AMETEK Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 4, 2025
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Operator

Hello, and welcome to the 4th-Quarter 2024 EMETEK Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand has been raised. Please be advised that today's conference is being recorded.

It is now my pleasure to introduce Vice-President, Investor Relations and Treasurer, Kevin Coleman.

Kevin Coleman
Vice President, Investor Relations and Treasurer at AMETEK

Thank you, Nan. Thank you, Andrew. Good morning, and welcome to AMETEK's 4th-quarter 2024 earnings conference call. Joining me today are Dave, Chairman and Chief Executive Officer; and Dala, Executive Vice-President and Chief Financial Officer. During the course of today's call, we'll be making forward-looking statements, which 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 risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any reference made on this call to 2023 or 2024 results or to 2025 guidance will be on an adjusted basis, excluding after-tax acquisition-related intangible amortization and excluding the pre-tax $29.2 million or $0.10 per diluted share charge in the first-quarter of 2024 for integration costs related to the Paragon Medical acquisition. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks and then we'll open it up for questions.

And I'll turn the meeting over to Dave.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you, Kevin, and good morning, everyone. AMETEK delivered strong results in the 4th-quarter, highlighted by robust margin expansion, outstanding cash-flow generation, strong organic orders growth and double-digit growth in earnings per share. In the quarter, we established records for sales, operating income, EBITDA and diluted earnings per share, as well as for operating cash-flow and free-cash flow. We also repurchased $155 million in shares during the quarter, and this morning, we announced the acquisition of Kern Micro Technique for approximately EUR105 million. Our performance this quarter marks the culmination of a strong year in which we leveraged the proven strength of our operating model to deliver outstanding results despite a challenging economic environment.

Now let me turn to our 4th-quarter results. 4th-quarter sales were a record $1.76 billion, up 2% from the same-period in 2023. Organic sales were down 3%, acquisitions added five points in the quarter and foreign currency was flat. Orders were solid in the quarter with organic orders up 4% versus the prior year, with positive organic growth across both our EIG and EMG segments. And we ended the quarter with a strong backlog of $3.4 billion. AMETEK's operating performance in the 4th-quarter was excellent. Our operating income in the quarter was a record $469 million, a 5% increase over the 4th-quarter of 2023. Operating margins were 26.6% in the quarter, up 90 basis-points from the prior year, while core margins, which excluded the dilutive impact from acquisitions were up a sizable 140 basis-points. EBITDA in the quarter was a record $561 million, up 7% versus the prior year with EBITDA margin -- EBITDA margins an impressive 31.9% this operating performance-led to robust cash generation with free-cash flow a record $498 million in the quarter, up 4% versus last year's 4th-quarter and free-cash flow to net income conversion of 129% diluted earnings per share were a record $1.87, up 11% versus the 4th-quarter of 2023 and above our guidance range of $1.81 to $1.86 per share.

Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. EIG delivered outstanding performance in the 4th-quarter with impressive margin expansion and operating margin levels that reflect the high-quality of our businesses. EIG sales were $1.21 billion, down 2% from the 4th-quarter of last year. Organic sales were down 3% and acquisitions added one point. Growth was strongest across our aerospace and defense businesses, while our advanced optical metrology businesses, Zygo also saw solid growth in the quarter. Similar to last year, our EIG businesses experienced some project delays in the 4th-quarter as customers remain cautious at year-end. We view these as temporary delays as the new project pipeline remains strong. EIG operating income was a record $386.6 million, up 8% versus the prior year and operating margins were also a record 31.8%, up a robust 280 basis-points from the prior year. The Electromechanical Group also finished the year with strong operating performance. BMG's 4th-quarter sales were $540 million prior year with organic sales down 4%. Strong performance in our aerospace and defense businesses was offset by weaknesses in our OEM exposed businesses, which continued to face headwinds from inventory destocking. EMG's operating income in the 4th-quarter was $111.2 million, down 1% compared to the prior year period, while EMG's 4th-quarter operating margins were 20.3%.

Now for the full-year. Overall performance was strong in 2024 as we established annual records for essentially all key financial metrics. Overall, sales for the year were $6.94 billion, up 5% from 2023. Operating income for 2024 was $1.81 billion, up 6% and operating margins were 26.1% for the full-year, up 20 basis-points from the prior year with core margins up 120 basis-points. EBITDA for the year was $2.18 billion, up 8%, with EBITDA margins of very strong 31.4%. Full-year 2024 earnings were $6.83 per diluted share, up 7% versus the prior year. We also delivered exceptional cash flows in 2024, with free-cash flow up 6% versus the prior year and free-cash flow to net-to-net income conversion of very strong 124%. AMETEK's performance in 2024 underscores the quality of our businesses, the flexibility of our operating model and the outstanding contributions from all AMETEK colleagues. Our teams navigated a complex macroeconomic environment and delivered strong results, while also ensuring AMETEK is well-positioned for long-term success.

