藝達思 (IEX) 2015 Q2 法說會逐字稿

Greetings and welcome to the second quarter 2015 IDEX Corporation earnings conference call. At this time all parliaments are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Michael Yates, Vice President and Chief Accounting Officer. Thank you, Mr. Yates, you may now begin.

Great. Thank you, Shay. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX second quarter financial highlights. Last night we issued a press release issuing our company's financial and operating performance for the three-month period ending June 30, 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 the Andy providing an overview of the second quarter financial results and then he will provide an update on what we're seeing in the world and discuss our capital deployment. We will then walk you through our operating performance within each of our segments and finally we will wrap up with an outlook for the third quarter and full year 2015. Following our prepared remarks, we'll then open the call form you were 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 the conference ID number 13598713, or you may simply log on to our company's home page for the webcast replay.

Before we begin, just 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'll turn the call over to our Chairman and CEO, Andy Silvernail.

Thanks, Mike. Good morning everybody and I appreciate you being here to discuss our second quarter call. As we sit and look at the global economy and really the end markets, that's the story for 2015. It has been the story and it will be the story for the balance of the year.

When we closed the first quarter, we talked an awful lot about what was going on with the strength of the dollar, the decline in oil and gas, and some challenging overall conditions. And in the second quarter, that certainly continued. Ag has weighed on our overall results a long with oil and gas and in the early part of the second quarter we saw some slowing in the North American industrial side, specifically in distribution. But on the other hand, we had pretty strong results coming out of scientific fluidics and our sealing business within health and science.

So the markets in the regions are what I would call a mixed bag right now but our teams are executing very well. We had really nice performance in operating margins, EPS, and cash flow. And additionally we closed three acquisitions in the last 60 days and retired some European debt that had matured in June.

So for the second quarter we had EPS of $0.89, and that was $0.01 over last year. Cash flow was strong at $86 million or 124% of net income. Operating margin was an impressive 21.3%, up 80 basis points from last year. Organic sales and operating margins in HST were up 4% and 280 basis points respectively -- very, very nice job by the teams. We also had 170 basis point increase in fire safety diversified in the out margin and we acquisitions of Novotema, Alfa Volvole, and CiDRA for just about $200 million. And finally as I mentioned, we did retire EUR81 million of European private placement debt that had matured in June. So the way I would sum it is up a tough overall market, with really outstanding execution by our teams in controlling our own destiny.

As we look at the rest of this year as the second half of 2015, I think we're going to go see more of the same. With that, we have made a decision to continue to simplify our operating structure and we are going to do some restructure hearing in the back half of the year. We'll spend somewhere around $8 million or so and that payback will generally be less than a year so we should have nice benefit nor that as we exit this year and enter into 2016.

And I would say we have had a little bit of momentum here, positive moment scum in the back part of June and the early part of July. The industrial businesses that had slowed down, we did see a tick up in the back half of June, in the first couple weeks of July. So overall, I'm confident that we can deliver in the back half for our customers and certainly for you, our shareholders. We're going to hold our EPS guidance at $3.50 to $3.60 for the year and in just a few minutes I'll take some time and talk about the results and or expectations for the year.

But I did want to take a moment and talk about the appointment of Eric Ashleman as Chief Operating Officer, the announcement that we had last week. I think that this is an important inflection point for IDEX. For the past four years we've invested very heavily in what I would call the foundational elements of the company. The vision, strategy, our capital deployment philosophy, culture, teams and importantly the IDEX operating model, and this was absolutely the right thing to do and the right time do it and we've driven outstanding performance for our shareholders. We've built our internal capabilities and we've really put the foundation in place for accelerated growth. And I think that that foundation is very sturdy and we're preparing ourself for a new phase of growth.

Eric and have I worked together closely since when I joined the business here in January of 2009. He's proven to be really an outstanding executive. He's delivered great performance. He's built strong teams and he's led virtually all of our organic initiatives including our efforts around diversity and inclusion. And he'll do a great job continuing to strengthen the foundation of IDEX and driving overall performance company IDEX.

