Ametek Inc (AME) — Q1 2019 Earnings Call Transcript

Thank you, Sidney. Good morning and thank you for joining us for AMETEK’s first quarter 2019 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. AMETEK’s first quarter results were released earlier this morning and are available on market systems and in the Investors section of our website. This call is also being webcast and can be accessed on our website. The webcast will be archived and made available on our site later today. During the course of today’s call, we will make forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in the AMETEK’s filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2018 or 2019 results will be on an adjusted basis, excluding after-tax acquisition-related intangible amortization and excluding the fourth quarter 2018 gain related to the finalization of the impact of the 2017 Tax Cuts and Jobs Act. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investor section of our website. We will begin today’s call with prepared remarks by Dave and Bill, and then open it up for your questions. I will now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK began 2019 with an outstanding first quarter, establishing records for sales, orders, backlog, EBITDA, and operating income. Our businesses delivered strong overall sales growth, with solid organic growth and meaningful contribution from the six acquisitions we completed in 2018. Our business has also delivered fantastic operating performance, with impressive operating income growth in core margin expansion leading to 15% adjusted earnings growth which nicely exceeded our expectations. We also generated strong cash flow, with operating cash flow increasing 11% year-over-year. Given these strong results, we have increased our earnings guidance for 2019. Now onto the financial highlights for the quarter. Total sales in the first quarter were $1.29 billion, up 10% compared to the first quarter of 2018. Organic sales growth was again strong at 5%, with acquisitions adding 7% and foreign currency presenting a 2-point headwind. We also generated a record level of orders in the first quarter, with another quarter of positive book-to-bill. Our record backlog of $1.7 billion provides solid visibility as we move through 2019. EBITDA in the first quarter was a record $337 million, up 10% over the same period in 2018 and EBITDA margins were excellent at 26.2%. Operating income in the quarter was a record at $283.3 million, up 10% over the prior year period, with reported operating margins of 22%. Excluding the dilutive impact of acquisitions, operating margins increased an impressive 70 basis points over 2018's first quarter. Adjusted earnings were $1 per share, up 15% over the comparable basis for 2018, exceeding our guidance range of $0.95 per diluted share to $0.97 per diluted share. Now turning to the first quarter results of the individual operating groups. First, the Electronic Instruments Group, EIG sales in the quarter increased 13% to $806.9 million. Recent acquisitions contributed 10% and organic sales growth was up 4%. Foreign currency was a 2-point headwind. Our Materials Analysis businesses continued to deliver strong growth as their high-end analytical instrumentation solutions are very well-positioned in attractive growth markets. EIG’s operating performance in the quarter was outstanding, with operating income of $203.1 million, up 11% over 2018’s first quarter. Reported operating income margins were 25.2%. Excluding the dilutive impact of acquisitions, EIG margins expanded an impressive 110 basis points over the prior year’s first quarter. The Electromechanical Group also had a great quarter, with strong organic sales growth and excellent operating performance. EMG’s first quarter sales increased 5% to a record $480.8 million, with organic sales growth a very strong 7%. The acquisition of FMH added 1% and foreign currency was a 2-point headwind. We continue to see broad based growth across our Automation, Engineered Materials, and Aerospace and Defense businesses, all continuing to deliver solid growth. EMG also delivered excellent operating performance in the quarter, with operating income increasing 9% to $98.8 million. Operating margins expanded nicely, up 70 basis points to 20.6%. I am very pleased with AMETEK’s first quarter performance, which has positioned us very well for another year of record results. The AMETEK growth model, which combines our four growth strategies, with a disciplined focus on cash generation, capital deployment, and talent development continues to provide the framework for driving long-term and sustainable value for our shareholders. Before I discuss our updated outlook for 2019, I wanted to highlight some of the recent achievements of our colleagues that have driven success for AMETEK. I will start with the collaborative R&D effort between two of our businesses, which resulted in the release of two innovative new products. In March, EDAX, a leading provider of materials characterization systems unveiled its Velocity Plus and Velocity Super models. The Velocity Super at 4,500 frames per second is the fastest electron batch diffraction camera system in the world. Both new velocity systems are powered by high-speed, low noise, CMOS sensors developed by our Vision Research business, a leading provider of ultra high-speed cameras. These new additions to the EDAX portfolio offer our customers a superior solution to help solve materials characterization and elemental composition challenges in both R&D and broader industrial settings. Congratulations to the EDAX and Vision Research teams for coming together and developing these world-class new products. This is just one example of the many market-leading new products and solutions our businesses are developing to help solve our customers’ most complex challenges. Our businesses are also capturing additional market share by expanding into attractively positioned adjacent markets. Rauland, a leading provider of communication systems for use in hospitals and healthcare facilities has a renewed focus on expanding its technology offerings to serve schools and educational institutions. Through its Telecenter U, Rauland provides school districts and campuses with flexible, streamlined communication capabilities for its students and staff. Utilizing a suite of proprietary hardware and software applications, Telecenter U synchronizes mass communications across multiple locations for everyday messages, event scheduling, and in critical emergency situations. The solution can play a key role in helping to improve the safety and security of students and teachers during crisis situations, and it is designed to help automate and manage our schools' crisis plan during the crucial first few minutes before first responders arrive. Rauland has done an excellent job expanding its technology focus on safety within our schools. We will continue to invest in our new product development and market expansion initiatives as we are seeing outstanding results from these investments. Our teams are also doing an incredible job integrating our recent acquisitions into AMETEK. In 2018, we deployed over $1.1 billion of capital on fixed acquisitions and acquired approximately $350 million in annual sales. These acquisitions are already showing strong performance, and we expect them to generate excellent results in 2019. We remain focused on deploying our strong free cash flow on strategic acquisitions. While we are aggressively pursuing these opportunities, we will remain disciplined in our acquisition efforts. Our teams are actively pursuing a broad pipeline of opportunities, and we are confident that we will be able to continue to complete value-enhancing acquisitions. Finally, we continue to focus on driving operational excellence, the cornerstone of the AMETEK growth model. In the first quarter, we generated strong savings from our operational excellence initiatives largely resulting from our global sourcing and strategic determinations activities. For all of 2019, we expect to generate over $80 million in operational excellence savings. We remain focused on developing and enhancing continuous improvement processes to drive positive operating results in 2019 and beyond. Now moving to our updated outlook. Given our performance in the first quarter and our outlook for the remainder of the year, we now expect 2019 adjusted earnings to be in the range of $3.98 to $4.08 per diluted share, an increase of 9% to 11% over the comparable basis in 2018. This is an increase from our previous guidance range of $3.95 to $4.05 per diluted share. We continue to expect overall sales in 2019 to be up high single digits with organic sales up 3% to 5%. In the second quarter, we anticipate overall sales to be up high single digits and adjusted earnings to be in the range of $1 to $1.02 per diluted share, a 9% to 11% increase over the prior year period. To summarize, our business's outperformance in the first quarter firmly positions AMETEK for another year of strong growth. Our experienced management teams, our market-leading niche businesses, and the proven growth model allows AMETEK to deliver strong and consistent performance. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter and then we will be glad to take your questions.

