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Dover (DOV) Beats Q3 Earnings, Maintains FY16 Guidance

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Dover Corporation (DOV - Free Report) reported third-quarter 2016 adjusted earnings per share from continuing operations of 87 cents, which declined over 27% year over year. However, earnings beat the Zacks Consensus Estimate of 82 cents, resulting in a positive earnings surprise of 6%.

The prevailing weak macro environment, ongoing declines in longer cycle oil & gas exposed markets and production inefficiencies in the retail refrigeration business impacted both volume and earnings in the quarter. This offset solid improvements in the upstream drilling and production businesses as well as continued strong performance in the Printing & Identification platform.

Including one-time items, earnings came in at 83 cents per share, down from the prior-year figure of $1.19.
 

Total revenue declined 4.5% year on year to $1.707 billion in the quarter, which fell marginally short of the Zacks Consensus Estimate of $1.712 billion. The year-over-year slump in revenues was due to a fall of 7% in organic revenues, partly neutralized by 3% growth from acquisitions.

Costs and Margins

Cost of sales came down 3.5% year over year to $1.08 billion in the reported quarter. Gross profit decreased 6.1% year over year to $632 million and subsequently gross margin slumped 60 basis points (bps) to 37%.

Selling, general and administrative expenses increased to $421 million from $396 million in the prior-year quarter. Operating profit plunged 24% to $211 million from $277 million in the year-ago quarter. Operating margin contracted 320 bps to 12.3%.

Segmental Performance

Energy revenues slumped 25% year over year to $273 million in the quarter. The segment reported an operating profit of $13.3 million, a 73% plunge from $48.7 million a year ago.

Revenues in the Engineered Systems segment decreased to $570.6 million from $579 million in the year-ago quarter. The segment’s income declined 5% year over year to $97 million.

Revenues in the Fluids segment surged 17% year over year to $413 million in the reported quarter. The segment’s income dropped 12% year over year to $66 million.

The Refrigeration & Food Equipment segment’s revenues decreased 8% to $451 million from $492 million in the prior-year quarter. The segment reported an operating income of $64 million, down from $77 million a year ago.

Bookings and Backlog

Dover’s bookings at the end of third-quarter were worth $1.69 billion, which fell roughly 1% from $1.70 billion at the end of third-quarter 2015. Backlog increased to $1.08 billion at the end of the reported quarter from $1.04 billion at the year-ago quarter end.

Financial Position

Dover generated free cash flow of $189 million in the third quarter, compared with $243 million in the prior-year quarter. Cash flow from operations came in at $231.7 million in the reported quarter compared with $282 million in the year-ago quarter.

DOVER CORP Price, Consensus and EPS Surprise

DOVER CORP Price, Consensus and EPS Surprise | DOVER CORP Quote

Outlook

For the fourth quarter, Dover expects further improvements in early cycle upstream oil and gas markets, strong performance in Printing & Identification and continued sequential growth in Fluids. However, the Refrigeration & Food Equipment segment will witness a seasonal decline. Overall, these factors will likely result in fourth quarter earnings per share being in line with the third quarter.

Dover upheld its fiscal 2016 guidance as announced in early October. Dover had lowered its full-year 2016 EPS to the range of $3.00−$3.05, citing generally weaker capital spending across several industrial end markets, continued weakness in longer cycle oil & gas exposed markets along with persistent headwinds in its retail refrigeration business related to production inefficiencies. This guidance factors in an organic revenue decline in the range of 7–8%.

Illinois-based Dover is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. It operates under four major segments, namely Energy, Engineered Systems, Fluids and Refrigeration & Food Equipment.

Dover currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked industrial product stocks are Nordson Corporation (NDSN - Free Report) , Barnes Group Inc. (B - Free Report) and Chart Industries Inc. (GTLS - Free Report) . Nordson Corporation has seen upward estimate revisions of around 6% over the past 60 days. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barnes Group carries a Zacks Rank #2 (Buy) and has witnessed a 1% increase in its earnings estimate for 2016 over the past 90 days. Chart Industries, also a Zacks Rank #2 stock, has seen upward estimate revisions of 54% over the past 90 days.

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