Kevin C. Coleman - Vice President-Investor Relations Frank S. Hermance - Chairman & Chief Executive Officer Robert R. Mandos - Chief Financial Officer & Executive Vice President.

Matthew McConnell - RBC Capital Markets LLC Matt J. Summerville - Alembic Global Advisors LLC Andrew Burris Obin - Bank of America Merrill Lynch Joe K. Radigan - KeyBanc Capital Markets, Inc. Richard Eastman - Robert W. Baird & Co., Inc. (Broker) Andrew J. Ronkowitz - Morgan Stanley & Co.

LLC Brian Konigsberg - Vertical Research Partners LLC Robert McCarthy - Stifel, Nicolaus & Co., Inc. Bhupender Bohra - Jefferies LLC Joseph Giordano - Cowen & Co. LLC.

Ladies and gentlemen, thank you for standing by and welcome to the AMETEK Q4 2015 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded today, Friday, February 5, 2016.

I would now like to turn the conference over to the Vice President of Investor Relations Mr. Kevin Coleman. Please go ahead, sir..

Thank you, Brian. Good morning, everyone. Welcome to AMETEK's fourth quarter earnings conference call. Joining me this morning are Frank Hermance, Chairman and Chief Executive Officer; Bob Mandos, Executive Vice President and Chief Financial Officer; and Dave Zapico Executive Vice President and Chief Operating Officer.

AMETEK's fourth quarter results were released earlier this morning. These results are available electronically on market systems and on our website at ametek.com. A tape of today's call may be accessed until February 19 by calling 800-633-8284 and entering the confirmation code 21802769. This call is also webcasted.

It can be accessed at ametek.com and streetevents.com. The call will be archived on both of these sites. 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. A detailed discussion of the risk and uncertainties that may affect our future results, is contained in the AMETEK's filings with the SEC.

AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. I will also refer you to the Investors section of ametek.com for a reconciliation of any non-GAAP financial measures used during this conference call. We'll begin with prepared remarks, and then we'll open it up for questions.

I'll now turn the meeting over to Frank..

Thank you, Kevin, and good morning, everyone. AMETEK delivered solid operational results in the quarter to complete another strong year. We achieved a record level of operating income, operating margins, and diluted earnings per share in 2015 despite a very challenging global macro environment.

Looking ahead, we expect these difficult conditions to persist in 2016. Therefore, we have taken additional realignment actions in the fourth quarter to help minimize the effects of the ongoing global softness. These realignment costs totaled $20.7 million or $0.06 per diluted share.

And we expect annualized savings of approximately $35 million as a result of these actions with an approximate $20 million benefit in 2016. Before covering the financial results, please note that any references to 2014 or 2015 financial results will be on an adjusted basis excluding the realignment cost in 2015 and the Zygo integration cost in 2014.

Now, on to the fourth quarter and full-year results. In the fourth quarter, sales were $988 million, down 4% from last year's fourth quarter. Organic sales were down 4%, acquisitions added 3%, and foreign currency was a 3% headwind. Operating income in the quarter was $229.5 million, down 1% versus 2014's comparable quarter.

Operating income margin for the fourth quarter was very strong at 23.2%, a 50 basis point improvement over the fourth quarter of 2014. Net income for the quarter was $150.7 million, and diluted earnings per share of $0.63 were flat with last year's fourth quarter. For the full year 2015, sales were $4 billion, down 1% versus 2014.

Operating income was a record $944.3 million, up 3% from 2014. And full year 2015 operating margins increased 100 basis points to a record 23.8%. Diluted earnings per share were up 5% over 2014, ending the year at $2.55 per diluted share, a record level.

Now, turning to the individual operating groups, the Electronic Instruments Group had a good quarter with solid operating performance. For the quarter, EIG reported sales of $628.4 million, down 2% versus last year's fourth quarter. Organic growth was down 2% while the Surface Vision acquisitions added 2% and foreign currency was a 2% headwind.

Solid growth in our Aerospace and Ultra Precision Technologies businesses was more than offset by weakness in our upstream Oil & Gas business as a result of the continued slump in oil prices.

EIG's operating income increased 2% to $170.9 million, and operating margins were superb at 27.2% in the quarter, a 110 basis point improvement over last year's fourth quarter. The Electromechanical Group managed well through a very difficult market environment.

Sales were $359.6 million in the quarter, down 5% from last year's comparable quarter, with organic sales down 8%. The acquisition of Global Tubes contributed 5%, and foreign currency was a 3% headwind.

The lower sales were driven largely by the impact from commodity price deflation in our Engineered Materials Interconnects & Packaging businesses, as well as soft demand in our Floorcare & Specialty Motors business EMG's operating income of $70.9 million was down 8% from the fourth quarter of 2014.

Operating margins were 19.7% in the quarter, down 60 basis points from last year's fourth quarter. Now, turning to our four growth strategies of Operational Excellence, Global & Market Expansion, New Product Development and Strategic Acquisitions. First, I will touch on acquisitions. In 2015, we acquired two businesses, Global Tubes and Surface Vision.

We deployed approximately $360 million of capital, and acquired roughly a $180 million in sales on these two acquisitions. 2016 is off to a solid start, as we announced today the acquisition of two additional businesses, Brookfield Engineering Laboratories and ESP/SurgeX.

Combined, we deployed approximately $300 million in capital and acquired nearly $100 million in sales. First, I will touch on Brookfield. Brookfield Engineering Laboratories is the global leader in viscosity measurement instrumentation for quality control application.

Brookfield provides a complete range of viscometers and rheometers as well as instrumentation for the analysis of texture and powder flow. Key applications for Brookfield's products include research, development and production of food and beverage, pharmaceutical, paint and petroleum-type products.

The addition of Brookfield allows AMETEK to expand our laboratory instrumentation platform into a broader range of adjacent markets and applications. Brookfield is headquartered in Middleboro, Massachusetts, with additional operations in Germany, the United Kingdom, China and India. The company has annual sales of about $55 million.

