Good day, ladies and gentlemen, and welcome to the First Quarter 2018 AMETEK, 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 be given at that time. As a reminder, today's conference may be recorded.
I'd now like to turn the call over to Mr. Kevin Coleman, Vice President of Investor Relations. Sir, you may begin.
Thank you, Victor. Good morning, and thank you for joining us for AMETEK's Q1 earnings conference call. With me this morning are Dave Zapico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. AMETEK's 1st quarter results were released earlier this morning and are available electronically on Market Systems and on our website in the Investors section of ametek.com. 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. Before we start, I want to remind you that any statements made by AMETEK during the call that are not historical in nature are to be considered forward looking statements. As such, these statements 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.
Please refer to the Investors section of ametek.com for a reconciliation of any non GAAP financial measures used during this call. We'll begin today 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.
Thank you, Kevin, and good morning, everyone. AMETEK had an outstanding Q1. We generated record levels of sales and orders backed by strong broad based organic growth and significant contributions from recent acquisitions. We delivered tremendous operating performance resulting in record level operating income, impressive margin expansion, strong cash flow generation and robust earnings per share growth. We announced our 2nd acquisition of 2018 this morning, continuing to successfully deploy capital on strategic acquisitions.
And lastly, given our strong Q1 results and the positive backlog and orders momentum, we raised our full year 2018 sales and earnings guidance. So overall, an excellent high quality quarter. Now on to the financial highlights of the quarter. Total sales in the Q1 were a record $1,170,000,000 up 16% compared to the Q1 of 2017. Organic sales growth was exceptional, up 8% in the quarter.
Recent acquisitions added 5% and foreign currency was a 3% benefit. We continue to see broad based organic growth across each of our businesses in key geographies. Our businesses are capitalizing on their leading knit positions in attractive markets, while also benefiting from our initiatives to improve organic growth. We also continue to see sustained and robust orders growth. Overall orders were excellent, up 20% in the quarter, with organic orders up 12%.
As a result, we ended the year with a record backlog of 1,600,000,000 dollars providing us with excellent visibility. Operating income was a record at $258,200,000 in the 1st quarter, up 19% compared to the Q1 in 2017. Reported operating income margins were 22%, up 40 basis points over last year's Q1. On a core basis, operating margins were a very strong eighty basis points versus the prior year, reflecting the outstanding operating leverage we generate from strong organic sales growth. Diluted earnings per share in the Q1 were $0.78 up an impressive 30% compared to the $0.60 per share reported in the same quarter of 2017.
Now turning to the individual operating groups. First, the Electronic Instruments Group. Our EIG businesses are performing exceptionally well across our key market segments. 1st quarter sales for AIG were $716,400,000 up 16% versus the prior year. Organic sales were strong, up 6% and the acquisitions of ROLAND, MoCon and Arizona Instruments contributed another 6%.
Foreign currency was a 3 point tailwind for the quarter. While organic growth was broad based, we saw particular strength in our Process and Analytical Instruments and Ultra Precision Technologies divisions during the quarter. EIG's 1st quarter operating income was $183,400,000 up 18% over the Q1 of 2017. And reported operating income margins increased 50 basis points to 25.6%. On a core basis, EIG margins were up 90 basis points over the prior year.
The Electro Mechanical Group also had a fantastic quarter. EMG sales for the quarter were a record $456,200,000 up 18% over the same quarter in 2017. Organic sales increased an impressive 11% with continued broad based strength across our automation, engineered materials and thermal management systems businesses. Recently acquired FMH Aerospace contributed an additional 2% and foreign currency provided a 4 point tailwind. EMG's operating income in the quarter was $91,000,000 an increase of 16% compared to the same quarter in 2017.
Reported operating margins for the quarter were strong at 19.9% with quarter margins up 30 basis points versus the Q1 of 2017. To summarize, Q1 results were superb. Our colleagues continued to drive incredible performance for AMETEK's operating model and the execution of our 4 growth strategies. We remain focused on investing in our businesses and our people to best position us for sustained long term success. Before I discuss our updated outlook for 2018, let me highlight some of the achievements we have experienced from our growth strategies.
