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IDEX Corp (IEX) Q2 2019 Earnings Call Transcript

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IDEX Corp (NYSE: IEX)
Q2 2019 Earnings Call
Jul 26, 2019, 10:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the IDEX Corporation Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator Instructions]

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Michael Yates, Vice President and Chief Accounting Officer for IDEX Corporation.

Thank you. You may begin.

Mike Yates -- Vice President and Chief Accounting Officer

Thank you, Melissa. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEX Corporation.

Let me start by saying thank you for joining us for a discussion of the IDEX second quarter financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months ending June 30, 2019. And later today, we will file our 10-Q. The press release along with the presentation slides to be used during today's webcast can be accessed on our company's website at www.idexcorp.com.

Joining me today is Andy Silvernail, our Chairman and CEO; and Bill Grogan, our Chief Financial Officer. The format for our call today is as follows. We will begin with Andy providing an overview and an update on market conditions, geographies and capital deployment. Bill then will discuss our second quarter financial results and walk you through our operating performance within each of our segments. And finally, Andy will wrap-up with an outlook for the third quarter and the full-year 2019. Following these prepared remarks, we will 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 877-660-6853 and entering conference ID number 13684163 or you may simply log onto our company's homepage for the webcast replay.

Before we begin, a brief reminder. Today's call may contain certain forward-looking statements that are subject to the Safe Harbor language in last night's press release and in IDEX's filings with the Securities and Exchange Commission.

With that, I'll now turn our call over to our Chairman and Chief Executive Officer, Andy Silvernail.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Thank you, Mike, and good morning everyone. I appreciate you joining us to discuss our 2019 second quarter operating results. Let me start with a few summary points on the results. Q2 is solid. I'm very pleased with these performance and choppy economic environment. Bill is going to walk you through some financial details in a bit, but overall we delivered 3% organic growth in the quarter, our 10th consecutive quarter of organic growth, the 3%, slightly below expectations, but considering the lingering trade tensions and the uncertainty in the macro environment, I was happy with the result.

Our price and productivity initiatives continue to drive outstanding margins and capital return regardless of commercial environment. We delivered another record EPS in the quarter. As we look at the balance of the year, we're confident our ability to execute in times of volatility. As such, we're raising the low end of our full-year guidance by $0.08, our guide is now $5.78 to $5.85 per share.

Finally, before I go into details, I want to take a moment to welcome Velcora Holding in a two product lines Roplan and Steridose to the IDEX family. We're very excited about the possibilities this acquisition brings to our Sealing Solutions platform, and I'm confident the acquisition will prove to be a great addition to our portfolio.

With that, let me start the call with a look at the regions we do business in. The overall global economic output remains uncertain, companies are employing a wait-and-see approach and slowing down larger project activities, as they wait for some resolution to the various geopolitical situations across the world.

We believe that the underlying fundamentals in North America remained strong, due to high levels of employment and expanding wages. Markets continue to grow, but at a slower rate versus the first quarter. In Asia, there are some pockets of strong performance. But the overall Asian economic performance decelerated due to uncertainty, driven by the ongoing trade conflicts in China and the election cycle in India.

Finally, the euro zone[Phonetic] was flat year-over-year. We see pressure in Germany, as auto, tooling, and general industrial markets softened given the apprehension in the UK as the future of Brexit is still unknown.

All right, let me turn to the markets we serve. The industrial markets are generally performing well, driven by OEM and project wins. However, we're seeing softness in daily distribution orders and project closure timing is becoming harder to predict, despite a strong funnel. Demand continues to be robust across key life science markets, strong performance continued in IVD/BIO, as our partnership with our customers continue to drive innovation and bring new products to market.

The energy market is relatively flat with strong North American truck demand and good performance commercial aviation, offset by lower LPG project line. US ag, it continues to be soft. Our overall farmer sentiment is low with continued tariff impacts and a challenge in 2019 planting season. OEMs are reacting to the slowdown with extended mid-year shutdowns.

Municipal markets in North America remain stable, we see some slowness in Europe where political uncertainty is leading to project delays and the China markets are softening, but India remains strong. The semiconductor market continues to be driven down, the high inventory levels in memory chips, as well as lower consumer sales smartphones. We do not expect this market to pick up in the back half of the year.

