藝達思 (IEX) 2014 Q2 法說會逐字稿

Greetings and welcome to the IDEX Corporation second-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Michael Yates, Vice President and Chief Accounting Officer. Thank you. You may now begin.

Thank you, Jessie. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for a discussion of the IDEX second-quarter financial highlights.

Last night we issued a press release outlining our Company's financial and operating performance for the three-month period ending June 30, 2014. The press release, along with the presentation slides to be used today during today's webcast, can be accessed on our Company's website at www.idexcorp.com.

Joining me today is Andy Silvernail, our Chairman and CEO; and Heath Mitts, our Chief Financial Officer. The format for our call today is as follows: we will begin with Andy providing an update on the Corporation's strategic priorities, and then we will review the second-quarter financial results. He will then walk you through the operating performance within each of our segments. And finally, we will wrap up with an outlook for the third-quarter and full-year 2014. 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 2 hours after the call concludes by dialing the toll-free number 877-660-6853 and entering conference ID 13583593. Or you may simply log onto our Company's home page for the webcast replay.

As we began, 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 turn our call over to our Chairman and Chief Executive Officer, Andy Silvernail.

Thanks, Mike. And I appreciate everybody joining us here this morning for our second-quarter call and results. Before I get into the results, as Mike said, I'm just going to take a minute and talk about how we're doing on our strategic priorities that we have outlined here throughout this year. And we're really going to talk about three things that matter to us most. Number one is driving organic growth around our core customers and our core products; focused execution around that constituency; and also, very disciplined capital deployment.

So first, let me talk about organic growth. A really nice story here in the first half of the year. We had 7% organic order growth in the second quarter and 4% organic sales growth. And for the first half of the year, we are up about 6% year on year from an organic growth top line. And I think the teams have done a very nice job of building momentum as we look at the top-line capabilities.

There are really three things that are driving our improvement in organic growth. The first one is very deep market, customer, and product segmentation, where we are driving the most attractive growth opportunities and the most attractive profit pools.

The second is deep product-line strategy. And we are really looking here, product line by product line, at how do we drive relative competitive advantage and focus on the applications where we can develop a unique solution for a difficult customer problem.

And then, finally, it's about allocation. So smart people, capital, and operating expense allocation around those critical priorities and the most attractive opportunities. And internally and externally, we have talked a lot about the idea of making our own luck. And that is what this is about. This is about moving resources and people to the things where we think we can differentiate the most and where we can drive organic growth. The bottom line is I think the markets continue to be challenged out there in the world, and we're not going to wait for some external tailwind.

In a second I'm going to take some time and talk about some of the smart investments that I think we're making that's driving some of the results. But I think of note -- you know, we have spent $23 million of capital this year through one half of the year, where last year we spent $32 million for the whole year.

And it is driving results, and we're raising our overall growth estimate. We believe we will come in at about 5% to 6% in organic growth this year. And we're also raising our EPS estimate, and we believe we'll finish in the $3.50 to $3.55 range.

Our second priority is really executing around these core customers and core products. For me, execution is really about building a culture. And it's building a culture of trust, where you are making and keeping promises for your customers, for your shareholders, and also for your people internally. And that in and of itself is the first pillar to organic growth.

And we talk internally about earning the right to grow. And when we drive down lead times; we improve quality; we improve our overall cost position, we put ourselves in a nice competitive situation and a nice situation to continue to expand profitability.

And in the second quarter you saw operating profit flowthrough of 44%. That was up from the 39% flowthrough in the first quarter and was also a 130 basis point improvement for the year. So I think a really nice example about executing on that strategy.

And our final strategic priority is very disciplined capital deployment. And I spoke a moment ago about -- you know, the first choice of capital deployment is about driving organic growth, because the returns are outstanding; the hit rates are very good. And I just want to take a second and just talk about some examples -- of where we are making some investments last year, this year, and how they are paying off.

One of those examples is in our Viking business out in Cedar Falls, Iowa. They've done a very, very nice job of making investments in R&D capabilities for new products in adjacent markets. And we're starting to see some benefits of that now, and we think we'll see some very nice benefits in 2015 and beyond.

We have also made tooling and equipment purchases across the business, but I think two that are particularly interesting. One was for our dispensing business, where we made investments in laser automated sheet metal cutters. And while that may sound mundane, what it does is it tremendously increases efficiency for that business. It allows us to meet some of the exceptional demand that has been out there. And it also really drives down lead times, and again, it comes back to that story of execution. It allows us to do that.

In our scientific fluidics business, we have just recently expanded our 3D printing capability around rapid prototyping. And so, as you know, in this business so much of it is about getting on new programs that will launch two or three years from now. And there's a critical piece of that new product cycle where you have to turn around prototypes very, very quickly. And we have some customers, because of their exceptional growth rates, who need rapid prototyping. And we are able to take that from weeks to literally days with 3D printing capabilities.

We have also continued to make investments in our fire suppression business. One of the great success stories this year, and I'll talk about it in a minute, is our trailer business. And we have made R&D capabilities, production capabilities, and technology investments that have paid off.

And finally, we continue to invest commercially in the Middle East, in Latin America. We are expanding our commercial operations, and we're seeing benefits throughout the business.

So I think all of those investments -- they put us in a position to grow now and to grow into the future. And then we kind of get into our other capital choices. As an example, we took our dividend up in the first quarter 22% to $0.28 a share. And we will continue to pay out about 30% of our net income to dividends.

We have also continued our share repurchase plan. We should net out at about 1% this year from those efforts. And we continue to pursue M&A opportunities. It's a very active environment out there. I think as you all know, valuations remain pretty high; but we have maintained a very solid funnel. And I would say we've got five or six things that are in pretty late-stage discussions that we are having.

