Good day, ladies and gentlemen. Welcome to the Q2 2019 Hemitec Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, today's conference is being recorded. I would now like to introduce your host today's conference call, Mr. Kevin Cauldman, Vice President, Investor Relations. You may begin.
Great. Thank you, Kevin. Good morning, everyone, and thank you for joining us for AMETEK's Q2 2019 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. AMETEK's second quarter results were released earlier this morning and are available on Market Systems and in the Investors section of our website.
This call is also being webcasted and can be accessed on our website. The webcast will be archived and made available on our site later today. During the course of today's call, we will make forward looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filing with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward looking statements.
Also, any references made on this call to 2018 or 2019 results will be on an adjusted basis excluding after tax, acquisition related intangible amortization and excluding the Q4 2018 gains related to the finalization of the impact of the 2017 Tax Cuts and Jobs Act. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today with prepared remarks by Dave and Bill and then open up for the questions. I'll now turn the meeting to Dave.
Thank you, Kevin, and good morning, everyone. AMETEK had an excellent second quarter. We exceeded earnings guidance on solid organic sales growth, contributions from acquisitions and exceptional operating performance. In the process, we delivered a record level of sales, EBITDA, operating income and adjusted diluted earnings per share. We also delivered impressive growth in operating cash flow in the quarter.
Given these strong results and our outlook for the back half of the year, we have again increased our full year earnings guidance range. These results continue to highlight the strength of the AMETEK growth model and our ability to deliver strong and consistent performance for our shareholders. Now on to the financial highlights for the quarter. Total sales were a record $1,290,000,000 up 7% compared to the Q2 of 2018. Organic sales growth was solid at 3%, acquisitions added 5% and foreign currency was a 1 point headwind.
EBITDA in the 2nd quarter was a record $349,000,000 up 10% over the same period in 2018 and EBITDA margins were excellent at 27%. Operating income was a record at $295,400,000 a 9% increase over the Q2 of 2018. Reported operating income margins were up 60 basis points to 22.9 percent and excluding the dilutive impact of acquisitions, operating margins increased an impressive 110 basis points over the prior year period. This exceptional operating performance reflects the strength of our operational excellence initiatives. Earnings were a record $1.05 per diluted share, up 14% over the prior year and exceeding our guidance range of $1 to $1.02 per diluted share.
Lastly, operating cash flow was superb in the quarter, up 21% to $246,000,000 Now on to the individual operating groups. 1st, the Electronic Instruments Group. EIG's 2nd quarter sales were $820,200,000 up 10% over last year's 2nd quarter. Recent acquisitions contributed 8%, organic sales were up 3% and foreign currency was a 1 point headwind. Our Materials Analysis business delivered another very solid quarter.
Through high end analytical instrumentation solutions including several new product introductions are helping our customers solve increasingly complex challenges in attractive growth markets. Our Aerospace businesses also performed nicely as demand remains very solid across the Aerospace and Defense markets. In addition to the strong top line growth, EIG delivered outstanding operating performance in the 2nd quarter. Operating income increased 10% $212,900,000 with reported operating income margins of 26%. Excluding the dilutive impact of acquisitions, EIG's margins expanded 90 basis points over the prior year.
The Electromechanical Group also had a strong quarter with solid organic sales and impressive operating performance. 2nd quarter sales for EMG were $469,200,000 up 1% over the same period in 2018. EMG's organic sales growth was 3% and foreign currency a 2 point headwind. EMG's operating performance was excellent with operating income a record $101,100,000 up 7% over the prior year's Q2. Operating margins for EMG increased sharply to 21.5%, up 120 basis points over the same period last year.
AMETEK's results in the Q2 and through the first half of the year were excellent. We are firmly positioned for another year with strong growth and record results. Our highly differentiated businesses continue to execute the AMETEK growth model driving long term sustainable value for our shareholders. I'd like to highlight some of our businesses recent accomplishments and then I'll touch on our updated outlook and guidance for the remainder of the year. First, I would like to congratulate the team at CreoForm for recently winning 2 Red Dot Awards for innovative product design of their Handyscan Black and GoScan Spark metrology products.
