01—Abstract
Summary
Summary of the 10-K filed February 10, 2012. Cited figures are marked; the original filing is the authoritative source.
Dover Corporation (DOV) closed 2011 with record revenue of $7.95 billiona (up 20% year over year, of which 11% was organic growth, 7% acquisitions, and 2% currency), earnings from continuing operations of $846 million (up 23%), and diluted EPS from continuing operations of $4.48 (net EPS $4.74).
Free cash flow reached $786 millionb, or 9.9% of revenue, slightly below the company's roughly 10% target, as higher tax payments of $281 million offset stronger earnings. Management also reorganized the company into four end-market segments (Communication Technologies, Energy, Engineered Systems, and Printing & Identification) and deployed about $1.4 billion on nine acquisitions, the largest being Sound Solutions (about $800 million to $855 million) and Harbison-Fischer (about $400 million). The balance sheet absorbed that acquisition spending.
Total debt rose to $2.19 billionc, and the net debt to net capitalization ratio climbed to 16.6% from 9.9% a year earlier, though credit ratings remain strong (A2/A/A) and the company has a $1 billion undrawn revolver. Segment performance was uneven: Energy was the standout, with revenue up 46% and record bookings driven by drilling and production activity, while Printing & Identification weakened in the second half as alternative energy and semiconductor demand fell, reducing its operating margin by 190 basis points and pushing bookings and backlog down. Management guided 2012 for 4% to 7% organic growth and diluted EPS from continuing operations of $4.70 to $5.00.
The main investor considerations are the reliance on acquisitions for growth (management expects 4% to 5% organic growth through a full cycle), the softness in electronics and telecom end markets, exposure to commodity and raw material inflation, and the elevated international footprint, with 49% of revenue generated outside the United States. The company's long record of dividend increases continued, with the 2011 dividend rising 10% to $1.18d per share, the 56th consecutive annual increase.
02—Key points
Key Highlights
- Record 2011 revenue of $7.95 billion, up 20%, with organic growth of 11% and acquisitions contributing 7%
- Earnings from continuing operations rose 23% to $846 million; diluted EPS from continuing operations was $4.48 (net EPS $4.74)
- Free cash flow of $786 million (9.9% of revenue) despite $281 million in cash tax payments
- About $1.4 billion spent on nine acquisitions, including Sound Solutions and Harbison-Fischer, lifting net debt to net capitalization to 16.6% from 9.9%
- Energy segment revenue up 46% with record organic results, while Printing & Identification margins fell 190 basis points on weaker electronics demand
- 2012 guidance: 4% to 7% organic growth and diluted EPS from continuing operations of $4.70 to $5.00
- Dividend raised 10% to $1.18 per share, the 56th consecutive annual increase
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Dover Corp kept $0.12.
- Revenue$7.37B100.0%
- Cost of revenue−$4.52B61.4%
- Gross profit$2.84B38.6%
- Operating costs−$1.72B23.4%
- Operating income$1.12B15.3%
- Interest, other & tax−$228.6M3.1%
- Net income$895.2M12.1%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 10, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $7.37B$6.11B | +20.6% |
| Cost of Revenue | $4.52B$3.69B | +22.7% |
| Gross Profit | $2.84B$2.42B | +17.4% |
| R&D Expenses | $175.53M$159.34M | +10.2% |
| SG&A Expenses | $1.72B$1.50B | +14.8% |
| Operating Income | $1.12B$923.05M | +21.8% |
| Net Income | $895.24M$700.10M | +27.9% |
| EPS (Basic) | $4.82$3.75 | +28.5% |
| EPS (Diluted) | $4.74$3.70 | +28.1% |
| Shares Outstanding (Basic) | 185.88M186.90M | −0.5% |
| Shares Outstanding (Diluted) | 188.89M189.17M | −0.1% |
05—Questions
Frequently Asked Questions
What drove Dover's strong revenue growth in 2011?
Revenue rose $1.3 billion, or 20%, to $7.95 billion. Organic growth of 11% came from higher volumes across all four segments, led by energy and consumer handset demand. Acquisitions added 7%, and currency added 2%. Over 70% of the acquisition-driven growth came from Harbison-Fischer and Sound Solutions.
Is Dover's balance sheet still strong after its acquisition spending?
Leverage increased, with total debt rising to $2.19 billion and net debt to net capitalization reaching 16.6%, versus 9.9% in 2010. Credit ratings were affirmed as A2 (Moody's), A (S&P), and A (Fitch), all with stable outlooks. The company also has a $1 billion revolving credit facility that remains undrawn and was in compliance with its 3.0x interest coverage covenant, reporting 14.3x at year end.
Which business segments are performing well and which are struggling?
Energy was the strongest performer, with revenue up 46%, record bookings up 50%, and backlog up 62%, driven by higher drilling activity and acquisitions. Engineered Systems grew 11%, with refrigeration and fluid solutions doing well. Communication Technologies grew 26% on the Sound Solutions acquisition, but its margin declined. Printing & Identification revenue rose 8%, but bookings and backlog fell, reflecting a second-half slowdown in alternative energy and semiconductor markets.
What are the main risks highlighted in the filing?
Key risks include slowing global economic conditions, competitive pricing pressure, rising commodity and raw material costs, currency fluctuations (49% of revenue is generated outside the U.S.), execution risk on acquisitions and synergy capture, indemnification gaps from prior owners, and regulatory changes such as conflict mineral disclosure requirements under the Dodd-Frank Act.
What is management's outlook and capital return policy?
Management guides to 2012 organic growth of 4% to 7%, about 3% acquisition growth, and diluted EPS from continuing operations of $4.70 to $5.00. Its medium-term goals are 7% to 9% organic growth from 2012 through 2014, segment margins of about 19% by 2014, and free cash flow above 10% of sales. Dover pays dividends that have grown for 56 consecutive years and repurchases shares principally to offset dilution, with about 2.5 million shares remaining under its current authorization.
06—Continue