Thank you, Dave. As Dave just mentioned, AMETEK began the year with excellent performance, delivering record results that exceeded our expectations. I will now provide some additional financial highlights for the quarter. Core selling expenses in the quarter were up in line with the core sales growth. First quarter general and administrative expenses were up $2.4 million over the same period in 2018 due largely to higher compensation costs. As a percentage of sales, general and administrative expenses were 1.4%, in line with last year’s level. The effective tax rate in the quarter was 20.5%, down from last year’s first quarter rate of 23.1%. In 2019, we expect our effective tax rate to be approximately 21.5%. And as we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate. Working capital in the quarter was 18.2%, up versus the prior year due to large parts of the impact from the acquisitions in 2018. Capital expenditures were $21 million for the first quarter. And for 2019, we continue to expect capital expenditures to be approximately $100 million, or 1.9% of sales. Depreciation and amortization expense in the quarter was $58 million. And for the full year, we continue to expect depreciation and amortization to be approximately $235 million, including acquisition-related intangible amortization of approximately $130 million, or $0.43 per diluted share. Operating cash flow in the quarter was $196 million, up 11% over last year’s first quarter, and free cash flow was $175 million. Total debt at the end of the quarter was $2.47 billion, down $160 million from $2.63 billion at the end of 2018. Offsetting this debt is cash and cash equivalents of $368 million, resulting in a net debt-to-EBITDA ratio as of March 31 of 1.6 times. We remain well positioned to support our growth initiatives with more than $1.8 billion of cash and existing credit facilities. To conclude, our businesses started the year with outstanding performance delivering high-quality results. Our outlook for 2019 remains positive given our strong balance sheet and excellent cash flows.

