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AMETEK Inc  (NYSE:AME)
Q1 2019 Earnings Call
May. 01, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2019 AMETEK, Inc. Earnings Conference Call. (Operator Instructions).

As a reminder, today's conference is being recorded. I would now like to turn the call over to Kevin Coleman, Vice President of Investor Relations. Sir, you may begin.

Kevin C. Coleman -- Vice President of Investor Relations

Thank you, Sydney. Good morning, and thank you for joining us for AMETEK's First Quarter 2019 Earnings Conference Call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. AMETEK's first quarter results were released earlier this morning, and are available on market systems and in the Investor section of our website. This call is also being webcast and it can be accessed on our website. The webcast will be archived and made available on our site later today. During the course of today's call, we will make 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 references made on this call to 2018 or 2019 results will be on an adjusted basis, excluding after-tax acquisition related intangible amortization and excluding the fourth quarter 2018 gain related to the finalization of the impact of the 2017 Tax Cuts and Jobs Act. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investor Section of our website.

We'll begin today's call with prepared remarks by Dave and Bill and then open it up for your questions. I'll now turn the meeting over to Dave.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Kevin and good morning, everyone. AMETEK began 2019 with an outstanding first quarter, establishing records for sales, orders, backlog, EBITDA and operating income. Our businesses delivered strong overall sales growth with solid organic growth and meaningful contribution from the 6 acquisitions we completed in 2018. Our businesses also delivered fantastic operating performance with impressive operating income growth and core margin expansion, leading to 15% adjusted earnings growth, which nicely exceeded our expectations. We also generated strong cash flow with operating cash flow increasing 11% year-over-year. Given these strong results, we have increased our earnings guidance for 2019.

Now on to the financial highlights for the quarter. Total sales in the first quarter were $1.29 billion, up 10% compared to the first quarter of 2018. Organic sales growth was again strong at 5% with acquisitions adding 7% and foreign currency a 2-point headwind. We also generated a record level of orders in the first quarter with another quarter of positive book-to-bill. Our record backlog of $1.7 billion provided a solid visibility as we move through 2019. EBITDA in the first quarter was a record, $337 million, up 10% over the same period in 2018. And EBITDA margins were excellent at 26.2%. Operating income in the quarter was a record at $283.3 million, up 10% over the prior year period with reported operating margins of 22%.

Excluding the dilutive impact of acquisitions, our operating margins increased an impressive 70 basis points over 2018's first quarter. Adjusted earnings were $1 per share, up 15% over the comparable basis for 2018, exceeding our guidance range of $0.95 to $0.97 per diluted share. Now turning to the first quarter results of the individual operating groups. First, the Electronic Instruments Group. EIG sales in the quarter increased 13% to $806.9 million. Recent acquisitions contributed 10% and organic sales growth were up 4%. Foreign currency was a 2-point headwind. Our Materials Analysis businesses continued to deliver strong growth as their high-end analytical instrumentation solutions are very well positioned in attractive growth markets. EIG's operating performance in the quarter was outstanding with operating income of $203.1 million, up 11% over 2018's first quarter.

Reported operating income margins were 25.2%. Excluding the dilutive impact of acquisitions, EIG margins expanded an impressive 110 basis points over the prior year's first quarter. The Electromechanical Group also had a great quarter with strong organic sales growth and excellent operating performance. EMG's first quarter sales increased 5% to a record $480.8 million with organic sales growth a very strong 7%. The acquisition of FMH added 1% and foreign currency was a 2-point headwind. We continued to see broad-based growth across our Automation, Engineered Materials and Aerospace and Defense businesses, each continuing to deliver solid growth. EMG also delivered excellent operating performance in the quarter, with operating income increasing 9% to $98.8 million. Operating margins expanded nicely up 70 basis points to 20.6%.

I'm very pleased with the AMETEK's first quarter performance, which has positioned us very well for another year of record results. The AMETEK growth model, which combines our 4 growth strategies with a disciplined focus on cash generation, capital deployment and talent development, continues to provide the framework for driving long-term and sustainable value for our shareholders. Before I discuss our updated outlook for 2019, I wanted to highlight some of the recent achievements our colleagues have had in driving success for AMETEK. I'll start with a collaborative R&D effort between 2 of our businesses, which resulted in the release of 2 innovative new products. In March, EDAX a leading provider of materials characterization systems, unveiled its Velocity Plus and Velocity Super models. The Velocity Super at 4,500 frames per second is the fastest electron backscatter diffraction camera system in the world.

Both new Velocity systems are powered by high-speed, low noise, CMOS sensors developed by our Vision researchers, a leading provider of ultra high speed cameras. These new additions to the x portfolio offers our customers a superior solution to help solve materials characterization and elemental composition challenges in both R&D and in broader industrial settings. Congratulations to the the EDAX and Vision Research teams for coming together and developing these world-class new products. This is just one example of the many market-leading new products and solutions our businesses are developing to help solve our customers most complex challenges.

Our businesses are also capturing additional market share by expanding into attractively positioned adjacent markets. Rauland, a leading provider of communication systems for use in hospitals and healthcare facilities has a renewed focus on expanding its technology offering to serve schools and educational institutions. Through its Telecenter U, Rauland provides school districts and campuses with flexible, streamlined communication capabilities for its students and staff. Utilizing a suite of proprietary hardware and software applications, Telecenter U synchronizes mass communications across multiple locations for everyday messages, event scheduling and in critical emergency situations.

