藝達思 (IEX) 2016 Q4 法說會逐字稿

Greetings and welcome to the IDEX Corporation Q4 2016 earnings conference call.

(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 begin.

Thank you, 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 fourth quarter and full-year financial highlights. Last night we issued a press release outlining our Company's financial and operating performance for the quarter and year-ending December 31, 2016.

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 Bill Grogan our Chief Financial Officer.

The format for a call today is as follows. We will begin with Andy providing an overview of the fourth quarter and full-year financial results. Then he will provide an update on our markets and our geographies and discuss capital deployment.

He will then walk you through the operating performance within each of our segments and finally will wrap up with an outlook for the first quarter and full-year 2017. Following our prepared remarks, we will 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 13652250 or you may simply log on to our Company's home page for the webcast replay.

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

Thanks Mike, good morning, everybody. I appreciate you all joining us for the discussion of our 2016 fourth quarter and our full-year results.

Before I get going, I want to introduce Bill Grogan our new CFO. Bill, welcome to the senior executive team and the CFO chair.

Bill has been with us for more than five years and most recently was head of our financial group for operations, working side-by-side with Eric Ashleman. He really did an outstanding job there with building the teams, driving the operating model and has been a key part to our overall success in terms of driving results in the last-half decade. Congratulations Bill and welcome to the team.

Thanks Andy.

Also, I want to thank Mike Yates. Mike has really stepped in the late summer, when we had the interim chair open up and did an outstanding job and I think it's a real testament to Mike that we did not miss a beat through this process.

Really we are incredibly fortunate to have somebody of Mike's caliber on our team and continuing on our team as we go forward. So thank you again Mike very much I appreciate it.

You are very welcome Andy.

I want to take a second here and just summarize 2016. As everyone knows, it was a difficult year in terms of the top line with challenging global industrial environment. At the same time, we did a really nice job on the bottom line and with cash flow.

Even with these mixed economic conditions throughout 2016, there was some bright spots and they were really around our scientific fluidics business, municipal and commercial markets. All of those actually performed reasonably well in the year.

Then we had some major headwinds really around the global industrial markets, clearly within FMT and then the industrial pieces of HST. I will say, as we had organic order growth in the third quarter and again organic growth in the fourth quarter and a promising start to January, we are cautiously optimistic that we are beginning to see a recovery.

With that said, I am hesitant, and I'm hesitant because I'm not convinced yet that we are seeing a comprehensive turn and really I'm not because the global economic environment and very much the global political environment is volatile and it's uncertain. I think it's prudent at this stage, to be more conservative than aggressive, and as we built our plan for this year; we took in mind all of the volatility that's out there and as you guys full well know, we can respond very well on the upside.

We have a very flexible operating model. We have low overall labor content in our business. We really have no capacity constraints in terms of machinery, equipment or facilities, so really it's supply chain that becomes the sticking point in the upside.

We can respond very quickly. We would have outstanding flow-through in case that happened. But we are going to be prudent right now. So as we exited 2016 and I look back, I'm very proud of how our team executed.

We drove productivity. We improved working capital and we continue to invest in our teams in the culture of this business. We come into 2017 with a very strong balance sheet.

We have gross leverage of 1.8 times and obviously net leverage significantly below that. Cash flow is strong. We are in a great position to exploit this via our capital deployment strategy that's fundamentally unchanged here for almost a half-decade that we've been using and has been driving returns for us.

As I mentioned, we did see positive order trends in the third and fourth quarter. The initial signs in January are decent. We are hoping that the global growth challenges are leveling off, but as I said, we are going to remain cautious with the uncertain environment. We do believe that there is a backdrop of low growth as we think about planning our 2017, so we are going to be prudent with this uncertainty of the economic and the political environments.

As we look at the year, orders grew sequentially each month in the fourth quarter and the improvements were broad-based across our portfolio. Virtually every business saw improvements as we move through the quarter. This resulted in organic order growth of 3%. In the second half, we had our first two sequential positive order growth quarters since the beginning of 2014. Again that's encouraging.

We also deployed over $0.5 billion last year. We acquired three businesses as you know. We also divested four businesses and I will get into more detail here in a minute; but the four businesses that we divested weren't aligned with our strategic objectives and I'll walk you through that here in just a little bit.

As you know, deep segmentation has been a critical element of our success and really the fundamental, the foundation of our operating model. The improvements and profitability, cash flow and return on investment these past years have really been driven by these efforts.

Over the last 18 months, we've taken the segmentation, which really has been focused on the product line in the customer level and we are thinking about our entire business portfolio. We've categorized our businesses into growth, outperform and fix. And as we sit here today about 70% of our portfolio is in the growth category, 10% is in the outperform and 20% is in the fix.

Our strategy here, with all of the businesses within these different categorizations, is to provide a complete clarity of mission, of goals, resource deployment across the portfolio; that's going to allow us to drive innovation, improve customer service and satisfaction, drive profitability and improve return on investment. As we look at 2017 and I'll walk you through this in some detail here towards the end of my remarks; we are going to continue to invest aggressively around a series of areas and we think that's critical to our long-term success.

In our growth businesses, we're going to put about $0.10, $0.11 of earnings so to speak, into incremental investments in those businesses and I think that's key -- it's been key to us winning these past few years and it's going to be very important to us winning going forward. Then our fixed businesses, which again I said is about 20% of our portfolio. In 2016, these businesses improved by about 300 basis points in profitability, so it's been an important part of the profit execution you've seen across our businesses. In particular in FMT, which you saw really strong margin improvement.

These businesses are either going to graduate to growth or outperform, or eventually if we don't think we can move them out of the fixed category; we would consider divesting some of them. I will say that that 20% is largely on track to graduate here and we kind of give it a two-year time frame.

They are going to fund growth in the future and our teams are executing very well around that. With that let me pivot here and talk about our markets and some regions.