But it's a unique environment, because it's definitely a seller's market. And you have got to be smart about how you deploy your capital in M&A.

We did close on the Aegis acquisition here in April. And this is really around the chemical and the petrochemical industries in the Gulf of Mexico. Aegis is based in Baton Rouge, and we have already started investments to expand the business. We're going to open up a facility in Houston. And really, it's about being close to your customers for very quick turnarounds in product development and excellence in service and supply.

Let me just take a second now and talk about what we're seeing around the world, and then I'll get into the specific results for the quarter. A few observations that we have had.

North America: demand continues to be positive, especially in our short-cycle industrial businesses. And we haven't seen any indication of a slowdown in the US. And so we feel good about the second half.

China: the word we are using is uninspiring. It's been volatile here for over a year. And so it is still growing, but it's much slower than we would want. And we think the volatility is going to continue through the second half of the year. However, we need to be in that region. It's an important piece of business for us. We're going to live with the volatility, and we're going to continue to invest.

Europe is a good trend still. It continues to be positive, particularly in Western Europe and the Northern part of the region. That said, we have started to see some impact from some of the things that are going on in the Eastern part of the continent, and we're mindful of that. We don't have a lot of business in Russia or that goes into the Ukraine, but we're mindful about the business that we do have. And we're also mindful about how that could cause issues throughout the rest of the region.

So overall, I feel good about the quarter. I think the outlook is stable, with a few pockets of concern. And I think we've got really nice momentum going into the second half of the year.

All right. Let me switch gears here and talk about the second-quarter results. I'm on slide 4. As I said before, organic orders were up 7%, and we built about $5 million of backlog coming into the third quarter. Revenue was at $547 million, up 5% and up 4% organically.

Operating margins were at 20.5% and 130 basis point expansion over last year. And we saw the improvements really coming from productivity and our ability to leverage some volume. But a lot of it is just coming from complexity reduction, waste elimination, and our ability to execute for our customers.

Free cash flow -- that was down from last year, but we still delivered over 100% free cash flow conversion. A couple of things that I think are of note: number one, as I mentioned before, we have increased our overall organic investments here in the first half of the year. And there was some timing of payments in terms of tax and pension that fell in different points of last year. So, frankly, it was a pretty difficult comp here in the second quarter.

As I said before, EPS was at $0.88, up 16% from last year. And we're pretty happy with the second-quarter results and how we finished the first half of the year.

All right. Let me turn to the segment discussion. I am on slide 5, and we'll start with fluid and metering.

So the second quarter was really highlighted by 3% organic growth, order growth, contributing to a pretty healthy backlog as we look into the third quarter. The disappointment was organic sales growth. It was down 2% in the quarter -- although we knew of some pretty difficult comps coming into it, specifically in the chemical and the energy businesses, where we had some pretty large products last year. And we have had some demand volatility as you look at the second quarter of this year.

Chemical projects that are down in 2014 as some businesses get launched and they get expanded, we see picking back up in 2015. So we feel comfortable with that.

And as I did mention before -- I was talking about the Eastern part of Europe -- but as you all know, there has been some volatility here, a lot of volatility in the Middle East. And that has impacted some business that is going into Iraq. And so some of that business has been pushed, we think, into the second quarter.

So while we did have a weak second quarter in terms of sales growth, we feel very good about the second half. And let me talk about that for a second.

Number one, we've had pretty solid order growth here year over year. We know we had a difficult comparison in the second quarter. Those comparisons get easier as you move into the back half of the year for FMT. And the sales funnel is pretty solid. So as we look at the back half of the year, we feel good about delivering organic growth for the back half but also for the year as a whole.

Operating margins were down 30 basis points for the segment, but it was 100% due to the Aegis inventory write-up. So if you exclude that, margins were in great shape and then basically flat year over year.

A really nice highlight for the business is the water services story. It's an excellent story. The muni business continues to be flat there, but this team -- you know, they are taking the mantra of making your own luck to heart. And they've done a great job in terms of taking share, new products in markets that they are entering, and expanding into new geographies. So you can pick any lever, and they have just done a nice job of pulling those levers.

The Ag business -- you know, this is Banjo. We call it Ag, Banjo; they kind of go hand-in-hand. The reality is that business is about 30% industrial, and about 40% of the overall business goes into the aftermarket. That business has continued to hold up as we go to the second quarter.

We do expect some level of slowdown in the back half in 2015, but they are still doing a nice job of executing. We are very mindful of where farm incomes have gone and what some of the large customers are saying. They are built into our plans, and we feel comfortable that we will be successful in that business.

Let me turn now to slide 6, and we'll talk about health and science. We had a pretty solid second quarter, with organic order growth of 5%. We had 1% organic sales growth. And we improved margins by about 40 basis points over last year. We've had consecutive orders -- consecutive quarters of order growth, and we feel, again, just like FMT, feel real good about what the second half looks like. And we think the second half will exceed the first half in terms of growth rates.

There are really two highlights in the second quarter for HST: our industrial businesses, and then optics and photonics. And let me talk about optics and photonics first.

Very nice order rebound for that business. Life sciences, industrial, and semiconductor markets were all up. Very nice profitability expansion. The cost-out actions that we have taken are really now turning into some of the profit expansion that we expected. And the team there, again, is doing a really nice job of executing. For the balance of the year, we think the markets look good. And we continue to see a nice performance out of that team.

