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AMETEK Inc (New) (NYSE:AME)
Q4 2019 Earnings Call
Feb 5, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 AMETEK, Inc. Earnings Conference Call. [Operator Instructions]

It is now my pleasure to hand the call over to VP, Investor Relations, Kevin Coleman.

Kevin Coleman -- Vice President, Investor Relations

Thank you, Andrew. Good morning and thank you for joining us for AMETEK's fourth 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 fourth quarter results were released earlier this morning and are available on market systems and in the Investors section of our website. This conference call is also being webcasted and 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 Tax Cuts and Jobs Act. 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 with prepared remarks by Dave and Bill and then open it up for questions. I'll now turn the meeting over to Dave.

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

Thank you, Kevin, and good morning, everyone. AMETEK delivered excellent performance in the fourth quarter, capping another year with exceptional results, highlighted by strong sales growth, outstanding operating performance and robust capital deployment on strategic acquisitions. In 2019, we achieved records for essentially all key financial metrics, including sales, EBITDA, operating income, earnings per share, operating cash flow and free cash flow.

As a result of this strong cash flow and consistent cash flow, we successfully deployed $1.1 billion on two strategic acquisitions. These excellent results are driven by the AMETEK Growth Model and the efforts of our talented employees worldwide. AMETEK is committed to our mission of solving our customers' most complex challenges with differentiated technology solutions and delivering long-term sustainable success for all stakeholders.

Now on to the details of the fourth quarter results. Sales in the quarter were a record $1.3 billion, up 3% over the same period in 2018. Recent acquisitions contributed 5%, organic sales were down 1.5% and currency was a 0.5 point headwind. Fourth quarter operating income increased 6% to $298 million. Reported operating margins expanded 60 basis points to 22.8%. Excluding the dilutive impact of acquisitions, operating income margins expanded an outstanding 90 basis points over the prior year.

EBITDA was a record $354 million in the quarter, up 7% over 2018 fourth quarter. Earnings for the fourth quarter increased 13% to $1.08 per diluted share, outperforming our guidance range of $1.01 to $1.03. Our businesses also generated a record $342 million in operating cash flow in the quarter, a 16% increase over last year's fourth quarter. This led to a superb cash conversion ratio of 137% for the quarter.

Now on to the fourth quarter details for our operating groups. The Electronic Instruments Group delivered strong operating performance with solid sales growth and margin execution. EIG's fourth quarter sales were a record $880 million, up 7% year-on-year, driven by contributions from recent acquisitions. Organic sales and currency were both flat in the quarter.

EIG continues to drive meaningful efficiency and productivity improvements through our operational excellence initiatives. These efforts led to another quarter of strong operating performance. EIG's operating income in the quarter was a record $230 million, a 7% increase over the same quarter in 2018. Reported operating margins expanded 10 basis points to 26.1%. Excluding acquisitions, operating margins expanded 60 basis points.

The Electromechanical Group also delivered a solid quarter with strong operating performance. EMG sales were $425 million in the quarter, down 5% versus prior year, with organic sales down 4% and currency a 1 point headwind. The lower sales were driven largely by continued softness across our automation markets. Despite this softness, the EMG group responded with solid operating performance. Operating income in the quarter was $85 million with reported operating margins expanding 60 basis points to 19.9%. Excluding acquisitions, operating margins increased 70 basis points over the prior-year period.

Now for the full year results. 2019 was an exceptional year for AMETEK with record results. Overall sales were up 6.5% to $5.2 billion. Full year operating income was $1.2 billion, increasing 9% over the prior year, and reported margins were up 60 basis points to 22.8%. Excluding the dilutive impact of acquisitions, operating margins expanded an impressive 100 basis points over 2018. EBITDA for the year was a record $1.4 billion, up 10% over 2018 and 26.9% of sales. This led to outstanding profit growth with earnings per diluted share of $4.19, an increase of 14% over last year's comparable basis and well above our initial 2019 guidance range of $3.95 to $4.05.

I would like to thank all AMETEK colleagues for their exceptional efforts during the quarter and throughout the entire year.

Before I discuss our 2020 outlook, I wanted to touch on some of the highlights from 2019 that relate to the AMETEK Growth Model. I'll begin with acquisitions.

We had another exciting year on the acquisition front, deploying nearly $1.1 billion on two highly strategic acquisitions, Pacific Design Technologies and Gatan. This follows an equally strong 2018, where we also deployed $1.1 billion on acquisitions. And we're off to a good start in 2020, announcing the acquisition of IntelliPower this morning. IntelliPower is a leading provider of high-reliability, ruggedized, uninterruptible power systems for mission-critical defense and industrial applications. IntelliPower is a leader in the niche markets, given their unique technology and expertise. Their products and solutions perfectly complement our power systems and instruments businesses and deepen our expertise in high-reliability power protection applications. Annual sales for IntelliPower were approximately $40 million and we deployed $115 million on the acquisition.

We remain very confident in our ability to identify, acquire and integrate excellent businesses into AMETEK. Our acquisition process from deal sourcing to due diligence, to integration is a core competency at AMETEK. Our pipeline remains strong and we look forward to another excellent year.