Launched in April, both new 3 d scanners were designed with enhanced features and a sleek new ergonomic design. Now in the 3rd generation, the Handyscan Black has been optimized to meet the designs meet the needs of design, manufacturing and metrology professionals looking for the most effective and reliable way to acquire accurate three d measurements of physical objects. The HandySCAN BLACK provides highly accurate and repeatable results even in difficult environments and with complex surfaces. The GoScan Spark offers the fastest and most friendly 3 d scanning experience in the market. Designed to scan any object without need for setup, it offers flawless texture and geometry acquisition as well as impressive details in a rich color palette.
The Red Dot Award is a world renowned competition that is used to identify the most innovative new products across several product categories. I'd also like to congratulate our Dunkermotoren business for winning the Machinen Marks Best in Industry Award for their BG95 DPRO Server Motor Solution. Dunkermotoren is a global leader in advanced motion control solutions serving a broad set of end markets including medical, laboratory, factory automation and motive applications. Their BG95D Pro sets the standard in integrated server motors with improved flexibility, functionality, precision and operational reliability. The Red Dot and Best of Industry Awards and the success of these new products are testaments to the strength of our new product development teams.
So congratulations to everyone at Preoform and Dunker Motoren for these outstanding recognitions. We remain committed to investing in our research and development efforts to provide leading edge innovative products and technologies to our customers. In 2019, we expect to spend approximately $260,000,000 on RRD and E, up 13% over last year's level. And we are seeing excellent results as our new product vitality index was a very strong 25% in the quarter. Now shifting to operational excellence.
Our operational excellence tools are adding significant value for our businesses. We continue to drive efficiency improvements across our operation to enhance our profitability and improve cash flow, as was evident in our operating performance during the Q2. For all of 2019, we now expect approximately $85,000,000 in savings from our operational excellence initiatives, with the majority of these savings generated from material sourcing. This is an increase from our previous estimate of $80,000,000 in annual savings. Finally, we remain very active yet disciplined in our acquisition efforts.
Our business development teams continue to manage a strong pipeline of acquisition opportunities. AMETEK remains focused on deploying our strong free cash flow on value enhancing acquisitions. I'll now move to the updated earnings guidance for 2019. Given our performance in the Q2 and our near record backlog, we now expect 2019 earnings per diluted share to be in the range of $4.04 to $4.10 up 10% to 12% over 2018 earnings. This new guidance range has increased from our previous guidance range of $3.98 to $4.80 per diluted share.
We continue to expect overall sales for the year to be up high single digits with organic sales up 3% to 5%. Overall sales in the 3rd quarter are expected to be up high single digits. Earnings for the Q3 are anticipated to be in the range of $1 to $1.02 per diluted share, up 10% to 12% over the prior year period. To summarize, we are pleased with our 2nd quarter results. We remain focused on driving continued growth at the end of the year and well into the future.
Our businesses market leading differentiated technologies and their execution of the AMETEK growth model are driving strong results for our stakeholders. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, then we'll be glad to take your questions.
Bill? Thank you, Dave. As Dave noted, AMETEK had an excellent second quarter capping off the first half of the year with record results. Let me provide some additional financial highlights for the quarter. Core selling expense in the Q2 was roughly in line with last year's Q2.
2nd quarter general and administrative expenses were up slightly over the same period in 2018 and as a percentage of sales were 1.4% versus last year's level of 1.5%. The effective tax rate in the quarter was 20.4%, down from last year's 2nd quarter tax rate of 21.9%. For 2019, we now expect our effective tax rate to be approximately 21%. And as we've stated in the past, actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate. Working capital was 18.3% in the 2nd quarter, essentially unchanged from the Q1.
Capital expenditures were $22,000,000 in the quarter and for the full year of 2019, we continue to expect capital expenditures to be approximately $100,000,000 or 1.9 percent of sales. Depreciation and amortization expense in the quarter was $57,000,000 For the full year, we continue to expect depreciation and amortization to be approximately 2 $35,000,000 including acquisition related intangible amortization of approximately $130,000,000 or $0.43 per diluted share. Our businesses continue to generate very strong levels of cash flow. 2nd quarter operating cash flow was $246,000,000 up 21% over last year's Q2 and free cash flow was $224,000,000 up 20% over last year. As a percentage of net income, free cash flow conversion was 104% and we continue to expect full year free cash flow conversion of approximately 110% of net income.
