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Diverse Markets Boosting Dover
So far this has been a solid quarter for a wide range of industrial conglomerates. Investors can add Dover (NYSE:DOV) to this list, as ongoing strength in markets like materials handling, fluid management, microphones, and frequency control products are helping this relatively small industrial conglomerate post very attractive revenue and order growth.
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An All Around Solid Second Quarter
Arguably the worst that can be said about Dover's second quarter performance is that it did not beat the analyst estimates by a huge amount. Nevertheless, the company reported 21% top line growth, 14% organic revenue growth, and order growth of 15%.
Reported revenue growth was led by the fluid management business (32%) and the industrial segment (23%), while even the worst performing category (engineered systems) was still up 12%. There were no huge shortfalls in book-to-bill across the categories, but the industrial segment did top the list at 1.11. Engineered systems did get a meaningful boost from currency (organic growth was up 8%), while acquisitions made a big contribution to fluid management. On an organic basis, industrial products was the leader at 20% growth, but electronic technologies and fluid management were not too far behind.
Profitability was solid again this quarter. Segment operating profit rose 24% while overall corporate operating income jumped 29%. Industrial and engineered systems both saw some modest margin compression, while fluid management and electronic technologies saw margin expansion.
More Drilling, More Completion, More Fluid to Be Managed
Fluid management continues to get a boost from the ongoing capacity growth in the petroleum market. It takes lifts and compressors to get oil and gas out of the ground, as well as pumps and other components to move it through the final users. Dover's performance is not surprising given Gardner Denver's (NYSE:GDI) strong results and the stronger order growth at Dover relative to Flowserve (NYSE:FLS) and Tyco (NYSE:TYC) seems to be testament both to market positioning (serving the right markets) and share growth. It also suggests some room for improvement at Cameron (NYSE:CAM) though the comparisons are not perfectly overlapping.
Industrial Hardly a Shrinking Violet
As strong as fluid management is, the company's industrial business is hardly a laggard. Like Eaton (NYSE:ETN), Dover is seeing good demand in material handling products like hydraulics and powertrains, and companies like ABB (NYSE:ABB) and Siemens (NYSE:SI) are reporting good ongoing demand in factory automation and material handling.
Elsewhere, Dover is also reporting good demand for trailers. Overall, these are pretty good times for the companies that serve the heavy-duty truck market - whether it's engines from the likes of Cummins (NYSE:CMI), components from Eaton, or trailers and the like from Dover. If demand for trailers and waste handling equipment is as strong as Dover's earnings would seem to suggest, that should also be a positive for the likes of Oshkosh (NYSE:OSK), assuming that Dover isn't succeeding solely from market share growth.
The Bottom Line
Given the rather sizable boost in revenue growth guidance from Dover management, it is not too hard to be positive on its ongoing prospects. While Dover's fair value relative to its current price is in that frustrating gray area of "cheap enough to own, but not quite cheap enough to buy," the momentum in businesses like materials handling and petroleum suggests the risks are on the positive side and probably should tip the balance from "hold" to "buy." (These decision-making tools play an integral role in corporate finance and economic forecasting. To learn more, see Using Decision Trees In Finance.)
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TUTORIAL: Analyzing Chart Patterns
An All Around Solid Second Quarter
Arguably the worst that can be said about Dover's second quarter performance is that it did not beat the analyst estimates by a huge amount. Nevertheless, the company reported 21% top line growth, 14% organic revenue growth, and order growth of 15%.
Reported revenue growth was led by the fluid management business (32%) and the industrial segment (23%), while even the worst performing category (engineered systems) was still up 12%. There were no huge shortfalls in book-to-bill across the categories, but the industrial segment did top the list at 1.11. Engineered systems did get a meaningful boost from currency (organic growth was up 8%), while acquisitions made a big contribution to fluid management. On an organic basis, industrial products was the leader at 20% growth, but electronic technologies and fluid management were not too far behind.
Profitability was solid again this quarter. Segment operating profit rose 24% while overall corporate operating income jumped 29%. Industrial and engineered systems both saw some modest margin compression, while fluid management and electronic technologies saw margin expansion.
Fluid management continues to get a boost from the ongoing capacity growth in the petroleum market. It takes lifts and compressors to get oil and gas out of the ground, as well as pumps and other components to move it through the final users. Dover's performance is not surprising given Gardner Denver's (NYSE:GDI) strong results and the stronger order growth at Dover relative to Flowserve (NYSE:FLS) and Tyco (NYSE:TYC) seems to be testament both to market positioning (serving the right markets) and share growth. It also suggests some room for improvement at Cameron (NYSE:CAM) though the comparisons are not perfectly overlapping.
Industrial Hardly a Shrinking Violet
As strong as fluid management is, the company's industrial business is hardly a laggard. Like Eaton (NYSE:ETN), Dover is seeing good demand in material handling products like hydraulics and powertrains, and companies like ABB (NYSE:ABB) and Siemens (NYSE:SI) are reporting good ongoing demand in factory automation and material handling.
Elsewhere, Dover is also reporting good demand for trailers. Overall, these are pretty good times for the companies that serve the heavy-duty truck market - whether it's engines from the likes of Cummins (NYSE:CMI), components from Eaton, or trailers and the like from Dover. If demand for trailers and waste handling equipment is as strong as Dover's earnings would seem to suggest, that should also be a positive for the likes of Oshkosh (NYSE:OSK), assuming that Dover isn't succeeding solely from market share growth.
The Bottom Line
Given the rather sizable boost in revenue growth guidance from Dover management, it is not too hard to be positive on its ongoing prospects. While Dover's fair value relative to its current price is in that frustrating gray area of "cheap enough to own, but not quite cheap enough to buy," the momentum in businesses like materials handling and petroleum suggests the risks are on the positive side and probably should tip the balance from "hold" to "buy." (These decision-making tools play an integral role in corporate finance and economic forecasting. To learn more, see Using Decision Trees In Finance.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Stephen D. Simpson, CFA
Stephen D. Simpson, CFA, is a freelance financial writer, investor, and consultant. He has worked as an equity analyst for both sell-side and buy-side investment companies in both equities and fixed income. Stephen's consulting work has focused primarily upon the healthcare sector, while he has also written extensively for publication on topics pertaining to investments, security analysis, and healthcare. Simpson operates the Kratisto Investing blog, and can be reached there.
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