dover q308_slides
TRANSCRIPT
Dover CorporationThird Quarter 2008
Conference CallOctober 22, 20088:00 a.m. Eastern
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Forward Looking Statements
We want to remind everyone that our comments may contain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward looking statements.
We would also direct your attention to our internet site, www.dovercorporation.com, where considerably more information can be found.
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Dover’s Q3 2008 Performance
Continuing Earnings Per Share
2005 2006 2007
$2.12
$2.90$3.30
Revenue $2.0B $1.9B +5%
Net Earnings (cont. ops) $190M $182M +5%
EPS (cont. ops) $1.01 $0.90 +13%
Segment Margins 15.9% 15.6% +30bps
Organic Growth 2.8% 3.3%
Acquisition Growth 1.7% 9.7%
Free Cash Flow $306M $294M +4%
•Record EPS of $1.01 (first time in DOV history quarterly EPS>$1.00)
•Strong 3rd quarter free cash flow at 15.6% of revenue; YTD $607M (up 42%)
• Q3 share repurchases = $114M, $500M repurchase program completed
•Strong improvement in inventory turns and working capital as a % of revenue
•Continued momentum in synergy and integration programs
Q3 ‘08 Q3 ‘07 Q/Q
2008
YTD$2.76
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Revenue Growth (Q3 2008)
Industrial Products
Engineered Systems
Fluid Management
Electronic Technologies
Total Dover
Organic 6.1% -5.9% 15.6% -2.9% 2.8%
Net Acquisitions
-0.2% (A) 0.0% 4.0% 0.0% 0.8% (B)
Currency 0.5% 3.2% 1.0% 2.7% 1.8%
Total 6.4% -2.7% 20.6% -0.2% 5.4%
(A) Acquisition growth was 2.7% before disposition of a line of business.
(B) Acquisition growth was 1.7% before disposition of a line of business.
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PERFORMANCECOUNTS
Target Q3 2008 Q3 2007
Inventory Turns 8 7.0 6.5
Earnings Growth 10% 4.5% 17.4%
Operating Margins 15% 15.9% 15.6%
WC as a % of Revenue 20% 18.4% 19.3%
ROI (Operating) 25% 26.0% 26.0%
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Industrial ProductsRevenue($ in millions)
Operating Earnings($ in millions)
↑ 5%
↑ 6% ↓ 4%
Flat
• Revenue increases driven by military, international, solid waste and oil field service markets, partially offset by softness in construction and auto service markets
• 3rd quarter earnings impacted by restructuring, cost containment activities and moderating market conditions
• Effective pricing initiatives offset majority of material cost increases
• Market trends should continue for remainder of the year
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Engineered Systems
• Revenue decline impacted by expected softness in refrigeration equipment markets, partially offset by steady performance in Product ID and strong performance in heat exchanger business
• Product mix and softer demand impacted earnings
• Earnings reflect cost efficiency benefits from MARKEM•Imaje integration, net of $2 million related expense
• Direct Coding remains solid with over 50% of revenue coming from consumables
• End-market trends will continue in 4th quarter
Revenue($ in millions)
Earnings( $ in millions)
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Fluid ManagementRevenue($ in millions)
Operating Earnings($ in millions)
↑21% ↑29%
↑18%↑26%
• Revenue increase driven by growth in oil and gas drilling, demand for power generation and global demand for pumps, slightly offset by weakness in permanent well monitoring
• Revenue growth, operational improvements and product mix increased earnings and margins
• Business trends will moderate during 4th quarter, but results will be solid due to positive trends in power gen , continued technology shifts, healthy backlogs & profit improvement programs
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Electronic TechnologiesRevenue($ in millions)
Operating Earnings($ in millions)
• Electronic markets held steady with particular strength in cell phone and military end markets
• Knowles continues to win customer orders through new product initiatives
• Military and Space programs continue to be growth drivers of the component businesses, but telecom is slowing
• Impact of 1st quarter restructuring is showing improvements in both leverage and actual results
• Printed circuit board & semi-conductor related markets likely to be challenged in the 4th
quarter
FLAT ↑6%
↑7% ↑6%
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Geographic Revenue Mix (YTD September 2008)
Dover YTD Growth Rate: 8%
YTD
Growth Rate
8.7%16.2%
7.9%
5.3% Growth in Asia was driven by increases in Electronic Technologies and Engineered Systems
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Third Quarter and YTD Overview
• Net Debt to Capital Ratio– 27.4%: essentially flat compared to 2007 year-end, higher total debt level to
fund share repurchase program offset by higher cash from operations
• Free Cash Flow– QTR: $305.9 million; 15.6% of revenue– YTD: $606.7 million; 10.4% of revenue
• Effective Tax Rate– QTR: 25.7%, down 90 bps
• Higher earnings in low-tax overseas jurisdictions– YTD: 28.1%, up 80 bps
• Prior year period included greater amount of benefits recorded for tax positions that were effectively settled
• Share Repurchase Program– QTR: Repurchased 2.4 million shares for $114 million– YTD: Repurchased 10 million shares for $462 million
Integration and Synergy Programs
• Integration activities– Markem•Imaje integration entering final phase
• Combine ERP systems & back-office functions• Continue to post revenue growth during integration
– Norris & Alberta Oil Tool• Reduced costs, improved yield, improved production capacity
– Pump Solutions Group• Supply chain improvements, plant rationalization & significant revenue
synergy
– Other opportunities identified
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3rd Quarter benefit : $0.05 EPS YTD 2008 benefit: $0.11 EPS
Integration and Synergy Programs
• Other Key Initiatives– Global Procurement Program
• Comprehensive review of supply chain and procurement activities• Building upon integration initiatives already underway• Total incremental earnings improvement could be on a similar scale to
original synergy estimates
– Post Merger Integration Process (PMI)• Using experience gained from past successful integrations
(Markem•Imaje, Vectron/CFC, etc.)• Creating formal process and toolkit, and standardized measurement
process• Program will enhance the success of our acquisition program
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2008 Outlook – Full Year
• Organic growth: low-to-mid single digits• Margin improvement: Full year up 10 – 25 bps• Capital expenditures: $150 – $165 million• Interest expense: $100 - $103 million• Full-year tax rate: 26% – 27%• Free cash flow for full year: > 10% of revenue• Corporate expenses: $110 - $115 million
– Driven by higher non-recurring professional fees and discrete management transition costs