Earnings Call Transcript
AMETEK INC/ (AME)
Earnings Call Transcript - AME Q1 2022
Operator, Operator
Welcome to the First Quarter 2022 AMETEK Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Now I will turn the call over to Kevin Coleman, Vice President of Investor Relations and Treasurer.
Kevin Coleman, Vice President of Investor Relations and Treasurer
Thank you, John. Good morning and thank you for joining us for AMETEK's first quarter 2022 Earnings Conference Call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. 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 2021 or 2022 results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill and then open it up for questions. I'll now turn the meeting over to Dave.
David Zapico, Chairman and Chief Executive Officer
Thank you, Kevin, and good morning, everyone. AMETEK delivered outstanding results in the first quarter with strong sales growth and excellent operating performance, driving robust core margin expansion and earnings which exceeded our expectations. We are also seeing continued strong demand. This demand remains broad based across our diverse set of niche markets, leading to outstanding orders growth and a record backlog. I'm very proud of the way our teams are managing a challenging and uncertain macro environment. AMETEK's flexible operating model allows our businesses to quickly adjust and adapt to changing economic conditions and deliver exceptional results. Before I provide more details on the results for the quarter, I wanted to comment on the ongoing geopolitical events in Ukraine. We are deeply saddened by the tragic events continuing to unfold in Ukraine. Our hearts and thoughts are with all those affected. To assist with the immediate needs of this mass humanitarian crisis, the AMETEK Foundation has made donations to several charities that are actively providing food, shelter and medical supplies to those impacted. Additionally, many AMETEK colleagues and our businesses have mobilized to help in whatever way they can through donations to charities supporting the crisis. Thank you to all employees who are supporting those in need. Now let me turn to our first quarter results. First quarter sales were $1.46 billion, up 20% over the same period in 2021. Organic sales growth was 14%, acquisitions added 7 points and foreign currency was a 1 point headwind in the quarter. Overall orders in the first quarter were $1.7 billion, an increase of 22% over the prior year period, while organic orders were up 18% in the quarter. Book-to-bill was 1.17 in the first quarter, reflecting continued robust and broad based demand. Backlog at quarter end was a record $3 billion, up approximately $1.2 billion from the end of 2020. Operating income in the quarter was $353 million, a 20% increase over the first quarter of 2021. Operating margins were 24.2% in the quarter, up 10 basis points from the prior year. Core operating margins were 25.5%, up an impressive 140 basis points versus the first quarter of 2021 with strong core margin expansion in each operating group. This outstanding margin expansion is a testament to the strength of our operating capability and the great work of our teams in managing inflationary and supply chain impacts across our business. EBITDA in the first quarter was $434 million, up 22% over the prior year, with EBITDA margins up 29.7%. This outstanding operating performance led to earnings of $1.33 per diluted share, up 24% versus the first quarter of 2021 and above our guidance range of $1.24 to $1.28. Next, let me provide some additional details at the operating group level. First the Electronic Instruments Group. Sales for our Electronic Instruments Group were $987.8 million, up 25% from last year's first quarter. Organic sales were up 15% in the quarter, while recent acquisitions contributed 11%, and foreign currency was a 1 point headwind. Organic growth was particularly strong across our Ultra Precision Technologies division with Creaform, Reichert Technologies and TMC Precitech businesses leading the growth. EIG's operating income in the first quarter was $244.8 million, up 80% versus the prior year, while EIG operating margins were 24.8% in the quarter. EIG's core margins were up a very strong 130 basis points over the prior year to 27.5%. The Electromechanical Group also had a great quarter with excellent organic sales growth driven by broad based demand and strong operating performance. EMGs first quarter sales increased 11% versus the prior year to $470.8 million. Organic sales growth was 12% and foreign currency a 1 point headwind. Demand within our automation businesses remains excellent reflecting AMETEK's highly differentiated motion control capabilities and leadership positions within our niche applications. EMG's operating income in the first quarter was a record $128.2 million, up 22% to the prior year period. EMG's operating margins expanded an exceptional 250 basis points to 27.2% which includes an approximate $7 million gain on the sale of a facility in the quarter. On a quarter basis excluding this gain, EMG margins were up a very strong 100 basis points versus last year's first quarter. Our teams continue to deliver outstanding performance in a very challenging and dynamic operational environment. In addition to ensuring we successfully navigate the current macro environment, we are focused on ensuring AMETEK is positioned for long-term success and sustainable growth by making investments in our organic growth initiatives. In 2022, we