藝達思 (IEX) 2015 Q1 法說會逐字稿

Greetings and welcome to the first quarter 2015 IDEX Corporation earnings conference call.

(Operator Instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you, Mr. Yates. You may begin.

Thank you, Adam. Good morning, everyone. This is Michael Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX first quarter financial highlights. Last night we issued a press release outlining our Company's financial and operating performance for the three month period ending March 31, 2015.

The press release along with the presentation slides to be used 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 what we are seeing in the world and then he will review the first quarter financial results.

He will then walk you through the operating performance within each of our segments. Finally, we will wrap up with an outlook for second quarter and the full year 2015. 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 877-660-6853 and entering conference ID 13598710 or you simply may log on to our Company's home page for the webcast replay.

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

Thanks, Mike. Hey, good morning, everybody. I appreciate you joining us here for our first quarter conference call in 2015. As we look at the first quarter, really the conversation has been dominated by some of the bigger issues that are floating around the macro environment. Obviously the strength of the dollar, the fall in oil prices and what I call a continuing overall slow economic environment.

With those items as a backdrop, I am very proud of the quarter that we just delivered. We just delivered $0.84 in earnings with an Op margin of 20.3%. We had 2% organic order growth and we built $22 million of backlog. We had organic sales and Op margin improvement in fluid metering and in health and science we had organic order growth and really outstanding profit execution in improving operating margin. As you know, we foresaw a lot of the issues that we're all living with right now last year.

We took very aggressive cost actions in the back end of the year and certainly has prepared us for the environment that we're in and I think again, our ability to get ahead of the curve with some challenging items. We all know that we had these discrete comps that we were comparing against here this year with the dispensing in particular and the macro environment that I just mentioned. But we did see some, I'd say some decline here, in the overall environment as we moved through the second quarter. I will talk about this in more detail in the segment review.

But the combination of the agricultural market thus being slower, the increasing impact of the dollar and what we have seen some slow down in some large capital projects are going to hit us by about $0.15 compared to what we talked about here in the fourth quarter. So we have revised our guidance to $3.50 to $3.60. As always, we are very focused on controlling our own destiny. We can't control the overall macro environment.

What you will see in this quarter and what you will see for the balance of the year is outstanding execution on the profit side with a real focus on our key products and our key customers. Our core business remains very solid and we are focused on delivering for our customers with real world-class execution. So as I walk through the items here in the first quarter call, I will certainly highlight those pieces of that.

Before we get into the segment discussion, let me just talk about what we are seeing around the world and also around capital deployment. In North America, as I mentioned, the ag markets and the energy markets, as we all know, have been soft. But that said, our daily book-and-turn business remains solid and we expect it to be so throughout the year. The one thing that I do think is a little bit different than when we talked to you here a quarter ago, is that we have seen some slow down on the capital side, capital spending.

And we are keeping a pretty close eye on that. It's not widespread at this time. It's really focused around our material process business and in the energy-facing markets, but we are certainly paying attention to it. Europe remains a tough slog generally, but we did see a modest pick up here, specifically in our businesses that touch the municipal markets and we saw that in China too. But we did see a slight uptick. I certainly wouldn't call it a sustained improvement, but we did see a modest uptick.

China, as I mentioned a moment ago, the reported numbers that we all see, they really don't show themselves on the industrial side. With the exception of the municipal markets, which have improved, the China markets really remain consistent with what we have seen here for the last year or so.

With that, let me turn to capital deployment. We have talked about a very balanced capital deployment plan with four pillars to our plan that remain unchanged. The first is we are always going to fully invest in organic growth and we have continued to make meaningful investments around our core products and our core customers. I will touch on some of those as we move through the segment discussion. We do think that will continue to allow us to differentiate over time and continue to really go after the most attractive profit pools in our markets and our customers.

You saw on April 8 we increased our dividend by 14% at $0.32 a share. We are committed to being in that 30% range. We're a little bit higher than we have historically been right now, but with our outstanding cash flows and our great balance sheet, we thought that was a prudent move. In terms of share repurchases, we would expect it will be net 2%, 3% this year as we move through the year and in the first quarter we repurchased 830,000 shares at a cost of $62 million.

