Dover Corporation (DOV) reported third-quarter 2014 adjusted earnings from continuing operations of $1.35 per share, which increased 8% from the prior-year quarter earnings of $1.25 per share driven by revenue growth and strength in bookings across all segments. Earnings also beat the Zacks Consensus Estimate of $1.31 per share.
Including one-time items, earnings from continuing operations were $1.38 per share, which rose 5% from $1.31 per share earned in the prior-year quarter. Earnings in the year-ago quarter included tax benefits of 3 cents per share, while in the year-ago quarter it included tax benefits of 4 cents per share and onetime gains of 2 cents a share.
Revenues and Margins
Total revenue rose 8% year on year to $2.09 billion in the quarter, ahead of the Zacks Consensus Estimate of $2.04 billion. The year-over-year rise includes contribution of 4% each from organic growth and acquisitions.
Cost of sales increased 9% to $1.29 billion in the quarter from $1.18 billion in the year-ago quarter. Gross profit went up 6% year over year to $801.8 million, whereas gross margin decreased 70 basis points (bps) to 38.3%.
Selling, general and administrative expenses increased 8.4% year over year to $442.7 million. Operating profit in the reported quarter increased 3.2% to $359 million from $348 million in the year-ago quarter. Operating margin contracted 70 basis points (bps) to 17.2% in the quarter.
Segmental Performance
Energy revenues went up 8.5% to $507.3 million in the quarter. The segment’s operating income also rose 3.1% year over year to $122.7 million.
Revenues in the Engineered Systems segment increased 8.3% to $695 million in the quarter. The segment’s income improved 6.7% year over year to $119.3 million.
Revenues in the Fluids segment rose 17% year over year to $361.8 million in the reported quarter. The segment’s income increased 7% year over year to $67.6 million.
Refrigeration & Food Equipment segment revenues increased to $528.8 million in the quarter compared with $521.3 million in the prior-year quarter. The segment reported operating income of $78 million compared with $86 million a year ago.
Bookings and Backlog
The company ended the third quarter with bookings worth $2 billion, which grew 10%, versus $1.82 billion at the end of third-quarter 2013. Backlog increased to $1.45 billion at the end of the reported quarter from $1.27 billion at the year-ago quarter end.
Financial Position
The company generated cash flow from operating activities of $294.7 million in the reported quarter, up from $281.3 million in the prior-year quarter. Free cash flow was $259.3 million as against $241.7 million in the prior-year comparable quarter.
On Aug 17, Dover announced a 7% increase in its quarterly dividend to 40 cents per share from 37.5 cents per share. The company increased its dividend payments for the 59th consecutive year.
Further, on Jul 30, Dover’s Energy segment acquired The WellMark Company which will add complementary products and expand the geographic coverage of valve, chemical injection pump and controls offerings of Dover.
Again in Aug, its Fluids segment acquired Liquip International. The acquisition will help in meeting exclusive requirements of Dover’s chemical and industrial and tank truck customers. Recently, Dover acquired Accelerated Companies to bolster its position in the U.S. shale market.
Fiscal 2014 Guidance
Dover slashed its full-year 2014 earnings guidance to the new range of $4.75–$4.80 per share from $4.75–$4.85 per share, a reduction of 5 cents to the upper end, mainly due to the impact of recent acquisitions. The company reaffirmed organic revenue growth guidance of 4%. Acquisitions are expected to contribute 4% to growth, representing a 1% increase from prior forecast of 3% growth. On the basis of acquisition and organic revenue growth, Dover raised total revenue growth projection to 8% from the prior band of 6%–7%, for fiscal 2014.
Our Take
The company will benefit from the Knowles spin-off, which will provide it with the flexibility to focus on growth strategies. Going into 2015, the company sees favorable trends with strong US oil & gas dynamics, robust shipments in Printing & Identification, Waste Handling and Fluids as well as benefits from recent acquisitions.
Moreover, strong balance sheet position and increase in dividend and bookings will help in long-term growth of the company.
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 #3 (Hold). Some better-ranked stocks in the sector include The Babcock & Wilcox Company (BWC), Barnes Group Inc. (B) and Manitex International, Inc. (MNTX). All these stocks carry a Zacks Rank #2 (Buy).
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