On the market side, energy -- the trajectory is modestly better than it's been obviously with the improvement in the price of oil. That certainly is helpful. There's going to be head wind, right, the CapEx cuts that came in the midstream and downstream are going to impact us this year and that's going to hit our energy platform BAND-IT and Sealing to some degree.

The downhole business, I think will improve and we are starting to see that on the BAND-IT said in particular. I do think that the LPG market is going to be soft here in 2017.

On the industrial side, that's really been the story for a couple years now. The industrial markets remain challenged in 2016. We did see some stabilization towards the middle part of the year and as we move forward. We are hopeful that we are turning a corner, but obviously we are going to wait for more evidence before we are willing to make a bet on that.

Ag, depressed commodity prices, low farm incomes have been a huge headwind there. We have seen a slight improvement and we think that's going to continue into 2017.

Life Sciences has been a real bright spot for us. It was an outstanding year in that market. Our core markets in Bioanalytical and IVD have all performed well and we think that's going to continue to do so in the future.

Finally municipal, all the indicators point towards continued modest growth in 2017, so we think that will be a plus. In terms of geographies; in North America, the story goes back to the industrial recession that really existed here for couple of years. Obviously we are hopeful the signs of recovery, but again we're going to be cautious.

Europe is really a mixed bag. It depends on the country and really depends on the business. Our dispensing and our water businesses, which are two of our bigger European facing businesses, have done quite well. The performance across Europe is pretty spotty, so we think that will probably continue in 2017.

Asia: India has been terrific for us. We really won in terms of market share in business focus there, but China has been a bit more difficult with really the industrial recession there. Also, as they move from an investment driven economy to a consumer economy. We do expect some improvement in China however, in 2017.

Let me turn to a little bit of conversation on capital deployment. We've had this balance disciplined capital deployment strategy for some time and I think it works very well. Our overall goal is to drive superior shareholder returns and we have four pillars of this strategy. We are going to fully fund organic growth. We are going to pay consistent quarterly dividends. We are going to opportunistically repurchase stock and we are going to execute strategic M&A.

Here we are with a very strong balance sheet, strong free cash flow. This is going to give us leverage as we go forward and we used that leverage well in 2016.

As I mentioned before, we deployed over $0.5 billion in three acquisitions, Akron, AWG and SFC. Those hit two different-end markets in three different countries, so really spread nicely across our portfolio and our ability to manage and integrate those businesses.

The Akron and AWG really changed the face of our Fire and Safety business and SFC did the same for our Sealing Group. The integrations across the board are going well, so we are very positive about these acquisitions going forward and the benefits that we expect to see in 2017 are identical to what we talked about in the third quarter. I will detail that here in a little bit.

We did decide to divest some businesses this year, four relatively small businesses. Hydra-stop, two optics businesses, one in Japan and one in Korea and then our IETG business, which is in the UK.

In total, those businesses had about $40 million of revenue for us in 2016 which obviously will trade off against the benefits of the three acquisitions that we did. Again, I will walk you through the puts and takes of that here at the end of my remarks.

As we think about organic growth, we continue to invest in organic growth across our businesses. As we go into 2017 there are a few businesses that are going to get even more money and we are going to get more aggressive around it.

That's really around our bio biopharma businesses, some product launches in water, next generation of rescue tools and local for local products in India. In some degree and increased investment in China where we've recently opened a facility.

We are going to put money, really it's about the future and as you know investments for us, it takes time to germinate. The markets move slowly, but you have to be committed and you have to invest year-in and year-out and that's what will allow us to be successful in the long term.

On the capital deployment front, in 2016 we increased our dividend by 6% and we returned 38% of net income to our shareholders. We also bought back 739,000 shares in the year, at a cost of about $55 million, which is about 1% of shares and that happened very early on in 2016.

All right. I'm now on the 2016 financial results. That is slide 4, if you will join me there.

Just a reminder, these results exclude the impact of restructuring actions; the gain and loss of divestitures in 2016 and 2015, as well as the pension settlement. I will detail all of those for folks so they can get the modeling correct as we go forward.

For the full year, orders and sales were $2.1 billion, up 6% and 5% respectively. Orders were flat organically and sales were down 1% organically. Organic orders and sales were really pressured by the weak economy that I talked about in detail already around oil and gas in North American industrial.

Then our margin actually, this is a good story; we finish the year but there's a lot of moving parts. Let me take a minute here. We finished the year at 20.6% which was down by 40 basis points year-over-year. Keep in mind that had $14.8 million of fair value step-up versus $3.7 million in 2015. So obviously that's a big impact.

If you neutralize for that, our margins were up about 10 basis points year-over-year, but also keep in mind that's diluted -- dilutive impact of acquisitions. If you look at apples-to-apples; if you remove the acquisitions and look at the base business versus base business 2016 versus 2015, margins were up 80 basis points to 22.5%.

That really shows terrific execution in the base business pre acquisitions and demonstrates an operating model continues to work. Cash flow, a great story. Cash from operations was $400 million in the year. $362 million of free cash flow and that was up 12% over last year at 125% of net income. GAAP EPS was $3.53, adjusted EPS was $3.75. That was up $0.20 or 6% on adjusted basis.

Let me take a second and walk you through that $0.22 between the adjusted and the GAAP EPS. We had a $0.03 charge from restructuring actions. I will talk about the benefits here in a moment. We had a $0.16 loss on the sale of four divested businesses. We had a $0.03 charge from the pension settlement.

On a final note, of the $3.53 in GAAP EPS, there is also about $0.04 related to a favorable transaction affects in regards to an intercompany loan that we acquired when we bought SFC. That was favorable by about $0.03 in the fourth quarter and $0.01 in the first quarter. We have hedged that loan, we won't see the volatility here in the future; but it will be -- those $0.04 will be a headwind as we think about 2017.

