Q4 2021 AMETEK Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2021, AMETEK, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

Ask a question during this session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

It is now my pleasure to introduce Kevin Coleman, Vice President of Investor Relations and Treasurer.

Thank you Andrew Good morning, and thank you for joining us for Ametek's fourth quarter 2021 earnings Conference call with me today are Dave <unk>, Chairman and Chief Executive Officer, and Bill Burke Executive Vice President and Chief Financial Officer.

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 SEC.

AMETEK disclaims any intention or obligation to update or revise any forward looking statements.

Any references made on this call to 2020 for 2021 results will be on an adjusted basis, excluding after tax acquisition related intangible amortization and also excluding the gain from the sale of writing alloys in the first quarter of 2020.

In the realignment charge taken in the first quarter of 2020 reconciliations between GAAP and adjusted measures can be found in our press release and on the investors section of our website will.

We will begin today's call with prepared remarks by Dave and Bill and then open up for questions I'll now turn the meeting over to Dave. Thank.

Thank you, Kevin and good morning, everyone.

AMETEK concluded 2021 with an excellent fourth quarter.

Stronger than expected sales growth and outstanding operating performance resulted in robust profit and earnings growth.

Demand remains strong and broad based across our end markets, leading to superb order growth and a record backlog as we enter 2022.

We are integrating six recent acquisitions into the AMETEK growth model and are well positioned to deploy capital on additional acquisitions, given our excellent cash flow generation and strong balance sheet.

We asked a lot of our teams in 2021 has the pandemic supply chain tightness led to disruption and uncertainty.

As always our colleague stepped up to these challenges and delivered tremendous results. Thank.

Thank you to all AMETEK colleagues for their hard work and tremendous contributions to our success.

Now, let me turn to the fourth quarter results.

Fourth quarter sales were a record 150 billion.

Up 25% over the same period in 2020 and above our expectation.

Organic sales growth was 17%.

Acquisitions added nine points and foreign currency was a one point headwind in the quarter.

Overall orders in the fourth quarter were $1 six 1 billion, an increase of 26% over the prior year period, while organic orders were up an impressive 22% in the quarter.

We ended the quarter with a record backlog of $2 73 billion.

Which is up over 50% from the start of the year driven by strong underlying orders across our businesses plus the contributions from acquisitions.

Fourth quarter operating income was a record $361 million.

Up 21% versus the fourth quarter of 2020.

And operating margins were 24%.

Excluding.

<unk> the dilutive impact of acquisitions core operating margins were 25, 8% up a very strong 90 basis points versus the fourth quarter of 2020.

EBITDA in the fourth quarter was $437 million.

Up 21% over the prior year and EBITDA margins were 29, 1%.

This operating performance led to record earnings of $1 37 per diluted share up 27% over the fourth quarter of 2020 and above our guidance range of $1 28 to $1 30.

Our record performance in the fourth quarter speaks to the strength of the AMETEK growth model and our ability to drive strong growth throughout economic cycles.

While the pandemic impacted results in 2020, we have quickly recovered and are now running well above pre pandemic levels. For example, ametek's fourth quarter 2021 sales were 15% higher than our sales in the fourth quarter of 2019 prior to the start of the pandemic.

While core operating margins were up 300 basis points and earnings were up 27% versus the fourth quarter of 2019.

Now let me provide some additional details of the operating group level.

First the electronic instruments group.

Sales for AIG were a record $1.0 billion to $6 billion.

Up 29% compared to last year's fourth quarter organic.

Organic sales were up 17%.

Acquisitions added 13%.

Foreign currency was a one point headwind.

Growth remained strong and broad based across AIG with particularly strong growth on our <unk> Tan and Kamika businesses.

Aig's fourth quarter operating income was a record $280 million up 18% versus the same quarter last year and operating margins were 26, 4%.

Excluding the dilutive impact of acquisitions Aig's core margins were excellent at 29, 3% up 50 basis points from the fourth quarter of 2020.

The electrical and mechanical group also delivered outstanding sales growth and excellent operating performance.

Fourth quarter sales for EMG were $447 million up 18% versus the prior year driven by broad based organic sales growth.

Our automation businesses saw continued strong demand across a wide range of end markets.

Emg's operating income in the fourth quarter was $105 million up 32% compared to the prior year.

