dover JPMorgan_060308
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Transcript of dover JPMorgan_060308
JP MORGAN BASICS & INDUSTRIAL CONFERENCER O B E R T K U H B A C H / P A U L G O L D B E R G
NEW YORK, NY – JUNE 3, 2008
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Forward Looking Statements
We want to remind everyone that our comments may contain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10K for a list of factors that could cause our results to differ from those anticipated in any such forward looking statements.
We would also direct your attention to our internet site, www.dovercorporation.com, where considerably more information can be found.
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. . . a $7 billion global provider of innovative equipment, specialty systems and value added services for the industrial products, fluid management, engineered systems and electronic technologies markets.
. . . focuses on growing organically 5-7% over a business cycle and strategically invests in value creating acquisitions.
. . . returns value to shareholders through earnings growthinitiatives, annually increased dividends and strategic share repurchases.
. . .
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Record Financial Results
Four Segment Structure Improves Clarity
Platforms For Sustained Growth
Strategic Capital Allocation
Outlook for 2008
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Sustainable Growth Story
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2003 2004 2005 2006 2007
Rev
enue
0
100
200
300
400
500
600
700
800
Earn
ings
Revenue Earnings from Continuing Operations
5-yr CAGR 17.9% 5-yr CAGR 25.3%
($000)
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Balanced Growth
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2003 2006 2007
CurrencyAcquisitionOrganicBase
Sales ($000)
Organic Growth Rate: Target 5-7%... 5 yr. Average 8.9%
50%
45%
5.2%Core Industrial
2.3%Organic
9.7%Acquisition
2.2%Currency
2007 Growth
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Geographic Revenue Mix (Q1 2008)
Rest Of World 10.5%
ASIA 12.6%
Europe 21.5%
United States 55.4%
Dover Growth Rate: 8%
First QuarterFirst Quarter
Growth RateGrowth Rate
6.5%6.5%25.5%25.5%
6.1%6.1%
5.5%5.5%
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Strong Free Cash Flow
Source of Dover strength– Consistency– Outcome of metrics focus– $728 million in 2007– 111% conversion rate in
2007 (FCF / earnings from continuing ops)
Facilitates strategic capital allocation
0%
2%
4%
6%
8%
10%
12%
2004 2005 2006 2007
Free Cash Flow as a % of RevenueFree Cash Flow as a % of Revenue
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2007
INDUSTRIALProducts
FLUID Management
ENGINEEREDSystems
ELECTRONICTechnologies INDUSTRIAL
Products
ELECTRONICTechnologies
FLUID Management
ENGINEEREDSystems
Sales Earnings
30%
21%
30%
19%
29%
17%28%
26%
New Segment Structure
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2007Revenue
New Platform Structure
Energy11%
13%
Mobile Equipment
Electronic Technologies
Material Handling
Fluid Solutions
Product ID
Engineered Products
17%
13%
17%19%
10%
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Dover’s Q1 2008 Performance
0.000.050.100.150.200.250.300.350.400.450.500.550.600.650.700.750.800.850.90
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Continuing Earnings Per Share
2005 2006 2007
$2.12
$2.88
$3.22$104M
1.8%
2.8%
14.1%
$0.76
$1.9B
5.8x
60 bps
+16%
+8%
$18MFree Cash Flow
4.0%Organic Growth
12.8%Acquisition Growth
13.5%Segment Margins
$0.65EPS
$1.7BRevenue
• Business activity remains strong across the portfolio
•Book-to-bill was 1.06
• Organic growth of industrial companies was 3.2%
• Energy, Fluid Solutions and Product ID platforms performing at a high level
• Positive leverage at 3 of 4 segments
• Strong free cash flow at 5.6% of revenue
• Share repurchase activities on target
Q1 ‘08 Q1 ‘07 Q/Q
‘08
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Revenue Growth (Q1 2008)
7.9%9.5%11.8%6.2%5.9%Total
3.2%6.5%2.6%3.8%1.2%Currency
1.9%2.0%1.5%0.0%3.6%Acquisition
2.8%1.0%7.7%2.4%1.1%Organic
Total Dover
Electronic Technologies
Fluid Management
Engineered Systems
Industrial Products
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Industrial Products
$551$583
Q1 2007 Q1 2008
$70
$76
Q1 2007 Q1 2008
Revenue($ in millions)
Operating Earnings($ in millions)
↑ 6%
Mobile Equipment(14% of Dover)
– Revenues increase due to strong oil field, aerospace and military sales
– Earnings driven by volume and cost reductions
– Backlogs up 15% vs. prior year, Book-to-bill of 1.09
Material Handling(18% of Dover)– IMC acquisition by De-Sta-Co – sales
integration complete – Lantec acquired by Tulsa Winch in
March 2008 – integration begun– Business is mixed, strong international,
infrastructure and military sales; U.S. automotive and construction remains challenged
↑ 8%
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Industrial Products
Winch companies will continue to grow– Military contracts– Oilfield demand
Continued challenges in heavy construction– Performance enhancing initiatives underway– No market improvement expected
Waste handling will be strong– Solid backlog– Class eight chassis delivery improves
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Engineered Systems
$492$522
Q1 2007 Q1 2008
$51
$64
Q1 2007 Q1 2008
Revenue($ in millions)
Operating Earnings($ in millions)
↑ 6%
Engineered Products(16% of Dover)– Strong performance in
refrigeration systems & cases, heat exchangers
– Tough comps in beverage can equipment
Product Identification(12% of Dover)
– Revenue increase driven by double-digit gains in direct marking business
– Earnings reflect cost savings realized from Markem•Imajeintegration activities, off-setting $3M in related expense
– Strong order backlog entering second quarter.