First, acquisitions. We're off to a great start in 2018 with 2 acquisitions completed so far. In January, we completed the acquisition of FMH Aerospace, a leading provider of highly engineered and differentiated components for use in the aerospace, defense and space markets. We are very excited about the acquisition of FMH as it expands our solution offerings across a wide range of attractive aerospace and defense platforms. We are also very excited to announce the acquisition of SoundCom Corporation and we welcome the team to AMETEK.
SoundCom, which is headquartered in Cleveland, Ohio, designs, integrates and services clinical workflow and communication systems for end users in the healthcare, government and educational markets. SoundCom also serves as a value added reseller for our recently acquired Rollins business in Ohio and Michigan, joining existing value added resellers Rollins currently owns in Florida and California. Rolland, which we acquired in the Q1 of 2017, is a leading global provider of mission critical clinical communication systems and workflow solutions to hospitals, healthcare systems and educational facilities. Roland was the foundation of a new strategic growth platform in the attractive healthcare solutions market. It was an attractive acquisition for AMETEK given the strong growth dynamics across the healthcare markets it serves as well as the opportunity to expand the Rollins platform through acquisitions.
SoundCom is an excellent addition to this platform as it expands Rollins value added reseller footprint into high density healthcare and educational markets in Ohio and Michigan. Value added resellers such as Soncom are key in the delivery and service of complex electronic workflow and communication systems developed by Routland. SoundCom has annual sales of approximately $40,000,000 With the acquisition of SoundComm, we have now deployed approximately $275,000,000 on 2 acquisitions thus far in 2018. And since the beginning of 2017, we deployed approximately $835,000,000 on 5 acquisitions. Acquisitions remain the top priority for deployment of our free cash flow.
Our deal pipeline remains very healthy and AMETEK's tremendous cash flow generation and balance sheet strength plus the additional flexibility provided by Tax Form, we are very well positioned to strategically pursue attractive acquisition candidates. We also remain well positioned to invest in organic growth through new products and solutions, front end sales and service optimization and production efficiencies. Our businesses continue to unveil new products and solutions that are solving our customers' greatest challenges. For example, our ZYGOLD business, part of AMETEK's Ultra Precision Technologies division, launched 2 next generation 3 d optical profilers during the Q1. The NexVue NX2 and NuVue 9,000 3 d optical profiling instruments provide highly precise non contact measurement of a surface area across a wide range of markets and applications, including consumer electronics, automotive, semiconductor, medical, nanotechnology and material science.
These latest offerings provide significant improvements in both performance and functionality, enabling non destructive and precise 3 d measurement, including step heights, roughness, film thickness and surface form on a broad range of sample types. New products such as these are key drivers to sustain organic growth and the long term success of AMETEK. One way we measure the success of our new product development efforts is through our vitality index, which measures the level of sales generated from new products and solutions introduced within the last 3 years. In the Q1, our vitality index was excellent at 25%, reflecting the excellent work of our research, development and engineering teams. In 2018, we expect to increase our RD and E investment by 6% year over year to approximately 235,000,000 Additionally, our businesses continue to drive impressive productivity improvements and cost reduction through our operational excellence initiatives.
In 2018, we anticipate OpEx savings of approximately $85,000,000 with the majority of these savings being generated by global sourcing and strategic procurement activities. Our global sourcing team also does an excellent job helping us manage potential inflationary across our supply chain and through the identification and qualification of alternative sources of supply and through active management of our supplier base. We are closely monitoring these potential inflationary factors and are comfortable we will be able to more than offset inflation with price increases in 2018. Finally, we are seeing significant expansion into adjacent markets around the globe. International sales were 52% of AMETEK's total sales, with strong organic growth across all key geographical regions.
Specifically, we saw excellent broad based organic growth in Asia as our businesses continue to expand their presence in attractive growth regions. With that said, let me touch on our updated outlook for 2018. For the full year, we now anticipate overall sales to be up low double digits with organic sales up mid single digits. Earnings per share for 2018 are now expected to be in the range of $3.06 to $3.12 up 17% to 20% from 2017 adjusted earnings per diluted share of $2.61 This is an increase from our initial guidance range of $2.95 to $3.05 For the Q2, overall sales are projected to be up approximately 10%, with organic sales up mid single digits compared to the Q2 of 2017. Diluted earnings per share in the Q2 are expected to be in the range of $0.76 to $0.78 up 17% to 20% compared to the Q2 of 2017.
