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. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, today's conference may be recorded. I would 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 first quarter 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 first quarter results were released earlier this morning and are available electronically on market systems and on our website in the investor section of ametek.com. This call is also being webcasted, 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 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. Please refer to the investor 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. We'll open it up for questions. I'll now turn the meeting over to Dave.
Thank you, Kevin. Good morning, everyone. AMETEK had an outstanding first quarter. 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 second acquisition of 2018 this morning, continuing to successfully deploy capital on strategic acquisitions. Lastly, given our strong first quarter results and the positive backlog and orders momentum, we raised our full year 2018 sales and earning guidance. Overall, an excellent high-quality quarter. Now on to the financial highlights of the quarter. Total sales in the first quarter were a record $1.17 billion, up 16% compared to the first quarter 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 and key geographies. Our businesses are capitalizing on their leading niche 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 $1.6 billion, providing us with excellent visibility. Operating income was a record at $258.2 million in the first quarter, up 19% compared to the first quarter in 2017. Reported operating income margins were 22%, up 40 basis points over last year's first quarter.
On a core basis, operating margins were a very strong 80 basis points versus the prior year, reflecting the outstanding operating leverage we generate from strong organic sales growth. Diluted earnings per share in the first quarter 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 their key market segments. First quarter sales for EIG were $716.4 million, up 16% versus the prior year. Organic sales were strong, up 6%, and the acquisitions of Rauland, MOCON, and Arizona Instrument contributed another 6%. Foreign currency was a three-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 first quarter operating income was $183.4 million, up 18% over the first quarter 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 Electromechanical Group also had a fantastic quarter. EMG sales for the quarter were a record $456.2 million, 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 four-point tailwind. EMG's operating income in the quarter was $91 million, 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 first quarter of 2017.
To summarize, first quarter results were superb. Our colleagues continued to drive incredible performance through AMETEK's operating model and the execution of our four 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 two 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 Rauland business in Ohio and Michigan, joining existing value-added resellers Rauland currently owns in Florida and California. Rauland, which we acquired in the first quarter of 2017, is a leading global provider of mission-critical clinical communication systems and workflow solutions to hospitals, healthcare systems, and educational facilities. Rauland 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 Rauland platform through acquisitions.
SoundCom is an excellent addition to this platform, as it expands Rauland's value-added reseller footprint into high-density healthcare and educational markets in Ohio and Michigan. Value-added resellers such as SoundCom are key in the delivery and service of complex electronic workflow and communication systems developed by Rauland. SoundCom has annual sales of approximately $40 million. With the acquisition of SoundCom, we have now deployed approximately $275 million on 2 acquisitions thus far in 2018. Since the beginning of 2017, we've deployed approximately $835 million on 5 acquisitions. Acquisitions remain the top priority for deployment of our free cash flow. Our deal pipeline remains very healthy. AMETEK's tremendous cash flow generation and balance sheet strength, plus the additional flexibility provided by tax reform, 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 Zygo business, part of AMETEK's Ultra Precision Technologies division, launched 2 next-generation 3D optical profilers during the first quarter. The Nexview NX2 and NewView 9000 3D 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 3D 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 sustained organic growth and the long-term success of AMETEK.
One way we measure the success of our new product development effort is through our vitality index, which measures the level of sales generated from new products and solutions introduced within the last three years. In the first quarter, 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&E investment by 6% year-over-year to approximately $235 million. Our businesses continue to drive impressive productivity improvements and cost reductions through our operational excellence initiatives. In 2018, we anticipate OpEx savings of approximately $85 million, 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 impacts 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. We're 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. 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-$3.12, up 17%-20% from 2017 adjusted earnings per diluted share of $2.61. This is an increase from our initial guidance range of $2.95-$3.05. For the second quarter, overall sales are projected to be up approximately 10%, with organic sales up mid-single digits compared to the second quarter of 2017. Diluted earnings per share in the second quarter are expected to be in the range of $0.76-$0.78, up 17%-20% compared to the second quarter of 2017. 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 four growth strategies.
