IDEX Corporation (IEX) Q2 2018 Earnings Report, Transcript and Summary

Greetings and welcome to IDEX Corporation's second quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation. [Operator Instructions]. And as a reminder, this conference is being recorded. I would now like to turn the conference over to Bill Grogan. Thank you. Please go ahead.

Thank you Brenda. Good morning everyone. This is Bill Grogan, Chief Financial Officer for IDEX Corporation. I am stepping in for Mike Yates this quarter. I will cover the introduction. Let me start by saying, thank you for joining us for our discussion on the IDEX second quarter financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months ending June 30, 2018 and later today we will file our 10-Q for the same period. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company website at www.idexcorp.com. Joining me today is Andy Silvernail, our Chairman and CEO. The format of our call today is as follows. We will begin with Andy providing an overview and update on the market conditions, geographies and our capital deployment strategies. He will then discuss our second quarter financial results and walk you through the operating performance within each of our segments. And finally, we will wrap up with our outlook for the third quarter and full year 2018. Following our prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877-660-6853 and entering conference ID 137675420, or you may simply log on to our company homepage for the webcast replay. Before we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the safe harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission. With that, I will now turn the call over to our Chairman and CEO, Andy Silvernail.

Thank you Bill. Good morning everybody. I appreciate you joining us to discuss our second quarter results. Let me start with a brief overview. Look, we had another outstanding quarter. As a matter of fact, I would say in my seven years as CEO, it's the strongest overall quarter we have had and resulted in a very strong first half of the year. Just about every market that we have has shown solid growth and the economy we are in strong despite what we are seeing with global trade. I will provide more details on market conditions and geographies in a minute. Strong execution and continued healthy market conditions drove another record quarter for IDEX. After achieving all-time highs in orders, sales, operating income and EPS in the first quarter, we topped that this quarter and once again hit all-time highs in each of these categories. I am very pleased with our record second quarter and our first half operating results. I will go into more detail shortly, but let me give just a quick overview and some highlights here. Orders were up 9% overall, 8% organically. Sales were up 11%, up 9% organically. Adjusted operating margin was up 180 basis points to 23.6%. Adjusted EPS was $1.40, up $0.32, or 30%. And free cash flow was $110 million, up 40%. Of all the positive numbers in the quarterly results, I am most proud of the team's sustained outperformance on organic growth. The high single digit growth rates for both orders and sales driven by solid growth across all three segments is truly outstanding. Overall, we delivered terrific operating performance. Before I go through more specific details on financial results, let me add that I am excited that we just announced the acquisition of Finger Lakes Instrumentation, which will fill strategic gap and a nice complement in our IDEX health and science portfolio. I am also thrilled with the asset purchase of Phantom Controls that we made in June. These acquisitions will be a nice add to our portfolio. Finally, we continue to live the IDEX difference daily. Great teams embracing 8020 are driven by customer obsession. It's nice to watch a culture of the company embrace our initiatives and show up in our financial results. Now let me take a minute to talk about the markets that we play in and the regions we serve. In industrial, industrial production momentum continues. Day rates for our book and bill business remains at high levels and we see increased project activity converting to orders. In scientific, fluidics and optics, demand within life sciences remains positive and we continue to have a really, really nice performance overall. Energy, we have had a rebound in this market. Midstream oil and gas has picked up and upstream remains strong. In semicon, the global markets have remained strong, really all year and we look forward to that strength continuing. In agriculture, the markets continued to perform and the OEMs have affirmed the outlook for the balance of the year. We do have some concern here relative to trade but we will have to monitor that going forward. In the municipal markets, the markets remained strong. New product development in water has been a really nice benefit for us and emerging markets have done well. Now let's look at the geographies. Overall, things are going well for us in North America. Europe continues to be solid. And in Asia, in both China and