IDEX's CEO Discusses Q2 2012 Results - Earnings Call Transcript

IDEX Corporation (IEX)

Q2 2012 Results Earnings Call

July 24, 2012 10:30 AM ET

Executives

Michael Yates – Vice President and Chief Accounting Officer

Andy Silvernail – Chairman and CEO

Heath Mitts – Vice President and CFO

Analysts

Nathan Jones – Stifel Nicolaus

Joe Radigan – KeyBanc

Mike Halloran – Robert W. Baird

Allison Poliniak – Wells Fargo

Scott Graham – Jefferies

Charlie Brady – BMO Capital Markets

Mike Wherley – Janney Capital Markets

Jim Giannakouros – Oppenheimer

Walt Liptak – Barrington Research

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 Q2 2012 Earnings 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 and Chief Accounting Officer. You may begin your conference.

Michael Yates

Thank you, Sarah. Good morning, everyone. And thank you for joining us for our discussion of the IDEX second quarter 2012 financial highlights.

Last night, we issued a press release outlining our company’s financial and operating performance for the three and six-month period ended June 30, 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 our mid-year assessment and our perspective on the business. Next, we will discuss the second quarter 2012 results, followed by a walk-through of our three business segments. Finally, we will wrap-up with an outlook for the reminder of 2012 and following our prepared remarks, we’ll 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 the conference ID 40917655 or you may simply log on to 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 and CEO, Andy Silvernail. Andy?

Andy Silvernail

Thanks Mike. I’m now on slide five everyone. Last night we issued our second quarter results. We outlined Q2 records in orders, sales and cash flow, and we returned $43 million to shareholders in dividends and share repurchases.

However, we missed our earnings expectations and we see the balance of the year as more challenging than we did in Q1. It is our goal to consistently deliver superior earnings and cash flow growth in both good and difficult times.

Our strategy and our operating model are proven, which is reflected in our strong cash flow performance and margin expansion in Q2.

Before we get into the details of the quarter, I’m going to talk big picture, the recent global trends, the successes we’ve had and some of the specific challenges we faced in the first half.

As we exited the first quarter, we saw strength throughout the vast majority of our markets. We had a healthy backlog and solid order rates throughout the portfolio. Within a few weeks of delivering our guidance update in April, we saw certain markets deteriorate.

Order rates softened first in Europe and then in China, which combined to make up about one-third of our sales. Our second quarter guidance did not anticipate the magnitude of the deceleration.

In the quarter, we reduced backlog by $28 million. While we plan to burn down blanket orders and ship large scheduled projects, roughly half is attribute to macroeconomic headwinds.

The good news is that North America and most of the emerging markets remain strong. However, we fully expect this challenge -- the challenging macroeconomic conditions to continue through the remainder of the year, if these external factors that have caused us to take down our full year guidance accordingly.

We’ll face these challenges head-on. Before I turn to the segment detail, I want to highlight what differentiates IDEX in times like these. I want to take a moment to talk about our core strengths that have consistently allowed us to deliver strong earnings and cash flow performance, regardless of the external environment.

It’s our objective to deliver consistent, double-digit annual earnings growth through the cycle with strong cash flow, while returning capital to shareholders in a disciplined manner.

To deliver on our objectives, we rely on three core strengths. First, we have outstanding defensible businesses. Our strategy is to be the leader in an attractive, highly engineered niche markets where we can differentiate.

Within the IDEX, 80% of our businesses have underlying markets to grow well above global GDP. It’s our goal to consistently deliver 5% to 7% annual organic growth through the business cycle. It’s also here that our diversity across markets, products and geographies is a major strength.

We have businesses with over century of history. We thrive because we take care of our customers. We do this through terrific product quality and innovation, applications excellence and best-in-class service. Year in and year out, we’re rewarded with loyalty and [shareholder] gains from customers across our platforms and around the world.

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