In our industrial businesses, it's really a story about new products and entrance into new markets. And our Micropump and Gast brands have done a very nice job on both those fronts. And I think for new products in particular, they are doing a great job of penetrating markets and taking share.

I guess one of the lowlights for the quarter -- scientific fluidics. After 18 months of really strong growth, we did see that slow here in the second quarter. There is a very strong -- there had been a very strong new product cycle and growth cycle out of that business, and I think some inventory got built up, and we're starting to see some headwinds from that.

We have poked very hard to make sure that we haven't lost share, and I'm very confident that we have not. And as I look at -- you look at the new product funnel our customer is launching, what they are launching, and where we have content per platform, we feel very good about that business.

So I think it's a short-term road bump. I do think we will have some headwinds for a quarter or two working through that, but overall, that business continues to be great business.

Finally, on our material process, as you all know, that's a little bit longer cycle. We have had really nice order growth here for about a year. And that's starting to turn into sales growth, and we will certainly see that in the back half of the year.

All right, I am on our final segment, diversified, and that is on slide 7. Outstanding performance. Orders and sales were up 17%, and dispensing and BAND-IT led the way. But also, as I will talk about in a second, rescue had a terrific order quarter.

Operating margins improved by 570 basis points. A lot of volume leverage and very, very good productivity; and also, an easy comp. We had a charge last year for facility disposal that we, of course, didn't have this year. But either way, great profit execution.

The dispensing team: they've done a very nice job of filling their backlog. As you all know, we are coming off of that very large project that we shipped in the first quarter, but they have continued to grow across the globe. North America and Europe are performing well.

And even with the turmoil in Asia, as you know, we launched that X-SMART product, and that has been a real winner for us in the emerging markets. And we think they are going to continue to take share. And they are going to have some difficult comps as we go into next year; but at the same time, they are well positioned.

I mentioned the fire suppression group and the trailers. That's really for the power industry, for the nuclear industry. And they're growing that business nicely.

But also, project orders in China -- they have done a nice job of moving resources from the Western part of the world to the Eastern part of the world, and they're starting to see some project orders in that business. And we're going to continue to invest there, by the way, and really leverage our rescue platform for that business.

Rescue: as I mentioned, they had a very strong order growth here in the third quarter. It was pretty weak last couple of quarters for sales growth for rescue. That picked up from an order perspective in the second quarter, and that will play itself through in the second half of the year.

BAND-IT: they just continue to execute and get it done. If you look across transportation, energy, or cable management, order growth has been strong. And we expect that to pay off here into the second half of the year.

So the team has done a wonderful job. Eric Ashleman, who leads that business, has really done a terrific job for us. And we're seeing nice, profitable growth from diversified.

Let's move to the Q3 and to full-year 2014 guidance. I am going to start from the top of the page. And it's on slide 8, and we will just work our way down.

We think EPS for the third quarter will be $0.83 to $0.85, and operating margin will be just about 20%. And tax rate should come in at around 30% for the quarter. For the full year, as I mentioned before, we have increased our guidance. We are now guiding $3.50 to $3.55, and we think organic sales for the year will be 5% to 6%.

Full-year operating margin should exceed 20%. And then let me just give you a few other modeling items for you to build in.

We think the tax rate is going to be 29% to 29.5% for the full year. CapEx will be up; we think it will be about $45 million to $50 million for the year. And free cash flow will still come in, we think, at 120% of net income. As always, any impact of acquisitions isn't factored into the guidance. But otherwise, let me stop here.

And Jessie, I will turn it over to you to open it up for questions.

(Operator Instructions) Allison Poliniak, Wells Fargo.

Andy, you talked a lot about the organic investments, and you're clearly gaining traction. And it sounds like even when you talked about water, you are growing well ahead of the end market there.

Is there any way -- and it might be too hard to do this -- to say your growth is -- you know, based on your initiatives, you are growing X times your end markets just globally? Is there a way to talk about that yet?

Yes, I think so. I think if you were to dissect it, I'm going to say that our end markets are probably in the 2% to 3% growth rate. We have laid out a goal of being 200 to 300 basis points above end-market growth. And I think we're there to slightly a little bit better than that this year. But some of it is really project driven. And so I want to be mindful of that.

And as we look at 2015, and if you look at some of the big things that we're going to comp against, I wouldn't bake that in. I wouldn't bake in that we are going to be 300 or 400 basis points above. I think that is harder to do. And we won't face those comps next year.

But I guess net-net, you are getting traction on those organic investments, and you're pleased with how that is progressing at this point?

I really am. I really am. I think the new products that we have been investing in -- we're not getting traction yet from that. Those cycles are longer.

And when I say -- I'm thinking back kind of 18 months, when we started really moving a bunch of cash over. That's a little bit slower, aside from X-SMART. X-SMART is a big one that has turned quickly.

And also, we've had some investments in our water business. The new products have really gained a lot of traction. It's a lot about market penetration and really overserving our core customers, where we have driven lead times down for core customers. We have improved quality and service levels. I think we will start to get more benefit of new product as we get into 2015 and beyond.

Great. And then just looking -- we're halfway through the year. Compared to where we were at the end of last year, any thoughts, surprises, changes that you've noticed as we are mid-way through?

Not really. I think if I were going to kind of bounce it off, I would say that the core global economy is a little bit better than we had modeled going into the year. I think that's true.

At the same time, I think what I will call just the volatility issues that are happening around the world -- and I will break those into three things. I will break it into China -- and I think the capital volatility in China is even higher than we expected it to be in terms of investment quarter to quarter. And I think that's going to continue to swing.