In addition to these acquisitions, we made the strategic decision to divest our Reading Alloys business as part of our portfolio review process. We entered into a definitive agreement to sell the business to Kymera International in an all-cash transaction valued at $250 million. This transaction is expected to close during the first quarter of 2020, subject to customary closing conditions.

As a leading provider of highly engineered materials, Reading Alloys experienced solid growth in sales and profitability since being acquired by AMETEK in 2008. As we continue to evolve our portfolio to high-end, differentiated technology solutions with less cyclicality, we thought it was appropriate to explore options for the business. In the end, we believe this is an excellent outcome for all parties, as Kymera is an excellent partner for Reading to support their next stage of growth.

For AMETEK, proceeds from the sale will be redeployed on our acquisition strategy, which remains our number one priority for capital deployment. I would like to thank Reading Alloys employees for their hard work and contributions to AMETEK and wish them continued success in the future.

Our operational excellence strategy continues to drive record results and impressive efficiency improvements. In 2019, we generated approximately $95 million in operational excellence savings. This level of savings is an increase from our initial estimate of $80 million and speaks of the flexibility of the AMETEK Growth Model to drive higher levels of productivity in the face of softening market conditions.

Our businesses continue to utilize our operational excellence toolkit to improve efficiencies and productivity. A great example of these efforts came from our new instruments team, which won the Dr. John Lux Operational Excellence Award in 2019.

During the year, the new instruments team conducted an operational excellence Kaizen and implemented Lean processes to reduce the manufacturing cycle time of their scientific instruments for elemental and isotopic analysis. These changes drove a 40% reduction in working capital, shortened lead times for their customers, and improved sales and profit growth at the business. Congratulations to the new instruments team on this outstanding achievement. This is one of the many examples across AMETEK of our businesses driving meaningful productivity improvements through leveraging our operational excellence tools.

Our businesses also continue to enhance our competitive positions through new product development and global and market expansion. In 2019, our businesses unveiled dozens of innovative new products and solutions. These solutions included award-winning advanced 3D scanners for quality control and quality assurance, revolutionary plasma viewing technology for laboratory analysis, high-speed digital imaging technology, highly specialized test and measurement devices, and X-ray micro-analysis instrumentation.

We remain focused on investing in this innovation to power our future. In 2019, we invested approximately $260 million, or about 5% of sales, in the research, development and engineering of new products and solutions. These new technologies have been well received by our customers, as shown by our vitality index, which measures the level of sales generated from new products and solutions introduced within the last three years. In the fourth quarter, our vitality index was an outstanding 25% percent, speaking to the success of our product development efforts.

Our businesses are also expanding our global footprint to reach customers in new geographies and adjacent markets. As an example, in 2019, we unveiled new technology solution centers in both Singapore and France. These state-of-the-art facilities enable our businesses to showcase their products and solutions and better serve their customers with design, implementation, calibration and service capabilities. We remain focused on investing in these opportunities to expand our international sales channels and develop new innovative ways to better serve our customers and support our global growth initiatives.

Now, I'll move to our outlook for 2020. While we remain cautious, given the current uncertainties of global macro environment, we are highly confident in the strength of the AMETEK Growth Model and in our ability to continue to deliver strong performance. As such, we expect 2020 earnings per diluted share to be in the range of $4.24 to $4.38, an increase of 1% to 5% over 2019's comparable result. This guidance range assumes the divestiture of Reading Alloys during the first quarter and excludes the gain on the anticipated sale. Overall sales in 2020 are expected to be up low-single digits with organic sales roughly flat for the year.

For the first quarter, we anticipate overall sales to be up low-single digits versus the prior year. First quarter earnings are expected to be in the range of $1.01 to $1.04 per diluted share, a 1% to 4% increase over the prior-year period.

So in summary, AMETEK delivered excellent performance in the fourth quarter, concluding a year with exceptional results in a decade that saw tremendous growth for AMETEK shareholders. The AMETEK Growth Model is proven and scalable and will continue to drive long-term sustainable success for our stakeholders.

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

William J. Burke -- Executive Vice President and Chief Financial Officer

Thank you, Dave. As Dave mentioned, AMETEK completed 2019 with excellent performance in the fourth quarter. Let me provide some additional financial highlights for both the quarter and the full year.

Fourth quarter general and administrative expenses were down modestly from the prior year, and as a percentage of sales, were 1.3%, down from last year's level of 1.5% of sales. In 2020, general and administrative expenses are expected to be approximately 1.5% of sales, in line with the full year 2019.

The effective tax rate in the fourth quarter was 17.6%, down from last year's adjusted rate of 22.8%. The lower tax rate in the quarter was due to the tax benefits from stock compensation and the finalization of our 2018 tax returns. For 2020, we expect our effective tax rate to be between 20% and 21%. 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 in the quarter was excellent at 17.3%, down from 18.2% in the third quarter. Capital expenditures were $41 million in the fourth quarter and $102 million for the full year. We expect capital expenditures in 2020 to be at a similar level to 2019 at approximately 2% of sales, reflecting our asset-light business model.