Now, let me touch on ESP/SurgeX. They are a leader in power protection. Their patented protected products operate at the plug level and monitor, protect, analyze and diagnose power-related issues remotely or onsite. In addition, their products help control power to mission critical equipment.

ESP is a great strategic fit with our existing power protection platform. It is highly complementary with our recently acquired Powervar business, providing us with new opportunities for product innovation and market expansion. They are headquartered in Knightdale, North Carolina, and they have annual sales of approximately $40 million.

Over the last 24 months, we've acquired eight businesses, deployed over $1.1 billion in capital and acquired approximately $510 million in annual revenue. Acquisitions will continue to be a key focus for us throughout the year, as we see this strategy as a key driver to the creation of shareholder value, especially in low growth environments.

Acquisitions will also continue to be the primary use of our strong cash flow and financing facilities, which gives us ample liquidity to continue the strategy.

Now, turning to Global & Market Expansion, we continue to invest in the development and expansion of our global sales channels, service infrastructure and manufacturing footprint in emerging markets to capitalize on the attractive long term growth opportunities. In the fourth quarter, international sales represented 53% of our total sales.

Our Ultra Precision Technologies division continues to see great results from their global expansion investments with mid-teens organic sales growth across Asia in the fourth quarter.

Their Taylor Hobson business delivered excellent growth in China and India in the quarter, following recent investments to expand their sales and service infrastructure in these two key markets. Also, their Creaform business continues to see great growth internationally, with double-digit growth in Asia in the quarter.

This growth is being driven by continued development of their sales network across Asia and from strong expansion in the quality control market driven by a number of recent new product introductions. Now, moving on to new products.

Our businesses are doing an outstanding job developing new products to serve their existing markets, and to help penetrate adjacent markets and applications. We have consistently invested in RD&E to ensure our businesses are developing the right products to serve our customers.

As reflected in our vitality index, we continue to see excellent results from these efforts. Revenue from products introduced over the last three years was strong at 26% of sales in the quarter, up from 25% in the last year's fourth quarter. In 2016, we expect to spend approximately $210 million on RD&E or about 5% of sales.

We're excited about some recent new product introductions. Our TMC business, a leader in precision vibration isolation systems recently introduced the Everstill K-400, a compact vibration cancellation system.

The Everstill is ideal for small vibration-sensitive instruments such as optical microscopes, scanning probe microscopes and metrology instruments. Its patented vibration cancellation technology is especially suited for the 1 hertz to 10 hertz vibration range where precision instruments tend to be the most sensitive.

The portable Everstill is ideal for bench tops and worktables as it requires only a standard AC power outlet. The LEAP 5000, the latest generation of atom probe microscopes from our CAMECA business was recognized by R&D magazine with an R&D 100 Award.

Widely recognized as the Oscars of innovation, the R&D 100 Award is presented annually to the 100 most significant new developments in research and development as determined by an independent panel of judges.

This product was recognized as a breakthrough instrument whose unique capabilities have enabled engineers and scientists to gain new insight into materials and processes. Lastly, AMETEK Power Instruments recently added an IEC version of their JEMStar II electricity revenue meter for use outside North America.

The JEMStar II is the most accurate revenue meter on the market with the broadest communication options and features the industry's first color graphic display. The meter is specifically designed for applications with a high electric usage such as utility generation and transmission substations I will now touch on operational excellence.

Our management teams and employees continue to do an excellent job driving continued operational improvements through their businesses by leveraging the operational excellence tools we have put in place throughout the company.

In slow growth environments, the success of our operational excellence initiatives takes on an even greater importance as we are able to drive meaningful margin expansion while continuing to invest in key growth initiatives. Overall, we realized approximately $150 million in savings in 2015 through our various operational excellence initiatives.

The largest contributor to these savings was our global sourcing and strategic procurement activities where we recognized approximately $75 million in savings for all of 2015.

For 2016, we expect approximately $120 million in total savings through our operational excellence initiatives, including $60 million in savings through our global sourcing and strategic procurement initiatives Turning now to the outlook for 2016, we do not anticipate a meaningful change in global economic conditions in 2016.

We expect sluggish conditions across oil and gas, emerging markets and the broad industrial markets to continue. As a result, we anticipate 2016 revenue to be up low single-digits on a percentage basis from 2015 with organic growth down low single-digits for all of AMETEK.

Earnings for this year are expected to be in the range of $2.55 to $2.65 per diluted share, probably focused more on the lower end of that range and that's flat to up 4% over 2015. First quarter 2016 sales are expected to be down low single-digits from last year's first quarter.

We estimate our earnings in the first quarter to be approximately $0.56 to $0.58 per diluted share versus $0.63 in last year's first quarter. So, in summary, our overall business performed well in the fourth quarter and for all of 2015. We delivered record operating results in 2015 despite persistent global economic weakness.

Our strong balance sheet and significant cash flow generation provides us with plenty of liquidity to continue to invest in our businesses and pursue our acquisition strategy.

Our strong portfolio of businesses and commitment to driving success through our four growth strategies should enable us to continue to deliver strong and consistent long-term growth. Before turning the call over Bob Mandos to cover the financial details, I wanted to note that Bob has decided to retire effective May 15 of this year.

Bob has done a tremendous job over his 35 years of service with AMETEK and he will be greatly missed. I want to thank Bob for all his contributions to AMETEK and wish him all the best in his retirement. Bill Burke, who many of you know, will be assuming the CFO role on May 15.

Bill has also done a superb job for AMETEK over his 28-year career and is well suited for his new role. Now, Bob, if you could cover the financial details. Please..

Thank you, Frank. As Frank noted, we had a good fourth quarter with strong operating performance. I will provide some further details. In the quarter, selling expenses were down roughly in line with sales on a percentage basis.

