order book in Q1 or is it a case where they come in after the end of the quarter?

They would not, Mike. Yes. It depends. In the case of some of these programs, they come in six weeks or so in advance, eight weeks in advance, and in other cases they come in as a book in turn pretty rapid fire. That's been the case for quite some time.

Okay.

Anyway, the long story short, obviously we have got we think obviously the best technology. We've got the fantastic infrastructure in place. We're very bullish about our global opportunities as well as our domestic opportunities, and we don't think that domestic retail issues as associated with resi construction or commercial construction are going to adversely impact our CapEx thinking for the year.

Then just quick one on HST. At what point do we lap or what quarter do we lap some of the programs that came to an end? Is it 2Q or 3Q?

It basically ramps down in 3Q, Mike, and you'll see as we've been saying no change in view towards the end of year that we lap those HST non-core OEM contracts that we've been talking about, and let me come back to the comments that I made in the prepared remarks with respect to the core HST growth. We are very pleased with our first quarter performance out of the target markets, and we think it is indicative of where we can go on a go-forward basis with some of the new products that we've introduce and had some of the added machine content that we realized as a function of that. This integrated systems group that we formed within HST is doing a stellar job frankly winning new customers and working together with existing customers to help provide those integrated systems that we're now adding more content per our customers. So we feel pretty good frankly about the core HST performance, and we will lap that OEM program activity by the time we enter Q4.

Okay. Thank you again.

You bet, Mike.

Our next question comes from Wendy Caplan.

Can you -- a strategic question. Have you and/or the Board walked through, Larry, the exercise of whether you should be in the lower margin/lower demand, maybe higher volatility fire suppression business?

Well, first of all, good morning, Wendy.

Good morning.

At the Board level we talk about the portfolio at least twice if not three times a year as part of our overall strategic thinking process and discussion set, and obviously by evidence of what you've seen us acquire over the last few years, we have acquired very attractive businesses that are all in aggregate growing essentially per our white paper or acquisition pre work assumptions assumptions. Where we have businesses that are low growth and low margin, certainly we would think opportunistically about what we might want to do with those long-term if we don't think they become better performers, but I wouldn't comment with respect to specific businesses at this juncture.

One of the things that if you look at the fire and safety diversified product segment performance for the quarter, while volume was nothing close to what we would like, obviously we did a beautiful job mitigating margin performance as a function of that volume decline by maintaining or improving our cost structure, and as you remember we started to get at that in late Q3 headed into Q4 of last year. So I frankly think that the team is doing a nice job, and that's inclusive of material, direct labor, but also fixed costs, working through a slower period here domestically for that fire suppression business.

So higher level strategic answer, Wendy, is of course we're always looking to optimize the portfolio. The operational portion of the answer to the question is we're doing all the right things to act prudently in a lower growth environment for that domestic portion of the fire suppression business.

I guess, Larry, to follow-on what I am having trouble understanding is how much of the margin improvement in that segment was mix related versus sort of focus in terms of cost initiatives or whatever. Is there a way to tease that out a bit?

It is both. It is both. There was favorable mix that impacted margin for the segment as rescue tools does well and you know it is, as BAND-IT does well, and continues to forecast good growth opportunities, both of those are higher margin relative to fire suppression, and I am not going to break it down on a go-forward basis, but that bodes well from a margin standpoint for the segment. At the same time that we've done a decent job with our cost position. We've offset any of the material adverse impact as a function of the associated commodities portion of the potential increase year-to-date, and we've done a nice job mitigating as I said our labor both variable and fixed for fire suppression.

The team is on, it is the bottom line. We're going to continue to perform. That segment will yield nice operating margins, and frankly, given the two components that we'll grow through the course of this year will at least offset the potential continued adverse impact associated with the U.S. domestic or excuse me the U.S. fire suppression business.

And just to hit dispensing one more time, I am still, maybe I am not listening carefully enough, but I am still not understanding why you think the timing issues of projects is behind us and what happened to the smaller retailers that were mentioned as a significant problem in the last quarter?

Well, no, the smaller retailer portion of the dispensing market has been essentially flat for going on a year now, so we didn't anticipate in our internal plans that the small independent store operators were going to be in a cash position to acquire equipment to any great magnitude at all this year. Frankly that's played out.