Depreciation and amortization expense in the quarter was $64 million and the full year was $234 million. In 2020, we expect depreciation and amortization to be approximately $265 million, including after-tax acquisition-related intangible amortization of approximately $120 million, or $0.52 per diluted share.

As Dave has highlighted, our businesses continue to generate tremendous levels of cash flow. Operating cash flow in the quarter was a record $342 million, up 16% over last year's fourth quarter. Free cash flow was also outstanding, up 15% versus the prior year to $301 million. Free cash flow conversion was exceptional at 137% of net income.

Our full year cash flow levels were also at records. Operating cash flow for 2019 was $1.1 billion and free cash flow was $1 billion, each increasing 20% percent over 2018. Free cash flow conversion in 2019 was an outstanding 118%.

We continue to successfully deploy our strong cash flow on strategic acquisitions. We had another outstanding year in 2019 with $1.1 billion deployed on the acquisitions of Pacific Design Technologies and Gatan. Subsequent to the end of the fourth quarter, we deployed $115 million on the acquisition of IntelliPower.

In addition, in the fourth quarter, we paid off $100 million of private placement senior notes, which matured in the quarter. Total debt at December 31 was $2.77 billion, up 5% from the end of 2018. Offsetting this debt is cash and cash equivalents of $393 million, resulting in a net debt to EBITDA ratio of 1.7 times at year-end, consistent with year-end 2018. Following the acquisition of IntelliPower, we have approximately $1.4 billion of cash and existing credit facilities to support our growth investments.

To finish, I'd like to echo Dave in thanking our colleagues for their excellent work in 2019. Our businesses delivered exceptional performance in the quarter and throughout the entire year. We are well positioned for continued growth in 2020 with a strong balance sheet and excellent cash flows. Kevin?

Kevin Coleman -- Vice President, Investor Relations

Great. Thank you, Bill. Andrew, can you please open the line for questions?

Questions and Answers:

Operator

Certainly. [Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson.

Matt Summerville -- D.A. Davidson -- Analyst

Thanks. A couple of questions. First, Dave, can you maybe talk about what your expectation is from purely an organic standpoint as we sort of cadence throughout the year from quarter to quarter, maybe first half versus back half, embedded in your guidance?

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

Yeah sure, Matt, and good morning. Really when we think about our guidance for organic growth in 2020, we're really assuming the same activity level that we saw in the fourth quarter and similar run rates expected throughout all 2020. So there isn't a back-end hockey stick at all on our forecast. It follows a pretty typical H1, H2 of AMETEK. And now, in terms of what it'll look like as you proceed through the year, you'll have some negative organic growth comps during the first quarter -- the first half. But in terms of the level of activity, it's pretty linear sequentially and reflects the continuation of the pace of activity we saw in Q4 '19.

Matt Summerville -- D.A. Davidson -- Analyst

Thank you. And then just as a follow-up, can you do sort of your traditional walk through the businesses, what you saw in Q4 and kind of what the expectation is for 2020 across the portfolio? Thank you.

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

Sure, Matt. Now, I'll start with our Process business. Now, they completed an excellent year in 2019 with a solid fourth quarter. Overall sales were up high-single digits, driven by contributions from acquisitions of Telular, Spectro Scientific and Gatan. Organic sales were flat in the quarter, generally in line with our expectations. However, we did see some slower discretionary capex at year-end. For 2020, we expect organic sales to be roughly flat versus 2019 for Process. Next, Aerospace: overall sales for our Aerospace & Defense businesses were up low-single digits in the fourth quarter, driven by the acquisition of PDT. Organic sales were down low-single digits against a very difficult comp, with a plus 10% Q4 '18 in last year's fourth quarter. We saw excellent mid-single digit growth across our Aerospace & Defense platform in 2019. In 2020, we expect another solid year of growth across our A&D businesses with organic sales up low-to-mid single-digits and balanced growth across each segment. Organic sales for our Power & Industrial businesses were up low-single digits in the quarter, with particularly solid growth in our Programmable Power business. And for 2020, we expect organic sales to be roughly flat across Power & Industrial. And our Automation & Engineered Solutions business saw a mid-single digit organic sales decline in the fourth quarter, driven by continued softness across our global automation businesses. In 2020, we expect our Automation & Engineered Solutions business' organic sales to be roughly flat versus the prior year. That's the roundabout [Phonetic], Matt.

Matt Summerville -- D.A. Davidson -- Analyst

Thank you.

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

You're welcome.

Operator

Thank you. And our next question comes from the line of Scott Graham with Rosenblatt.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Hi, good morning, Dave, Bill and Kevin.

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

Good morning, Scott.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

So a couple of questions. Thank you for answering Matt's question there.

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

He stole your question, Scott.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Yeah, that's OK. The oil and gas piece, I know, is a piece that has obviously been managed down over time, acquisitions, the whole thing. But obviously, that's taken -- that market has taken quite a turn for the worse with coronavirus, really kind of upsetting the sales side of things, I think, in the upstream. And I was just wondering kind of what you were thinking on oil and gas for the year? And then, I do have a follow-up on the automation business.