General and administrative expenses were 1.2% of sales in the quarter, unchanged from last year's fourth quarter level of 1.2% of sales. Other expense in the quarter was up approximately $6.3 million versus the fourth quarter of 2014 due to an insurance gain in last year's fourth quarter.

The effective tax rate for the quarter was 26% versus last year's fourth quarter rate of 27.1%. The lower tax rate in the quarter was the result of our ongoing international tax planning initiatives. For 2016, we estimate our tax rate to be approximately 28%.

As we had said before, actual quarterly tax 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 19% of sales in the fourth quarter down slightly from the third quarter level.

Strong working capital management will remain a key priority. Capital spending was $24 million for the quarter and $69 million for the full year. Full year of 2015 capital expenditures were 1.7% of sales. 2016 capital expenditures were expected to be approximately $70 million.

Depreciation and amortization was $40 million for the quarter and $150 million for the full year. 2016 depreciation and amortization is expected to be approximately $165 million. Our cash flow was very strong in the quarter and for the full year.

In the fourth quarter, operating cash flow was $199 million and free cash flow was $176 million representing 128% of net income. Excluding the $50 million contribution to our U.S. defined benefit pension plan in the first quarter, full-year 2015 operating cash flow was $723 million and full-year free cash flow was $654 million or 111% of net income.

The primary use of our strong cash flow is to support our acquisition strategy. In 2015, we spent the $360 million on acquisitions and thus far in 2016, we have deployed approximately $300 million on acquisitions. In addition, in the fourth quarter, we repurchased approximately 2.4 million shares of stock to approximately $130 million.

Total debt was $1.94 billion at December 31, up approximately $230 million from 2014 year-end. Offsetting this debt is cash and cash equivalents of $381 million resulting in net debt to capital ratio at December 31 of 32.4%. At December 31, we had approximately $930 million of cash in existing credit facilities to fund our growth initiatives.

Our highest priority for capital deployment remains acquisitions. In summary, we had a strong 2015. We are well positioned with strong balance sheet and cash flows to support our growth initiatives..

Great. Thank you, Bob. Frank, we're now happy to open up for questions..

Thank you..

Frank, we would like to open up for questions now..

Thank you..

Operator, are you there? Okay, one moment, while we check on the status of our operator. Okay. So those people on the call, one second. We're going to have to work with the operator to get him back on the line..

Our question comes for the line of Matt McConnell from RBC Capital Markets. Please proceed..

Great. Thanks. Good morning, guys. I'm not sure if you're on it. I can't hear a response, but I'll just go ahead with the question in case it's going through.

I wonder if you could add any visibility around maybe your conviction for the 2016 outlook? I know you're already talking it kind of to the low-end of expectations, but just how do you about planning in an environment like this where it's probably hard to tell whether things are getting incrementally worse or not? I'll just leave it at that.

Thank you..

Hi, everyone. This is Kevin from AMETEK. The operator is dialing back in so we should get started back up here in a minute or two. Thanks for your patience..

Ladies and gentlemen, please continue to stand by. Your conference will resume momentarily..

Ladies and gentlemen, please continue to stand by. Your conference will begin momentarily. We thank you for your patience. Okay. Our first question comes from the line of Matt McConnell with RBC Capital Markets. Please proceed..

Okay. Great. Thanks very much. Good morning, guys..

Sorry for what occurred, Matt. I don't know what the technical difficulty was. It was not on our end, so..

Yeah. No problem at all. Just hoping to get some visibility around your conviction on the 2016 outlook. You're already setting expectations kind of for the low end. Just how do you go about planning in an environment like this where it's probably hard to tell whether things are getting worse or flattening out.

Just any more insight into how you plan in that kind of environment and level of conviction?.

Yeah. I mean, it's very difficult as you stated. There are a lot of moving factors right now in the global economy. And in Q4, we had some difficulty in our EMIP metals business, and that will continue into Q1 which is one reason why the Q1 forecast is lower than we would have liked. So, to get conviction, it's more difficult in this environment.

And that's why I mentioned in my opening talk that with that sort of cloudy outlook, it's probably best to be conservative on the guidance that I gave..

Okay. And then switching gears a bit just to the M&A that you announced..

Yeah..

What are the EBITDA multiples and maybe margins now versus margin potential of these businesses.

And what's your playbook for creating value on these deals?.

Yeah, absolutely. The Brookfield deal, we paid about 11 times and the ESP deal we paid about 10 times. We see significant synergy with these businesses. If I look at the ESP deal, their margins are quite good. However, we can offer significant amounts of synergy in terms of international expansion. They don't do a lot outside the United States.

And also, just our normal operational excellence initiatives can definitely create value. Our goals and how we price these deals, we look for a 10% return on invested capital in year three. Both of these deals actually exceed that so we're pretty confident of getting a good return for our shareholders.

Following up on Brookfield, Brookfield is just a phenomenal company. Their name is well, well-known in the industry and it's almost synonymous with rheometers because they basically have a very, very strong position in that market.

And their margins are lower than the AMETEK margins so we believe over time, we can definitely put our operational excellence capabilities in place there and move those margins up to the AMETEK average and possibly beyond. So we're pretty excited about both of these deals. Obviously, doing deals is the primary use of our cash flow.

And we're going to continue to make acquisitions throughout the year and we think it's a very significant value creator for our shareholders..

Okay. Great. Thank you very much..

You bet..

Our next question comes from the line of Matt Summerville with Alembic Global Advisors. Please proceed..

Yeah. Morning. A couple of questions. First, with respect to EMG being down 8% organically in Q4, I would assume that sort of caught you by surprise.

Can you talk about within EMIP or maybe even just walking through the other businesses in EMG, how much of the decline are you experiencing there that's really volume-driven versus price and/or commodity deflation driven? And I guess, when do we anniversary that commodity deflation as it sort of flows through your P&L?.

