藝達思 (IEX) 2009 Q1 法說會逐字稿

Good day, and a welcome everyone to the IDEX first-quarter 2009 earnings results conference call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Heath Mitts, Vice President of Corporate Finance. Please go ahead sir.

Thank you Cynthia. Good morning, and thank you for joining us for our discussion of the IDEX first-quarter 2009 financial results. Last night we issued a press release outlining our Company's financial and operating performance for the three-month period ending March 31, 2009. The press release along with the 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 CFO.

The format for our call today is as follows. We will begin with an update on our overall performance for the quarter and then provide detail on our four business segments. We will then wrap up with the outlook for 2009 and the second quarter. Following our prepared remarks, we will 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 888-203-1112 and entering conference ID 3284 (technical difficulty) 764, or simply logon to our Company homepage 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 and Exchange Commission.

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

Thanks Heath. Good morning everyone.

Well, clearly tough market conditions in the quarter. You've heard it from others. We won't get into the details. But overall we have responded well. We executed additional cost savings actions in the quarter to preserve short-term performance while not impairing our strategy as the economy improves.

In a few minutes, Dom will walk you through a breakout of what we've done to manage costs in this environment. But the bottom line is that we've taken aggressive action to restructure and exit significant cost, which should guarantee reasonable performance for '09 and set the stage for very profitable growth as our end markets improve. We've taken advantage of the slower economy to drive plant integration, obviously enabled by the continual leaning out of our operations.

Our customers and our commercial partners are our number-one focus in this environment, and we've maintained or improved service levels in all of our businesses, and we are working closely with our distributors to help them serve their customers with quick-turn performance.

So we expect continued order volatility for the remainder of the year, but we also believe that we are better positioned than our competition to take advantage of the situation.

Our new product plans are on track. Our businesses continue to invest in emerging market development, and we will open new offices and operating facilities this year. As the economy sorts the stronger players from those that are less resilient, we expect to be positioned well to grow in the back side of this, enabled by a great balance sheet.

And with that, we will review our performance for the quarter. And I'm on the slide that is titled Q1 2009 Financial Performance.

For the quarter, orders were down 16% and sales were down 12%, and that's 14% organically.

First-quarter adjusted operating margin of 13.6% was down 400 basis points due to lower revenue offset by the cost reductions.

Overall, given the challenging sales environment, which has been pretty volatile on a daily basis as well, we have been able to maintain reasonable profit performance. Adjusted EPS at $0.33 was down 31%. Free cash flow of $13 million, which included approximately $6 million of restructuring-related payments.

Note that the results on the slides are adjusted for the restructuring charges and the expense of fair value adjustments on inventory associated with the recent acquisitions.

So a walk through the results by segment -- if you turn to slide six.

For the Fluid & Metering segment, orders were down 16% in the quarter; organic orders were down 24% -- reflecting pressures that we're feeling throughout nearly all of the process and equipment markets.

Sales decreased 8%, down 17% on an organic basis.

Adjusted operating margin of 16.2% was down 230 basis points from Q1 of '08.

As anticipated we experienced a slowdown in the FMT end markets, most notably the chemical end markets during the first quarter. The chemical markets represent roughly 25% of FMT sales. We expect the major chemical end markets to be down further in the second quarter with minimal to no recovery for the remainder of '09.

With regards to the other FMT end markets, water, which is also roughly 25% of FMT sales, experienced a more dramatic slowdown than we had anticipated at the beginning of the year. We expect projects to continue to be constrained by municipal spending actions in the second quarter. Q2 sales should be flat to up slightly versus Q1. We expect to return to growth in the latter part of '09 as stimulus allocations take effect toward the end of the year.

The energy end markets, again, roughly 25% of the segment, have experienced less topline pressure due to global project demand and increased military spending. Versus Q1 we expect flat to modest growth both domestically and globally in the energy end markets through the second quarter, and stable performance through the balance of the year.

The pharma and food segments have bottomed and again should grow modestly beginning in the latter part of the year.

In summary, our energy and water end markets should fare well with stimulus spending supplanting some of the natural capacity based CapEx requirements, whereas the chemical end markets may lag in recovery.

In our Health & Science segment, total orders were down 16% for the quarter, down 18% organically.

Sales were down 11% in total and down 14% organically.

Our core HST business, which represents about [50]% of the segment, was down slightly while the remaining, more industrially exposed HST businesses had significant year-over-year declines.

