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1. FINAL TRANSCRIPT DOV - Q1 2007 Dover Corporation Earnings
Conference Call Event Date/Time: Apr. 25. 2007 / 8:00AM ET
www.streetevents.com Contact Us 2007 Thomson Financial. Republished
with permission. No part of this publication may be reproduced or
transmitted in any form or by any means without the prior written
consent of Thomson Financial.
2. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call CORPORATE PARTICIPANTS Paul
Goldberg Dover Corporation - Treasurer & Director, IR Ron
Hoffman Dover Corporation - President & CEO Rob Kuhbach Dover
Corporation - VP, Finance & CFO CONFERENCE CALL PARTICIPANTS
Jack Kelly Goldman Sachs - Analyst Steve Tusa JPMorgan - Analyst
John Inch Merrill Lynch - Analyst Alex Blanton Ingalls & Snyder
- Analyst Chris Wells Robert W. Baird - Analyst Nigel Coe Deutsche
Bank - Analyst Wendy Caplan Wachovia Securities - Analyst Ned
Armstrong FBR & Co. - Analyst PRESENTATION Operator Good
morning and welcome to the first-quarter 2007 Dover Corporation
earnings call conference call. With us today are Ron Hoffman,
President and Chief Executive Officer of Dover Corporation, and Rob
Kuhbach, Vice President of Finance and Chief Financial Officer of
Dover Corporation, and Paul Goldberg, Treasurer and Director of
Investor Relations of Dover Corporation. After the speakers'
opening remarks, there will be a question and answer period.
(OPERATOR INSTRUCTIONS). 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. Paul Goldberg. Mr. Goldberg,
please go ahead, sir. Paul Goldberg - Dover Corporation - Treasurer
& Director, IR Thank you, Nelson. Good morning and welcome to
Dover's first-quarter earnings call. With me today are Ron Hoffman,
Dover's President and Chief Executive Officer, and Rob Kuhbach,
Dover's VP of Finance and CFO. Today's call will begin with some
comments from Ron and Rob on Dover's operating and financial
performance. We will then open the call up to questions. In the
interest of time, we kindly ask that you limit your questions to
one or two with a follow-up. www.streetevents.com Contact Us 1 2007
Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any
means without the prior written consent of Thomson Financial.
3. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call Please note that our current
earnings release and associated presentation can be found on our
website, www.DoverCorporation.com. This call will be available for
playback through 5:00 PM May 9, and the audio portion of this call
will be archived on our website for three months. The replay
telephone number is 877-519-4471. When accessing the playback, you
will need to supply the following reservation code, 865-5685.
Before we get started, I would like to remind everyone that our
comments today, which are intended to supplement your understanding
of Dover, may contain certain 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 these anticipated in any such forward-looking
statements. Also, we undertake no obligation to publicly update or
revise any forward-looking statements except as required by law. We
would also direct your attention to our website where considerably
more information can be found. With that, I would like to turn this
call over to Ron. Ron Hoffman - Dover Corporation - President &
CEO Thanks, Paul. Good morning, everyone. Thank you for joining
today's conference call. I'm pleased to report that Dover posted
the best first-quarter results in its history and set new records
for sales, bookings and backlog. Our companies delivered solid
results in light of a very soft start to the year that built
sequentially during the quarter. As shown on slide three, 2007 is
off to a very good start with record quarterly revenues of over
$1.8 billion, up 18% with operational earnings of $232 million up
2% over the prior year. Dover posted its best ever first-quarter
earnings per share from continuing operations at $0.67, up 5% over
the prior year. All six subsidiaries posted revenue gains, and four
generated double-digit earnings growth compared to the prior year
period. Diversified, Electronics and Industries also recorded
strong gains in operating leverage. First-quarter earnings records
were established at the Process Equipment, Mobile Equipment, Oil
and Gas Equipment, Fluid Solutions and Material Handling groups.
These positive gains were partially offset by the continued
headwinds of higher material prices, predominately aluminum, copper
and high nickel content steel, one-time implementation costs for a
new ERP system in the Product ID businesses, short-term margin
weaknesses in the Food Equipment group and the expected slowdown in
the Automation & Measurement group. Despite the tough market
conditions facing the A&M companies, I was pleased to see the
solid double-digit margins holding up well, supporting our
expectation of decreased volatility in this group's operating
margin. Incoming orders were at an all-time high, $1.9 billion, up
14% over last year, generating record backlogs of $1.5 billion, up
17% over last year. This was very encouraging and reflected
continued strength in the Process Equipment, Mobile Equipment, Food
Equipment and Oil and Gas Equipment markets. During the quarter,
DEK, Heil Environmental, Waukesha Bearings, and Rotary Lift were
awarded the 2006 Dover President's Award for meeting all five Dover
Metrics. That is eight inventory turns, greater than 10% earnings
growth, 15% margins or better, 20% or less working capital and over
25% after-tax return on investment. I applaud the success of these
great companies as we continue to see significant operating
improvements across the majority of our companies as they strive to
achieve the Dover Metric goals. As highlighted on slide six, Dover
met two of its five metrics during the quarter, and we are
confident of additional progress throughout the year. During the
quarter, Dover invested $118 million in three add-on acquisitions
led by Pole/Zero that was added to our Microwave Products group.
Pole/Zero is a leader in the development of specialty defense
communications systems. We like the military focus of Pole/Zero to
broaden the market base of the Microwave Products group.
www.streetevents.com Contact Us 2 2007 Thomson Financial.
Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the
prior written consent of Thomson Financial.
4. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call Looking forward, the
acquisition pipeline continues to be quite active, and we are being
highly selective in this price competitive environment. Acquisition
spending for the year continues to be targeted at roughly 10% of
annual revenue, but we are prepared to step up our spending if
significant value creating opportunities arise. The two large
acquisitions of 2006, Paladin and Markem, as forecast in our last
earnings call were dilutive to EPS. The first-quarter EPS dilution
was $0.03. Paladin, though facing a decline in light and heavy
construction, has focused on enlarging their Mexico facility while
implementing their game plan for synergistic actions that will
enhance the performance of this broad group of companies. Markem
had a very solid first-quarter performance, and we are strongly
encouraged by the opportunities for synergy and cost reduction
across our product identification companies. Both of these
acquisitions are expected to show improved performance during the
year. During the quarter, Dover spent $24 million buying back
500,000 shares of stock to partially offset the dilution of our
stock option program. We anticipate cash flow to improve during the
second quarter and will focus our cash to support our CapEx
requirements, invest in value-creating acquisitions that meet our
investment criteria, pay down debt or continue to repurchase
shares. As shown on slide eight, Dover's organic revenue growth
rate was 3.8% for the quarter. However, the rate would have been
over 6% absent the strong pullback in the Electronics sector. For
the full year, we continue to anticipate organic growth in the 5 to
7% range, in line with our long-term objectives. We continue to be
very excited about the level of new product initiatives being
implemented across the majority of our companies. Acquisition
growth was 12% of revenue, reflecting the impact of Paladin, Markem
and Pole/Zero, while foreign currency accounted for 2% of our
growth. Looking forward to the second quarter, we expect our
businesses to show increased strength, particularly in the Product
Identification, Mobile Equipment and Oil and Gas groups. The Oil
and Gas Equipment group will continue to be our earnings leader
even as the rate of growth moderates slightly. Each of these groups
booked well, have strong backlogs and should have fewer onetime
cost issues than experienced in Q1. Our A&M segment is expected
to improve sequentially, but will still feel the effects of reduced
demand compared to the prior year. In line with our normal seasonal
trends and assuming the global economy remains healthy, we expect
the second quarter to be significantly improved over this year's
first quarter and up over the second quarter of last year. We also
anticipate full-year revenue and earnings will once again be
record-setting, substantiating the strength and global engagement
of our market-leading companies. Now that the past two years work
of optimizing our portfolio of companies is essentially behind us,
Dover can now focus on refining its organizational structure and
apply its energies and capital on more defined growth platforms. We
are confident in our ability to grow the Company and build
increased shareholder value. In closing, I want to congratulate our
34,000 employees around the world for their strong work ethic and
dedication to continually improving Dover's results. Your efforts
generated record first-quarter results in many areas, and we look
forward to additional improvements in the upcoming quarter. I am
confident that Dover employees truly understand that their
performance counts. With that, I will turn it over to Rob Kuhbach
for an overview of our subsidiary performance and financial
highlights before we open up the call for your questions. Rob? Rob
Kuhbach - Dover Corporation - VP, Finance & CFO Thanks, Ron.
Good morning, everyone. Taking a closer look at each segment,
starting with slide number nine, Dover Resources continued to build
on its strong 2006 performance by setting records for revenue,
earnings and bookings in the first quarter of 2007. The Material
Handling group led the segment's revenue and earnings growth, which
was driven by its acquisition of Paladin in August 2006.
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Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the
prior written consent of Thomson Financial.
5. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call From a core business
perspective, the Oil and Gas group continued to lead the way with
double-digit growth in revenue and earnings as market conditions
remain strong. Lastly, the Fluid Solutions group also had revenue
and earnings increases, although margins were negatively impacted
by acquisition integration costs. Dover Industries turned in the
second-highest earnings contribution for the first quarter of 2007,
due to strong energy, military and transport markets served by the
Mobile Equipment companies. These improvements were somewhat offset
by quarterly declines in revenue and earnings in the Service
Equipment group due to weakness in the domestic automotive and
carwash industries. Dover Technologies experienced revenue growth
in the quarter due to the December 2006 Markem acquisition, which
has exceeded our revenue and earnings expectations. However, core
revenue and earnings comparisons were substantially impacted by a
variety of factors, primarily softness in the general electronics
market, initial purchase accounting expenses related to Markem, an
unusually strong first quarter of 2006 and a major software system
implementation project at Imaje. Excluding the impact of 2006
acquisitions, segment margins would have been over 10% on revenue
down roughly 10% from the prior year period. The majority of the
overall Technology segment earnings decline reflected lower A&M
margins on reduced sales. Despite these factors that impacted the
quarter-over-quarter comparisons, margins in both groups were solid
double-digits and are expected to improve during the balance of
2007. Dover Diversified leveraged a 19% earnings increase on a
revenue increase of 11% due to strong sales and earnings growth at
the Process Equipment companies that served the broad heat
exchanger and energy markets. The Industrial Equipment companies
partially offset these increases due to a slowdown in the housing
construction market and a decline in the aerospace MRO revenue.
Restructuring costs in the aerospace business also impacted the
group's earnings for the quarter. Dover Systems experienced strong
revenue growth in the quarter due to higher sales in both groups in
the segment. However, earnings at the Food Equipment companies
which typically dominate this segment's results were negatively
impacted by higher raw materials costs, which are being addressed
by pricing initiatives, and by product mix. Although the segment's
margins declined compared to the prior year, sequential margins
were up 110 basis points, primarily due to the strong leverage
generated in the Packaging Equipment companies. Dover Electronics
had a strong first quarter of 2007 with solid growth at all of the
component companies, particularly those serving the frequency
controls and micro-acoustics markets. Overall more than half of the
segment's revenue growth was organic in nature, and within the
Components group, organic revenue growth was 10%. The Commercial
Equipment companies, which are relatively small contributors to the
segment's performance, made little contribution to year-over-year
improvement as they had a mixed quarter with modest revenue growth
and meaningful earnings declines in the ATM and Chemical Dispensing
businesses. Here are some additional corporate data. Looking at our
capitalization, Dover ended the quarter with a net debt to total
capitalization of 28.1%, up from the 2006 year-end level of 26.8%.
This largely reflects lower cash from operations and an increase in
commercial borrowings. Free cash flow generated in the first
quarter of 2007 was down about $76.3 million compared to the prior
year period, impacted by higher payments for year-end incentive
compensation, taxes and capital expenditures over the prior year.
Capital expenditures are expected to moderate during the balance of
the year, and cash tax payments are expected to rise over prior
year amounts, reflecting higher earnings and ongoing resolution of
tax issues. As was the case last year, full-year free cash flow was
still expected to be in the range of 8 to 10% of revenue. Our tax
rate for the quarter was 28.4%, favorably impacted by the extension
of the US R&D credit and higher earnings from low-tax foreign
jurisdictions. www.streetevents.com Contact Us 4 2007 Thomson
Financial. Republished with permission. No part of this publication
may be reproduced or transmitted in any form or by any means
without the prior written consent of Thomson Financial.
6. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call Finally, we made three add-ons
acquisitions in the quarter for a net cash outlay of about $118
million, and we finalized previously announced sales of two
businesses resulting in proceeds of $29 million and a net loss of
$1.6 million. With this overview, let me turn the call back to Paul
for questions. Paul Goldberg - Dover Corporation - Treasurer &
Director, IR Nelson, could you compile some questions, please?
QUESTIONS AND ANSWERS Operator (OPERATOR INSTRUCTIONS). Jack Kelly,
Goldman Sachs. Jack Kelly - Goldman Sachs - Analyst Just starting
with Technologies, Ron, we got some detail from Rob on that. But as
I look at this kind of three buckets, you have the ERP issues at
Imaje, I guess new product issues at O'Neil, and then Everett
Charles. Can you just give us some sense of how quickly you think
things turn in those three buckets? It might be difficult with
Everett Charles, but just some sense of when things might turn
around? Ron Hoffman - Dover Corporation - President & CEO Jack,
first of all, I would like to just make a comment if you would
allow me. I understand this might be your last conference call
covering Dover after your many years of service to Goldman Sachs,
and I guess I would just like to say thank you for your long-term
interest in Dover and coverage of Dover. I think it has been a nice
relationship, and I wish you well as you head towards retirement
down the road. Jack Kelly - Goldman Sachs - Analyst Thank you very
much, Ron. I appreciate that. Ron Hoffman - Dover Corporation -
President & CEO Referring to Technologies, certainly I think
the thing that really stands out most is, as you recall the
technology cycles traditionally, we do have our lowest period in
the first quarter of the year. After we get past the holiday
season, the electronics world tends to regroup after the Chinese
New Year issues, and then we start to get a better barometer on the
market. We are coming off of a very tough comp period. '06 was a
very good year for the Technologies group in total, certainly in
our A&M businesses. They had a greater than normal year. If you
look back at two-year cycle, three-year cycles, whatever you will
typically see this downturn in the A&M sector such that we saw,
I think the thing, Jack, that we are pleased with and I think the
thing that we shared is we were doing many of these divestitures in
our Technology group. The companies that we have remaining tend to
hold up better in the down cycles, tend to have better overall
margins. And what we find in tracking our data is that even as we
see these swings in first-quarter performance, many times the
Technology sector, we're seeing these companies
www.streetevents.com Contact Us 5 2007 Thomson Financial.
Republished with permission. No part of this publication may be
reproduced or transmitted in any form or by any means without the
prior written consent of Thomson Financial.
7. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call that we own, being DEK,
Everett Charles and OK International, the margins are ratcheting up
on those every time we go into one of these down cycles. If we look
at the ERP spending at Imaje, it was really about a $0.01 impact
relative to this ERP system we have put in. I think if we were
managing purely for peak returns, knowing that we had the extensive
write-offs of Markem in the first quarter, you would delay
something like that. But we always take the long-term view, and we
tend not to do that. So we felt it was in Imaje's best interest to
go forward. I think what you're going to see is Imaje had a very
good March, which is more indicative of what their long-term
results have been. So they got off to a slow start, had these extra
costs. I think the true Imaje showed itself back up again in March,
and I don't have any real concern about them going forward. If we
look at Everett Charles and let's just say the A&M companies in
general, basically most of the semi-data is still sitting there
reflecting roughly less than 85% utilization. Typically I think
we've always said that we need to see that utilization get above
85% to generate robust change in the electronic equipment demand.
That or the fact that there needs to be retooling of product, new
test equipment for additional products. That has not surfaced yet.
I think we will still fight some tough comps in the second quarter,
but it will be improved over the first quarter. So I think that is
still a reality. I don't think we can call the turn yet; other than
I think we are encouraged at the activity level showing some
additional life, but it is certainly not going to be back up to the
levels of '06. So I think the sector we are still pleased to own
properties in, if you recall now that we are sitting here talking
about nice double-digit margin performance in a very down period
and we have some very nice margin on the upside. So this group
tends to perform very well in the uptick. As far as calling the
turn, I am not concerned about Imaje or our Product ID businesses.
I believe Markem got off to a great start. It had a lot of
headwinds in the acquisition accounting costs. Those go away at the
end of the first quarter. That is roughly about a $5 million swing
that will go to earnings going forward. I think that's going to be
very impacting. So I think we are kind of seeing in its worst-case
at the moment. So don't over-read issues on the Product ID
business. Jack Kelly - Goldman Sachs - Analyst Okay. Just the $5
million was just the Product ID hit between the ERP and Markem's
dilution; is that it? Ron Hoffman - Dover Corporation - President
& CEO The $5 million really reflects the impact of the usual
first-quarter inventory write-down. Write-up and write-down, you
recall when you do an acquisition (multiple speakers) that you have
that write-up, write-down phenomenon. So that reflects that impact.
That is a Q1 -- that is the first order of any acquisition. In this
case it was about $5 million. So that goes away. There does
(multiple speakers) Jack Kelly - Goldman Sachs - Analyst And then
ERP goes away, right? Ron Hoffman - Dover Corporation - President
& CEO ERP is -- yes, basically disappears. So that is on top of
the $5 million. www.streetevents.com Contact Us 6 2007 Thomson
Financial. Republished with permission. No part of this publication
may be reproduced or transmitted in any form or by any means
without the prior written consent of Thomson Financial.
8. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call Jack Kelly - Goldman Sachs -
Analyst Got it. Just one last question on Hill PHOENIX. The margin
pressure you had mentioned I guess raw material related, so it's
copper, aluminum, etc., how much was recouped through the price
increases? I guess really the thrust of the question, it sounds
like there is a little bit of a repeat of what happened in the
third quarter of last year, and then you implemented some price
increases in the fourth. And now we are kind of -- it seems like
you're just behind the curve in terms of implementing raw material
price increases. Rob Kuhbach - Dover Corporation - VP, Finance
& CFO Jack, you are always a little bit behind the curve. Quite
traditionally you look at your cost all the time and you adjust
your price relative to that. But I think we have seen certain
commodities of price move faster than anticipated and maybe more
continuous than anticipated. But I guess I would also like to
direct that, yes, there were headwinds of some material cost issues
relative to Hill PHOENIX. They have taken pricing actions that are
going to be -- that basically being implemented as we roll into the
second quarter. I would also say there was a bit of a mix issue at
Hill PHOENIX between case and refrigeration that impacted the
results of the group. And I think that that was maybe more
impactful of what we would normally comment on. I think
refrigeration is an area that we have performed quite well in, and
that tends to be at the forefront of new store or rebuilds or --
excuse me, refurbs that go on in stores. That activity seemed to be
in a bit of a wait and see attitude. I think what we are seeing
going forward, though, is a real rebound in that sector of the
business. So I think the issue is more one of price headwinds
long-term. I think the mix issue of Hill PHOENIX is going to be
better as you roll into second quarter, and I think it reflected
much better results in the second quarter. Jack Kelly - Goldman
Sachs - Analyst With that better compressor mix then on the
refrigeration side, Ron, do you think Hill PHOENIX has a chance of
hitting the Dover Metric in terms of margins this year? Because it
sounds like the first quarter was hit pretty hard the other way.
Ron Hoffman - Dover Corporation - President & CEO Well, I think
they came back very much to the Dover Metric margins in the month
of March, and they have always had good inventory turns, good
working capital management. They were a Dover President Award
winner in '06, and they slid down slightly on margins last year,
but just barely fell underneath the wire. We are pretty strict on
that. They were above, actually in the month of March, above our
Dover Metric margins. So I'm very confident that they can be at 5
for 5 performer over time again. Rob Kuhbach - Dover Corporation -
VP, Finance & CFO I think, Jack, just to add a little bit of
flavor, this is a somewhat slower market overall this year. Last
year remember the whole refrigeration business was very strong.
This year it is starting out quite a bit slower. It is still up but
not as strong as last year, and I think you are going to see some
inevitable push-outs that we typically begin to experience. We had
a slow quarter because of bad weather, and I think we expect this
year to be somewhat more back end weighted than perhaps last year.
