AMETEK Q2 2023 Earnings Call Transcript

Participants

Corporate Executives

• Kevin Coleman, Vice President - Investor Relations
• David Zapico, Chairman and Chief Executive Officer
• William Burke, Executive Vice President and Chief Financial Officer

Analysts

• Allison Poliniak, Wells Fargo & Company
• Matt Summerville, D.A. Davidson
• Deane Dray, RBC Capital Markets
• Christopher Glynn, Oppenheimer Holdings Inc.
• Brett Linzey, Mizuho
• David Ridley-Lane, Bank of America Co.
• Unidentified Participant

Presentation

[Operator]

Good day and thank you for standing by. Welcome to the AMETEK Second Quarter 2023 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

[Kevin Coleman, Vice President - Investor Relations at AMETEK]

Thank you, Benny. Good morning and thank you for joining us for AMETEK's second quarter 2023 earnings conference call. Joining 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 risk 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 2022 or 2023 results or to 2023 guidance 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 Investor 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 Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you, Kevin and good morning, everyone. AMETEK achieved exceptional performance in the second quarter, marked by strong sales growth, outstanding operational execution and record results ahead of our expectations. In the quarter, we established records for sales, operating income, operating margins, earnings per share and EBITDA. We also ended the quarter with a record backlog.

AMETEK's continued outstanding results reflect the strength of the AMETEK growth model, the quality of our niche differentiated businesses, the benefits from our organic growth initiatives and most importantly, the outstanding efforts from our dedicated colleagues. Considering our strong second quarter results and the positive outlook for the remainder of the year, we are again increasing our earnings guidance for the full-year.

Now, let me turn to our second quarter results. Second quarter sales were $1.65 billion, up 9% over the same period in 2022. Organic sales growth was 5%, acquisitions added 4 points in the quarter and foreign currency was flat. Our book-to-bill ratio in the second quarter was 1.01, our 12th consecutive quarter of positive book-to-bill. As a result, we ended the quarter with a record backlog of $3.44 billion, up $220 million from the end of 2022 and up $1.6 billion or 91% from the end of 2020.

Operating income in the quarter was a record $419 million, 15% increase over the second quarter of 2022. Operating margins were 25.4% in the quarter, up an impressive 130 basis points from the prior year. EBITDA in the quarter was a record $496 million, up 12% over the prior year, while EBITDA margins were also impressive at 30.1%. This operating performance led to record earnings of $1.57 per diluted share, up 14% versus the second quarter of 2022 and above our guidance range of $1.49 to $1.51 per share.

Now, let me provide some additional details at the operating group level, first, the Electronic Instruments Group. The Electronic Instruments Group had a great quarter with excellent sales growth and tremendous operating performance. Sales for EIG were $1.13 billion in the quarter, up 10% from the second quarter of last year. Organic sales were up a very strong 8% with acquisitions accounting for the balance of the growth.

EIG sales growth in the second quarter was widespread across each of our divisions with growth, particularly strong in our Aerospace and Defense and Ultra Precision Technologies businesses. EIG's operating performance was impressive with strong profit growth and margin expansion. Our operating income was $307 million, up 16% versus our prior year, while operating margins were 27.1%, up a robust 130 basis points from the prior year.

The Electromechanical Group also delivered strong sales growth and excellent operating performance in the quarter. EMG's second quarter sales were a record $511 million, up 5% versus the prior year, driven by the acquisition of Bison Engineering, with organic sales roughly flat in the quarter. EMG's operating income in the quarter was $136 million, up 10% compared to the prior year period. EMG's second quarter operating margins were excellent at 26.6%, up 100 basis points versus the prior year, while EMG's core operating margins, which exclude acquisition dilution were up a sizable 180 basis points. Overall, AMETEK achieved outstanding performance in the second quarter of 2023.

In addition to AMETEK's continued strong operating execution, our strong results speak to the attractiveness and diversity of the end-markets we serve. Our businesses saw leading positions in attractive niche market segments. Through our continued organic growth investments and strategic acquisitions, we are expanding our presence on market segments and niches aligned with strong, secular growth drivers. As a result, our businesses are well-positioned with differentiated solutions that benefit from the meaningful and long-term investments in areas such as electrification, clean energy, healthcare efficiency and manufacturing and insuring [Phonetic].

