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Dover Corp (DOV) Q2 2019 Earnings Call Transcript

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Dover Corp (NYSE: DOV)
Q2 2019 Earnings Call
Jul 18, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Dover's Second Quarter 2019 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President of Corporate Development and Investor Relations. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time.

Thank you. I would now like to turn the call over to Mr. Andrey Galiuk. Mr. Galiuk, please go ahead.

Andrey Galiuk -- Vice President of Corporate Development and Investor Relations

Thank you, Christi. Good morning, and welcome to Dover's second quarter 2019 earnings call. We'll begin with comments from Rich and Brad, and we'll then open the call for questions. This call will be available for playback through August 8th, and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-585-8367. When accessing the playback, you'll need to supply the following access code, 2256006. Dover provides non-GAAP information such as adjusted EPS results and guidance. Reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website, dovercorporation.com.

Our comments today may contain forward-looking statements that are intrinsically subject to uncertainties. We caution everyone to be guided in their analysis of Dover by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law.

With that, I'd like to turn this call over to Rich.

Richard J. Tobin -- President and Chief Executive Officer

Thanks, Andrey. Good morning, everyone and thanks for joining us for this morning's conference call. Let's get started on Slide 3. Q2 organic revenue was up nearly 3% for the quarter, driven by continued strong performance in our Fluids segment at 7%, with all markets contributing to comparable growth and solid trading conditions in the industrials platform within engineering systems, which we're able to more than offset forecasted slowdown driven by timing in our digital print business, that I'll get into later in the presentation. Refrigeration and Food Equipment was short of projections principally as a result of tougher trading conditions in Asia for heat exchangers as well as refrigeration systems demand. Forecasted demand and recent customer wins, particularly in retail refrigeration case and door give us confidence for an improved second half of the year.

Adjusted segment earnings increased 13% to $300 million -- $311 million, contributing to a 190 basis point improvement in operating margin over the comparable period. These results were driven by strong revenue conversion in Engineered Systems and Fluids and volume leverage, good product mix coupled with improvements in productivity and tight cost controls more than offsetting raw material and labor cost, inflation. Adjusted Q2 earnings were up 15% to $229 million, and adjusted EPS at $1.56 a share, was up 20%. As announced, we completed the acquisition of All-Flo Pump Company, a growing manufacturer of specialty pumps. This acquisition strengthens our leading position in the growing segment of positive displacement pumps for critical fluid transfer applications.

Overall, we're encouraged by the results in the second quarter and the first half of 2019. Demand remains constructive across much of the portfolio. Our rightsizing and operational actions are yielding robust margin improvement. Dover enters the second half of the solid order backlog augmented by recent customer wins and as well as strong momentum in execution toward margin targets. As a result, we are tightening the top half of our previous full year adjusted EPS guidance range to $5.75 to $5.85 per share.

Now that's it for the opening comments. I'll pass it to Brad and then come back with the segment color.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Thanks, Rich. Let's move to Slide 4. Revenue grew by 1% to $1.8 billion and it was driven by strong demand in Fluids in our industrial platform in Engineered Systems. GAAP EPS increased 25% to a $1.3. Moving to non-GAAP results. As mentioned, we achieved significant margin accretion in the quarter with adjusted segment EBIT, up 190 basis points over the prior year, reflecting continued execution of productivity initiatives. Our SG&A actions announced last year are for all intents complete and we are delivering the savings we expected. Adjusted segment EBITDA was $376 million, a margin of 20.8%. Key adjustments for non-GAAP results this quarter were acquisition related amortization and rightsizing in other expenses. The EPS increase was supported by $0.02 or $3.6 million of discrete tax benefits, on par with a $0.02 benefit in the second quarter of the prior year.

Now moving to Slide 5. Let's get into a little bit more detail on our revenue and bookings results in the quarter. As mentioned in our summary, organic growth was solid at 2.9%, driven by Fluids and Engineered Systems and partially offset by Refrigeration and Food Equipment. As you can see, foreign exchange rates negatively impacted our revenue and bookings, FX was a significant 2.5% or $45 million headwind for revenue, which had an $8 million impact on earnings with the most notable impact in Engineered Systems, largely driven by printing identification demand being levered to EMEA and Asia. The two largest contributors to the FX headwind were Europe and China, where average exchange rates declined against the dollar by approximately 6%. Based on current rates, we expect the impact to moderate in the second half of the year. We have used a $1.13 rate for the euro and $0.15 for the RMB in our full year forecasts.

From a segment perspective, Engineered Systems grew $12 million or approximately 2% organically and fluids grew $52 million or 7%. Refrigeration and Food Equipment's revenue decreased by $11 million or 3%. Bookings declined organically 1.7% and as previously mentioned, were also negatively impacted by FX.

In Engineered Systems, organic bookings declined by $39 million or approximately 5.5%, due to slower activity in digital printing and the Environmental Solutions Group. Bookings in Fluids increased by $52 million or 7%, with strong order activity across the segment. Bookings in Refrigeration and Food Equipment declined $43 million. Rich will provide more information on the order book and individual businesses in a few minutes. Finally, overall order -- overall book-to-bill finished at a solid 1.0, while backlog at the end of Q2 was 2% higher than this time last year, driven primarily by Engineered Systems.

From a geographic perspective, the US, our largest market grew 2% organically driven by mid-single digit growth in Engineered Systems and Fluids, partially offset by Refrigeration and Food Equipment. Europe was up 8% with all segments posting organic growth and a particularly strong quarter from Fluids, which was up over 20% in EMEA. All of Asia was down 5% organically, with China down 1%. Our Fluids business was up mid-single digits in Asia overall with double-digit growth in China on the strength of both the retail fueling and process solutions businesses. Whereas Engineered Systems and Refrigeration were down in Asia, due to slower -- slower economic activity in the region.