India, we see things going very well. In summary, what we saw begin to experience in 2017 has accelerated in 2018. Once again, I would like to talk about for a minute with what we are seen with tariffs. Based on the enacted tariffs, our best estimate is that we are going to see $4 million to $6 million of impact in 2018. We continue to look at all of our options including pricing and alternative sourcing strategies and we have done a really nice job of overall balancing the overall margin impact to the business. Let me take a second and talk about inflation. We are starting to see the higher impact from inflation, but we have been very successful in mitigating the uptick through productivity and price realization. With that said, inflation remains a concern and the team is doing a very, very well, a very, very good job of monitoring this impact on a go forward basis. Let's turn to capital deployment. I would like to take a minute to recap our capital deployment strategy. As always, organic growth remains our number one focus and the team is dedicated to our overall targeted organic growth and new product development initiatives. This is evidenced by our outstanding organic order and revenue performance. With M&A, it remains a priority for us and we continue to evaluate a lot of opportunities. We are going to remain disciplined and focused on delivering the best possible returns to our shareholders. Our balance sheet is strong and when the right deals come along, we will capitalize on it. Speaking of the right deals, I am excited to welcome both been Phantom Controls and Finger Lakes to the family. The assets of Phantom Controls will match nicely with our current fire suppression business and help accelerate our waterflow strategy. And on Monday, we expanded our health and science portfolio by adding Finger Lakes Instrumentation. This will be a nice add to our overall fluidics and optical business. We will work to quickly integrate both of these acquisitions and bring them into the family in the short order. In terms of share repurchases, during the quarter, we deployed approximately the $20 million to repurchase 147,000 shares of stock. We remain committed to our strategy of repurchasing shares when it will create long-term shareholder value. In the second quarter, the Board approved a $0.06 increase in our quarterly dividend, which equated to a 16% increase. This resulted in a $33 million dividend payout to our shareholders in the quarter. All right. Let me turn now to our results here in the second quarter. I am on slide four. Q2 orders of $639 million were up 9% overall and 8% organically. Again, the strong order growth from all three segments, the strength in the first half orders provides us the confidence for the second half. Q2 revenue of $634 million was up 11% overall and 9% organically, driven by positive results in all three segments. FMT was up 10%, HST was up 8% and FSD was also up 8%. We built $5 million of backlog in the quarter on top of the $20 million that we built in the first quarter. We expanded Q2 gross margins by 50 basis points to 45.3%, primarily due to production efficiencies and volume leverage, partially offset by the investments in engineering. Q2 operating income was $149.8 million, adjusted for approximately $2 million of restructuring expenses. That was up 20% compared to the prior period. Q2 operating margin adjusted for the $2 million restructuring was 23.6%, up 180 basis points year-over-year. Similar to the first quarter, the majority of the restructuring expenses were within HST and are associated with our investment in the new optics center of excellence in Rochester, New York. Consolidated operate margin was also impacted by higher corporate costs, which was mainly due to $2.2 million stamp duty in Switzerland associated with the restructuring of an intercompany loan. Q2 net income was $107 million resulting in EPS of $1.38. Excluding the restructuring expenses, EPS was $1.40, an increase of $0.32, or 30% over last year. Our Q2 effective tax rate was 21.7%, which is lower than the 26.1% in the prior period. This was mainly due to the enactment of the 2017 tax reform at the end of last year. The 21.7% second quarter ETR was 80 basis points favorable to our previously guided amount. This was driven by continuous effort to modify our tax strategies and to the tax reform. The positive EPS impact of our lower ETR versus our guide was basically offset by the same tax I mentioned earlier. Overall, we had $0.09 operational beat versus the midpoint of our guide. Free cash flow was $110 million, 101% of adjusted net income and up over 40% from last year. And finally, flow through was another great story, over 40% of sales. In regards to our balance sheet, it's very healthy. We have gross debt of 1.4 times, net debt of 0.6 times and well over $1 billion in capital to deploy. Let me now turn to the segment discussion. I am on slide five, starting with fluid metering. FMT continues to put up strong numbers, both from an order and revenue perspective. Q2 orders were up 6% overall, 7% organically. Q2 sales