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

Okay. Yeah, in Q4, our oil and gas business was flat. There were some -- it performed well. There were some project timing in the Middle East, but it had a flat performance; and for the full year, was up mid-single digits. And for '20 -- for full year '20, we expect flat performance. And we have a smaller upstream presence. Over two-thirds of our presence has been downstream. So it's about a 6% exposure for the whole Company, about $300 million, and it's been growing and we've grown around it.

And the one point is, if you think back into the 2015, 2016 time period, the commodity-related businesses of AMETEK were 22% of our sales. After announcing the divestiture of Reading Alloys, that same commodity level businesses will be about 12% of our sales; so 6% oil and gas, 6% of metal. So we feel real good about our portfolio. We feel good about our exposures. And with the predominant oil and gas businesses in the mid and downstream, it looks solid. We're still at that $50 an order -- $50 a barrel level, when in -- in past, it has been OK for us. So we're feeling pretty good about it, and we have some good projects that we're working on and we have a good recurring revenue base in that part of the business.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Thank you for that. My follow-up on automation is simply, could you kind of break it up by end market where things are weakest? I'm assuming that oil still -- that auto still goes in the loss column for now. But maybe just a little more color on that business.

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

If you want to understand that business, what really happened is, the automation weakness continued and the European automation was weaker than expected. So if you think back to last quarter, Europe was kind of strong and Asia was a weak spot for automation. The US -- this quarter, the US was positive. The weak spot was really Europe. So Europe and Asia maintain weakness, and that's really the story in the automation business.

Now, a little bit of encouragement is, in December and January, sequentially, the orders normalized. So we seem to have found bottom and we'll see if that continues. But it's pretty much a geographical issue where the European weakness was the unanticipated weakness in Q4.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Thanks. That's hugely helpful. If I can just sneak this last one in, and it's a quick one. What's your productivity expectation for 2020?

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

Yeah, the productivity expectation for 2020 is $90 million. So we began 2019 at $80 million, and through the year, we were -- executed very well. We ended up at $95 million. But for 2020, for the start of the year, we set that at $90 million incremental. These are all incremental numbers. These are incremental productivity numbers that you'll see working through the P&L.

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Yeah. Thank you very much.

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

Thanks Scott.

Operator

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

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone.

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

Good morning, Deane.

William J. Burke -- Executive Vice President and Chief Financial Officer

Good morning, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

I might have missed this, but could you tell us what the organic orders were for the segments and maybe some comments versus expectations?

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

Yeah, sure. I'll go through the whole orders pitch. It was -- orders growth 8% -- up 8% in the quarter. Organic orders were down 2%, and both groups were down low-single digits. And as I said before, the weakness was driven by the automation and weaker year-end discretionary capex spending. And we're seeing -- now, with January and into the late parts of December, we're seeing sequential orders stabilize with our automation business. And we have a record backlog of $1.72 billion and we had a book to bill of 1.07 in the quarter. So that's the whole picture on orders, Deane.

Deane Dray -- RBC Capital Markets -- Analyst

Got it. And then look, the question de jure [Phonetic] this quarter everyone is being asked, how braced you're for disruptions in China? Is that about 9% of your revenues. Just in terms of potential demand disruptions and supply chain disruptions, is there anything embedded in your guidance for that? And kind of what near-term expectations do you have?

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

Yeah, the first point is, it's about 7% of our sales. And we're monitoring things very closely. First and foremost, we're focused on the safety of our employees, wellbeing of our employees. And from a business perspective, as you know, the situation is very fluid and difficult to quantify. So our full year guidance is based on what we know now, and we do know that we don't have any significant operations in Wuhan and -- nor any significant supply chain exposure to suppliers in the Wuhan City area. But we don't expect -- we do expect there to be some delays in the global supply chain and some unanticipated consequences of the supply chain disruptions. So we'll monitor this closely. And we do have very global supply chain capabilities, so adjust as possible and appropriate.

It's very difficult at this point to assess any end demand risk without knowing the severity or longevity of the situation. One point to highlight how fluid the situation is, although our facilities in China have not reopened following the Lunar New Year -- they'll reopen next week -- one of our facilities, the Chinese government asked us to reopen to operate in order to provide support to a couple of medical device manufacturers that we have in China. We provide motion control solutions to our customers who supply medical equipment used to help to detect the coronavirus. So we're up and running today with a line to fulfill that need. So it's really changing all the time. And I think we've taken the steps to focus on the safety of both our employees in China and around the world. And as we learn more and we quantify it, we'll let you know what that is.

Deane Dray -- RBC Capital Markets -- Analyst

Dave, that's real helpful. If I can just squeeze one more in, regarding the topic of other potential divestitures, we really did like seeing trimming the Reading Alloys business. I know it's a good business, but the cyclicality didn't quite match what you're looking for. Compounders don't typically divest because it's really hard to redeploy and get the same returns. But just are you looking -- as you look at the portfolio, are there any other potential candidates for trimming at the margin like that?

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

We do a strategic review every year, so we look hard at our portfolio. And Reading Alloys, as you mentioned, is a really good business, and it was just different for AMETEK and it was more cyclical and the value chain was different, but we didn't have the visibility that we had in our other businesses dealing with end customers. So it kind of stood out, and we made the decision to divest it. And it was a good decision. We still have a solid metals business. And we're very comfortable with our portfolio, and no other divestitures are planned at this time.