Operating margin of 17% was down 100 basis points compared to the prior year due to the lower revenue.

As anticipated, we experienced a slowdown in OEM demand during the first quarter driven by end customer budget constraints. Sequentially versus the first quarter we expect a slight decline in demand in the second quarter and then the beginning of a leveling off resulting in flat to modest sequential growth through the remainder of 2009.

Within the life science market there is a trend toward consolidation in research facilities and equipment, driving the need for increasingly complex and high-performance equipment. This represents an opportunity for HST core business. As an example, our Semrock business has been able to successfully meet the needs of these new, larger, multi-user shared facilities with its catalog portfolio of products of multiband filters and sets for multiple imaging applications. This is especially important in this environment as the Semrock technology allows the end user more flexibility to utilize existing microscopes without having to make a more significant CapEx investment.

For the long-term our core market focus, the fluidic devices used in the analytical instrumentation in clinical diagnostic applications, continue to provide a powerful platform for growth, and we anticipate that end market demand for new generation of equipment and increased IDEX content in the newer generations of the equipment will continue to drive that growth.

In Dispensing -- on slide eight -- total orders in the quarter were down 13%, organically down 7%.

Sales decreased 34% and organically were down 27%.

Adjusted operating margin was down significantly compared to prior year due to the lower volume in both North America and Europe. However, due to cost reductions and footprint consolidations, the Q1 operating margins significantly improved versus the fourth quarter of last year.

Selective replenishment activity within the large retail channel in North America positively contributed to results in the first quarter and will continue to benefit performance in the second quarter, offsetting the decline in volume driven by the softness in the broader paint markets. However continued softness in the economy will impact the demand for capital equipment within retail channels both in North America and in Europe, and we anticipate performance will be flat to negative through the remainder of '09, again, versus Q1.

The cost actions we have taken to size the Dispensing business positions us well though to address the market conditions and ensure long-term profitability and strong cash generation.

So now moving on to Fire & Safety on slide nine. For the quarter total orders were down 17%, down 9% organically, primarily due to our band clamping order rates.

Sales were down 5%. Organically sales were up 4%.

Operating margin at 20.9% was down 490 basis points as compared to last year, primarily due to mix within the segment. A higher percentage of fire suppression and a lower percentage of BAND-IT revenue drove that mix in margin-associated shift.

As anticipated, global product demand for rescue tools and fire suppression products drove performance in the first quarter. We expect global activity for rescue tools to remain stable in the second quarter and for this trend to continue throughout '09. Recent order activity from municipal railway systems around the world -- including major projects in China, Switzerland, and Spain -- will benefit second-half revenue.

Fire suppression had a strong Q1 and is expected to remain stable throughout the year, although we are keeping a close eye on the municipal spend for uncommitted projects that occur late in '09.

The band clamping market will remain pressured in the second quarter, driven by the decline in manufacturing (inaudible) municipal spend in energy projects, and we don't anticipate a strong return to growth in this portion of the segment for the remainder of the year.

Overall we expect flat sequential performance through the balance of '09.

And with that, I'm going to hand it over to Dom to run through our outlook.

Thanks Larry. Good morning everyone. I'm now on slide 10 entitled 2009 Guidance Overview.

As we continue to work through our operating plans, it's very clear that this is a challenging forecast environment. In general our view as it relates to this set of forecast assumptions is that Q1 revenue and early Q2 revenue will be our low points. However we are not forecasting significant sequential growth and have taken appropriate additional cost actions.

On the cost structure side, upon completion of our restructuring efforts, headcount compared to late 2008 levels will be down in the range of 12% to 14%. And that includes both the Q4 2008 reduction and the additional actions in Q1. We ended up march down 10%. This reduction is consistent across both production and salaried levels. In dollar terms if we look at the overall impact from our restructuring efforts, the 2009 savings is roughly $35 million, and that's versus the $20 million that we previously announced.

Obviously we've implemented additional prudent, discretionary cost reductions. And in addition, in the event that our volume assumptions do not materialize, each of our units have developed additional contingency plans.

It's also important to note that our fundamental operating model and initiatives continue to yield results. We were able to reduce headcount levels to this extent, and frankly within a less than five-month time frame, because of the operational and process improvements that have occurred in the Company over the last few years.

In addition, material cost savings continue to yield results, and we expect to see $10 million to $15 million of net savings in 2009.

