IDEX Corporation (IEX)

IEX 
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IDEX Corporation (IEX)

Q3 2009 Earnings Call

October 20, 2009 10:30 am ET

Executives

Heath Mitts - VP of Corporate Finance

Larry Kingsley - Chairman and CEO

Dom Romeo - VP and CFO

Analysts

Mike Schneider - Robert W. Baird

Christopher Glynn - Oppenheimer

Tom Brinkman - BMO Capital Markets

Matt Summerville - KeyBanc

Walt Liptak - Barrington Research

Presentation

Operator

Good day and welcome everyone to the IDEX Third 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

Good morning and thank you for joining us for our discussion of the IDEX third quarter 2009 financial results.

Yesterday, we issued a press release outlining our company's financial and operating performance for the three-month period ending September 30, 2009. The press release along with presentation slides to be used during today's webcast can be accessed on your company website, at www.idexcorp.com.

Joining me today from IDEX management are Larry Kingsley, Chairman and Chief Executive Officer; 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 an outlook for the fourth quarter of 2009 and a brief update on innovation. 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 2354138, 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 this call over to our Chairman and CEO, Larry Kingsley.

Larry Kingsley

The majority of our end markets have stabilized and we're seeing some of those markets now beginning to improve. Overall, our third quarter results were very strong, and accordingly, we raised our full year guidance to $1.44 to $1.46.

During the third quarter, we experienced the benefit of a pick up in global infrastructure spend in the energy and water businesses, and several of the product categories otherwise across the company are also seeing better order rates. The shorter cycle businesses are seeing early signs of a return to growth.

Conversely, we expect that some end markets will remain slow for the foreseeable future. The chemical end markets, the paint producers, the Dispensing business, which is the retail capital equipment for paint and a couple of others will be flat to down sequentially in the coming quarter.

Daily order rates clearly indicate that the worst is behind us, and while still erratic, they are trending upward. However, we do anticipate that many of our customers will shut down for two weeks at yearend, and therefore, we are assuming a shorter quarter from a comparison standpoint.

Our operating performance through the bottom has been very strong. We've improved our customer service levels, protected our margins and we continue to generate outstanding cash flow. Full year adjusted operating margins should be 15%. Full year free cash should exceed 150% of net income.

As I mentioned during last quarter's call, our new products and market initiatives are on track, and I'll outline a few of those examples of our organic initiatives as I wrap-up. In general, though, coming out of this we are in great shape to realize profitable growth as our end markets continue to improve, our balance sheet is strong and we have the organizational bench to acquire both domestically and overseas.

I'm going to turn over to slide four, the one that's titled Q3 2009 Financial Performance. For the quarter, orders were down 4% and that's down 9% organically. Sale were down 12% and down 17% organically. Third quarter adjusted operating margin of 15.2% was down 290 basis points with the revenue decline, but the impact of lower volume was partially offset by the ongoing cost containment and structural actions that we've taken year-to-date.

The adjusted EPS of $0.39 for the quarter was down 25% and free cash flow and IDEX quarterly record was $78 million. Year-to-date, our free cash flow to net income conversion is 175% and our working capital management has been just outstanding. Again, our operating teams have responded well to the challenges and we look forward to continued progress as our strong cash generation facilitates our future growth.

Overall, I'm pleased with our performance despite the challenging market conditions. We've been able to deliver solid profit performance as a testament to our ability to maintain a flexible cost structure as we continue to focus on expanding market share and reinvesting in the business.

Now I'm going to flip over and walk through the segments. For the Fluid and Metering segment, orders were down 1% in the quarter. Organic orders were down 12%. Sales decreased 8%, that's down 19 on an organic basis. Adjusting operating margin of 16.8% was down 390 basis points from Q3 of '08.

With regard to the FMT end markets, as I mentioned earlier, our energy business is benefiting from strong international demand in the areas of both power generation and in the oil and gas segment. Sequentially, we expect to see improvements in the fourth quarter, and we expect global project activity to drive growth as we move into 2010.

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