Back to the timing question. Order timing for dispensing has been an issue for as long as we have been in this business, and it is a lumpy business. We feel very strong about our Q2 growth prospects for dispensing, and as I mentioned for the remainder of the year while we earn every single one of those projects along the way, frankly given our technology, and you've heard us talk about our DDX technology which is obviously now starting to displace all other forms of pump technology embedded in that equipment around the world, our chances of continuing to outpace the market we think are outstanding. So order timing has always been a lumpy issue.

The book-to-bill timeframe for dispensing has been anywhere between eight weeks on the long end if you think about when we booked versus when we shipped to as short as three weeks. And I can tell you without getting into more customer specifics or order dynamic specifics that we feel quite good frankly about where dispensing is for the next couple quarters.

Okay. And finally, the capital deployment comments, the authorization program was pretty small, I worry that -- I wonder why bother? And I wonder whether -- I don't think so, but I just want to be, clarify that this doesn't signal a lack of acquisition candidates or opportunities for you?

No. That's a good point, Wendy. We feel very good about our acquisition opportunity set, and no change position strategically at all. Again, focus continues to be in fluid metering and health and science, and if you look at the number of properties that are available, it is still a good story and frankly our position to be able to acquire them is outstanding. Nothing at all changes with respect to our prioritization of capital deployment. We haven't had an authorized share repurchase program in place. This is really meant as a supplemental capital deployment strategic initiative for us and certainly the focus for us and our shareholders anticipated that our primary efforts are all around continuing to grow by way of acquisition.

Thanks very much, Larry.

You bet, Wendy.

Your next question comes from Matt Summerville.

First, on dispensing, does that high single-digit organic growth forecast you have on slide 19, I just want to make sure, does that exclude foreign currency?

It does, Matt.

And then with respect to order activity in the four segments, can you walk through what organic orders look like during the quarter for each business?

Sure. Matt, it pretty much followed the sales growth. I think the key one to mention is FMT at 4 to 5%, actually closer to 5 for the quarter after pretty high comps when we look at last year. So they pretty much followed the sales organically that we disclosed earlier in the call.

Okay. Then with respect to HST, the instrument IVD and Biotech side, can you talk in a little bit more, in more detail about the performance of that portion of the business versus what you saw in the industrial/pneumatic side?

Yes. Sure, Matt. Basically again we get awful granular in the way we talk about all our businesses. But if you were take that portion of HST organically, it is very high single-digit performance.

And then last question just on pricing. What are you seeing in terms of price '08 versus '07 across the Company?

Pretty consistent with where we have tracked. On a full year basis it will be between 1.5 and 2% this year, and that is as you know pretty consistent with where we've been a couple hundred basis points plus or minus over the last few years. While we're talking about price, while we think that we've done an outstanding job mitigating material costs year-to-date given some of the volatility in commodities and metals pricing in particular, we're also continuing to generate the capability to justify our price, so frankly on a year-to-date basis there has been a lot of concern out there that I have heard with respect to copper in particular, but some of the steels, and anything that's energy intensive including pig iron, given, and that takes more demand and energy intensity but those are all well within control. We've done an outstanding job. The inputs mitigation program, and we've not frankly, had to in any way use price to offset that. So I think as we go through the course of the year obviously dependent on what happens with the various commodities that are bigger inputs for us, price will be a positive yield for us.

Great. Thanks a lot, Larry.

You bet.

Your next question comes from Scott Graham.

Hi, Dom.

Hi, Scott.

I have just wanted to ask maybe two questions. One is sort of the overarching question about the organic sales thinking for the full year being 4 to 6%. We started off the year sort of at a flat type of number which is probably a couple points below where you were thinking. Therefore to me it implies that you have -- you feel better about certain businesses for the rest of the year. It sounds to me as if dispensing is one of those businesses that you feel better about for the rest of the year. Am I on the right track here?

You're not far off, Scott. I would tell you first that we have internal plans that we feel very solid about, first and foremost within fluid metering is the largest segment. Within health and science as we just discussed, core growth in the core markets is shaping up very nicely. We see very strong evidence of a solid order book in dispensing per the comments that I made just a few minutes ago that if all continues which we anticipate it will will be a great story for the year. And the fire and safety segment is a tale of again, it's three subsegments, rescue tools is off to a nice start, and our visibility there for continued particularly strong developing nation growth looks very, very good. But total rescue tools segment, subsegment growth I should say is looking very strong. Bandit is doing just outstanding. As we look at it, it is frankly, starting to materialize almost exactly as we had anticipated given our internal plans.

