Dover Corporation

Good morning and welcome to Dover's second quarter 2020 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer, Brad Serapak, Senior Vice President and Chief Financial Officer, and Andre Galiuk, Vice President of Corporate Development and Investor Relations. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, press star and the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key on your telephone keypad. As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Andre Galiuk. Please go ahead, sir.

Thank you, Laurie. Good morning, everyone, and thank you for joining our call. This call will be available for playback through August 12th, and the audio portion of this call will be archived on our website for three months. Solver provides non-GAAP information, and the reconciliations between GAAP and adjusted measures are included in our investor supplement presentation materials, which are available on our website. We want to remind everyone that our comments today may contain forward-looking statements that are subject to uncertainties and risks, including the impact of COVID-19 on the global economy and on our customers, suppliers, employees, operations, business, liquidity, and cash flow. We caution everyone to be guided in their analysis of Dover by referring to our Form 10-Q for the second quarter for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I will turn this call over to Rich.

Thanks, Andre. Good morning, everyone. Let's begin with the summary of the results on page three. We expected Q2 to be challenging, and in preparation, we reinforced our cost-out program earlier in Q1, so we were in some sense prepared for the battle. We entered the quarter with a comprehensive set of actions to manage through the turbulent times. and focused on what we could control, our operations, costs, and importantly, safety of our employees. From an operational point of view, we are not out of the woods yet, but a significant majority of our facilities are up and running, moving into Q3, which is positive to operating leverage as compared to this quarter. Top-line trends were very much in line with our expectations entering the quarter. Revenue declined 16% organically, and bookings declined 21%. Trends are improved through the quarter, and we saw material sequential improvement in June. We still carry a strong backlog across all segments, and that increases our confidence for the second half. Margin performance for the quarter was acceptable considering the state of business activity in April and May. After profitability gains in Q1 and lower revenue, we targeted 25% to 30% decremental margin for the full year. Thanks to the broad-based cost control efforts to offset underabsorption of fixed costs and steady execution of $50 million of in-flight initiatives, we achieved 27 decremental margin in Q2, a quarter which we expect to be the trial for the year. That puts us on track to exceed our initial four-year target. In addition to the tight cost controls and variable costs, we took further structural cost actions in the quarter as part of our business realignment activities, which will benefit us in the second half. Along with our cost actions, our proactive working capital management resulted in cash flow improvement in both absolute and conversion terms. We generated $78 million more in free cash flow than the comparable quarter last year. As a result of our first half performance and our solid order backlog, we are reinstating our annual adjusted EPS guidance to $5.25 per share. To be clear, even with the strong backlog and positive recent trends, we still see demand uncertainty in our markets and are not back to business as usual. But our teams have proven their ability to manage costs and operations, and we are prepared to operate and achieve results in a wide variety of scenarios that may be in store for the second half. Let's take a look at the segment performance on slide four. Engineered products had a tough quarter, particularly in shorter cycle and capex-levered businesses like vehicle aftermarket, industrial automation, and industrial winches. Waste hauling and aerospace and defense were more resilient shipping against their strong backlogs. Lower volumes led to margin decline versus a very strong margin that this segment posted in the comparable quarter last year, and we have taken structural cost actions in this segment, which will support its margin in the second half along with recovering volumes. Fueling solutions saw continued strong activity in North America driven by demand of EMV-compliant solutions, whereas Europe and Asia declined due to COVID-related production and supply chain interruptions, as well as budget cuts and deferrals in response to the decline in oil prices. Increased margin performance was commendable with 80 basis point increase on a better mix pricing and ongoing productivity actions. The sales decline in imaging and identification was driven predominantly by a steep decline in our digital textile printing business, which we expected, and the significant dislocation in global apparel and fashion markets due to the pandemic. Marking and coding showed continued resilience on strong demand for consumables and fast-moving consumer goods solutions. This is our highest gross margin segment, so decremental margins are challenging and require heavy lifting on cost containment. Our marketing and coding business did a good job achieving a flat margin year over year, and we have taken proactive actions to manage the cost base in the digital printing business. As a result of these actions and a pickup in textiles consumable volumes, we expect performance to improve in the second half. Pumps and process solutions demonstrated the resilience we expected. Its top line declined the least among our segments despite a challenging comparable from last year. Strong growth continued in biopharma and medical applications with colder products posting record growth in the quarter. This was offset by a moderate decline in industrial applications and material slowing in energy markets. Our plastics processing business revenue declined in the quarter as a result of Of shipment timing, we expect for it to do well in the second half off a strong backlog. As you can see, the segment continued to deliver a solid margin, performance posting improving margin on declining revenue for the second quarter in a row. We expect this segment to deliver flat or improved absolute profit for the full year. Refrigeration and food equipment declined as food retailers continued to delay construction and remodels due to peak utilization, and the commercial food service market remained severely impacted by restaurant and school closures in the United States. Our heat exchanger business showed resilience, particularly in non-HVAC applications. On the margin side, negative absorption on lower volumes drove the margin decline. In Q2, we took structural cost actions. In this segment, which paired with ongoing productivity and automation initiatives yielded a materially improved margin performance in the month of June. We expect these benefits to continue accruing in the second half and expect the segment to deliver year-over-year growth and absolute earnings and margin in the second half of this year. I'll pass it to Brad here.