AMETEK, Inc. (AME) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q2 2026 AMETEK Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Coleman, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Stephanie. Good morning, and welcome to AMETEK's Second Quarter 2026 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the 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. Any references made on this call to historical results will be on an adjusted basis, excluding after-tax acquisition-related intangible amortization and excluding acquisition-related costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, 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 delivered fantastic results in the second quarter with double-digit organic sales growth, excellent orders growth, strong core margin expansion, outstanding cash flow generation and record earnings ahead of our expectations. We also raised our full year sales and earnings guidance to reflect our outstanding first half results and our positive outlook for the balance of the year. Second quarter sales were a record $2.04 billion, up 15% from the same period in 2025. Organic sales were up 10%. Acquisitions added 5 points with foreign currency flat. Orders were again exceptional in the quarter with continued broad-based growth across all AMETEK divisions. Overall orders were a record $2.3 billion, up 28% versus the prior year, with organic orders up sharply at 25%, leading to a record backlog of $4.11 billion. This outstanding second quarter orders growth follows the first quarter's 22% organic growth, reflecting the strength across our attractive end markets. Operating income for the quarter was a record $544 million, an 18% increase over the second quarter of 2025. Operating margins were excellent in the quarter at 26.6%, up 60 basis points from the prior year. Core margins were 27.1%, up a very strong 110 basis points versus last year's second quarter. EBITDA was a record $644 million, up 14% versus the second quarter of 2025 with EBITDA margins an impressive 31.5%. We also generated strong cash flow in the quarter with free cash flow up 37% to $452 million and free cash flow to net income conversion of very strong 111%, reflecting our outstanding operating performance and working capital management. Diluted earnings per share were a record $2.09, up 17% versus the second quarter of 2025 and above our guidance range of $1.96 to $2 per share. Now I'll share some additional details at the operating group level. Starting with the Electronic Instruments Group. EIG generated outstanding second quarter results with excellent sales growth, strong operating performance and robust orders growth. EIG sales in the quarter were $1.32 billion, up 14% from last year's second quarter. Organic sales were up 7% and acquisitions added 7 points with foreign currency flat. Orders for EIG were again outstanding with overall orders up 23% and organic orders up 20% in the quarter. Growth in both sales and orders was broad-based across all EIG divisions with our process instrumentation, Aerospace and Power businesses all benefiting from their strong positions in attractive markets. EIG's second quarter operating income was $385 million, up 12% versus the second quarter of 2025. Core operating margins were 30.1%, up 40 basis points from the prior year. The Electromechanical Group delivered exceptional results in the second quarter with excellent sales growth, sizable orders growth, strong operating performance and impressive core margin expansion. EMG's second quarter sales were a record $723 million, up 17% versus the prior year. Organic sales were again up double digits at 15%, with acquisitions contributing approximately 2 points to growth. EMG sales growth in the quarter was balanced across our Aerospace, Defense, MedTech and Automation businesses. EMG organic orders were once again exceptional, up 35% versus the prior year. EMG operating income for the second quarter was a record $191 million, up 32% compared to the prior year. EMG's core operating margins were 26.2%, a 290 basis point increase versus the second quarter of 2025. Overall, I'm very pleased with our performance this quarter and in the first half of the year. Our colleagues continue to deliver exceptional high-quality results and position AMETEK for continued growth. Together, we have delivered an exceptional long-term track record and have created meaningful shareholder value. I'm equally pleased with the work we have done to strategically position and align our portfolio with many powerful secular growth drivers. AI is driving sizable demand for advanced semiconductors that require ultra-precise optics, 3D metrology systems and expanded power infrastructure. At the same time, recent geopolitical uncertainties and volatile energy prices are increasing the focus on defense modernization and energy security, creating broad-based demand for our businesses. In addition, innovation-led momentum in MedTech, sustained strength in commercial aerospace and improving demand across precision automation are complementing these secular tailwinds. Looking ahead, we believe these broader investment themes will continue to drive meaningful growth. With that said, I would like to spend a few minutes highlighting how AMETEK's businesses are aligned with key areas of strong demand. RTDS Technologies, a leader in real-time digital simulation of power system infrastructure and hardware-in-the-loop testing, recently received a key order from a data center hyperscaler to help derisk the power profile of a broader data center build-out. RTDS' real-time simulators enable detailed power system