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AMETEK, Inc. (NYSE:AME)

Q4 2008 Earnings Call

January 30, 2009 8:30 am ET

Executives

Bill Burke - Vice President of Investor Relations

Frank Hermance - Chairman and Chief Executive Officer

Bob Mandos - Senior Vice President and Comptroller

Analysts

Jim Lucas – Janney Montgomery Scott

Christopher Glynn – Oppenheimer

John Baliotti – FTN Midwest Securities

Ned Borland – Next Generation Equity Research

Richard Eastman – Robert Baird

Matt Summerville - Keybanc

Operator

(Operator Instructions) Welcome to the AMETEK, Inc. Fourth Quarter Earnings Conference Call. For opening remarks and introductions I would like to turn the call over to Mr. Bill Burke, Vice President of Investor Relations.

Bill Burke

Good morning and welcome to AMETEK’s Fourth Quarter Earnings Conference Call. Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer and Bob Mandos, Senior Vice President and Comptroller. AMETEK's fourth quarter results were released before the market opened today and have been distributed to everyone on our list. These results are also available electronically on your market systems and on our website at www.AMETEK.com/investors.

A tape of today's conference call maybe accessed until February 13th by calling 888-203-1112 and entering the confirmation code number 8247526. This conference call is also webcast and can be accessed at AMETEK.com and at StreetEvents.com. This conference call will be archived on both of these websites.

I will remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward looking statements. As such these statements are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. Those risk factors are contained in our SEC filings. I will also refer you to the investor's section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call.

We will begin today with some prepared remarks and then we'll take your questions. I will now turn the meeting over to Frank.

Frank Hermance

As Bill mentioned we are joined on the call today by Bob Mandos our Senior Vice President and Comptroller who will be filling in today for John Molinelli. Bob is a 20 year veteran of the company and has been our corporate comptroller for the last 12 years. John Molinelli the company’s Chief Financial Officer, was injured in an accident. He is currently recuperating at home and will be back with us when his recuperation is complete.

Turning now to our financial results. Despite difficult economic conditions AMETEK had a very good fourth quarter. Sales were up 7%, $623.7 million on the contributions from acquired businesses offsetting a weakening core growth environment. Internal growth in sales was a -2%, if the effects of foreign currency are included internal growth was a -6%. Operating income excluding a fourth quarter restructuring charge was up 18% and operating income margins expanded 180 basis points. Adjusted earnings were up 15% and diluted earnings per share were up 16%.

As a result of the global economic downturn order rates for our businesses slowed dramatically in November and December. Orders were down 10% for the fourth quarter of this year versus last year’s fourth quarter. As we assess this slowdown and put together our business plans for 2009 it became readily apparent that we needed to realign the company’s cost structure with expected market conditions.

In the fourth quarter we recorded a pre-tax restructuring charge of approximately $40 million or $0.25 per diluted share to cover the costs of employee reductions, facility closures and asset write downs. At a group level the charge was evenly split with approximately $20 million recorded in each group. As part of the plan we expect to reduce our headcount by more than 10%, close or significantly reduce 10 manufacturing facilities and reduce other spending throughout the company.

While these actions are difficult particularly for the colleagues and communities affected they are necessary to maintain our financial and competitive position. Importantly we do not believe these reductions will harm the long term growth prospects of the company. As an example, research development and engineering expense is planned to increase 3% in 2009. We expect to generate approximately $75 million in annual savings from these cost reduction activities in 2009. The benefits of these restructuring activities will have a greater impact in the second half of the year.

The following discussion will exclude the restructuring charge. For a reconciliation to the applicable GAAP numbers please refer to the press release we issued today or to AMETEK’s website.

Turning our attention to the individual operating groups. In the Electronic Instruments Group had a very good fourth quarter. Sales were up 8% to $361.6 million driven by strength in our power and process instrument businesses and the contributions from the acquisition of Vision Research, Xantrex Programmable Power and California Instruments. Core growth was flat in the quarter. If the effects of foreign currency are included internal growth was -2%.