Great, thank you, Bill. Sydney, we are now ready to open the lines for questions.

Good morning, Matt. How are you there?

Sydney, why don’t we move on to the next call?

Hello

Matt, are you there?

Yes. Can you hear me?

Yes, now, yes.

Yes. I am sorry. I don’t know what happened there. Anyway, could you maybe comment as to the linearity you saw in your business throughout the quarter, anything unusual across the three regions? And then maybe give a little regional color around the 5% organic growth sort of what was better, what was worse?

Right. I will start with the geographic update. And there was a dynamic in one of our regions that was a little bit different, so I will talk about that also. In the U.S., there was strong high single-digit growth. It was broad-based, particularly in our Aerospace business, our Process businesses, and our EMIP business. It really fired on all cylinders. Europe was a pleasant surprise, up mid-single digits, with solid growth in automation and Process businesses driving that growth. And Asia was roughly flat. And also there was a dynamic where the activities seemed to slow in February, but it picked up very strongly in March. So some of our folks were speculating that some of the uncertainty or the Chinese New Year may have slowed our business activity. But again in March, we ended up with a record order input for Asia. So it was flat, but going forward, we haven’t changed any of our outlook for the region. So across the board, it was a pretty good quarter.

And then just lastly, Dave, can you maybe comment on where you were in Q1 with price realization and how that compared to inflation?

Yes. Matt, I didn’t answer your linearity question. I mean, we strengthened through the quarter and our strongest month was March, which is not atypical for us. And related to the price inflation, Q1 ‘19 was much like the second half of 2018. We had an excellent quarter. We achieved about 2 percentage points of price across our entire business. Total inflation was a bit less than 1.5%. So we are very pleased with these results, and we think we are well positioned to continue this for the balance of 2019. That speaks to the, as I said before, the highly differentiated nature of our product portfolio and our leadership positions in these niche markets. And also our focus and determination to stay ahead of the inflation in a changing global economic environment.

Yes, Just maybe a basic question, but just looking at the seasonality, given what the first quarter was, usually first quarter for you is quite a bit couple of percentage points less than 25%. And I guess, second quarter guide and the annual guide implies that on a seasonal basis, second half is going to be weaker than usual, just looking back 10 years. And I was just wondering if you are seeing any yellow flags that are driving this kind of caution, or you are just being conservative?

Yes, that’s a great question, Andrew. Firstly, in the second quarter, our guidance is higher than in the first quarter, as we typically see a slight increase from Q1 to Q2. We achieved organic sales growth at the top end of our guidance range, and in the first quarter, we experienced strong core margin performance. We also raised our guidance, allowing the entire first quarter earnings to impact the new guidance. However, to address your point, it’s still early in the year. We feel good about how the quarter turned out, but we are being cautious. The uncertainty in the economic environment makes us comfortable with our guidance.

And just a follow-up question. I guess since 2014, we have been sort of waiting for a big comeback for your Energy business. And if you can just comment what WTI being north of 60, are you seeing any change in tone from your customers to that point that maybe it would finally really take off where it’s just going to be a steady climb as it used to be?

The Energy business is now a smaller percentage of total AMETEK due to organic growth in other areas and our mergers and acquisitions. It represents about 6% of the company, and in the first quarter, it increased by low single digits. For the full year, we expect it to rise by mid-single digits. We anticipate our upstream business to grow by high single digits, while the mid-downstream is projected to be up by mid-single digits. Approximately 75% of our business is in the mid and downstream sectors. We're starting to see a typical recovery for this part of the business, which is our largest segment, and it is gaining momentum. We're confident about our energy business and the market positions we hold, and it continues to grow. Last year was excellent for us, and we're on track for another strong year this year.

