IDEX Corporation (IEX)

IEX 
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IDEX Corp. (IEX)

Q4 2008 Earnings Call

February 05, 2009 10:30 AM ET

Executives

Heath A. Mitts - Vice President, Corporate Finance

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

Dominic A. Romeo - Vice President and Chief Financial Officer

Analysts

Ryan MacLean - Janney Montgomery Scott

Mike Schneider - Robert W. Baird

Wendy Caplan - Wachovia Securities

Scott Graham - Ladenburg

Ned Borland - Next Generation Equity Research

Walter Liptak - Barrington Research

Charles Brady - BMO Capital Markets

Christopher Glynn - Oppenheimer

Presentation

Operator

Good day, everyone and welcome to the IDEX Fourth Quarter 2008 Earnings Results Conference Call. This 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. Please go ahead.

Heath A. Mitts

Thanks, Mark. Good morning and thank you for joining us for our discussion of the IDEX fourth quarter 2008 financial results.

Yesterday, we issued a press release outlining our company's financial and operating performance for the three and 12-month period ending December 31st, 2008. The press release, along with the presentation slides to be used during today's webcast can be accessed on our company website at www.idexcorp.com.

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

The format for our call today is as follows. We will begin with an update on our overall performance for the quarter and full year and then provide detail on our four business segments. We will then wrap up with an outlook for 2009 and update on our balance sheet and summarize our priorities. Following our prepared remarks, we will 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 1364347, or simply log on to our company homepage for the webcast replay.

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

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

Larry D. Kingsley

Thanks, Heath. Good morning, everyone.

As you know we were early in our assessment of the weakening economy, we took action through the second half '08 to reduce our cost structure. We realized $25 million of annual savings with $20 million of '09 savings associated with these actions as well.

In addition, we continue to drive material cost reduction and productivity within our company-wide operational excellence strategy. We anticipate more than $10 million of '09 savings from specific supply chain initiatives with $5 million of labor productivity. Again, both of these are in addition to the restructuring associated sales.

None of the actions taken will impair our ability to grow or achieve the strategic initiatives that build longer term shareholder value. As I'll highlight later in this call, we anticipate a soft first quarter as we realize the ramp up of cost savings on top of a slow Q4 and early Q1 order rate.

As 2009 progresses, we'll reassess our view of the economic environment, our markets and the best courser for further cost actions to ensure a solid bottom line performance for the year. Thus far, our team has quickly identified required actions and very cleanly executed as necessary to adjust to the decline in order rates.

We have a very good understanding of a cost structure, we have the ability to manage through these volatile environment.

I'm now on a slide that's titled Q4 and Full Year Financial Performance. For the quarter, orders were down 3%, and sales were up 3%. The results in this slide are adjusted for the restructuring charges and the goodwill impairment charge and dispensing.

Fourth quarter adjusted operated margin of 15.1% was down 270 basis points from Q4 '07, primarily due to the impact of '08 acquisitions. Excluding the impact of the acquisitions, adjusted operating margin was 16.3%.

Overall, given the top line pressure, I was pleased with the majority of our businesses operating margin performance. Fluid & Metering, Health & Science and Fire & Safety; all held up quite well.

Obviously, we're disappointed with the margin performance at dispensing and albeit only 7% of the company, the negative margin rate was certainly dilutive to the total company performance.

Q4 adjusted EPS at $0.41 was down 13%.

For the year, orders were up 9%, sales were up 10%. Full year adjusted operating margin at 17.5% was down 130 basis points from the prior year, again primarily due to the impact of the acquisitions. Excluding the impact of the acquisitions, adjusted operating margin was 18.2%.

Full year adjusted EPS was up 4% to $1.98. And for 2008, free cash flow of just under $200 million, a record for the sales company was over 125% of adjusted net income.

So now let's walk through the components by segment, I am turning to slide six. For Fluid & Metering, orders were up 11% in the quarter. Organic orders were down 8, reflecting a significant slowdown in November and December. Sales increased 21%, including 25% from recent acquisitions and a decline of 1% on an organic basis. Excluding acquisition, adjusted operating margin of 21.3% was up 110 basis points from the Q4 '07 number.

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