Okay, Matt. You're right. That was the surprise in the quarter. EIG came in essentially where we were expecting. But what happened during the Q4 is that there was a significant decline in metal prices. A few examples are nickel was down 13%. Copper just in the quarter was down 17%. And vanadium was down 23%.

Now, in terms of how that affects the profitability, we pass the commodity prices through so that there's not a major impact from the viewpoint that the prices came down from that perspective. The issue is that because the prices were coming down and so rapidly, our customers basically stopped purchasing.

They wanted to make darn sure they were purchasing at the bottom instead of at a different – higher level. So the impact here was, therefore, on the sales line from the view point that they essentially stopped buying. And that is continuing into Q1. We expect some stabilization in Q2.

And I'm probably – a pretty sure bet would be by Q3 that those – that will stabilize because in essence those customers need the product. I mean that's the fundamental issue. So they'll drive their inventories down to where they're as low as they can be. And then they'll be forced to basically go ahead and purchase.

So I think that covered all of your questions, Matt..

Yeah. Thank you. And then one quick follow-up. Just on Oil & Gas, as you entered 2015, you threw out some numbers, I think, down 10%.

Is that where it sort of ended up for you guys? You were able to sort of get that right, I guess? And then what are you looking at there for 2016 on an incremental downdraft basis and also pulled in how mid and downstream impact that as well as upstream?.

Yeah. Okay, Matt. We definitely got it right in 2015. We made that call right at the beginning of the year and in essence, when we look at the results for 2015, we hit it right on, which is almost unbelievable that we were able to call it as close as we did.

Looking forward, what we're expecting, if you look at the total linkage that we have to oil and gas is about $360 million. Of that, about a third is upstream, so say, $120 million, and we're projecting that piece to be down around a third, around 30% to 35% which is down an incremental $40 million.

And then if you look at the remainder, which is mid- and downstream, we expect a mid single digit type decline. So overall, what's in our forecast is an incremental $50 million of decline due to essentially the price of oil being down at the $30 a barrel level right now..

Great. Thanks a lot, Frank..

Hey, you bet, Matt..

Our next question comes from the line of Andrew Obin with Bank of America Merrill Lynch. Please proceed..

Good morning..

Hi, Andrew..

Just a question. This has been a very confusing earnings period, I guess, for me.

When was the last time outside of a recession you remember that your businesses sort of could not grow organically? And what are you guys just seeing on a broader economic sense because some companies are talking about things re-accelerating into the first half of the year? Just sort of, if you can take a longer historical perspective first and, b, just to talk about the fact that some people are sort of calling for re-acceleration and some people are not?.

Well, I think it depends on the particular markets in your particular business concentrations. I think if you look back historically where AMETEK has had, say, negative organic growth is typically when the industrial cycle is down. And in my view, we are in an industrial recession right now.

That's the view that the consensus of all of our managers is that we are in an industrial recession. And therefore, to get any sizeable organic growth in this environment is challenging.

And where AMETEK shines is that we're able to be very good on the cost side of the business and therefore, we are looking to be able to hold or slightly increase our earnings in a recessionary environment.

So that's probably the best I can say and if companies – I'll give you some examples without specific names, but if you have a company that doesn't have oil and gas exposure or doesn't have a lot of exposure in Asia or in metals areas, those companies are going to have a better opportunity to grow organically and that's probably why you're hearing some of this, I'll call it, confusion in the market.

When we step back and we look at these kind of environments, we're going to be very aggressive on the cost side of the business and we're going to look to deploy capital to increase our earnings. And remember, the guidance that I'm giving does not include any future acquisitions.

So whatever we can do to deploy more capital and bring more companies into our realm. We've got the operating capability that we've shown over many, many years and over a period of time, we always create value. As a matter of fact, the way I view this environment right now is this is a buying opportunity for AMETEK.

We very seldom have a dip like our stock is experiencing right now. And I can tell you, I'm going to increase my ownership. So that shows some commitment..

And just to follow-up on that, I had breakfast today with somebody a lot smarter than I am.

And the question was about sustainability of this M&A driven model versus 10 years ago and I know what you think, but it's interesting that this earnings season, the companies that have disappointed investor expectations actually where these sort of high quality companies with heavy emphasis on M&A model.

What do you think about your actual ability to reaccelerate M&A in this environment?.

I think it's super. I think what we're going to see because we're in this slowness in the industrial economy is we're going to see a lot more properties becoming available. There will be an exodus of companies where they want to sell because they don't want to wait out until market conditions get better.

And we have the capital, we have the management talent. So to me, it's one of the two pillars in terms of buying companies right now. I think we'll see the multiples start to come down. As a matter of fact, I heard Bill Eginton in a recent board meeting, first time say he's seeing multiples start to come down. So that's a good sign as well.

So we're going to be aggressive. You take advantage of this on the acquisition side, and you focus on cost. There isn't a lot you can do about the global macro. So you just – you sort of have to wait that out. And when they come back, the earnings of this company are going to skyrocket. So I mean, that's the best way I can describe the situation.

I know it's difficult for all of us, including yourselves, to really get a handle on exactly what's happening. But that always happens in a recessionary environment. I hope that helps you..

Thank you very much. No, this is great. Thank you..

All right..

Our next question comes from the line of Joe Radigan with KeyBanc. Please proceed..

Thanks. Thanks. Good morning, guys..

Hi, Joe..

Frank, just to follow up on that M&A comment you made. Looking back at how active you were on the acquisition front last cycle, you closed a lot of deals in 2008. That was just ahead of the downturn. And then 2009 was one of your lightest years in terms of deal flow.

Does that make you at all hesitant to get overly aggressive right now ahead of perhaps a worsening macro outlook? Or maybe you can be more opportunistic? I mean, it doesn't sound like it, but what are your thoughts there?.

