Dover Corp. (DOV) reported its third quarter earnings posting an EPS of $1.20, up from 96 cents in the year-earlier quarter, outperforming the Zacks Consensus Estimate of $1.12. Including the impact of a tax benefit of 1 cent in the reported quarter and 20 cents in the year-ago quarter, adjusted EPS increased 25% year over year to $1.21.
Total revenue was $2.203 billion versus $1.802 billion in the year-earlier quarter, falling short of the Zacks Consensus Estimate of $2.229 billion. Increase in revenue was mainly due to strong energy markets and handset markets and improved results in the refrigeration equipment and Product ID markets. The revenue increase included an organic growth of 10%, a 9% increase from acquisitions and a 3% favorable impact from foreign exchange.
Costs and Margins
Dover reported cost of sales of $1.38 billion versus $1.11 billion in the year-ago quarter. Gross profit of the company increased 19% to $822 million from the prior-year quarter. However, gross margin contracted 100 basis points year over year to 37.3%.
Selling and administrative expenses also increased to $484.3 million in the reported quarter versus $397.9 million in the year-ago quarter. Operating profit soared to $337.7 million in the quarter versus $292.9 million in the prior-year quarter. However, operating margins contracted 100 basis points year over year to 15%.
Segmental Performance
Revenue in the Industrial segment increased to $459.4 million from $386.2 million in the prior-year quarter. Segment’s operating income also increased to $64.5 million from $54.7 million in the year-earlier quarter. However, segment’s margin declined 20 basis points year over year to 14% in the quarter.
Net sales in Engineered Systems segment increased to $669.9 million in the quarter from $620.4 million in the year-ago quarter. Segment’s income surged to $102.5 million versus $91.4 million in the year-earlier quarter. Operating margin of the segment decreased 60 basis points year over year to 15.3%.
Fluid Management segment reported total revenue of $585 million in the reported quarter compared with $416.4 million in the year-ago quarter. Segment’s income increased substantially to $144.3 million from $101.8 million in the previous year’s quarter, leading to an operating margin expansion of 20 basis points year over year to 24.7%.
Total revenue of Electronic Technologies segment rose to $492.2 million from $381.4 million in the prior-year quarter. Segment reported operating income of $60.2 million, down from $69.6 million in the last-year’s quarter, contracting the operating margin by 600 basis points year over year to 12.2%.
Bookings and Backlog
The company ended the quarter with $2.122 billion worth of bookings versus $2.097 billion at the end of the second quarter and $1.728 billion at the end of the year earlier quarter. Backlog of the company decreased marginally to $1.649 billion during the quarter from $1.696 billion in the second quarter and $1.298 billion in the year ago quarter.
Financial Position
Cash from operations increased to $382.3 million from $178.6 million in the prior-year quarter. Capital expenditure soared to $66 million from $40 million in the year-earlier quarter. Dover's free cash flow of $316 million increased from $138.5 million in the year-ago quarter.
Outlook
Dover expects full year revenue growth of 20%, representing an organic revenue growth of 13% and 7% growth from acquisitions. The company has increased its EPS guidance in the range of $4.45 – $4.50 from its prior guidance of $4.36 to $4.46 (adjusted for 14 cents pertaining to the operating results of Paladin and Crenlo).
During the quarter, Dover divested its Crenlo and Paladin businesses, in line with its long-term vision of strengthening the portfolio, improving margins and reducing its exposure to construction related end-markets. The transaction also provides additional financial capacity to continue Dover's expansion plans through both acquisitions and internal initiatives.
In addition, Dover continues to pursue strategic acquisitions in a bid to improve its product offerings and complement its organic growth strategy. The acquisition of Sound Solutions, the world's leading manufacturer of dynamic speakers and receivers for cell phones and other consumer electronics, will place Dover as the leading provider of acoustic products serving the fast growing cellular handset market. Dover foresees strong growth in the global cell phone market as cell phones become increasingly indispensable.
Dover currently has a Zacks #4 Rank, which translates into a short-term Sell recommendation. Dover competes with the likes of Cooper Industries plc (CBE), Ingersoll-Rand Plc (IR), and Weatherford International Ltd. (WFT).
Dover Corporation is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. It operates primarily in the U.S. and has subsidiaries and affiliates in Canada, France, Germany, the Netherlands, Sweden, China and the United Kingdom. Dover caters to a diverse clientele primarily spread across the Americas, Europe and Asia.
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