Now turning to capital deployment and acquisitions. As noted in the 4th-quarter, we repurchased approximately $155 million in shares, bringing our total share repurchases for the year to approximately $220 million. While our top priority for capital deployment remains acquisitions, our strong -- strong cash flows provide us with the flexibility to also opportunistically repurchase shares. Subsequent to the end-of-the first-quarter, we acquired Kern Micro Technique, which we announced this morning. Current is a leading manufacturer of high-precision machining and optical inspection solutions that achieve industry-leading accuracy in surface finish. Kern's highly-engineered solutions help customers produce highly complex and precise components used in semiconductor, med-tech, space and other high-tech industries. Kern is a strong strategic fit with our Ultra Precision Technologies business, expanding our existing capabilities in ultra precision manufacturing and opening up new opportunities to serve customers with growing demands for miniaturization and accuracy. Headquartered near Munich, Germany currently has annual sales of approximately EUR50 million. I'm excited to welcome all current colleagues to the AMETEK family.

Looking ahead to 2025, we are managing a strong pipeline of high-quality acquisition candidates. We have a healthy and flexible balance sheet, providing us the opportunity to deploy meaningful capital on strategic acquisitions. With our robust balance sheet, significant financial capacity and disciplined approach to capital deployment, AMETEK is well-positioned to continue driving long-term value through our acquisition strategy. In addition to acquisitions, we continue to invest in our businesses to best position them for long-term growth. In 2024, we invested approximately $90 million in incremental growth investments, largely across research, development and engineering and sales and marketing functions to support their organic growth initiatives. We expect to invest approximately $85 million in incremental growth investments in 2025.

These investments and initiatives have strengthened our leadership position within our niche markets, helped open up new growth opportunities in attractive adjacent markets and accelerated our new product development and technology innovation. One such example of our technology innovation successes can be found in our latest innovation award winner at Kamika. Kamika's LEAP series of Atom Probe microscopes provide 3D imaging and chemical composition characterization of materials at the nano scale. Historically, the lead product-line focused on material science and geology applications targeted at highly knowledgeable academic customers at PhD level. Kamika determined that an enhanced productivity system with high sensitivity and improved yield would broaden the market and support both academic and industrial customers who put a premium on throughput, automation and analytical capabilities. This led to the development of the new Leap 6000 XR, which provides enhanced ease-of-use, new automation features for data collection and improved analytical capabilities.

With this new technology, Atom Pro Tomography is now used to study nearly all classes of solid materials from the oldest minerals on Earth to the most advanced aerospace alloys. As a result, new applications are emerging due to customer-centric approach to innovation. Now shifting to our outlook for the year ahead. We remain cautious as we start the year given the ongoing macroeconomic uncertainties. However, we are encouraged by the strength in orders we experienced in the second-half of the year, our strong backlog, our leading positions across a diverse set of markets, which are poised for improved growth and our significant capital available to deploy our strategic acquisitions. For 2025, we expect both overall and organic sales to increase low-single digits on a percentage basis compared to 2024. Diluted earnings per share for the year are expected to be in the range of $7.02 to $7.18, up 3% to 5% compared to last year's results. For the first-quarter, we anticipate overall sales to be roughly flat versus the prior year first-quarter with adjusted earnings of $1.67 to $1.69 per share, up 2%, 3% versus the prior year.

To summarize, AMETEK delivered a strong finish to the year with solid performance in the 4th-quarter, reflecting the strength of our portfolio and our ability to execute our growth strategy in a sluggish macro-environment. Our differentiated technologies and deep industry expertise continued to position us well in attractive niche markets, providing a solid foundation for future growth. With a focus on innovation, operational excellence and disciplined capital allocation, we are confident in our ability to drive continued growth and create long-term value for our shareholders in 2025 and beyond. I will now turn it over to Dalla Purry, who will cover some of the financial details of the quarter.

Then we will be glad to take your questions. Dallap?

Dalip M. Puri
Executive Vice President and Chief Financial Officer at AMETEK

Thank you, Dave, and good morning, everyone. As Dave noted, had a strong finish to 2024, establishing records for sales, operating income, earnings per share and cash-flow in the quarter. Now let me provide some additional financial highlights for the 4th-quarter and the full-year as well as some additional guidance for 2025.