Importantly, Eric's promotion allows me to invest more time until the key areas of growth for the company -- whether it's globalization, larger organic investments or acquisitions, I'm going to have more time. And historically these elements have been a very important component to the IDEX success story. We've been a public company now for 27 years and in those 27 years, we have and had compound top line growth of over 11% per year. That's a pretty high bar that's been set by my predecessors and if we're going to achieve that kind of performance, if we're going to step up to those kind of expectations, I need to put more time in the faster pieces of growth for the business and this organizational change will really give me the capacity to do that. I'm excited to work with Eric as a partner on the operating side of the business and really prepare ourselves for the next phase of growth and I want to congratulate Eric once again for his appointment.

With that, let me have pivot over and talk about what we're seeing around the world. So in North America, as we talked about before, energy and ag, they continue to be pretty challenging and I don't expect any change in 2015. The distribution businesses had slowed in the first part of the quarter. The book and term but been relatively soft. We did as I mentioned before see an uptick in the back half of June and into July in North America.

In Europe, Europe's been a good story for us or at least on a relative basis compared to our expectations coming into the year. The business has been stronger than we anticipated, particularly in water, rescue, and dispensing. And we have actually seen some upside in some larger project business on the energy side in Western Europe in particular and a little bit in the Middle East. This is a offset by the weakness that we're seeing in Eastern Europe and in Russia with the turmoil that region.

China continues to be soft. If I look at the broader Asia-Pacific area, that's actually been decent for us but China in particular continues to be a little bit of a challenge, and although we have seen a little bit of a pickup on the municipal side of the business in China, we remain cautious just with everything that's going on in that region.

Let me take a few minutes now and talk about capital deployment. I thinks that great story here in 2015 and obviously it's going to be a big piece of our story going forward. So we have laid out four strategies for capital deployment that we've talked about over and over again and those are fully funding organic growth, paying a consistent dividend, smart share repurchases, and strategic M&A. And I'll touch on ease of those for just a moment.

On the organic growth side, even though markets in the global economy are a challenge for us we're going to continue to invest, and we're going to invest $45 million in capital spending that continues to be at record levels for us. We're going to invest in people. We're going to invest in channels. We're going to invest in technologies and up in products and we have consistently done that and I know it will pay dividends for us. It has consistently in the past and I'm certain it will as we move forward.

In the second quarter we also had a $0.32 per share dividend. We repurchased 661,000 shares for about $51 million and we believe will have an about a 2% net reduction in our share base for the year.

On the M&A side over the last 60 days we put $200 million to work in three different acquisitions and they fit into three different businesses within IDEX which makes integration substantially more simple. We had Novotema that we talked about last quarter that will be part of our sealing group. Alfa Volvole is a manufacturer of specialty valves that will fit right into FMT nicely. And then CiDRA Precision Services, they design and provide microfluidic components, which is an important strategic piece of the puzzle for our scientific fluidics business and they're going to be a wonderful business. And really all three businesses, we're thrilled to have them as part of IDEX and welcome them into really a great company. If you look at our funnel as we look forward, our funnel continues to be solid and for our M&A for the back half of this year and as we look into 2016 and certainly our goal of continuing to intelligently deploy our capital and acquisitions that fit our strategy is very much intact.

All right. With that, let's go over to the results. I'm on slide four. So orders for the quarter were $505 million that was down 8% in total, down 4% organically and we had revenues of $515 million, which are down 6%, down 2% organically. And I would say there that's a very, very typical second quarter for us so that book-to-bill of a 0.98 so it speak, that's a pretty normal flow of business for us so certainly not a concern that we brought down $10 million of backlog. That's very typical.

As I mentioned before, operating margin, very strong at 21.3%, up 80 basis points. And as I think about sales and orders, it's pretty much what we expected, a little bit weaker in energy and ag and in the US a little stronger in Europe. So net-net, we are performing where we thought we would with a little bit better operating performance or execution performances at the bottom line. Free cash flow, as I mentioned, was $86 million. We converted at 124% of net income and EPS was $0.89, up $0.01 from last year.