expect to invest approximately $110 million in support of these growth initiatives, including strong growth across our Research, Development and Engineering Groups. AMETEK's leadership positions in our niche markets are driven by deep industry expertise, and the differentiation of our technology. Our research and engineering teams do a wonderful job developing innovative, next generation products and technologies to support their customers' applications. For the full year, we now expect to invest more than $345 million or over 5.5% of sales in RDE. Our vitality index, which reflects the level of sales from products introduced over the past three years, was a very strong 26% in the first quarter. One way we recognize and celebrate the great work of our businesses' new product development efforts is through the AMETEK Innovation Award. This award is provided annually to the AMETEK businesses who best demonstrate breakthrough innovation of new technology driving expanded growth opportunity. The most recent innovation award winner was our Hughes-Treitler/Rotron business unit, a leading provider of advanced thermal management systems for use in support of critical aerospace, defense, industrial and commercial applications. Utilizing various elements of the AMETEK new product development process, the team developed a highly innovative heat exchanger that provides meaningful improvements in aircraft engine performance versus the incumbent technologies. This new product will deliver strong incremental sales for AMETEK while providing important sustainability benefits through the reduction of approximately 1 million tons of carbon dioxide over a 10-year period due to an advanced, more thermally and aerodynamically efficient design of the heat exchanger. Driving such benefits aligns with AMETEK's core value of social responsibility by using innovative solutions to help our customers create a more sustainable future. Congratulations to the Hughes-Treitler/Rotron team and all the AMETEK colleagues contributing to the development of outstanding new products and technologies. Now switching to our acquisition strategy. We had a record year of capital deployment in 2021 deploying approximately $2 billion on the acquisition of six businesses. Those businesses are integrating nicely and we expect contributions from the acquisitions in the coming years as they further implement key elements of the AMETEK growth model. Our acquisition pipeline has remained strong, and our M&A teams remain busy in identifying attractive acquisition opportunities. We have ample balance sheet capacity and strong cash flows to support our acquisition strategy, and expect to remain active over the coming quarters. Now let me touch on the supply chain issues. Overall, the global supply chain and logistics channels remained tight and unreliable. The supply chain and logistics environment in the first quarter was similar to what we experienced during the fourth quarter with extended lead times for a broad range of materials and components. These issues are leading to higher inflation, but given our product differentiation, we were able to more than offset this inflation with higher pricing, leading to a strong price inflation spread and outstanding margin expansion. Now to our outlook for the remainder of the year. While we are optimistic about the future, we remain cautious in the short-term given uncertainty related to the supply chain challenges, the war in Ukraine and the COVID lockdowns in China. However, given the strength of the AMETEK growth model and our proven operational capabilities, we are confident in our ability to manage these ongoing headwinds. Additionally, our record backlog and leadership positions across attractive mid and long cycle markets position us well for continued strong growth. For the full year, we continue to expect organic sales growth to be up mid to high single digits, while overall sales growth is expected to be up high single digits, down slightly versus our prior guidance given increased foreign currency headwinds. Given our first quarter results, we are increasing our full year earnings guidance. Diluted earnings per share for the year are now expected to be in the range of $5.34 to $5.44, up 10% to 12% compared to 2021. This is an increase from our previous guidance range of $5.30 to $5.42 per diluted share. While confident in our increased outlook for the year, the COVID-19 lockdowns throughout China are expected to shift some sales from the second quarter into the second half. For the second quarter, overall sales are expected to be up low to mid single digits compared to the same period last year, and second quarter earnings are expected to be in the range of $1.27 to $1.30 per diluted share, up 10% to 13% versus the prior year. To summarize, AMETEK delivered a strong first quarter with solid orders and sales growth, strong margin expansion and a high quality of earnings, allowing us to increase our earnings guidance for the year. These outstanding results speak to the strength of the AMETEK growth model, along with the resilience of our world class workforce. Our differentiated technology solutions and market leading positions across diverse niche applications have allowed us to navigate through these difficult economic cycles. While we expect these challenges will continue throughout 2022, we remain well positioned for continued long-term growth. I will now turn it over to Bill Burke who will cover some of the financial details of the quarter.
