10-QPeriod: Q1 FY2018

DOVER Corp Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 27, 2018For Securities:DOV

Summary

Dover Corporation (DOV) reported its first quarter 2018 results, showing a year-over-year increase in revenue to $1.92 billion, up 6.0% from $1.81 billion in the prior year period. This growth was primarily driven by organic revenue growth of 4.3%, complemented by acquisition-related growth and favorable foreign currency translation. While revenue increased, net earnings saw a decrease of 23.7% to $131.4 million ($0.84 diluted EPS) compared to $172.2 million ($1.09 diluted EPS) in the prior year. This decline was largely influenced by significant one-time items, including $11.7 million in costs associated with the planned spin-off of its energy business (Apergy) and the absence of a large gain on the sale of a business that occurred in the first quarter of 2017. The company is actively managing its portfolio, having recently acquired two businesses to expand its Fluids and Refrigeration & Food Equipment segments. Furthermore, Dover announced a significant strategic move with the formal approval of the separation of its energy businesses into a new independent company, Apergy Corporation, expected to be completed in May 2018. This spin-off is a key strategic initiative that will reshape Dover's operational focus. The company also continued its share repurchase program, demonstrating a commitment to returning capital to shareholders.

Financial Highlights

48 data points
Beta

Revenue

$1.64B

36.8% Gross Margin

Net Income

$131.43M

8.0% Net Margin

EPS (Diluted)

$0.84

Total Assets

$10.54B

Cash & Equivalents

$367.22M

Free Cash Flow

-$29.14M

Financial Statements
Beta
Revenue$1.64B
Cost of Revenue$1.03B
Gross Profit$602.83M
SG&A Expenses$435.03M
Operating Income$167.80M
Interest Expense$35.64M
Net Income$131.43M
EPS (Basic)$0.85
EPS (Diluted)$0.84
Shares Outstanding (Basic)154.52M
Shares Outstanding (Diluted)157.09M

Key Highlights

  • 1Total revenue increased by 6.0% to $1.92 billion, driven by organic growth (4.3%), acquisitions, and favorable foreign currency translation.
  • 2Net earnings decreased by 23.7% to $131.4 million, or $0.84 per diluted share, primarily due to separation costs for the Apergy spin-off and the absence of a significant gain on sale in the prior year.
  • 3The company formally approved the spin-off of its energy business (Apergy Corporation), expected to be completed in May 2018, which will result in Apergy becoming an independent publicly traded company.
  • 4Acquisitions in the Fluids and Refrigeration & Food Equipment segments were completed for a total of $68.4 million to enhance existing operations.
  • 5Gross profit margin improved by 40 basis points to 36.9%, indicating improved operational efficiency despite higher material costs.
  • 6The effective tax rate decreased significantly to 18.2% from 25.7% in the prior year, largely due to the U.S. federal tax rate reduction.
  • 7The company repurchased $45.0 million of its common stock during the quarter under its share repurchase program.

Frequently Asked Questions

The Apergy spin-off is a significant strategic event. For the first quarter of 2018, Dover incurred $11.7 million in separation costs related to this initiative. Once completed, Apergy's historical results will be presented as discontinued operations, and Dover will focus on its remaining segments. The spin-off is also expected to result in a $700 million cash payment to Dover from Apergy, which Dover plans to use for share repurchases.

The Engineered Systems segment saw revenue growth of 6.4% driven by strong organic performance, while the Fluids segment grew 5.4% with contributions from acquisitions and currency. The Refrigeration & Food Equipment segment experienced a revenue decline of 5.2%, mainly due to weakness in retail refrigeration markets. The Energy segment showed robust growth of 18.4%, fueled by increased activity in drilling and production.

Dover has a strong commitment to returning capital to shareholders. During the quarter, they repurchased $45.0 million of common stock. A new share repurchase authorization allows for the repurchase of up to 20 million shares through December 31, 2020. The proceeds from the Apergy spin-off are also expected to fund future share repurchases.

The primary reasons for the decrease in net earnings were the costs associated with the planned spin-off of Apergy ($11.7 million) and the absence of a substantial gain on the sale of a business that was recorded in the prior year's first quarter. Excluding these items, underlying net earnings showed an increase, reflecting operational improvements and the benefits of lower tax rates.