The final pillar to our capital deployment plan is strategic M&A. This continues to be a very important part of our overall capital deployment strategy and our business strategy. You saw yesterday that we signed the agreement to acquire Novotema. We have been talking to Novotema for over a year. As a matter of fact, we have looked at this business a couple of times over time and we finally were able to get an agreement signed.

We expect it will close in the neighborhood of 45 days, pending regulatory approval. This is an outstanding business. It fits squarely within our precision sealing platform. It marries the materials capability of PPE with some really outstanding manufacturing capability within Novotema.

And as a matter of fact, we had been in partnership with them touching a number of end markets before we agreed to acquire the business. We are going to pay EUR57 million, it's about a EUR30 million in sales, highly profitable. After the impact of typical acquisition-related costs, it will be accretive out of the gates.

Please keep in mind that our guidance for the balance of the year does not include any of the cost or the benefits of Novotema. As you look at the rest of our M&A pipeline, it really is quite strong. And I wouldn't say it is any change necessarily in the markets, but a lot of the hard work we have been doing here for a long time is coming forward. And as I talked about in the last call, we expect to spend north of $250 million this year and we remain committed to that.

With that, let's move to slide 4 and we'll talk about the overall financial performance. Orders were $524 million. That was down 2%, but it was up 2% organically and we had improvement in all three segments. We had revenue of $502 million, which is down 8%, down 4% organically and we had Op margins that were down 60 basis points at 20.3%. Obviously we have been talking for a long time about how the first quarter would shape up and the fact that it was a very difficult comp.

As you know, we had the majority of that large dispensing order fulfilled in the first quarter of last year. And so that makes certainly for very difficult sales comps, but also margin comps because as you'd imagine, that flows through at a nice profit level. Cash flow for the quarter was $43 million. That was down $14 million from last year, but it really is impacted by principally a pension payment that typically falls in the second quarter and it happened to fall in the first quarter this year. On an operational basis, very much in line with our expectations.

Finally, EPS for the quarter was $0.84. That was down 8% compared to last year.

With that, let's turn to the segment discussion. I am on slide 5, and we'll start with Fluid Metering. FMT closed the quarter at a 1% increase in organic orders and a 1% increase in organic sales, the improved Op margin by 30 basis points. Again, just really good execution across the board and the impact of the restructuring actions we took in the balance of last year.

The chemical markets, the petrochemical and the chemical markets remained consistently strong in Europe and North America. We are optimistic throughout this year. We see through our distribution and through the pipeline of business that that should remain solid for us through the balance of 2015. In particular, Viking has just done a great job. The team at Viking in terms of sales, profit execution, customer intimacy, they've really been nailing it here for quite sometime and did so again here in the first quarter.

Water services, again I mentioned the improvement in the municipal business, really globally. We are seeing that in water services, but on a discrete basis the ROVION system that we launched in our iPEK business has been a real winner for us and a great example of our investments in organic growth. They've taken nice chunks of market share. It really shows what you do when you really focus on driving great products.

Energy, our midstream business is pretty good from a book-and-turn basis. It's really the large capital stuff that's closer to the wellhead that has been down really on a global basis. And that's going to be throughout the balance of this year, not a surprise to us. And that team is certainly managing their business for that new demand pattern.

Finally, ag; I would say this is one place that did surprise us a little bit in the first quarter. We knew that the ag market was soft. We have been preparing for that, but we did see even a more rapid decline in the OEM ag business than we had expected. The overall distribution business and the industrial business remains good and I think it's important to remember that Banjo has just been a great performer for us for years.

It's a terrific business, highly profitable and they'll manage their way through what we all expected and certainly will turn at some point in here. But it will be a challenge through the balance of the year.

With that, let's go to slide 6 on Health and Science. We had 2% organic order growth in the quarter. Organic sales were flat, but really just outstanding profit execution, up 150 basis points, improvements in productivity, great job of really going after the most attractive profit pools with new products and also the benefits of the restructuring that we went after last year.

Scientific fluidics, in particular the analytical instrumentation market remains good and we expect it to be so for the balance of the year. They came into the year with a nice backlog and they go into the second quarter again in a nice position. Optics and photonics remains stable, terrific profit execution, as we have talked about in the last quarter. This business is now, from a profitability standpoint, where we expected it to be and demand remains stable.