EIG’s operating income was up 23% for the quarter. Operating margins improved 300 basis points to 24.8% as compared to 21.8% in the fourth quarter of 2007. For the full year EIG sales were up 17% to $1.4 billion driven by growth in our aerospace, power and process businesses as well as the contributions from acquisitions. For 2008 EIG operating income was up 26% to $327.1 million. Operating margins improved 160 basis points to 23.3%.

The Electromechanical Group had a good fourth quarter considering the economic environment. Revenues were up 6% to $262.1 million from the contributions from the Reading Alloys, Muirhead Aerospace, Drake Air, Motion Control Group and Umeco Repair and Overhaul acquisitions, more than offsetting difficult market conditions for our cost-driven motor business.

Core growth in EMG was -6% for the quarter. If the effects of foreign currency are included internal growth was -10%. Operating income for the quarter was up 4% to $44.1 million. Operating margins were 16.8% this year as compared to 17.2% last year. For the full year EMG sales were up 20% to $1.13 billion driven by the contributions from acquisitions and strength in our differentiated businesses. For 2008 EMG operating income was up 16% to $194.6 million. Operating margins were 17.2% as compared with 17.8% in 2007.

As many of you are aware we are focused on four growth strategies to drive AMETEK’s growth and profitability:

Operational Excellence

Global and Market Expansion

New Product Development

Acquisitions

At various points in the business cycle individual strategies will assume a greater or lesser importance in moving the company forward. Today, as in the last economic downturn our operational excellence and acquisition strategies will play the most prominent role in driving the success of AMETEK as we aggressively address the impact of the current economic slowdown. Operational excellence is the cornerstone strategy for the company and our relentless focus on cost and asset management has been a key driver to both our competitive and financial success.

As the economy weakened during 2008 we were proactively reducing costs. The restructuring actions taken during the fourth quarter indicate our focus on making sure the cost structure is properly aligned with expected market conditions. As well, at each business unit AMETEK colleagues are implementing initiatives to improve plan productivity, reduce costs, and increase capital efficiency.

In addition to these business unit level activities there are some company wide initiatives that are driving significant financial benefits. Our global sourcing office and strategic procurement initiatives have been key drivers to increased profitability in 2008 and will be again in 2009. We generated $21 million in incremental savings in 2008 from these activities. For 2009 we expect to realize a similar amount of incremental savings.

We are continuing our migration to best cost manufacturing locales. We’re also Mexico, Shanghai and the Czech Republic. The restructuring actions announced today represent a continuation of these activities. Revenues from these plants are expected to total approximately $330 million in 2009. This reflects and increase of $20 million in differentiated products offset by a decline in our cost driven motor business which primarily produces in these facilities.

As a result of the very aggressive overall cost reductions we have initiated which include the restructuring activities we are well positioned to handle the weakening economic environment in both 2009 and 2010. The restructuring alone will have over a $100 million positive operating income impact in 2010.

Turning to acquisitions, in 2008 we acquired seven companies representing approximately $300 million in annualized revenue. Last week we made our first acquisition f 2009 acquiring High Standard Aviation. These businesses are all differentiated and expand our market positions in analytical instrumentation, aerospace MRO, power, technical motors and engineered materials.

In November we announced the acquisition of Muirhead Aerospace Limited, a leading manufacturer of motion technology products and a provider of avionics repair and overhaul services for the aerospace and defense markets. With annual sales of approximately $54 million UK based Muirhead expands AMETEK’s penetration in motion control products for the aerospace and defense markets including actuators and other specialized linear motors complementing our existing technical motor capabilities.

As well, Muirhead further expands and strengthens AMETEK’s position as a leading independent provider of MRO services to the European aviation industry. It provides avionics repair services to a wide variety of commercial, business jet and defense customers.