Yeah. I think the downturn in 2008 and 2009 was clearly an abnormality. And the reason is that the whole economy was just crashing. Everybody just stopped is the best way of saying it. And because nobody knew where bottom was and, I mean, that was a different kind of recession probably than I've experienced in my business career.

So, yes, your historical picture is exactly right. However, this recession what I'm saying we're in now is different. It's not as deep start there. And I think in 2008 and 2009, I don't remember the actual numbers, but I think we were down about 15% or something of that magnitude. We came back. We came back very strong right after that.

But this is not of that magnitude and you can see that in our guidance where we're talking about organic growth for 2016 being just down low-single digits. So it's not anywhere near a significant an issue. So I would not use that as a model. Actually, if you go back to the previous recession, before that, we did buy companies in that downturn.

So that's why I think this is just an ideal opportunity to be aggressive. And I don't mean aggressive in the sense of buying companies that are not good. I mean we've got the capital and we've got the manpower. And, I don't know, we're going to continue to look at companies.

We're actually pretty happy that already this year, we've announced deployment of about $300 million in capital. And as I said in my opening comments, over the last 24 months, we deployed $1.1 billion in capital. So I think it's going to continue.

And I can't sit there and tell you exactly what we're going to acquire and what the capital outlays are going to be. I'm just telling you from a strategic view point, it's a good time. That's probably the best way that I can characterize it. So Joe, I don't know if that helps with your question..

Yeah. No, that's helpful. Thanks, Frank.

And then in terms of your outlook, the low-single-digit organic growth, how do you see that between segments and – maybe it makes sense to do the business rundown in terms of what you're seeing in the segments or what you saw in the quarter and then rolling that up into the guidance?.

Yeah. Sure. I'd be glad to do that, Joe. So let me start with EIG and Aerospace, EIG Aerospace had a strong fourth quarter, with organic sales up mid-single digits on a percentage basis, reflecting strength. And, actually, all parts of that business, commercial OEM, business and regional jets, and our military business, believe it or not.

Our EIG Aerospace business had an excellent year as they gained sizable new content on a number of attractive platforms.

In 2015, they received a record $620 million in life of program awards on 35 different platforms and that included Rolls-Royce for the Trent 7000 engine on the A330neo; Parker Hannifin, for fuel systems on the Joint Strike Fighter; and GE for the GE9X engine, which will be on the new version of 777.

So they've done a really, really good job of getting content. Of course, when you're on these airplanes, that content lasts for 20, 25 years.

So looking to 2016, we expect EIG Aerospace sales to be up low- to mid-single digits and that's why the continued ramp-up of key commercial OEM platforms and some growth in business and regional jets mainly due to our content on new aircraft and, in particular, the HondaJet.

Moving to our process, organic sales and process were down mid-single digits in the quarter, obviously, driven by weakness in upstream oil and gas. As I mentioned a moment ago, the weakness in upstream Oil & Gas in 2015 was in line with our expectations at the start of the year.

And for 2016, we expect sales for our process instruments to be down low to mid-single digits organically, driven by continued weakness across upstream Oil & Gas. The last part of EIG is Power & Industrial.

Their organic sales were flat versus last year's fourth quarter with solid growth in our Programmable Power and Solid State Controls business offsetting weakness in our Power Instruments business. And also, for this business, in 2016, we expect organic sales for Power & Industrial to be down low- to mid-single digits.

So then if you look at all of EIG where you got Aerospace up and both Process and Power & Industrial down slightly, if we then look across all EIG, we expect organic sales to be down there, low to mid single digits, with overall sales up low single digits really due to the acquisition of Surface Vision, Brookfield, and ESP/SurgeX, with obviously these last two deals being announced this morning.

So that's our outlook for EIG. Moving now to EMG, and I'll start with the differentiated part of EMG. Organic sales here were down mid single digits in the quarter driven, as we have talked about, by weakness in our Engineered Materials Interconnects & Packaging business. And this is again a result of the commodity price deflation that I talked about.

And for 2016, we expect our differentiated EMG businesses to actually be flat organically with the impact from commodity deflation within our metals business being mostly pronounced in the first half of 2016 which is again what I said in answer to one of the questions.

And then the last part of EMG is Floorcare & Specialty Motors, they were down actually mid-teens organically in the fourth quarter as a result of softer demand globally. But we actually have a pretty good outlook for that business. We expect the sales for the business to be roughly flat organically.

We've won some content on new programs, and our managers are doing a great job managing that business. So that is the present outlook. So if you sum that up for EMG, overall sales are going to be up low single digits, just like EIG. And in this case, it's driven by the acquisition of Global Tubes on the acquisition side.

And for organic sales, we expect to be down low single digits. And that, if you roll up then to answer your question for AMETEK as a whole, we're expecting overall sales could be up low single digits and organic sales to be down low single digits. That's our best call at the present time.

And if I can give you some flavor on our guidance, our guidance assumes these organic growth numbers that I just talked about. And the reason I pushed a little bit to the lower end is that I don't see as much upside on organic growth as possibly we could have some downside and that's just because of the fogginess right now of the environment.

It's the best way that I can say it. And I'm trying to be accurate and tell you what my best thoughts are..

I appreciate that. Thanks, Frank..

Okay..

Our next question comes from the line of Richard Eastman with Robert W. Baird. Please proceed..

Yes.

Frank, could you provide us with the order number in the quarter?.

Sure. Orders were down 4%. It was $966 million. Do I have it right, guys? $966 million..

Right..

I got it right. And I'm not looking at anything..

And what's the – can you give us a sense of the core order number?.

Core was down 6%..

6%? Okay. And then also, it appears that at the midpoint of guidance for 2016, if I kind of walk up the P&L, midpoint of EPS guidance, I walk up the P&L..

Yeah, sure..

It looks like maybe the EBIT margin is around 23%, maybe at the midpoint?.

