Dover Corporation DOV reported first-quarter 2015 adjusted earnings from continuing operations of 72 cents per share, which plunged 26% from the prior-year quarter earnings of 97 cents per share. Earnings also lagged the Zacks Consensus Estimate by a penny.
Dover faced significant headwinds in energy-related markets. Moreover, negative impact of the strengthening U.S. dollar as well as slower than expected activity in its core refrigeration case and systems markets led to the slump in earnings.
Including one-time items, earnings from continuing operations were 72 cents per share, declining from 99 cents per share earned in the prior-year quarter. Earnings in the year-ago quarter included tax benefits of 1 cent per share, while reported quarter had no such adjustment.
Revenues and Margins
Total revenue declined 5% year on year to $1.72 billion in the quarter. Revenues missed the Zacks Consensus Estimate of $1.75 billion. The year-over-year decrease in revenue was due to a decline of 6% in organic revenue and a 4% unfavorable impact from foreign exchange, partly offset by 5% growth from acquisitions.
Cost of sales remained flat year over year at $1.0.9 billion. Gross profit went down 11.4% year over year to $627 million and gross margin decreased 270 basis points (bps) to 36.6%.
Selling, general and administrative expenses increased to $434.6 million from $433.4 million in the prior-year quarter. Operating profit in the reported quarter decreased 29.8% to $192.5 million from $274.5 million in the year-ago quarter. Operating margin contracted 400 basis points (bps) to 11.2% in the quarter.
Segmental Performance
Energy revenues fell 10% to $430 million in the quarter. The segment’s net earnings decreased significantly year over year to $52 million.
Revenues in the Engineered Systems segment increased 1% to $573 million in the quarter. The segment’s income rose 6% year over year to $88 million.
Revenues in the Fluids segment dropped 1.4% year over year to $340 million in the reported quarter. The segment’s income decreased 5.7% year over year to $54.6 million.
Refrigeration & Food Equipment segment revenues decreased to $372 million in the quarter from $411.5 million in the prior-year quarter. The segment reported operating income of $36 million, declining from $44.9 million a year ago.
Bookings and Backlog
Dover ended the first quarter of 2015 with bookings worth $1.75 billion versus $1.96 billion at the end of first-quarter 2014. Backlog decreased to $1.19 billion at end of the reported quarter from $1.37 million at the year-ago quarter
Financial Position
The company generated cash flow from operating activities of $131 million in the reported quarter, improving significantly from $28.4 million in the prior-year quarter. Free cash flow was $103.4 million compared with a negative cash flow of $4.3 million in the prior-year quarter.
Dover incurred $24 million in restructuring charges in the reported quarter, primarily in Energy. These restructuring actions were in addition to $37 million in charges incurred in the fourth quarter of 2014.
In Mar 2015, Dover agreed to sell its Sargent Aerospace & Defense unit to RBC Bearings Inc. ROLL for $500 million to reduce its exposure to cyclical markets and focus on higher margin growth spaces. The transaction, pursuant to customary closing conditions, is expected to close in the second quarter of 2015.
Dover also sold its Datamax O'Neil unit to Honeywell International Inc. HON. The divestiture, which mainly pertains to workforce reductions and efforts to consolidate its manufacturing footprint, is expected to lead to over $50 million in annualized benefits. The estimated savings, utilization of sale proceeds to fund share repurchases and growth opportunities will boost the stock.
Reaffirmed 2015 Guidance
Dover maintained its recently updated 2015 guidance and expects revenues to decline 4% to 6%. The projection includes organic revenue decline of 2% to 4% and a 4% negative impact from foreign currencies, which will be partly offset by 2% growth from completed acquisitions.
Dover reiterated its 2015 earnings expectation between $4.20 and $4.40 per share, which includes restructuring charges of 15 cents to 18 cents. The company remains concerned about the deterioration in the North American oil & gas markets and strength of the U.S. dollar as against other currencies. However, investment in productivity initiatives, including supply chain optimization and shared infrastructure will drive growth.
Our Take
Dover intends to remain focused on expanding its business in 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.
A strong balance sheet position and increase in bookings will help in long-term growth of the company. However, decline in 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). A stock to consider in the sector is AO Smith Corp. AOS, carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment