01—Abstract
Summary
Summary of the 10-K filed February 11, 2011. Cited figures are marked; the original filing is the authoritative source.
Dover Corporation's 2010 10-K shows a strong cyclical recovery.
Revenue rose 24% to $7.13 billiona (20% organic, 4% from acquisitions), and gross margin expanded 200 basis points to 38.3%. Earnings from continuing operations nearly doubled to $707.9 million, or $3.74 diluted EPS from continuing operations (net diluted EPS $3.70), versus $1.99 in 2009. Segment operating margins improved across the board, with Fluid Management (23.7%) and Electronic Technologies (17.6%, up from 8.1%) leading the recovery.
Free cash flow was $767 millionb, or 10.8% of revenue, and the company ended the year with $1.31 billion of cash and short-term investments against $1.81 billion of total debt. Net debt to net capitalization fell to 9.9% from 18.4%. Management guides to 2011 organic growth of 6% to 8%, about 3% from acquisitions, and diluted EPS from continuing operations of $4.05 to $4.25.
Backlog reached $1.41 billionc, up 30% from a year earlier, which supports the outlook. The company also dividend-raised its payout 5% to $1.07 per share and has a 55-year record of annual dividend increases. The main forward-looking event is capital deployment.
Dover completed the $402.5 milliond Harbison-Fischer acquisition in January 2011 and agreed to buy Sound Solutions from NXP for approximately $855 million, expected to close in early 2Q 2011 and funded with cash held outside the U.S. Key risks include dependence on macroeconomic recovery, foreign exchange exposure (46% of 2010 revenue came from outside the U.S.), commodity input costs, and the execution risk of a growing acquisition program. Capital expenditures are also rising to 3.0% to 3.2% of revenue in 2011, which will pressure free cash flow conversion.
02—Key points
Key Highlights
- Revenue up 24% to $7.13B in 2010 (organic growth 20%), with gross margin up 200 bps to 38.3%
- Earnings from continuing operations of $707.9M ($3.74 diluted EPS), nearly double the 2009 level of $1.99
- Free cash flow of $767M (10.8% of revenue); net debt to net capitalization improved to 9.9% from 18.4%
- 2011 guidance: 6%-8% organic growth plus about 3% from acquisitions, and diluted EPS from continuing operations of $4.05-$4.25
- Backlog of $1.41B at year-end 2010, up 30% year over year, with strength in Fluid Management and Electronic Technologies
- Pending $855M Sound Solutions acquisition from NXP (expected to close 1H 2011) and $402.5M Harbison-Fischer acquisition completed January 2011
- Share repurchases of about $124M in 2010; dividend increased 5% to $1.07 per share
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Dover Corp kept $0.11.
- Revenue$6.11B100.0%
- Cost of revenue−$3.69B60.3%
- Gross profit$2.42B39.7%
- Operating costs−$1.50B24.5%
- Operating income$923.0M15.1%
- Interest, other & tax−$222.9M3.6%
- Net income$700.1M11.5%
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 11, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $6.11B$5.34B | +14.3% |
| Cost of Revenue | $3.69B$3.33B | +10.7% |
| Gross Profit | $2.42B$2.01B | +20.3% |
| R&D Expenses | $159.34M$172.07M | −7.4% |
| SG&A Expenses | $1.50B$1.42B | +5.5% |
| Operating Income | $923.05M$591.13M | +56.2% |
| Interest Expense | $115.49M$116.23M | −0.6% |
| Net Income | $700.10M$356.44M | +96.4% |
| EPS (Basic) | $3.75$1.91 | +96.3% |
| EPS (Diluted) | $3.70$1.91 | +93.7% |
| Shares Outstanding (Basic) | 186.90M186K | +100308.8% |
| Shares Outstanding (Diluted) | 189.17M187K | +101203.4% |
05—Questions
Frequently Asked Questions
How did Dover's profitability change in 2010?
Earnings from continuing operations rose to $707.9M from $371.9M in 2009, and diluted EPS from continuing operations rose to $3.74 from $1.99. Operating margin benefited from higher volume, the absence of 2009's restructuring charges ($72.1M), and productivity gains. Segment margins improved in every segment, with Electronic Technologies rebounding to 17.6% from 8.1%.
What is Dover's outlook for 2011?
Management projects 6%-8% organic revenue growth (assuming negligible currency impact) and about 3% growth from acquisitions. It expects diluted EPS from continuing operations of $4.05-$4.25, with earnings weighted toward the second and third quarters. Capital expenditures are expected to rise to 3.0%-3.2% of revenue, versus 2.6% in 2010.
How strong is Dover's balance sheet and liquidity?
At year-end 2010, cash and short-term investments totaled $1.31B against total debt of $1.81B, and net debt was $499M. Net debt to net capitalization was 9.9%, and management expects it to stay in its historical 25%-30% range as acquisitions are funded. Credit ratings are A2 (Moody's), A (S&P), and A (Fitch), all with stable outlooks. A $400M note due February 2011 is classified as long-term because management intends to refinance it. The company also has a $1B undrawn revolver.
What major acquisitions is Dover pursuing?
Dover completed the $402.5M Harbison-Fischer acquisition, a down-hole rod pump maker, on January 3, 2011, adding about $160M in expected 2011 revenue to the Fluid Management segment. It also agreed in December 2010 to buy Sound Solutions from NXP Semiconductors for about $855M, a speaker and receiver maker with about $330M in 2010 revenue, to be integrated into the Knowles unit of Electronic Technologies. The Sound Solutions deal is expected to close around late 1Q or early 2Q 2011 and will be funded with cash held overseas.
What are the main risks highlighted in the filing?
The main risks are a slowdown in global economic recovery, competitive pricing pressure, technological change in Electronic Technologies, raw material cost increases (steel, copper, aluminum), and international operations (46% of 2010 revenue from outside the U.S.) exposed to currency swings, trade barriers, and political instability. Other risks include the execution of acquisitions, tax audit outcomes ($234M of unrecognized tax benefits), pension underfunding ($49M), and possible credit rating downgrades that would raise borrowing costs.
06—Continue