William Grogan
CFO & SVP at IDEX
Thanks, Eric. Moving on to our second quarter consolidated financial results on Slide 8. All comparisons are against the second quarter of 2022, unless otherwise stated. Orders of $766 million were down 9% overall and down 13% organically, mainly driven by a 27% organic decrease in HST due to timing of project orders for next-gen sequencing equipment as well as OEM pressure across the life sciences, analytical instrumentation, pharma and semiconductor markets.
Record sales of $846 million were up 6% overall and up 3% organically. We experienced 10% organic growth within FMT, 8% organic growth within FST and 6% organic decrease in HST. Gross margin of 44.7% decreased by 10 basis points compared with last year. This was driven by lower volume leverage in HST, the dilutive impact of acquisitions and unfavorable mix, partially offset by strong price cost and favorable operational productivity across the segments. Adjusted EBITDA margin was 28.4%, up 90 basis points. I'll discuss the drivers of adjusted EBITDA on the next slide.
Our second quarter effective tax rate was 22.4% and was comparable with our prior year effective tax rate of 22.1%. Net income was $139 million, which resulted in an EPS of $1.82. Adjusted net income was $165 million with an adjusted EPS of $2.18, which was up $0.16 or 8%. Finally, cash from operations of $141 million was up 26%, primarily due to lower investments in working capital versus last year. Free cash flow for the quarter included higher CapEx and was $120 million, up 24% versus last year coming in at 72% of adjusted net income. We drove over $20 million of inventory out of the business in the quarter through our targeted reduction efforts. And we saw inventory turns improved versus last quarter.
Moving on to Slide 9, which details the drivers of our second quarter adjusted EBITDA. Adjusted EBITDA increased by $22 million compared to the second quarter of 2022. Our 3% organic growth included over 4% of price placing volumes negative for the quarter. This lower volume unfavorably impacted adjusted EBITDA by $9 million flowing through at our prior year adjusted gross margin rate. Price cost was accretive to margins, and we drove operational productivity that offset employee-related inflation. Mix was unfavorable by $3 million, mainly centered in HST due to continued volume declines in our analytical instrumentation and life science components. Resource and discretionary spending was approximately flat versus last year. We have executed tight cost controls given our volume pressure, and we continue to identify reduction opportunities for the balance of the year.
Reductions in variable compensation expense based on our updated outlook contributed $5 million of benefit in the quarter. These results yielded a 60% organic flow-through. Muon and KZValve acquisitions, net of the divestiture and FX contributed an additional $9 million of adjusted EBITDA. Inclusive of acquisitions, divestitures and FX, we delivered 43% flow-through. Excluding the impact of variable compensation, flow-through is about 35%. With that, I'll provide a deeper look at our segment performance. In our fluid metering technology segment, we experienced strong sales performance with organic growth of 10%. But orders did contract by 4% organically, mainly driven by the slowing industrial landscape.
Adjusted EBITDA margin expanded by 340 basis points versus the second quarter of last year, driven by strong price cost performance and volume leverage. We saw our industrial day rate decline early in the second quarter remained steady at that lower level. Customers are taking a cautious view of the second half as they process a variety of economic factors that influence their demand. Our water business performed well. The North American market continues to be positive with extreme weather, necessary technology and infrastructure upgrades and improved funding all fueling growth. Our energy markets remain mixed. Improved chassis availability is driving strength in our mobile applications and the teams to continue to work down past due backlog, but lower oil prices look to slow the pace of investment in the second half of the year.
In the chemical market, we saw positive results across the U.S., Europe and Asia, with battery markets providing additional opportunities for growth. The agricultural demand landscape remains mixed. Farm fundamentals are positive overall, and our OEM business remains strong. However, distributor inventory levels remain high, and we have not seen a material bleed down as we have progressed through the planting season. Moving to the Health & Science Technologies segment. Organic orders contracted 27% in the quarter, driven by analytical instrumentation, life science and biopharma customers' inventory destocking, timing of next-gen sequencing orders, soft semiconductor and slowing industrial demand. Sales were down 6% organically and adjusted EBITDA margins contracted by 420 basis points driven by unfavorable volume leverage and mix as well as higher employee-related costs, partially offset by strong price cost performance.