Last week we acquired High Standard Aviation, a Miami based provider of after market repair services to the aerospace industry. The privately held High Standard Aviation has annual sales of approximately $31 million. High Standard Aviation strengthens our capabilities in electrical, electromechanical and hydraulic repair and provides us with a valuable presence in Miami, a key MRO hub for the Southeastern United States as well as Latin America. It also adds to our position in the air cargo segment of the MRO business broadening our base with a number of key customers.

We continue to look to add differentiated businesses to AMETEK and will remain a very disciplined yet aggressive acquirer. We have the financial and managerial capacity to continue to do acquisitions and believe this will be a great environment as the price for acquisitions recedes.

Turning our attention now to the outlook for 2009 we expect 2009 will be a challenging year given the continuing economic downturn. Based on our current understanding of market condition, which has a more than normal level of uncertainty, we anticipate that 2009 revenue will be down slightly from 2008. Contributions from acquisitions will be more than offset by mid single digit negative core growth in each group and currency headwinds.

Consistent with our announcement last week we expect our earnings to be in the range of $2.40 to $2.60 per diluted share. This estimate includes an additional $23 million in pension costs or $0.14 per share. Given the weak order input in the fourth quarter 2008 we expect that we will have a weak first quarter of 2009. Sales are expected to be down slightly from last year’s first quarter. We expect our earnings to be approximately $0.54 to $0.58 per diluted share as compared to last year’s first quarter of $0.62 per diluted share. This estimate includes approximately $0.035 from additional pension costs in 2009.

In summary, we’re pleased with our performance in the fourth quarter. We grew our top line by 7% in the face of weakening core growth environment we increased operating margins by 180 basis points and diluted earnings per share by 16%. We’ve aggressively realigned our cost structure to deal with the current market expectations.

We expect 2009 will be a very challenging year given the continual global economic downturn though we believe that AMETEK’s strong portfolio of businesses, proven operational capabilities, lower cost structure and a successful focus on strategic acquisitions will enable us to outperform in 2009. We look forward to building on our track record of success and remain confident that our fourth growth strategies will continue to create value for our shareholders.

Bob Mandos will now cover some of the financial details and then we’ll be glad to answer your questions.

Bob Mandos

As Frank has covered our results at a high level I will focus on some particular areas of interest. The cash portion of the $40 million restructuring charge is approximately $32 million, primarily related to severance costs. Excluding the restructuring charge selling expenses were up 9% in the fourth quarter. Excluding the effect of acquisitions selling expense was down 2%. Corporate G&A was essentially unchanged from last year’s fourth quarter in absolute dollars and fell to 1.8% of sales as compared to 2% of sales in last year’s fourth quarter.

After excluding the charge related to the accelerated vesting of restricted stock in Q2 G&A spend for the full year 2008 decreased to 1.7% of sales versus 1.9% of sales for 2007. The effective tax rate for the quarter was 32.3% slightly higher than last year’s fourth quarter of 31.7%. For the full year the effective tax rate was 32.5% in line with our expectations. We are planning on a similar tax rate of 32.5% for 2009. As we have said before this is a full year rate and actual quarterly rates can differ dramatically either positively or negatively from this full year rate.

Like most other defined benefit pension plans our defined benefit pension plans returns were impacted by the performance of the stock and bond markets last year, reducing their funded status. Just prior to year end we made a contribution of approximately $74 million to our defined benefit plans. With this contribution our US defined benefit plan is 100% funded at year end.

Despite this large contribution in 2009 pension costs will be a significant headwind. Total pension costs for AMETEK will increase approximately $23 million or $0.14 per diluted share. These additional costs are included in the earnings guidance that we have given for 2009.

On the balance sheet working capital defined as receivables plus inventory less payables was 21.4% of sales for the year down from last year’s level of 21.5%. We continue to see an opportunity to reduce our working capital investment and plan to reduce this overall percentage in 2009. Capital spending was $13 million for the quarter and $44 million for 2008 or 1.7% of sales. Expenditures for capital in 2009 are expected to be at approximately the same level.

