AMETEK Q2 2022 Earnings Call Transcript

Participants

Corporate Executives

• Kevin C. Coleman, Vice President, Investor Relations and Treasurer
• David A. Zapico, Chairman of the Board and Chief Executive Officer
• William J. Burke, Executive Vice President and Chief Financial Officer

Analysts

• Allison Poliniak, Wells Fargo & Company
• Josh Pokrzywinski, Morgan Stanley
• Nigel Coe, Wolfe Research
• Brett Linzey, Mizuho Americas
• Jeff Sprague, Vertical Research
• Andrew Obin, Bank of America Co.
• Will Jellison, D.A. Davidson
• Joe Giordano, Cowen Inc
• Scott Graham, Loop Capital Markets
• Brett Hardman, Melius Research

Presentation

[Operator]

Welcome to the Second Quarter 2022 AMETEK Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. [Operator Instructions]

I will now turn the call over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Mr. Coleman, you may begin.

[Kevin C. Coleman, Vice President, Investor Relations and Treasurer at AMETEK]

Thank you, Richard. Good morning, and thank you for joining us for AMETEK's Second 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 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 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 we'll 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 at AMETEK]

Thank you, Kevin, and good morning, everyone. AMETEK had another excellent quarter, with stronger-than-expected organic sales growth, outstanding operating performance, robust margin expansion and record earnings. Importantly, demand remains strong and broad-based across our diversified niche markets, leading to impressive organic order growth and a record $3.1 billion backlog.

Given our second quarter results and our outlook for the back half of 2022, we have increased our earnings guidance for the year. Now let me turn to our second quarter results. Second quarter sales were a record $1.51 billion, up 9% over the same period in 2021. Organic sales were up 12%. Acquisitions added a point and foreign currency was a 3-point headwind in the quarter. Organic orders were up a very strong 11% despite a highly challenging prior year comparison.

Book-to-bill was 1.09 in the second quarter, our eighth consecutive quarter of positive book-to-bill. Operating income in the quarter was a record $365 million, a 15% increase over the second quarter of 2021. Operating margins were 24.1% in the quarter, up 130 basis points from the prior year with strong incremental margins. EBITDA in the quarter was a record $444 million, about 15% over the prior year with EBITDA margins of 29.3%.

This outstanding performance led to record earnings of $1.38 per diluted share, up 20% versus the second quarter of 2021 and above our guidance range of $1.27 to $1.30, driven by stronger-than-expected sales and excellent operating performance. Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. Sales for our Electronic Instruments Group were $1.03 billion, up 10% from last year's second quarter.

Organic sales were up 12% in the quarter, with foreign currency headwinds more than offsetting acquisition contributions. Organic growth remains very strong across our EIG businesses with particularly impressive growth across our Ultra Precision Technologies and P&AI division. EIG's operating performance was impressive, resulting in record operating profit and robust margin expansion in the quarter.

Second quarter operating income was $265.1 million, up 17% versus the prior year and operating income margins were 25.8% in the quarter. The Electromechanical Group also delivered strong sales growth and excellent operating performance in the quarter. EMG's second quarter sales were a record $486.3 million, up 7% versus the prior year with organic sales growing 11% in the quarter.

EMG's growth was also broad-based, with strong growth across both our EMIP and Automation businesses. EMG's operating income in the second quarter was $124.4 million, up 11% compared to the prior year period. EMG's second quarter operating margins were excellent at 25.6%, up 70 basis points versus the prior year. Overall, outstanding results in the quarter, reflecting the quality of our differentiated businesses, the strength of our operating model and the tremendous efforts of our employees.

I would like to thank all AMETEK colleagues for your commitment to AMETEK and for the many important contributions you make to our sustained success. Now let me touch on the supply chain. Overall, the global supply chain remains constrained, with the largest challenging -- challenges continuing to be the availability of electronic components.