Finally, the slow down in global light vehicle sales drove softness in our automotive exposure, especially in China. Okay, let me switch to capital deployment. As I mentioned earlier, I'm very excited to welcome Velcora Holding and the Roplan and Steridose product lines of the IDEX family. These businesses will mesh nicely with our Sealing Solutions, our portfolio and will complement our current product offering,. We deployed $137 million in capital in the deal and paid about 13 times 2018 EBITDA. We expect this deal to achieve double-digit cash-on-cash returns in the near future.

We're still working through the purchase accounting associated with the transaction. But we don't expect the deal to be material to our 2019 adjusted EPS. As usual, who are closely with their teams integrate the business since the IDEX family, and we look forward to the long-term returns I'll provide.

M&A continues to be a priority for us and the funnel remains strong. Our teams continue to evaluate several deals, as we continue to look for high quality assets to that portfolio. In addition to in the quarter, we repurchased $3 million of stock at an average purchase price of $155, and we returned $38 million to shareholders via dividends.

With that, let me pause here for a moment. I will turn it over to Bill, who is going to talk about the financial results and the segment discussion.

William Grogan -- Senior Vice President and Chief Financial Officer

Thanks, Andy. I'll start with our second quarter financial results on Slide 4. Q2 orders of $628 million were down 2% overall were flat organically. Each of the segments were flat year-over-year. I'll get into more detail on covering the segments, but I would say there are three main drivers for order performance. First, the softness we are seeing in ag, semi, and auto impacted orders by about 150 basis points.

Secondly, the unresolved trade conflict and continued geopolitical uncertainties are creating caution in the markets, and we are seeing customers pause a large project investment across the segment.

And finally, we are comping back to back years of over 8% organic growth for the second quarter. Q2 revenue of $642 million was up 1% overall and 3% organically, driven by 3% organic growth across all segments. We expanded second quarter gross margins by 20 basis points to 45.5%, primarily due to price, volume leverage, and production efficiencies, partially offset by continued investments in engineering related to new product development.

Q2 adjusted operating margin was 24.5%, an all-time quarterly high for IDEX, and up 90 basis points compared with the adjusted prior-year period, mainly driven by our gross margin expansion and lower SG&A costs. Q2 adjusted net income was $115 million, well, it was $150 million, resulting in record high adjusted EPS of $1.50, up $0.10 or 7% over prior year adjusted EPS.

Our second quarter effective tax rate was 21.7%, same as prior year, 80 basis points lower than our previously guided amount, primarily due to a higher excess tax benefit from greater than expected stock option exercises in the quarter.

Free cash flow was solid at $180 million of 8% over last year and 103% of adjusted net income. This was our highest Q2 free cash flow of all time.

Finally, in regards to the balance sheet gross and net debt leverage remains very healthy. The combination of a strong balance sheet, capacity on our revolver, and free cash flow provides us the ability to deploy $2 billion in the next 12 months for the right M&A opportunities, while still maintaining our investment grade rating.

I'll now turn to the segment discussion. I'm on Slide 5, starting with Fluid & Metering. Q2 orders were down 2% overall and flat organically, mainly driven by the market cost[Phonetic] settlement we mentioned earlier, market contraction in the ag market and lower projects in energy. Q2 sales were up 1% overall and up 3% organically. All businesses, other than Banjo grew organically in the quarter.

Despite market choppiness in North American distribution, FMT continues to perform well overall, driven by successful targeted growth initiatives in the industrial space along with salary OEM demand, as well as our ability to capitalize in the favorable chemical market conditions. Both our Viking and Richter businesses posted record sales for the second quarter in a row, driving strong growth in our pumps and valves businesses.

The municipal water business remained steady and the oil and gas market conditions have stabilized a bit. As I mentioned before, the only business in the segment that contracted year-over-year was Banjo, which is impacted by the overall ag market dynamics. We are keeping a close eye and preseason order patterns that generally occur in Q3, as an indicator to see if there is a chance for a rebound in 2020.

Finally, excluding restructuring expense, operating margin was 30.5%, up 100 basis points over the adjusted prior-year quarter. Mainly due to price, volume leverage and productivity initiatives, partially offset by higher engineering investments.