Deane Dray -- RBC Capital Markets -- Analyst

Very helpful. Thank you.

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

Thank you, Deane.

Operator

Thank you. And our next question comes from the line of Josh Pokrzywinski with Morgan Stanley.

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Hi, good morning, guys.

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

Good morning, Josh.

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Just a follow-up on Deane's question on the portfolio. I guess one of the unintended consequences of being kind of a long-term compounder with a good amount of success on the M&A side is that you need to do either larger deals or have higher velocity to kind of keep the momentum going. Clearly, 2019 was good evidence of both. When you look at the pipeline today, is it a bias toward larger acquisitions and should we see that become more the norm?

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

Yeah, that's a great question, Josh. There are clearly some larger acquisitions in our pipeline, but there are also some smaller-sized acquisitions, too, more typical and like the IntelliPower one that you saw that we announced today. And as you know, acquisitions are our first priority for capital deployment. We want to deploy all of our free cash flow on M&A. And we had a successful 2019 and we had a successful 2018. If you look over those last two years, we completed nine acquisition, we deployed about $2.3 billion and we acquired $610 million in sales. And I would say, our deal funnel remains consistent so that we should be able to do the same kind of thing going forward. And we're -- feels very good. Right now, we're evaluating a number of opportunities. As Bill mentioned, we have $1.4 billion of existing firepower with unused revolver capacity and cash. And even with these capital outlays, we're going to generate another -- anticipated to generate another $1.1 billion in free cash flow. So we're very active. We have a team dedicated to it. Acquisitions at AMETEK are the combination of a set of well-defined processes, not a single event. And we have processes to develop the pipeline. And I feel really good about that right now.

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Got it. That's helpful. And I guess, related to that, the productivity bogey [Phonetic] for 2020 looks very solid. I guess, is part of this kind of ramp in productivity, given that there are a lot of newer members of the AMETEK portfolio and running them through that operational rigor just leads to larger numbers? Or is there kind of another element of the of the productivity deck that you guys are unfurling?

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

Yeah, I think it's a combination of both. The acquisitions do provide more opportunities. But at the same time, our growth model is very flexible. And we get in times like the revenue starts to slow down. You saw in the last couple of quarters, we've been, business by business, looking at businesses and taking actions. And it's resulted in extremely strong execution and excellent margins. And we're continuing to get excellent pricing. We're continuing to get excellent productivity. So we really expect another strong year of execution in 2020, and it's really inherent in our model. We have operators who know how to run businesses through the cycle. And when the revenue line starts to waver a bit, then we know what to do, and we have a variety of contingencies planned. So I feel comfortable managing in this kind of environment.

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Thanks. If I can just sneak one small one in at the end here, clearly, CapEx budgets are still very uncertain, given all that's going on in the world. Any sense from customers that there is a bit of a coiled spring being formed in that there's projects that are set to release when we kind of get the all clear? Or are people just comfortable spending at lower levels?

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

Yeah. With the trade deals that recently have been signed, there's a bit of a momentum building, and now you're dealing with the coronavirus situation. So it's kind of tough to get a read. But certainly, we are feeling some positive momentum building, and it felt like people were willing to spend. And now, we'll just have to see the impact.

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Thanks Dave. I appreciate it.

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

Thank you, Josh.

Operator

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

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning, guys.

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

Good morning, Nigel.

Nigel Coe -- Wolfe Research -- Analyst

So your comments on December-January were interesting because it's sort of very opposite to what we're hearing elsewhere. I think your comments were more Europe, Asia as being weaker. And therefore, I'm wondering if you're seeing more stability in those regions. But my real question is more on the sequential Q-over-Q decline at EMG, it's down 8%, which tends to speak to some channel destocking activity. So I'm just wondering if could touch on that and then just comment on the sort of regional stability question as well.

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

Yeah, in the EMG, typically, parts of that business do have a slower fourth quarter historically, the calendar year. And it was relatively typical, the European automation business was -- we highlighted also in our aerospace business, our military business is in the EMG segment, and that saw some program delays that, I think, were just delayed a bit. But as I said, the businesses operated very well. We had excellent margin expansion. And certainly, that's the -- the automation business has been challenged throughout the year. And the team there has done an excellent job of taking actions, and those are included in the results. We haven't spiked those out because that's just an individual business. That's what we do. And that's where we're at, at EMG. It's really automation-driven. It's European automation specifically. And there was a little bit of military. That's just a timing issue. We have a very good backlog, but just a timing issue in Q4.

In terms of the globe, we were -- solid growth in the US, while Europe and Asia were down in the quarter. So we had low-single digit growth in the US, particularly in process and power. And Asia was down mid-single digits, and similar to performance we had in Q3. And Europe was a change. And when we look at 2020, we expect the US to do a little better and maybe the international markets a little a little worse, but there is a small difference between them. So as I said, we set our plan for 2020 at the same activity level we saw in Q4. We feel pretty confident with that.