Depreciation and amortization was $17 million in the quarter and $63 million for 2008. For 2009 depreciation and amortization is expected to be approximately $67 million. Our operating cash flow for 2008 was $247 million. Adding back the pension funding of $74 million operating cash flow was approximately $321 million.

Total debt was $1.1 billion at December 31st, down $46 million from September 30th. Offsetting this debt is cash and cash equivalents of $87 million resulting in a net debt to capital ratio at quarter end of 45%, that’s compared with 42% at the end of the third quarter. These ratios reflect the contribution to our defined benefit plans of $74 million in the fourth quarter and $64 million paid for acquisitions.

Over the past 18 months we have expended a significant amount of effort to improve the company’s capital structure to ensure that adequate liquidity was available to support our growth plans. The result of this work is that AMETEK has plenty of liquidity available and no significant debt maturities in 2009. At quarter end we had approximately $550 million of cash and credit facilities to fund our growth initiatives. Clearly liquidity is not an issue for AMETEK.

In summary, we continue to manage our cost structure and balance sheet effectively, maintaining a strong liquidity profile and positioning ourselves to navigate through the current economic downturn.

Bill Burke

That concludes our prepared remarks. We’d be happy to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jim Lucas – Janney Montgomery Scott

Jim Lucas – Janney Montgomery Scott

Accounts payable in the quarter?

Bob Mandos

$204 million.

Jim Lucas – Janney Montgomery Scott

Switching gears to bigger picture one of the things that really jumped out in the quarter was the performance of EIG notwithstanding the flat core business which speaks to the acquisitions you made. Can you talk about the margin profile of the company given the busy acquisition campaign in 2008?

Frank Hermance

We’re actually very pleased with the margins of the company as I mentioned in the fourth quarter operating income margins was up 180 basis points so very, very strong performance. EIG was obviously the key contributor. In the fourth quarter in particular EIG had some strong mix in the portfolio but more importantly than that the cost improvements that we put in place earlier in the year had a very positive impact on EIG and that was a key factor in driving those margins. Now with the restructuring that we’ve put in place for next year we think our margin performance is going to hang in there pretty good.

Jim Lucas – Janney Montgomery Scott

Taking a look at the longer cycle businesses can you speak to what you’re seeing, how they exited the year. You talked about orders being down 10% but in particular one of the focuses lately at least from a lot of questions from investors is on the process side in particular. It might be helpful to maybe walk us through where exactly the AMETEK exposure is on the process side. Likewise within aerospace if you can comment about the mix and what you’re seeing there particularly in light of Cessna’s news yesterday.

Frank Hermance

Why don’t I walk through both the aerospace part of the business and the process part of the business and give you a flavor for what happened in Q4 and how we see 2009. In aerospace those markets remain healthy yet their not as robust as last year. If you look at the military side of our business which for all of aerospace is roughly half of the business, due to our focus on helicopters coupled with numerous military retrofit and upgrade programs as well as our focus on electronic cooling our military markets remain strong and are expected to be strong in 2009.

I noticed this morning in the Wall Street that L-3 and Raytheon are talking about very strong performance in 2009 which was encouraging to me because it supported our feeling that military is going to be good.

Different dynamics going on in commercial aircraft versus business and regional jet aircraft. The backlog at Airbus and Boeing remain healthy and commercial OEM shipments in 2009 should be up. As a matter of fact if you look at what’s occurring Airbus is expected to be flat in terms of shipments and Boeing just recently increased their shipments for 2009.

Prior to the time they increased those shipments they were going to be up about 15% because of the strike last year they didn’t ship as many aircraft last year so were going to ship more. Now they’re saying their going to be up about 28% in shipments. That bodes quite well for our commercial aircraft business.

Your specific question around business jets there’s no question that business and regional jets are going to be down. The numbers are expected to be 10% to 15%, if you include the Textron recent announcement. We’re very fortunate in that particular area that we have excellent content on the new Embraer and Cessna aircraft which should allow us to outperform the market.

