Dover Corporation (DOV)

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Dover Corporation (DOV)

Q3 2010 Earnings Call Transcript

October 22, 2010 9:00 am ET

Executives

Paul Goldberg – Treasurer and Director, IR

Bob Livingston – President and CEO

Brad Cerepak – VP, Finance and CFO

Dave Van Loan – VP, President and CEO, Dover Electronic Technologies

Analysts

John Inch – Bank of America

Jeff Sprague – Vertical Research Partners

Steve Tusa – JPMorgan

Terry Darling – Goldman Sachs

Shannon O’Callaghan – Nomura

Presentation

Operator

Good morning and welcome to the third quarter 2010 Dover Corporation earnings conference call. After the speakers’ openings remarks, there will be a question-and-answer period. (Operator instructions) As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you.

I would now like to turn the call over to Mr. Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation. Mr. Goldberg, please go ahead, sir.

Paul Goldberg

Thank you, Jackie. Good morning and welcome to Dover’s third quarter earnings call. With me today are Bob Livingston, Dover’s President and Chief Executive Officer; Brad Cerepak, our CFO; and Dave Van Loan. David is President of our Electronic Technologies segment.

Today’s call will begin with comments from Bob and Brad on Dover’s third quarter operating and financial performance and our updated outlook for the rest of 2010. We will then open the call up to questions. In the interest of time, we kindly ask that you limit yourself to one question with a follow-up.

Please note that our current earnings release, investor supplement, and associated presentation can be found on our Web site, www.dovercorporation.com. This call will be available for playback through November 5 and the audio portion of this call will be archived on our Web site for three months. The replay telephone number is 1-800-642-1687. When accessing the playback, you’ll need to supply the following reservation code 14334215.

Before we get started, I’d like to remind everyone that our comments today which are intended to supplement your understanding of Dover may contain certain forward-looking statements that are inherently subject to uncertainties.

We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.

Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our Web site where considerably more information can be found.

With that, I’d like to turn this call over to Bob.

Bob Livingston

Thanks, Paul. Good morning, everyone. Thank you for joining us for this morning’s conference call. I’m happy to have David Van Loan join us today to participate in the Q&A portion of this call and offer his keen insight on one of our many success stories this year, the growth in Electronic Technologies.

I’m pleased to report Dover saw strong third quarter gains in revenue, bookings, earnings and margin, reflecting very solid performance across the majority of our companies and the continuing benefits of our productivity initiatives.

Orders were up 27% and revenue increased 26%, reflecting the steady improvement in the majority of our end markets. Organic revenue growth was 25%, acquisitions contributed 3%, FX had a negative impact of 2%.

In the third quarter, we saw a continuation of several positive trends that had been prevalent throughout the year. Knowles continued to benefit from the growing handset market, especially the growth in smartphones.

DEK is enjoying a strong recovery in the electronic assembly market and increasing demand for their product innovations in solar equipment. U.S. Synthetic has shown tremendous growth driven by the strong rebound in North America rig count, increases in horizontal drilling and share gains.

Our Pump Solutions Group has seen a steady increase in their business, notably in Asia. This growth in Asia is also evident in our Vehicle Service Group which has seen a nice jump in their activity connected to the China auto market.

Lastly, the seasonal ramp up at Hill PHOENIX was even stronger than expected at the beginning of the quarter, largely driven by remodel activity and taking advantage of the recent capacity expansion in our Richmond facility.

Now, let’s move to our third quarter results and Brad will discuss our guidance later in the call. Today, we reported third quarter revenue of $1.9 billion, an increase of 26% over last year.

Earnings per share from continuing operations increased 103% to $1.18, including tax benefits of $0.20. Adjusted EPS was $0.98, a 69% improvement over last year. On a sequential basis, revenue and adjusted EPS increased 6% and 8% respectively. Bookings increased 27% over last year to $1.8 billion. Book-to-bill finished at 0.96.

Segment operating margin for the quarter was 17.1%, up 280 basis points. Year-over-year margins increased significantly at Fluid Management, Electronic Technologies and Industrial Products, while Engineered Systems margin remained strong. This quarterly segment margin result is the highest in recent memory.

In the third quarter, we generated free cash flow of $157 million, 8% of revenue, reflecting an increase in working capital to support our expanding businesses and continued CapEx investments to support our future growth expectations. We are still targeting full year free cash flow to be around 10% of revenue.

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