For the fourth quarter, organic orders were $547 million. That was up 10% overall and 3% organically. We continue to see an uptick in those orders here that we started to talk about in the third quarter. Revenue was $530 million, up 6% flat organically. Organic sales were up slightly, 0.3% in the fourth quarter and although that certainly is modest, it's the first positive organic sales growth that we've seen since the fourth quarter of 2014.

Adjusted op margin for the quarter was 20.5%. That was down 50 basis points year-over-year, but again entirely due to the fair value inventory step-up; so exclusive of this charge, we actually improved margins by 40 basis points over last year.

Fourth quarter free cash flow, very strong. $106 million in the quarter. That was up 20% from last year and 143% of net income for the fourth quarter. GAAP EPS was $0.75, adjusted was $0.96. That was a $0.02 increase over last year.

We had $0.21 between the Q4 adjusted and the GAAP EPS and those are all the items that I mentioned before, except there was a penny of that fell into the third quarter. So $0.21 fell into the fourth quarter. I will also note, that we did have significant translational affects as we saw the dollar strengthen significantly in the quarter and that cost us about $0.02 in the fourth quarter.

Let me spend a few minutes here on the noise in the fourth quarter. I know there's a lot of moving parts and I want to make sure everybody has these pieces really clearly. As I discussed earlier, the four divestitures. We incurred about a $20 million pre-tax loss on the two businesses that we sold in the fourth quarter. That's a $14 million net loss after the $6 million tax benefit that we realized.

We also incurred a $3.6 million pension settlement in the fourth quarter. This charge was related to employees taking a lump-sum distribution rather than future monthly pension payments. We did talk about this in the third quarter and it was on the low end of our expectation.

We also incurred about $3.7 million of restructuring cost. We noted that we were going to have some restructuring costs, we talked about in the third quarter. These are related to severance in facility closures around acquisitions and plus an announced facility consolidation with our MPT platform.

We will get about $4 million of benefit in 2017. Let's pivot now and let's talk about the segments. I'm going to start with Fluid Metering, I am on slide 5.

We finished 2016 organic orders were down 2% in the fourth quarter and down 3% for the full year. Sales were flat in the quarter and down 1% for the full year. Op margin was a great story: up 190 basis points for the quarter. Up 100 basis points for the year. Really terrific execution around productivity and even with difficult market conditions; maybe except for water, people really got after the cost structure and right sized their businesses and we had just outstanding margin improvement.

As I mentioned before, we had great improvement in our fixed businesses and many of those sit in FMT -- were a major portion of the margin improvement in the segment. In terms of some of the areas, water services has been strong and was strong in the fourth quarter. Again, we think it will be solid if you think about 2017.

Industrial, the story I told already many times; softness across the North American landscape, the impact of oil and gas has certainly been substantial. Weakness in the chemical market in Europe also. While we do see some beginning signs of recovery, we are pretty cautious here around this marketplace.

Energy, remains a tough story. Our mobile business, the downstream portions of the business that CapEx cuts just started late last year. Those are going to play negatively through those businesses, I think in 2017; so they will be behind the curve relative to what you will see in the downhole side, which I think will pick up faster and certainly some of our peers have seen that. We will have some headwinds here early in 2017 around those markets. Finally Ag, as I mentioned earlier, we have seen some positive indications so we are looking for kind of very small improvement in 2017.

Let's turn to Health and Science. I'm on slide 10. If you end the day, no real changes in our perspective in the Health and Science markets. Our overall life sciences and scientific businesses are doing really well. They have been offset by weakness in industrial. Very similar to everything I've talked about with FMT. We had a very strong organic order quarter, up 7%. On the heels -- of also a strong order quarter in the third quarter.

This is promising. For the year, organic orders were up 2%, but certainly we finished very strong in the order front with HST. Sales were down 1% both in the fourth quarter and for the year, but obviously we come into the year with momentum.

On the Op Margin side, again I think there will be a number of questions here on this, so let me take some time on this. They were down 330 basis points in the fourth quarter and down 100 basis points for the year. Both of these decreases were really primarily impacted by the step up in SFC. If you exclude that, margins would've been down 100 basis points for the fourth quarter and 20 basis points for the year and really all of that is due to mix.

In 2015, we had a very strong overall profitability and our material process business. That flipped around in the fourth quarter of this year and had relatively weak margins in MPT, that really accounts for that balance. We do expect margins in HST to be in that 23% range in 2017. We expect that to rebound nicely as we go forward.

In terms of the overall segments within Health and Science, industrial looks a lot like FMT as I've already talked about. We have seen again, some early signs of improvement, but cautiousness generally. Scientific Fluidics and Optics, as I said before, really strong overall performance.

The markets are growing. We are winning share on new platforms, so overall, we have a lot of confidence in that business going forward around life sciences.

Sealing Solutions is a mixed bag. Oil and gas has been weak, while the semiconductor market has been strong. Those two have really kind of balanced each other off.

Finally MPT as I mentioned, has been mixed. This is a pretty lumpy business. It had a strong fourth quarter order book. We think we will come out of the gates relatively strong with MPT, but it has been a mixed bag between pharma and industrial businesses.

All right, I'm on the last segment. Diversified on slide 11. Boy is just an outstanding year for the teams here in Diversified.

The two major acquisitions really changed the landscape for our Fire and Rescue business. Now it's all about driving the execution here. We finished very strong. Organic orders were up 9% in the fourth quarter. Up 2% for the year.

Sales were down 3% for the year, but following orders, we had a strong finish at sales being up 3%. Op margin was down 150 basis points, but entirely due to the step-up that we had of $7.5 million. Again, we are -- this business is performing well and we expect to have a really solid margin profile in 2017.

Dispensing was solid across North America, Europe and Asia. The X Smart product line continues to have momentum and generally Dispensing outperformed.