Let's go to the earnings bridges on Slide 6. Starting on the top. Engineered Systems adjusted segment EBITDA improved $5 million, largely driven by volume and productivity initiatives more than offsetting headwinds from FX. Fluids' growth of $35 million reflects a combination of robust growth continued margin improvement in retail fueling and acquisitions. Refrigeration and Food Equipment reflects lower volumes for SWEP and slower activity in food retail. Going to the bottom chart. Adjusted earnings from continuing operations improved $29 million or 15%, primarily driven by higher segment earnings and lower corporate costs, partially offset by slightly higher taxes.

Now on Slide 7. Year-to-date free cash flow was $142 million, which is an improvement over last year in absolute terms and as a percent of revenue. The second quarter in particular compared favorable -- favorably at 8.5% of revenue versus 6% last year. Year-to-date, strong top line growth was supported by working capital investment of $164 million, which we expect to convert to cash in the back half of the year. Inventory built with volume increases in the quarter as well as in anticipation of a strong Q3. The third and fourth quarters are traditionally our strongest cash generating quarters. Capital expenditures were $91 million year-to-date, slightly below last year. We expect our CapEx to ramp up in the second half in line with seasonality of our cash flows and are still on pace to execute our previously guided organic growth investments in the year.

Let me turn it back to Rich.

Richard J. Tobin -- President and Chief Executive Officer

Thanks, Brad. Let's move on to Slide 9. Engineered Systems delivered top line of organic growth of 1.7% largely driven by the industrial platform. As you can see in the bridge, incremental margin conversion on organic growth was over 100% in the quarter, driven by productivity gains and volume leverage. Despite the negative FX translation adjusted segment margin increased 120 basis points. Our Printing and ID platform declined organically by 3%, driven by the expected slower activity in digital printing due to the ITMA Trade Show that happens every four years.

Our customers assess and review the latest technology before making investments. To put that impact in perspective, digital printing was down approximately 20% in revenue and 50% in earnings from the comparable quarter in a business that we forecast to grow double-digits in revenue for the full year. We are encouraged by the pipeline of orders coming out of the trade show, especially in our LaRio industrial printer line and expect the business to reaccelerate into the second half. Overall, the platform performed well in Europe, while Asia experienced continued slowing from Q1.

Our industrial platform posted 5% organic growth. Our waste handling business continued to deliver double-digit growth as demand remains strong for both traditional equipment and software. With software growing by over 20% driven by significant ramp in installations. Despite the difficult trading conditions in the general automotive space, our vehicle service business posted 2.4% growth, offsetting the more challenging trading conditions in automotive OEM demand negatively impacting DESTACO. MPG was down for the comparable quarter due to shipment timing, but exits Q2 with its highest order backlog in many years as demand conditions in the defense sector remained constructive.

Going back to Q3 bookings for Engineered Systems remained solid, most businesses posted book-to-bill of around 1, with notable exception of our waste handling businesses, where orders were slower versus high comps and record backlog in the comparable quarter. Overall, we enter the second half on solid footing for the segment, largely driven by Printing and ID platform, which is a creative to consolidated margins.

Moving on to the next Slide. The Fluid segment posted strong organic growth of 7.5% for the quarter, with continued strength across all the businesses. Adjusted segment margin increased 410 basis points with incremental organic margin conversion at 50%, driven by volume leverage, improved productivity and product mix. Adjusted EBITDA margin increased to 22.9%. Our pumps and process solution business had another excellent quarter posting organic growth of 7%. Demand remained robust for our industrial pumps, rotating equipment components for natural gas compression and renewable energy and equipment for polymer pumps and filtration systems. Biopharma and thermal management markets continued to deliver double-digit growth during the quarter, as we ready for a significant capacity expansion in this business.

Fueling and transport posted organic growth of 8%, as demand remained robust across all geographies for both underground and above ground equipment systems. EMV demand is forecasted continued to be choppy as all signs point to adoption trajectory continuing beyond 2020 at current activity levels. Margin conversion on volume was strong in the quarter and we expect that trend to continue for the balance of the year, as we track toward meeting the stated margin objectives in the fueling solutions business. Bookings in the segment grew 7% organically over the comparable period. The growth was broad based with particular strength in our plastics and polymer equipment and biopharma businesses.

In Refrigeration and Food Equipment, organic revenue was down 2.8% and adjusted EBIT margin of 15%. Demand for the margin accreative SWEP heat exchanger business was down 6% in the quarter, most notably in Asia. Activity in food retail was mixed, with systems and service projects posting a decline year-over-year, while our door case product line. Food retails largest posted double-digit growth in revenue and backlog as retailers restarted investing in store formats and refurbishment.

United Brands grew modestly despite a challenging comparison to the prior year, as several large chain rollouts were shipped on orders booked last year. And Belvac revenue increased modestly, however, bookings were slow. The poor mix effect on margins driven by the reduction of heat exchanger and system shipments was further exacerbated by volume ramp costs and retail refrigeration, which struggled with supply chain constraints and labor availability at our principal production site enrichment. While we are encouraged by the turnaround in demand food in retail for our core case and door products, it is absolutely clear that we need to deliver on our automation project to deliver on volume earnings conversion. Bookings in the segment were slower this quarter posting 10% organic decline, mainly due to lower activity in refrigeration systems businesses and can-making equipment. In food retail, recent customer wins versus this time last year give us confidence about the improved revenue outlook for the second half.

Moving to Slide 12. Slide 12 disaggregates the key sources of EPS accretion for the quarter. Dover continues to deliver on announced cost actions, incremental margin for the quarter was at 21% and is expected to be the lowest percentage conversion for the year, as a result of the negative mix effect on the high margin printing and identification platform in this quarter. Moving on, we are reiterating our revenue guidance for Fluids and Engineering Systems based on order books and forecasted growth in Printing and ID and have lowered Refrigeration and Food Equipment as we are cautious on Asia and systems demands in the second half. Overall, we are encouraged with the performance in the first half of the year.

