AMTEK, Inc. (AME)

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AMETEK Inc. (AME)

Q4 2009 Earnings Call

January 26, 2010 8:30 am ET

Executives

Bill Burke - VP of IR & Treasurer

Frank Hermance- Chairman and CEO

John Molinelli - EVP and CFO

Analysts

Jamie Sullivan - RBC Capital Markets

Jim Lucas - Janney Montgomery Scott

Mark Douglass - Longbow Research

Christopher Glynn - Oppenheimer Funds

Matt Summerville - KeyBanc

Richard Eastman - Robert W. Baird

Elana Wood – Bank of America/Merrill Lynch

Allison Poliniak - Wells Fargo

Presentation

Operator

Welcome to the AMETEK Incorporated fourth quarter earnings conference call. This call is being recorded. For opening remarks and introductions I would like to turn the call over to Mr. Bill Burke, Vice President of Investor Relations & Treasurer. Please go ahead, sir.

Bill Burke

Thank you. Good morning everyone and welcome to AMETEK's fourth 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 fourth 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 February 9th by calling 888-203-1112 and entering the confirmation code number 4746267. 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 uncertainties 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.

Frank Hermance

Thank you, Bill. All of the comparisons I will discuss in my prepared remarks will be made against the 2008 results excluding the fourth quarter restructuring charge. Our press release tables detail our 2008 results with and without this charge.

AMETEK had a good fourth quarter. As anticipated we saw sequentially higher sales in a number of key markets, improved earnings and continued excellent cash flow generation. Perhaps more importantly we saw significantly higher order rates from our customers. Orders in the fourth quarter were strong totaling $577 million, a 20% sequential improvement over the third quarter 2009 and a 4% increase over the fourth quarter of 2008.

Sales increased 5% sequentially and operating margins expanded 140 basis points to 17%. Cash flow was excellent for both the fourth quarter and the full-year 2009. Operating cash flow was $109 million for the quarter and $365 million for the year, up 155% and 47% respectively. Free cash flow was 161% of net income for 2009.

When compared against the fourth quarter of 2008 sales were down 16% to $523.5 million. Internal growth was negative 20%. Acquisitions and foreign currency translation each added another 2% to sales. Operating income declined to $89.2 million from $122.3 mil last year reflecting the impact of the reduced sales, partially counterbalanced by our cost reduction activities. Net income was $51.9 million or $0.48 per diluted share.

Turning our attention to the individual operating groups. The electronic instruments group performed well in the fourth quarter. As anticipated, sequential sales of instruments for research and metals applications improved while our oil and gas related businesses stabilized. EIG sales were up 5% sequentially and orders were up low double digits. Operating margins were strong at 19.6%, a 200 basis point sequential improvement over the third quarter.

Compared against last year fourth quarter sales decreased 21% to $286 million. Internal growth was down 23%. Foreign currency added 2% to revenue. EIG’s operating income was $56.1miln versus $89.6 million in last year’s fourth quarter.

The electromechanical group also performed well in the fourth quarter. Sequential sales were up 5% with improvement in both our cost driven motor and differentiated businesses. Sequential orders improved in EMG by approximately 30%. Operating margins improved to 17.1%, a 10 basis point sequential improvement. When compared to the year-ago fourth quarter sales declined by 9% to $237.5 million. Internal growth was down 16%. Acquisitions added 5% to revenue while the impact of foreign currency added an additional 2% to revenue. Operating income for the quarter was down 8% to $40.7 million.

Operational excellence is the cornerstone strategy for the company and our focus on cost and asset management have been a key driver to both our competitive and financial success. We are realizing the benefits of the restructuring plan we announced last January as well as the follow-on plan announced in April of last year. As part of these plans headcounts have been reduced by approximately 1,900 people since the beginning of the year and more than 2,600 people since June of 2008.

In addition to the restructuring activities we continue to drive lower costs through our global sourcing office and strategic procurement initiatives. We generated approximately $22 million in incremental savings this year from these activities with $6 million in the fourth quarter. Overall, the total impact of the operational excellence initiatives outlined was approximately $135 million in reduced costs for 2009.

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