In Fire and Rescue, a nice uptick in the fourth quarter. As you know this has been a business that's been weak here for some time. We saw strength across the markets and we had some nice wins in Asia, which we hadn't seen in quite some time.

The team did an outstanding job with new product launches. They are doing a nice job of integrating Akron and AWG and we are on track to hit our goals for those acquisitions.

BAND-IT, the transportation business, was solid. We are seeing some modest improvements on the oil and gas side. That would be a good sign here for BAND-IT going forward.

A couple more slides here. Really all about guidance for the year and for the fourth quarter. I'm on slide 12.

We anticipate organic growth to be about 1% to 2% for the year. This should give us somewhere between $0.15 and $0.23 of incremental earnings for 2017. However, we are going to have a pretty significant $0.12 headwind from FX.

As you know, the dollar has strengthened significantly. We have exposure to the euro, the Swiss franc, the Canadian dollar and the pound, those are meaningful headwinds.

As I mentioned before, that's broken down into about an $0.08 headwind on translational affects and the $0.04 that's related to the intercompany loan that I mentioned earlier, that we've hedged here, going forward. In total, as you got into the back half of the year and really towards the back month or so of the year; as the dollar strengthened, we lost a lot of ground. A couple cents in the fourth quarter and now in total $0.12 of headwind for the year.

As we look at acquisitions, last quarter we told you that the net of divestitures, we thought that acquisitions would add about $0.25 to earnings incrementally. That number is now $0.24, but entirely due to the fact that we sold two other businesses in the fourth quarter. We are right on our expectations of what those businesses should add to our portfolio.

Share count will creep a little bit and it's going to be a $0.03 headwind for us. The restructuring actions that I mentioned before are going to be a $0.03 tailwind and they are really related to rooftop and severance consolidation -- items.

We did have a couple of one-time corporate items in 2016 that are not going to repeat in 2017. About $0.04 is from the earn-out reversal that we talked about in the first quarter of last year. If you remember, in our first-quarter earnings report of 2016, we had a really strong overall quarter and because we had about a $0.04 benefit from that earn out reversal that obviously we won't get again in 2017.

We did have a couple pennies of benefit coming from compensation-related items as the CFO change happened and some compensation was forfeited. We get about $0.02 of benefit from productivity net of Inflation, our teams have done a really nice job of offsetting wage inflation and very modest material inflation, but we will get $0.02 of net benefit.

Then as I mentioned before, we are going to keep investing. Even with this backdrop of continued low growth. We think we need to continue to put money into our best bets and that's going to be $0.10, $0.11 in 2017 of incremental spend.

I'm on the last page here, on slide 13. A couple more items here on Q1 2017 and full-year 2017 guidance. In the first quarter, we think EPS is going to be $0.91 to $0.93. Organic growth kind of 1% to 2%.

Operating margins ranging from 20.5% to 21%. The tax rate should be about 27%. We are going to see a 2% FX headwind here on the top line. This is all based on the December 31 rates, so everything I've talked about relative to FX was based on the rates at the end of the year, which is our traditional practice.

Corporate cost in the first quarter will be about $17 million and if you look at the 2017, just a few more items. Full-year EPS should be $3.87 to $3.95. Revenue growth 1% to 2% and full-year operating margins at 21.5%.

Again, we will have about it 2% FX headwind based on the December 31 rates and we think corporate costs will be about $66 million for the year. Finally, the tax rate should be around 27.5% based on the current US tax rates and the global tax rates.

Always, as we think about these things, we exclude the impact of acquisitions costs or benefits associated with them or any further restructuring that we might have. With that, let me pause here and Doug, let's turn and open this up for questions.

(Operator Instructions)

Mike Halloran from Robert W. Baird.

Good morning guys.

Hey Mike good morning.

Congrats on the new role. I would say welcome aboard but you've been here for a while.

Let's start on that bridge. Obviously super helpful providing the puts and takes because there's a lot of them. Maybe you could frame the growth investment side. You said you're basically putting the foot down and really reinvesting this year.

Twofold question there. One, frame that level of growth investment that you got on the 2017 bridge to what a typical year would look like; and then two, what the main focus areas look like.

Is this to deal with a lot of the acquisition pieces? Is that relative to that 80% of the Company that's really kind of in that growth mode? Where are the pieces going?

Mike, if you go back and you are to look in time, this is not a typical right? This is kind of how we thought about things over time. I think -- why it stands out a little bit now, right, is the backdrop of slower overall organic growth.

Very importantly, we made a conscious decision that we were not going to trim back on those, given the backdrop. For us, as you know, it takes an awful long time for these investments to germinate and if we were to go and cut $10 million, $12 million of that cost; which you could easily do by the way, these are pretty variable costs, you could take these out.

We could've easily put up, covered the FX headwind that developed here in the latter part of the year. We just decided that was not the prudent thing to do, we should continue to invest, so very typical for us.

I think the difference is Mike, is these are investments that are really targeted around a few mostly product-related areas. In the bio Biopharma area, that whole Life Sciences World has taken off for us obviously.

We've got some very interesting new products that are going to take a few years to germinate. But we are going to have to put several million dollars a year into those while those take off. So that fits right into the Life Sciences, Fluidics and Optics World. That's a good piece of the investment.

We've got a series of new product launches in our WaterWorld. If you look at our water business that's led by Floy and Beverly they've done a great job. They have been part of -- a lot of those business have been in the fixed category and they have done an amazing job of changing that profile.

I have a whole series of new products that are going to come to market here over the next two years. That's a major investment. In India we are -- as you know we've built two facilities in the last five, six years here in India with expansion.

