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Dover Bets on Bookings Growth & New Products, Input Costs Ail

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On Dec 17, we issued an updated research report on Dover Corporation (DOV - Free Report) . Dover is poised to gain from acquisitions, product digitization, e-commerce, new product development, cost-reduction initiatives and restructuring programs. However, inflated input costs and impact of weak retail refrigeration markets on Dover’s Refrigeration & Food Equipment segment remain concerns.
Poised for Improved 2018 Results
Dover’s bookings at the end of the third quarter were worth $1.72 billion, up from $1.67 billion at the end of third-quarter 2017. Backlog increased 12% to $1.34 billion at the end of the last reported quarter from a year ago. This is likely to persist in the fourth quarter as well. Backed by strong bookings growth, the company is poised for an improved fourth-quarter 2018 performance. Impressive performances by the Engineered Systems and Fluids segments, benefits from cost containment actions and footprint optimization projects (some of which will be implemented in the fourth quarter) will benefit results.
The company projects earnings per share between $4.80 and $4.85, representing the top end of the previous guidance of $4.75-$4.85. This guidance factors in full-year revenue growth of 2%, which includes organic growth of 3%. Acquisitions will contribute around 1% to growth, while favorable impact from foreign currency translation will add 1%. These benefits will be partially offset by an impact of 3% from dispositions.
The Zacks Consensus Estimate for fiscal 2018 is at $4.85, projecting year-over-year growth of 20%. The consensus estimates for revenues is pegged at $6.96 billion, projecting year-over-year decline of 11%.
Dover Focused on Growth Drivers
Dover will gain from product digitization, e-commerce, new product development, and inorganic investment in core business platforms. It is also expected to benefit from its targeted cost-reduction initiatives. Meanwhile, the company’s cost-reduction initiative, which includes overhead reduction, will boost margins. Dover also executed restructuring programs to better align the costs and operations with current market conditions through targeted facility consolidations, headcount reductions and other measures. Notably, it announced a formal restructuring program to reduce group-wide SG&A expenses at its investor day in September. Rightsizing initiatives are well on track. 
Further, Dover continues its efforts to simplify portfolio and increase focus on the markets with growth prospects. In sync with this, the company successfully completed the spin-off of its upstream energy businesses — Wellsite — which was later named Apergy on May 9, 2018. The separation will enable Dover to concentrate on its less volatile core platforms.
Dover has a long tradition of making successful buyouts in diverse end markets. During 2017, the company acquired three businesses in separate transactions for total consideration of $43.1 million. The businesses were acquired to complement and expand upon existing operations within the Engineered Systems and Energy segments.
In January 2018, Dover acquired Ettlinger Group, in a bid to boost presence in the plastics and polymers processing equipment industry. Ettlinger’s high-performance filtration systems will fortify Dover’s Maag business’ position in the plastics-processing equipment industry. Further, the buyout of Rosario Handel B.V. ("Rosario"), a manufacturer of decorator and base coating machinery used in the production of beverage, food and aerosol cans will help cater to the Food Equipment end market within the Refrigeration & Food Equipment segment.
Weak Retail Refrigeration Markets, Tariffs a Concern
Dover’s Refrigeration & Food Equipment segment has been bearing the brunt of weak retail refrigeration markets on its revenues for the past few quarters. In the third quarter, the segment was also affected by delayed shipments in the Belvac business. Revenues at the segment will remain weak in fiscal 2018 due to continued softer-than-expected demand conditions in retail refrigeration and the pushout of machine deliveries from Belvac to 2019.
Tariffs imposed by the Trump administration on steel and aluminum products, and goods imported from China might adversely affect results by inflating input costs. This in turn will dent margins if the company is not able to pass the price increases to customers.
Over the past year, shares of Dover have plunged 25%, compared with the industry’s decline of 12%.
Dover currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the same sector are DMC Global Inc. (BOOM - Free Report) , CECO Environmental Corp. (CECE - Free Report) and Northwest Pipe Company (NWPX - Free Report) . While DMC Global sports a Zacks Rank #1 (Strong Buy), CECO Environmental and Northwest Pipe carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DMC Global has a long-term earnings growth rate of 20%. Its shares have increased 57% in the past year.
CECO has a long-term earnings growth rate of 15%. The company’s shares have surged 48% in the past year.
Northwest Pipe has a long-term earnings growth rate of 10%. Its shares have gained 26% in the past year.
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