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Dover's (DOV) Rightsizing Plan to Boost Operating Margin

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Shares of Dover Corporation (DOV - Free Report) reached a new high after it announced a rightsizing plan to improve the company’s operating margin performance. The move will also enhance its operations, thereby facilitating sustainable growth and investments. Dover’s shares crafted a 52-week high of $88.60 during intra-day trading, finally closing lower at $86.22, on Sep 11.

During the June-end quarter, Dover’s selling, general and administrative (SG&A) costs flared up 1.8% year over year resulting in operating margin contraction of 40 basis points to 13%. The company incurred rightsizing costs of $0.8 million in Engineered Systems, $3.7 million in Fluids and $2.3 million in the quarter which were recorded in cost of goods and services, and SG&A expenses. Thus, Dover’s cost-reduction initiatives were necessary to reduce overhead and increase asset intensity.

Notably, Dover’s rightsizing plan includes broad-based SG&A reduction initiatives to deliver $130 million of annualized pre-tax earnings by year-end 2019, of which $30 million will be reinvested in high-return growth initiatives. The plan will be executed in two phases including a $100 million net rightsizing initiative, which will add 53 cents to 2019 adjusted earnings per share. The second phase includes facility consolidation plan to be executed in between 2018 and 2020.

The one-time pre-tax costs to implement the program will be around $40 million, wherein $30 million will be recorded in second-half 2018, and the remaining $10 million will be recorded in first-half 2019. However, the program will not affect the company's research and development activities.

Moreover, the company will gain from focus on restructuring programs to better align costs and operations with current market conditions through targeted facility consolidations, headcount reductions and other measures.

Dover’s shares have outperformed the industry over the past three months. The stock has gained around 12%, while the industry recorded growth of 6% during the same time frame.



Zacks Rank & Stocks to Consider

Dover carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector are Colfax Corporation , Barnes Group, Inc. (B - Free Report) and Flowserve Corporation (FLS - Free Report) . While Colfax sports a Zacks Rank #1 (Strong Buy), Barnes Group and Flowserve carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Colfax has a long-term earnings growth rate of 12.8%. The stock has rallied 16% over the past three months.

Barnes Group has a long-term earnings growth rate of 4%. Its shares have gained 16% over the past three months.

Flowserve has a long-term earnings growth rate of 17.3%. The company’s shares have been up 27% over the past three months.

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