But any near-term change in behavior as the oil price rallied in the past 3 months?

We have solid backlogs, but I can’t say that there was a notable change in behavior when the price of oil rose over the last few months, nor was there a change when it dropped sharply in Q4. We have just seen a steady increase in business, which is predominantly global, with about two-thirds outside the U.S. It feels really solid. Additionally, the mid and downstream business is picking up nicely.

This is Bhupender here sitting in for Nigel. So Dave, you mentioned about the core orders in the quarter, can you give us some color on the core orders numbers for the whole company as well as EIG and EMG? And just wanted to talk about some of the end markets, which kind of strengthened or weakened during the quarter or you actually see from a color especially in April what we are seeing here?

Sure, Bhupender. The organic orders increased by 3.5% for the quarter, which is notable considering we had a tough comparison with a 12% increase in Q1 of 2018. This demonstrates a solid performance in orders and we experienced an excellent book-to-bill ratio of 1.07. This marks our tenth consecutive quarter with a positive book-to-bill. We concluded the quarter with a record backlog of $1.7 billion, which makes us optimistic about the environment we are operating in. From what we have gathered from our businesses, there is a consistent underlying demand. We feel well positioned to excel in this environment. As for April, while I have not seen the latest data today, I did review it yesterday and everything is on track. There hasn’t been any change in pace for April, and we feel confident about Q2.

And just a question on your guidance for the second quarter. The sales are going to grow up high single, do you have the organic growth number? Like what kind of organic is built into those numbers?

The organic growth would be the same level at the 3%, 4%, 5% that we have guided for the year for AMETEK.

It's within the range, understood. Lastly, you mentioned the M&A pipeline. You did an excellent job deploying more than $1 billion in 2018. Can you provide insights on the size of the pipeline, including EIG and EMGs, and a general overview of the M&A activities?

Yes, sure on M&A. Our M&A pipeline is very active. As always, we are evaluating a number of opportunities. We have a very broad pipeline, it needs to be broad. Because we are in the environment with the oil pricing up and with the competitiveness of the environment, we have to select the deals from our broad pipeline, which will give us a solid return on capital. So the M&A environment is similar to what we have been experiencing in the past few years, and we are looking at deals across both of our groups. And I am very encouraged with the progress on the pipeline. You can’t predict in the next quarter if the deal is going to close, but I feel very confident on the long term with our process capability in M&A and with our tremendous pipeline. So I am very bullish about M&A.

I would like to address the Aerospace segment. Can you provide insights on our exposure to the 737 Max and any impacts we may be facing from the downturn in production, particularly with Boeing?

Right, as you know, AMETEK is not dependent on any one platform. So we are on a lot of or on just about every platform, but we are not overly dependent on anyone. So when you look at the 737 issue, first of all, Boeing hasn’t reduced the orders forecast and production plan that we are seeing here. So we are still going along meeting that demand. The second point would be for the full year of 2019, the 737 Max accounts for about $15 million in revenue. So that puts it in an order of magnitude. It’s a small part of the company, I think probably about 0.25% of revenue. So we are not overly dependent on it. We certainly want to see the problem fixed and want to keep producing at the rate we are producing on. But we had in the quarter strong OEM business. The commercial business was very solid. Our Aerospace business was up high single digits in the first quarter, and we are forecasting it to be up mid-single digits for the year. So strong growth in all segments and maybe there’s a bit of conservatism there, but we feel really good about our Aerospace business in all of our market segments.

Just wanted to come back to margins. Obviously, a lot of noise with FX and deal impacts moving through the reported margins, what were the core incremental margins that you saw in the quarter at the total company level and at the segment level?

Okay. At the AMETEK level, it was 35% and at the EIG level, it was 50% and at the EMG level, it was 25%. So pretty typical performance, very strong performance and that we are very pleased.