up 10% overall and organically. Op margin adjusted for restructuring was 29.5%, up 240 basis points over the prior year, mainly due to volume leverage and productivity. The ag business, as I mentioned, continues to be strong and we are watching out for the impact of tariffs. In industrial fluids, the pump business is very impressive. It had record orders of sales. The U.S. distribution market is solid and day rates for book and ship continue to improve. Increased oil prices are driving continued strength in oil and gas as well as the business for our LACT. Valves, targeted growth initiatives in Europe and China have performed well in the quarter. And in water, we are well-positioned driven by new products. In energy, new product development is progressing and expected to provide future opportunities and the project funnel is solid for the back half of the year. Let's move on health and science. I am on slide six. I am very pleased with the health and science results in the quarter. Q2 revenues were up 11% overall, up 8% organically. Orders were up 5% overall, but only 2% organically. HST had a tough comp due to some very large project wins last year in MPT. Just to remember, HST orders last year were up 11%. Excluding restructuring expenses, adjusted operating margin was 23.6%, an increase of 100 basis points in the quarter mainly due to higher volume and productivity. As I stated on our last call, 23% to 24% operating margin is much closer to what I expect in the segment to be performing and I would like to commend the team once again for the improved performance. In life science and optics, the IVD/BIO end-markets continue to overperform. The recent acquisition of Finger Lakes Instrumentation will continue our expansion within this market. We are encouraged to add these technologies that Finger Lakes will bring and excited to bring them into our fluidics, microfluidics and optical illumination and detection business. In sealing solutions, the semicon market remains very robust on a global basis. Transportation and oil and gas are also doing well. In MPT, the funnel activity remains positive, but if you recall, we do have a pretty tough comp here in the third quarter in MPT. In HST industrial, demand remains overall very strong. I am now moving on to our final segment, diversified. I am on slide seven. Q2 orders were up 21% overall, 18% organically. Dispensing did have an easy comp as we had a large project last year push the second half. But even if we exclude that, orders would have been up double digits for the quarter. Revenues were up 11% overall, 8% organically. Excluding restructuring expenses, adjusted operating margin of 28.1% increased 300 basis points. This was mainly attributable to significant volume upside, along with productivity. In dispensing North American and European markets remained strong and steady with increased orders and project activity. Emerging markets remained strong from across market growth and new product development penetration. In fire and safety, rescue is positive across the globe and we have project activity pick up in India, China and the Middle East. And our fire OEM and Muni business is steady. As I mentioned earlier, we are very excited to incorporate the recently purchased assets of Phantom Controls. And finally, margins continued to improve at both Akron Brass and AWG. They are ahead of expectations. At Band-It, last but not least, we have experienced a double-digit organic order and revenue growth, driven by share gains and overall strong demand across the globe. Let me now conclude with some additional details to our 2018 guidance for the quarter and for the year. I am on slide eight. In Q3, we are estimating EPS in the range of the $1.29 to $1.32 with organic revenue growth in the range of 6% to 7% and operating margin of 23%. The Q3 effective tax rate is expected be approximately 22.5% with estimated less than 1% topline headwind from FX based on the June 30 rates. Corporate costs are expected to be approximately $20 million. Turning to full year. We have increased our full-year EPS guidance to a range of $5.27 to $5.35. Full-year organic revenue growth is expected be approximately 7%, so a nice increase in organic revenue guidance as well. If you remember, we have guided before at 5% to 6%. Full-year operating margin is expected to be in the range of 22.5% and 23%. For FX, it's going to be 1% tailwind for the year, based on the June 30 rates, but we will have headwind in the back half that is worth about $0.06 to us. The full-year effective tax rate is going to be about 23%, but we will see what happens here with tax reform. Capital expenditures are anticipated to be around $45 million. Free we cash flow will remain strong at 110% of net income and corporate costs should be in the range of $76 million to $80 million, that's up around a little more than $2 million from the stamp tax that I mentioned before. Finally, our earnings guidance excludes any associated cost of future acquisitions or restructuring. With that, Brenda, let me turn it over to any questions people have.

