Dover Corporation — Q1 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 months ended March 31, 2021, compared with the same period in 2020.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $1.868 billion | $1.656 billion | +12.8% |
| Gross profit | $721.5 million | $612.2 million | +17.9% |
| Gross margin | 38.6% | 37.0% | +160 bps |
| Operating earnings | $312.6 million | $225.3 million | +38.7% |
| Net earnings | $232.8 million | $176.3 million | +32.0% |
| Diluted EPS | $1.61 | $1.21 | +33.1% |
| Effective tax rate | 19.5% | 17.4% | +210 bps |
| Cash flow from operations | $177.2 million | $75.9 million | +$101.3 million |
| Capital expenditures | $31.3 million | $40.2 million | -$8.9 million |
| Free cash flow | $145.9 million | $35.7 million | +$110.2 million |
Revenue growth included 8.8% organic growth, 3.1% favorable foreign-currency translation, 1.2% acquisition-related growth, and a 0.3% unfavorable disposition impact. Pricing contributed approximately 0.8% to consolidated revenue growth. SG&A increased 5.7%, but declined to 21.9% of revenue from 23.4%.
Segment performance
| Segment | Revenue change | Segment earnings change | Notable factors |
|---|---|---|---|
| Engineered Products | +4.9% | -0.5% | Strength in vehicle service, automation, aerospace and defense; pressure from industrial winch, waste handling, supply constraints and material costs. |
| Fueling Solutions | +8.2% | +24.3% | Retail fueling, European software and vehicle wash demand; benefits from pricing, productivity and acquisitions. |
| Imaging & Identification | +10.7% | +10.7% | Growth in marking, coding and serialization; digital textile printing remained weak due to COVID-19 effects. |
| Pumps & Process Solutions | +23.4% | +87.1% | Strong biopharma, hygienic pumps, industrial pumps and plastics processing demand; margin increased to 31.4% from 20.7%. |
| Refrigeration & Food Equipment | +19.3% | +62.0% | Strong retail refrigeration, can-shaping and heat-exchanger demand; foodservice remained subdued. |
Balance sheet, debt and liquidity
- Cash and cash equivalents were $536.5 million at March 31, 2021, up from $513.1 million at year-end 2020; approximately $379.6 million was held outside the United States.
- Long-term debt was $3.063 billion, compared with $3.109 billion at December 31, 2020. The earliest long-term debt maturity is in 2025.
- Dover maintained a $1.0 billion unsecured revolving credit facility expiring October 4, 2024. It was undrawn at quarter-end and serves primarily as commercial-paper liquidity support.
- The company was in compliance with its debt covenants and reported an EBITDA-to-net-interest coverage ratio of 12.1x versus a 3.0x minimum.
- Net debt to net capitalization improved to 41.9% from 43.4% at year-end 2020.
- Adjusted working capital increased 9.9% from year-end to $1.230 billion, reflecting higher receivables and inventory associated with increased revenue and backlog.
- Amounts due to financial institutions under supplier supply-chain-financing programs were approximately $160 million at March 31, 2021, versus $139 million at year-end.
Material changes versus the prior comparable period
- Bookings increased 30.7% to $2.3 billion, with organic bookings growth of 26.5%. Backlog increased to $2.2 billion from $1.6 billion.
- Operating cash flow and free cash flow increased substantially, primarily due to higher earnings, lower compensation payments and lower capital expenditures.
- There were no acquisitions in Q1 2021, compared with $208.4 million of acquisitions in Q1 2020. The prior-year period included the acquisitions of Systech and Soft-Pak.
- Q1 2020 included a $6.6 million gain on the sale of AMS Chino; no comparable gain occurred in Q1 2021.
- Restructuring charges declined to $6.4 million from $7.3 million. Net rightsizing costs were $4.2 million in Q1 2021, including $2.3 million of other benefits.
- The company repurchased 182,951 shares for $21.6 million in Q1 2021, compared with 548,659 shares for $52.9 million in Q1 2020. Approximately 19.8 million shares remained authorized for repurchase.
- Dividends paid increased to $71.3 million, or $0.495 per share, from $70.9 million, or $0.49 per share.
Outlook, management commentary and risks
- Management reported continued recovery from 2020 market disruptions and stated that core global manufacturing locations remained operational during the quarter.
- Management expects continued improvement in digital textile printing, food equipment and industrial winch markets, with some recovery expected in the second half of 2021. Foodservice demand was expected to remain soft near term but improve as vaccination enabled customer reopening.
- Fueling Solutions demand for EMV-compliant equipment was strong ahead of the anticipated second-quarter 2021 compliance deadline, but management expected demand to taper afterward.
- Management expected positive momentum in biopharma and hygienic pumps and connectors to continue, while some bearings and compression-components markets were expected to improve in the second half of the year.
- Full-year 2021 capital expenditures were expected to be approximately $175 million to $200 million. The filing does not provide clear consolidated earnings or revenue guidance.
- Additional restructuring programs may be implemented during 2021. Key risks include COVID-19 and future pandemics, economic and end-market conditions, customer demand, pricing pressure, supply-chain disruption, material and logistics cost inflation, tariffs and trade policy, acquisitions and integration, foreign exchange and interest rates, cybersecurity, legal and compliance matters, product quality, and intellectual property protection.
- Environmental liabilities were estimated at $29.3 million at March 31, 2021. Management stated that no pending legal proceeding was expected to have a material effect on financial position, results or cash flows.
- On April 19, 2021, after quarter-end, Dover acquired AvaLAN Wireless Systems for approximately $40.0 million; the business will be included in Fueling Solutions.
Investor verification points
- Verify whether elevated bookings and backlog convert into revenue as expected, particularly in Refrigeration & Food Equipment and Pumps & Process Solutions.
- Monitor material, freight and supply-chain inflation, including whether pricing offsets these pressures.
- Assess the durability of COVID-19 recovery in foodservice, digital textile printing, industrial winch and other weaker end markets.
- Reconcile non-GAAP measures, including organic growth, rightsizing costs, segment EBITDA and free cash flow, with GAAP results.
- Evaluate working-capital intensity, including the increase in inventories, receivables and supplier-finance obligations.
- Track restructuring execution, potential additional charges and the expected benefits from productivity and footprint-consolidation initiatives.
- Incorporate the post-quarter-end AvaLAN acquisition and any related integration, valuation or financing effects in subsequent filings.