The solution can play a key role in helping to improve the safety and security of students and teachers during crisis situations, and it is designed to help automate and manage our schools crisis plan during the crucial first few minutes before first responders arrive. Rauland has done an excellent job expanding its technology focus on safety within our schools. We will continue to invest our new product development and market expansion initiatives as we are seeing outstanding results from these investments. Our teams are also doing incredible job integrating our recent acquisitions into AMETEK. In 2018, we deployed over $1.1 billion of capital on fixed acquisitions and acquired approximately $350 million in annual sales. These acquisitions are already showing strong performance, and we expect them to generate excellent results in 2019. We remain focused on deploying our strong free cash flow on strategic acquisitions. While we are aggressively pursuing these opportunities, we will remain disciplined on our acquisition efforts.

Our teams are actively pursuing a broad pipeline of opportunities, and we are confident that we'll be able to continue to complete value enhancing acquisitions. Finally, we continue to focus on driving operational excellence, the corner store of the AMETEK growth model. In the first quarter, we generated strong savings from our operational excellence initiatives, largely resulting from our global sourcing and strategic determined activities. For all of 2019, we expect to generate over $80 million in operational excellence savings. We remain focused on developing and enhancing continuous improvement processes to drive positive operating results in 2019 and beyond.

Now moving to our updated outlook. Given our performance in the first quarter and our outlook for the remainder of the year, we now expect 2019 adjusted earnings to be in the range of $3.98 to $4.08 per diluted share, an increase of 9% to 11% over the comparable basis in 2018. This is an increase from our previous guidance range of $3.95 to $4.05 per diluted share. We continue to expect overall sales in 2019 to be up high single digits with organic sales up 3% to 5%. In the second quarter, we anticipate overall sales to be up high single digits and adjusted earnings to be in the range of $1 to $1.02 per diluted share, a 9% to 11% increase over the prior year period.

To summarize, our businesses outperformance in the first quarter firmly positions AMETEK for another year of strong growth. Our experienced management teams, our market-leading niche businesses and the proven growth model allows AMETEK to deliver strong and consistent performance.

I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter and then we'll be glad to take your questions. Bill?

William Burke -- Chief Financial Officer, Executive Vice President

Thank you, Dave. As Dave just mentioned, AMETEK began the year with excellent performance delivering record results that exceeded our expectations. I'll now provide some additional financial highlights for the quarter. Core selling expenses in the quarter was up in line with the core sales growth. First quarter general and administrative expenses were up $2.4 million over the same period in 2018 due largely to higher compensation costs. As a percentage of sales, general and administrative expenses were 1.4%, in line with last year's level. The effective tax rate in the quarter was 20.5%, down from last year's first quarter rate of 23.1%. In 2019, we expect our effective tax rate to be approximately 21.5%. And as we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate. Working capital on the quarter was 18.2%, up versus the prior year due to large parts of the impact from the acquisitions in 2018.

Capital expenditures were $21 million for the first quarter. And for 2019, we continue to expect capital expenditures to be approximately $100 million, or 1.9% of sales. Depreciation and amortization expense in the quarter was $58 million. And for the full year, we continue to expect depreciation and amortization to be approximately $235 million, including acquisition related intangible amortization of approximately $130 million, or $0.43 per diluted share.

Operating cash flow in the quarter was $196 million, up 11% over last year's first quarter and free cash flow was $175 million. Total debt at the end of the quarter was $2.47 billion, down $160 million from $2.63 billion at the end of 2018. Offsetting this debt is cash and cash equivalents of $368 million, resulting in a net debt-to-EBITDA ratio as of March 31 of 1.6x. We remain well positioned to support our growth initiatives with more than $1.8 billion of cash and existing credit facilities.

To conclude, our businesses started the year with outstanding performance delivering high quality results. Our outlook for 2019 remains positive given our strong balance sheet and excellent cash flows. Kevin?

Kevin C. Coleman -- Vice President of Investor Relations

Great, thank you, Bill. Sydney, we're now ready to open the lines for questions.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Matt Summerville with D.A. Davidson. Your line is open.

Kevin C. Coleman -- Vice President of Investor Relations

Good morning, Matt. How are you there?

Sydney, why don't we move on to the next call?

Matt Summerville -- DA Davidson -- Analyst

Hello

Kevin C. Coleman -- Vice President of Investor Relations

Matt are you there?

Matt Summerville -- DA Davidson -- Analyst

Yes. Can you hear me?

Kevin C. Coleman -- Vice President of Investor Relations

Yes, now, yes.

Matt Summerville -- DA Davidson -- Analyst

Yes. I'm sorry. I don't know what have them there. Anyways, Could you maybe comment as to the linearity you saw in your business throughout the quarter, anything unusual across the 3 regions? And then maybe give a little regional color around the 5% organic growth sort of what was better, what was worse?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Right. I'll start with the geographic update. And there was a dynamic in one of our regions that was a little bit different, so I'll talk about that also. In the U.S., there was a strong high single-digit growth. It was a broad-based growth, particularly in our Aerospace business, our Process businesses and our EMIP business. It really fired on all cylinders. Europe was a pleasant surprise, up mid-single digits, a solid growth in automation and Process businesses drove that growth. And Asia was roughly flat. And also there was a dynamic where the activities seemed to slow in February, but it picked up very strongly in March. So some of our folks were speculating that some of the uncertainty or the Chinese New Year may have slowed our business activity. But again in March, we ended up with a record order input for Asia. So it was flat, but going forward, we haven't changed any of our outlook for the region. So across-the-board, it was pretty good quarter.

