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Colfax Corp (CFX) Q1 2019 Earnings Call Transcript

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Colfax Corp (NYSE: CFX)
Q1 2019 Earnings Call
May. 8, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Colfax First Quarter 2019 Earnings 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. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Kevin Johnson, Vice President of Finance. Sir, you may begin.

Kevin Johnson -- Vice President of Finance

Thank you, Sydney. Good morning, everyone, and thank you for joining us. My name is Kevin Johnson, and I'm Vice President of Finance at Colfax. Joining me on the call today are Matt Trerotola, President and CEO; and Chris Hix, Senior Vice President and CFO.

Our earnings release was issued this morning and is available in the Investors section of our website, colfaxcorp.com. We will be using a slide presentation to walk you through today's call, which can also be found on our website. Both the audio and slide presentation of this call will be archived on the website later today and will be available until the next quarterly earnings call.

During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them, except as required by law.

With respect to any non-GAAP financial measures made during the call today, the accompanying reconciliation information relating to those measures can be found in our earnings press release and today's slide presentation.

Now, I'd like to turn it over to Matt, who will start on slide three.

Matthew L. Trerotola -- President and Chief Executive Officer

Thanks, Kevin, and good morning. I'm pleased to report that we're off to a great start in 2019. First quarter results were a bit better than expected. And our first month of DJO was in line with expectations. Fabrication Technology achieved its ninth consecutive quarter of quarter sales growth, all major markets grew, fueled by price that is offsetting steel and other inflation.

Air & Gas Handling drove its third consecutive quarter of double-digit order growth with all end markets moving in a positive direction. We increased margins 160 basis points through productivity, pricing and strong project execution. The DJO integration is on track, with initial focus on operational improvement, growth acceleration and transitioning to a CBS culture of continuous improvement.

Moving to slide four, you can see ESAB's continued growth trajectory. In Q1, margins improved as planned, up 20 basis points year-over-year and up 180 basis points sequentially. Our Fab Tech business margins are improving on the strength of restructuring, productivity and pricing actions. While we have converted to adjusted EBITDA to simplify reporting, we still have conviction and line of sight to drive to 15% aOP.

Our mid-single digit growth was driven by price as volume flattened in the quarter, but we still saw a positive volume growth in our flow business part from market and part from share gain. We continue to make great progress across the range of growth initiatives in both equipment and consumables and customers are excited by our lineup of new products and technologies.

A good example is the new automation product called Versotrac, the most versatile and user-friendly tractor on the market. The tractor allows the mechanization of certain welding processes to improve productivity and quality. Versotrac is unmatched in terms of portability, up-time and ease of use.

The GCE acquisition is performing well and we're thoughtfully integrating our businesses in the welding market while driving growth initiatives to expand our position in specialty gases that serve attractive markets like life science research and healthcare.

Slide five shows continued very strong growth in Air & Gas Handling orders in the first quarter. Our core industrial orders grew 21% on top of 24% in 2017 and 19% in 2018. We are clearly benefiting from the strategic shift in this business over the past few years. Orders in all other key end markets also grew, consistent with the long cycle recovery momentum.

Oil and gas was up 38% and the profitability of new orders continues to improve. Mining orders grew organically 29% and our mining project funnel and outlook remains in good shape. Our power orders grew 11% and we believe this part of the business has stabilized with improving prospects in Asia.

Air & Gas Handling margins improved to 11.3% in the first quarter as shown in slide six. This improvement resulted primarily from restructuring programs, improvements in executing customer projects and strategic choices in oil and gas to focus on higher margin projects. This is a very strong start and sets the path for significant expansion in margins for the full year. Sales in the quarter were lower than the prior year, including FX pressures, but higher orders of (inaudible) in the past three quarters have created a healthy backlog that supports our forecast for sales growth in the back half of this year.

Slide seven summarizes results in our new Med Tech segment. The DJO acquisition was completed on February 22nd, so the first quarter results only include one month of performance. Sales of $124 million and adjusted EBITDA of $26 million in March were both in line with expectations. March and Q1 year-over-year core revenue growth were both positive, led by performance in the reconstructive business.