In addition to our alignment with strong growth markets, AMETEK has seen great success from our organic growth initiatives and investments. For all of 2023, we expect to spend over $100 million on incremental growth investments. These investments are largely focused on expanding our sales, marketing and commercial excellence initiatives, as well as broadening our research, development and engineering efforts.

AMETEK's research, development and engineering teams across our businesses consistently deliver innovative and next-generation products, tailored to meet the unique needs of our customers. While there are numerous examples across the company, I wanted to highlight our Abaco business unit for their outstanding accomplishments.

Abaco is a leading provider of commercial off-the-shelf embedded computing systems for aerospace, defense and specialized industrial applications. Demand for Abaco solutions remain strong, given their position as a leading provider of ruggedized technology solutions with advanced thermal management capabilities.

Abaco was awarded the best overall design for high-performance PCBAs at the recent Xcelerator Technology Innovation Awards. Abaco also recently introduced a next-generation integrated computing and graphics card with the latest GPU technology. This provides our customers with advanced computing graphics processing and security capabilities required in AI-focused applications, such as intelligence, surveillance and reconnaissance, radar signal processing and deep machine learning for autonomous systems.

In addition to Abaco, many other businesses are well-positioned to benefit from the growing demand for high computing power and analytics. We recognized the pivotal role of organic growth initiatives and driving our overall growth strategy. These investments in organic growth, coupled with our market leadership and attractive market exposures, position the company for continued success in driving sustainable long-term growth.

Now switching to our capital deployment and acquisition strategy. Over the last three quarters, we deployed approximately $530 million on the acquisition of three businesses Navitar, RTDS and Bison Engineering. Each of these businesses is integrating nicely into AMETEK and each is very well-positioned to capitalize on attractive growth opportunities in their markets.

Our acquisition pipeline remains very strong and our businesses and internal M&A teams are actively managing a number of opportunities. AMETEK remains committed to leveraging our strong cash flow to pursue strategic acquisitions that align with our growth objectives. With a robust balance sheet and significant financial capacity, we are well-positioned to support our acquisition strategy and capitalize on value-creating opportunities in the future.

Now, turning to our outlook for the remainder of the year. While uncertainties in the macroeconomic environment continue to warn caution in the short-term, we are confident in our ability to navigate through these challenges and delivered strong results. Building upon our strong first half results and positive outlook for the remainder of the year, we are again increasing our earnings guidance.

For the full-year, we expect overall sales to be up mid to high single-digits with organic sales expected to be up mid single-digits. Diluted earnings per share for the year are now expected to be in the range of $6.18 to $6.26, up 9% to 10% compared to last year's results. This is an increase from our previous guidance range of $5.96 to $6.10 per diluted share. For the third quarter, we anticipate overall sales to be up mid single-digits with adjusted earnings of $1.56 to $1.58 per share, up 8% to 9% versus the prior year.

In summary, AMETEK's second quarter results were excellent. Our businesses continued to deliver excellent performance, benefiting from differentiated technology solutions to cater to diverse and growing niche markets. The implementation of our organic growth initiatives has yielded higher levels of growth, while our portfolio remains aligned with attractive mid and long-cycle markets. Our asset-light business model and strong cash flows provide us with the flexibility to navigate challenging environments, while actively deploying capital to drive increased shareholder value. As a result, 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 Burke, Executive Vice President and Chief Financial Officer at AMETEK]

Thank you, Dave. As Dave highlighted, AMETEK had a very strong second quarter, with record level operating performance and a high quality of earnings. Now let me provide some additional financial highlights for the second quarter.

Second quarter general and administrative expenses were $24.5 million, essentially unchanged from the prior year and as a percentage of sales were 1.5% versus 1.6% in last year's second quarter. For 2023, general administrative expenses are expected to be approximately 1.5% of sales, in line with last year's G&A sales level.

Second quarter other income and expense was a $6 million headwind versus the prior period due largely to lower pension income in the quarter. The effective tax rate was 18.2%, down slightly from the 18.5% in the second quarter of 2022. For 2023, we now 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 $28 million and we continue to expect capital expenditures to be approximately $145 million for the full-year or about 2% of sales reflecting our asset-light business model. Depreciation and amortization expense in the quarter was $82 million. For the full-year, we expect depreciation and amortization to be approximately $335 million, including after-tax acquisition-related intangible amortization of approximately $157 million or $0.68 per diluted share.