As we noted previously, we have strategically decided to hold additional inventory of select components to support the strong customer demand and as a hedge against the tight supply chain. Additionally, AMETEK's global sourcing teams are doing an outstanding job working to identify additional sources of supply. While these supply chain issues are leading to higher inflation, we have been able to more than offset this inflation with higher pricing, leading to a strong price inflation spread again this quarter and outstanding margin trends.

The combination of our global supply chain capabilities and pricing power provides us the confidence in our ability to manage through these uncertain times. During our first quarter earnings call, we noted that the COVID-driven lockdowns across parts of China were expected to delay some China sales from the second quarter into the second half of the year. These lockdowns caused less impact on the business in the quarter than we anticipated. Due to the excellent efforts of our China team, we were able to operate in a closed loop system and adjust our logistics and supply chain networks to support production and shipments.

Additionally, during the last two weeks of the quarter, as restrictions were lifted, we were able to resume multi-ship production and recover much of the delayed shipments. The impact of China's zero-COVID policy is something we are closely watching as we will need to react and adjust in the future. Thank you to our entire team in China for your tremendous commitment and resilience during this time. Now switching to our acquisition strategy. Our top priority for capital allocation remains the value-enhancing strategic acquisitions.

Our M&A pipeline is very strong. Our business unit and corporate development teams are busy managing an active pipeline of attractive acquisition candidates. As Bill will highlight in a moment, we have a strong balance sheet and excellent cash flow providing us with meaningful capacity to support our acquisition strategy, and we expect to be active in the second half of the year. We also remain focused on driving higher levels of organic growth by consistently investing in our businesses to support their strategic growth initiatives.

We're seeing the benefits of these investments in stronger organic growth. Our investments in research, development and engineering continues to yield advanced technology solutions, allowing us to expand our leadership position across our niche markets. One measure of the success of these efforts is our Vitality Index, which was a very strong 26% of sales in the second quarter. This level of vitality reflects our business' ability to develop new products aligned with compelling growth opportunities.

One example of this is AMETEK's expansion into the high-growth areas of precision optics. AMETEK's Zygo business, based in Middlefield, Connecticut, provides leading-edge extreme precision optics for the design and protection of very large complicated aspheric lenses. These capabilities supported the manufacture of the 18 hexagonal-shaped mirrors, which make up the James Webb Space Telescope's primary mirror. The James Webb Telescope very recently produced the deepest and sharpest infrared images of the deep universe.

Truly amazing images due in part to Zygo's capability. Zygo also provides advanced optical systems for use in the next generation of semiconductor production equipment. Their incredibly precised mirrors are playing an important role in supporting the development of EUV, or extreme ultraviolet optics, for the next generation of semiconductor technologies. Just two of the many examples across AMETEK of the unique and highly differentiated capabilities and technologies we provide our customers. Now turning to our outlook for the remainder of the year.

With our strong results in the second quarter, continued solid order momentum and record backlog, we have increased our full year earnings guidance. For the full year, we expect overall sales to be up high single digits, with organic sales now also expected to be up high single digits versus our prior guidance of up mid- to high single digits. Diluted earnings per share for the year are now expected to be in the range of $5.46 to $5.54, up 13% to 14% compared to 2021.

This is an increase from our previous guidance range of $5.34 to $5.44 per diluted share. For the third quarter, we expect overall sales to be up in the high single digits compared to the same period last year, and third quarter earnings are expected to be in the range of $1.36 to $1.38 per diluted share, up 8% to 10% versus the prior year. While we are closely monitoring the various macroeconomic headwinds, we are not seeing slowing in our businesses as demand remains solid and our businesses are operating at a high level.

We are confident in our ability and improved outlook for the year, given our strong backlog, ability to offset inflation with price increases and outstanding operating capability. In summary, AMETEK's second quarter results were excellent. Our businesses are well positioned with differentiated technology solutions serving a diverse set of growing niche markets. Our organic growth initiatives are driving higher levels of growth, and our portfolio is aligned with attractive mid- and long-cycle markets. Additionally, our asset-light business model and strong cash flow provides us the flexibility to navigate challenging environments, while continuing to deploy capital and drive increased shareholder value. AMETEK remains firmly positioned to deliver long-term sustainable growth.