We've analyzed three scenarios for the balance of 2009. The first assumes no significant sequential revenue increase but of course includes the impacts from our cost actions. The second adds normalized seasonality using Q1 as our jumping off point. And the last assumes that we begin to see a modest recovery in the second half.

Slide 11 shows these scenarios. We show sales, EPS, operating margin, and the organic growth for each of the scenarios. Based simply on Q1 run rates and normalizing the impact of severance and the inventory step-up from acquisitions, our full-year run rate would equate to just over $1.3 billion of revenue and $1.24 of EPS. Adding the impact of the cost reductions and volume related to program and sales initiatives with high probability factors of $12 million, the low end of our range would be $1,320 million of revenue and $1.35 of EPS. Operating margins would be in the range of 13.5% to 14%, and full-year organic sales growth would be down 15%.

Scenario two, as an assumption for normalized seasonality -- and as you all know, Q1 has historically been the low point -- we would assess seasonality at $15 million of revenue, and that would add $0.07 of EPS. This scenario would yield $1.42 of EPS, 14% to 14.5% operating margin, and organic sales growth would be down 14%.

The last and perhaps the widest debate these days is whether there will be a second-half recovery. Frankly, this is something that we are all going to watch for together. But that said, a modest recovery would yield another $25 million of revenue and $1.55 of EPS, operating margins of 15% to 15.5%, and organic sales growth would be down 12%.

So when you sit back and look at this -- a few takeaways. First you see the obvious impact of the cost actions. Frankly a 12% to 15% decline in revenue happened quickly, and this was more severe than we could have ever predicted. Our cost actions get us back to mid-double-digit profitability and clearly down from last year but well above our low points during previous recessions. Most importantly, as Larry mentioned, this positions us well for the future, and we'll be able to lever our cost structure significantly when organic sales growth returns.

With that, I will turn the call back to Larry.

Okay. Good. Thanks Dom. Slide 12 summarizes our view of guidance. As Dom said, EPS in the $1.35 to $1.55 range, organic sales growth down 12% to 15%. FX at current rates will have an impact on sales of 3% to 4%, and acquisitions add 5% to 7%. This EPS range also excludes the estimate for additional severance of somewhere between $0.03 and $0.05.

We expect the tax rate will be 34%. CapEx will be less than $25 million for the year, and of course we will continue to convert cash in excess of net income.

And for Q2 our EPS range is $0.34 to $0.38 with organic growth that's down 15% or better.

So with that, operator, we're going to turn the call over to folks for questions.

(Operator Instructions). Jim Lucas, Janney Montgomery Scott.

Within FMT can you tell us a little bit more -- you gave some good color in the prepared remarks, but in terms of some of the more project-oriented business, in particular on the water side with stimulus spending potentially coming down the road, are you seeing any pickup in terms of quoting activity, or is it still pretty much that from the distributor standpoint the inventories have been worked down and it's relatively quiet out there?

Jim, as you know, our water model has essentially two elements to it -- the front end analysis work that we do, which is a service model; the -- then the product revenue, which sells both direct but also primarily through either agents or distribution. And the answer to your question for both elements is that, yes, quote activity is actually pretty sound right now, and the number of projects that we've got good line of sight to is actually quite good. It's a matter of getting the budgetary actions secured to go ahead and begin the process. So we actually feel pretty good frankly about what we've seen build here over the last several weeks for the municipal and -- call them special -- either government-sponsored or other kinds of projects that we think are going to start to materialize over the next several weeks.

And in terms of a similar commentary on the chemical side, obviously stimulus doesn't apply there, but given that -- looking at projects versus just a replacement side, what exactly are you seeing in the chemical side of your business?

Well, as I said in the remarks, the chemical end markets for Fluid & Metering represent about 25% of the segment. And that's the piece that we expect to lag all the rest of the end markets in terms of pickup. There certainly isn't a lot of new project activity right now anywhere, and MRO spend has been somewhat depressed for let's call it year to date as well. We expect the MRO component to pick up as well a little bit. But there is a very, very sharp focus on capital out of all the end chemical markets right now.

So I think if anything, our views are fairly conservative or pessimistic for chemicals for certainly the remainder of '09. All that said, if the national dynamic plays out, MRO spend has to start to kick in here at some point.

Switching gears to HST, with regards to the non-core piece of HST, are you seeing any signs of stabilization bottoming out there? And on the core side are there any -- we understand what's happening with the OEM side of the business right now, but are there any pockets where you are seeing interest from either quoting activity, design activity where exactly strength in the HST area could possibly come from?