Emg's operating margins expanded an exceptional 260 basis points to 23, 6%.

Now for the full year results.

Overall performance was outstanding in 2021, establishing annual records for essentially all key financial metrics.

Overall sales for the year were $5 5 billion.

Up 22% from 2020.

Organic sales increased 15% acquisitions added 7% and.

Foreign currency a modest tailwind.

Overall orders were up 40% versus the prior year with 26% organic orders growth leads our record backlog and providing a solid visibility as we look ahead to 2022.

Operating income for 2021 was $1 3 billion.

Up 22% and operating margins were 23, 6% with core margins up 110 basis points versus the prior year.

EBITDA for the year was $1 $6 billion.

Up 20% from 2020 and full year 2021 earnings were $4 85 per diluted share up 23% versus the prior year.

In addition to the excellent financial results in 2021, we also positioned to AMETEK for long term success by continuing to invest in our businesses to support their organic growth initiatives.

One important initiatives new product development as we look to further expand our differentiated technology solutions and attractive growth markets.

In 2021, we invested $300 million in research development and engineering or approximately five 5% of sales.

This level of investment was up 22% over 2021.

One way, we measure the success of new product development efforts sort of vitality index.

It reflects the level of sales from products introduced over the past three years.

In the fourth quarter, our vitality index was a very strong 25%.

These investments are driving outstanding innovation, including a growing number of important solutions in support of our customers' sustainability initiatives.

We're supporting the development and expansion of renewable energy solutions.

Providing important technology is used to monitor measure and reduce greenhouse gas emissions.

Assisting scientists and their understanding of the impacts of climate change.

And supporting the development and testing of electric vehicles to name just a few of the important applications AMETEK plays a key role in supporting.

We are expanding our research development and engineering investments and expect to invest approximately $340 million or five 5% of sales and <unk> in 2022.

This is a 13% increase over 2021 ardine spend.

We are also deploying our capital on strategic acquisitions, adding to our portfolio of market, leading industrial technology businesses and driving excellent returns for our shareholders.

We had a record year of capital deployment in 2021, deploying approximately $2 billion on the acquisition of six businesses.

Our latest acquisition Alpha.

Was completed in the fourth quarter.

Allison's develops and manufactures gas in particular sensors for use in environmental health and safety and air quality applications there.

<unk> sensors are used in both fixed and portable systems to detect a variety of gases, including oxygen volatile organic compounds and harmful toxic gases.

Alpha fences sensor projects and technologies are highly complementary with our <unk> com business and provide our sensor.

Offering serving and broaden our sensor offering serving critical health safety and environmental applications.

Have a census based in Essex, UK and has annual sales of approximately $30 million.

Our acquisition pipeline remains active our M&A teams continue to work diligently and we expect to remain very busy in 2022.

As our results reflect our businesses are doing an excellent job managing the ongoing operational challenges caused by the pandemic.

Ametek's flexible agile operating structure, including our global supply chain capabilities provide us the ability to quickly adjust and reactive challenges.

These supply chain issues are leading to higher inflation. However, we were able to more than offset this inflation with higher pricing pricing given our differentiated product offerings.

Overall, the operating environment remains similar to what we experienced during the third quarter.

With extended lead times for a broad range of materials and components, along with the <unk> and labor availability issues.

We remain focused in the short term on managing our supply chain and ensuring we can safely operate our factories, while also continuing to drive long term operational excellence initiatives across our businesses.

Moving to our outlook for 2022.

We remain cautious in the short term given ongoing COVID-19, and supply chain challenges. However, we are confident in the strength of our businesses and our ability to manage through these uncertain times.

For the full year, we expect overall sales to be up approximately 10%.

With organic sales up mid to high single digits versus 2021.

Diluted earnings per share for the year are expected to be in the range of $5 30.

To $5 42.

9% to 12% compared to 2021.

For the first quarter overall sales are expected to be up approximately 20% compared to the same period last year.

And first quarter earnings are expected to be in the range of $1 24 to $1 28 per diluted share up 16% to 20% versus the prior year.

In summary, I would like to thank all of our employees for their tremendous efforts this past year.

Ametek's fourth quarter and full year results were excellent and reflective of the resilience and strength of our workforce and the AMETEK growth model are.