Matt Summerville -- DA Davidson -- Analyst

And then just lastly, Dave, can you maybe comment on where you were in Q1 with price realization and how that compared to inflation?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes. Matt, I didn't answer your linearity question. I mean, we strengthened through the quarter and our strongest month was March, which is not atypical for us. And related to the price inflation, Q1 '19 was much like the second half of 2018. We had an excellent quarter. We achieved about 2 percentage points of price across our entire business. Total inflation was a bit less than 1.5%. So we're very pleased with these results, and we think we're well positioned to continue this for the balance of 2019. That speaks to the, as I said before, the highly differentiated nature of our product portfolio on our leadership positions in these niche markets. And also our focus and determination to stay ahead of the inflation in a changing global economic environment.

Matt Summerville -- DA Davidson -- Analyst

Thanks, David.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Matt.

Operator

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

Andrew Obin -- Bank of America -- Analyst

Hi, yes. Good morning. Can you hear me?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, good morning, Andrew.

Andrew Obin -- Bank of America -- Analyst

Yes, Just maybe a basic question, but just looking at the seasonality, given what the first quarter was, usually first quarter for you is quite a bit couple of percentage points less than 25%. And I guess, second quarter guide and the annual guide implies that on a seasonal basis, second half is going to be weaker than usual, just looking back 10 years. And I was just wondering if you're seeing any yellow flags that are driving this kind of caution, or you're just being conservative?

William Burke -- Chief Financial Officer, Executive Vice President

Yes, it's a great question, Andrew. I mean, the first point is, in quarter 2, our guide is higher than quarter 1. So we typically -- from Q1 to Q2, it's a bit higher. And we grew sales organically at the high-end of our guidance range. And in the first quarter, we had excellent core margin performance. And we raised our guidance letting the entire Q1 earnings to be flowed through to the new guide. But to your final point, it's still early in the year. And we feel good about how the quarter played out, but we're being a bit prudent. And the uncertainty of the economic environment and we feel that we're very comfortable with our guidance.

Andrew Obin -- Bank of America -- Analyst

That make sense. And just a follow-up question. I guess since 2014, we've been sort of waiting for big come back for your Energy business. And if you can just comment what WTI being north of 60, are you seeing any change in tone from your customers to that point that maybe it would finally really take off where it's just going to be steady climb as it used to be?

William Burke -- Chief Financial Officer, Executive Vice President

Sure. The Energy business is probably a bit smaller as a percentage of total AMETEK because of some of the organic growth we've had in other areas and our M&A. It's about 6% of the company and in the first quarter, it was up low single digits and for the full year, we're expecting it to be up mid-single digits. And we're looking at our -- for the full year, we're looking at our upstream business business to be high single digits and the mid-downstream to be up mid-single digits. And we have about 75% of our business in the mid and downstream. And what we're starting to see is typical recovery, that part of the business, our largest part of businesses starting to gain momentum. So we feel very good about our energy business. We feel really good about the market positions we have and the businesses continuing to grow. We had a great year last year and it looks like it's on target for another good year this year.

Andrew Obin -- Bank of America -- Analyst

But any near-term change in behavior as the oil price rallied in the past 3 months?

William Burke -- Chief Financial Officer, Executive Vice President

We have solid backlogs, but I can't say that there was a change -- a notable change in behavior when the price of oil raised the last few months and there wasn't a change of behavior when it dropped precipitously in Q4. We just had a steady increasing level of business and it's a global business about 2/3 of outside the U.S. and it just feels really solid. And as I said, the mid and downstream business is picking up nicely.

Andrew Obin -- Bank of America -- Analyst

Great quarter, guys, thanks.

William Burke -- Chief Financial Officer, Executive Vice President

Thank you, Andrew.

Operator

Thank you. And our next question comes from Nigel Coe with Wolfe Research. Your line is open.

Bhupender Bohra -- Wolfe Research -- Analyst

Hey, good morning guys.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Good morning, Nigel.

Bhupender Bohra -- Wolfe Research -- Analyst

Hey, this is Bhupender here sitting in for Nigel. So Dave, you mentioned about the core orders in the quarter, can you give us some color on the core orders numbers for the whole company as well as EIG and EMG? And just wanted to talk about some of the end markets, which kind of strengthened or weakened during the quarter or you actually see from a color especially in April what we're seeing here?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Sure, Bhupender. The first thing would be the organic orders. They were up 3.5% for the quarter. That's actually -- remember against a very difficult comp at -- we were up plus 12% in Q1 of 2018. So really solid orders performance. We had excellent book-to-bill. Our book-to-bill was 1.07. I think this marks 10 straight quarters with a positive book-to-bill. We ended the quarter with a record backlog of $1.7 billion. So we're feeling really good about environment we're operating in and from what we're hearing from our businesses, and we continue to see a solid underlying demand. We're really well positioned to perform well in this environment. And regarding April, I haven't seen the data as of today, but I have seen it as of yesterday, and we're right on track. So no change in pace in April, and we're feeling good about Q2.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, got it. And just a question on your guidance for the second quarter. The sales are going to grow up high single, do you have the organic growth number? Like what of kind of organic is built in those numbers?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

The organic growth would be the same level at the 3%, 4%, 5% that we've guided for the year for AMETEK.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, so it's within the range, OK, got it. And lastly, on the -- you talked a little bit about the M&A pipeline, you guys did a great job like deploying up, Bill, more than $1 billion here over the last -- in 2018. Any color on the size, at least the pipeline, EIG, EMGs, how it's kind of mix wise as well as maybe just give us around the hone kind of color on M&A.