The primary use of our strong free cash flow is to support our acquisition efforts. And as Dave has noted, our pipeline remains healthy and we have significant financial flexibility to continue our acquisition strategy. Total debt at the end of the 2nd quarter was $2,470,000,000 down from $2,630,000,000 at the end of 2018. Offsetting this debt is cash and cash equivalents of $568,000,000 resulting in a net debt to EBITDA ratio as of June 30 of 1.4 times. We remain well positioned to support our growth initiatives with approximately $2,000,000,000 of cash and existing credit facilities.
To conclude, our businesses delivered outstanding performance with high quality results in the Q2. Our outlook remains positive through the back half of twenty nineteen given our strong balance sheet and excellent cash flows. Kevin?
Great. Thank you, Bill. Kevin, could we please open the lines for questions?
Our first question comes from Matt Summerville with D. A. Davidson.
Thanks. A couple of questions. First, can you give us a little color on where incoming order rates organically were for the total company and by business? And also just given the macro choppiness out there, can you talk about what sort of linearity you saw during the quarter and what you're seeing thus far in your business in July?
Sure, Matt. In terms of orders, Q2 orders were up 4% and organic orders were flat. They were very slightly positive. In our EIG business, the order rates were in line with the organic sales growth in the quarter and the EMG orders were down a bit. We had some delays in our automation and engineered solution businesses.
And we ended the quarter with a near record backlog of $1,700,000,000 And in terms of the order patterns and sales patterns during the quarter, they followed a similar trend. We had a May was a bit better than April and June was a bit better than May, which is very typical for our business. But the growth each month as a stepped up was more subdued than past quarters. So pretty typical, but a little less of a ramp.
And then as a follow-up, where were you in the quarter on price versus inflation? Thank you.
Sure, Matt. Sure. Q2 was much like the second half of twenty eighteen and the Q1 of twenty nineteen. We had an excellent quarter. We achieved 2 points of price across our entire portfolio.
Total inflation, the impact of tariffs was a bit less than 1.5%. So we had a positive spread and we're very pleased with the results. As you know, the results speak to the highly differentiated nature of AMETEK's product portfolio. We have leadership positions in niche markets around the globe and we really have some focus and determination to make sure we stay in front of a changing global environment. So we're very pleased with the results.
Thank you, David.
Thank you, Matt.
Our next question comes from Nigel Coe with Wolfe Research.
Thanks. I thought maybe a good time to perhaps run through the end markets and the geographies in a bit more detail.
Right. Sure thing, Nigel. On our market segment commentary, I'll start with our process businesses. They had another excellent quarter with overall sales up low teens on a percentage basis driven by mid single digit organic sales growth and contributions from the acquisitions of Forza, Teliar and Spectra Scientific. As I mentioned in the prepared remarks, our Materials Analysis business had a particularly strong organic growth quarter driven by solid new product introductions and solid demand for their high end instrumentation.
And for all of 29, we continue to expect process organic sales to be up mid single digits. Switch to Aerospace. Our Aerospace and Defense businesses delivered another excellent quarter with high single digit organic sales growth. This growth reflects the attractive positions we have across a diverse set of aerospace and defense platforms. Similar to the Q1, growth in the second quarter was broad based across our various aerospace markets.
We had notable strength in our commercial OEM and third party MRO businesses. And given the solid start to the year, we're increasing our expectations for aerospace and now expect mid to high single digit organic sales growth for all of 2019 with balanced growth across each market. Our Power and Industrial segment in the 2nd quarter sales were up low single digits driven by the contribution from the recent acquisition of MoTeq. Organic sales were down slightly in the quarter and in line with our expectations. For all of 2019, we continue to expect low to mid single digit organic sales growth, given the strength of our backlog and solid order patterns in these businesses.
And finally, sales of our Automation and Engineered Solutions businesses were up low single digits for the 2nd quarter against a difficult prior year comp. For all of 2019, we now expect lowtomidsingledigitorganic sales growth for Automation and Engineered Solutions and we are seeing some order delays in certain businesses. So we lowered that Automation and Engineered Solutions segment from mid to low to mid and we increased our aerospace guide to a bit also. So just summarize the whole thing for continue to expect overall full year organic sales growth of 3% to 5%. As I said, we've modestly increased growth forecast for Aerospace, while modestly decreasing our growth forecast for Automation and Engineered Solutions and really no change to Process and Empower and industrial and process performed very well in the quarter and they look strong.
Great.
Thanks, David. And maybe if you just touch on what you're seeing in China. Perhaps just address the 3% to 5% organic implies some acceleration in the back half of the year to get to the high end of that range. What gives you confidence that that can accelerate on tougher comps in the back half? Sure.