You look at the order rate for the first quarter, and apply that sequentially as we move into the second quarter and we think we've got a pretty good indication of the back half of the year with a bottom build of our business forecast. It translates nicely into that mid-single digit organic expectation that we've talked about on a full year basis. Dom, do you want to?

Scott, just maybe a bit more mechanical as well, and clearly we do expect acceleration on organic growth at FMT for all the reasons Larry described but also the comps as you look at both HST for the contracts we're getting out of and also within fire suppression as you think about coming off of the missions standards that were part of the first half of last year growth rates, the comps get easier as well in the second half. It is also a combination of those more tactical items that give us a high degree of confidence in our full year organic growth estimates and our second quarter specifically for FMT.

A fair amount of this confidence is really just I think the passage of time, you're kind of short cycling some of your areas. As the years progress you have better line of site. Fair enough?

Yes, I think we have great line of site, Scott, and all the things we got as a way of innovation as well. Which is a lot more than just, say the passage of time. There is a lot of detail behind what's going on in the growth side of the Companies as well.

Okay. All right. Could you, Larry, you alluded to in your initial comments that areas where you're seeing weakness you've gotten out ahead of that. Can you talk about that a little bit more?

Basically it comes down to actions that we took beginning late Q3 through Q4 and continue through Q1, principally around labor costs. Obviously we've done a beautiful job within our operating model leveraging productivity inclusive of variable fixed costs. The positive side, I think what we have also new proven to ourselves is the same capability applies and if we have isolated areas of softness, we know how we can cost mitigate the cash. I think the bottom line, Scott, is I am not going to get more specific in terms of businesses and sites and things of the sort, but it is a pay-as-you-go approach that we've taken it's allowed us to maintain a very strong cost position where we've seen isolated areas of softness, and that's obviously what hopefully good business leaders are doing.

Okay. That's helpful. My last question is really the one that I ask all the time, Larry. Are you comfortable with taking another $20 million of costs out there year overall?

Very, very comfortable.

Is that inclusive of those actions or exclusive of those actions?

Exclusive.

Thanks.

Your next question comes from Ned Armstrong.

Thank you. Good morning.

Hi, Ned.

Can you talk a little bit in the health segment about the pneumatic -- you had alluded in the press release to to it being the weaker as it has been for awhile now, and what you're doing there to make the business better specifically on both the revenue generation side and the cost side?

Sure, Ned. Again, let's go back up to the portfolio first to make sure that we're thinking strategically about where we placed our resource debts. We have invested or reinvested very heavily in health and science in total, particularly focused on the three markets that we outlined which are the analytical instrumentation, the in vitro diagnostics equipments, and the various biotech applications. We think that on the combination of growth out of those subsegments plus the fact that we can offer very nice higher level systems solutions that we can grow here better than anywhere else within health and science. So the overall R&D, marketing, new product initiative focus, is on the highest growth components within the business.

At the same time we're doing a nice job winning new business opportunities within the segment that you -- the subsegment you called out, the pneumatics product line, and it is a very profitable business. It has done extremely well. Our sales teams are continuing to go after higher growth within that subsegment relative opportunities, and what those entail are things like the lab equipment, the dental equipment, and places where the so-called clean and quiet air applications are globally. I think for the remainder of the year without quantifying it here, what we'll see is great international growth out of the business offset again by slower domestic performance. So we definitely are taking at a higher level the right reinvestment approach for health and science into the highest growth and what we think our future best opportunity set customers for us, and within that subsegment we're also reinvesting as well. Sorry, Ned?

Within the subsegment of the pneumatics, are there still opportunities for significant cost reductions or is the larger part of that effort been accomplished already?

There is cost opportunities for us in all of our businesses, and as you know, that's the model just per the last question. We'll see incremental savings across the Company this year that will be just a pure productivity basis better than what we've ever achieved. I am very confident of that. That same methodology applies within the pneumatic segment, so there is certainly good costs on productivity opportunities within the business there.