So we don't see a -- last year's second quarter was very strong,
you may recall, in the Food Equipment area. So the second quarter
will probably not be a -- will not improve over last year an awful
lot, but the back half of the year we think will be considerably
stronger this year than last. www.streetevents.com Contact Us 7
2007 Thomson Financial. Republished with permission. No part of
this publication may be reproduced or transmitted in any form or by
any means without the prior written consent of Thomson
Financial.
9. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007 Dover
Corporation Earnings Conference Call Operator Steve Tusa, JPMorgan.
Steve Tusa - JPMorgan - Analyst Just a question, first of all, on
Technologies. Your earnings were down about 40% year-over-year, yet
Product ID was up about 40%, A&M was down 40%. I'm just trying
to reconcile that. Are there extra costs there that you don't
include in those two specific segments? I know that historically
when you reported the Technologies business, there had been this
extra amortization line or something like that. Are there extra
costs there that you are not reflecting in the subsegment or the
platform numbers? Ron Hoffman - Dover Corporation - President &
CEO Well, certainly the acquisition premium goes into the corporate
side of that subsidiary. So, if you look at the operating side of
the businesses, they are actually performing pretty well. But they
do have the additional AD&A costs. I think identified in the
last answer, Steve, there is about a $5 million incremental ADA
expense in the first quarter of '07 that will not repeat in the
succeeding quarters. So I think that might be one item that is in
there. Quite candidly, I think if there was a difference maybe in
opinion between where we saw the business and maybe where the
analysts saw the businesses, basically our A&M business came in
pretty much where they anticipated coming in. They really -- if you
think about the last year, we were down trending in the third and
fourth quarter in that business and hopeful that we would see
change roll in the first part of the year. I think we've not seen
those positive signals of what is that new thrust in the Electronic
market. Also, keep in mind the fact that the cellphone market
growth rate has slowed a little bit, and that all impacts this
industry. So the utilization was certainly a part of an issue.
We're still waiting to see that improve. But I think maybe going
back to your direct question, it may be this ADA expense that has
not properly been dialed in. Steve Tusa - JPMorgan - Analyst Okay.
And then lastly, you gave a little bit of commentary around the
second quarter. I guess we talked about normal seasonality there.
Given all the portfolio changes, not quite sure what normal
seasonality is. But looking back over the last five years, it looks
like your typical sequential increase has been in the 20 to 25%
range. Just the guidance you gave last quarter was down from the
fourth quarter but up from the first. And I think the street
clearly got that wrong as we did as well. I'm just wondering if
maybe you could give us a little bit more up from last year's
second quarter is a pretty ambiguous comment. We would hope it will
be up from last year's second quarter. Maybe you can just give us a
little bit more commentary around what you expect to see in the
second quarter. Ron Hoffman - Dover Corporation - President &
CEO Steve, I think the direction we gave you guys was an accurate
direction. I think maybe it is an amplitude issue that we're
sitting here talking about. But I think (multiple speakers) we did
give you the right direction. I think your math of that 20 to 25%
improvement in the second quarter has been what our history has
shown. I think we are optimistic that we should be seeing numbers
in that range. www.streetevents.com Contact Us 8 2007 Thomson
Financial. Republished with permission. No part of this publication
may be reproduced or transmitted in any form or by any means
without the prior written consent of Thomson Financial.
10. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Steve Tusa - JPMorgan -
Analyst Okay. That is perfect. One last thing on ATMs, is this
business core? Looking at its ability to break into the bank market
in the US, it does not appear to us that you have that competitive
of a product there. Maybe there is emerging market opportunity
there. But I'm just wondering -- it is a small business and it is
not doing very well. I'm just wondering how core that business is
longer-term? Ron Hoffman - Dover Corporation - President & CEO
Well, I think you have to put everything into perspective, Steve.
Triton, basically if you look at it relative to Dover, it is just
barely above 1% of sales of Dover. So we're not talking about the
core of Dover as we talk about Triton. Certainly there has been
slower growth in the US retail sector of the market. I think
there's also been some pricing challenges due to some imports. I
think Triton continues to develop their products for the banking
market. I think it's just a slower market in developing because
they don't have long-term presence there. So they have to go in and
they have to prove their ability. I think we in no way, shape or
form are throwing the towel in and saying we don't think they can
be successful there because we still have high confidence. But it
is a longer-term process than what we were hoping for. I think the
performance of the group is a little bit impacted by this slowing
in the US retail sector for ATM. I don't want to use -- throw it
all under, let's say, a saturation quite, but I think the retail
market has certainly slowed. Rob Kuhbach - Dover Corporation - VP,
Finance & CFO Steve, let me just be clear on this. When Ron
mentioned the improvement first quarter to second quarter of 20 to
25%, we are talking this year's first quarter to this year's second
quarter. Steve Tusa - JPMorgan - Analyst Yes absolutely,
sequentially. Rob Kuhbach - Dover Corporation - VP, Finance &
CFO Yes, I mean I just want to be clear about that. So if we are at
$0.67, our expectation is up 20 to 25% is well within the range of
what we are looking for. Steve Tusa - JPMorgan - Analyst Right. Ron
Hoffman - Dover Corporation - President & CEO Yes, and I think
if you look at Dover's historical curve, we always tend to have --
our second and third quarter tends to be our peak performance I
think if you look at any long-term history of the Company. Operator
John Inch, Merrill Lynch. www.streetevents.com Contact Us 9 2007
Thomson Financial. Republished with permission. No part of this
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means without the prior written consent of Thomson Financial.
11. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call John Inch - Merrill
Lynch - Analyst I apologize. I missed the first part of the call.