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

[William J. Burke, Executive Vice President and Chief Financial Officer at AMETEK]

Thank you, Dave. As Dave noted, AMETEK delivered excellent results in the second quarter led by strong sales and orders growth and tremendous operating performance. Let me provide some additional financial highlights for the quarter. Second quarter general and administrative expenses were $24.6 million, up $2 million from the prior year, and as a percentage of total sales was 1.6%, in line with the second quarter of 2021.

For the full year, general and administrative expenses are expected to be up modestly from 2021 levels and approximately 1.5% of sales versus 1.6% of sales in 2021. The effective tax rate in the second quarter was 18.5%, down from 20.6% in the second quarter of 2021. The lower rate this quarter was driven by lower tax on foreign income. For 2022, we anticipate our effective tax rate to be between 19% and 19.5%.

And as we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Capital expenditures in the second quarter were $26 million, and we continue to expect capital expenditures to be approximately $125 million for the full year, or about 2% of sales, reflecting our asset-light business model. Depreciation and amortization expense in the quarter was $77 million.

And for the full year, we expect depreciation and amortization to be approximately $315 million, including after-tax acquisition-related intangible amortization of approximately $148 million or $0.64 per diluted share. For the quarter, operating working capital was 18% of sales. Operating cash flow was $236 million and free cash flow was $210 million in the second quarter. We expect approximately 100% free cash flow to net income conversion for the full year.

Our working capital and cash flow results reflect our strategic decision to add select inventory in certain areas to support continued strong customer demand and to hedge against the longer lead times we are experiencing across the supply chain. During the second quarter, we repurchased 1.44 million shares of stock in the open market for approximately $173 million. And year-to-date, we've repurchased approximately 2.6 million shares, for a total of $330 million.

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. Total debt ended the second quarter at $2.5 billion, down slightly from the $2.54 billion at the end of 2021. Offsetting this debt is cash and cash equivalents of $349 million. At the end of the second quarter, our gross debt-to-EBITDA ratio was 1.4 times, and our net debt-to-EBITDA ratio was 1.2 times.

As Dave noted, AMETEK has a robust balance sheet with no material debt maturities due until 2024, modest levels of leverage and strong cash flows. As a result, we are well positioned to deploy meaningful capital to invest in our acquisition strategy with approximately $2.3 billion of cash in existing credit facilities to support our growth initiatives. To conclude, our businesses performed exceptionally well in the second quarter, delivering strong sales growth, outstanding operating performance and a high quality of earnings in a very challenging environment.

We remain well positioned going into the back half of the year, and we'll continue to invest strategically in our long-term growth initiatives. Kevin?

[Kevin C. Coleman, Vice President, Investor Relations and Treasurer at AMETEK]

Great. Thank you, Bill. Richard, could we please open the lines for questions?

Questions and Answers

[Operator]

[Operator Instructions] And our first question on the line comes from Allison Poliniak from Wells Fargo.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Good morning.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Allison.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Just going back to you, and obviously, very strong orders. You mentioned you're really not seeing any slowing. But has there been any change in the cadence inter-quarter in terms of what you're seeing coming in, whether region or end market? Just any more color there?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. I mean we had strong orders each month of the quarter, with the strongest month being June. So pretty typical. And we just ended July. And our results were strong in July and very consistent with our outlook. So there's really continuing order strength that was -- we had strength in both groups. EIG was up 11% and EMG was up 9%. Overall, organic growth was up 11%.

We're growing at healthy rates in all major regions of the world. All subsegments that we operate in are growing nicely. So it feels pretty good from where we sit. In addition to that, we have, as we mentioned in the prepared remarks, a record backlog of $3.1 billion, and that's up about 80% from just to -- prior to the start of the COVID pandemic. And we're feeling good, and we're not seeing any weakness anywhere right now.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Great. And then there was obviously a step-up in inventory again this quarter sequentially. I suspect that's due to some of the orders that you're seeing coming in. How should we think about inventory level as we look to the back half of the year? Is it stabilized? Or is it really just dependent on the orders coming in and some of that supply chain issues that are still out there?

