Dover Corporation

Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero. Good morning and welcome to Dover's third 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 Andre Galuk, Vice President, 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 star and then the number one on your telephone keypad. If you would like to withdraw your question, please press 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. Andre Galluc. Please go ahead, sir.

Thank you, Angela. Good morning, everyone, and thank you for joining our call today. An audio version of this call will be available on our website through November 14th, 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 this call over to Rich.

Okay, thanks, Andre. We posted very encouraging results in what has become a dynamic operating environment across our different end markets and geographies. Revenue and order rates improved sequentially in the quarter on normalizing lead times and inventories, improving demand across several end markets, and a return to normal seasonality. Our backlog continued to normalize in the quarter in tandem with lead times as we shipped longer-dated orders from our books. Broadly speaking, margins performance in the quarter was exceptional, reaching an all-time high driven by productivity, cost controls, and disciplined pricing, which more than offset the negative product mix in pumps and process solutions. The proactive structural cost actions we have undertaken over the last 12 months are paying dividends and should support strong margin conversions going forward. Our recent portfolio moves, the acquisition of FW Murphy and the sale of Dosteco, follow the portfolio intent and priorities that we reiterated our investor day earlier in the year and continue our portfolio evolution towards higher growth and higher return businesses that attract evaluations. Our balance sheet position and cash flow are strong and provide attractive optionality as we continue to pursue bolt-on acquisitions in a more favorable M&A environment and evaluate opportunistic capital return strategies. We have reduced our EPS guidance for the full year and are now targeting the low end of the previous guidance range. This is driven by continued lag in biopharma recovery that we expected to happen in the second half of the year, temporary cost and supply chain issues that I will expand upon later, and general trends towards inventory liquidation across supply chains as a result of macro uncertainty and prohibitive carrying costs. I will cover the specifics in the segment commentary. Overall demand remains good across the portfolio considering the plentiful negative macro headlines. Our new product launches and capacity additions and identified areas of growth are all on track. We expect that our fourth quarter production posture will help balance our channel inventories with prevailing demand, lead times, and inventory carrying costs by the end of 2023. We are increasingly convinced that inventory position will be critical to the pricing dynamic and financial results moving into 2024. Going into 2024, we expect to see growth in our bookings driven by secular growth exposed and recovering end markets, and we expect to carry an elevated backlog into next year in select businesses. Between our demand outlook, flexible business model, and in-flight structural cost actions, we see good foundation for value creation in 2024. Let's move on to the performance highlights on page four. Consolidated revenue was down 2% in the quarter despite sequential growth in four out of five segments. Bookings were up sequentially, but down 4% organically over a year, resulting in a book to bill of 0.93, reflecting better lead times and strong shipments against our longer dated orders. As a result, our backlog continued to normalize, but remains elevated relative to pre-pandemic levels. Segment margins were up 50 basis points to 21.7, a record since the Apogee spin, as broadly based productivity and portfolio improvements were more than able to offset biopharma mix. Adjusted EPS was up 4% to $2.35 in the quarter on positive price-cost dynamics, together with cost containment actions, strong execution, more than offset lower volumes. Let's go to slide five. Engineer products was down 3% organically in the quarter. General weakness in Europe and Asia together with lower shipments and vehicle service more than offset the record quarter in aerospace and defense and strong shipments in waste hauling. Order rates in the segment were up 12% organically in the quarter, primarily driven by waste handling business, which continues to take capacity reservations well into 2024. Margins at 20% were up 260 basis points year-over-year, driven by a better mix of reoccurring and aftermarket revenue, price cost, and productivity investments made in previous periods. I'd like to mention the announcement of our agreement to divest Destaco, one of the operating units within the engineered product segments, and an attractive valuation. This is not related to the previous performance, but we leave the valuation we achieved underscores the quality and strong performance of the businesses that we have proven to have best-in-class operating margin and less cyclicality than typical capital goods businesses. Clean energy and fueling revenue was flat organically in the quarter. We saw double-digit growth in components for LNG and hydrogen markets, and the above-ground retail fueling business returned to growth as post-EMV recovery is in progress. High interest rates led to to project pushouts in vehicle wash and an unforecasted channel destocking has resulted in slower activity in LPG components and below-ground fueling, which are highly margin-accretive to the segment. Margins in the quarter were at 20 percent. We're up 40 basis points on structural cost actions in our retail fueling business and solid execution more than offset negative mix. Imaging and ID was down 4%, organically a slowing demand in China, and a difficult comparable period in marking and coding printer shipments more than offset the growth in serialization software and marking and coding consumables and professional services. Margins in imaging and ID was strong at 26%, though down year over year, against an all-time record high for the segment in the comparable quarter. Pumps and process solutions was down 7% organically in the quarter. Precision components and hygienic dosing systems posted another quarter of excellent growth, but were more than offset by the continued softness in biopharma. Industrial pumps and polymer processing were staying in the quarter. Segment margin at 27% was down to the lower mix of biopharma revenue. Top line in climate and sustainability technology was up 2% organically. CO2 systems continued its double-digit growth trajectory. Heat exchanger shipments remained strong in North America and Europe, though we experienced the beginning of demand headwinds in Asia. The segment posted strong margin performance, 18% per quarter, with our food retail business, refrigeration business, operating at a robust 15% margin. The steady margin improvement trajectory in refrigeration has been noteworthy as positive mix and productivity investments have driven excellent margin conversion. We expect the margin improvement trend to continue for the whole segment. I'll pass it on to Brad here.