Let's move on to Health Science, turning to Slide 6. Q2 orders were down 1% overall, but flat organically, mainly driven by the market pressure in semicon and automotive. From a sales perspective, Q2 sales were up 2% overall and 3% organically. driven by our strong performance across all segments of our life science business.

As we continue to grow through targeted MPT efforts in collaboration with our key customers and leveraging strong secular growth trends. At Gast, we continue to see project wins with our MPT launch in the food and beverage space driving double-digit revenue expansion. In MPT they have built a strong backlog, driven by growth in the pharma market, and we look for them to have a strong back half of the year. Finally, the unfavorable market conditions in semicon and auto negatively affected our Sealing platform and created headwinds the overall sales and orders for this segment.

As ceiling was down 18% in orders and 6% in sales organically for the quarter. From a margin perspective, excluding restructuring expenses, operating margin increased 100 basis points to 24.6%. This was primarily due to higher volume and lower amortization, partially offset by higher growth investments. I'm now moving to our final segment diversified.

I'm on Slide 7. Q2 orders were down 3% overall and flat organically, driven by a tough comp in dispensing due to a large project order in the prior year. They were down 22% in orders for the quarter. Q2 revenues were flat overall, but up 3% organically. And I'll provide more color on that in a minute. Operating margin of 27.1% decreased 100 basis points in the quarter. This was driven by dispensing as a de-levered on the lower project volume.

Sequentially, the segment was up 130 basis points versus Q1. Our FSD segments performance was mainly driven by solid result in our Fire & Safety businesses. On the fire side, we continue to capture OEM demand and our cash products are performing well and the launch of our SAM product is getting a lot of attention in the market. Within rescue, we are capitalizing on strong tool demand and seeing positive momentum around our MPT programs. Our eDRAULIC watertight tool that we launched at the beginning of the quarter seeing high demand.

At Band-It its performance remains strong despite general softness in the auto market and lower industrial sales. However, we continue to win in the aerospace and several other niche verticals. Dispensing story remains challenging, as I mentioned earlier, the business was down double-digits compared to prior year due to a tough comp against some large project wins last year. We expect the business to be marginally better in the second half, but still doubt, they will continue to be a drag in the segment for the balance of the year. I'll now pass it back to Andy to provide an update on our 2019 guidance.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Thanks, Bill. So, I'll wrap things up. Let me summarize some additional details regarding our 2018 guidance for both the third quarter and the full-year. Among the last slide, Slide 8. In Q3, we're projecting EPS to be in the range of $45 to $47 with organic organic revenue growth of approximately 3% and op margin about 24%. We're estimating a 1% top line headwind from FX assuming the June 30 rates, which translates into $0.01 impact of EPS. The Q2 effective tax rate should be about 22.5% and we expect to spend about $20 million in corporate costs. If you look at the full-year for 2019, again we're raising the low end of our full-year EPS guidance $0.08, our new guidance is $5.78 to $5.85.

Full-year organic revenue is projected to be 3% or 4% and op margin again about 24% and the same with the next quarter we expect to the total FX impact at June 30 rates to be at 1%. The full-year effective tax rate should be about 21.5%. We're expecting to spend about $60 million in capex. Free cash flow should be about 105% of net income and corporate costs should be in the $78 million to $80 million range. As always, our earnings guidance excludes any associated cost with future acquisitions or restructuring.

With that, operator, let's turn it over to questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session.

[Operator Instructions]

Our first question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Hi, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

Hey, maybe we should start with the macro, since that seems to be where most of the uncertainty is. And Andy, we were with you last at EPG and you were clearly signaling at that time you were seeing choppy daily orders and it seems to have come through in the results today, couple of questions to start with, what was the cadence of the quarter, we've heard a lot of different commentary from the company's about the months in the quarter. So how did that progressed view and then some color on the distribution side, sell-in and sell-through?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes. So the overall cadence was different Deane than we've been experiencing here for the last year. I think in several conversations that I've had with people, I've noted that in the past year, maybe a year and a half we've seen this cycle within quarter where you had a weak month and maybe a slightly better month and then a relatively strong month. That's been the pattern here for quite some time and the pattern is different. For the first time, we didn't see that ramp up in the last month of the quarter. I will say that the early part of July is stable, right. So you're not seen a decline in any time, which I think is positive, but you didn't see that uptick in the last month of the quarter, like we have seen in the past. And so I think that really nodes well to a decelerating environment which is what we're experiencing from certainly from last year, first quarter to this year.