[William J. Burke, Executive Vice President and Chief Financial Officer at AMETEK]

Yes, I think you've hit on it there, Allison. We've got -- with the strong order rate coming in, we've got to make sure we have the inventory to support those orders. And we are still concerned about supply chain, and we're going to continue to react to that. So I would say you've hit the nail on the head, and I think we've increased them now. And we'll continue to manage it closely. Obviously, you know we're very focused on running lean, but we've got to make sure we're supporting the orders that are in place.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Great. Thank you.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you, Allison.

[Operator]

Thank you. Our next question on line comes from Mr. Josh Pokrzywinski from Morgan Stanley.

[Josh Pokrzywinski, Analyst at Morgan Stanley]

Hi, good morning, guys.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Josh.

[Josh Pokrzywinski, Analyst at Morgan Stanley]

Just I guess first question on Europe. I guess the totality of AMETEK is doing well. You mentioned the orders growth. Anything, I guess, underneath the surface or a KPI that you're watching there? Because obviously, more than macro challenges, things like energy costs just up a lot. Just wondering any way that, that's manifesting itself in your business?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

In the last quarter, orders were up 9% in Europe. And we had notable strength in our Automation and Aerospace businesses, and the Aerospace businesses really started to accelerate. So it feels pretty good from a demand perspective right now, but with the geopolitical things going on in Russia and Ukraine and the fuel costs in Germany, we're certainly looking -- watching that very closely as that may be a sign of the first place for it to turn down for us. But right now, it's not. And Europe is strong, and we had a good quarter there. Again, Europe was up 9%.

[Josh Pokrzywinski, Analyst at Morgan Stanley]

Got it. That's helpful. And then just on the Aerospace & Defense side. I think a lot of supply chain bottlenecks starting to get worse in there. Not necessarily for the stuff that you guys are producing, but are you seeing that at all either in your supply chain or being told by your customers to kind of throttle back delivery because they're waiting for some other component to come in and don't want to just kind of be building gliders or accumulating inventory in the meantime?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. I mean, right now, I'd say it's quite the opposite. Our orders in our Aerospace & Defense business were up low double digits in the quarter. Our commercial business was up stronger and it grew mid-teens and the strongest growth within the commercial aftermarket. And defense market was up low single digits for us, better than in the first quarter. So we're looking at a very strong second half and most of the interactions we have with our customers, they are asking us for more. So we're not seeing any slowdown in demand or anything. And I even think that market is, because of pent-up demand, has got a long cycle of growth ahead of it.

[Josh Pokrzywinski, Analyst at Morgan Stanley]

Got it. That's helpful. Then just one more question if you don't mind. What was price in the quarter?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Right. So in the second quarter, our price continued to more than offset inflation. Pricing was about 6% and inflation was about 5% of sales. So we maintained about 100 basis point spread. And the results speak to the highly differentiated nature of the AMETEK product portfolio and our leadership position in niche markets. And we think about it as we had 6% volume growth and 6% price growth and 12% organic growth. So we think it was a really good quarter from that viewpoint.

[Josh Pokrzywinski, Analyst at Morgan Stanley]

Thank you.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you, Josh.

[Operator]

Thank you. Our next question on line comes from Nigel Coe from Wolfe Research.

[Nigel Coe, Analyst at Wolfe Research]

Thanks. Good morning. I certainly echo those comments. So just on the third quarter outlook for mid-single-digit sales growth in context of 12% this quarter. Just wondering especially with the order rates pretty strong as well, what's covering that mid-single-digit outlook? I'm just wondering if we should be looking at the upper end of the mid-singles if you can be a bit more specific there.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

If you dig into it, the guide actually reflects mid- to high single digits because we have some currency headwinds. And really, quarter three is kind of a carbon copy of quarter 2. And we have a little bit of seasonality in quarter three because of the European exposure. But the difference between quarter two and quarter 3, we're expecting a little higher tax rate. So we would consider it appropriately conservative, but there are some dynamics with tax sequentially and the organic rate is mid to high. So it's not mid, the currency is holding us back a bit.

