Dover Corporation

Good morning and welcome to Dover's fourth quarter and full year 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 Galuk, 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, please press the pound key. 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 Galuk. Please go ahead, sir.

Thank you, Tani. Good morning, everyone, and thank you for joining our call. This call will be available on our website for playback through February 17th, 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 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, and good morning, everyone. Let's start on page three. We are thankful for the extraordinary efforts of our Dover team members, which enabled us to deliver strong operating results amidst challenging conditions during 2021. We are also grateful to our customers who trusted us with their business while adapting their supply chains and business models to this rapidly changing and demanding environment. The resilience and creativity of our teams and the durability of our customer relationships were the key elements of our success this year. And we are committed to build upon those pillars in 2022 and mobilize to deliver another strong year of performance. All right, let's go on to the quarterly and full year results. We delivered strong and better than expected results in fourth quarter and the full year posting organic revenue growth of 11% and 15% respectively. Our margin conversion for the year was strong, and we delivered segment margin increase of over 200 basis points for the year, driven by volume growth, productivity gains, and our center-led enterprise capabilities. We are satisfied with this accomplishment in the face of the well-chronicled input shortages, supply chain constraints, and COVID-driven quarantines and absenteeism that became increasingly challenging during the Omicron period of Q4. As we mentioned in the opening remarks, we battled through as best we could under the circumstances, but we cannot help but be very frustrated by the continuing guidance on mandates and deadlines. It seems often that we have learned very little in the past 24 months. We complemented our strong operational execution with value-creating organic and organic growth investments. We deployed $1.1 billion in nine highly strategic bolt-on acquisitions and also completed the divestiture of our non-core food service equipment platform on December 1st. These investments advance our deliberate strategy to expand into markets with secular growth opportunities. Recognizing the recent changes to our portfolio and to better reflect the nature of the markets and customers served by our businesses, as well as the contributions to revenue, growth, and profits, we have changed the name of our fueling solutions segment to Clean Energy and Fueling, and our refrigeration and food equipment segment to climate and sustainability technologies. Looking ahead to 2022, we enter the year with constructive optimism, despite the ever evolving operating environment and geopolitical clouds. We believe that growth conditions are still with us, but it is critical that policies are enacted or not enacted to continue this trajectory. A methodical monetary tightening is deemed necessary, and I agree that it is. I would urge caution on the pace of any policy decisions in the regulatory environment or taxation if one wants to preserve GDP expansion trajectory. As COVID and its effects subside, we desperately need policy pragmatism with a bias towards policy that foster economic growth. Demand conditions across the majority of the portfolio remain favorable. as evidenced by our strong sustained bookings in the fourth quarter and throughout the year, with a book to bill each quarter above one, even with the aforementioned double-digit revenue growth. Our backlog of $3.2 billion is up 84% versus this time last year, which allows us to better plan our capacity, production, and inventory, a major benefit in today's constrained operating environment. While we expect these operational challenges in supply chain and labor availability to continue into early 2022, we do not expect operating conditions. We do expect operating conditions and price material spreads to improve as the year progresses. We believe we are well positioned to deliver robust top-line growth, margin expansion, and EPS accretion in 2022. We are therefore forecasting full-year revenue guidance of 7 to 9 percent organic growth and adjusted EPS of $8.45 to $8.65 per share. I will skip slide four, which provides more detailed overview of the results, so let's go on to slide five. Engineered products revenue is up 16% organically in the quarter, as demand remained favorable across all businesses. Vehicle services posted a strong top-line quarter, and market indicators remained positive. Environmental services group revenue is up year-over-year with both bookings and backlog remain robust moving into 2022. Industrial automation demand remained high, posting its strongest bookings quarter of the year. Deliveries were negatively impacted by output challenges in America and Europe. Aerospace and defense posted a solid year-over-year growth with good momentum behind our recent SB acquisition, the recovery of industrial, which is consistent continues with all end markets trending positive. Despite the heightened demand, margin performance in the segment remains negatively impacted by the combination of input cost inflation and input shortages, with notable impact from COVID-related absenteeism, particularly late in the