One other point is that the third party MRO business we expect to actually be up double digits based on the large wins at Delta and American Airlines which we recently consummated and also the benefit of the ramp up of our service center in Singapore.

When you look at that whole picture the order intake was down, it was not good in the fourth quarter, business just kind of stopped for everything in November and December. The backlogs here are strong and we’re thinking and feeling pretty good that we’re going to show probably mid single digit growth in aerospace for 2009.

Switching to the process businesses there’s no question that our process businesses are beginning to weaken. If you look at overall market expectations for instrumentation, for oil and gas, including upstream, midstream and downstream the market itself is expected to be down 5% to 10% for instrumentation. If you look at the broader analytic instruments market we expect similar negative growth rates.

We started the see that in the fourth quarter where our internal growth was essentially flat. What we’re budgeting next year and what’s included in our estimates is a negative mid single digit organic growth.

A quick summary, aerospace still looks pretty good, not quite as robust as last year. Process businesses beginning to weaken and we believe we’ve covered that in our estimates.

Operator

Your next question comes from Christopher Glynn – Oppenheimer

Christopher Glynn – Oppenheimer

I want to parse out some of the pieces of the restructuring cost savings; I think you had $14 million from the 3Q actions, $21 million from sourcing again and $75 million from the new actions. I want to clarify if the sourcing is it all a subset of the $75 million, proportionally by segment where the savings is?

Frank Hermance

In terms of the first part of your question with the $21 million of savings only a little bit of that is included in the actual restructuring so most of that is outside of the restructuring itself. In terms of if you look at the full restructuring the $75 million of cost benefit in 2009 in excess of $100 million in 2010 the breakdown of that in terms of savings is roughly two thirds in EIG and one third in EMG.

A further breakdown that might be helpful to you, if you look at that savings in the year 2009 rough numbers $25 million is in the first half of the year and about $50 million is in the second half of the year, obviously increasing throughout the year with the exit run rate being above that $100 million annualized rate.

Operator

Your next question comes from John Baliotti – FTN Midwest Securities

John Baliotti – FTN Midwest Securities

Looking at aerospace, I don’t know if it’s enough of an offset but would you expect a dynamic shift between the MRO after market versus new build if people are keeping the aircraft they have longer. Does that manifest itself in more after market or does that take too long to show up.

Frank Hermance

That takes a while to show up. If you look at the dynamics right now in the MRO business on a worldwide basis the US is obviously weakening, but when you look at it on an international basis its still quite good. As I mentioned in my opening remarks we’ve had major wins with two airlines. We’re actually pretty bullish on the MRO business overall and also our Singapore repair facility which is now up and running, it’s been approved by the FAA. We see great growth opportunities there. We actually feel that the third party MRO will be one of our strongest segments in aerospace this year.

John Baliotti – FTN Midwest Securities

You can benefit by some comps where there are opportunities you just didn’t underlying have last year.

Frank Hermance

That’s exactly right. There’s a difference between the market and how we’re going to perform.

John Baliotti – FTN Midwest Securities

In this market, last year, this year and maybe next year thinking long term is there any kind of shift in thinking between research and development versus M&A or do those two strategies just run on their own course?

Frank Hermance

They’re going to run on their own course but as we did in the last economic downturn our management focus is going to shift more towards operational excellence and acquisitions. We think the environment for acquisitions is going to become increasingly attractive. That’s one of the reasons that we got the extra cash last year. As those prices come down and with the talent we’ve now put in place where we substantially increased the M&A side of the business we’re going to really focus on that.

That’s not to the detriment of RD&E. As I mentioned in my opening remarks we’re going to spend actually more money on RD&E in 2009 then 2008 and we’ve got those systems pretty well in place and that’s going to flow so there’s not going to be a retrenchment there’s just going to be increased focus on the M&A side of the business.