[Nigel Coe, Analyst at Wolfe Research]

And the comp is tougher, but I think if you just comp adjust it, 12% goes to maybe 9%. So just wondering if that was how you sort of manage. And then on the margins, it's obviously very strong. It seems like price cost is at least neutral to margin rates, not dollars, but margin rates. Can you just maybe confirm that? And then just wondering if there's any geographic impact from -- obviously, Europe is pretty strong, but was there any geo impacts to the margin this quarter?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

No. I mean, when I look at the margins for the whole business, it was up 130 basis points as reported and 140 basis points core. So you really see strong flow-through through price. And when you look at total cost of sales, I think the margins improved there. Strong in both groups, EMG margins were up 70 basis points and EIG margins were up 150 basis points as reported, and we had very healthy core incrementals of 40%. I reported 38 -- core incrementals of 38%, 40%. So it feels like we're more than offsetting inflation with price, and we're getting margin expansion. So I think it's a great margin story. And our teams are really executing in their businesses well.

[Nigel Coe, Analyst at Wolfe Research]

No questions. Thanks guys.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you, Nigel.

[William J. Burke, Executive Vice President and Chief Financial Officer at AMETEK]

Thank you, Nigel.

[Operator]

Thank you. Our next question on line comes from Brett Linzey from Mizuho Americas.

[Brett Linzey, Analyst at Mizuho Americas]

Hi. Good morning, all.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Brett.

[Brett Linzey, Analyst at Mizuho Americas]

First question is just on inventories and more channel inventories. I know a lot of your businesses tend to be two to three linkages, upstream from end use or final assembly. Just curious what level of visibility you might have into some of those value chains and your assessment versus those levels relative to end demand?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. If you think about our Electronic Instruments Group, we're largely selling 10 users there. So we have a good view of the end user and our products are customized. So we don't have the problem of people double ordering. They're going to be over ordering, but they're not ordering to put stuff on the shelf just in case because they're your expensive customized, highly engineered products.

When you think about our EMG business, that has more of a -- we're back on the food chain a couple of levels like you talked about. And you could have a backup there, but we're not seeing it right now, and it's indicated by our strong orders growth. So it feels like we're in the right areas and demand is still growing, and we're pretty optimistic about the second half of the year.

[Brett Linzey, Analyst at Mizuho Americas]

Okay. Great. And then just back to price cost. So price, 6%. How are you thinking about some of the wraparound price into early '23 based on some of the mid-year actions? And just curious on price cost, what that might look like in terms of a tailwind as we get into '23 and what the kind of volume or incrementals or decrementals could look like for the algorithm for '23?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Right. It's a little early to start talking about 2023, but the same pricing strategy that we've employed will continue. When we think about the second half of the year, we want to maintain that 100 basis point spread that we had in the second quarter. So the difference between 6% and 5% of sales is 100 basis points. We want to continue that in the second half of the year. And the future pricing is going to be a big part of our budget discussions, and we think inflation is going to be here for a while. So that's going to influence our thought process. So I would expect to maintain a positive spread into next year also.

[Brett Linzey, Analyst at Mizuho Americas]

And just a quick follow-up. Would you say the complexion of a lot of your pricing actions is more list normal course versus surcharges? Or anything you can share there?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

It's a combination of both. I mean it's list, but in a lot of situations, there are -- we're tied to certain indexes and for shipping and things like that where commodities, there could be a retracement a bit, but most of it is in the base price. So we try to get it in base price. But in some situations, it's obvious, it's transparent with your customer, and you have to give it back when things go down. But at the same time, we're saying we'll maintain that 100 basis point spread for the second half of the year.

[Brett Linzey, Analyst at Mizuho Americas]

Okay. Great. Good quarter. Thanks.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. Our next question on line comes from Jeff Sprague from Vertical Research.

[Jeff Sprague, Analyst at Vertical Research]

Thank you. Good morning everyone.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Jeff.