[Operator Instructions]. Our first question comes from the line of Steve Winoker with UBS.

Hi. Thanks and good morning all. Great to see this level of growth and I agree, it's impressive. I would love to get a sense on that FSDP organic 18% increase on the order side. To what extent are these kind of one time, lumpy orders, pull-forward, anything else that we should be expecting to fall back to company mean rest of the year? I think you are up against high single comps. It wasn't easy there.

Yes. So overall, even if you take out some of the larger orders that we saw, looking at a double digit order increase, we did have some project orders that will ship in the back half of the year and even into the first part of next year. But the activity was very, very strong. I would not expect it to remain in the double-digit territory. That's too ambitious. But overall strength is pretty good. And it's in every one of the businesses. It's not in a singular business.

All right. And your forward guidance implies, I think fourth quarter at least some deceleration. Again, you have 9% comp last year. Is that all it is? Is there something more to it? Is tariffs playing into your thinking here?

No. The tariffs, as we mentioned, is going to have some impact. Certainly into the cost structure of the business, we think about $4 million to $6 million. We haven't factored in a slowdown for overall global growth. We just have much tougher comps as we go forward. As I mentioned, last quarter, we have really started to see the acceleration at the back half of last year. And I don't think we are going to decelerate sequentially, but at the same time those comps just get tougher.

Okay. And then just one more, if I could. These acquisitions, you mentioned, the most recent one sounds pretty interesting. Are the return on invested capital plan going forward changing significantly? How should we think about the financial side of them? And any kind of call out on the strategic front would be helpful.

The size is relatively immaterial today. Both of them are really technology plays, when you get right down to it. Phantom really helps us overall with the integration of being able to bring together all the most valuable components on a fire truck. It optimizes productivity for firefighters and safety. And the real benefit for us in Phantom is going to be pull through revenue from other parts of the business over time. It's a really neat set of technologies. It's very, very well protected with intellectual property. So we are very positive on that. Finger Lakes that we just announced, it's fundamentally a camera technology that allows us to integrate that into our optical systems. Right now, we are having to buy off-the-shelf componentry which, as things get smaller and more efficient, it gets more difficult to do. You really need to be able to integrate that yourself. And so it's a technology purchase that is right down the road from our current business in Rochester and it will go nicely into our center of excellence.

Very helpful as always. Thanks and good luck.

Thank you.

And our next question comes from the line of Deane Dray with RBC. Please go ahead.

Thank you. Good morning everyone.

Good morning.

Maybe we can start on price, cost in the quarter and then kind of separate both. So pricing, how much has pricing contributed? What's the plan on price increases? And then the other side, lots of material cost inflation, labor, how are you seeing that? And then the offsetting of tariffs?

Yes. So first on the pricing side, we got a little more than 1% in the quarter, which is a nice uptick from where we have been and that's really just our sustained strategies around the of being out and front of what we saw. Even last year, this time is a pickup in inflation. So we have been more aggressive there generally. And obviously the environment makes it easier to have those conversations with integrity with customers. The inflation has also picked up. We have kept our spread. We said, we have historically shot at somewhere over 20 to 30 point spread on price versus inflation and we have kept that. And so, we are seeing inflation pickup and it's really everywhere. It's material. It's labor. It's universal. And we expect that to continue. And obviously tariffs don't help that situation. We are having those conversations with our customers who try to, again, be ahead of everything. What you don't to be is the 20th person in line having that conversation about how tariffs have impacted the business. I think the threat and I have been talking about my concerns about inflation for a while. The threat is that, in the short-term the tariffs cause are really kind of gasoline on the inflation fire. In the long term, it's the flip side. It's actually causes the deceleration in growth. But in the short-term, we could see that impact. And we are balancing that with a combination of actual price increases and then in some cases, what I would call surcharges, where they will roll back off if tariffs roll back off. And those are broken down about 50-50.

Good. That's real helpful. And then maybe just on the pricing side, we have heard some descriptions from CEOs about pricing effectiveness and what is that dialogue because you are at the higher end of the component technology and you have got more pricing power. So when you put pricing through, are you getting pushed back? Are you getting all the price? Just some color there would be helpful.

You never get all of it. I think realization is probably somewhere in the 50% range over time of what you go to the market with and what effectively sticks. And it's easier to have those discussions in distribution than it is with, obviously if you have long-term OEM contracts, that's a much more difficult conversation to have. And so, we will typically get more price in, if we are looking at FMT and diversified and we will get less price overall in HST.

Got it. And just last question on the outlook and kind of a follow-on to Steve's question is, when you look at the key barometers and we have talked about this before, whether it is Gast and Band-It and Warren Rupp, just maybe just take those kind of leading indicator businesses and what do they tell you about the pace of short cycle industrial demand and how long this demand growth is sustained?