William Burke -- Chief Financial Officer, Executive Vice President

Yes, sure on M&A. Our M&A pipeline is very active. As always, we're evaluating a number of opportunities. And we have a very broad pipeline, it needs to be broad. Because we're in the environment with the oil pricing up and with the competitiveness of the environment, we have to select the deals from our broad pipeline, which will give us a solid return on capital. So the M&A environment is similar to what we've been experiencing in the past few years, and we're looking at deals across both of our groups. And I'm very encouraged with the progress on the pipeline. And you can't predict in the next quarter if the deal is going to close, but I feel very confident on the long term with our process capability in M&A and with our tremendous pipeline. So I'm very bullish about M&A.

Bhupender Bohra -- Wolfe Research -- Analyst

Okay, got it. And lastly, it's on the Aerospace, I just want to leave at this. Any -- if you can explain the exposure on the 737 Max here, anything on that front? And any pressure from the down tick on the production especially from the Boeing?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Right, as you know, AMETEK is not dependent on any one platform. So we're on lot of or on just about every platform, but we're not overly dependent on anyone. So when you look at the 737 issue, first of all, Boeing hasn't reduced the orders forecast and production plan that we're seeing here. So we're still going along meeting that demand. The second point would be for the full year of 2019, the 737 Max accounts for about $15 million in revenue. So that puts it in an order of magnitude. It's a small part of the company, I think, probably about 0.25% of revenue. So we're not overly dependent on it. We certainly want to see the problem fixed and want to keep producing at the rate we're producing on. But we had in the quarter strong OEM business. The commercial business was very solid. Our Aerospace business was up high single digits in the first quarter, and we're forecasting it to be up mid-single digit for the year. So strong growth in all segments and maybe there's a bit of conservatism there, but we feel really good about our Aerospace business in all of our market segments.

Bhupender Bohra -- Wolfe Research -- Analyst

Thanks a lot.

Operator

Thank you. And our next question comes from Brett Linzey with Vertical Research. Your line is open.

Brett Linzey -- Vertical Research -- Analyst

Hey, good morning all. Just wanted to come back to margins. Obviously, a lot of noise with FX and deal impacts moving through the reported margins, what were the core incremental margins that you saw in the quarter at the total company level and at the segment level?

William Burke -- Chief Financial Officer, Executive Vice President

Okay, at the AMETEK level it was 35% and at the EIG level, it was 50% and at the EMG level, it was 25%. So pretty typical performance, very strong performance and that we're very pleased with it.

Brett Linzey -- Vertical Research -- Analyst

Okay, good. And then just a follow up on the order question. I appreciate the color in the 3.5%. What did that look like at the segment level? Were both positive? Or was the complexion one negative, one up? And then within that order number, should we assume that, that includes roughly 2 points of price similar to what you realized at the sales line in the quarter?

William Burke -- Chief Financial Officer, Executive Vice President

Yes, you probably should assume that, because our pricing has been pretty consistent. At the group line, EIG was up 5% organically in orders and EMG was up 1% organically in orders. And EMG had the toughest hurdle because last year, we had the very difficult comp at 12% and EMG was a bit stronger than EIG. So really, all of our businesses had solid order performance. And we have a, as I said before, an excellent book-to-bill and record backlog. So we're feeling really good about the orders and it's really across-the-board.

Brett Linzey -- Vertical Research -- Analyst

Okay, good and then maybe just one last one on pricing. Very good pricing power all year really. As you guys look out into the balance of the year and you're seeing some of these commodities and raw material start to moderate here, is there a period of give back? And maybe if you could just update us or remind us how your pricing mechanisms work specifically within the metals business?

William Burke -- Chief Financial Officer, Executive Vice President

Yes. I'd say in AMETEK, except for the metals business, there isn't a period of give back. I think within the Metals business, we don't really count that as price. So that's just the commodity fluctuations that get passed on to the customer. And what you really have there is a lot of the metals have stabilized, but the price of Vanadium is one metal important to us that's dropped recently. So that will have a modest impact as we go forward on EMGs specially metals business, but I don't expect much of an impact at the AMETEK level.

Brett Linzey -- Vertical Research -- Analyst

Okay, great. I appreciate it. Thank you.

Operator

Thank you. And our following question comes from Robert McCarthy with Stephens. Your line is open.