Industrial, the book-and-turn business is good, so more industrial-facing pieces of HST remains pretty good and we expect it will be for the balance of the year. The concerning spot for us is really material process technologies. As you know, this is a longer cycle business, more exposed to capital projects and we did see a weak quarter in orders and sales. And given our visibility, we know how that will play out through the balance of the year in terms of overall sales and so we have a pretty good mark on where that will land for the year.

Let's go to our last segment, that's Diversified. I'm on slide 7. Organic orders were up 2%. As you all know, we expected substantial headwind on the sales front, which is down 16% organically. And of course that flows itself through as it impacts the margin for that large dispensing order, so Op margins were down 340 basis points, but down from a really incredible level last year. So we are still north of 25% in that business.

So we've talked a lot about the large dispensing order, don't need to go through that again. But as you look past that, you see continuing really a strong business profile there. Europe has gotten better in the dispensing business and the X-SMART product that we launched here a couple years ago continues to really be a juggernaut for us. It's been a great new product and like the ROVION, a great example of investing in core products for businesses, markets that we know well and great execution.

Fire suppression, the North America and the UK are solid, no indicators of softness there. China has been a little bit soft, but we are expecting that to pick up here as we look to the balance of the year with some of the improvement in municipal spending. Rescue, we've actually got some nice momentum that we talked about last year, really that being a soft spot for us. First time in a long time that that business had not seen the kind of robust growth that we were used to.

We have seen some momentum here in the first quarter and as we look in the pipeline, whether it's in North America because of the success of eDRAULIC or some of the turnaround in the Asian markets, we are seeing some improvement there. The concern, and this is a rarity for us, has been BAND-IT.

BAND-IT is one of our businesses that has a decent exposure to oil and gas and they have been hit by that. Their industrial business, their kind of book-and-turn business remains good, but they have been impacted. The one thing I certainly know about the BAND-IT business is they know how to perform regardless of the market and we expect them to turn that around as we move through the year.

All right, let's go to slide 8 and let's talk about guidance. As I stated before, we are revising our guidance for the year to $3.50 to $3.60. I am going to walk you through kind of the discrete pieces of this and hopefully that'll help you out here as you think about how we're considering the guidance.

The first is really the impact of the dollar. So versus where we were in the fourth quarter call to where we are now, that's about a $0.06 headwind for us through the balance of the year. And in total is about $0.21 for the full year. So obviously, from a top line standpoint we thought that the change in the dollar was going to hit us by about $85 million and now it's going to hit us somewhere in the $110 million range at current FX rates. That flows through at kind of 20%-ish plus or minus.

It is mostly translational impact, well it's all translational impact, but obviously that's a big headwind as we look through the balance of the year. Ag, just given the very high profitability of Banjo and where that's playing out, that's going to hit us by about $0.04 incrementally through the balance of the year. And as we look at these large projects, whether it's material process or some of the more energy-facing, that's about $0.05. In total, it's about $0.15 compared to where we were at the fourth quarter.

Let me go to the final slide here, slide 9, and let's reconcile the second quarter and some of the final items. In the second quarter we expect earnings of $0.88 to $0.90 and Op margin of about 21%. That compares to $0.88 last year. Tax rate, we expect to be about 29.5% with again, about a 6% top line sales headwind from FX, which is about $0.06 just in the quarter versus last year.

Here's a couple of other items for you as you think about your modeling. I would expect Op margin to be about 21% for the year. Top line, as I mentioned before, will be impacted by about $110 million versus $85 million that we talked about before and again about $0.21 of EPS pressure.

Full-year CapEx still in the $45 million range. We expect free cash flow will be at that 120% that we talked about here at the end of the year. And we should repurchase in the neighborhood of 2% to 3% net shares here for the year.

As I mentioned before and as we always close out, this doesn't take into account any of the impact of acquisitions. We will update you here on the second quarter call of all the impact of Novotema. There will be the classic step-up charges, et cetera that we'll have and we'll net out all the impact for you as this plays on. With that, Adam, I am going to stop there and let's turn it over for questions.

Thank you very much.

(Operator Instructions)

One moment while we poll for questions.

Our first question comes from the line of Matt McConnell with RBC Capital Markets. Please go ahead with your question.

Thank you. Good morning, guys.

Hey, Matt.

I am hoping you can provide a little more clarity on these large project headwinds. It sounds like midstream oil and gas is still holding in pretty well, but maybe correct me if I am wrong there.

