IDEX Corporation's CEO Discusses Q1 2012 Results - Earnings Call Transcript

IDEX Corporation (IEX)

Q1 2012 Earnings Call

April 24, 2012 10:30 AM ET

Executives

Michael J. Yates – VP and Chief Accounting Officer

Andrew K. Silvernail – Chairman and CEO

Heath A. Mitts – VP and CFO

Analysts

James Lucas - Janney Capital Markets

Charlie Brady - BMO Capital Markets

Scott Graham - Jefferies & Company

Joe Radigan – KeyBanc Capital Markets

Nathan Jones – Stifel Nicolaus & Company, Inc.

John Moore – C.L. King & Associates, Inc.

Presentation

Operator

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the IDEX Corporation Q1 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions). Thank you.

Mr. Michael Yates, Vice President of Corporate Accounting. You may begin your conference.

Michael J. Yates

Thank you, Sarah. Good morning, everyone, and thank you for joining us for our discussion of the IDEX first quarter 2012 financial highlights. Last night, we issued a press release outlining our Company's financial and operating performance for the three month period ending March 31, 2012. The press release along with the presentation slides to be used during today's webcast can be accessed on our Company's website at www.idexcorp.com.

Joining me today from IDEX management are Andy Silvernail, our Chairman and CEO and Heath Mitts, Vice President and Chief Financial Officer. The format for our call today is as follows. We will begin with a summary of the first quarter 2012 followed by a walk-through of our three business segments. And finally, we will wrap up with our outlook for 2012. Following our prepared remarks, we’ll then open the call for your questions.

If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll free number 855-859-2056 and entering conference ID 40915423 or you simply may log onto our Company's homepage for the webcast replay.

As we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission.

With that, I'll now turn this call over to our Chairman, Andy Silvernail. Andy?

Andrew K. Silvernail

Thanks Mike. Good morning everybody. I want to thank you for taking the time today to participate in the call. We appreciate the interest that you all have in IDEX. We’ll let’s get started. As Mike mentioned, I am going to walk-through the quarter and segment results and share my perspective on where we see the markets going and how it’s impacting our performance.

The bottom line is we had a very strong start to the year. We built significant backlog during the first quarter and our end markets and geographies are performing as we expected. These factors have positioned us very nicely for the remainder of the year, providing us confidence in our improved to 2012 outlook. Additionally, the CVI integration is on track. We’ve put a lot of focus on our Optics and Photonics platform and the team has responded extremely well. While there have been some end market headwinds, I am pleased with the progress today. I’ll go into more details on the CVI integration when I give an update on the segment later.

In our last two earnings calls, we’ve talked about our platform strategy. This strategy has continued to mature and gain traction and I am pleased with the execution and the delivered results from our team.

With that, I want to jump into Q1 for financial performance. I am on slide five. For the quarter, orders were up 20%, 11% organically. Sales were up 15% and that’s up 6% organically. And as you can see, we built $42 million of backlog in the quarter. I’ll detail this as you walk through the segments.

In the quarter, just over half our sales are generated outside the US. We saw broad based strength in North America. Europe was generally flat but it was stable. The Middle East growth was driven by upstream activity in our energy platform and increasing demand in our Fluid and Metering business. Our Asian markets growth remains strong, particularly outside of China. Altogether, the external environment is playing out as we expected.

Looking at profitability. First quarter adjusted operating margin of 18.3% was up 10 basis points from the comparable quarter last year. The improved profitability is a result of leverage on the organic growth and benefits of our previously taken restructuring actions. This is partially offset by the dilutive impact of 2011 acquisitions. When excluding restructuring charges and acquisition impact, all three segments experienced year-over-year margin expansion.

Q1 EPS, adjusted per structuring charges was $0.66, up 16% versus the first quarter of 2011. We incurred approximately $5 million of restructuring costs as we continued to consolidate operations. Further restructuring actions will take place throughout the remainder of the year as we complete selective facility consolidations by year end. It’s important to note however, that organic growth is the best return on our investment and we continue to invest aggressively in innovation and market expansion.

In Q1, we generated free cash of $52 million, up 161% from the first quarter of 2011. This is a first quarterly record for IDEX. I am very pleased with the execution and the focus on cash generation by all of the operators in the field.

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