Dover Corporation

Good morning and welcome to Dover's first quarter 2021 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 then the number one on your telephone keypad. If you would like to withdraw your question, 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 Galiouk. 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 May 4th, 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 first 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.

Thank you, Andre. Good morning, everyone. We have a big group this morning, so we're going to have a robust Q&A session. So let's move to page three. The business challenge moving into Q1 was twofold for Dover. First, we exited 2020. with a healthy backlog of business, which we needed to operationally deliver against. Second, we had to work closely with our distributors and customers to seize opportunities in the marketplace despite a complex set of challenges with raw materials, components, logistics, and labor availability. We are pleased with our first quarter performance on both counts, which is reflected in our robust revenue growth and the increase in our order backlog as we move into Q2. Let's take a look at the metrics. Total revenue is up 13%, 9% organic to the comparable period. Clearly, the quarter benefited from a good order backlog position and the willingness of the channels to receive product deliveries as market demand accelerated, resulting in the highest volume quarter since 2014 and the largest first quarter volume since 2012 for the company. This performance is a clear indication that our product portfolio has attractive and often underappreciated growth avenues and that the work that we have done on operational excellence is gaining traction. Order rates outpaced revenue in the quarter, posting bookings of $2.3 billion, a 27% comparable organic increase. The growth was broad-based with all five segments contributing to the increase. This resulted in a seasonally high backlog of $2.2 billion, an increase of 39%. Since our earnings are issued among the first in the industrial sector, I suppose it is upon us to explain the drivers of growth and their impact on seasonality and full year demand. I'm going to try to be careful with my choice of terms and comments not to cast unwarranted shade on a clearly positive market demand environment. There are several factors driving healthy customer activity. including pent-up demand from last year as a result of low starting channel inventories in certain sectors. As I also mentioned in my opening remarks, this was further influenced by tight supply chains and materials inflation, positively contributing to seasonal demand and backlog build as our customers and channels position themselves to meet their forecasted demands. Importantly, before we get all wound up trying to quantify the impact of channel inventory stocking and inflationary pre-buy and how it impacts quarterly demand, let's not lose sight of the fact that total marketplace demand is robust, which is reflected in our backlog, and which also leads us to revise our revenue growth guidance upward for the full year to 10% to 12%. So put succinctly, it's not pre-buy if we don't remove it from the full year revenue estimates. Still early in the year, and we will continue to produce to meet customer demand and watch our backlog and order patterns carry. We'll have more color on the drivers of demand and our revenue performance, including contribution of market share gains, as we progress through the year. For now, we are focused on executing operationally in demanding conditions to win in the marketplace, but we clearly believe that favorable demand conditions will remain durable through the year. Let's move to profitability. Q1 was solid with consolidated adjusted segment margin at 19.1 percent, 320 basis points higher versus the comparable quarter. This was supported by strong volumes, favorable mix of products delivered, positive pricing, continued operational discipline and efficiency initiatives which more than offset input cost headwinds. Strong profitability and continued focus on working capital management resulted in seasonally strong free cash flow which was up $110 million compared to last year's first quarter or the comparable period. With a solid Q1 under our belt, we look at the remainder of 2020 with constructive optimism. Strong order trends and a record backlog pretend a robust top-line outlook, and we have confidence in our team's ability to navigate the supply chain challenges. With that, we are raising our guidance of the year to 10% to 12% all-in revenue growth and adjusted EPS of $675 to $685 per share, a substantial step up compared to our prior guidance. I will skip slide four, which provides a more detailed overview of our results for the first quarter, so let's move to slide five. Engineered products revenue was up 2% organically as demand conditions improved modestly . Vehicle services entered the year with a strong order book and faced solid demand across all geographies and product lines. Industrial automation grew on automotive recovery and channel restocking, and aerospace and defense shipments were solid. The business remains booked well into the second half of the year. As expected, waste hauling was down year over year. given a lower starting backlog entering Q1, which was further impacted by component availability issues that constrained shipments in the quarter. We have forecasted this business to be levered towards H2, and order trends have backlogged to reflect that. Same dynamic for industrial winches, with revenue down in the quarter, but recovery in order rates. We expect a continued gradual recovery in this business over the year. Margin performance in the quarter was flat year over year as volume leverage and pricing offset the negative fixed cost absorption in the capital goods portion of the portfolio. Fueling Solutions is up 3% organically in the quarter on the strength of North American retail fueling, as well as our software and systems business in Europe. Activity in China remains subdued. Order backlogs are up 13%, and we expect our hanging hardware, vehicle wash, and compliance-driven underground product offerings to contribute positively due to an increase in miles driven and construction seasonality as we make our way through the year. The segment posted another quarter of strong margin performance on higher volumes, productivity actions, and mix, which is a continuation of the trajectory that we exited in 2020. Sales and imaging and identification improved 4% organically. The core marking and coding business grew well on strong printer and services demand in North America and Asia, but was partially offset by a decline in consumables against a comparable quarter where customers stocked up on inks at the onset of the pandemic. We also saw a nice pickup in serialization software sales. Textile printer sales remained soft as global apparel and retail remains impacted by COVID. Ink consumable volumes were up as we significantly improved ink attachment rates and we saw encouraging improvement in the pipeline and new printer sales as the quarter progressed. Margins improved slightly in the segment on higher volumes, and we were able to offset material cost inflation with strategic pricing during the quarter. Pumps and process solutions posted 18 percent organic growth in the quarter on improved volumes across all businesses except precision components. Order rates and shipments for biopharma connectors and pumps continued to be strong. industrial pumps at a solid quarter driven by improved end market conditions and distributed demand. And polymer processing shipments grew year over year on robust demand in Asia and the U.S. Precision components was down in the quarter, though demand conditions stabilized in hydrodynamic bearings and compression parts, as well as broadly in China through new OEM builds remained impactive. Just an operating margin in the quarter expanded by 890 basis points on strong volume, favorable mix in pricing. This team has moved this segment to best-in-class top-line and bottom-line metrics through a dedication to operational excellence, robust product development and innovation management, and proactive and purposeful inorganic actions. It's a world-class collection of assets that we will continue to invest behind. Refrigeration and food equipment continued its solid momentum from the second half of last year, posting 18% organic growth. Revenue and new orders in beverage can making more than doubled year over year. Food retail saw broad-based increases across its product lines as key retailers resumed capital investment in our programs. Plus, we've seen good demand for some of our new product introductions and customer wins. Our natural refrigerant systems business in particular experienced robust demand in Europe and the U.S. as customers are adopting more environmentally friendly solutions. The heat exchange of business grew on robust demand in Asia and Europe across all end markets. Food service equipment was down in the quarter but saw stabilization in chain restaurant demand. Despite operational challenges in food retail due to availability issues with insulation, raw materials, adjusted margin performance improved, by 450 basis points, supported by stronger volumes, productivity initiatives, and cost actions we took in the middle of 2020, partially offset by input cost inflation. I'll pass it to Brad from here.