Okay. Then moving quickly to the fluid business, you had mentioned some of the areas where you saw growth opportunities being energy and water, and most of your technology is positive displacement, but there is room for centrifugal pumping technology in both energy and water applications. Is that something you've been thinking about or do you want to stick more with your core technology?

We don't really look at it as a function of PD technology versus other technologies. We look at it more from the standpoint of where are the more application intensive solutions. Where can we bring to bear more of our technical expertise? Some cases centrifugal product entails some of that, and we do have centrifugal product that we apply in energy and chemical and water, but generally speaking we like the higher tech, higher application intensity products, and those tend to be ones that are more PD in nature. We always look on an acquisition scouting basis at a variety of technologies, some that wouldn't be typical PD technologies.

Organically we're focused more on those that continue the kinds of IDEX niche products for a great niche market like applications, and those do tend to be more PD. To give you an example of where we've evolved even beyond traditional PD, you're familiar with what we've done in energy with organically going after new turbine flow meter technologies, and we talked a bit in this call about one that specifically designed for new crude applications. At the same time we've gone as you know with the acquisition of Faure Herman now into ultrasonic measurement capability which is really if you think about it from a technology and what's inherent to the product, a step further forward.

So generally speaking, Ned, we're interested in those that are higher tech end products and those that have a lot more application content to them. At the same time in the targeted space where there are centrifugal opportunities that fit that criteria, we would selectively look at them.

Good. Thank you.

Thank you, Ned.

Your next question comes from Walt Liptak.

Hi. Thanks. Good morning, guys.

Hi, Walt.

Dom, the first question is for you. You may have mentioned it, and I just missed it. I wondered about the organic orders by segment.

Right. As I mentioned, it pretty much followed the organic sales. FTT was 5% and the others followed the sales numbers we talked about earlier.

Okay. Looking at the dispensing part of the business, some of the comments that Larry made about the international opportunities or the big box store replenishment cycle, have you -- was there a backlog here that you're shipping out of or was there a pickup in orders and beginning of the second quarter?

It is more Walt and grouped specifically around Q2 order activity translating to Q2 sales activity and not about business shipping out of backlog.

Okay. So you saw orders in dispensing pick up. Were they related to the international part of your commentary or the replenishment part?

Both.

Okay. I wonder if I can ask about the replenishment, or about the international opportunity. What part of the world -- you mentioned Latin America. Is it box stores in Latin America or is it small paint retailers? Can you talk a little bit more about that market?

Sure, Walt. The -- actually in the prepared remarks I talked first about mainly Europe and the CIS states and where in fact there are now more interested retailers in selling architectural paint. So that is a welcome move east from Western Europe and we anticipate there continues to be growth there. Back to your question though, with respect to Latin America, Latin America depending on the country market has selectively been in architectural paints for several years but most of it has been in manual dispensed format, and it has not really been in the big boxes per se, it has been in a large number of retail outlets, some following that European business model if you remember where the paint company owns the store.

Right.

Some of it following the hardware store model that we talked about which is either a co-op or an independent who is selling paint, and then also some of the more big box like opportunities set, but the numbers of outlets that exist frankly, still in some of the developing parts of the world that we see as architectural paint machine applications, particularly for the automatics going toward, we think in aggregate represents a pretty nice multi-year growth opportunity.

Good.

To give you a sense maybe--.

Then the last question I have is just on the fire and safety part of the business. What's pricing like for those products? You mentioned kind of across the board you're getting price but is there something specific going on with that fire truck pump market?

Nothing that would fall outside of the norm for us. We're seeing for our new fire suppression equipment I think appropriate pricing is the way to characterize it. We're very cost competitive with our integrated modules, and so many of the truck OEMs are taking advantage of the full installed cost advantage. They're getting there versus what they associated as their internal make total costs, so that's continued to go extremely well. On a component basis I think there is nothing really remarkable to call out.

Great. Thanks, guys.

Thank you, Walt.

Your next question is from Ned Borland.

Good morning, guys.

Good morning, Ned.

Just one quick question on the guidance. Is there any assumption for the share repurchase program embedded in the guidance range?

No.

That's it. That's all I have. Thanks.

Thanks.

Your next question comes from John Franzreb.

Good morning, guys.

Hi, John.

I am just trying to get a better understanding what's going on in fire suppression. Could you talk a little bit about what kind of order degradation you're thinking about this year and maybe elaborate much of that is North America which I think an amount of it is or how much do you ship overseas in that business?