William Burke, Executive Vice President and Chief Financial Officer
Thank you, Dave. As Dave noted, AMETEK delivered outstanding results to start the year highlighted by strong sales and orders growth, excellent operating performance, and a high quality of earnings. I'll provide some additional financial highlights for the quarter. First quarter general and administrative expenses were $19.7 million, up $1 million from the prior year due to higher compensation expenses in the quarter. For 2022, general and administrative expenses are expected to be roughly in line with 2021 levels, and approximately 1.5% of sales. The effective tax rate in the quarter was 19%, down from 19.5% in the first quarter of 2021. For 2022, we anticipate our effective tax rate to be between 19% and 20% and as we've stated in the past actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated range. Capital expenditures in the first quarter were $26 million. For the full year, capital expenditures are expected to be approximately $125 million or approximately 2% of sales. Depreciation and amortization expense in the quarter was $78 million. In 2022, we expect depreciation and amortization to be approximately $320 million, including after tax acquisition related intangible amortization of approximately $150 million or $0.64 per diluted share. For the quarter operating working capital was 17.1% of sales. Operating cash flow was $201 million and free cash flow was $175 million. Our first quarter working capital and cash flow results reflect our strategic decision to add inventory in certain areas to support continued strong customer demand and as a hedge against longer lead times we are experiencing across the supply chain. While investment resulted in lower cash flows and free cash flow conversion in the first quarter, we continue to expect a strong 110% free cash flow to net income conversion for the full year. During the first quarter, we repurchased approximately 1.2 million shares of stock in the open market for approximately $152 million. Total debt ended the first quarter at $2.54 billion unchanged from the end of 2021 and offsetting this debt is cash and cash equivalents of about $340 million. The end of the first quarter gross debt to EBITDA ratio was 1.5 times and the net debt to EBITDA ratio was 1.3. We continue to have excellent financial capacity and flexibility with approximately $2.3 billion of cash and existing credit facilities on March 31 to support our growth initiatives. As a reminder, our top priority for capital deployment remains strategic acquisitions, as we believe it provides AMETEK and our shareholders with the best returns on our capital. In summary, our businesses drove excellent performance in the first quarter, delivering strong earnings growth in a very challenging environment. We remain well positioned to manage ongoing economic challenges. We're continuing to invest strategically in our long-term growth initiatives.
Kevin Coleman, Vice President of Investor Relations and Treasurer
Thank you, Bill. John, can we please open the lines for questions?
Operator, Operator
Thank you. Our first question is from Matt Summerville from D.A. Davidson.
Matt Summerville, Analyst
Thanks, good morning. Dave, could you maybe talk about where you were in Q1 from a price cost standpoint, what that spread looked like and how much realized price you expect for the full year? And then I have a follow up.
David Zapico, Chairman and Chief Executive Officer
Sure, Matt. In the first quarter, our pricing continued to more than offset inflation. Pricing was about 5% and inflation was about 4%, so the spread was a little over 100 basis points. And for 2022, we expect price to be in the 4.5% to 5% range and the inflation to be in the 4% to 4.5% range, so about a 50% positive spread in our guide. And the results speak to the highly differentiated nature of AMETEK product portfolio and our leadership positions and niches, the investments we're making in our products and technologies. And we've been staying ahead of inflation, as we said we would for probably the last year or so when we saw it coming down the line, so…
Matt Summerville, Analyst
Got it. And then Dave, given your second quarter guidance and kind of the normal in a more normal year, typical cadence would dictate second quarter being at least a few cents above where you're at in Q1. Obviously, you're not guiding that way this year, so I guess I'm trying to understand maybe how much contingency you're factoring in disruption, if you want to call it that, can you kind of parse that out a little bit? Thank you.
David Zapico, Chairman and Chief Executive Officer
Yes, it's a good observation, Matt and it's fundamentally driven by the China lockdown scenario. You know, we have about 9% of our sales are out of China and we've been successful running a profitable growing operation there for many years. We have a tremendous customer base, improving manufacturing processes, making the environment cleaner, improving research and development capabilities, and that's going to continue. But right now, several of our major facilities are in the Shanghai area and they're in a lockdown situation either and not operating or operating in a significantly reduced capacity and that's impacting a lot of our business. And our best assessment of what we know right now is, about half of our China sales will be impacted in the quarter. So that's about 4% to 5% of our sales or $65 million or $70 million. So if you take that out of the guide, you'll see that the balance of AMETEK is going up in Q2. So it's really the fact that, of lower business activities in China, because of the lockdown situations and because of our proximity to Shanghai and some of our major operations. Now those sales are just going to be delayed. They're going to get delayed from the second quarter to the second half of the year and so we have to get through the lockdown in Q2.