Did you say something with respect to Chinese New Year and whether
the timing of which had any kind of impact? Just looking at other
semiconductor kind of exposures in other companies, they don't seem
to be calling that out. I'm just wondering what your view of this
was. Ron Hoffman - Dover Corporation - President & CEO John, we
did not make strong reference to the Chinese New Year. That is a
reality that happens every year. Typically the Chinese New Year
many times is a bellwether of what we think is going to be the
activity level in that market. I would say right now we're still
not seeing even after Chinese New Year appreciable change in, let's
say, the incoming order rate in the sectors that serve Asia. So we
have not used that as a reason. We just think there is a
utilization issue and a utilization of existing equipment that is
in the stream to serve the products that are out there. We think
that is coupled with the fact that if you look at electronics
demand, I think all electronic companies for the most part that are
recording earnings and reporting their business levels this quarter
are talking significant down, probably in numbers. I think the
semi-data would say the market is down 23, 24%. We were down
roughly about 21%, so somewhat in line with what the market is
seeing in total. John Inch - Merrill Lynch - Analyst I guess, Ron,
one of the things that might be considered a little bit surprising
is you had -- really the premise was you had removed or divested
most of the cyclical businesses. Yet when you look at this A&M
result of revs down 16 and earnings down 44, that looks pretty
cyclical. I guess the question is, is this something that we should
be just expecting to be somewhat normative now of the remaining
technology portfolio just given trends in macro along various
quarterly lines? Ron Hoffman - Dover Corporation - President &
CEO I think, John, last year we really had such great performance
because of an unusually good year in Electronics that we did not
see this traditional downcycle. But I think, if you look
historically, you would see cycles swings like this. I think what
we are most proud of in this change of portfolio in Electronics is
the companies that we have left there to serve that market actually
perform in a much tighter band of margins. So you still have the
issue of when you downturn, typically you are always behind the
curve of reducing the cost, letting people go and so forth and
trying to predict how long the downturn is as you adjust your cost
base. You do deleverage on the downside, and that did impact the
quarter. I think if you look at this business, just take and think
about it right now. If you were to annualize the first quarter
alone, you're looking at a $600 million plus business at just below
Dover Metric margins. That is not a bad business. Is it a swing
from where it was last year? Yes. But I think it still a good
business, a business we like being in. It will have some volatility
based on the Electronics sector performance. But I think last year
at this time we were talking about some stellar performance. Rob
Kuhbach - Dover Corporation - VP, Finance & CFO I think, John,
we're doing more analytics than we probably have in the past. I
would say that it appears now at least from our perspective if
there is somewhat of a two-year -- 2004 and 2006 were stronger
years. 2005 and it appears 2007 is starting out to be somewhat
slower years, and the relative earnings to margins volatility in
our Companies, if we go back over time which we have been studying,
is narrowing considerably. So on a 10 to 15% margin or sales
increase, margins go up a factor of twice that.
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12. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call So I think what we are
trying to figure out as a percentage change now -- I am talking
about change in sales growth versus change in margin. So we're
seeing less volatility on an absolute basis, but on a relative
basis, it has still got more volatility than most of our other
businesses. That is just a fact that they leverage up -- on an
earnings revenue growth of 10%, they can leverage up 20 to 25%,
which is somewhat higher than our typical industrial company where
we don't get the same leveraging fact. But I would say as it is
trending over the last four years that we have gone back and looked
at this, the relative volatility of this group of A&M companies
is coming down to a meaningful degree. John Inch - Merrill Lynch -
Analyst That color is helpful. You cite in the press release I
guess weak auto service and housing. Is there a way to quantify the
impact of those items on the results this quarter? Ron Hoffman -
Dover Corporation - President & CEO John, I'm sorry you said
weak, and I lost you. John Inch - Merrill Lynch - Analyst I'm
sorry. You think you site weak auto service and new housing issues
in your release or one of the releases. I am just wondering if
there's a way to quantify both of those issues in terms of the
first-quarter results? Rob Kuhbach - Dover Corporation - VP,
Finance & CFO Well, the weakness in auto service is just the
fact that we did not see demand for auto service equipment pick up
in the quarter appreciably, and certainly our carwash business was
off. There seems to be a technology change going on I think in the
carwash market that we have new products for that will change that
long-term. Again, that sector is not a huge sector relative to
Dover's overall performance, but I think it was a reality that we
did see that down. I think talking more to the housing start issue,
that is basically the level of construction activity, and certainly
that is where Paladin and some of the other companies in our
Material Handling section play in part of Dover Resources. As you
know, we're really in our second-quarter performance with Paladin.
The issues that we had there were related to the downturn in the
housing starts impacted like construction but also impacted heavy
construction and the fact that the rental yards seem to have enough
equipment to satisfy their needs, and they tended to buy less
product. So I think that was something that kind of surprised us a
little bit. As we started thinking about housing starts, we
thought, okay, we will see the light construction side probably be
impacted most. But I think it did pour over into heavy construction
a little bit more than we might have thought. But I do think there
was also some unusual costs that Paladin had to deal with. They had
to start up another facility in Mexico and expand that. They had to
basically look at the manual reductions they had to do in their US
facilities. They moved this business to Mexico, so they had some
headcount reduction costs that were in there. They also are
installing an ERP system in their business where they are just on
the front-end side of that. Overall this group, if you look at the
total performance, it was up, including with the Markem numbers in
there, over 50%, and earnings were up over 29%. And we maintained
margins above Dover Metric margins. So really a good performing
group that probably had upside ahead of itself. We think some of
this drag from Paladin is being addressed by Dave, Rob and the
people at Paladin, and I think you're going to see some improved
performance over time. But, keep in mind, we bought a large
collection of companies there that had never had the right
synergies applied to them. They just did not have the time to do
that. That is www.streetevents.com Contact Us 11 2007 Thomson
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13. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call what we are going to do
under our watch is bring to bear the right level of, let's say,
manning number of plants we are rationalizing right now of what
facilities really should be there to serve the demands of that
marketplace and what does the manning structure look like. So I
think you're going to see the Paladin picture develop over the
course of time. John Inch - Merrill Lynch - Analyst Yes, I know
that is fair. And just last, are we still on track do you think for
Diversified margins to exit the year closer to Dover Metrics? Ron
Hoffman - Dover Corporation - President & CEO Well, they
certainly showed some nice improvement in the first quarter. They
did some nice leveraging, which we were pleased to see. I think we
saw some improvements, even though the marketplace did not help us
certainly at (inaudible), it serves the construction market. But we
did see some favorable pricing actions that impacted the Florence
plant, as well as some operational improvements. And basically I
think some of the real drivers of improvement there has been SWEP,
which serves the heat exchanger market and also with Waukesha
because the strong Oil and Gas market has been there. The Power Gen
market has shown pockets of improvement, and they also have some
later in the year shipments into the Submarine market that will
continue to buoy their performance. This group also tends to get
more European content, so I think all that has worked well for
them. Rob Kuhbach - Dover Corporation - VP, Finance & CFO We
expect the margins at DDI to improve sequentially throughout the
year, and I cannot tell you that it will exceed them by the end of
year, exceed it for the full year, but we fully expect the latter
half of the year for certain to exceed Dover-like margins. Operator
Alex Blanton, Ingalls & Snyder. Alex Blanton - Ingalls &
Snyder - Analyst I would like to start off with a philosophical
question. Clearly and obviously your results were quite
disappointing relative to analyst expectations of $0.73 for the
quarter, and the guidance for the second quarter amounts to the 20
to 25% sequential improvement would be $0.80 to $0.84 versus $0.77.
I believe the consensus currently is $0.87 for the second quarter.
So I was wondering why in your press release and opening remarks
you did not acknowledge that the results were below expectations? I
mean you talked about it being a record, which it was factually,
but it really was not up to what people were expecting, and you did
not acknowledge that. Why was that? Ron Hoffman - Dover Corporation
- President & CEO Well, because I would say again, we don't
give guidance as you well know. And, quite candidly, we think the
business has performed pretty much in line with what we saw their
plans to be for the year. So I don't think that we have anything
that we're going to apologize about. We produced the best
first-quarter results in Dover's history, so I think that is
something for us to celebrate internally. www.streetevents.com
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14. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call We're disappointed that
the analysts' expectations got a little ahead of us this quarter.