Organic growth is 5.5% with good margin conversion. We are executing well on productivity and cost initiatives. Demand remains supportive across most businesses, but visibility and sentiment remain cautious in some sectors. Despite the cautious macro environment, we are in control of a significant portion of our year-over-year profit change and as such, we are tightening on our full year guidance range to $5.75 to $5.85 per share. Lastly, as a note, we are targeting mid-September to host to Dover Day in Chicago, where we will provide an update on our progress of previously announced initiatives and a review of our portfolio strategy. We'll provide more information on that soon.

So that's the presentation. Let's move on to Q&A.

Questions and Answers:

Operator

Thank you. The floor is now open for questions. [Operator Instructions] Your first question is from Jeffrey Sprague of Vertical Research Partners.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Thank you. Good morning all.

Richard J. Tobin -- President and Chief Executive Officer

Good morning, Jeff.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Hey. First on kind of the product ID and Printing businesses thanks for that color on kind of the ITMA effect. But can you give us now a little bit of additional color then on what orders ought to look like in Q3? Do we see a big order bump there? And I just wonder, if you could also expand the conversation about that segment to kind of the Markem-Imaje piece of the business also?

Richard J. Tobin -- President and Chief Executive Officer

Okay. Sure. If we were to normalize our revenue through the quarters, the effect of printing -- of digital printing on the quarter was a little bit in excess of 0.5 point of organic growth. So, I mean, we knew this was coming.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

For the total corporation.

Richard J. Tobin -- President and Chief Executive Officer

Yeah. For the total corporation that is not just the segment. Look, we knew this was coming. I can tell you that the feedback that we get in terms of orders in the pipeline is very encouraging. I think that we are very conservative of how we recognize bookings in that particular segment, but we're talking about 2 million euro -- dollar pieces of equipment. So we wait until we have letters of credits in place and a variety of other things before we put them into backlog. I would expect that we'll book a decent portion of that in Q3. But I can tell you that we've already begun to ship in Q3 in that particular sector. So that's why we're confident in terms of the both the margin impact on the segment in the second half. As it relates to MI in total, MI had a very good Q1. It was slightly slower in Q2, largely driven by Asia. They had a another very good month, another good month or quarter in Europe. Our full year expectations is for growth to come back modestly in MI, but margin accretion to be robust in the second half.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

And as a second question, if I could, just on the refrigeration. So your comment about recent customer wins, sounds like it's a Fluid comment, not a Refrigeration comment. Just to clarify that, but more...

Richard J. Tobin -- President and Chief Executive Officer

That's a refrigeration comment, but go ahead.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

So that is a refrigeration comment. So could you elaborate a little bit on that? And I guess the comment about struggling with the volume ramp-up, right? Your orders don't suggest there's a strong volume ramp-up, but obviously you're in kind of a seasonal period. Is that what you're suggesting just kind of normal seasonality there's a little bit of struggle or there's something else that

Richard J. Tobin -- President and Chief Executive Officer

Look, I think that -- what we have is, -- we have to separate the segment into its component parts, right. So let's put the heat exchanges to the side for a moment. What we're saying is on the systems business of refrigeration, that's been slow. So that is disproportionate amount of the decline in the bookings. The bookings on case and door on the other hand, are up significantly and our production is ramped up significantly in case and door. Unfortunately, during the quarter, that is because of the labor intensity with that product line, a significant volume ramp comes at some cost, that quite frankly we struggled with and coupled with that, that we had a supplier of that went belly up in the middle of the transitions.

So I think overall cost us approximately $4 million to $5 million in the quarter, kind of let's call that frictional costs with the ramp up. We'll do better going forward from here, but at the end of the day, I think that we're pleased with our ability to compete in the marketplace. We're pleased that the order volume is ramping in door and case. So retail refrigeration is actually moving up right now. But it's absolutely clear in order to change the profitability aspect of this business. We've got to get this automation complete. So we're kind of keeping two balls in the air, where we're gaining market share in door and case. We like the way the business is moving, it's going to come at some cost. So we don't have a lot of significant margin accretion associated with that. We'll get some absolute profit increase on the volume, but the margin accretion, I think until we change how we run this business in terms of SKU management and commonality of component parts, that's really what's going to trigger.

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Great. Thanks. I'll leave it there.

Richard J. Tobin -- President and Chief Executive Officer

Okay.

Operator

Thank you. Your next question is from Steve Tusa of J.P. Morgan.

Steve Tusa -- J.P. Morgan -- Analyst

Hey, guys. Good morning.

Richard J. Tobin -- President and Chief Executive Officer

Good morning.

Steve Tusa -- J.P. Morgan -- Analyst

Good execution in kind of an uncertain environment. On the product ID side, you mentioned bookings were down in Asia. Are you seeing anything in kind of the machine builder channel that is a bit more choppy than expected, given that there's a lot of cross-border kind of activity for those guys or small machine builders and in the US and Europe that are kind of selling into there, that your products may kind of go along the same line with?

Richard J. Tobin -- President and Chief Executive Officer

Steve I don't know that question. I'd have to go back to the guys and maybe we'd have to see the segmentation of the individual markets that they sell into.

Steve Tusa -- J.P. Morgan -- Analyst

Okay.

Richard J. Tobin -- President and Chief Executive Officer

I just think that overall...

Steve Tusa -- J.P. Morgan -- Analyst

Would that still be a digital printing issue in Asia for that segment or was that seem to be more of a core -- a common and kind of core MI into Asia?