Our strong orders and record backlog position us nicely for 2022.

And we look forward to the new year and continuing to build on the momentum gained in 2021.

I will now turn it over to Bill Burke, who will cover some of the financial details and then we'll be glad to take your questions.

Bill Thank you Dave.

As Dave highlighted AMETEK had an impressive finish to 2021 with outstanding operating performance, leading to better than expected results in the fourth quarter let.

Let me provide some additional financial highlights for the quarter and the full year as well as some additional guidance for 2022.

Fourth quarter General and administrative expenses were $23 $7 million up $6 million in the prior year largely due to higher compensation expense.

For the full year general and administrative expenses were up $19 million also driven largely by higher compensation costs.

For 2022 general and administrative expenses are expected to be roughly in line with 2021 levels and approximately one 4% of sales.

The effective tax rate in the fourth quarter was 17% down from 21% in the fourth quarter of 2020.

Lower tax rate was due to return to provision adjustments.

For 2022, we anticipate our effective tax rate to be between 19% and 20%.

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 15, 2% of sales. This reflects the strong work from our teams in managing working capital. We have also strategically added inventory in certain areas to help address the longer lead times, we are experiencing across the supply chain.

Capital expenditures were $43 million in the fourth quarter and $111 million for the full year capital.

<unk> in 2022 are expected to be approximately $125 million or about 2% of sales.

Depreciation and amortization expense in the quarter was $78 million and for the full year was $292 million in.

In 2022, we expect depreciation and amortization to be approximately $320 million, including after tax acquisition related intangible amortization of approximately $150 million or <unk> 64 per diluted share.

We continue to generate strong levels of cash given our asset light business model and working capital management efforts.

Operating cash flow was $282 million in the fourth quarter and one $1 6 billion for the full year.

Free cash flow was $238 million in the quarter, and 1.05 billion or 106% of net income for the full year.

Total debt at the yearend was two five to $5 4 billion up only $131 million from the end of 2020, despite having deployed approximately $2 billion on acquisitions in 2021.

Despite the record level of capital deployment, our gross debt to EBITDA ratio declined from one eight times at the end of 2020 to one five times at the end of 2021, a testament to the strength of our operating model.

Offsetting this debt with cash and cash equivalents of $347 million.

We remain very well positioned to deploy additional capital given the strength of our balance sheet and strong free cash flow.

We have approximately $2 3 billion of cash and existing credit facilities to support our growth initiatives.

In summary, our businesses performed exceptionally well in the fourth quarter and throughout the year delivering a high quality of earnings in a very challenging environment. Our outlook for 2022 remains positive given our strong financial position, our proven growth model and our world class workforce.

Kevin. Thank you Bill Andrew can we please open the lines for questions.

Certainly as a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the penalty.

And our first question comes from the line of Allison <unk> with Wells Fargo.

Hi, good morning.

Alison.

It's a great orders backlog numbers I would just like to get maybe a little bit more color in terms of how this backlog might be looking differently than historical.

That duration, extending a little bit is that still happening or are you seeing any orders sort of getting pushed to the right because of your customers. Maybe there are labor issues any.

All right.

That sort of evolving over the past year Sam.

Yes. The orders are have been very strong and I think it reflects our organic growth initiatives and also the recovery of the economy and.

We're doing very well in.

If you look at our portfolio.

The one aspect that hasnt fully recovered as really are.

Aerospace and defense business in our oil and gas businesses.

The rest of the portfolio, they're mid cycle businesses are doing incredibly well and I call out our automation business, which is doing extremely well and I would also call out our process businesses, which is really got momentum, but it's across the board and on top of that it was.

For the quarter.

The way the quarter played out it was.

Each month of the quarter got better.

And on orders the December was the highest.

We had in the whole year. So we ended on strength.

And.

We have a very healthy backlog and.

The one thing I mentioned, a few calls ago is I think our customers because of some supply chain challenges across all of the market are giving us a look into what their demand patterns are so we're seeing orders earlier, but that doesn't take away from the strength that we're feeling in the business.

Great No that's helpful and then.

Your investment dollars.

Being allocated towards investment this year, and then you talked to some high level thoughts there any specific verticals that maybe you are more focused on than others. I know you highlighted a few a few product capabilities just any color there yes.

