Operator:

Good morning, and welcome to Dover's Second Quarter 2024 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director, Investor Relations. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens, please go ahead, sir.

Richard J. Tobin:

Thanks, Jack. I'm on Slide 3. Second quarter results were solid, driven by excellent production and shipment performance against our order book. Strong revenue performance was broad-based across our end market and geographic exposures with four out of five segments posting top line growth. Organic revenue was up 5% for the quarter. Bookings were up 16% organically year-over-year, continuing their upward trajectory over the last several quarters and bolstering our confidence in our second half outlook. Margin performance was excellent, up 200 basis points over the prior year to 22.1%, driven by volume leverage, organic and inorganic mix, proactive cost management and rigorous productivity actions. Our strong operational results were complemented by ongoing portfolio evolution actions. Over the last week, we have completed two strategic bolt-on acquisitions, enhancing our clean energy components platform, adding applications in highly attractive end markets, expanding our global reach and strategically expanding our manufacturing base into new regions. We also recently announced the sale of our Environmental Services Group business unit for $2 billion in cash. This transaction, together with the sale of De-Sta-Co in March of this year, reflects our intention to reduce our exposure to capital goods, we have monetized these businesses where we have materially improved operating performance at attractive exit multiples while methodically migrating our portfolio toward higher organic growth and margin opportunities. We are approaching the second half of the year constructively. The underlying end market demand is healthy and is supported by our sustained order rates. We are, therefore, raising our adjusted EPS guidance to $9.05 to $9.20. I'll skip to Slide 4. Engineered Products had another robust quarter, driven particularly strong volume growth and conversion of waste handling and aerospace and defense. Volumes of vehicle aftermarket grew in recovering European market conditions and improved production performance. We expect volumes to remain strong for the segment through 2024. Margin performance was solid in the quarter on strong volume conversion, favorable mix and productivity. Clean energy and fueling was up 2% organically in the quarter on solid volumes in clean energy components where we're starting to see robust quoting activity and order rate momentum from component parts tied to large projects in hydrogen and cryogenic applications. Volumes were also solid in software systems and above-ground retail fueling continued its positive recovery, particularly in the U.S. Margins were flat in the quarter as proactive cost curtailment offset volumes and mix. Imaging and ID posted an excellent quarter on growth in serialization software and strong shipments from marking and coding consumables and aftermarket parts. Printer shipments were still subdued, improved sequentially and should inflect positively in the second half. Margin performance was exemplary on SG&A leverage and a higher mix of consumables and aftermarket shipments. Pumps and Process Solutions was down organically as expected, principally due to lower shipments in our long-cycle polymer processing business partially offsetting these headwinds were significant growth in shipments and new bookings for thermal connectors tied to AI chip liquid cooling applications and data centers as well as a solid quarter in precision components. Both orders and shipments of single-use biopharma components grew sequentially and year-over-year continuing to post-COVID recovery. Margins in the segment were up on mix and operational execution. Top line performance and Climate & Sustainability Technologies outperformed our internal estimates due to an exceptional quarter in food retail which nearly offset the capital investment slowdown in beverage can making an impact of destocking headwinds in the broader HVAC complex, most notably in European residential heat pumps, on our European brazed plate heat exchanger business. We expect these headwinds to persist in the second half, with heat pump-related shipments troughing in the third quarter. Margin performance was exceptional driven particularly by food retail, which posted all-time record margin in the quarter on strong volume conversion and a greater mix of CO2 systems shipments. I'll pass it to Brad here.

Richard J. Tobin:

Thanks Brad. I am on Slide 8. Here, we provide some visibility into the contribution of the portfolio of both the ESG divestiture and the recently closed acquisitions in clean energy components providers, Marshall Excelsior and Demaco. These transactions continue our purposeful portfolio migration away from capital goods towards higher gross margin, less cyclical and higher growth component businesses, that serve secular, advantaged end markets. We have been methodical and disciplined in our approach to enhancing the portfolio through acquisitions and patient in our strategic divestitures. We are pleased with the valuations of our two recent divestitures within Engineered Products, ESG announced on Monday and De-Sta-Co, which closed in March that both achieved above 13 times trailing EBITDA multiples, significant premiums for capital goods assets. The transaction details are on the page. Due to the timing of the ESG signing and uncertainty of the closing date, we have left ESG in our full year guidance for now. We expect to move ESG discontinued ops in Q3 earnings report, and we'll recast our historical financials and guidance at that time. The ESG earnings profile is shown on the page. And importantly, we are not including any benefit of the transaction proceeds toward value-added capital deployment. We believe we are entering a 12- to 18-month period that represents a unique buying opportunity for attractive assets including many private equity-owned businesses that are overdue for exits in our highest priority areas of inorganic expansion. Our current balance sheet strength and cash flow forecast reinforced by the proceeds of the ESG divestiture positioned us well to remain on the front foot in pursuit of attractive capital deployment opportunities. Let's go to Slide 9. I wanted to provide a little more color on our collection of businesses that provide critical flow control and safety components for industrial gas, cryogenics, natural gas and clean energy applications. These businesses span across both our pumps and process solutions and clean energy and fueling segments, so there is significant commonality in industrial tailwinds and business models. These businesses provide highly engineered components that serve demanding applications in the broader clean energy and industrial gas complexes and there are growing requirements for sustainability, emissions reduction and safety that create favorable product loyalty dynamics and innovation opportunities for us. Our positions in these attractive markets are supported by strong and recognized technological and application expertise and intellectual property with large installed bases that drive reoccurring replacement demand as well as exposure to high growth uses like hydrogen and LNG. We have been active acquirers in the space investing roughly $2 billion over the last several years. We believe these investments should generate mid to high-digit growth at margins accretive to our consolidated portfolio over the long run. This remains a high priority area investment for us moving forward. In light of our recent divestitures, with the scale of this critical component platform now reaching $1 billion of revenue, we intend to readdress our current segment structure in the near future to add focus and disclosures around our growth platforms. Slide 10 provides a little bit more color on Marshall Excelsior, the larger of the two energy businesses that we've acquired in the last week. MEC’s acquisition broadens our portfolio in cryogenic valves and other components and expands our participation in several applications, including the expansion into remote monitoring and digital controls in cryogenic transport and severe duty valves providing an excellent opportunity for cross-selling. Integrating MEC into our existing clean energy platforms and centralized support functions should provide significant cost savings. We expect to capture about $12 million in run rate synergies driving MEC to high 20s margin and high single-digit ROIC by year three. Taking a step back, shows the broad scope of our offering within clean energy applications. We're supplying a variety of safety-critical components like valves, regulators, nozzles, loading arms, dispensing and gas handling equipment for a variety of applications across the high, the whole cryogenic gas value chain from production to consumption. We serve both gas and liquefied gas applications with multiple molecules handled, including LNG, hydrogen propane, oxygen and nitrogen, among others, and we're benefiting from strong investment momentum by industrial gas majors and global government infrastructure spending. While a smaller deal for us, Demaco was also closed last week, providing us a very important European base of manufacturing to enhance our growth and global scale. Finally, on Slide 12 shows the long-term performance of the portfolio. We continued to deliver earnings growth through a combination of top line organic growth, margin improvement through operational execution and returns on productive capital deployment strategies to methodically improve our portfolio over time. Our strong balance sheet position will be further enhanced by the proceeds of the ESG divestiture in the second half of the year. We expect to end the year with approximately $3 billion in capital deployment firepower from cash and reasonable leverage levels. We have a number of levers available to deliver the second half of the flexible business model can quickly respond to changes in our dynamic markets. I'd like to end by thanking ESG President, Pat Carroll and his entire management team for the value they created for Dover shareholders under their tenure. With that, let's go to Q&A.

Andy Kaplowitz:

Can you hear me okay?

Brad Cerepak:

We can here you, Andy. Go ahead.

Richard J. Tobin:

Yes, I would expect it to be over one. As you know, I think that our comps are either in the second half of the year from an order basis. It’s been a little bit lumpy, I have to say, intra-quarter. So we’ll see how it goes, but our expectation is to be over one for the balance of the year. And I think that’s reflected if you take a look at our full year forecast in terms of revenue growth and everything else. The outperformance – look, I mean, I think at the end of the day, we led in, we led it out, and we’re probably leading in again. So as we’ve discussed previously, I think that our inventory positions are well placed and some of the markets that we have exposure to that have suffered over the previous 24 months or making a turn. We add on top of that some of the growth platforms like we have like thermal connectors and CO2 systems, which are performing very nicely. So I don’t – I think it’s – I’ll step away from the rest of our competitors in the macro. I just think it’s unique to our portfolio.

Richard J. Tobin:

Yes. Look, I think that when Belvac was well known going into the year, and that was part of our plans. I think there was a lot of mixed signals around heat exchangers. I think we’ve done a lot of work there. That’s why I think that we’re pretty confident to call the trough in Q3, and we would expect order rates actually to move up hopefully at the end of Q3, but clearly into Q4. I think on the food retail business, I think that CO2 is doing pretty much as planned, I think that what’s doing better than planned as the margin performance of the business has just been exemplary through the quarter. So that’s why when you look at the consolidated results, I don’t think that we would expected food retail to offset the margin deletion from heat exchangers, but during the quarter, it did, which has been excellent.

Richard J. Tobin:

Thanks.

Jeff Sprague:

Hey, thank you. Good morning, everyone.

Jeff Sprague:

Hey Rich, just thinking about Slide 11 and everything you’ve kind of here on gas and cryo and everything, you’re characterizing it as kind of a component-driven strategy, and I get that margins are often very, very good in components. But it looks like you’re also stitching it together with some automation and some other things. So maybe just kind of talk about what else, if anything, you need or want to do here as we think about another $3 billion in capital to deploy, is it sort of all in the same ZIP code? Or are there other kind of M&A vectors we’ve got to be thinking about?

Jeff Sprague:

And then one of the things we’ve seen out of Dover though, Rich, also is when you put these stakes in the ground you turn it up organically. I mean with your kind of flow and other competencies here, is there sort of a lot you can do organically to kind of expand your scope here? Or it would be mostly an M&A-driven strategy?

Jeff Sprague:

Okay. And just a quick one on this whole heat pump question. You're talking about Europe, specifically the whole business broadly, the bottom in your business or it's the bottom then your customers' business, that whole kind of lead lag equation, everybody has been trying to sort out?

Jeff Sprague:

Great. Thanks for the color.

Operator:

We'll go now to Steve Tusa with J.P. Morgan.

Richard J. Tobin:

Good morning, Steve.

Richard J. Tobin:

Look, I think that book-to-bill should remain one or higher for the balance of the year. I think that we have in Q2, I think we actually did a little bit better than I would have expected in terms of production performance and the shipment, and that's why it drove the 5% organic growth, and that's at – that changes the metric, but I think that order rates we've got a good handle on. I think we stay above one for the balance of the year. Q4 generally is going to be a proxy on everybody's macro outlook of 25. But as I said before, I think that we roll into some easier comps than and something like SWEP should turn positive finally in Q4, if not at the end of the Q3. And I think the momentum that we're going to have in thermal biopharma, the momentum we have in CO2 all will contribute to staying above one.

Richard J. Tobin:

Steve and I have to go through it. I'm sure that somebody took some outsized big orders in Q2 of the previous comparable I'd have to go dig through it. I'll get Jack to follow-up.

Steve Tusa:

Yes, got it. Okay. Makes a lot of sense. Thank you.

Operator:

We'll go now to Andrew Obin with Bank of America.

Richard J. Tobin:

Hi.

Richard J. Tobin:

Yes. I mean, Andrew, look, I mean, at the end of the day, you can’t – when the market is there, it’s too late to buy anything, right? So you need to basically take some bets on what you think has got secular growth behind it. So if we think about thematic at the end of the day, I mean, there’s a whole stream of electrification. We’re not chasing that meaningfully. We’ve had a presence in the gas sector for decades. So we know the customers, we know the regulatory environment around it and everything else. So we’re big believers in the – the electricity has got to come from somewhere, and we’re big believers that the total gas complex is going to be an important contributor there. What we’re buying are large installed base at the end of the day. So we’re not paying on the comp to a certain extent. But cryogenic components and vacuum jacketed piping were kind of niche businesses in the past, but to the extent that cryogenic gas applications continues to expand, we would expand – we’re mixed. We’re buying these things and we’re expanding capacity on top of them as we do it. So if we get the timing off a little bit, so be it at the end of the day, I think. But from a secular point of view, we’re pretty confident of what we’re doing.