Well, first on the non-core piece, I would say we are seeing a stabilizing of the rate of year-over-year decline, so certainly seeing a stabilizing against that rate of decline. The OEM customers in that market are performing among a pretty broad range of some growing -- and we've got some new markets that we've just entered into that will see some nice year-over-year growth. But some of those are offset by things that are construction-associated that I don't think are going to come back anytime too soon. So for the non-core piece we're not expecting a huge sequential decline, but at the same time we haven't assumed in our roll-up a big improvement there either sequentially.

On the core portion of the HST business, actually performed pretty well for the first quarter, and we have yet to hear from all the instrumentation manufacturers with respect to their outlook for the year as well, but as far as supply-chain communication goes, it's not all that dire. There's certainly some sorting out going on among the big pharma guys as to who's going to spend capital, and there will be some players in the segment we think that will remain a bit cautious. But good OEM activity, and our group is benefiting in particular from getting some share wins.

We started -- I think we talked about on the call about 12 months ago internal new organization that we funded with new R&D folks and some other staff that is an integrated solutions group. And as the economy works through some of the make-versus-buy decisions that the customers are using to help them think through plant fixed cost issues, we can pick up some pretty nice incremental revenue as a function of them allocating that to us versus something they had done historically internally.

So I think we'll see some nice projects secured through the course of this year -- and some internationally for that matter -- in the core side of HST. But we all need to see how did the instrument suppliers -- take another look at the outlook for the rest of the year when they do their releases here over the next week or so.

Mike Schneider, Robert W. Baird.

Maybe first we can just focus on the change in the inventory accounting. Dom or Heath, maybe you could just explain what drove the decision. Is it just the deflation in commodity costs and input costs that drove the revaluation? And then as you look forward now after taking the inventory adjustment hit, what does it on a percentage basis -- if you can look at it that way -- lower your unit costs going forward? Because it seems to me there's an embedded tailwind now as you switch to FIFO.

No, actually Mike, that's not the case. If you step back and look at LIFO and FIFO, the biggest impact from the two conventions would be how you account for acquisitions. And as you know, under FIFO essentially you step the inventory up, and then the next turn of inventory, you see the lower P&L. So that's what you see in our first quarter results.

Under LIFO that impact tends to be routable over time. So when you look at the Company's historical P&L, you won't see a significant year-over-year impact from the pure valuation of inventory versus LIFO or FIFO. It's the timing of acquisitions and how we now account for that step-up.

Both methods are fully allowable obviously under GAAP. The situation to change is really driven by our desire to be more consistent, and as we look in the future, specifically in Europe, as you look at these two conventions I think FIFO would be a more acceptable means of the convention. But there's clearly no go-forward cost issue relative to how you think about the Company's performance. It will just be how we look at acquisitions during that first turn of inventory.

Then secondly, just on slide 11, as you walked through the three scenarios -- and by the way, this is probably the most helpful slide I've seen in many earnings seasons from industrial companies, so thank you.

The slide 11 modest second-half recovery, you have assumed $25 million which equates to $0.13 per share. If you back into it, it implies a 63% operating margin on that $25 million in sales, in other words 63% EBIT margin. Can you just put some detail around that? Because if that's the rate at which you are expecting incremental volumes to come in, to the extent we get any volume recovery in 2010, the leverage would be powerful. So I guess just explain how you get to that 63% and why that's sustainable or not sustainable going forward in a recovery.

Sure. Well Mike, I would say if you think about it the other way around, it was -- to look at the flow-through the other way, which is on a 15% decline in revenue to hold the 35 -- and that's the number if you look at the midpoint of our current range -- it took a lot of cost take-outs. So think about the P&L in terms of this incremental volume. SG&A relative to our current cost levels is fundamentally fixed, so you look at kind of the valuable contribution. In this mix it's a higher mix for a few other reasons, but to think of a number north of 50% on the uptick -- and this number is 60, as you mentioned -- isn't unreasonable the way we've adjusted for our cost structure. The $35 million is the cost take-out for '09. If one were to annualized that for 2010, it adds an additional $10 million. So the cost take outs gets us to the point of being able to significantly leverage the uptick if and when we see one.

So on these numbers, you actually do see it on the $12 million of program volume at $0.04, the normalized seasonality at $0.07, and then obviously if there is a recovery, the additional $0.13 of EPS.