I think we're making broad base.

Growth investments and we're getting tremendous.

Return from reengineering investment in and it's across the board you understand the way, we manage our portfolio, but the the sustainability.

Opportunities for us are growing and were investing them. This year, we'll put about $110 million of incremental growth investments in our business. So that's on top of last year's incremental investments and those are in R&D and sales and marketing.

But fundamentally we see opportunities and we're going to invest an additional one $110 million and we're going to keep the momentum going.

Great. Thanks, so much I'll pass it along thank you Allison.

Thank you Andrew.

Next question comes from the line of Deane Dray with RBC capital markets.

Thank you and good morning, everyone. Good morning Deane.

Very impressive giving.

The understanding of how tough the supply chain issues are inflation labor shortages and everything and you are still able to deliver these numbers because a lot of your peers are struggling here.

Maybe think you can't look.

Look I know, it's lots and lots of hard work.

Our business mix tends to have a bit more what I'll call medium technology that has.

Microprocessors chips.

And we're seeing companies that are saying look that's the biggest chokepoint for them, but we're not hearing that from you, but just what is it about either your mix or your duals supply.

You have done something very well here given what your exposures might have bad so maybe kind of help us there.

Yes, I'll try to give you some more color there I mean.

Everything that you said is true and we're experiencing the same challenges everyone is with supply chain.

Logistics labor availability.

Omicron variant certainly added a lot.

Fourth quarter in Q1.

But our overall response to these challenges has been outstanding and.

I think the first point.

Our distributor business model.

We have committed P&L managers running their business units with their own supply chain teams, which allows them to react quickly to changing conditions.

And at the same time, we have these business teams, we have a corporate centralized supply chain team that acts with all the combined Leverages <unk> 40 of AMETEK and these teams work seamlessly together in this our overall approach has been extremely effective for us.

As I mentioned in the last quarter and this quarter.

Directly what you said semiconductor chip availability, we have a lot of shortages, but that's the biggest area and that's the one that's the most challenging and we're going to add a few ways. I mean, we're using our leverage of AMETEK, we have relationships built up over a long period of time with the supply base.

Our engineering capability and is second to none and we use it to qualify a second sources find alternatives.

Do redesigns.

And we.

We have also.

A team of people across the company some of them are based on our Bangalore Engineering office. Some of them are based in Germany, similar one based in the U S and that team is available to quickly help our business units for shortages and find alternatives and that's working quite well.

So we don't really improve anticipate improvements in availability of semiconductor chips.

The second half of 'twenty two at the earliest and is certainly a challenge, but I think we've had a.

Effective response to it for the reasons that I just mentioned that's great I really appreciate the additional color.

And maybe if you could just take us through.

Your key end markets for updates there and regions if I could.

Sure I'll start with the process business.

The process overall sales were up 20% low 20% in the quarter driven by strong organic sales growth and the contribution from the acquisitions of <unk> and <unk>.

Organic sales were up high teens for process.

In our materials analysis businesses showed the strongest growth they were driven by as I said in my prepared remarks, I could tan and Kamika.

Businesses have leading positions, providing high end instrumentation into life sciences, and semiconductor markets and.

Looking ahead for process, we expect organic sales for our process businesses to be up mid to high single digits for the full year.

Now I'll switch to aerospace.

Overall sales for our aerospace and defense businesses were up over 40% in the fourth quarter driven by the acquisition of Abaca and mid single digit organic sales growth.

Our commercial businesses led the growth in the quarter driven by strong aftermarket in business jet growth.

Flower defense businesses were down slightly in the quarter due to some shipment delays.

Still had another strong year.

Shifting to.

2020, while we remain cautious about the pace of the commercial aerospace recovery.

We're still well positioned to benefit from the recovery given our attractive positions in a diverse set of.

Commercial and business jet platforms. So we're 22, we expect mid single digit organic sales growth for our aerospace and defense businesses with both defense and commercial expected to be up mid single digits.

And I'll go to our power and industrial.

Market segment next overall sales for power and industrial were up over 25% in the fourth quarter and a very good fourth quarter, driven by mid teens organic sales growth and the contributions from the acquisition of NSO IMI.

And for all of 'twenty, two we expect power and industrial to be up mid single digits.