Richard J. Tobin:

Well, we should grow year-over-year right this year, considering we probably bottomed in the mid to late of 2023, so that’s good news. And on the thermal, look, it’s a small base, but at the end of the day, our bookings are up significantly, and we would expect total revenue and earnings to be on target to what I think I gave you some numbers at the end of Q2 when we’re tracking that way. I believe the thermal is going to be interesting, right? Because back to your question before between all the hype of everybody talking about it and then the lag period, I think that we’re on the front foot for production capacity. I think that we’ve got clean room production capacity, I think that we’re going to be able to have 100% traceability by the end of the year, which should separate us for a lot of people that are going to try to get into this business. So if I step back at DPPS in total, we knew that Maag was cycled down after a three, four year run coming up. Industrial pumps is, I would call it, not robust right now, but that has been offset by precision components, which is really part of the exposure that we’ve got into the gas complex and the mix effect of both biopharma and thermal connectors.

Richard J. Tobin:

Thanks.

Scott Davis:

Good morning, Rich and Brad.

Scott Davis:

I wanted to go back to, I think, the second relative to Jeff’s question really on Slide 11. Are there channel synergies? Are there synergies that are kind of tangible when you just look at the assets on this page, what – is it just commonality of end markets? Or are there actually some tangible synergies and benefits of bringing them all together under one segment? Assuming you do get...

Scott Davis:

Okay. And just following up, your bullish M&A comments, I think last quarter was trending in this direction, too. I mean is it a commentary more on asset availability or valuation or both?

Scott Davis:

Yes, good luck. Thank you.

Operator:

We'll hear next from Brett Linzey with Mizuho.

Richard J. Tobin:

I think that our bias would be towards M&A. But I think we've got a history of – we don't sit on cash for a prolonged period of time. The good news now is unlike a couple of years ago, we actually get some yield off our cash. If we rewind the clock back cash three years ago, you've got nothing for it. So yields right now on cash balances, let's just call it, 5% or so. that's not bad. So we can be a little bit more patient, if you will. And if you heard me answer the last question, we think there's going to be a lot of M&A opportunity coming forward. So, I think our bias is probably a lot more towards M&A than share repurchase than it's been over the previous three years to four years.

Richard J. Tobin:

Well, I mean, like the ESG actually from a working capital point of view is a pretty good performer. But – so the benefit would be on the gross margin, right? So what we're bringing in gross margin up, so profitability up. So the like-for-like swap of dollar of revenue should be better from the cash…

Brett Linzey:

Great. Good quarter. Thanks.

Operator:

Next, we'll hear from Julian Mitchell with Barclays.

Richard J. Tobin:

Yes. That's hard to say, right? I think at the end of the day, you have a pretty strong mix effect in Q2, right, because of consumables being proportionately higher than kind of average, I mean printer shipments actually dilute margins at the end of the day. So the per dollar shipment value is higher. But the margin dollars per revenue comes down a little bit. Look, we're really happy with the margin performance. This business over the long run [ph] is a steady eddy. I think the management has done a great job of moving the margin up through more or less efficiency more than anything else. So we'd expect that to continue. But I wouldn't be surprised if you saw a little bit of margin dilution in the second half, especially if printer shipments move up proportionally to the consumables.

Richard J. Tobin:

Yes. Well, the way we think about it is Q1, Q2 and Q3 tend to be up and then Q4 usually is a flex quarter, and it depends on order rates and whether we drive for cash, we're really bullish on 2025 and whether we build inventory or not in Q4. I would I think that, that kind of sequential performance is going to hold for this year. And that's what we've built into our forecast.

Richard J. Tobin:

Thanks.

Joe Ritchie:

Hey guys. Good morning.

Brad Cerepak:

Hi, Joe.

Richard J. Tobin:

I don't know, Joe, I think that we've been fielding questions on the capital goods portion of our portfolio as long as I've been here. And we had said at least initially that we thought that we could improve the performance of the business. So that we were going to be patient and wait if someone was interested in it that we were going to wait to make sure that we are paid appropriately for it. I mean, I know that there's lots of different calculations about what we were paid, but the bottom line is on a, call it, a Q1 exit LTM basis, we got 13x EBITDA. And I come from capital goods. So the three premier companies and capital goods in the United States are PACCAR, Deere and Caterpillar and look where they trade on an EBITDA multiple basis. So at that point, that we think that we can monetize there. We should because at the end of the day, from a summer parts point of view, we get a capital goods multiple in that business. It's one of our – I don't want to talk to business down because the management team did a phenomenal job in terms of the performance of it, but the bottom line is it's one of our lowest gross margin businesses in the portfolio. So to the extent that we need to kind of mix up over time, and we're paid appropriately. I think that that's the way we look at it.

Richard J. Tobin:

Look, I think that SWEP [indiscernible] heat exchange or heat pump debate, I think has been beaten to death at this point. Everybody got very excited. The problem with having exposure to subsidize products. It's great when they're subsidized. It's not so great when they're not subsidized. So we're just going to have to deal with that. So if I take that away and I looked at SWEP over time, we actually don't think that, that is a cyclical long-cycle business. We think that, that's just a component parts business that just went through a kind of an adoption rate on heat pumps through legislation in Europe that we're not going to apologize for when the market was there, you seize the market. So I think once we get through this whole period, which hopefully knock wood will be at the end of Q3 that, that would just go back to being a non-cyclical asset going forward from here. Maag is a little bit more CapEx driven. Belvac is a little bit more CapEx driven. I will say that Maag is likely to be less cyclical than it's been in the past because I think the management team. Has done a really good job opening up the vectors in terms of what we sell, and there's actually a pretty large installed spare parts business there. Belvac is always going to be cyclical, but that's not a tail that's going to wag the dog. It's just not that big in our portfolio.

Richard J. Tobin:

Thanks.

Mike Halloran:

Thanks. Good morning everyone.

Mike Halloran:

Just one for me, [indiscernible] 2 part of this. So as you think about the short-cycle trends, you talked about some choppiness in the order patterns through the quarter. Maybe just talk about how you're thinking about the short-cycle trends? And then secondarily, if there are any leading indicators in those end markets or product categories where you're seeing signs of concern or inversely – conversely, excuse me, signs of acceleration? Thanks.

Mike Halloran:

Thanks Rich.

Operator:

We'll go now to Deane Dray with RBC Capital Markets.

Richard J. Tobin:

Good morning.

Deane Dray:

Rich, I really like seeing this pivot into a higher up the technology curve, these critical components that are typically a lower cost of the project. And I know you're not going to kind of reveal exactly the areas that you're moving into. But you did – you characterize ESG divestiture as pivoting away from capital goods. And then Joe, your answer to Joe's question, you gave some color there, but there are still lots of capital goods exposures in the portfolio. So where do you draw the line? What's the timing? You've made lots of margin improvements. You said that was kind of the gating factor. But where do you draw the line? And how much change can the organization take at just a given point in time?

Deane Dray:

That's really helpful. Thank you for that context. And then just a question for Brad. There's an expectation of working capital improvements in the second half. Can you give us some color there or any specifics? And then what about – what should we be thinking about buybacks for the second half?

Deane Dray:

Thank you.

Operator:

And we'll take our final question today from Nigel Coe with Wolfe Research.

Richard J. Tobin:

Okay. Well, I don't have to remind you about the growth rate, because I don't think we ever gave you one.

Richard J. Tobin:

Look, we're going to give you like – you may have missed it at the beginning, I think that because we built this platform, our intention is to resegment it into its own platform. And when we do that, we're going to give you a presentation of long-term growth outlook and everything else. I can tell you that the profile of what we've been buying has been around 20% margin – and I think then between synergy value and accelerated growth, we think within a 24-month period, we can get it to 25% EBITDA margin. So that's kind of the economics behind it.

Richard J. Tobin:

No problem.

Richard J. Tobin:

No revenue synergy. It's all we know – you've seen us make the presentations before about back-office consolidation and all those things that we have. We've got a whole system that's in place in this particular case. We actually think we've got some backward integration footprint opportunity here from our legacy businesses. So those are really the two big pieces.

Brad Cerepak:

Yes. So as it relates to discontinued ops, it would be all prior periods presented. So we really restate everything. Once we get to a point in time here later in the third quarter, we'll be taking a hard look at that and they probably dropped at that point in time, and you'll see all the restatements filed in advance. So we have that data in advance. And on tax leakage, you should just assume a normalized U.S. type of tax rate, 21% or so in the leakage.

Brad Cerepak:

It's very possible that, that cash tax is unlike De-Sta-Co goes out this year. So we're looking at that timing as well.

Brad Cerepak:

No, we'll handle the same way we handle the De-Sta-Co by adjusting free cash flow.

Brad Cerepak:

Thanks.

Operator:

Good morning, and welcome to Dover's First Quarter 2024 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director, Investor Relations.

Jack Dickens:

Thank you, Natalie. Good morning, everyone, and thank you for joining our call.

Richard Tobin:

Thanks, Jack.

Richard Tobin:

Yes, I do. Look, we'd have to go segment by segment because they're different between the short cycle and the longer cycle portions of the portfolio, but orders are up broad-based with the exception of the 2 that we highlighted, both in can making and in heat exchangers in Europe. We would expect that trend to continue, which supports, basically, the seasonality where we expect some pretty big step-up in performance in Q2 and Q3, and we'll see about Q4, which will be a dynamic of how the order rates go between now and then. I think most importantly, our confidence is based on the fact that of all the hard work we did in terms of managing inventory through the channel last year, and that's allowed to us to have more confidence in terms of the order rates going forward.

Richard Tobin:

It's loosened for sure. I think there's a recognition now that interest rates are here to stay, that's helpful. I think that the equity markets have rallied quite a bit. So I think that this fear of purchase compression on multiples has gone away. But it's not flood yet, but I think that the activity in terms of opportunities that we can look at is a lot better than it would have been a year ago today.

C. Stephen Tusa:

So just on the orders comment, I guess, you said SWEP really isn't picking up. Is that a bit of a reflection of kind of the EU heat pump market that that's not really you would expect to see it by now, if you were -- if things were turning up there in the second half. I think you've said that before?

C. Stephen Tusa:

Right. So like a solid double digit first half to second half, like the way you see orders today, that doesn't sound right.

C. Stephen Tusa:

I meant sequential, sequential, sequential.

C. Stephen Tusa:

You don't see that as being -- that's not embedded in your current forecast now given you aren't seeing the orders, just making sure.

C. Stephen Tusa:

Okay. And then just could you help calibrate us just on an EPS basis for the second quarter? Or however you want to talk about it? I mean it looks like the orders are running right now ahead of the sales forecast that are out there, your orders are going to be up sequentially. So I mean like you look like you're covered from an orders perspective. Any further color on the seasonality of EPS for 2Q? Anything that influences margins in a major way or anything like that because the sales look like they're going to be okay relative to consensus?

C. Stephen Tusa:

Okay. So what is it usually sequentially or percentage of the year, maybe Brad?

C. Stephen Tusa:

I knew you wouldn't want to answer this. So I'll go to Brad.

Brad Cerepak:

Yes. There's a nuance on order rates because DE-STA-CO now out of our order book and Jack can take you through that, but we still see sequential up even covering DE-STA-CO in the second quarter and through the year.

Brad Cerepak:

You know we don't give quarterly guidance.

C. Stephen Tusa:

No, no, that's it. I guess I'll ask Jack offline.

Julian Mitchell:

Maybe I just wanted to start off with the DCST segment. So I think price down a little bit year-on-year. Was that just kind of a mixed thing and then it comes back later in the year. And on the margin front for DCST, 14% first quarter, do we just assume a sort of steady sequential ramp from that point through the year?

Julian Mitchell:

Got it. And on the pricing, I think it was down just a little bit in Q1. And is there sort of anything to call out there? Does it flip back to positive later in the year?

Julian Mitchell:

That's helpful. And then just a follow-up, sort of more broadly, when you're looking at your customers and then realize there's a breadth of end market exposures. But is it your perspective that for your product that channel partners and your customers, the sort of inventories are pretty lean now for where we are in the year, any concerns around further need for inventory reduction? Or do you think we start to move the other way when you're looking at how your channel partners are behaving based on orders and so forth?

Brett Linzey:

I wanted to come back to biopharma. You noted some potential upside moving through the year. It does sound like customer tone has improved there. Maybe you could just talk about some of the warranty expirations and some of the obsolescence of some of that single-use channel inventory that could be a multiplier effect for that business.

Brett Linzey:

And then maybe shifting over to thermal connectors, doubling of bookings. What do you think the revenue run rate is in that business by year-end? And I guess, is there any reason why this business and those applications should be growing in line with some of the liquid cooling adoption trends?

Operator:

Our next question comes from Joe Ritchie with Goldman Sachs.

Richard Tobin:

Okay. We are shipping our first platform. We're going to be launching our second platform in the next couple of months. And then sequentially, after that, the third platform will be launched after that. What we have right now is early adopters. So there are certain retail clients that because of ESG reasons and a variety of other reasons, have chosen to be an early adopter in the space and not wait for the regulatory aspect of it. And then we've got a lot of customers that are buying individual units to test them out. So I think we're in the early innings here, but we like the trajectory.