analysis, helping engineers anticipate system and device behaviors that can impact electrical system stability, resilience and performance. As data center power ecosystems grow increasingly complex, operators must ensure their power architectures can meet evolving requirements across operating conditions, load cycles and infrastructure changes. RTDS is well positioned to support this critical need. Additionally, our Zygo business, a provider of advanced metrology systems and optical components, is supporting accelerated investment in AI infrastructure with its precision metrology and optical solutions. These solutions are designed into leading semiconductor platforms used to manufacture advanced chips that power AI and next-generation computing. As semiconductor complexity increases, precision becomes more critical. Our customers rely on Zygo's technology to meet tighter tolerances and improve manufacturing yields. Alongside this, demand across the broader semiconductor ecosystem, including memory, logic, advanced packaging and photonics remains strong. Zygo is positioned to benefit from ongoing investment in these infrastructure-enabling technologies. I also want to note the exceptional growth we are seeing within our Paragon Medical business. Continued superb orders growth is being driven by attractive new design wins tied to orthopedics, drug delivery systems and highly engineered medical components. More broadly, Paragon is performing extremely well and delivering outstanding growth and profitability. Excellent job by our RTDS, Zygo and Paragon teams. Now turning to acquisitions and capital deployment. As I have regularly noted, our top capital deployment priority is strategic acquisitions. Our strong balance sheet and consistent robust cash flow provide us the ability to deploy a meaningful amount of capital for acquisitions. We continue to maintain a robust pipeline of acquisition opportunities across deal sizes and expect to remain active in executing on this pipeline. We remain excited for the acquisition of Indicor Instrumentation. Our teams are working through the integration planning, and we continue to expect the acquisition to close in the second half of the year. In addition to our acquisition and capital deployment strategy, we are committed to invest in our businesses to ensure they are well positioned for long-term sustainable growth. In the second quarter, our new product vitality was a strong 25%. These investments in new products help continue to drive our organic growth. Our Hughes-Treitler business, a leading provider of advanced heat exchangers and thermal management solutions for mission-critical Aerospace & Defense applications recently introduced MicroFoil, a next-generation lightweight heat exchanger technology. This new product delivers a compelling combination of exceptional heat transfer performance and an ultra-low weight design, providing customers with a unique solution to address their most demanding applications. MicroFoil's innovative architecture can be easily adapted to curved and conformal spaces, providing exceptional thermal performance for use in aerospace, defense and industrial cooling applications. Congratulations to the Hughes-Treitler team on this outstanding achievement. I would also like to congratulate our Alphasense business for receiving AMETEK's Annual Innovation Award. The AMETEK Innovation Award recognizes our business' efforts to develop and advance next-generation technology, products and solutions for the markets we serve and celebrates the most innovative product development from across the company. Alphasense, which is part of our Process & Analytical Instruments division, is a leading provider of advanced sensors used in environmental, health and safety applications. The latest product, the A2GLF oxygen sensor, was named the recipient of our Innovation Award. This sensor, the world's first galvanic lead-free oxygen sensor, is designed for accurate oxygen gas measurement in demanding environments targeted to OEMs of portable and fixed gas detectors seeking regulatory compliance and environmental controls without sacrificing performance. The sensor is designed to retrofit a large installed base along with next-generation instrument development. Well done to the Alphasense team for this outstanding achievement. Now shifting to our outlook for the balance of the year. Our increased sales and earnings guidance for the year incorporates our strong second quarter results and positive outlook for the balance of the year. For 2026, we now expect overall sales to be up approximately 10% on a percentage basis with organic sales now expected to be up mid- to high single digits versus the prior year. Our diluted earnings per share for the year are now expected to be in the range of $8.20 to $8.30, up 10% to 12% compared to last year's results. This is an increase from our prior full year guide of $7.94 to $8.14 per diluted share. For the third quarter, we anticipate overall sales to be up high single digits on a percentage basis with adjusted earnings of $2.08 to $2.10 per share, up 10% to 11% versus the prior year. To summarize, AMETEK delivered an outstanding second quarter. Our exceptional results reflect our well-positioned portfolio and the disciplined approach of the AMETEK growth model to capitalize on a broadening infrastructure investment environment. AMETEK's mission-critical niche solution position us as a prime beneficiary of the changing macroeconomic environment and will enable us to continue to deliver superior growth for our shareholders. I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions. Dalip?

