Q4 2019 Earnings Call
For this call will begin momentarily once again, please remain on your lines. Thank you.
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Listen only mode.
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It is now my pleasure to hand, the call over to VP Investor Relations Kevin Goldman.
Thank you Andrew good morning.
Thank you for joining us for Ametek's fourth quarter 2019 earnings Conference call with me today are Dave's to Pico, Chairman and Chief Executive Officer, and Bill Burke Executive Vice President and Chief Financial Officer.
Ametek's fourth quarter results.
At least earlier this morning and are available on market systems, and then the investors section of our website.
This conference call is also being webcast said it can be accessed on our web site.
The webcast will be archived it made available on our site later today.
During the course of today's call, we will make forward looking statements, which 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 FCC.
AMETEK disclaims any intention or obligation to update or revise any forward looking statements.
Any references made on this call 2018, where 2019 results will be on an adjusted basis, excluding after tax acquisition related intangible amortization and excluding the fourth quarter 2018 gain real related to the finalization of the impact of the tax cuts in jobs.
Correct.
Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investor section of our website.
Well begin today with prepared remarks by Dave and Bill and then open it up for questions I'll now turn the meeting over to Dave.
Thank you, Kevin and good morning, everyone.
AMETEK delivered excellent performance in the fourth quarter.
Capping another year with exceptional results.
Highlighted by strong sales growth outstanding operating performance and robust capital deployment on strategic acquisitions.
In 2019, we achieved record for essentially all key financial metrics, including sales EBIT da operating income earnings per share operating cash flow and free cash flow.
As a result of this strong cash flow and consistent cash flow, we successfully deployed 1.1 billion on two strategic acquisitions.
These excellent results are driven by the AMETEK growth model and the efforts of our talented employees worldwide.
AMETEK is committed to our mission of solving our customers most complex challenges with differentiated technology solutions and delivering long term sustainable success for our stakeholders.
Now onto the details of the fourth quarter results.
Sales in the quarter were a record $1.3 billion up 3% over the same period in 2018.
Recent acquisitions contributed 5% organic sales were down 1.5% and currency was a half point headwind.
Fourth quarter operating income increased 6% to 298 million.
Reported operating margins expanded 60 basis points to 22.8%.
Excluding the dilutive impact of acquisitions.
Operating income margins expanded an outstanding 90 basis points over the prior year.
EBITDA was a record 354 million in the quarter up 7% over 2018 fourth quarter.
Earnings for the fourth quarter increased 13% to $1.80 per diluted share outperforming our guidance range of one dollar one two dollarsthree.
Our business is also generated a record 342 million on operating cash flow in the quarter.
A 16% increase over last year's fourth quarter.
This led to a superb cash conversion ratio of 137% for the quarter.
Now on to the fourth quarter details for our operating groups.
The electronic instruments group delivered strong operating performance was solid sales growth and margin execution.
He is fourth quarter sales were a record $880 million up 7% year on year driven by contributions from recent acquisitions.
Organic sales and currency were both flat in the quarter.
Yes, it continues to drive meaningful efficiency and productivity improvements through our operational excellence initiatives.
These efforts led to another quarter of strong operating performance.
Yes, jeez operating income in the quarter was a record $230 million, a 7% increase over the same quarter in 2018.
Reported operating margins expanded 10 basis points to 26.1%.
Excluding acquisitions operating margins expanded 60 basis points.
The electromechanical group also delivered a solid quarter was strong operating performance.
EMG sales were $425 million in the quarter.
Down 5% versus prior year.
With organic sales down, 4% and currency a one point headwind.
The lower sales were driven largely by continued softness across our automation markets.
Despite the softness DMG group responded with solid operating performance.
Operating income in the quarter was $85 million with reported operating margins expanding 60 basis points to 19.9%.
Excluding acquisitions operating margin increased 70 basis points over the prior year period.
Now for the full year results.
2019 was an exceptional year for AMETEK with record results.
Overall sales were up 6.5% to $5.2 billion.
Full year operating income was $1.2 billion, increasing 9% over the prior year and reported margins were up 60 basis points to 22.8%.
Excluding the dilutive impact of acquisitions operating margins expand and an impressive 100 basis points over 2018.
EBITDA for the year was a record $1.4 billion up 10% over 2018 and 26.9% of sales.
This led to outstanding profit growth with earnings per diluted share $4, a 19 cents.
An increase of 14% over last year's comparable basis, and well above our initial 2019 guidance range of $3, a 95 to 4005 cents.
I would like to thank all AMETEK colleagues for their exceptional efforts during the quarter and throughout the entire year.
Before I discuss our 2020 outlook I wanted to touch on some of the highlights from 2019 that relate.
To the AMETEK growth model.
I'll begin with acquisitions.