In summary, AMETEK started off the year with outstanding performance. Our world class teams and their businesses have positioned the company for another record year. AMETEK's foundation is strong and we are focused on delivering long term success through the execution of our 4 growth strategies. I will now turn it over to Bill Burke, who will cover some of the financial details for the quarter, then we will be glad to take your questions.
Bill? Thank you, Dave. As Dave noted, AMETEK started the year with an outstanding quarter, generating record results and a high quality of earnings. Let me provide some additional financial highlights. In the Q1, core selling expenses were up in line with core sales growth.
General and administrative expenses in the Q1 were flat compared to 2017 and as a percentage of sales were 1.4%, down from last year's Q1 level of 1.6 percent of sales. The effective tax rate for the Q1 was 23.1% versus last year's rate of 27.4 percent and in line with our expectations. The year over year reduction in our effective tax rate was due to 23%. And as we've stated in the past, actual quarterly rates can differ dramatically either positively or negatively from this full year rate. Working capital was excellent at 16.8 percent of sales in the Q1, reflecting the outstanding performance of our businesses.
Capital expenditures were $12,000,000 for the quarter and we expect full year capital expenditures to be approximately $85,000,000 or 1.8 percent of sales. Depreciation and amortization for the quarter was 49 $1,000,000 First quarter operating cash flow was $177,000,000 up 25% compared to the Q1 of 2017 and free cash flow in the quarter was $165,000,000 up 28% over the prior year. Free cash flow conversion was 91% in the quarter, slightly better than our expectations and we continue to expect full excellent full year free cash flow conversion of 120% of net income. As Dave mentioned, we've been very active on the acquisition front deploying approximately $275,000,000 on the acquisitions of FMH Aerospace and SoundCom thus far in 2018. Total debt at March 31 was $2,210,000,000 up from $2,170,000,000 at the end of 2017.
Offsetting this debt is cash and cash equivalents of $557,000,000 resulting in a net debt to capital ratio at March 31 of 28.2%. Following the acquisitions of FMH Aerospace and SoundCom, we have more than $1,500,000,000 of cash in existing credit facilities to support our growth initiatives. In summary, our business has performed exceptionally well in the Q1, delivering record level results and a high quality of earnings. We remain well positioned to support our growth initiatives with our strong balance sheet and excellent cash flows. Kevin?
Great. Thank you, Bill. Victor, could we please open the call for questions?
And our first question comes from the line of Scott Graham from BMO Capital Markets. You may begin.
Hey, good morning all.
Good morning, Scott.
Hey, I wanted to I know you said Dave that
you expect price cost to be positive on a full year basis. Could you maybe be specific with us for at least the quarter sort of what price was versus what inflation was?
Sure, Scott. In Q1, we achieved price of about 1.4% and total inflation was about 1.2%. We were able to more than offset inflationary costs with increased pricing. And I think the results speak to the differentiated nature of our product portfolio, our leadership position, our niche markets and our outstanding supply chain capability. And we expect that to continue for the year and we'll be able to offset inflation with price.
Got you. However, those numbers should both drift up a little bit after what we saw with commodities inflation in the Q1?
Yes, I think you could see them both going up through the course of the year.
Great. Also, could you sort of do your typical by division synopsis of what's happening and what you expect? Thanks.
Sure, Scott. I'll start with the process business. Our Process businesses had an outstanding start to the year. Overall, sales were up 20%, high single digit organic growth and contributions from the Rollins and MoCon acquisition were the key drivers. Continuing the trend from last year, we saw strong broad based organic growth in the quarter with particularly solid growth across our Zygo, Creaform, TMC Precitech and Energy and Process Instrumentation businesses.