And what is happening -- we are not politicians here, and we are not economists, but we are really mindful of what has happened in the Middle East and in Eastern Europe. More than anything else, about what it can do to the economies around the world. Not so much that we have huge chunks of business, although we do have some. We had a pretty good-sized order for the Middle East that got pushed. And we don't know if it will happen this year or not, just given what is going on in Iraq, as an example.

And while we don't have a lot of business in Russia or Ukraine, there is some. And we did lose some business in Russia that we expected to get that just we -- inability to ship it at this point. And then really, kind of how it could affect the rest of the world. That is how I would even it out.

Great. Thank you.

Nathan Jones, Stifel.

A couple of questions. I think I will start on FSD. If we look at that sequentially from the first quarter to the second quarter, you had the huge dispensing order ship in the first quarter. And you're almost flat in the second quarter.

Can you talk about -- and I think that was surprisingly strong, from my point of view. Can you talk about where that came from, how unexpected it was from your end, and kind of what a sustainable level of revenue in that business is or in those businesses are?

Yes. That was a pretty special quarter, there's no doubt about it. What I mean by that is the dispensing business was marginally stronger than we thought it was going to be. But BAND-IT was really strong. And the fire business was -- the trailer business in fire -- we had a couple of customers who, frankly, came in early. We thought things were going to ship in the third quarter, and they asked for them in the second.

And that trailer business has been big for us. And we think it's going to continue to be a good business. It's going through a little bit of a boom cycle here, where you are seeing a lot of the nuclear facilities around the world putting in these redundant systems. And this is really from what happened in Fukushima back -- was it 2 1/2 years ago now? Three years ago? And that is what has happened.

I would say that it's really materially better performance at fire; incrementally better performance at dispensing; and strong core performance at BAND-IT. So it was stronger than we thought it was going to be, no doubt.

Is the strength at BAND-IT from them continuing to find new applications, or what is driving the incremental strength at BAND-IT right now?

It is that. But I'd also say there are two things that are helping a lot.

Number one is the transportation side. We got on a number of platforms a couple of years ago. And as you know, as you look at the transportation business, it's a lot like, frankly, our scientific fluidics business, where platforms are developed years ahead; they launch; and then they ramp. And what we are seeing now is you're seeing some of the launch and ramp in a number of those pieces of business that we won two, three years ago, frankly.

So that has been strong. But also the energy business -- specifically, the downhole business and cable management. Those have all been strong for us.

And one more, just back on FMT: you called out energy and chemical markets having experienced demand volatility due to large project delays. Can you talk about where you think we are in that cycle? Because you're not the only ones, obviously, talking about large project delays; and when you think you might start to see those released?

Let me break those into two very different things, because I think the issues are 100% -- 180 degrees from each other.

Chemical is really about coming off the strength of a number of very large projects, specifically in the Middle East, that are now in what I will call ramp mode. So those programs are coming up, and they're coming into production. And so you're seeing the projects there coming up. And that's really specific to our Richter business. So if you look at year over year, if you break our chemical business is mostly Viking and Richter, just from a brand perspective.

The Viking business is actually solid. It's the Richter business that is more reliant on chemical projects, specifically in the Middle East and a little bit in China. I would say, that being said, if you look at what is coming through the pipeline -- no pun intended -- and you look at the Gulf Coast, that's going to start ramping up big-time. And next year in 2015, I think that you will bottom out on the project level in the Middle East, and you will start to see some slow ramp back up coming in.

So I think you're going to see a really solid 2015 and an improving 2016, really driven by the US investment in chemical. So let me stop there. Did I answer your question on chemical?

Yes.

Okay. On the energy side, this is more -- we had a number of pretty large projects that were ready for shipment in the Middle East that have gotten pushed. And now, when you say, is it pushed? Is it going to fall into the second half of the year? And should we take up a second half?

Honestly don't know. Because we have -- these are chunks of business that we have, but it's a matter of the customer's ability to take them. And given what is going on there, I think that is the bigger issue. If you actually look at the base chemical business or the base energy business, really solid. So the book in term business, not concerned at all.

That is very helpful. Thanks very much.

Matt McConnell, Citi Research.

There certainly seems to be more happening on the M&A side, so I wonder: could you give us a sense of whether that is a function of improvements or changes in the environment, versus maybe your development of IDEX's M&A function? And really just maybe give us some sense of where you have added resources over the past year or so.

Sure. Sure. So I think -- let me talk about the environment just generally. The selling -- so if you just look at the number of books that come into our office, you see that radically swing from season to season, year to year. And it is as heavy as I have seen it in the last five or six years. So you are seeing a lot of people bringing stuff to market. And frankly, you're seeing a lot of marginal businesses being brought to market, which really talks to the strength of a sellers' market out there.

And so that has gone -- that is up very substantially. And we are -- you know, it's pretty hard for us to win an auction. Let's just be honest, right? And it's because we tend to be much more disciplined in our overall price, where we will go on price. And we tend to be pretty detailed when it comes to diligence. So we're not willing to open up to a lot of risk.

And so we tend to win auctions that are right in our sweet spot; that's because we really bring synergy to it, and we can create a lot of value. So that part of the business is way up.

Starting about 18 months ago, maybe even a little bit longer than that, we started putting more resources into our platforms. So some more M&A business development resources into the platforms. And we also amped up the expectation around our general managers and their responsibility in M&A. And that has improved our pipeline.

So if you look at what is in our pipeline right now that we're really excited about, it's stuff that's coming out of there. There are a few auctions that we are looking at today that we like and do fit the definition I walked through before, but the things that we are still going to get at sub-10 times EBITDA generally are going to be things that we will have been working on for years and are starting to get amped up because of the resources we put in place.