We are moving more and more for a local for local needs, a lot more product development that's happening for the local markets. X Smart has been a home run there and what we really learned from our success -- we are doing more like that. If you look at new product developments in next-generation on rescue tools, as you know eDRAULIC has been a big win for us, so we are going to continue to invest there. The StrongArm product line, we've mentioned before, that's going to continue to get investment. Finally, around the AWG, Akron acquisitions in the combination with our other fire assets; there are some really important product development opportunities around electronics, which is bringing together all the superior product capability that we have on a fire truck that links it together and creates a closed system that is going to get investment for us.

Those of the major areas and they are all about growth. It's going to take time to germinate, but I think it's the right thing to do.

Staying on the growth side then as we look through the year, obviously highlighted caution going into the year, which I think is prudent. Maybe one -- give a sense for what you are seeing on the industrial side of your pieces once a little more short cycle -- have some movement that can help on the industrial side Viking 1 route.

Trends through the last couple quarters have they been stable? Slightly better? You've seen some choppiness and what's that lead in for the year?

Mike, if you remember, back in the summer, I mentioned we've seen some stability, right? Things had really been at a decelerating pace in the industrial -- accelerating decline in the industrial landscape up until after the first quarter of 2016 and I mentioned some stability.

What we saw in the third quarter was -- the back end of the quarter got meaningfully, better but still spotty. It was still pretty spotty. What we saw in the fourth quarter was much more broad-based, across improvement, across our businesses.

I'd say January has continued that trend. Let me be really candid. We have a lot of internal debate about the top line, the market and what number we are picking around the market.

Everything that we're talking about here is based on market estimates because of what we think has really not been taken into account around the economic and the political volatility. We believe we will beat the markets by a point or two, so it really kind of depends on what think -- what your pick in the markets to be.

We've gotten pressed on some of this commentary. My point of view, Mike, is that people have gotten a little over there skis on the positive sides of some of the things that have been talked about and even experienced, not enough attention has really been put into the potential downside.

For us, we are really weighing this -- both sides of this equation, which has led us to be more conservative. I'll give you that. There's no doubt about it.

A lot of it comes down to, we know how our operating model flexes. If things are better, we will flex very quickly up and the incremental margins will be attractive and if things are worse than some people are talking about right now, we are already positioned to deal with it.

Last an easy one. If you look at the guidance. Is the underlying thought process here stability from current levels normal sequentials as you work through the year or are you embedding any improvement? Doesn't sound like you are, but I want to clarify.

We are talking first quarter being up one to two. No real big hockey-stick built-in. We don't have -- I think the first quarter is going to be telling for us, to be candid with you, right? That's going to be an important barometer for how we think the rest of the year is going to play out. January is decent.

Good, thanks appreciate the time.

Thanks Mike.

Stephen Wunker from Berenstein.

Good morning all.

Hello Steve how are you?

Good, I'd like to just start at a little higher level on capital deployment Andy. If you think about the pace that you are running at $0.5 billion this past year, based on what you are saying in the pipeline, obviously you have the capacity. Are your expectations for something as good this year?

Steve I think that would be a real challenge to be honest with you. At this time last year, we were really bullish on the overall ability to deploy, but we had line of sight of that point, with a lot of confidence around a couple of things. While we have a very typical funnel right now, if we deployed $0.25 billion, that would be terrific.

We don't have things just sitting right in front of us like we did this time last year, and so, this feels more like a normal pipeline. That being said, it's a good pipeline.

It's across the portfolio and we have -- obviously we have the firepower to do it. It's just going to be actionability, Steve.

Okay. All right and on that 2017 guidance bridge; I would've thought maybe more than $0.02 on productivity net of inflation. Can you just talk through maybe the pieces there. What are you baking in? And why isn't it more?

Yes, you got about -- what you have is, you've got about $20 million of headwind, plus or minus. That's mostly driven by wage inflation, which -- there's not a lot of material inflation obviously. You've got some metals here and there that have -- we've seen a little bit on.

We are in a really good position and obviously we are really cognizant of potential inflation spikes and that's something we are paying a lot of attention to. The material side should be modest, the wage side is very typical, so call it $20 million. We will get $22 million of total productivity and that will net us or, sorry a little bit more than that, $23 million, $24 million, that will net us a couple pennies in total.

Okay.

By the way, that's does not include restructuring, so you've got another $0.03, $0.04 on the restructuring side. I will call all of that productivity, but we just happen to break it out specifically because we called out restructuring charges.

Normally that's how we see it. That's helpful. I'll pass it on. Thanks Mike.

Thanks Steve.

Nathan Jones with Stifel.

Good morning everyone.

Hello Nathan.

Andy, I'd like to go back to the growth investments for a minute and you've never been shy about funding growth investments in the Company really regardless of the environment. $0.11 is a pretty big step up. Is this something that we should anticipate continuing at that level for the next few years? Will it step up again in 2018, step down in 2018?

I think -- it's what you would expect, right. The way I think about the math. The math doesn't change here, right. So the incremental benefits that we've always talked about, that 30% to 35%, even including these investments is there.

When you work through all the puts and takes of all this and you look at it; you go okay, those incrementals are there. Especially when you step back and you think about the one-time things we benefited from in 2016.

We are not going to compress our incrementals by these kinds of investments Nathan. I think the variable here is obviously at a higher growth environment, you are going to get much better incrementals and in a lower growth environment you get more towards the downside of where we've guided historically.

Understood, I was more talking about the level of investment that you are putting in the growth investments.

I see us being really aggressive Nathan. I think -- everyone we talk to and we spend time with, the differentiator is going to be organic growth.

Even when you think about acquisitions, when you acquire, the way you really drive overall returns there; obviously we are very good at the cost out, but you have to deliver on the top line too which means you have to deliver overall on the organic side. These kinds of investments I think are prudent, and we are going to do it in good times and difficult times.

