AMETEK, Inc. Q1 2008 Earnings Call Transcript

| About: Ametek Inc. (AME)

AMETEK, Inc. (NYSE:AME)

Q1 FY08 Earnings Call

April 21, 2008, 08:30 AM ET

Executives

William J. Burke - VP, IR and Treasurer

Frank S. Hermance - Chairman and CEO

John J. Molinelli - EVP and CFO

Analysts

James Lucas - Janney Montgomery Scott

John Baliotti - FTN Midwest Securities Corp

Amit Daryanani - RBC Capital Markets

Wendy Caplan - Wachovia Securities

Richard Eastman - Robert W. Baird & Co., Inc

Matthew Summerville - KeyBanc Capital Markets

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Operator

Good day, everyone, and welcome to this AMETEK Incorporated First Quarter Earnings Conference Call. This call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Bill Burke, Vice President of Investor Relations. Please go ahead, sir.

William J. Burke - Vice President, Investor Relations and Treasurer

Thank you, Jessica. Good morning, everyone, and welcome to AMETEK's first quarter earnings conference call.

Joining me this morning are; Frank Hermance, Chairman and Chief Executive Officer; and John Molinelli, Executive Vice President and Chief Financial Officer.

AMETEK's first quarter results were released before the market opened today and have been distributed to everyone on our lists. Those results were also available electronically on your market systems and in our website at www.ametek.com\investors.

A tape of today's conference call may be accessed until May 6th by calling 888-203-1112 and entering the confirmation code number 7228440. This conference call is also webcasted. It can be accessed at ametek.com and at streetevents.com. The 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 factors and uncertainties that may cause actual results to differ significantly from expectations. Those 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 will take your questions. I will now turn the meeting over to Frank.

Frank S. Hermance - Chairman and Chief Executive Officer

Thank you, Bill. AMETEK had an excellent first quarter. We set records for sales, operating income, net income, and diluted earnings per share. Sales were up 21% to $611.2 million on strong internal growth of 6% and the contributions from acquired businesses. If the effects of foreign currency are included, internal growth was 8%. Order growth was very strong as well, with total orders up 24% in the quarter, internal growth in orders was excellent at 7%.

Operating income was up 29%, driven by the top line growth in operational excellence improvements, resulting in 130 basis points improvement in operating income and margin. Net income was up 30% and diluted earnings per share of $0.62 were up 29%. Cash flow from operations was $77 million, up 39% over the last year's fourth quarter.

Overall, we are very pleased with these results, our markets were strong, our strategy of acquiring differentiated businesses is working well, and our focus on operational excellence continues to drive profitability.

Turning our attention to the individual operating groups. The Electronic Instruments Group had an excellent quarter. Sales were up 20% on strong core growth of 6% and the contributions from the acquisitions of Advanced Industries, B&S Aircraft Parts, Cameca, and California Instruments. If the effects of foreign currency are included, internal growth was 9%. EIG's operating income was up 27% for the quarter. Operating margins improved 130 basis points to 23.3% as compared to 22% in the first quarter of 2007.

Electromechanical Group also had a great quarter, with revenues up 22%, solid internal growth of 5%, and the contributions from the Seacon Phoenix, Hamilton Precision Metals, Umeco, Motion Control Group, and Drake Air acquisitions drove the revenue growth. If the effects of foreign currency are included, internal growth was 7%. Operating income for the quarter was up 24% and operating margins improved 30 basis points to 17.4% compared with 17.1% in last year's first quarter.

In addition to our excellent financial results, we continued to make significant progress in the implementation of our four growth strategies, operational excellence, global and market expansion, new product development and acquisitions.

Operational excellence is the corner stone strategy for the company and our reluctantless focused on cost and asset management has been a key driver to both our competitive and financial success. This quarter was no exception as we dramatically improved operating margins by 120 basis points to 19%. While there are many factors contributing to this improvement operational excellence was clearly a driver to our strong operating results.

At each business unit AMETEK colleagues are implementing initiatives to improve plant productivity and quality, reduced costs, and increased capital efficiency. In addition to this business unit level activities there are some companywide initiatives that are driving significant financial benefits.

Our global sourcing office and strategic procurement initiatives are expected to be a key driver to increase profitability in 2008. We expect to generate $16 million in incremental savings this year from these activities in the first quarter we realized $4.5 million. In 2008, we are continuing our migration to best costs manufacturing locales, Reynosa Mexico, Shanghai, and the Czech Republic.

Revenues from these plants was expected to totaled $365 million to $375 million in 2008, an increase of $40 million to $50 million from 2007. In the first quarter revenue from our best-cost facilities was $92 million, an increase of 14% over the first quarter of 2007.

Global market expansion continues to be a driver for AMETEX's growth. In the first quarter international sales grew by 24%, and were 51% of our total sales. This growth was driven by demand for our process, aerospace, power, and electromechanical products. In 2006, we took an additional sales on marketing expansion to help fuel our internal growth, including new sub-sales offices in Shanghai, China and Moscow. These investments are paying off an higher sales and increased penetration of these growing markets.