Robert McCarthy -- Stephens -- Analyst

Good morning, everyone. Congratulations on other solid quarter. It's nice to have a boring AMETEK, right? Yes -- but I guess from that perspective, in some of the excellent questioning that was ahead of me, I think it is a question about kind of the guide and the cadence for the year. Could you talk about that in the context of -- you have entered a, kind of, slightly different range for the kind of deals you're looking at in terms of growth and potential evaluation and even underlying margins. Do you think given what the properties you're looking now just dictated by the market environment, the pricing environment, do you think that some of the accretion is being blunted so that we might see it a little bit more next year? Or another way to saying it is, of the deals you've announced so far, what would you expect for kind of accretion in 2020 given the fact that it sounds like we do have a lot of puts and takes for '19?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Right. Yes, I think in '18, we said that there was about $0.12 of benefit -- in '19 there was about 12% -- $0.12 of benefit from M&A. And we got a lot of deals, slugger deals at the end of 2018. So those deals are working their way through the system. And there's certainly a lot of integration activities going on. So yes, from those deals, the timing wise will be -- they will have a potentially bigger benefit in 2020, but we're still seeing good margins now with our core business. And that's very positive on those deals and the integrations are progressing very well. So they're spread out among our operating units and we feel good about them.

Robert McCarthy -- Stephens -- Analyst

And forgive me for another, kind of, impolitic question, but it's easier to ask these questions when your stock has rallied as significantly as it has and the investor perception has changed radically as it has over the last 3 years. But If you're so critical about yourself and the organization over the past 3 to 4 years in terms of M&A, were -- how do you miss on a transaction? Or how do you grade yourself on where your pitfalls are with AMETEK's strategic style in terms of going after assets?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

I think, our style was one that equates to returns. And we look for cash on cash after tax, return on invested capital of 10% in year 3 on all these deals. And we haven't changed that. And we're getting that kind of return on the deals we're getting done, and we're not chasing deals that we can't get a return on. So our critique may be that we're not paying the inflated prices, but we feel very comfortable in the long run that there's a lot of discipline in our system. We want to maintain that discipline. And we look at the return on total capital on our balance sheet, that return on capital is about 30% in the first quarter. Our cost of capital is more like 8%, 8.5% and we think the difference between the 2 as what we're creating a value for our long-term shareholders, and we look at that very closely. So that's the key driver behind our acquisition strategy. We have a lot of discipline and we don't plan to change that.

Robert McCarthy -- Stephens -- Analyst

Thanks for your time.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Rob.

Operator

Thank you. And our following question comes from Deane Dray with RBC Capital Markets. Your line is open.

Deane Dray -- RBC Capital Markets -- Analyst

Thanks, good morning, everyone.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Good morning, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

Hey. Just like to go into some of the variables and puts and takes in the quarter, if I could. Some of the dynamics that the industrial companies have been contending with and any puts and takes that you've seen regarding tariff? Second one is a pull-in. Some of the companies cases where they actually had bigger demand pulled out of the first quarter to the fourth quarter. Did you see any of that? And then anything about not typically some of the complain about the weather, but was there any factor there too ? Just start there too, please.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Okay, I guess I'll start with weather, and it didn't have a measurable impact on our business. So with the tariffs, Q1 '19, it was a situation played out as we predicted. We had about $0.01 from the direct impact from tariffs, and we offset that totally with price. And our sourcing activities have been successful in reducing the growth tariffs, and we're active in containing those sourcing plans. So price actions completely offset the tariffs and we feel good about that. And your last question regarding the pull-ins, we look very hard at the pull-ins and there's always something pulled into Q4 before the end of the year maybe to avoid a price increase, but it wasn't any different than any other prior year. So we're not just saying we put a lot into Q4 '18, we really looked at it hard and it looked about the same to us. So those are the answers.

Deane Dray -- RBC Capital Markets -- Analyst

That's all -- yes, those are all good to hear. And just going back to the record backlog. And just could you remind us how much of your backlog would convert in 2019? What percent of that? And just talk about that visibility that, that gives you.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

I think, it's about 85% comes out in the next year. So it gives you some very good visibility. But quite frankly, there were number of our businesses that are booked and shipped in the month or the quarter. So you don't want to take it too far, but it -- 85% of that $1.7 billion is going to go out this year.

Deane Dray -- RBC Capital Markets -- Analyst

Great and then last question for me, was -- were there any growth investments in the quarter that you would call out it and what just remind us what the growth investment budget is for 2019?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Right. I highlighted the product development and EDAX and also the product development in the adjacent expansion Rauland. Those were the highlights. And regarding investment for the year, we're investing about $80 million of incremental investments in sales, marketing and engineering activities, that's $80 million more than we invested in '18. So -- and that's -- that spend is relatively linear through the year, and we're getting a good return on it. So certainly, we're investing heavily, but our businesses are really focused on getting a return, and we're very pleased with our new product development activities and also the work we're doing at commercial excellence and improving our capability go to market.

Deane Dray -- RBC Capital Markets -- Analyst

Great to hear. Thank you.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Deane.

Operator

Thank you. (Operator Instructions) Our next question comes Richard Eastman with Baird. Your line is open.

Richard Eastman -- Baird -- Analyst

Yes, good morning. Dave, Just looking at the core growth rates in the quarter, the 3% for EIG and 7% for EMG against really a tough comp. I'm curious, as the revenue shook out in the quarter, was there any movement between segments? Was EMG may be a bit of a positive surprise? And maybe anything in EIG that maybe became an order that didn't ship or is there -- was there any movement between the segments here relative to the first quarter macro?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, the one -- first point though, I'll make a small correction that what you said, the EIG organic growth was 4% in Q1, not 3%.