As Eric noted, our Life Science and Analytical Instrumentation businesses are being impacted by customers' inventory destocking and reduced demand. This was driven by a combination of improved supply chain conditions, macroeconomic factors and lower-than-expected China demand. We expect this pressure to remain throughout the balance of the year. The semiconductor market continues to experience softness resulting from memory oversupply, as well as customers feeling the impact of the U.S. export controls. We have exposure to multiple parts of the semiconductor value chain and expect demand will stabilize in the third quarter with recovery in the fourth quarter.
Our Material Processing Technology business continues to experience softness across pharma, biopharma and nutrition markets, driven by tighter capital availability and customer hesitancy due to recession concerns. We are seeing some strength in aftermarket and positive impact from our battery market opportunities and we see some signs of improved quotation activity for these early days. Industrial markets and HST slowed in the quarter in line with FMT results. Finally, turning to our Fire & Safety Diversified Products segment. Organic orders grew by 2% versus last year, mainly driven by favorable fire and safety, and dispensing results. Organic sales growth was strong at 8% with double-digit growth in both [indecipherable], Rescue and BAND-IT. Adjusted EBITDA margins expanded by 300 basis points versus last year, largely driven by strong price cost performance, operational productivity, favorable volume leverage, and positive mix.
The paint market remains mixed with positive North American results, offset by delays of Europe and Asia customer investments. Within our fire business, we continue to gain share with North America mid-tier and China OEMs through our integrated system strategy. Underlying truck demand remains positive and OEMs continue to improve their output. Rescue markets are stable overall with some distributors burning off excess inventory being balanced by growth in our E3 products. Standard results remain positive. We continue to gain share in an otherwise flat automotive market, which is partially offset by slowing energy and industrial markets.
With that, I'll provide an update for our outlook for the third quarter and the full year 2023. I'm on Slide 11. In the third quarter, we are projecting GAAP EPS to range from $1.60 to $1.65 and adjusted EPS to range from $1.84 to $1.89. Organic revenue is expected to decline 7% to 8%, and adjusted EBITDA margins are estimated to be approximately 27%. We project sequential volume declines across HST and FMT with relatively flat FSD sales. On a year-over-year basis, we expect negative mid-teen organic sales decline in HST, negative low to mid-single-digit declines in FMT and low single-digit growth in FSD.
Turning to the full year. As Eric mentioned, we have reduced our full year revenue guidance in response to our softening HST second half outlook. We now expect organic revenue declines of 1% to 2%. This implies high single-digit revenue contraction in HST with low to mid-single-digit growth in FMT and FSD. At the midpoint, we have reduced our EPS guidance by $0.45 with approximately $0.60 related to lower volume and the associated leverage and unfavorable mix. We offset $0.15 of this pressure with additional cost containment actions related to targeted restructuring and lower resource investment, and variable compensation along with discretionary spend. In summary, we estimate full year organic revenue contraction of 1% to 2%, GAAP EPS of $6.80 to $6.90 and adjusted EPS of $7.90 to $8. Adjusted EBITDA margin will be approximately 27%.
Capital expenditures are anticipated to be about $70 million and free cash flow is expected to be 100-plus percent of adjusted net income. With that, I'll turn it back over to Eric for his closing remarks. Our 3% organic growth included over 4% of price placing volumes negative for the quarter. This lower volume unfavorably impacted adjusted EBITDA by $9 million flowing through at our prior year adjusted gross margin rate. Price cost was accretive to margins, and we drove operational productivity that offset employee-related inflation. Mix was unfavorable by $3 million, mainly centered in HST due to continued volume declines in our analytical instrumentation and life science components. Resource and discretionary spending was approximately flat versus last year. We have executed tight cost controls given our volume pressure, and we continue to identify reduction opportunities for the balance of the year. Reductions in variable compensation expense based on our updated outlook contributed $5 million of benefit in the quarter. These results yielded a 60% organic flow-through. Muon and KZValve acquisitions, net of the divestiture and FX contributed an additional $9 million of adjusted EBITDA. Inclusive of acquisitions, divestitures and FX, we delivered 43% flow-through. Excluding the impact of variable compensation, flow-through is about 35%. With that, I'll provide a deeper look at our segment performance. In our fluid metering technology segment, we experienced strong sales performance with organic growth of 10%. But orders did contract by 4% organically, mainly driven by the slowing industrial landscape. Adjusted EBITDA margin expanded by 340 basis points versus the second quarter of last year, driven by strong price cost performance and volume leverage. We saw our industrial