We don't like that any better than you like it, but at the same
point in time, I do think we produced nice results. Again, we're
building on period over period results. We're showing improvement
in Dover long-term, and I think we still have that working for us.
So, from that standpoint, I think we are still pleased with our
progress. Again, we're managing for the long-term, not just quarter
to quarter. Alex Blanton - Ingalls & Snyder - Analyst But given
that the volatility that comes with earnings disappointments
relative to expectations, given that volatility hurts the
shareholders of Dover, why would you not provide guidance in a case
where the analysts' expectations are well ahead of your own? Rob
Kuhbach - Dover Corporation - VP, Finance & CFO I think we have
frankly tried to give what we think is reasonable expectations. We
comment very clearly on these calls and in the interim during other
presentations we put on our website as to what we are expecting.
And, frankly, I think that the challenge for us is to try to be
accurate within the confines of what FD allows us to do. I guess we
talked about some of -- the biggest single thing that I think most
of the analysts were challenged on is how to predict what was going
to happen in the technology space. If you look at the biggest
single, I will call it miss on the part of people who are looking
at Dover and trying to do some modeling, is the downturn in really
the A&M business, which we talked about at the end of the
fourth quarter, and we said we expected this thing to slow down. I
cannot tell you for certain that we gave any sort of broad market
index, but I think the thing that is probably still a bit of a
calibration issue given the changes we did last year was what I
will call the leveraging phenomenon that goes on in A&M. I
think when we do well, when revenue is up 10% and we get a 30%
improvement in relative margins and a very significant improvement
in earnings, I think that is not always recognized. Contrary-wise,
when there is a slowdown, I think we vastly improved our margin
performance. But simplistically, if a business goes up 10% on a
revenue basis and 20% on an earnings basis and then it reverses, I
think there's some inherent dynamic that realistically we have got
to work on continuing to educate the people that follow Dover as to
how this works out over time. I think the other factor is we had
some one-off items that may not have been fully appreciated in the
sense that we did not -- we did talk about the impact of
acquisitions, and I think that was another $0.02 or $0.03 that may
have not been fully appreciated in the course of an analytic. So I
mean we're not pleased that our ability to convey the story as we
present it was not fully engaged on the part of those that follow
Dover, and we will continue to work to improve that process. But
the reality is we consciously don't give guidance because we think
we're better off focusing on what we can actually perform. And, as
we do every quarter, we try to give the best perspective for the
next quarter. And I think what Ron said earlier about up 20 to 25%
is within the range of what people are expecting anyway, and I
think that is what we are comfortable talking about. Otherwise, I
think we're not disappointed in our overall performance. In fact,
as Ron said, we are encouraged by what we have accomplished, and we
obviously will continue to try to work to improve our ability to
communicate that story to our analyst community.
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15. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Alex Blanton - Ingalls
& Snyder - Analyst Okay. I have another couple of follow-ups.
But, yes, the 20 to 25% is within the range of the expectations.
But that was from the prior number of $0.73 that people were
expecting. I mean, as I said, the consensus is $0.87 for the second
quarter. But I think it is very good that you have provided some
guidance for the second quarter now. I think that is important.
Now, on the point of the negative impact from the acquisitions, was
there any negative impact from acquisitions last year on a
comparable basis, or what was that if any last year -- in last
year's quarter? Ron Hoffman - Dover Corporation - President &
CEO I think if I recall, Alex, last year's first quarter did not
have any significant acquisition because the acquisitions we did
were all completed in August of 2005. And so they were all -- all
those short-term inventory impacts would have affected the third
and fourth quarters of last year. So we basically had the benefit
of the earnings improvement that we got out of Knowles and Colder,
which I think we estimated at somewhere between 5 to 7 or 6 to 8.
There was clearly a positive impact in the '06 first quarter from
those acquisitions above their in effect acquisition, their
normalized AD&A expense. Alex Blanton - Ingalls & Snyder -
Analyst Okay. So it is a negative impact year-over-year? Ron
Hoffman - Dover Corporation - President & CEO It was clearly a
negative impact this year over last year's first quarter. Alex
Blanton - Ingalls & Snyder - Analyst And finally, Knowles,
could we get an update on Knowles? How is their memory product
doing for cellphones? Is it making penetration in the market and so
on? And remind us which segment that is in. Ron Hoffman - Dover
Corporation - President & CEO Alex, Knowles is in our
Electronics segment; it is in our Electronic Components segment of
Dover. Actually it continues to perform very very well. We're
pleased with the year-over-year growth that we continue to see
there. The hearing aid side of the business stepped up in the first
quarter of this year. The acoustics business, which is the MEMS
microphone for cellphone, continued to perform well. Just kind of
giving you a bit of a global perspective there. Global Handset
business grew about 12% in the first quarter roughly to about 226
million units. Typically the first quarter is the slow period for
those type of products. If you look at our MEMS microphone business
sales where the market was up about 12%, our unit sales were up
about 27%. So we are still performing very well in that market with
the products we've got. We feel there is continued headroom for
growth, and we were glad to see the hearing aid business also pick
up in the period. So we're very pleased with Knowles. Operator
Robert McCarthy, Robert W. Baird. www.streetevents.com Contact Us
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16. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Chris Wells - Robert W.
Baird - Analyst It is actually [Chris Wells] in for Rob. I was
wondering if we could go back to Paladin for a second. I was
wondering if you could give us sort of a sense of how revenues have
performed relative to the decline in residential construction? I'm
assuming it is less than the 30% year-over-year declines we have
been seeing in new housing starts. I'm just trying to get a sense
of how to think about that going forward. Ron Hoffman - Dover
Corporation - President & CEO Well, again the issue with
Paladin, if you are talking about year-over-year, this Company did
a lot of acquisitions in its history that stair-stepped in. So for
us to look at combined year-over-year, it's kind of hard to put
that in total perspective. But it was down I would say roughly 4%
year-over-year, which is certainly less than the construction
market in total. The mix of that was a little different because
light construction and heavy construction were impacted somewhat.
And I do think that we did have some integration costs in the
period, and the cost of having to expand Mexico and put people on
there did shelter the results there a little bit. But the business
did not in overall, let's say, macro numbers perform as poorly as
maybe with the construction -- excuse me, the construction sector
did in the period. Chris Wells - Robert W. Baird - Analyst Got you.
And how far along are we in shifting production to Mexico?
(multiple speakers) does that remain a headwind? Ron Hoffman -
Dover Corporation - President & CEO Well, we are continuing to
move product there. I think we have made great strides in the first
quarter, and I think now it is a matter of getting utilization up
and absorbing it. So I would just have to say that the first
quarter probably represented the lion's share of the cost
transferred to Mexico with what we know now. However, as we learn
more and more about the business and have the opportunity to look
for synergies and look for opportunities, if those are good
cost-effective decisions, we will continue to do that. But right
now, with the information that Dave has shared with me, I think
we've at least got off to the initial start. We would not
anticipate the second quarter seeing as much offset for that, but
again if those opportunities arise, we will take advantage of them.