Okay, good. And then just a follow-up on the order question. Appreciate the color on the 3.5%. What does that look like at the segment level, were both positive or was the complexion, one negative, one up? And then within that order number, should we assume that that includes roughly two points of price, similar to what you realized at the sales line in the quarter? Thanks.

Yes. You probably should assume that because our pricing has been pretty consistent. At the group line, EIG was up 5% organically in orders and EMG was up 1% organically in orders. And EMG had the toughest hurdle because last year we had a very difficult comp at 12% and EMG was a bit stronger than EIG. So really all of our businesses have solid order performance and we have, as I said before, an excellent book-to-bill and record backlog. So we are feeling really good about the orders and it’s really across the board.

And then maybe just one last one on pricing, very good pricing power all year really as you guys look out into the balance of the year and you have seen some of these commodities and raw material start to moderate here. Is there a period of give back and maybe you could just update us remind us how your pricing mechanisms work, specifically within the metals business?

Yes, I’d say in AMETEK, except for the metals business. There isn’t a period of give back. I think within the metals business. We don’t really count that as price. So that’s just the commodity fluctuations that get passed on to the customer. And what you really have there is a lot of the metals have stabilized, but the price of vanadium is one metal that’s important to us that’s trough as strong recently. So that will have a modest impact as we go forward on EMG’s specialty metals business, but I don’t expect much of an impact at the AMETEK level.

It’s nice to have a boring AMETEK, right. And yeah, but I guess from that perspective in some of the excellent questioning that was ahead of May. I think it is a question about kind of the guide the cadence for the year. Could you talk about that in the context of you have entered a kind of slightly different range for the kind of deals you are looking at terms of growth and potentially valuation and even, and even underlying margins. Do you think given what the properties you are looking at now just dictated by the market environment, the pricing environment. Do you think that some of the accretion is being blunted, so that we might see a little bit more next year or another way to say it is of the deals you have announced so far. What would you expect for kind of accretion in 2020, given the fact that it sounds like you do have a lot of puts and takes for 2019?

In 2018, we indicated that there was about $0.12 of benefit. For 2019, we expect about 12% of that benefit from M&A activities, as we had several deals, although some were slow to close at the end of 2018. These deals are currently being processed, and we are actively engaged in integration activities. Consequently, we anticipate that the benefits from these deals could be more significant in 2020. However, we are still experiencing strong margins with our core business, which is a positive sign for these deals, and the integrations are progressing well. They are being distributed across our operating units, and we are optimistic about their outcomes.

And, forgive me for another kind of impolitic question, but it’s easier to ask these questions when your stock has rallied as significantly as it has and the investor perception has changed radically as it has over the last three years. But if you were so critical about yourself and the organization over the past three years to four years in terms of M&A, how do you miss on a transaction? Or how do you grade yourself on where you are pitfalls are with AMETEK strategic style in terms of going after assets?

I think our style was one that equates to returns. And we look for a cash-on-cash, after-tax return on invested capital, 10% in year three on all these deals and we haven’t changed that. And we are getting that kind of return on the deals we are getting done and we are not chasing deals that we can get a return on. So our per take maybe that we are not paying the inflated prices, but we feel very comfortable in the long run that there’s a lot of discipline in our system, we want to maintain that discipline, and we look at the return on total capital on our balance sheet. The return on capital is about 13% in the first quarter. Our cost of capital is more like 8.5% and we think the difference between the two is what we are creating value for our long-term shareholders and we look at that very closely. So that’s the key driver behind our acquisition strategy. We have a lot of discipline and we don’t plan to change that.

I would like to discuss some variables affecting the quarter. What dynamics have the industrial companies been facing regarding tariffs? Additionally, some companies experienced higher demand being pulled from the first quarter into the fourth quarter. Did you observe any of that? Also, although you typically don’t mention weather issues, did it have any impact as well? Please start with that.

I guess I will start with the weather and it didn’t have a measurable impact on our business. So with the tariff, Q1 2019, there was situation played out as we predicted. We had about $0.01 from the direct impact from tariffs and we offset that totally with price and our sourcing activities have been successful in reducing growth tariffs and we are active and continuing to those sourcing plans. So price actions completely offset tariffs and we feel good about that. And your last question there regarding the pull-ins, we look very hard at the pull-ins, and there is always some things pulled into Q4 before the end of the year maybe to avoid a price increase. But it wasn’t any different than any other prior year. So we are not saying we put a lot into Q4 2018. We really looked at it hard. And looked, it’s about the same thought. So those are answered.