Matt Summerville, Analyst
Understood, thank you very much, David.
David Zapico, Chairman and Chief Executive Officer
Thanks, Matt.
Operator, Operator
And our next question is from Deane Dray from RBC Capital Markets.
Deane Dray, Analyst
Thank you. Good morning, everyone.
David Zapico, Chairman and Chief Executive Officer
Good morning, Deane.
Deane Dray, Analyst
Hey, I appreciate all the color. Could you take us through the key end markets and regional updates? We certainly just got the China update on the lockdowns. That's understood, but anything else especially European exposures? Thank you.
David Zapico, Chairman and Chief Executive Officer
Sure, Deane. I'll go through the major markets first. Our process businesses increased by 20% in the quarter, driven by strong demand, organic sales growth, and contributions from the acquisitions of Magnetrol and Alphasense. Organic sales for the process segment rose by mid-teens during the quarter, with growth being broad-based. I mentioned that our Ultra Precision Technologies business saw excellent growth in the quarter, with robust end market demand in key areas such as semiconductor, research, and medical. Additionally, there is heightened demand for our solutions that support sustainability initiatives, with our instrumentation being utilized to reduce harmful emissions and enhance process efficiency. Our process segment was the largest for 2022, and we continue to anticipate organic sales growth in the mid to high single digits for our process businesses. Turning to our aerospace business, we saw a low single-digit organic growth in the quarter, leading to a mid-20s increase in overall sales for the first quarter. There was notable strength in commercial aerospace, slightly offset by delays in defense shipments attributed to U.S. Government spending. The commercial segment was up by low double digits, while the defense segment decreased by mid-single digits. For the full year, we expect aerospace to grow by mid-single digits, with commercial growing by high single digits and defense by low single digits. In the power and industrial sector, overall sales also rose in the mid-20s, reflecting a strong quarter. We achieved mid-teens organic sales growth, alongside contributions from our acquisition of NSI-MI, showing balanced sales growth in both power and industrial. We expect organic sales for power and industrial businesses to grow in the mid-single digits, with similar growth in both segments. Lastly, our automation and engineering solutions saw both overall and organic sales increase by mid-teens percentage-wise during the quarter, driven by solid demand across our end markets. For the year, we continue to anticipate organic sales growth in our automation and engineered solutions businesses to be in the mid to high single digits, with consistent growth across each sector. There has been strong, broad-based growth across all geographies, with mid-teens growth in Europe, the U.S., and Asia. In China, we reported a 10% increase, indicating a good quarter there as well. Overall, there are no significant issues regarding growth globally, and we are optimistic about future prospects based on our orders.
Deane Dray, Analyst
That's really helpful. And just last one, just to clarify, I understand the push out from the second quarter that may be China related. I might have missed this, but were there any revenues pushed out of the first quarter?
David Zapico, Chairman and Chief Executive Officer
There really wasn't. The closure of China occurred late in the quarter, very late in the quarter and we had a heads up that that was happening. So we were able to really meet our demand requirements in the first quarter. But at the same time, overall for the company, there continued to be orders that did not ship in the first quarter and they were in that $50 million plus range. So if we were operating at 100% of supply chain, and everything else that was going on, we probably would have shipped another $50 million plus out in the first quarter.
Deane Dray, Analyst
That's really helpful. Thank you.
David Zapico, Chairman and Chief Executive Officer
Thank you, Deane.
Operator, Operator
And our next question is from Allison Poliniak-Cusic from Wells Fargo.
Allison Poliniak-Cusic, Analyst
Hi, guys. Good morning.
David Zapico, Chairman and Chief Executive Officer
Good morning, Allison.
Allison Poliniak-Cusic, Analyst
Is there any change in customer behavior in a specific business or vertical that is giving you some concern, or is the demand still strong overall?