Understood and you've been pretty clear about that over many years. I'm just wondering whether or not we should expect those growth investments to remain at the same level going forward or whether you will get more aggressive in 2018 and step it up again, or just how you are thinking about that -- longer than 2017

I'm sorry Nathan. I would say that proportional to the size of our business, this feels about right. As the business gets bigger, the dollars will get bigger, but I don't think proportionally it's going to change dramatically from what we are talking about here.

There is a $0.03 headwind from higher-share count. I think IDEX typically looks to offset dilution. Is that not the case this year?

No, our practice has been -- we have a really disciplined process that we go through, so we just said hey at these levels we will probably see some creep, but that could push one way or the other to be honest with you. We are just basing it on the activity that we've had here in the last six months. But that's one variable that could move throughout the year.

Fair enough. Just one on North American Industrial. Do you have any visibility into the parts of North American Industrial where you are seeing improvement, or is this going through distribution as you lose visibility into it?

I think the way I'd say it -- so you do loose some visibility going through distribution. What I'd say is what we saw in the fourth quarter and what we are seeing early in January and I want to -- the reason I'm being so cautious here around this is -- a few months does not make a trend.

I will say that what we saw -- through the fourth quarter, early in January is pretty broad-based. So whether you are talking about classic distribution at Viking or say gas, as an example, [up] or your talking about more value added distribution or you are talking about, even on the OE side, it's been pretty broad-based.

All right that's helpful thanks very much.

Thanks Nathan.

Matthew Mishan from KeyBanc.

Thank you and good morning.

Good morning.

I just want to go back to the 2017 guidance bridge and maybe I missed it, but it seems like the incrementals from the $20 million to $40 million of organic growth, going down to $0.15 to $0.23 of EPS seems very high. Can you talk about the incrementals you've assumed on that?

You have got to remember that includes price. That's not just volume, the price side of it flows through at 100%. When you are looking at numbers that are that -- 1% to 2% that granular, that you call it 7 to 8/10 of a point that we will get in price in 2017, that's going to flow through very high.

All right. Got it. Assuming that -- 80 basis points of price. What should we be thinking about if you are able -- as far as incrementals go, if you were able to go from 1% to 2% growth to 3% or 4%? What would an additional incremental 100 basis points of growth give you?

A simple rule of thumb for us, is a point of organic growth is going to give us about $0.08 of earnings.

All right. Then on the Health and Science Technology side, I'm just curious what you are hearing from customers around the expectations for Pharma Biotech in 2017 and if you saw any change in Scientific Fluidics in the fourth quarter?

Matthew if you recall, even two years ago at this time, we were talking about a product cycle -- in the industry that was going to get a lot better starting in 2017. We said we had a lot of visibility to that and that's playing itself out now.

So the product launches that we are seeing across the industry are pretty good and you can pick your submarket. They are generally -- it's pretty healthy. We are well positioned in terms of content by platform.

We think that 2017 and 2018 are going to be pretty good years here. If you look at the Analytical Instrument, IBD Bio, Genomics, you pick your market, it's going to be pretty good. Obviously we don't know how policy might impact that.

That's one wild card that -- everyone needs to pay attention to and just with the uncertainty that we've seen early days, we don't know. Generally in current conditions we think, both the industry is going to be pretty good and we are well-positioned.

Thank you very much.

You bet Matthew, thank you.

Deane Dray with RBC Capital Markets.

Thank you. Good morning. This is Andrew Krill on for Deane. I wanted to ask. There's been a lot of speculation on tax reform in the US. Can you comment on how IDEX might fare, given these various proposals including the border adjustability please?

It's really tough to put your finger on it. Let me -- I'll walk through a couple things and Bill if you want to add some color to this?

Obviously, if you just assumed that you had a 10-point US tax cut -- a way to think of that, is what's the math on that? We said 10 points -- if we have $100 million pretax in the US, so you are talking $0.09, $0.10 of earnings impact if you went down to a 25% statutory tax rate in the US. That's one way to put your finger on it. In terms of the cross-border issues, Bill any commentary on that?

I don't think we have any material risk if there were significant tariffs added in replace of NAFTA. I think for the most part, our production and supply chain is local for local so not a lot of exposure there.

Probably not a lot of ton of negative -- obviously the thing I'm most worried about Andrew, is a trade war. I think everybody in my seat is nervous about that same possible reality and one of the reasons why frankly we've hedged our bets here going into 2017.

Got it, thank you. That all makes sense. A quick follow-up in terms of similar vein -- if there's any favorable repatriation holiday? Can you remind us how much your cash is overseas and I guess maybe what this could be used for?

There's about $200 million overseas primarily within Europe, so if there was a repatriation; we'd have to look at that and see. We've done several deals in Europe, to pay 10% repatriation tax might not be worth it if we have line of sight -- some uses for that cash within Europe or abroad.

Great thank you.

Thanks Andrew.

Matt Summerville from Alembic Global.

This is Nick Chan for Matt Summerville this morning. Thanks for taking our question. You guys touched on it a little bit before, but I just wanted to dig a little deeper into M&A. I was hoping you could talk about sort of some of the multiples you are seeing following the recent melt up in the market. And additionally what verticals are seeing the most activity? From your view?

Generally Nick, the world has not changed that much that we look at. The biggest changes have really been around the public markets and obviously we don't play a ton in that world. We bought some businesses from public companies in the past and whatnot -- but that level of volatility so far, we haven't seen it play itself through the broader M&A funnel that we look at.

That being said, we are in the same position we've been for an awful long time which is, things are expensive. There's no doubt about it. You've got to be incredibly disciplined and you got to be disciplined around price but you also have to be really disciplined around what fits in your operating model.

There's very few things that can make a deal go sour faster than overpaying and we are just not going to do that. We like our funnel but we are going to be very disciplined about prices in the marketplace and that fundamentally hasn't changed here in the last few months.

Great. Then just finally, I was hoping you could talk about -- in terms of an improvement in energy in the industrial -- general industrial markets, What's your guys view there?