So frankly, no surprise, it's kind of what we've been expecting here for some time. And I think we've tried to do a good job of communicating that and I think we're in the environment that we expected to be here or coming into the year.

Deane Dray -- RBC Capital Markets -- Analyst

And it's view from the distributor sell-in, sell-through?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

I'm like a lot of folks, we don't have a lot of off the shelf distribution. We do have some, it's been find. We don't see any major areas of stocking or destocking. I think that's the biggest thing relative to folks is they're very cautious, whether it's in the distribution network or the OEMs. People are pretty cautious about anything that's a big ticket.

And so I think we're going to see that until you get some certainty back into the marketplace. The interesting thing about it, it doesn't feel like it's driven by what I'll call fundamental demand of under capacity or overcapacity, which is typically what happens. This really feels man-made. And so the encouraging part of that is if you get some resolution to some of these things, I think demand snaps back pretty quickly. I think the discouraging part of it, it doesn't really look like that's going to happen anytime in the near future.

Deane Dray -- RBC Capital Markets -- Analyst

Yeah, that's really helpful. And just got to extend the man-made observation, it's man-made and not execution and that's -- that's pretty clear to us. And then just last question for me, and this is -- if there's ever a time to be asking this, it's now your barometer businesses, you always say Band-It, Warren Rupp gas, and Band-It looks like it's holding up versus even with auto being weak and gas had a good quarter. So take us through the barometers?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

It's a mixed bag. What I would say is on the daily rate business, you definitely see softness Band-It and gas in particular have actually one nice chunks of business, but they're are larger chunks of business that have been part of our targeted growth list Warren Rupp is actually holding in. And so if I look across the board, it's a mixed bag, all in all equally deceleration.

Deane Dray -- RBC Capital Markets -- Analyst

Terrific. Really good color, thank you.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Thanks Deane.

Operator

Thank you. Our next question comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question.

Allison Poliniak -- Wells Fargo Securities -- Analyst

Hi guys, good morning.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Good morning.

Allison Poliniak -- Wells Fargo Securities -- Analyst

Can we go back to Health & Science orders. I think as you said on the semi and auto part was putting pressure about, I think it was down 18% in orders. Can you talk to maybe the life science in MPT and some of what the order trends you're seeing on that side?

Mike Yates -- Vice President and Chief Accounting Officer

Yes. So, life science is really solid, and no concerns there, the MPT has a very good funnel of work that they've been working, you know Allison, as well as anyone, but that's pretty lumpy, but generally it's a good funnel of work they have there. The concerns are all around semiconductor and auto, the Sealing business, you said 18 down, that was a ceiling business in particular. In that they have are our largest chunk of semiconductor exposure. So they are facing some headwinds there or semi and auto, and so they are facing some headwinds there, but really good execution in most of the ceiling platform, which is nice to see.

So I think those are just part of the cyclical markets generally, otherwise very happy with the profit expansion that we saw in HST, that's a record for us. And I know this time last year we had some questions about whether or not we were going to expand margins at the same kind of clip that we had in other parts of the company, I think we've demonstrated that we can do that. And I think the life science stuff is in really good shape.

Allison Poliniak -- Wells Fargo Securities -- Analyst

Great. And then, can we just touch on Velcora, a little bit more color on there, just in terms of growth rate margin, is it leverage to any significant customers that would be -- need to be mindful of?

Mike Yates -- Vice President and Chief Accounting Officer

Yes. So first of all, this is a terrific business we've known about this business for a long time, we cultivated the business ourselves. It's a wonderful -- principally real plan which is that 85% of business is a mechanical ceiling business, a lot of exposure into faster growing parts of the market into life sciences and just generally good positioning across the board. The business is profitable, it's an IDEX life business and then we think we're quite a bit upside frankly, it's a well-run company, a really terrific team of people. But we think not unlike when we bought PPE back here quite some time ago, nine years ago now, that business, the margins I think more than double of PPE in that period of time, probably won't do that, but there is a lot of upside in terms of profit and growth rates.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

And heavily concentrated across a small group of customers.