Starting with general and administrative expenses, 4th-quarter G&A expenses were $28.9 million, up $2.5 million from the prior year. For the full-year, general and administrative expenses were up approximately $5 million. As a percentage of sales, G&A expense was 1.5%, in-line with 2023 levels. For 2025, general and administrative expenses are expected to be approximately 1.5% of sales. 4th-quarter other operating expenses were down $1 million compared to the 4th-quarter of 2023 due to lower due-diligence costs. For 2025, we expect other operating expenses to be largely in-line with 2024 levels. The effective tax-rate in the quarter was 12.8%, down from 17.8% in the 4th-quarter of 2023 due to statute expirations. For the full-year, the effective tax-rate was 17.3%, which was in-line with our guidance range of 17% to 17.5%.

For 2025, we anticipate our effective tax-rate to be between 19% and 20%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full-year estimated rate. Capital expenditures were $52 million in the 4th-quarter and $127 million for the full-year. Capital expenditures in 2025 are expected to be approximately $155 million or about 2% of sales. Depreciation and amortization expense in the quarter was $96 million and for the full-year was $383 million. In 2025, we expect depreciation -- depreciation and amortization to be approximately $400 million, including after-tax acquisition-related intangible amortization of approximately $194 million or $0.83 per diluted share. For the quarter, operating working capital was 16.8% of sales. Operating cash-flow in the 4th-quarter was a record at $550 million, up 2% versus the 4th-quarter of 2023. Free-cash flow was also a record in the quarter, up 4% to $498 million with excellent free-cash flow conversion of 129% for the quarter. Free-cash flow for 2024 was a record $1.7 billion, up 6% versus the prior year, with full-year free-cash flow conversion also very strong at 124% of net income.

For 2025, we expect free-cash flow conversion to be approximately 115%. Total debt at year-end was $2.1 billion, down $1.2 billion from the end of 2023. Offsetting this debt is cash-and-cash equivalents of $374 million. As Dave noted, we spent approximately $155 million on share repurchases in the 4th-quarter, bringing our total share repurchases for the year to approximately $220 million. Additionally, subsequent to the end-of-the 4th-quarter, we deployed approximately EUR105 million on the acquisition of Kern Microtechnique. At the end of 2024, our gross debt-to-EBITDA ratio was 0.9 times and our net-debt to EBITDA ratio was 0.8 times. We continue to have excellent financial capacity with approximately $2.5 billion of cash and existing credit facilities to support our acquisition strategy and growth initiatives. In summary, we delivered strong 4th-quarter and full-year 2024 operating results, highlighted by record earnings, robust margins and excellent cash-flow generation. With a proven strategy, significant capital deployment capacity and a strong track-record of execution, we are well-positioned to navigate current trade uncertainties and to drive growth and value-creation in 2025. Kevin?

Kevin Coleman
Vice President, Investor Relations and Treasurer at AMETEK

Thanks,. Andrew, could we please open the lines for questions?

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Operator

Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please standby while we compile the Q&A roster our first question comes from the line of Matt Summerville with D.A. Davidson.

Matt Summerville
Analyst at D.A. Davidson

Thanks. Good morning, David. Maybe could you talk a little bit about the nature of delays you saw within EIG? And have you started to see some of that break now that we're into February? And then maybe if you could also comment on your views regarding the remaining duration of the OEM destocking you're continuing to see in EMG? And then I have a follow-up.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Sure, Matt. Good morning. The project delays in ERG were pretty much what we've been seeing. There was across-the-board. It wasn't really notable, but it got some delays on the shipments, but the orders were good. And similar, the destocking headwinds largely impacted our OEM exposed businesses in EMG, which include our Automation and Engineered Solutions sub-segment and -- but we're starting to see improved order patterns from some OEM customers, while others are taking a little time to destock. We were encouraged by the sequential orders growth in Paragon. They had substantial double-digit orders growth. We're also encouraged by the orders in EIG. So both groups were up organically in orders and very positive from that viewpoint and the order strength continued into January. So we're not through the destocking. Some customers are through it, some are not, but you can see it definitely easing a bit as we go-forward.

Matt Summerville
Analyst at D.A. Davidson

Then a follow-up, David. Can you talk about where you were with price-cost in '24? What your views on that are for '25 and what you see as ultimate level of price capture this year? Thanks

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Sure. I think in 2024, the last quarter, we ended-up pretty much in-line with what we were performing throughout the year. We captured a bit more than 3% and our inflation was a little bit more than 2%. And going into 2025, we've been pretty conservative in budgeting that. We were saying that we'll offset increased price with inflation by a little bit. So we think the environment for inflation, at least what we're seeing is mitigated to a great degree. And I think you're in that 1.5% to 2% number for the pricing.

Matt Summerville
Analyst at D.A. Davidson

Got it. Thank you.

Operator

Thank you. And our next question comes from the line of Jeffrey Sprague with Vertical Research. Please go-ahead.