Chris Wells - Robert W. Baird - Analyst Got you. And acquisitions
were a negative $0.03 impact in the quarter I think you said. Are
you still expecting net neutral impact for the whole year? Ron
Hoffman - Dover Corporation - President & CEO Well, I think, as
we look at it right now, we are still I think trying to determine
in our own mind where we think that will be. But we think we might
could see another pending negative through the course of the year
with the forecast we are looking at right now, but with any level
of optimism, we may get back to that -- no further dilution. Chris
Wells - Robert W. Baird - Analyst Got you. And tax rate for the
quarter, is that a good assumption for the rest of the year?
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17. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Rob Kuhbach - Dover
Corporation - VP, Finance & CFO Yes, we are at 28 %. I would
say that is a good assumption, but I would again caution those
listening that we have traditionally had some improvement in rate,
meaning the rate has typically gone down in the latter part of the
year usually by for sure in the fourth quarter and sometimes even
in the third quarter, largely because we are a very current
taxpayer domestically, and we are actively managing our tax
situation so that the likelihood is that there will be some rate
improvement in the third and fourth quarter as we resolve some
discrete items going forward. Operator Nigel Coe, Deutsche Bank.
Nigel Coe - Deutsche Bank - Analyst Just looking at the top line,
you have given a little bit of guidance for second quarter, and I
know you guys don't give guidance, but will you expect organic
growth to get back in step by [the 5 to %7] by the second quarter?
Perhaps if you could just follow-on with that with some comments on
trends in the US business, national markets? Ron Hoffman - Dover
Corporation - President & CEO Again, I guess I would say that I
think I gave a comment in my dialogue that said absent the pullback
of Electronics, we would have seen more like 6% organic growth in
the rest of the businesses. So our confidence level is still
reasonably high that we will see this 5% to 7% through the course
of the year. I would say look at the economic climate kind of
across the board. If you think of the broad markets that we serve,
we are still seeing good order rates. I think I told you that we
had our record order rates for the quarter. We saw some that even
(inaudible) March was a very good month owning performance within
orders. So we're encouraged by the economic climate. I don't think
it is running away from us at this point in time. I think if
anything we would anticipate some improvement in Electronics over
time. We will have to say what the level of that might be.
Diversified has booked well in some nice companies. Resources is
very strong in the Oil and Gas. We will see them even perform
better probably in the Material Handling sector going forward.
Europe has certainly performed, let's say, the rate of growth has
been better than the US, and we have taken advantage of that with
the broad global companies that we have. Asia continues to be
strong from the growth rate overall, but again our main play there
is Electronics, which has been impacted. Nigel Coe - Deutsche Bank
- Analyst Okay. Just a quick question on Packaging Equipment. I
know they are quite a small company for you, quite a small
platform, but up 29% in the quarter, up high-teens last year,
really high margins there. What is driving that kind of growth
range? Because the food manufacturers are not raising CapEx that
much. How sustainable is that kind of growth rate? Ron Hoffman -
Dover Corporation - President & CEO Well, again our play there
is very narrow in overall, let's say, number of companies focused.
But we have a company that makes can necking equipment, and this is
large project work. I think, as we have commented in the past, as
they have large shipments that go out for various can lines around
the world, then we tend to benefit from that. Most of that activity
is European in nature, Eastern European to be a little bit more
specific. I think the order books of that Company continue to be
pretty robust, a lot of activity of quoting. So we are pretty happy
with the play in that market. www.streetevents.com Contact Us 16
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18. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call We also in our packaging
closure side typically the fourth quarter is a strong period for
them. The first quarter held up pretty well for that particular
market. So you will see ebbs and flows in that market depending on
when these large necking systems ship. If one were to be delayed,
let's say, from a margin in April, it would impact first-quarter
results, and it would plus up the second quarter. It really has
that much of a swing in that small segment. That whole segment
overall is roughly about 3% of Dover. Nigel Coe - Deutsche Bank -
Analyst Right. And then just a final one on Crenlo. I think you
talked in the slides about improving shipments there. Are you just
referencing their normal seasonal buildup sequentially in
shipments, or are we talking about improving year-on-year trends?
And is that being driven by US or international markets? Ron
Hoffman - Dover Corporation - President & CEO Well, it is
driven by US markets predominately, but I guess I would comment
that last year in the fourth quarter, Caterpillar was one of the
big customers to our Florence plant in Crenlo, was not taking some
shipments due to an internal issue they were dealing with. So that
delayed some shipments out of the first quarter -- excuse me, out
of the fourth quarter of last year that came into the first quarter
of this year. So that is some of the margin improvement. Keep in
mind, this is a construction market company, so the trend should
not have shown the improvement. But I think it was just a timing of
shipment issue that came about. And then I think some of the
continued improvements we are trying to work on our Florence plant
came to fruit along with some pricing initiatives. We have been
very, let's say, earnings challenged in Florence for sometime, and
I think it had its best overall quarter. Operator Wendy Caplan,
Wachovia Securities. Wendy Caplan - Wachovia Securities - Analyst
Could we look at your PerformanceCOUNTS metrics a bit? The one that
kind of stands out to me aside from the great returns is the
working capital metric. Could you talk about, is that one that is
-- I would guess I could be wrong -- you can tell me. Is that one
that more companies have achieved than some of the others? And Rob,
maybe if you could address where the opportunities are in working
capital as we go through '07? Rob Kuhbach - Dover Corporation - VP,
Finance & CFO You know, I think you have kind of identified it.
We have had significant progress in working capital, and that is
reflected in the improvement that we have had of inventory turn. I
think again, if you look at the inventory turns that we show in
this quarter, we went from 6.1 to 6.5. You might think that does
not sound like a huge number, but that is huge in the amount of
inventory involvement. And you're coming of a base of a couple of
years ago where we were high 4s to low 5s on inventory turns. I
think those actions, coupled with the fact that we're more
efficient in the collection of our receivables, has improved our
inventory turns. This is the one metric that we have talked about
internally should we think of revising. If you do the math of what
an 8 inventory turn company -- if all our companies were running at
8 inventory turns at the metric margins, we probably ought to be
talking more about a 17% working capital target long-term. We have
not identified that inside the company, but as an executive team,
we continue to look at that and say that is one that mathematically
we probably ought to think about redefining. www.streetevents.com
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19. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call I think we're very
pleased with our progress of working capital. This was mid-20s,
just not very far a long ago. We now have this thing below 20%. We
have been sustaining it there. It is the one metric I really
applaud because it is also one of the tougher ones to improve, to
improve inventory turns and let that flow into working capital
takes some significant work. And we did not do that, but it is not
paying our bills and stuff like that. We have maintained good
levels of how we run our companies, but we just did much better at
velocity. There's room to improve in inventory turns. We're at 6.5
as we recorded in the first quarter. All of our companies continue
to be dedicated to getting to 8 turns. I think we've had around 35
to 37% of our companies, of our revenue generated in 8 turn
companies or better. We have seen the number of companies achieving
8 turns grow year-over-year for about three years in a row now. So
I think we are encouraged that we will see that continue to
improve, and that will drive our working capital down. That is also
kind of coupled with our margins. I think as we get better with
higher velocity, I think it allows us to serve our customers
better, which increases our topline, which increases our margins
overall. So it is all very intertwined. Wendy Caplan - Wachovia
Securities - Analyst Thank you. So could you just -- I don't know
if you share this information -- but how many companies right now
are at the target in terms of inventory turns in working capital?