Our sales office in Moscow recorded a 33% in sales to Russia in the CIS region in the last year. We've recently doubled the size of our staff in this office to support our growth in this key geography. To support the international growth of our MRO business we hope in new facilities one in Singapore and the other in Paris. These facilities are critical to our ability to service global customers and to expand our MRO platform.

We are also very excited about the upcoming opening of AMETEK Commercial Enterprise Shanghai or ACES, our sales service and demonstration center. ACES will give us a first-class customer demonstration facility, exhibiting the whole range of AMETEK's instrument offerings. It also gives AMETEK the ability to drive service revenue growth in China by offering these services to our customers rather than relying on third parties. We believe that ACES will be a key element in our plan to drive higher revenue from China. In the first quarter, our China revenue was up 22%.

Another key area of internal growth is new product development. We've consistently invested in RD&. This year the total was expected to be $150 million, up 12% over the last year. Internal growth reflecting a continued strong level of funding, and attraction from our designed Six Sigma efforts was a strong 6% overall in the quarter. While no single new product is significant to AMETEK as a whole, we are excited about some recent introductions.

Cameca's new Shallow Probe technology has been embraced by two large semiconductor manufacturers with more customers wins expected. Our Aerospace division won contracts to supply bus adapter units, on the linear C27 aircraft and a C5 Retrofit program. These contracts had the total value of $6 million over the life of the multi-year program. Our HCC business booked an $8.5 million order from the defense contractor for electrical interconnects to be used in the next generation IED detection technology, potential over the next several years for this product to be substantial.

Our Hamilton Precession Metals business booked $1 million plus contract, for a very thin stainless steel metal strip with an altered smooth surface finish that would be used for solar panel substrates.

From an overall perspective, revenue from products introduced over the last three years was 16% of sales, reflecting the excellent work of our businesses in developing the right products to serve their customers.

Turning to acquisitions, we've acquired four companies this year, representing more than $120 million in annualized revenue. These are all differentiated businesses that expand our market positions in aerospace MRO, technical motors and engineered materials. In the first quarter, we acquired Newage, Drake Air and Motion Control Group. Newage was a technology acquisition, which added materials hardness testing capability. Drake air is at Tulsa, Oklahoma based provider of heat transfer repair services to the commercial aerospace industry with expected annual sales of $15 million.

This acquisition represents a further expansion of AMETEK's growing presence in a global aerospace maintenance, repair and overhaul services industry. Drake, coupled with AMETEK's recent acquisitions of Umeco repair and overhaul, Southern Aeroparts and B&S Aircraft Parts expands our global MRO platform. Drake extends our MRO capabilities to the thermal management segment of the aerospace market by providing FAA-approved repair services for these products. With this acquisition, our aerospace MRO platform has revenues in excess of $100 million.

The third acquisition with Motion Control Group, are leading global manufacture of highly customized motors and motion control solutions for the medical, life sciences, automation, semiconductor and aviation markets. With annual sales of $26 million, MCG is an excellent strategic fit with our highly differentiated technical motor business sharing common market's customers, distribution channels, and motor platforms.

Finally, last week we announced the acquisition of Reading Alloys, a privately held, niche, specialty metals producer, with annual sales of approximately $80 million, Reading is a global leader and specialty titanium master alloys and highly engineered metal powders used in the aerospace, medical implant, military, and electronic markets. Reading's titanium master alloys are experiencing outstanding growth, driven by increasing demand for titanium in the commercial aerospace, military aerospace, and power generation markets. 80% of Reading sales are in aerospace and defense applications. The pipeline of acquisition candidates remains strong, and we continued to look to add differentiated business to AMETEK. We have the financial and managerial capacity to continue to do acquisitions and believe this will be a great environment for AMETEK.

There is much concerned among investors about the slowing U.S economy. To-date, we have seen only minimal impacts to our business. Our diversified global customer base, significant exposure long-cycle markets, a lack of presence in certain very weak areas of the U.S economy, and our operational excellence capabilities provide AMETEK and U.S investors with the buffer against an economic slowdown. Some key points, our customer base is global with 51% of our sales outside the U.S up from 32% in 2001.

The international markets are doing extremely well now. We have significant revenue, approximately $750 million concentrated in the long-cycle aerospace and power markets. From all market indications, these businesses should enjoy a number of years of solid growth.

In addition, it should be noted that these long-cycle businesses have higher than average profitability. We have minimal exposure to the residential housing and automotive markets to particularly weak areas of the U.S economy. Also when necessary, we will react swiftly to align our cost base with economic realities. This capability enabled us to improve markets... markets throughout the last downturn one of the first industrial companies to do so. In addition, as a precautionary measure we included general belt tightening improvements, in our 2008 budget.

