Shares of Dover Corporation (DOV - Analyst Report) tumbled almost 7.7% and closed at $66.69 on Oct 10, after the industrial products and manufacturing equipment maker trimmed its full-year 2016 EPS and revenue outlook. The company also provided an update on its current business trends as well as the status of its pending acquisition of Wayne Fueling Systems (Wayne).
Dover lowered its full-year 2016 EPS to the range of $3.00−$3.05, from the prior estimate of $3.35−$3.45. The revised guidance includes an expected 6 cents of other costs to be incurred in the fourth quarter, including 3 cents dilution related to recently closed acquisitions, and incremental deal costs and restructuring charges of 3 cents.
In addition, Dover projects third-quarter EPS to be in the range of 81−83 cents. The company now expects full-year revenue to decline 4% to 5% versus its prior forecast of -3% to -5%. The revised forecast includes organic revenue of -7% to -8%, compared to the prior forecast of -6% to -8%.
Dover’s outlook for 7% growth from completed acquisitions, a negative 3% impact from dispositions, and a negative 1% impact from foreign currencies, remains unchanged from the prior forecast.
What’s Behind Dover’s Guidance Cut?
Dover cited generally weaker capital spending across several industrial end markets, continued weakness in longer cycle oil & gas exposed markets, and persistent headwinds in its retail refrigeration business related to production inefficiencies as the reason for the guidance cut. The revised EPS guidance reflects a 38 cents reduction at the mid-point from the prior forecast, primarily due to lower performance.
The company also expects the macro global economy to remain soft, later cycle oil & gas exposed businesses to remain weak, and continued margin pressure in Refrigeration & Food Equipment through the end of the year.
However, Dover expects its Printing & Identification businesses to continue to perform well. Further, its upstream drilling and production businesses showed a solid improvement in the third quarter. Moreover, the company will focus on streamlining and improving its production systems through the end of the year.
On the same day, Dover announced that its pending acquisition of Wayne is now expected to close in the first quarter of 2017, driven by the U.K. Competition and Markets Authority’s (CMA) decision to refer the acquisition for a Phase II investigation.
A Phase II investigation can be avoided if Dover offers remedies that resolve the CMA’s concerns about the competitive overlap in the supply of fuel dispensers in the U.K. The company intends to work diligently with the CMA to address these concerns.
Nevertheless, the transaction remains subject to the satisfaction of customary closing conditions, including approval by the CMA. When completed, the addition of Wayne is expected to add about $550 million to annual revenue.
The Wayne acquisition will provide Dover with a great opportunity to participate in the significant EMV upgrade cycle in the U.S., along with a unique product set to its customers. The combination of Wayne and Dover’s other recent acquisitions, together with recovering upstream oil & gas markets facilitate a differentiated growth profile in 2017.
We expect Dover to continue to benefit from its acquisition strategy, leading technology and new products offerings. Nonetheless, it still faces headwinds in energy-related markets due to lower oil prices. Moreover, the lowered 2016 outlook would prove to be a dampener for the company.
Currently, Dover carries a Zacks Rank #3 (Hold). Some better-ranked industrial product stocks are Nordson Corporation (NDSN - Snapshot Report) , DXP Enterprises, Inc. (DXPE - Snapshot Report) and Chart Industries Inc. (GTLS - Snapshot Report) .
Nordson Corporation has seen upward estimate revisions of around 7% 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.
DXP Enterprises, which carries a Zacks Rank #2 (Buy), has witnessed solid estimate revisions of 1500% over the past 90 days.
Chart Industries, also a Zacks Rank #2 stock, has seen upward estimate revisions of 9% over the past 60 days.
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