Richard J. Tobin -- President and Chief Executive Officer

Yeah. It's more of a core MI into Asia. On the digital printing side, in our particular space, which is at the top end of the market, the demand it looks very proactive for the next several years, just in terms of the proportionality versus ticket price of those machines. I think that's a timing issue. And as I mentioned before, that's a business that we expect to grow revenues by double-digits for the full year.

Steve Tusa -- J.P. Morgan -- Analyst

Yeah.

Richard J. Tobin -- President and Chief Executive Officer

So that side we're confident on as long as we can get the letters of credits and everything all lined up based on what we think that the backlog is going to be. On the MI side, it was a little bit choppy. So I don't think that -- I think that China was down 1% and I think the India was down a couple percentage points during the quarter. I think that is a reflection of kind of what's going on in China, but I don't have any real color on the segmentation of their customers at MI in China. I have to get that.

Steve Tusa -- J.P. Morgan -- Analyst

Okay. No problem. You're plenty busy, so don't worry about it. On the price cost, the refrigeration business, which I would have thought needed to get a little more price to kind of offset any kind of material inflation or tariff kind of impacts. You didn't get price in that segment was that kind of where you probably saw the biggest headwind from price cost or do you not really have a headwind from price cost this quarter?

Richard J. Tobin -- President and Chief Executive Officer

I'd have to go and disaggregate it, but I think on retail refrigeration, it's probably neutral, not counting the frictional costs because that's not -- that's cost self inflicted, quite frankly.

Steve Tusa -- J.P. Morgan -- Analyst

Yeah.

Richard J. Tobin -- President and Chief Executive Officer

So I think we're probably neutral in retail refrigeration. I'd have to go and take a look at the other segments. SWEP is a different difficult one because it's Europe based, but it's got a lot of China exposure. So we'd have to go get that sorted out.

Steve Tusa -- J.P. Morgan -- Analyst

Got it. All right.

Richard J. Tobin -- President and Chief Executive Officer

That's translation.

Steve Tusa -- J.P. Morgan -- Analyst

Sorry, to give you a long to-d-list. Thanks a lot.

Richard J. Tobin -- President and Chief Executive Officer

No problem.

Operator

Thank you. Your next question is from Andrew Obin of Bank of America.

Andrew Obin -- Bank of America -- Analyst

Yes. Good morning.

Richard J. Tobin -- President and Chief Executive Officer

Good morning.

Andrew Obin -- Bank of America -- Analyst

Just a question on free cash flow, I think you gave a fairly wide target for the year 8% to 12%. You seem to be running well ahead of last year. Where do you think you guy are going to come out within that range, given the performance year-to-date? And other than CapEx, any sort of big movements in working capital in the second half that we should be aware?

Richard J. Tobin -- President and Chief Executive Officer

Well, I mean, I think that the working capital seasonality should hold. Okay. So that's first and foremost. And then our target is to hit spot on in the middle of the range, which is exactly we did last year. We are running a little bit behind in CapEx versus our full year guidance. So I think that we're tracking probably to the lower end of the range on CapEx, for the full year. But look, that swing number versus the tie of the entire working capital changes, it's something, but I don't think it's anything overall.

At the end of the day is what we said before, we can -- we're working on grinding down working capital as a percentage of revenue or increasing turns across the portfolio. But what's really going to swing it for us at the end of the day is what the second half growth rate looks like. If we reaccelerate in the second half of the year, then the industrial inventory won't come down. If we don't, then we would expect the same kind of liquidating -- liquidation profile that we showed you last year in Q4.

Andrew Obin -- Bank of America -- Analyst

And just a follow up question on operations, just inefficiency at Refrigeration and Food Equipment on ramp up. Any of it relating to restructuring and operational changes that you guys are making? And just if you can sort of provide us broader color, you've sort of now been at Dover for a while. How do you feel about the runway for cost takeout going forward and ability to execute? And I appreciate that you have not provided any specific targets for next year, but just to give us a broader update? Thank you.

Richard J. Tobin -- President and Chief Executive Officer

Sure. The margin target that we gave for retail refrigeration last September holds. That requires us to intervene on the production footprint and as we've said before, that process is under way. But this is not just basically installing some equipment and that changes the business. The business is working on a fundamental change of how they run the business, particularly as it relates to SKU management, commonality of components in a variety of other things which allows for automation in the future. I think that when we announced the investment they were going to make, we said, it's kind of going to be a little bit of a chicken and egg because at the time, we were at the bottom of the market in terms of the demand function for door and case. And now that market's coming back and we're going to have to run the business and its more traditional labor intensive way until we get everything stood up. But, we need to protect market share and we need to protect the amount of volume that we've got going into fundamentally changing the business. So, at the end of the day, I'm not making any excuses for it. I think that we struggled with getting the available labor in the market with employment rates of what they are. It's tough. And as I mentioned, we had a supplier kind of go belly up on us in the middle or the beginning of the quarter, which cost us some money. So I would expect that we improve overall performance in Q2. But really, what's fundamentally going to change this business is changing basically how we manage our SKUs and how much labor content is in this process.

Andrew Obin -- Bank of America -- Analyst

Thanks.

Richard J. Tobin -- President and Chief Executive Officer

Yeah.

Operator

Thank you. Your next question is from John Inch of Gordon Haskett.

John Inch -- Gordon Haskett -- Analyst

Good morning, everybody.

Richard J. Tobin -- President and Chief Executive Officer

Good morning.

John Inch -- Gordon Haskett -- Analyst

Rich and Brad, if you were to sort of we've talked about Asia and parts of selective implications of detraction. How much would you say Asia detracted overall from the results? Maybe you could look at it sequentially or however you'd like to characterize it? Obviously not a big company in Asia, but it's still helpful I think, to put that into a kind of a jumbled bucket?

