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Transcript of dover Wachovia_100608
WACHOVIA – BOSTON INVESTOR ROADSHOWB O B L I V I N G S T O N • PAUL GOLDBERG
BOSTON –OCTOBER 6, 2008
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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 10K 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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. . . a $7 billion global provider of innovative equipment, specialty systems and value added services for the industrial products, fluid management, engineered systems and electronic technologies markets.
. . . focuses on growing organically 5-7% over a business cycle and strategically invests in value creating acquisitions.
. . . returns value to shareholders through earnings growthinitiatives, annually increased dividends and strategic share repurchases.
. . .
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Record Financial Results
Four Segment Structure Improves Clarity
Platforms For Sustained Growth
Strategic Capital Allocation
Outlook for 2008
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Sustainable Growth Story
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2003 2004 2005 2006 2007
Rev
enue
0
100
200
300
400
500
600
700
800
Earn
ings
Revenue Earnings from Continuing Operations
5-yr CAGR 17.9% 5-yr CAGR 25.3%
($000)
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Balanced Growth
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2003 2006 2007
CurrencyAcquisitionOrganicBase
Sales ($000)
Organic Growth Rate: Target 5-7%... 5 yr. Average 8.9%
50%
45%
Currency 2.2%
Acquisition 9.7%
Organic 2.3%
Core Industrial 5.2%
2007 Growth
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Geographic Revenue Mix (YTD June 2008)
Dover Growth Rate: 9%
YTDYTD
Growth RateGrowth Rate
9.2%9.2%27.8%27.8%
7.6%7.6%
5.2%5.2%
Growth in Asia was driven by increases in Electronic Technologies and Engineered Systems
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Strong Free Cash Flow
Source of Dover strength– Consistency– Outcome of metrics focus– $728 million in 2007– 111% conversion rate in
2007 (FCF / earnings from continuing ops)
Facilitates strategic capital allocation2008 free cash flow is on track for another strong year
0%
2%
4%
6%
8%
10%
12%
2004 2005 2006 2007
Free Cash Flow as a % of RevenueFree Cash Flow as a % of Revenue
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YTD 6/2008
INDUSTRIALProducts
FLUID Management
ENGINEEREDSystems
ELECTRONICTechnologies INDUSTRIAL
Products
ELECTRONICTechnologies
FLUID Management
ENGINEEREDSystems
Sales Earnings
32%
22%
27%
19%
31%
15%29%
25%
New Segment Structure
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YTD 6/2008Revenue
New Platform Structure
Energy12%
12%
Mobile Equipment
Electronic Technologies
Material Handling
Fluid Solutions
Product ID
Engineered Products
15%
15%
17%19%
10%
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Dover’s Q2 2008 PerformanceContinuing Earnings Per Share
2005 2006 2007
$2.12
$2.90
$3.30
Revenue $2.0B $1.8B +10%
EPS $0.98 $0.85 +16%Segment Margins 15.8% 15.6% +20bps
Organic Growth 5.4% -1.2%
Acquisition Growth 1.3% 11.8%
Free Cash Flow $192M $211M -9%
•Strong performance at Electronics Technology segment and Energy, Fluid Solutions, Product ID platforms
• Positive leverage at Fluid Management and Electronic Technology segments
• Strong 2nd quarter free cash flow at 9.6% of revenue; YTD $301M (up 29%)
• Q2 share repurchases = $198M
•Continued momentum in synergy and integration programs
Q2 ‘08 Q2 ‘07 Q/Q
2008
YTD$1.74
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Revenue Growth (Q2 2008)
Industrial Products
Engineered Systems
Fluid Management
Electronic Technologies
Total Dover
Organic 3.0% 0.3% 16.5% 5.2% 5.4%
Acquisition 1.4% -- 4.0% -- 1.3%
Currency 1.2% 5.5% 2.5% 6.3% 3.5%
Total 5.6% 5.8% 23.0% 11.5% 10.2%
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Industrial ProductsRevenue($ in millions)
Operating Earnings($ in millions)• Material Handling
– International and military sales were strong
– Earnings gain despite raw material cost increase
– Successful pricing initiatives alleviate cost increases
– Bookings up sequentially & YOY• Mobile Equipment
– Revenue growth from continued strength in domestic oilfield, military and solid waste markets and Rotary Lift acquisition
– Earnings decline due to one-time gain from property sale recorded in prior year ($5.3M); earnings growth of 8% without prior year gain
– Backlog up over PY; down sequentially
↑ 4%
↑ 6% ↓ 1%
↑ 2%
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Industrial Products
Winch companies will continue to grow– Military contracts– Oilfield demand
Continued challenges in heavy construction– Performance enhancing initiatives underway– No market improvement expected
Waste handling will be strong– Solid backlog– Class eight chassis delivery improves
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Engineered Systems
• Product Identification– Revenue increase driven by
double-digit gains in direct coding business
– Earnings reflect cost efficiency benefits from MARKEM•Imaje integration, net of $2 million related expense
– Bookings & backlog remains strong
• Engineered Products– Revenue increases in all
businesses except beverage can equipment
– Earnings impacted by business mix
– Refrigeration business continues to diversify customer base
– Bookings moderated from strong PY levels
Revenue($ in millions)
Earnings($ in millions)
$539
↑ 6% ↑ 3%
↑ 6% ↑ 10%
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Engineered SystemsSignificant improvements in Product ID– Markem margins up 700 bps– > 50% of revenue tied to fast moving consumer goods– Recurring revenue > 50%
