Dover's 4Q EPS Beats, Sales Meets

Dover Corporation ( DOV - Analyst Report ) reported fourth-quarter 2012 adjusted earnings from continuing operations of of $1.09 per share, beating the Zacks Consensus Estimate of $1.07 and exceeding the prior-year quarter’s earnings of $1.02 per share.

On a reported basis, earnings from continuing operations were $1.16 per share compared with the prior-year quarter’s earnings of $1.05. Earnings in the reported quarter include a tax benefit of 7 cents per share while the year-ago quarter’s earnings include a tax benefit of 3 cents.

Dover reported adjusted earnings from continuing operation of $4.44 per share for 2012, a 15% rise from the prior-year quarter’s adjusted earnings of $3.87. The results, however, missed the Zacks Consensus Estimate of $4.52. On a reported basis, earnings were $4.53 per share compared with $4.09 posted in 2011.

Revenues and Margins

Total revenues were $2 billion in reported quarter, up 6% year over year, meeting the Zacks Consensus Estimate. The growth includes an organic growth of 2% and a 5% contribution from acquisitions,, partially offset by a negative impact of 1% from foreign currency.

Revenues for the full year increased 9.5% to $8.1 billion from $7.4 billion in 2011. It missed the Zacks Consensus Estimate of $8.3 billion.

Cost of sales increased 6% to $1.24 billion in the fourth quarter from $1.17 billion in the year-ago quarter. Gross profit went up 7.7% year over year to $773.7 million. Consequently, gross margin expanded 40 basis points (bps) to 38.4% in the quarter.

Operating profit rose 7.2% to $304 million. Operating margin was 15.1%, essentially same as the prior year quarter.

Segmental Performance

Revenues in the Communication Technologies segment rose 1.1% to $400.8 million. The segment’s income, however, dropped 18% year over year to $58.4 million.

Energy revenues increased 5.8% to $540 million in the quarter. The segment’s operating income shot up 9.4% to $133.5 million.

Revenues in the Engineered Systems segment increased 12% to $819.1 million in the quarter. The segment’s income surged 9.6% to $101.8 million.

Printing & Identification segment revenues were $254.1 million in the quarter compare with $253.6 million in the prior-year quarter. The segment reported an operating income of $40.65 million, increasing 21% from $33.43 million a year ago.

Bookings and Backlog

The company ended the fourth quarter with $1.971 billion worth of bookings versus $1.902 billion at the end of the fourth quarter of 2011. Backlog increased to $1.45 billion at end of the reported quarter from $1.36 billion a year ago.

Financial Health

The company had free cash flow of $482.5 million in the reported quarter, a 91% year over year increase.

Cash and cash equivalent decreased 34% year over year to $800 million. Total debt was $2.8 billion as of December 31, 2012, up 28% year over year. Debt-to-capitalization ratio increased to 28.9% in 2012 from 16.6% in 2011.

Outlook for 2013

Dover expects revenues to rise in the range of 7%-9% in 2013. This assumes organic revenue improvement of 3%-5% and a 4% contribution from acquisitions. The company expects earnings to be in the band of $5.05-$5.35 per share for 2013.

Our view

Dover is experiencing revenue challenges in the handset and electronic markets. Moreover, the uncertainty in global economic condition adds to the woe.

Dover retains a short-term Zacks #3 Rank (Hold). Altra Holdings ( AIMC - Snapshot Report ) , Metso Corporation ( MXCYY ) and Idex Corporation ( IEX - Snapshot Report ) also belong to the diversified machinery industry. While Altra and Metso hold a Zacks Rank #1 (Strong Buy), Idex retains a Zacks Rank #2 (Buy).