Jeff Sprague
Analyst at Vertical Research

Thank you. Good morning, everyone. Hey, David, could you give us a little bit more of an update on Paragon? You've mentioned orders were for firming up here as we exited the year. Can you just level-set us on where we're at the revenue base for that business and what you are expecting in 2025?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. I mean, even just to remind everyone, we acquired a business that's in the med-tech space. It uses -- it manufactures single-use and consumable surgical instruments and implantable component components in-markets with good growth rates, a long-term growing markets, excellent engineering capability, a leading additive manufacturing capability and a lot of new program wins, which we continue to execute through 2024. In 2024, they're going through a destocking of their customers. But as I said, some of their customers are destocked and are also -- they've started the order aggressively, but some of the orders -- the customers are not through the destocking. The net effect of that is sequentially, we saw a significant double-digit increase in order input. We remain excited about the business. It's the end-demand in procedures within their surgical and orthopedic markets remain strong. So we know it's truly a destock as the end procedures are continuing and the inventory is being consumed and we're gaining share with these new programs. So we're investing in the long-term growth that they continue to win new programs. So we also have a combined management team, leading Paragon, combination of AMETEK and legacy Paragon management team is functioning well. As I said, the inventory normalization continues to impact the business, but we're working through it. So we're encouraged by that sequential orders growth.

Jeff Sprague
Analyst at Vertical Research

Dave, just to put a finer point on that. So could we end the year then somewhere around $420 million-ish revenues in Paragon and --.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Exactly, exactly, Jeff. We're in that ballpark. I'm not going to give the exact number, but you're right on the -- you're on the pin there and we expect that business to grow higher than AMETEK as we move throughout the year and especially in the second-half.

Jeff Sprague
Analyst at Vertical Research

And not to overly drill on Paragon, but also just given the restructuring and everything you did last year in the business. Can you give us an idea of kind of maybe order of magnitude of margin improvement you're looking for there?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. I think from where they're at now, we should see substantial improvement in the next 12 months and that will be -- it's biased towards the second-half, but it will definitely happen and it will be in well in excess of the 20 or 30 basis-points of margin improvement we're looking at for the whole company. Well in excess of that.

Jeff Sprague
Analyst at Vertical Research

Great. I'll pass it the Tom. Thanks a lot guys.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you.

Operator

Thank you. And our next question comes from the line of Jamie Cook with Truist Securities.

Jamie Cook
Analyst at Truist Securities

Hi, good morning. Congrats on a nice quarter. I guess my first question, understanding the orders have continued to improve. There's some concern out there from investors that improvement we're seeing in the industrial economy was more of a pre-buy, you know, based on concerns post-election. It doesn't sound like you're seeing any of that, but if you could just comment sort of on the cadence of orders and whether there was anything unusual? And then I guess my second question, understanding you're guiding to, I think you said low-single digit growth. It sounds like we're flat in the first-quarter. Just trying to understand the cadence of growth that you're expecting again just given some of the uncertainty on the macro? Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Sure. In terms of the cadence for orders, we had a pretty typical quarter where the orders increased every month of the quarter, but -- and December was the strongest month for the orders. But that's typical cadence, but also for the whole year, December was the strongest month. So that was a good order month. And then in January, that same orders -- positive orders continued. So to last really since the middle of last year when we started seeing improvement in orders, it's definitely continuing. And our customers aren't telling us is to pre-buys to get ahead of tariffs or anything, but it could be -- you don't know, but feels pretty strong from our viewpoint. And as those orders make their way into our backlog, those will make their way into sales as we go-forward. The -- we're starting out the year flat. As you mentioned, you know that we'll -- as we move throughout the year, the destock will mitigate and they have good pipelines. So it's a -- it's a conservative, but prudent start to the year is the way we're looking at it.

Jamie Cook
Analyst at Truist Securities

Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you, Jamie.

Operator

Thank you. And our next question comes from the line of Andrew Buscaglia with BNP.

Andrew Buscaglia
Analyst at BNP Paribas

PowerBus want to check on you know yeah we're hearing about every no you're breaking up.

Kevin Coleman
Vice President, Investor Relations and Treasurer at AMETEK

Andrew why don't we put him on-hold and we'll go to the next caller.

Operator

Certainly one moment, please. And our next question comes from the line of Brett Lindsey with Mizuho.

Brett Linzey
Analyst at Mizuho

Hey, good morning, all. Hey, just want to come back to the project comments, the softness at the end-of-the year, it sounds like the pipeline is building and maybe strong. So front log looks pretty good. Are customers giving you any indication on the timing of one of these -- when these projects might release? And how are you thinking about ES, Engineered Solutions backlog conversion as part of the guidance construct.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, I think the we have a really good pipeline and it's a -- it's going to play-out in 2025 and expecting to see projects that have been delayed are now moving. It's in terms of the a and ES piece of the business. I think that's where we're suffering from the OEM destock the most and -- but as you know, I think in the automation side of the business, we've we bottomed and we have a -- it's a great place to grow from where we're at right now. And on the MedTech side of the business, we've already started to see the destock abate. So that's where we are and that will play-out in our guidance throughout the year, and we expect those two businesses to do better as we progress throughout the year.