And for all of 2018, we continue to expect broad based strength with our organic sales up mid single digits. Overall, aerospace sales were up low teens in the quarter, driven by organic driven by contributions from recently acquired FMH and mid single digit organic growth. Growth remains strong across our military businesses as we are seeing solid demand both in the U. S. And internationally.
And we are also seeing continued solid growth across our commercial aerospace and aftermarket businesses. They had a very good quarter. For all of 2018, we continue to expect organic sales growth for Aerospace businesses to be up mid single digits with solid growth across each market segment. Our Power and Industrial businesses saw strong growth in the Q1 with overall sales up 10%, driven by mid single digit organic growth and contributions from recently acquired Arizona Instrument. Growth was solid in both our Power and Industrial segments with notable strength across our Power Test and Measurement business, including programmable power and VTI.
And for 2018, we now expect Power and Industrial organic sales to be up mid single digits. And finally, our Automated and Engineered Solutions business had an excellent start to the year with low double digit organic sales growth in the Q1. We continue to see strong sales and orders trends across both our automation businesses and our engineered solutions business. In 2018, we now expect mid to high single digit organic sales growth for all of our automated engineered solutions business. That's around the horn, Scott.
Got you. Thank you very much.
Thank you. Thanks, Scott.
Thank you. And our next question comes from the line of Christopher Glynn from Oppenheimer. You may begin.
Thank you. Good morning. Good morning, Chris. Hey, Dave. So, SoundCom is kind of interesting.
It sounds like a little more of a services business than we're used to. So just curious how much of that is tied to Rowland and maybe a little deeper dive on how you view the bolt on runway in the communication systems arena?
Right, right. SoundCom is a value added reseller for Roland and they actually represent about 5% of Rollins sales. And they're in high density healthcare markets of Ohio and Michigan. And Rollins are the VARs are very important to the Rollins model. So they have a long term business relationship and Rollins has bars in some regions that they own.
I mentioned Florida and California and this was a natural logical adjacency. So you get, they have customers that include large healthcare systems like the Cleveland Clinic, Mercy Health Educational Facilities like Ohio State, Michigan State and they're really key to Roland because they provide the deep technical expertise in designing and integrating the advanced solutions that Roland delivers. They have integrated solutions that move Roland closer to the end customer. So positions really the value added resellers Roland is a natural acquirer for those type of companies in high density population areas. And they also make Rollins a natural acquirer for attractive adjacent markets because the VARs also represent those products.
So we see that as a very attractive way for Rolland to expand because Rolland has their own VARs. They've optimized the process. So there's a lot of synergies in these regional VARs. And then in addition to that, it provides closer customer contact and growth opportunities. This particular business has grown low double digits average compounded annually over the last 5 years.
So it's a very good grower. The EBITDA is in low double digit EBITDA and it's a nice opportunity for Roland to expand their footprint and get closer to the customers in less dense parts of the country, parts of the world, value added resellers still make sense. But in some places, it makes sense for Rolland to get closer to the customer.
Great. And then on the organic 8%, it's very good obviously. I'm just wondering how you're kind of measuring and gauging your progress on channel and new product introduction execution into the
cyclical lift here?
With 8% organic growth and 12% organic growth in orders, we're certainly seeing some tangible success from our organic growth Our focus on improving the front end of our business and continuing success from new product development efforts is driving market share gains. Now we've talked before about our growth Kaizens. We're seeing very tangible benefits from specific actions, and we're very optimistic with this effort, and there's more to come. But also the general economic improvements is certainly a key driver. And it's really difficult to distinguish between the 2.
But what I can say, we see no slowdown at all in the way we're looking at the world right now. We see strong growth across all of our product groups. We're growing in all geographies and we're feeling really good.
Sounds good. Thanks for the color.
Thank you.
Thank you. And our next question comes from the line of Robert McCarthy from Stifel. You may begin.
Good morning, everyone.
Good morning, Rob.
Congrats on a very strong start to the year. Maybe we could talk about price on 2 spectra. One is just pricing overall over the next couple of years because you're a firm that definitely just the nature of your business, the market structure, the value add should be garnering a pretty nice price benefit and particularly in the context of a price spread. So would you expect price cost to be positive going forward for the full year? And how should we think about just conceptually into 2019?