Nigel Coe -- Wolfe Research -- Analyst

Thanks David. That's helpful. And your comments -- I think you mentioned the book-to-bill was 1.07 in the quarter, is that correct?

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

Yes.

Nigel Coe -- Wolfe Research -- Analyst

Yeah. That seems like a good number. I don't have the book-to-bill for the last fourth quarter, 4Q '18. How does that 1.07 compare to sort of your normal book rate during 4Q?

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

Yeah, I think that also has the acquisitions in that, where you're booking the backlog of the acquisitions. So I think if you normalize out for the acquisitions, it will be around 1 approximately.

Nigel Coe -- Wolfe Research -- Analyst

Okay. And that would be fairly normal.

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

Yeah, that's fairly normal.

Nigel Coe -- Wolfe Research -- Analyst

And just a quick one on D&A. I think you said $265 million for 2020. And that breaks up as $145 million for intangibles and then $120 million for tangible?

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

It's about -- for 2020, it's about $160 million for amortization, and depreciation is about $105 million.

Nigel Coe -- Wolfe Research -- Analyst

Okay, great. Yeah, thanks.

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

Thanks Nigel.

Operator

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

Christopher Glynn -- Oppenheimer -- Analyst

Thanks. Good morning, everybody. So, on record backlog, just wondering if you see kind of normal conversion going forward. It sounds like the military delays helped the backlog a little bit. So, wondering if that is just kind of a quarter push in your view and if EMG organic kind of is a little less negative, most likely in the first quarter.

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

Yeah. The EMG is -- the military is definitely going to correct itself, but the comps in Q1 are very difficult for EMG. So it will be roughly sequentially similar to the level it was in Q4. That would be the best way I can describe that, Chris. And did you have another question?

Christopher Glynn -- Oppenheimer -- Analyst

Yeah. The only one -- other one right now, a lot has been asked is, EMG. I missed the acquisition component in the quarter. I did get Pacific in there. But I didn't hear you mention any acquisition contribution.

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

Yeah, there was an acquisition component in EMG in the fourth quarter, and it was about 1 point.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Allison Poliniak with Wells Fargo.

Allison Poliniak-Cusic -- Wells Fargo -- Analyst

Hi, guys, good morning.

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

Good morning, Allison.

Allison Poliniak-Cusic -- Wells Fargo -- Analyst

Just want to follow along on Josh's comment on acquisition -- or his question. Clearly a strong year, but as we enter 2020, we talked about size, but has your thought process around technology or end markets changed as you look for deals?

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

That's a great question. Certainly, it's the similar type businesses that we're looking for, businesses that are non-cyclical, businesses that have a good percentage of recurring revenue. If we can't find those types of things, we're looking for the return in an existing -- around an existing exposure. And we have teams out there beating the bushes, digging up potential deals, and many of these companies, we've been following for years and years. And when AMETEK is looking at buying a business, it's often the ownership -- the private ownership, if they want to retire or they are trying to -- it's not how the stock market is doing or things like that. And the example of IntelliPower, we had a CEO who wanted to retire, and we've been working with them for years. So that's more of the type of deals that we're going to get during this time, and there's a wide variety of them. But we're looking -- in the healthcare area, we're looking to extend our process and analytical businesses, aerospace, power, it's all of the above. We won't buy any cost-driven businesses that win in the market on cost. We're looking for differentiated businesses. That's our key criteria. Bnd because we've been doing this so long, we have approximately 11 people dedicated to it, we know what's going on, and we feel good about the pipeline now. It's always difficult to predict when you're going to do a deal, if it's next quarter or not. But I feel really good about the pipeline right now.

Allison Poliniak-Cusic -- Wells Fargo -- Analyst

That's great. And then just last one on IntelliPower. It seems like a nice complement. What does it bring to AMETEK that may be a technology or whatever that you did not have before? Any color there?

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

Yeah, sure. The big thing -- we already have an existing presence in uninterruptible power supplies, and we sell it to the life sciences market, we sell it to the process market. And what IntelliPower brings is, really those products, ruggedized interruptible power systems sold to mission critical defense and industrial applications. So they are the largest supplier of ruggedized UPSs for the DoD. They serve a robust set of key programs and applications. Their products include UPSs, power conditioners, external battery packs, power distribution units. And they're really a unique company in that they are sole source provider for numerous programs on ships, land vehicles, ground stations, mobile networks, so -- with a blue chip customer base. And they also have an industrial component that we think we can grow. So we're pretty happy with the acquisition. And there's a meaningful synergy opportunity. It's a mid-single digit grower, strong visibility on revenue in the short term, solid management team remaining with the business. So we like the deal.

Allison Poliniak-Cusic -- Wells Fargo -- Analyst

Great. Thanks so much.

Operator

Thank you. And our next question comes from the line of Ivana Delevska with Gordon Haskett.

Ivana Delevska -- Gordon Haskett Research Advisors -- Analyst

Good morning.

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

Good morning.

Ivana Delevska -- Gordon Haskett Research Advisors -- Analyst

So just wanted to ask about some of your higher growth businesses like Telular, Spectro and Creaform. Are they getting affected by the weaker macro at all?

