Dover Corporation DOV reported first-quarter 2018 adjusted earnings per share from continuing operations of $1.16, which increased 26% from 92 cents recorded in the prior-year quarter. The year-over-year improvement was mainly driven by continued strength in businesses. Earnings also beat the Zacks Consensus Estimate of $1.13.

On a reported basis, Dover posted earnings per share of 84 cents for the quarter, which declined around 23% year over year. Earnings in the reported quarter included the Apergy separation-related costs of 6 cents, and rightsizing and other costs of 2 cents. It also comprised acquisition-related amortization costs of 24 cents.

Total revenues increased 6% year over year to $1.92 billion in the quarter, which surpassed the Zacks Consensus Estimate of $1.89 billion. The year-over-year increase was driven by acquisition growth of 1%, organic growth of 4%, and a favorable impact from foreign exchange of 4%, partly offset by a 3% impact from dispositions.

Dover Corporation Price, Consensus and EPS Surprise

 

Dover Corporation Price, Consensus and EPS Surprise | Dover Corporation Quote

Costs and Margins

Cost of sales climbed 5% year over year to $1.21 billion in the reported quarter. Gross profit rose 7% year over year to $709 million. Gross margin expanded 40 basis points (bps) year over year to 36.9%.

Selling, general and administrative expenses flared up to $514 million from $486 million recorded in the prior-year quarter. Operating profit jumped 11.4% to $194.8 million from $174.9 million reported in the year-ago quarter. Operating margin advanced 40 bps to 10%.

Segmental Performance

Energy revenues climbed 18% year over year to $383.7 million in the quarter. The segment reported an operating profit of $54.6 million compared to $41.7 million recorded in the comparable period last year.

Revenues in the Engineered Systems segment ascended to $646.8 million from $607.6 million recorded in the year-earlier quarter. The segment’s income plunged around 44% year over year to $97.9 million.

Revenues in the Fluids segment were up 5% year over year to $553.3 million in the quarter. The segment’s income rose 3.6% year over year to $54.5 million.

The Refrigeration & Food Equipment segment’s revenues declined to $338.2 million from $356.8 million recorded in the prior-year quarter. The segment reported an operating income of $29.2 million, down from $33.6 million witnessed in the prior-year period.

Bookings and Backlog

Dover’s bookings at the end of the first quarter were worth $2.11 billion, up from $2.03 billion reported at the end of first-quarter 2017. Backlog also increased to $1.41 billion at the end of the reported quarter from $1.29 billion at the year-ago quarter end.

Financial Position

Dover generated a negative free cash flow of $2.6 million during the first quarter compared with a cash inflow of $35.8 million in the prior-year quarter. Cash flow from operations came in at $35.2 million in the reported quarter compared with $78.9 million in the year-ago quarter.

Apergy Separation Update

In December 2017, Dover announced a tax-free spin-off of its upstream energy businesses — Apergy — within the Energy segment. On Apr 18, its board of directors formally approved the separation of Apergy through a distribution of all of the common stock of Apergy held by Dover to its shareholders. The distribution is expected to be made on May 9 to shareholders of record as on Apr 30, 2018.

Notably, Dover’s shareholders will receive one share of Apergy for every two shares of Dover held as of the record date. Following the distribution, Apergy will be an independent, publicly-traded company, and Dover will retain no ownership interest in Apergy.

Outlook

Dover provided full-year 2018 EPS and revenue guidance on a pro-forma continuing operations basis, which excludes the 2018 operating results of Apergy. The company lowered its adjusted earnings per share guidance for the full year to $4.70-$4.85 from $5.73-$5.93. The mid-point of the guidance reflects an increase of 15% over the prior year.

This guidance is based on full-year revenue growth of 4-5%, comprising organic growth of 3-4%, acquisition growth of 1%, and a favorable impact from foreign exchange of 3%, partially offset by a 3% impact from dispositions. Dover expects to incur further separation costs of of $33-$35 million in the ongoing quarter.

Dover expects to benefit in the second quarter from strong bookings in the Engineered Systems and Fluids segments. Its 2018 results will gain from continued focus on execution of strategies. Further, the spin-off of Apergy will drive Dover’s performance.

Share Price Performance

Over the past year, Dover has outperformed the industry with respect to price performance. The stock has gained 19%, while the industry recorded growth of 10% during the same time frame.

Zacks Rank & Key Picks

Dover currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Kawasaki Heavy Industries Ltd. KWHIY, IDEX Corporation IEX and Roper Technologies, Inc. ROP. While Kawasaki sports a Zacks Rank #1 (Strong Buy), IDEX Corporation and Roper Technologies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kawasaki has a long-term earnings growth rate of 21.6%. The stock has gained 16% in a year’s time.

IDEX Corporation has a long-term earnings growth rate of 11%. The company’s shares have been up 31% over the past year.

Roper Technologies has a long-term earnings growth rate of 12%. Its shares have rallied 22% in the past year.

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