Pulling all this together, only about 25% of our sales and a smaller amount of our profitability are exposed to the short cycle U.S economy. Our higher profit, long cycle businesses should continue to perform well in an economic downturn, and when needed, we have the ability to react swiftly to properly size our operations to continue our strong profitability.

Turing to the outlook for 2008, we are very optimistic about out prospects for the balance of 2008, and are increasing our guidance for the year. All of our key markets are strong. For the year revenue is estimated to increase in the high-teens on a percentage basis on mid single-digit core growth in each group, and the annualized impact of acquisitions.

Internal growth of the Electronic Instruments Group will benefit from continued strengths in our aerospace, power, and process businesses. In the Electromechanical Group, the core growth will be driven by strong performance in our differentiated businesses. The full year impact of our 2007 acquisitions, as well as the impact of the acquisitions we have completed to-date in 2008 will also be a key contributor to the top line growth.

Earnings are expected to be approximately $2.47 to $2.52 per diluted share, an increase of 17% to 19% over the 2007 level of $2.12 per diluted share. For the second quarter of 2008 sales are expected to be up in the high-teens, on a percentage basis from last year's second quarter, we estimate our earnings to be approximately $0.61 to $0.63 per diluted share, an increase of 13% to 17% over last year's first quarter of $0.54 per diluted share.

In summary, we are very pleased with our performance in the first quarter, solid internal growth and the contributions from acquired businesses enabled us to grow the top line by 21%. We've been able to translate the top line growth into bottom line performance, driving significant margin expansion and strong net income and earnings per share growth. 2008 is shaping up to be another great year. All of our key markets are strong. Our operational excellence capabilities, global customer base, exposure to long-cycle aerospace and power markets, and the impact of our recent acquisitions should enable us to growth both the top and bottom lines and meet our earnings estimates even as the U.S economy slows.

The pipeline of acquisition candidates remained strong and we continue to look to add additional differentiated businesses to AMETEK. We look forward to building on our track record of success during 2008, and remain confident that our four growth strategies will continue to create value for our shareholders.

John will now cover some of the financial details, and then we will be happy to take your questions.

John J. Molinelli - Executive Vice President and Chief Financial Officer

Thank you, Frank. Results we are reporting today demonstrate a continuing high quality of earnings, strong margin growth and a balance sheet well equipped to support our growth plans.

As Frank has covered our results at a high level, I will focus on some particular areas of interest. Selling expenses were up 22% in the first quarter essentially unchanged as a percent of sales. Excluding acquisitions, selling expense increased in line with our core growth.

Corporate G&A expense for the first quarter was roughly flat on an absolute basis when compared to last year's first quarter and fell to 1.6% of sales as compared to 2% in last year's first quarter. We expect G&A spend for the full year to be about the same as 2007.

The effective tax rate for the quarter was 33.9%. We expect the effective tax rate for the full year 2008 to be approximately 32.5 to 33%. 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.

On the balance sheet, working capital defined as receivables plus inventory less payables was 21% of sales for the first quarter, essentially unchanged from last year's first quarter. We continue to see an opportunity to reduce our working capital investment. Our plans are to reduce this overall percentage in 2008. Capital spending was $9 million for the quarter, depreciation and amortization was $14 million in the quarter.

For 2008, we expect that capital expenditures will total approximately $50 million, while depreciation and amortization is expected to be about $60 million.

Operating cash flow for the first quarter was superb and totaled $77 million, up 39% over the first quarter of 2007. We expect operating cash flow for the company to be roughly $335 million for the full year, up about 20% from last year.

In January, the Board approved an increase to the authorized level for stock repurchases, adding $50 million to be approximately $26 million that remained under previous Board authorization. In keeping with our strategy of opportunistically, repurchasing common stock to offset the dilutive impact of our benefit plans. During the first quarter we expanded $43.5 million, repurchasing $1 million shares of our common stock.

At March 31st, approximately $32.4 million remained available under this Board authorization. Total debt was $904 million at March 31st, unchanged from December 31st. Offsetting this debt is cash and cash equivalents of $150 million resulting a net debt-to-capital ratio at quarter-end of approximately 38%, up slightly from 37% at the end of 2007. These ratios reflect the investment of $75 million in acquisitions, and repurchase of $43.5 million of common stock noted above. At the end of March, we had approximately $633 million available under our short-term credit lines.

In summary, we continue to manage our cost structure and balance sheet effectively, generating excellent cash flow and positioning ourselves for future growth. Bill.

William J. Burke - Vice President, Investor Relations and Treasurer

That concludes our prepared remarks. Jessica, we'll be happy to take questions now.

Question And Answer

Operator

Thank you. [Operator Instructions]. Our first question comes from Jim Lucas from Janney.

James Lucas - Janney Montgomery Scott

Hi, thanks, good morning guys.

Frank S. Hermance - Chairman and Chief Executive Officer

Hi, Jim.