Richard Eastman -- Baird -- Analyst

Okay, fair enough same question then applies.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, same question applies. And it really played out as we thought. I mean, we had a forecast that was -- and both side of the business met their forecast. So it's pretty much a very -- from the sales execution side, it was a very predictable quarter for us.

Richard Eastman -- Baird -- Analyst

Okay. And the one thing that steps out from a margin perspective, your core margin in EIG of -- I think, you said it was up 110 basis points on the core side. Was that primarily -- I mean, what are the dynamics there? Is it mix? Was there more price there in EIG product lines or mix? Or seems like a very positive variance.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, you're right Rick, it is a positive variance. And you have the cost reductions factored in also. But our pricing that we got 2% in the quarter was broad based across our portfolio, but it's a little bit higher in the EIG than EMG. And we definitely had a positive mix. I mean, at this stage of the cycle, people who're buying our fully auctioned products, they have money to spend and our mix is positive. So those are 2 -- really 3 factors: we managed cost well, we got good price in the EIG and the mix was positive.

Richard Eastman -- Baird -- Analyst

Okay, and then just last question. Around the M&A and the deals that are kind of in your pipeline or potential deals in the pipeline, a couple of things. One, are they skewed? The prospects, are they skewed toward either EIG or EMG? And is there a theme in your pipeline around the type of businesses or the products, maybe you could just address that, perhaps?

William Burke -- Chief Financial Officer, Executive Vice President

Yes, EIG is about 2/3 of our business and EMG is about 1/3. So I think, the pipeline reflects that skewing. We're looking on a lot of our businesses broad-based, looking at differentiated products. The secular versus the cyclical markets would be a priority. So it's a lot of what you've seen recently. There's healthcare, there's more process instrumentation. There's an automation business, there's some very good properties we're looking at, the Power & Industrial segment. So the Aerospace business, I mean across-the-board, we're looking and...

Richard Eastman -- Baird -- Analyst

Okay, yes. Is there a healthy element of this kind of connectivity theme or any type of software extensions to the hardware? Is that represented in there as well?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

A little bit. You see a little bit with around and a little bit with Telular and things like that. That's certainly a theme we're looking at. But it's not -- doesn't define our entire pipeline for sure.

Richard Eastman -- Baird -- Analyst

Yeah. Okay, very good. Thank you.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Richard.

Operator

Thank you. And our following question comes from Joe Giordano. Your line is open.

Joe Giordano -- Cowen -- Analyst

Good morning guys. Hey. So if you had a guess -- if you spent the same amount in 2019 on M&A as you did in 2018, is it more likely that in 6 deals, more than 6 deals, less than 6 deals, like you are skewing the size that's in your pipeline right now?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

I don't want to guess, Joe. Because the pipeline has some more sizable deals and also has some smaller deals. And with our disciplined approach, you don't know what you're going to find. So we could spend the same as we spent last year, we could spend a lot more. We could spend less. And the deals could be a lot of different sizes. So I don't want -- that's pretty hard to predict at this point in the year.

Joe Giordano -- Cowen -- Analyst

Fair enough. Dave, one of the things you focused on when you came on to CEO role was kind of spending to reinvigorate organic growth around the front end of the business. And certainly that's shown through on results, but part of that is also your underlying markets getting better. So how would you kind of break that down between success internally at AMETEK relative to just your markets getting better over the last couple of years here?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, that's -- we just finished our ninth quarter in a row with an average organic growth of 6%. So we're really pleased with that. But clearly, the economic environment helped us, but certainly the focus and work that we're doing has improved also. Our customer facing capability is really improved. And our teams are excited and we're seeing positive results from growth kaizens and digital marketing and our sales force is much more effective. We're driving aftermarket growth and it's becoming part of our culture and an important part of our businesses. And so it's very difficult to bifurcate between the market growth and the company's specific growth, but I can just tell you that we're making great progress. And we'll let the numbers speak for themselves.

Joe Giordano -- Cowen -- Analyst

And then may be last if you could do your kind of wrap up of everything on your ...

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Sure. Yes. If I go around the horn with market segment commentary. Our Process -- I'll start with Process. Our Process businesses had an outstanding start to the year. Overall sales were up mid teens. The growth was mid-single digit organically and contributions from the acquisitions of SoundCom, Forza, Telular and Spectro Scientific. Our Materials Analysis businesses did saw particularly strong and broad-based growth. And they're continuing to see solid demand for their high-end analytical instrumentation. So that team has done an excellent job. For all of 2019, we continue to expect organic sales to be up mid-single digits. Our Aerospace and Defense business delivered excellent results. As I talked about before, high single-digit organic growth for the quarter.

Growth remains solid across our various Aerospace markets with notable strength across our military and commercial OEM businesses. For all of 2019, we continue to expect mid-single-digit organic sales growth with balanced growth across each market. For our Power & Industrial sub-segment, we saw mid-single-digit growth in the first and that was driven by the recent acquisition of Motec. Organic sales were flat in the quarter for Power & Industrial, in line with our expectations. We had a difficult prior year comparison in our Power, Test and Measurement business. And for all of 2019, we continue to expect low to mid single digit organic growth driven by the strength of our backlog and the solid order patterns that we're seeing across these businesses.