[Jeff Sprague, Analyst at Vertical Research]

Good morning. I just want to talk about the kind of the deals that were done last year that have sort of kind of anniversaried here in the last month or two or 3. How they're performing now as they kind of lapped year and are anniversaried into the portfolio? And any change in your view of kind of the accretion outlook for those businesses?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

No. I think the outlook for all the businesses is positive, and we're really pleased to have bought them all. And the management teams are now getting embedded into AMETEK. I'd make a -- the business has had the same problems with supply chain that we experienced across our businesses, and those problems were more experienced in the Electronic Instruments Group.

They were -- impact us a lot. And -- but the second half of the year, we took the opportunity to realign those businesses, get them integrated into AMETEK. And for the second half of the year, I really think we're going to have some significant momentum in H2 related to those deals. So we made a lot of progress during the first year. And I think, into the second half of this year and also 2023, I really see significant momentum.

[Jeff Sprague, Analyst at Vertical Research]

And I missed the first couple of minutes of the call, David. Did you say anything about kind of the current deal pipeline or kind of potential actionability on things as you look here into the balance of the year?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

No, that's a good question, Jeff. I mean we remain very active. We mentioned that in our prepared remarks. We're looking at multiple deals. As always, we're focused on long-term returns. One of the things I'm excited about is our debt profile. About 86% of our debt is long term and fixed at a 3.2% interest rate. So if there's a -- if interest rates rise, it's really going to have limited effect on us.

As Bill mentioned in his prepared remarks, we have no debt maturities in the next couple of years. We recently upsized our revolver. So we're in a very good position to be in terms of executing our M&A strategy. And as I said, our pipeline is strong, and I expect you'll be hearing from us in the second half of the year regarding M&A.

[Jeff Sprague, Analyst at Vertical Research]

Right. Thanks. I'll leave it there.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. [Operator Instructions] Our next question on the line comes from Andrew Obin from Bank of America.

[Andrew Obin, Analyst at Bank of America]

Hey good morning.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Hi Andrew.

[Andrew Obin, Analyst at Bank of America]

Just another question on price and volume. In terms of your guide raise, how much of it was price and how much was better volumes in the second half? And I appreciate that there is a FX headwind there as well.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Right, right. Yes, so we're not giving that information out. It's really tough to understand that. What we're saying is we'll maintain a spread of 100 basis points positive. And it's very complicated when you take into account FX and our different mix of businesses and what's happening in the market with some commodity starting to come down. So -- but what we're saying is we'll maintain 100 basis point spread between price and inflation in the second half of the year.

[Andrew Obin, Analyst at Bank of America]

Got you. And just to follow up on Jeff's question on M&A. You have a sort of bottoms up -- a lot of your M&A activity is sort of bottoms up in the organization. Are you hearing anything new from your business units as they chase these market leaders? Do you take a look at stacks? Are you seeing private equity back away? Any change in behavior, anything different about this market versus where we were maybe six to 12 months ago?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. The -- I mentioned in a prior call that the multiples were very high. And for quality assets, they're still attracting a bit of a premium. But the multiples between public and private markets are coming in, they're becoming closer together. And if you have to go and finance a deal and AMETEK can pay from its balance sheet, it gives us an advantage right now because there is some difficulty in getting financing impacting some private equity potential buyers and sellers for that matter.

[Andrew Obin, Analyst at Bank of America]

I appreciate it. Thanks a lot.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. Our next question on line comes from Mr. Matt Summerville from D.A. Davidson. Please go ahead.

[Will Jellison, Analyst at D.A. Davidson]

This is Will Jellison on for Matt Summerville this morning. So on the call, you mentioned the supply chain actions that you're taking, including some supply diversification. And I was wondering, bigger picture across the last year plus of supply chain challenges you faced, are there any best practices that you've learned about throughout the organization that you would want to sustain even when supply chains reach more normalized levels in the future?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

It's a great question. And I think we learned several things. We learned that our business model is fundamentally sound. Because our distributed business model, having those committed P&L managers running their business units, they really drive their businesses and there's a good interaction between them and the centralized corporate supply chain team.