Richard J. Tobin -- President and Chief Executive Officer

Well, I think that, look, I think that Brad mentioned in his comments what total translation impact was. So there's the FX component of Asia, which you can calculate, right. So it's a percentage piece based on the geographic distribution out of the $7 million to $8 million of translation loss that we occurred in the quarter. So that's a piece. And then I think the quarter-over-quarter, profit of MI is Asia driven mostly, right, but I know that you can't see MI at the end of the day, but you need to unpack it from the digital printing impact. But I gave you some color in terms of what that was.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

And then you have the offsets from retail fueling having a really good quarter.

Richard J. Tobin -- President and Chief Executive Officer

Right.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

And continuing to have a good quarter in China. So you put all that together, not having exact data in front of me, I would say, China down slightly on the revs, but earnings still remains positive for us.

Richard J. Tobin -- President and Chief Executive Officer

Yeah. I mean, SWEP was for sell, somewhere between $4 million and $8 million probably in the quarter.

John Inch -- Gordon Haskett -- Analyst

Okay. No. That's helpful. Richard, EPG, you alluded to the fact that you thought Dover might be perhaps one of the very few companies to benefit from these List three tariffs. Could you -- is there any way you could expand a little bit on that? I got a few questions on that. Where exactly would that be benefiting you? And you think it's sustainable? It's a market share opportunity, like how exactly is this playing out?

Richard J. Tobin -- President and Chief Executive Officer

Well, I mean, I think it's been at a benefit [Phonetic] just because of our participation in the markets with our critical components that are price, cost versus tariffs has been positive, number one. Number two, you can read in the paper every day about people readdressing their supply chains and we're the beneficiary of that just because we're the component supplier that's levered largely to North American production.

Conversely, at the end of the day, I'm not -- I don't want to take it, this is a [Indecipherable] like I'm positive on tariffs. I think that it's just been -- we've been positioned appropriately just because of the nature of our business so far. But to the extent that those tariffs cause a significant slowdown in Asia, then as you can see from the results that we have here. Then ultimately, it becomes a little bit of a negative on our revenue streams in Asia. But on the North American side of the business, it had been positive post from price realization point of view and a volume point of view.

John Inch -- Gordon Haskett -- Analyst

Maybe just lastly, Fluids obviously put up another very strong broad based quarter. I guess we can sort of think about things like biopharma doing well on a sustained basis, but maybe you could just talk to your conviction in the portfolio, which I realize is got some niche elements to it. The portfolio overall in Fluids being able to kind of ex compares, still put up a cadence of robust growth against the backdrop of a global softening. How should we think about this, do you think?

Richard J. Tobin -- President and Chief Executive Officer

Well, look, I mean, it is a collection of businesses and there's a variety of things going on, right. We've got a high growth business that's sitting in with biopharma, that's growing in high teens, let's call it, and it has been for some period of time. So you've got a high growth at high margin, so you've got that portion of the portfolio. We think that we have a pump's franchise that is able to compete both macro growth and from a competitive point of view. So there is an element of share gain despite the fact that those trying to calculate share gain in a very dispersed business is difficult. We believe that we're winning in the marketplace in that particular side.

And on the Fluid side of the business, we've got a best-in-class underground franchise that is driven by regulatory growth. And I would say that we're probably gaining market share. There are also and most importantly, as we had highlighted last year, I think that are above ground business improved margins, comparable margins by 400 basis points quarter-to-quarter. So basically, we are on track to meet what we said by exit this year. So you've got high growth element and then you've got some niche franchises that are winning in the marketplace and you've got one big piece of the business that it's improving margin -- their margins dramatically.

John Inch -- Gordon Haskett -- Analyst

And the third runway of deals to do in the space, Rich, that would meet your returns criteria and pricing and so forth.

Richard J. Tobin -- President and Chief Executive Officer

I hope so.

John Inch -- Gordon Haskett -- Analyst

I guess, I'll hear more in September. Thank you very much. Appreciate that.

Richard J. Tobin -- President and Chief Executive Officer

Yeah.

Operator

Thank you. Your next question is from Andrew Kaplowitz of Citi.

Andrew Kaplowitz -- Citi -- Analyst

Rich, you mentioned that EPG, that DFS would probably reach the bottom of the 15% to 17% margin range for the year, but you just kind of answer John's question and you kind of said that DFS now seems on track. Obviously, had very strong incrementals in the quarter. Did something change, is it just that they're just trying to get their act together there? I mean, you did better all year, but you did make those comments on EPG.

Richard J. Tobin -- President and Chief Executive Officer

Yeah. Look I'm not -- I think that the range that we had for exit is 15% to 17%, do you know -- I said we are tracking toward the bottom. Can we beat it? Sure, we can. But let's walk through another quarter or so and see where we are. But I think that we're not out of the woods from a comp point of view before we get excited about the margin comparison. But I think the team is on it. And clearly, a 400 basis point accretion in the comparable quarter is great. And it puts us on the trajectory to meet those exit numbers. The backlog is there so it's supportive. At the end of the day, that is it to me, that is a mid-term target for that particular business, because even at exit, when we comp it against the competition, we've got some room to go. But, so far so good and we're very pleased with the effort of that particular business to grind it out.

Andrew Kaplowitz -- Citi -- Analyst

That's great. And then last quarter Rich, in ESG in particular, you mentioned that you had decent visibility into the business in Q3, but you needed another quarter under your belt to see how the business would fare for the year. So how are you thinking about ESG bookings and revenue growth in particular for the second half of the year and what kind of visibility do you have at this point?

