AMETEK INC (AME) Earnings Report: Q1 2016 Conference Call

CompanyName:AMET EKIncCompanyTicker:AMESector:IndustrialGoodsIndustry:Industrial

EventDescription:Q12016EarningsCallMarketCapasofEventDate:12.15BPriceasofEventDate:48.2

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

AMETEKINC(AME)EarningsReport:Q12016ConferenceCallTranscriptThefollowingAMETEKINCconferencecalltookplaceonApril28,2016,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

KevinColeman;Ametek;InvestorRelationsFrankHermance;Ametek;ChairmanandCEOBobMandos;Ametek;CFODavidZapico;Ametek;COO

OtherPart icipants

BrianKonigsberg;VerticalResearchPartners;AnalystAllisonPoliniak;WellsFargoSecurities,LLC;AnalystNickChen;AlembicGlobalAdvisors;AnalystMattMcConnell;RBCCapitalMarkets;AnalystScottGraham;BMOCapitalMarkets;AnalystRobertMcCarthy;StifelNicolaus;AnalystBhupenderBohra;JefferiesLLC;AnalystChristopherGlynn;Oppenheimer&Co.;AnalystJoeGiordano;CowenandCompany;AnalystNigelCoe;MorganStanley;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,Iwouldliketowelcomeeveryonetothefirstquarterearningsconferencecall.

(OperatorInstructions)

Mr.KevinColeman,youmaybeginyourcall.

KevinColeman (InvestorRelations):

Great.Thankyou,Operator.Goodmorning.WelcometoAMETEK'sfirst-quarterearningsconferencecall.

JoiningmethismorningareFrankHermance,ChairmanandCEO;BobMandos,ExecutiveVicePresidentandChiefFinancialOfficer;andDaveZapico,ExecutiveVicePresidentandChiefOperatingOfficer.

AMETEK'sfirst-quarterresultswerereleasedearlierthismorning.Theseresultsareavailableelectronicallyonmarketsystems,andonourwebsiteattheInvestorssectionofAMETEK.com.Thecallisalsowebcasted.ItcanbeaccessedatAMETEK.comandStreetEvents.com.Thecallwillbearchivedonbothofthosesites.

AnystatementsmadebyAMETEKduringthecallthatarenothistoricalinnaturearetobeconsideredforward-lookingstatements.Assuch,thesestatementsaresubjecttochange,basedonvariousriskfactorsanduncertaintiesthatmaycauseactualresultstodiffersignificantlyfromexpectations.




AdetaileddiscussionoftherisksanduncertaintiesthatmayaffectourfutureresultsiscontainedinAMETEK'sfilingswiththeSEC.AMETEKdisclaimsanyintentionorobligationtoupdate,orreviseanyforward-lookingstatements.

IwillalsoreferyoutotheInvestorsectionofAMETEK.comforareconciliationofanynon-GAAPfinancialmeasuresusedduringthiscall.We'llbegintodaywithpreparedremarks,andthenwe'llopenituptotakequestions.I'llturnthemeetingovernowtoFrank.

FrankHermance (ChairmanandCEO):

Thankyou,Kevin,andgoodmorning,everyone.AMETEKdeliveredsolidearningsinthefirstquarter,despiteaverychallengingglobalmacroenvironment.Overalldemandacrossanumberofourmarketsremainsweak.Inparticular,weareseeingmeaningfulheadwindswithinouroilandgasandmetalsmarkets.

Theseheadwindsarelargerthanweanticipatedwhenwestartedtheyear.Althoughtheseshort-termheadwindsarechallenging,weremainconfidentinthelong-termpositioningandgrowthprospectsforourbusiness.Beforecoveringthefinancialhighlights,pleasenotethatanyreferencesmadeto2015results,willbeonanadjustedbasis,excludingtherealignmentcostsin2015.

Nowontothefinancialresults.Inthefirstquarter,salesdeclined4%to$944.4million.Organicsalesweredown9%,acquisitionsadded5%,andforeigncurrencywasa1%headwindduringthequarter.

Operatingincomeforthefirstquarterdeclined12%to$208.5million,andoperatingincomemargininthequarterwas22.1%versus24.1%inthefirstquarterof2015.

Netincomeforthequarterwas$134.2million,anddilutedearningspershareof$0.57weredown10%overlastyear'sfirstquarter,meetingourStreetguidance.Operatingcashflowwas$152millioninthequarter,up24%overtheprioryear.

Nowturningtotheindividualoperatinggroups.Theelectronicinstrumentsgroupreportedasalesdeclineof4%to$569millionforthequarter.Organicsalesdeclined8%.TheacquisitionsofSurfaceVision,BrookfieldEngineeringandESP/SurgeXcontributed5%,andforeigncurrencywasa1%headwind.Thelowersalesversusprioryearweredrivenlargelybyourprocessbusinesseswhichhadexposuretooilandgasmarkets.Weareseeingincrementalweaknessaboveourpriorexpectationsinoilandgas,bothintheupstream,andinthemidanddownstreammarkets.

EIG'soperatingincomedeclined12%to$141.8million,andoperatingmarginswere24.9%inthequarter,versus27%inlastyear'sfirstquarter.Theelectromechanicalgroupreportedoverallsalesdown4%to$375.4million.Organicsalesweredown9%.TheacquisitionofGlobalTubesadded6%,andforeigncurrencywasa1%headwind.

Thelowersalesweredrivenlargelybytheimpactfromcommoditypricedeflationinourengineeredmaterialsinterconnectandpackagingbusiness,aswellasfromsoftdemandinourfloorcareandspecialtymotorsbusiness.

EMG'soperatingincomeof$79.4millionwasdown10%fromlastyear'sfirstquarter,andoperatingmarginswere21.2%inthequarter,versus22.7%inthefirstquarterof2015.

I'llnowprovidesomeupdatesonourfourgrowthstrategiesofoperationalexcellence,globalandmarketexpansion,newproductdevelopmentandstrategicacquisitions.EachofthesestrategiesplaysanintegralroleintheoverallgrowthandsuccessofAMETEK.Wearefocusedonconsistentlyexecutingoneachofthesestrategiesoverthebusinesscycle.However,inslowgrowthenvironments,weincreasedourfocusonstrategicupacquisitionsandoperationalexcellenceinitiatives,whileensuringwecontinue




tomaketargetedinvestmentsinresearchanddevelopmentandglobalexpansion.

First,letmetouchonacquisitions.We'vehadagoodstartofyear,acquiringtwobusinessesinthefirstquarter,BrookfieldEngineeringLaboratoriesandESP/SurgeX.Combined,wedeployedapproximately$300millionincapital,andacquirednearly$100millioninsales.

ESP/SurgeXisaleaderinpowerprotection.Theirpatent-protectedproductsoperateatthepluglevel,andmonitor,protect,analyzeanddiagnosepower-relatedissuesremotelyoron-site.Inaddition,theirproductshelpcontrolpowertomission-criticalequipment.

ESPisagreatstrategicfitwithourexistingpowerprotectionplatform.ItishighlycomplementarywithourrecentlyacquiredPowervarbusiness,providinguswithnewopportunitiesforproductinnovationandmarketexpansion.Thecompanyhasannualsalesofapproximately$40million,andisheadquarteredinNorthCarolina.

Brookfieldisthegloballeaderinviscositymeasurementinstrumentationforqualitycontrolapplications.Thecompanyprovidesacompleterangeofviscometersandrheometers,aswellasinstrumentationfortheanalysisoftextureandpowderflow.KeyapplicationsforBrookfield'sproductsincluderesearch,developmentandproductionoffoodandbeverage,pharmaceutical,paintandpetroleumproducts.

