Dover Corporation — Q2 2021 Form 10-Q Summary
Business context and reporting period
Dover is a diversified global manufacturer and solutions provider operating through five segments: Engineered Products, Fueling Solutions, Imaging & Identification, Pumps & Process Solutions, and Refrigeration & Food Equipment. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.032 billion | $1.499 billion | $3.900 billion | $3.155 billion |
| Gross profit | $772.2 million | $551.6 million | $1.494 billion | $1.164 billion |
| Gross margin | 38.0% | 36.8% | 38.3% | 36.9% |
| Operating earnings | $344.1 million | $184.9 million | $656.7 million | $410.2 million |
| Net earnings | $264.5 million | $124.8 million | $497.3 million | $301.0 million |
| Diluted EPS | $1.82 | $0.86 | $3.43 | $2.07 |
| Operating cash flow | Not separately provided | Not separately provided | $437.3 million | $347.7 million |
| Free cash flow | Not separately provided | Not separately provided | $364.0 million | $268.5 million |
Q2 revenue increased 35.5%, while six-month revenue increased 23.6%. Q2 net earnings rose 112.0% and six-month net earnings rose 65.2%. Q2 operating margin was approximately 16.9%, compared with approximately 12.3% in the prior-year quarter. The effective tax rate was 18.2% in Q2 versus 20.4% in the prior-year quarter; the six-month rates were 18.8% and 18.7%, respectively.
At June 30, 2021, cash and cash equivalents were $601.4 million, total long-term debt was $3.083 billion, and stockholders’ equity was $3.719 billion. Net debt to net capitalization was 40.0%, down from 43.4% at December 31, 2020. Dover maintained a $1.0 billion unsecured revolving credit facility expiring October 4, 2024, and reported compliance with all debt covenants, including a 13.9-to-1 interest coverage ratio versus a 3.0-to-1 minimum.
Material changes versus the prior comparable period
- Organic revenue growth was 29.7% in Q2 and 18.7% for the first six months, supplemented by foreign-currency translation and acquisitions.
- All five segments reported higher Q2 revenue. The strongest growth was in Refrigeration & Food Equipment at 46.7%, Pumps & Process Solutions at 38.7%, and Fueling Solutions at 33.9%.
- Q2 bookings increased 68.2% to $2.4 billion, and backlog increased to $2.6 billion from $1.5 billion in the prior-year period.
- Gross margin expanded 120 basis points in Q2 and 140 basis points for the six-month period, reflecting volume, pricing, productivity, and cost-reduction benefits, partly offset by material, labor, and logistics inflation.
- SG&A increased in dollars but declined to 21.1% of Q2 revenue from 24.5%; the six-month ratio declined to 21.5% from 23.9%.
- Operating cash flow increased $89.6 million, and free cash flow increased $95.5 million. Growth-related increases in receivables and inventories partially offset stronger earnings and operating cash generation.
- Dover acquired four businesses during the first six months for $88.5 million, including AvaLAN, Quantex, and Blue Bite. The acquisitions added $62.5 million of goodwill.
- Q2 restructuring charges declined to $9.4 million from $12.3 million; six-month charges declined to $15.9 million from $19.6 million. The 2020 period also included a $5.8 million gain on the sale of AMS Chino.
Guidance, outlook, commentary, and risks
Management expected full-year 2021 capital expenditures of approximately $175 million to $200 million. It stated that operating cash flow, existing credit capacity, and capital-market access should fund acquisitions, capital expenditures, dividends, and share repurchases.
Management reported continued recovery from COVID-19-related weakness and expected improvement in several slower-recovering businesses during the second half of 2021. However, it expected material-cost inflation, logistics constraints, labor-availability issues, and component shortages to continue into the second half. Certain compressor-component, foodservice, and textile-printing markets remained below pre-pandemic levels.
Additional restructuring programs could be implemented during 2021. Other disclosed risks include changes in customer demand, competitive and pricing pressure, tariffs and tax law, acquisition integration, foreign-exchange and interest-rate volatility, supply-chain conditions, litigation, product quality and safety, cybersecurity, privacy, and intellectual-property matters. The filing states that there were no material changes to previously disclosed risk factors.
Environmental and other probable, estimable liabilities totaled $28.9 million at June 30, 2021. Management stated that no pending legal proceedings were expected to have a material effect on financial position, results of operations, or cash flows. The company had approximately $153.2 million of letters of credit, surety bonds, and performance and other guarantees outstanding.
Most important facts for investors to verify
- Whether elevated organic growth, bookings, and backlog convert into sustained revenue after comparisons against the COVID-19-affected 2020 period normalize.
- Whether pricing and productivity actions continue to offset steel, labor, freight, logistics, and other inflationary pressures.
- The cash-conversion impact of higher receivables, inventory, and supplier-finance obligations; amounts due to supply-chain-finance institutions were approximately $184 million at June 30, 2021.
- Execution and integration of the 2021 acquisitions and the potential for additional restructuring charges.
- Recovery timing for foodservice, textile-printing, compressor-component, bearings, and other slower-recovering end markets.
- Debt maturity, refinancing, foreign-currency exposure, covenant compliance, and continued access to commercial paper and capital markets.
- Capital-allocation decisions, including the $0.99 per-share dividend paid during the first six months and the remaining authorization to repurchase 19.8 million shares through December 31, 2023.