Right. Yes, we had overall sales ended up within our guidance range and organic sales ended up within our guidance range. And at the half year, we were at 4%. So right smack dab middle in our guide. In terms of geography, we saw some solid growth across Europe and the U.
S. And Asia was down mid single digits. So you really have about 80% of our business up mid single digits and Asia, which is about 18% of our business was down mid single digits. We see in the U. S.
Where we were up mid single digits, the strongest growth was at process and our aerospace businesses. In Europe, we were up mid single digits. We had broad based growth in oil and gas and aerospace had particularly strong quarters. And Asia was down mid single digits and China was down a bit more than mid single digits. So we had some down a bit more after 2 plus years of very strong growth, but it's about 7% of our sales and clearly they're being impacted by the number 1 and number 2 economies in the trade war.
So we're watching that closely, but given its relative size it hasn't been too much of a headwind yet.
Thanks David.
Thank you.
Our next question comes from Josh Pokrzywinski with Morgan Stanley.
Hi, good morning guys.
Good morning.
I guess just a follow-up
on the last question, thinking about some of the end markets that are doing better or ones that have gotten a little softer. And Dave, I think, is it a fair characterization to say some of the longer cycle stuff, aerospace, process, is really what gives you the visibility and the guide and that confidence in the second half. And the shorter cycle end markets and automation are I guess what's holding you back, but could also turn quickly. Is that a fair characterization as a starting point?
Yes, I'd say that's a fair characterization. And our automation business is we're dealing with OEM customers and they delayed placing orders in the quarter. We didn't lose these orders. They're delayed and they're cautious, but there's a healthy order pipeline. So I would say that's a good characterization with we have strength in aerospace and solid with process and some weakness in automation.
In automation. So that's a good summary.
So I think in the automation space,
a lot
of folks in that orbit have called out auto and electronics as being kind of the 2 biggest headwinds. Is that safe to say it's the same end markets for you guys? Or is there something else that's cropped up within that?
Yes, I would say it's we have some motive customers there and that was weaker. There was also some factory automation customers that was weaker. And to balance that, there was some medical and food industry automation that were okay. So but those are OEM customers and the motive and the for factory automation were the areas that it was a bit light.
Got it. And then just one last one for me. Obviously, with the string of acquisitions over the last couple of years, a bit more diversity in the portfolio and some deeper niches, how have those performed? Or have you even noticed a change in the growth rates or performance as some of the macro has gotten a bit choppier?
Yes. One of the characteristics of the acquisitions we did over the past 2 years where they were largely U. S. Based and they've held up very well. So the acquisitions are performing extremely well and they're meeting their acquisition models and it's driving the performance of the company as you can see in the results.
Great. Thanks. I'll leave it there.
Thanks, Josh.
Our next question comes from Andrew Obin with Bank of America.
Good morning, Andrew. Good morning. Just a question, did I hear correctly that China was down in the quarter? I apologize if I missed it.
Yes, yes. What we went through the geographies were up in the U. S. Mid single digits, down in Europe mid single digits. Excuse me, up in U.
S, up in Europe, mid single digits, down in Asia, mid single digits and China was down a bit more than Asia.
Right. So the question in China, I'm just wondering, could you just walk us what happened in the quarter in China? Because my sense was that the Chinese business very niche, you have a lot of growth initiatives there. And just trying to get a sense when did it turn into quarter or if you have this granularity on the call?
Yes. China has been very choppy and inconsistent through the balance of this year. We do have we had very difficult comps that we were running into there. So it was mainly in our automation business where we saw weakness, but it was in China, it was more broad based. A lot of the businesses were down a bit.
So again, it was a difficult comp and I think they're just dealing with the uncertainty and a trade war and we've been watching it closely and it's 7% of our business. And fortunately, we have about 80% of our business growing mid single digits. It's been inconsistent. That's the best way to describe it, Andrew.
No, of course. And just a broader question, I think others have tried to sort of get to the question. If I look at your peers, most of them actually did cut organic growth outlook. If I look at the historical relationship between your revenue growth and industrial production, your guidance does imply that things are different. You did highlight more North American acquisitions over the past couple of years.