We had another exciting year on the acquisition front deploying nearly 1.1 billion on two highly strategic acquisitions specific design technologies and get 10.
This follows an equally strong 2018, where we also deployed 1.1 billion on acquisitions.
And we're off to a good start 28 2020 announcing the acquisition of and Tallow power. This morning.
Intel borrowers a leading provider high reliability Ruggedized uninterruptible power systems for mission critical defense and industrial applications.
In Sally power as a leader in the niche markets given their unique technology and expertise.
The products and solutions perfectly comp and our power systems and instruments businesses and deepen our expertise in high reliability power protection applications.
Annual sales for Intel power, approximately $40 million and we deployed 115 million on the acquisition.
We remain very confident in our ability to identify acquire and integrate excellent businesses into AMETEK.
Our acquisition process from deal sourcing to due diligence to integration is a core competency at AMETEK.
Our pipeline remains strong and we look forward to another excellent year.
In addition to these acquisitions, we made the strategic decision to divest our readying alleys business as part of our portfolio review process.
We entered into a definitive agreement to sell business to a camera international in an all cash transaction valued at $250 million.
This transaction is expected to close during the first quarter of 2020 subject to customary closing conditions.
As a leading provider of highly engineered materials readying alloys experienced solid growth in sales and profitability since being acquired by AMETEK in 2008.
As we continue to evolve our portfolio to high end differentiated technology solutions with less cyclicality, we thought it was appropriate to explore options for the business.
In the end we believe this is an excellent outcome for all parties has come era is an excellent partner for ready to support their next stage of growth.
For AMETEK proceeds from the sale, we redeployed on our acquisition strategy, which remains our number one priority for capital deployment.
I would like to thank are running alloys employees for their hard work and contributions to AMETEK and wish them continued success in the future.
Our operational excellence strategy continues to drive record results and impressive efficiency improvements.
In 2019, we generated approximately 95 million and operational excellence savings.
This level of savings that an increase from our initial estimate of $80 million.
And speaks of the flexibility of the AMETEK growth model to drive higher levels of productivity in the face of softening market conditions.
Our businesses continued to utilize our operational excellence tool kit to improve efficiencies and productivity.
A great example of these efforts came from our new instruments team.
Which one the Dr. John box operational Excellence award in 2019.
During the year, the new instruments team conducted on operational excellence Guy van.
And implemented lean processes to reduce the manufacturing cycle time of their scientific instruments for elemental and isotopic analysis.
These changes drove a 40% reduction in working capital shorten lead times for their customers and improved sales and profit growth at the business.
Congratulations to the new instruments team on this outstanding achievement.
This is one of the many examples across AMETEK of our businesses driving meaningful productivity improvements through leveraging our operational excellence tools.
Our business has also continued to enhance their competitive physicians through new product development and global and market expansion.
In 2019, our business and our businesses unveiled dozens of innovative new products and solutions.
These solutions included award winning advanced Threed scanners for quality control and quality assurance revolutionary plasma viewing technology for laboratory analysis.
High speed digital imaging technology.
Highly specialized test and measurement devices and X Ray microanalysis instrumentation.
We remain focused on investing and is in this innovation to power our future.
In 2019, we invested approximately $260 million or about 5% of sales in the research development and engineering of new products and solutions.
These new technologies have been well receive our customers as shown by our vitality index, which measures the level sales generated from new products and solutions introduced within the last three years.
In the fourth quarter.
Our vitality index was an outstanding 25% speaking to the success of our product development efforts.
Our businesses are also expanding our global footprint.
To reach customers in new geographies and adjacent markets.
As an example.
In 2019, when Vale, New technology solution centers in both Singapore in France.
These stated our facilities enable our businesses to showcase their products and solutions and better serve their customers will design implementation calibration and service capabilities.
We remain focused on investing in these opportunities to expand our international sales channels and develop new innovative ways to better serve our customers and support our global growth initiatives.
Now I'll move to our outlook for 2020.
While we remain cautious given the current uncertainties a global macro environment.
We are highly confident in the strength of the AMETEK growth model.
And in our ability to continued to deliver strong performance.
As such we expect 2020 earnings per diluted share to be in the range of $4.24 to $4.38, an increase of 1% to 5% over 20 Nineteens comparable results.
This guidance range assumes the divestiture of reading alloys during the first quarter and excludes the gain on the anticipated sale.
Overall sales in 2020 are expected to be up low single digits with organic sales roughly flat for the year.
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For the first quarter.
We anticipate overall sales to be up low single digits versus the prior year.
First quarter earnings are expected to be in the range of one dollar one to one dollar for per diluted share.
The 1% to 4% increase over the prior year period.
So in summary, AMETEK delivered excellent performance in the fourth quarter.