DJO launched six new products in the first quarter that will contribute to an improving growth trajectory later this year and in 2020. For example, the DJO surgical AdapTable Arm launched in March is the first fully sterile, surgeon-controlled leg and retractor holder for hip implant surgery. The AdapTable was recognized as one of the 10 products you need to know at the recent 2019 AAOS meeting by the MDL Organization. Like Versotrac and ESAB, this type of mechanization in implant procedures is expected to be an attractive area for differentiation that will support the business and continue to gain market share.

On slide eight, I want to share with you our progress integrating DJO and creating a healthy path for sustained performance improvement. All of DJOs key leaders have attended CBS leadership training and we're quickly cascading foundational training throughout the business. We are collaborating with the DJO team to strengthen the operating discipline through monthly operating reviews that are supported by aggressive weekly and daily management.

Our initial CBS focus areas are the completion of the transformation projects and transition to a continuous improvement culture. We are working closely together to improve delivery and service in the Performance & Rehab segment and this will support growth acceleration and lower structural costs. We are also focused on procurement and value engineering to offset inflation and support margin expansion going forward.

In addition to these supply chain areas, we've targeted the reimbursement and product innovation processes as key opportunities for CBS to support accelerated growth.

On slide nine, we look ahead. We have made significant improvements in our Air & Gas Handling business that are now leading through with consistent growth in orders and margins and the business is expected to return to top-line growth in the second half. This improved business performance is creating a healthy level of interest from potential acquirers.

Our Fab Tech business continues to grow in line with expectations outlined earlier this year, supported by our global strength, new products and pricing. The integration teams at DJO and Colfax are working quickly and effectively to minimize disruption while accelerating business improvements. Everyone's excited by the opportunities ahead.

Wrapping up, we're off to a great start to what I expect will be a very successful year for Colfax in 2019. I'll now hand over to Chris.

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Thanks, Matt, and good morning. Continuing on to slide 10, Company sales grew 14% in the first quarter to just over $1 billion, reflecting 2% organic growth and 19% from acquisitions, including 14% from DJO. We also faced a 6% currency translation headwind in the quarter from a stronger US dollar mostly compared with the Argentine peso, the euro and the Russian ruble.

We grew gross profit by $87 million in the quarter and gross margin by nearly 5 full points, 220 basis points from operating improvements and 260 basis points from acquiring the higher margin DJO business. Higher gross profit contributed to better operating profitability. Despite over $6 million of year-over-year FX translation pressure, adjusted EBITDA increased $36 million and margins increased 230 basis points to 14.6%.

Below the line, interest expense was consistent with our expectations and will increase in Q2 as we recognize the full quarter impact from the DJO acquisition.We continue to expect our full year tax rate of 22%, which implies a lower rate for the remainder of the year to offset the higher Q1 rate. Overall, EPS of $0.53 was slightly ahead of our expectations and represented 10% growth despite a translational FX headwind of about $0.04.

A few other Q1 housekeeping items to note. First, our Air & Gas Handling business completed the tender of all shares of its publicly traded subsidiary in South Africa, increasing its stake from 55% to 100% following an investment of $93 million. Second, one of our largest UK pensions went into buyout and recorded a $44 million non-cash charge. This action is similar to our Q4 2017 buyout of a different pension, which also created a longer-term de-risking benefit for Colfax.

Third, and lastly, as expected, our cash flow in the quarter included $56 million of strategic transaction costs, and $16 million of DJO working capital investment that we signaled to you on our previous call. You should expect to see another $20 million to $25 billion working capital investment in Q2.

Slide 11 shows the EPS growth outlook for the first half of 2019 compared with $1.09 in the prior year. During the first half of 2019, we expect strong operating performance from the Fab Tech and Air & Gas Handling businesses, supported by current momentum and outlooks. We continue to forecast the DJO acquisition to be accretive and the other recent acquisitions such as GCE are delivering expected results.

We anticipate FX to remain a headwind in the second quarter versus the prior year. At current rates, year-over-year pressures would ease in the second half. As a reminder, last year's Q2 tax rate benefited from the one-time implementation catch-up of R&D tax credits that will not recur this year.