We also learned that our engineering capability is first rate, and they solved shortages through redesign and qualified component substitutions through this whole time. We did probably one thing that will change is how we purchase electronics going forward. We're looking for -- to leverage our spend more and develop closer relationships with both the semiconductor chip manufacturers and the distributors for that matter. So it will be a little bit of a change in that area. That's one thing I can put to. We're being more direct as opposed to relying on distribution.

But fundamentally, it's navigating through this as we did, dealing with these challenges, we've had excellent results. And it's -- as I said, key from my view is our distributed business model. We have people owning these businesses and making good decisions. And our strong engineering capability is also a key factor to help us solve these shortages and redesigning, find qualified component substitutions. So did that answer your question?

[Will Jellison, Analyst at D.A. Davidson]

Yes, that was great. And then as a follow-up, I was wondering to the point that you made about having content on the James Webb Telescope, I was wondering if events like that, that are highly visible, of historic nature, do those start to meaningfully increase the visibility of what a business like Zygo offers to the extent that it catalyzes more orders than you might otherwise have?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

I think in the research community, it really stands out and it does drive customers to us. And the other thing I mentioned in the EUV market, designing and developing optics there, there's really only a couple of people that can do it. So Zygo is really already well known. But those type of events do help us and they drive customers to us because they see our expertise. And it also is positive for our employees to see that kind of thing and how we're improving the world. So it does help, and we have a lot of businesses like that around AMETEK.

[Will Jellison, Analyst at D.A. Davidson]

Understood. Thanks for taking my questions.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. Our next question online comes from Mr. Joe Giordano from Cowen.

[Joe Giordano, Analyst at Cowen]

Hey guys, good morning.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Joe.

[Joe Giordano, Analyst at Cowen]

Just curious, just the way you guys are set up. Like when we think about the chipset, what does that have to -- how do you think about the impact? Are you kind of agnostic as to where a plant is built globally? Or is this helpful that the U.S. is incentivizing it specifically?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. I'd say in general, we're agnostic. Wherever it's built in the world, we're going to have our fair shot at it. But what's happening now is there's probably going to be some incremental capacity put in to satisfy things like security and national defense. And with more opportunities, we'll certainly get a fair share of our business there.

[Joe Giordano, Analyst at Cowen]

Perfect. And then, Dave, can you go through kind of like any changes in the outlook by market?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes, I think on our Process businesses, organic sales for Process were up low double digits in the quarter. They had a very broad-based growth across essentially all Process businesses. And growth in the quarter was particularly strong across Taylor Hobson, Zygo, and our fluid analysis businesses. And you take that all in and now we're expecting organic sales for Process businesses to be up high single digits. So we raised that. Aerospace & Defense.

Organic sales for our Aerospace & Defense businesses were up low double digits, growth across each segment. Total commercial sales were up mid-teens in the quarter with strong growth across commercial OEM and aftermarket, and defense sales were up low single digits. So stronger in commercial, but defense was growing also. And for the full year, we now expect organic sales to be up high single digits for our A&D businesses with growth in both Commercial and also Defense. And if you look at our Power -- Power & Industrial businesses, excellent in the quarter, up mid-teens on a percentage basis with notable strength in our Programmable Power business. And we now expect organic sales in our Power & Industrial business to be up high single digits. So that was raised also.

And finally, our Automation & Engineered Solutions, a really good quarter in both Automation & Engineered Solutions, both seeing strong growth. And we raised the year for that segment also to be high single digits. So we're reflecting the strength of our businesses and an improved organic guide for the rest of the year. And really all those subsegments are now forecasted to grow at high single digits.

[Joe Giordano, Analyst at Cowen]

Thank you.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Hey, Joe, thank you.

[Operator]

Thank you. Our next question comes from Mr. Scott Graham from Loop Capital Markets.

[Scott Graham, Analyst at Loop Capital Markets]

Yes. Hi, good morning.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Scott.

