Earnings Call Transcript - AME Q1 2026

Operator, Operator

Good day, and thank you for standing by. Welcome to the First Quarter 2026 AMETEK Earnings Conference Call. Operator instructions were provided. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Coleman, Vice President, Investor Relations and Treasurer. Kevin, you have the floor.

Kevin Coleman, Vice President, Investor Relations and Treasurer

Thank you, Stacy. Good morning, and welcome to AMETEK's First Quarter 2026 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to historical results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization and excluding acquisition-related costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open up the call 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 an excellent first quarter, highlighted by double-digit sales growth, exceptional orders growth, robust core margin expansion, record EBITDA and a high quality of earnings that exceeded our expectations. We also raised our full year earnings guidance to reflect our first quarter results and the outlook for the balance of the year. Today, we also announced that we signed a definitive agreement to acquire First Aviation Services, an attractive acquisition, which strategically broadens our defense aftermarket capabilities. I'll provide more details on First Aviation shortly. Now let me turn to our first quarter financial results. First quarter sales were $1.93 billion, up 11% from the same period in 2025. Organic sales were up 5%. Acquisitions added 5 points with a foreign currency tailwind. Orders were outstanding in the quarter with broad-based and meaningful growth across all AMETEK divisions. Overall, orders were a record $2.2 billion, up 23% versus the prior year. Organic orders were up 22%, leading to a record backlog of $3.87 billion. Operating income in the quarter was $517 million, a 14% increase over the first quarter of 2025. Operating margins were 26.8% in the quarter and core margins were an impressive 27.9%, up a robust 160 basis points versus the prior year. EBITDA in the quarter was a record $620 million, up 11% versus the prior year, with EBITDA margins a strong 32.1%. Our excellent operating performance led to strong cash generation with free cash flow to net income conversion of 107%. Diluted earnings per share were $1.97, up 13% versus the first quarter of 2025 and above our guidance range of $1.85 to $1.90 per share. Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. EIG had an excellent first quarter with double-digit sales growth, strong operating performance and a meaningful inflection in orders. EIG sales in the quarter were $1.26 billion, up 11% from last year's first quarter. Organic sales were up 2% and acquisitions added 7 points with foreign currency the balance of the growth. Organic orders for EIG were up an impressive 25% in the quarter. This growth was broad-based across all EIG divisions and end markets with notable growth within our defense, power, and semiconductor businesses. EIG's first quarter operating income was $376 million, up 6% versus the prior year. Core operating margins were an outstanding 31.4%, up 40 basis points from the prior year. The Electromechanical Group also delivered excellent results in the quarter, with continued strong sales and orders growth along with exceptional operating performance leading to sizable core margin expansion. EMG's first quarter sales were a record $664 million, up 13% versus the prior year. Organic sales were again up double digits at 11% with foreign currency a 2-point tailwind. Sales growth was broad-based with our Automation & Engineered Solutions and Aerospace and Defense businesses all delivering excellent growth in the quarter. Additionally, EMG organic orders were again outstanding, up 16% versus the prior year. EMG's operating income in the first quarter was $171 million, up 33% compared to the prior year period. EMG's first quarter core operating margins were up sharply to 26%, a considerable 410 basis point increase versus the first quarter of 2025. I wanted to take a moment to expand on the strength and breadth of AMETEK's order growth in the quarter. The 22% organic orders growth reflects the ongoing strength within our aerospace and defense markets as well as the continued strong growth across our automation and engineered solutions markets. Importantly, it also reflects a meaningful inflection in orders for our process instrumentation and power businesses in the quarter, as the strong pipeline of opportunities we have been highlighting is translating into substantial orders growth. Contributing to the order strength were several large orders in the quarter, which help fill in our full year sales outlook. These large orders are aligned with attractive market segments, including defense, space, power and semiconductor, all markets where AMETEK is poised to benefit from strong and growing demand. Within defense, we are seeing broad-based strength, including within missile defense, UAVs and naval applications. The growth in defense budgets is being driven by modernization of defense capabilities and the ongoing geopolitical conflicts, creating a strong global growth outlook for defense spending, including from NATO allies. Our Aerospace and Defense businesses were recently selected to provide a range of technologies in support of three UAV programs, one program in the U.S. and two with NATO allies. Products being provided on these programs include ruggedized thermal management systems, power distribution equipment, advanced sensors and embedded computing application solutions. Our EMIP business also provides highly engineered specialized fluid transfer solutions for critical military and defense applications, and in the first quarter saw strong orders growth across many key defense platforms, including in support of nuclear submarines. Within nuclear, we're also seeing strong commercial nuclear demand in orders. AMETEK businesses provide a range of highly specialized products to this market, including fluid transfer solutions, radiation detection equipment and uninterruptible power solutions in support of nuclear power facilities. Switching to the space and satellite communications market, our Micro-Optics or microtechnique business recently received a sizable order to provide ultraprecision machining solutions and manufacturing services in support of critical RF components used in low earth orbit satellites. Kern's advanced precision machining solutions are targeted for mission-critical applications which require maximum accuracy, stability and repeatability. And lastly, our Abaco business, a leading provider of ruggedized embedded computing solutions, continues to see strong demand with a significant win in the semiconductor capital equipment market. Abaco recently secured an agreement to provide advanced computing technology to support AI-driven demand for advanced semiconductor tools. Abaco's orders were excellent in the quarter, with strong defense orders in addition to strength in the semiconductor market. Overall, the breadth and strength of our orders in the first quarter