They are very positive If you look at our industrial businesses, our industrial fluids businesses, they are the strongest of our businesses overall. So they are signaling very positive things. We don't have any signs that that necessarily is going to slow. I am obviously very hesitant with what the overall trade discussion means to the global economy. And look, if things start to slip, they will show up fast in those businesses. Gast and Warren Rupp, in particular, Band-It, industrial, you will see that relatively quickly if the global economy starts to slow.

That's real helpful. Thank you.

Thank you.

And our next question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead.

Hi guys. Good morning. Good morning.

Can you just talk to, I guess, capacity, both from the supplier side and your side? With growth at this level, any concerns that your suppliers won't be able to keep up, that you are going to have to adjust for it that you have been adjusting for?

Yes, it's real, Allison. So let me talk about it from our perspective first. From our perspective, we really don't have a lot of physical constraints. If you look at buildings, machinery, you don't have a ton. We are definitely increasing our overall automation or semi-automation. We are doing that mostly through machining centers. And so, we are not really constrained in that way. The biggest constraints for us and for everybody is people, highly skilled people and that's going to continue and that's going to get more difficult as time goes on. And I do think that that's what's going to drive across the globe more investment in automation and semi-automation. In terms of our supply chain, we absolutely are seeing issues and we have been for some time. If you look at lead times, they have extended. As we talked about last quarter, we built some inventory last quarter, because we had seen lead times extend and we were trying to protect our customers, I think we have generally done a pretty good job of that. But there is really no way to avoid it in this environment. And that's why I think we are starting to see the capital cycle play out the way it is because you are seeing some constraints in global supply chain.

That's great. And then I just want to touch on the full-year margin outlook. You are still keeping to that low-end of the range. Is there something mix-related that we should be thinking about in the back half that could bring that number down a little bit from what you did in Q2?

No. I mean when you look at our first quarter margin rate and second quarter, the average there is a little bit over 22.5%. So no major mix concern. I think we will probably be closer to the top of that range. But we wanted to give ourselves a little bit of spread, depending where things go in the back half.

Perfect. Thank you.

You bet, Allison. Thank you.

Our next question comes from the line of Nathan Jones of Stifel. Please go ahead.

Good morning everyone.

Hi Nathan.

I guess, Andy, you guys have always been prepared for the worst and hope for the best kind of company in the way you run the businesses over there. With growth coming in pretty significantly higher than you had planned at the start of the year, are you seeing any need to add kind of back office support functions, G&A kind of functions, corporate expense kind of functions back into the business to support this higher level of growth? And then maybe how you are thinking about that with your opinion that may be tariff slowdown growth, level of growth, may be the growth doesn't stay as high as it has been that long?

So we have very cautiously added, what I would call, overhead to the business. If you look at our overall headcount across the globe, it's only modestly changed in the last couple of years. And so we have got a lot of productivity there. Where we are going to add people, where we have added people are at the businesses. There is really no need to add a bunch of people at corporate. As you know, it's a pretty small group anyway. It's pretty much IT, finance and HR. Otherwise, everything is at the businesses. And so that's where we are going to focus our investment. I don't really see a big need for that to change. The one thing that I talked to a lot with people about is, unlike five years ago or 10 years ago, where there was a lot of fat to trim in the downturn, that doesn't exist today. And so in the next downturn, which will come, us and everybody else are going to have to be very, very smart about how we deal with that and in terms of people in particular, right. So the people shortage that exists across the globe of really of skilled folks is going to get exacerbated here, it's not going to get better. And so when you think about a downturn, you are going to approach it differently thank you have approached in the past and you are going to do everything you can to actually be ahead of the curve and make sure that you don't hurt your great people.

Fair enough. And then, I know you guys have largely or pretty much exclusively funded all of the internal growth opportunities that warrant funding, you have got high growth here, you have got more income here. Are there other projects that you can you go a little further down the list for, that potential don't have as good a returns, but still good returns that you would look at funding? Do you have enough bandwidth, enough people power to continue to do that?

I have said this many times, I feel very confident that we are funding the things that are in front of us that makes sense. If there is a limitation, again it's people, right. I don't think it's a big limitation for us, but that's the biggest thing across any of our businesses. Great people make a huge difference. And that's why we spend so much time on it as a corporation.