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK delivered another excellent quarter with strong orders, sales and earnings growth, robust core margin expansion and outstanding free cash flow generation. Now let me provide some additional financial highlights for the second quarter. Second quarter general and administrative expenses were 1.5% of sales, in line with last year's second quarter. Second quarter interest expense was $20 million. Second quarter other operating expenses were $6 million compared to $3 million in the second quarter of 2025 due to higher acquisition diligence spend in the quarter. The effective tax rate for the quarter was 17.5%, down from 19% in the second quarter of 2025. For 2026, we now anticipate our effective tax rate to be between 18.5% and 19%. As we have stated in the past, actual quarterly tax rates can vary above or below our full year expected rate due to the timing of discrete tax items. Capital expenditures in the second quarter were $32 million. For the full year, we expect capital expenditures of approximately $160 million or about 2% of sales. Depreciation and amortization expense in the quarter was $106 million. For the full year, we expect depreciation and amortization to be approximately $430 million, including after-tax acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share. Operating working capital in the second quarter was 16.4% of sales, an impressive 220 basis point improvement versus 18.6% in last year's second quarter. The improvement reflects excellent operational execution across all working capital components, led by strong inventory discipline and improvement in inventory turns, an outstanding company-wide operational achievement. Operating cash flow was exceptionally strong in the second quarter at $484 million, up 35% versus the second quarter of 2025. Free cash flow was also strong, up 37% to $452 million with outstanding free cash flow conversion of 111% for the quarter. For 2026, we continue to expect strong free cash flow conversion of 110% to 115% of net income. Total debt at June 30 was $2 billion, down from $2.3 billion at the end of 2025. Offsetting this debt was cash and cash equivalents of $495 million. At the end of the second quarter, our gross debt-to-EBITDA ratio was 0.8x, and our net debt-to-EBITDA ratio was 0.6x. During the quarter, we also completed the renewal of our committed revolving credit facility. As part of the renewal, the size of AMETEK's revolver facility increased to $3.5 billion, and the maturity was extended until June 2031. This renewal strengthens our liquidity profile, lowers financing costs and positions us well to support future growth initiatives. As Dave noted, we expect to deploy $5 billion on the acquisition of Indicor in the second half of the year. Following the closing of the acquisition, we will continue to have substantial financial capacity, including approximately $2.5 billion of cash and available credit facilities to support our growth initiatives and strategic acquisitions. In summary, AMETEK delivered another outstanding quarter with excellent orders, revenue and earnings growth, robust margin expansion and strong free cash flow conversion. Our leading positions across attractive market segments, combined with our global operating capabilities and strong track record of execution leaves us very well positioned to drive further growth and value creation in '26. Kevin?