We're projecting EBIT margins at the midpoint to be up 20 basis points to 30 basis points even though it's going to be weaker obviously in the first part of the year. But obviously, we are putting those cost improvements that I talked about through the business, and they will have a greater impact obviously on the second half than the first half.

So, overall, we're talking 20 basis points to 30 basis points up..

Okay. Okay. And just maybe the last question, could you just give us – and maybe this is just – on the Aerospace business for 2016, just kind of the four components there.

Are all of that, all of the components, third-party service, defense, commercial and bizjet, is there any difference there? Are they all kind of up low-single, up mid-single? Anything on the....

Yeah. That's true. Your statement is very accurate and you look at – the surprise here, and I've said this before is that our military business is actually doing quite well. Some of that is not U.S. military. It's outside military, outside the U.S., and that's doing quite well. As I mentioned, business in regional jets, the market is not recovering.

At some point, it will. People have been projecting an upturn there for the last five years, probably, and it hasn't happened. But we've won really good content on – in that segment. So we're thinking that one will be okay. And then commercial, the key there is the new aircraft. And we had very good content on the new aircraft.

And so we see that, yeah, I think your basic comment of low to mid-single digits is accurate..

Okay. Okay. And then just last thought, I understand that commodities pass-through pricing.

But exclusive of that EMIP business, were you able to capture any pricing in the fourth quarter and would you expect positive price capture in 2016?.

In that business, the answer would be no..

Correct. Yeah..

Because one of the advantages and disadvantage of pass-through is when prices go down, customers – we pass that through. And then when they go up, just the reverse happens. So you sort of can't have it both ways. And so there will not be anything from that viewpoint.

But as people start seeing metal prices go up, they're going to refill their inventories, and you're going to have a recovery of the impacts that we're seeing right now. So I mean, the dynamic is more in the customer buying pattern due to price than it is in terms of the inflation effect on our P&L.

Does that make sense, Rick?.

That's okay. But the question is maybe a little bit around outside of that business. Are you seeing any....

Oh. Okay..

...competitive pricing outside of that business?.

Oh. Okay. I am sorry. I misinterpreted your question..

Yeah. That's okay..

Yeah. Okay. No. Let me give you some data. In the fourth quarter, for the whole company now, price minus inflation was about 0.2%. Price was about 1%, inflation, on everything now. I'm including wages, everything, all in, was about 0.8%, so that we got 0.2% of sales to the bottom line in the fourth quarter.

What's in my guidance and in our guidance, I should say, is that price minus inflation will be flat..

Okay..

And again, we're looking at the global macro. And we're just not going to assume that we're going to get any pricing above inflation. But we have a lot of pressure on our operating managers to, at a minimum, cover inflation and maybe we'll end up with some positive there. But that's what's included in the guidance, Rick..

Okay. Understood. Thank you..

You bet..

Our next question comes from the line of Nigel Coe with Morgan Stanley. Please proceed..

Hey. Good morning. This is Drew on for Nigel..

Hi, Drew..

Frank, just going back to the orders real quick. I think in 3Q, you had mentioned that sequentially the orders have actually picked up from July through September.

Could you just give us a sense for how things tracked through 4Q? And then what you're seeing in January to-date because we're hearing some commentary that, from some distributors that things are picking up?.

Yeah. Through the quarter, actually, our orders did go up. So we had a very strong last month in the quarter. So that trend was definitely there for all of AMETEK. And that also is during this time when I was mentioning the impacts of deflation. I would say in January, no, I have not seen a pickup.

But, it's hard to conclude anything from that because our orders tend to be weaker in the first month in a quarter than the third month. But I can clearly tell you, I'm not sitting here with a euphoric outlook that things are getting better..

Okay. Thanks. And then just one more on the – regarding your comments on still wanting to be aggressive on M&A and valuations potentially coming in.

Do you have a target or sort of a max level on leverage that you'd be willing to step up to?.

Yeah. Leverage is just not an issue for us. You look at where we stand right now, and our net debt to EBITDA is around 32%. It's up a little bit from last year. Our debt to EBITDA was at 1.8 times. We could easily lever up to 2.5 times, which is a significant amount of capital deployment and remain investment grade.

And so we would never go to the point where we are not investment grade. So capital and leverage is not the determinant in our acquisition strategy. It's finding really good businesses like the two we announced this morning. And we just have the capital to deploy and I just don't have to worry about leverage.

I mean, just to give you another statistic with the budget or the guidance I gave you. The operating cash flow of AMETEK will be about $800 million. Our capital deployment, as Bob indicated in his talk, is going to be in the $70 million, $75 million region.

So the free cash flow, and I don't know whether your percentage was in there, Bob, it's about 119% of net income. So you can just see that the cash flow of the company is incredible, and that's why acquisitions are very important because we think that's the best utilization of capital to get you a good return..

All right. Very helpful. Thanks..

All right..

Our next question comes from the line of Brian Konigsberg with Vertical Research Partners. Please proceed..

Good morning. Thanks for taking my question..

Good morning, Brian..

Hey, I just wanted to touch a little bit more on the guidance, especially just with Q1. I know you talked about the deflationary impact on the order trends and presumably the margins with overhead absorption, but, I mean, it does seem like it's – the margin does come down even a couple hundred basis points year-over-year.

And then just kind of talking about the comment with margins for the year up 20 basis points to 30 basis points. You have to have a pretty good level of expansion by the back half. Am I actually reading that correctly? And if there is any commentary on the trajectory? Thank you so much..

Yeah. Your reading is definitely correct and when we look at the first quarter, there's the oil and gas market, our business. We were depleting backlog last year which obviously it's been now down at a low level.

So, when you look at first quarter-over-quarter, you're going to have an impact there plus this material deflation issue that we've talked extensively about. So the first quarter is going to be tough and that's the reason why we decided – we saw this coming obviously.