Similar growth across our power and industrial segment.

And finally, our automation and engineered solutions.

Both.

Overall on organic growth for automation and engineered solutions were up low 20% in the quarter.

Automation businesses delivered.

Outstanding growth in the quarter and full year with continued solid demand across our end markets.

And then 2022, we expect.

Organic sales for automation and engineered solutions to be up mid to high single digits with similar growth across our automation and engineered solutions. So if you look at the big picture, our process and automation and engineered solutions.

Segments are going to be up mid to high single digits, and aerospace and power industrial will be up mid single digits.

That's real helpful. Thank you. Thank you Deane.

Thank you and our next question comes from the line of Jeffrey Sprague with vertical research.

Hey, guys, it's Andrew on for Jeff How are you Hello, Andrew.

Good good thanks for taking the question.

Firstly on price cost.

Can you kind of have a view on the cadence if at all any improvement price cost throughout the year I mean, what's your view there.

Throughout 2021, or 2022 and 2022.

Yeah Yeah.

For some context, we had.

For 2021, we had about.

Three 5% of price and inflation total inflation, our business was in the mid twos.

And for next year, we're expecting inflation to tick up a bit so instead of three and a half maybe three and half to four.

Excuse me, we're expecting our pricing to pick up a bit.

To three 5% to 4% inflation, 3% to three five so we will see we budgeted 50 basis point spread for for a positive price inflation spread in.

We see it a bit higher in Q1.

And we're expecting it to level off after that but.

End of the day, it's about.

Prices about three 5% to 4% for 2022 and the results speak to the highly differentiated nature of ametek's product portfolio. That's the way, we're able to get price in excess of inflation.

In our business, we have leadership positions in our niche markets around the globe.

So to answer your question.

Absolutely Thats great color.

The one I had.

Just on margins for 2022, I mean, I think it's fair to assume some pretty modest expansion I mean, given just what you just said.

Price cost but would.

Would you say, it's accurate I know you don't want to get into business with guiding margins.

Sure.

Yes.

Say that I think we're going to have another good margin here.

Our I think core operating margins will be up on that.

30 to 40 basis point range and I think.

Core and reported Incrementals will be in that 30% range I mean in the end.

In Q4, we had really healthy margins are core Incrementals are reported incrementals of 21%, but when you back out the acquisitions, we had healthy core incrementals of 32% and I think that's going to continue into 2022, so I'm pretty bullish about the things that we're doing on cost management and improvement in our cost structure.

Great. Thanks for the color I'll pass it on thank you.

Thank you and our next question comes from the line of Scott Graham with loop capital markets.

Hey, Good morning, Dave Bill Kevin how are you good morning.

Hey, Dave would you mind, giving us.

Split of organic orders by segment.

Sure for the quarter.

If you look at Q4.

Our organic order for the total company were up 22%.

And <unk> orders were up 21% and EMG orders were up 23%, so really strong growth across both both groups of the company and the book to Bill was 107.

Right and Thats actually a perfect dovetail into my next question over the years through acquisitions and just.

Streamlining and investments.

<unk> segment has really caught up a lot too.

In terms of our organic growth profile. So I'm wondering how does that work.

Work in what you are looking at in acquisitions is it.

Is it more equal it's not going to be equally split because I know.

ESG is a lot larger segment that AMG, but I mean are you are you.

Spending a lot of time in both segments on deals absolutely.

Slowly Scott I mean, we'd love to put.

More M&A to our <unk> segment, and specifically in our automation businesses. We're just knocking it out of the park there and we've made some good acquisitions in the past years.

Couple that with some really good organic growth and an excellent engineering capability. In fact, we did a really small acquisition in 2021 to add some robotic capabilities to that to that business, but that's an area. We also like our thermal management system business.

Commercial and defense business, but we have a good leadership position and we have some we're looking hard there. So so AMG is going to AMG is.

Getting looked at very Harley in terms of M&A in the past performance has been fantastic.

That's great. Thank you just if I could squeeze this one last one and it's an easy one the research markets as you know hard to always study the trends in those markets from outside the four walls of AMETEK. How does research going for you are you being aided by sort of the reopening are you how are your investments work.

That's a pretty important market for you how has it gone up there now.

Now our research is about 10% of our sales in the process group and you're right. It's an important market for us.