Concluding a year with exceptional results in a decade that saw tremendous growth for AMETEK shareholders. The AMETEK growth model, it's proven and scalable and we'll continue to drive long term sustainable success for our stakeholders.
I'll now turn it over to Bill Burke, who will cover some of the financial details in the quarter, then we'll be glad to take your questions Bill.
Thank you David as Dave mentioned, AMETEK completed 2019 with excellent performance in the fourth quarter.
Let me provide some additional financial highlights for both the quarter and the full year.
Fourth quarter General and administrative expenses were down modestly from the prior year and as a percentage of sales were 1.3% down from last years level of 1.5% of sales.
In 2020 general and administrative expenses are expected to be approximately 1.5% of sales in line with the full year 2019.
The effective tax rate in the fourth quarter was 17.6%.
Down from last years adjusted rate of 22.8%.
The lower tax rate in the quarter was due to the tax benefits from stock compensation and the Finalization of our 2018 tax returns.
For 2020, we expect our effective tax rate to be between 20 and 21%.
And as we've stated in the past actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate.
Working capital in the quarter was excellent at 17.3% down from 18.2% in the third quarter.
Capital expenditures were $41 million in the fourth quarter and $102 million for the full year.
We expect capital expenditures in 2020 to be at a similar level 2019 at approximately 2% of sales, reflecting our asset light business model.
Depreciation and amortization expense in the quarter was $64 million and the full year was $234 million in 2020, we expect depreciation and amortization to be approximately $265 million, including after tax acquisition related intangible amortization of approximately 100.
$20 million or 52 cents per diluted share.
As Dave is highlighted our businesses continue to generate tremendous levels of cash flow.
Operating cash flow in the quarter was a record $342 million up 16% over last year's fourth quarter.
Free cash flow was also outstanding up 15% versus the prior year to $301 million free cash flow conversion was exceptional at 137% of net income.
Our full year cash flow levels were also at records operating cash flow for 2019 was $1.1 billion and free cash flow was $1 billion, each increasing 20% over 2018 free cash flow conversion in 2019 was an outstanding 118%.
We continue to successfully deploy our strong cash flow and strategic acquisitions. We had another outstanding year end 2019 with $1.1 billion deployed on the acquisitions of Pacific Pacific Design technologies and Catan subsequent to the ended the fourth quarter, we deployed $115 million on the acquisition of intelligence.
In addition in the fourth quarter, we paid off $100 million of private placement senior notes, which mature in the quarter.
Total debt at December 30, Onest was $2.77 billion up 5% from the end of 2018.
Offsetting this debt is cash and cash equivalents of $393 million, resulting in a net debt to EBITDA ratio of 1.7 times at year end consistent with year end 2018.
Following the acquisition of Intel power, we have approximately $1.4 billion of cash and existing credit facilities to support our growth investments.
The finish I'd like to Echo, Dave and thanking our colleagues for their excellent work in 2019, our businesses delivered exceptional performance in the quarter and throughout the entire year.
We are well positioned for continued growth in 2020 with a strong back balance sheet and excellent cash flows Kevin.
Great. Thank you Bill Andrew flu. Please open the line for questions.
Certainly as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from the line of Matt Summerville with da Davidson.
Thanks, So couple of questions first Dave can you maybe talk about what your expectation is from purely in organic standpoint is we sort of cadence throughout the year from quarter to quarter, maybe first half versus back half embedded in your guidance.
Yes, sure, Matt and good morning.
Really when we think about our guidance for organic growth in 2020.
We're really assuming the same activity level that we saw in the fourth quarter.
And similar run rates expected throughout all 2020, so there isn't a backend hockey stick at all on our forecasted follows a pretty typical H one aged two of AMETEK.
And now in terms of what the to look like as you proceed through the year you'll have some.
Negative organic growth comps during the first quarter the first half.
But.
In terms of the level of activity is pretty linear sequentially and reflects the.
Continuation of the pace of activity, we saw on in Q4 19.
Thank you and then just as a follow up can you do sort of year traditional walk through the businesses. What you saw in Q4 in kind of what the expectation is for 2020 across the portfolio. Thank you sure Matt ill start with our our process business.
They completed an excellent year in 2019 with a solid fourth quarter.
Overall sales were up high single digits, driven by contributions from acquisitions of Telular spectra scientific and content.
Organic sales were flat in the quarter generally in line with our expectations.
However, we did see some slower discretionary capex at year end.
For 2020, we expect organic sales to be roughly flat versus 2019 for process.
Our next aerospace of overall sales for aerospace and defense businesses were up low single digits in the fourth quarter driven by the acquisition of PDT.
Organic sales were down low single digits against a very difficult comp.
Plus 10% Q4 18.