Our outlook for the full year on slide 12 is not changed. We continue to guide $2.55 to $2.65, which represents growth of 10% or more for the year. Fab Tech market conditions are expected to remain constructive for the rest of the year, with strong price offsetting inflation and currency pressures. Air & Gas Handling performance should continue to improve as we progress through 2019, supported by recent strong order growth, restructuring actions and improved order quality. The DJO integration is progressing well and performing in line with expectations. Seasonal revenue patterns, completion of large operating improvement projects and early CBS contributions should drive improvements throughout the balance of the year.

That concludes our prepared remarks. Operator, please open up the call for questions.

Questions and Answers:

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

(Operator Instructions) And our first question comes from Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Hi. Good morning, guys.

Matthew L. Trerotola -- President and Chief Executive Officer

Hi, Jeff.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

So just on welding, very good price,, volumes a little bit lower. Can you just talk about, as you go through the year when you start to lap some of that price action? And can you just talk about where volumes might be more mixed given some of the more mixed macro news we're seeing, and where you seeing maybe areas of resiliency?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah. Sure, Jeff. First on the price question, certainly in Q2, we start to lap it a little bit, but it's really the back half of the year where we significantly lap some of the pricing actions and so the price impact will start to fade as we go through the year and we expect in our plan to have some volume growth in the year and we still fully expect to have the volume growth needed to get to that mid-single digits plan number that we put out there.

In terms of how different places in the world are playing out, certainly the North American markets slowed down a little in the first quarter as expected and planned after a strong back half of last year, but we still see that as a positive growth markets. European market is in similar place its been in the last few years, with some parts of the market growing, and some parts of the market not growing. We've been able to consistently grow over there and think that we've been able to take some healthy share.

And then in the emerging markets around the world there is some positive momentum in some parts of South America, turn it over to some decent volume growth. India is still in a healthy volume growth range and some recovery starting to come through in places like the Middle East and Asia outside of China. And while China has some industrial pressure on it, the infrastructure investments in China are still on a pretty healthy clip. And so we've been able to stay in a positive range there.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then, just to understand the first half-second half guidance a little bit better, is that a function of more Air & Gas seasonality or can you help us with how you're thinking about DJO for 2Q and how the seasonality lines up there?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes. So typically in the DJO business, Jeff, you'd see the lowest quarter being in Q1 and the strongest in Q4, with development from Q1 or a step up from Q1 into Q2. The transition from Q2 to Q3 can be generally not a lot of change in the sales levels sequentially and then the step-up in Q4. It's typically what the business has seen and that's in line with our expectations for the year.

In terms of the Air & Gas Handling business, we expect to see the similar patterns to what you've seen in the past there, again, with lowest Q1, little bit of a step-up in the sales levels as you head into Q2, and Q3 generally trading to be up or down a bit, and then, of course, you step up into the Q4 level. So typical seasonality that you would expect to see in the business.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay. And then just one housekeeping item. How are we looking for tax rate for 2Q and for the rest of the year?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes. So, for the full year, Jeff, we're still expecting the rate to come in at about 22% or so, it was little higher in Q1 and that implies that we'll be doing some work to offset that in Q2, Q3 and Q4. So you expect to see the rate below the 22% level, just to get it to average out to 22% for the year.

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Okay. Thanks.

Operator

Thank you. And our follow-on question comes from the line of Nathan Jones of Stifel. Your line is open.

Nathan Jones -- Stifel -- Analyst

Good morning, everyone.

Matthew L. Trerotola -- President and Chief Executive Officer

Hi, Nathan.

Nathan Jones -- Stifel -- Analyst

Just wanted to follow up on the welding volume side of that. Did I hear you, Matt, say you still expect volume growth for the year in the mid-single digits?

Matthew L. Trerotola -- President and Chief Executive Officer

No, our guidance for the year was mid-single digits overall core revenue growth. And so, obviously, a decent chunk of that comes from price and then the rest comes from volume and we still have an expectation we will be able to be in a positive volume growth range.

Nathan Jones -- Stifel -- Analyst

Okay. So you would expect the price tailwind to fade here just as you lap comps and that should be made up by a little bit of accelerating volume?