I'm going to call it cautious optimism. As I said before, we have seen some sequential improvement and it's relatively broad-based.

The downhole related things, which we don't have a lot of exposure to. It's kind of 2%, 3% of our total business. That has been obviously the much more volatile piece and where people are calling more potential upside, it's a really small piece for us, so I don't get too excited about that on one side of the other.

The things that are further downstream from there, those CapEx cuts, came a lot later in the cycle and they are still playing themselves out now. I think we will actually be behind that curve to some degree, as that plays itself through and then we will see if capital investment makes its way downstream again.

I'm cautious generally with industrial and oil and gas. I more favorable in general industrial. I think the oil and gas stuff will take more time to play itself through.

That's great. I'll jump back into the queue.

Thank you.

Scott Graham from BMO Capital Markets.

Good morning Andy, Mike and welcome Bill.

Thank you.

Did you say Eric was there as well?

No he's not.

A lot of questions have been answered, but I do have a couple others. The acquisition divestiture, this is just a simple one: is that sort of like a 75 35, 80, 40 territory on the acquisition adds versus divestiture subtracts on revenue?

Scott I'm not exactly sure what you mean.

The $40 million of incremental sales from acquisitions.

The $40 million is the amount of revenue that we had in IDEX in 2016 from the businesses that we sold. We had $40 million of revenue in those businesses.

If you look at it kind of on an apples -- on a trade-off basis, incremental revenue, of what we are going to lose from divestitures versus the incremental that we are going to get from the acquisitions because of where they landed in the year; you get somewhere around $40 million-$45 million of incremental good guy in revenue in 2017. Does that make sense?

Yes I was just looking for the two numbers that net.

Yes, you are talking about $40 million of divestiture that we won't get next year, against about $80 million, $85 million of revenue that we will get incrementally this year netting out to call it plus $40 million to $45 million.

That's what I was looking for. Let's say things don't get better from here and your conservatism is valid on the organic side Andy.

Where you have flexibility down the bridge here, obviously I'm talking more specifically about the restructuring savings, the corporate expenses, productivity. Where can you flex up a little bit to make sure that you make the guidance maybe even at the high end?

I -- I'm not real worried about our ability to execute here. We've proven our ability to manage these items operationally manage the investments. If the business were to slow down, could we accelerate some restructuring? Yes we could.

Could we slow down some timing of investments? Certainly we could. I think we've demonstrated a pretty good ability to do that over time.

Fair enough. Last question on the M&A pipe. Obviously you had a big year in 2016.

Based on where you sit today with things at various levels in the funnel, can you get halfway there? Where's your head?

At this stage it is tough to say. As I mentioned, I think it was Steve who asked the earlier question around this. We've got a decent funnel.

We don't have anything imminent, we could end up having a really big year or soft year. My hope would be that we get somewhere in between. At the end of the day, it's not something that I can peg at this point.

That's fine, thanks.

Thanks Scott.

Patrick [Ru] from SunTrust.

I'm standing in for Charlie Brady this morning. Thanks for taking my questions.

You bet

Just one more for you guys on the growth investments, I know you guys been talking about it quite a bit on the call. How should we think about the margin impacts on each segment from these investments? I'm looking at FMT, the adjusted margin at 27.2%. It's pretty peaked out. How should we think about that moving forward?

I wouldn't think about the growth investments, how they would impact that. It's not going to be material so to speak. If you look at the overall margin performance that we would expect in 2017 by segment, I think FMT for the year, it should be in the 25% range, maybe a little bit higher 26%.

HST in that 22% to 23% range and FST in that 25% range. At the segment operating level, that's what you should expect next year.

The investments shouldn't materially impact that. Again as I answered before, even with the investments, we are still very much in line with our expectations for incremental operating margins.

Got you thank you. Last one for me. What order you guys seeing for the exit order rates in January? Obviously 2% growth in organic orders in 4Q is obviously welcoming sign. How do guys see January shaping up and is that progressing more in February?

Yes, so far, through January, things of been decent. I think the trends that we saw at the back half in the fourth quarter have continued. At this stage -- I'm hesitant to get more aggressive because it's such a short period of time and the level of uncertainty that's out there economically and politically, it's prudent to be cautious.

Great thanks. That's all I have.

Thank you.

Brett Linzey from Vertical Research Partners.

Good morning.

Good morning Brett.

Just wanted to come back to HST. Orders up 7%. You mentioned a large pharma order there.

What was the contribution in the quarter and then are you able to put a finer point on, if you unbundle that and look at the industrial-related businesses within HST. What are the underlying order rates looking like there?

The strength that you mention was in MPT. We had some strength there in the MPT business. But even minus that, orders were solid, were very good in the life sciences side and industrial, similar to what we talked about in FMT. I'll call it a few light spots but not ready to call it.

Semicon was strong. The general industrial gas micro pump, still soft, meaning kind of flattish. But certainly better than the trends that were in the first half or even a little bit later than that in 2016.

Okay. Fire and Safety. Orders are big there at 9% obviously pretty easy comps. You mentioned a lot of the closed system opportunities and new product opportunities. But just in terms of the channel side, did you see any pull through activity from AWG and Akron? As we look forward here and you've owned these now for about six months, how are you feeling about the cost side?

It's still very early days for any kind of, what I call revenue synergies. Those are things that take meaningful time in those businesses because you don't want to break what are already very good channels. Nothing meaningful there, nothing different than our expectations. But is not like that's accelerating yet.

On the cost side, very much in line with our expectations. The restructuring charges that we took -- were related to that in both Akron and AWG are on track for what we committed. We talked about getting 500 basis points of improvement in those businesses over three years and I think we will get there.

Okay and just one last one. You talked about having a difficulty forecasting 2017 growth. You did mention you'd like to outgrow those markets by 1 to 2 points.