TheadditionofBrookfieldallowsAMETEKtoexpandourlaboratoryinstrumentationplatformintoabroaderrangeofadjacentmarketsandapplications.TheyareheadquarteredinMiddleboro,MassachusettswithadditionaloperationsinGermany,theUnitedKingdom,China,andIndiaandhaveannualsalesofapproximately$55million.Theintegrationofbothoftheseacquisitionsisgoingverywell.

Aspartofouracquisitionintegrationprocess,weconductmonthlyintegrationmeetingswitheachacquiredcompany,foratleastthefirstsixmonthsfollowingacquisition.Thesemeetingsareimportantdriversofthesuccessofouracquisitionstrategy,astheyallowustocloselymonitorprogressonkeyintegrationactivitiesandvaluedriversduringthecriticalearlystagesoftheintegration.

Acquisitionswillcontinuetobeakeyfocusforus.Theywillcontinuetobetheprimaryuseofourstrongcashflowandfinancingfacilities.Ouracquisitionandbusinessteamsremainveryactive,andsowearequitebullishonouropportunitytocontinuetodeploycapital,andcreatemeaningfulshareholdervalue.

Nowturningtooperationalexcellence,ourmanagementteamsandemployeesaredoingagreatjob,drivingcontinuedoperationalefficienciesandimprovementsthroughtheirbusinessesbyleveragingouroperationalexcellencetools.Ouroperationalexcellenceinitiativestakeonevengreaterimportance,andbecomemoreofafocusinslowgrowthenvironments.

Forallof2016,wenowanticipateapproximately$130millionoftotaloperationalexcellencesavings,withourglobalsourcingandstrategicprocurementinitiativesdrivingapproximately$60millionofthetotalsavings.Thetotaloperationalexcellencesavingsisupfromourinitialestimateof$120million,asaresultofthecontinuedstrongeffortsofourteams.

Nowmovingontonewproducts.We'repleasedwiththecontinuoussuccessofournewproductdevelopmentactivities.Ourbusinessesaredoinganoutstandingjobdevelopingandintroducingexcitingnewproducts.

Thesenewproductdevelopmentsaretargetedatbothexpandinginexistingmarkets,andpenetratingadjacentmarkets.Despitetheslowgrowthenvironment,wecontinuetoinvestmeaningfullyinournewproductdevelopmentactivities.

In2016,weexpecttospendapproximately$210milliononRD&E,up5%fromlastyear.Wecontinuetoseeexcellentresultsfromthisinvestment,asourvitalityindexwhichmeasuresrevenuefromproducts




introducedoverthelastthreeyears,was22%ofsalesinthequarter.

Wehaveanumberofnotablenewproductintroductionswithinthequarter.ThenewXeposenergydispersiveX-rayfluorescencespectrometerfromourSPECTROAnalyticalInstrumentsbusinessisconsideredabreakthroughproductforperformingelementalanalysis.

Thecompactbench-topunitincorporatesanumberofadvances,thatallowittoperformrapidmulti-elementanalysiswithgreateraccuracyandprecision.

Theinstrument'senhancementsmakeitsuitablefordemandingenvironmentalandgeologicalresearch,aswellaspreciseat-linequalitycontrolinchemicalandpetrochemicalproduction,foodprocessing,andpharmaceuticalproduction.

ThenewExtremePerformanceSeriesofMIL-XTMfansfromAMETEKRotrondeliversbest-in-classairflowforharshanddemandingmilitary,aerospace,andindustrialenvironments.

Thenewfansfeatureshock-proofMilspecconstruction,andareoptimizedforelectroniccoolingapplications.Thefansareofferedwitharangeoffeaturesthatpermittheiruseinavarietyofsituationsandconfigurations.Theycanbeusedalone,orstackedwithmultiplefanstocoolelectronics,equipmentracks,andpersonnelinairborne,land-based,andsea-borneinstallations.

OurZygobusinessprovidedhighprecisionopticsthatwereusedintherecentdetectionofgravitationalwavesthatconfirmedoneofthekeypredictionsinEinstein's1915general.theoryofrelativity.

Theinternationalteamofscientiststhatcollaboratedonthediscovery,reliedonadvancedLIGOdetectorsthatincorporatedveryhighprecisionopticalcomponentsmanufacturedbyZygo.Theopticsmanufacturedtosomesubnanometertolerancesareamongthemostpreciseopticsevermade.I'dliketorecognizetheZygoteamontheircontributiontothesuccessofthisimportantglobalscientificproject.

Nowturningtoglobalandmarketexpansion.Globalandmarketexpansioncontinuestobeanimportantpartofourlong-termgrowth.Inthefirstquarter,internationalsalesrepresented53%ofourtotalsales.

Weremaincommittedtoexpandingourpresenceinattractivehighergrowthregionsandmarketsegmentsthroughcontinuedinvestmentsinoursalesandservicecapabilities,andthroughtheexpansionofourtechnologyintonewadjacentmarketsegments.

Iwanttohighlightonerecentsuccessofouradjacentmarketexpansioninitiatives.Ourprocessinstrumentsbusinesshaspioneerednear-infraredtunablediodelaserabsorptionspectroscopy,orTDLAStechnology.Thistechnologyhasbeenverysuccessfulforuseinonlineprocessapplicationswithinnaturalgasprocessingandpetrochemicalproduction.

TheprocessinstrumentsbusinessisnowadaptingtoTDLAStechnologyforuseinonlinepharmaceuticalprocessing,throughmodifyingitsexistingModel5100Seriesanalyzerstoprovidecontinuousprocesscontrolofpharmaceuticaldrying.

Theuseofthistechnologyasanonlineanalysistool,allowsmanufacturerstoobtainaclearerpictureofthedryingprocessinrealtime.Itisaneconomicalandefficienttechniquefordeterminingdryerendpointdetection,sinceiteliminatestheneedforpharmaceuticalmanufacturerstostop,analyze,andrestartthedryingprocess.

Theprocessinstrumentsteamisstartingtoseestronginterestinthisnewmarketapplicationforanexistingtechnology.

Nowturningtotheoutlookfor2016.Asaresultoftheendmarketchallenges,wenowanticipateoverall




salesfor2016toberoughlyflatversus2015,withorganicsalesdownlowtomidsingle-digitsonapercentagebasisversus2015.Weexpectearningsfor2016tobeintherangeof$2.42to$2.52perdilutedshare,down1%to5%overlastyear.Ouroverallsecondquarter2016salesareexpectedtobedownlowsingle-digits,versusthesecondquarterof2015.Weestimateoursecond-quarterearningstobeapproximately$0.58to$0.59perdilutedshare,down8%to9%overlastyear'ssecondquarter.

Insummary,whiletheeconomicenvironmentacrossmanyofourmarketsremainschallengingandverydifficulttopredict,weremainfocusedonexecutingonthefactorswithinourcontrol.Thisincludesdeployingcapitalonstrategicacquisitions,makinggrowthinvestmentsinnewproductdevelopmentandglobalexpansion,andexecutingonouroperationalexcellenceinitiatives.

Ourstrongcashflowandprudentoperatingmodelgiveusconfidencethatwe'llcontinueourlongtrackrecordofstrongperformanceandshareholdervaluecreation.Bobwillnowcoversomeofthefinancialdetails,andthenwe'llbegladtotakeyourquestions.

BobMandos (CFO):

Thankyou,Frank.

AsFranknoted,wehadasolidfirst-quarter.Iwillprovidesomefurtherdetails.Inthequarter,organicsellingexpensesonapercentagebasisweredownthelinewithorganicsalesonapercentagebasis.Generaladministrativeexpenseswere1.3%ofsalesinthequarter,slightlyabovelastyear'sfirstquarterlevelof1.2%ofsales.