And last year's fourth quarter, we saw excellent mid single digit growth across our aerospace and defense platform in 2019.
In 2020, we expect another solid year of growth across our Andy businesses with organic sales up low to mid single digits and balanced growth across each segment.
Organic sales for our power and industrial businesses were up low single digits in the quarter with particularly solid growth and our programmable power business.
And for 2020, we expect organic sales to be roughly flat across power and industrial.
And our automation and engineered solutions business saw a mid single digit organic sales declined in the fourth quarter driven by continued softness across our global automation businesses.
In 2020, we expect our.
Automation and engineered solution businesses organic sales to be roughly flat versus the prior year.
That's right warm.
Welcome.
Thank you and our next question comes from the line of Scott Graham with Rosenblatt.
Hi, Good morning days, Bill and Kevin Good morning, Scott.
So a couple of questions. Thank you for.
Answering matts question. There has you saw your question Thomas.
Yes thats okay.
The oil and gas piece I know is a piece that has.
We did manage down over time acquisitions the whole thing.
But obviously that's taken us that market's taken a quite did turn for the worse with the.
Corona virus, so you know.
Really kind of up stated setting the sales side of things I think in the upstream and I was just wondering kind of what you were thinking on oil and gas for the year and then I do have a follow up on the automation business. Okay.
Our.
We are in Q4, our oil and gas business was flat.
Some of his performed well there was some project timing in the middle east, but to and flat performance and for the full year was up mid single digits.
For 24 full year 20, we expect a flat performance.
And we have a smaller upstream presence.
Over two thirds or presence been downstream so.
It's about a 6% exposure for the whole company about 300 million and.
It's been growing and we've grown around it and the one point is if you think back into 2015 2016 time period, the commodity related businesses of AMETEK were 22% of our sales.
After the announcing the.
Divestiture or running alloys that same commodity level businesses will be about 12% of our sales of 6% oil and gas 6% of metals. So we feel good about a portfolio we felt good about our exposures and with a.
Predominant oil and gas businesses in the mid downstream it looks looks solid within we're still at that $50, an order $50 a barrel level.
Went in past has been okay for us. So so we're feeling pretty good about it and we have some good.
Projects that were working on and we have a good recurring revenue base in that part of the business.
Thank you for that.
My follow up on automation is simply could you kind of break that up by.
End market, where things are weakest cam assuming that oils to that.
Oil auto still goes in the in the last column for now, but maybe just a little more color on that business.
If you want to understand that business, what really happened is the automation weakness continued.
And the European automation was weaker than expected. So if you think back the last quarter.
Europe was kind of strong and Asia was the weak spot for automation.
Yes. This quarter. The U.S. was positive the weak spot was really Europe, So Europe, and Asia maintain weakness and and.
Thats really the story and the automation business now.
A little bit of encouragement is in December and January the sequentially. The orders normalized so we've seen the found bottom and though we will see if that continues but the is pretty much a geographical issue where the European weakness was the.
I would anticipate a weakness in Q4.
Thanks that hugely helpful. If I could just sneak just less when it's a clear one what's your productivity expectation for 2020.
Yes, the productivity expectation for 2020 is $90 million. So we we began 2019 at 80 million and through the year we were.
Executed very well we ended up at.
95 million.
But for.
2020, the started the year, we've set that up $90 million.
Incremental either all incremental numbers that are incremental productivity numbers as you will see working through the PNM.
Yes, thank you very much thanks Scott.
Thank you and our next question comes from the line of Deane Dray with RBC capital markets.
Thank you good morning, everyone. Good morning, Yes, I might've missed this but could you tell us what the organic orders were for the segments and maybe some comments versus expectations.
Yes sure.
The I'll go through the whole orders Fitch I mean, it was it was a orders growth aprs up 8% in the quarter.
Organic orders were down 2% and both groups were down low single digits.
And as I said before the weakness was driven by.
The automation and weaker year end discretionary capex spending and we're seeing.
Now with January and into the late parts of December we're seeing sequential order stabilized with our automation business and and we have a record backlog of 1.72 billion and we have book to Bill 1.07 in the quarter. So.
Vessel picture on orders.
Got it and then well.
A question does your this quarter everyone's being asked how braced you are for disruptions in China.
Is that about 9% of your revenues.
Just in terms of potential demand disruptions and supply chain disruptions is there anything embedded in your guidance for that and kind of what near term expectations. Do you have yes. The first point, it's about 7% of our sales.
And.
And the.
Yes, we're monitoring things very closely and first and foremost pfos were focused on the safety of our employees oil being or employees and from a business perspective, as you know the situations varium fluid very fluid and difficult to quantify so our full year guidance is based on what we know now and.
We do know that we don't have any significant operations, and we'll end and nor any significant supply chain exposure.
Is the fires and.