David Zapico, Chairman and Chief Executive Officer
It is quite strong across the board. I think over 90% of our business units had double digit sales and double digit orders and the ones that didn't were in the high single digits. So the orders are good, the sales are good. There's absolutely no slowdown that we see. You know, as I told you, a couple of quarters ago, customers are giving us an early look into their demands, that's continuing, and but I really see no slowdown at all on that, at 22% orders and 18% orders growth and it is broad based and I think, on an order basis, organic orders EIG was 19 and EMG was 15, so both very strong.
Allison Poliniak-Cusic, Analyst
Great. And then you talked about the pipeline for M&A being quite filled at this point, which is not atypical for you. Would you describe sort of kind of the things that you're seeing, what's kind of holding things back, is pricing still high at this point? Just any incremental color on the pipeline and what you're seeing out there today?
David Zapico, Chairman and Chief Executive Officer
We are actively pursuing several deals, maintaining our focus on long-term returns. Currently, there is a significant difference between private company multiples and public company multiples. The stock market has seen a slight decline in public company multiples, whereas private company multiples remain higher. This disparity, along with private business owners holding out for better valuations reflecting public market trends, is causing delays in some transactions.
Allison Poliniak-Cusic, Analyst
Perfect, thank you. I'll pass it on.
David Zapico, Chairman and Chief Executive Officer
Thank you.
Operator, Operator
Our next question is from Rob Wertheimer from Melius Research.
Rob Wertheimer, Analyst
Howdy, thank you. I was actually going to follow on the last statement you just made was an interesting one. I just wanted to see if you would characterize acquisition pipeline funnel backlog and size. You guys had a record year last year, maybe some of that was because of 2020 was a little slower. But then was your statement then to imply that things have to kind of normalize between public and private before acquisition activity picks up or is it more situational? And that's a comment on the forecast, if you see the mean on that price line?
David Zapico, Chairman and Chief Executive Officer
No, not a forecast, it is a comment, but it is a factor that is impacting valuations. But we have a very, very good pipeline, both smaller deals, public and private and I expect that you'll be hearing from us this year. And as you know, we're always focused on long-term returns, so we have to see value in what we're buying and we're very active right now.
Rob Wertheimer, Analyst
Okay, perfect. And then I think your comments have been really clear that 90% and double digits is an amazing stat in some ways. There's a lot of consternation around Europe, whether there's going to be a slide into recession or just uncertainty on spending, et cetera, I assume from your comment you're not seeing any of that in your orders and backlog specific to Europe?
David Zapico, Chairman and Chief Executive Officer
Yes, Europe was up 16% in the quarter, broad base strength. We had notable strength in our process businesses. Clearly there's some impact in the energy area and what the Ukraine crisis, the war in Ukraine, some of our products are used to help people get fuel efficiency, some of our products are used in applications that are actually helping those customers deal with higher energy costs. So right now, we're not seeing a slowdown. We read the press clippings like you have, but right now we're full go in Europe.
Rob Wertheimer, Analyst
Thank you.
Kevin Coleman, Vice President of Investor Relations and Treasurer
Okay.
Operator, Operator
And our next question is from Scott Graham from Loop Capital Markets.
Scott Graham, Analyst
Hey, good morning, Dave, Bill, Kevin, how are you?
David Zapico, Chairman and Chief Executive Officer
Good morning, Scott.
Scott Graham, Analyst
So I have two questions, one is on the price cost and I know that we came into this year with that fourth quarter, I think you had 100 basis point gap. In the first quarter you had the same. In the fourth quarter, I think you mentioned that you were expecting that gap to start to narrow, and it really didn't in the first quarter. So is it possible that you can get pricing enough to keep it at 100 for the rest of the year?
David Zapico, Chairman and Chief Executive Officer
It is possible, Scott. Our guidance indicates that the gap will narrow, and we have been performing well. We aim to maintain our current approach, but our expectation is for that gap to narrow slightly.
Scott Graham, Analyst
Understood, thank you. Next question is on aerospace. And you know, commercial you said was up low double. And I was hoping maybe you could unbundle that OE versus MRO?
David Zapico, Chairman and Chief Executive Officer
Yes, what drove the growth in our commercial, the low double digits was really the aftermarket and the business jet. Those markets both outperformed the OE.
Scott Graham, Analyst
Okay. If I could just extend that last comment, what are you hearing from the major companies? They seem to be quite reserved about 2023. Are you noticing any changes in build rates for next year? Given the high costs of flights these days, I wonder if they might be adding a bit to their own profits. What is your perspective on that?