What we saw mainly in the beginning of 2021 is the.

The industrial research market was very good but the University has took time to pick up because of the impacts of the pandemic and what Youre seeing right now as I highlighted in my.

Talk the <unk> business and that's more life Sciences research and they are doing extremely well in other parts of that that business or the research market are picking up nicely. So.

It's not going to be as big of a growth driver because of the nature of the funding, but were clearly transitioning from a more difficult funding environment during and at the start of the pandemic to a better funding environment at this stage of the pandemic.

All aspects of the research market are getting back to back business.

Alright, thank you.

Thank you Scott.

Thank you and our next question comes from the line of Rob Wertheimer with Melius research.

Good morning, everybody.

Good morning, Rob.

So you've managed through a really really choppy <unk>.

Better than many in admirably in I guess.

There's going to be on the short term how does it feel now versus then I don't know what you can say on underlying indicators omicron, whether that's <unk> or not and whether you feel you have.

Concrete some of the difficulties out there whether it gets better or worse and then I'll just put the other one in there now just on long term runway. It seems like there's a ton of momentum in automation in semiconductors, maybe that some of your backlog a little bit I don't how far out your visibility goes on projects and bidding and quoting and just what your feel for those end markets.

Is throughout the year. Thank you great.

Great questions, Rob I mean, the first one is.

The omicron variant I believe.

We have a lot of statistics when you look at outside of the World and we also have our own internal statistics for AMETEK and it looks like the.

Peak infections are cresting.

I think the last two weeks, we were down a bit.

And we had the highest level of infections prior to that so.

Clearly the same things that are happening outside of AMETEK our app.

Turning inside of AMETEK, but we're doing a pretty good job of managing through it but it does cause.

Absenteeism, and thus far is labor availability and it's a challenge every day when something changes to manage through that so that's clearly as part of the issue we're dealing with with Q1.

Our guide range is a little bit broader because of that.

But our people are doing a fantastic job when you talk about the long term runway and automation in semiconductors.

We're seeing that and if you think I've talked a little about the.

The automation market and.

And how we've done.

Acquisitions to acquire pieces of the automation motion control sub assemblies that we've now put together and we're very capable quickly develop custom designs for our customers kind of unique in that capability and where we're at.

Winning a lot there and I think thats going to continue.

And when you look at the semiconductor market really solid growth in Q4.

But it is continuing and we're competing in.

Two parts of that market, we work in the research market.

And I mentioned, our <unk> business did very well in that business is benefiting from the research side of semiconductors, and then you've got some new technology that are going into the the ramp and chip production and some of the new technology uses something called <unk> optics.

And our <unk> business as an expert in that there's only a couple of people in the world that are an expert in that so so we're benefiting from the transition to <unk> optics in the semiconductor industry and that trend is just getting started so.

Saying theres going to be some ups and downs as we go forward, but we're really well positioned in both automation and semiconductors as we look forward.

Thanks for the attention and I appreciate it. Thank you. Thank you.

Thank you.

And our next question comes from the line of Andrew Buscaglia with Aaron Berg.

Good morning, guys Hello, Andrew Good morning.

Can you.

Can you talk a little bit more broadly regionally.

And specifically I'm looking for.

Context around China, just given it seems like there's some increased risks, they're not maybe not direct risks, but indirect impact.

Sure.

A number of things supply chain risks.

Component shortages et cetera.

Sure ill talk to that.

The first point is I'll give a whole geographical look at our business first in Q4.

Strong broad based growth across all geographies in the U S.

We were up mid teens.

Notable strength in our automation businesses.

In Europe , we were up mid thirties, so we bounce back nicely there.

We had notable strength in both our automation and process businesses.

And in Asia, we were up 4% and.

And notable strength in process in automation. There also so broad based firing on all cylinders now your point is a good one.

The reaction to Covid is handled differently in parts of the world. So you can have.

Semiconductor plants are being shutdown or or blocking access to certain countries at times and we've been managing through that at the start of the pandemic, but in particular, you asked about China, and we were up 2% in China.

Very solid because we had a really strong.

Comparison, and we had a really strong year. So notable strength in <unk>.

Notable strength in process in.

And China is.

Strong for US has been strong all year and then put in a strong quarter. So is the outlook.