Yes. We can break down the domestic versus international content in rough form, but the orders rates that we have seen from the business, the subsegment, again that's one-third of the segment that's fire suppression, for that piece in total for Q1 and Q2 are pretty close to what we anticipated and talked about in the last call. There wasn't any radical surprises there. There was a lot of discussion in the U.S. portion of that segment of a trend up toward the second half of the year so the truck builders in particular are thinking they're going to see a more solid order book in the summer through the back half of the year.

We have really not factored all of that into what we have rolled into the guidance here, so if you look at it all up, we're still taking I'd say a relatively conservative view of municipal spend for fire suppression U.S. for the back half of the year. Then, Dom, do you want to break down the--?

It wiggles a bit, but it is in the 30 to 35% range international for fire suppression.

Thanks, Dom. Why would the truck builders be assuming a rebound in the second half?

If you remember, what took place here is that there was a prebuild through the course of '07 as a function of the EPA diesel emission changes that took place. So there was a bit of a hangover from the back half of the last year after a fairly strong start to '07, and so on a comp basis the overall unit volume of trucks built sequentially is not ramping all that fast. It is easier unit volume comp from the industry in the U.S. On top of that, though, there is still a fairly strong indication that where municipal spend is going to get allocated for trucks for the back half of the year they're not going to see any degradation there, so again if you look at the components of what the back half of the year for fire suppression entails, the international piece we don't see any significant change. It should stay decent.

The U.S. portion we don't anticipate that there is going to be any form of degradation, and if you look at just sequential performance, it ought to stay fairly consistent with where we've been.

The other thing is that as we've talked historically about on an IDEX specific basis, as we get content per truck, i.e. modules versus components, that helps out as well, and we continue to see a lot of the truck builders working together with us to design new specific modules for their truck applications, and we think that in total represents a pretty decent outlook for the back half of the year.

Great. And one last question. You touched on pricing a couple of times, but has there been any part of any of your businesses that the pushing through pricing has been significantly more difficult?

Always. If you look at the number of customers we have across the various niche businesses, there is always going to be customer situations where we're working in a competitive environment and we are very price competitive. However, where we demonstrate value and do so continually, that tends to generate a positive price equation, so if you look at it by segment, I would say the answer is no. Even if you get down to logical end markets of like customers, there is still not a real correlation there as it relates to price in this environment versus price in a super high growth environment.

Good. Thank you very much.

You're welcome.

Your next question comes from Mike Schneider.

Dom, I was wondering if we can just get a dollar amount that is being lapped as it relate to HST in the pneumatics division relating to the products that have been pruned or programs that have been pruned? I am trying to calculate indeed what just the mechanical boost is to the organic growth rate.

I will call your attention to our original guidance for the year. We called out 400 basis points in the segment, so that's the math on the growth rate, so consistently a little bit by quarter, but if you look at our organic growth any given quarter there is that type of an impact in the quarter. The other thing I will say, is we're reporting isotech as acquisition growth, but that's being very much integrated with our integrated systems approach here. You will get a pretty pure view of the accounting, but fundamentally Isotech is all part of that core growth rate as well, and obviously we book keep it as acquisition, but we're seeing nice pull through on our existing products, plus or minus, Mike, it is 400 basis points a quarter of impact. Organic growth rate that we described.

Okay. And then in the FST division just margins during the quarter were huge because of the mix presumably in lower fire suppression and higher everything else. Should we expect, is there anything unsustainable in this margin assuming that fire suppression does remain weak in 2Q and presumably at least into 3Q?

I think Mike, the one thing that we feel very good about as it relates to margins in the segment, particularly as you've witnessed what we've done to manage through the stainless spike, stainless has come back down, but if you look at the primary area of commodity concern in the segment, it is stainless, and our team just did a fabulous job, absolutely fabulous job of working through that over the last six months, and so now we're still anticipating volatility for sure, and in many of the metal for the remainder of the year. We think that there is certainly not going to be an adverse material impact as it relates to FSD, so otherwise, no, I think the answer to your question is we feel good about margin capability.

Within the band clamping business, when steel was or stainless was raging, related to back half of the last year, was that pricing put through as a surcharge or just a list price increase?