Operator

Your next question comes from Ned Borland – Next Generation Equity Research

Ned Borland – Next Generation Equity Research

Following up on the last question on acquisitions, what are your acquired revenue goals for 2009?

Frank Hermance

As we’ve always said we focus in that $100 to $150 million region. Obviously we had a great year last year with over $300 million in acquired revenue. Its not like there’s a specific, if we make ‘x’ we’re going to feel good and if we make ‘y’ we’re not. Its more are there good companies available, do they meet our strategic thrust, is the pricing right and we’ve got plenty of cash where we could do more than $300 million if the right opportunities came up. It’s very difficult for me to give you a number and say that’s what we’re going to do because I just don’t know.

Ned Borland – Next Generation Equity Research

The environment hasn’t shifted enough that it wouldn’t be inconceivable to match last year’s total?

Frank Hermance

No, not at all. The environment slowed a little in the fourth quarter which you can imagine. It seemed like the whole world slowed in the fourth quarter. It definitely has come back now after the first of the year. We’ve got lots of activity, lots of possibilities. We’ve already closed one as you know. We’re going to be aggressive. That doesn’t mean we’re going to get $300 million it means we’re going to be aggressive and do the right things.

Ned Borland – Next Generation Equity Research

On raw material tailwinds what do you have baked into your forecast for that if any?

Frank Hermance

As I think you know, in terms of commodities, as commodity prices went up we didn’t have any major problem on the P&L. Similarly as commodities go down we have it balanced and we essentially passed that on through the way we price etc. There also isn’t going to be any major positive that comes out of this. There will be some where we have fixed price contracts but its not going to be significant in the positive direction as it was in the negative direction as commodities were going the other way.

Overall in terms of inflation we’ve put in roughly $0.21 of cost increase just due to general inflation; wages, materials, everything.

Operator

Your next question comes from Richard Eastman – Robert Baird

Richard Eastman – Robert Baird

I wanted to double check, what’s your currency forecast for ’09 at this point given the current level of the dollar?

Frank Hermance

It’s a headwind of in the 3% to 4% region.

Richard Eastman – Robert Baird

You had mentioned the core growth forecast for ’09 being down mid single, how does that lay out core EIG or EMG?

Frank Hermance

About the same in each.

Richard Eastman – Robert Baird

The operating profit on EIG this 24.8% number, given the comments you made earlier about the cost improvements and mix should we perceive that now to be a base level of profitability it seems pretty structural.

Frank Hermance

I don’t think you should. As I said, the mix was unusually good in the fourth quarter both in aerospace and in our process businesses. We just had a really good fourth quarter. I wouldn’t assume that’s the launch point going into 2009.

Richard Eastman – Robert Baird

In EIG the flat core growth you had mentioned the process piece of EIG, you just commented it was strong or strength. Those four sub-segments of EIG how did they perform relative to the flat total?

Frank Hermance

You’re talking about for Q4?

Richard Eastman – Robert Baird

Just for the fourth quarter.

Frank Hermance

In aerospace we were down slightly, in process we were flat, in power and industrial we were up.

Richard Eastman – Robert Baird

Industrial was actually up?

Frank Hermance

Power was the driver. I’m combining those two.

Operator

Your next question comes from Matt Summerville - Keybanc

Matt Summerville - Keybanc

Based on the acquisitions you’ve completed to date, how much of your business is now MRO for the aerospace?

Frank Hermance

There are two parts to the MRO question. The third party MRO is about $150 million. Then of course we have MRO that’s associated with our OEM business that’s $100 million. The total would be $250 million.

Matt Summerville - Keybanc

I believe you stated that orders were down for the fourth quarter in the range of 10%. Can you give any sort of monthly progression and then what you’re experience has been through the first weeks in January where you have data?

Frank Hermance

Obviously it declined during the fourth quarter which was one of the key factors in us doing the restructuring. To give you a flavor it was on the order of $190 million in October, and in December we were down to the range of $155 million. January is although obviously not finished is better than December. That was somewhat encouraging, although I surely don’t want to call it robust.

