Dover Corporation

Good morning and welcome to Dover's second quarter 2021 earnings conference call. Speakers today are Richard J. Tobin, President and Chief Executive Officer, Brad Serapak, Senior Vice President and Chief Financial Officer, and Andre Geliuk, 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, please press the star and then 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 the call. If you do not agree with these terms, please disconnect at this time. Thank you. I will now turn the call over to Mr. Andre Geliuk. Please go ahead, sir.

Thank you, Christal. Good morning, everyone, and thank you for joining our call. This call will be available on our website for playback through August 3rd, and the audio portion will be archived 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. Our comments today will include forward-looking statements that are subject to uncertainties and risks. We caution everyone to be guided in their analysis of Dover by referring to our Form 10-K and our most recent Form 10-Q for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. 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. Our second quarter results were strong across the board, and we are especially pleased with the top-line performance considering the complicated operating environment. The demand environment in the quarter was robust and continued the momentum from the first quarter And despite posting a 30% organic top line growth, we execute two with a sequentially higher order backlog. I'll focus on the bigger picture here and highlight again what we believe is underappreciated aspect of our portfolio. It's organic growth potential. Our revenue in the second quarter was above the pre-pandemic comparable quarter in 2019 and resulted in the highest revenue first half of the year in recent Dover history. meaning that the majority of our markets are not simply recovering, but are operating in a growth environment. New order bookings remain robust, with all segments posting book to bill above one, resulting in sequential, comparable growth backlog, as I mentioned earlier. Operating margin conversion was solid for the quarter as a result of good execution at the operating level and a healthy mix of products delivered in the quarter. All of this is well and good, but make no mistake, the operating environment remains very challenging. It's been 90 days since the last time we were asked the question about the duration of quote-unquote transitory inflation. As we've discussed after the first quarter, we had some line of sight on raw materials cost trajectory coming into the year, which allowed us to get in front from a price-cost perspective. We have also proactively given our operating companies some leeway on working capital decisions to build inventories based on the backlog trajectory. What we underestimated was the total cost impacts of a strained logistics system and tight labor market that shows no signs of abating. This has had two knock-on effects on our results. First, the absolute costs of inbound and outbound freight were materially higher. And second, and more important, the costs associated with production line stoppages due to lack of labor and components caused by trends in time, uncertainty, and overall supply chain tightness. I'll deal with the market dynamics and supply chain impact by business later in the presentation, but based on our experience so far, I am concerned about the notion that the current economy needs to be further stimulated and second-order implications of that line of thinking, and I'll leave it at that. Our teams have done a commendable job navigating these choppy waters and continue shipping products and driving robust margin conversion and strong cash flow. Overall, we believe that our operating model has been an advantage to us as we are largely a localized producer and are not overly reliant on extended supply chains. This is clearly reflected in our top line performance in the quarter. As we look to the second half of the year, our order backlogs make us confident in our top line trajectory. Our forecasts do not incorporate much in the way of an improvement nor deterioration of the operating challenges that we've witnessed during the first half. We're just going to have to power through and work with our suppliers and customers to adapt to the prevailing conditions. We are raising our annual revenue growth guidance to 15% to 17% and our adjusted EPS guidance to $7.30 a share to $7.40 a share. We also expect stronger cash flow as a result of the improved margin performance. I'll skip to slide four, which provides a more detailed overview of our results in the course. Engineer products revenue was up 25% organically. Vehicle services was strong across all geographies and product lines and had record bookings during the quarter. Industrial automation demand was strong across the automotive sector and in China. Aerospace and defense posted an all-time record revenue during the second quarter. Waste hauling was flat year over year as the business continues to wrestle with component and labor availability issues that are constraining product shipments. Importantly, waste handling bookings were robust and the backlog was up nearly 75% versus the prior year. Engineered products is our most exposed segment to input and logistics cost inflation due to materials intensity, contractual pricing dynamics, and relatively higher share of international sourcing in vehicle services. You can see it in the segment's margin was flat year over year as strong volume leverage and pricing increases were offset by input cost and freight inflation as well as labor and component availability challenges. Fueling Solutions was up 25% organically in the quarter, and the strength of the above-ground and below-ground retail fueling globally, including some remaining tailwinds from the EMV opportunity in the U.S. following the April deadline. Vehicle wash has been strong this year, and our recent ICS acquisition, integration, and performance is ahead of plan. Activity in China in fuel transport remains subdued, but there are signs of Chinese operators reopening their tendering activities. Order backlogs are up 29%, and we expect our software and service business, hanging hardware, vehicle wash, and compliance-driven underground product offerings to help offset the anticipated headwinds from the EMV roll-off. The segment posted another strong sequential margin performance on higher volumes, strategic pricing initiatives, productivity actions, and mix. Sales and imaging and ID improved 20% organically. The core marketing and coding business grew well on strong printer demand across all geographies, with China and India driving particularly strong performance. Serialization software also grew ahead of expectations. The digital texting printing business was up significantly against a comparable quarter when much of their operations were locked down in northern Italy last year, but nevertheless, The business remains impacted, though we are beginning to see growth in demand for large printers, particularly in Asia, and continued growth in ink consumable volumes. Margins improved by 420 basis points on volume, leverage, pricing, and productivity initiatives. Pumps and process solution posted another banner quarter at 34% organic growth on improved volumes across all businesses except precision components. Demand for biopharma connectors and pumps continued to be strong, driven by vaccine, and non-COVID related pharmaceutical tailwinds. Industrial pumps grew by over 20% on robust end customer demand with particular strength in China. Polymer processing shipments grew year over year and continued strength in Asia and is gaining momentum in the US market. Precision components are slightly down in the quarter, though demand conditions have stabilized. and are recovering well in some end markets and geography, giving us confidence in the second half trajectory. Margins in the quarter expanded by 910 basis points on strong volumes, favorable mix, and pricing. Top line growth in refrigeration and food equipment continued its impressive clip, posting a 44% organic growth. Revenue in the beverage can making doubled in the quarter and bookings nearly doubled as well. The business is now booked into late 2022. Food retail saw broad-based growth across its product lines. Door cases are now booking into 2022. And the demand for natural refrigerants is driving outside growth in our systems business in the U.S. and in Europe. Backlog in food retail is now double where it was last year. The heat exchange of business grew on robust demand in all geographies with rebounding order rates in commercial HVAC in North America and record order intake in EMEA, extending lead times for heat pumps and boilers. Food service equipment was up in the quarter on a tough comp. Chain, no, actually on an easy comp, and chain restaurant demand is robust, but the institutional market is still recovering. Margins in the segment improved by 580 basis points, driven by strong volumes and productivity actions, partially offset by availability issues with insulation, raw materials, and labor and food retail operations, which we expect to subside in the second half. And I'll pass it on to Brad here.