Okay. Let's move on to the segment execution. I'm on slide five, and we'll start with fluid and metering. So as FMT closed out the quarter, they had a 3% decrease in organic orders, 2% down in organic sales. And market conditions are what I talked about from the most part there, really unchanged from last quarter.

The industrial side as I mentioned before we saw some slippage in the early part of the quarter. Some pickup here in the latter part into July, mostly around distribution and what we think we saw early in the quarter with some destocking. Not a huge number, but the flow of orders certainly was a little atypical early in the quarter and we saw it catch up here. And we did of course add Alfa Volvole into our severe duty valve products and that's a nice combination with Richter and with Aegis as part of that overall portfolio.

Water services has been a very good story here this year. Demand in the US and UK has been solid with municipal spending up. And we've also seen a really nice -- some nice winds from new products in that area and excellent execution so we have confidence in a nice second half there.

Energy we've talked about this with the slow-down. We have seen some slow-down in our mobile area which is around trucks, which is in the midstream, that did slow down a little bit in the second quarter. That was offset with strength in transportation. And we saw some surprising strength in western Europe in the Middle East in energy. But certainly as we look across the world, we still see that as a challenge here for the balance of the year.

And ag, we've talked about. Farm incomes are down substantially. We know that the inventory looks like in the channels and so we know we're going to continue to have some challenges here in the back half of the year and into the first part of 2016. But that's just a great business that we're going to continue to invest in and has been and will continue to be a winner for us long term.

Let's turn to slide six here and go on to health and science. Organic orders were down 4% where organic sales were up 4%. And we had as I mentioned before, just really outstanding margin performance, up 280 basis points. Very, very good mix and an even better productivity gains in those businesses. If you look at scientific fluidics, it's really a firing on all cylinders. Analytical instrumentation, the bio world, and in vitro diagnostics, all of them have had good demand for the second quarter in a row. The teams have done a terrific job with execution and up in new product development, so we see tail winds in the back half of the year and of course the addition of CiDRA into that business and building a microfluidics vertical for them is going to be an important part to the overall strategy.

If you look at sealing, sealing was strong also in the US and Europe, driven really by performance in the semiconductor market. It was offset a little bit by oil and gas and heavy equipment, but net-net had a strong second quarter, and of course we closed the Novotema acquisition, which is a terrific combination with our PPE business out of UK.

Optics and photonics remained stable in the quarter. End markets are holding steady with strength in life sciences and the profitability improvement there has been impressive and really has come to the point where it's terrific profit producer for the company. HST Industrial so as you know we have some businesses in this segment that are industrial-facing. Those had dynamics that looked more like FMT saw weakness early in the quarter, improvement towards the end of the quarter. And I think just overall great profit performance in those businesses, great use of capital and it's really about the back half of the year and try to grow those business at a faster rate than the overall economy.

And then finally, material process technologies. As you know, that's little bit more lumpy for us. We had a good quarter, had good organic sales performance but we can see the pipeline of orders and so we know that the second half is going to be a little bit more challenge for us. But they'll continue to execute well. All right.

I'm on our last segment, diversified. I'm on slide seven. Organic orders were down 7%, organic sales were down 11%. We had the last and large projects from last year so as we move into the latter half the year, the comps become a little bit more normalized but certainly the second quarter we had that with both trailers and the large dispensing orders that we had in 2014. Impressively, margins even with that kind of top line performance, margins were up 170 basis points from really outstanding productivity gains and favorable product mix. As you know, of our segments, diversified is the one that can have the most product mix whether it's in business or across businesses within a segment and we certainly saw this in the second quarter.

Dispensing is growing in all geographies. They had a tough sales comps if you back out the large projects, which make for tough comps. On the base business they continue to grow across the board. Western Europe has been solid for us. Eastern Europe softer, again due to the issues of instability in the region. But we saw Asia, very strong. [X-Mark] continues to be a strong product release for us. And the US continues to be solid.

In fire, the North American and UK pump business, I really have no indications of softness. We've seen strength in the first half of the year and expect it to be good in the second half. Now we do have, if you remember last year, we had a strong business this trailers, nuclear trailers going into the nuclear industry last year. We are annualizing that. That bubble so to speak has moved through. It's still a nice business for us about but it's going to be a little bit smaller chunk of the business going forward as we expected it to be.