Richard Tobin:

It's mix, Joe. So as the revenue climbs, the margin mix is important to the segment. And a way to look at it, frankly, is to go look back a couple of years at the margin that we were at and what we actually didn't decline that much in consolidation because the balance of the segment portfolio actually performed quite well. So I wouldn't think about it in terms of incremental leverage on a unit basis. I would look at it more as the revenue climbs, the segment mixes up from there.

Richard Tobin:

We never really gave up any margin in the business. What we gave up was volume. So like I said, it's not a business that you would look at decremental and incremental margins. It's just mix up, mix down as a proportion of revenue.

Andrew Kaplowitz:

Maybe just thinking about the segment level organic growth versus your own expectations. It seems relatively clear that DEP should continue to be Dover's best growth in '24 and DCST is the weakest. But if you look at the other segments, how are you thinking about growth versus that 1% to 3% guide for the company? And were there any surprises versus your own expectations in Q1?

Andrew Kaplowitz:

That's helpful. And then, Rich, maybe just on DCEF. Can you give us a little more color into the comment you made about margin up for the year after that Q1 start. I know you do have that cost out programs, so how does that flow in through the year and help you get to where you want to be?

David Ridley-Lane:

This is David Ridley-Lane on for Andrew Obin. A little bit of a bigger picture question here. So you're seeing broad-based orders improvement, manufacturing PMI back above 50. If you had to take a cut at looking back, right, was there actual underlying demand weakness last year? Or was it all just destocking and a function of comps i.e., do you think the underlying trend is getting -- demand trend is getting better now?

David Ridley-Lane:

And then just a quick housekeeping question. What is the share count and effective tax rate assumption embedded in the 2024 EPS guide?

Operator:

Our next question comes from Jeff Sprague with Vertical Research Partners.

Richard Tobin:

They're clearly sitting on our product in inventory. So you've got kind of like you've got the market going down and then you've got inventory with -- because we're a subcomponent with our partners. So we're going to go down first, I guess, is what I'm saying. We went up first as when pull-through demand goes up and everybody kind of puts inventory to allow for their estimates on the builds and now you've got the market turning lower and so that inventory that's out there has got to get depleted. So our expectation is that our demand will inflect up before the end market demand kind of bottoms.

Richard Tobin:

I'm not -- it wasn't a misspeaking, but it depends on the chip and it depends on the customer in terms of how without getting into the details about it, you do need to get specified by the chip maker who makes recommendations to the builder, right? So we did the hard work in getting specified at the up end. But clearly, we're going to have to sell into the build channel ultimately will be our customers as those units are built.

Richard Tobin:

Apparently, everybody is in the space, including us. What I can tell you is it's a unique product, number one; and number two, that the production requirements look very much like pharma and that is good for us because we're basically building these products in not the same facility. We've got a dedicated facility for these products, but we're going to run it more or less the way we run our connector business for biopharma. So I think we're in good shape from an IP point of view, and we're in good shape in terms of production capacity.

Scott Davis:

Guys, you were probably a little bit more skeptical than some of the others in '24 on kind of price and ability to get more price, can we mark-to-market that a little bit here in April? Have you been able to be a little bit more successful with price than perhaps you may have thought?

Richard Tobin:

How do I want to answer that? I know that I'm on the clock, right? Could you give me 12 months. DE-STA-CO is a good example, right? That's a business that we looked at in terms of end market exposure and where we had taken it to from a margin point of view, we found a partner, we monetized it, I think, at a multiple that DE-STA-CO not trading within the Dover portfolio, so I think that, that optionality remains on other pieces of the portfolio, but you need to find ruling partners and the like, this is the first part of the question.

Operator:

Our next question comes from Joe O'Dea with Wells Fargo.

Richard Tobin:

Well, when you take into account that our orders are dropping in heat exchangers and down -- maybe not down in Belvac because Belvac built that backlog several years ago, but down in heat exchangers, the order rate is exclusively in the fact that we're launching a new product line in CO2 systems. So that's what's different.

Richard Tobin:

Look, I mean they're going to continue well, CO2 is going to continue to offset the heat exchanger business. Now the heat exchanger business has easier comps once we get beyond August because I think that inflected down in September of last year. So it may be a little bit of put and take between now and then because in CO2 systems, we tend to get large orders every once in a while to flex it up and down. But over time, I think that order rates should look good from the half year going forward, for sure.

Richard Tobin:

Right. That's it, right? Because if we go back last year and the decline in revenue that wasn't a reflection of pull-through demand because it had the headwind of destocking. Now what you have is just basically, let's just call it pass-through. So we don't see stocking. We just see it pass it.

Deane Dray:

Can we get on imaging, just the, say, the world in consumer packaged goods, it sounded like that business is beginning to also see some normal demand, but what have you guys has been seeing?

Deane Dray:

Understood. And then just a couple of cleanup questions on the data center discussions on this call. The first is, I know you've got lots of headaches with SWEP heat exchangers, what about SWEP in data centers in Europe? I know you were highlighting in the U.S., but where's SWEP and data centers in Europe? And then on the connectors are you being asked to bid on these projects for the chip makers? Or are you being is a negotiated design in because that's a big differentiator.

Operator:

And thank you, ladies and gentlemen. That concludes our question-and-answer period and Dover's First Quarter 2024 Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.

Operator:

Good morning, and welcome to Dover's Fourth Quarter and Full Year 2023 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director, Investor Relations. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.

Richard Tobin:

Thanks, Jack. Let's start with the key messages on Slide 3. Market demand conditions in the fourth quarter played out largely as we expected. And as we discussed at the end of Q3, we adopted a business posture focused on managing down production in certain product lines to balance channel inventories to the detriment of fixed cost absorption. This puts us in a good inventory position and enable us to match demand and production in 2024. This operating posture also drove solid operating free cash flow performance in the quarter, which positions us to play offense on the capital deployment front in 2024. We capitalized on strong volumes in several markets and drove margin mix higher for the consolidated portfolio in the quarter. The breadth and diversity of our end market exposures, along with proactive cost containment and pricing discipline led to another record high quarterly segment margin in Q4. We remained active on the portfolio front. We improved our portfolio through synergistic bolt-on acquisitions, including two transactions announced in January that add attractive reoccurring and software revenue streams with good growth exposures to our mix. We expect to close the DESTACO sale by the end of the first quarter, which will further enhance our cash position. We entered 2024 in a significantly better financial position than we were 12 months ago. Underlying demand across the majority of the portfolio is solid. Bookings momentum is improving, and we drove the first organic bookings growth in eight quarters. Of note, biopharma book-to-bill was above one, signifying an improving sentiment in the market which is also evident in the recently announced results of some customers and channel partners. While we expect seasonality in idiosyncratic headwinds such as European heat pumps and can-making equipment to weigh on volumes in the first half. Overall, we expect demand conditions to progressively improve off the fourth quarter exit rate through the year. Our recent investments puts us in a very strong position to capture secular growth across numerous end markets like CO2 refrigeration, bioprocessing, data center cooling, electricification of heating and cooling and smart compressor controls. In-flight cost actions provide carryover benefits in 2024 with specific projects to be announced during the year. Lastly, our balance sheet has ample capacity to execute against a strong acquisition pipeline and pursue opportunistic capital return strategies as we continue to upgrade the portfolio over time. Let's go to Slide 4. Consolidated organic revenue was down 3% in the quarter. Bookings were up 2% organically, reflecting growing order rate momentum across much of the portfolio. Segment margin was up 100 basis points to 22% on broad-based productivity and port portfolio improvements. Free cash flow in the quarter was over $450 million or 22% of revenue on improved working capital efficiency and lower CapEx. Adjusted EPS was up 13% to $2.45 per share in the quarter. Our guide for 2024 reflects a constructive outlook. We are guiding for organic revenue growth of 1% to 3% and adjusted EPS of $8.95 to $9.15 [ph] per share, which represents a 5% to 7% year-over-year organic growth, excluding the tax reorganization benefit recognized in the fourth. Let's skip to Slide 5. Engineered Products had a solid quarter driven particularly strong volume growth in conversion and waste handling. Chassis availability improved in the quarter and the business has reservations from large national waste haulers and municipalities well into 2024. Europe and Asia shipments were notably lower in vehicle aftermarket, but bookings improved during the quarter. Margin performance improved 270 basis points on positive mix benefits and volume conversion on recent productivity investments in the waste-hauling business, coupled with a solid performance in Aerospace and Defense. Clean Energy and fueling is our most distribution leverage segment, and as such, is where we intervened aggressively on production to facilitate general channel destocking in below-ground retail fueling, hanging hardware, LPG components and car wash in the quarter. Cryogenic components continued their robust growth and above-ground fueling equipment was up on continued recovery in U.S. dispensers. We believe that our proactive intervention on production in Q4 has allowed excess channel inventory to clear and we expect this business in this segment to return to normal booking and shipping posture in 2024 with normal seasonality levered to quarters 2 and 3. Imaging & ID posted another as projected stable quarter against a difficult comparable period with a high degree of reoccurring revenue, end market and geographic diversity and exposures to growing regulatory requirements for product ID and traceability. This segment remains a consistent performer with strong margins and cash flows. Margin performance in the quarter was exemplary. Pumps & Process Solutions was up organically in the quarter on strong shipments in polymer processing and precision components. The integration of FW Murphy is off to a strong start with a good reception from our customers and notable recent wins of substantial reoccurring revenue contracts in remote monitoring and smart compressor technology. Top line performance and climate and sustainability technologies was impacted by expected volume declines in beverage can making and as well as the recent and abrupt industry slowing in the broader HVAC complex in Europe and Asia, most notably in residential heat pumps, demand - the degree of which was not incorporated in our previous forecast. Margin performance was exceptional in the quarter, driven by improvement in food retail, which posted EBIT margins in excess of 15% in the fourth quarter, traditionally a seasonally slower quarter on positive CO2 product mix and productivity. The food retail team deserves accommodation for their operational achievements to drive significant margin accretion in these past 3 years, but we still have further runway to improve largely on improved product mix. I'll pass it on to Brad here.

Richard Tobin:

Okay. I'm on Slide 9. This highlights the results of some recent investments behind several fast-growing platforms and portfolio. A few years ago, these were nascent product lines with about $50 million in combined revenue. We saw a significant growth opportunity in these markets and proactively organically invested in CapEx and R&D to cultivate technological leadership and provide a sufficient foundation for these businesses to win and scale with customers. We are in the early innings of capitalizing on these investments and are excited about their long-term prospects. Across these markets, we enjoy leadership positions with recognized technology and strong relationships with marquee customers. With about $200 million in combined revenue planned for this year and a double-digit long-term growth trajectory, we expect these platforms to become meaningful contributors to Dover's overall growth profile. Slide 10 shows progress against our capital deployment priorities. After several years of elevated capital investments into capacity, productivity and automation projects, we expect capital expenditures to be lower in 2024. We continue seeking high confidence, high return on investment, organic investments, and we'll prioritize those in our capital allocation decisions. Acquisitions remain part and parcel to building a better and stronger Dover. We have been actively shaping our portfolio in line with these priorities and we indicated to investors pulled through at - through additions and subtractions as we work to reshape and enhance the portfolio towards higher growth, higher return and lower cyclicality. Our cash flow position and capital allocation optionality are far superior compared to term [ph] last year. We expect another year of solid free cash flow generation in '24, with the added benefit of sale proceeds from DESTACO should close at the end of February, the beginning of March. We have ample balance sheet capacity to continue improving our portfolio through accretive acquisitions. We're opportunistically return capital to our shareholders. Moving to Slide 11 shows the long-term financial performance of the portfolio. Despite the top line headwinds we experienced in '20 and '23 over the past 5 years, we have grown organic revenue at a 4% annualized rate ahead of GDP and industrial averages. Our margin performance over that period was solid, up 410 basis points in aggregate at a conversion margin in excess of our long-term targets we laid out and primarily driven by operational improvement and product mix. Finally, let's go to Slide 12. Our top line growth in 2024 will be driven by our secular growth exposed end markets, including CO2, data center cooling, heating, electrification and cryogenic components. The near-term outlook for precision components remain strong as demand for infrastructure investment tied to the energy transition is driving increased demand for our compressor components and engineered bearings. Our waste handling business is effectively booked for the year and to continue its double-digit growth trajectory as chassis shortage abates and haulers work to publish - replenish and upgrade their fleets. Based on recent history, we have incorporated appropriate caution in our forecast for biopharma during the year, but we are confident that we will post year-on-year growth in this end market, and we'll update our view as the year progresses. Full year consolidated operating margin is forecasted to improve on volume, product mix and productivity actions. We have done the hard work to get our channel inventories and balance and expect revenue to build off the fourth quarter exit rate with a return to pre-COVID seasonality in several businesses. Our portfolio consists of a collection of businesses that operate in attractive and unique - niche end markets. Our business model is flexible, and we can quickly respond in changes in market dynamics, be the beneficial or detrimental to the business. We have numerous cost control levels and capital allocation optionality at our disposal to deliver on our full year forecast. I'd like to thank our global teams for the efforts to deliver last year's results, and we look forward to serving our customers, partners and investors in the year and ahead. And Jack, let's go to Q&A.