reflect the continued trust of our customers and our continued delivery of key technology-driven products that meet our customers' most critical needs. Before we move too far off the topic of key programs and our ability to deliver in the most critical and demanding of applications, I want to take a moment to highlight a particularly timely example of our differentiated technology. AMETEK Sensors and Fluid Management Systems, a leader in advanced specialized sensing solutions for the aerospace, defense and space markets, provided critical solutions used on the recent Artemis II mission that eclipsed the record for the furthest manned space mission. Our Sensors and Fluid Management Systems business provided thin-film pressure transducers that supported mission-critical life support infrastructure on the Orion multipurpose crew vehicle. This application demonstrates our ability to serve even the most demanding of applications and our ongoing commitment to reliability, precision and accuracy. Congratulations to the AMETEK Sensors and Fluid Management Systems team on this exciting success and also to the four other AMETEK businesses, FMH, UEI, NSI and Zygo Pixelink, that also supported the Artemis platform with specialized technology. Now turning to acquisitions and capital deployment. With our robust balance sheet, strong cash flows and disciplined approach to capital deployment, AMETEK is well positioned to continue driving long-term value through our disciplined acquisition strategy. We are managing a very strong pipeline of acquisition opportunities across a wide range of deal sizes and markets and are encouraged by the strong pipeline of high-quality acquisition candidates. As Dalip will touch on, our significant financial capacity provides the opportunity to deploy well over $5 billion in capital while maintaining an investment-grade credit rating. Our top priority for capital deployment remains acquisitions and we expect to remain active in this area. We were pleased to announce this morning that we have signed a definitive agreement to acquire First Aviation Services, a leading provider of defense and aviation MRO services as well as proprietary part design and manufacturing. The combination of First Aviation with AMETEK's MRO business will provide attractive market expansion opportunities and additional scale for our A&D aftermarket businesses. First Aviation is privately held and has six U.S.-based centers of excellence. They have approximately $80 million in annual sales. The acquisition is subject to customary closing conditions, including regulatory approvals. Alongside this acquisition and capital deployment strategy, we continue to invest in our businesses to ensure AMETEK is strategically positioned for long-term sustainable growth. For 2026, we continue to expect to invest an incremental $100 million to support our growth initiatives, with the majority of this investment going into R&D and sales and marketing initiatives. These investments continue to deliver excellent returns. In the first quarter, our vitality index, which measures sales of new products introduced over the last three years, was an outstanding 25%. Now we'll take a moment to highlight an example of an exciting new product from our RTDS Technologies business. RTDS is a leader in real-time digital simulation of power systems, infrastructure and hardware-in-the-loop testing. The real-time electromagnetic transient simulators enable detailed studies of power systems, allowing engineers to anticipate system and device behaviors that threaten stability, resilience and performance of the power grid. RTDS recently updated their simulator platform with new features, including a data center module and an updated workflow that provides more accurate representations of third-party power solutions. This innovation helps data center operators model the power electronics required for key components, such as the uninterruptible power supply systems and the variable frequency drives used in power and cooling systems. This new product led to two new notable orders in the first quarter in support of data center testing applications from large power equipment providers. Congratulations to the RTDS Technologies team on this exciting new product development. I'd like to take a moment to discuss the conflict in the Middle East and how AMETEK is navigating this evolving dynamic. AMETEK has only a small sales exposure to the region with approximately 2% of sales into the Middle East. Most of that small exposure is within our EIG process subsegment and is tied to energy markets. We do not expect a meaningful direct impact on AMETEK given the small exposure. However, like everyone, we are not immune to the broader macroeconomic uncertainty. We are continuing to monitor developments in the region, especially for impacts on the energy market and potential spillover effects. With all that said, I am confident that AMETEK will continue to navigate this period of increased uncertainty based on the flexibility and durability of our operating model and our proven track record of performing well in challenging environments. Now shifting to our outlook for the balance of the year. For 2026, we now expect overall sales to be up high single digits on a percentage basis with organic sales now expected to increase mid-single digits versus the prior year. With the strong results from the first quarter, diluted earnings per share for the year are now expected to be in the range of $7.94 to $8.14, up 7% to 10% compared to last year's results. This is an increase from our prior full year guide of $7.87 to $8.07 per diluted share. For the second quarter, we anticipate overall sales to be up high single digits on a percentage basis with adjusted earnings of $1.96 to $2 per share, up 10% to 12% versus the prior year. To summarize, AMETEK delivered an excellent first quarter. Our outstanding results reflect the strength of our portfolio and the resilience of our operating model. Our businesses are aligned with attractive secular growth trends and are well diversified across end markets, customers, technologies and geographies. We are leaders in niche markets where our differentiated technology solutions play a mission-critical role in our customers' most demanding applications. Our highly engineered products are designed into applications governed by strict regulatory and compliance requirements, creating high switching costs. We primarily serve customers in long cycle industries with long asset life spans, resulting in a low obsolescence risk. Taken together, these advantages position AMETEK for sustained long-term success and we see significant opportunities for continued value creation. Our culture is deeply ingrained across the organization, our competitive positions are strong and continuing to expand. Our operating model is durable, flexible and scalable. Finally, we are supported by an experienced and proven team that has consistently performed through a wide range of market conditions. I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter, then we will be glad to take your questions. Dalip?