Brett Linzey
Analyst at Mizuho

Okay, great. And maybe just shifting over to Aerospace and Defense, could you give us an update on how you're thinking about the outlook on Aero versus defense? I know a lot of moving pieces there. And then anything to think about in terms of profitability as we shift to more OE versus aftermarket and what you're embedding there in the guide for the year? Thanks.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Sure. Our A&D business has had a another -- and it's another strong year. And in the 4th-quarter, it was up mid-single digits. It was up high-single-digits for the year, mid-single digits for the quarter. Our growth in the 4th-quarter was strongest across our commercial businesses. So we already saw the OE component of the sales go up in the 4th-quarter. We make a lot of money on OE, a lot of money on aftermarket. So I don't think there's a margin concern there. We think in 2025, it's going to grow at mid-single digits. And we're seeing strength in both our commercial and defense markets. So commercial may be a bit stronger than defense, but both of those will be healthy growers in 2025.

Brett Linzey
Analyst at Mizuho

All right. Appreciate the insight.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you.

Operator

Thank you. And our next question comes from the line of Rob Wertheimer with Melius Research. Please go-ahead.

Rob Wertheimer
Analyst at Melius Research

Thank you. Good morning, everybody. So margin performance was very strong, especially given just the soft core environment. I wonder, can you just talk in general about how you approached cost and margin through the quarter? Was this a bit of a batten down the hatches? Is this normal improvement flowing through? Is acquisition improvement flowing through? Maybe just characterize how you see the margin improve in the quarter?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, I think the -- it's AMETEK operational excellence. We had an excellent operating quarter. And we have reported margins were up 90 points and core margins were up 140 basis-points and we got good productivity. We got a good positive price-cost, a good mix. So it was a good quarter for margins, but we've been delivering good margins for year-after year for a long-time. I mean for the year, our core margins were up 120 basis-points. And I don't think you see any reason that that's going to stop. It's our DNA. We're constantly working on -- we have operational excellence programs and we're executing them and we have high contribution margin businesses that are contributing to it. So the margin performance was good. It was very good. We had some records that we set, but it was kind of expected.

Rob Wertheimer
Analyst at Melius Research

Okay, perfect. So nothing dramatic and negative. This one may be a little tricky to answer because there's obviously a lot of back-and-forth going on in government policy right now. But is there any hiccups or stutters you're seeing in potential future demand or current demand from funding that might flow-through to laboratories, test measurements, scientific instruments and so forth. And I'll stop there. Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. I don't see any specific thing that's going to hurt the laboratory demand. I mean, I will say one thing about the laboratory demand, it's very strong internationally right now. So that's driving it more so than the US. When I think about the overall regulatory environment, I think some of the things with the new administration are positive. We have regulatory relief. We're looking-forward to projects moving ahead faster. There's a different approach to antitrust. We have a focus on energy development, that's good for us. There's an increased focus on military spending and that's good for us. There's lower taxes for products manufactured in the US. We do a lot of manufacturing in the US. There's tax breaks -- tax breaks planned to boost equipment investment. So I think a lot of those pro-growth policies can be really positive for us. And as a US manufacturer with a lot of capability in the US with a significant US manufacturing footprint, it provides many options and opportunities depending how the situation develops. And we have a flexible asset-light model consistent with our strategy and we think as we get throughout this year, we'll see some opportunities to develop.

Rob Wertheimer
Analyst at Melius Research

Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Okay, Rob.

Operator

Thank you. And our next question comes from the line of Andrew Obin with Bank of America.

Andrew Obin
Analyst at Bank of America

Hi, good morning.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Hello, Andrew.

Andrew Obin
Analyst at Bank of America

Just to clarify, what's organic growth rate that's embedded in your first-quarter guidance?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Let me see. We it's a flattish number or Andrew. So both the total sales and organic sales were flat.

Andrew Obin
Analyst at Bank of America

Okay. So we are -- so we are accelerating organically from 4th-quarter to the first-quarter.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Oh, yeah. Yeah, we're going from the minus 2%, minus 3% to a flat. So the organic -- the organic growth is accelerating from Q4 to-Q1 and it's tied to the acceleration in order input through organic orders. So I think that's going to continue throughout the year. So as those organic orders were strong, our sequential quarters, the organic growth will be increased versus Q4 and it's just a continuation of a slow acceleration through the year.