Rescue, like dispensing, we have a seen nice momentum in Western Europe and but we have seen weakness in China and real strength until the US. Our eDRAULIC products have been very strong in the US in particular and so we continue to ride that strong new product.

And finally Band-It, Band-It has consistently been a great company for IDEX. They have been hit by the impact of oil and gas but they have real strength in transportation. It's kind of a mixed bag at Band-It but again, like ag, a business that's been a real work horse for us and will it been tonight as we go forward.

All right, with that I'm on our last slide, slide eight and let me give you some color here on what we think is going to happen in the third quarter and some guidance for the balance of the year. In Q3, EPS we expect to be $0.88 to $0.90. Operating margin of just around 21%. We at this point our tax rate will be 29% to 29.5%. And we're going to have an about 5% headwind in FX for the third quarter. And that's about 5% of EPS in the third quarter versus -- excise me, $0.05 of EPS for a headwind versus last year.

We are again reiterating our guidance for the full year. We're going to held it at $3.50 to $3.60. We expect organic revenue to be flat. That's modestly down from our last expectation, and we think that overall operating margin will be just about 21%.

Here are a few other items for you for the full year. Total top line impact from FX will be about $95 million. That compares to $110 million that we talked about last quarter, and all up that's about a $0.20 headwind to EPS for the full year. Full year CapEx as I mentioned earlier be there about $45 million. Free cash flow should be 128% of net income and we think share repurchases will be just net 2% of our share base for the year -- so we'll reduce by 2% for the year. Finally as always, our earnings and our guidance do not include the future at potential acquisitions of the cost associated with acquisitions or the costs of the restructuring that I mentioned earlier.

With that, operator, I'm going to stop here and open it up to questions.

Thank you. (Operator Instructions). Our first question comes from the Nathan Jones from Stifel.

Morning, everyone.

Morning, Nathan.

I would just like to start with trying to get a better handle on those margins in FSD. You know, I remember last year as the dispensing order was going through, we were talking about hey, don't expect these kind of margins. This is 25% margin business. You talk about mix in there but I would have thought that the mix might have actually been negative give Band-It is probably the highest margin business in there, there might be a bit of a challenge -- yet we're throwing up 28% margins in that segment. If you could just help me understand how we're getting a 28% margins? Have we reset the expectation here or is this more of a one-off?

I think this has been -- this was an extraordinary quarter from a profitability standpoint and the mix certainly did help us substantially. So you've got a few things that are happening here around mix. So the trailer business from last year which was a big chunk of revenue was at a relatively low margin on a comparative basis. And so that not being part of it, Nathan, is certainly a piece of the story there. You've got you've got fire that's in there that really, that's a business. You go back in time, right? You go back in time and that was a business that was a low teens op margin business and it's now kind of a low 20s, mid 20s op margin business. So from that perspective, you have had a little bit of a reset there.

And even within businesses, so if you go within Band-It as an example, the products that were softer within Band-It for the quarter were the lower margin products and the products that were stronger were higher margin. Same story within rescue. So it was both across businesses and within businesses that we had a pretty unusual product mix in the quarter. So while I do think there's a modest reset meaning higher overall margins for FSD, this really was a pretty unusual mixed quarter. So if we're looking at a 26% or so next quarter so it wouldn't surprise me, but I don't think -- I don't think we're going to be at this level. That would be too ambitious.

okay. So how much of the mix do you think is just I guess luck kind of stuff versus the markets that we might be entrenched in for a longer period of time, like Band-It selling into oil and gas is lower margin so you would expect that kind of mix to continue and stuff like that?