Theeffectivetaxrateforthequarterwas26.7%,downfromlastyear'sfirstquarterrateof28.1%,andinlinewithourexpectations.Thelowertaxrateinthequarterwastheresultofourongoingtaxplanninginitiatives.For2016,weestimateourtaxratetobeapproximately28%.Aswe'vesaidbefore,actualquarterlytaxratescandifferdramatically,eitherpositivelyornegativelyfromitsfull-yearrate.

Onthebalancesheet,workingcapitaldefinedasreceivablesplusinventorylesspayableswas20.8%ofsalesinthefirstquarter.Strongworkingcapitalandmanagementremainsakeypriority.Capitalexpenditureswere$11millionforthequarter.

Full-year2016capitalexpendituresareexpectedtobeapproximately$70million.Depreciationandamortizationwas$40millionforthequarter.2016depreciationandamortizationisexpectedtobeapproximately$[165]million.

Ourcashflowwasverystronginthequarter.Operatingcashflowwas$152million,up24%overlastyear'sfirstquarter.Freecashflowwas$141million,representing105%ofnetincome.Forthefullyear,weexpectfreecashflowtobeapproximately120%ofnetincome.

Theprimaryuseofourstrongcashflowistosupportouracquisitionstrategy.Inthefirstquarter,wedeployed$300millionfortheacquisitionsofBrookfieldandESP/SurgeX.Inadditioninthefirstquarter,werepurchasedapproximately2.4millionsharesofstockforapproximately$115million.

Totaldebtwas$2.22billionatMarch31,up$280millionfrom2015year-end.Offsettingthisdebtiscashandcashequivalentsof$386.9million,resultinginanetdebttocapitalratioforMarch31of35.7%.AtMarch31,wehadapproximately$900millionofcashandexistingcreditfacilitiestofundourgrowthinitiatives.

ThisamountincludestheincrementalfinancingcapacityprovidedthroughtheamendedrevolvingcreditfacilityweannouncedonMarch11.Thisamendedfacilityincreasesthesizeofourrevolvingcreditfacilityfrom$700millionto$850million,andextendsthematuritydatetoMarch2021,providesAMETEKwithalargerfinancingcapacity,andincreasedflexibilitytosupportourgrowthinitiatives.




Ourhighestpriorityforcapitaldeploymentremainsacquisitions.Insummary,ourbusinessesperformedwellinthefirstquarter,despitechallengingmacroeconomicconditions.Wearewell-positioned,withastrongbalancesheetandcashflowstosupportourgrowthinitiatives.

KevinColeman (InvestorRelations):

Great.Thankyou,Bob.Thatconcludesourpreparedremarks.

Operator,I'dlovetoopenitupforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

BrianKonigsberg,VerticalResearch.

BrianKonigsberg (Analyst-VerticalResearchPartners):

Yes,hi,goodmorning.


Hello,Brian.


Hey,Ijustwanttostartoff,maybejustmoreofaconceptualquestion.SoQ1March,thismaybethesecondorthirdquarterinarow,whereyoufellshortofexpectations,onanoperationalbasis.Justthinkingabouthowyou'rethinking,whenyougointotheplanningprocessforguidance.

Whatisitthat'schangedthatit'sbecomingalotmoredifficulttoguideinthismarket?

Weknowobviouslythingsaredifficult,butwe'renotusedtoAMETEKfallingshort,likeithasoverthelastfewquarters.

Haveyoucutittooclosetothebonepotentially,whereit'sbecomingalittlemoredifficulttoguardagainstsomeoftheshocksinthemarket?Orarethereotherissuesatplaythatyoucouldmaybediscuss?


No.Thekeyfactorhereis,itsurelyit'snotintermsofanythingwe'vedoneintermsofcostreductions,etcetera.ThekeyissueisthatwehaveexposureonbothsidesofourCompanytomarketsthatareinaprettysignificantdownturn.

OilandgasisamajorpartofourCompany,andwe'vehavejustseenoverthecourseofthelastseveralquarters,thatithasdeterioratedfurtherthanwehadexpected.Youmayrecallthatwehadcalledoilandgas,intermsofthedownturnlastyear.WhenwecalleditinJanuary,wehititrighton.Butthisyear,wedidnothititrighton,andtheconditionsareworse.

Ifyoulookatoilandgas,weinitiallythoughtfor2016withrespectto2015,we'dbedownaround$50million.Ourbestlooknowisdownaround$90million.Andthatchanged,therewasaninflectionpointactually,rightaroundthetimeofourlastearningscall,whenoilhit$26abarrel.




Andwhenthathappened,wejustsawalargenumberofprojectsjustmovetotheright,andthatwewereactuallyanticipatingthatweweregoingtogetsooner.Mostofthoseprojectsarestillgoingtohappen.Butthey'regoingtobemoved,andprobablymoved,manyofthemintonextyear.Sowemiscalledthatparticularbusiness.Andit'ssimplybecausethechangeshavebeensodramatic,andit'sverydifficulttopredictthem.

Ithasreallynothingtodowithhowwe'reoperatingtheCompanyitself.It'sjustpredictingthefutureisnotaneasything.AndIwouldsaysimilarly,ifyoulookattheothersideofthecompanywithEMIP,withtheissuewithmetalspricing,andthedeflationthathappened,andwetalkedaboutthisinthefourthquarter.Inaway,asimilarthinghappenedthatwhenmetalpriceswentdownsodrastically,thebuyinglevelsfromourcustomersjustwentvery,verysoft,andhaveremainedsoftthroughthefirstquarter.

Andnowthegoodnews,inthatparticularmarketiswearestartingtofeelimprovement,whereactuallyourorderintakeisimproving.Soweactuallybelievethatonewillimproveastheyeargoeson.Butwe'renotpredictingthattheoilandgasbusinesswillimprove.Sothisisreallyamarket-relatedissue,withdramaticchangesoneachsideoftheCompany,that'scausingthisproblem.

Nowgiventhat,andthecontributionmarginsofourbusinesses,we'reactuallyquitepleasedwiththeoperatingperformanceintermsofprofitability.Wemetourfirst-quarterguidanceonprofitability.Margins,althoughdownabit,arestillextremelygood,oneofthebetteronesintheindustry.Sowe'remanagingadifficultsituation,aswellasIbelieveanybodycouldmanageitso,butthat'sfundamentallywhathappened.Ihopethathelps.


Thatishelpful.Thanks,Frank.Andmaybejustsecondly,andobviouslytherearealotofnumbersthataregoingintothis,butIdon'tknowifyoucouldsimplifyit.WhenIjustlookatyourbridge,talkingaboutflatsalesfortheyear,obviously4[%],5[%],6[%]percent--percentagepointsofacquisitioncontribution,organicdown.Ipresumetherehasn'tbeenachangeintheassumptiononpriceandinflation.Iguess,priceisoffsettinginflationbyamodestamountstill.Andthenyou'retalkingaboutproductivitysavingsof$130million.

Istillhaveahardtimekindofbridgingtheguidancetothenewrangethathasbeenprovided.Infact,I'mactuallycomingabovetherange.SowhenIthinkabout,whenIputtogetherthequalitativecomponents,I'mcomingouttoanEPSthatshouldbehigherthanwhereyou'reguiding.Ithoughtthat,probablyforthelastfourorfivequarters,andclearlythatdidn'tmaterialize.ButIwasjustcuriousifthereare--maybeyoucouldkindofwalkthroughsomeofthecomponents,thatgetyoufromthe2015EPS,toyournewguidanceof--thenewguidancerangethatyouprovidedtoday?


