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AMETEK, Inc. (AME)
Q2 FY08 Earnings Call
July 21, 2008, 08:30 AM ET
William J. Burke - VP, IR
Frank S. Hermance - Chairman and CEO
John J. Molinelli - EVP and CFO
James Lucas - Janney Montgomery Scott LLC
Amit Daryanani - RBC Capital Markets
Ned Borland - Next Generation Equity Research
John Baliotti - FTN Midwest Securities Corporation
Matthew Summerville - KeyBanc Capital Markets
Christopher Glynn - Oppenheimer
Richard Eastman - Robert W. Baird & Co., Inc.
Wendy Caplan - Wachovia Securities
Previous Statements by AME
» AMETEK Inc. Q3 2009 Earnings Conference Call
» AMETEK, Inc. Q4 2008 Earnings Call Transcript
» Ametek Inc. Q3 2008 Earnings Conference Call Transcript
William J. Burke - Vice President, Investor Relations
Thank you, Jody. Good morning, everyone and welcome to AMETEK's second 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 second quarter results were released earlier this morning and have been distributed to everyone on our lists. These results are also available electronically on your market systems and on our website at ametek.com/investors.
A tape of today's conference call maybe accessed until August 6th by calling 888-203-11-12 and entering the confirmation code number 8654466. This conference call is also webcasted. It can be accessed at both 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 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 factors and uncertainties that may cause actual results to differ significantly from expectations. Those factors are contained in our SEC filings.
I will also refer you to the Investor section of ametek.com for 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 S. Hermance - Chairman and Chief Executive Officer
Thank you, Bill. AMETEK had an excellent second quarter. Sales were up 25% to $648.8 million on strong internal growth of 7% and the contributions from acquired businesses. If the effects of foreign currency are included, internal growth was 10%.
Order growth was very strong as well, with total work orders up 24% in the quarter. Internal growth and orders was excellent at 6%. On May 19th, the company announced a performance-based accelerated vesting of a restricted stock award made in April of 2005. The accelerated vesting occurred as a result of the stock price doubling in the three years since the issuance of the grant, reflecting a significant value that has been created for AMETEK shareholders.
In the quarter, the company recognized an after-tax non-cash charge of $7.3 million, or $0.07 per diluted share related to the performance vesting. Excluding this charge, operating income was up 26%, driven by the top line growth and operational excellence improvements, resulting in a 20 basis point improvement in operating income margin.
Net income and diluted earnings per share were each up 26%. Cash flow from operations was excellent totaling $142 million on a year-to-date basis, up 18% over last year's first half.
Overall, we're delighted with these results. Our markets are strong. Our strategy of acquiring differentiated businesses is working well and our focus on operational excellence continues to drive profitability.
Turning our attention to the individual operating groups, the Electronic Instruments Group had an excellent quarter. Sales were up 22% on strong core growth of 9% and the contributions from the acquisitions of Cameca, California Instruments, Advanced Industries, B&S Aircraft Parts and Vision Research. If the effects of foreign currency are included, internal growth was 11%.
EIGs operating income was up 26% for the quarter. Operating margins improved 70 basis points to 22.8% as compared to 22.1% in the second quarter of 2007.
The Electromechanical Group also had a great quarter, with revenues up 29%, solid internal growth of 6% and the contribution from the Reading Alloys, Hamilton Precision Metals, Umeco, Motion Control Group, Drake Air, and Seacon Phoenix acquisitions drove the revenue growth. If the effects of foreign currency are included, internal growth was 8%.
Operating income for the quarter was up 21% to $53.1 million. Operating margins were 17.4% this year as compared to 18.4% last year with the dilutive impact of acquisitions, a key driver for the change.
In addition to our excellent financial results, we continue to make significant progress in the implementation of our four growth strategies; operational excellence, global and market expansion, new product development, and acquisitions. Operational excellence is the cornerstone strategy for the company and our relentless focus on cost and asset management has been a key driver to both our competitive and financial success. At each business unit, AMETEK colleagues are implementing initiatives to improve plant productivity, reduce costs and increase capital efficiency.
In addition to these business unit level activities, there are some company wide initiatives that are driving significant financial benefits. Our global sourcing office and strategic procurement initiatives are expected to be a key driver for increased profitability in 2008. We expect to generate $19 million in incremental savings this year from these activities, up from our previous estimates of $16 million. In the second quarter, we realized $6.1 million and for the first half, we realized $10.7 million from this initiative.