But could you also talk about the impact of the growth initiatives? Because I know Dave when we meet with AMETEK folks, they're really highlighting how you're pivoting more to growth. Any way you can quantify what the growth initiatives doing to cyclicality or the growth profile of AMETEK that would be terrific. Thank you.
Yes, sure. When I think about our portfolio, we had the U. S.-based acquisitions over the past year, but we also have about 13% of our business now is healthcare and our aerospace business is performing well. So those are all things that are driving us right now. And when I look at the we definitely have improved our organic growth capability.
We're making great progress. As you saw when you visited some of our operations, there's the teams are excited and we're seeing positive results. But I don't think that that's it's very difficult to quantify that. And we're using the tools and the way we've talked about it is through the cycle we'll get a point better of organic growth. So I'm not sure in the current environment it's pretty or it's you can draw a distinction between what we've done in organic growth and the current results.
Terrific. Thank you very much.
Thank you, Andrew.
Our next question comes from Deane Dray with RBC Capital Markets.
Hello, Deane. Thank you. Good morning, everyone. Hey, maybe we can start with price costs in the quarter. How did
that play out and expectations for the second half and what role tariffs had?
Right. Yes, I think I'll start with the tariffs. And as you know, we're comprised of niche differentiated businesses and we have low CapEx by design. So our model gives us a lot of flexibility in dealing with those situations. And in Q2, the situation played out as we predicted.
We had about $0.01 from the direct impact of tariffs and we offset that completely with price. So and we're expecting a similar level of activity in the second half of the year. And going back to the price question, Q2 twenty nineteen was much like the second half of twenty eighteen and the Q1 of twenty nineteen. We had an excellent quarter. We achieved 2% of price across our entire business as both in EIG and EMG.
Total inflation and the impact of tariffs added together was a bit less than 1.5%. So we had a good contribution to margin from our price less total inflation and tariffs and we're very pleased with the results. That's all great to hear. And then in the verticals and the end markets, did I hear you comment on oil and gas. How did that Yes, we didn't comment.
Oil and gas had a particularly strong quarter in Europe and we include the Middle East and Europe. And when you look at the whole segment, it was up 10% in Q2. So good strong organic growth in both our upstream and mid and downstream businesses and we are pleased with the performance. I might have with Matt, I might have missed the answer he asked about how July had looked. Yes, I don't think yes, we covered the quarter.
We talked about the quarter being it increased each month, but it was more subdued for us. And in July, we're right on our plan. So July isn't over, but we're on target. So July feels pretty good. All good to hear.
Thank you.
Thank you, Dean.
Our next question comes from Robert McCarthy with Stephens.
Hello, Rob. Can you hear me? Yes. Thanks for the
time and congratulations on a good quarter. I guess the first question I would have is around your incremental margins on a core basis. Could you talk through that just excluding acquisition and some of the distortions we might see there?
Right. We're very pleased with our margin performance in the quarter. Our core margins were excellent. The EIG, if you take out the acquisitions, it was up 90 basis points and EMG where there wasn't acquisitions was up 120 basis points. So just outstanding margins, outstanding operating performance and it showed up in the incrementals also.
We had core incrementals of about 60%. EIG was about 50% and EMG was about 70%. So excellent operating performance around the horn.
Now definitely. Could you speak just stepping back on the performance on the cash cycle and cash generation in more of your Aerospace and while you probably have very little explicit defense exposure, but your Aerospace and longer cycle businesses in terms of how you do there in terms of free cash flow to net income conversion or operating cash flow typically? Is that below or above the company average?
Yes. The Aerospace business is a great cash generator for us. So I would say it's in terms of the various components of working capital, Aerospace ends up being a little higher as a percentage of sales because they're dealing with the aftermarket and but they're higher margin businesses. So you have higher working capital but higher margins and that's characteristic of the Aerospace business and it's been that way for a long time. Yes.
It's nice to have
good cash generation there. The final question is just looking at the environment you're seeing right now, obviously,
you went through a kind of a rocky road
and kind of the 'fourteen to 'sixteen timeframe with deflation, oil and gas kind of contraction and it led to some challenging organic growth and also some restructuring, right? Do you think we're going to anticipate given what we're seeing right now over the next 12 to 18 months incremental restructuring from you guys?
AMETEK, we're in our various businesses. We're always doing some level of restructuring and those are reported in the operating results. In terms of a big restructuring, our realignment activity affected the entire company. Right now, we're not seeing that. We're pretty confident around the second half of the year.