Yes,actuallyyoucanviewitinrelativelysimpleeconomicterms.Theorganicgrowth,ifyoulookattheentirecompany,andyoulookatit--fortheyear,wethinkwe,andourguidanceassumes,thatwe'regoingtobe2pointslessonorganicgrowth.Andthat'sasaresultofthetwofactors,predominantlythatItalkedaboutinanswertoyourfirstquestion.

Youtake2pointsona$4billioncompany,that's$80million.$80million,thedetrimental--ordecremental--excuseme,theyaredetrimentaltoo,Iguess(laughter).Butdecrementalmarginsofthiscompany,similarlytowhenvolumegoesup,areontheorderofgreaterthan45%,roughly50%.Sojusttakethe$80million,multiplyit--I'lltake--makethenumberseasy,50%.You'vegot$40millionofpre-taxoperatingincome.Andthat's$0.12or$0.13ashare.Yes,wehaven'tputitthroughmorecostreductions,about$10millionofadditionalcostreductions,overwhatwetalkedaboutlastyear--orlastquarter,excuseme.




Andyoutakethat.Andwhathappens,inmanybusinesseswhentheeconomicenvironmentgetstough,isthatthebasicallypeoplebuylowerintheproductportfolio.SothattheoverallsortofmixoftheCompany,forlackofabetterword,goesdownabit.Andthathas,inessence,offsetthat$10millionofothercostimprovements.

Intermsofpriceandinflation,whatwetoldyouatthebeginningoftheyear,wasthatweexpectedpricetoessentiallyoffsetinflation,andthat'sstillourexpectation.Sothatisaveryhighlevellook.Obviously,thereareputsandtherearetakes.Butthat'stheoverallthoughtprocess.Andyoutakethat,andthatisthereductionintheguidanceessentially.


Andtheinvestmentspendof$60million--(multiplespeakers)


It's$60milliononinvestment,absolutely.Wehavenotchangedtheinvestmentspend.Sowearecontinuingtomaketheinvestments,sothatwhenwegetsomemarketlift,thecontributionmarginsareobviouslygoingtobeextremelyhighintheotherdirection,andwe'regoingtomakealotofmoney.


Understood.Thankyouforthedetail.Iappreciateit.


Okay.

Operator :

AllisonPoliniak,WellsFargo.

AllisonPoliniak(Analyst-WellsFargoSecurities,LLC):

Hi,guys.Goodmorning.


Hello,Allison.


Ontheenergyside,Frank,letmejustaskyou--Iknowhistoricallyyou'vehadsomelevelofvisibility,andthat'sfallenoffagainprettydramaticallywith--whichiswhathappenedlastfinancialcrisis.Iguess,what'syourconfidence,nowthatwe'resortofmodelingthiswhile--aswestandtoday.Obviously,oilisalittlebetterrightnow,butIguessyourconfidence,andjustthoughtsonthevisibilityaswemovethroughthisnow?


Yes,sure.It'sagreatquestion,andwehaveaskedthatsamequestionofourselves,anumberoftimesoverthelastfewmonths.We'regivingthisourbestshot.Andfromeverythingweknow,intalkingwithcustomers,andalsoquitefranklyinlisteningtosomeofourpeercompanies,Ibelieverightnow,wegotitcalledright.

Andwehavenotassumedanyimprovementinoilandgasastheyeargoeson.Thelevelsarelow.It's




hardtobelievetheycouldgetalittlebitworse,butwealsoputarangeonourguidance.Soandtheguidance,justtobeveryclear,theguidanceisbalancedbothways,bothplusandminus.It'snotaconservativeestimate.It'swhatwereallybelieveisgoingtohappen.

Andifthingsdogetalittleweaker,we'regoingtobeatthelowendoftheguidance.Ifthingsgettobealittlestronger,we'regoingtobeatthehighendoftheguidance.Sowethinkwe'vegotit.

Butpredictingthefutureisnotaneasythingtodo,butwithourbestpeopleandourbestthoughtprocess--andit'sfairlyconsistentwithwhatothercompaniesaresaying.TheonlyreleasethatIsawthathintedatimprovementinoilandgas,atthelatterpartofthisyearwasinGE'sreport.Justabouteverybodyelse,atleasttheonesIlistento,andIdon'tlistentothatmany,maybefourorfive,werepredictingprettymuchwhatwearepredicting.

Operator :

Okay,great.Andthen,justRD&Eonahighlevel,up5%.Inthiskindofenvironment,doesthebargetsethigherintermsofwhatyou'reinvestingin?Imean,anychangetosortoftheprocessnow,insortofasofterversusstrongermarketforyou?


We,it's,probablythelastexpenseintheCompanythatwedonotliketotouch.It'ssocriticaltoourfuture,intermsof--asyouknow,theleveloftechnologyinourproductsisquitehigh.Andifyoumakedramaticcutsinthatcost,you'regoingtohurtyourself.Youwon'tseeitfortwoorthreeyears.Soyoucouldimprovetheshort-termperformanceofthecompany,butnotthe--youjustdon'twanttosacrificethelong-term.

Sowehavenotmadeanysubstantialchangesinthatnumber.It'sthesamenumberthatwetalkedaboutatthebeginningoftheyear,andit'salsoupoverlastyearbythat5%.Itisaleverthatwewouldhave,ifthingsdidbyanychancegetanyworse.Butagain,wedon'tanticipatethatatthispointintime.


Great.Thankssomuch.


Youbet,Allison.

Operator :

MattSummerville,Alembic.

NickChen (Analyst-AlembicGlobalAdvisors):

Hi,guys.ThisisactuallyNickChenforMattthismorning.Thanksfortakingourcall.Iwashopingthatyoucouldjusttalkalittlebitmoreabouttotalandorganicorders,intermsofthebacklog,andwhatwe'reseeingforbookandbill?


Sure.Bookandbillinthequarterwas1.02.Ordersoverall,wereup3%.Organically,theyweredown8%.


That'sveryhelpful.Thankssomuch.Andthenjustfinally,canyoutalkalittlebitabouttheM&A




funnel?Andjust,Iknowyousortofgotintoalittlebitearlier,butsortofyourthoughtsontheabilitytodeploymeaningfulcapital,inregardtothebalancesheetof2016?


Yes,wefeelrealgoodthatthere'sahighlikelihoodthatwe'regoingtobeabletodeployasizeablylargeramountofcapitalastheyeargoeson.Wehaveactuallybeefedupourenergyontheacquisitionfront.We'vesetupacoupleotherteamswithinthecompanytolookatopportunities.We'reworkingwithexternaladvisors,andwe'vegotalotthat'sinthepipeline.They'revaryingsizes,fromthesmallerdealslikethetwowetalkedaboutearlierinthismeeting,tothelargerdeals.AndIwouldsay,it'sprobablyoneofthetopprioritiesoftheCompanyrightnow.We'vegotextremelystrongcashflow.Andwebelievethatthisisthebestwayforustocreatevalueforourshareholders,whileourmarketsareinadepressedcondition.


That'sgreat.Thankssomuch,guys.I'lljumpbackintothequeue.


Youbet.

Operator :

MattMcConnell,RBCCapitalMarkets.


Hello,Matt.

MattMcConnell(Analyst-RBCCapitalMarkets):

Goodmorning,guys.Justtotouchtoontheguidancereduction.So$40millionisprobablyhalf,oralittlebitlessthanhalfthantheguidancereductionthat'stheoilandgaspiece.(multiplespeakers)


No.No,that'snotright.


Sowhatelse--?


No,that'snotright.


What'sthat?


No,youtake$40million,thisispre-tax,$40millionatthepre-taxlevel,thatgoestothebottomlineatabout$0.12to$0.13.





Okay.Ontherevenueside,justgoingdowntoflatversusprioroutlookforuplowsingle-digits,I'mfiguringthat'sabout$100milliononrevenue.Andifoilandgasis$40million,there'sanotherbuckettherethatgotweaker,isthat--?