Andrew Obin:

Hi, guys. Good morning.

Brad Cerepak:

Hi, Andrew.

Richard Tobin :

I would expect the bookings stays positive throughout '24 based on our outlook right now. I think that the channel - we've done the hard work on the channel inventory, and that's where we're seeing the inflection in the bookings, whether it be biopharma and that we would expect to see the same in Fueling Solutions. So I don't expect this trend - I don't expect to go negative unless we're going to have an unforeseen recession in 2024.

Richard Tobin :

It's not a coincidence that we did this call behind some of our customers because we had been in front of them and been wrong. We have very little accretion in earnings on biopharma despite the fact that order rates are beginning to pick up, we'd rather position ourself cautiously. And if you go back and look at the transcript, it said we were just going to update you where we are quarter-by-quarter. So I think that we're going to wait and see what we can say as we do not expect it to be down year-over-year, but we have not incorporated anything - any meaningful amount of operating profit up year-over-year. We'll keep that to ourselves until we see the orders.

Richard Tobin :

Yeah. You are absolutely correct.

Operator:

The next question comes from Andrew Kaplowitz with Citi Group.

Richard Tobin :

Hi, Andy.

Richard Tobin :

I think that it will start slowly. So I think the Q1 will be kind of a roll forward of what we saw in Q4 to a certain extent. But again, you've got some difficult comps. I would expect by Q2 - the vast majority of accretion will occur in Q2s and Q3 as we ramp production into that. And then Q4 - Q4 was actually pretty strong for us. Usually, it's a run for working capital. But again, like every other year, it's going to be highly dependent on production rates that we adopt for Q4.

Richard Tobin :

Well, there's a lot of moving parts of what's in Clean Energy. I'd - to back up for a moment. I think that the operating posture that we adopted at-- as we move through Q3 into Q4, was predicated upon of dropping production to flush total channel inventory. And I think that we've accomplished that across the total portfolio. As you mentioned, I think what was not incorporated into our Q4 forecast was the sudden decline in demand on Heat Exchanges for Heat Pumps. Again, like biopharma, I think that we're going to be very cautious about that for '24 until we see the market return. So right now, I think that we're calling Heat Pumps down year-over-year, but I think that, that may prove to be conservative. I think that my own view is it's probably going to flush in Q1 and Q2, and then we'll return to growth on the other side. So overall, outside of Heat Exchangers for Heat Pumps, I think that we're in pretty good shape in terms of balance. And so what's incorporated into the 1 to 3 is basically that's the aggregate of demand that we see. So production demand should be pretty much in balance. So we will probably build some inventory in Q1 as we ramp back up for Q2 and Q3, but that's kind of the way we see it right now.

Richard Tobin :

No, right? Because you've got Belvac rolling down year-over-year, which we've expected for 3 years. If Heat Exchangers stays with our forecast, which is very conservative, the CO2 revenue growth will not offset that, but I think that we're being cautious until we see what happens and when we see what all our customers say about Heat Pump demand for 2024.

Richard Tobin :

You're welcome.

Scott Davis:

Hey, guys. Good morning.

Scott Davis:

Hi. Thanks for being brief with your prepared remarks. I really wish everybody would get that memo. It's - it's helpful to get to the [indiscernible] point as I say and get to Q&A and let's all move on. But guys, a couple of things caught my eye. One, kind of the volatility geographically, China up 14%, Europe down 16%. And maybe if you could walk around the world a little bit for us for '24 and expecting a little bit more of a normalization there? Or maybe some puts and takes on some of the geographic moves. I'll just stop there and open it up...

Scott Davis:

Okay. That makes a lot of sense. So Rich, I think you started off - the last couple of quarters, you've made increasingly more kind of tonality, positive remarks on M&A. What - this may be hard to answer, but what does good look like? If '24 is a good year for M&A? Is it to some sort of a range of dollars that you'd like to put to work or some sort of a - something where you guys just have a goal line in mind or that we can start to think about? And that's...

Scott Davis:

Fair enough. Best of luck this year, guys. Thank you.

Brad Cerepak:

Thanks.

Mike Halloran:

Good morning, everyone.

Mike Halloran:

Just tying everything up, when you think about the year and the idea that things get better through the year for you, how much of that is tied to comps in destocking being behind you versus a fundamental thought process that the underlying demand patterns improve across the numerous businesses you have?

Brad Cerepak:

Yes. I guess what I would add to that is, unlike like we've been pretty vocal about the fact that price was pretty significant to the top line over the last 2 years that I would say, while it's not a big set of numbers here because of the one to three guide, there is positive volume growth, except for the first quarter as we come down on this idiosyncratic issue that we're talking about. So I think it is a better setup for us this year than years past where you can actually now think about plant absorption, return to volume, not just price.

Richard Tobin :

It's decent. It really - the industrial pump side never really had the kind of headwind in terms of stocking and destocking. And that's really high-value equipment. So it's more or less fundamental demand. I think there was some caution in the back half of '23 just because of the carryover of interest rates and everything else. I think what's baked into our forecast this year is some growth, but not anything extraordinary on the industrial side.

Mike Halloran:

Makes sense. Thanks, guys. Appreciate it

Operator:

The next question comes from Steve Tusa with JPMorgan.

Richard Tobin :

Hi.

Steve Tusa:

Where are you in the like standoff on price and volume? And what do you assume for price for the year?

Brad Cerepak:

Roughly the same thing. So on 50-50...

Steve Tusa:

How much do you think that production take down in the quarter? Did that impact margins to a degree?

Steve Tusa:

Got it. And then lastly, just any kind of more specific color on total margins for the year, whether it's basis point improvement or a hard number for margins?

Steve Tusa:

Sorry, one more for you. EPS seasonality too. How do you see that kind of feathering in over the course of the year? What do you expect in 1Q? And then how does that build?

Brad Cerepak:

Yes. And on those two businesses, specifically, we're talking about SWEP [ph] and CPC. When the volume does come, they do convert and the mix is up. So that's the good news.

Richard Tobin :

Thanks.

Joe Ritchie:

Hey, guys. Good morning.

Joe Ritchie:

Hey. So Rich, a lot of discussion around your portfolio these days. Just curious what you'd like to share about the potential to unlock value by divesting some of the pieces of the portfolio? Any comments you'd like to share there would be great.

Joe Ritchie:

Okay. That's helpful. And I missed some of the initial commentary around the guide. I know that there - organically, I think you guys talked about maybe 5% to 7% EPS growth. But just maybe kind of help me understand the low end, the high end, what kind of shapes both of those?

Joe Ritchie:

Okay, good enough. Thanks, guys.

Operator:

The next question comes from Jeff Sprague with Vertical Research.

Richard Tobin :

Hi, Jeff.

Richard Tobin :

Some, right. Look, if you calculate the EPS accretion on a cautious top line that you'd come with an incremental margin that is pretty high, right? So at the end of the day, what's incorporated in there is a little bit of capital deployment, whether that be in M&A activity or share repurchase. The timing of which we'll let you know when it happens.

Richard Tobin :

Well, that chart actually foots to the chart that we put out in 2020 in terms of the hierarchy of capital allocation to a certain - well, I think the DPPS and DCEF kind of flipped, but that - because you can't control in terms of closing acquisitions. Yes, I mean, overall, yes. I mean if you think that engineered products outside of defense has been an organic issue for us for some time. And DCST, Belvac and SWEP are organic and I think in refrigeration, I think that what we've done with the total investment, that would be an organic play also. So yes, I think that the hierarchy there, they may flip around a little bit, but it's largely correct.

Richard Tobin :

I think it's broad based, and I think it's more influenced by what do we call them, the thermal connectors.

Richard Tobin :

You're welcome.

Julian Mitchell:

Hi, good morning.

Julian Mitchell:

Morning. Maybe I just wanted to start with the operating margins. So I realize you're not giving a sort of firm-wide number for this year or much segment color. So maybe trying to think about some of the firm-wide drivers of margin this year. So I think there's some positive volume leverage because those are up 1, 1.5 points. Price cost is broadly neutral. M&A and divestment seems maybe neutral, what you've announced so far. So I wondered if those three assumptions were right. And then mix, I guess, anything you'd characterize from all those moving parts sort of biopharma stable, heat pump down, polymer and can down, maybe fueling up, like in aggregate, is there much of a mix impact do you think on margins in your guide?

Julian Mitchell:

That's very helpful. Thank you. And I just wanted to follow up when you were talking about sort of some of the quarterly earnings trends. So do we assume sort of Q1 earnings or EPS is flattish? And then as you said, you get into the meat of the earnings growth in Q2 and Q3?

Julian Mitchell:

That's great. Thank you.

Operator:

The next question comes from Nigel Coe with Wolfe Research.

Richard Tobin :

Yes. If we go back and look at the transcript, Nigel, we do have carryforward from actions that we took in the back half of the year. We've got some coming. I'm not ready to calendarize it yet because they're not fully baked, but we do have a list of - we do have a list of cost actions, which are more of a revenue hedge. So if we take those actions and we're right on the demand profile, those should actually be accretive to us. So they're not necessarily baked in at this point. And the reason they're not baked in is because we're working on the timing in terms of the execution.

Richard Tobin :

Yes, it's interesting. I mean, if you go back and look at our realized pricing, and I'm talking about the portion of the pricing that's fallen all the way to the bottom line, it has not been dramatic for us. And it's a source of consternation around here of what is capable in pricing. And so if we look at some of our end market customers and what they've passed through on pricing, I guess that we've been jealous for lack of better words. So to us, it's been - we've - I don't want to be negative. I think we've taken some price I don't feel that we've got a couple of businesses that have escalation, de-escalation clauses in terms of inputs. I think we've been on the front foot in those businesses of being proactive about locking in our pricing, especially going into this year. So right now, we've actually got a little bit of room if we had to give back pricing, but that's not my expectation. Our issue has always been that the way to defend pricing is not to get over your skis and inventory, and that's why we took it into the neck to a certain extent to kind of manage that position at the end of last year going into kind of the demand environment, at least the setup as we see it today, I think that we feel good about our ability to protect price.

Operator:

Our final question comes from Deane Dray with RBC Capital Markets.

Richard Tobin :

Thanks, Deane.

Richard Tobin :

You know what, I don't know. So I would expect if it's been terrible, I would have heard something. Usually, when it's positive, no one tells me anything. But - so we haven't even closed the month yet, Deane. So - but I'm unaware of it being worse than what we have baked in.

Richard Tobin :

It's almost exclusively levered towards liquid cooling.

Richard Tobin :

That's correct.

Deane Dray:

That's great.

Deane Dray:

Thank you...

Deane Dray:

Understood.

Richard Tobin :

Got it?

Operator:

Good morning, and welcome to Dover's Third Quarter 2023 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President, Corporate Development and Investor Relations. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Andrey Galiuk. Please go ahead, sir.

Richard Tobin:

Okay. Thanks, Andrey. We posted very encouraging results [and let us] become a dynamic operating environment across our different end markets and geographies. Revenue and order rates improved sequentially in the quarter on normalizing lead times and inventories, improving demands across several end markets and a return to normal seasonality. Our backlog continued to normalize in the quarter, in tandem with lead times as we shipped longer-dated orders from our books. Broadly speaking, margins performance in the quarter was exceptional, reaching an all-time high driven by productivity, cost controls and disciplined pricing, which more than offset the negative product mix in Pumps & Process Solutions. The proactive structural cost actions we have undertaken over the last 12 months are paying dividends and should support strong margin conversion going forward. Our recent portfolio moves, the acquisition of FW Murphy and the sale of De-Sta-Co followed the portfolio intent and priorities that we reiterated at our Investor Day earlier in the year and continued our portfolio evolution towards higher-growth and higher-return businesses at attractive valuations. Our balance sheet position and cash flow are strong and provide attractive optionality as we continue to pursue bolt-on acquisitions in a more favorable M&A environment and evaluate opportunistic capital return strategies. We have reduced our EPS guidance for the full-year and are now targeting the low-end of the previous guidance range. This is driven by continued lag in biopharma recovery that we expected to happen in the second half of the year. Temporary cost and supply chain issues that I'll expand upon later and a general trend towards inventory liquidation across supply chains as a result of macro uncertainty and prohibitive carrying costs, I'll cover the specifics in the segment commentary. Overall, demand remains good across the portfolio, considering the plentiful negative macro headlines. Our new product launches and capacity additions and identified areas of growth are all on track, and we expect that our fourth quarter production posture will help balance our channel inventories with prevailing demand, lead times and inventory carrying costs by the end of 2023. We are increasingly convinced that inventory position will be critical to the pricing dynamic and financial results moving into 2024. Going into 2024, we expect to see growth in our bookings driven by secular growth exposed in recovering end markets, and we expect to carry an elevated backlog into next year in select businesses. Between our demand outlook, flexible business model and in-flight structural cost actions, we see good foundation for value creation in 2024. Let's move on to the performance highlights on Page 4. Consolidated revenue was down 2% in the quarter despite sequential growth in four out of five segments. Bookings were up sequentially, but down 4% organically year-over-year, resulting in a book-to-bill of 0.93, reflecting better lead times and strong shipments against our longer-dated orders. As a result, our backlog continued to normalize, but remains elevated relative to pre-pandemic levels. Segment margins were up 50 basis points to 21.7%, a record since the Apergy spin as broadly based productivity and portfolio improvements were more than able to offset biopharma mix. Adjusted EPS was up 4% to $2.35 in the quarter. And positive price/cost dynamics, together with cost containment actions, strong execution, more than offset lower volumes. Let's go to Slide 5. Engineered Products was down 3% organically in the quarter. General weakness in Europe and Asia, together with lower shipments in vehicle service, more than offset the record quarter in aerospace and defense and strong shipments in waste hauling. Order rates in the segment were up 12% organically in the quarter, primarily driven by waste handling business, which continues to take capacity reservations well into 2024. Margins at 20% were up 260 basis points year-over-year driven by a better mix of recurring and aftermarket revenue, price/cost and productivity investments made in previous periods. I'd like to mention the announcement of our agreement to divest De-Sta-Co, one of the operating units within the Engineered Products segments and an attractive valuation. This is not related to [indiscernible] performance, but we leave the valuation we achieved underscores the quality and strong performance of the businesses that we have proven to have best-in-class operating margin and less cyclicality than typical capital goods businesses. Clean Energy & Fueling revenue was flat organically in the quarter. We saw double-digit growth in components for LNG and hydrogen markets. And the aboveground retail fueling business returned to growth as post-EMV recovery is in progress. High interest rates led to project push-outs in vehicle wash and an unforecasted channel destocking has resulted in slower activity in LPG components and belowground fueling, which are highly margin accretive to the segment. Margins in the quarter were at 20%, were up 40 basis points on structural cost actions in our retail fueling business and solid execution more than offset negative mix. Imaging & ID was down 4% organically as slowing demand in China and a difficult comparable period in marking and coding printer shipments more than offset the growth in serialization software and marking and coding consumables and professional services. Margins in Imaging & ID was strong at 26%, though down year-over-year against an all-time record high for the segment in the comparable quarter. Pumps & Process Solutions was down 7% organically in the quarter. Precision components and hygienic dosing systems posted another quarter of excellent growth, but were more than offset by the continued softness in biopharma. Industrial pumps and polymer processing [were stable] in the quarter. Segment margin of 27% was down to the lower mix of biopharma revenue. Topline in Climate & Sustainability Technologies was up 2% organically. CO2 systems continued its double-digit growth trajectory. Heat exchanger shipments remained strong in North America and Europe, though we experienced the beginning of demand headwinds in Asia. The segment posted strong margin performance of 18% in the quarter with our food retail business or refrigeration business operating at a robust 15% margin. The steady margin improvement trajectory in refrigeration has been noteworthy as positive mix and productivity investments have driven excellent margin conversion. We expect the margin improvement trend to continue for the whole segment. I'll pass it on to Brad here.

Richard Tobin:

All right. I'm on Slide 9. We expect Engineered Products to generate moderate growth in the fourth quarter. Aerospace and defense should remain strong. Meanwhile, the auto strike will weigh on several businesses in the near-term. Growth in our waste handling business, which is expected to be robust in the fourth quarter into 2024 will be reduced in the near-term by recent strike at a major truck OEM impacting deliveries. Shipments in vehicle aftermarket expected to be lower versus a record previous year on higher interest rates weigh on service shop's ability to finance CapEx. We expect margins to improve in the quarter on positive price/cost tailwinds and benefits from our recent productivity capital investments. Clean Energy & Fueling is expected to remain steady. Clean energy, LNG and hydrogen components should continue their robust trajectory and order trends in aboveground retail fueling point to continued post-EMV recovery. We expect channel destocking and interest rate-driven headwinds in the belowground fueling segment, LPG components and vehicle wash to maintain through year-end. We expect stable margin performance as the $60 million in aggregate structural cost containment actions in retail fueling should offset negative mix from lower belowground and lower car wash volumes. Imaging & ID is expected to be down organically against a difficult comparable period driven by slowing demand in Asia and a subdued outlook for textiles. Serialization software should continue its growth trajectory. Our new customer conversion margin performance should remain at attractive levels at this segment. Pumps & Process is expected to remain roughly flat organically in the fourth quarter. Precision components should continue growth tailwinds from energy transition projects. Polymer processing is booked for the year. The recovery in biopharma components has been very subdued. And although channel inventory levels are now below pre-pandemic levels, end customer demand has not recovered enough to drive 2023 growth despite earlier forecast indicating recovery. We have reduced our production and inventory levels appropriately and will remain in this posture for the balance of the year. This is generally a short-cycle business, and we can ramp as order rates recover in 2024. We expect year-over-year margin headwinds on negative mix in biopharma. And after several years of impressive topline growth, Climate & Sustainability Technologies is expect to moderate in the fourth quarter as demand for heat exchangers abruptly slowed in Q3 due to near-term uncertainty in European heat pumps. As a result, we are reducing production levels to allow for inventory to be cleared in the fourth quarter. Traditional refrigeration demand will retain its seasonality with reduced activity during the holiday season. But we continue to see robust demand for our CO2 refrigeration systems and are ramping up production and go-to-market efforts appropriately. We expect continued year-over-year margin improvement through year-end on productivity gains and improved mix. Going to Slide 10. Our updated EPS guide reflects the near-term changes in demand and our production posture, temporary and isolated issues in the supply chain and costs related to acquisitions, integration and divestment activities. We expect these headwinds to be partially offset by a lower effective tax rate in Q4 as a result of tax reorganization activities driven by upcoming regulatory changes. As I've highlighted, we believe our changed operating and production posture focused on reducing inventories and prioritizing cash flow over volume in reaction to the dynamic operating environment is critical to setting up 2024 outlook where we can maintain and expand operating margins. Let's go to Slide 11 and take a quick look at the inorganic moves that we made during the quarter. Here, we summarized the two recently announced transaction that align well with our portfolio priorities and enhance the overall quality of Dover's portfolio through margin growth and reoccurring revenue uplift, all while reducing our exposure to automotive and China. Importantly, we are able to acquire FW Murphy, a lower valuation multiple than our sale of De-Sta-Co and the after-tax proceeds from the De-Sta-Co sale more than pay for FW Murphy, preserving significant balance sheet capacity for additional capital deployment options. Slide 12 provides more color on the rationale for the acquisition of FW Murphy by our precision components operating unit, which is part of Pumps & Process Solutions segment. FW Murphy brings a highly complementary product offering to our existing position in reciprocating compression industry. FW Murphy Solutions capitalized on the growing adoption of advanced remote monitoring, control real-time optimization solutions as customers seek to reduce costs, improve uptime and lower emissions. In combination with our best-in-class clean technology and our leading position in sealing and valve technology for alternative energy applications, including in hydrogen, the FW Murphy acquisition offers a compelling value proposition into a global industry where we see robust demand from energy transition investments. The FW Murphy acquisition provides a good segue into our next topic, which is to highlight, the recent developments in investment in sustainability-driven markets, starting on Slide 13. There has been plenty of interest around hydrogen as a result of the recent announcement of $7 billion in federal funding for multiple regional hydrogen hubs that are expected to also attract $40 billion in private funding and a roster of blue chip industry participants. Dover has established a position in hydrogen with the 2021 acquisition of Acme, which supplies flow control components for liquid hydrogen and [indiscernible], which offers turnkey hydrogen refueling sites. Additionally, we are organically invested in extending DPCs gas compression components to participate in gaseous hydrogen applications. In short, there is no hydrogen economy without compression. We have great relationships with the industrial gas and hydrogen players and aim to participate throughout the whole value chain through transport and storage through end-use in collaboration with equipment OEMs. We are well positioned to capitalize on growth in hydrogen and industry with a high focus on safety and regulatory compliance with high technological requirements for participation. Moving to Slide 14. The EPA recently finalized its rule under the AIM Act with a deadline for new installation of refrigeration systems to be compliant with lower GWP requirements by January of 2027. We believe this rule is a clear tailwind to our CO2 systems business. And we have had a leading position in the European CO2 market for over a decade where we enjoyed steady double-digit growth trajectory. We were the early mover in transplanting this technology to the U.S. where we currently enjoy technological lead and have the largest installed based and broadest differentiated offering. We have proactively expanded our capacity in addition and in participation of market growth and have been investing behind a platform-based product strategy to drive standardization, thereby reducing costs for ourselves and our customers, improving product quality and simplifying the sales process. Our global CO2 business is approximately $200 million in revenue. The U.S. market is in the early innings, and our business is on track for 30% growth in 2023 with a strong outlook. We are also excited about our new CO2-based heat pump offerings for industrial and district heating applications. It's early days, but we have an active pipeline of orders. And finally, on Slide 15 shows our latest views on heat exchangers since it has become a battleground topic. Our heat exchanger business supplies brazed plate technology, which is currently the most sustainable commercialized heat transfer technology for fluids. We have been the clear beneficiary of the sustainability and climate tailwinds across various applications with a lot of attention drawn recently from our participation as a key supplier to hydronic heat pumps. Heat pumps have emerged in recent years as a technology of choice to decarbonize residential heating, which is responsible for a significant portion of global emissions with hydronic heat pumps as a primary technology to retrofit houses that rely on water-based heating. Legislative initiatives in European Union and individual countries are driving the conversion of fossil fuel boiler with heat pumps. Recent uncertainties about subsidies in select European countries have weighed on near-term volumes, as I indicated earlier. Our exposure across multiple OEMs and geographies, and as such, we are not over-indexed to any product or customer concentration risk. We remain confident about the long-term growth prospects for heat pumps and our technology. It is important to note that European residential heat pumps represent only a quarter of our heat exchanger business. You see several solid growth vectors driven by sustainability tailwinds and continue to share gains from other legacy heat exchanger technologies. We have proactively expanded our capacity as we expect continued robust growth trajectory in heat exchangers, albeit with slightly lower rates in the near-term as various dynamics in Europe slow down. I close my prepared remarks by thanking our global teams for driving our strong financial performance during the quarter. And it's time for Q&A.

Steve Tusa:

Hey, guys. Good morning.

Steve Tusa:

So I think you were a little more positive in early September than this fourth quarter guidance, understand maybe the world's changed a little bit since then. Maybe you could just discuss that. But then just looking ahead, thinking about perhaps a more cautious view of the world for next year. What's kind of a low-end assumption for next year when it comes to organic and margins? Just to kind of level set us on a case where perhaps the orders don't recouple as strongly to the trend lines or the trend lines are a little bit weaker. Like in your macro view, what is a more cautious outlook for next year bring for Dover? Because you've been talking about growth there as things recouple the trend. It seems like that would have changed over the last month or so.

Steve Tusa:

So like should we just think about flat as a starting point for next year?

Steve Tusa:

Great. All right. Thanks a lot.

Operator:

The next question comes from Jeff Sprague with Vertical Research Partners. Please go ahead.

Richard Tobin:

Sure. I think if you go back and look at the script, basically, what it says is the restructuring that we took is going to protect margins into Q4 because we actually have a poor mix forecasted for Q4 because where we've been seeing the headwinds in Fueling Solutions is in the below-ground portion of the segment, and that is highly accretive to margins. We're basically – you heard me answer Steve's question there, we're taking the position of let's allow inventory to be draw down even we would argue at this point, below even normal levels between now and the end of the year and protect production performance into next year. So the restructuring benefit – the restructuring that we've done is actually protecting margins into Q4.

Richard Tobin:

Yes. I think we're getting a lot better at it. At the end of the day, where we sell through distribution, we have visibility, right, because we've just got a material position within distribution, so we can see pretty much stocking levels. At the OEM level, it becomes a lot more difficult. At the end of the day, we're relying on the OEMs to basically tell us their own position. So let's take heat exchangers. Up until 45 days ago, it was still a demand capacity deficit of give us everything you've got and then all of a sudden, for reasons that I tried to cover, the markets come to a halt because there's a recognition of the seemingly is a lot of finished goods in the chain now that need to be bled off. So like I said, from – if it's distribution, I think that we've got a pretty good handle on it. When it's OEM, we just got to take the signals from them.

Brad Cerepak:

Yes, Jeff, the things we're seeing here in Q3 and into Q4 on taxes, will not carry into next year. So said differently, I think our 2024 tax rate is going to be much like we saw earlier in this year when we gave guidance, somewhere in that 20% to 22% rate.

Operator:

The next question comes from Andrew Obin with Bank of America. Please go ahead.