But if things change, we're good at doing it and we have plenty of opportunities to drive cost reduction. So as I sit here with a solid group of businesses generating cash flow, margin expansion, with a robust backlog of deals with a strong balance sheet, I feel very optimistic about AMETEK's performance and being able to outperform in the current environment.
Thanks for your time.
Thank you.
Our next question comes from Brett Linzey with Vertical Research.
Hey, good morning guys.
Good morning, Brett.
Hey, just a question pertaining to some of the recent portfolio moves and in recent I mean 2017, 2018 acquisitions. If we were to drill down and look at the recurring element or the aftermarket element as a percent of sales of those businesses, how does that mix look of those acquired assets versus the legacy portfolio? You're actually mixing up with the stickier revenue base?
Yes, we are mixing up and when we announced those deals, we addressed the recurring revenue. Telular stands out it was it's about 2 thirds of the business is recurring, but many of the businesses like the Spectro Scientific was 30%, 40%. And so we're mixing up and recurring baseline of AMETEK was about 20%, but our recent acquisitions have been a bit more than that.
Okay, great. And then if we continue to see this industrial slowdown historically, you've talked about incrementals on the way up of 30% to 35%. If we flip that script and think about potential downside, what type of decremental preservation do you see if we get into an environment where sales are declining modestly? And then, I guess the follow on there, are there any countermeasure plans in place that can help you get it cost relatively quickly if things do turn a little bit south here?
Right. Yes, as you know, we have high contribution margins in our business, very profitable businesses, but we also have excellent operating capability and we have seasoned general managers that know how to operate both in up cycles and down cycles. And clearly going into a down cycle, we have plenty of opportunities and plenty of projects and we have the ability to pull us forward and we're also very good at managing our working capital and we generate a lot of cash. So if we get into that environment, it's an environment where we're experienced and we'll perform well on a relative basis. But right at this point, we're not seeing that.
But based on some
of those actions or what's been in motion, I mean, do you think you can preserve a decremental margin much less than 30%?
Yes, I think it's definitely. But again, when something like that happens, it depends on where it comes from and the depth of it. And the depth of Deepa is a good comment, Bill. So we have to look at it if that happens when it comes and I'm sure there'll be another recession and I'm sure we'll manage our way through it very well.
Okay, great guys. Thanks.
Thanks, Brett.
Our next question comes from Allison Poliniak with Wells Fargo.
Hi, guys. Good morning.
Good morning, Allison.
Just want to follow along on that operational excellence kind of theme. You did increase your operational excellence savings for 2019. Can you talk was it just sort of a natural fallout of where some of these programs ended or ending or is it some acceleration in certain areas?
We're seeing acceleration. I mean the and at the beginning of the year we had about $80,000,000 of operational excellence savings and $60,000,000 of it was from sourcing and $20,000,000 of it is from other projects that we had. And what we're really seeing is an acceleration on the sourcing side. So our sourcing teams are doing an outstanding job, absolutely outstanding job of dealing with the mitigation of tariffs and moving us to different regions of the world and delivering incremental savings. So really the incremental savings from sourcing was increased from 60 to 65 and that drove the operational excellence savings increase from 80 to 85.
And that's savings that are in the P and L for 2019 and we saw that's a ratable kind of thing and we saw it ramp up from Q1 to Q2. So we're very confident in the second half of that. Great.
And then I might have missed it, the aerospace increase in growth for that sector, was there a specific sub segment there or region that's driving that increased growth relative to your expectations?
Yes. We had a if you look at the business jet market, the business jet market was up low double digits and coming off a pretty easy comp, but it's continuing to perform. The military market, the 3rd party MRO had a fantastic quarter in the second quarter. The commercial business continues strong. So it was really the entire market that did well.
But if you look into the details, the business jet market ticked up and we improved the guidance for that for the year. But the entire aerospace business, we increased mid to high single digits.
Great. Thanks so much.
Thanks, Allison.
Our next question comes from Christopher Glynn with Oppenheimer.
Thank you. Good morning.
Good morning,
Chris. Hey, Dave. So I think you mentioned $2,000,000,000 in cash and available credit. I think it's the Q1 in a little while. You didn't talk about a couple of new bolt ons.
I know they don't come every quarter. But just update is the pipeline still very vibrant?