James Lucas - Janney Montgomery Scott

Frank, well actually, let me start first with John, payables number in the quarter?

John J. Molinelli - Executive Vice President and Chief Financial Officer

Sure Jim, $237 million.

James Lucas - Janney Montgomery Scott

All right, thanks. And, Frank, two question. With the MRO business, as you mentioned the two new offices internationally, could you comment from an acquisition standpoint as you've been building out that business, it's been more domestic to begin with, are their equal opportunities from a consolidation standpoint on the international front? And then somewhat related to that, could you just speak to what you are seeing in the acquisition environment in general, particularly with the multiples that are... that you are seeing out there?

Frank S. Hermance - Chairman and Chief Executive Officer

Sure, starting with the MRO business, Jim there is definite opportunities in Europe to do the type of consolidations that we are talking about and are doing in the U.S. You may recall that we acquired Umeco, which was a large MRO operation in Europe, and we see good opportunities to extend that platform by adding more companies to it.

In Asia, the acquisition environmental for acquisitions in general I would say in our space, as well as specifically in the MRO business are not a strong and that's in essence why we decided to start our own operation in Singapore. We think there is significant leverage in terms of servicing that market, but the strategy there will be much more internally driven then acquisition driven.

In terms of the overall acquisition environment, it's extremely good right now. We've definitely done a lot already in the first three to four months of the year with over $120 million and annual sales acquired, our backlog is strong. And I would say in terms of the pricing Jim, it's a little bit of mixed bag right now. We are still seeing on some acquisitions pricing that is very high, and I think it's somewhat historical from the view point... of the sellers view point if they were getting used to higher multiples then have not decided to come down yet.

On the other side of the coin, we are also seeing on some deals the pricing come down, and if you look at what we've done in the first four months of the year we are averaging sub eight times EBITDA on the deals that we have done. So I would say for those deals we are down a bit from what we had done of sale over the previous 18 months to that. My expectations are that we are going to see the multiples come down, and hopefully we will be back to more normalized levels in the next six to nine months.

James Lucas - Janney Montgomery Scott

And to your point on the bifurcated multiples that you are seeing out there I mean, I guess just take it one step further, is it any particular type of deals sellers, is it private expectations versus companies of private equity looking to perhaps raise some funds.

Frank S. Hermance - Chairman and Chief Executive Officer

Right it's really hard for me to put any further clarification on that. It just seems to be somewhat sporadic right now Jim. And I think that's probably not that a typical as to where we are in the cycle.

James Lucas - Janney Montgomery Scott

All right, thank you very much.

Frank S. Hermance - Chairman and Chief Executive Officer

See you back, Jim.

Operator

Our next question comes from John Baliotti with FTN Midwest.

John Baliotti - FTN Midwest Securities Corp

Hi, good morning

Frank S. Hermance - Chairman and Chief Executive Officer

Hello, John.

John Baliotti - FTN Midwest Securities Corp

All right, guys. John could you maybe just go over receivables inventory a little bit I mean the quarter was obviously very strong and I am just expecting that maybe some of the inventories and so on of receivables just could be factored based on core growth and acquisitions is that fair?

John J. Molinelli - Executive Vice President and Chief Financial Officer

Sure let me give you some perspectives there. Inventories are up about 6% when you extract the effective acquisitions. So it's clearly in line with the way the company is growing, and our receivables are up 7% also in line with the growth of the company. And our metrics there are acceptable, but 61 days on days outstanding on receivables down slightly from a year ago, and turns were about 4.6 turns, and that's really the effect of the acquisitions in the last six to 12 months of... I have taken that metric down slightly, but we've got some plans to improve that in the near term.

John Baliotti - FTN Midwest Securities Corp

Okay. So in general underlying, everything is tracking pretty well, it just the obvious, short-term impact that is taken on the balance sheet of the acquired companies?

John J. Molinelli - Executive Vice President and Chief Financial Officer

Yes. And the internal growth, and plus you've got some currency effect John.

John Baliotti - FTN Midwest Securities Corp

Right.

John J. Molinelli - Executive Vice President and Chief Financial Officer

The euro inventories are coming to the balance sheet that are much higher dollar level may were a year ago.

John Baliotti - FTN Midwest Securities Corp

Right. Okay, great. Thanks very much.

Frank S. Hermance - Chairman and Chief Executive Officer

You bet, John.

Operator

Our next question comes from Amit Daryanani from RBC Capital Markets.

Amit Daryanani - RBC Capital Markets

Thanks a lot. Congratulation on a good quarter, guys. I'm just trying to better understand the 2008 guidance here. It looks like Q1 was about $0.10 ahead of the mid-point of your prior guidance, but you're rising the full year '08 by about $0.07, some guess, the way I'm looking at it implicatively. You are really lowering about $0.03 of the remainder three quarter in 2008. Is that the correct way to look at it, or am I missing something?