Great, thanks. That is very helpful.

And then just quickly, on the higher CapEx outlook: I think the trend we usually see is projects slipping out to the right. But I think you have increased your forecast a little bit.

Yes.

What is being prioritized there?

It is what I would call smart capital. And it's principally for new products and for productivity. And when I say productivity, I don't mean just cost productivity, but also bringing lead times down.

I have visited probably 30-plus sites this year, as we have traveled around looking at businesses. And we are really encouraging people -- as they are more deeply segmenting their product lines, we're really encouraging people to make smart capital investments in machining, as an example, where we know we're going to get quality benefits. We know we're going to get lead-time benefits. So the laser cutter I mentioned for dispensing is a great example of that.

Could we have managed the business without doing that? Yes, we could have done it. But it dropped lead times significantly. It took costs down, and it improves quality. So we are seeing more and more of that.

I have talked a lot about the strategic vision of this Company. And one of the things that I have said is we want to be the best specialty manufacturer of highly engineered products in the world. And to do that means you've got to have a core capability around specialty manufacturing. And that means being willing to make investments around driving that moat around the niche. And so we're doing more and more of that.

Great, sounds good. Thanks very much.

Matt Summerville, KeyBanc Capital Markets.

A couple of questions. First, on the internal investments you've been making over the last year or two, Andy, have you guys looked at what your vitality index would have looked like prior to making that incremental investment, and what it looks like now?

I am going to make myself unpopular with a lot of people in the world saying this: I really hate vitality indexes. And the reason I do is that they are almost immeasurable. And you can manipulate that measurement. I've seen it in so many companies.

And so it tends to be a self-aggrandizing measurement that never goes down. And so we don't really look at that.

What I look at is the new product pipeline business by business. And that means when you go and you sit in -- you know, you go to Aegis; and you go sit in Baton Rouge; and you look at what is on their pipeline, and what is coming out, you get a real strong sense of that. And our operators get a strong sense of that. So that is one thing we look at.

And then from a real quantifiable objective, you are going to see it in your organic growth rates. In our line of work, you can't beat the underlying markets by 200 or 300 basis points unless you are getting 100 basis points or more from new products.

And then just the magnitude of -- I'm curious; as you guys forecast your Q2 with respect to FMT and HST, how much revenue in your mind did not show up in the second quarter, either because of inventory drawdown in the case of instrumentation or because of these Mideast-related project delays?

I don't know. Heath, what do you think?

Somewhere between $5 million and $10 million.

Between $5 million and $10 million. There's some very specific things that we can point to that are ready to go that we either did not receive cash in advance, or whatever the approval was, to ship. But it's somewhere in that $5 million to $7 million, maybe up to $10 million. Depends how you want to qualify a couple of the shipments. It was a meaningful number. I would say that specifically within FMT, it would have moved us into the low single digits of organic revenue growth.

And then just lastly, Andy, you mentioned in your prepared remarks that you guys have done quite a bit of digging around in terms of market share in HST, and what is going on with your content, and things like that. I'm curious as to what you can point to that gives you the confidence that there is not a market share issue; that it is, in fact, an inventory drawdown or end-of-life programs.

Yes, so you are really talking about scientific fluidics within HST. And we -- the nice part about where we sit in the supply chain is we have a lot of visibility to what is in development. And we have a lot of visibility to what is shipping.

So as an example, we know how many units of instruments in almost any of the major lines of business have been shipped in a quarter. And we know how much content we have sold of that in the last few quarters.

And so if you think of it as kind of a two- or three-quarter cycle, we can estimate that pretty closely. And we look at the relationship between those two things. And if you saw the instrument numbers going up, and our numbers not moving to the same degree, we would know we were losing share. But we can literally track it instrument by instrument. So that is one way of doing it.

The second way is we know what programs have been in development and are in development, and we know if we win them or lose them. So from that perspective I feel real good about that.

I do think -- actually, I don't think; I know end market demand certainly did slow little bit in the second quarter. And I think the folks who are out there, who talk about this publicly, have said so also. And if I look again at our rates versus that and how much content we have, you can see -- and also the fact that we have electronic kanbans in a lot of our customers, you can see what's going on.

Great. Thanks for all that color.

Scott Graham, Jefferies.

The M&A commentary that you had at the top of the call -- you indicated, Andy, you are close to the finish line, I don't know your exact words, but on five or six situations. Is this the Aegis type of size? What segments are you maybe focused on most within that funnel?

What I would say, Scott, is that they are in the latter stages of development, meaning you've got -- you are either about to get to the letter of intent, or you are in that range. That is the stage we're at, plus or minus. And I would say all of the ones that we're looking at today are bigger than Aegis. But these are not $0.5 billion things.

So it is one of those things. We kind of look at each other, and -- you know, had our staff meeting last week, and we're walking through our acquisition funnel, and we look at each other and go, wow. All five of these or all six of these could land, or none of them could. It is the nature of what is going on out there. But that is the range.

I think we have got a shot at closing some of these this year. At the same time, I'm not going to lie; if none of them got closed this year, it wouldn't shock me.

Fair enough. The second question is about your guidance, which I know you raised in excess of what you beat at least Street expectations by. I'm just wondering, though, if we look at the guidance, and we look at the second half of the year EPS, it looks like even at the high end of your range, EPS in the third and fourth quarter looked like sub-10% EPS growth, and that would be something we haven't seen from you guys in a while.

Are you holding something back there, Andy? Is there something that you are seeing out there that is bothering you? Is it a comp issue? All of the above? None of the above? Whatever you can help, that would be my second question.