Is the uncertainty bleeding into other industrial markets or is this specific to upstream oil and gas? Just you know maybe a better sense of what these large project headwinds are.

Sure. Yes, you are correct Matt, the midstream has held in nicely and we expect that will for the balance of the year. The real issue is really, you know the oil and gas side. Again, that's kind of in line with our expectations.

I will say that the capital freeze, and we expected it to be pretty aggressive, but the capital freeze that we are seeing in the US in particular, has been pretty significant. So that's one area.

The other area has been around you know material process. That's more general industrial facing. A pretty decent amount of that is touching in the world of foods. And so we have seen that hold up a little bit.

We have not seen what I will call broad-based capital freeze. But whenever you see some of this start to move like this, it raises the red flag. So we're paying an awful lot of attention to it. We have all of our businesses paying a lot of attention to it.

Historically, we have been able to see slow downs coming and I wouldn't necessarily say that we're there. I don't want you to get that message at all. I just want you to get the message that we have seen a couple places where it slowed down and we want to make sure that we've got our antennae up.

Okay. Great. Yes, that makes sense. Orders weren't even down in any of the segments, so it certainly stays like you are staying in front of it.

On profitability of Novotema, anything you can help us with there? I know you gave us the multiple on sales. Anything on EBITDA?

Very profitable business, you know from an EBITDA margin it's IDEX-like. It's not going to be dilutive to our margin. As a matter of fact, it's going to be accretive overall from an EBITDA perspective.

It's a very profitable business. The team there, we have known this business for a long time. They've done a great job of repositioning that business over time to be in more attractive markets. It's really a wonderful combination between PPE.

If you remember, we bought PPE back in 2010 and there are a few things that are really unique about PPE. One of them is they have some really neat capability in material sciences.

So as we were looking at Novotema, the question we had is kind of, given Novotema's strengths in certain end markets and in manufacturing capability, could we marry their great manufacturing and some of their end markets with our material science capability and have the same kind of very quick turn around for customers, whether it's new product development or operationally, could we do that? The answer to that is yes.

So we actually, before we decided to move forward with the acquisition, we actually partnered with them to see if we could do this on a commercial basis. We actually created a commercial partnership around our material science capability, their manufacturing capability, and it really was incredibly successful and convinced both parties that this was the right marriage. We're excited to have them part of the family.

Great. I appreciate that insight. Thank you.

Thank you.

Thank you. Our next question comes from the line of Scott Graham with Jefferies. Please go ahead with your question.

Hey, good morning.

Hi, Scott.

So in the interest of getting Heath to say something --

We have no problem with that here.

My hope is that maybe you guys -- and it's really my only question because I thought presentation was very clear and everything made sense. Typically you go for a certain level of productivity each year.

What do you now need incrementally to that dollar wise? Is it $10 million? Can you size that number for us to offset the sales shortfall?

Well, Scott, thanks for giving my time in the sun here.

You know, we're off to a really good start from our productivity perspective this year. I think that's reflected in the margins. You see our ability to counteract. Going into the quarter we knew we were going to have the headwind year over year from the large products within dispensing.

And our ability to more than offset that and as well as the FX pressure is reflective in the segment operating results. We're very pleased. I wouldn't say pleasantly surprised, but very pleased with their performance there.

We've talked in the past about going into any given year with roughly a $25 million headwind in terms of inflation. Certainly, the material inflation is something that we're able to hold down a little bit this year in this environment, but the wage inflation is still real, which is the 60% or so of that $25 million.

So given all that, we are on track to counteract what our normal productivity, both sourcing, savings, as well as OpEx type of savings around scrap and over time reduction and the ability to lever our fixed cost base is still well on track. Now, in terms of an incremental down tick relative to when we started the year, as you know we hit a fair amount of savings, restructured savings in the fourth quarter where we ended up taking out about $15 million or $16 million of annualized cost.

That certainly has provided some level of protection and we will consider any additional actions as necessary as we progress through the year, albeit it's going to be somewhat selective in terms of where and how we would do those things. You know, we don't want to cut too close to the bone in any one area because we are making strategic organic investments and we don't want to lose that.

Understood.

So essentially the answer is you are on track with productivity to offset your normal inflation and the incremental this year is still in the restructuring savings, but if necessary there might be a little bit of upside to that if you know sales don't necessarily come through. Is that a fair paraphrase?