Frank S. Hermance - Chairman and Chief Executive Officer

No, you are missing something. The first quarter was about a nickel above.

John J. Molinelli - Executive Vice President and Chief Financial Officer

Yes, in our guidance was 56 to 58, we came in at 62, so we are about a nickel above the mid-point for the first quarter.

Amit Daryanani - RBC Capital Markets

Got it, all right. And then just from an acquisition perspective, could you just talk about, you have done obviously quite a few deals during the last three, four months. Is the focus mode just kind of back, you know, take a step back in terms of doing further deals, and integrating the once we already have done?

Frank S. Hermance - Chairman and Chief Executive Officer

No actually, we do not. We view a slowing economy as an opportunity to become more aggressive on acquisitions. You may recall that last year, we substantially increased the M&A capability in the company so that we would be able to take on more acquisitions, and in fact we have now proven that we can do three or four deals simultaneously and our ability to integrate them are very, very comfortable with, as we grow the company we've been increasing, the operating management in the company significantly, and since, we've got a lot of appendages in terms of different business units and different acquisition, or different divisions. We are able to bring them on, and integrate them without significant difficulty. What we won't do is bring multiple acquisitions into the same business unit area, and because we've got enough different parts of the company, we just don't see that as a problem make continuing aggressiveness that we've shown in the first four months.

Amit Daryanani - RBC Capital Markets

Fair enough. And just finally, Frank, I think you have already talked about a new program that you guys won on the county measurement IED product line. I think six, seven quarters ago, you guys were providing cooling fans of comparable product, is this just a resurrection of the old one, or is this a new one or its in the revenue stream?

Frank S. Hermance - Chairman and Chief Executive Officer

This is a totally different technology and a different approach, and it's actually used to find IDs in the ground. So it is more of an infra red type technology. And I can't speak to the particulars of the program in any more detail than that, but obviously the whole IED environment is the most significant issue that we're having in the wars in Iraq and Afghanistan, and the military is just looking for significant technology to be brought to bare to those issues and this most recent contract that I mentioned is just another foray into that activity.

Amit Daryanani - RBC Capital Markets

All right. Thanks a lot.

Frank S. Hermance - Chairman and Chief Executive Officer

You bet.

Operator

[Operator Instructions]. We now will take a question from Wendy Caplan from Wachovia.

Wendy Caplan - Wachovia Securities

Good morning.

Frank S. Hermance - Chairman and Chief Executive Officer

Good morning, Wendy.

Wendy Caplan - Wachovia Securities

A couple of things, first you mentioned a belt tightening in '08. Can you talk... give us some color on that in terms of what exactly you are doing and what you expect to spend this year?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, as part of the budgeting process, Wendy, we decided as I mention in my opening remarks to do some belt tightening. It totals about $5 million in terms of the benefit that we expect in 2008 due to those belt tightening measurements. And they include things like the closure of some plants predominantly in the United States, basically looking at areas and SG&A, you may have noticed that our SG&A was very, very good for the quarter, so we just decided to take some actions on the SG&A to keep it in more in line with what we see might be happening in the U.S economy. The cost to do this, I don't actually remember the number, but they were not substantial, it was less than $1 million to make that happen.

Wendy Caplan - Wachovia Securities

Thank you. And the incremental margin in your core businesses this past quarter?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, it was just excellent. We were greater than 40% in the contribution margin in the first quarter.

Wendy Caplan - Wachovia Securities

And is it fair Frank to say that, in terms of margin going forward that there is no reason why we shouldn't see margin expand in your two segments?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, I think as we go forward there are still the opportunity to continue to increase margins, I see no reason why it isn't going to happen in both segments. One thing you should recognize is that, a number of the acquisitions we brought on this year are in EMG. So there will be a little bit of dilutive impact in EMG due to those acquisitions, but still we believe we're going to expand margins as the year goes on, essentially offsetting that dilutive impact.

Wendy Caplan - Wachovia Securities

Great. Thank you. And finally you mention that you have core order growth in the quarter of 7%?

Frank S. Hermance - Chairman and Chief Executive Officer

That's correct.

Wendy Caplan - Wachovia Securities

Was that excluding currency?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, that's excluding currency.

Wendy Caplan - Wachovia Securities

Okay. And is there any anything particular that was in there... any large contracts or anything that would be out of the ordinary?

Frank S. Hermance - Chairman and Chief Executive Officer

No, I would say it was fairly normal. I mean we did get a couple of contracts in aerospace of $7 million or $8 million, but that's very typical.

Wendy Caplan - Wachovia Securities

Okay. Thank you very much.

Frank S. Hermance - Chairman and Chief Executive Officer

You bet.

Operator

We'll take a question from Scott Graham with Bear Stearns.

Frank S. Hermance - Chairman and Chief Executive Officer

Scott, are you there?

Operator

Mr. Graham your line is open. [Operator Instructions]. Okay, we will move to Richard Eastman with Robert Baird.