Thank you, Dalip. Stephanie, can we please open the lines?

[Operator Instructions] Our first question comes from Deane Dray from RBC Capital Markets.

Dave, I was hoping you could take us through your typical end market and regional data points and color. And as you do that, we're seeing a number of the industrial companies reporting this quarter some significant positive inflection in the non-data center part of the industrial economy. We're really in this 2-speed economy. But I would love to hear whether you're seeing some data points, color like that. We saw it with the ISM. So as you take us through the end markets and regions, anything that you could add there would be great.

Sure, Deane. But before I answer your question, I wanted to take a moment to congratulate you on your retirement. It's been a complete pleasure working with you. You are a true pro at what you do, and the entire AMETEK team appreciates all of the support you provided us through all the years, really all the best, Deane, to you and your family.

I really appreciate that, Dave, and wishing you and the team all the best as I watch from the sidelines after this quarter, but great thank you very much, and let's dig into your quarter here, if we could.

I get your question. So I'll start with -- I'll walk around the end markets, and I'll start with our Process business. Overall sales for our Process businesses were up high teens, driven by contributions from recent acquisitions and excellent high single-digit organic sales growth. Process orders were again outstanding as project activity remains strong. While growth was broad-based, we are seeing the strongest growth across semiconductor and energy-related instrumentation businesses. And for the full year 2026, we now expect sales for our Process segment to be up mid-single digits. Next, I'll go to Aerospace & Defense, where demand across our A&D businesses remains robust with mid-teens organic sales growth in the quarter. Growth was again broad-based. All segments of the A&D market see continued strong demand, notable strength in our commercial OE and commercial aftermarket segment. Our businesses are very well positioned to benefit from increased defense spending and the continued strong commercial aerospace super cycle. We now expect our Aerospace & Defense businesses to be up low double digits versus last year, balanced growth across Commercial and Defense businesses. And our Power businesses delivered mid-single-digit organic sales growth in the quarter, along with strong orders momentum. The orders momentum and growing pipeline are in support of the broader build-out of the power grid. And for 2026, we continue to expect organic sales for our Power businesses to be up mid-single digits. And finally, our Automation & Engineered Solutions growth was again outstanding, mid-teens organic growth in the quarter. We are seeing continued excellent and broad-based growth. The businesses are well aligned with attractive growth applications in MedTech, semiconductor and automation. And for 2026, we now expect organic sales for Automation & Engineered Solutions to be up high single digits organically. Okay. That's the walk around the company. The next thing I'll do is I'll answer your question about the -- looking at the geographies. And really, we were strong in all major regions of the world. The U.S. and Asia were the strongest. In the U.S., we were up low double digits. The strongest growth was in Process and also good growth in our A&D business. Europe was up mid-single digits, driven by strength in Power. And Asia was up low double digits with Automation and Process doing well. So it was a really good quarter and really strength across all major regions. And in terms of the question that you had about the -- where is the growth coming from? Is it broadening? Yes, that's a great question. When I think about it, we have AI infrastructure. You have the needs for semiconductor manufacturing to build the chips. And in the first quarter and the second quarter, we received substantial orders for our highly differentiated unique products in semiconductor optics and metrology and advanced computing technology. That's one area of growth. In terms of Power as a second area, we're well positioned for the power grid build-out. We're providing critical fail safes. We talked about our ruggedized UPS systems for microgrids. We manufacture natural gas turbine sensors that are enabling the electric power build-out. We have successfully monitored their power grid with our Power Instrumentation business. And we have the RTDS business that I talked about, helping hyperscalers build out local power grids when they can't wait for the utilities to do it. So just another example of a growing area that's positioned to help the critical -- build out the critical physical layer for the AI build-out. But in addition to that, we have our Aerospace & Defense, which remains a structural growth driver. We have -- in the commercial market, we have the continuing aerospace super cycle, an almost decade-long backlog. And with the ongoing conflicts in the geopolitical situation, we have really a nondiscretionary demand for global defense modernization. We talked about the last quarter, the UAV programs and missile launcher programs in our last call, where we supply ruggedized thermal management systems and power systems and advanced sensing technology. The combination of this very active defense modernization, combined with the commercial and aerospace super cycle provides another secular growth driver for us. So when I look at this thing, we're really -- there's durability because the underlying capital spend by our customers is driving a multiyear infrastructure build-out, and we are supplying mission-critical essential products for new semiconductor fabs, new power plants, the A&D market, defense modernization. So I believe we're in the beginning stages of a multiyear infrastructure build-out, and we're incredibly well positioned. And to your point, it's great that we're diversified across multiple thematic growth drivers and not dependent on any one single driver.

Dave, that was a great comprehensive answer. And since I did ask what turned out to be a lengthy topic, I'll leave it there, and thank you again for the sendoff. Really appreciate it.

Our next question comes from the line of Matt Summerville of D.A. Davidson.

Can you maybe talk about the build you're seeing in your backlog and how the duration in your backlog, i.e., visibility compares now to maybe the longer-term AMETEK historical average? And then I have a follow-up.

Sure. Our backlog was now $4.11 billion, up about 21% from the end of the year. And we had a positive book-to-bill of 1.12 in the quarter, both groups positive. And we also are executing very well. We saw an acceleration of organic growth from Q1 to Q2. And what you really have is our customers are, related to the infrastructure build-out, are placing orders with us. And our products are customized unique products. So there's some engineering design that goes into this. These are not commodity products. So what we really have is probably 80% of that backlog will ship within the next 12 months. We have the second half of the year filling in very nicely, and we're starting to fill in to '27. So it's very positive, and we're executing very well. Our businesses are performing well, strong execution, disciplined operations, excellent momentum across the portfolio. So what you really have is through our recent acquisitions, we probably have a little mid- and long-cycle performance portfolio than prior, but it's filling nicely, and we have specialized products and our customers are getting the orders in place so that we can deliver the products for them.