Dalip Puri, Executive Vice President and Chief Financial Officer

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK delivered an outstanding start to the year, highlighted by excellent orders, sales and earnings growth, robust core margin expansion and strong cash flow generation. Now let me provide some additional financial highlights for the first quarter. First quarter corporate general and administrative expenses were $30 million or 1.5% of sales. For the full year, we continue to expect corporate general and administrative expenses to be approximately 1.5% of sales. First quarter other operating expenses were $1 million, largely in line with the first quarter of 2025. First quarter interest expense was $21 million, up $2 million from the first quarter of 2025. The effective tax rate in the quarter was 19%. For 2026, we continue to anticipate our effective tax rate to be between 18.5% and 19.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate. Capital expenditures in the first quarter were $25 million, and for the full year, we expect capital expenditures to be approximately $160 million or about 2% of sales. Depreciation and amortization expense in the quarter was $105 million. For the full year, we expect depreciation and amortization to be approximately $430 million, including after-tax, acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share. For the quarter, operating working capital was 17.5%, a 60 basis point improvement versus 18.1% in last year's first quarter. Operating cash flow was $452 million, up 8% versus the first quarter of 2025. Free cash flow was also up 8% year-over-year to $426 million. Free cash flow conversion was strong at 107% for the quarter. For 2026, we continue to expect free cash flow conversion to be approximately 110% to 115% of net income. Total debt at March 31 was $2.2 billion, down from $2.3 billion at the end of 2025. Offsetting this debt is cash and cash equivalents of $481 million. At the end of the first quarter, our gross debt-to-EBITDA ratio was 0.9x, and our net debt-to-EBITDA ratio was 0.7x. We continue to have excellent financial capacity with flexibility to deploy well over $5 billion on growth initiatives and our active acquisition pipeline while retaining an investment-grade credit rating. While acquisitions remain our number one capital allocation priority for use of our free cash flow, we also seek to provide our shareholders with opportunistic share buybacks and a consistently increasing dividend. In February, we announced a 10% increase in our quarterly cash dividend to $0.34 per share, our seventh consecutive year of 10% plus annual increases in our dividend payout. I would also like to note that we have enhanced our financial reporting this quarter by including AMETEK's gross margin reporting and a related reconciliation on our Investor Relations website, with adjusted gross margin at a strong 51% in the quarter. This enhanced disclosure provides investors with greater visibility into AMETEK's margin performance and additional details to better understand our cost structure and the underlying drivers of our profitability. Going forward, we will provide an updated gross margin disclosure quarterly on our website. In summary, our businesses had a great start to the year. Our exceptional operating capabilities delivered excellent revenue and earnings growth, robust margin expansion and strong free cash flow conversion. With a proven strategy, significant capital deployment capacity and a strong track record of execution, we are confident in our ability to drive further growth and value creation in 2026. I'll now pass it back to Kevin.

