A month has gone by since the last earnings report for Dover (DOV). Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Dover due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Dover Beats Q3 Earnings Estimates, Narrows '18 View
Dover Corporation (DOV) reported third-quarter 2018 adjusted earnings per share from continuing operations of $1.36. The figure improved 14% from $1.19 recorded in the prior-year quarter, mainly driven by a strong demand in the Engineered Systems and Fluids segments. Earnings also beat the Zacks Consensus Estimate of $1.29.
On a reported basis, Dover posted earnings per share of $1.05 in the quarter, which increased 4% year over year. Earnings included acquisition-related amortization costs of 18 cents and rightsizing costs of 13 cents.
Total revenues in the quarter came in at $1,747 million, flat with the prior-year quarter. Sales however missed the Zacks Consensus Estimate of $1,756 million. Strong overall demand in the quarter drove 5% organic revenue growth at the Engineered Systems segment and 9% at Fluids segment, offsetting weak demand in the Refrigeration & Food Equipment segment. Overall organic growth in the quarter was 3%.
Costs and Margins
Cost of sales edged up 0.2% to $1, 101 million in the third quarter. Gross profit dropped 0.4% year over year to $647 million. Gross margin shrunk 10 basis points (bps) year over year to 37%.
Selling, general and administrative expenses increased 4% to $426 million from $413 million in the prior-year quarter. Operating profit declined 8% to $221 million from $239 million reported in the year-ago quarter. Operating margin contracted 110 bps to 12.6%.
Revenues at the Engineered Systems segment remained flat at $671 million compared with the prior-year quarter. The segment's income rose 6% year over year to 109 million.
Revenues at the Fluids segment were up 8% year over year to $6917 million in the quarter. The segment's income dropped 2% year over year to $101 million.
The Refrigeration & Food Equipment segment's revenues declined 12% to $386 million from $439 million in the prior-year quarter. The segment's operating income plunged 35% year over year to $42.4 million.
Bookings and Backlog
Dover's bookings at the end of the third quarter were worth $1.72 billion, up from $1.67 billion at the end of third-quarter 2017. Backlog increased 12% to $1.34 billion at the end of the reported quarter from a year ago.
Dover generated free cash flow of $206 million during the third quarter compared with cash inflow of $204 million in the prior-year quarter. Cash flow from operations came in at $244 million in the reported quarter compared with $256 million in the year-ago quarter.
Dover narrowed its adjusted earnings per share guidance for 2018 to $4.80-$4.85 from the previous guidance of $4.75-$4.85. The company projects full-year revenue growth of 2%, comprising organic growth of 3%, acquisition growth of 1% and a favorable foreign exchange impact of 1% which will be partially offset by a 3% impact from dispositions. Full-year effective tax rate is expected between 20% and 21%.
Dover expects cost-reduction initiatives, momentum in orders, improved performance by the Fluids segment to help offset persistently weak demand in the Refrigeration & Food Equipment segment.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Dover has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Dover has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.