Oh on city area.
But we don't expect we do expect there to be some delays in the global supply chain in some unanticipated consequences of the.
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Supply chain disruptions. So we'll monitor this closely and we do have very global supply chain capabilities, so adjust as possible and appropriate.
That's very.
Difficult at this point to assess any end demand risk without knowing the severity or longevity of the situation.
One point to highlight how fluid the situation is our although although our facilities in China have not reopened.
Following the lunar new year for reopened next week, one of our facilities as the Chinese government asked us to reopen to operate in order to to provide support to a couple of medical device manufacturers that we have in China will we provide motion control solutions to.
Our customers is supply medical equipment used to help to protect to kroner virus. So we're up and running today with a aligned to fulfill that need. So so it's really changing all the time and I think we've taken steps to.
Two.
The focus on the safety of both our employees in China and around the world and the.
As we learn more and.
And we quantify it we'll let you know what that is.
David that's real helpful. If I could just squeeze one more in regarding the topic of other potential divestitures, we really did like seeing trimming the readying alloys business I know, what's a good business, but the cyclicality didnt quite match, what you're looking for.
Compounders don't typically divest so because it's really hard to redeploy and get this the same returns, but just are you looking as you look at the portfolio are there any other potential candidates for trimming at the margin like that.
Yes, we do a strategic review every year, so we look hard at our portfolio and the.
You know ready alloys as you mentioned is a really good business and.
Which is different for AMETEK and it was more cyclical home and the value chain was different but we didn't have the visibility that we hadn't or other businesses dealing within customers. So it kind of stood out and.
We made the decision to divest it and it was a good decision we still have a.
Solid metals business, and we're very comfortable our portfolio and no other divestitures or plan at this time.
Very helpful. Thank you. Thank you Dan.
Thank you and our next question comes from the line of Josh for Zinski with Morgan Stanley.
Hi, Good morning, guys warning Josh.
Just a follow up on the on Dean's question on the portfolio I guess, one of the the unintended consequences of being kind of a long term compounder. What's a good amount of success on the M&A. Scott side is that you need to do either larger deals or as higher velocity to kind of keep the momentum.
Going clearly 2019 was was good evidence of both.
When you look at the pipeline today.
Is it a bias toward larger acquisitions and should we see that.
You will become more the norm.
Yes, a great question, Josh I mean, there are clearly is some larger acquisitions on our pipeline, but they're also some smaller sized acquisitions do more typical and the like the Intel or power. One that you saw that we announced today and.
And as you know acquisitions, our first priority for capital deployment, we want to deploy all of our free cash flow on M&A and.
We had a successful 2019 and we had a successful 2018, if you look over those last two years, we completed nine acquisitions, we deployed about $2.3 billion and we acquired 610 million in sales and I would say our deal funnel remains consistent so that we should be able to do the same kind of thing going forward were.
Feels very good right now, we're evaluating a number of opportunities.
Bill mentioned, we have as $1.4 billion of existing firepower with an unused revolver capacity in cash and even with these capital outlays are we're going to generate another anticipate to generate another billion won and free cash flow. So so we're very active we have a team dedicated to it at the acquisitions at AMETEK or promenade.
One of a.
Set of well defined process is not a single event and we have processes to develop the pipeline I feel really good about that right now.
Got it Thats helpful. I guess related to that the the productivity bogey for for 2020 looks very solid I guess is part of this kind of ramping in productivity given that there are a lot of newer members of the AMETEK portfolio win and running them through that operational rigor just.
Leads to larger numbers or or is there kind of another element of the productivity deck that you guys are unfurling.
Yeah, I think it's a combination of both the acquisitions.
To provide more more opportunities, but at the same time.
Our growth model very flexible and when we get in times like for the revenue starts to slow down you saw at the last couple of quarters. We've been we've been business by business looking in businesses and and.
Taking actions and has resulted in extremely strong execution and excellent margins and we're continuing to get excellent pricing, we're continuing to get excellent productivity. So we really expect a not another strong year of execution in 2020, and it's really inherent in our model, where we have operators of note around businesses through the site.
Equal and when when the revenue line starts the way, we're a bit and we know what to do and we have a variety of contingency plans. So so I feel comfortable managing in this kind of environment.
Thanks, and if I could just sneak one small one in at the end earlier.
Clearly capex budgets are still very uncertain given all that's going on in the world any sense from customers that theres a bit of a coiled spring being formed in that Theres theres projects that are set to release, when we kind of get the all clear or people just comfortable spending at lower levels.
You know what the trade deals that recently have been sign theres a bit of.
Momentum building and.
And now you're dealing with the.
The Corona Viber situation, so it's kind of tough to get a read but certainly we are feeling some.
Positive momentum building in it felt like people were willing to spend and now we'll just have to see the impact.
Thanks I appreciate it thank you Josh.
Thank you and our next question comes with a lot of Nigel Coe with Wolfe research.
Thanks, Good morning, guys.
Nigel.
So your comments on December January was interesting because it's sort of very helps it will be here and elsewhere I think your comments were more.
Europe Asia is being you know weekend and I'm wondering if you'll see more stability in those regions, but my real question is more on the.
Sequential Cuba Q decline at MGM is down 8%.
Which tends to speak to some channel Destocking activities I'm, just wonder if you touched on that.
And then just the comments on the sort of regional stability question as well.
Yeah, I mean in the.
VMG typically parts of that business do have a.
Slower fourth quarter.
Historically, the calendar year and.
It was relatively typical the European automotive moderation business was that we highlight it also on our aerospace business. Our military business is in DMG segment and that saw some program delays that.
We are just delayed a bit so.
But as I said the businesses operated very well we had.
Excellent margin expansion and.
Certainly that's the automation business has been.
Challenged throughout the year and the team there has done an excellent job of taking actions and those are included in the results. We haven't Spike goes out of this just an individual business. That's that's what we do and.
That's that's where we're at an 80 Mg really automation driven as European automation, specifically and there was a little bit of the military that's just a timing issue. We have a very good backlog that just a timing issue in Q4 in terms of the.
The globe.
We were we were of.
Solid growth in the us, while Europe and Asia were down in the quarter.
So we had.
Low single digit growth in the us, particularly in process and power.
And the Asia was down mid single digits and the.
Similar to performance, we had Q3 and Europe was a change and we look at the.
2020, we expect the us to do a little better and maybe the international markets a little little worse, but there is a small difference between them. So so.
As I said, we set our plan for 2020 at the same activity level. We saw in Q4, we feel pretty confident with them.
Thanks, David Thats helpful and you come into the you mentioned the book to Bill was 1.7 in the quarter is that correct, yes, yeah that seems like a like a good number I mean I don't have the they book above most fourth quarter full Q 18, how does that woman those seven compared to sort of the normal.
Book rates do enough, we'll keep yes, I think that also has the acquisitions in that where you're booking the.
The.
The backlog of the acquisition. So I think if you normalize out for the acquisitions.
It will be around one approximately.
Okay, and that'd be favorable yep, that's really not.
And just a quick one on DNA you think you said two six fivefold 2020, a number 145, FFO intangibles, and then 120 potential.
It's about.
For 2020, it's about 164 amortization and.
Depreciation by 105.
Okay.
And then thank you thanks.
Thanks Nigel.
Thank you and our next question comes from the line of Christopher Glynn with Oppenheimer.
Thanks, Good morning, everybody.
So.
On record backlog, just wondering if you see kind to.
Conversion going forward it sounds like the military delays helped the backlog a little bit. So wondering if that is just kind of a one quarter pushing your view and if EMG organic.
Kind to is a little less negative most likely in the first quarter.
Yes, the M.D. is it the military is definitely going to correct itself, but the comps in Q1 are very difficult for Mg.
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So it will be roughly of sequentially similar to the level was in Q4.
Probably the best way I can describe that Chris and.
And did you have another question.
Yes, I'm doing one other one right now what's been asked is.
Empty I missed acquisition component in the quarter to get specific in there, but I didn't hear you mention any acquisition contribution.
Yes, there were there was an acquisition component in Mg in the fourth quarter was about a point.
Okay. Thank you.
Thank you.
And our next question comes from the line of Allison Poliniak with Wells Fargo.
Hi, guys. Good morning, good morning Allison.
Just a follow on jobs is comment on acquisition and his question.
Really a strong year, but as we enter Tony Tony We talked about side that has your your thought process around technology or end markets changes as you look for deals.
That's a great question I mean, certainly the it's a similar type businesses that were looking for we're looking for businesses that are non cyclical businesses that have a.
Good percentage of recurring revenue.
If we can't find those types of things were looking for the return in an existing run an existing exposure.
Yes, when we have teams out there, beating the bushes digging up potential deals and many of these companies we've been falling for years and years. So and you know when AMETEK is looking at buying a business is often the.
The ownership the private ownership they want to retire or they are trying to.
It's not.
Hello start markers donor things like that examples of talent power, we gotta CEO that wanted to retire and we've been working with them for years. So so that's that's more of that type of deals that were going to get at during this time and there's a.
Why right then, but we're looking in the the health care area, we're looking to extend our process as an analytical businesses aerospace power is all the above we will buy any cost driven businesses businesses that went in the market on costs were looking for differentiated businesses Thats, our key criteria and because of.