Because your company historically I think is part of your incremental margin lift has come from kind of structurally strong pricing. Could you talk about that a little bit?
Right. Great question, Rob. We expect to maintain a positive price inflation spread for the whole year. And we are talking about price inflation, we are just talking about inflation. We are not talking productivity.
That's just a pure total inflation number. And with our differentiated businesses and are closest to the customer, we have a wide mark wide moat around our businesses. We can pass on the increased costs for inflation. So we really expect a positive price inflation spread in the 20 to 30 bps range. And we expect to hold that this year and there's no reason that that won't continue into 'nineteen.
Great. And then maybe switching to price in terms on the acquisition front, because clearly you've deployed some capital nicely. We would like to see probably more size and scale, but you can't have everything. But could you just talk about the state of your balance sheet, your firepower? And then and maybe just comment on it's an interesting environment because you've probably seen a pullback in the public environment, but sellers' expectations still probably remain elevated here.
Do you think you could reach kind of a bid ask issue in terms of people thinking of their companies as still very dear and being able to transact is going to be tough? Or do you think you could shake some pretty big deals this year?
Yes, those are all great questions, Rob. I mean, the current M and A environment is very similar to what we've been experiencing the past couple of years. Pricing is elevated. There is plenty of cash chasing deals. Now with the public market coming back again, that will eventually flow into the private market.
But despite this market, we've been successful in deploying our free cash flow on acquisitions. I mentioned in my prepared remarks, since the beginning of 2017, we acquired 5 companies with deployed nearly $835,000,000 of capital and we're off to a great start in 2018. And our pipeline remains very active. You never know if something is going to transact in the short term, but I expect you will be hearing from us again this year on M and A. Our strong pipeline along with M and A processes gives me confidence.
And you mentioned larger deals or the size deals that we've been doing, we're going to execute our strategy. We can do either one to execute our strategy. We've opened up our pipeline to slightly larger deals in the $200,000,000 to $300,000,000 revenue range that will be deployments of capital of $1,000,000,000 but we can keep doing the smaller deals and we can still get the earnings growth because of the way we structured the business and our acquisition process. So I'm feeling really good about it. And you mentioned finally our firepower.
I think Bill mentioned our existing cash and credit facility was about we have $1,500,000,000 firepower. And most importantly, we'll generate another $865,000,000 $870,000,000 of free cash flow in 2018. So we really have the firepower. Our net debt to EBITDA is about 1.35. Our gross debt to EBITDA is 1.85.
So we could deploy 2 plus 1,000,000,000 in capital this year. And really the strategy is not capital limited, it's finding those key acquisitions that we can add value to, so we can maintain the return on invested capital of 10% in year 3. That's the key hurdle for us. That gives you the return on total capital for the whole business and AMETEK has extremely strong return on total capital for an acquisitive company and we maintain that discipline and that discipline is the limiter right now. But we are clearly looking at things and our pipeline is full and we'll be clear to select the deals that we can make the most that we can improve the most.
But I think the I'm very optimistic about what I see in our pipeline right now.
If I can sneak one more in, just amortization, any update on looking at that and studying that whether you want to make a move to cash earnings?
Yes. Our EBITDA was a record $306,000,000 this quarter. So it was up 26% of sales, so a very good number. Our D and A was about $49,000,000 And as I said in our last call that we looked at that at the beginning of the year and we decided not to do it. And we'll look at it again next year, But that's the decision we made for 2018.
Thanks for your time.
Thank you.
Thank you. And our next question comes from the line of Allison Poliniak from Wells Fargo. You may begin.
Hi, guys. Good morning.
Hi, Allison.
So could you talk a little bit about conversations with customers broadly across the group? I know you said the outlook is pretty strong. But are there any areas where customers are maybe becoming more cautious or even maybe accelerating orders of the like accelerating the orders ahead of the likely price increases? Any thoughts there?