Are you assuming that for this year and implicitly does that mean you are basically kind of saying the market is flattish in your view for 2017 and you get a little bit of outgrowth above that? Could you square that for me?

Yes, that's the math. It is kind of flattish to modestly up, given the environment. Back at the Baird Conference, of course I think -- I gave my talk on the day of the election. I said I thought the world was going to be kind of negative 1 to plus 1 and I'm still kind of there.

Maybe with even more volatility given what's going on, so maybe I will revert back to negative 2 to plus 2. My overall view hasn't changed a lot obviously, the strengthening of the dollar plays into this and that obviously hit us as we think about 2017.

Then there's just a lot of uncertainty. It's really hard to peg.

Yes, okay great. Thanks Andy.

Thank you.

Joe Giordano from Cowen and Company.

Hey guys. Thanks for taking my question. I just wanted to talk FMT orders a little bit here.

Strip out -- forget about the year-on-year, just looking sequentially pretty flat. I'm trying to reconcile that with some others have said on the short cycle, a bit of a budget flush happened 4Q. Would you of expected -- how did orders come in for that segment versus how you might of thought? I appreciate your conservative for 2017 it's appropriate

Yes, the energy business sequentially was down and that was really kind of tied to the LPG business. Other than that, sequentially looked pretty similar. Not a lot of changes from what we saw in the third quarter.

Okay and then on diversified. When you look at your dispensing business, obviously you guys are out punching that market. What are you thinking -- inherent in your guidance what you thinking for, those markets that those products play in look like maybe slowing down (multiple speakers).

I think you are right Joe. I think those markets are going to slow here as we look at the underlying performance. I think the business will do well.

We've got a significant product launch that happens here a little bit later in the year that I think -- it probably won't make a big impact in 2017, but I think will be a nice going-forward. I think those underlying markets -- the growth is going to moderate to flattish in 2017

That's in your guidance though?

It is, yes.

Maybe just last taking on in diversified. That order growth there -- the comp is a little easy but how would you look at that regionally?

Regionally?

I'd say, we had throughout the year some softness in some of our emerging markets and we saw a pickup in the fourth quarter. So some projects that have been out to bid for a while, finally went to official tender

Mostly were in rescue.

How was China rescue -- municipal spend over there. How is that looking right now?

That was when the big one that got better. With the anti-corruption probes, things really came to a screeching halt. We finally saw -- that get liberated little bit here and we actually had a very nice win in the rescue-tool market in the fourth quarter with our Dinglee brand.

Okay thanks guys.

Thank you.

Chris Dankert from Longbow Research.

Good morning guys. Thanks for taking me in here.

You bet.

One quick question. Are you guys talking to some of the market players on the municipal water side? That's been an area that's been identified by the incoming administration as kind of a spot for investment.

There is some concern that we're going to see a bit of a pause on the state and local side hoping to get some clarity on when does the money flow through? How do we get it, et cetera? Is that conservative baked -- conservatism baked into your guidance right now or have you heard anything on that front?

We haven't heard it specifically that people are having a big pause. Obviously, anything, where things -- where monies are coming from the government, we baked in conservatism around there.

That obviously fits there, certainly around the US, because there is so much uncertainty. It could be a bunch of money that flows there and frankly it could get cut. There's no clarity. We are -- that is a piece of our hesitancy.

Got it. Any update on the footprint consolidation within Diversified? How much is left to go there? Any kind of timetables?

We are -- stuff we've announced is going well for the most part. We should have everything done here by the end of the first quarter across the Company. We have some stuff in MPT as I mentioned before.

The specific work around the acquisitions. Most of that's actually been done, that we finished up in this year, so not a lot more to go.

Thanks so much guys.

You bet.

Bhupender Bohra from Jefferies.

Good morning guys.

Good morning.

Just wanted, Andy, on your commentary on the press release here, that you are seeing some encouraging indicators within North America. Can we talk about that from the perspective of your customers capital spending versus maintenance spending plans? Like how do you think 2017 -- any indications, you talked about CapEx to peak, but on the maintenance side do you think that picks up?

I don't think that maintenance spend really took a big hit. Those -- in the world that we play in, those aren't really optional. It really is the CapEx-related stuff that has been the bulk of what drove the industrial per session.

I think that what we're seeing, early here in this year and late in last year are very modest improvements around CapEx. What's going to drive an acceleration is going to be increases in CapEx.

Okay. The other question on China. I think somebody did ask but I just wanted to could you remind us how big China is and what are you hearing from that industrial land in China especially when you look at the ISM numbers which have been inching up right about [50] for the last few months now.

Call it in the range of 5% of total business. About half of that or so is done in China, for China and another half comes from other places around the world, other business around the world.

I would say, there are certainly some modest improvements that you are seeing in China. That's really been a real struggle for everybody here with this transition from investment to consumer and it is modestly positive, but it's not like it's going to pick up to where it was pre-2014.

Got it. Thank you.

You bet.

There are no further questions in queue. I'd like to hand the call back over to Management for closing comments.

Thank you all very much for joining the call here today and I know we had a lot of moving parts to talk about and I appreciate your patience and your good questions. Obviously as we think about 2017, we think about this much like we have the last couple years which is, we need to make our own good fortune.

I think we have positioned ourselves very well on the cost side productivity, how we manage the balance sheet, how we deploy capital and very importantly, the growth investments that we are making for the future. I think we are very well positioned regardless of what those markets do.

Now while we've taken probably a more conservative view of the markets, we are in a great position to take advantage of that and to drive overall profitability and returns on investment and ideally that's going to translate into total returns for shareholders. I want to thank our teams here at IDEX for continuing to execute extremely well and thank you all for your time and your interest in IDEX and I look forward to talking to you here in about 90 days. Take care.

Ladies and gentlemen this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.