Andrew Obin
Analyst at Bank of America

Got you. And just sort of combining the two questions. First, how did you use all this tariff noise? Do we see it in the guidance? And also how does FX impact your '25 outlook because you are a meaningful US exporter. So how should we think about the impact both on the revenue and margin? Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, they're good questions. And the guidance we have takes into account the things that we've heard about over the last few weeks -- few days, few weeks. But we've been making contingency plans since shortly after the elections for tariffs. And our 2017 and 2018 playbook is relevant. That's when we executed a China for China manufacturing strategy and decoupled our supply chains from China. We executed flawlessly and we're ready to do the same thing now if it's required. We manufacture niche, highly-differentiated products. We plan to pass-on the cost impact of the tariffs if the tariffs get enacted to our customers as we have done previously. We have a significant US manufacturing footprint, as I said, as a flexible asset-light model. So we're very agile. And I think that we're well-positioned to manage through the current environment. I mean, our guidance doesn't take into account doesn't assume a broader economic slowdown because of an escalating trade war. To be clear with that, no demand destruction is assumed in our budget, but with everything that we know of and with our past success and decoupling our supply chains from China and with our operational capability, we think -- we think we're ready for this and we got it covered.

Dalip M. Puri
Executive Vice President and Chief Financial Officer at AMETEK

And Andrew, on foreign-exchange, obviously, we're a global business, but we're primarily a US dollar-centric business. So our top-line is not overly exposed to foreign-exchange. And we have a very balanced foreign-exchange footprint at the profit and cash-flow level through natural offsets. So we can very much -- we're not impacted by broad-based US dollar movement. And I think the last few years, you've seen a lot of FX volatility and it hasn't impacted our bottom-line.

Andrew Obin
Analyst at Bank of America

All right. Thanks so much.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you, Andrew.

Operator

Thank you. And our next question comes from the line of Christopher Glynn with Oppenheimer.

Christopher Glynn
Analyst at Oppenheimer

Yeah, thanks. A lot of ground covered. Just curious on current, Dave, how you think about the size of the addressable market, what's the competition like? And how long you've been looking at that business?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Sure. Sure, Chris. It's part of our Altra Precision technology division and we bought a business in that part of our company about 15 years ago named Presitec. And they build what's called diamond turning machine that make these surfaces that are incredibly precise optical surfaces and the business has done extremely well for AMETEK. And we look at current as kind of a sister-company with some different technology. And we think Kern is they also do submicron level accuracy systems. Their end-markets are places that need exceptional levels of precision. It includes the medical market, the semiconductor market, the research market, the space market, and there's a lot of opportunities to us to grow this business and then running them as sister companies with our business. We have capabilities that solves a bigger set of solutions for the customers. It's typical AMETEK acquisition, highly-differentiated, high-precision leader in niches really works for the miniaturization that's going on in the in the technology world you know we you know, got a got a fair price work. The management team is staying with us and we think it's going to be a good acquisition. And most of the sales are exported outside of Germany. They're a German company, but over 70% of our sales are all outside of Germany. So the world goes to Munich to get the best systems and it fits well within AMETEK's family of businesses.

Christopher Glynn
Analyst at Oppenheimer

Great. Thanks. And just kind of a churning part of the cycle to a degree here. Several years ago, you went through some divestitures. As you look at things play-out now, realizing you've really shrunk you know oil and metals, for instance, are there any areas of the portfolio that are bubbling up for potential divestiture.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, we go through that strategic analysis every year and we went through it this year and there's nothing that's going to impact our guide. There's nothing large or substantial. There may be some smaller plants or things that we continue to act on during the course of the year, but these will be inconsequential and we like the portfolio that we have right now.

Christopher Glynn
Analyst at Oppenheimer

Great. Thanks a lot.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you, Chris.

Operator

Thank you. And our next question comes from the line of Nigel Coe with Wolfe Research.

Nigel Coe
Analyst at Wolfe Research

Thanks. Good morning. Lots of information so-far. But I'm sorry if I missed this, David. What is the organic, I think low-single digit for the full-year, but what is the -- how does that break-out between EMG and EIG? And I'm just curious if you're seeing a stronger rebound in EMG, just given that Paragon and automation were quite badly impacted by destocking. So I'm just wondering if you're factor-in a stronger rebound in those two businesses.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

EMG is going to have slightly higher organic growth in EMG. So it's going to be a bit higher. It's going to be low-single digit for the year and but EMG is going to be a bit higher.

Nigel Coe
Analyst at Wolfe Research

A little bit higher. Okay. That's great. And then just the EMG margins in 4th-quarter. I mean, obviously, EIG was spectacular, but EMG came in a bit lighter. And I know that there's typically some production disabsorption in the 4th-quarter. Just wondering, was there any intentional like extended production shortfalls in the 4th-quarter?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

No, it's the calendar effect. And we're going through a destocking there and our automation business is extremely profitable and it's down substantially with it. So we had core margins down over 100 basis-points on that part of the business. And the good thing is we've leaned out the cost structure and we're really at a good place to grow. So as destocking abates and that business has bottomed, we're looking-forward to when that turns, should be some profitable sales for us.