And then maybe just one more following up on Allison's on the supply chain. You are talking about seeing lead times stretch out targeting the supply chain. Are you starting to say suppliers look to cash in on that and raise prices contributing to inflation? Is that something that you are expecting to see? Are you expecting it to get worse? Any color you have got there?

We have absolutely seen it. We work at it constantly, both in mitigating with our supply base and diversifying across suppliers and passing on price where we need to, it's there, right. So if you went back two years ago, pricing into our supply chain was effectively zero, right. It was nothing and we were getting positive productivity. Today, we are in the eight-tenths of a point range that we are starting to see. And so that's a meaningful uptick across our businesses and there is really, at this stage where we are seeing demand continue to be strong, there is no reason that's going to change unless our leadership shoots us all in the foot here.

Okay. Thanks very much for your time.

Yes.

Our next question is going to come from the line of Brett Linzey with Vertical Research. Please go ahead.

Hi. Good morning all.

Hi Brett.

Hi. I just wanted to come back to FMT margins. They really continue to impress here with further expansion in Q2. I guess, with H1 and H2 sales relatively balanced, is there anything in the back half in terms of mix or stepped up investment that would suggest or point to profit margins stepping down sequentially H1 versus H2? And then I guess, what's the expectation for that segment for the full-year?

Bill?

Within FMT, there is some seasonality where sequentially the revenue will go down a little bit here in the back half. Example, Banjo seasonality, they are more first half related and they are one of our highest margin businesses. So it's not a huge impact, but you will probably see the margins not be as robust as they were in the second quarter, but still within that mid to upper 28% range.

I mean just across the board, one of the major drivers of profitability for us has been the strength of a handful of industrial businesses that have superior contribution margins to the rest of the company and have pricing power. And so, we are very mindful about that. And so as you look at sequential changes that flow-through is big, positive or negative. And so you certainly have to watch that quarter-to-quarter.

Okay. And then in the release, you talked about the M&A pipeline being active. I guess how would you delineate between what's actionable at current valuations and returns versus relationships that are just being cultivated? You see anything breaking for you here in the near-term?

We have been awfully close on some things. Just recently, we walked away from almost a $0.5 billion deal and we walked away on price. We got down to the last couple of players and we walked away just with the discipline that we brought to bear. So it certainly isn't a lack of opportunities. It isn't a lack of effort. It really is the pricing environment. And so we have been very disciplined. We will continue to be disciplined. The stuff we are cultivating, that really doesn't change quarter-to-quarter or year-to-year. That magnitude looks the same. It really was driven by what's come into market and we have seen a lot of activity this year come to market and we expect that to continue with these elevated valuations.

Okay. And just maybe one more on our new product vitality. You guys have taken share here for a couple of years on orders and sales. What percent of sales are from new products over the last three years today? And I guess, what's the right number? As you guys climb the technology curve in many of these businesses, where does that target need to be?

Brett, we stopped measuring new product vitality some time ago and the reason for that is what I found is, it tends not to be a real number. It's not something that's easily auditable and it also creates a lot of bad incentives for people to rename things to increase complexity and stuff like that. So we tend not to do that. The other thing is and really the beauty of IDEX is, we tend to have very, very long product life cycles, things that last decades and have incredible durability. And so we don't want to shoot ourselves by accelerating change that doesn't need to be changed. That being said, we are really aggressive around new product development. And if you look at the growth that we are having, the 9% organic growth, over half of that is the market and about half of it we are driving. And I would argue that that most of that is coming from new product development.

Okay. Makes sense. Great. I will pass it along. Thanks.

Thanks.

Our next question is going to come from the line of Joe Giordano - Cowen and Company. Please go ahead.

Hi guys. Good morning.

Good morning Joe.

So most of my stuff has been asked already. But Andy, I just wanted, you are a pretty conservative guy and you generally like the last, God knows how long now, you guys come in above the high-end of what you are guiding pretty consistently, but this quarter the magnitude of that was even more than it has been. What were the couple things that, obviously you are not trying to get like top ticket with your guidance, but what were the couple things that were, wow, this is a lot better than what we kind of thought?

