Dover Corporation

Stand by, your program is about to begin. Good morning and welcome to Dover's third quarter 2022 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer, Brad Serapak, Senior Vice President and Chief Financial Officer, and Jack Dickens, Senior Director of Investor Relations. After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, please press star one and then the number on your telephone keypad. If you'd like to withdraw your question, please press the pound key, sorry, star two. 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. Jack Dickens. Please go ahead, sir.

Thank you Gretchen. Good morning everyone and thank you for joining our call. An audio version of this call will be available on our website through November 10th and a replay link of the webcast 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 based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn the call over to Rich.

All right. Thanks, Jack. Good morning, everyone. Let's start with the performance highlights on slide three. Dover delivered revenue growth and margin improvement in the third quarter driven by rigorous execution and improving price-cost dynamics that more than offset the impact of supply chain challenges, inflationary cost pressures, and foreign currency translation. Demand remains constructive across most of the portfolio, with four out of five segments posting organic growth in the quarter. Backlog at $3.2 billion was up 12% year-over-year and remains approximately double the historical levels relative to revenue, driven by continued strong demand across many end markets. The supply chain challenges that we've endured over the past 18 months continue to improve, which has allowed us to reduce our backlog this quarter through increased production performance. It is our expectation that this trend will continue for the balance of the year as supply chains and lead times normalize. Despite the building macroeconomic uncertainty, we are deploying capital to drive productivity and expand capacity in several businesses that are expected to deliver robust growth on secular tailwinds. We closed on the Molima engineering acquisition in July, which adds a great technology to our biopharma portfolio, and we are continuing to pursue attractive bolt-on acquisitions. During the quarter, we also announced an accelerated share repurchase program to return $500 million of excess capital to shareholders while preserving sufficient liquidity for value-creating investments. While current demand conditions are solid, our management posture reflects growing caution with the macroeconomic outlook. As such, the balance of the year will be proactively reducing output in several businesses to draw down inventory balances and initiating cost containment measures where appropriate. Our business model is flexible, as our 2020 performance has proven. We firmly believe that ongoing improvements in the supply chain and available production capacity will allow us to match production to meet demand within prevailing lead times in Q1 of 2023. We are adjusting our full year guidance to reflect the negative translation impact of foreign exchange on our revenue and earnings. The estimated full year impact of foreign exchange to EPS is approximately 37 cents per share with notable acceleration during the third quarter as the dollar rallied against most of our trading currencies. Let's skip slide four and move on to slide five. All in all, the quarter developed as we expected. The capital goods portions of the portfolio delivered strong top line and margin expansion On the back of strong order books, lower input costs cycling through inventory as well as pricing actions taking hold. Engineered products revenue is up 18% organically in the quarter on broad-based strength across the portfolio in major geographies as well as pricing actions. Margins were up 250 basis points year over year as our capital investments and productivity begin to show results and our investments in e-commerce platforms drive aftermarket volumes. We expect margins to continue their upward trajectory through the balance of the year on solid volumes and improving price-cost dynamics. Clean energy and fueling was roughly flat on an organic basis. Revenue performance was up in clean energy components, vehicle wash, fuel transport, and below-ground retail fueling, but was offset by lower shipments and order trends and above-ground retail fueling, driven by customer construction delays in North America as well as overall caution among operators in Europe and Asia as a result of the weakening macro-EMR. Margins of the quarter were flat year-over-year as our clean energy margin mix and decisive cost actions were able to offset the reduced volumes and fixed cost absorption in the above-ground dispenser business. During this quarter, we began to take cost reduction actions in our dispenser business that were in part enabled by the global product platform harmonization and complexity reduction work that we've completed in the past 12 months, which enabled us to reduce our European dispenser SKUs offering by over 50%. These actions will continue through the first half of 23 and will result in meaningfully improved operating margins going forward. In imaging and identification, volumes for our marking and coding printers and spare parts recovered well on improving electronics input availability, as well as the roll off of COVID lockdowns in China from the prior quarter. Pricing actions and consumables and service demand were positive contributors in the quarter. FX is a negative henwood to absolute revenue and profits in this segment given its large base of non-US dollar revenue. Q3 margins in imaging and ID were very strong, improving 230 basis points driven by pricing actions, product mix richness, and improved operational efficiency. Pumps and process solutions posted 2% organic growth. solid performance in industrial pumps, medical and thermal connectors, polymer processing and recycling, and precision components. As expected, the biopharma components business, which delivered peak revenue in Q3 last year on COVID vaccine demand, declined year over year in the quarter as the biopharma industry continues to pivot from COVID vaccines to a growing suite of biologic therapies. Our non-biomedical and thermal connector business has grown 30% year to date, driven largely by demanded data center and electrical vehicle charger cooling applications. On the back of this demand and forecasted demand, we are finalizing the commissioning of a new assembly plant in the Minneapolis area in Q4. Operating margin in the quarter remained robust at approximately 30% despite a larger proportion of revenues from industrial products and from improved volumes, pricing, and efficiency programs across the segment. Top line and climate and sustainable technologies continue to be strong, posting 19% organic growth on solid volume and price and actions across all businesses and geographies. All three businesses have significant backlogs into 2023. Our capacity expansion programs and CO2 systems and heat exchanges remain on schedule as we continue to invest behind areas of secular growth beyond 2022. Margins were up 500 basis points in the quarter on price and strong volumes, materially improved productivity in food retail as a result of capital deployment projects, and complexity reduction and improved portfolio mix in can-making equipment and spares and heat exchanges. I'll pass it to Brad here.