Richard Eastman - Robert W. Baird & Co., Inc

Yes, couple of questions Frank, when we look at the EIG piece of the business with a core growth of 6%. Could we just walk through the four pieces there and what was perhaps above that and what may have been below that?

Frank S. Hermance - Chairman and Chief Executive Officer

Sure, let's start with aerospace. Aerospace was in essence well above it, we had low double-digit growth in the aerospace part of EIG. The process businesses were above at that rate, mid single-digits. And power and industrial, the combination of both of those was above that level maybe just slightly below. And in essence if you look at the breakdown between power and industrial, power was up, low double-digits and industrial was flat as we had anticipated. The heavy truck market were continue to be down in the first quarter. Although, we are expecting that's going to improve substantially as the year goes on. And in fact the power and industrial segment for the remainder of the year, actually for the full year even including the first quarter, we are expecting to be up high single-digits in terms of organic growth.

Richard Eastman - Robert W. Baird & Co., Inc

Okay. And I guess maybe I am sensing a little more optimism there from a core growth ratestandpoint, then we heard, say at the end of the fourth quarter overall?

Frank S. Hermance - Chairman and Chief Executive Officer

Well, I'm feeling actually much more comfortable right now than I did at the beginning of the year, because I didn't exactly know what the impacts of the economy were going to be. And now that we're a quarter in and we've had obviously an excellent quarter, and we've really pulled our operating units to see if we could find any substantial areas of weakness and we simply can't find those, I'm pretty optimistic, so you're probably hearing that in my tone and in my voice, and I am feeling better, no question about that.

Richard Eastman - Robert W. Baird & Co., Inc

And, so... again when I look at the sales guidance for the full year up high-teens, the Q1 flurry of acquisitions that you did, pretty much put us there, so are we still... again kind of staying reasonably conservative on the core growth rate with some upside there?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, no question.

Richard Eastman - Robert W. Baird & Co., Inc

Right.

Frank S. Hermance - Chairman and Chief Executive Officer

The numbers we've given you are on the conservative side and we would expect to beat them.

Richard Eastman - Robert W. Baird & Co., Inc

And just a last question, could you just talk to raw material cost and pricing, and the variance that you're seeing, has that changed during the quarter... in the first quarter?

Richard Eastman - Robert W. Baird & Co., Inc

It's moving around, no question about it, but let me start by saying and I think you've heard this from me, before that in essence, we're relatively impervious to what happens on that, the commodity price increase. We do an excellent job of passing the cost of commodity, material increases onto our customers and also rebalancing and buying the materials from different parts of the world. So that in essence, it's not a major factor to our bottom line. If I'd like to sort of walk through the materials, copper has tended to go up, it's approaching $4 up right now, and it probably was more at 350 roughly at the beginning of the year, I'm not sure, I'm exactly right on that, but it's in that ballpark. Steel which started to show some improvements last year has gone up a bit again, and let see the other commodity would be nickel and nickel has actually come down that's gone the other way. Nickel at the end of last year say the third and fourth quarter, were up above $20 a pound, and it's now floating down in the $13 a pound region. So it's been sort of a mixed bag as to whether they are going up or whether they're going down, but again in terms of our profitability it's been a very minor factor.

Richard Eastman - Robert W. Baird & Co., Inc

So with all the puts and takes at the gross profit line, has pricing been a positive for you?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, pricing has been definitely a positive. We are up in 1% to 2% area in the quarter.

Richard Eastman - Robert W. Baird & Co., Inc

For sales, okay.

Frank S. Hermance - Chairman and Chief Executive Officer

Up sales.

Richard Eastman - Robert W. Baird & Co., Inc

Thank you.

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, sir.

Operator

[Operator Instructions]. We'll now go to Matt Summerville with KeyBanc.

Matthew Summerville - KeyBanc Capital Markets

Good morning. Couple of questions first just with respect to EIG I think operating margins in the quarter set a new record if I remember correctly. Can you talk about the... if there is anything going on as far product mix if that type of margin run rate I guess Frank is sustainable.

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, we don't see any reason Matt why that would not be sustainable, and it basically is driven by a couple of things. One is the fact that we've really changed the diversification of that business to much more highly technology driven businesses, and as we do that the profit margins in those businesses are higher than the norm and the margins keep incrementing up. The second thing is the operational excellence activities of the operating managers in that group have been nothing short of superlative. They just continue to... they really do a great job of managing their cost structure. So I think the biggest detriment to margins will be if the economy does in fact weaken and the internal growth, it doesn't stay up in that 6%, 7% kind of region and that will have an impact overtime, but we're simply not seeing that now, nor do I anticipate it for the rest of this year.

Matthew Summerville - KeyBanc Capital Markets

Sticking with EIG, if you look at just the process group of business, do you have a geographic breakdown, in terms of how much of that is U.S versus non-U.S? And then can you talk about the momentum you're seeing again in your domestic process group of businesses versus non-U.S?

