IDEX Corporation (IEX)

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IDEX Corporation (IEX)

Q2 2009 Earnings Call

July 21, 2009 10:30 am ET


Heath A. Mitts - Vice President, Corporate Finance

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

Dominic A. Romeo - Vice President and Chief Financial Officer


Jim Lucas – Janney Montgomery Scott

Mike Schneider – Robert W. Baird

Matt Summerville – KeyBanc

Scott Graham – Ladenburg Thalmann

Christopher Glynn – Oppenheimer

Walter Liptak - Barrington Research

Thomas Britman (ph) - BMO Capital Markets


Good day, everyone, and welcome to the IDEX Second Quarter 2009 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, sir.

Heath Mitts

Thank you, Danielle. Good morning, and thank you for joining our discussion of the IDEX second quarter 2009 financial results.

Yesterday, we issued a press release outlining our company's financial and operating performance for the three-month period ending June 30th, 2009. 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 CFO.

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 wrap up with the outlook for 2009 and the third quarter. 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 conference ID 6940348; or simply log on to our company home page 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 turn this call over to our Chairman and CEO, Larry Kingsley. Larry?

Larry D. Kingsley

Thanks, Heath. Good morning, everyone. Before we get started with the slides, I'll give you a brief update on the market conditions that we are seeing and anticipating for the remainder of the year.

First, as we discussed in our last earnings call, we felt we were finding the bottom in most of our end markets, and that was indeed the case. In general, we have seen a leveling off in demand, and while year-over-year results are still unfavorable, the majority of our end markets have stabilized. In our earnings release, you have probably noted that we took down the top end of our '09 EPS guidance from $1.55 to $1.45. As you will recall from our first quarter earnings call, our forecast assumption to reach the higher end of our EPS guidance assumes some level of second half recovery.

We do not see a broad-based recovery at the present time. However, we have positioned ourselves very well through the counter measures taken over the past few quarters, and we'll be in a very strong position coming out of this economic downturn. And the restructuring actions required for us to achieve our earnings guidance are essentially completed. Our operating margins have been protected, and our cash flow is very strong. So while we lowered our top end of the EPS estimates, due to strong execution, we have raised our profitability and free cash flow estimates. Adjusted operating margins should end the year near 15%. We would expect free cash flow to exceed 120% of net income.

Our new products are on track. Although we have undertaken aggressive restructuring actions, we have protected our new product and growth initiatives. Our customers remain our number one focus. We have maintained or improved our market share through the downturn.

In general, coming out of this, we're in great shape for profitable growth as our end markets do improve.

So now I'll jump into the presentation and talk about the quarter, and I'm on the slide titled Q2 2009 Financial Performance. For the quarter, orders were down 21%, and sales were down 15%. That's down 17%, organically. First quarter adjusted operating margin of 14.9% was down 320 basis points due to the lower revenue, offset by the cost actions taken. Adjusted EPS of $0.37 for the quarter was down 31%. Free cash flow was $50 million, which included approximately $4 million of restructuring related payments, and $6 million of pension contribution, which fulfills our full year pension obligations.

Overall, as I said, I'm very pleased with the results of our restructuring efforts. Despite the top line pressures, we have been able to hold our operating margins in the mid-teens, which is a direct result of our inherent flexibility in the operating model.

Our operating teams have stepped up to meet the underlying market challenges and quickly right-sized our cost structure while preserving the resources to support our growth initiatives. I am also very pleased with our cash flow. Since the end of the first quarter, our inventory is down 9%. We made solid improvements in our receivables. CapEx requirements remain very IDEX-like, which is consistently $5 to $6 million per quarter, mainly to support new products and cost-reduction activities.

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