I will now turn it over to Bill Burke, who will cover some of the financial details for the quarter, then we'll 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 first quarter, core selling expenses were up in line with core sales growth. General administrative expenses in the first quarter were flat compared to 2017, and as a percentage of sales were 1.4%, down from last year's first quarter level of 1.6% of sales. The effective tax rate for the first quarter was 23.1% versus last year's rate of 27.4%, and in line with our expectations. The year-over-year reduction in our effective tax rate was due to the benefits of tax reform. We continue to estimate our 2018 tax rate to be approximately 23%. 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% of sales in the first quarter, reflecting the outstanding performance of our businesses. Capital expenditures were $12 million for the quarter, and we expect full year capital expenditures to be approximately $85 million, or 1.8% of sales. Depreciation and amortization for the quarter was $49 million, and for the full year, we expect D&A to be approximately $200 million. First quarter operating cash flow was $177 million, up 25% compared to the first quarter of 2017, and free cash flow in the quarter was $165 million, 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 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 million on the acquisitions of FMH Aerospace and SoundCom thus far in 2018. Total debt at March 31st was $2.21 billion, up from $2.17 billion at the end of 2017. Offsetting this debt is cash and cash equivalents of $557 million, resulting in a net debt to capital ratio at March 31st of 28.2%. Following the acquisitions of FMH Aerospace and SoundCom, we have more than $1.5 billion of cash and existing credit facilities to support our growth initiatives. In summary, our business has performed exceptionally well in the first quarter, 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?
Yes, sir. Ladies and gentlemen, if you have a question at this time, please press star, then the one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. One moment for questions. 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 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%. Total inflation was about 1.2%. We were able to more than offset inflationary costs with increased pricing. I think the results speak to the differentiated nature of our product portfolio and our leadership position in our niche markets, and our outstanding supply chain capability. We expect that to continue for the year, and we'll be able to offset inflation with price.
Got you. Those numbers should both drift up a little bit after what we saw with commodities inflation in the first quarter?
Yeah. I think you could see them both going up through the course of the year.
Great. Could you sort of do your typical by-division synopsis-
Sure
of what's happening and what you expect? Thanks.
Sure, Scott. I'll start with the process business. Our process business has had an outstanding start to the year. Overall sales were up 20%. High single-digit organic growth and contributions from the Rauland 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, Pressotech, and energy and process instrumentation businesses. 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 contributions from recently acquired FMH and mid-single-digit organic growth. Growth remained strong across our military businesses as we are seeing solid demand both in the U.S. and internationally. We're 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 first quarter, 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. For 2018, we now expect power and industrial organic sales to be up mid-single digits. Finally, our Automation & Engineered Solutions business had an excellent start to the year, with low double-digit organic sales growth in the first quarter. We continue to see strong sales and order 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 Automation & E ngineered Solutions business. That's around the horn, Scott.
Got you. Thank you very much.
Thank you. Thanks, Scott.
Thank you. Our next question comes to the line of Christopher Glynn from Oppenheimer. You may begin.
Thank you. Good morning.
Morning, Chris.
Hey, Dave. SoundCom is kind of interesting. It sounds like a little more of a services business than we're used to. Just curious how much of that is tied to Rauland and maybe a little deeper dive on how you view the bolt-on runway in the communication systems arena.
Right. SoundCom is a value-added reseller for Rauland, they actually represented about 5% of Rauland's sales. They're in high-density healthcare markets of Ohio and Michigan. The VARs are very important to the Rauland model. They've had a long-term business relationship, Rauland has VARs in some regions that they own. I mentioned Florida and California. This was a natural, logical adjacency. They have customers that include large healthcare systems like the Cleveland Clinic, Mercy Health, educational facilities like Ohio State, Michigan State. They're really key to Rauland because they provide the deep technical expertise in designing and integrating the advanced solutions that Rauland delivers. They have integrated solutions that move Rauland closer to the end customer. Positions, really, the value-added reseller of Rauland is a natural acquirer for those type of companies in high-density population areas.
They also make Rauland a natural acquirer for attractive adjacent markets because the VARs also represent those products. We see that as a very attractive way for Rauland to expand, because Rauland has their own VARs. They've optimized the processes, there's a lot of synergies in these regional VARs. 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 five years. It's a very good grower. EBITDA is in low double-digit EBITDAs, it's a nice opportunity for Rauland 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 Rauland to get closer to the customer.