Operating working capital in the second quarter was 19% of sales. Cash flow in the quarter was up meaningfully from the prior year. Operating cash flow was $335 million, up 42% from the prior year and free cash flow was $307 million, up 47% from the second quarter of 2022. Free cash flow conversion was 95% in the quarter and for the full-year, we continue to expect approximately 120% free cash flow to net income conversion.

Total debt at June 30th was $2.2 billion, down from $2.4 billion at the end of 2022. Offsetting this debt is cash and cash equivalents of $606 million. At the end of the second quarter, our gross debt to EBITDA ratio was 1.1 times and our net debt to EBITDA ratio was 0.8 times. We continue to have excellent financial capacity with approximately $2.9 billion of cash and existing credit facilities to support our growth initiatives.

In summary, our businesses continued to deliver exceptional results in the second quarter of 2023. We delivered strong sales growth, achieved robust margin expansion and a high quality of earnings. Our leading positions across attractive market segments, record backlog and outstanding operating capabilities have positioned us well for continued success in the back half of the year.

Kevin?

[Kevin Coleman, Vice President - Investor Relations at AMETEK]

Thank you, Bill. Benny, can we please open the lines for questions?

Questions and Answers

[Operator]

All right, sure. [Operator Instructions] Our first question is from the line of Allison Poliniak of Wells Fargo. Your line is now open.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Hi, good morning.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Good morning, Allison.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Could you maybe talk to, obviously, book-to-bill being positive is very strong outcome here, just given some of the uncertainties. But could you maybe talk to order trends that you're seeing since then, anything concerning, so you talked about sort of you've been focused more on the longer-term, but any short-term kind of headwinds that you're starting to see there? Thanks.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Great question. The overall demand environment still feel solid. We had 12 straight quarter of positive book-to-bill and ended with an all-time record of $3.44 billion. So our book-to-bill was 1.01 and it was positive in both groups, so that's, that's really great. Our backlog is over 50% of our annual sales and well above normal historical levels, normal historical level of about 30%. So we're in a strong position as we proceed throughout 2023.

If you recall in the last couple of earnings calls, we highlighted a couple of dynamics that would impact order growth, the first are difficult comparisons. If you look at our -- over an extended period of time, in fact, in all 2021 and 2022, we averaged 18% organic growth. So we have some difficult comps that we're running up against. And the second dynamic we highlighted is our expectation to return to more normalized ordering patterns. We had a situation where customers were ordering early and now that the supply chain is improving and getting back to normal, lead times are getting back to normal, we're seeing this dynamic play out. But we're well-positioned to deal with it and our record backlog and positive book-to-bill give us confidence for the remainder of the year.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Great, that's helpful. And leverage clearly low here, you talked about a pipeline pretty active. Can you maybe give us some color on sort of what's been holding it back, is it still -- in terms of executing, is it still, I would say valuations at this point, you're just not seeing anything of great interest, just any color there would be helpful. Thanks.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, our pipeline remains very strong and we're actively looking at a number of high-quality deals across a broad set of our markets and as always, we will remain disciplined. So the discipline is in full force, but we expect to be active in the back half of the year and more broadly over the next couple of years, we really have the opportunity to differentiate our performance with the M&A aspect of our growth strategy. We're very well-positioned with a strong balance sheet and we're really working hard at it and sometime you can't predict what quarter they're going to close on or what quarter they're going to happen, but the backlog is at an elevated -- backlog of deals at an elevated level and we are extremely busy.

[Allison Poliniak, Analyst at Wells Fargo & Company]

Got it. Thank you.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you, Allison.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Matt Summerville from D.A. Davidson & Company. Your line is now open.

[Matt Summerville, Analyst at D.A. Davidson]

Thanks, good morning.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Good morning, Matt.

[Matt Summerville, Analyst at D.A. Davidson]

David, could you maybe just go ahead and do the kind of around the horn if you will, with respect to the businesses, the divisions, what you saw in Q2 and how that informs your organic expectations for those areas for the balance of the year?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

I'll be glad to, Matt. I'll start with our largest market segment, our process segment and overall sales for our process businesses, we're up high single-digits in the quarter and that included mid single-digit organic growth and contribution from the recent acquisition of Navitar. Growth remained solid across each of our process divisions with -- as mentioned in the prepared remarks, our Ultra Precision Technologies business delivered notably strong growth and driven by high-end optics and metrology businesses.