Matthew L. Trerotola -- President and Chief Executive Officer

Yeah, that's correct. As I said in my comments, our flow business had positive volume growth in the first quarter and so really was -- we had less cutting systems shipped, sort of strong shipments of cutting systems last year, a little less shipped in the first quarter of this year and our funnel and backlog shows that that'll correct itself in the next quarter or two here.

Nathan Jones -- Stifel -- Analyst

Got it. And then, you guys said you had line of sight to adjusted operating margins of 15%. You've got I worked out about 130 basis points of amortization in that, so 16.3% on the way you are reporting it now. Can you maybe talk about the things that you have line of sight to that gets you to that kind of number? When we should recognize those things and any kind of estimate you can give us on when you should get to that margin level now?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. I mean as you can see, we've started the year right where we need to be versus our plan. We're already in the range of what we put out there as guidance for the year. And so that has us in the right range to execute through this year's plan. And as we've talked about previously, we've built some good price muscle through the last few years. Unfortunately, it had to be exercised just to offset a lot of inflation. We expect that as steel flattens and some of the other inflation flattens, which is starting to happen here, that we will be able to more selectively exercise that price muscle and get a little bit in that price as things flatten or even turn down. And then, we've also got productivity programs ongoing. And then need to have a little bit of volume growth in the next couple of years to get the rest of the way to that 15% aOP. And we'll take you through -- later in the year at our Investor Day we'll give an update more on an EBITDA basis, but we just wanted to be clear that we haven't lost the trail on the aOP at 15% commitment.

Nathan Jones -- Stifel -- Analyst

All right. Thanks. I'll pass it on.

Operator

Thank you. And our next question comes from Joe Giordano with Cowen. Your line is open.

Joe Giordano -- Cowen -- Analyst

Hi, guys. Good morning.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning, Joe.

Joe Giordano -- Cowen -- Analyst

So, I wanted to start on Air & Gas. Obviously, good quarter there in orders and on margin. So just curious as we move through the year, how much of that is kind of pulled in, how does the funnel look on the order side, what is the outlook for incremental spending there for the rest of the year? And obviously, the business you're trying to sell is still having good quarters, holding stuff next year kind of makes sense, but just curious as to how sustainable some of these metrics are for the remainder of the year should it remain under your ownership?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. So, first off the good strong first quarter on the back of a few other quarters of strong order growth is really driven by a healthy market environment across all of our end markets, really a healthy long cycle recovery there, as well as strong execution by the team and not by any kind of fire drill order pull-ins. I think we certainly didn't need to be above 20% to show a good strong quarter of growth. We still see healthy growth in the second quarter and very clear line of sight on the mid-to-high single-digit order growth that we signaled for the year with obviously the possibility of healthier than that based on how we've started. We have healthy funnels and April was another good month of orders there, and so things are in on a good track there.

And on the margin front, this was a good strong start, really showing that the improvements that we made down the back half of last year are structural and sustainable. And as the volume grows through the year in that business and we continue to see read through of the improvements we've made, we can continue to improve margins through the year in the business.

Joe Giordano -- Cowen -- Analyst

And then, Chris, on the full year guide keeping flat there, can you talk through some of the puts and takes, like how much more is FX of a headwind in there in that guidance three months ago, how much was operationally kind of moved higher within the context of a flat like headline number?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

The view that we've taken is: number one, the FX rates really haven't changed significantly over the last three months. So, so far, this is playing out in line with what we had expected when we put together the guidance back in December and then reaffirmed in February, and again, in March. From the other puts and takes, as we looked at this, it's really the start of the year, there are some good things that are playing out, it's a bit early for us to be moving the guidance around, but clearly there's some good operating momentum. As Matt mentioned, in the Air & Gas Handling business, we see that continue to play out, that represents upside opportunity for us, but we're just at the beginning of the year and thought it was -- thought we'd keep the guidance in place.