Mike Yates -- Vice President and Chief Accounting Officer

Yeah. So life science, food and beverage and then general industrial.

Allison Poliniak -- Wells Fargo Securities -- Analyst

Great, thank you.

Mike Yates -- Vice President and Chief Accounting Officer

You're welcome, Allison.

Operator

Thank you. Our next question comes from the line of Michael Halloran with Robert W. Baird. Please proceed with your question.

Michael Halloran -- Robert W. Baird -- Analyst

Good morning, everyone.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Good morning, Mike.

Michael Halloran -- Robert W. Baird -- Analyst

So just a quick tack on to that, what's the accretion embedded in the guidance associated with the acquisition?

William Grogan -- Senior Vice President and Chief Financial Officer

Not, as of now and we're still working through final purchase accounting, we will give guidance once we complete that come out of the third quarter, but nothing material, maybe a penny or two at most.

Michael Halloran -- Robert W. Baird -- Analyst

Okay. So then on the acquisition M&A commentary very strong robust pipeline, maybe you could talk a little bit about actionability, I know that's been a hurdle in the past that sound a little bit more constructive so?

Mike Yates -- Vice President and Chief Accounting Officer

Yeah. So we've talked about here for quite some time. We've been working on a ton of stuff and I've walked away from a lot of things. So if the pipeline looks good, we've got a bunch of things that we're working on, actionability is very hard to estimate, it's just -- it's in this, in this environment we found time and again that you've had people who have been willing to pay kind of an exorbitant price at the end of a discussion. This is -- Velcora was terrific because we really went in there, had a very constructive long-term conversation going on, and it wasn't an option. The rest of the environment and frankly is unchanged from when we talked about 90 days ago, Mike.

Michael Halloran -- Robert W. Baird -- Analyst

All right, makes sense. And then just from a guidance perspective understanding how you get to that 3% to 4% range of the orders, 3ish plus or minus starting the year here. When you look at the back half of the year, is this about comps easing where the time at the fourth quarter that helps get to that range, is it about the cadence that you're expecting from an end market perspective. Maybe just give some puts and takes and how you get to that 3% based on the environment today and then whether or not there is continued deceleration in the environment embedded in that assumption?

Mike Yates -- Vice President and Chief Accounting Officer

We're not -- we don't have anything embedded in terms of the further deceleration. We have not estimated it's basically at the levels that we're at today, if you kind of take it straight line it, that's what it is, it's the fourth quarter that we have a much easier comp, whereas second, third quarter is a tougher comps. Fourth quarter is a significantly easier comp. There is no significant change, there is no -- there is no major inflection that has to happen for us to get to this -- these numbers.

Michael Halloran -- Robert W. Baird -- Analyst

That makes sense.

William Grogan -- Senior Vice President and Chief Financial Officer

And seasonally like -- Q2 is the larger order we decelerate a little bit just business seasonality in Q3. So to your point, flat orders on a larger number yielding into Q3 is not straight math.

Michael Halloran -- Robert W. Baird -- Analyst

I appreciate that, Bill. Thank you guys.

Mike Yates -- Vice President and Chief Accounting Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Nathan Jones -- Stifel

Goof morning everyone.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Good morning.

Nathan Jones -- Stifel

Just maybe following on to Mike's question there and you answer that, I mean it sounds like you're -- the back half of the year guidance embedded normal seasonality not getting better not getting worse largely across the portfolio. Maybe you could talk about the things that could make it get worse, could make it get better relative to what your current expectation is?

William Grogan -- Senior Vice President and Chief Financial Officer

Yeah, I wish I had a brilliant answer creates and I think it's all the macro, frankly, we were going to wear to work our body of product and customer opportunities and continue to push for our consistent 200 Bips above market. I think it's all going to depend upon the global economy. I'm not sure that we're going to swing it one way or the other meaningfully off our current trajectory different than that.