That’s all. Good, yes, those are all good to hear. And just going back to the record backlog and just could you remind us how much of your backlog would convert in 2019? What percent of that and just talk about that visibility that gives you?

Yes, Deane. I think it’s about 85%. It comes out in the next year. So it gives you some very good visibility. But quite frankly there were a number of our businesses that are our book and ship that in the month of the quarter. So we don’t want to take it too far. But 85% of that $1.7 billion is going to go up this year.

And then last question from me. Was there any growth investments in the quarter that you would call out? What just remind us what the growth investment budget is for 2019?

Right. I highlighted the product development and EDAX and also the product development in the adjacent expansion roll-on. Those were the highlights. And regarding investment for the year, we are investing about $80 million of incremental investments in sales, marketing, and engineering activities. That’s $80 million more than we invested in 2018. So, and that spend is relatively linear through the year and we are getting a good return on it. So certainly, we are investing heavily but our businesses are really focused on getting a return and we are very pleased with our new product development activities and also the work we are done in commercial excellence, and improving our capability to go to market.

Yes. Good morning.

Good morning.

Dave, regarding the core growth rates in the quarter, with EIG at 3% and EMG at 7% against a challenging comparison, I'm interested in how the revenue played out. Was there any shift between the segments? Did EMG turn out to be a pleasant surprise? Also, was there anything in EIG that might have turned into an order that didn't ship, or was there any movement between the segments compared to the first quarter macro?

I would like to correct the point you made. EIG's organic growth was 4% in Q1, not 3%.

Okay. Fair enough. Same question then applies.

It really played out as we expected. We had a forecast, and both sides of the business met their expectations. So, from the sales execution standpoint, it was a very predictable quarter for us.

Good morning, guys.

Good morning, Joe.

Hey. So, if you have a guess, if you spend the same amount in 2019 on M&A, you did in 2018. Is it more likely that in six deals, more than six deals, less than six deals, like how you skewing the size that’s in your pipeline right now?

I don’t want to speculate, Joe. The pipeline includes a mix of larger and smaller deals, and given our careful approach, the outcomes are uncertain. We could spend the same as last year, more, or less, and the sizes of the deals may vary significantly. Therefore, it's challenging to predict that at this point in the year.

Fair enough. Dave, one of the things you have focused on when you came on to CEO role was kind of spending to reinvigorate organic growth and on the front end of the business. And certainly that’s shown through on results but part of that is also in your underlying market is getting better. So how would kind of break that down between success internally at AMETEK relative to just your markets getting better over the last couple of years here?

We just completed our ninth consecutive quarter with an average organic growth of 6%, which we are very pleased about. The economic environment has certainly been beneficial, but our focus and efforts have also improved significantly. Our customer-facing capabilities have enhanced, and our teams are enthusiastic, leading to positive outcomes from our growth initiatives and digital marketing. Our sales force is increasingly effective, and we are driving aftermarket growth, which is becoming a key aspect of our culture and business system. It’s challenging to distinguish between market growth and company-specific growth, but I can assure you that we are making substantial progress, and our results will speak for themselves.

And then maybe last, if you could do your kind of wrap up of everything on year?