Again, we don't -- mix typically is not a big piece of the overall IDEX story but I do think that what we experienced here in the quarter was pretty unusual within dispensing. So -- excuse me, within diversified. So it's going to move around, Nathan. It's going to move around more than the rest of the company. Again I would not take this as the new bar for diversified.

fair enough. And then if we could just go back to the North American industrial in particular the stuff through distribution, I think a lot of companies are talking about fairly significant destocking that they saw in the second quarter. It sounds like you saw some but maybe it was a little bit. You talked about the second half of June getting better into July, getting better. Did we dip down and come back to waiting room we were before where or did we dip down and come halfway back or dip down and go above where we were before? Just a little color for the end market demand if we could ex out destocking.

so what I would say is what we saw, we definitely saw a slow-down in April, right, so we saw a slow-down in April. May was a sharp drop. And I'm really talking about FMT. It was a pretty sharp drop coming out of distribution. And then June as a total snapped back above the April level. So I'm talking about orders here. It snapped back above the April levels, really driven by the last two or three weeks of that month. And then July has evened off to be consistent with where we thought it would be. So what I would say is the level that we are running it now is more consistent with our total outlook, where May was where we saw significant destocking happen. And I'd say we're back at run rates now.

Okay, that's helpful. Thanks a lot.

Sure.

Thank you, our next question comes from Joe Radigan from KeyBanc.

Hi. Good morning, guys. Andy, on the slowdown on the industrial North America, maybe outside of the distribution business, have you seen anything that would suggest maybe more broad base than some of the businesses that have second derivative energy or close energy exposure?

Yes, to some degree. So if you remember from the first quarter, we called out that we had seen CapEx generally come down versus our expectations. But what had happened in the first quarter we saw the larger stuff that we don't do a lot of but we do some of it had -- we certainly saw a slow-down but the book and term business had held up really nicely. The difference in the second quarter was that we really saw that book and term business slow down in April and May. That was the difference in comeback.

I do think that overall the industrial America is weaker today than it certainly was six, nine, 12 months ago and I'm real really talking about from an overall growth perspective. And I think certainly the oil and gas, the reverberations from oil and gas that is touching other industries how CapEx touches other industries -- the thing that hasn't happened yet and if you remember we talked about this at the year-end call and we also talked about it in the first quarter call, it can take easily a year for the spending that gets driven into other parts of the economy to feed it back through. So we knew there would be a lull. We knew there would be a lull and if you expect depending on what your view is on whether or not overall spending is going to make its way back into the industrial economy is kind of how you would think about growth, I think starting in 2016. So I think the levels that we're at now, we should expect through the back end of the year. I don't see a stimulant in particular on the upside. And so I think we're running and we're managing the business based on the kind of demand patterns we're seeing right now.

okay. And then on the third quarter guidance, what sort organic growth do you expect, I don't think you gave that. If you did, I apologize. I mean you have a tough comp there. I think it was +8 a year ago. So do you expect another organic decline in the third quarter and then a rebound in the fourth quarter to get you flat for the year, or how do you see that trajectory playing out?

Hey, Joe, this is Heath. We did not guide it but we would expect it to come in kind of flattish organic.

Okay. Thanks, Heath. And then maybe lastly, naming Eric COO, does that change at all your willingness or your ability to look at maybe a larger acquisition or maybe your comfort level about doing a more complex integration or more of a fixer-upper than what IDEX typically has or that just to free you up to do more strategic-type things?

I don't think philosophically it changes our approach to M&A. We've always looked at a combination of bigger and smaller things but something big has just got to just make -- it's got to be a slam-dunk from a strategic and a financial perspective to risk the quality of a business that we have today. And so we've always looked at those things but almost always with a pretty skeptical eye generally. So I don't think it philosophically changes our approach to M&A.

It does liberate me personally from a time perspective. Eric and I, we've been working together since day one when I joined the company. We've got a great rhythm together. He's a terrific operator. And it absolutely gives me more capacity from an M&A perspective. And when we contemplated doing this kind of in line with our annual strategic planning process, it was all about our confidence level in the quality of our business today and the foundation that we have and the fact that we think we're ready to accelerate growth.

Okay great. Thanks, Andy. Thanks, Heath.

Take care, Joe.

Thank you. Our next question comes from Brian Konigsberg from Vertical Research Partners.

Yes, hi. Good morning.

Hi, good morning.