Nigel Coe
Analyst at Wolfe Research

And then just a quick follow-on to that comment about automation margins. Are you expecting automation to be back to positive organic growth in the first-quarter next year or this year?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, I -- the automation business is lagging the medical business a bit. So we'll have to see how that plays out.

Nigel Coe
Analyst at Wolfe Research

Okay. Thanks, Dave.

Operator

Thank you. One moment, please. Our next question comes from the line of Joe Giordano with TD Cowen.

Joe Giordano
Analyst at TD Cowen

Hey guys, good morning. Did -- I'm not sure, did you give the actual order number or the book-to-bill for the quarter? If you did apologize any

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Grab that. The yeah, organic orders were 4% of 4%. The book-to-bill was 1.01 if we exclude FX on the backlog. And both -- like I said, both groups were positive. EMG was a little bit more positive than EIG, but they were both strong.

Joe Giordano
Analyst at TD Cowen

Got it. And then can you walk us through just -- I think you mentioned in the outlook the view for aerospace and defense. So can you kind of do your walk with what the 2024 actually the view? Yeah. Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. We forgot that we didn't get to that yet. So on the process side, the process declined low-single digits in the 4th-quarter. And we saw a strong growth in the quarter within our advanced optical metrology businesses as well as our high-end mistroscopy business had a good quarter. And similar to last year, we experienced some temporary delays similar to last quarter, we experienced some temporary delays in project spending. And then looking-forward to 2025, we expect organic sales for our process businesses to be up low-single digits for the full-year. And then I talked about the aerospace and defense business already. And we expect there, we expect ongoing strength in both commercial and defense and it to be up mid-single digits for 2025. So process, low, aerospace and defense, mid.

Then you go to Power and Industrial Our sales were flat in the 4th-quarter. Our RTDS business, which provides advanced power simulation systems to utilities and research institutions saw good growth in the quarter. For 2025, we expect organic sales for our Power and industrial businesses to remain flat relative to 2024 levels. And finally, the Automation and Engineered Solutions business, business overall sales were up low-double-digits, driven by the contributions from the Paragon acquisition. Organic sales were down high-single-digits in the quarter, consistent with the levels we've seen during the year given the continued normalization of our OEM customer inventories. And for 2025, we expect organic sales to be up mid-single digits for the year with improving growth trends throughout the year.

Joe Giordano
Analyst at TD Cowen

Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thanks Joe.

Operator

Thank you. And our next question comes from the line of Dean Dray with RBC Capital Markets.

Sahil Manocha
Analyst at RBC Capital Markets

Hi, good morning. This is Sahul on for Dean Dray. Can you provide any context -- hi, good morning. Can you provide any context on the $85 million in growth investments? How is that split between segment? And is that adding mostly sales and engineering? And what was the 2024 growth investment?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

The 2024 was 90 and the 2025 was 85, so they're very close. And again, that's the incremental spend. And it's largely a research, development and engineering spend. So I'd say two-thirds of the 85 is RD&E and about one-third of it is additional marketing channel sales and marketing work. So about two-thirds, one-third and it's biased toward towards EIG largely because of the size of EIG. So it's pretty, pretty -- it's across the whole company.

Sahil Manocha
Analyst at RBC Capital Markets

Got it. And then the Vitality Index reached 28% in the 3rd-quarter, I believe, which you noted was a strong level within the target range of 20% to 30%. Could you discuss the new product intros that you're most excited about for 2025? And how do you see the Vitality index trending?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah, we talk about a vitality index being between 20% and 30% is a good number. And we didn't mention it, but actually it was extremely high in Q4, 30%. So it was one of our highest numbers. So the new product engine is working and that's why we have such a strong pipeline of new orders. And I think it's going to pay-off next year. We think a number like 20 to 30 is a good number for us. And we started tracking this, it was down in the low-teens, mid-teens many years ago. So we think it's a good number now. It's a way that we can look at the investments we're putting in and making sure we're adding value to our customers. It shows up in pricing also. We can get premium prices by adding features to products and having -- providing new value to our customers that we weren't providing before. So it's a healthy amount. We spend a healthy amount of RD&E and given our niche market focus and technology leadership, innovation leadership that matches the strategy of the company.

Sahil Manocha
Analyst at RBC Capital Markets

Awesome. Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you.

Operator

Thank you. And our next question comes from the line of Robert Mason with Baird.