Sure. Yeah. If I go through the market segment commentary, I will start with our process businesses, which had an excellent beginning to the year. Overall sales increased in the mid-teens. The organic growth was in the mid-single digits, along with contributions from our acquisitions of SoundCom, Forza, Telcellular, and Spectro Scientific. Our Materials Analysis business experienced particularly strong and widespread growth, continuing to see solid demand for their high-end analytical instrumentation. The team has done a remarkable job. For the entirety of 2019, we still anticipate organic sales to rise in the mid-single digits. Our Aerospace and Defense business achieved outstanding results, as previously mentioned, with high single-digit organic growth for the quarter. The growth remains robust across our various Aerospace markets, showing notable strength in our Military and Commercial OEM sectors. For 2019, we continue to expect mid-single-digit organic sales growth across each market. In our Power and Industrial sub-segment, we observed mid-single-digit growth in the first quarter, driven by our recent acquisition of Motec. Organic sales were flat for Power and Industrial in line with our expectations due to a challenging comparison from the prior year in our Power Test and Measurement business. We continue to expect low-to-mid single-digit organic growth for 2019, supported by our strong backlog and solid order patterns in these businesses. Lastly, in our Automation and Engineered Solutions, we saw growth across these sectors. They continue to perform well with mid-single-digit organic sales growth for the quarter. We are experiencing excellent growth from our Dunkermotoren business aligned with the automation trend. Additionally, we saw significant strength in our Engineered Medical Components businesses this quarter, with that team doing an exceptional job. For 2019, we expect solid mid-single-digit organic sales growth for our Automation and Engineered Solutions business. Thank you, that concludes my overview.

Thank you.

Thank you.

Hey. Good morning, guys. This is Ken Newman on for Steve.

Good morning, Ken.

Good morning.

Hey. I just wanted to clarify, so the hurdle rates within your M&A pipeline haven’t changed in terms of deal size and return metrics and multiples versus what you have said on prior calls. Is that correct?

No change.

No change. So, on the larger end then that $300 million to $500 million in revenue type size or deal size is probably at the upper echelon?

Correct.

It seems you are generally optimistic about the end markets, aside from some uncertainties related to trade policy. However, given the cautious outlook in your guidance, I would like to know your perspective on the current cycle. What stage do you believe we are in now, and how much further do you think this cycle can continue?

They are very difficult to predict. As we communicated early in the year, we expect solid growth this year, but the growth is going to moderate a bit. This is driven by trade tensions, global macro uncertainty, and we have some very difficult comparisons. We are staying close to Asia because of the trade difficulties, but overall, it feels pretty good, and our team tends to be a bit conservative. We are waiting to see how things play out, but we feel good about the year.

Got it. Last one from me and I am sorry if I missed it, how much of the $80 million in OpEx savings have been realized in the first quarter?

$18 million of the $80 million, right on our plan…

Okay.

You can't get rid of me; I'm like a bad penny. Just a couple more comments as we wrap up the hour. Regarding your remarks about Asia, it's clear that you aren't quite a leading indicator like some of the larger players in the market, but you did mention some additional softness observed in February and some uncertainty, despite a rebound in March. You also made a comment about Asia as a whole in contrast to China specifically. Could you elaborate on what you're noticing in that context?

Asia sales were roughly flat. In China, sales were down in the mid-single digits due to challenging comparisons. We've performed well there for nearly two years. While orders in China increased in the low single digits for Q1, similar to Asia, we experienced significant order input in China during March. There was a slowdown in February related to the Chinese New Year. Additionally, our Materials Analysis business had a strong quarter in China, although some of our project businesses faced difficult comparisons and were slightly down. Overall, in China, we recorded good orders consistent with low-single-digit growth for Q1, and we anticipate that for the full year, growth will align with AMETEK's overall growth forecast of 3% to 5%. Although this represents a moderation from the double-digit growth we've seen in recent years, it remains solid, but we are monitoring it closely due to the uncertainty in the global trade environment.

Two more if you will forgive me. One you were mail wanted to ask about Brexit, any kind of impact there that we should be thinking about?

The U.K. makes up about 4% of AMETEK's sales. We are preparing for Brexit and are not counting on a political solution. The situation has been postponed until the fall. There may be some administrative challenges that could cause delays in moving products in and out of Europe. Our businesses are well aware of the issue. We are currently holding about a million pounds of inventory strategically to manage any short-term disruptions. Our businesses already export from the U.K. without relying on the Mainland. While there may be some short-term administrative issues, we are preparing for a hard Brexit.

And then finally just on the M&A environment, obviously, what you guys ultimately do, you go out and buy these private companies, closely held companies, some public companies, but ultimately make them a heck of a lot better and create a lot of value, which is wonderful. And as you know, you’ve got work as a compounder. But I guess the question I have is for given the prevailing environment, where valuations are, where funding is an optionality. How do you think about the potential for select divestitures in the portfolio and how do you think about the repurchase option which you obviously hit the ignition on over the last six months?