Maybe just hitting a little bit more on FMT and the commentary around energy. In North America, you saw a little bit of that weakness start creeping in but you're still seeing solid Europe and Middle East. Maybe you comment on what type of projects are those and your confidence that those could remain on track and within the funnel.

So to the surprise for us was really around some larger skid projects that we've in the Middle East coming out of some businesses that we have in a combination of Germany and Italy. And so don't get me wrong. They have not been huge projects but there has been a dearth of projects in that region here for gosh, I'm going to say 18 months now. So seeing that pick back up -- and the team had expected that to pick back up in the back part of this year.

So I don't want to overplay that. I don't think it's some giant rebound but it was good news generally, so we feel pretty good about that. On the US side, the thing that was softer is the truck builds from a mobile perspective have been pretty strong and we have definitely benefited from that in the midstream. And we expect that to get softer or certainly, as you go into 2016, all indicators are that the truck build is probably going to be negative that year. So that piece of the business will get hit negatively. We expect that to happen. However, on the aerospace side of it, or the aviation side of it, rather, we expect that to be pretty strong.

Maybe just comment a little bit on pricing, maybe both in the energy and I guess more broadly you traditionally have been able to maintain a fairly positive spread. Is there any changes to that outlook or are you able to maintain the position you've had recently?

This is Heath. Our position going into the year has held true to this point which is about on a gross basis about positive one point of price. We don't break that down by individual platforms within the business, externally anyway. But we've been pleased with our progress on price in terms of holding that to this point of the year and we would expect to hold it through the remainder of the year.

I'm sorry, go ahead. Andrew?

Relative to specifically into energy and are we seeing price pressures -- like everybody we've gotten the letters that say we would love to see you reduce your prices. The beauty of the typical positioning that we have in terms of it being very, very high cost of failure critical componentry is we really don't typically end up having to give that price up and we haven't yet had to do that that we've seen.

Got it. And that one point much price, Heath, is that net of the inflation, or is that just gross?

It's just gross but given where inflationary pressures are this year being lower than maybe historical norms, certainly the spread between what we see as inflation and what our gross price is has remained consistent with what we've seen in prior years.

If I could sneak one more in -- just on M&A, Andrew, maybe just touch on with going forward and the properties that you see on the market, do you anticipate you will be sticking to the size range that we've seen most recently and kind of this work between $50 million and a couple hundred million dollars? Do you see any opportunity to go maybe a bit larger and maybe add on to that which parts of the business you're seeing the most opportunities?

So, our sweet spot definitely in this $50 million to $200 million range -- $50 million is big enough to have competitive relative scale and that's important to us. So that $50 million to $200 million is definitely our sweet spot.

That said, like I mentioned a few moments ago, we are always looking at some bigger things and we certainly have the capacity do it. We have the balance sheet and cash flow to accelerate M&A. Our funnel is good. Most of what's in our funnel tends to look like the things we have just done generally. There are a few things that are meaningfully bigger but as I said earlier, we tend to go at things of that are big with a very skeptical eye. And so we'll continue to do that, and you should expect to see us continue to have the same discipline that we have had consistently.

In terms of where we're seeing them, it's a mix. It's a mix between really across our different businesses and I really -- I like what our funnel looks like generally. And I like the fact that it's pretty diverse.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from Allison Poliniak-Cusic from Wells Fargo.

Thanks, guys, good morning.

Hi, Allison.

Just going back to energy for a second, obviously a lot of moving parts there. But are you getting a sense or at least some of this ability towards where the very bottom could be not that it's going to bet better but sort of a comfort level of volumes going forward?

Yes, I actually think we're pretty close to that right now. We do our quarterly operating reviews here usually within a couple weeks of the call and what I would say that as the team feels pretty good that as we go into the third and fourth quarter that we're seeing a bottoming of that generally. And which is good. Now that being said, what we're saying is manage really tight there just because you know how quickly things can move in that industry in terms of overall activity. So we're being cautious but it does feel like we're closer to a bottom than certainly I am would have said 90 days ago.