So you come into the quarter with about 50% of the quarter book and I don't know, Bill, what's that changed by? A couple of points here and there?

Yes.

It doesn't change by a lot. So what happens in the quarter is you get more book and turn business. And that really happened and it happened across that the business. It wasn't one or two businesses that drove it. It really was across the portfolio. And so the overall economy, my expectation was that you were not going to see a sequential acceleration in the second quarter. I thought that would start to modulate and we did see it. And so that did surprise us a little bit. So a stronger book and turn business, strength sequentially that we hadn't really expected and I do think that that does slowdown, right. We have now had what, six or seven quarters of sequential acceleration?

Yes, six.

Yes. So that's going to slowdown. There is no doubt about it. And I think we were probably a quarter or two early in making that call.

Yes. I mean the stat we look at internally, 60% of our businesses were up double digits. So that's pretty broad-based across the external segments to have that magnitude of growth across the portfolio.

So it's fair to say, you are not extrapolating that king of acceleration into your updated guidance then?

The third quarter is going to be stronger than we thought before, but we don't see it accelerating from the second quarter like we saw with the second quarter accelerate from the first. Seasonally that tends to be a weaker quarter for us anyway. And I just don't think that the growth is going to accelerate. I don't suspect it's going to get weaker unless again, it's driven by some of the overall trade issues and whatnot. But I still think it's going to be pretty robust.

Yes. So relative to our last guide, we are more confident in the back half in what the growth numbers are going to be.

Okay. And the last for me, just on the diversified segment on the margin. That segment is so hard to model, just given the size of orders. Like what's real, what should we be thinking for the second half there?

I think 26% or 27%. At the current growth rate, it's been able to lever extremely well and with the two acquisitions that Andy mentioned earlier, the progress we have made on the integration front, they have well surpassed our expectations. So they are going to much more close to where they were pr-deal.

Thanks guys.

Thank you.

And our next question comes from the line of Scott Graham with BMO.

Hi. Good morning. Can you hear me?

Hi Scott.

I am hearing some interesting questions here, kind of like I am going to ask a similar on kind of how you guys are doing it? The organic continues to shine through and somehow even got better. So I guess my simple question is, from my simple mind is, are you willing to maybe share a little of that secret sauce here, Andy? Can you tell us where the sales opportunities are most prevalent and which ones you are funding, maybe by segment? Can you maybe get a little bit more specific on how you are doing this market share, this land grab so consistently? Maybe you can give us a little more detail if possible?

I will give you a relatively boring answer. If you actually look back, this is kind of three years in the making, if I go back. We got really aggressive, go back to 2014 and 2015. We got very, very aggressive about segmenting our businesses. And so as you think about what we have done with using the 8020 principles around segmenting our businesses, segmenting our markets and really deeply understanding where the profit pools were, where we had advantage, where we didn't have advantage and really aggressively moving resources around the company. I had mentioned earlier that we haven't seen a big change in headcount here in quite some time and the reason for that is because, over three or four years, we have really aggressively moved people and investment to the areas within businesses and I am talking about segmenting to the product level where you are moving people and resources to where we have distinctive advantage. And so I will give a great example of that. If you look at our dispensing business, if you went back six or seven years ago, we had real question marks about that business, about the viability of that business and whether or not it should be in the portfolio. And if you look what Eric Ashleman and the team have done, Eric's our Chief Operating Officer, we have fundamentally refreshed that entire product line. We exited a handful of product lines really aggressively. We entered at a previously nonexistent market segment with the X-Smart and have, as I said, refreshed the entire product category and dispensing has turned into just an outstanding business for us. That same example can be used across the across IDEX. You can go business by business. We opted to sell six businesses. As you know, we had been reticent to sell anything in the past and we got out of businesses that we didn't think we had an advantage with. We exited four, Bill, I want to say, three, four years in a row about a point of organic growth each year?

Yes.

That didn't really show up in the numbers, per se, because we didn't talk about it a ton. But if you are talking about it over a period of time, more than $100 million, actually probably more like $150 million, if you include what we got out of in optics that we exited. And we exited businesses where we didn't have an advantage, a distinct advantage. And so it's a relatively boring answer. It's a lot of very scrappy, in the dirt work. And in our business, things move relatively slowly. And I think, what you are seeing now is you are seeing that hard work pay itself off.