You summarized it well.

All right.

This is Andy.

If you dimensionalize this all together, and I don't think we've talked about it like this necessarily. But when you look at FX, you take FX, you take the impact of the large businesses that are comps from last year, those two things together, you are talking about $35 million of profitability together you know that we're comping against plus the normal $20 million to $25 million of just inflation.

So you are talking about the neighborhood of $50 million to $60 million of profit comp that we are going to cover, right, as we go through this year. Even with the guidance that we have as we sit here today, sometimes we lose sight of the magnitude of the execution that the teams have done and it's damn good.

Appreciate it. But in continuing to answer my question, Andy, I came up with another question.

Okay.

I hope you don't mind. It just kind of hit me. You were talking about the puts and takes and as you are weaving that together, how is the pricing component of things right now?

It's actually -- it's holding up. I would say total pricing is a little softer than we saw last year, meaning we're not getting quite as much. But you are still talking about call it the 1% range that we're going to get.

We've gotten a lot of questions about are we seeing price in oil and gas? We are fortunate, given kind of where we play in the food chain, that we're not seeing that. I mean everybody gets the letter that says, hey we want a price reduction, but given our proprietary positions, whether it's technology or the switching costs, we are able to hold up prices pretty well.

Very good. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Brian Konigsberg with Vertical Research Partners. Please go ahead with your question.

Yes, thank you. Good morning.

Hey, Brian.

One of my two questions were taken, but I will go on to the question not asked.

Just on FX, can you just talk about how that may be impacting you from a competitive standpoint? Is it becoming more difficult to compete against some of the European employers, particularly maybe in HST or maybe if there is other areas in the portfolio that might have that type of dynamic going on?

So there are puts and takes relative to that competitively. We are pretty fortunate that the vast majority of what we do -- we manufacture where we compete typically.

And so you know we don't necessarily see that kind of competition. Although you certainly will see some overseas competition in kind of European competitors trying to go after say the US market where we have a strong foothold. I am just using an example. You will see some of that.

This is, again, I have kind of used the term these markets are glacial for good and for ill. The markets move really slowly. You know, I think the question that you're asking is more of if we stay in this sustained area for a few years, will we start to see it on new business that's playing through?

So much of our business is going into, you know, in after market where a like for like replacement versus kind of large contracts that are going out. So you know it would take years to play through from a competitive stand point. That's one thing. We are not seeing it today.

The other part is, remember, we've got a pretty decent footprint in other parts of the world. 50% of our business is non-US and 40% of it is actually produced outside of the US. So while we may see some things in a few years if the current currencies play themselves out, we also have the benefits of being more competitive in the businesses that we have outside of the US.

So I don't expect it's going to be a big impact that we'll see.

Great. Maybe just a follow-on on the water business. Clearly, you are doing very well gaining share, bringing new products to market.

The underlying market itself though, are you starting to see things starting to firm up? We know a number of projects have been delayed over the last couple years. Are those starting to break loose or is really your success here just a matter of market share gains?

I would say we are seeing the improvement. I would say the number of municipal bids that are going out and, in particular, the number of large dollar bids that I think people were really hesitant on in North America in particular have improved. And so you know, if you recall, we made a real conscious decision to reposition ourselves relative to the markets that we were going after in water services in the US and in the UK.

And that was the right move in terms of focus and going after the right profit pools then. I think it's going to pay dividends for us as those places start to free up a little bit more capital.

The businesses are better in the US and in Europe. We should say the UK, I should say in North America and the UK and also in China we have seen that a little bit. We have seen some level of improvement in China.

I will pass it along. Thank you.

Thank you.

Thank you. Our next question comes from the line of Allison Poliniak with Wells Fargo Advisors. Please go ahead with your question.

Hi, guys. Good morning.

Hi, Allison.

Andy, on the organic investment side, obviously your use of cash, can you talk about how you are looking at it in this uncertain environment? I know some of your markets are bigger and harder to move, but is it a share gain opportunity for you? Are you becoming more selective because of certain end markets at this point?

You have to think about organic investments at IDEX in a multi-year phase or thought process. The reason I say that is, if you think about generally any business that we have from the time of concept through, I will call it full demand, you are talking about a five year timeframe you know if you are realistic about it.