[Scott Graham, Analyst at Loop Capital Markets]

Dave, Bill and Kevin. Hey, Yes, so thanks for doing that just now. You saved me a question. The -- can you just give us the productivity number in the quarter and the expectation for the year?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. Cost savings in the quarter was $35 million. So a really good quarter. And we're getting a lot of that through value engineering. We're redesigning some of these things and getting them designed at a lower cost level. So that's helping us a lot. And for the year, the cost savings number is $125 million.

[Scott Graham, Analyst at Loop Capital Markets]

So no change there?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

No change. About half of it is opex and half of it is materials.

[Scott Graham, Analyst at Loop Capital Markets]

Okay. You went through a longer sort of acquisition response than I've heard you before. It sounds to me like you're even signaling that -- more than signaling, you said expect second half deals. Could you kind of -- is this a situation where things have just sort of been lined up at the gate and there's going to be a couple of different closings of deals? Do you think perhaps your comment was directed more at one in particular? Just -- I mean, how close are we on some? Did we lose any? Just maybe a little bit more color on what you're thinking on the second half.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes. You never can tell with deals, Scott. And things can happen and things can change. But I feel really confident right now because the volume of deals that we're looking at and processing and having some positive interactions are high. And they're both the typical deals that AMETEK has and there are some that are on the bigger size within the constraint of the types of deals we look at. So the -- we're busy with deals. We're busy, and we get -- our people are real busy. And the situation that I talked about with our strong balance sheet, the fixed debt, the strong cash flow, we think that's going to be a differentiator for us as we look into the second half of the year.

[Scott Graham, Analyst at Loop Capital Markets]

Just one more, if I may. The unbundling of the organic and for the full year, the up high single digits really for all 4. Could you tell us of those 4, which ones are maybe a little bit more that you're optimistic on in the second half? Because obviously, in the second quarter, you did better than we all expected on organic. So sort of how much of those raises were because the second quarter was better versus what you're seeing in the second half?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good question. In general, we had a good second quarter across the board. The one area that I'd point out is the order growth rates in the commercial aerospace market were one of the things that caught my attention. So I'm looking for some positives there in the second half of the year and into 2023.

[Scott Graham, Analyst at Loop Capital Markets]

Very good. Thanks.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. Our next question on line comes from Mr. Brett Hardman from Melius Research.

[Brett Hardman, Analyst at Melius Research]

Hey, good morning, everyone.

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Good morning, Brett.

[Brett Hardman, Analyst at Melius Research]

Thanks for taking my question. So you've already given good color on price cost, but I just wanted to get more of a sense on what you're seeing in terms of cost inflation, in particular, and your outlook going forward. Sorry if I missed this, but inflation impact was 4% last quarter, 5% this quarter. You said supply chain is still bad for electronic components in particular, and that inflation will be here for a while. But I'm just wondering, do you expect the inflation impact in general across your business to continue to increase? Or is it sort of plateauing or decreasing as we move through the rest of the year?

[David A. Zapico, Chairman of the Board and Chief Executive Officer at AMETEK]

Yes, that's a good question. What you really see is some things are coming back in, decreasing in price like inflation, like the commodities. But at the same time, you have wages and other areas that are increasing. So the net effect is inflation is still increasing. It went from 4% to 5% sequentially in the quarter. Right now, I think that's going to stabilize at that, but it's difficult to predict.

That's why we have things in place. We're going to maintain that 100 basis points positive spread. But clearly, there are different dynamics that are happening right now where some things are coming back in and some things are still inflating, but the net is still increasing costs. So -- but we've got a good system to manage that, but that may change over the next quarter, and we'll tell you about it. But right now, that's where it is.

[Operator]

We have no further questions at this time. I will now turn the call over to Kevin Coleman for closing remarks.

[Kevin C. Coleman, Vice President, Investor Relations and Treasurer at AMETEK]

Thank you again, Richard. And thanks, everyone, for joining our conference call today. As a reminder, a replay of today's webcast may be accessed in the Investors section of ametek.com. Thanks, and have a great day.

[Operator]

[Operator Closing Remarks]