Yeah. Our number one priority for capital allocation is to support our capital and acquisitions, and buy good businesses and make them better. That’s generated long-term return for our shareholders and it’s a clear priority. At the end of last year, we have an opportunistic approach to buybacks. Our stock in a significant market dislocation and we deployed a significant amount of capital and bought back some shares in the low ‘70s that will take a good move at this time. And then the priority three for capital allocation will be a modest consistent dividend. In terms of your other question about our portfolio, we are in the process of completing our annual strategic review. This is where we closely look at all elements of our portfolio. In the review last year, we concluded that we are very comfortable with our portfolio and we are clear profitable growth opportunities for each of our businesses. So our strategy is to focus on a broad diverse set of niche markets and we don’t want to become exposed to any one single market customer or technology but we haven’t completed our review that you share. We do it every year and we go through that review and may come to a different decision we will let you know, but we are comfortable with our performance.

Hey. Good morning, Dave, Kevin and Bill. How’s it going?

Whatever, wherever that may be.

I was napping and missed what happened in the queue, but I agree with Rob that the quarter was uneventfully comfortable.

I am wondering how Rob got two questions and before you got one.

I think Rob got about nine in, but that’s…

That’s said.

That's good. This is a good question as usual. I do have three more, believe it or not. So I just want to understand the pace of organic growth that you are anticipating this year. Obviously, you came in at the high end this quarter for organic growth. But if you look at the stacked comparison, your second half comparisons increase by 200 basis points versus the first half. So are you thinking that the 3 to 5 growth might come in a bit heavier during the first half compared to the second half?

Not really. I mean, I wouldn’t read too much into it. I mean, we grew sales organically at the high end of our guidance range and it’s still early in the year and we want to be prudent. So that will be the biggest driver. As we mentioned before, we do have some tough comps and that’s driving some moderating growth but we are feeling good with how the year is playing out nicely one more behind us.

I would say that the free cash flow probably will be a little more heavily weighted into the back half of the year than it is in the front half. And I think it’s, as you, as you mentioned, we were able to drive the benefits from businesses that are now inside the AMETEK portfolio for a longer period of time as well as getting after improving working capital performance across all of our base businesses.

Got it. Thank you, Will. So my last question is kind of going back to an earlier question on M&A, but more specifically, on the segments. There has been a profound difference in M&A in EIG versus EMG. And I am just trying to wonder why that is I mean I am looking at the organics from electromechanical over the last couple of years and I am also thinking that I know you are into the connectivity saying and Dunkermotoren is on that side of the house. So kind of like what’s going on there that is not where we are not seeing more M&A on that side of the house?

Yes. We are seeing some M&A have set out. We did major aerospace last year and we are actively looking in all of our businesses, put together a strategic plan and we look at those opportunities. And when you look at the characteristics of differentiation, we have very differentiated businesses with Dunkermotoren with our aerospace presence. So our aerospace business had an outstanding quarter. So we are looking at that both sides of our house. And I think over the past 10 years, there’s one point EIG and EMG were about the same size and EIG has just grown a little bit bigger. So there is clearly a strong desire to do acquisitions on either side of the business.

Would you maybe as a corollary to that, would you say that this is my speculation of course, aerospace particularly aftermarket oriented as well as connectivity assets, which are on the electromechanical side of the house that the prices for those deals are a little higher than what you would want for your ROIC or is that just a bad guess…

I wouldn’t say that - I wouldn’t say that. The pricing is really dependent on the niche market that we are looking and the expectations of the sellers. So I wouldn’t say that I mean, there is a big difference between EIG and EMG from the product portfolio. EIG has a lot of direct and aftermarket with the end users and EMG in large part is a OEM supplier, except for the aerospace business. So, but really we are looking on both sides and I wouldn’t draw anything from your prior point.

Great, thank you, Sydney. Thank you everyone for joining today. And as a reminder, a replay of today’s webcast can be accessed on our website later today. Have a great day.

Thank you.