Joe Giordano -- Cowen -- Analyst

Okay. And then maybe last from me. Matt, I know it's early -- DJO, early stage with them, but your initial impressions as you start talking to the business leaders there. Can you just take us through your thought process in the last month, what you have been spending time on and what you've seen?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. Sure. We've spent over the last couple of months quite a bit of time with the leadership team there, doing CBS training and assimilation and starting to dig in on some of the key operational issues and working on our 100 days strategic plan, where we focus on some of the key strategic focus areas together. There's great talent there, the leadership team has got some terrific experience there, very excited about being a part of Colfax and they've embraced CBS as a way to accelerate the progress in the business and to really transition from a couple years of more big project based transformational change to more of a long-term steady-state, continuous improvement culture. So, some great start there.

And I've also gotten to meet a lot of the talent further in their organization, the GMs that run different parts of Europe and some of the key marketing and technology folks in the bracing business and in the surgical and other businesses. There's a lot of great talent in this business that is energized and excited about the opportunity we've got ahead. There's obviously some heavy lifting out of the gate, there always is when you go through a transition like this, but I think there is some very good positive energy about where we'll go together.

Joe Giordano -- Cowen -- Analyst

Okay. Thanks.

Operator

Thank you. And our next question comes from the line of Julian Mitchell with Barclays. Your line is open.

Lee Sandquist -- Barclays -- Analyst

Hi. Good morning. This is Lee on for Julian. Despite the increase in adjusted net income, free cash flow became even more negative year over year. I understand the strategic transaction costs and DJO working capital headwinds, but could you just walk us through the free cash flow outlook for the rest of the year? Are we still on track for the original $190 million to $210 million guide?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes. We are still on track for the $190 million to $210 million. As you could imagine, we anticipated the payment of these transaction related costs when we did our guidance and we also planned for the working capital investment that we would make in the DJO business in the first two quarters of this year. So we remain very much on track.

Lee Sandquist -- Barclays -- Analyst

Okay. And what was the actual DJO organic sales growth rate for the first full quarter? And is the 1% to 3% organic growth rate still the right assumption?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes. The core growth in both March and the first quarter was a little bit positive and in the 1% to 2% range. And so, we still very much see that 1% to 3% core range as the right full-year outlook. Q2 is a tougher comp. They had pretty strong Q2 last year and so we expect to stay in a similar range as we work through Q2, but then have some acceleration in the back half of the year.

Lee Sandquist -- Barclays -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is now open.

Joseph Ritchie -- Goldman Sachs -- Analyst

Thanks. Good morning, everyone.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning, Joe.

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Hi, Joe.

Joseph Ritchie -- Goldman Sachs -- Analyst

Can we start on just the 2Q bridge for a second. So I think your implied earnings guide is about $0.58 to $0.61, and that's just a little bit lower than typical seasonality. And so, I know you guys have called out tax and FX as headwinds, but are there other things that we need to consider from just a growth perspective or from an incremental margin perspective as we think about 2Q?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

No, I'd say the -- you've got the primary headwinds there. FX is a year-over-year headwind that we think will be similar to what we encountered in Q1. We've obviously got a difference in the tax rate over the prior year. We're on a good trajectory for the year. Last year, just had the benefit from the R&D tax credits that we went after for prior years that was facilitated by the sale of the Fluid Handling business. And so, I'd say that, those are really the two key items. The other thing to note is that the financing that we did in conjunction with the DJO acquisition, we get the first full quarter of that in Q2. So, Q1 reflected part of the interest cost and the equity issuance that we did and then Q2 will reflect the full impact for that.

Joseph Ritchie -- Goldman Sachs -- Analyst

Okay. All right. No, that makes a little bit more sense. And then, I guess, my second question, there have been some reports out there regarding potential auction process for the Air & Gas Handling business. You guys made comments earlier that it was proceeding with speed. So to the extent that there is anything else that you can tell us around how that process is working, and I guess what your expectation would be, that would be helpful.

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. First, the business is performing very well and I think, that's always a good thing when you're going through a process like this. It's a robust process as we've talked about before and we still have a full expectation that we will complete the process here in the first half of the year, and then, complete the transaction in the second half of the year consistent with what we've said before.