And on this along we have approximately 11 people dedicated to it we know what's going on and we feel good about the pipeline knowledge, it's always difficult to predict when you're going to do a deal for its next quarter or not ours, but I feel really good about the pipeline right now.
That's great and then just last one is how the Tyler seems like a nice complement what what does it brings AMETEK that maybe technology or whatever that you did not happy for any color. There, yes, sure I mean, they're big thing, we already have an existing presence in uninterruptible power supplies and we.
So to the life Sciences market, we sell to the the process market and what Intel of our brings is really those those of those products Ruggedized uninterruptible power systems.
Sold to mission critical defense and industrial applications. So there's a larger supplier ruggedized GPS is for the Vo D. The server robust set of key programs and applications. Other products include you PS is power conditioners.
The external battery packs power distribution units and it really on the elite unique company and that they have sole source provider for numerous programs are on shifts land vehicles ground stations mobile network. So for the Blue chip customer base and they also have a industrial component that we think we can grow so we're pretty happy.
With the acquisition and the Theres, a meaningful synergy opportunity. It's a mid single digit grower strong visibility on revenue in the short term solid management team remaining with the business. So we like the deal.
Great. Thanks, so much but right.
Thank you and our next question comes from the line of Ivana dealt let's go with Gordon Haskett.
Good morning.
So just wanted to ask about some of your high growth businesses like dealers picture in Korea farm are they getting affected by the weaker macro at all.
There that those are in our ESG segment and in our process segment and that businesses those businesses are holding up very well.
We did see some.
We usually see a year end the some capital spending capital flies where people spend their capital year end and that was a bit lighter, but overall those businesses are doing very well.
And then just one follow up on that Don or how did the performance in the quarter on the current outlook compared to to your acquisition plan right. Great question I mean, the business performed well it was a bit better than our forecast.
So we're very pleased with our performance and we also announced the combination of Tan with another business unit within AMETEK. So that was announced in January and it will drive substantial synergy as we have really the same customer base and I would characterize the integration is proceeding very well.
Great. Thank you. Thank you.
Thank you.
Next question comes from the line of Robert Mccarthy with Stephens.
Good morning, everyone. Good morning, Rob.
I guess the first question I would have is around the orders the organic orders anything you could talk about the backlog in terms of price and how you feel about price because prices such a.
He lever for you not only for obviously growth organically, but also for really shoring up your your incremental margin cupboard.
Yes, I mean, the price that we got in the fourth quarter was much like.
Full year 19, so we had a positive spread of about.
50, Bips and very pleased with results and for 20, we expect about 50 bips spread that we think there might be slightly lower inflation about 1% and the pricing that we have built into our operating model is about a point in half but.
We expect to 50 50 basis point spread improving productivity for next year and are confident that we're going to be able to deliver that because we've been performing so well over the past couple of years and it is a bit lower than 2019, and that's because the incremental impact from tariffs will be lower also.
Remind us what your pricing was kind of the 16 16 timeframe during the the.
Piece of the oil and gas recessions that was that a negative spread for several years I don't think it went negative I don't think it went negative I don't have those numbers in front of maybe you can check with.
Kevin on that after the call, but I don't recall going in negative at all.
Okay, and then I guess in terms of.
Gosh fourth quarter of a teen.
You weren't afraid at that time, and there was a pretty material grout brought out of the market, obviously to deploy capital for share repurchase when you thought it was prudent.
Given the prospect that we would have a year of.
Unclear macro given given what sort of a proto virus geopolitical trends the election.
It could be harder to transact on deals given kind of a tacit bid ask spread.
In terms of in terms of properties, meaning.
People have a higher.
Justification for selling them, perhaps you are willing to buy do you think you could you could amp up the share repurchase.
If you hit an air pocket in terms of the ability to transact on deals or are you just don't see that happening.
That's a great question, Rob I mean, the reality is we have a great pipeline and we.
We want to deploy our capital on M&A and I think we're going to do that.
But we look at our buyback strategy is more opportunistic and we have a strong balance sheet and and if the.
The short term there's a over reaction from the marketplace. Then then we'll deploy our balance sheet to to buybacks, but right now we're focused on M&A.
I'll leave it there. Thank you yes.
Thank you and our next question comes from the line of Andrew Obin with Bank of America.
Thank you this is David Ridley Lane on for Andrew.
Good morning, David Good morning.
Curious if you expect any follow on impact in the first half from Boeing kind of 37 Mac production pause.
Yeah. That's a great question, David I mean, they were on a lot of different programs and.
All commercial aircraft military business, just so we don't we're not dependent on anyone aircraft, but.
Specifically to your question the 737, Max will be about a 10 million dollar headwind in 2020 and that assumes a startup of production base mid year and our current build plan.
So it's about a 10 million dollar headwind versus 2018 2019 excuse me.
Okay.