Ron Hoffman - Dover Corporation - President & CEO I think last
year we had companies that hit the 8 inventory turn. I think that
is off the top of my head, Wendy. I hope I am not misleading you.
But it's right in that same range of 10 or 11 companies. So some
nice progress, and I think that is up from, let's say, two years
ago we only had about 4, maybe 5 maximum, that were doing that. So
some nice progress on our Company's part. I can assure you that
that is a strong focus in strategy meetings as we meet with our
companies. I went around the last two weeks and was giving out
Dover President Awards to companies that achieved 8 inventory
turns. And it literally amazes me how much change I see in these
plants year-to-year as I go visit them. It is just amazing the
level of change they have brought about in their processes to make
this happen. So I think our focus on performance counts. Our focus
on making these metrics important inside of Dover have really
driven a different change in how we look at our world-class
performance. So I'm pleased with that. I think we had 27 companies
that basically were able to attain our working capital metric of
27% -- excuse me, 20% or less. Wendy Caplan - Wachovia Securities -
Analyst Wow. Okay, thank you. And a quick one. The bookings, how
much of the increase was core versus acquired companies? Can we
have a sense of that? Rob Kuhbach - Dover Corporation - VP, Finance
& CFO No, but we can get you that answer. I don't have that
number right off the top of my head, but I would say the lion's
share of it was core business by a long shot. www.streetevents.com
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20. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Wendy Caplan - Wachovia
Securities - Analyst Okay. Great. Strategically you mentioned that
the acquisition pipeline was full. You certainly have a lot of
firepower in terms of acquisition capability financial capacity.
Can you talk about the top two or three areas that you are focused
on in terms of acquisitions? Conversely I know our large
divestiture program is completed. Are there -- should we expect any
kind of trimming of businesses going forward, or are we pretty
happy with what we have at this point? Ron Hoffman - Dover
Corporation - President & CEO I think we're pretty happy with
what we have at this point. However, I would say that we continue
to ask our operating -- excuse me, our subsidiary CEOs -- to
continue to manage their portfolio to what they think are the best
value-creating properties. So I'm not going to sit here and say we
have closed the door on that process, but we feel it is essentially
behind us now. I would say, as we look at acquisitions, certainly
we have done more add-ons than stand-alones certainly historically.
We have continued to do those the last couple of years, even though
we have had some nice big value creators. If you look at our first
quarter, those opportunities like the Pole/Zero where you can round
out a portfolio and change maybe some of the volatility and the
performance by getting in a different market sector. In this case,
we went into some defense. Those things we will continue to look
at. We like the Electronics core. Again, I'm talking about the
Electronics Components. We like that area. We certainly like
Product ID. We distinguished ourselves in that area last year, and
we will continue to look for the right opportunities there. I think
across the board and over time you will see us put a lot more
visibility as to what we think the true growth drivers and
platforms are at Dover, and I would rather hold that conversation
until a later period. But I think we will give you some better
clarity there. Wendy Caplan - Wachovia Securities - Analyst Okay,
that is very helpful. Thank you. And finally, I would just like to
say best wishes to Jack Kelly, too. He and I are some of the only
ones that have been around as long as we have, and I just wanted to
say congratulations on his retirement. Ron Hoffman - Dover
Corporation - President & CEO Gosh and you are both such young
people also, Wendy. With that, I think we have time for maybe one
more question. Operator Ned Armstrong, FBR & Co. Ned Armstrong
- FBR & Co. - Analyst Could you talk a little bit about your
Oil Equipment and Materials Handling business as it relates to the
non North American markets, the opportunities you are seeing there
and how you might capitalize on those? www.streetevents.com Contact
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21. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Ron Hoffman - Dover
Corporation - President & CEO Well, we have always in our Oil
and Gas businesses, we have always served the major drillers of the
world, and those people, of course, use that product globally. I
would say that South America has always been a focus for our sucker
rod companies. They continue to do well in that region. They have
explored other geographies also with their product. If you look at
US Synthetic and Quartzdyne both, they are very global in where
their shipments go. We consider those companies U.S.-based
companies, but they are serving multinational companies that are
actually using these products on a global basis. We don't have
always the visibility of where these products go, but we're
convinced that they are going into basically every major field that
is out there, whether it is offshore or onshore. So I think
actually the geographic diversity is probably part of the growth in
Oil and Gas for us that we just have not been able to identify very
appropriately because we don't have sight of where the end user
uses it. But as far as our actual internal focus, I would say again
the sucker rod people are talking to me about improved
opportunities I think in South America, and I know they have done
efforts in Russia and other geographies. I could not just tell you
exactly where they are at. Ned Armstrong - FBR & Co. - Analyst
And can you apply that same characterization to the Materials
Handling companies that service the oilfields? Ron Hoffman - Dover
Corporation - President & CEO Well, the Material Handling
companies, again if you look at Texas Hydraulics, if you look at
Tulsa Winch, it certainly would be impacted in that area. If you
look at Heil Trailer, which has had some nice improvement from
their petroleum traders, most all of that is domestic based, so I
guess I should say North America based. It is really more United
States, Canada, a little bit into Mexico would be the core of those
companies. I would say the majority of their sales and the majority
of their activity would be in those areas. Ned Armstrong - FBR
& Co. - Analyst Okay. Good. Thank you. Operator Thank you. At
this time I would like to turn the floor back over to Mr. Ron
Hoffman for any closing remarks. Ron Hoffman - Dover Corporation -
President & CEO Again, I think in closing I would like to say
again we were pleased to have produced record first-quarter results
in Dover. I think that we continue to be encouraged about the broad
economy, the pace of the economy. I think there's a lot of upside
going forward with some of the acquisition integration work that we
have going on, and I think we look forward to coming back in the
second quarter and talking about some improved results. With that,
I guess we will conclude our call. Thank you very much for your
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22. FINAL TRANSCRIPT Apr. 25. 2007 / 8:00AM, DOV - Q1 2007
Dover Corporation Earnings Conference Call Operator Thank you. This
does conclude today's Dover Corporation first-quarter 2007 earnings
conference call. You may now disconnect your lines, and have a
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