The operator welcomes listeners to AMETEK's first quarter 2024 earnings conference call and introduces the speakers, Kevin Coleman, Dave Zapico, and Dalip Puri. Kevin Coleman discusses the risk factors and uncertainties that may affect the company's future results and disclaims any intention or obligation to update or revise forward-looking statements. Dave Zapico mentions that any references to 2023 or 2024 results or guidance will be on an adjusted basis and then begins his prepared remarks.

AMETEK had a strong first quarter in 2024, with record sales, operating income, and EBITDA. The company's growth model and quality of its businesses contributed to its success, and the company has increased its earnings guidance for the full year. Sales were up 9% compared to the same period in 2023, with acquisitions adding 9 points and foreign currency having a small positive impact. The company's operating performance was excellent, with record operating income and margins, and EBITDA also reaching a record high. The Electronic Instruments Group had a particularly strong start to the year, with record operating margins and impressive margin expansion.

In the first quarter, AMETEK's sales were $1.16 billion, a 4% increase from the previous year. The company's aerospace and defense and materials analysis businesses saw the strongest growth. Operating income and margins were at record levels, showcasing the quality of AMETEK's businesses. Despite inventory normalization affecting some businesses, the Electric Mechanical Group had a record sales of $579 million and solid operating performance. AMETEK's unique growth model allows them to manage market challenges and still achieve double digit earnings growth. Their distributed operating structure and strong cash flow support their acquisition strategy and expansion into high-growth markets.

AMETEK is committed to investing in growth initiatives, particularly in areas such as med tech, clean energy, electrification, and aerospace and defense. They plan to invest an additional $100 million in research, development, and engineering efforts in 2024. This commitment to innovation is reflected in their strong Vitality Index and is exemplified by the success of AMETEK Zygo, which recently received an award for their continuous improvement and operational excellence. Zygo's market expansion strategy led to the development of new products for virtual and augmented reality applications, resulting in increased demand and production.

AMETEK has achieved a three-fold increase in production output through cross-functional teams and the use of tools like value stream mapping and Lean Six Sigma. This success demonstrates the synergy between their new product development, global market expansion, and operational excellence strategies. The company's acquisition strategy is also going well, with recent acquisitions integrating smoothly and contributing to growth in attractive markets like Medtech. The company has a strong pipeline of potential acquisitions and is well-equipped financially to make strategic purchases.

In the first quarter, AMETEK had a strong performance and exceeded expectations with record sales and exceptional operating performance. They expect the impact of inventory normalization to continue in the first half of the year but anticipate improvements in the second half. Overall sales are expected to be up low double digits for the year with diluted earnings per share also expected to increase. The company remains confident in its ability to navigate the current environment and benefit from improved sales growth in the future. The financial details of the quarter were also highlighted, including strong core margin expansion and free cash flow conversion.

The first quarter of fiscal year 2024 saw general and administrative expenses in line with the previous year, with an expected decrease for the full year. Interest expense was up due to higher debt balances, while other operating expenses were down. The effective tax rate decreased and is expected to remain between 19% and 20%. Capital expenditures and depreciation and amortization expenses were in line with expectations. Operating cash flow and free cash flow increased compared to the first quarter of 2023, with a strong free cash flow conversion. Total debt decreased, while cash and cash equivalents increased.

The company's gross debt to EBITDA ratio was 1.3x at the end of the first quarter, and their net debt to EBITDA ratio was 1.2x. They have strong financial capacity and flexibility with $1.8 billion in cash and credit facilities. Acquisitions are the top priority for their free cash flow, but they also plan to repurchase shares and increase dividends. The company had strong operating performance and free cash flow in the first quarter. The CEO then discusses the company's performance in different end markets and geographies, with solid growth in the energy and semiconductor sectors. The company expects low single digit sales growth for their process businesses for the full year.

The company's aerospace and defense businesses had a strong start to the year with 10% organic growth in the first quarter. Both commercial aerospace and defense segments experienced solid growth and are expected to continue growing in the high single digits for the rest of the year. The power segment saw low double digit growth, thanks to recent acquisitions and expected growth in renewable energy and power grid infrastructure. The automation and engineering solutions segment had a 20% increase in sales, with contributions from recent acquisitions offsetting a decrease in organic sales. The company expects a return to growth in the second half of the year for this segment. Overall, the company expects low to mid-single digit organic sales growth for 2024. The company also provided updates on their various geographies.