quarter where we ran at over 20% rates in some instances at the height of Omicron. In the fourth quarter, engineered products was the only segment that had a negative price-cost spread, largely driven by raw materials and logistics costs. This remains our most challenged segment in the current operating environment, though we have line of sight to improve margin outlook as the price-cost spread turns positive in 2022. Incremental margin conversion is expected to gain steam through the year as we cycle through inventory and we begin shipping off a strong backlog that was priced in the second half of 2021. Clean energy and fueling was down 4% organically in the quarter against a difficult comparable from 2020 when we saw the high watermark of EMV demand. Additionally, volume was constrained by our customers' construction, labor slowdown, and component shortages, as well as COVID absenteeism in Europe. Booking trends and backlog in the above-ground business remain constructive. Based on early market feedback and trajectory, we believe that we have a winning product with the Anthem dispenser. Conversely, demand trends for below-ground equipment have picked up in North America, and deliveries and vehicle wash continued their upward trend, most notably in access terminal and controller business that we acquired a year ago. Our recent clean energy acquisitions had a minimal impact on our Q4 results. However, backlogs in these businesses are strong. Margins were down in the quarter primarily due to the lower volumes, product mix, absenteeism-driven inefficiencies, and lost fixed cost absorption. Fully results in this business were strong and better than we initially forecasted early in the year on robust growth, productivity, and favorable mix. Sales and imaging and identification grew 3% organically. The core marketing and coding business was strong in comparable volume, though as short of components on some and some order pushouts reduced volumes and printers. Our serialization and brand management software business continues to grow ahead of expectations, and we're working diligently to add additional resources here as we integrate and scale the business. The digital textile business continues its gradual recovery. It was up against a low bar comparable quarter, but it is still not recovered to pre-COVID levels. Q4 margins in imaging and ID improved by 40 basis points year over year as mix in price more than offset cost inflation and input availability issues. Full year results were strong. The segment delivered 8% organic growth and 170 basis points of margin expansion on good volumes and productivity initiatives. Pumps and process solutions posted another strong quarter at 30% organic growth. Revenue for our CPC business was up double digits. We completed a clean room expansion project for this business in December in anticipation of another strong growth year in 2022. Industrial and biopharma pumps were up on broad-based end customer demand across all geographies. We are pleased with the performance of the flow meter business within EmTech, which we acquired in 2020. Its biopharma sales have doubled in 2021. Precision Components was up As the business continues its recovery on improving demand in their broader industry exposure, polymer processing was up in the quarter due to strong demand for pelletizers and gear pumps, as well as strong order rates in recycling equipment and consumables, particularly in the U.S. and China. Margins expanded by a robust 740 basis points in the quarter and 790 basis points in the year on strong volumes, fixed cost absorption, favorable product mix, and pricing. Top-line results in climate and sustainability technologies continued to be robust, posting 13% organic growth. SWEP, our heat exchanger business, capped off the year, posting all-time records in bookings, revenue, and margin, and carries a strong backlog into 2022. The business was strong across all geographies and end markets with particularly favorable demand in EMEA for heat pumps driven by regulatory requirements. We have been adding additional capacity in several geographies to meet forecasted future demand. Belvac, our provider of production solutions for beverage packaging, posted a revenue decline in the fourth quarter on difficult comparable driven by project timing. As you know, this business was up significantly in 2021, part of a multi-year secular shift toward more environmentally friendly aluminum cans with demand far exceeding the current installed capacity. Demand in our food retail business remains robust with elevated bookings and backlog levels. Our systems business in the U.S. and Europe continued its robust growth in deliveries and orders for natural CO2 refrigeration systems. Demand for door cases remained elevated as well. However, we continue to face labor constraints and subcomponent supply shortages that delayed shipments, which necessitated intermittent production curtailments negatively impacting margins. we've instituted a number of price increases, which we expect to positively contribute to margins and conversion into 2022. Margins were flat, largely flat as the quarter, as excellent operating performance and swept offset refrigeration headwinds despite the smaller revenue base. This segment demonstrated good progress in 2021, 22% organic growth after a very modest 3% decline in 2020, and 230 basis point margin expansion despite multiple operational challenges as the year presented. With a strong backlog, we expect a continued robust progress in 2022, and I'll pass it on to Brad.