We also grow -- saw solid growth across our Med-Tech businesses and the Rauland business that we mentioned a couple of quarters ago continues to perform extremely well. So for the full-year, we continue to expect mid single-digit organic growth for the process businesses, very solid. The Aerospace and Defense, the growth remains very strong across our Aerospace and Defense businesses. In the quarter, both overall and organic sales were up low double-digits on a percentage basis.

And it really was reflective of strong solid performance in all of the sub-segments in A&D. Growth was particularly strong across our aftermarket businesses, as air travel returns to pre-pandemic levels driving very strong demand for MRO products and services. And given the strong growth in the quarter, we now expect sales for the full year to increase low double-digits on a percentage basis versus 2022, so we increased our outlook for our Aerospace and Defense businesses.

Moving to Power and Industrial, overall sales were up mid-teens on a percentage basis in the second quarter and that was really fueled by mid single-digit organic sales growth and the contributions from the RTDS acquisition, which is performing extremely well. Organic growth in the quarter was strongest in our power, test and measurement business, programmable power and for the full-year, we continue to expect mid single-digit organic sales growth for our power and industrial businesses.

And finally, our Automation and Engineered Solutions, overall sales were up mid single-digits with mid single-digit decline in organic sales being offset by the contribution from the Bison acquisition. And as we noted previously and in my question to Allison, I talked about normalization of inventory levels is continuing across our OEM businesses and the impact is most significant in our automation business. For the full-year, we now expect organic sales for our Automation and Engineered Solutions business to be up low single-digits, with a stronger growth expected across our EMED businesses, that's -- that's across the -- around the horn.

[Matt Summerville, Analyst at D.A. Davidson]

Thanks, David. I appreciate that. And then maybe just to your last point, can you maybe comment on how long this normalization -- this normalization period you feel may last with respect to automation. And then if you could, maybe just to switch gears a little bit, give a little bit of geographic color in terms of what you're seeing both organically and from an incoming order rate standpoint? Thank you.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, I'd be glad to. In terms of the automation business, I think it's going to last a couple of quarters, it's probably going to bottom near the end of this year and what we have there is the end-markets for automation are very interesting, the places where the inventory correction is steepest is with our medical technology customers, with our life sciences customers, we had been positioned on a lot of COVID test equipment. Also our semiconductor, especially in the memory areas is weak right now.

So, that is correcting and it's going to correct in the second half, but I really think with the end-markets that business serves is coiled to respond, so -- in an upward fashion. So we kind of saw this coming, it's impacting OEM businesses, but very significantly in our automation business, but we're positioned well to manage through that, increase our guidance and -- because we're really operating well, our productivity programs are progressing nicely. As I mentioned, the recent acquisitions are performing very well. Price inflation, we have good visibility and the A&D business is accelerating, it's our highest-margin segment.

Now moving on to your next question, really feel good about the geographical story around AMETEK too. We saw strong broad-based growth across all segments. The US was up mid single-digits. We had broad-based strength, notable strength on our process and Aerospace and Defense businesses. Europe was up high single-digits really, really positive performance there with notable strength in our process and power businesses and Asia was up three points with notable strength in process. Okay, Matt?

[Matt Summerville, Analyst at D.A. Davidson]

Thank you, David.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

All right.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Deane Dray of RBC Capital Markets. Your line is now open.

[Deane Dray, Analyst at RBC Capital Markets]

Thank you. Good morning, everyone.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Good morning, Dean.

[Deane Dray, Analyst at RBC Capital Markets]

Hey. First I got to start with a shout-out compliment for that one page in your website that gives you the quarter recap and backlog and free cash flow. I didn't see the timing in the first quarter, but we really appreciate having that up on the website. So, thank you.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Welcome.

[Deane Dray, Analyst at RBC Capital Markets]

Listen, lot of good questions we've gone through already, just on this normalization and we're seeing that everywhere and it seems to be not very disruptive for you all. Is there an opportunity -- maybe this is for Bill, would you be releasing any buffer inventory as things start to normalize you go from, just in case a bit closer to just in time? Is that an opportunity?

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

Absolutely and that's something our businesses are very much focused on. We did all the right things to work our way through the supply chain, protect our customers, given our extensive backlogs, but as that starts to normalize, our businesses are pivoting now to reducing inventories and I think you'll see that happen as we move through the second half of the year.