Richard J. Tobin -- President and Chief Executive Officer

Look, we feel good about ESG for the year. So I think clearly that when we're looking for that business to slowed down. We don't think it's going to this year. We're booked pretty much through the end of Q3. We're waiting on a few orders in backlog. So hopefully by the time we do this again in another 90 days, that the backlog will actually probably stay even to go up slightly, which would solidify the full year. We're very pleased with the growth that we're getting out of the software franchise. And we've noted that, that particular piece of the business has grown 20% and it's not margin accretive yet, because it's just on installs, but we expect the leverage on that to be significant going into 2020.

Andrew Kaplowitz -- Citi -- Analyst

Thanks, guys.

Richard J. Tobin -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Your next question is from Julian Mitchell of Barclays.

Julian Mitchell -- Barclays -- Analyst

Hi. Good morning. Maybe a first question around capital deployments. There was no buyback spend in the first-six months of the year. A couple of small acquisitions and you closed on All-Flo Pump. So maybe give us some update on, at least for this year, specifically how you're thinking about capital deployment. I understand we'll hear about the medium term in eight weeks time.

Richard J. Tobin -- President and Chief Executive Officer

Well, I mean, in general terms, Julian, it's basically what we said before, right. Our bias is for organic investment followed by inorganic organic investment go into capital return. I think that we've got a relatively robust pipeline on the inorganic side. So keep our powder dry to see how that develops over the next few months. If we are unable to close on those, then we'll revisit the issue of capital return for sure.

Julian Mitchell -- Barclays -- Analyst

I see, so if we don't see a big step up in M&A, we can expect more buybacks by year end.

Richard J. Tobin -- President and Chief Executive Officer

At some point, I don't want to put a calendar on it, but at some point, we're not going to -- we have an expectation of terms of cash flow for the year. We're not going to sit on a significant pile of cash at negative carry for sure. We prefer to deploy it.

Julian Mitchell -- Barclays -- Analyst

Understood. Thank you. And then my follow up would be just looking at the aggregate profitability in Refrigeration and Food Equipment. Should we expect the profits in that division to be flattish year-on-year for 2019 as a whole or does the -- is that just dependent on the Richmond site productivity efforts?

Richard J. Tobin -- President and Chief Executive Officer

Our expectation is for revs and profits to be up year-over-year.

Julian Mitchell -- Barclays -- Analyst

Perfect. Thank you.

Operator

Thank you. Your next question is from Nigel Coe of Wolfe Research.

Nigel Coe -- Wolfe Research -- Analyst

Thanks. Good morning. We've touched on a lot already, but still -- I do want to pick up on the last question from Julian. That the growth in refrigeration and food, we've got a slight down organic in the first half of the year, backlog is pretty flat, we burned backlog in 2Q modestly. What is the degree of conviction in the second half moving to sort of a 3% 4% organic growth rate?

Richard J. Tobin -- President and Chief Executive Officer

Well, I mean, looking at the end of the day, I think we moved the segment down by one point. Okay. I think that our conviction in food retail for growth is quite high. We actually missed from a calendarization point of view in order that we would have liked to been able to book at the end of June, but can't book until you have the order at the end of the day. So it's coming in now. So just to give you some color on bookings as we proceed into Q3. We are were quite constructive there.

For us, it's the margin conversion issue in that particular segment. We've got some aspirations there. But as we said before, I think that we need to change the dynamic of that business in terms of working on SKU management and reducing the amount of labor content, but that -- the benefits of that don't come in until mid-20. So I think that overall, we're pleased in terms of the demand dynamic for door and case. What's going on in the marketplace, it's up to us to try to maximize profitability out of it in the second half of the year.

Nigel Coe -- Wolfe Research -- Analyst

Thanks, Rich. That's great color. And then to maybe just characterize what you're hearing from kind of your field organization, your channel partners. And the spirit of the question really is that, some of the distributors in the US have been talking about change in customer behavior through June toward the end of last quarter. And you alluded to kind of lower end of the CapEx for a full year. And I'm wondering if maybe you're pulling back a little bit or dialing back a little bit on investment spend in the back half of the year. So I think that was more back end loaded in your plans. So any color around that would be great?

Richard J. Tobin -- President and Chief Executive Officer

Yeah. Let me -- I'll start with the second and go back to the first. I think, no, we're not pulling back on CapEx, it's just as it always happens, you've got aspirations to set spend this money and then it takes time to actually deploy it, because, if you think about what we're doing with our new plant up in Minneapolis for CPC, by that time we work through getting building permits and a variety of other things, you're three months behind and then timing. So I think that, that capital will be deployed overall, but I think it's probably a piece of it's going to slip into '20 just because of capital timing at the end of the day. So we're not pulling back on the aspirations, but then again, we did give a range, and we're probably going to come out of the bottom of it now. The way things look from the calendarization point of view.

Well, with the amount -- with the different types of businesses that we have in the portfolio, you can imagine the plethora of mixed messaging that we get from the marketplace. I can just tell you as a general comment, that the sentiment was more negative at the beginning of the quarter, so than it was at the end of the quarter. We actually went through this issue that back in April that we were kind of worried a little bit about backlogs in a variety of other things. And then we actually accelerated in the quarter in terms of both our own shipment performance and our backlog. So it's a little bit of an odd situation that's going on out there in terms of what we're hearing from the marketplace and how that's developed into kind of our forecast. I can just tell you that leaving the quarter and based on a, what's in our control and what we need to do to convert to get to the top end of the range, if you looked down at the squeeze, I think that we're in good shape.

Nigel Coe -- Wolfe Research -- Analyst

That's you're right. It's a very odd environment. Well, thanks for the color, Rich, and good luck. Thanks.

Richard J. Tobin -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Your next question is from Scott Davis of Melius Research.

Scott Davis -- Melius Research -- Analyst

Hi. Good morning, guys.

Richard J. Tobin -- President and Chief Executive Officer

Hey, Scott.