And that's why we decided to do the restructuring or realignment, I should say, where we put a major cost savings through the P&L. And, obviously, we're not going to get significant benefit from that in the first quarter. And, yes, as we go through the quarters, that is going to have a sizable impact.

And there's another factor in here, too, and that's that the comps get easier as you go forward, too, overall. So, you get a little leverage from the sales line. But your outlook and your high-level thought process is right on..

Got it. Okay. Thanks. And just separately on the restructuring. So the payback seems particularly high. I think it was 150% conversion with the math you provided.

Can you just talk about why the payback really is so good? Is there something specific about what you're doing that is just that productive?.

No. I would say this is somewhat normal for us, this kind of payback. And I'll give you a high-level view that we're obviously going to do some employment reductions. It's not major but definitely we're going to be doing some, and we're going to be closing some plants.

And I don't want to talk about the particulars, but this is standard AMETEK, I would say, where we are able to continue that operational excellence capability that we have. So, yeah, you look at the returns whenever we do this and they're usually very, very good..

If I could sneak one last in? Just on the RD&E. So you're keeping that fairly consistent.

Can you talk about where you see particular opportunities to kind of improve the product line and essentially kind of extend your capabilities?.

Yeah. No. That's a good point. I mean, we're basically going to invest, as I said in my opening talk, $210 million. That's up about 5% from last year. And it also just coincidentally happens to be about 5% of sales. So it's a very healthy number. And we feel this is the organic pipeline of the company.

That investment will go more in EIG than it will in EMG. And I can give you some examples of where we're going to be putting that investment in. I mentioned in my opening talk that UPT is doing extremely well. This is a high-end measurement company.

It did not have substantial exposure to some of the things that we have talked about on the negative side. And they're going to continue to invest. You may recall a while back we did the Creaform acquisition. That company has been just superlative in terms of organic growth. I mean, they're growing at numbers in the 15%, 20% region.

These are basically instruments that can very accurately look at an object and convert it to a computer, basically a CAD-type of drawing just by waving the instrument across an object. And very, very good marketplace and we're going to continue to invest in that business. And we're also not afraid to invest in some of the markets that are down.

If you look some of our businesses that are in oil and gas, probably more in the mid and down area of oil and gas. We'll probably invest more there. And we'll continue to invest in Power & Industrial and I gave some examples of some of the products in my opening talk. So the focus on engineering investment is going to be higher in EIG.

The focus on capital deployment will be higher in EMG because those businesses require more capital to grow. So, that's sort of the view of how we're going to invest. Hope that helps..

If Okay. Yeah, that's very helpful. Thank you..

Our next question comes from the line of Robert McCarthy with Stifel. Please proceed..

Hi. Good morning, everybody..

Hi, Robert..

So, I guess a couple of cleanups given the time on a day. I guess, the first question, you may have said this but I was transferring to another call.

Were the close of these deals contemporaneous like in January? Or when was the close of these most recent deals?.

Yeah. They were right after the first of the year. I mean....

Okay..

We have been working on them obviously through the fourth quarter. But both closed right after the first of the year..

Okay..

And I decided to just couple them and get it all out at once in essence..

Right. And obviously, rhetorical question, but clearly that's included in the guidance for the full year of 2016 because they've been closed and they're under reported numbers..

That is correct..

Yeah. Okay. And then just in terms of the general M&A environment right now, I mean, I guess one thing – obviously the organic environment is very challenging, as you've alluded to, and there's a lot of volatility in kind of not only your businesses but also implicitly in your outlook, as a result.

But I guess, thinking about acquisitions in this environment, there could be a real disconnect between bid and ask because sellers' expectations have to get reset further, one would think.

And so do you think you could be in a period of a little bit of an air pocket here as kind of seller expectations get kind of reset around kind of their order backlog, their performance? And how do you think about that in what is a dynamic environment?.

Yeah. I think you're right that there has to be a reset here. I mean, multiples have been quite high. But as I mentioned to one of the questions, in answer to one of the questions, basically, we're starting to see that now. We're already seeing those multiples come down. Sellers are going to be more realistic.

And if you're a seller, you're sitting there and you're saying, either I sell now or I don't want to sell during the downturn. You either sell now or you wait. And that, obviously, depends on the particulars of the given seller.

We have examples of – I'm just going back historically now where many family-type businesses just decide at this point that let's do it now instead of waiting. So you do see that dynamic. And it's – right now, we feel pretty good that we're going to be able to close some more deals. We feel very good what we've recently done.

But I can't sit here and tell you, it's going to be this or that. And that's the goal, et cetera. It's more that, if we can find some good deals, we're going to execute. That's the bottom line..

Now, Frank, one last question I'll let you go is....

Sure..

...basically the following.

In this environment, does this make you rethink kind of your time line around transition and management transition, do you want to leave in a volatile environment or would you extend your kind of tenure to just kind of get through the cycle? I mean, how do you think about that in terms of succession?.

Yeah. I would not even tie where we are to the transition. That's just not a factor in our thought process, my thought process or the board's thought process. So the transition here is going extremely well. Dave is doing a phenomenal job as a Chief Operating Officer. And the debate here is between the board and my wife..

Okay..

As to when I decide. But as I've told you, the transition here will be most likely that I will become Executive Chair, and spend a little bit more time in Florida, and whomever we decide, most likely Dave, obviously, who will take over, they will be dealing obviously with all of the day-to-day issues..

The wife always wins. Thanks..

I don't know. I got a strong board..

Thank you..

Sure..

Our next question comes from the line of Bhupender Bohra with Jefferies & Company. Please proceed..

Hi. Good morning, guys.

Hello?.

Yeah. Hi..

Hi, Bhupender. A little bit louder..

Could you – yeah, we can't hear you..

Can you hear me now?.

Yeah. We could hear you. Go ahead..

Frank, can you give us a rundown of sales by region?.