Joseph Ritchie -- Goldman Sachs -- Analyst

Okay, Great. And then, maybe my one last follow-on here is just on DJO, and as you're thinking about the platform or adjacency opportunities, is this something that when you're thinking about the expediency of adding the DJO, is this do you think going to be more of a multi-year process deleveraging and then pursuing M&A? Or do you think that you can maybe get at it a little quicker once you get this transaction taken care of on the Air & Gas Handling side?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. So, first, I'd say, certainly the Med Tech space and the orthopedic solutions area within that Med Tech space have ample opportunity for both small and larger bolt-ons that'd be attractive ways to strengthen and expand the business. Second, we've consistently said that 2019 is going to be about operational progress and deleveraging and really not to focus on bolt-ons we've got. Ones we've done in the past few years that are performing well and we're focusing on make sure that they deliver their full potential. But with the other things we need to focus on in 2019, we don't expect to be doing any significant bolt-ons. But certainly as we turn the corner over into 2020, we expect to be working a proactive pipeline there and looking to be able to get back to bolt-on acquisitions that strengthen and expand our platforms.

Joseph Ritchie -- Goldman Sachs -- Analyst

Thank you. I'll pass it on.

Operator

Thank you. And our following question comes from the line of Andrew Kaplowitz with Citi. Your line is open.

Andrew Kaplowitz -- Citi -- Analyst

Hi. Good morning, guys.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning, Andrew.

Andrew Kaplowitz -- Citi -- Analyst

Matt, you mentioned the six new products you introduced at DJO, how long did it take in the Med Tech space to really gain penetration and help your overall growth? And now that you've been in the business for a little bit of time, when would you anticipate a step up in growth in that Prevention & Rehabilitation business?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. So, I think, by the time we launched the products, they went through the regulatory approvals and things. So we were ready to start selling them and I think, like other industries, there is some benefit from the new products themselves, and there is some benefit from just having a fresher new product line and how that affects the channel and how they view you. And so, we certainly feel like, as we work through the next few quarters, the benefits of those new products should start to show up. We've actually got 17 new products coming through total this year in DJO. And so, as we get to the back half of the year, we expect the operational improvements and the new products coming through to be able to accelerate the growth, get that part of the business over into a positive growth range in line with our plans.

Andrew Kaplowitz -- Citi -- Analyst

That's helpful. And then just shifting to Air & Gas, obviously, power has been a pretty difficult market for you, but you did record 11% order growth there. You specifically mentioned some recovery in Asian power. So maybe you could talk about that, what you're specifically seeing in power now?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. Again, we've been consistent that we see power as a flat market, but then in any given quarter, there could be some ups and downs based on the newbuild park in particular. And the industry has gotten back to a little bit of a capacity build-out in Asia, and then there's also an environmental opportunity in India that will play out over the coming years. And I think both of those are contributing just a little bit in terms of positive order flow and positive funnel and opportunity to keep that business flat or better going forward.

Andrew Kaplowitz -- Citi -- Analyst

And then, one more quick one for Chris. If tariffs do move to 25%, how should we think about price versus cost for you guys? Can you maintain the positive price dynamic that you have in Fab Tech at this point?

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Yes. So the tariffs that have hit to-date, the majority of them that we've been able to pass through pretty quickly to the market and then, there is a small amount that we've absorbed in our equipment and are working on some different supply chain options in order to be able to offset that. And a new round of tariffs, we'd expect to be able to pass through quite quickly based on the nature of those. Some of the other price increases take a little bit more time, whereas the tariffs based on the nature of them, are something that typically we can turn around and pass-through quite quickly.

Andrew Kaplowitz -- Citi -- Analyst

Thanks, Matt.

Operator

Thank you. And our next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is open.

Nicole DeBlase -- Deutsche Bank -- Analyst

Yes. Thanks. Good morning.

Matthew L. Trerotola -- President and Chief Executive Officer

Hi, Nicole.

Nicole DeBlase -- Deutsche Bank -- Analyst

Hi, there. So maybe starting with Air & Gas Handling, the margins were really impressive this quarter. Just thinking about -- I know you guys talked about this is like a potential source of upside throughout the rest of the year, but is there any reason why this level of improvement that you saw in margins isn't sustainable as we think of like phasing of backlog coming through revenues, maybe the phasing of the restructuring payback that you'll see this year? If you could just talk through that, that will be helpful.

