Dover Corp. (DOV) reported first-quarter 2011 adjusted earnings per share (EPS) of 92 cents, beating the Zacks Consensus Estimate of 90 cents. Results recorded a 42% increase over the prior-year quarter’s EPS of 65 cents driven by strength in end-markets, with particular strength seen at Fluid Management and Industrial Products.
EPS in the reported quarter however, excluded a tax benefit of 4 cents related to the favorable resolution of domestic tax position. Including this benefit, EPS in the quarter was reported at 96 cents, up 48% compared with 65 cents in the year-ago quarter.
Revenues posted an improvement of 24% year–over-year to $ 1.96 billion, topping the Zacks Consensus Estimate of $ 1.85 billion. An organic growth of 9% and a 4% increase from acquisitions and 1% favorable impact from currency translation were instrumental in revenue growth in the quarter. Revenue increased across all of its segments, particularly led by Fluid Management and closely followed by Electronic Technologies.
Cost of goods and services increased 25% to $ 1.21 billion in the quarter while expressed as percentage of revenues, it increased 50 basis points to 61.8%. Gross profit surged 22% to $ 748.8 million while gross margin dipped 50 basis points year-over-year to 38.2%.
Selling and administrative expenses were $ 478.5 million, a 17% climb over $ 409.2 million in the prior-year quarter. Operating income upped 33% to $ 270.3 million and operating margin expanded 100 basis points year-over-year to 13.8% in the quarter.
Segment Update
Industrial Products: Revenue increased 21% year over year to $ 518.8 million in the quarter, led by revenue growth at Material Handling markets, crude oil & bulk trailer sales, and solid automotive service markets. Segment income increased 26% year over year to $ 64.4 million driven by volume increases and productivity, partially off-set by product mix and investments.
Engineered System: Revenue increased 16% year over year to $ 560.6 million led by Hill Phoenix. Segment income increased 23% year over year to $ 67.3 million driven by volume and productivity, partially off-set by materials cost inflation.
Fluid Management: Revenue increased 34% year over year to $ 508.9 million driven by strong oil & gas activity and solid demand in Fluid Solutions. Segment income surged 31% year over year to $ 113.7 million.
Electronic Technologies: Revenue increased 28% year over year to $ 373.3 million driven by strong demand for electronic assembly equipment, MicroElectrical-Mechanical System microphones, and solar equipment. The segment’s operating income increased 33% to reach $ 59.8 million in the quarter resulting from strong leverage on higher volume.
Bookings and Backlog
Bookings during the quarter under review increased 27% year over year and 17% sequentially to $ 2.25 billion, driven by booking increases across all segments, Fluid Management in particular.
Backlog at the end of the first quarter was $ 1.72 billion compared with $ 1.41 billion at the end of the fourth quarter of 2010 and $ 1.25 billion at the end of the first quarter 2010, largely due to a massive backlog increase at Fluid Management.
Cash Flow
Cash from operating activities in the quarter was $ 132.6 million, higher than $ 87.1 million in the prior year. Free cash flow during the quarter was $ 79.9 million compared with $ 47.7 million in the prior year quarter.
For fiscal 2011, Dover reiterated its capital expenditure guidance range of 2.8% and 3% of revenues and free cash flow guidance range of 10% and 11% of revenues.
Fiscal 2011 Guidance
Management expects revenue to grow in the range of 12%-14% (up from its previous guidance of 9%-11%), fueled by an organic revenue growth of 9%- 11% (earlier expected 6%-8%) and growth of 3% (same as previous expectation) from acquisitions. Management also projects EPS in the range of $ 4.30 – $ 4.45 (up from the previous range of $ 4.05 – $ 4.25), suggesting a year-over-year growth in the range of 24% to 28% over adjusted fiscal 2010 EPS of $ 3.47.
Management expects corporate expense to be approximately $ 135 million and interest expense to be around $ 116 million. Full-year tax rate is slated to be in the range of 27% to 28%.
Our Take
Solid performance and bookings across all segments along with the ability to generate strong cash flow, continued focus on margin improvement and shareholder value position Dover for better results going forward.
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 for consumers. Dover also acquired pump manufacturer Harbison-Fischer Inc. Dover expects the acquisition to facilitate the company’s reach in the attractive international oil and gas markets.
We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
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 over the Americas, Europe and Asia. Dover competes with the likes of Cooper Industries plc (CBE), Ingersoll-Rand Plc (IR) and Weatherford International Ltd. (WFT).
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