Dover Corporation (DOV) reported second-quarter 2014 adjusted earnings from continuing operations of $1.29 per share, in line with the Zacks Consensus Estimate. Adjusted earnings grew 14% from the prior-year quarter earnings of $1.13 cents per share, driven by solid revenue growth, strength in bookings and increase in earnings across all segments.
Including one-time items, earnings from continuing operations were $1.29 per share, down 13% from $1.49 per share earned in the prior-year quarter. Earnings in the year-ago quarter included tax benefit of 36 cents per share while current quarter’s earnings had no adjustments.
Revenues and Margins
Total revenue rose 6% year on year to $2 billion in the quarter, lagging the Zacks Consensus Estimate of $2.07 billion. The year-over-year rise includes 3% contribution each from organic growth and acquisitions.
Cost of sales increased 6.4% to $1.25 billion in the quarter from $1.18 billion in the year-ago quarter. Gross profit went up 5.4% year over year to $796 million. Gross margin decreased 20 basis points (bps) to 38.9% in the quarter.
Selling, general and administrative expenses increased 4.7% year over year to $456 million. Operating profit in the reported quarter increased 6.3% to $340 million from $320 million in the year-ago quarter. Operating margin was flat at 16.6% in the quarter.
Segmental Performance
Energy revenues went up 3.2% to $481 million in the quarter. The segment’s operating income also rose 4.9% year over year to $115 million.
Revenues in the Engineered Systems segment increased 9.3% to $698.9 million in the quarter. The segment’s income improved 9.4% year over year to $112.4 million.
Revenues in the Fluids segment rose 11.7% year over year to $346 million in the reported quarter. The segment’s income increased 7.4% year over year to $63 million.
Refrigeration & Food Equipment segment revenues increased to $522 million in the quarter compared with $517.5 million in the prior-year quarter. The segment reported an operating income of $84.9 million, up 3.3% from $82 million a year ago.
Bookings and Backlog
The company ended the second quarter with bookings worth $2.086 billion, which grew 11% versus $1.886 billion at the end of the second quarter of 2013. Backlog increased to $1.55 billion at end of the reported quarter from $1.38 billion at the year-ago quarter end.
Financial Position
The company generated cash flow from operating activities of $197.7 million in the reported quarter, down from $249.4 million in the prior-year quarter. Free cash flow was $153.8 million compared with $217.4 million in the prior-year quarter.
Fiscal 2014 Guidance
Dover raised full year 2014 earnings guidance to the new range of $4.75–$4.85 per share from its previous band of $4.60–$4.80 per share. The company now expects organic revenue growth of 4%, close to the upper end of its prior forecast of 3%—4%. Acquisitions are expected to contribute 3% to the growth, resulting in revenue growth of 6%–7% in fiscal 2014. The full-year segment margin expectation of around 18% also remains unchanged.
During the quarter Dover shifted to its consolidated manufacturing centers in Houston and Atlanta which is expected provide increased productivity and enhanced customer service capabilities for Energy and Refrigeration & Food Equipment segments. Dover’s continuous focus on the development and delivery of products and solutions to customers will drive growth.
Our Take
The company will benefit from the Knowles spin-off, which will provide it with flexibility to focus on growth strategies. In addition, Dover has realigned its businesses into a new segment structure. This will also provide greater opportunity to leverage scale and capitalize on productivity initiatives. Moreover Dover remains optimistic about the acquisitions in its pipeline which are expected to close in the coming quarters.
Illinois-based Dover is an industrial conglomerate producing a 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 #3 (Hold). Some better-ranked stocks in the sector include Broadwind Energy, Inc. (BWEN), Ingersoll-Rand Plc (IR) and Nordson Corp. (NDSN). All these stocks carry a Zacks Rank #2 (Buy).
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