And then just as a follow-up, how much of your business would you say today is tied to thematics involving data center infrastructure build/AI? And when you think about AMETEK's broader business and the level of inbound demand you're seeing, does that inform a greater ability to capture price?

Yes, I think the -- Yes. In terms of pricing, we have a highly differentiated, highly engineered IP-driven product portfolio. And we put in healthy levels of RD&E investment, and it results in high vitality in our products. It was 25% in the quarter, as I said in my prepared remarks. So we're niche leaders, mission-critical products. We solve some of our customers' most difficult problems. And when you put all that together, in addition, they're in environments that there are high switching costs and regulatory-driven markets. So the price of failure is high. So all these factors give us the ability to offset inflation and tariffs with price. And in the quarter, we offset inflation and tariffs a little more than price, and we continue to expect to do that. And it's really given the unique portfolio construction of focusing on these products and this heavy level of R&D investment that go together and provide that we have a special place in our customers' value chain. That's how I would explain it.

And then the question on how much of your business today would you roughly estimate is tied either directly or indirectly to data center infrastructure build-out/AI?

Yes. I think that the data center/AI part of it, along with the military modernization, along with the commercial aerospace, along with the power infrastructure, I put that whole bucket together, and it's about half of our business. In terms of data center, in the data center, it's actually smaller, but in all the related parts of it in terms of semiconductor, in terms of the power grid, in terms of the items that I talked about, it's actually quite broad and broadening to Deane's question and his point. But in the data center, it's not big enough to report on a specific segment. But what's happening now is the growth is expanding from that, and we're very well positioned.

Our next call is from Nicole DeBlase of Deutsche Bank.

Maybe we could just start with double-clicking a little bit on orders, really strong results there. Anything notable with respect to like large or lumpy orders? Just trying to think about the sustainability of the strength that you guys have seen in order growth into the second half. And maybe, Dave, if you're willing to share anything about what you've seen in the month of July, that would be helpful, too.

Yes. As I mentioned, the orders were excellent in the quarter, 28%, organic 25%. Book-to-bill was solid at 1.12, and both groups were positive. In terms of cadence, June was the strongest month for orders in the quarter in all time. So we had a record for the month of June. And we just finished July, and the orders were very good. So it's continuing. So I would say that there's a bit of a lumpy nature to the order. But as I mentioned prior to Deane's question, I mean, we really have what I believe is organic growth durability because the underlying capital spend by our customers is driven by this multiyear investment infrastructure build-out. And we're kind of locked into these opportunities with our pedigree and regulatory mandates and security priorities. So it's very encouraging. And again, it's not just the AI build-out. It's not just the Power build-out. It's not just the Defense modernization. It's not just energy security with our energy businesses going very well. It's not just the commercial A&D business super cycle. It's kind of all of them. We're in the right places. We're in the right places. We have unique capability, and we think we're in the early innings of a mission-critical infrastructure build-out, and it feels pretty good.

Excellent. And then as a follow-up, I guess, just considering the strong order growth that you guys have seen for the past 2 quarters, you are modeling a bit of a decel in organic revenue growth to high single digits in the third quarter. Is there maybe just some conservatism baked in there? I know that the prior year comps are a little bit tougher. If you could maybe double-click on that a bit. And then any big differences in EMG versus EIG within that 3Q expectation?

Yes. I think that what you're seeing there is in the second -- in the -- we flowed through the Q2 sales and earnings beat, and we also increased our sales and earnings in the second half. So the revised H2 organic sales guide is between 1.5 to 2 points stronger with the EPS flowing through. So we increased the second half of the year from our prior guide. I think for sure, we're very confident in the guide, and it has a bit of AMETEK prudence or conservatism built into it. So we're confident we can deliver the second half.

Our next question comes from the line of Daniel DiCicco, BMO Capital Markets.

Just in terms of the end markets, I mean, just in the quarter, where did you see the most acceleration? And then did any of the markets maybe come in below expectations? I know it sounded like everything was pretty strong.