Frank S. Hermance - Chairman and Chief Executive Officer

Right, Bill is looking it up, but I'll give you my of the top thought process here, I think it's about 65% outside the United States for those process businesses. There is a difference between the growth rates outside the U.S, and those inside the U.S, there is a lot of new plant construction going on outside the U.S in both, the far East, as well as in Russia, and the CIS states, and as you know, we put a sales office in Moscow to capitalize on that, and we're seeing that as we speak. We have a very, very strong performance there. In the U.S it's more of a replacement business, so the grow rates are quite as high, although they are very good. So it's a great area to be in right now, and obviously the price of oil at $117 a barrel was not a detriment to the growth.

Matthew Summerville - KeyBanc Capital Markets

And then just a last question with respect to EMG, can you do a little bit of a walk through in terms of the core grow rate you saw across the different businesses there?

Frank S. Hermance - Chairman and Chief Executive Officer

Did you say EMG?

Matthew Summerville - KeyBanc Capital Markets

Yes, please.

Frank S. Hermance - Chairman and Chief Executive Officer

Okay, sure. Well, if we look at total EMG, sales were up 22% in the quarter, and as I indicated organic growth was 5%, 7% of currencies included. So if we look at the two parts of that business, the differentiated part of EMG continues to be very, very strong. It's actually now 72% of EMG sales are in differentiated businesses, so this sort of a change that we've made across the entire company is really becoming significant now in the Electromechanical Group as well.

The aerospace and defense related businesses were very, very strong in the quarter. Q1 internal growth was up high single-digits in the differentiated part. Total growth with acquisitions was up approximately 30%, so very strong performance. And we see no reason why we're not going to have good performance as the year goes on. If we look at cost driven motors that was doing fine basically in the first quarter, the growth was flat as anticipated. And I think you are well aware that we've run that business from maximum profitability versus growth. We've been continuing to move production to low cost locales. And we have a strong focus on lean and efficient manufacturing. I think you've heard some of my metrics in the opening talk where we basically expect to have $40 million to $50 million more of sales in these low cost regions during the year, and also some very, very strong performance in the sourcing area. And as result for this cost driven segment, we expect profits to be up double-digits for the year. So we're expecting of another very, very good year in cost driven motors, although not obviously with the same organic growth we see in the differentiated part of the business.

Matthew Summerville - KeyBanc Capital Markets

Great. Thanks a lot.

Frank S. Hermance - Chairman and Chief Executive Officer

You bet, Matt.

Operator

We'll now go to Ned Armstrong with FBR.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Yes, thank you, good morning.

Frank S. Hermance - Chairman and Chief Executive Officer

Good morning, Ned.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

I believe I heard you, when you were going through your acquisitions that the one motion control serve the medical market, is that a greater area, focusing your acquisition targeting now, or is that just more happened be coincidental that you did that the deal flowed your way?

Frank S. Hermance - Chairman and Chief Executive Officer

No, that's definitely a desire, on our part strategically, to move our businesses within, basically in the instrument and the motor side of the business to have a higher concentration in both, medical instrumentation and electromechanical devices for the medical markets, also pharmaceutical not just medical, it's really the combination of both of those.

Our chip division already had fairly sizeable concentration in the medical environment, and when we saw MCG available in the market, it's just a perfect fit, which had been a further expands the concentration of our business into that arena. So we are going to continue to expand up.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Are you saying in the pharmaceutical medical markets are propositionally the same number of opportunities that you maybe saying in some of your more core traditional markets?

Frank S. Hermance - Chairman and Chief Executive Officer

No, I would say I am not seeing as many, in the medical environment as I am seeing in the more of the core businesses.

Ned Armstrong - Friedman, Billings, Ramsey & Co., Inc.

Okay. Thank you.

Frank S. Hermance - Chairman and Chief Executive Officer

We were, but we were not.

Operator

[Operator Instructions]. And we'll take a follow-up question from Jim Lucas with Janney.

James Lucas - Janney Montgomery Scott

All right. Thanks. Frank, your aerospace business now, could you bring us up-to-date on what the mix is there when you put the EMG and EIG exposure of...

Frank S. Hermance - Chairman and Chief Executive Officer

Yes.

James Lucas - Janney Montgomery Scott

Commercial etc.

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, the mix is commercial is about 50%, military is about 35%, and business in regional aircraft is now about 15%. So there has been a shift in the dynamics of that business, resulting from several things. First, is super growth in the commercial side had made it a larger piece of the business. And secondly, some of the acquisitions we have done have favored more commercial and military than business in regional aircraft.

James Lucas - Janney Montgomery Scott

And within that both commercial and military, the '08 versus after-market?

Frank S. Hermance - Chairman and Chief Executive Officer

If you look at the total business now across AMETEK, it's a about 45% MRO, and of that 45%, about half is third-arty MRO and about half is MRO work we do on our OEM products, if that make sense.