Great. 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 addressable markets versus what's 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 initiatives. Our focus on improving the front end of our business and continuing success from new product development efforts is driving market share gains. 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. Also the general economic improvements is certainly a key driver, and it's really difficult to distinguish between the two. 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. 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 can talk about price on two 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. Would you expect price cost to be positive going forward for the full year? How should we think about just conceptually into 2019? You're a company that 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. We're talking about price inflation. We're just talking about inflation. We're not talking about productivity. That's just a pure total inflation number. With our differentiated businesses and our closeness to the customer, we have a wide moat around our businesses. We can pass on the increased cost from inflation. We really expect a positive price inflation spread in the 20 or 30 bps range. We expect all that this year, and there's no reason that won't continue into 2019.
Great. 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. Could you just talk about the state of your balance sheet, your firepower, 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?
Those are all great questions, Rob. The current M&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. 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've acquired five companies and deployed nearly $835 million in capital, and we're off to a great start in 2018. Our pipeline remains very active. You never know if something's going to transact in the short term, but I expect you'll be hearing from us again this year on M&A. Our strong pipeline along with M&A processes gives me confidence. You mentioned larger deals or the size deals that we've been doing.
We can do either one to execute our strategy. We've opened up our pipeline to slightly larger deals in the $200 million-$300 million revenue range that will be deployments of capital of $1 billion, 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. I'm feeling really good about it. You mentioned finally our firepower. I think Bill mentioned our existing cash and credit facility, we have about $1.5 billion in firepower. Most importantly, we'll generate another $865 million-$870 million in free cash flow in 2018. 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+ billion in capital this year. Really, the strategy is not capital limited.
It's finding those key acquisitions that we can add value to so we can maintain a return on invested capital of 10% in year three. 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. We are clearly looking at things, and our pipeline's full, and we'll be clear to select the deals that we can improve the most. I'm very optimistic about what I see in our pipeline right now.
If I could sneak one more in, just amortization. Any update on looking at on that and studying that, whether you want to make a move to cash earnings?
Yeah. Our EBITDA was a record $306 million this quarter. It was up. It was 26% of sales, a very good number. Our D&A was about $49 million. 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. 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. Our next question comes from the line of Allison Poliniak from Wells Fargo. You may begin.
Hi, guys. Good morning.
Hi, Allison.
Could you talk a little bit about conversations with customers broadly across the group? I know you said the outlook's pretty strong, but are there any areas where customers are maybe becoming more cautious or even maybe accelerating the orders ahead of the likely price increases? Any thoughts there?
It's pretty much bullish across our whole portfolio. We were in Asia, this quarter. The executive office went for our annual regional review in Asia. That region was incredibly bullish. We're seeing strength in the U.S., continuing strength in Europe. All of our product groups are very positive. We're even seeing some of the longer cycle elements of our portfolio, like the mid downstream oil and gas, the military parts of our business. They're very bullish about the bigger projects breaking later in the year and into 2019. Our automation businesses are firing on all cylinders. 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. Just not to beat this sort of price inflation issue up a little bit, 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?
Yeah. I think we've had a strategy for a long period of time to acquire businesses that are really leaders in niche markets. 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. We get in situations like this, we view it as only fair that we can pass those prices on to customers. We feel really good about our portfolio and feel really good about achieving price out of inflation in 2018 and 2019.
Great. Thank you.
Thanks.
Our next question comes from the line of Deane Dray from RBC Capital Markets. You may begin.
Thank you. Good morning, everyone.
Good morning, Deane.
Hey, like to follow that train of thought on customer dialogue. Do you have any color on whether tax reform and CapEx incentives are playing through on any of the demand that you're seeing?
Deane, we saw an uptick in our business in 2017, in the second half of it, and it was pretty measurable. Into 2018, we have not seen an incremental increase from tax reform. It's just remained strong. I can't say that we've seen an increase specifically tied to tax reform and what specific customers with regard to tax reform. It's just really good, and it's staying that way.
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?
That's a great question, Deane. 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. The same point that goes to pricing. We're leaders in niche markets, and we have sticky customer relationships and have the ability to pass on cost increases to customers. 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. Just last question from me. Were there any growth investments in the quarter that you would highlight along either digital marketing or sales force investments, anything along those lines?
Yeah, it's all of the above. We're investing about $75 million 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. 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, would that be spread across the segments? Is any of that in corporate?
Most of that is in the segments, it's spread out through the year.
Got it. Thank you.
Thank you.