↑ 25%
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Engineered SystemsSignificant improvements in Product ID– Markem margins up 700 bps– > 50% of revenue tied to fast moving consumer goods– Recurring revenue > 50%
Food display equipment fundamentals are sound– Growth will be driven by “sustainability” factors– Well-developed plan to diversify customer base
Heat exchanger business will continue to expand
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Fluid Management
$359$401
Q1 2007 Q1 2008
$74$85
Q1 2007 Q1 2008
Revenue($ in millions)
Operating Earnings($ in millions)
↑ 12%
`
Energy(11% of Dover)
– Results driven by growth in U.S. oil and gas drilling and worldwide demand for power generation
– Operational improvements and product mix increased earnings and margins
Fluid Solutions(10% of Dover)– General strength across most
industrial markets – Backlog up 30%.– Business mix and operational
focus improved earnings and margins
↑ 15%
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Fluid ManagementContinued strength in energy– Broad product engagement in downhole
drilling, production and logging equipment– Positive power generation trends– Focus on globalizing revenue base
Pump and dispensing businesses remain consistent– Global footprint– Expanded product offerings– Chemical, pharmaceutical and wastewater
processing capex budgets drive business– Regulatory environment provides opportunity– Consistent sustainable performance
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Electronic Technologies
$321$352
Q1 2007 Q1 2008
$37 $36
Q1 2007 Q1 2008
Revenue($ in millions)
Operating Earnings($ in millions)
↑ 10%
Electronics Technology19% of Dover
– Business activity is mixed across the segment with book-to-bill of 1.02
– Continued investments in new products
– $3M restructuring charges in the quarter (primarily severance)
– Impact of restructuring should result in $7 million of savings for remainder of year
– Inflationary pressures in Asia (mainly China) from currency and other costs impacted margins by 100 bps
↓ 2%
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Electronic TechnologiesCell phone market continues to grow 10% annually– Customer mix was improved– Dominance in MEMS technology continues
New product applications in military, telecom and audio result in broader marketsRevenues related to fabrication and testing of semiconductors and boards are flat– Adjustments being made to reflect current business
environment– Margin improvement is a focus
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PERFORMANCECOUNTS
25.9%
19.2%
13.5%
5.0%
6.4
Q1 2007
25.8%25%ROI (Operating)
19.1%20%WC as a % of Revenue
14.1%15%Operating Margins
8.8%10%Earnings Growth
6.68Inventory Turns *
Q1 2008Target
* Dover has improved inventory turns four consecutive years
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Going Forward2005 - 2007
Value Creation Continues
New Management TeamPortfolio TransformationPERFORMANCECOUNTSRefocus AcquisitionsRecurring Revenue ThemeGlobalizationCapital Allocation FocusBest Financial Results in Dover’s History
Four Segment StructurePlatform DevelopmentPERFORMANCECOUNTSCapturing SYNERGYMinimize VolatilityManagement DevelopmentStrategic Capital AllocationContinue Improvement in Financial Performance
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Strategic Capital AllocationAcquisitions– Strategic add-ons to bolster existing platforms – High pricing expected to gradually moderate– 2008 should favor strategic buyers
Share Repurchase– Two programs announced in 2007 totaling approximately $1 billion
• First program completed in 2007 (10 million shares)• Second program underway, $200 million remaining
Long history of increasing dividend each year– Increased 8% in 2007; 28% - 32% of net earnings
We have the capacity to do all three
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Seeking Synergy
4% 4% -- 6%6%EarningsEarnings
ImprovementImprovement
Overhead cost structureExpanding role of Supply Chain CouncilShared facilitiesBusiness system consolidationsExamples:– Energy Platform– Product ID– Pump Group– Others
Emphasis on Tangible Value Creation
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First Quarter 2008 OverviewNet Debt to Capital Ratio
– 28.0%: up 60 bps over 2007 year-end, reflective of higher total debt level to fund share repurchase program
Free Cash Flow– $103.7 million; 5.6% of revenue
• Historically high for the 1st quarter
Effective Tax Rate– 29.5%, up 120 bps
• Prior year benefited from discrete event and extension of R&D credit.
Acquisitions– One add-on by Tulsa Winch (Lantec Winch and Gear Inc.) for $22 million, net
of cash acquired.– Two acquisitions done subsequent to quarter close (Brady Bit & Neptune).– Total year-to-date acquisition spend: ≈ $100M.
Share Repurchase Program– Repurchased 3.6 million shares for $150 million.
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Recent Fluid Management Road Trip17 buy-side and sell-side analysts visited US Synthetics (Orem, UT) & Wilden Pumps (Grand Terrace, CA) in early May.Full Fluid Management overviewEmergent Themes:– Healthy & sustainable end-markets
• Emerging global infrastructure• Strong global demand for energy• Innovative products
– Keen focus on manufacturing excellence• Lean techniques widely employed• Vigorous pursuit of synergy
– Highly motivated and dedicated management teams• Entrepreneurial spirit intact• Deep pools of management talent
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2008 Outlook – Full Year
Organic growth: mid single digitsMargin improvement: Full year up 50 – 75 bpsCapital expenditures: $150 – $175 millionInterest expense: $88 - $92 millionFull-year tax rate: 27% – 28% (quarterly variance)Free cash flow for full year: 10% of revenueCorporate expenses: $95 - $100 millionShare repurchases remaining: <$200 million
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… A Solid Growth Story with Record Financial ResultsMetrics are Driving Improved Results
… New Organization Structure Driving ChangeGrowth Platforms Emerging, Operating Style Evolving, Clarity is Improving, Focus on Synergy
… Strategic Capital Allocation DisciplineBalancing Growth and Shareholder Return
… Time Honored Value System Intact