No, I think it was -- everything was pretty strong. If I had to point to a couple of markets, I'd point to the semiconductor market, especially in EIG. And I actually point to the MedTech market in EMG, where Paragon had just an outstanding quarter. So those will be the 2 standouts. So with the Aerospace was obviously very strong and the Power orders were good. But in EIG, it was the semiconductor orders that stood out. And to me, and then in EMG, it was the MedTech orders from Paragon that stood out. And Paragon is an interesting great example of the AMETEK growth model in action. Many of you know that soon after we acquired Paragon, we ran into a pandemic-driven inventory destock, and it was a little more significant than we modeled. But we utilized that downturn when the sales volume was lower to accelerate our integration activities. And this allowed us to absorb the integration friction when the volume was low. And now the volume is back. So we're getting excellent leverage on our growth. And very importantly, we continue to invest in all the new product development opportunities in Paragon, and this allowed for phasing in of new product wins and allowed us to capture outsized margin expansion in EMG. That was a key driver of the margin. So I just think that the whole Paragon and how well they're doing now and the tremendous order growth they have because they won new products. That's not really a market trend. It's a great business that won new products. It just shows you that the AMETEK growth model is relentless, the relentless implementation of the AMETEK growth model really delivers over time, and our teams are continuing to do an outstanding job.

Great. Great. And then just a quick follow-up. I know you've been working on a number of AI pilot programs internally across the businesses in various functions. I was just hoping for an update there and potentially some opportunities, whether that's internal or maybe on the commercial front.

Great question, Daniel. We're using AI to improve efficiency and accelerate growth across the entire company. And it impacts all functions. It helps us speed up due diligence. We have agents that are automating document processing, agents to improve customer service. They're helping us to predict and mitigate supply delays. They're improving our products, the predictive maintenance nature of our products, really having a substantial effect in improving the custom engineering design processes. So really all functions of our business. And we're looking at really automating the AMETEK growth model. So all elements of the growth model are being impacted by this. So we're going to get stronger at this in the future. In terms of the deployment, it kind of matches the decentralized nature of the company where our businesses are empowered to deliver AI solutions that are tailored specifically to their needs. But enterprise-wide, the company provides overall governance, technology platforms and policy frameworks. We've had some things that have worked. We have some things that haven't. So we've learned to -- when something has not worked, just move on to the next thing. And we had a wave of 50 projects that I talked about before, some great results. And now we're on to wave 2. And we recently started wave 2. There's another list of projects across the company. We have strong momentum. It's a very exciting time. I think that as we learn about the technology and we get good at deploying it, then we look for a specific instance of something and then deploy it company-wide. So we're in the beginning stages of seeing the benefits. But we have a whole growth model here that is ripe for Automation, and we're looking at applying it to it. At the same time, we're deploying it in our products. We mentioned a call or 2 ago that we have used in our Virtek business that detects critical defects in materials and using AI algorithms to do that. And we mentioned before one of our EIG businesses uses it to improve the predictive maintenance of the businesses. So it's showing up with enhanced products. It's showing up in really the AMETEK growth model, it allows us to build an AI-enabled company. And when you think about our products, they're inherently low obsolescence risk. Our niche portfolio of mission-critical differentiated technology solutions with market-leading specifications combined with these requirements in all these markets on these long-cycle platforms, we have low obsolescence risk. So I think we're in a good position where we're active on getting the tools to make our business -- improve our business where we don't have an obsolescence risk right now. And at the same time, we're enhancing our new products. So it's really important, and we're spending a lot of time on it as many companies are, but I'm pleased with the results that we're seeing.

Our next question comes from Scott Graham of Seaport Research Partners.

Great quarter. Thank you for the rundown so far. I wanted to get at maybe 2 things internally. The core margin expansion of 110 basis points was pretty impressive. Certainly, the organic was part of that. But what were the other features there? Was it mix? And if so, which businesses or otherwise?

Yes. It was -- we had an excellent operating quarter, great margin quarter. We had -- on the face of it, margins up 60 basis points. But when you look at the core, it was up 110 basis points. And when you look at the 2 groups, EIG margins were up 40 basis points and -- core margins were up 40 basis points and EMG core margins were up 290 basis points. And EMG is benefiting from what I had talked about earlier in terms of Paragon with new products phasing in with leaned out cost structure. So -- and that drove the bulk of that. But when you look across it all, we had strong incrementals, about 40%. Both groups were near 40%. We had, as you mentioned, the sales growth, good incrementals. But really, we had excellent productivity, too. So we increased our productivity, enterprise-wide productivity target to $160 million this year. I think it was $155 million last quarter. So we had $5 million more in productivity that we got confident in forecasting because of performance during the quarter. And again, as the question that Matt asked earlier, we had positive price where we more than offset inflation and tariffs. So with the solid incrementals, with the excellent productivity and the positive price inflation, it all drove the core margin expansion.