Kevin Coleman, Vice President, Investor Relations and Treasurer

Great. Thank you, Dalip. Stacy, can we please open the line for questions?

Operator, Operator

Our first question comes from the line of Deane Dray with RBC Capital Markets.

Deane Dray, Analyst, RBC Capital Markets

Dave, you normally, at this point, take us for a tour of the key end markets, but your prepared remarks really covered that well, so I appreciate it. Maybe just — and you also highlighted the really small exposure to the Middle East — but how about the rest of the regions and maybe the idea of — are you seeing anything at the margin in terms of buying hesitancy? You certainly don't see it in the orders, but take us through the regions and any kind of sentiment in terms of macro pressures that you might be seeing?

David Zapico, Chairman and Chief Executive Officer

Sure. I'll start with the performance around the geographies. We really had balanced growth. U.S. and international markets were both up mid-single digits. The strongest growth was in Asia. In the U.S., we were up mid-single digits, and had very strong growth in our A&D and Materials Analysis business. Europe was up low single digits. We had strength in power and automation businesses, but modest headwinds from the Middle East; we had about, I'd say, $15 million of discrete orders that, due to safety reasons and disruptions, didn't ship during the quarter. So that would have ended up a little bit higher, but that occurred. We have not seen any cancellations in orders from the Middle East. In fact, we're seeing quotations to really rebuild energy infrastructure, so it's going to be when this thing settles down. In terms of Asia, Asia was up low double digits, driven by strong China. China was up high teens, and it was driven by our process and power markets. So across the board, it was balanced growth, solid in all geographies — really performing well. We are not seeing cancellations or delays. In fact, March was an all-time record for orders at AMETEK. So it's strong. It feels extremely good, and April is not over yet, but I just looked at it and it's on target for another good month. We're in full steam ahead.

Deane Dray, Analyst, RBC Capital Markets

Good to hear.

David Zapico, Chairman and Chief Executive Officer

Yes. And we're not seeing any cancellations or delays at all. In fact, March was a record quarter for orders at AMETEK. So it's strong. It feels extremely good, and April is tracking to be another good month.

Deane Dray, Analyst, RBC Capital Markets

Great to hear. Now just a follow-up question, and you are likely limited in what you can say. There were some unconfirmed media reports about a potential sizable deal you all are looking at. David, I don't often see your name in the Wall Street Journal. But this is an asset we're familiar with, and the size would be bigger than what you typically do. We know you have that capacity. But just implications on a larger deal for AMETEK — would it box you out of doing bolt-on deals over the near term? Whatever you can share would be helpful. There's a lot of interest.

David Zapico, Chairman and Chief Executive Officer

AMETEK policy is not to comment on market rumors or speculation related to M&A activity. I just go back to what I said before: our pipeline is strong. There is a mix of larger, medium and small technology deals and we're looking to create great deals for our shareholders. We announced the MRO deal today, First Aviation Services. We're really happy about that. As Dalip said, we have significant financial capacity that provides the opportunity to deploy well over $5 billion in capital and still maintain an investment-grade credit rating. M&A is our top priority for capital deployment. As I mentioned a few quarters ago, that's the way we're going to differentiate our performance over the next few years. We are engaged with a lot of different businesses and a lot of different opportunities, and we're going to make disciplined deals for our shareholders. At AMETEK, acquisitions are a combination of a set of well-defined processes, integration is our secret sauce, and returns are very important for us.