The US experienced a 1% decrease in performance, with the aerospace and defense sectors showing the strongest growth. In Europe, there was a 2% decrease, with some growth in process and power businesses offset by weakness in automation. In Asia, there was low single digit growth, with China remaining flat. The destocking trend is expected to continue into the second quarter but turn around in the second half of the year. The company is investing in salespeople and engineering and research and development to drive future growth. The Paragon division's performance and the charge taken for it were not specifically addressed.

The speaker, Dave Zapico, is responding to a question about a large charge on a recent deal. He explains that it is a one-time charge for a larger acquisition, Paragon, which has many opportunities for improvement. The integration is going well and they expect a payback in less than two years. The speaker then switches gears to discuss revenue growth in the quarter, providing a breakdown by segment and mentioning organic performance, price, and other revenue elements.

In this paragraph, Dave Zapico discusses the overall sales and organic growth for AMETEK's different groups. He also addresses concerns about destocking and assures that the company's second half of the year is not backend loaded. He mentions that orders have stabilized and they have seen low single digit growth in orders in the last two quarters. Additionally, he notes that Q1 '23 was an exceptionally good quarter for the company.

The company is facing a difficult comparison and customer feedback suggests the destocking phase will end in the second half of the year. They expect modest economic growth and anticipate growing sales in each quarter. Pricing has been able to offset inflation and they expect to maintain a positive spread between the two. They have also been able to minimize the impact of tariffs through their supply chain configuration.

The company has aggressively rebalanced its supply chain to reduce exposure to any one region of the globe. They source from Mexico, the Americas, Czech Republic, Serbia, and Malaysia, and have a strong presence in China with a China for China strategy. March was the strongest quarter for sales, and April is on plan. There is no incremental weakness in the market. The company is well positioned for M&A opportunities.

The company has successfully rebalanced its supply chain and has a diverse sourcing strategy to minimize risk. Sales were strongest in March and April is on track. The company is also well positioned for potential M&A opportunities.

EBITDA has improved for AMETEK in the first quarter, despite some fluctuations in the industrial land market. The company has a strong pipeline and is actively looking at high quality deals. With a strong balance sheet and cash flow, AMETEK has the opportunity to differentiate its performance through M&A and operational excellence. The company expects sales to increase modestly each quarter, with Q1 being the highest and Q4 being the lowest.

The speaker discusses the orders for the quarter and their comparison to the previous year. They mention that the orders were down by 8% and organic orders were down by 10%. They also mention that the previous year had exceptional orders from project business and EIG. The speaker believes that when these are taken out, the sequential growth is more reasonable. The next question is about the Paragon Medical integration costs and the payback on this restructuring. The speaker explains that the payback is less than two years and that they will get $70 million in benefits from the $29 million spent. The management team is excited to make Paragon an exceptional business.

The speaker discusses the company's projections for 2025, stating that there will be a substantial increase in operating earnings related to the Paragon project. However, they are not willing to provide specific numbers at this time. They mention that they spent $29 million on the project and will see $70 million in benefits at maximum capacity, with a payback period of less than two years. They clarify that the Paragon restructuring was a larger deal and they pulled it forward due to seeing many opportunities. The speaker also addresses a question about revenue, stating that the first quarter was slightly below expectations due to destocking being pulled forward.

Dave is asked about the long-term secular trends and how they are impacting the company. He mentions the growth in the semiconductor market, investments in the power grid, and the aerospace and defense business. He also talks about the fiscal stimuli in the US and how the company is positioned to do well in the future. A question is asked about destocking and bottoming of orders within automation.

In a recent conference call, a company's CEO was asked about their struggles with gaining visibility into end market and end user demand. The CEO explained that they had accurately predicted the first half of the year's sales outpacing orders and a destock in the first half, which they expected to turn positive in the second half. The company has a robust communication system with their field, but they are always looking for ways to improve. When asked about the order math, the CEO clarified that the 8% decline in orders was organic, while the 9% acquisition growth was not included in the organic numbers.

In the interview, Dave Zapico discusses the impact of Paragon on the company's Q1 results. He mentions a destock in the medical market, affecting both the EMC business and Paragon. This destock is expected to continue in the first half of the year, but the company still forecasts mid-single digit growth for Paragon for the full year. Zapico also mentions a $29 million charge in Q1, mainly due to restructuring costs. Some of this charge may also affect Q2.

In the first quarter, Ametek had a one-time restructuring charge related to their acquisition of Zygo. They do not expect to have another restructuring charge in the second quarter. The charge was to improve the operating capability and returns of the business. There may be another charge in the future for Paragon. The company is pleased with the results of the restructuring and a replay of the call can be accessed on their website.

This summary was generated with AI and may contain some inaccuracies.