I was also hoping you could maybe update us on Indicor. You've had the company sort of in tow here waiting for the closure of the deal. And has -- have you identified maybe some new synergies? Is there excitement a little bit higher across those 10 business units?

Yes. I think the excitement is high with Indicor. I mean we're progressing well through the integration and the regulatory approval process, and we continue to expect it, as I said in my opening remarks in the second half of the year. But to your point, we're very excited about the acquisition. We're acquiring an outstanding group of high-quality businesses with leading market positions in attractive niche markets, very differentiated technologies, strong IP positions, deep domain expertise, similar characteristics to AMETEK with high switching costs, but they have a higher profitable recurring revenue stream of 50% of revenue. So attractive growth profile, excellent profitability. It's just a great strategic fit. In terms of, are we finding more things to get excited about as we work with the team? Teams are working very well, and we have to follow the requirements. We don't own the company now. So we're working on integration planning and working on the closing of the business. The typical cost structures that we have, we're getting very confident that we bought some premier assets. At the same time, they're run very independently without an overriding business system. And we're highly confident that the proven AMETEK growth model is going to add value to this acquisition. And global sourcing, typically one of the largest growth drivers. We confirmed the opportunity. The international sales and service facilities, and we run them as one AMETEK facility in a region that everyone operates out of. Essentially, we provide the hotel that everyone operates out of. And so there's opportunities there for facility rationalization while still letting the business units have their independence. We have a global shared service infrastructure in places like India, Malaysia, Mexico, Serbia, Poland, and that is not available. So there's cost reduction opportunities there. We have a growth philosophy that you operate in a local market to grow locally, a little bit different. And then we have the talented people to help implement it all. So we are getting more confident with the 10% to 12% cost synergy. And we think this is going to be a great acquisition for our shareholders. We're going to deliver exceptional value to them.

Okay. So at this time, we still do have a few additional questions to be available. [Operator Instructions] At this time, we do have a question from Joseph Giordano of TD Cowen.

This is Chris Grenga on for Joe. You had highlighted the UAV opportunity, and I was just curious if you could provide a little bit more color on how activity in that market has trended and how you're seeing the scope of opportunities continue to expand. Are there any particular size class of UAV that AMETEK is best positioned for? And do you see any opportunities in other domains beyond unmanned aerial?

Yes, there's a tremendous opportunity. And I highlighted -- I think it was last quarter, we had won 3 new UAV programs. One was a U.S.-based program, 2 were with NATO allies. We often provide sensing for fuel sensing. We provide power distribution, lightweight power distribution. We provide cooling for the electronics in the system. So it's been an area of strength for us historically. And as this -- as the UAVs grow, we're well positioned to do well. The other areas that we talked about were in the advanced computing, some of the things that we do with our Abaco business where data analysis is becoming more important. The cooling systems related to electronics implementation. We're very successful in -- with our Rotron and PDT businesses. So we're well positioned in niches where we're the market leader and the opportunities are growing, and we have an established pedigree in these markets, and we specialize in areas, and the customers -- our customers recognize that. So it's a positive area for us and defense modernization is an area that I think is nondiscretionary, and we're well positioned to execute on it.

And we've talked -- you talked about the strength in MedTech. And I'm just curious if you could provide any more color as we've heard increasingly constructive commentary across broader life sciences recently, just in terms of what you're seeing in terms of customer spending patterns and any improvement within life sciences in particular?

Yes. The point that I talked about at Paragon is more in the MedTech directly. In life sciences, we were out visiting our -- one of our Automation businesses, and they build automation systems for life sciences equipment and their businesses are doing extremely well. So the life sciences is definitely picking up. And this MedTech increase that we have for Paragon is a market improvement, but we also won significantly -- a significant amount of new programs. So that's why that's a little bit outsized.

Our next question is from Andrew Obin of Bank of America.