Okay. That was comprehensive. Thank you. Would it be possible for me to ask you sort of if you gave us a dispensing example, can you give us an example, maybe in pumps?

Oh, sure. Let's us Viking, it's a great example. The Viking business has always been a flagship business for us. And what I would say is, we had a distinctive culture where we said yes to everything. So you had unbelievable modifications that we were doing that in that plant. We had lead times that were ridiculous. We really relied on the Viking brand. Our volumes were modestly growing at best for five, six, seven years and that exact playbook that I walked you through a moment ago, in the last three years of Viking, we have done the exact same thing. And even if you take away the incredible strength in the markets that they are in, Viking is doubling their market growth rates right now. The LACT business has been outstanding. We ventured multiple segments of that market with technologies that have a really distinctive advantage versus the competition. Our overall lead times, we have cut them in half in three years. And so our ability to be incredibly aggressive in the marketplace on service is unique. And when you are in an environment like this, lead times really matter. And so we have been able to do those sorts of things at Viking. So you could go across the business. I can give you examples of that in HST. I can give you examples of that at Gast. You can do a business by business and that's the key, right. There is IDEX magic here, right. Except to say, we have done this across our portfolio of 40 businesses and we have made a really tough capital and people allocation decisions around where we have distinctive advantage.

Got it. Thanks a lot. Great quarter.

Thank you Scott.

Our next question is coming from the line of Walter Liptak with Seaport Global.

Hi. Thanks. Good morning and I will say, congratulations on the organic growth too, especially the consistency.

Thank you Walt.

I wanted to ask just a clarification on a data point. When you are talking about market share versus market growth, I thought I heard you say that you attribute half the growth to market share, the other half to the market. Is that right?

Yes. And I would use, market share is not exactly the right term, because in some places we are literally entering businesses that we haven't been in. So you could you could call it share, but it's half market growth and it's half new business that we are winning distinctively.

Okay. All right. Got it. And realizing that a lot of your business is quick turn and there is low visibility,, there is some project work and I wondered if you could talk a little bit about what you are seeing projects? Is there a funnel that's building? Maybe pricing? And then specifically, I think you called out the LPG truck build. Where are we in that cycle? Is this something that, why and how long does that go?

Well, let me make sure I got this. So you have a question on project work generally, pricing and then LPG. So let me make sure I get all three of those.

Yes. Okay. All right. Thank you.

On project work, yes, it's picked up. As you know, we don't tend to have a lot of really large projects. They tend to be in the $200,000 to $5 million range generally. And if you went back 18 or 24 months, what you would have heard is say is that we were really living on book and turn business. And we start to see project work come back 18 months, 24 months ago and that has continued to improve. So that has absolutely been the big change here. If you look over the last couple of years, where project work has come back, we have certainly seen that. In terms of pricing, Walt, I am not exactly sure what your angle was on pricing. Can you clarify that for me? What was the question?

Just sometimes the longer project work goes out to bid, there is some multiple rounds of bidding to try and get the price down?

Okay. That certainly is the case. We tend to be a really small part of these projects. And so we don't tend to see a lot of price pressure in there. That's not something that would be particularly mentionable here. So I would say, no, it's not been a particularly big deal. And the overall pricing environment for anything right now is much more favorable than it has been in a long time. And then finally on LPG, yes, the truck builds have improved. Where are we in the cycle? I think we are actually still early to mid stage in that. That really just picked up this year, if you look at it. Now truck builds overall, as you know are astronomical. I think the U.S. is at 430,000 Class VIII trucks, if I remember right. It's a big number. And obviously, we are not as tied to that, but overall that industry is seeing major expansion. But I would say, we are still early to mid on the LPG truck build.

Okay. Great. Thank you.

You bet, Walt.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to management for any closing comments.

Well, first, just thank you for following IDEX and the work that you do here with us. Most importantly, I really want to thank our teams. The operating teams in the business, led by Eric Ashleman, have just been outstanding. The results that we get is due to them. And I am very, very appreciative of what they bring to the table each and every day. So again, I appreciate your time and look forward to talking to you here in 90 days. Take care.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.