And finally for our Automation & Engineered Solutions, we saw a growth across those businesses. They remain solid with mid-single-digit organic sales growth in the quarter. We continue to see excellent growth from our Dunkermotoren business tied to the automation macro trends serving. In addition, we saw notable strength across our engineered medical components business in the quarter. That team is really doing a fantastic job, the EMC business. And for all of 2019, we continue to expect solid mid-single-digit organic sales growth for our Automation & Engineered Solutions business. So I think, that's a walk around the horn, Joe.

Joe Giordano -- Cowen -- Analyst

Thank you.

Operator

Thank you. Our following question comes from Steve Barger with KeyBanc Capital Markets. Your line is open.

Ken Newman -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. This is Ken on for Steve. Hey, I just wanted to clarify, so the hurdle rates within your M&A pipeline haven't changed in terms of deal size or return metrics in multiples versus what you've said on prior calls, is that correct?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

No change.

Ken Newman -- KeyBanc Capital Markets -- Analyst

No change. So on the larger end, then the $300 million to $500 million in revenue type size or deal size is probably at the upper echelon?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Correct.

Ken Newman -- KeyBanc Capital Markets -- Analyst

Okay, and then it does seem, as my follow on, it seems that you're pretty positive on end markets outside of maybe some uncertainty from trade policy, but just given maybe some of the conservatism in your guidance, I'm curious to hear what your view is on the cycle? Where do you think -- what inning do you think we're in right now? And how much more legs does this cycle have you think?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

They're very difficult to predict. As we communicated early in the year, we expect solid growth this year, but it's -- the growth is going to moderate a bit. And it's driven by the trade tensions, the global macro uncertainty and additionally, we had some very difficult comps. And we're staying close to Asia because of the trade difficulties. But overall, it feels pretty good and our guide is typically a bit conservative, and we're waiting to see things play out, but we feel good about the year.

Ken Newman -- KeyBanc Capital Markets -- Analyst

Got it. Last one for me, and I'm sorry if I missed it, how much of the $80 million in OpEx savings have been realized in the first quarter?

William Burke -- Chief Financial Officer, Executive Vice President

$18 million of the $80 million, right on our plan and that will accelerate a bit as we progress through the year.

Ken Newman -- KeyBanc Capital Markets -- Analyst

Thanks a lot.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Ken.

Operator

Thank you. And our next question is from Robert McCarthy with Stephens. Your line is open.

Robert McCarthy -- Stephens -- Analyst

You can't get rid of me, I turn up like a bad penny. So just a couple of more since we're rounded out for the hour. Touching on your Asia comments and then obviously, you're not exactly a bellwether or like 3M in terms of the broad octopus touching every different end market. But you did highlight kind of some incremental softness there coming into February some uncertainty, then March rebounding. And I think you made a comment about the Asia as a whole, right? Versus China specifically. So maybe you could just amplify your comments there in terms of what you're seeing, in terms of what's going on?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes. So, as I said, Asia was roughly flat. China sales were down mid-single digits against a difficult comp. We had done very well over there for the better part of 2 years. And -- but the China orders were up low single digits for Q1. So similar to Asia, we had tremendous order input in China in March. I mentioned the dynamic of very slow February tied to the Chinese New Year. The other thing our MAB business, our Materials Analysis business had a great quarter in China. And some of our project businesses with difficult comps were off a little bit. So when you look at China as a whole, we had good orders in line with low single digits for Q1. And for the full year for China, we expect the growth to be in line with 3% to 5% of all of AMETEK. So it's moderating from the double digits growth for past couple of years but still solid. And we're still staying close to it. But there was a bit of uncertainty. It's the one uncertainty that we're watching closely because of the global trade situation.

Robert McCarthy -- Stephens -- Analyst

Two more, if you'll forgive me. One, you were mail wanted to ask about Brexit, any kind of impact there that we should be thinking about?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, U.K. accounts for about 4% of AMETEK sales. We are preparing for a hard Brexit, so we're not assuming there is a political solution. Now the can's been kicked on the road. It's been delayed until the fall. Surely there may be some administrative issues that may cause delays in getting product in and out of Europe into the mainland. But our businesses are very in tune with the issue. We probably are carrying about GBP 1 million of inventory to different free position to make sure that we're going to be able to sustain a short-term problem. But we -- our businesses from the U.K. do a lot of exporting already not to the mainland. So we know how to export from the U.K. There may be some administrative issues in the short term and we're hoping for a solution, but again, preparing for a hard Brexit.

Robert McCarthy -- Stephens -- Analyst

And then finally just on the M&A environment, obviously, it's what you guys ultimately do, you go out and buy these private companies, closely hold companies, some public companies, but ultimately make them a heck of lot better and create a lot of value, which is wonderful and as you know, God's work, as a compounder. But I guess the question I have is given the prevailing environment where evaluations are, where funding is and optionality, how do you think about the potential for selective divestitures in the portfolio? And how do you think about the repurchase option, which you obviously hit the ignition on in the last 6 months?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, our #1 priority for capital allocation is to pour our capital on acquisitions and buy good businesses and make them better. That's generated a long-term return for our shareholders and it's a clear priority. At the end of last year, we have an opportunistic approach to buybacks, our stock significant market dislocation and we deployed a significant amount of capital and bought back some shares in the low 70s that looks like a good move at this time. And then the priority 3 for the capital allocation will be a modest, consistent dividend. In terms of your other question about our portfolio, we are in process of completing our annual, strategic review. This is where we closely look at all our elements of our portfolio. In the review last year, we concluded that we're very comfortable with our portfolio, and we had clear profitable growth opportunities for each of our businesses. So our strategy is to focus on a broad diverse set of niche markets. And we don't want to become exposed to any one single market, customer or technology. And -- but we haven't completed our review that -- if you share. We do it every year. And we go through that review and we come to a different decision we'll let you know, but we're comfortable with our portfolio.