day rate decline early in the second quarter remained steady at that lower level. Customers are taking a cautious view of the second half as they process a variety of economic factors that influence their demand. Our water business performed well. The North American market continues to be positive with extreme weather, necessary technology and infrastructure upgrades and improved funding all fueling growth. Our energy markets remain mixed. Improved chassis availability is driving strength in our mobile applications and the teams to continue to work down past due backlog, but lower oil prices look to slow the pace of investment in the second half of the year. In the chemical market, we saw positive results across the U.S., Europe and Asia, with battery markets providing additional opportunities for growth. The agricultural demand landscape remains mixed. Farm fundamentals are positive overall, and our OEM business remains strong. However, distributor inventory levels remain high, and we have not seen a material bleed down as we have progressed through the planting season. Moving to the Health & Science Technologies segment. Organic orders contracted 27% in the quarter, driven by analytical instrumentation, life science and biopharma customers' inventory destocking, timing of next-gen sequencing orders, soft semiconductor and slowing industrial demand. Sales were down 6% organically and adjusted EBITDA margins contracted by 420 basis points driven by unfavorable volume leverage and mix as well as higher employee-related costs, partially offset by strong price cost performance. As Eric noted, our Life Science and Analytical Instrumentation businesses are being impacted by customers' inventory destocking and reduced demand. This was driven by a combination of improved supply chain conditions, macroeconomic factors and lower-than-expected China demand. We expect this pressure to remain throughout the balance of the year. The semiconductor market continues to experience softness resulting from memory oversupply, as well as customers feeling the impact of the U.S. export controls. We have exposure to multiple parts of the semiconductor value chain and expect demand will stabilize in the third quarter with recovery in the fourth quarter. Our Material Processing Technology business continues to experience softness across pharma, biopharma and nutrition markets, driven by tighter capital availability and customer hesitancy due to recession concerns. We are seeing some strength in aftermarket and positive impact from our battery market opportunities and we see some signs of improved quotation activity for these early days. Industrial markets and HST slowed in the quarter in line with FMT results. Finally, turning to our Fire & Safety Diversified Products segment. Organic orders grew by 2% versus last year, mainly driven by favorable fire and safety, and dispensing results. Organic sales growth was strong at 8% with double-digit growth in both [indecipherable], Rescue and BAND-IT. Adjusted EBITDA margins expanded by 300 basis points versus last year, largely driven by strong price cost performance, operational productivity, favorable volume leverage, and positive mix. The paint market remains mixed with positive North American results, offset by delays of Europe and Asia customer investments. Within our fire business, we continue to gain share with North America mid-tier and China OEMs through our integrated system strategy. Underlying truck demand remains positive and OEMs continue to improve their output. Rescue markets are stable overall with some distributors burning off excess inventory being balanced by growth in our E3 products. Standard results remain positive. We continue to gain share in an otherwise flat automotive market, which is partially offset by slowing energy and industrial markets. With that, I'll provide an update for our outlook for the third quarter and the full year 2023. I'm on Slide 11. In the third quarter, we are projecting GAAP EPS to range from $1.60 to $1.65 and adjusted EPS to range from $1.84 to $1.89. Organic revenue is expected to decline 7% to 8%, and adjusted EBITDA margins are estimated to be approximately 27%. We project sequential volume declines across HST and FMT with relatively flat FSD sales. On a year-over-year basis, we expect negative mid-teen organic sales decline in HST, negative low to mid-single-digit declines in FMT and low single-digit growth in FSD. Turning to the full year. As Eric mentioned, we have reduced our full year revenue guidance in response to our softening HST second half outlook. We now expect organic revenue declines of 1% to 2%. This implies high single-digit revenue contraction in HST with low to mid-single-digit growth in FMT and FSD. At the midpoint, we have reduced our EPS guidance by $0.45 with approximately $0.60 related to lower volume and the associated leverage and unfavorable mix. We offset $0.15 of this pressure with additional cost containment actions related to targeted restructuring and lower resource investment, and variable compensation along with discretionary spend. In summary, we estimate full year organic revenue contraction of 1% to 2%, GAAP EPS of $6.80 to $6.90 and adjusted EPS of $7.90 to $8. Adjusted EBITDA margin will be approximately 27%. Capital expenditures are anticipated to be about $70 million and free cash flow is expected to be 100-plus percent of adjusted net income. With that, I'll turn it back over to Eric for his closing remarks.