Nathan Jones -- Stifel

Fair enough. Maybe on margins particularly FMT in case anybody missed it, I think you crossed 30% margins there for the first time. So congrats on that. Is that the kind of level that you guys think you can maintain there, what business is in that segment to have the opportunity to improve margins a bit more if we're starting to see slowing growth there, should we expect to see incremental is dropping to that kind of 30 to 35 range, I think do you expect when you're seeing lower growth here? And does that mean we should see margins flatten out here?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yeah. So, I think -- at the current volume levels that we're at, I'm not -- I think we're about at the right level of profitability. On an increase in volume, you've still got headroom here because of the very high incrementals, the good part here is we have a -- we don't have a huge mix margin, we have some margin mix here, but we've got a lot of businesses that are now kind of pushing up against this higher 20s number. So assuming that the world then fall apart on us, the -- that margin level feels pretty good. At the same time we've all got to be candid, this is a very high contribution margin business and if the business turns down, it's going to have a steep drop down. it's just the way it is.

We have continued to plan that we've talked about before on these calls, but, and that's why we have been cautious in some degrees about our market outlook. And so my point of view is we're a very healthy margin level now, we have further incrementals at FMT and in other parts of the business based on the high contribution margins and our ability to get price and we are preparing as we always do, if we have softening to make sure we're appropriately resetting the business and taking out some costs in line with volume.

Nathan Jones -- Stifel

You guys have always made it pretty clear that you have that's kind of contingency plans for economic downturns, are there businesses now where you actually need to enact some of those plans or there places where you need to take costs out currently with where the economy is?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Oh yeah, definitely, definitely. If you look across the 40 businesses, if you look at folks who are more focused on auto, semi, ag, you absolutely have got to do that and they've been doing that year since basically this time last year in one way or the other, just from a process standpoint, and we're looking at this. Number one, we're looking at this all the time, we go into any year having a contingency plan, it's very, very specific. And I know I've said this in many venues before, but just the high level math of this whole thing. Our our broader contingency plan is one that, OK, with -- on our call Bonello recession, we think the topline is down five points, plus or minus, right. And that five points is equal to about $125 million, unmitigated that's going to be about $75 million of pre-tax profits.

And we think that we can take out and not damage the business somewhere in that $20 million range pretty quickly, a bunch of its volume related, a bunch of its services related, rightsizing certain places that have a larger overall impact, so you end up with downside, I call it somewhere between 50 and 60 million bucks. So $0.50 to $0.60 a share and so that's kind of 8% downside on 5%, we have topline downside your net, that's the mentality that we've had. And obviously as you move into the businesses, the contingency plan look different than that, they are -- not everybody is the same, but that's our mindset. And so, as things decelerate here, I mean, I don't -- I'm not going to call a recession, but we're prepared if that happens, and we'll pull the trigger on things in some things. Nathan to your point, we are pulling the trigger on now, the small things that are being hit specifically with volume declines. Bill, anything you want to add there?

William Grogan -- Senior Vice President and Chief Financial Officer

Yes, I was going to highlight. We did take a couple of restructuring actions in the quarter on those businesses that are seeing fundamental softness. So we continue to evaluate and as businesses underperformed take action.

Nathan Jones -- Stifel

That's helpful color. Thanks a lot guys.

Operator

Thank you. Our next question comes from the line of Matt Summerville with DA Davidson. Please proceed with your question.

Matt Summerville -- D.A. Davidson & Company -- Analyst

Thanks. Two questions. First, just on the quarter, where were you in terms of price realization year-over-year, and how does that compare to the inflationary pressure you're seeing in your businesses?

William Grogan -- Senior Vice President and Chief Financial Officer

We continue to trend at that little over a point of price capture, and at the high-end of our historical price cost spread about 30 to 40 basis points historically, a little on the higher end here in the second quarter.

Mike Yates -- Vice President and Chief Accounting Officer

And the team has done a super job with price and managing the spread. And to Bill's point, we're on a little above our higher end at 30 to 40, which is good.

Matt Summerville -- D.A. Davidson & Company -- Analyst

And then with respect to the HST overall, maybe to an earlier comment Andy. At this point, do you feel like that business is breaking into a new sort of higher level of margin potential. And can you maybe talk about what areas you still can see sort of material improvement from here with the platforms that are currently in the HST portfolio?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes. So I'm actually, really, really proud of that team. We're at a record op margin there, with sealing down 18% with pretty high incremental margins in that business. So when you set sealing aside, if you look at what the performances of the rest of the business, it's pretty extraordinary and actually I'll give the ceiling team a lot of credit managing that balance that they actually manage the cost structure really well too. So that's a good note. So I think we're in a good position, I liken it a little bit if you went back to 2015, 2016, one of the things you guys couldn't see because the industrial businesses we're getting kind of kicked around is we were in the process of restructuring a number of businesses within FMT. And that breakout in profitability that we've had here in the last 2, 2.5 years was about that, right. We have reset the margin structure of the business and then volume came back. You've now seen what's happened to profitably at FMT. I don't think HST has that much upside. I'm not going to say that, but I think what you're seeing with us having a record with a key piece of the business being down and the fact that they are holding margin when you see that pick back up, I think that bodes well for improvement in the overall HST margin structure in the future.