And as you get into 2010, is there anything incremental in terms of SG&A or facility expense that you would need to layer back that, at least in your-one of a recovery, you wouldn't be able to sustain that 63%-ish type incremental margin? (multiple speakers) And it would tend to migrate lower?

Mike we (multiple speakers) the paper on 2010 yet. Obviously there would be some additional sales expenses, depending on the timing. But our approach here in terms of the cost actions -- and as I mentioned in my prepared remarks, to take out 12% to or 14% of the census -- and again, that's consistent about -- around both production and salaried levels -- was to permanently change our cost structure for the future. So again, we won't tell you it's going to be [63], but 35 clearly would be way above that, and right now this is probably a 50% flow-through scenario on the uptick. But we will address 2010 once we put our plans together, but the message is clear, the cost side is very, very low right now.

Okay. And as we look into 2010, let's assume there's no growth -- GDP or IDEX -- so in that scenario you mention $10 million in incremental headcount or severance or -- of payroll savings in 2010, and so that's an add-back in even in a no-growth scenario. As you look at the operating initiatives and any of the raw material tailwinds, etc., what other costs should we be thinking about in 2010 as additive, just even in a no-growth environment?

Mike, it's early to be talking in such detail about what's going to happen with various raw material elements for the 2010 assumption set. But I think if you look at that net $10 million incremental on top of the pieces that Dom talked about as what's been executed essentially already this year, you could probably think about that as your model for now. I don't assume in any way that we are going to see raw material prices come screaming back, and if they do, as you know, our price versus raw material equations tends to be kind of a net null number.

So I think that you're not going to see huge inflation pressure from any other component of the business. There's not going to be a big labor rate issue that's going to face us in 2010. There's not -- as Dom said, there is not a large, fixed-cost investment that's got to come back. So if you want to think about the net '10, for now that's probably a good assumption.

And the operating initiatives in -- are you targeting an additional $10 million each year from here or is this a (multiple speakers)

Yes. Yes, we will get at least that, as we always have. So on just a kind of labor and material productivity side, we will get at least what we always do on an annual, incremental benefit. So yes, in theory you could add something, depending upon how you want to do your 2010 work, on top of that net 10 we just talked about. But there shouldn't -- at this point there certainly shouldn't be anything outside of material costs as a variable that should adversely impact 2010 from a no-cost or inputs perspective.

Matt Sommerville, Keybanc.

I just want to clarify something on slide 11. I apologize; I missed the comment. The $12 million in volume you are looking for in that $0.04, where is that coming from? Is that from the replenishment business or the order you got in Dispensing, or is that elsewhere?

Sure, Matt. Matt, remember this is a top-level slide that summarizes several weeks in our deep dive within our operating initiatives. That $12 million -- and again, this is the run rate from Q1, so that $12 million represents a long list of various programs that we are confident in relative to our Q1 run rate in terms of order actually in-house and in executables. So it's more than just any replenishment.

The seasonality that's next more reflects the Dispensing scenario in other of our businesses that typically have a Q2/Q3 scenario that's higher than Q1.

And then the $25 million is more the reach-around, whether there's a second-half recovery or not. So we tried to build the bridge from kind of in-the-bank to middle-of-the-road in terms of seasonality to lower-probability relative to our view of the second half visibility of the economy.

And then I just wanted to spend a second talking about the BAND-IT business. Can you give us a sense how much that business has sort of fallen off? And at the current run rate, when you look in a particular quarter, how much of a mix headwind you could see there? Is it 200 basis points? 300 basis points? I guess just kind of how we should be thinking about that.

We haven't broken it out. I don't think we will break it out any further, Matt. But the impact to mix looking forward certainly shouldn't be any more adverse than what you saw in the first quarter against the entire segment mix, and it should even improve, frankly.

If we look at I think some of your comments, Larry, from the last call, you had indicated that you had some contingency restructuring plans in place that you felt good -- at the time -- about IDEX's ability to kind of hold the bottom end, the 150, maybe 160 range on the guidance. Obviously you're having to go a little bit below that today, and that's not all that surprising given that the world continues to change. But I guess what has been the two or three biggest incremental headwinds relative to that prior view as you look across the four business segments?

Sales. Sales, sales, and sales. To get -- no. To get a little more serious about it, versus where we thought we were about 90 days ago, water -- within Fluid & Metering -- those projects, while certainly a good line of sight, were certainly constrained at the same time throughout the quarter, and some remain constrained. But as I said a few minutes ago, we expect some of that activity to start to free up. So within Fluid & Metering was water.