Matt Summerville - Keybanc

Early on in the Q&A you provided pretty good detail around aerospace and process. Can you give that same color for power and industrial then the differentiated versus cost driven motor businesses?

Frank Hermance

Sure, I’d be glad to do that. Let’s look at power and industrial. Our power business continued to be strong in the fourth quarter while the industrial business has been impacted by the economic slowdown. Q4 was up low single digits organically driven by strength in power and industrial saw weakness. If we look forward due to weakness in the heavy truck market which is actually projected at a -22% for 2009 we’re also anticipating a slowing of our power business even though we did not see that in the fourth quarter.

Also we’re concerned about the general industrial business. We’re actually projecting a negative high single organic growth for this part of our business in 2009. Its actually we’re saying our weakest segment we may be somewhat conservative there. We want to make sure we get under this thing and not be too optimistic. You sum up for EIG what I talked about previously for aerospace and process and now power and industrial we’re saying all of EIG we’re expecting this negative mid single digit organic growth in 2009.

Switching to EMG, differentiated part of EMG continues to be very strong. It’s now about 77% of EMG sales and that’s why you’re seeing such strong performance in essence out of EMG overall. The aerospace part of this business which has a higher military content then the EIG part of the aerospace business is continuing to be strong and it’s expected to be strong in 2009.

However, the economic slowdown in this particular segment impacted our technical motor and EMIT businesses because these are not as long cycle focused in terms of their customer concentration. When you summed all that up Q4 internal growth was down a bit, not significantly but down a bit. We essentially expect the fourth quarter trends to continue and we’re budgeting 2009 sales down slightly.

The problem part of EMG was cost driven motors we struggled in the fourth quarter given the current economic climate. Q4 organic growth was down mid teens. Not unanticipated for this kind of business in the sense that its organic growth is going to be down more then our differentiated types of businesses. We’re expecting the fourth quarter trends to really continue throughout 2009 and we’re budgeting down mid teens organically in 2009 for this part of our business.

If you sum that up with slightly down in the differentiated part and down substantially in cost driven that’s how we get to this negative mid single digit organic growth for all of EMG.

Matt Summerville - Keybanc

In terms of your oil and gas business obviously the majority of that’s going to be in process instruments, how should we think about that? I know you talked overall process being down at a mid single digit rate, how big is that business in terms of revenue now and how much of that do you think is driven by the underlying commodity price versus after market versus maintenance.

Frank Hermance

It’s a complex question that you’re asking. Let me see if I can provide some color for it. Of our full process business about a third is actually directly related to what I would say oil and gas. Therefore price of oil is a factor. No question we’re starting to see some impact of that and that’s why the organic growth in process was weakening in the fourth quarter. Just as important in that is the fact that the other parts of that process business which are the remaining two third are also expected to be weak and we saw some weakening in those businesses.

What tends to happen in these segments to your point on MRO is that as, for instance in the oil and gas business when exploration tends to go down the after market tends to go up. The reason for that is that plants are looking to increase their productivity. They’re focused more, as we are, as a company on operational excellence. Therefore they want to upgrade the instrumentation in their plants so that they can get better productivity in what is going through it. There is somewhat of a counterbalance in that business that is going to be helpful to us.

Matt Summerville - Keybanc

Have you seen that dynamic in fact start to play out already in that business?

Frank Hermance

I would say yes. We’re starting to see more after market sales in the US in particular. In the refining area etc. Its starting, I wouldn’t say it’s significant yet. Also the downturn in exploration has not really seated at this point either. That dynamic is in process.

Operator

It appears there are no further questions at this time. Mr. Burke I’d like to turn the conference back over to you for any additional or closing remarks.

Bill Burke

I’d like to thank everyone for joining the call and we’ll talk to you soon.

Operator

That does conclude today’s conference. We thank you for your participation. Have a great day.

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Source: AMETEK, Inc. Q4 2008 Earnings Call Transcript
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