We see for our types of businesses in our niche markets, where we're competing.

Pipeline.

Line of growth in China continuing.

Okay.

It's helpful.

And maybe one last one.

Commercial aerospace that was strong, but they see that really strong growth exiting the year.

And I might have asked this question every other quarter for the past few years.

Kind of your sense.

<unk>.

Demand building for like a reopening in.

Back half of the year is there kind.

Kind of more of the same.

Yes, I think we're seeing some strength in our commercial businesses for sure they were up.

Low double digits in the quarter, driven by aftermarket business jet but.

But we're being cautious for the year because of the <unk> impact on travel and different impacts in different parts of the world.

We think we're still going to have a good year, we're going to be up mid single digits.

And.

We're ready for that market to inflect upwards it might happen in the second half of this year for it it might be 2023 also we're not sure.

Is that aftermarket typically a leading indicator.

That for you.

You guys when that starts to pick up I think you see two things I mean, the aftermarket is a leading indicator in the industry went through a hard shutdown and now it's recovering and we're seeing good aftermarket in business Jets are a function of people deciding to travel differently.

And yes, good position in both of those and seeing strong demand.

Okay. Thank you.

Thank you.

Thank you and.

And our next question comes from the line of Nigel Coe with Wolfe Research.

Hey, good morning, everybody. This is Brian on for Nigel.

Brian .

Okay. So maybe just the growth investment the $110 million or any more color on where that's going like within R&D and engineering, just any specific kind of initiatives or new products.

I'll start with the.

The money, we're putting about.

$40 million into increased R&D.

Now, we're putting about $70 million into.

Increased sales and marketing.

And on the R&D side.

It's across the <unk>.

Wide range of platforms, we're not dependent on any one platform and our business leaders put forth, where they want to spend our incremental growth investments, so it's spread out or.

Amongst good opportunities across our business.

And in terms of the sales and marketing were doing a lot of work on.

E Commerce on Digitization.

And.

So those are investments that will pay off very quickly.

And they are already providing return for us because we sell to our customers different now through the pandemic and we're expanding our capability in that area.

Great. Thanks for that and then when I think about the bridge into 'twenty two outside of kind of the price cost dynamics in this growth investment is there anything else to be thinking about at the margin.

And then also just kind of.

On a similar note do you expect kind of normal seasonality to hold because some of your peers are kind of talking about a tale of two halves as far as depressed margins in the first half, but it just feels like you are navigating the supply chain that are so you might not see.

That same dynamic.

Yes, I think with our budget increases sequentially each quarter, which is typical of an AMETEK budget.

We're seeing strong growth in Q1, so your point is taken.

When I look at our budget.

Just based on simple economics, we've guided to be up about 10% and thats about $500 million and.

<unk>.

You apply a 30% to 35% contribution margin on that increase you'll get a number that's in the range of the guidance that we gave you now in that number there is a lot of.

And new investments there is cost savings.

There is acquisitions that we did last year, there's some headwinds with.

Below the line.

Type things taxes shares a little bit higher interest costs, but when you when you bake the cake and you put it all together, it's a pretty simple picture sales.

Sales were up 10%.

$500 million, and we're going to get a 30% to 35% contribution margin on it so it's pretty clear from that perspective.

Got it thanks Yep. Thank you.

Thank you.

Next question comes from the line of Joe Giordano with Cowen.

Hey, good morning, guys.

Morning, John .

Yes, I apologize if I if I.

Ask questions that have already been asked and answered it's been kind of a bit of a busy ones morning, but.

On the order side, I mean, obviously really strong and it has been so like what's your view on book to Bill as you as the year progresses.

No you are less susceptible to this than others, but like.

The early ordering kind of like what are you seeing is there any kind of like.

Inventory at customers or like ordering so far in advance that it could set up like a vacuum at some point like how are you kind of thinking about customer order pattern writer.

Yes, I mean, we have customized products so.

People are investing in.

Im going to run into a distributor problem or things like that but at the same time, we've talked about our customers.

Being aware of the supply chain issues, and giving us increased visibility and placing orders on us to go out to the future. So we're seeing that in our backlog and at some point that may rollover, but right now.

It looks very strong.

We mentioned in the.

The prior remarks before you got on it our organic orders were up 26% and it was both strong and AIG in EMG.