I get your logic. It's just about 10% earnings growth for the back half of the year.

We had a number of very strong discrete items in the first half of this year. If you just look at second half versus first half, we had a number of very strong discrete items. So I would say the dispensing business is a big piece of it. The trailer business and fire was very strong. And you're just not going to see those two things happen.

And also, as we look at the first part of 2015, that is a reality that we're going to comp against in the first part of 2015 because of some of those bigger things. And we may fill those holes, and we may not, just by the nature of the businesses. But that's really the biggest things as I look at for the first half, second half.

I don't know. Heath, your thoughts?

Thanks, Andy. The other piece, Scott, is that at high end of our range, and obviously, the implied Q4 numbers, just so you can back into, are somewhere between 10% and 10% and maybe creeps up to 11%.

The fourth quarter specifically -- as you recall, we had an anomaly in our tax rate last year, where we were down 25% due to some very specific discrete items that were booked and favorable to IDEX in the fourth quarter of 2013 that we do not predict will recur this year. So that in and of itself is part of the Q4 problem.

Yes, definitely. Your second-half last year tax rates were definitely lower, as well. Okay, that is great. Thanks a lot.

Charley Brady, BMO Capital Markets.

If we could just look at that corporate -- the corporate expense line for a second, I think last quarter on the call you talked about it bumped up in that first quarter, and the thinking was run that out, maybe slight discount from Q1 for the rest of the year. It's obviously well below $18 million this quarter. Was there something in this quarter that maybe got pushed out, and so it ought to take a bump up, and we make it up in Q3 or Q4?

Charley, this is Heath. There's a lot of things that run through that, acquisition-related expenses and the timing of those things. And as we have talked about on the call, in the first quarter we did accelerate some investments for some internal systems investments. Some of that came in well below budget. Some of it is a little bit of a timing issue.

But I would project that if you're modeling, that you would model a little bit higher than what we ran in the second quarter. We ran a little over $15 million. I would predict it would be somewhere in that $16.5 million range for the third and fourth quarter.

Okay, that is helpful. Thanks.

And Andy, I don't know if I missed it, but I don't think I heard you mention anything about Latin America. And I know it's not a huge piece to you guys, but anything going on down there for you?

Not a lot. It's not a big piece of business for us. I would say that the biggest stuff that we do in Latin America tends to be out of our energy business, and then rescue, and then dispensing. Those are the three places that we tend to have the most exposure.

It is a tough place to do business for most of the businesses that we are in. The two largest economies, Mexico and Brazil, have pretty unique issues themselves. Brazil is just a tough place to do business unless you are very, very local.

And we have been working that problem for a long time. But it has kind of got what I will call the First World cost structure and the Third World problems. It's a tough nut to crack and comes with more risk than we like sometimes. We still work it. Mexico is a good piece of business for us generally, but it is serviced principally out of the US.

Right. Okay, thanks. And just one more on Aegis. Is your ongoing expense related to the deal, related to the acquisition -- that is a headwind to margins going forward in the back half of this year?

And maybe you can just talk about Aegis in terms of some of their revenue in geographic end market. Is it all US? And as you look at that business -- and I know it's a pretty small business kind of tucking in -- but as you look at that, and you look at what you guys can invest in that; you talked about building something down in Texas, what kind of acceleration in growth of that business do you think you can get out of it over the next couple of years relative to where they have been prior to your ownership?

Heath, why don't you tackle the cost side, and I will tackle the selling side?

Charley, we incurred about $0.5 million or so in the second quarter related to the purchase price accounting activity with Aegis. And we've got another roughly $800,000 in the third quarter that is baked into our FMT thinking and in our overall guidance, specifically related to the assets step-ups and write-downs.

And on the growth side, we think Aegis can grow very fast. The team there has done a wonderful job of building that business. They've got terrific niche products.

It's a wonderful platform to bring our Richter product line into the US. There are highly complementary product lines going into similar industries, where we don't have as much market penetration as Aegis had. So I think it does help us, and I think you can accelerate growth there. But still, even if you are growing at 20%, you're only talking about $3 million or $4 million top-line growth.

Now, that being said, I think that business can grow at those kind of rates. That's our expectation of that business. And we have asked them to certainly accelerate some of the investments they are making.

They are a very high-touch business. And if you go see where they are located in Baton Rouge, you can throw a rock and hit their customers. And that's a big piece of what their business is about. And they service the Houston region, but they are servicing it from Baton Rouge. And so getting right in Houston, being right next to that next piece of the customer base, will help them accelerate growth.

Right, right. Great. Thanks, guys.

Paul Knight, Janney Capital Markets.

Andy, you had mentioned that you want to invest in China. Why is that? I love your color there and comment on Brazil.

You know, I think when I look at the Chinese market, it is almost comical to think of how the commentary has changed in a couple of years. And my view is one of a decade or more.

And the question is: should you be in those markets over the next 10 years? Are they going to have faster-than-global growth rates in the next 10 years or not? And I believe they are.

But the reality is, though, costs have gone up very substantially. You do have what I'll call just the overall political risk. But if I think about this -- if you are willing to live with the volatility, and you're willing to be local, that is a place where business is going to grow for us.

We don't have the same kind of risk that a lot of the -- I will call it the OEM businesses have, where the Chinese government is fundamentally investing in taking market share, because we're not at the kind of purchase points. We are very high mix; very low volume. These are very difficult things to manage. They would rather build locomotives than they would build pumps that go on locomotives.

