AMETEK, Inc. (AME)
Q3 FY08 Earnings Call
October 21, 2008, 8:30 AM ET
William J. Burke - VP IR and Treasurer
Frank S. Hermance - Chairman and CEO
John J. Molinelli - EVP - CFO
Wendy Caplan - Wachovia Capital Markets, Llc
James Lucas - Janney Montgomery Scott LLC
Amit Daryanani - RBC Capital Markets
John Baliotti - FTN Midwest Securities
Christopher Glynn - Oppenheimer
Matt Summerville - KeyBanc Capital Markets
Richard Eastman - Robert W. Baird
Good day everyone and welcome to this AMETEK Incorporated Third Quarter Earnings Conference Call. This call is being recorded.
Previous Statements by AME
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William J. Burke - Vice President Investor Relations and Treasurer
Thank you, Rochelle. Good morning everyone and welcome to AMETEK's third quarter earnings conference call.
Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer and John Molinelli, Executive Vice President and Chief Financial Officer. AMETEK's third quarter results were released before the market opened today and are available electronically on your market systems and on our website at www.ametek.com/investors.
A tape of today's conference call maybe accessed until November 5th by calling 888-203-1112 and entering the confirmation code number 5111340. This conference call is also webcasted and can be accessed at ametek.com and at streetevents.com. This conference call will be archived on both of these websites.
I will remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward-looking statements. As such these statements are subject to change based on various factors and uncertainties that may cause actual results to differ significantly from expectations. Those factors are contained in our SEC filings.
I will also refer you to the investor's section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call. We'll begin today with some prepared remarks and then we'll take your questions.
I'll now turn the meeting over to Frank.
Frank S. Hermance - Chairman and Chief Executive Officer
Thank you, Bill. AMETEK had an excellent third quarter. Sales were up 22% to $647.4 million and strong internal growth of 6% and the contributions from acquired businesses. If the effects of foreign currency are included, internal growth and sales was 7%. Also, internal growth in orders was very strong at 7%.
Operating income was up 25% and operating income margin expanded 30 basis points. Net income was up 24% and diluted earnings per share were up 25%. Overall we're delighted with these results. Our key markets remain strong. Our strategy of acquiring differentiated businesses is working well and our focus on operational excellence continues to drive profitability.
Turning our attention to the individual operating groups. Electronic Instruments Group had an excellent quarter. Sales were up 20% on strong core growth of 8% and the contributions from the acquisitions of Cameca, California Instruments, Vision Research and Xantrex Programmable Power. If the effects of foreign currency are included, internal growth was 9%.
The EIG's operating income was up 28% for the quarter. Operating margins improved 140 basis points to 22.4% as compared to 21% in the third quarter of 2007.
Electromechanical Group also had a strong quarter with revenues up 26%, solid internal growth of 4% and the contributions from the Reading Alloys, Umeco Repair and Overhaul, Motion Control Group and Drake Air acquisitions drove the revenue growth.
The effects of foreign currency are included, internal growth was 5%. Operating income for the quarter was up 17% to $50.4 million. Operating margins were 17.4% this year as compared to 18.7% last year with a diluted impact of acquisitions, the key driver for the change.
In addition to our excellent financial results, we continue to make significant progress in the implementation of our four growth strategies; operational excellence, global and market expansion, new product development and acquisitions.
Operational excellence is the corner stone strategy for the company, and our relentless focused on cost and asset management has been a key driver to both our competitive and financial success. As these business units AMETEK colleagues are implementing initiatives to improve plant productivity, reduce cost and increase capital efficiency.
In addition to these business unit level activities, there are some company wide initiatives that are driving significant financial benefits. Our global sourcing office and strategic procurement initiatives have been key drivers to increase profitability in 2008. We expect to generate $20 million in incremental savings this year from these activities.
For the first nine months, we have realized $16 million. We are continuing our migration to best cost manufacturing locals, with most in Mexico, Shanghai and the Czech Republic, revenues from these plants is expected to total approximately $365 million to $375 million in 2008, an increase of $40 million to $50 million from 2007.
In the third quarter, as the headlines warned of an impending recession, we decided to take additional actions to preserve our bottom-line, even though our key markets remain strong.
These actions included aggressive price increase throughout the business to offset larger inflationary cost increases than we had budgeted. These price increases totaled approximately 1% on a full year run-rate basis.
We also eliminated a number of plan increases to head count as well as directly reducing head count. The total number of reductions was approximately 225 with annualized savings of about $14 million. These actions were in addition to the $5 million precautionary built tightening initiatives implemented earlier in the year.