Richard Tobin:

I don't think that we have excess backlog anymore. I mean, I think that we're – by the end of the year, we will have drawn down our longer cycle backlog, particularly in Belvac and MAAG, which drove a lot of it. I think it will end up being a little bit higher than kind of on average in terms of its aggregate, if you go back and look over the last five years, but that is more related to portfolio – general portfolio mix as opposed to anything else. So like I said, at the end of the year, we think that we'll be in balance between our inventory and our – either the customer distribution inventory, I would expect the long-cycle business backlogs to be done that reduction to be done by the end of the year.

Richard Tobin:

I got to go back and take a look. I mean, I would say flat. If I think about where bookings are coming from, we got a lot in ESG at high dollar value because quite frankly, we're booking well into 2024 in that particular business just because of supply constraints. Flat, I would call it right now. I think that there's an overall caution with the macro – everybody recognizes that lead times have been vastly reduced. So I think that there's going to be a lot of hurry for bookings in Q4, but we would expect a pretty large acceleration in Q1, if we’ve got.

Richard Tobin:

Welcome.

Michael Halloran:

Hey, good morning everyone. Two here. So first, on the inventory side, you're obviously bringing your inventory down a fair amount pretty aggressively, more so than what we're hearing elsewhere. Do you have the same sense of urgency in the channel when you look at your channel partners? Or do you think they're lagging the pace of your inventory drawdown?

Michael Halloran:

So the comment that you made to the previous question about order having a better chance to turn positive in the first quarter, I'm guessing part of it is the comments you just made that inventory flush through the channel essentially normalizes by year-end, and you should have a lease normal throughput, if not a little bit more, given where inventory levels are in certain channels?

Michael Halloran:

Great. And then on the DPPS side, maybe just kind of parse out the moving pieces there. Obviously, you have the continued destock on the biopharm piece, creating some pretty easy comps in the next year, but a lot of your other pieces are a little bit more IP sensitive. So maybe just talk about some of the moving pieces you're seeing on that side.

Michael Halloran:

Great. Appreciate it.

Andrew Kaplowitz:

Hey, good morning guys.

Andrew Kaplowitz:

Rich, you've talked about being proactive regarding cost set. But if economic conditions stay somewhat difficult, what kind of opportunities do you have to deliver the kind of margins you just delivered in Q3? And then I think you were fearful at the beginning of the year that pricing in industrials might erode a bit. Have you seen any erosion or do you expect any erosion in your markets? Or would you still expect resilient price cost moving forward?

Andrew Kaplowitz:

Helpful, Rich. And then maybe just a little more color into the puts and takes you're seeing in DCST. You mentioned the slowdown in the heat exchangers, but the strength in CO2 systems, you mentioned as well, and you did deliver strong margin. Do you still see DCST as a growth segment for you in 2024? And how would you assess margin potential from here, given what you just report in Q3?

Andrew Kaplowitz:

Appreciate all the color.

Joseph Ritchie:

Thanks. Good morning guys.

Joseph Ritchie:

Hey. Just a few quick follow-ups on just the inventory dynamics because, I mean, Rich, you've been doing this a while. It typically – based on what we've seen, it typically takes longer than a quarter to normalize inventory. And so just any color on your confidence on being able to get inventory where you need it to be by the end of the year? Or is there a good likelihood that some of this kind of spills into 2024?

Joseph Ritchie:

Got it. Okay. That's helpful. And then I guess just a real quick one on just 4Q in DPPS. So I think you called out flat growth in the segment. So sequentially, revenue is down a little bit. I'm curious just from a margin standpoint, similar revenues – similar margins for 3Q? How do you think about the margins in 4Q for DPPS?

Joseph Ritchie:

Okay great. Perfect. Thanks guys.

Operator:

The next question comes from Brett Linzey with Mizuho. Please go ahead.

Richard Tobin:

The portfolio – the whole portfolio is under review all the time. Look, no. Look, we don't go around and say, we've got a business that's got $200 million revenue, let's go buy $100 million to $200 million revenue. No one can orchestrate that. But I think that we've gone over Brett, a lot about where our priorities are. To the extent that we could make a change to our portfolio that we did without touching our balance sheet, I think, is a positive. So to the extent that we could do that repeatedly, that would be great, but that is subject to a lot of timing differences both in and out at the end of the day. But just as an overall comment, what we did this quarter in M&A is what we would like to do progressively every year.

Richard Tobin:

No, I think the capacity is coming on sequentially. These are highly automated plants. So it's not like we've got to ramp employees. It's – they're almost blackout plants at the end of the day. So we needed the standing capacity. Remember, heat exchangers is 40% of the revenue. So I get it, it's getting a lot of headlines, and that's why we wanted to address it. Our visibility is, as I mentioned, is not great because it's an OEM sale mostly for us. So up and to the point where they decide they want to slow down, that's what we find out. And the slowdown that we've been called out for the balance of the year manifested itself over the last 45 days or so. So are we worried about the capacity investment? Absolutely not. We think that the technology is fundamental. It's going to grow over time. There's been a massive amount of capacity in heat pumps that's been announced. It always seems a little bit implausible. So I think at the end of the day, the market reset is going to be on the finished goods, not so much on the consumption of the heat exchangers.

Richard Tobin:

Thanks.

Julian Mitchell:

Hi. Good morning. One element I just wanted to circle back to in context of the inventory discussion is around the free cash flow margin guide. So I think that it's very high still for this year, but maybe move down a little bit and that's despite the good progress on the inventory liquidation that you cited in Q3. So maybe just any sort of color around the moving parts inside free cash flow, and it has been very volatile. So any sort of thoughts on maybe next 12 months as it's more sort of normalized?

Julian Mitchell:

I see. And so receivables was kind of the main delta on the change in the free cash margin guide?

Richard Tobin:

Yes. Between cash flow and the proceeds of the disposal, which we'll receive in Q1, we're in a very healthy cash position.

Richard Tobin:

Yes. I mean at the end of the day, everything that's in our control – for 2024, I think that we're taking the right move. So we discussed managing channel, right, from an inventory point of view. The reason that we highlighted some of the investments, we think that those are growth vectors that those businesses are going to grow despite the macro, right, that they're not subject to kind of general sentiment at the end of the day, or interest rates or anything else just because they've got a demand there. So yes, I mean, look, we're – knock wood, we're feeling positive about our setup going into 2024 based on how we've managed and will continue to manage 2023.

Richard Tobin:

Thanks.

Deane Dray:

Thank you. Good morning, everyone.

Deane Dray:

Hey. I was hoping to get some color on the retail fueling. It just sounds like there was a bit of a disconnect between below-ground and above-ground, below-ground, seem to be fueling effects of higher rates and maybe some destock, but you weren't seeing that above the ground. But just can you square those, please?

Deane Dray:

All right. That's really helpful. And then just a follow-up on the geographies. What were the surprises and maybe you're seeing some of the macro begin to be felt on the U.S. side was down 7%. But what surprised you there?

Deane Dray:

Thank you.

Nigel Coe:

Thanks, guys. Thanks for fitting me in. So going back to the non-core kind of the portfolio review, I mean, obviously, there's a parlor game about trying to guess which assets might not meet the cuts going forward. But De-Sta-Co wasn't one of those assets. I think already seen as potentially non-core. So I'm just curious given the decent growth, obviously, very good margins, what was it that led that asset to being sold?

Nigel Coe:

Too much Europe I assume?

Nigel Coe:

Okay. Too much Asia.

Nigel Coe:

Okay. And then just on buybacks, you did an ASR last year. You've got a fair amount of financing flexibility if you get your free cash flow forecast with the sale as well. I mean, any thoughts on buybacks at these levels?

Nigel Coe:

Okay. I leave it there. Thanks, guys.

Operator:

Thank you. That concludes our question-and-answer period and Dover's third quarter 2023 earnings conference call. You may disconnect your line at this time, and have a wonderful day.

Operator:

Good morning, and welcome to Dover's Second Quarter 2023 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director of Investor Relations. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.

Richard Tobin:

Thanks, Jack. Let's start on Slide 3. Our results are in line with our internal forecast in the second quarter. Our secular growth exposed businesses that we highlighted at our recent Investor Day outperformed in the quarter with heat exchangers, natural refrigerant systems and polymer processing, all posting growth in excess of 20%. During the quarter, we incurred operational headwinds from our vehicle service group main production facility as a result of an ERP implementation, which cost us approximately $50 million in revenue and approximately $0.10 of EPS. This one's on me. The business has been doing an excellent job on efficiency actions related to fixed costs, SKU management and vertical integration over the past 18 months, which has been reflected in the margin performance conducting a much-needed ERP upgrade, which is fundamental to our e-commerce ambitions, while finishing a large CapEx project was in retrospect overly ambitious. And I guess I should have known better. We exited June -- the good news, we exited June with far improved production performance at the site, and we'll try our best to claw back the lost volumes in the second half. We have a constructive outlook for the second half of the year and are narrowing our annual EPS guidance to $8.85 to $9. Since the start of the year, we expected 2023 performance to be weighted to the second half due to post-pandemic destocking across the industrial economy and the gradual recovery in several of our end markets, with the seasonality of second half earnings consistent with what we saw in the pre-pandemic years. Underlying demand remains good across the portfolio and a significant volume of business is already in the backlog. We proactively intervened on our cost structure starting in the latter half of 2022. And we have continued these structural cost reductions in 2023, driving material earnings benefits. As a result, we are less reliant on top line volume or price cost to achieve our forecast in the second half. With our solid demand outlook, flexible business model and execution playbook, we are confident in delivering our second half target. We also see a solid foundation building for 2024. A large portion of our portfolio has experienced secular -- or cyclical momentum growth exposures that should persist in a variety of macro conditions and we are proactively adding capacity to ensure we continue to win in these markets. We also expect solid carryover benefits into 2024 from previously announced cost reduction actions. These organic initiatives, together with a strong acquisition pipeline and meaningful cash flow generation will keep us on track to achieve our long-term growth and value creation goals we set forth in our Investor Day in March. Let's go to Slide 4. Consolidated organic revenue was down 3% in the quarter despite growth in 3 of the 5 segments due to expected comparable volume declines in several end markets and the aforementioned shipment disruptions in vehicle market, which cost us 2% to the top line. Organic bookings were down 8%, resulting in a book-to-bill of 0.92, reflecting better lead times across the portfolio and continued strong shipments against backlogs in our longer cycle and secular growth exposed businesses. As a result, our backlog continues to normalize, but still remains elevated relative to the pandemic levels. Segment margin was 20.2%, with margin performance preserved despite negative mix and lower volumes due to proactive cost containment actions and lower input costs. We expect the roll forward of these actions together with more normal demand seasonality to drive sequential and comparable operating margin improvement in the second half. Let's skip to Slide 5, and we'll go through some detailed results on the quarter. Engineered Products was down 8% organically in the quarter. The waste handling business posted a particularly strong quarter, improving chassis availability and aftermarket attachment rates driving solid growth in volumes and new orders. We are presently taking capacity reservations for 2024 and we will be ramping production to meet demand progressively over the balance of the year. Margins were down 50 basis points year-over-year, principally driven by lower volumes in vehicle aftermarket which offset the robust margin improvement in waste handling. Clean energy and fueling declined 9% on an organic basis as the final quarter of comps impacted the top line and margin mix. Vehicle wash and clean energy were down slightly in the quarter as distribution inventories were brought down in line with the increased cost to carry on higher interest rates. Channel checks indicate that we are now at appropriate levels for expected second half demand. Margins in the quarter were down 100 basis points on lower volumes and mix, but partially offset by significant cost reduction actions taken in the retail fueling business as we pivot this business to margin and cash flow maximization. Imaging and ID was flat organically on solid growth in our core marketing coating business in Europe and the Americas as well as strong sales in software, serialization. Shipments in Asia were lower. FX remained a negative headwind to absolute revenue and profits in this segment given its large base of non-U.S. dollar revenue. Margins in Imaging and ID was strong at 23% and improving 40 basis points on pricing and cost controls. Pumps and process was up 1% organically in the quarter, with particular strength in polymer processing equipment, precision components, thermal connectors and hygienic dosing systems. Volumes in industrial pumps was softer due to channel inventory reductions. Operating margin was down due to lower mix of biopharma. Top line in climate and sustainability technologies were about 4% organically, demand trends remain robust in heat exchanges and CO2 refrigeration systems driven by global investments in sustainability. The segment posted a strong 7% margin in the quarter, up 210 basis points year-over-year on strong volume conversion productivity and positive price cost and mix of products delivered. I'll pass it to Brad from here.