Deane Dray, Analyst, RBC Capital Markets

That's all really good to hear, best of luck.

Operator, Operator

Our next question comes from Andrew Obin of Bank of America.

Andrew Obin, Analyst, Bank of America

Just a question. You highlighted large orders, and I appreciate that maybe some of them are fairly lumpy. But do you get a sense that there's any pull forward from the second quarter in terms of orders and that there will be something unusually weak about second quarter orders given the strength in Q1?

David Zapico, Chairman and Chief Executive Officer

I don't think there was much pull-ahead at all. If you go back and look at my last couple of calls, we were signaling that this was going to happen. What you really saw is continued strength in our EMG businesses, and EIG businesses have just popped; historically EIG follows EMG by about six to nine months and that has happened. Some of the orders we've got are for shipments to fill out the year. But I don't see any kind of pull-forward or any kind of slowdown. That doesn't mean we're going to have 23% orders in the next quarter, but the markets for us are niche markets where our technology is needed for key infrastructure and mission-critical platforms, and we're in the right place. We're feeling good about the business.

Andrew Obin, Analyst, Bank of America

And David, how do you think about — given your order cadence, your top-line outlook is fairly conservative as it always is, that's what AMETEK does. But what are you thinking about sort of macro risk in the second quarter? You said orders are good, but any red or yellow flags that you're seeing in your end markets so far quarter to date? And are you adjusting behavior in business units, any sort of business plans to maybe prepare for some turbulence?

David Zapico, Chairman and Chief Executive Officer

We're obviously performing very well. We've had strong execution, disciplined operations, and we're gaining momentum across the portfolio. We feel very good about our businesses performing. But there's obviously some ongoing geopolitical uncertainty, and we're remaining prudent with our guidance. We're laser-focused on material input costs and believe we're going to be able to offset inflationary costs with pricing, including tariffs. We have a distributed structure with business leaders close to customers monitoring everything. From what we know now, it feels good to us, but we're laser-focused on what could be a bigger change. We're confident in our guidance and feel really good about the momentum in the portfolio.

Operator, Operator

Our next question comes from Nicole DeBlase with Deutsche Bank.

Nicole DeBlase, Analyst, Deutsche Bank

Maybe just piggybacking on the questions about orders. On the large orders, you mentioned a few that came in during the quarter, but you're basically saying that you don't think these order results should be viewed as one-time. Does that mean the pipeline of large order activity is similarly strong and you expect to book further large orders as we move forward?

David Zapico, Chairman and Chief Executive Officer

I would expect the bookings to continue to reflect some larger orders. We had a period where the industrial economy was weak and that is changing. Our EMG business picked up, and historically EIG picks up six to nine months later, as we signaled, and that's happening. The order strength should continue. I wanted to highlight some orders because they are somewhat lumpy and to let people understand the areas we're in — they are great technology and some of that is for shipments throughout the rest of the year.

Nicole DeBlase, Analyst, Deutsche Bank

Got it. Clear. Then I wanted to spend a little bit of time on the medical end market. I don't think that was mentioned a whole lot in the prepared remarks. Dave, could you talk a little bit about what you're seeing there?

David Zapico, Chairman and Chief Executive Officer

Medical is a little over 20% of our exposure. In Q1, we had a great quarter — up low double digits — led by Paragon. Paragon is performing extremely well. For the full year, there are some tougher comps in the rest of the year, so we expect mid-single digit growth largely due to those comps. We have other businesses in that segment like our Record business, which also had a very good quarter. Paragon and Record led the strength in medical for the quarter.

Operator, Operator

Our next question comes from Andrew Buscaglia with BNP Paribas.

Andrew Buscaglia, Analyst, BNP Paribas

I wanted to get your take on what's going on in the world related to your Aerospace and Defense businesses given the heightened geopolitics. I know you have a number of mesh offerings, so it's hard to know in real time what you see going forward. But can you comment on any impact, positive or negative, to A&D?