Sorry, Bhupender, you broke up there. We couldn't hear that question..

Can you get closer?.

Can you give us a rundown by region?.

Okay.

Geographic rundown?.

Yes..

Yeah, sure. I can do that. I'll do the organically. We talked about the total company being down 4%. The U.S. was down 5%. Asia was down 4% and Europe was down 1%..

And could you talk about China? How much of that was within Asia?.

Say that one more time, Bhupender? We couldn't catch that..

Could you talk about China?.

China. Okay..

China, yeah. China was the driver in that minus 4% down in Asia. China was actually down organically, about 15%. So, obviously, that weighed on us. But on the other side, India did incredibly well. They were up well into the double-digits. But China was weak, no question.

Everything you hear about China, at least, and the impact on our business is pretty consistent..

Okay. Now, I think you can hear me clearly..

Oh, yeah. Now, we can hear you..

Okay. So, I'll make sure you hear this. So the other question on the operating excellence of $120 million for 2016. How should we be thinking about that with the – taking into consideration the midpoint of the guidance? Just give us some color on that $120 million.

You said $60 million coming from the global sourcing and procurement? And is that a very conservative number? I mean, usually, the history is like, you guys, actually, kind of up that up as it go through the year.

And I just, Frank, if you can?.

Right. The $120 million is a number that would reflect the midpoint of our guidance. And I think, it's reasonable to assume that we can improve that number possibly as we go through the year. So there could be definitely some upside that could come from the cost reduction side. No question..

Okay. And lastly, on the M&A, we have been talking about here on the call. Just remind us what's your sweet spot in terms of the size of the deals and what's in the pipeline right now..

Yeah. I mean, the deal size, we like to do is up to a couple hundred million dollars in sales. That doesn't preclude us from doing something larger. But we have found if we keep the deal size below that $200 million sales number, we typically can get extremely strong synergy with those deals. And therefore, the return on invested capital is excellent.

Also, with those smaller deals, the multiples tend to be lower so that you're not paying quite as much as you will for a larger deal. So I would say that sweet spot is in that sort of $75 million to $200 million area in terms of sales. And when I look at the backlog, we have a fair number of deals that are in our backlog that fit that size range.

We also have some deals that are larger, and we also have some deals that are smaller. But that is the sweet spot..

Okay. Thanks a lot, guys..

Our next question comes from the line of Joe Giordano with Cowen Group. Please proceed..

Hi, guys..

Hi..

Thanks for running late here to get everybody. Frank, I think I even asked you this last quarter. You talk about Floorcare as being the real economic tale, those kind of products for you guys. And you mentioned I think minus 14% for the quarter.

And your outlook for next year looks pretty positive, but the way you said it, it kind of sounded like that's an AMETEK-specific thing and not a market-specific thing with new products and things that you guys have done specifically.

So can you maybe talk about that market in context of your broader economic evaluation?.

Yeah. No. I mean, I think the broader market is definitely a factor in this business. And the reason that we're talking that we think it's going to be better next year than it was in the fourth quarter is that, yeah, this is not a major part of AMETEK overall.

But fundamentally, we saw some inventory realignments in the fourth quarter with our customers and that's going to bleed through, in a positive sense, as we go into next year. So I would say that the Floorcare business is just consistent with the macro outlook that I've provided.

And the people who are running this business have just done a superb job and the profitability has done very, very well. So, this is, actually, not going to be a major issue. At least, that's our feeling right now in 2016..

All right. Thank you. And then just two quick clean-up ones for me.

On the two deals you announced, I know you said they're contemplated in guidance, did you say how much of an impact you're expecting in 1Q or for the full-year for those? And then last on, I was wondering if there's anything we should be thinking about, any impact from Boeing 747 production cut and how that might apply to you guys?.

Yeah. On your first question, there is not a substantial impact for the year or in the first quarter. In our guidance, actually, there are some costs that are going through the first quarter, which is included in our guidance, and there's about a $0.005 of costs that are going through the P&L.

And as we go through the year, we'll probably recapture that cost downside, but there is not a substantial EPS positive in 2016, we're going to see the impacts will be more in 2017 from an EPS viewpoint.

And in terms of some of the announcements around Boeing, if you look at the outlook for Boeing for 2016, their total builds are going to be down about 2%, but offsetting that, Airbus is going to be up about 2%. So if you look at the total commercial build, it's roughly flat.

However, if you look at the new aircraft, those are growing at a very, very nice rate, and we have significant content on the new aircraft. And in particular, Airbus.

If you look at historically, AMETEK has much more – have had much more content on Boeing aircraft, but with the new aircraft that Airbus is bringing to the market, we now have sizable content on those aircraft. And therefore, our projections are higher than that total bill rates for all aircraft because of the new aircraft in our content list..

Great. Thanks for that color..

All righty..

We have a follow-up question from the line of Richard Eastman with Robert W. Baird. Please proceed..

Sorry. Just two quick things.

I mean, one is, what kind of – maybe Kevin, what FX impact do you have built into the 2016 revenue guide?.

No, no impact..

No impact..

None?.

We're basically saying it's flat..

Okay. And then just last. Frank, could you just talk about last couple of quarters here, we've bought back a fair amount of stock. And I'm just trying to reconcile that with the commentary around the M&A pipeline and maybe expectations. So for deal flow here going forward, do we kind of back off on the stock buyback then in 2016 or....

We know we've done a little bit in the fourth quarter. I would expect we would do some in 2016. But to your point, it's not the primary use of our cash flow..

Okay. The primary use of our cash flow is for M&A. And there's just no strategy change in terms of that. But we may do some stock buybacks in 2016. But that's not our primary focus..

Okay. Understood. Thank you again..

All righty, Richard..

Sir, there are no further questions at this time..

Okay. Great. Thank you. Thanks, everyone, for joining. And as always I'm available for calls today. Have a great day..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everyone..