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Dover Beats on Q3 Earnings, Revenues Lag, Cuts 2015 View

Dover CorporationDOV reported third-quarter 2015 adjusted earnings per share from continuing operations of $1.14, which plunged around 13% from $1.31 earned in the prior-year quarter. Earnings, however, beat the Zacks Consensus Estimate $1.06 per share.

Including one-time items, earnings came in at $1.19 per share, decreasing 11% from the prior-year period figure of $1.34.

Total revenues declined 11% year on year to $1.79 billion in the quarter. Revenues also missed the Zacks Consensus Estimate of $1.81 billion. The year-over-year slump in revenues was due to a decline of 10% in organic revenues and a 4% unfavorable impact from foreign exchange, partly offset by 3% growth from acquisitions.

Dover Corporation - Quarterly EPS | FindTheBest

Costs and Margins

Cost of sales declined 9.7% year over year to $1.1 billion. Gross profit went down 13% year over year to $672.6 million and gross margin decreased 90 basis points (bps) to 37.6%.

Selling, general and administrative expenses decreased to $395.7 million from $426 million in the prior-year quarter. Operating profit in the reported quarter decreased 23.5% to $276.9 million from $348.3 million in the year-ago quarter. Operating margin contracted 180 basis points (bps) to 15.5%.

Segmental Performance

Energy revenues slumped 28% year over year to $363.9 million in the quarter. The segment's net earnings decreased significantly year over year to $48.7 million.

Revenues in the Engineered Systems segment decreased 5.4% to $579.4 million in the quarter. The segment's income declined 5.4% year over year to $102.9 million.

Revenues in the Fluids segment grew 2.7% year over year to $352 million in the reported quarter. The segment's income increased 11% year over year to $74.9 million.

Refrigeration & Food Equipment segment revenues decreased to $492.5 million from $528.8 million in the prior-year quarter. The segment reported operating income of $76.7 million, declining from $78 million a year ago.

Bookings and Backlog

Dover ended the third quarter with bookings worth $1.70 billion compared with $1.92 billion at the end of third-quarter 2014. Backlog decreased to $1.04 billion at end of the reported quarter from $1.30 million in the year-ago period.

Financial Position

The company generated cash flow from operating activities of $282.2 million in the reported quarter, which declined from $292 million in the prior-year quarter. Free cash flow decreased to $242.7 million in the third quarter of 2015 from $258.5 million in the prior-year quarter.

Dover has signed definitive agreements to acquire two businesses with combined purchase price of approximately $520 million. The company agreed to acquire Italy-based JK Group SPA (JK), a manufacturer of innovative inks. JK's digital inks are largely correlated with Dover's MS Solutions equipment business. JK's digital inks will be combined with Dover's Engineered Systems segment, under its Printing & Identification platform.

Dover has also agreed to acquire Gala Industries, Inc. (Gala), manufacturer of underwater pelletizing systems and solutions, headquartered in Eagle Rock, VA. Gala will become part of Dover's Maag business within the Fluids segment, offering process and engineering proficiency to customers.

Slashed 2015 Guidance

Dover lowered its 2015 guidance due to sluggish global market conditions. The company now expects full-year revenues to decline 10% to 11%, a two point reduction from the previous guidance of 8% to 9%. Organic growth is anticipated to decline 9% to 10%, completed acquisitions will provide approximately 3% growth and foreign exchange is expected to be a 4% headwind. In total, full year adjusted earnings per share is expected to be in the range of $3.73 to $3.80, down from the prior outlook of $3.75 to $3.90.

On an operating basis, excluding amortization, Dover's announced acquisitions of JK and Gala are expected to be approximately 23 cents accretive in 2016. Combining JK and Gala with the previously announced Tokheim deal, Dover expects 2016 acquisition revenue to be approximately $500 million and 2016 continuing earnings per share accretion to be about 18 cents.

On an operating basis, excluding transaction-related costs and amortization, these acquisitions are expected to be approximately 38 cents accretive in 2016. Dover expects to fund the nearly $1 billion in total acquisition spend with cash on hand and debt.

Our Take

Dover intends to remain focused on expanding its business in the key markets that offer significant growth potential and will lead to organic and inorganic growth at all segments. Moreover, the company strives to innovate its products as per customer needs in order to gain market share. However, unstable oil prices and foreign exchange volatility remain matters of concern for Dover.

Illinois-based Dover is an industrial conglomerate producing wide range of specialized industrial products and manufacturing equipment. It operates through four major operating segments: Energy, Engineered Systems, Fluids and Refrigeration & Food Equipment.

Dover currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same sector are Barnes Group Inc. B , Middleby Corp. MIDD and Graham Corp. GHM . All these stocks carry a Zacks Rank #2 (Buy).

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DOVER CORP (DOV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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