Strong 2Q Earnings for Dover
Dover Corporation (DOV) reported second-quarter 2013 adjusted earnings from continuing operations of $1.36 per share, beating the Zacks Consensus Estimate of $1.29 and also exceeding the prior-year quarter’s earnings of $1.10 per share.
On a reported basis, earnings from continuing operations were $1.70 per share, up 55% from $1.10 per share earned in the prior-year quarter. Earnings in the reported quarter include tax benefit of 36 cents per share and a charge of 2 cents per share related to the Knowles spin off. However, there were no adjustments in the prior-year quarter.
Revenues and Margins
Total revenue was $2.2 billion in reported quarter, up 9% year over year. The result was in line with the Zacks Consensus Estimate. The year-over-year rise includes an organic growth of 5%, a 4% contribution from acquisitions as well as a minor impact from foreign exchange.
Dover witnessed solid growth from its businesses serving the consumer electronics and refrigeration markets along with contribution from energy and fluids businesses. Furthermore, Dover’s strategic decision to spin off certain parts of its communication technologies businesses also contributed to the growth. Additionally, revenues were driven by completion of four synergistic acquisitions.
Cost of sales increased 8.8% to $1.37 billion in the quarter from $1.26 billion in the year-ago quarter. Gross profit went up 10% year over year to $856 million. Consequently, gross margin expanded 30 basis points (bps) to 38.4% in the quarter.
Selling, general and administrative expenses increased 8.5% year over year to $505 million. Operating profit in the reported quarter increased 12.6% to $350 million. Operating margin also expanded 45 bps to 15.7% in the quarter.
Segmental Performance
Revenues in the Communication Technologies segment rose 11% year over year to $401 million in the reported quarter. The segment’s income also increased 3% year over year to $51.7 million.
Energy revenues went up 6% to $573 million in the quarter. The segment’s operating income, however, decreased to $132.9 million from $133.9 million in the prior year quarter.
Revenues in the Engineered Systems segment increased 13% to $1003.8 million in the quarter. The segment’s income also improved 23% to $165 million.
Printing & Identification segment revenues were $250.6 million in the quarter compared with $251.8 million in the prior-year quarter. The segment reported an operating income of $35.9 million, increasing 24% from $28.9 million a year ago.
Bookings and Backlog
The company ended the second quarter with bookings worth $2.204 billion versus $2.038 billion at the end of the second quarter of 2012. Backlog increased year over year to $1.62 billion at end of the reported quarter compared with $1.61 million in the year ago quarter.
Cash Flows
The company generated cash flow from operating activities of $304.7 million in the reported quarter, up from $243.3 million in the prior-year quarter. Free cash flow was $251.4 million compared with $170.6 million in the prior-year quarter.
Outlook for 2013
Dover reiterated full year revenue growth in the range of 7%-9% in 2013. This assumes an organic revenue improvement of 3%-5% and a 4% contribution from acquisitions. However, the company raised its previous earnings guidance of $5.05-$5.35 per share. Dover now expects its new range for earnings to be $5.56-$5.71 per share for 2013.
Our View
Dover will continue to benefit from its active acquisition pipeline, bookings and orders growth. However, volatile semiconductor market and weak industrial market might weigh on the Printing and Identification segment and lower North American rig count will constrain growth in the Energy segment.
Dover currently retains a short-term Zacks Rank #3 (Hold).
Dover retains a short-term Zacks #3 Rank (Hold). Chart Industries Inc. (GTLS) and Gardner Denver Inc. (GDI) also belong to the diversified machinery industry; carrying a Zacks Rank #2 (Buy). One of Dover’s peers, Applied Industrial Technologies, Inc. (AIT) is slated to announce its fourth quarter and full year fiscal 2013 results on Aug 14.
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