Ohyes.No,okay.NowI'vegotyourquestion,yes.No,it'stheotherpartthatIwastalkingabout.ThatontheEMGside,withthemetalpricedeflationthatItalkedabout,that'stheother$40million.Sothetotalisnot$100million,it'sabout$80million.


Okay.


Thecontributionmarginsarebitdifferentbetweenthosetwo$40million.That'sactuallyhigherontheoilandgasbusinesses,andabitlowerthanthe50%numberthatIwasusinginEMIP.Soyoutakethe$80milliontimesthe[0.5],yougetbasically$40millionofpretax.Andthat'swhatIthoughtyouroriginalquestionwas.Andthat'showyougettothe$0.12to$0.13number.


Okay,great.


Doesthathelp?


Yes,itdoes.I'mthinkingmorealongthelinesofstrictly,endmarketweaknessandtoplineweakness,whatchangedsinceFebruary?Andjustgettingat,whatmighthavegottenworse,besidesoilandgasbut--?


Well,itiswhatIsaidinresponsetoBrian,isthatalsothemetalsdeflationinEMIPwasdeeperthanwehadanticipated,andit'salsoslowercomingback.Nowweareseeingatrend,whereit'sstartingtocomeback.Butit'snotcomingbackatarate,thatwethinkcouldachievetheoriginalguidance.Andthat'swhywealsoreducedthatpartofthecompanybythe$40million.Soit'sadoublehit.That'swhat'shappeninghere.Imean,it'sprettysimpleactually.WegotahitontheoilandgasandEIGandahitonEMIPonthemetalside,andthat'sthecoreissueonwhatwe'redealingwith.


Okay,great.Thankyou.Andthe,juston--youmentionedagreaterimportanceputontheoperationalexcellenceinitiatives,andthat'shelpedabit.Butthecontributionwouldstillbelessthanwhatyousawlastyear,andI'mwonderingifthat'sarealisticexpectation,giventheincrementaleffortthatyou'reputtingonthoseinitiatives?


Yes,right.Ifyourememberlastyearwas--andwesaiditwhenithappened,itwasanexceptionalyear.Wedidseveralrestructuringslastyear,oneinthefirstquarterof2015,andanotheronelaterintheyear.Soyes,thatnumberlastyearwasbigger,butIhopewesettheexpectationthatwasnottherunrate.




Andwhatwe'redoingnowat$130millionlevel,wethinkit'sprettydarngood,andwefeelgreataboutit.Anditcomesthatback,tooneoftheoriginalorinitialquestionsthat,youdon'twanttodestroythesebusinesses.Thesearephenomenalbusinesses,andyoudon'twanttogoinandtakesomuchcostout,thatyouthenwillnotbeabletorecoup.Sowethinkwe'vedonetheappropriateamount.We'repleasedwithit.YoucanseeitintheoverallperformanceoftheCompany.Andwe'retalkingaboutearningsbeingdownhere,ifyoutaketheaverageofourestimatesabout3%.Soit'snotlikewe'regoingtobedown10%or15%onearnings.Sowe'reactuallyprettyhappywiththat,althoughIknowit'snotgoodfromthechangeinguidanceviewpoint.


Yes.Okay,great.Thankyouverymuch.


Okay.

Operator :

ScottGraham,BMOCapitalMarkets.

Scott Graham(Analyst-BMOCapitalMarkets):

Hi,goodmorning.


Hello,Scott.


Hey,Frank.Iwantedtomaybeslicethisorganicsalesquestionalittlebitdifferently.IfweweretomaybepulloutoilandgasandEMIP,itlookstomelikeyourorganicwouldhavebeendown,let'scallit4%tocertainly5%,whichisathirddeteriorationinlastthreequarters,whichofcourseincludesthosenumbersaswell.Butthepoint,ofcourse,isthatthe$80million,ifyoustraight-lineit,it'sstillkindoflookslikeorganicwasweakerthancertainlyIwouldhaveexpected.Andso,Iguessmyquestionis,oneofyourfouroperationalmodelpoints--legsofthechairifyouwill,isinfactnewproducts.

Andhadtherebeenthoughtgiventomaybefindingawaytobumpupthecostreductiontargetalittlebitmore,tolet'ssayfundalittlebitmoreorganicgrowth?Becausethere'sgottobesomereasonwhythattheorganichasbeenkindofstubbornlyweakforreallysixquartersnow.SoIwasjustwonderingwhatyouwerethinkingabouttermsofyourmodel,tweakingittopromotemoreorganic?


Well,Imean,youlookbasicallyatourstrategies,andclearlyinRD&Eandglobalandmarketexpansionaredefinitelyfocusedontheorganicgrowthsideofthebusiness.IfyoulookattheorganicgrowthofAMETEK,andKevinhasdonethisanalysisoverthelast--almostanyperiodyoupick,sayayear,threeyears,fiveyears,andIthinkheevenhada10yearchart,ourorganicgrowthlinesupquitewellwithourpeers.Butobviously,whenyou'vegottheimpactofthesetwomarketconditionsthatI'mtalkingabout,it'snotjustnot--youcan'tovercomethat,isbasicallywhathappens.

Yournumber,ifyoureallylookatit,isn'tassignificantasyouthink.It'snota4%to5%on--it'salowernumberthanthat.Butit'srunningslightlynegativeIwouldsay,fortherestofthecompany,andthat's




what'sinourguidance.Buttheoverwhelmingimpactisreallyfromthosetwoareas,andthatwillchangewhenthosemarketschange.

Sointermsoftweakingthemodel,yes,wedothatallthetime.AndasImentionedtoAllison'squestion,that'swhywe'rekeepingtheRD&Eexpenseup,whenthetoplineisweak.Andsure,we'redoingeverythingwecan,tohelptheorganicgrowthpictureoftheCompany.Andwe'recontinuingtoinvestinhighergrowthregionsoftheworld,andthosearereallythetwokeydriverstotheorganicsideofthequestion.


Gotit.Thankyou,Frank.Hey,andIwaswondering,ifyoucoulddoyourtypicalacrossthebusinessdivisionssummaryforus?


Sure,Scott,begladtodothat.SoletmestartwithEIG.EIGaerospacesalesweredownlowsingle-digits,againstadifficultcomparisoninlastyear'sfirstquarter.

WehadverygoodgrowthinourcommercialOEMandcommercialaftermarketbusinessinthequarter.Butitwasoffsetbyadifficultcomparisoninourbusinessandregionaljetbusiness,whichyoumayrecallwasvery,verystronglastyear.Forallof2016,weexpectEIGaerospacesalestobeuplowtomidsingle-digits,againdrivenbystrengthinourcommercialOEMandcommercialaftermarketbusinesses.

Ourprocessbusinesses,ourorganicsalesandprocessweredownabout10%inthequarter,reflectingobviouslywhatwe'vetalkedaboutintermsofgreaterthanexpectedweaknessinouroilandgasbusiness.AndasImentioned,whilesomeoftheincrementalweaknesswasinourupstreambusiness,projectdelaysandpush-outsalsoimpactedourmidanddownstreambusiness.Andasaresult,forallof2016,wenowexpectsalesforourprocessbusinessestobedownmidsingle-digitsorganically.

AndthelastpartofEIGispowerindustrial.Therewehadasolidfirst-quarter.Overallsaleswereup10%,drivenbythecontributionsfromtheacquisitionsofESP/SurgeXandBrookfieldthatItalkedaboutinmyopeningcomments.Ourorganicsalesweredownlowsingle-digits.Andforallof2016,weexpectorganicsalesforpowerindustrialtobedownamidsingle-digitnumber.SoifyousumthatallupforEIG,we'reexpectingoverallsalestoberoughlyflat.Andthat'sobviouslydrivenbytheacquisitionsofSurfaceVision,BrookfieldandESP/SurgeX,withorganicsalesdowntothemidsingle-digitkindofregion.