And as a quick follow up.
You know how to empty booking maybe the pipeline develop.
Through the quarter and any commentary on.
First quarter to date.
Yes.
Yeah, the VMG bookings like I said previously.
It was a weaker as the quarter started.
But the orders stabilized in December and that continued in January so we.
We showed a typical fairly.
Fairly typical ramp in Q4 for the entire business.
And the MG was included in that and then in January we had a.
Good orders month, right inline with our plan so.
And as I said sequentially from December January it feels like the.
MG automation orders have stabilized and.
During that short time period.
Thank you very much.
Okay.
Thank you and our next question comes from the line of Andrew Buscaglia with Baird.
Hey, guys.
Flow Andrew you can you touch on.
You talked about.
About the automation weakness continuing and.
Order somewhat.
Normalized.
Our January.
But can you talk about what you talked regionally the would've what about your other areas of the business.
What number what other areas normalize or weekend.
Got worse because.
The majority organic orders are are down about 2% or low single digits in each business.
I think some things that got worse.
The other thing there is really the another major factor into.
I mentioned that earlier, we experienced weaker discretionary capex spend than we anticipated. Okay and then the of the related point and it's more of a sales issue versus an orders issue was.
Pride program delays in for military and our aerospace business in the fourth quarter.
Okay.
Okay, that's it and everything else okay. Thank you.
Thank you and our next question comes from the line of Richard Eastman with Baird.
Yes, good morning.
Steve just a quick question around.
We look into 2020 with the with kind of a flat core growth expectation.
When you look good.
Process and I think your commentary run the automation business and the E. G. Both flat flat it seems like aerospace I think you come in at low single the mid single digits. When you. When you look at those those three buckets of exposure, where do you see the risk.
To to 2020 from a core growth standpoint.
Yep.
We tried to put a plan together that.
That dealt with that right by taking a run rates that we're currently at so we didnt want to hockey stick budget, and we think we've had that factored in but theres clearly risks and they are more macroeconomic risks than.
And AMETEK specific risk because of the businesses are executing we're very well we have a record backlog, we're going to be able to execute on that backlog.
We had excellent pricing in the backlog known for shown the capability to generate excellent productivity. So we're expecting another strong year of execution and.
With our Crystal ball, we call it flat and we tried to base to run rates based on 2019, because I don't like hockey stick plants, and that's where we're at and that's our best.
Attempts to moderate the.
The guidance with the realities of the market.
This is as you as you look out into 2020, so difficult to sift out.
Op margins.
From acquisitions in their contribution but.
What kind of.
Improvement do you expect to see.
Op margins.
For the full year are we talking about you know, maybe 50 basis points or what kind of.
Yes, we had.
100 basis points, and all of 2019 with 90 basis points core margins and the fourth quarter and in our plan. We have 30 to 40 basis points of margin improvement quarter operating income margin improvement.
For 20, Okay, and then just just.
Last question here.
Just a quick question around.
John You mentioned it had a good good fourth quarter as it came in for the partial quarter.
As we spoke when the when the business was acquired I think we're thinking maybe 100 million of rent or excuse me 180 million of revenue for the for full year growth rate was mid singles the high singles.
Theres been some commentary maybe.
Thermal kind of speaking to weakness in the electron microscope market, which I'm curious.
What would be a good revenue contribution.
In your your plan for.
20 from good Tom.
Yeah, I think it's pretty much what we laid out as the is roughly $180 million.
Okay, Alright fair enough.
Okay very good. Thank you. Thank you Rick.
Thank you and our last question comes from the line of Joe Giordano with Cowen and company.
Hey, Good morning. This is Rob Jamison on for Joe. This morning, I'm just a quick question on Intel of power can you maybe talk about the margin profile or what your expectations for that business or.
Yeah, it's a profitable business and.
Yeah.
We paid.
Nine times EBITDA. So you can figure that out roughly a 30% everyday business.
And we paid.
$150 million approximately three times sales and we.
We think theres, a meaningful synergy opportunities so I get great return for our stakeholders.
Okay, Great and then just a quick follow up on the 737 Max I know, it's this is a small very small piece here Urals total business, but.
In terms of.
What's baked in your guide how many.
Planes or production number Mike what's your production number embedded in your guidance there is it like zero or.
Now I think I think are the number is a little bit difficult for us to forecast and.
And I don't know what a disclosure agreements we have evolving I can say that.
Matt.
We plan on.
Starting our activity midyear.
And I'll be about 10 million dollar headwind yes.
Okay, and you guys have like 37000 per plane.
Content library that that's right.
Okay perfect. Thank you so much for taking my questions.
Okay. Thank you.
Thank you we would like to thank you for participating in todays conference. This does conclude the program and you may now disconnect everyone have a wonderful day.
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