Dover Misses on Q1 Earnings - Analyst Blog

Dover Corporation DOV reported first-quarter 2014 adjusted earnings from continuing operations of $1.01 per share, up 9% from the prior-year quarter figure of 93 cents per share. The results, however, missed the Zacks Consensus Estimate by a penny. Solid revenue growth, strength in bookings and momentum in building helped the year-over-year increase.

Including one-time items, earnings from continuing operations were $1.02 per share, up 7% from 95 cents per share earned in the prior-year quarter. Earnings in the reported quarter included tax benefit of 1 cent per share. The year-ago quarter included tax benefit of 2 cents per share.

Revenues and Margins
 
Total revenue rose 7% year on year to $1.9 billion in the quarter, in line with the Zacks Consensus Estimate. The year-over-year rise includes organic growth of 4% and a 3% contribution from acquisitions. Revenue growth was led by Fluids and Engineered Systems, along with solid growth in the Energy segment.

Cost of sales increased 6% to $1.15 billion in the quarter from $1.08 billion in the year-ago quarter. Gross profit went up 8% year over year to $736 million. Gross margin increased 40 basis points (bps) to 39% in the quarter.

Selling, general and administrative expenses increased 8.6% year over year to $452 million. Operating profit in the reported quarter increased 7% to $283.9 million from $265.2 million in the year ago quarter. Operating margin was flat at 15% in the quarter.

Segmental Performance

Energy revenues went up 3.5% to $478.7 million in the quarter. The segment's operating income remained flat year over year at $119 million.

Revenues in the Engineered Systems segment increased 7% to $649.8 million in the quarter. The segment's income also improved 10.8% year over year to $92 million.

Revenues in the Fluids segment rose 26% year over year to $345 million in the reported quarter. The segment's income increased 21.7% year over year to $57.9 million.

Refrigeration & Food Equipment segment revenues were $411.5 million in the quarter compared with $422.5 million in the prior-year quarter. The segment reported an operating income of $44.9 million, down 14% from $52 million a year ago.

Bookings and Backlog

The company ended the first quarter with bookings worth $2.045 billion versus $1.944 billion at the end of the first quarter of 2013. Backlog increased to $1.52 billion at end of the reported quarter from $1.42 million at the year-ago quarter end.

Financial Position

The company generated cash flow from operating activities of $39.8 million in the reported quarter, down from $57.7 million in the prior-year quarter. Free cash flow was $6.4 million compared with $31.4 million in the prior-year quarter.

Fiscal 2014 Outlook

Dover reaffirmed earnings in the range of $4.60–$4.80 per share for 2014. It also reiterates revenue growth of 6%–7% in fiscal 2014 with organic revenue growth of 3% to 4%. The full-year segment margin expectations of around 18% also remains unchanged.

The company will benefit from the Knowles spin-off, which will provide it with flexibility to focus on growth strategies. In addition, Dover has realigned its businesses into a new segment structure. This will also provide greater opportunity to leverage scale and capitalize on productivity initiatives.

Dover currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks in the sector include Kadant Inc. KAI, Middleby Corp. MIDD and Altra Industrial Motion Corp. AIMC. While Kadant and Middleby sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion has a Zacks Rank #2 (Buy).