Movingtotheotherhalfofthecompany,Scott,inEMGandthedifferentiatedside,organicsalesforourdifferentiatedbusinessweredownhighsingle-digitsversusthefirstquarterof2015,drivenlargelybyweaknessacrossourengineeredmaterialsinterconnectandpackagingbusiness.Andtheweakness,asI'vealreadyindicated,wasreallyduetotheimpactofcommoditypricedeflation.However,herewedoexpectsequentialimprovementsovertherestof2016,andwe'rereallybasingthatoncurrentordertrendswhichhavestrengthened,andthuswereallydoexpectastrongersecond-halfthanfirsthalf.Soifyousumallofthatupforthedifferentiatedpiece,forallof2016,weexpectourdifferentiatedEMGbusinessesorganicsalestoberoughlyflatversustheprioryear.

Andthelast,andnowmuchasmallerpartofourcompany,floorcareandspecialtymotors,theywerealsodownapproximately10%infirstquarter,asaresultofsofterglobalmarketconditions.Andfor2016,weexpectsalesforthisbusinesstoberoughlyflatorganicallyversusprior-year.YoutakethosetwopartsofEMG,sooverallthenforEMG,weexpectoverallsalesandorganicgrowthtoberoughlyflatversus2015.Andthenlastly,obviously,yousumEIGandEMG,andthat'swherewegettotheflatoverallsales,andorganicsalesdownthelowtomidsingle-digitsonapercentagebasis.





Thankyou,Frank.


Hey,youbet,Scott.

Operator :

RobertMcCarthy,Stifel.

RobertMcCarthy(Analyst-StifelNicolaus):

Goodmorning,everyone.


Hello,Rob.


Soacouplequestionshere.Imean,onequestionthat'scomeupfromaninvestor,isjustthinkingabout,andmaybedrillingdownonthisquestionaboutthesizeofdeal.Ithinkinvestorshavebeenconcernedaboutperhapsinthecontextofalowerstructuralorganicgrowthandsomeofthechallengesthere,thatdoingalargerdealiskindofapriority,justgiventhelawoflargenumbers.Andcouldyoujusttalkaboutyourcapacitytodoadealnow,ofwhatsize,andthenultimatelyhowyouthinkaboutyourfunnel?

Iknowyoudidalludeinpreviouscomments,howyou'relookingatavarietyofdeals.Andthen,clearlythere'sapriority--allthingsbeingequaltodoalargerdeal.Butcouldyoujusttalkaboutthat,particularlyinthecontextof--Idothinkyoubroughtupyourrevolverandyourleveragealittlebitthisquarter.Socouldwegetasenseofwhatiskindoftheoutwardboundofyourcapacityrightnow?


Yes,sure.You'vegotabunchofquestionsinthere.Letmestartwith,whatweconsideralargerdeal.Firstofall,wearenotlookingatmergersofequalshere.Ifyoulookatmostmergerofequals,theydon'tcreateshareholdervalue.

Sowhenwelookatthesizeofdealthatwearefocusedon,it'sreallybetweeninvolumebetween$50millionandacouplehundredmilliondollars.Andifalargerdealcomesalong,upinthe$400millionor$500millionregion,wewouldconsiderdoingthat.Inordertomeetthemodelthatwehavediscussedwithyou,wherewebasicallywanttoachieveonayearlybasis--it'snotgoingtobeeveryyear,butonaverage5%to10%ofoursalescomingfromacquisitions--that'sthebasicmodelwe'vetalkedaboutforyears.

Youtaketheupperendofthat,andit's$400million,right?We're$4billionrightnow,soyoutaketheupperend,10%,youneedtodo$400millioninvolume.Andthere'sdifferentwaysyoucansay,what'sthepurchasepricebasedonthat?Butyoutake$400millionandmultiplythatbymaybe1.2or2--say2,justtomakethenumberseasy,yougottodeploy$800millionayearincapitalonaveragetomake,togettothehigh-endofthatrange.

What'sourcapacity?Rightnow,ourcapacityis--witheverythingwe'vegot,wehavewellinexcessof$900millionincapacity.Butmoreimportantthanthat,ifyoulookatthefreecashflowoftheCompany,theoperatingcashflowisgoingtobethisyear,ontheorderof$775million.Whichmeansthefreecash




flow,wehaveourCapExsetataround$70million,isaround$700million.So,andwhenyoubuycompanies,yougetinEBITDAstream.Sobasicallywecouldeasilydeploy$1billion-plus,probablya$1.3billion.Ihaven'trunthenumbersrecently--withoutaffectingsignificantlytheleverageoftheCompany.

Wewillremaininvestment-grade.That'sabsolutelyourthrust.Wedon'tintendtofloatequity.Wedon'tneedtobasedonthenumbersthatIjusttoldyou.Sowe'reinagreatposition.

Nowifyoulookatitfromtheviewpointofcapacity,fromamanagementviewpoint,thewaywehaveputthe--madechangesintheCompanyreallyoverthelastnumberofyears,istobasicallyputenoughresourceintheCompany,whichisalreadytherenow,it'salreadydone.Sothatwecouldhandlethreedealsayear,orthreedealssimultaneously,excuseme.Andifyoutakeonaveragehowlongittakestodoadeal,itmeansyoucouldeasilydo10dealsayear,probablyevendoafewmorethanthat.

Thekeypointis,wedon'thavetodothatlargerdeal.Wecangettothat$400millionnumber,bydoingabunchofsmalldeals.Butontheotherhand,ifwecanfindsomething,andwe'velookedatafew,andwe'reactuallyverycloseononeafewquartersagothatwetalkedabout,that'slargerwewilldothat.Sowe'repartnotmanagementconstrained,we'renotfinanciallyconstrainedfromacashflowviewpoint.Anditjustcomesdowntofindingreallygoodcompanies.

Andwe'vegotalotofeffortgoingin,thebacklogisgood.We'relookingatdeals.IcantellyouthatDaveandIareinvolvedindealsonadailybasis.AndIcan'ttellyouexactlywhenthenextoneisgoingtoclose,butIcantellyouthatwe'refairlyoptimisticthatwe'regoingdowell.Andthat'sthebestway,thatwecantakethestrongcashflowoftheCompany,andcreatevalueforyou.SoIdon'tknowifI'veansweredallofyourquestions.Itriedtobundlethemaltogether,butdidthatgetatthem?


That'sencyclopediac.(laughter)Thankyouforthefullresponse,andfortheaudience,wedidn'tcolludeonthatquestion,becauseitwasaverywell-scriptedresponse(laughter).Interms,oftwootherpoints,oneonrestructuring.Imean,doyouthinkwe'llcontinuedtoseecalloutsgoingheregoingforward?Sojustgiven,Imean,howdoyouthinkabout,thesensethatwhat'songoing,andwhatshouldbejustbuiltintoyourearningsbase,justcostofdoingbusiness?(multiplespeakers)


Wethinkofthisnumberof--I'llcallit,$100million-plus.We'reat$130millionnow.That'swhatwethinkwecandoonayearin,yearoutbasis.We'veputtheinfrastructureintheCompanytodothat,andwebelievethatcancontinueforasubstantialamountoftime.

Andthemajorityofthatissortofbuiltintoourrevenueandourguidance,aswegiveittoyou,guysandladies.Andthereasonforthatisthestructurethatwehaveputinplace.Asyouknowweareoperationallyfocusedcompany.Sointermsofjustournormaloperationalexcellencestrategies,wecanget$50millionto$70millionayear,andintermsofourmaterialsstrategy,we'reinthatsameballpark.Andtherefore,that'sanongoingcost.