The things that we are winning on now, if you go back to 2012 when we talked about making some major choices in cutting and building in 2012, the benefits that we're seeing today were those investments then. I know sometimes for the investment community that can be unfulfilling because you don't get the rapid speed that you get, but that's also why the markets are so darn defensible.

So the investments that we're making today, in reality they're not going to show up for two, three, four, five years in full. But we know that we've got to have the patience and the discipline to play that out.

The Diversified space in general gets a lot of criticism around organic growth and I have been asked many times what's underneath that. My belief is frankly, we don't have the discipline and the patience to make the multi-year investments. You have do it, and that's what we have done.

That's great.

Last call you talked a little bit about energy and maybe potential benefit as we move to the end of 2015 into 2016 and the energy tax relief we're getting here, any thoughts to that? Updates? Changes?

It's not playing itself through yet. Except maybe the one place that we're seeing it is actually in dispensing. The reason I'd say that is demand that's going through the retailers, which is putting more money in their pockets. So if you look at the dispensing business, it really on a global basis, that's been pretty good.

So if you look at the overall business there as capital is flowing through those retailers and allows them to refurbish, it is allowing for that to flow through dispensing to some degree. It's hard to peg it exactly, Allison, but I would say that's one place you could draw a line to. How it plays through the general economy -- that was my statement at fourth-quarter call, typically, that can be a year or more before it goes through the consumer into the business community.

So I still think we are going to live with that gap where you've seen massive capital cuts in the energy world and of course now we are seeing the daily layoffs that are happening in those places. You are going to see that be the near-term impact and maybe at the end of this year, in 2016 you will see how that flows through back to the business community.

Perfect. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Joe Radigan with KeyBanc Capital Markets. Please go ahead with your question.

Thanks. Good morning, guys.

Good morning, Joe.

I guess first, what percentage of MPT is driven by project activity? And then maybe the same question for the energy piece of FMT?

For MPT, it's going to be in that you know, call it 40% range plus or minus, that has a larger capital piece to it. When I say larger capital, let's dimensionalize that. You are talking about $250,000 to sometimes you know a several million dollar project, but those are pretty rare. When we say large capital, we are not talking about $50 million projects or anything like that. But you can see it certainly in a quarter or two that are dry or robust.

You can see how that's going to play itself through really for the balance of the year. So the order softness that we saw here in the first quarter, you know that's going to play itself through as we get to the third and fourth quarter in particular.

Second quarter is actually okay in terms of what we can see in the funnel. That's a little bit more lumpy than we are used to seeing within IDEX, but that's kind of the dimensions we are talking about. We don't have the same magnitude in the energy side.

Okay. And then just to be clear, have you seen any orders that were already in backlog get canceled or is this more restricted to kind of the go-forward order rates?

It's really around go-forward. Again, generally we don't have a lot of exposure to kind of big capital stuff that's in the pipeline that we have committed and we have an order getting canceled. It's more when we see a large capital project, let's just say in energy, we have some business that may go into it that's call it in that $250,000 to $1 million range, but more of it is understanding how that pipeline is going to flow to what we call our book-and-turn business.

So you will see BAND-IT as an example. When you know a large capital project is happening, we know we are going to get a large chunk of that business. But it's not committed until kind of really late in the process.

So we don't have a lot of things sitting on our books today that are at risk of being canceled. It's more of understanding what that pipeline's going to look like here over the next 6 to 12 months.

Okay. I guess my next question actually is around BAND-IT.

You have talked about that being sort of a bell-weather for the overall economy since it touches so many end markets and it's short cycle. If you exclude the oil and gas piece of it, which is understandable, have you seen trends in that base run-rate business that either give you cause for concern or vice versa, reason for encouragement?

That's a great question because as we were looking at their order rates and as we go through our typical business reviews, we asked kind of that same question. We actually asked them to look specifically at -- we have an energy vertical within BAND-IT so we can kind of see that piece. But then we saw some weakness and we were like, wait a second, what's going on?

We asked them to dice up the country and look at it. Low and behold, all of the weakness that they found happened to be in the four states that have enormous energy exposure, so really isolated to energy. The normal general distribution book-and-turn business, transportation business is quite good.

Okay. Then maybe one more question on HST.