So I feel comfortable that that will still be a business that is good for us, albeit at materially different growth rates than we had two or three years ago, when we were growing 20%, 25% a year. I think it's going to be a business that grows high single to low double digits for us.

The analytical instrument peers have indicated that bookings have approached as much as mid/upper teens in the second quarter, even though revenue was very weak to down. When would an analytical instrument cycle on orders for them translate into revenue for you?

You can see a two-ish quarter gap, depending upon how much inventory is in a channel. So if inventories are correct, meaning -- and I'm going to say inventory from them to us, so the inventory between us that's sitting in their shops -- it's usually a couple-quarter cycle. The only difference in that is a new product launch. A new product launch, you are going to see us ramp actually ahead of them.

Thank you very much.

Mark Douglass, Longbow Research.

Andy, can you talk to ag? How relevant is it to FMT? And what kind of headwind are you looking at? If you look at some of the OEM equipment guys, they are talking about -- there's potential for a double-digit decline, certainly by the end of the year. Are you seeing the same type of headwinds?

So let me cut it into two pieces. Banjo is about 4% or 5% of IDEX, plus or minus. So you can back into it from there. It's a great business for us.

We grew in the second quarter. Our expectations are that actual business is going to be modestly up in the second half, very modestly up -- and really because of what you're seeing on the industrial side. So, again, about 30% of that business is industrial, and about 40% of the total business is aftermarket. And let me break this into the pieces of why it's relevant.

If you actually look at the ag side -- I am going to call it the ag/OEM piece of the business -- that is clearly already suffering. There's no doubt about that. And we expect that to be negative in the second half of the year. And we expect probably to be negative in the early part of 2015. So that.

The industrial side was really strong: very strong double-digit growth. And I want to say it was plus-20%, Heath? Somewhere in that range. So that is really what made up for it.

We are experiencing what the industry is experiencing on the ag capital equipment piece of it; there's no doubt about it -- albeit somewhat offset by new products. So Banjo -- they are as good as we get in this Company at new product development, so you are seeing that help that a little bit.

And then, also, typically in this industry when you see the OEM side go down, you actually see the aftermarket side expand. Because people, although they are not buying new sprayers, they still have got to replace them. And so as older things get on the market, you tend to have a little bit higher replacement cycle.

Okay, that's very helpful. It is not the one-trick ag pony.

No, it is definitely not. And really, we went through our quarterly reviews here last week, week before; and as we are talking to them, we are having a very honest discussion about 2015.

And their goal is to offset any declines and still get growth in 2015. And I love the enthusiasm. That's not just a hope and a prayer. You see the new product development cycle; you see the channel development. And so they are working it.

And I also love the fact that they are not putting their head in the sand. They have seen it all year. We started talking with them in the first quarter about where this was going and be prepared for it.

Great. When you talked about transportation and BAND-IT, is that auto, truck, heavy truck, a combination of both?

It is a combination. The stronger piece of the growth that we are seeing right now is really coming through some of the Tier 1 OEMs because of business that we won several years ago, right? And by the way, we are doing -- we are really only on one piece of one major OEM.

And so we're trying to get on more platforms via those OEMs, and we're trying to get on other platforms. And as you might imagine, these are for highly critical applications within auto and truck that -- you are solving a very difficult fastening problem.

Okay, that is helpful. And then, finally, on this second-half growth expectations, I think you said last quarter you were thinking maybe 4% in the back half. It's probably closer to 5% now? Is that fair?

Yes, is that right, Heath? It was just --?

Yes, I mean, the guidance for the year is 5% to 6% for the full year, and we are at 6% at the midpoint. So the math would tell you where we need to be.

Okay, thank you.

Jim Giannakouros, Oppenheimer.

I had thought that you previously said the water muni market was thawing a bit. But today's comments were more about your teams just picking their spots more successfully, driving your results.

Can you remind us of -- or just give us your updated thoughts on what exactly you are seeing there? Is it the better budget backdrop that might be improving there for the second half and into 2015? Or you're just not seeing it yet, and it's more maintenance and smaller project type of spend?

It's definitely -- so what you are seeing is you are seeing some -- a little bit of pent-up demand on the maintenance side and on what I will call the have-tos, that you are still required federally or locally to execute on. We are see some money released there. And we have been seeing for quite a long time now the number of RFQs increasing. So there has been positive signs there for a while.

What I would say is, really specifically, if you break our water business down, and if you look at two pieces that we're seeing really nice performance on: one, which is the ADS side of it, for them the wins have come down to the strategic choice to focus on a very specific segment of the market where we think we are highly differentiated. And they have aggressively moved sales, marketing, and product development resources around this very specific segment. And I won't talk about it, just because of the competitive nature of it, any further than that. And we're seeing really nice wins out of there.

And then if you look at our iPEK brand, which is based out of Austria, it's a new product development story. So they took a series of products that were getting, I'll call them aged and expensive, and they have brought it down to a single platform that has a better cost position, a much better margin profile, and vastly superior competitive profile. And they have won a lot of nice business this year with that iPEK brand. So that has been -- that's one the best stories within IDEX.

Got it. That's helpful. And I'm sorry if I missed it, but on the organic order growth that you saw in FSD, and you cited that rescue was particularly strong. Can you rank order, I guess, the drivers of that 17% number between the other sources of strength that you cited also, dispensing and BAND-IT?

Yes. Rescue is definitely number one. That's a pretty lumpy business, so if you think about that business, you end up with a lot of book-and-term business out of small municipalities around the world. That is the base business.

And then you tend to get large orders from countries, actually. So you will see, as an example, early last year you saw some really big chunks of business in the year before coming out of China, where they won large RFQs. This quarter it was a very large order out of the Middle East. And so that was a big piece of the overall win.