Robert Mason
Analyst at Robert W. Baird

Yes, good morning, Dave.. Dave, you had mentioned that -- very good. You had mentioned earlier that your labs business, you were seeing strength more, just Call-IT rest-of-world versus the US right now. Can you drill into that a little bit. Is that -- that is that your own overlay or footprint where you're exposed or differences in government priorities or just what's maybe driving that difference?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

It could be government priorities, it could be channel investments we made, but the place that we're seeing a lot of lab expansion work is in Asia. So Asia -- the market is healthy everywhere, but Asia is particularly healthy.

Robert Mason
Analyst at Robert W. Baird

Maybe just to continue the thought there, could relative to your 2025 guidance, could you provide kind of a geographic overlay to that? Just how you're thinking about the regions for 2025?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. Yeah, I'll talk about 2024, where we ended-up in 2024, we had essentially strong growth in Europe and Asia, offset by some declines in the US so if you look at the full-year, year we had about plus two internationally and down MST in the US and that was largely our automation business that was down in the US and you know in places like in Asia, we were -- we were up and China was roughly flat. So that's kind of hanging in there for us. And when we think about 2025, we're looking for all regions to grow. We're thinking -- we actually see some strength in Europe. Like I said, we were plus 2% in Europe and some strength in Europe. We think some of the strength in Asia is going to continue, maybe more strength outside of China than in China. We have good channels there and we think the US is going to return to growth for us. So it will be balanced growth across all geographies.

Robert Mason
Analyst at Robert W. Baird

If when you said China was flat, was that a Q4 number or a full-year?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

I think it was a full-year number.

Robert Mason
Analyst at Robert W. Baird

Okay. Very good. Well, thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you, Rob.

Operator

Thank you. And our next question comes from the line of Andrew Buscaglia with BNP Paribas

Andrew Buscaglia
Analyst at BNP Paribas

Yeah, good morning, guys.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Andrew. Can you hear you fine.

Andrew Buscaglia
Analyst at BNP Paribas

Yeah, good morning.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Good morning.

Andrew Buscaglia
Analyst at BNP Paribas

Yeah, sorry about that earlier. I'm not sure what happened. So yeah, I wanted to touch on your orders you're saying are up 4%. And you had some good commentary just about your sub-segments for sales. But what about -- it sounds like orders are getting a little bit better, the momentum is picking-up. What about order momentum in each sub-segment or where-is that coming from?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Yeah. I think that what you really have is in the sub-segments, the big thing in the Automation and Engineered Solutions, that was the destock abating and we're starting to see some of the customers place orders now specifically in the medtech area. So that's positive. And on the automation part of the business, we think it's bottomed and we've leaned our cost structure. So we're optimistic about what that's going to do when it increases. The process and the power businesses, we think we're well-positioned and those are the project businesses. We saw some delays. We're hoping that those are going to abate a bit. And quoting a lot of activity, good pipelines there. And then in aerospace and defense, it's pretty much steady. We think both our military and our commercial aftermarket is going to do well, ongoing strength in both sides of it.

Andrew Buscaglia
Analyst at BNP Paribas

Yeah, okay. And yeah, you are generating a ton of cash, great cash-flow in the quarter. So this year, are we going to see a series of sort of like current deals? Or you expect like another Paragon-ish sized deal in 2025?

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

That's a great question. Right now we have -- we have bigger deals in our pipeline and we also have smaller technology deals where I put current in our pipeline. So and we have a -- we could probably spend $5 billion in 2025 on deals and we still only have a debt-to-EBITDA of about 2.5 the way we calculated. So we're very aggressive in that area and there's properties, prop businesses that we're -- people are holding back on. It seems like the market is picking-up a bit. So we think with our strong balance sheet, we're going to be able to get deals done. We're going to be able to be opportunistic with share buybacks and we're going to reward our shareholders, long-term shareholders with a ever-increasing dividend, small dividend, but ever-increasing. So we have a balance sheet where we can do it all and we're going to do it all. But I think the most optimism is in the M&A area right now.

Andrew Buscaglia
Analyst at BNP Paribas

Yeah. Okay. Thank you.

David A. Zapico
Chairman of the Board and Chief Executive Officer at AMETEK

Thank you.

Operator

Thank you. I will now hand the call-back over to Vice-President, Investor Relations and Treasurer, Kevin Coleman, for any closing remarks.

Kevin Coleman
Vice President, Investor Relations and Treasurer at AMETEK

Thank you, Andrew, and thanks everyone for joining our call today. And as a reminder, a replay of the webcast can be accessed in the Investors section of amatek.com. Have a great day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

Corporate Executives
  • Kevin Coleman
    Vice President, Investor Relations and Treasurer
  • David A. Zapico
    Chairman of the Board and Chief Executive Officer
  • Dalip M. Puri
    Executive Vice President and Chief Financial Officer
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