How should we think about the organic growth for the balance of the year? You have a relatively easy comp in the second quarter, but then you are facing plus mid-single digits in the back half. Book-to-bill is good, but orders are only up organically 2%, so how are you thinking about trajectory in HST?

I think we are going to be looking at 3% to 4% organically. Let me parse that a little because I think that's important.

I think what you'll see are meaningfully stronger numbers in scientific fluidics. I think you will see the strength there in optics and you will see the weakness that we just talked about a moment ago in MPT as it plays through the third and the fourth quarter.

As you think about kind of the core markets that we really spend a lot of time on and we put a lot of our core investment in, we think that's going to be actually pretty decent here as we move through the year.

Great. Thanks a lot, Andy.

Thank you.

Thank you. Our next question comes from the line of Mark Douglass with Longbow Research. Please go ahead with your question.

Hi. Good morning, gentlemen.

Hi, Mark.

That leads me into looking at FSD. The dispensing order comp, which you expect for 2015 -- the dispensing order comp was about $20 million in 1Q 2014, is that about right?

You are talking the sales number?

Yes, sales number.

It was more like $24 million. It was a big number.

Initially, I think some of it you thought would roll into second quarter.

If you recall, the first quarter last year we ended up having a really strong first quarter, principally because our customer asked us to pull it forward into the first quarter.

Mark, this is Heath.

Just to clarify though, what we talked about earlier in the year was about $50 million worth of big projects. That's made up of two specific dispensing orders and one in the fire suppression space. So in the first quarter it was about half of that $50 million.

Right.

In the second quarter, it's the blended of the other two. So in total, dispensing is about $35 million made up of two projects and then there is about $15 million out of the fire suppression space. So we'll still have about a $20 million to $25 million headwind in Q2.

Right. 3Q was pretty strong too.

It was, but what we have talked about within our guidance is really the Q1, Q2 impact on the headwind. We did have a good Q3 last year, but it wasn't so much tied to very specific project activity.

Okay. That is broader.

Okay. So then my question then looking at 2015, we are probably talking mid single-digit decline organically?

Yes.

Low to mid.

Low to mid, yes.

Low to mid decline.

FMT, I believe you said you were thinking low to mid single-digit growth. Are we closer to flat- to low-single digits?

You are still talking up [2% to 3%].

2% to 3%.

Yep.

Okay. That's helpful. Thank you.

Thanks.

Our next question comes from the line of Kevin Maczka from BB&T Capital Markets. Please go ahead with your question.

Thanks. Good morning.

Good morning, Kevin.

Andy, I just wanted to piggyback on the organic growth question. I appreciate your commentary on the fact that you have to take a long term view and make investments now that won't pay dividends for a few years. But can you just touch on why is that such a long cycle?

Why is it five years? Is it because in some cases you are almost inventing new markets and you have to prove to customers that they need that type of product? Or is it that you are trying to displace an entrenched competitor and maybe that's not an easy thing do.

So if you kind of break that -- let's just use five years. Five years is when you are at, I will call it full volume, so to speak. So you are talking a year or two that is going to be product development.

That's really when you are going from idea to having a product that you are able to launch into the marketplace. The industrial customers generally -- if it's just a basic revision of a product, that's a different story.

But when you are talking a new product, these customers are very cautious. So you generally have testing that's going to happen and let's just call that a year, plus or minus, that you are going to see where people are really testing the solution. Then you have the issue of just opportunity for uptake.

Let me just give you an example of that. If you take a normal process facility, and this is just kind of a way to think of it, unless it's a new facility, they generally only have wash-up somewhere between two or four weeks a year, kind of maintenance shut down. So the opportunity for really bringing a product into an existing facility, there are relatively small windows.

So you are then relying on you know some kind of refurb within a facility or you are looking at new facilities coming online. When you blend that all in, that's why that timeframe is as long as it is. Again, I said this before; while it certainly leads to some frustration around your ability to change the organic growth curb quickly, it's also the beauty of the defensibility of businesses like IDEX.

Got it. That's helpful. Then, in FSD you are calling the X-Smart product the juggernaut now.

It's been great.

I don't think there is too many individual huge needle movers within the IDEX portfolio. Can you just talk -- to the extent you can talk about anything coming that we ought to be keeping an eye out for, is there something that you are particularly excited about here for the next couple years?