[Deane Dray, Analyst at RBC Capital Markets]

Good. That was the timing we were looking for. And maybe some commentary on price-cost, any kind of pricing carryover benefit and contribution from new products in the quarter?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, on the price issue, in the second quarter, we continued to more than offset inflation. Our pricing was above 5% and inflation was above 4% and they gave us of a positive spread of approximately 100 basis points. So solid performance there. We're seeing decreasing costs in some commodities and logistics, offset by other costs and wages and travel, but I feel like we have that really under control with good visibility and the results there speak to the highly differentiated nature of AMETEK's product portfolio.

[Deane Dray, Analyst at RBC Capital Markets]

Great. And new products?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, new products were -- solid quarter, 24% of sales for -- is our Vitality Index. So what's happening is our customers are buying our new products and our new products had really good markets and so we feel really good about that and significant introductions across the business. I mentioned the Abaco introduction and the work they won, but -- well, these are -- these are not homerun type swings and our product development is spread out across the business, but we have a lot of good things going on.

[Deane Dray, Analyst at RBC Capital Markets]

Hey, you can get to the Hall of Fame with lots of singles and doubles.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

That's right, that's AMETEK strategy.

[Deane Dray, Analyst at RBC Capital Markets]

Thank you.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you, Dean.

[Operator]

Thank you. [Operator Instructions] Our next question comes from the line of Christopher Glynn of Oppenheimer and Company Incorporated. Your line is now open.

[Christopher Glynn, Analyst at Oppenheimer]

Thanks. Good morning Dave, Bill, Kevin.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Good morning, Chris.

[Christopher Glynn, Analyst at Oppenheimer]

So Dave, reacting to your pitch on Abaco, you closed that out talking about demand for high computing power and analytics, like many other AME businesses. Wondering if we could dive into that last dilution there?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, yeah, when I'm talking about other businesses, I'm talking about what's happening for example in some of our process instrumentation businesses. We're doing a lot of work there to improve or bring some technologies that were in the lab to the field. And especially, in our Spectro Scientific business where there's a lot of technology that we're putting in smart technology where there's AI algorithms in it and we're doing measurements that were previously done in the lab, now we're doing them in the field. So that's really good and that's all around our predictive maintenance programs that we have with Spectro Analytics, so we're really positive on that.

You think about our -- some of our materials analysis businesses, there is tremendous amount of data that we're taking from materials analysis and we're showing our users that in unique and ways highlighting the technology or measurement technology. So you have situation where the graphics powers, the graphics intensity of what we're doing is just kind of state-of-the art. So they are really across our businesses, a couple of trends around predictive maintenance, trends around moving the measurements to the field and trends around in research environment, the analytical computational power to take the data that we have and provide our users with of actionable intelligence is -- would be the areas I'd highlight.

[Christopher Glynn, Analyst at Oppenheimer]

Thanks, it's very interesting. And then curious about any areas that might be inflecting higher. I think, the question there is more about anything kind of reaching an inflection or peak junctures, but you did raise the aero, defense market and I think defense might be one particular area, if you could elaborate? Thanks.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, on both our Aerospace and Defense markets, we have an upbeat, demand is strong in the commercial market that I talked about it, but outlook for the year both commercial and the defense market have low double-digit outlooks. So we're really well-positioned in the defense market and some of the things I talked about with Abaco play to that, but both sides of A&D, commercial and defense are strong and we clearly have an upbeat.

[Christopher Glynn, Analyst at Oppenheimer]

Thank you.

[Operator]

Thank you. [Operator Instructions] All right. And our next question, please, comes from the line of Brett Linzey of Mizuho. Your line is now open.

[Brett Linzey, Analyst at Mizuho]

Hi, good morning all.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Good morning, Brett.

[Brett Linzey, Analyst at Mizuho]

Hey, just wanted to come back to orders, I was hoping you might be able to provide some context for how things track throughout the quarter, any preliminary view on July? And is there anything notable to glean from the changes in the mix of orders between project that are capex related versus more opex purchases?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, I'll answer the second part of that first and the thing that I would glean is more OEM versus end-user. So if we have OEMs between our product and end customer, the OEMs are -- have inventory in place and as we get back to more normalized activities, the OEM parts of the business are where the order is normalizing. On the end-user side of the business, we're not seeing that really at all and end demand still remain strong.