Scott Davis -- Melius Research -- Analyst

I can't remember if you mentioned this at EPG or not, but what were the return kind of hurdles that you crossed for this All-Flo pump, was it double digit by your four or something like that or did you not mention that yet?

Richard J. Tobin -- President and Chief Executive Officer

It's 10 by year three.

Scott Davis -- Melius Research -- Analyst

10 by year three. Okay. And then I have a question that covered your stock for a while, I don't know the answer to this. The environmental solutions business, you mentioned software sales. I just can't recall what that is. Can you? [Speech Overlap]

Richard J. Tobin -- President and Chief Executive Officer

Dover made an acquisition, a couple of years ago called 3rd Eye. That guy was principally there for doing driver safety, but is managed now to expand what it sells around that camera technology, that is quite interesting. And the adoption rate over the last six months at some major independent carrier has been excellent.

Scott Davis -- Melius Research -- Analyst

Is that a, I mean, can you size that business, is it big enough to move the needle?

Richard J. Tobin -- President and Chief Executive Officer

Hope so in the future. I can just tell you that off relatively, let me think about it in the context of ESG. Yeah, I mean, it's big enough to move the needle over time.

Scott Davis -- Melius Research -- Analyst

Okay. And then just last question, is on portfolio and I imagine we'll get into this at Dover Day in mid-September. But are you reasonably happy with the portfolio you have now, Rich, I mean I know you've got some challenges in refrigeration, but is this -- if we look out five years from -- two years from now, is there likely to be further divestitures?

Richard J. Tobin -- President and Chief Executive Officer

Well, I don't want to get ahead of our big presentation in September. Nothing in the portfolio was destroying capital at its present. But five years from now, is the portfolio going to look different than it is today. The answer is yes.

Scott Davis -- Melius Research -- Analyst

Okay. All right. We'll see you in September. Thanks, guys.

Richard J. Tobin -- President and Chief Executive Officer

All right. See you.

Operator

Thank you. Your next question comes from Mig Dobre of Baird.

Mig Dobre -- Baird -- Analyst

Yes. Thank you. Good morning. I just want to go back to your comments from about two minutes ago, on just trends through the quarter. I mean I understand your comments on Asia and maybe portions of the business and there being a little bit weaker, but it seems to me that everything else is trending pretty well. So I guess, against this theme, if you would have macroeconomic uncertainty. Can you kind of help us understand if there is anything that slowed maybe through the quarter, where was it and if things maybe held better than what you anticipated at a point in time in April, for instance, where did you get a little bit of upside?

Richard J. Tobin -- President and Chief Executive Officer

Well, I think in the entire Fluids segment is performing slightly better than we would expected. I think on the top line and I think that we're pleased with the trajectory of the earnings for sure. We would have -- we did not expect the slowdown in heat exchanges demand during the second quarter, nor did we expect the FX. So between those two, that probably cost us $7 million to $8 million in profit during the quarter. So those were unexpected. There is certain portions of the portfolio like the small exposure that we have to automotive OEM that we expected to slow and it did in fact slow during the quarter. But that we had modeled into our full year forecasts at the end of last year in the first place. So I think that we would have not forecast the frictional costs in Richmond due to the fact of labor unavailability and a supplier issue that we had. DDP as we've beaten that to death. We expected that in the quarter. So that's not a surprise.

I think that the heat exchanger business and the FX translation is the two areas that when we take a look at what we had forecast at kind of the beginning of the quarter and versus the other quarter where we are. We would have liked to do better a little bit on the backlog and as I mentioned before, we had a couple orders coming that we would have liked to get in June. I can tell you just as some further color on the DDP side, I mean, we did that trade show and if you go back and look at my comments, I think that we're really pleased of the feedback that we have, but we didn't book anything in Q2 in DDP. So to the extent that we can convert that interest into booking in Q3. We would expect to see a good bounce back there.

Mig Dobre -- Baird -- Analyst

All right. That's helpful. And then maybe from my follow up, I saw last night you announced a partnership with ABB for Dover Fueling. So maybe you can give us some thoughts here as to what the revenue model might be the growth opportunity? How do you see the retrofit of existing infrastructure? What's the game plan?

Richard J. Tobin -- President and Chief Executive Officer

Well, look, I can't monetize it for you right now because we just signed it yesterday. But in effect, we've always said that we recognize the fact that EV chargers, there is going to be somewhat of a future on that. We can all debate with the size of that is. But we've signed a Europe contract with ABB, where we'd be purchasing chargers for resale into both our distribution and direct customer network, and then we'd be moving to purchasing kits that would be incorporated into our dispenser factor over time and spare parts. So too early to start to say size and scale, but I think it was important that we develop partnerships because we're very attractive to manufacturers of charging stations because of the size and access that we have to do distribution network and our OEM customers.

Mig Dobre -- Baird -- Analyst

Do you -- last question, do you foresee having the need to make any sort of changes to the way you operate or go-to-market or really anything in order to be able to capture on this opportunity or is it just with your install base for lack of a better term in terms of operation?

Richard J. Tobin -- President and Chief Executive Officer

The latter.

Mig Dobre -- Baird -- Analyst

All right. Thank you.

Richard J. Tobin -- President and Chief Executive Officer

You're welcome.

Operator

Thank you. Your next question is from Joe Ritchie of Goldman Sachs.

Joe Ritchie -- Goldman Sachs -- Analyst

Thanks. Good morning, guys.

Richard J. Tobin -- President and Chief Executive Officer

Good morning, Joe.

Joe Ritchie -- Goldman Sachs -- Analyst

Hey. Maybe just touching on the right sizing benefits for a second. Obviously, you guys have executed well in that regard and I think you've had about a $0.30 benefit so far this year. It seems like we're probably going to be through most of it, I guess, as we get into 3Q. And so as you kind of think about the composition of your guidance into the second half of the year. How are you thinking about the importance of getting a little bit better leverage out of your organic volumes in order to hit your guidance and where to kind of put the hit there?

