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Why Is Dover (DOV) Down 14.8% Since its Last Earnings Report?

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A month has gone by since the last earnings report for Dover Corporation (DOV - Free Report) . Shares have lost about 14.8% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is DOV due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Dover Beats on Q1 Earnings & Sales, Trims '18 EPS View

Dover Corporation reported first-quarter 2018 adjusted earnings per share from continuing operations of $1.16, which increased 26% from 92 cents recorded in the prior-year quarter. The year-over-year improvement was mainly driven by continued strength in businesses. Earnings also beat the Zacks Consensus Estimate of $1.13.

On a reported basis, Dover posted earnings per share of 84 cents for the quarter, which declined around 23% year over year. Earnings in the reported quarter included the Apergy separation-related costs of 6 cents, and rightsizing and other costs of 2 cents. It also comprised acquisition-related amortization costs of 24 cents.

Total revenues increased 6% year over year to $1.92 billion in the quarter, which surpassed the Zacks Consensus Estimate of $1.89 billion. The year-over-year increase was driven by acquisition growth of 1%, organic growth of 4%, and a favorable impact from foreign exchange of 4%, partly offset by a 3% impact from dispositions.

Costs and Margins

Cost of sales climbed 5% year over year to $1.21 billion in the reported quarter. Gross profit rose 7% year over year to $709 million. Gross margin expanded 40 basis points (bps) year over year to 36.9%.

Selling, general and administrative expenses flared up to $514 million from $486 million recorded in the prior-year quarter. Operating profit jumped 11.4% to $194.8 million from $174.9 million reported in the year-ago quarter. Operating margin advanced 40 bps to 10%.

Segmental Performance

Energy revenues climbed 18% year over year to $383.7 million in the quarter. The segment reported an operating profit of $54.6 million compared to $41.7 million recorded in the comparable period last year.

Revenues in the Engineered Systems segment ascended to $646.8 million from $607.6 million recorded in the year-earlier quarter. The segment’s income plunged around 44% year over year to $97.9 million.

Revenues in the Fluids segment were up 5% year over year to $553.3 million in the quarter. The segment’s income rose 3.6% year over year to $54.5 million.

The Refrigeration & Food Equipment segment’s revenues declined to $338.2 million from $356.8 million recorded in the prior-year quarter. The segment reported an operating income of $29.2 million, down from $33.6 million witnessed in the prior-year period.

Bookings and Backlog

Dover’s bookings at the end of the first quarter were worth $2.11 billion, up from $2.03 billion reported at the end of first-quarter 2017. Backlog also increased to $1.41 billion at the end of the reported quarter from $1.29 billion at the year-ago quarter end.

Financial Position

Dover generated a negative free cash flow of $2.6 million during the first quarter compared with a cash inflow of $35.8 million in the prior-year quarter. Cash flow from operations came in at $35.2 million in the reported quarter compared with $78.9 million in the year-ago quarter.

Outlook

Dover provided full-year 2018 EPS and revenue guidance on a pro-forma continuing operations basis, which excludes the 2018 operating results of Apergy. The company lowered its adjusted earnings per share guidance for the full year to $4.70-$4.85 from $5.73-$5.93. The mid-point of the guidance reflects an increase of 15% over the prior year.

This guidance is based on full-year revenue growth of 4-5%, comprising organic growth of 3-4%, acquisition growth of 1%, and a favorable impact from foreign exchange of 3%, partially offset by a 3% impact from dispositions. Dover expects to incur further separation costs of of $33-$35 million in the ongoing quarter.

Dover expects to benefit in the second quarter from strong bookings in the Engineered Systems and Fluids segments. Its 2018 results will gain from continued focus on execution of strategies. Further, the spin-off of Apergy will drive Dover’s performance.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.

Dover Corporation Price and Consensus

VGM Scores

At this time, DOV has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise DOV has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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