Just maybe a question on this ramp. Where does capacity utilization stand today? I think CapEx guidance is up 22% year-over-year from '25. How much of the $160 million is growth CapEx?

Yes. I think the growth CapEx is probably about 2/3 of it. And remember that we're largely -- IP drives our business. So it's not like we have a lot of fixed assets. We were at 2% of sales as CapEx. And over the past couple of years, we've built infrastructure. We added capacity in multiple U.S. plants, in Serbia and Mexico, and we're doing some more work in Poland. So capacity-wise, we're not at the limit of capacity because the traditional CapEx is really not what our business is based on. We have a return on tangible capital of about 100%. So that's kind of unique in the industrial world, and it's easy for us to ramp up and ramp down. You've seen that before when we scale up, and you've also seen us to be very flexible when we scale down. So we saw an acceleration in sales, organic sales in both groups this quarter. And we're also -- we increased our guide for the second half of the year. And next year, it's filling in nicely. So I think the -- and one of the things I talked about earlier is in our AI prototypes, we took a product line that took us about 1 year to design a custom new product, and we do it now in a month. And that's an example of using AI to shorten the design cycle. So I think the capacity is well in hand, and you can see that by how efficiently we're operating. We reduced working capital. We generated over 35% more cash flow. So we're operating very, very well, and we have a low CapEx business. And I think in an environment like this, we're going to shine.

And maybe a follow-up, people ask me on M&A. But maybe can you give us an update on what's happening at FARO?

Yes, sure. FARO, as a reminder, designs and develops advanced 3D metrology and digital reality solutions. And we have now leadership position and measurement arms, laser scanners, laser trackers, and it was an excellent strategic fit with our Creaform business as the FARO's product suite really complements the existing AMETEK Creaform metrology capabilities. And the teams are doing great. We were just up there as part of our North American regional operating review, and the teams are working well. The integration is on plan. I think you'll see the businesses with some substantial margin upside over the next 6 to 12 months. So everything is going very well, and all of our plans are intact, and it is going to be an acquisition that pays off for the long term for AMETEK as we put together a couple of market leaders, and we feel really good about it.

The next question is from Christopher Glynn of Oppenheimer & Company.

So the 35% organic orders number for EMG, just wanted to revisit that first to make sure I heard it right. And second, I think you drilled down on maybe MedTech and Defense being particular accelerators, but the 35% maybe means more than a couple of accelerators. Curious if Automation took more of a...

Yes, Automation was, Chris. And it's what I mentioned, the life sciences part of our Automation business really accelerated. So that was another big growth driver. It was a bit lower than the MedTech and the Defense, but it was right up there.

Okay. Great. And then on the Defense side, are you seeing comparable input from U.S. and allies each?

We're seeing more input from the U.S. given the size of the Defense infrastructure, but there's a notable increase with NATO allies off a smaller base.

Okay. Great. And just a clarification. Were there any tariff refunds impacting the margins in the quarter?

No.

Our final question will come from Andy Kaplowitz of Citigroup.

Dave, you talked about your Power business. From our vantage point, there continues to be a large pipeline of opportunity there, particularly as you know, in the U.S. So maybe talk about why mid-single-digit organic sales growth in '26 is the right number? And could you grow faster than that in the future?

We could grow faster. We could grow faster. It's more tied to the grid expansion, and we talked about -- the orders were very strong. So that's an area where you're going to see increased sales growth going forward because the orders growth precedes the sales growth. But it is -- the orders momentum and the growing pipeline are really in support of the growing build-out of the power grid.

Got it. And I just wanted to double-click on EIG margin for a second. You just talked about FARO and how it's tracking. So that would get -- I mean, your core margins were obviously good up 40 basis points. But if FARO continues to improve, that's going to help with overall margins, right? That's how we should think about the overall margin trajectory moving forward in that segment.

Yes. We almost have lapped the 1-year FARO ownership. So I'm not sure if it's next quarter or the quarter after. I think it's next quarter.

This quarter.

Okay. It's in July. So FARO will show up in our core margins going forward, and there's a lot of opportunity there. So after 1 year, the acquisitions become core, Andy.

This concludes the question-and-answer session. I would now like to turn it back to Kevin Coleman for closing remarks.

Thanks, Stephanie, and thank you for joining our call today. As a reminder, a replay of today's webcast may be accessed in the Investors section of ametek.com. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.