Richard J. Tobin -- President and Chief Executive Officer

Yeah. I got you. We knew that was a question. If you go back and look at my comments, I said that the margin conversion in Q2 is likely to be the lowest for Dover for the full year. So, if you go back and take a look at the side of the EPS impact of conversion, we would expect that conversion to go up in Q2 and I mean Q3 and Q4 relative to Q2 and that the SG&A to slowly unwind. But I think that's all baked into what we believe that we need to do to reach the top end of our EPS guidance.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. I mean [Speech Overlap]

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Rich is referring to the 21% on the chart. You see the 73% there with SG&A, but 21% is going to improve in the back half.

Joe Ritchie -- Goldman Sachs -- Analyst

Got it. And the biggest drivers of that, if I'm hearing you guys correctly is going to come in RF&E and then potentially with digital printing picking back up in E&S or are there other moving parts?

Richard J. Tobin -- President and Chief Executive Officer

Well, I think that we expect for clearly for Engineering Systems driven by Printing and ID portion -- a platform within Engineering Systems. I think that we're going to continue to have very good conversion in aboveground fueling systems on the margin side. And then, thirdly, it would be the RF&E, which, even when we continue to make strides in improving performance, is going to be dilutive to consolidated margins.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay. Yeah, that makes sense. And then, maybe my quick follow-up here, I guess, just to make sure I understand the impact that ITMA had on the quarter, I think, you guys had roughly 50 basis points of growth to the whole portfolio, so, say, call it 100 to 150 on the actual segment. Is the right way to think about it then, call it, 2Q growth would've been more like 3% in the segment and maybe that's our starting point within expectation?

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

It is higher than that.

Richard J. Tobin -- President and Chief Executive Officer

Yeah. We would have rounded up, Joe. So, but at the end of the day it would have been 3.5% or...

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

-- or 4%.

Richard J. Tobin -- President and Chief Executive Officer

Or slightly in excess of 3.5% to 4%.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Yeah, to 4%.

Joe Ritchie -- Goldman Sachs -- Analyst

All right. I was talking specifically about in Engineered Systems, right?

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Yeah. That's what we were speaking about.

Richard J. Tobin -- President and Chief Executive Officer

Yeah.

Joe Ritchie -- Goldman Sachs -- Analyst

Okay. All right. Got it. And that's kind of like the starting point for 3Q and you guys would expect an improvement on that?

Richard J. Tobin -- President and Chief Executive Officer

Yes.

Joe Ritchie -- Goldman Sachs -- Analyst

All right.

Richard J. Tobin -- President and Chief Executive Officer

Well, that would be kind of like the normalized in a business we expect to grow in excess of 10% for the full year.

Joe Ritchie -- Goldman Sachs -- Analyst

Got you. Okay. I think I got it. Thank you.

Richard J. Tobin -- President and Chief Executive Officer

Good.

Operator

Thank you. Your next question is from Deane Dray of RBC Capital Markets.

Deane Dray -- RBC Capital Markets -- Analyst

Thank you. Good morning, everyone.

Richard J. Tobin -- President and Chief Executive Officer

Hi.

Deane Dray -- RBC Capital Markets -- Analyst

Hey. Just want to follow-up on that last comment on digital printing. The idea here is purchasing managers were out of pocket, so there was no ordering. But when you talk about normalizing, did you launch any new products at the trade show that would create some incremental demand or is it the same product line and just a catch-up on orders?

Richard J. Tobin -- President and Chief Executive Officer

We did launch a product a mini LaRio. And then we launched a couple of different software solutions and a bundling package of consumable products with a big printer. So we've launched a series of different things. But even if we had not launched anything, we would have had the same demand dynamic, because that's just the way -- the show only happens every four years. So everybody holds off until they see what's the latest launched products and what the pricing environment is and a variety of other things. But...

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

And if I go back to what Rich said, the order take was very good at that show, but we're not showing them in our bookings until we get the credit lined up with our customer base. You could imagine, we ship those all over the globe and we're very conscious of being paid for what we ship, so we lined that up first.

Deane Dray -- RBC Capital Markets -- Analyst

Got it. And then, just a clarification on heat exchangers. That came up a number of times. The size of it, I think you said $4 million. But what do you attribute the slowdown or the fall-off in demand? Was there any share loss? Is this trade uncertainty, but what would you point to there?

Richard J. Tobin -- President and Chief Executive Officer

Yeah. I always shy away of any of our businesses having -- being a macro driver. What I can tell you is that it was mostly China and it was mostly non-refrigeration product line or HVAC.

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Yeah, non-HVAC.

Richard J. Tobin -- President and Chief Executive Officer

Non-HVAC product line, so industrial applications.

Deane Dray -- RBC Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you. That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Galiuk for closing remarks.

Andrey Galiuk -- Vice President of Corporate Development and Investor Relations

Thank you. This concludes our conference call and we thank you for your interest in Dover and look forward to speaking to you next quarter.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Andrey Galiuk -- Vice President of Corporate Development and Investor Relations

Richard J. Tobin -- President and Chief Executive Officer

Brad M. Cerepak -- Senior Vice President and Chief Financial Officer

Jeffrey Sprague -- Vertical Research Partners -- Analyst

Steve Tusa -- J.P. Morgan -- Analyst

Andrew Obin -- Bank of America -- Analyst

John Inch -- Gordon Haskett -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Julian Mitchell -- Barclays -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

Scott Davis -- Melius Research -- Analyst

Mig Dobre -- Baird -- Analyst

Joe Ritchie -- Goldman Sachs -- Analyst

Deane Dray -- RBC Capital Markets -- Analyst

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