There is a combination of price actions that apply depending on the channel and/or customer situation, and as you know, in most cases not just specific to that business but total we tend to sustain price, so less surcharge, more price.

Okay. And then just another margin specific question. In dispensing the margins are hugely volatile, and I am trying to understand the interplay. If you have got more project related business going on domestically in 2Q and for the balance of the year, should we see the type or the return to this upper 20s range in margins or does that type of mix actually depress the margins?

Mike, we won't give you an actual percent, but when you look at dispensing in total historically our margins U.S. versus Europe and foreign are pretty consistently equal in terms of the rate. What you really see with dispensing if you look even sequentially or year-on-year, it is really about volume, and the lever point that, call it the $50 million revenue rate, once you see the leverage on that additional volume above that it levers at a significant year-on-year, so I won't call it high 20s, but clearly you see a higher margin rate than what you would see in Q1 based solely on volume. Mix tends to play a lesser part of the equation within dispensing.

Great. Thanks again.

Thank you, Mike.

Your next question comes from Ajay Kejriwal.

Good morning, gentlemen.

Hi, Ajay.

Just following up on that margin question on diversified, I know you mentioned stainless steel spiked, so wondering if you could help us understand if there was some benefit from lower price inventories because of FIFO accounting was that something that helped margins in the quarter?

No, Ajay. That wouldn't be the case. The primarily help as Larry mentioned, besides the volume is the mix of both rescue tools and BAND-IT within the quarter.

So the take away is that the margin improvement is sustainable? Meaning year-on-year improvement because margins were record priced in the segment if you look across several years, so sounds like it is not material related, so it is probably sustainable?

Yes. Relative to our guidance. We're not going to provide second quarter rate and the full year we didn't as well. I think the thing to remember within the segment is it is a third, a third, a third, in terms of the revenue splits, and obviously in the second half the comps get easier for fire, so this is more of a modeling discussion, but when you play out your assumption within the segment for mix, you could have a bit of a wiggle when you look at the suppression side of the equation, but we didn't provide those numbers, so it is kind of all baked into our thinking around the EPS totals that we provided out there.

Maybe just a question on segment organic, back in Feb. of your fourth quarter call you had said fire segment should be roughly flattish, organic ended on 4%, and sounds like BAND-IT and rescue tools did a little better than what you were thinking. So was fire suppression a lot worse in February and March?

I wouldn't say a lot. In my prepared remarks I think we did say that both rescue tools and BAND-IT had good quarters. I wouldn't say they were way in excess of our expectation, but fire was a bit below what we expected in our original guidance going into the quarter, but these are relatively small dollars on a dollar basis relative to the percentages.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Your next question comes from Charlie Brady.

Thanks. Good morning, guys.

Hi, Charlie.

Just on a sort of a broader picture with IDEX strategically in, historically you have been a relatively short cycle business, and I am just wondering now that we've layered in several more acquisitions over the past couple of years, could you sort of walk us through where you see kind of visibility among the four major segments and maybe even in some of the subsegments? Has that stretched out? It sounds as though it has.

Yes. Definitely, Charlie. I think if you go back, look at the last five years of our acquisitions, which have principally been fluid metering, and nature as well as the health and science segment acquisitions, and you look at as I think I mentioned in the prepared remarks, fluid metering now has three quarters of its revenue in those segments which either want to call them longer cycle or later cycle segments which we think are sustainable through the economic current issues, and that's water, energy, pharma, it's ag, so we believe that fluid metering versus where it was just five years ago is repositioned much larger segment and very good stead frankly to continue to grow, so that is net-net all by itself a great story.

Health and science is really not a traditional cyclical kind of business, and I don't think you would call it a short cycle business. The equipment applications that we're on we think continue to respond to all of the demographic issues that we're all familiar with, and so for analytical instrumentation which is doing well globally, in vitro diagnostics applications, the equipment that we're on, we see continued nice development opportunities as a function of market, but again, also because we think we can bring more to bear in the equipment, and for a a lot of the Biotech applications serving pharma small and large. We think those dynamics play out well.

If you look at the total Company, the portions of the portfolio that are shorter cycle are certainly the fire suppression piece that we've just talked about, and to a lesser degree rescue tools, and we think rescue tools has some nice fundamental growth drivers as a function of going after all of those global markets that we've just begun to scratch the surface on. And then dispensing. You probably correlate with more shorter cycle activity, but again here we think replenishment offsets what of demand patterns, so it is tough to I think, cleanly characterize us as a short cycle business. At the same time the acquisition content over the last five years is certainly positioned us into a longer cycle format.