Andintermsofany,whatIwouldcallmajorrestructuringofthecompany,no.We'renotenvisioningthat,andwehavetomodifythesestrategiesastimegoeson.AndI'llgiveyouanexample,andDavemaybeyoucanspeaktothis.Thatonthematerialside,wehadtochangethestrategyabit,andwe'vedoneincrementallyoverthelastnumberofyears,andwe'veaddedavalueanalysistoolintoourtoolbox.AndDave,whydon'tyouspeaktothatalittlebit?You'vereallyledthatactivity,anddoneagreatjobwithit.

DavidZapico (COO):

Sure.Itreallycomesdowntogettingthat$50millionayearofcostsavingsthatyoutalkedabout.Andfor




someofourmaturerbusinesses,wherewe'vealreadyglobalizedthesupplychain,wereallyfocusedon[targeting]thebillofmaterialfromanengineeringviewpoint.Sowe'vetakenourbillofmaterials,focusedonthehighestcostitems,andusedbothourengineeringcapabilityandsupplychaincapabilitytoattackthat,andveryquicklygothroughprojects,andwe'reintroducingcost-outdesignsinamatterofthreeorsixmonths.Andwe'vedonethatacrossthecompany,andwe'veinstitutionalizeditasoneofouroperationalexcellencetools.Andthatwasthelargestdriverofourmaterialcostsavings.

Soifyouthinkaboutit,webringanewcompanyin.Wegoafterthesupplychainhard,andwegetbigsavings.Weoftencantake25%outofthecompany'smaterialcosts,becauseofourglobalsourcing.Well,ifyou'veownedthecompanyfor5or10years,wehavetofindotheravenuestotakematerialcostsout.Andthat'swherethevalueanalysis,valueengineeringcomesin,andnowlet'sinstitutionalizeacrossthewholebusiness.AndasImentioned,it'sthelargestdriverofthematerialcostnow.Sowe'reveryhappyaboutthat.


Thanksforyourtime.


Okay.

Operator :

BhupenderBohra,Jefferies

BhupenderBohra(Analyst-JefferiesLLC):

Hey,goodmorning,guys.


Goodmorning.


Yes,myquestion,Frank,ifyoucouldgiveussomecolorontheBRICcountries,theglobalespeciallyChina.


Yes,goodnewsandbadnewsisthebestwaytosayit.Overall,BRICcountriesorganicallyweredown8%,andChinawasthedriverdownabout9%.Ifyoulookattheothercountries,Russiacontinuestobeweak.Brazilweak,butactuallyalittlebitbetterthanitwasdoingintermsofdecrementalorganicgrowthversuslastyear.Butobviously,thedriverhereisChina,andIshouldmentionIndiaisgood.That'stheonethatwasgoodlastquarter,anditremainsgood.Wehadmid-single-digitkindoforganicgrowthinIndia.

Thegoodnewsisthatwe'refeelingastabilizationinChina.Andifyoulookatthenumberswe'veprovidedoverthelastthreequartersonChina,they'renotthebestintheworld,butthekeythingistheordersinthefirstquarterwereflatorganically.Soandintalkingwithourpeoplethere,theyarefeelingabitofstabilizationIwouldsay,isprobablythebestword.Sowe'refeelingalittlebitbetteraboutChina.Butobviously,theBRICcountries,whichforawhileforusweregrowingat25%,30%overall,arenowmoreofachallenge.Buthopefully,whatwesawinordersinChinaisanindicationthatthingsaregoingtogetbetterthere.





Okay.Sojustafollow-onontheenergybusinesshere,youtalkedabouttheshortfallof$40million.Canyougiveussomecolorintotheupstream,themidstream,andthedownstreamportion?


Yes,basicallyifyoulookat--you'retalkingabouttheincremental$40millionthatItalkedabout.Itwasevenlysplit,betweendownstreamatabout$20million.Andthecombinationofupstreamanddownstreamat--orupstream--yes,upstreamanddownstreamat$20million.So$20millioninupstream,$20millioninthecombinationofmidanddownstream.Idon'tthinkIsaidthatrightamomentago.Okay.Andthen,betweenupstream--orbetweenmidstreamanddownstream,itwasmoredownstream-oriented.


Okay.Andtheother$40milliononthemetalsbusiness.NowIthought,whenwesawthecommoditypricesjumpinFebruary,yourcustomerswouldhaveactuallycomeintobuythemetals,butIdon'tknow--?


It'sagreatquestion,absolutelyagreatquestion.AndtheissueiswhatmetalsarekeytoAMETEK.Andinourcase,thekeymetalsontheEMIPsidearemolybdenumtrioxide,cobalt,vanadiumandtoalesserdegreenickel.Andifyouactuallylookatthosethreemetals,they'redown,andtheyhavenotcomeback.

Andthat'swhy,whentheydocomeback,ourcustomers--rightnow,theydon'twanttobuywhenthey'reverylow,right?Sowedon'thaveanimpactonourcost,becausewepassbasicallythepriceoftherawmaterialon.Sowe'renotsortof--wedon'thaveanissuefromthatviewpoint.Theissuefromusiswhenmetalpricesareverylow,ourcustomersarejustgoingtoholdoffaslongastheypossiblycan,andbeforetheystartbuying,andthat'swhat'sreallyhappeningrightnow.Andthefactthatthosemetalshavenotreboundedyet,istheissue.Soyoucan'tlookatus,intermsofthestandardmetalsthatyouthinkof.


Okay.Thanksalot.


Sure.

Operator :

ChristopherGlynn,Oppenheimer.


Goodmorning,Chris.

ChristopherGlynn (Analyst-Oppenheimer&Co.):

Hey,goodmorning.Soaquestiononthefull-yearguide,versusthefirsthalf.Itlookslikewereimplyingacouplepointsofmarginimprovementinthesecondhalfversusthefirst.That'ssteep,sojustwantedtogetsomehelpgettingmybrainaroundthat.





Yes.Wefeelprettycomfortable,aswemovethroughtheyear,intermsoftheimprovements.AndI'mgoingtotalksortofabouttheoverallimprovementsinEPS,andthere'sthreedriversforthis.Thefirstisthatinourprocessbusinesses,there'saseasonalityimpactofseveralofournon-oilandgas-relatedbusinesses,wheretheyalwayshaveastrongersecondhalfthanfirsthalf.

Thesecondthingisthatinoneofouroilandgasdivisions,thermalprocessmanagement,theyhaveactuallywonmarketsharewithagoodshareofthatimprovement,fromthemarketsharegainviewpointalreadyinbacklog.Andthey'vedonethatreallythroughseveralinitiatives.ThefirstwasincreasedpenetrationintheMiddleEast,andalsoapartnershipthatwehavewithPentair.

Sothefirstfactoris,weexpecttheprocessbusinessestohavesomeimprovementbecauseofthosefactors.Thesecondfactoriswhatwe'vealreadytalkedaboutintermsofEMIP,thatwebelievethatsituation,andwe'realreadyseeingitinorderintake,willhaveagradualimprovementthroughtheyear.Andtherefore,wewillseeincrementalimprovementsfromthatvolume,andwe'reveryconfidentinthat.

Andthen,thethirdthing,isreallythecostimprovements.Andifyoulookathowthecostimprovementslayerin,theybecomemuchmoresignificantinthelatterquartersintheyear.SoyoutaketheorganicgrowthofthefirsttworeasonsIoutlined,andobviouslywhenthatgoestothebottomline,thatimprovesyourmargins,becauseofourveryhighcontributionmargins.Andthen,youputtheseincrementalcostimprovementsthroughthebusiness.That'swhywefeelthosemarginswillinfactimprove.