Chemical was down as an end market a bit more than we had anticipated, and the non-core HST business was down a little bit more than we had anticipated.

The good news is that we had built -- to Dom's point -- some scenario thinking earlier into our operating contingency plans, and so we knew what levers to pull. And I was -- frankly I was pretty pleased with our ability to respond quickly and pretty adeptly to get at cost. And as you can see, it set us up pretty nicely here for dealing with this pretty rough environment.

Ned Borland, Next Generation Equity Research.

Just to clarify your comments about HST and the non-core versus core, the leveling off, is that just the non-core sort of stabilizing, or is that the core business growing? I just wanted to clarify that here?

In terms of sequential -- again, it's a volatile -- daily volatile order environment, Ned, so -- and tough forecast environment, but the assumptions are around core improving a bit sequentially -- just a bit -- and the non-core rate of decline stabilizing.

And then on fire suppression, you had said that the results in fire suppression were pretty good in the quarter but you're just sort of seeing a kind of flat line into the second half. Are you not -- I take it you're not expecting any pre-buy activity from (multiple speakers)

We think there's a little bit pre-buy that's already in the numbers, and we think that will continue to drive performance. We made comments that were I think realistic given the order books are strong across a pretty broad base of the OEM truck builders, and that's a global comment. So we don't anticipate a fall-off, but when you look at the dynamics of what's going on in municipal spend otherwise, we just -- we're remaining watchful.

Scott Graham, Ladenburg.

I have several questions for you. The first one is really on FMT, and I was just wondering if the end market mix of sales, particularly the chemical obviously being down more than the others in FMT -- did that drag down your sales mix and impact the margin?

The primary drag was just volume (multiple speakers) to mix-associated impact. There's isn't a huge difference in margin relative to the end markets within -- with FMT.

Similarly, staying within FMT, the order -- organic orders rate number was down 24. And I know, Larry and Dom, Heath, that this is a number that should only be looked at over a quarter and a half type of timeline. Still, that was a -- when you consider the decline in sales in the quarter and the decline in orders in the quarter, it does suggest that things in even the energy market -- and this is kind of where I need you to help me do the math -- were kind of down double digit as well. Could you maybe put a little bit more color on the organic sales decline with the organic core orders decline, yet your comments on petroleum at 25% of sales being kind of flat?

Basically there's a couple of issues at play here. One is that Q1 was a tough comp for FMT; okay? Q1 versus Q1 '08. Two, as I said, water is -- was down a fair amount. I'm not going to start to get into quantifying end-market-based revenue performance. But we think that that's temporary and that we're going to see some sequential improvement there over the next several weeks, as I said.

And the general -- call it general industrial including the various equipment subsegments within FMT were down quite a bit in the quarter. That, we are not assuming a huge improvement in, but we see certainly a stabilizing of the year-over-year rate decline there too.

So I don't know if that answers your question, but that is essentially what gets us to that organic order rate number for the first quarter.

Again, what we do see improvement in sequentially is water. Energy, particularly our -- where we participate in energy, is fine. We've got some nice global projects that are going to drive decent performance as it looks right now throughout the year, which will offset some of that typical kind of call it daily book and ship rates that you see out of the variety of domestic markets. So most of FMT -- again, ex-chemical -- we think benefits sequentially here. We feel reasonably sound I think in our assumptions of what we've stated thus far (multiple speakers)

And you're saying, Larry, that you think even within chemical, the MRO piece is unlikely to stay as we -- as it is in the first quarter?

Well, logic would say that MRO needs to kick in to a greater degree than it has thus far. In our qualitative comments that we've made in this call, we haven't really assumed any real big pickup in MRO spend for any of the chemical markets.

Fair enough. Last question is on the restructuring. Nice bump-up in the cost savings thinking right now, and I'm just wondering, what accreted to the first quarter?

First quarter?

Yes.

Well, Dom ran through incrementally what we should see out of the restructuring activities post what we had called out 90 days ago, and that gets you to about $[15] million or so. And if you annualize that, you come back to the conversation we were just having a few minutes ago where you get another 10 on an annualized basis, just on a full-year versus partial-year impact.

(multiple speakers) Scott, you also actually see -- if you look at the SG&A by quarter, you actually see a nice year-over-year reduction in the first quarter. So a big piece of this is in SG&A, and then obviously with the volume decline, margin -- variable margin gets impacted by the hourly reductions. But it's fairly ratable. The first tranche of this is fairly ratable by quarter, as Larry mentioned.