David Zapico, Chairman and Chief Executive Officer

In the quarter, our A&D business continued strong activity, with high single-digit growth and broad-based strength. All segments continued strong demand with notable strength in defense markets. Our A&D businesses are well positioned to benefit from growing demand given our broad portfolio of differentiated technologies. We increased our outlook for the year to about 10% growth, balanced between commercial and defense activity. About 60% of our A&D exposure is defense and about 40% is commercial. Defense is performing extremely well. The OEM part of commercial and the business jet market are doing very well. Our MRO businesses that service airlines had an excellent quarter for orders. One area we're watching closely is some international markets related to aviation fuel availability and fuel costs; that's a small part of our portfolio, less than 2%. Right now, we don't see major issues. We have good backlogs, good execution, and even the parts we're watching closely had a fantastic first quarter.

Andrew Buscaglia, Analyst, BNP Paribas

Along those lines, you made an acquisition this quarter, First Aviation on the MRO side, which is interesting. I didn't see the price disclosed. Any other details you can provide? I think I saw $80 million in revenue, but any other details would be helpful.

David Zapico, Chairman and Chief Executive Officer

I'll provide more details. Our MRO businesses were largely commercial biased, and we were looking for something that added a defense aspect. We're pleased to find First Aviation Services. It's an engineering-driven provider of aftermarket services and proprietary parts, with primary markets in defense, though they also have business jet and commercial activities. About two-thirds of their business is MRO service and about one-third is proprietary parts. They specialize in PMA and DER approved repairs and add new capability for us in rotorcraft and fixed-wing platforms. They support military programs and expand our military MRO capabilities to critical systems including propeller blades, rotor assemblies, landing gear and some advanced electronics. It's a sizable and growing proprietary aftermarket solutions business with strong engineering capabilities; it nicely expands our defense MRO and fits well with our existing MRO capabilities. We're excited to welcome the First Aviation team to AMETEK.

Operator, Operator

Our next question comes from Scott Graham with Seaport Research Partners.

Scott Graham, Analyst, Seaport Research Partners

Congratulations on the quarter. Dave, could you continue the matrix as you just did for A&D with the first quarter organic and full year outlook for process, power and automation? And secondarily, would you be able to maybe carve out some of the larger projects that were in the orders and tell us what the trend line for bookings was on that basis?

David Zapico, Chairman and Chief Executive Officer

I'll finish the walk around the company. For Process, it was up mid-teens in the first quarter, driven by acquisitions and low single-digit organic growth. We have a solid pipeline of orders we highlighted during our last earnings call, and these translated into broad-based order growth in the quarter. For the full year 2026, we now expect organic sales for Process to be up low to mid-single digits, an increase from our prior expectation. For Power, the subsegment delivered low single-digit sales growth with strong record-level orders. Our power business continues to see strong demand across a growing pipeline of opportunities for power generation, backup power, data center microgrids and power simulation systems. We highlighted one of the new products in the orders received for power simulation systems in my prepared remarks. For 2026, we continue to expect organic sales to be up mid-single digits for that subsegment. Finally, our Automation & Engineered Solutions had an excellent quarter with high single-digit organic sales growth, broad-based across automation and engineered solutions and EMIP businesses. Demand across niche markets remains solid, and we continue to expect organic sales for Automation & Engineered Solutions to be up mid-single digits. Regarding orders, I highlighted a big order in the semiconductor market from Abaco for computing solutions to control semiconductor tool manufacturers ramping for AI demand. We have space and satellite orders for ultraprecision machining and defense wins in UAVs and missile defense. We also have orders related to nuclear and submarine platforms. These wins are because of our technology and ability to serve highly engineered platforms, and we feel optimistic about our positioning.

Dalip Puri, Executive Vice President and Chief Financial Officer

If I could just add, in terms of the order strength, it was broad-based. There were some large orders in aerospace and defense, but every subsegment saw double-digit organic orders growth and every division was up at least 5%. Automation was very strong, and our metrology and material analysis businesses also saw strong order growth. It really wasn't driven solely by lumpiness in certain areas.

Operator, Operator

Our next question comes from Joe Giordano with TD Cowen.