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

Those are in our EIG segment and in our Process segment, and that business is -- those businesses are holding up very well. We did see some -- we usually see at year-end some capital spending --a capital flush where people spend their capital at year-end, and that was a bit lighter. But overall, those businesses are doing very well.

Ivana Delevska -- Gordon Haskett Research Advisors -- Analyst

And then just one follow-up on Gatan. How did the performance in the quarter and the current outlook compare to your acquisition plans?

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

Right. Great question. The business performed well. It was a bit better than our forecast. So we're very pleased with our performance. We also announced the combination of Gatan with another business unit within AMETEK. So that was announced in January, and it will drive substantial synergy as we have really the same customer base. And I would characterize, the integration is proceeding very well.

Ivana Delevska -- Gordon Haskett Research Advisors -- Analyst

Great. Thank you.

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

Thank you.

Operator

Thank you. And our next question comes from the line of Robert McCarthy with Stephens.

Robert McCarthy -- Stephens -- Analyst

Good morning, everyone.

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

Good morning, Rob.

Robert McCarthy -- Stephens -- Analyst

I guess, the first question I would have is around the orders -- the organic orders. Anything you can talk about the backlog in terms of price and how you feel about price? Because price is such a key lever for you, not only for obviously growth organically, but also for really shoring up your incremental margin conversion.

William J. Burke -- Executive Vice President and Chief Financial Officer

Yeah, the price that we got in the fourth quarter was much like full year '19. So we had a positive spread of about 50 bps, and very pleased with the results. And for '20, we expect about 50 bps spread. Now, we think there might be slightly lower inflation, about 1%, and the pricing that we have built into our operating model is about 1.5 points. But we expect a 50 basis point spread, improving productivity for next year. And we're confident that we're going to be able to deliver that because we've been performing so well over the past couple of years. And it is a bit lower than 2019. And that's because the incremental impact from tariffs will be lower also.

Robert McCarthy -- Stephens -- Analyst

Remind us what your pricing was in kind of the '15, '16 time frame, during the teeth of the oil and gas recession? Was it a negative spread for several years?

William J. Burke -- Executive Vice President and Chief Financial Officer

I don't think it went negative. I don't think it went negative. I don't have those numbers in front of me. You can check with Kevin on that after the call. But I don't recall going in negative at all.

Robert McCarthy -- Stephens -- Analyst

Okay. And then, I guess, in terms of fourth quarter of '18, you weren't afraid at that time -- and there was a pretty material drawdown in the market -- obviously to deploy capital for share repurchase when you thought it was prudent. Given the prospect that we might have a year of unclear macro, given what's -- coronavirus, geopolitical trends, the election, it could be harder to transact on deals, given kind of a tacit bid-ask spread in terms of properties, meaning people have a higher justification for selling than perhaps you're willing to buy. Do you think you could amp up the share repurchase, if you hit an air pocket in terms of the ability to transact on deals? Or you just don't see that happening?

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

Yeah, it's a great question, Rob. The reality is, we have a great pipeline and we want to deploy our capital on M&A, and I think we're going to do that. But we look at our buyback strategy as more opportunistic. And we have a strong balance sheet. And if the -- in the short term, there is an over-reaction from the marketplace, then we'll deploy our balance sheet to buybacks. But right now, we're focused on M&A.

Robert McCarthy -- Stephens -- Analyst

I'll leave it there. Thank you.

Operator

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

David Ridley-Lane -- Bank of America -- Analyst

Thank you. This is David Ridley-Lane on for Andrew.

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

Good morning, David.

David Ridley-Lane -- Bank of America -- Analyst

Good morning. Curious if you expect any follow-on impact in the first half from Boeing 737 MAX pause?

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

Yeah, that's a great question, David. We're on a lot of different programs and all commercial aircraft, military, business jets. So we're not dependent on any one aircraft. But specifically, to your question, the 737 MAX will be about a $10 million headwind in 2020. And that assumes a start-up of production base mid-year in our current build plan. So it's about a $10 million headwind versus 2018 -- 2019, excuse me.

David Ridley-Lane -- Bank of America -- Analyst

Got it. And as a quick follow-up, how did EMG bookings, maybe the pipeline develop as we went through the quarter and any commentary on first quarter to date?

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

The EMG bookings, like I had said previously, it was weaker as the quarter started. But the order stabilized in December, and that continued in January. So we showed a typical fairly -- fairly typical ramp in Q4 for the entire business. And EMG was included in that. And then in January, we had a good orders month, right in line with our plan. And as I said, sequentially, from December, January, it feels like the EMG automation orders have stabilized during that short time period.

David Ridley-Lane -- Bank of America -- Analyst

Okay. Thank you very much.

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

Thank you.

Operator

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

Andrew Buscaglia -- Berenberg -- Analyst

Hey, guys.

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

Hello, Andrew.

Andrew Buscaglia -- Berenberg -- Analyst

Can you touch on -- you talked about the automation weakness continuing and orders somewhat normalized December-January. But can you talk about what -- I know you talked regionally. But what about your other areas of the business? What other areas normalized or weakened or got worse? Because your organic orders are down about 2% or low-single digits in each business. I'd think some things got worse.