Right. So in other words, the $20 million which it was, which included productivity -- so that would be largely equal during the year with a sole difference being a little bit of changes in sales volume each quarter. But now going forward, have you done everything you needed to do by the end of the -- at the end of the first quarter to jump it up to $35 million, or do you still need the second quarter to get there?

We do. As I mentioned in my comments, we are targeting 12% to 14% reduction overall in census, and at the end of the first quarter we were at 10%, so 2% to 4% still to go in the second quarter, maybe early third, and that will complete the 35. The 35 what I discussed as a '09 run rate -- or I'm sorry -- '09 impact is -- impacts all those timing events, so the 35 is the full-year '09 savings that we'll see. And then the 45 would be the run rate as you move into 2010.

Okay. That's clear. Got it. All right. Thanks very much.

Christopher Glynn, Oppenheimer.

Just wondering if you could go through in terms of the segments any kind of signals, data, or anecdotes you're seeing that are allowing you to gauge the destocking impact versus the end demand?

It's not large, Christopher. We basically don't expect that there is a kind of a pickup sequentially in top line as a function of inventory levels normalizing in the food chain. Inventory levels are -- they have been I think comparatively low going into this. Most companies are more productive. And so for the first quarter, has there been some of that topline fall-off associated with the destocking, not just in distribution but in the OEM inventories? Yes, but it's not a major impact, thus, we haven't included a pickup sequentially associated with a reverting back to kind of normalized sell-through kinds of levels.

Okay. And then what are the one or two areas you think you probably have the least visibility in the year?

Well, I think that it's not an issue of least visibility as much it is pegging daily volatility, and we've taken a pretty pessimistic view of the chemical end markets within FMT, as we've talked about. So is it possible that MRO could kick in positively and incrementally to the planning assumptions, the forecast assumptions that we've stated? Yes. So I would perhaps classify that as a visibility issue.

Water within FMT, as I said, we've got pretty decent line of sight. If the money starts to flow to these projects, I think we are in pretty good shape there and it shouldn't be an issue of having to guess at it much more than another couple -- well, let's call it few to several weeks.

I think that there's some changing dynamics in the world of big pharma, and we do sell through both FMT and HST to big pharma, so there will be certain players within the pharmaceutical segment who continue with their capital programs and spend to essentially impact -- positively impact our opportunity set for the year. Others may hold tight. So I think those are probably more difficult for us to guess at.

Made the comments on Fire. We think Fire looks good. Order book, backlog for our customers is decent. Great line of sight to various programs there. But again, somewhat defying municipal budget logic late in the year. So toward the very end of the year we'll just have to keep an eye on it.

I think we feel pretty good about the project activity across the board. We've done a nice job this year frankly of landing some big projects, big orders that are a little bit outside the scope of, as I said, the daily run rate kind of business that we tend to see in many of those businesses.

So I don't know that in the way that we've talked about it here today that I would call it an issue of visibility in the specific markets we serve. The only other issues that apply are obviously major macroeconomic impacts that affect overall spend throughout the food chain. But given current outlooks, I think we feel reasonably good about the way we have constructed the guidance.

That's really helpful. I will just leave it off with the energy part of FMT, sounds like another place where you feel you have pretty good, decent visibility. Is that more or less derived from the downstream orientation?

It is. And basically it's that there's a lot less demand volatility where we serve the energy markets than there is upstream. Now, the function of the price-per-barrel dynamics, we don't tend to see the feast and famine kind of equation in our energy markets the way some in the kind of adjacent space do.

Charlie Brady, BMO Capital Markets.

Thanks. First, I missed the -- on FMT, the organic order decline. Can you just repeat that again?

24%, Charlie.

Thanks. And do you have the currency impact on orders for the segments?

Charlie, it's roughly the same as the total Company of the negative 3 to negative 4. But that's -- in Larry's 24% we've [impact] (technical difficulty) the organic does not include currency.

And just looking at HST, help me understand your outlook on that. I know that you are looking for a core -- core improves sequentially and the non-core rate of decline stabilizes, but given that you had 18% organic order decline and we don't have the drag from the loss of the OEM business, what -- and particularly on the core business, what gives you the confidence in that improving sequentially? Is that things that you have in hand right now despite the order decline? Or where is that confidence kind of coming from looking into the second half of the year even more so than Q2?