That's great. And then just going back to acquisitions. One, any change in sort of the global macro uncertainty and maybe there's not in terms of potential opportunities here? And second, just the thoughts behind managerial capacity. Would you be averse to doing another one in scientific fluidics just because you did one recently?

No, actually one of the changes, one of the really good things that comes out of this organizational change that we announced is that not only does it kind of free up more capacity on what I will call the cultivation and the -- call it the deal side of acquisitions, right? It also frees up quite a bit of capacity on the integration side. So I feel really good about if I look at the team that's underneath Eric so to speak, their ability to build across that across that organizational structure. That was a big piece of how we thought about this change is -- can we integrate meaningfully?

One of the nice parts about the structure of business as you know, Allison, just because you know the structure better than most is that it allows us to do multiple acquisitions without taxing any one leadership team too much. So all three of the deals that have been done have been different parts of the business and certainly it wouldn't make us nervous to do another deal. Actually in any one of the three, I would not be nervous from a managerial perspective to go and put another business, another valve business as an example. I would not shy away from that because we've got the managerial capacity to do it.

That's great. Thank you.

Thank you.

Thank you. Our next question comes from Mark Douglass from Longbow Research.

Good morning, gentlemen. Andy, looking again at FMT, down low single digits with your exposure to energy and ag, that doesn't seem too bad actually.

Yes.

Can you how -- is it new products, share gains, supporting, supporting the sales there. I know you said water was pretty good and Europe.

I would say it's actually thee things in particular. Water is a big piece of it, no doubt about it. The team there has performed really well and the municipal markets are up. So that's a positive story. New products has also been a big piece of the story. We were at the largest show here in Europe oh, two, three weeks ago, three weeks ago I guess it was. And we had a handful of new products that were really different from what you saw through the rest of the industry, so products that are definitely growing and taking some share. So that's a piece of it. And then the other piece you go back over the last three or four years and we said we were going to cut and build. We said we were going to move some cash from different parts of the organization and invest in growth. And I think that's what is a big piece of that story there.

So honestly we hadn't really talked about that. We didn't put it in to our script and talk about it. It's hard to talk about your growth initiatives when it's negative but truth be told, we have had a lower impact to the overall conditions because of some of the organic investments that we've been making.

Yes, I think that's pretty clear. With MPT, you talked about a longer CapEx cycle businesses lagging, what longer-cycle types of businesses are we talking about?

Yes, it's one of our few businesses. We only have a fuel that are lumpy like that where orders can be larger, number one, and number two, the lead times can be six, nine months versus our typical days or certainly within a quarter. And so that lumpiness we can see and we definitely look at the back half of this year and we know kind of where things are -- where order schedules are so we know it's going to be softer in the back half.

But what markets are we talking about?

Oh, I'm sorry, food and pharma.

Food and pharma.

Food and pharma principally, sorry.

That's fine. There's just something unique to where you are within food and pharma because other companies are saying that food and pharma investment is good.

Mark, it's not a demand issue. It's a lead time issue. So imagine you've got a big pharmaceutical facility or large food facility or major project, those things have long lead times. So it's their order and equipment, six, nine months in advance of shipment. And so that's just a relatively unusual type of business for IDEX.

Sure, sure. Okay. Thanks for taking my questions.

You bet, Mark.

Thank you. Our next question comes from Joe Giordano from Cowen.

Hi, guys. Thanks for taking the questions. We've talked about this a bit already but just on the commentary on June picking up, and July getting better. That does seem to be a built of an outlier versus some of the other commentary we've heard. Is there anything -- you called out water -- is there anything in particular where you think you're doing better than the actual market and this is kind of an IDEX story more than a market story?

Let me be clear. That improvement was from a really crappy May.

Sure.

So it's not like we're gang busters. Please nobody take that away from that commentary. So really what we saw was June overall being stronger than April and substantially up from May. And the first part of July, holding that trend. So what I would say is May was very disappointing. April was disappointing. May was very disappointing. And I'm talking principally about FMT industrial side of things and then June came back more in line with our expectations and that's why we hold confidence for the balance of the year.

