Dover Reports Mixed 3Q, Cuts View
Dover Corporation (DOV) reported its third-quarter 2012 earnings of $1.30 per share, beating the Zacks Consensus Estimate of $1.27. Results inched up 10.2% from the prior-year quarter’s earnings of $1.18 per share.
On the reported basis, earnings were $1.32 per share compared with the prior-year quarter’s earnings of $1.19. The third-quarter 2012 included a tax benefit of 2 cents while the year-ago quarter included a tax benefit of 1 cent.
Operational Update
Total revenues were $2.209 billion, improving 3% year over year, missing the Zacks Consensus Estimate of $2.249 billion. The revenue increase included an organic growth of 1% and increase from acquisitions by 4%, partially offset by negative impacts of 2% from foreign currency.
Cost of sales increased 2.2% to $1.36 billion versus $1.33 billion in the year-ago quarter. Gross profit of the company went up 5% year over year to $846.9 million. Consequently, gross margin expanded 60 basis points (bps) to 38.3% in the quarter.
Selling and administrative expenses remained flat at $476.6 million in the quarter. Operating profit soared 12.4% to $370.4 million. Operating margin was 16.8%, expanding 140 bps year over year.
Segmental Performance
Revenues in the Communication Technologies segment dropped 2.2% to $396.5 million. The segment’s income, however, rose 19.2% to $63.7 million, and operating margin jumped 290 bps year over year to 16.1%.
Energy revenues increased 10.1% to $562.3 million in the quarter. The segment’s operating income shot up 11% to $139 million. The segment’s operating margin expanded 20 bps year over year to 24.7% in the reported quarter.
Revenues in the Engineered Systems segment increased 8.4% to $892.1 million in the quarter. The segment’s income surged 14.9% to $144.2 million. Operating margin of the segment expanded 100 bps year over year to 16.2%.
Revenues of Printing & Identification segment fell 10.6% to $358.1 million from $400.5 million in the prior-year quarter. The segment reported operating income of $51.4 million, down 13.5% from $59.4 million in last year’s quarter, contracting the operating margin by 40 bps year over year to 14.4%.
Bookings and Backlog
The company ended the third quarter with $2.079 billion worth of bookings versus $2.068 billion at the end of the third quarter 2011. Backlog of the company increased to $1.540 billion at end of the reported quarter from $1.449 billion in third quarter 2011.
Free Cash Flow
Dover generated free cash flow of $229.7 million in the reported quarter compared with $311.6 million in the year-ago quarter.
Outlook for 2012
Dover expects revenue growth of 7% down from the range of 8%-10%. Organic revenue growth will contribute 3% while acquisitions will add 4% to the revenue growth. It expects earnings to lie in the band of $4.55-$4.65 down from the previous range of $4.70-$4.85.
Our View
Dover is experiencing revenue challenges in the Handset and Electronic markets. Moreover, the uncertainty in global economic condition adds to the woe.
Dover faces stiff competition from Cooper Industries plc (CBE) and Weatherford International Ltd. (WFT) among others. The company retains a short-term Zacks #4 Rank (Sell). We have a long–term Neutral recommendation on the stock.
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