David Zapico, Chairman and Chief Executive Officer
My sense is from our perspective, that market is going to continue to improve and it's one of our longer cycle exposures, and we're looking for a good continued growth in commercial in 2023.
Scott Graham, Analyst
I understand. If I could add one more point, I know that your vitality has been around 25% for a while. Honestly, correct me if I'm wrong, but this is the first time I'm hearing it at 26%. That’s an impressive number considering the last three years, and I’ve noticed you’re discussing new products more frequently on these calls. Do you think that number can keep increasing this year?
David Zapico, Chairman and Chief Executive Officer
Yes, it can continue to creep up and we've got an incredible credible range of new products being introduced. And they're also you think about, with the heat exchangers I've talked about from our Hughes-Treitler/Rotron business, I mean, we're saving 1 million tons of CO2. That's almost the entire carbon footprint of AMETEK over 10 years. It's an incredible design. It reduces weight. It's just a fantastic design and we're already designed in and it's really bullish for the future. So we have the engineering capability to meet the needs of the customers in these changing times where sustainability is a more important factor. And I'm very excited about our product development. That's why we're investing heavily in that area and we have good things to come.
Scott Graham, Analyst
Very good, Dave, thanks.
David Zapico, Chairman and Chief Executive Officer
Thank you, Scott.
Operator, Operator
John, can we please open the lines for questions?
David Zapico, Chairman and Chief Executive Officer
Sure, the first point is we are a sizable U.S. exporter and that's a correct statement, but our products are also very differentiated. So as evidenced by our price inflation spread so far, we're able to offset the higher U.S. dollar.
William Burke, Executive Vice President and Chief Financial Officer
And our cost structure.
David Zapico, Chairman and Chief Executive Officer
The second point is our hedging strategy and actually, we don't have a hedging strategy because we're naturally hedged. So pretty much across the board, we spend a lot of time and this is about tenure all the time, it's a long period of time. We're naturally hedged in each of our locations that we operate. So our revenues and expenses naturally offset. And to give you an example, in this quarter where, you had a strong dollar, and there were some currency implications, it did impact our top line, but our bottom line across the whole enterprise, it was less than a penny impact on earnings. So we've got this natural hedging strategy and through the past tenure, you can go back and look at it, it works very well. We are a U.S. exporter, but we got the pricing leverage through our differentiated technology. So strong dollar is not usually an insurmountable win for us.
David Ridley-Lane, Analyst
Understood. And quick follow up on Abaco. Are you seeing any sort of incremental demand out there from international defense budgets, which are going up? I know, this is probably more of a 2023, 2024 story, but has the sort of pipeline for your defense businesses change meaningfully? Thank you.
David Zapico, Chairman and Chief Executive Officer
Yes, the pipeline is improving in international markets. We have businesses located in the UK besides Abaco that are also benefiting. So the fact that the international defense market is improving is a good thing for our aerospace and defense business.
Operator, Operator
And our next question is from Joe Giordano from Cowen.
Michael, Analyst
Good morning. This is Michael on for Joe.
David Zapico, Chairman and Chief Executive Officer
Hello, Michael.
Michael, Analyst
Hey, continuing with the defense theme, can you provide any color regarding the new U.S. defense budget now that it's been finalized?
David Zapico, Chairman and Chief Executive Officer
Yes. Yes, the U.S. defense budget is good from our perspective in areas that we're investing. I mean, when you look at the whole thing, it was probably flattish to up a bit. So, but there's ample spending going on for us and we're really, it's a budget that we can work with. What hit us a bit in the first quarter and I talked about our defense businesses being down were the delays from the continuing resolution where no one has funding. So what we're seeing now is an uptick in order patterns and the second half of the year we expect that market to improve substantially.
Michael, Analyst
Great, thank you.
David Zapico, Chairman and Chief Executive Officer
Thank you.
Operator, Operator
And we have no further questions at this time. I'll now turn it back over to Kevin Coleman for closing remarks.
Kevin Coleman, Vice President of Investor Relations and Treasurer
Thank you everyone for joining our call today. And as a reminder, a replay of the webcast may be accessed in the Investor section of ametek.com. Have a great day.
Operator, Operator
Thank you for joining ladies and gentlemen. That concludes today's conference. Thank you for participating and you may now disconnect.