IDEX Corporation (IEX)

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Q3 FY08 Earnings Call

October 21, 2008, 10:30 AM ET


Heath A. Mitts - VP, Corporate Finance

Larry D. Kingsley - Chairman, President and CEO

Dominic A. Romeo - VP and CFO


Michael Schneider - Robert W. Baird

Charles Brady - BMO Capital Markets

Ajay Kejriwal - Goldman Sachs

Christopher Glynn - Oppenheimer & Co.

Walter Liptak - Barrington Research

Matt Summerville - KeyBanc Capital Markets

Wendy Caplan - Wachovia Securities



Good day, everyone. And welcome to the IDEX Third Quarter 2008 Earnings Results Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Heath Mitts, Vice President of Corporate Finance. Mr. Mitts, please go ahead, sir.

Heath A. Mitts - Vice President, Corporate Finance

Thank you, Rufus. Good morning and thank you for joining us, for our discussion of the IDEX third quarter 2008 financial results.

Yesterday, we issued a press release outlining our company's financial and operating performance for the three months period ending September 30, 2008. The press release, along with the presentation slides to be used during today's webcast can be accessed on our company website at

Joining me today from IDEX management are Larry Kingsley, Chairman and CEO; and Dom Romeo, Vice President and Chief Financial Officer.

The format for our call today is as follows: we will begin with an update on our overall performance for the quarter. And then provide detail on our four business segments. We will then provide an update on the recent acquisitions and restructuring initiatives. And we'll wrap up with the outlook for 2008 and the fourth quarter. Following our prepared remarks, we'll then open the call for your questions.

If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll free number 888-203-1112 and entering the conference ID 1429642, or simply log onto our company homepage for the webcast replay.

As we began, a brief remainder, this call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission.

With that, I'll now turn this call over to our CEO, Larry Kingsley. Larry?

Larry D. Kingsley - Chairman, President and Chief Executive Officer

Thanks Heath. Good morning all. A quick summary of our operating performance for the quarter; third quarter orders of $353 million increased 8% from last year, sales of $365 million increased 9% from last year, organic growth was 1%.

Operating income was down 4%, reporting operating margin of 16.7% was down by 220 basis points from last year, driven primarily by the impact of the restructuring related charges, associated with previously announced restructuring initiatives as well as the impact from acquisitions.

Excluding the impact of the restructuring charges and acquisitions, operating margin was 18.6%, down 30 basis points from prior year. EPS was up 4% to $0.49, and excluding the impact of the restructuring costs, diluted EPS was up 13% to $0.53.

Record free cash flow of nearly $68 million, was up 26% from last year. For the year, we're well on our way to exceeding $200 million of free cash flow or over 120% of net income, which is a record for the company obviously.

So now, we'll walk through these performances by segment. For the Fluid & Metering segment, orders were up 21% in the quarter, sales increased 80%, 13% from recent acquisitions, and 4% on an organic basis.

Operating income of $34 million with a 9% increase from last year, operating margin of 20.1%, was down a 180 basis points from Q3 of '07, excluding the impacts of acquisitions, operating margin was 21.5% or down 40 basis points from Q3 of last year. And that's largely due to mix within the segment.

While our overall results for FMT were good in Q3, it's clear that some of the process industry and segments are slowing. So accordingly, we're taking appropriate cost actions.

At the same time, our end market content has improved over the past few years. And based on our exposures, several factors lead us to believe that we can outperform the general process control market.

One, with the completion of iPEK and IETG, we now have $200 million of revenue in the water, particularly the waste water services portions of our FMT strategy. Two, our energy business, primarily a liquid controls group, continues to leverage strong channel penetration, and the build-out of the refined fuel infrastructure.

And three, nearly half of fluid metering now is outside the U.S and we're seeing nice traction with our international sales growth investments that we've made over the past two years, particularly in Asia and in the Middle East. And we've made significant sales, marketing and engineering investments to drive the ongoing global expansion.

And now turning to slide seven; in our HST segment, orders were down 2% for the quarter, sales were flat, were down 4% organically. Operating income was up 3%. Operating margin of 20.7% was up 60 basis points compared to last year.

Our core market focus as you know is the fluidic devices that are used in analytic instrumentation, clinical diagnostic applications, as well as the medical devices and key components used in medical equipment.

We continued to anticipate core business growth, driven by end market demand for new generation equipment. The equipment that is... it's required for about the microliter, and the even the nanoliter applications in biotech, drug discovery and in the clinical environment.

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