The second thing -- it really comes down to BAND-IT. Very, very strong order growth. There you wouldn't put it on one thing except for the auto piece that I talked about. But they were stronger, really, across their business.

And by the way, that's a good sign. BAND-IT is one of the bellwethers that we look at for overall -- stronger in the US, but it is global too; but kind of what is happening in the underlying economies. That's a good sign there. And then I would say that dispensing was also pretty solid from an order perspective.

From a sales perspective -- actually, from the sales perspective it was fire. So fire -- these are orders that we got a quarter or two quarters ago for the trailers. And that was really the strongest piece of that. And then dispensing still had pretty strong sales growth. So we weren't comping against a big piece of business, but pretty nice business in there.

Joe Giordano, Cowen and Company.

Just a couple of questions. First, on the diversified segment, we touched on it before. Last quarter you called out the big dispensing order, and this quarter your strength in rescue, and things like that. Is this kind of like -- should we stop being surprised by whether it is strength in dispensing, or whether it is something else? Is this like a run rate that we should start thinking about for this segment?

It is a little high. And these are -- again, these are pretty discrete things. You can put your finger on something discrete. And in the last two or three quarters, even the last four quarters, we've had a number of these things. But also, it can go the other way on you. So I think it has been abnormally strong, but this is the one part of our business that is more lumpy. That's just the reality.

Yes.

We don't have a lot of lumpiness, and we've had a lot of things go our way here for the last year.

And maybe on Aegis, I know you get a little more visibility now into those Gulf chemical projects as a result. Just curious -- I'm guessing most of the offerings there are more somewhat on the shorter cycle, but what are you seeing in terms of some of the longer-cycle products going into those facilities, even if it's not stuff that you are specifically on, but as a leading indicator to how it would be for how the projects are moving in general, and as it was leading for you guys?

For there, where we would look is we look in three places. We would look at the Viking business. We would look at the new programs that are coming through Aegis, and therefore kind of what we are seeing at Richter, too.

So we've got a pretty good view on where demand is going to go. And it's going to be strong. I think you're going to see a pretty strong cycle here for the foreseeable future, probably kicking in mostly as we get into next year.

Okay. I appreciate it, guys. Thanks a lot.

Our final question of the day is coming from the line of Walter Liptak, Global Hunter Securities.

I made the cut! There is a question that you kind of got close to answering that I wanted to ask about: just the revenue growth. You mentioned the organic is 6% year to date; your orders were up 7%; and then the organic guide is 5% to 6%. Can you just address that?

Well, we've got to break it into a couple of pieces. Sales were up 6% year to date; orders were up 7% in the quarter. So you've got to break that into -- you have got to make sure we put those in the right buckets. And we think that the back half of the year looks pretty similar to the first half in terms of overall sales growth, in that 5% to 6%.

Okay. It implies a little bit of deceleration. Is that on a tough comp, or is it because of FMT?

Well, part of it, Walt, is that, of course, you are aware that in Q1 we had the largest dispensing order that had a significant impact on the Q1 numbers -- that, obviously, that big order does not recur in the second half.

Yes, we did what -- 9% organic sales growth -- 8% organic sales growth in the first quarter; 4% in the second gets us to 6%.

Yes.

And we think that kind of levels itself out here in the back half.

Okay, got it. And on the FMT part of the business, I'm wondering a little bit about how you get -- how does it get communicated to IDEX when projects push to the right? Is it through distributors? Or is it through E&Cs and these chemical and energy projects that have just pushed a little bit?

It gets broken into a couple of buckets. One is somebody is delaying the actual receipt, and that's going to be -- it depends who the builder is. So if it is E&Cs doing it, terrific. If it is being done by -- if it is more of a book-and-term piece of business, but a large piece, it make come directly from a distributor or a customer.

The other side is people who -- we have a meaningful amount of cash in advance. And if we don't get it, we don't ship it. And that's just the nature of it. So we saw a little bit of both in the second quarter.

Okay. I guess the question is: what is your visibility on the pickup or the turn as these projects start getting released? I'm hearing you say 2015.

It is pretty good. We know what is being built, generally. We know what the build schedules are, and we generally know where we fall into that build schedule. And you can't -- sometimes you can't even pick the month. Generally you can pick the quarter when you think it is going to happen. And when there are delays, you tend to see that pretty quickly.

We are far enough down in the chain that we're not the first person notified, but we're also not the first person going in. We tend to get visibility relatively early.

When we are quote/unquote surprised, it's where something was scheduled to ship late in the quarter, and you find out in week two, week three that somebody, as an example, isn't going to pay you. They are not going to pay in this quarter. That is where we get quote/unquote surprised.

And that doesn't happen very often. But in those businesses where you do have some relatively large programs, and we're talking about programs that are $1 million to $5 million; we're not talking about programs that are $10 million or $20 million. So take it for the size that it is worth. It's pretty unusual, but it does happen.

Okay, got it. Okay, thanks for the color.

Thank you. Ladies and gentlemen, we have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for any additional concluding comments.

Jessie, thank you very much. Thank you, everybody, for joining us on the call today. Obviously, we are happy with our results; and we feel very, very good about how we are positioned.

And mostly, I am thrilled for the team. They have done a great job. The leaders at IDEX, all the people within IDEX have done a very, very nice job of, again, making our own luck and performing -- performing for our customers and performing for our owners, but also really performing for their teammates. And I think it's a nice testament to the culture.

So thank you all very much, and we will talk to you soon. Take care.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation, and you may disconnect your lines at this time.