With respect to ADS, you've had it for almost four months now. Any surprise either good or bad?

It is a great business. It is a great business. We love the model. It is a really good question actually. If you think about what a lot of the folks are talking about with respect to water right now, because water still gets a pretty big moniker, some folks are talking about disappointments in water because municipal spending is not making its way to project activity.

The beauty of ADS and what we want to do in this space is that it is mainly rate driven -- and so it's around making sure that bad water doesn't creep into good water at the end of the day. What we're doing is is the flow monitoring and the associated infrastructure analysis that then generates the repair or the new infrastructure, and that portion of what we see within the total water space we think bodes for great growth opportunities. We're very pleased with the backlog in the business. We're very pleased with the order activity that we've got right now looking forward. So as I said, both organically and now also acquisitively, we want to build on this business and do so in a global fashion.

Thanks very much.

Your next question comes from Amit Daryanani.

Just looking at inventory, it was up about 18%, (inaudible) was up 22%, can you tell me how much of that is organic versus FX and acquisition driven?

I don't have the splits right in front of me, but ADS and FX drove a lion's share of both, and the rest of it pretty much followed, on the receivable side our revenue growth. On inventories we increased a bit more organically than you might have thought versus our first quarter of growth, and that's primarily due to our view of the second quarter, primarily in FMT, so a bit of an inventory increase even when you look at organically, but ADS just give you that kind of -- the number was about $28 million of receivables and yet a project business that brought a lot of receivables in terms of the projects with it. So FX was another piece of that as well.

That's helpful. Then just to get at the HST segment last year you spoke about two or three programs pushed out from Q2 to the back half of '08. Are those still on track to ramp in the back half of '08? Can you update us on that?

I would say no significant comments there. We were still assuming and we guided with all things considered. We anticipate that in any situation where you got an OEM business you're going to have some pushes and some pulls, but a this point we're assuming consistent with what we talked about previously.

All right. Then just the dispensing side, program pushouts which led to the 6% down organic number, next quarter you guys are looking at high single-digit growth. How much of that are those pushout from Q1 to Q2 versus just new sales and orders in Q2 per se?

Well, it is all part of the same formula. It is orders that are timed that pushed from Q1 to Q2 that represent a portion of that growth, and in dispensing when you look at it sequentially, you're always going to see that kind of behavior, so the reason that we feel very confident in the quarter about talking through what the organic expectation is, is because obviously when you have visibility around things that were committed as first half of the year activities to us.

I guess maybe looking first half of '08 versus first half of '07 dispensing is flattish, would that be reasonable? And you expect a big acceleration, or at least acceleration at least in the back half of '08?

Let's see. I think that's a fair summary on the first half, back half, and total. Again, as my comments outlined earlier, in dispensing in the current environment we work for every single project opportunity, but we see a strong Q2. Our visibility into Q3 both for what we think is a good solid quarter and we're working to make sure the whole year in total works out quite well.

All right. Then just finally looking at this quarter, you guys beat the midpoint of your guidance about $0.025 or so, annualized out that's almost $0.10 there. What refrains you from increasing your EPS range at this point or moving to the high-end at least?

We see frankly an opportunity to continue to improve with where we had guided at the beginning of the year, but given the volatile market we're living in and what we see in total for our top line expectations, we think the EPS range is a solid flow through assumption set based on what we have bottom built in our forecast. So we think that as we said Q2 will be as guided, we expect to frankly to do quite well on an organic basis, and the back half of the year we're working to make sure that we deliver at least what we talked about in our beginning of the year annual guidance. The acquisition contribution is obviously not factored into any of that.

Perfect. Thanks a lot.

You're very welcome.

At this time there are no further questions. Do you have any closing remarks?

Well, let me just simply say that we're very pleased with our start to the year given the current environment. We've done a nice job delivering strong P&L performance, and we anticipate as we talk through in all of the questions that we'll see solid organic growth Q2 and as we head into the back half of the year. I would like to thank everybody for joining, and we look forward to the call in three months.

Thank you. This concludes the conference call. You may now disconnect.