William Grogan -- Senior Vice President and Chief Financial Officer

And we did two plant consolidations within HST to one with an MPT and one within the life science space. So there were some structural actions I think to help us get us. At this point, to Andy's comments, probably not huge increases going forward, more relation to --

Mike Yates -- Vice President and Chief Accounting Officer

One thing to note, though, Matt, and just to and everyone should pay attention this. Velcora is going to land into HST, you'll bring to amortization into there, it's a little bit, the margins are a little bit lower than that HST average anyway. And so you will see some dilution of that as we go forward a little bit.

Matt Summerville -- D.A. Davidson & Company -- Analyst

Thank you, guys.

Operator

Thank you. Our next question comes from the line of Brett Linzey with Vertical Research Partners. Please proceed with your question.

Brett Linzey -- Vertical Research Partners -- Analyst

Hi, good morning guys.

Mike Yates -- Vice President and Chief Accounting Officer

Good morning, Brett.

Brett Linzey -- Vertical Research Partners -- Analyst

Hey, just want to come back to incremental margins and really thinking about the Q3 framework and the implicit in Q4. If you just look at incrementals at the midpoint, it does imply incrementals that are just naturally above what those businesses typically do. Are you throttling back some investment spending or is it just some of that price cost benefit you're going to see here in the second half, any color there?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

We are not throttling back investment spending at all. You're going to see, we're going to hit that $60 million number for capex, that I had mentioned to you before they're kind of 25 major programs or projects that myself, Bill and Eric Ashleman and the rest of the team really focusing on, and we are funding those. There are some places there in cyclical downturns that we're pulling back. But in our places that we're betting, we are continuing to that . And one of the things that I'm really intent on and we're having, one of the reasons I'm so straightforward with you guys about what we're going to do if there is a downturn, it's the exact same conversation we're having with our Board, because if you get this scenario that I outlined before. What I don't want to do is go and take another $10 million or $20 million out because with that you will cut throttle down investment. And if you have a recession that's 6 or 12 months, the last thing we want to do is, like go a bunch of really critical people that you won't be able to hire back in this tight environment in the future. So I'm going to invest that $10 million or $20 million, so we can continue to have better than market growth rates. So we are keeping going and we're going to trim back on places that are weaker, but we're going to keep investing.

William Grogan -- Senior Vice President and Chief Financial Officer

And I think our price capture helps to enable that.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes, absolutely.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay, good. And then I guess just a follow-up to that. specific to just restructuring. You did a little less than $4 million in the first half. I think $12 million in 2018. Do you expect the step back up in the second half of the year here?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes, I think you'll see a few more things happen here that we've been keen up, but unless things materially weaken, I think it will be -- maybe a little bit higher, but it's not going to be a breakout number.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay, good. And then just a last question regarding the channel. Maybe you could just compare and contrast what you're seeing in distribution versus direct in OE specific to orders, how did that look in the quarter and then really into July here? Thanks.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

I'll let Bill comment on this, he's done a lot of work in this area, but there are two things that were different in the second quarter, on the orders front in the first quarter. The first thing is -- it larger projects, and we've seen this pattern for the last eight years, as I've been CEO. We see this pattern happen when the softening kicks in, a larger scale stuff gets pushed out. I mean, you start to see that happen. And so that was one thing we have seen kind of larger projects get delayed . And then secondarily, what we saw happened in throughout the quarter was the day rate business from these very short cycle businesses came down, and that's kind of played out. The good news is, again, July has held up that you're not seeing a sequential decline anymore, which is a good thing, but you are seeing a little bit lower level. And if you compare to the first quarter or the fourth quarter of last year in terms of the order book.