Well Charlie, we don't have a huge sequential increase baked into our core business assumptions. I think my comments were modest. Call it slight -- you can use whatever adjective you want. But essentially we've got pretty good OEM commitments based on unit volume forecasts for the clinical equipment. That market is holding pretty nicely.

The analytical instrumentation markets, as I said earlier, are somewhat subject to what happens within the in-pharma segment spend. It could bounce up or down a bit. But when we look at the core portion of HST -- again, about [50]% of the segment sales -- we think sequentially it's flat to up a bit. And we are not assuming any real big recovery on a sequential basis, if we look in the back half of the year.

Okay. And then within FMT, as you look to the dealer channel for that, can you [even] sense sort of what destocking looked like through the quarter, kind of what it looks like going into April here?

Well, I think we just talked about it a few minutes ago. Basically the same comments apply for FMT specifically as they would everywhere across the Company. Not a big destocking impact that's assumed in, again, our go-forward sequential thinking because there isn't in our world, in the world of custom engineered products, a huge amount of inventory that's out there in the dealer network or the distributor network. There is some, and we think that there was some adverse impact to the first quarter, but we don't have a big pickup assumed as we go forward.

(Operator Instructions) Walt Liptak, Barrington Research.

One real quick thing. The organic orders you -- I got on the call late, [but] you've already talked about those? So I get those off the transcript?

Yes.

Yes, you'll be able (multiple speakers)

And I don't think you touched on pricing, and I guess specifically for FMT chemical, is it a more competitive market? With some raw materials coming down, are you having to reduce prices?

No. Generally speaking -- again, where we're living, custom engineered products, we tend to hold price. We're certainly not increasing price in this environment, but for us the equation tends to hold at any point in the cycle, and we don't see a lot of direct peer competition that's priced based in most of the end markets we serve within FMT, and that's said as well for chemical.

Good. Yes, that's great. And then on your commentary about water, could you talk a little bit -- I presume your water recovering [against] Pulsafeeder and some of the recent acquisitions. I wonder if you could help us understand the funding mechanisms in the stimulus and I guess the timing of the fourth-quarter pickup that you are looking for?

Well, we would hope to see a pickup before the fourth quarter -- just to be clear. We would hope to start to see some of the orders secured within the second quarter, which should materialize in both service revenue as well as product revenue in the third and headed frankly nicely into the back half of the year.

There are a very large number of projects that are already out there seeking funds. In many cases it's already municipal budget funded or assumed, but they are waiting now for matching or contribution funding from the federal government given all the stimulus spending mechanisms that are attempting to be put in play.

The actual timing of when those mechanisms play out I think is a guess for all of us. But certainly the number of projects that are seeking funding -- and frankly, many of it -- many of them already with municipal budget allocations in mind, we think will yield some IDEX-associated revenue here by the end of the second quarter.

Good. And then last, have you talked about Europe at all and anything anecdotal about your business coming out of Europe during the quarter?

We haven't talked specifically about Europe. Europe is down slightly more than North America in total, a lot of that driven by the Dispensing business. We haven't seen a real different dynamic in Europe versus North America in our other businesses. So similar in terms of overall market performance between the continents.

Mike Schneider, Robert W. Baird.

Just a follow-up. In the 8-K that was filed in April here, it mentioned that the incentive comp plan was changed, and it mentioned a phrase that there would be no bonus paid to Management if a minimum EPS target isn't met. What is that target?

Mike, we're not going to disclose the target. Clearly, it's in the realm of kind of the guidance I took you through in terms of the low and high, but that will be a matter of the proxy when things come through. But we did change the plan to -- obviously in the event that things are a lot worse than we would predict, that the MICP plan would be zero for '09.

This will conclude today's question-and-answer session. Mr. Kingsley, I will turn the conference back over to you for closing comments.

Thank you operator. Well thank you all for joining.

Clearly we have responded well year to date. I think the group has very clear priorities as we manage for the downturn. We're managing our balance sheet very well, as well. Done a great job getting at controllable cost. As Dom mentioned, we have got clear contingency plans also.

Now all that said, we are still investing for growth in some of the businesses where we think we've got a early return to growth.

Our employees have done a phenomenal job in getting at costs, and certainly we are all very proud of them. And we are very focused on supporting our customers in our channel through this downturn.

So with that, we thank you for joining us today, and we will be talking to you through the course of the early summer.

Ladies and gentlemen, this will conclude the IDEX first-quarter 2009 earnings results conference call. We do thank you for your participation. And you may disconnect at this time.