Robert McCarthy -- Stephens -- Analyst

Thanks again for your time.

Operator

Thank you. And our next question comes from Scott Graham with BMO Capital Markets. Your line is open.

Scott Graham -- BMO Capital Markets -- Analyst

Hey, good morning, Dave, Kevin and Phil. Yeah, I do have 3 more, believe it or not. So I just want to understand the cadence of organic that you're thinking this year. Obviously, you, kind of, came in at the high-end of this quarter on the organic, but also obviously, if you look at the stack comp, your second half comps kind of jump up 200 basis points versus the first half. So would -- are you guys kind of thinking that 3% to 5% kind of comes in a little heavier in the first half than in the second half?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Not really. I mean, I wouldn't read too much into it. I mean, we grew sales organically at the high-end of our guidance range and it's still early in the year. And we want to be prudent. So that would be the biggest driver. As we mentioned before, we do have some tough comps. And that's driving some moderating growth, but we're feeling good with how the year's playing out nicely for us, one quarter behind us.

Scott Graham -- BMO Capital Markets -- Analyst

And I guess this is -- next one is a question for both you and Bill. You know as I know from history you typically can really get some good working capital out of your acquisitions after that first 6 to 12 months, kind of, thing. Could we expect an acceleration in free cash flow as the year progresses both of that?

William Burke -- Chief Financial Officer, Executive Vice President

Yes, I would say that the free cash flow will probably be a little bit more heavily weighted into the back half of the year than it is in the front half. And I think, it's -- as you mentioned, we're able to drive the benefits from businesses that are now inside the AMETEK portfolio for a longer period of time as well as getting after improving working capital performance across all of our base businesses.

Scott Graham -- BMO Capital Markets -- Analyst

Got it. So my last question is kind of going back to an earlier question on M&A, but more specifically, on the segments. There has been a profound difference in M&A in EIG versus EMG. And I'm just trying to wonder why that is? I mean, I'm looking at the organics from Electromechanical over the last couple of years, they've been outstanding. And I'm also thinking that I know you are into the connectivity thing, and Dunkermotoren is on that side of the house. So kind of like what's going on there that is not -- where we're not seeing more M&A on that side of the house?

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Yes, I -- yes, we're seeing some M&A on that side of house. We did FMH Aerospace last year. And we're actively looking. All of our businesses put together a strategic plan and we look at those opportunities. And when you look at the characteristics, the differentiation, we have very differentiated businesses with Dunkermotoren with our Aerospace business. So our Aerospace business had an outstanding quarter this month. So we're looking at both sides of the house. And I think, over the past 10 years, there's at one point, EIG and EMG were about the same size and EIG has just grown a little bit bigger. So there's clearly a strong desire to do acquisitions on either side of the business.

Scott Graham -- BMO Capital Markets -- Analyst

Would you maybe as a corollary to that, would you say that, and this is my speculation, of course, Aerospace particularly after market oriented as well as connectivity assets, which are on the Electromechanical side of the house, that the prices for those deals are a little higher than what you would want for your ROIC, or is that just a bad guess?

William Burke -- Chief Financial Officer, Executive Vice President

I can't -- I wouldn't say that, I wouldn't say that. The pricing is really dependent on the niche market that we're looking in and the expectations of the seller. So I wouldn't say that. I mean, there's a big difference between EIG and EMG from the product portfolio. The EIG has a lot of direct aftermarket, with the end users and EMG in large part is a OEM supplier except for the Aerospace business. So -- but really, we're looking on both sides, and I wouldn't draw anything from your prior point.

Scott Graham -- BMO Capital Markets -- Analyst

Understood. Thank you.

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

Thank you, Scott.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Kevin Coleman for closing remarks.

Kevin C. Coleman -- Vice President of Investor Relations

Great, thank you, Sydney. Thank you everyone, for joining today. And as a reminder, a replay of today's webcast can be accessed on our website later today. Have a great one.

Operator

Ladies and gentleman, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Duration: 60 minutes

Call participants:

Kevin C. Coleman -- Vice President of Investor Relations

David Zapico -- Chairman of the Board, Chief Executive Officer, Director

William Burke -- Chief Financial Officer, Executive Vice President

Matt Summerville -- DA Davidson -- Analyst

Andrew Obin -- Bank of America -- Analyst

Bhupender Bohra -- Wolfe Research -- Analyst

Brett Linzey -- Vertical Research -- Analyst

Robert McCarthy -- Stephens -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

Richard Eastman -- Baird -- Analyst

Joe Giordano -- Cowen -- Analyst

Ken Newman -- KeyBanc Capital Markets -- Analyst

Scott Graham -- BMO Capital Markets -- Analyst

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