Matthew L. Trerotola -- President and Chief Executive Officer

Nicole, the margin improvement on a year-over-year basis is something that we see as something that we can continue as we work through the year. It's really based on structural improvement of the business, choices we've made about what projects to do or not do, restructuring that we've done and more of which comes through, pricing actions on aftermarket that are sustainable and then, ongoing productivity in the business. And so, we see those as sustainable as we work through the year and we should be able to hold the year-over-year gains consistently.

Nicole DeBlase -- Deutsche Bank -- Analyst

Okay. Got it. Great. And then just as my follow-up, if we could talk a little bit about what you saw within oil and gas for the quarter, what drove that 38% organic order growth and whether you're seeing a pretty good pipeline for continued order growth throughout the rest of the year?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. I mean, I think we've consistently said that there is a healthy amount of projects out there, but they tend to even now start and stop, and it doesn't affect us as much because we're no longer going after the big low margin ones, but the smaller ones tend to some come in some quarters and some come in other quarters, but the pipeline remains healthy based on the environment there, the oil price level environment. And so, this quarter, we were a little heavier on the projects. We don't see that as a new reality of that level of growth rate, but we do see it as a positive signal that that long cycle recovery continues and we expect to continue to have positive momentum in that piece of the business.

Nicole DeBlase -- Deutsche Bank -- Analyst

Thanks, Matt. I'll pass it on.

Operator

Thank you. And our next question comes from the line of Matt Trusz with G-Research. Your line is open.

Matthew Trusz -- G-Research -- Analyst

Good morning. Thank you for taking my questions.

Matthew L. Trerotola -- President and Chief Executive Officer

Good morning.

Matthew Trusz -- G-Research -- Analyst

So, you mentioned the order strength for Air & Gas in April. Can you comment on the overall industrial trends you've seen in 2019 year-to-date? Specifically, did you see a weak January and stronger March like several of your peers and are you seeing more broadly the March trend hold in April and has there been any change in level of customer caution or confidence?

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. So, in terms of the industrial question as it relates to the Air & Gas Handling, we're seeing -- continue to see healthy demand there and some of that's market driven, and some of it is based on some things -- regulatory-driven things from the Chinese Government that are generating demand as well. I think the second part of the question sounds like it was aimed more at welding. And I'd say, we did see a little slower start to the year in January, but then the quarter rounded out as we've shared here in the mid single digits range. And our plan for the balance of the year is to stay in that mid-single digit range. And the way that we've started the second quarter would -- I would say, that we're on track for that.

Matthew Trusz -- G-Research -- Analyst

Thank you. And a follow-up on that, to the extent that you have visibility of the Fab Tech end markets, are you seeing long-cycle performance quite strong there similar to at Air & Gas, and would that mean -- to what extent are you seeing short-cycle general industrial more weak? Thanks.

Matthew L. Trerotola -- President and Chief Executive Officer

Yes. Sure. I think, certainly, some of the things that are fueling the demand in Fab Tech are -- long-cycle and the infrastructure are the things that are the healthier parts of the demand. And there is no question that some of the pieces like automotive that we participate in a little less are tailing off, but overall, there is still a positive growth in (inaudible) there.

Matthew Trusz -- G-Research -- Analyst

Thanks, Matt.

Operator

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back to Kevin Johnson for closing remarks.

Kevin Johnson -- Vice President of Finance

Thanks for joining us today. We look forward to speaking with you on our next call.

Operator

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.

Duration: 57 minutes

Call participants:

Kevin Johnson -- Vice President of Finance

Matthew L. Trerotola -- President and Chief Executive Officer

Christopher Hix -- Senior Vice President, Finance & Chief Financial Officer

Jeff Hammond -- KeyBanc Capital Markets -- Analyst

Nathan Jones -- Stifel -- Analyst

Joe Giordano -- Cowen -- Analyst

Lee Sandquist -- Barclays -- Analyst

Joseph Ritchie -- Goldman Sachs -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Nicole DeBlase -- Deutsche Bank -- Analyst

Matthew Trusz -- G-Research -- Analyst

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