Dover Corporation

Good morning and welcome to Dover's fourth quarter fiscal year ending 2020 earnings conference call. Speakers today are Richard J. Toobin, President and Chief Executive Officer, Brad Serapak, Senior Vice President and Chief Financial Officer, and Andre Gullick, 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 then the number one on your telephone keypad. If you would like to withdraw your question, press the play home 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 Gallup. Please go ahead, sir.

Thank you, Nicole. Good morning, everyone, and thank you for joining our call. This call will be available for playback through February 18th. and the audio portion of this call will be archived on our website for three months. Dover provides non-GAAP information and reconciliations between GAAP and adjusted measures are included in our investor supplement and 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-K and Form 10-Q for the quarter and 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. And with that, I will turn this call over to Rich.

Thanks, Andre. Good morning, everyone. Let's begin on slide three. Order trends have remained positive across the majority of our portfolio since September, and we had a strong finish to the year. Our year-over-year backlog is up 21% as a result of general recovery trends across the portfolio, a meaningful increase in the DFRE segment backlog, and some recognition from our customers that raw material costs and supply chain constraints are becoming more challenging into 2021, driving pre-orders in some markets. Revenue at $1.8 billion was flat versus the comparable period. Adjusted segment operating margin at 17.1% was flat despite unfavorable revenue mix during the quarter. For the full year, revenue was down 6% and adjusted segment margin up to 16.7% as a result of structural cost savings, center-led strategic initiatives, tight cost controls offsetting the impact of fixed cost under-insulation. As we discussed at length in Q3, we are driving towards a strong cash flow performance in the fourth quarter, and we got it, with full year free cash flow increasing 24% over 2019, achieving 14% of revenue. This is what we would expect to happen as we liquidate working capital in excess of lost profits impact and as a result of efficiency gains from our back office consolidation program. With that backdrop, we look into 2021 with conservative optimism. Our order book is solid, albeit with a different mix as compared to last year, with DFRE having a material positive impact to the top and bottom line in 21. We are executing on many initiatives other than structural cost takeout that are expected to deliver margin improvements, which I'll cover later in the presentation. With that, we are initiating full year guidance of 5% to 6% organic revenue growth and adjusted EPS of $6.25 to $6.45. I'll not spend a lot of time on slide four, which is a more detailed overview of the results of the quarter, so let's move to slide five. Engineered products revenue declined on lower shipments in capex-levered markets such as industrial winches, waste handling equipment, and vehicle services. ESG had a tough Q4 comparable to overcome, and VSG was coming off a strong Q3, so the performance was largely expected. Both have strong backlogs into 2021. The aerospace and defense business had a strong quarter that ended a record year for the business, and demand in industrial automation has shown robust recovery, contributing to our backlog as global auto sequentially ramps production. In fueling solutions, as we discussed at the end of Q3, the comparable benchmark for Q4 was tough. Despite the top-line pressure, the segment posted another quarter of strong margin performance on lower volume as our productivity actions remained durable. We are beginning to see the mixed benefits from our Helix and Anthem dispenser products, which we believe are winning in the marketplace. We completed the acquisition of innovation control systems in the fourth quarter, which is a great addition to our vehicle launch platform. ICS is a leading supplier of access, payment, and site management solutions and software, which fits into our strategy of driving long-term value from the large installed base of retail fuel sites, which we presented in October. Sales and imaging and identification declined 3% organically. The core market and coding business grew on continued healthy demand and for consumables and improvement in demand for printing equipment with particularly healthy activity in the United States. Digital textile printing capex remains slow, but it will begin seeing recovery in demand for consumables and small format machines, which are likely harbingers of conditions normalizing in 2021. Imaging and identifications is our highest gross margin segment. The marketing and coding businesses delivered commendable margin performance this year, holding the profit line virtually unchanged. However, decrementals in textile printing on lower volumes weighed on the segment margins in Q4, and during the full year, we expect this to begin reversing progressively into 2021. Pumps and process solutions returned to top-line growth in the fourth quarter on strong growth in biopharma, medical, and hygienic applications. We also began seeing cyclical recovery in industrial pumps, which posted growth after several soft quarters. Compression components and aftermarket continued to be slow, but recent trends in natural gas and LNG markets gives us grounds for optimism going forward. The fourth quarter closed off a solid margin performance in this segment, with margins expanding 150 basis points in Q4 and 220 basis points for the full year. This was driven by broad-based productivity efforts, cost controls, favorable mix, and well-timed capacity expansion in biopharma and medical, which we highlighted earlier in the year. Refrigeration and food equipment posted 13 percent organic growth, with all businesses except food service equipment delivering the increase. A significant portion of the growth came from the well-advertised strength in can making, We are also very encouraged by activity in core food retail market, which grew organic top line at high single digits in the quarter, driven by the continued strength in the door case product line where we saw double digit growth for the full year. The heat exchange of business grew on robust demand in heat pumps and residential applications, as well as refrigerated transport and industrial applications like semiconductors and data centers. Margin performance expectedly improved supported by volume and actions we took in the middle of 2020. Absolute earnings increased 71% in the quarter over the comparable period. This margin performance coupled with the upcoming ramp-up of automated case line and food retail positions us to deliver material margin expansion in 2021. I'll pass it to Brad here.