Food display equipment fundamentals are sound– Growth will be driven by “sustainability” factors– Well-developed plan to diversify customer base
Heat exchanger business will continue to expand
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Fluid ManagementRevenue($ in millions)
Operating Earnings($ in millions)• Energy
– Results driven by continued growth in global oil and gas drilling and worldwide demand for power generation
– Operational improvements and product mix increased earnings
– Bookings & backlog remain strong
• Fluid Solutions– General strength across most
industrial markets – Business mix and operational
focus improved earnings and margins
– Backlog up 28%.↑23% ↑34%
↑17% ↑24%
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Fluid ManagementContinued strength in energy– Broad product engagement in downhole
drilling, production and logging equipment– Positive power generation trends– Focus on globalizing revenue base
Pump and dispensing businesses remain consistent– Global footprint– Expanded product offerings– Chemical, pharmaceutical and wastewater
processing capex budgets drive business– Regulatory environment provides opportunity– Consistent sustainable performance
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Electronic TechnologiesRevenue($ in millions)
Operating Earnings($ in millions)• Electronic Technologies
– Good business activity in the quarter across the segment with a positive book-to-bill and organic growth of 5.2%
– MEMS microphones now being sold to all Tier-1 handset manufacturers
– Military programs continue to be growth drivers of ceramic and microwave product lines
– Impact of first quarter restructuring (ECT) is showing improvements in the results
– Inflationary pressures in Asia (principally China) from currency and other costs impacted margins by 1%
– Bookings & backlog are up sequentially and YOY
↑12%↑13%
↑11% ↑6%
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Electronic TechnologiesCell phone market continues to grow 10% annually– Customer mix was improved– Dominance in MEMS technology continues
New product applications in military, telecom and audio result in broader marketsRevenues related to fabrication and testing of semiconductors and boards are flat– Adjustments being made to reflect current business
environment– Margin improvement is a focus
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PERFORMANCECOUNTS
* Dover has improved inventory turns four consecutive years
Target Q2 2008 Q2 2007
Inventory Turns * 8 6.9 6.5
Earnings Growth 10% 7% 11.5%
Operating Margins 15% 15.8% 15.6%
WC as a % of Revenue 20% 18.5% 19.2%
ROI (Operating) 25% 26.1% 25.8%
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Going Forward2005 - 2007
Value Creation Continues
New Management TeamPortfolio TransformationPERFORMANCECOUNTSRefocus AcquisitionsRecurring Revenue ThemeGlobalizationCapital Allocation FocusBest Financial Results in Dover’s History
Four Segment StructurePlatform DevelopmentPERFORMANCECOUNTSCapturing SYNERGYMinimize VolatilityManagement DevelopmentStrategic Capital AllocationContinue Improvement in Financial Performance
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Strategic Capital AllocationAcquisitions– Strategic add-ons to bolster existing platforms – High pricing expected to gradually moderate– 2009 should favor strategic buyers
Share Repurchase– Two programs announced in 2007 totaling approximately $1 billion
• First program completed in 2007 (10 million shares)• Second program completed 8/2008 (10.8 million shares)• Reduced share count by 10% in a twelve month period
Long history of increasing dividend each year– Increased 25% in 2008 ($1.00 per share on annualized basis)– Long-term payout target of 28% - 32% of net earnings
We have the capacity to do all three
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Seeking Synergy
4% 4% -- 6%6%EarningsEarnings
ImprovementImprovement
Overhead cost structureExpanding role of Supply Chain CouncilShared facilitiesBusiness system consolidationsExamples:– Energy Platform– Product ID– Pump Group– Components Group
Emphasis on Tangible Value Creation
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Second Quarter and YTD OverviewNet Debt to Capital Ratio
– 28.8%: up 15 bps over 2007 year-end, reflective of higher total debt level to fund share repurchase program
Free Cash Flow– QTR: $192.5 million; 9.6% of revenue– YTD: $300.9 million; 7.8% of revenue
Effective Tax Rate– QTR: 29.3%, up 220 bps– YTD: 29.4%, up 170 bps
Prior year periods benefited from tax positions that were effectively settled.
Acquisitions– Two add-ons in the quarter: Brady Mining & Construction Supply Co. (US Synthetic) for $12
million, net of cash acquired and Neptune Chemical Pump Company (Pump Solutions Group) for $65 million, net of cash acquired.
Share Repurchase Program – QTR: Repurchased 4 million shares for $198 million.– Completed (August): Repurchased 10 million shares for $461 million
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2008 Outlook – Full Year
Organic growth: mid single digitsMargin improvement: Full year up 25 – 50 bpsCapital expenditures: $150 – $175 millionInterest expense: $98 - $103 millionFull-year tax rate: 27% – 28% (quarterly variance)Free cash flow for full year: 10% of revenueCorporate expenses: $100 - $105 million
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… A Solid Growth Story with Record Financial ResultsMetrics are Driving Improved Results
… New Organization Structure Driving ChangeGrowth Platforms Emerging, Operating Style Evolving, Clarity is Improving, Focus on Synergy
… Strategic Capital Allocation DisciplineBalancing Growth and Shareholder Return
… Time Honored Value System Intact