Richard Tobin:

All right. Let's go to Slide 9. Here, we show the growth in margin outlook by segment for 2023 that are underpinned in our current time log trends. Our backlog remains elevated across all segments driven primarily by extended backlogs in our longer cycle and secular growth exposed businesses as our lead times continue to normalize and new capacity comes online, we expect these backlogs to continue normalizing through the end of the year. We expect Engineered products to return to growth in the second half of the year, driven by continued strength in refuse collection vehicles in aerospace and defense. Our waste handling business is fully booked for the year with the possible upside of chassis availability further improves. We expect vehicle aftermarket shipments in North America to recover after the temporary disruption in Q2 and the business should remain relatively stable year-over-year in the back half. We expect margins to improve in the second half on positive price/cost tailwinds, solid volumes and benefits from our recent productivity capital investments taking hold. In Clean Energy & Fueling, it's expected to return to growth in the second half of the year against easier comparable periods as the end market conditions and channel inventories normalize. Quoting activity for hydrogen infrastructure components remains robust, and we are working to expand capacity for select products, including vacuum jacketed piping in cryogenic valves. We expect full year margin improvement in Clean Energy & Fueling driven by stronger performance in the second half on volume recovery, improved mix and continued proactive restructuring savings in retail fueling. Since initiating our fundamental transformation of the retail fueling cost structure last fall, we have initiated or announced $60 million of structural cost reductions in this business. Imaging and ID is expected to continue its stable performance, albeit against tougher comps in the second half, driven by stable outlook in core marketing and coding and serialization. Software full year margins should remain at attractive levels for this segment. Pumps and process equipment is expected to remain roughly flat organically in the second half. Thermal connectors continued to grow at a double-digit clip with some notable customer wins. Following a record Q2 Precision Components continues to book and ship at robust levels and with a notable mix in business towards energy transition markets, polymer processing is booked for the year. The biopharma environment is improving with market conditions such as FDA approvals for new promising therapies and recovery in biotech funding and inventory stocking all showing improvement as indicated by our customers who have released results over the past few days. We expect margins in this segment to remain best-in-class levels with performance skewed towards the end of the year on stronger volumes and mix improvements. Order rates and biopharma will be the watch item from here with the potential recovery -- with the potential for this recovery to be a material tailwind into 2024. Climate and Sustainability Technologies top line trajectory is expected to be steady in the second half of the year. We are operating close to capacity in heat exchanges for heat pumps with incremental capacity coming online over the next several quarters with direct labor at less than 10% of revenue, the conversion on growth in heat exchanges is compelling. Demand for CO2 refrigeration systems remain solid, and our capacity build-out is on schedule. We are starting to have productive conversations for our door case business with large retailers for their 2024 plans, which is an encouraging indicator of future demand. Beverage can-making is expected to be down as the industry is digesting recent record capacity additions. We expect continued margin improvement in 2023 on volume conversion, productivity gains and improved mix. Our margin performance in refrigeration has been very encouraging even before the material accretive impact of North American CO2 volume. Let's go to Slide 10. Here is the confidence we have in the underlying components that drive our forecasted double-digit EPS growth in the second half. We have been vocal about the negative impact of interest costs on channel inventories and have been encouraged that to draw down, while a headwind to the first half revenue has been orderly as end market demand is largely held up. Recognizing that our markets are not immune to these dynamics, we have proactively enacted cost containment actions to derisk the second half of the year and also provide $40 million of incremental carryover cost savings into 2024 with roughly half the savings coming from retail fueling as part of our strategy to pivot to margin and cash flow maximization of this business. We believe our growth and conversion forecast is achieved based on our revenue visibility and backlog, channel inventory stabilization, secular growth tailwinds and recovery in end markets. So let's go to Slide 11. We view 2023 as a transition year for our business from a supply chain constrained inflationary high-demand environment of 21 to 22 to a more normalized activity supported by various macro trends. As we move to the second half of the year, the majority of the destocking headwinds behind us and recovery across several end markets we are building solid momentum for 2024. We are investing meaningfully behind our secular growth exposed end markets to ensure we have sufficient capacity to serve our customers. We are proactively engaging in new product development, often in co-development with our OEM partners to drive product improvement they win share in the marketplace. We believe our biopharma and retail fueling dispenser visits, which were in face with expected market-driven headwinds in 2023, are poised for strong margin accretive recoveries in 2024. All in, we believe at least 40% of our portfolio is experiencing tailwinds that are decoupled from broader industrial production with additional pockets of growth in our market-leading niche industrial franchises. This growth outlook together, the carryover benefit of cost actions into '24, set up a solid foundation for our growth prospects in line with our financial commitments from our Investor Day in March. So let's move to Slide 12. With our supply chains and operational environment normalizing our forecast for 2023 embedded in a return to pre-pandemic seasonality, the year has played out more or less as we expected thus far with more challenging half of the year now in the rearview mirror. The path from here is straightforward. Underlying demand is solid across our business, and we are confident in our ability to leverage a flexible operating model centralized business systems to drive consolidated growth and margin accretion to achieve our full year guidance. Our inorganic pipeline remains robust. We remain committed to optimizing our business portfolio and evaluating some interesting options, which we hope to conclude in the second half of the year. That's it for me. I'll turn it back to you, Jack.

Operator:

[Operator Instructions]. We'll take our first question from Andrew Obin with Bank of America.

Richard Tobin:

Yes. I think you have to delink the comments we made about destocking from bookings to a certain extent. So I mean, the bookings number is related to the reduction in the backlog as the backlog slowly deflates and we expect that to continue some. So I wouldn't -- I think we've been pretty vocal about that all year. I think that what has changed in the first half of the year is the realization that the carrying cost of inventory in the channel has gone up exponentially, right? So if you go take a look at the cost of financing inventory at a distribution level, gone up by 600 or 700 basis points. So I don't think it's unique when a company like Dover says moving into this year that we're going to run for cash and deplete our inventories. I think by and large, everybody was poised to do that. I think that what was underestimated was the short-term negative headwind on the cost to carry. By doing the -- where we've seen that and where we've done channel checks, we believe that the vast majority of that reduction on the cost to carry is behind us. So we don't have that negative headwind going in the second half of the year, but I wouldn't get all caught up on the bookings side because the bookings are going to be reflective of the backlog decreasing, and I think that they're likely to inflect positive likely in Q4.

Richard Tobin:

Yes. Well, I mean, I think that if you go back and read the transcript, I called out that the watch item from here is going to be bookings in biopharma, right? So we've taken a look what our customers are saying. And I think that if you go back and look at the timing, we've been suffering in lack of bookings there as our customers are prepared for the inevitable. Now they're beginning to call the bottom. And I think that we were early in terms of the reduction of inventory. So our expectation is that bookings inflect positive in the second half of the year on biopharma. It's just going to be a question of the quantum. On the industrial pump side, I think that they suffered a little bit in terms of this channel destocking. Again, we think that that's bottomed now as a reference. And then -- the one that you have that really wags the tail here is going to be polymer processing, where at one point, we almost had two years of bookings in our backlog, and that's just been slowly deflating as we've shipped off that backlog. So I mean, there's moving parts between long cycle and short cycle. The biggest factors going forward from here is clearly going to be on the biopharma side because to the extent that, that inflects positive, I think that we're all cognizant about the margin impact that has on the segment.

Operator:

And we'll take our next question from Andy Kaplowitz with Citigroup.

Richard Tobin:

Yes. I mean if you go back and read the transcript, I think I said that about 4x. We think that we knew we had some kind of secular headwinds between the biopharma side and the EMV roll off, we had that coming. That's part and parcel why I think that we were pretty transparent of what we were going to do to pivot our Fueling Solutions business. And despite having the negative headwind on biopharma, we have preserved our margin in that business. So any incremental volume that we get there should be very attractive. In terms of the total macro, I guess we're happy that demand has held up, right? I mean I think you see part of the negative headwind to some of the destocking because everybody is destocking because they're afraid of the macro to a certain extent. I think that's been exasperated a little bit by the cost of capital working its way through the system. Where we go from here? I guess we're positioning for a soft landing. Maybe that's optimistic and not generally in our nature around here. But we think the investments that we've made on our growth platforms, as I mentioned in the presentation, are growing at 20-plus percent. And if we get some recovery on some of the secular headwinds we get, then you can easily go back to what we had laid out as our financial objectives. And you couple that with the fact that we've got a material amount of cost savings that roll from '23 into '24, that's a pretty good start in terms of margin.

Richard Tobin:

Sure. Look, Belvac, it was great while it lasted. So we would expect that to -- it's a cyclical business, CapEx in this space is set to come down. I think that you've got to be careful about what your margin assumptions are in Belvac because we had a lot of engineering project work that was not just equipment-based. So the equipment we make some really healthy margins, but it was diluting. It basically boosted the revenue because we were more of a -- we moved to be more of an integrator. So I think that we can -- while the top line in Belvac was declined, I think that the margin preservation opportunity there is solid. Right now, we're sold out in heat exchanges. If you go back again and look at the transcript here, the leverage on heat exchanges as -- it should be compelling. I mean, labor is 10% of our COGS. So think about it that way about what we need to cover there. Again, we're growing at 20%. I'll leave it up to the HVAC guys to talk about what the growth rates because we see them all over the place around heat pumps, but the fact of the matter is we're in the midst of increasing our capacity somewhere in the order of 40% to 50%, and it's all going to be in place by mid-2024. And so I think that will take care of any worries about what the cyclical decline in Belvac is. On Refrigeration, we had our highest margin performance ever, at least in my tenure here in June. And that is even before we've ramped capacity at our new plant for CO2, which I think I'm going to go to on Thursday and Friday and see what we're here. We're probably not going to see the benefit of the NAFTA CO2 meaningfully. It's growing at like 80% right now, but it's off a really low base. But our expectation is, is that volume as it comes in is going to be accretive to margins in refrigeration. So if I couple where we're exiting June in terms of core refrigeration, in terms of margin, and I add on what we expect to be a high-growth platform in CO2, which we've proven we can do in Europe. It looks good so far. So -- and as I mentioned in my comments, we're having at least the conversations right now around core for refrigeration with our clients about demand for 2024. So far, so good. It seems to be quite positive.

Joseph Ritchie:

Can we just maybe just go back to the ERP issue. And Rich, maybe just talk us through a little bit what happened this quarter? And then it seems like it's largely behind you, but just want to make sure that there aren't any lingering effects in Q3.

Brad Cerepak:

Yes, I'd just echo what Rich said that we exited June at a pace that puts us on track for what we forecast for Q3. And as he said in the script, you can go back and look, we're going to try to recover, but we're not forecasting a recovery of that $50 million. So I think we're being prudent in terms of the way we think about the trajectory of that business in North America.

Richard Tobin:

Yes. Biopharma is the swing factor. I think we've beaten that one pretty good. And you're going to take a look at what's Sartorius and Danaher and Thermo talk about it. They are much more informed in terms of when the pivot is going to be. I can tell you that. We're prepared in terms of at least operationally when the pivot comes, we're in good shape there. It's a little bit -- I talked about the fact that industrial pumps was down because of some unexpected destocking. We think that that's sort of done. And then conversely, you've just got the mix effect of polymer processing and precision components did really well and have been doing really well all year, offsetting the negative headwinds in biopharma, but from a mix perspective, it just becomes dilutive to the margin. So weirdly, if they grow faster than expected, the actual consolidated margin comes down, but the absolute profit performance is entirely acceptable because even those 2 businesses are accretive to the consolidated portfolio margin.

Jeffrey Sprague:

Rich, can we just kind of talk about the margin progression a little bit sequentially. So I guess in EP, right, you have about a 200 bps hit on the ERP issue. Just kind of what the trajectory is out of Q2 as you normalize there? And then on DPPS, right, you said margins up in Q4 year-over-year. I guess that implies you're still down year-over-year in Q3. But would you expect sequential improvement in Q3? Or is the margin improvement in DPPS all kind of Q4 weighted?

Jeffrey Sprague:

Right. And then thinking about price cost, Rich, I assume that's sort of kind of buried in your growth conversion in the bridge. But what's going on with price cost in the back half of the year?

Jeffrey Sprague:

Maybe just one last one. I mean the questions I just asked about margins kind of get to Q3 versus Q4. But since we all kind of -- we got a Q2 that you're kind of characterizing is in line with what you expected ex the ERP, but we didn't quite totally get the message, right? So anything else you want to say about Q3 relative to Q4 or just the balance between those 2 would be helpful I think.

Brad Cerepak:

Yes. So it sequentially improves off of Q2 into Q3, but year-over-year, like Rich said, we're looking at a more comparable point on year-over-year. But again, we're expecting margin improvement for the full year for the total company. So therefore, in the fourth quarter.

Charles Tusa:

A little bit to Jeff's question on, I guess, from a sales perspective, I guess what I'm struggling a little bit with is the sequential increase. I mean you got to be up sequentially half to half 9%. Got to do, I think, like roughly $4.5 billion, $4.6 billion in the second half and you're trending at 2.1. So I guess I'm just wondering, like, is that -- you're saying that's kind of all just out of backlog effectively. And so you don't need this bookings number to improve very much.

Charles Tusa:

Right. Did you expect -- did you expect bookings -- did you expect bookings to get worse from here sequentially? Or have we kind of bottomed on the bookings now?