That's a relatively unusual example for us. To give you a sense of it, that's going to be a $20 million product for us when it is all said and done, but it has taken three or four years. I would put e-DRAULIC into that same kind of category.

In both those cases, what you solved for was really a gap in the market. With X-Smart in particular, what you have now is you have an automatic dispenser that is really displacing an entire segment of the market that was manual dispensers.

So you got to the kind of price point that was attractive, specifically in the emerging markets, that very much wanted the quality and the capability of an automatic dispenser, but they were never going to reach that price point that the western world could where there is enormous volume and it makes sense to have that kind of product. So you really solved that.

We've got a couple at Viking that are going to be in that $10 million range, one that actually will be in that $10 million range this year and a couple that are coming through the pipeline that look that way. We've got certainly within scientific fluidics, the combination of scientific fluidics and optics, that promise of the idea of the optical fluidic engine, you have seen some promise in there, the marrying of fluidics and optics that has reached that kind of level, that $10 million to $20 million level. But for the most part, you are really talking about $5 million to $10 million chunks that we look at.

Got it. Thanks again.

Thank you.

Thank you. Our next question comes from the line of Joe Giordano with Cowen Group, Inc. Please go ahead with your question.

Hi, guys. Thanks for taking my question.

I just wanted to touch on HST a bit here. So growing mid-single digits back after last year, now flat organic. Am I right in thinking that's almost entirely from MPT? Has there been a second derivative decline in fluidics or anything like that?

No. It's all MPT related.

Okay. Quickly on muni, can you maybe parse out the environments on break and fix versus capital? I know you touched on it earlier with some of the larger products and maybe US versus Europe and those kind of splits.

The break fix business had been the stronger part. We did see a couple things break our way in the US here over the last couple quarters and we saw a couple of big new installations or new projects rather in the US. I should say North America because we had one that was meaningful in Canada.

Then the UK, you know amp cycles that you see over there, we have won some major pieces of that and that showed up in our order rates and that will be a nice piece of business for us here over the next couple years.

Great. Thanks, guys.

Thank you. Our next question is a follow up from the line of Matt McConnell at RBC Capital Markets. Please go ahead with your follow up.

Thanks, guys. I just wanted to touch on ag real quick.

Based on its size and I guess the after market content, I am surprised it even has capacity to drive a measurable change to the guidance. So are there any you know inventory adjustments in the channel or are you seeing after market slow down a lot more than you expected? I would imagine that's usually fairly steady. But just maybe size the after market content there and whether that's also participating in this weakness.

Sure. Well, first thing to keep in mind is this is a very high contribution margin business. So certainly as you look on the continuum of IDEX, this is on the far side from an overall contribution margin. And so a small top line hit is meaningful on a bottom line just because it is at the level it is and there just isn't the cost structure to rip out, so to speak, nor would you want to in a business like that that you believe long term in there.

So relative to the demand side, Matt, the OEM side is sharper than we would have expected. And I will say that in the ag distribution channel, there is a lot of inventory. There is no doubt about it. So that's going to play itself through.

In terms of the after market, meaning again kind of the break fix stuff, that's going to hold up well. Because at the end of the day, if you are running a sprayer, as an example, you've got do the maintenance on it this year. And typically what we see happen in cycles like this, is people aren't buying new equipment and so they're not retiring the old equipment or they are retiring the old equipment. What you see now is the older equipment having a little bit longer life cycle.

And so that will be better, but the amount of new product in the channels and what's happening in the OEMs in terms of their production schedules, that's pretty significant and farm profits have been hit. You guys all know the story here better than anybody, the farm profits have been hit meaningful. That's going to take at least this year to play through and we'll kind of judge the impact on next year.

Okay. Great. Thanks very much. That helps.

Thank you.

Thank you. Ladies and gentlemen, we have no further questions at this time. I would like to turn the floor back over to management for closing remarks.

Thank you, Adam.

Again, we appreciate your interest in IDEX and the ability to walk you through here, what's going on. Obviously, we are very proud of the execution that we have been able to do here in the first quarter. But we recognize the realities of the world.

So that idea of controlling your own destiny is something that we put front and center and we're absolutely going do so. We always keep in mind the long term value creation for our shareholders and our desire to be one of the superior creators of value and we're going to continue to work for you.

We appreciate your support and we will talk to you here in 90 days. Thank you. Take care.

Thank you again, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.