It is. Chris, we had a record Q4 2018 where we closed 3 deals and spent about $750,000,000 and our pipeline is very good and we're evaluating a number of opportunities. And as you know, it's difficult to predict when they're going to happen in the short term. But I feel very confident in the long term and our capability in this area and a strong balance sheet. So we're very optimistic that we're going to be able to deploy our free cash flow and acquisitions in the long term.
Right now, we're being disciplined. I mean, we're looking at a lot of properties and when we do a deal, we're going to get your return on capital.
Thanks for that. And on the outlook, generally calling for continuity versus the macros clearly weakening. I understand you don't have much distribution, you're much more direct. So that's clearly an advantage you have in the current environment. But are we moving into a phase where backlog conversion picks up to kind of preserve that organic continuity?
Just want a little more kind of complexion around that.
Yes. We have a near record backlog of $1,700,000,000 which gives us some confidence in the second half. And if you look into that backlog, there are some opportunities to convert some of it. So that's one of the reasons that we're confident in the guidance second half. We're performing well.
We got our aerospace growth. Our process business is doing well. The U. S. Market is doing extremely well and we got a solid backlog that provides conversion opportunities.
So that's the way we're looking at it and we feel good about it.
Okay. Thanks for that.
Thank you.
Our next question comes from Joe Giordano with Cowen.
Hey guys, good morning.
Hey Joe.
Hey, Bill, just one quick clarification. The tax rate was a little light in the quarter. Anything specific going on there? And I know you gave the full year, but I missed it. What's your view for that?
Full year is now 21%.
What we saw in the quarter was about 150 basis points down year over year, benefits from excess tax benefits from stock compensation. And as well, there was some changes in some state tax laws that help us drive that rate down to 20.4% in the Q2.
And 2021 good forward number to use like out into the Model 2?
We're looking at a number that's probably to
get to the average of 2021 for the year, it's more of 22% in the back half of the year. So I
mean more for like a full year going forward like into 2020 is like a 2021 a fair number to use?
That's we'll be working to get to that level next year.
Okay. So we've kind of gotten to this a couple of times at different ways. As top line starts to slow slow a bit, maybe we're still in the same organic range, but maybe we're talking more midpoint or lower. And earlier in the year, maybe we're talking midpoint or higher. Particularly in markets like maybe heavy truck where there's some obvious declines probably coming up, are you like teeing up anything here to take some actions?
And along the same lines, your cost out this year really strong, sourcing accelerating. What's the opportunity set look like into next year for cost out broadly?
Right. The opportunity set is very good to at all times as part of our strategic planning process we go through with all of our business, they have a 3 year plan for cost reductions that involve sourcing, some plant consolidations and everything. So we have a viable set of projects to pull from. So we really have some opportunities to do that. But when you mentioned the trucking marker, That business is now less than 2% of sales
in the mix of the year.
Definitely, yes. Yes, we bought the MoTeq earlier in the year and they're in the really good business and that business is actually growing. So it mutes to any decline that we had in the other part of the business. So you have a situation where we've been modifying our portfolio over time and there we have a good growth and the camera and the algorithms, the software of the vehicles and we're really it's changed the outlook for that part of the business. So you have a little bit of portfolio work that's gone on and we still feel good for the second half.
I mean your point is valid. Maybe we're more toward the midpoint and or the low end than the high end, but we're 4% through the half year right in the middle of our guide and we feel confident for the second half of the
year. So I guess what I'm getting at, I know that you're not I know that you're looking forward and you're not sitting on your hands as things start to weaken from a macro perspective. Early in the year, orders growing 12% organically or like last year, orders growing 12% organically in the Q1 and now we're at flat. So how are you just I'm guessing like the decisions are somewhat different now. So how are you acting differently than maybe you were a year ago or something
like that? Yes, I just point you to margins. Is softened, they're adjusting their cost structures. And is softened, they're adjusting their cost structures. And with our you saw excellent core incrementals in the quarter, you saw excellent operating income.
On a reported basis, we were up 60 basis points after we did a bunch of dilutive deals. And without the acquisitions, we were at 110 basis points. So I think the AMETEK operational excellence is really working for you and there's plenty of room to go in a long runway with that.
Good. Thanks guys.
Thank you.
And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.
Great. Thank you, Kevin, for all your help. And thank you everyone for joining our call today. And as a reminder, a replay of today's webcast will be available on our website shortly. Thank you.
Ladies and gentlemen, that does conclude today's