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AMETEK Inc. (AME)
Q3 2009 Earnings Call
October 27, 2009 8:30 a.m. ET
Bill Burke - VP of IR & Treasurer
Frank Hermance- Chairman and CEO
John Molinelli - EVP and CFO
Allison Poliniak - Wells Fargo
Christopher Glynn - Oppenheimer Funds
Jim Lucas - Janney Montgomery Scott
John Baliotti - FTN Equity Capital Markets
Jamie Sullivan - RBC Capital Markets
Mark Douglass - Longbow Research
Elana Wood - Merrill Lynch
Matt Summerville - KeyBanc
Richard Eastman - Robert W. Baird
Christopher Glynn – Oppenheimer
Previous Statements by AME
» AMETEK, Inc. Q4 2008 Earnings Call Transcript
» Ametek Inc. Q3 2008 Earnings Conference Call Transcript
» AMETEK, Inc. Q2 2008 Earnings Call Transcript
Thank you, Laura. 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 earlier this morning. These results are available electronically on market systems and on our website at the investor section of ametek.com. A tape of today's conference call may be accessed until November 10th by calling 888-203-1112 and entering the confirmation code number 224-0076. This conference call is also webcasted, and can be accessed at ametek.com and at streetevents.com. The conference call will be archived on both of these websites. I will remind you that any statements made by AMETEK during the conference 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 risk factors and uncertainty that may cause actual results to differ significantly from expectations.
A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the Securities and Exchange Commission. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements.
I will also refer you to the investor section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call. We will begin today with some prepared remarks, and then we will take your questions.
I will now turn the meeting over to Frank.
Thank you, Bill. AMETEK delivered good financial results for the third quarter, given the difficult conditions in our markets. Sales were down 23% to $497.1 million. Internal growth was a negative 26%, with the impact of foreign currency and additional 1% headwind. Acquisitions added 4% to growth.
Operating income, declined to $77.5 million, from $120.1 million last year, reflecting the impact of the reduced sales, partially counterbalanced by our cost reduction activities. Operating income margin, was 15.6% in the quarter, net income was $43 million or $0.40 per diluted share. These results include $0.02 per diluted share of restructuring costs, predominantly in the Electronic Instruments Group.
Excluding these restructuring costs third quarter earnings were $0.42 per diluted share. Cash flow from operations was excellent at $72 million, up 15% over last year's third quarter.
In the face of difficult market conditions, we delivered good financial results. We believe our overall business has stabilized, our restructuring initiatives are on track, and we continue to focus on our key strategic priorities to drive value for our shareholders. In the third quarter, we saw the opportunity to do some additional restructuring, predominantly in the Electronic Instruments Group. These actions will have little impact in 2009, but should provide a benefit of approximately $4 million in 2010.
Turning our attention to the individual operating groups, Electronic Instruments Group experienced difficult market conditions in the quarter, but our team performed very well. Sales decreased 24% to $271.8 million, as we saw weakness in the aerospace aftermarket process and industrial businesses.
Internal growth was down 25%, with the impact of foreign currency an additional 1% headwind. Acquisitions added 2% to revenue. EIG’s operating income was $47.9 million versus $80.2 million in last year's third quarter. Operating margins were 17.6%, reflecting the impact of lower revenues and costs associated with our restructuring actions.
Electromechanical Group had a solid third quarter given the continued impact of the economic downturn on their markets. Revenues were down 22%, with weakness in both the cost driven and differentiated businesses. Internal growth was down 26% with the impact of foreign currency an additional 2% headwind acquisitions added 6% to revenue.
Operating income for the quarter was down 24% to $38.2 million, operating margins were 17%, as very effective cost reductions and operational excellence initiatives were able to mitigate the impact of the lower sales volume.
Operational excellence is the corner stone strategy for the company, and our focus on cost and asset management has been a key driver to both our competitive and financial success. We are realizing the benefits of the restructuring plan we announced in January, as well as the follow-on plan announced in April.
As part of these plans headcounts have been reduced by approximately 2,000 people, since the beginning of the year, and more than 2700 people since June of 2008. In addition to the restructuring activities we continue to drive lower cost through our global sourcing office and strategic procurement initiatives. We are on track to generate more than $20 million in incremental savings this year from these activities.
In the third quarter, we realized $6 million of savings and year-to-date we generated $16 million of savings from these initiatives. Overall, the total impact of the operational excellence actions outlined above will be approximately $135 million in reduced costs for 2009. In the first nine months, we recognized approximately $90 million of these savings as anticipated.