Okay.


Doesthathelp?


Yes.That'shelpfulAndthen,intermsofM&AIthinkyoudidmentionaheightenedfocusonenergy-relatedassetsinparticular.SoifIheardthatcorrectly,I'mwonderinghowyoumatchthatfocusupagainst,maybegaugingtheriskofacommoditiessupercycle,thatcouldbeamirrorimageofa10yearemergingmarketsboom?


Yes.Ourfocusistofundamentallybuygoodbusinesses.Wearenotafraidofbuyingabusiness,whenit'sinadowncycle.Webelieveoilandgasisgoingtobeagoodplacetoplayonthelongerterm,andweareinasubstantialdowncycle.Nowisoilgoingtogetbackto$125abarrel?No,Idon'tthinkso.ButIthinkit'sreasonabletoassumethatit'sgoingtogetbacktoahealthierlevel,sowe'renotafraidtobuyassets.Andyoucangetextremely--potentiallyextremelygoodpricing,becauseyou'vegotbusinessesindistress.

Andbutit'snot,Iwouldn'tsay,we'refocusedonoilandgas--andIdon'tthinkIsaidthat.IjustIsaid,we--we'renotafraidtobuyabusinessinadowncycle.Actually,youhavealmostthereverseproblem.Ifyou'reinaverystrongupcycle,andyoulookatthesellerswhoaresellingthatbusiness,theyofcoursewilltakewheretheyareatthetopofthecycle,andsaythey'regoingtogroworganicallyfromthatpoint,andthey'llneverputacycle--downcycleintheirestimates.

Soyou'vegottobecarefulonthatsideoftheequation.Sowealwaysputcyclesinouracquisition




models.Weactuallyhaveanapproach,wherewecandoMonteCarloanalysis,andchangethemagnitudeofthecycles,changethetimingofthecycles,etcetera,sothatwemakesurewe'repayingthecorrectamountfortheassets.


Okay.AndIknowit'sgettinglate,butlastquarteryoukindofpushedustothelowendoftheguidance,thatprovedprescient.Anywayweshouldhandicapthecurrentrange?


Yes.Imean,that'sagreatpoint.Andifyourecall,whatIsaidat--inoneofthequestionsthatonesomebodyaskedinthismeeting,rightaroundthetimewereleasedguidance--Idon'trememberexactlywhenoilhit$26abarrel,butwewerestartingtofeelthat.Andso,thereforewhenIcameoutorwecameoutwithguidanceat--aquarterago,Ipushedyoutowardsthelow-end,andIdidthat,becauseoftheconcern,thatdidinfactmaterialize.I'mnotsure--Idon'tthinkI'veeverdonethatbefore,inmy16yearsofbeingaCEO.

Normally,wecomeoutwithaverybalancedviewontheguidance,nottryingtopushitonewayortheother.AndasI'vealreadymentionedonthiscall,theguidancewe'regivingyounowisbalanced.Inotherwords,wethinkthere'sasmuchupsidepotential,asthereisdownsiderisk.SoifthingsareweakerthanwhatI'msaying,youcouldendupatthelowend.Ifthingsarebetter,you'regoingtobeatthehighend.Soit'sabalancedview,andit'snotweightedineitherdirection.Andso,whichismuchmoreconsistentwithwhatwe'vedoneinthepast.


Soundsgood.Thanks.


Allright.

Operator :

JoeGiordano,Cowen.

JoeGiordano (Analyst-CowenandCompany):

Hey,guys.Thanksfortakingmyquestionhere.Frank,Ijustwanttoclarify,didyoumentionearlier,inthefloorcarebusiness,youmentioneddown10%organicinthefirstquarter,andthenexpectationofflatforthefullyear.Socanyoukindoftalkusthroughwhere--howyou'regettingtobridgingthat?


Yes,that'srealsimple.Thesecondhalfoftheyear,lastyearwasveryweak.Sothe[constancy]ishere.


Okay,easyenough.Andthen,aquestionontheguidance.JustIknowwe'vetalkedaboutthisalot,butwhenyougaveyourinitialguidance,andyouwerepointingustothelowend,wereyoucontemplatinglikeasecond-halfappreciationinunderlyingmarketsthatjustdidn'tmaterializeor?


No,it'sthereverse.(multiplespeakers)No,it'sthereverse.It'sreallywhatItalkedaboutinanswertothe




firstquestion.It'sthatoilandgas,andtheimpactofmetalsdeflationgotworse.AndIwasfeelingthataroundthetimeofthecall,butwewereunabletoquantifyit,becausethemarket--bothofthosemarketssortofjustclammedup,iswhathappened.


Yes,soboth--


SoIdidthebest,IcouldtotrytogiveyouthebestcallIcouldgiveyou,withwhatIknewatthetime.(multiplespeakers)Imean,wedidmakeourguidanceso.


Right.Butit'sfairtosaythatbothguidanceshadaflattrajectoryfrompointA,it'sjustit'salowerstartingpointnow.


Ithinkthat'sfair.


Okay.Thanks,guys.


Ithinkthat'sfair,yes.

Operator :

NigelCoe,MorganStanley.

NigelCoe (Analyst-MorganStanley):

Goodmorning,guys.


Hello,Nigel.


You'vecoveredalotofground,soandcertainly--


That'sforsure.


Acouplequickones.SoyoutookupyourrevolverinmidMarchfrom$700millionto$850million,andisthatthesignalofmaybesizepotential,maybeyouneedtoseeintheM&Abacklog?Orwasit--amIjustreadingtoomuchintothat?





Well,there'sacouplefactors,andthatwassurelyoneofthem,thatwehavealotofbankswhoarewillingtogiveusalotoffunding.Sowetookadvantageofthat.Butalso,youdon'tlikethetermofyourrevolvertogetneartheend.Youhavebetternegotiatingpowerwhenyou'renotattheend,andsothatalsoenteredintothis.Andtherearesomesignals,thatatsomepointinthefuture,interestratesaregoingtogoup.Soyou'rejustinabetternegotiatingposition.Sothat's--reallywasthosetwofactorsthatdroveit.Bob,Idon'tknowifyouhaveanything?

BobMandos (CFO):

No,Itotallyagreewithwhatyousaid,Frank.


Okay.Great.ThemessageonM&Aisobviouslyveryclear,butthestockpriceisdownherethismorning.IsthereanybiastowardsbuyingbackstockattheselevelsversusM&A?


ThebiasisdefinitelytowardsM&A.Imean,wehavesaidandsaidrepeatedly,thatthebestwaywecreatevalueforourshareholdersisbybuyingcompaniesandmakingthembetter,andthatistheprimaryuseofcapital.Havingsaidthat,wewilldoopportunisticbuybacksofstock.AndIthinkBobmentionedinhisreportthatinthefirstquarterwedidsome.Itwas2.4millionshares,andwemayverywellcontinuethat.ButIdon'twanttoimplythatthat'sgoingtobeaprimaryuseofourcash.Wecancreatebettervalueforyou,bybuyingcompaniesandimprovingthem.


Okay,veryclear,Frank.Thanks.


Okay,Nigel.

Operator :

Andtherearenofurtherquestionsatthistime.Iwillturnthefloorbackovertothepresentersfortheclosingremarks.


Great.Thankyouverymuch,Operator.Thankseveryoneforjoiningthecalltoday.AreplaywillbeavailableonAMETEK.comandStreetEvents.com,.Andasalways,I'mavailableforfurtherdiscussionstoday.Thankyou.

Operator :

Thisconcludestoday'scall.

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AMETEK INC (AME) Earnings Report: Q1 2016 Conference Call