Joseph Giordano, Analyst, TD Cowen

There seems to be emerging concerns that potentially the aerospace aftermarket on the commercial side is peaking. It doesn't seem like there's real evidence of that in your business. What are you hearing and seeing? What would you look for to know if something like that was starting to form?

David Zapico, Chairman and Chief Executive Officer

The third-party aftermarket is the smallest part of our MRO businesses and we watch it closely. We have specialized capability and the U.S. is extremely strong right now. We're involved in retrofit programs that are driving the business. If weakness shows up, it may show up first in Asia, then Europe, and the U.S. seems relatively insulated, but it can change quickly. Right now, we feel good: we had an incredibly strong first quarter and order rates continue to be strong. Any downside we might see is expected to be extremely modest.

Joseph Giordano, Analyst, TD Cowen

I was also interested in Abaco and the computers into semiconductors. I tend to think of that more as defense-oriented field applications. Can you talk about what you're doing there on semiconductors and how that business is positioned?

David Zapico, Chairman and Chief Executive Officer

Abaco makes advanced computing solutions for precision and durable environments. It has strong demand driven by defense for RF and signal processing and also has applications in the semiconductor market. In the quarter, a semiconductor tool manufacturer ramping for AI demand used Abaco computing technology to control their tool, and we were pleased to book that order.

Operator, Operator

Our next question comes from Nigel Coe with Wolfe Research.

Nigel Coe, Analyst, Wolfe Research

Thanks. The guide increase from mid- to high-single digits to high singles — is that in the realm of 1.5 to 2 points of sales accretion versus the prior plan? That's how I'm thinking about it. Also, given EIG order strength and the broad-based nature of order strength, how should we think about the second half core growth profile for EIG?

David Zapico, Chairman and Chief Executive Officer

The first point is probably an increase more like 1.5 points, and it was really driven by process and EIG. It's a conservative guide. We have a strong start to the year, excellent execution and outstanding orders, but geopolitical uncertainty exists. We balanced it all and we're confident in our guide; we think it's prudent.

Nigel Coe, Analyst, Wolfe Research

AMETEK has evolved from doing a lot of bolt-on deals to larger deals under your leadership. How do you view the risk-reward of larger deals versus small bolt-ons?

David Zapico, Chairman and Chief Executive Officer

There's an important risk-reward. You have to ensure what you're buying matches our strategy and that we can add value. We've naturally increased the size of deals over the past 10 years but remain focused on niche markets and the areas we already operate in. We plan to continue to expand with bite-sized deals that are a small percentage of our market capitalization. We've maintained a conservative track record — we have never had a goodwill write-off — and we look for strong returns on every deal. The environment is providing many opportunities and we'll pick the ones that add the most value for our shareholders.

Operator, Operator

Our next question comes from Julian Mitchell with Barclays.

Julian Mitchell, Analyst, Barclays

Moving to operating leverage and incremental margins: is the guide based on a steady improvement year-on-year in operating leverage as you go through 2026? Also, do you see any movement in price net of cost within the year?

David Zapico, Chairman and Chief Executive Officer

In the first quarter, we had an excellent operating quarter: reported margins were up 50 basis points, and core margins — excluding acquisitions and FX — were up 160 basis points. EIG had core margins up 40 basis points driven by productivity, and EMG core margins were up 410 basis points from strong productivity and leverage. Our core incrementals were greater than 50% at the company level when you back out acquisitions and FX. For the year, we're expecting overall incrementals around 35% and core margins to be up around 50 basis points. We're being prudent given uncertainty like potential inflation, and we're laser-focused on executing.

Julian Mitchell, Analyst, Barclays

On EMG, given tough comps later in the year but double-digit organic order growth now, are you effectively baking in a mid-single-digit exit rate on organic growth for EMG because of those comps?

David Zapico, Chairman and Chief Executive Officer

Yes, you're in the ballpark. That's the way I look at it.

Operator, Operator

This concludes the question-and-answer session. I would now like to turn the call back over to Kevin Coleman for closing remarks.

Kevin Coleman, Vice President, Investor Relations and Treasurer

Thanks, everyone, for joining our call today. As a reminder, a replay of today's webcast can be accessed in the Investors section of ametek.com. Have a great day.

Operator, Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.