Okay. Fair enough. I wanted to talk about a M&A a bit. You've been able to pull the trigger on a couple of deals here and that has been something that we've been seeing a bit of a delay and disconnect between bid and ask I guess. So maybe some comment on what allowed you to bridge that gap? Is it you guys stretching a bit more? Maybe private companies being able to come off a little bit with what a more normalized expectation and maybe comment broadly kind of how that's movement's been happening now.

The cultivation cycle in our business -- if you get out of auctions, you just talk about private transactions. The cultivation cycle is just really long. These are private companies, a founder has built it. Not only do you have kind of the typical deal process but you also have all of the things that are involved in a family or private transition. And so timing can just be -- things can just take time and we've been working on all three of these for quite some time and they finally broke and obviously we signaled that we thought that was going to happen and they did finally break. So we did not pay an excessive multiple for any one of them. We feel very, very good. It's in the spot where we think we will have great returns yet we paid a fair price, and it was the kind of deals that we really want to do.

The overall market, I don't think the market's changed, except for maybe it's just kind of funny July fourth happens and all the deal books show up. You kind of laugh at that but I would say generally overall market conditions are pretty similar. The one thing you are seeing is you're seeing conversations around the energy space. You're seeing deal conversations either developing quickly or falling apart quickly based on the businesses, their financials. Right? So we're in conversation with a lot of these things and you're seeing some financials significantly change and so you just have to be really, really careful around that.

I still think we're probably two quarters away from I'll call it rational expectations around valuation in that space. And we'll see kind of how this year plays out in the first part of next year whether or not we're right.

Great. And then just one quick one on the guidance. Your current guidance for the full year assumes no benefit from the three acquisitions, right?

Yes, sure. Do you want me to talk about that?

Sure. Yes, just given where the step-up, purchase price accounting kicks in it terms of the asset write-up and then the associated bleed-off relative to what the operating results will be from those businesses on a GAAP basis, it pretty well washes itself out. Obviously on a cash basis, it kicks in right away because those step-up charges are all non-cash. But from a bottom line perspective on the GAAP basis, it's pretty well a wash. Through the end of the year.

And the way of you're going to present it, you're going to eat those costs, right?

Correct. We'll get the pivot, we'll eat the costs and it had offset for the balance of the year.

Sounds good. Thanks, guys.

Thank you. Our next question comes from Bhupinder Bohra from Jefferies.

Good morning, guys.

Good morning.

My question actually again on the guidance in the second half, if I -- I mean you have brought your core sales growth expectations kind of flat now, so if I look at the first half, it's about average down, like, 3%. So it kind of tells me second half is going to be a little bit higher to kind of get to that flat hill. Can you just comment and where do you see that growth coming from on the core side?

Yes, the comps definitely get easier. We're not expecting an acceleration of any kind on a sequential basis. As we said before, the third quarter, call it zero to up 1 plus or minus, we do expect that the fourth quarter will be a little bit better but mostly off of some pretty easy comps relative to what we've seen the rest of this year.

Okay. And the second question on the new cost actions, if you can just giving more color? I believe you mentioned that the cost actions will not be not more than $8 million. Can you give me -- give us some big buckets where those cost actions would be?

Bhupinder, they're relatively evenly spread across most of the businesses. Obviously there's some volume-based adjustments given the lower volumes in some of the more industrial exposed businesses. But they spread across all three of the reported segments. The costs we're estimating not to exceed, the restructuring costs not to exceed $8 million. Those will have a benefit, an annualized benefit that's better than that and we'll call out more specifically what that is as we complete those actions.

But nothing is built in the second half for those cost-outs, right? Any savings?

Nothing specifically because the actions, most of which have already been announced internally, kind of stagger through the end of the year.

Okay. Thank you.

Thank you. At this time we have no further questions. I will turn the call back over to Andrew Silvernail for closing comments.

Thank you very much and I appreciate everybody for joining us today. As always, we appreciate your support at shareholders. We think in a pretty difficult environment that our teams are executing well, and we continue to push forward and make sure that we close out the years and deliver for you our shareholders. So thank you again and we will talk to you here in 90 days. Take care.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.