<unk> orders organically were up.

Similar spread across the businesses so.

We are.

I think the.

The month of January .

Was strong and it was.

Supports our guy, but the orders rates have not changed into January .

Anything else interesting.

Yes.

And again, if you may have answered this but did you give the core the core incremental X like M&A dilution for AIG and <unk>, yes.

Yes, we did we did talk about the.

It was 32% core for the whole company and it was reported 21, so we really had a good performance core and.

Yet it was up 50 basis points margins X X acquisitions in AIG AIG was up 50 basis points.

Acquisitions.

And then of course warranty business was up 260, so our $2 30, so it was good.

Are the margins across the board we're good for the company.

And you look at AIG look at EMG, and there were some acquisitions that depressed aig's, but.

The Incrementals were 32% for the whole company the AIG core Incrementals were 33%.

And the EMG core Incrementals were 38% so.

You have.

The reported incrementals for AIG or a little bit lower because of the acquisitions, but.

Really strong core incremental margins across the company.

Great. Thanks, guys.

<unk>.

Thank you.

Your next question comes from the line of Rob Mason with Baird.

Yes, good morning, guys. Thanks for taking the question.

Just maybe to stick on the topic around acquisitions.

I'm just curious what the acquisition I can probably do this math some point, but just what did the acquisitions contribute to earnings in 'twenty, one and what's what's the component in the bridge.

In 'twenty two in terms of EPS I.

I believe it was 16% and the bridge for EPS for 'twenty two.

And I believe it was about the same for 2021 so.

That bridge Thats 16 is included in the the economics of the budgets that I talked about just a few minutes ago.

Sure sure.

And Dave you noted it was a very busy year for you Ron.

Just Kevin just told me I said 16 actually 18.

So as they were in 2022 and it happened to be 18 in 2021, So it's 18 sensor both of them.

Okay understand.

You might as you mentioned, a very busy year on the acquisition disposition front and I'm, just curious integration wise with all the challenges around supply chain.

Has that helped.

Or hurt you in terms of your ability to integrate that as it forced you to move a little bit faster.

On the supply chain front.

Yes, I think so.

It's forced us to move faster and getting the AMETEK culture installed and getting the AMETEK processes installed. So there is.

The differences are obvious and we're working with the teams and integration to the AMETEK is going very well.

And.

It's early in the ownership, but we usually take a slower but the.

The environment's made us made us go faster and they are integrating nicely into the company in.

The benefits of our distributed operating models, we can take on a bunch of.

Deals like that and be able to integrate them all in there.

They are fantastic businesses.

They each fit perfectly with our acquisition strategy. They are leaders in niche markets each have strong differentiated technology positions.

Theyre expanding our presence in attractive markets. So the acquisitions are going very well.

Self and bill in the group resins have been spending a lot of time on them yet.

Yep Yep.

Just one last one just to follow on there abaca, what's your your largest one largest whenever I think.

I noticed a nine digit order recently I'm just within a business like that.

What does an order like that.

Or when I should say what would that shift over what timeframe would something like that shift that.

It could be years.

It really can be years specifically.

Specifically with Abaco.

The team there is really talented and we're into the high 90% of the integration.

High quality management team.

As of the Org structure, we've combined it.

With our AMETEK Aerospace Pds business unit. So when we looked at this business. We think there's a lot of synergies. So we formed one division and we now have a seasoned AMETEK P&L leader running they're running the division along with our seasoned AMETEK CFO and along with our seasoned AMETEK HR person. So.

We've installed some people there to help them.

So understand the AMETEK culture and at the same time, we're learning a lot from abaca also because they have a lot of talent. So I think this combination over the long run is going to be good for both businesses and it's going to drive sales and cost synergy too for both.

AMETEK Pds business and Abaco.

Excellent excellent.

I will pass it back. Thank you. Thank you Rob.

Thank you.

Im showing no further questions I will now turn the call back over to the Vice President of Investor Relations and Treasurer, Kevin Coleman for any closing remarks.

Thank you again, Andrew and thank you everyone for joining our call today and as a reminder, a replay of today's webcast may be accessed in the investors section of AMETEK Dot com have a great day.

This concludes today's conference call.

You for participating and you may now disconnect.

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