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

Yeah. The other thing -- there's really another major factor, and I mentioned that earlier, we experienced weaker discretionary capex spend than we anticipated.

Andrew Buscaglia -- Berenberg -- Analyst

Okay, yeah.

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

And then the related point, and it's more of a sales issue versus an orders issue, was program delays for military in our aerospace business in the fourth quarter.

Andrew Buscaglia -- Berenberg -- Analyst

Okay, that's it. I didn't have anything else. Thank you.

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

Okay, thank you.

Operator

Thank you. And our next question comes from the line of Richard Eastman with Baird.

Richard Eastman -- Robert Baird -- Analyst

Yes, good morning. Just a quick question around, as you look into 2020 with kind of a flat core growth expectation, when you look at process -- and I think your commentary around the automation business and EMG, both flat-flat. It seems like aerospace -- I think you commented, low-single to mid-single digits. When you look at those three buckets of exposure, where do you see the risk to 2020 from a core growth standpoint?

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

Yeah. We tried to put a plan together that dealt with that by taking a run rates that we're currently at. So we didn't want a hockey stick budget, and we think we have that factored in. But there's clearly risks, and they are more macroeconomic risks and AMETEK-specific risks because the businesses are executing very well. We have a record backlog. We're going to be able to execute on that backlog. We had excellent pricing in the backlog. We're showing the capability to generate excellent productivity. So we're expecting another strong year of execution. And with our crystal ball, we called it flat. And we tried to base the run rates based on 2019 because I don't like hockey stick plans. And that's where we're at and that's our best attempts to moderate the guidance with the realities of the market.

Richard Eastman -- Robert Baird -- Analyst

As you look out into 2020, it's a little difficult to sift out op margins from acquisitions and their contribution, but what kind of improvement do you expect to see in op margins for the full year? Are we talking about maybe 50 basis points? Or what kind of...

William J. Burke -- Executive Vice President and Chief Financial Officer

Yeah, we had 100 basis points in all of 2019. We had 90 basis points core margins in the fourth quarter. And in our plan, we have 30 basis points to 40 basis points of margin improvement -- core operating income margin improvement.

Richard Eastman -- Robert Baird -- Analyst

Okay. For '20, OK. And then just a very last question here. Just a quick question around Gatan. You mentioned it had a good a good fourth quarter as it came in for the partial quarter. As we spoke when the business was acquired, I think we were thinking maybe $100 million of -- excuse me, $180 million of revenue for a full year. Growth rate was mid-singles to high-singles. There's been some commentary, maybe a thermal [Phonetic] kind of speaking to weakness in the electron microscope market, which -- I'm curious what would be a good revenue contribution in your plan for '20 from Gatan?

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

Yeah, I think it's pretty much what we've laid out, it's roughly $180 million.

Richard Eastman -- Robert Baird -- Analyst

Okay, all right, fair enough. Okay, very good. Thank you.

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

Thank you, Rick.

Operator

Thank you. And our last question comes from the line of Joe Giordano with Cowen and Company.

Robert Jamieson -- Cowen and Company -- Analyst

Hey, good morning. This is Rob Jamieson on for Joe this morning. Just a quick question on IntelliPower. Can you maybe talk about the margin profile or what your expectations for that business are?

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

Yeah, it's a profitable business. And we paid 9 times EBITDA. So it's -- you can figure that out. It's roughly a 30% EBITDA business. And we paid $115 million, approximately 3 times sales. And we think there is a meaningful synergy opportunity, so I think a great return for our stakeholders.

Robert Jamieson -- Cowen and Company -- Analyst

Okay, great. And then just a quick follow-up on the 737 MAX. I know this is a small -- a very small piece of your total business. But in terms of what's baked in your guide, how many planes or production number -- like what's your production number embedded in your guidance there? Is it like zero or...

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

No, I think, our -- the number is a little bit difficult for us to forecast, and I don't know what disclosure agreements we have with Boeing. I can say that we plan on starting our activity mid-year and it will be about a $10 million headwind. Yes.

Robert Jamieson -- Cowen and Company -- Analyst

Okay. And you guys have like 37,000 per plane content-wise, right?

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

That's right.

Robert Jamieson -- Cowen and Company -- Analyst

Okay, perfect. Thank you so much for taking my questions.

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

Okay, thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Kevin Coleman -- Vice President, Investor Relations

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

William J. Burke -- Executive Vice President and Chief Financial Officer

Matt Summerville -- D.A. Davidson -- Analyst

Scott Graham -- Rosenblatt Securities, Inc. -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

Joshua C. Pokrzywinski -- Morgan Stanley -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Allison Poliniak-Cusic -- Wells Fargo -- Analyst

Ivana Delevska -- Gordon Haskett Research Advisors -- Analyst

Robert McCarthy -- Stephens -- Analyst

David Ridley-Lane -- Bank of America -- Analyst

Andrew Buscaglia -- Berenberg -- Analyst

Richard Eastman -- Robert Baird -- Analyst

Robert Jamieson -- Cowen and Company -- Analyst

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