It's pretty much bullish across our whole portfolio. It's we were in Asia this quarter, the executive office went for our annual regional review in Asia and that region was incredibly bullish and we're seeing strength in the U. S, continuing strength in Europe and all of our product groups are very positive and we're even seeing the some of the longer cycle elements of our portfolio like the mid downstream oil and gas, the military parts of our business, they are very bullish about bigger projects breaking later in the year and into 2019. So our automation businesses are firing on all cylinders. So we're not seeing any slowdown and we feel really good about the year.
We feel really good about how the year is playing out.
Great. And then just not to beat this sort of price inflation issue, up a little bit, but are there any specific businesses, could you remind us that are maybe more susceptible to the inflation and your thoughts on passing that through in terms of pricing?
Yes. I think we've had a strategy for a long period of time to acquire businesses that are really leaders in niche markets. And that puts us in a position, we're providing more value. These are markets that are sticky customer relationships, and we're providing a lot of value to these customers. And we get in situations like this, we view it as only fair that we can pass those prices on to customers.
So we feel really good about our portfolio and feel really good about achieving price out of inflation in 2018 2019.
Great. Thank you.
Thanks.
And our next question comes from the line of Deane Dray from RBC Capital Markets. You may begin.
Thank you. Good morning, everyone.
Good morning, Dean.
Hey, I'd like to follow that train of thought on customer dialogue. And do you have any color on whether tax reform and CapEx incentives are playing through on any of the demand that you're seeing?
Dean, we were seeing it we saw an uptick in our business in 2017 in the second half, but it was pretty measurable. But into 2018, we have not seen an incremental increase from tax reform. It's just remained strong. So I can't say that we've seen an increase specifically tied to tax reform and with specific customers with regard to tax reform. It's just really good and it's staying that way.
And then just other color on the price cost dynamic. You didn't mention tariffs. Do you feel as though that's any impact including what could be on the horizon here?
Yes, it's a great question, Gene. We don't see we do not import much steel and aluminum. So really a minimal impact from that. We are watching the entire situation closely as you can imagine, including secondary impacts. We have very good supply chain capability and flexibility and we're doing some planning on the supply chain side if we need to react quickly.
And the same point that goes to pricing, we have we're leaders in niche markets and we have sticky customer relationships and have the ability to pass on cost increases to customers. So we're examining numerous countermeasures should something be enacted. Right now, we don't see a measurable impact to our business, but it's uncertain and we're closely monitoring it.
Got it. And just last question for me. Can you and were there any growth investments in the quarter that you would highlight along either digital marketing or sales force investments, anything along those lines?
Yes, it's all of the above. We're investing about $75,000,000 this year in growth investments and heavy investments in digital marketing, heavy investments in a lot of selling tools and also heavy investments in product development. So we're feeling really good about the investments. We think we're getting a great return and we're optimistic about that in the future.
Do you have a sense of how much in this quarter? And would that be spread across the segments? Is any of that in corporate?
Most of that is in the segments and it's spread out through the year. Got it. Thank you.
Thank you.
And our next question comes from the line of Brett Linzey from Vertical Research. You may begin.
Hi, good morning all.
Good morning. Good morning, Brett.
Hey, just want to come back to EMG and specifically on incremental margins. Given the strong volume, I would have thought incrementals would have been a little bit better in the quarter. And I realize FX dropped the drop through there, it depends incrementals. But anything else in terms of mix or excess cost to meet deliveries, price cost that impacted you here in the quarter within EMG?
Brett, EMG had a great quarter. I mean sequentially, the margins were up 170 basis points and on a core basis they were up 30 bps. So we're pretty pleased with the performance.
Okay. And I guess how should we think about incremental margins within EMG for the balance of the year?
Yes, I think we've guided to the incrementals in the low 30%, 35%. And I think in general, our the instrument side of our business has a little bit higher incrementals. So I would say in the 35% to 40% range and EMG is a little bit lower in the 25% to 30% range.
Okay, great. And then just shifting back to your comment on long cycle, I guess in the context of visibility, obviously you've been deploying a lot on deals here. If you were to look at the pro form a construct of the portfolio, including some of these recent deals, how would you size what you would characterize as long longer cycle in nature as a percent of the total portfolio today?