James Lucas - Janney Montgomery Scott

Yes. And within military still weighted much more towards the helo versus flying fan [ph]?

Frank S. Hermance - Chairman and Chief Executive Officer

I would say the growth is definitely very, very good in the helo side. The overall business, I would say is not weighted that way, it's probably weighted more the other way, but in terms of growth, yes.

James Lucas - Janney Montgomery Scott

Okay. And back in your prepared remarks you had talked about roughly 25% of sales short-cycle?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes.

James Lucas - Janney Montgomery Scott

Besides the cost driven motors what else would be included in that?

Frank S. Hermance - Chairman and Chief Executive Officer

Well if you look at some of our instrument businesses for instance, we have a division, U.S gauge that's involved in our gauges that costs $, $2 each, and those businesses we would include in that also. Actually the tip division, we were just talking about a few moments ago, as largely... U.S concentration and largely tends to be in that arena.

James Lucas - Janney Montgomery Scott

And finally given the very busy last couple of years you've had on the acquisition front and most recently. Any surprises positive, negative on the integration of the more recent deals?

Frank S. Hermance - Chairman and Chief Executive Officer

No, I would say it's going pretty much to plan, I... if I step back we've been very, very fortunate and I think it really relates to the operational excellence culture that's embedded in AMETEK. Our division managers are able to take these acquisitions and integrate them etcetera. John is smiling a little bit here next to me because he and I used to be so engrained in every deal that we do, and we no longer have to be because in essence, the operating management in the company is strong enough that they are able to bring them in, and as they gain experience in doing these acquisitions the second or third time they do them, obviously they are much better than the first time, so it's... it's going on pretty good. John, you want to add some thing.

John J. Molinelli - Executive Vice President and Chief Financial Officer

Yes, Jim, you probably heard us say this before that we vigorously track our acquisitions performance through the first year to their birthday, sort to speak with AMETEK, I do that for all of our acquisitions and their spot on just to take and I'll look at some of the ones that will close out in the second quarter of this year, and their spot on in terms of what we projected and with the slight upside bias, so we are in the aggregate, very, very comfortable with the performance of our acquisitions.

James Lucas - Janney Montgomery Scott

Well if you are getting John to smiling, you must be doing something right. Thanks a lot.

Frank S. Hermance - Chairman and Chief Executive Officer

All right, Jim.

Operator

And we have a follow-up question from Richard Eastman with Robert Baird.

Richard Eastman - Robert W. Baird & Co., Inc

Frank, could you just talk for a second or two about the percentage of AMETEK sales that are too export driven and by that I mean U.S to international markets. And is that... is that business first of all is it sized, so that it can be meaningful, and secondly is it... has it responded to the weaker dollar?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, I... these guys are looking up the numbers, but I think it's around 30%, is the right number that will be considered export sales, and yes, obviously the currency is impacting us, actually it's probably impacting us more here in the positive way than the way all of our peer companies and us talk about the external members because you have got a sizeable pricing advantage because of particularly in Europe because of where the euro is right now, it's very, very difficult to quantify... very difficult to quantify how much of the increase in sales is due to new products, how much is due to few... basically the increase in the distribution networks that we're putting in place, and how much is due to this pricing advantage. But, it's there, there is absolutely no question about it.

Richard Eastman - Robert W. Baird & Co., Inc

Andis it presumably it would favor given the mix... it would favor aerospace in the process instrument side of the business?

Frank S. Hermance - Chairman and Chief Executive Officer

Yes, very heavily the process side because that has a more significant impact on what we call export sales. Now, there is something sort of hidden below the numbers here in that, good part of our for instance production that we give to Boeing, we call that U.S business, we are in fact that a lot of that ends of outside the United States, when it's... put in plains, and we don't have a really an accurate breakdown of that.

Richard Eastman - Robert W. Baird & Co., Inc

Okay. Okay. It's just... in its 30% of total sales?

John J. Molinelli - Executive Vice President and Chief Financial Officer

ProbablyRick, I'll have to get back to you about what we... the total export sales, when we have that number with us, we will get back to you.

Richard Eastman - Robert W. Baird & Co., Inc

Okay.

Frank S. Hermance - Chairman and Chief Executive Officer

Yes.Let's, that's my gut is, but I could be off some.

Richard Eastman - Robert W. Baird & Co., Inc

I got you. Okay. Thank you.

Frank S. Hermance - Chairman and Chief Executive Officer

Okay.

Operator

And there are no further questions. I'd like to turn the conference back over to you Mr. Burke for additional or closing remarks.

William J. Burke - Vice President, Investor Relations and Treasurer

Thank you, Jessica. I would like to thank everyone for joining our call. As a reminder, a replay of the call can be heard by calling 888-203-1112 and entering the conformation code number 7228440 or on the Internet at ametek.com or streetevents.com. Thank you.

Operator

This concludes today's presentation. Thank you for your participation. And have a wonderful day.

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