Brett Linzey -- Vertical Research Partners -- Analyst

Okay, good. I appreciate the color.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

You bet.

Operator

Thank you. Our next question comes from the line of Andrew Buscaglia with Berenberg. Please proceed with your question .

Andrew Buscaglia -- Berenberg

Hi guys. Can you talk a little bit about, so you made the comment that some of this -- the sluggishness is man-made, but had mind suggest with semiconductors and auto and even ag, Bret[Phonetic] would say that could be a prolonged decline. So I guess I'm trying to triangulate what you're seeing maybe or two niche to be impacted by that, but I want to hear comment on that?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Maybe one comment, the corollary we saw as in May when there was a tweet around potential tariffs with Mexico. Our industrial business is our immediate response and a reduction in day rates, so the corollary around this being not fundamental economics versus caution in the broader economy is somewhat we're facing this period.

Mike Yates -- Vice President and Chief Accounting Officer

And also, Andrew recognize that auto, semi, ag in total is 12% of the business, 10% of the business.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes. We are less.

Mike Yates -- Vice President and Chief Accounting Officer

You've got to recognize that I'm referring to basically 90% of the business, so that's not that stuff. And so as you look -- if you break down Life Sciences you break down municipal, you breakdown general industrial, that's more of what I'm referencing. And look if we couldn't see that as Bill described if you couldn't see that corollary between those things and how fast that happens. It's really remarkable. And back to the question, I got earlier about our canary businesses, we saw those in particular, I mean the staff your finger and as you get good news, bad news out of some of these trade and economic issues, we see it show up in our order book really quickly.

Unidentified Participant

Okay. And then maybe just some more specific one within Health & Science Technologies, Noah one of your larger customers, alumina had a weak quarter, did you guys look into that, is there anything concerning there given that they're kind of a parameter for what you do in biotech?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Yes. So we're super careful about commenting on any customers. I think what I would say, this is a broader statement is our -- sometimes people forget what we sell into these marketplaces and we're selling components that are going into instruments and a lot of these businesses, you see some of their outsize impact positive or negative is really their reagents. And so the the key to look at, for us it -- is our growth versus instrument sales. And what I can say, very broadly throughout the marketplace is we track well and I would say take incremental share. And that's a broader statement than any one customer.

Andrew Buscaglia -- Berenberg

Okay. All right, thanks very much.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Joe Giordano with Cowen and Company. Please proceed with your question.

Unidentified Participant

Hi, good morning. This is Robert in for Joe. I just wanted to go back to [Technical Issues] in the trajectory that we saw in Q2, is that slowing down, would now be the time to start to think about a possible -- in the possibility of order starting to turn negative going forward? Could you provide any color on that?

Andrew K. Silvernail -- Chairman and Chief Executive Officer

I don't think so, Robert, the information that we have thus far what it suggest that. But with that being said, let's just. I mean, I think all of us are looking at this environment the same way, it is materially slowed sequentially. I think that the risk of recession has absolutely gone up. There's no doubt about that, but we have not seen any evidence of that as yet.

Unidentified Participant

Okay, thank you.

Mike Yates -- Vice President and Chief Accounting Officer

Excellent.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Silvernail for any final comments.

Andrew K. Silvernail -- Chairman and Chief Executive Officer

Thanks, Melissa. I appreciate that. Thank you to all of you for joining us on the call today. Once again, I'm very proud of the work that the team has done in this pretty choppy environment, the levels of execution, the levels of focus on the areas that matter most us and really building the culture of this company to continue to perform regardless of environment is what we have worked very hard to do. And so, I appreciate your time and I look forward to talking to you again here throughout the quarter and then in the next 90 days. Take care.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Mike Yates -- Vice President and Chief Accounting Officer

Andrew K. Silvernail -- Chairman and Chief Executive Officer

William Grogan -- Senior Vice President and Chief Financial Officer

Deane Dray -- RBC Capital Markets -- Analyst

Allison Poliniak -- Wells Fargo Securities -- Analyst

Michael Halloran -- Robert W. Baird -- Analyst

Nathan Jones -- Stifel

Matt Summerville -- D.A. Davidson & Company -- Analyst

Brett Linzey -- Vertical Research Partners -- Analyst

Andrew Buscaglia -- Berenberg

Unidentified Participant

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