I would characterize the bulk of the portfolio in mid and longer cycle businesses. We don't have many short cycle businesses, but the vast majority of the portfolio is in mid and longer cycle businesses.
Okay. And then maybe just one more. In terms of recent acquisition, so FMH, Arizona, StoneComm, how are we thinking about incremental earnings accretion as we look into 2019 and some of the PPM starts to abate? Any framework you can give us there?
Yes, we haven't done the work for 2019 yet, but I can tell you that in our plan for 2018, we saw a net benefit of M and A of about $0.06
And our next question comes from the line of Richard Eastman from Baird. You may begin.
Yes, good morning. Good
morning, Roger.
Could you just speak for a minute, Dave, perhaps to the order strength? I think you've mentioned core orders were plus 12%. Could you just talk to maybe a couple end markets that might be driving order growth above that kind of average core number? And I'm thinking specifically to some of the more cyclical talk maybe speak to oil and gas. And then also on the Aerospace side, I mean, are you seeing outsized order growth there, maybe regional biz jet or just maybe just a little color around the 12% number?
I mean regarding oil and gas, our in the Q1, our sales were up low double digits and orders outpaced that a bit. And in terms of the Aerospace business, we saw very strong performance in our commercial business. So it was up low double digits in the Q1, both OE and aftermarket. And also the military business that stands out. There was a very strong orders performance in military and our automation business stands out.
There was very strong order and is in automation and across all regions of the globe. So it was a really good quarter from the viewpoint of orders.
Does your oil and gas given how the Q1 started out, I think there was an expectation for oil and gas to be up kind of mid single digits this year, kind of led by, I think it was upstream. Does that number drift higher now with your comments around downstream orders and also maybe how the Q1 shook out?
Yes. The Q1 performance, our upstream business was up. The upstream is only 25% of our oil and gas presence. And that's about $280,000,000 exposure. It was up very strongly.
It was up about 30% in the Q1. The mid downstream was up in the mid high single digit range. So we haven't changed the year guidance yet for that. It's still mid single digits for the year. But what we're seeing now is the planning work for some orders in the second half of the year that will ship in 2019.
For the bigger projects and the mid and downstream markets.
Okay, understood. And then just last question around the acquisition SoundCom, I'm a little bit curious, is the service element of, Ruland Borg's business, does the service element flow through the VARs? In other words, there's a big service component to SoundCom Systems and hence the advantage of owning a few of the VARs in key markets. Does that bring the recurring revenue stream to RULA?
It does bring some. I mean, the recurring revenue stream is from spare parts, from software upgrades and also from the direct service of the client. So the acquisitions of the VARs does augment the recurring revenue business for Rolland.
Okay, understood. Thank you and great start to the year.
And our next question comes from Joe Giorgiano from Cowen. You may begin.
Hey guys, good morning.
Good morning, Joe.
Curious on components for your parts. You're not really seeing it in inventory levels yet on your balance sheet, but are you seeing a little tightness in that market? And there's been some commentary about people trying to buy ahead of that and kind of keep some safety stock increased levels of that? Are you seeing that in the market? Are you doing some of that yourself?
We're not doing much of it. But there is some tightness. We're seeing some tightness in the electronic supply chain. And we're also seeing some increased inflationary cost in the transportation that we talked about last quarter. But there is some tightness out there and but we're managing through it and we have excellent supply chain capability, but there is some tightness.
Okay.
And then your business is exposed on the specialty metals side. Have they been tracking pretty closely with price movements in those markets? And is that kind of a consistent something that's been progressing throughout the quarter and like kind of at high run rates right now versus maybe the beginning of the quarter?
Yes. That business, you recall the way we have that business structured is as we pass the material prices on to the customer. So it's a we're adding value to the material. So but it is progressing and that business is doing very well.
Okay. Thanks, guys.
Thank you. Thank you. And I'm actually showing no further questions at this time. I would like to turn the call back to Mr. Kevin Coleman for closing remarks.
Great. Thank you, Victor. Thank you, everyone, for joining us today. And as a reminder, a replay of today's webcast may be accessed in the Investors section of ametek.com. Have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.