Regarding to your first question -- regarding the -- how we progressed throughout the month, we had solid orders in Q2 as typical orders ramp higher each month of the quarter. So, June was the highest month of the quarter and notably, when we adjust for acquisition because when you close an acquisition you book the entire backlog as order input, so we take that out. And if we look to the last couple of years, June was like the highest booking or the second highest booking month over the last couple of years. So June was really strong.

So -- and in terms of July, it just closed last night and haven't really dug into it at a deep level, but it's certainly up to that point was in line with the growth that we're telling -- we're communicating where we're increasing our guidance for the second half of the year very substantially.

[Brett Linzey, Analyst at Mizuho]

Okay, great. Thanks. And then just shifting over to pricing, as we do work through this normalization and some of the destock dynamic, are there any areas you think there maybe price concessions or do you think you can hold the line on price if not grow it in your businesses there?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, there's going to be just a small amount of give back, we're going to retain the vast majority -- we're going to retain the vast majority of pricing and on a go-forward basis, I expect that inflation to moderate a bit, but we're going to keep the 100 basis point spread. So we feel real good about the analysis and the control and what's playing out with price. So we'll retain the price and it's certainly not going to be a big give back.

[Brett Linzey, Analyst at Mizuho]

Okay, great. I'll leave it there. Thanks.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you, Brett.

[Operator]

One moment please for the next question, our next question comes from the line of Andrew Obin of Bank of America. Your line is now open.

[David Ridley-Lane, Analyst at Bank of America]

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

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Hello, David.

[David Ridley-Lane, Analyst at Bank of America]

I guess -- good morning. I guess, what's directionally embedded in the revenue guidance for year ending backlog? I understand there is -- going to begin this normalization of the backlog. I'm wondering if you see that sort of playing out in second half or is that more of a 2024 story?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, as I mentioned in the last couple of calls, I do expect our sales to outpace orders in the second half of the year, but it will be a moderate impact and we'll end the year with historically high backlog in comparison to what we've done in the past. So it will be a modest impact as we progress through the second half of the year.

[David Ridley-Lane, Analyst at Bank of America]

Thank you. And then if I'm doing the math right, guidance seems to imply about 40% core incremental margins versus kind of prior expectations, the 30% to 35%. What's been improving, what's been going better than you expected?

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, margin performance has been great and in fact, in the second quarter, we had really healthy core incrementals of 52%. So you're correct on your outlook for the year and it probably is a bit higher because our performance has been outstanding. And if you look at reported and core were both up 130 basis points at the company level, healthy incrementals and we think for the full-year, the incrementals will be similar in both groups and 40% is a good number.

[David Ridley-Lane, Analyst at Bank of America]

Thank you very much.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you, David.

[Operator]

Thank you. One moment please for our next question. Our next question comes from the line of Joe Giordano of TD Cowen. Your line is now open.

[Unidentified Participant, at AMETEK]

Hi, good morning. This is Ed on for Joe Giordano.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Hello.

[Unidentified Participant, at AMETEK]

Hey. I just wanted to check if there is any color you guys can provide on like some specific end-markets in terms of any customer hesitancy, specifically looking for if you have any color on any slowdowns on the medical side like pressure on biotech because we're hearing from other people who are in the industry that there's been some pressure and some slowdown in that area.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Yeah, I mentioned that some of our automation customers are in the Medtech and life sciences world and we are seeing the impact of inventory destock and that's included in our overall guidance. But in terms of our overall medical business, not including that piece of the automation business, Q2 were up mid-teens. So really strong and strong growth in our engineered, medical components business and a very significant performance for AMETEK in the second quarter and for the full year.

[Unidentified Participant, at AMETEK]

Great. Thank you.

[David Zapico, Chairman and Chief Executive Officer at AMETEK]

Thank you.

[Operator]

Thank you. All right. So I do not see any other questions at this point. I would now like to turn the conference back to Kevin Coleman for closing remarks.

[Kevin Coleman, Vice President - Investor Relations at AMETEK]

Thank you, Benny for all your help and thank you for joining us for our conference call today. And as a reminder, a replay of today's webcast can be accessed in the Investor section of ametek.com. Have a great day.

[Operator]

[Operator Closing Remarks]