Dover Corporation

Good morning and welcome to Dover's second quarter 2023 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 would like to ask a question during this time, please press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star 2. 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, Shelby. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through August 15th, and a replay link of the webcast will be archived for 90 days. 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.

Thanks, Jack. Let's start on slide three. Our results are in line with our internal forecasts in the second quarter. Our secular growth exposed businesses that we highlighted at our recent Investor Day outperformed in the quarter with heat exchangers. natural refrigerant systems, and polymer processing, all posting growth in excess of 20%. During the quarter, we incurred operational headwinds from our vehicle service group main production facility as a result of an ERP implementation, which cost us approximately $50 million in revenue and approximately $0.10 of EPS. This one's on me. The business has been doing an excellent job on efficiency actions related to fixed related to fixed costs, SQ, SKU management, and vertical integration over the past 18 months, which has been reflected in the margin performance, conducting a much-needed ERP upgrade, which is fundamental to our e-commerce ambitions, while finishing a large CapEx project was, in retrospect, overly ambitious, and I guess I should have known better. We exited June, the good news is we exited June with far improved production performance at the site, and we'll try our best to claw back the lost volumes in the second half. We have a constructive outlook for the second half of the year and are narrowing our annual EPS guidance to $8.85 to $9. Since the start of the year, we expected 2023 performance to be weighted to the second half due to post-pandemic destocking across the industrial economy. and the gradual recovery in several of our end markets with the seasonality of second half earnings consistent with what we saw in the pre-pandemic years. Underlying demand remains good across the portfolio and a significant volume of business is already in the backlog. We proactively intervened on our cost structure starting in the latter half of 2022 and we have continued these structural cost reductions in 2023, driving material earnings benefits. As a result, we are less reliant on top-line volume or price cost to achieve our forecast in the second half. With our solid demand outlook, flexible business model, and execution playbook, we are confident delivering our second-hand guide. We also see a solid foundation building for 2024. A large portion of our portfolio is experienced secular or cyclical growth. momentum growth exposures that should persist in a variety of macro conditions and we are proactively adding capacity to ensure we continue to win in these markets. We also expect solid carryover benefits into 2024 from previously announced cost reduction actions. These organic initiatives together with a strong acquisition pipeline and meaningful cash flow generation will keep us on track to achieve our long-term growth and value creation goals we set forth in our investor day in March. Let's go to slide four. Consolidated organic revenue was down 3% in the quarter despite growth in three of the five segments due to expected comparable volume declines in several end markets and the aforementioned shipment disruptions in vehicle market, which cost us 2% to the top line. Organic bookings were down 8%, resulting in a book-to-bill of 0.92, reflecting better lead times across the portfolio and continued strong shipments against backlogs in our longer cycle and secular growth-exposed businesses. As a result, our backlog continues to normalize but still remains elevated relative to the pandemic levels. Segment margin was 20.2 with margin performance preserved despite negative mix and lower volumes due to proactive cost containment actions and lower input costs. We expect the roll forward of these actions together with more normal demand seasonality to drive sequential and comparable operating margin improvement in the second half. Let's skip to slide five and we'll go through some detailed results on the quarter. Engineered products was down 8% organically in the quarter. The waste handling business posted a particularly strong quarter with improving chassis availability and aftermarket attachment rates driving solid growth in volumes and new orders. We are presently taking capacity reservations for 2024 and we will be ramping production to meet demand progressively over the balance of the year. Margins were down 50 basis points year over year, principally driven by lower volumes in vehicle aftermarket, which offset the robust margin improvement in waste handling. Clean energy and fueling declined 9% on an organic basis as the final quarter of EMV comps impacted the top line and margin mix. Vehicle wash and clean energy were down slightly in the quarter, as distribution inventories were brought down in line with the increased cost to carry on higher interest rates. Channel checks indicate that we are now at appropriate levels for expected second half demand. Margins in the quarter were down 100 basis points and lower volumes and mix, but partially offset by significant cost reduction actions taken in the retail fueling business as we pivot this business to margin and cash flow maximization. Imaging and ID was flat organically on solid growth in our core marketing coding business in Europe and the Americas, as well as strong sales in software serialization. Shipments in Asia were lower. FX remained a negative headwind to absolute revenue and profits in the segment, given its large base of non-US dollar revenue. Margins in imaging and ID were strong at 23%, improving 40 basis points on pricing and cost controls. Pumps and process was up 1% organically in the quarter with particular strength in polymer processing equipment, precision components, thermal connectors, and hygienic dosing systems. Volumes in industrial pumps was softer due to channel reductions. Operating margin was down due to lower mix of biopharma. Top line in climate and sustainability technologies were up 4% organically. Demand trends remain robust in heat exchangers. and CO2 refrigeration systems driven by global investments in sustainability. The segment posted a strong seven set margins per quarter, up 210 basis points year over year on strong volume conversion, productivity, and positive price cost and mix of products delivered. I'll pass it to Brad from here.