Our next question comes from the line of Brett Linzey from Vertical Research. You may begin.
Hi. Good morning, all.
Morning.
Morning, Brett.
Hey, just want to come back to EMG, specifically on incremental margins. Given the strong volume, I would've thought incrementals would've been a little bit better in the quarter. I realize FX drop, the drop through there dip as incrementals. Anything else in terms of mix or excess cost to meet deliveries, price costs that impacted you here in the quarter within EMG?
Brett, EMG had a great quarter. Sequentially, the margins were up 170 basis points, on a core basis, they were up 30 basis points. We're pretty pleased with the performance.
Okay. I guess how should think about incremental margins within EMG for the balance of the year here?
Yeah. I think, we've guided to the incrementals in the low 30s, 35%. I think in general, the instrument side of our business has a little bit higher incrementals, so I would say in the 35%-40% range, and EMG is a little bit lower in the 25%-30% range.
Okay, great. 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 forma construct of the portfolio, including some of these recent deals, how would you size what you would characterize as longer cycle in nature, as a % 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. Maybe just one more. In terms of recent acquisitions, FMH, Arizona, SoundCom, how are we thinking about incremental earnings accretion, as we look into 2019 and some of the PP&E starts to abate? Any framework you can give us there?
Yeah. 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&A of about $0.06.
Okay, great. Great quarter, guys. Thanks.
Thanks, Brett.
Our next question comes from the line of Richard Eastman from Baird. You may begin.
Yes, good morning.
Good morning, Richard.
Could you just speak for a minute, Dave, perhaps to the order strength? I think you had mentioned core orders were +12%. Could you just talk to maybe a couple end markets that might be driving order growth above that kind of average core number? I'm thinking specifically to some of the more cyclical, maybe speak to oil and gas.
Yeah.
Also on the aerospace side, are you seeing outsized order growth there, maybe regional biz jet, or maybe just a little color around the 12% number?
Sure. Regarding oil and gas, in the first quarter, our sales were up low double digits, and orders outpaced that a bit. In terms of the aerospace business, we saw very strong performance in our commercial business. It was up low double digits in the first quarter, both OE and aftermarket. Also the military business stands out. There was a very strong orders performance in military, and our automation business stands out. There was very strong order in automation. Across all regions of the globe. It was a really good quarter from the viewpoint of orders.
Mm-hmm. Does your oil and gas, given how the first quarter started out, I think there was an expectation for oil and gas to be up mid-single digits this year, led by, I think it was upstream. Does that number drift higher now with your comments around downstream orders and also maybe how the first quarter shook out?
Yeah. The first quarter performance, our upstream business was up. Upstream's only 25% of our oil and gas presence, and that's about a $280 million exposure. It was up very strongly. It was up about 30% in the first quarter, and the mid downstream was up in the mid high single digit range. We haven't changed the year guidance yet for that. It's still mid single digits for the year. What we're seeing now is the planning work for some orders in the second half of the year that'll ship in 2019 for the bigger projects and the mid downstream markets.
Okay, understood. Just a last question. Around the acquisition, SoundCom, I'm a little bit curious. Is the service element of Rauland-Borg 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 Rauland?
It does bring some. The recurring revenue stream is from spare parts.
from software upgrades, and also from the direct service of the client. The acquisitions of the VARs does augment the recurring revenue business for Rauland.
Okay. Understood. Thank you, and great start to the year.
Thank you.
Start to the year.
Our next question comes from Joe Giordano from Cowen. You may begin.
Hey, guys. Good morning.
Morning.
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? There's been some commentary about people trying to buy ahead of that and kind of keep some safety stock, increase levels of that. Are you seeing that in the market, or 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 costs in the transportation that we talked about last quarter. There is some tightness out there, but we're managing through it, and we have excellent supply chain capability, but there is some tightness.
Okay. Your business is exposed on the specialty metal side. Have they been tracking pretty closely with price movements in those markets? Is that kind of a consistent, something that's been progressing throughout the quarter and kind of at high run rates right now versus maybe the beginning of the quarter?
Yeah. That business, you'll recall the way we have that business structured is, we pass the material prices on to the customer. We're adding value to the material. It is progressing, and that business is doing very well.
Great. Thanks, guys.
Thank you.
Thank you. 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. As a reminder, a replay of today's webcast may be accessed in the investor 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.