Charles Tusa:

All right. And then just one last one for you, Rich, just philosophically. I mean, the Slide 11 has like 9 different businesses, and that's only 40% of your portfolio. This has always been a bit of a complex portfolio, but the amount of things that you've had to walk through today, the amount of things that have happened in the last couple of quarters, whether it's the $90 million pushout, the ERP in somewhat obscure businesses, albeit pretty good businesses. I think the only people that dislike having to dig into these little $100 million businesses, more than it sounds like you talk about them is us maybe. At what point do you kind of really take a much closer look at this portfolio and just kind of say it's just too complex to kind of run and manage, let alone invest in. I think that's kind of one of the issues here that people are having. Is there just always something moving around.

Charles Tusa:

So can you grow double-digit EPS in '24? .

Charles Tusa:

All right. The gauntlets lay down. '24 is the year.

Michael Halloran:

So the short cycle side of things, just some clarification here. I think basically what you're saying is the sell-out in the channel is actually pretty stable, pretty healthy sell-in because of the inventory destock side of things, that's where the headwind is and the expectations from here for that sellout piece to remain relatively stable. I mean that's a fair characterization.

Michael Halloran:

Yes, makes sense. And then just on the imaging side of things, it sounds like things are a little bit more sluggish there, just some context and how much entirely just a little bit tightening on the consumer side or any other variables worth mentioning?

Operator:

We'll take our next question from Julian Mitchell with Barclays.

Richard Tobin:

Yes. Julian, I don't want to be overtly negative about Q3, all right? So Q3 is going to get sequentially better. It's just that proportionally based on where we can see the orders and when they're due to ship that sequentially, Q4 is going to be better than it's been over the last I don't want to go back to 2020, I don't remember, but it's going to go back to the way we looked pre-pandemic, where we shipped pretty heavily in Q4. And then it just becomes a question of production performance in Q4 and that is going to be dependent on what the order rates look like between Q3 and Q4? And do we have to start building out in Q4 for volume for '24. Now there's going to be some businesses where that's the case. So the businesses that were sold out this year, which is several portions of the portfolio, we're going to start taking orders for '24 relatively soon. We're taking orders and right now in certain parts of the portfolio for that. So I don't want to be overly negative on Q3. I think the Q3 is going to be a good quarter. But I think the Q4, at least comparably is going to be a better quarter. I think that in terms of the order rates -- it's more of a we'll see. We know we're going to ship off backlog in Q3 pretty heavily. So they may be book-to-bill maybe less than 1. It may not be. And our expectation is that Q4 should be up at least almost by definition comparably.

Richard Tobin:

Yes. Our hierarchy remains the same. I think we haven't added anything in terms of our CapEx plans because we've actually had good 3, 4 years of a lot of spending in terms of recapitalizing some portions of our portfolio, and that's in our rearview mirror now. So by and large, our CapEx as a percentage of sales it's coming down this year, and it should continue that trajectory, even if I take into account the CapEx that we're building out on our growth platforms. So that leaves M&A as the second hierarchy. Competition is less than there's not a lot of assets out there, but competition is less. So PE is a bit stopped out right now for the reasons we can understand. So that -- we're looking at some attractive things here, but we're going to keep our discipline in terms of the return. And clearly, if you remember from last year, we get to the midyear, we basically forecast our cash flow as we take a look at our deal pipeline. And if you remember last year, we deployed -- how much was it $0.5 billion?

Richard Tobin:

$0.5 billion in an ASR in September of last year. So we've got a Board meeting coming up, and we'll go through all those dynamics again, and we'll decide what to do.

Deane Dray:

Sorry to beat on this ERP and I will check the transcript in case I missed it. But just, Brad, you said you're not including a recouping of the $50 million that was disrupted this quarter. Does that go into past due? Or did you lose any of those orders?

Brad Cerepak:

Yes. My commentary was more around our view is the back half is not dependent upon recovery of the $50 million. I want to be clear, that's the point really at the end of the day. The team there will try their best. But it is a business that, as Rich says, our customer base stocks these things in distribution and they move out. And if it's not there, they go to the next available competitive unit. So that's the way we see it.

Brad Cerepak:

Not explicitly, but I think the way we're working through it is that -- it's mainly driven by, I would say, more towards -- tilted towards the safety stock levels, the buffer inventory and raw materials in the materials flow where what we have to see is less inflow versus production to draw it down. And that's what's happening here in the second quarter. I mean, we did have slightly negative inventory through the first half of the year. But it's a heck of a lot better than it was a year ago, and we're continuing to make progress to make sure production is in excess of the inflows. That's the way we're working it. I think that's it, Jack. Okay.

Nigel Coe:

Are you sure? Do you want to finish it off or should I ask the question?

Nigel Coe:

Yes, don't worry. I'm kidding. Look, so look, we love your macro perspective. You were very early to be cautious and what you so. But it seems like some of the CapEx businesses may be trending a bit weaker. Belvac, Hill PHOENIX. Maybe just some perspective on what you're seeing in those capital businesses. And is it an adjustment to higher rates? Macro uncertainty, what do you think -- how do you think this plays out?

Nigel Coe:

Okay. That's helpful. A quick follow-on, if I can. Retail fielding, you mentioned focusing on and obviously, the restructuring actions that speak to that. You've talked about this before, but is this like a double and down of that strategy? Does this become even more of a focus on just cash flow as opposed to growth.

Operator:

That concludes our question-and-answer period and Dover's Second Quarter 2023 Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.

Operator:

Good morning, and welcome to Dover's First Quarter 2023 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director of Investor Relations. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens, please go ahead, sir.

Richard Tobin:

Thanks, Jack. Good morning, everybody. Let's start with the performance highlights on Slide 3. The quarter was solid overall. We are very pleased with our production performance to start the year which allowed us to begin reducing our inventory balances towards the end of the quarter. Consolidated organic revenue was up 3%, with growth across most of our businesses driven largely by the secular growth tailwinds that we outlined at our most recent Investor Day. The majority of our input and supply chain constraints have dissipated, resulting in production lead times largely returning to pre-pandemic levels. This has led to more normalized order patterns, improved shipping volumes and a gradual reduction of elevated backlog. New order intake was robust in the quarter with four out of five segments posting book-to-bill of one. New bookings increased sequentially in the first quarter, and our order backlog remains elevated compared to normal levels providing us with good visibility for the remainder of the year. During the quarter, we de-booked some volume from our backlog and retail refrigeration from a single customer, was put the timing of 2023 capital plan under review. Our expectation is that we'll be rebooking the volume in the second half. Margin performance in the quarter was strong with four out of our five segments improving margins over 100 basis points, driven by broad-based productivity gains, positive price/cost dynamics and prior period investments and cost containment actions. Higher segment earnings performance drove our EPS growth. We had some comparable cost headwinds during the quarter from transitory inorganic activity costs, higher interest expense, FX and tax. Brad will review later. Interest costs are set to drop progressively for the balance of the year and FX at current rates turns into a comparable tailwind in the back half. Our recent investments in automation and productivity projects are paying off, and we are in the process of completing several capacity expansions in our secular growth businesses. The acquisition of Witte in our Pumps & Process Solutions segment, which we completed in December last year is off to a great start and is performing above expectations. Our strong financial position allows us to pursue a healthy pipeline of attractive bolt-on acquisitions and to opportunistically return capital to our shareholders. We are encouraged by the trends and performance so far in 2023. We have a constructive but also watchful outlook for the remainder of the year. Overall, demand conditions in our attractive industrial markets remain solid and our bookings are healthy. Our order backlogs, especially in our longer-cycle businesses provide good visibility to our forecast. We are on track to deliver our full year cash flow target as we liquidate inventory in concert with the normalization of our backlog. We are mindful of the mix to macro economic backdrop, and we are staying close to our customers to understand their plans. We have available cost control levers and operational flexibility that should enable us to deliver good results in various macroeconomic environments. With that, we maintain our 2023 full year guidance, 3% to 5% organic revenue growth and adjusted EPS of $8.85 to $9.05 per share. I'll skip Slide 4. Let's move on to the segments. Engineered Products was up 3% organically in the quarter, driven by positive pricing, strong demand for waste handling equipment parts and related digital services. The chassis availability issues that impacted the waste handling business coming out of the pandemic have improved. And to the extent that, that supply continues to be available, we are well positioned to increase shipments meaningfully against strong underlying demand. Margins were up 230 basis points year-over-year, primarily driven by improving supply chains, positive price cost dynamics, mix and as well as investments in productivity initiatives. Clean Energy and Fueling declined by 3% on an organic basis. Revenue is up in clean energy components, vehicle wash, fuel transport and below-ground retail fueling, offset by the expected comparable decline in dispenser and EMV card reader demand. The upcoming second quarter comp is the last of material EMV volume. We remain constructive on the business for the full year as order activity in March was healthy. Despite the lower volume, margins in the quarter were up 120 basis points on positive mix and price cost as well as improved comparable cost structure from previously announced cost reduction actions taken in the retail fueling business. Imaging and ID posted a solid quarter, up 8% organically on broad-based strength in our marking and coding printers, spare parts and consumables. Our serialization software business continues to perform well and win new accounts. FX remained a negative headwind to absolute revenue and profits in this segment that drove a large base of non-U.S. dollar revenue. Margins in Imaging and ID were very strong at 24%, improving 260 basis points on volume, conversion, pricing actions and mix. Pumps & Process Solutions declined 7% organically in the quarter, driven principally by the post-COVID transition in the biopharma space. New orders for biopharma grew sequentially during the quarter as the impacts from inventory destocking begin to subside. At the current trajectory, we expect to have one more quarter of headwinds then inflect positively in the second half of the year. All the other businesses in this segment posted solid organic growth during the quarter with particular strength in precision components, industrial pumps, thermal connectors and polymer processing equipment. Operating margin was down against a peak comparable quarter in the prior year due to the mix effect from higher non-biopharma revenue. Top line and Climate and Sustainable Technologies continued its double-digit growth trajectory from the last two years, posting 16% organic growth. Demand trends remain particularly robust in heat exchangers and CO2 refrigeration systems, driven by global investments in sustainability. Beverage can making continued shipping deliveries against its strong backlog. Margins came in at 16% in the quarter, up 280 basis points year-over-year on strong volume conversion, productivity, positive price/cost and good mix of products delivered. I'll pass it to Brad here.

Richard Tobin:

All right. Let's go to Slide 8. Here, we show the growth in margin outlook by segment for 2023 that are underpinned by our current bookings and backlog trends. I'll make a few summary comments before I jump into the segments. First, our lead times have largely normalized across the portfolio. We highlighted in the chart our good backlog levels are primarily driven by a handful of operating businesses that are either a long cycle in nature or experience -- are experiencing secular growth where there is a supply-demand deficit or both. Next, our expectation going into the year was that order rates would normalize in an orderly fashion because the repaired supply chains, removed the rationale for customers to order for in advance. Order rates in the first quarter were strong across most businesses which is a positive indicator for our full year revenue targets, which do not require us to -- which do not require book-to-bill above one every quarter due to the aforementioned backlogs. We expect growth in Engineered Products to remain solid, driven by pricing carryover as well as pent-up demand and improved chassis availability in refuse collection vehicles. We expect trading conditions in aerospace and defense, industrial automation and which is to remain constructive following two years of excellent volume growth, we expect vehicle aftermarket to be stable. Engineered Products are set to improve margins in 2023 on solid volumes benefits from our recent productivity capital investments taking hold and positive price cost tailwinds. Clean Energy and fueling should grow low single digits organically, and solid demand in all businesses except aboveground dispensers, the constructive booking rates and customer sentiment in the dispenser business point to improvement from here with Q2 being the last quarter of negative EMV mix impact. For the year, we expect margin improvement in Clean Energy and Fueling volume recovery, improved mix, proactive restructuring actions in aboveground fueling and we expect revenue and absolute earnings growth to be entirely second half weighted for this segment as EMV volume comps fade. Imaging and ID is expected to continue its mid-single-digit growth trajectory through the year. We see robust demand for our printers, consumables and professional services and the outlook for our software offerings is also strong after some recent customer wins. Full year margins should remain attractive for this segment. We project flat organic growth for the year in Pumps & Process Solutions. Quoting activity remains strong in industrial pumps, the plastics and polymers business continues to deliver against record backlog levels with particular strength in the U.S. and in China, the Witte Pumps acquisition provides much-needed capacity to our MOD business. Demand for engineered bearings and compressor components remains robust with a notable mix in order rates towards energy transition markets, such as hydrogen, LNG and carbon capture. Thermal connector continues to grow well into the double digits. In biopharma, we expect the business to remain at current conditions in the second quarter and return to growth in the second half of the year as order rates continue to improve. As we discussed during the Analyst Day, the long-term tailwinds for single-use components for biological drug manufacturing are robust. Our full year margin target for this segment is approximately 30%. The growth outlook for climate and sustainability technologies is solid as our businesses continue to ship against strong backlog levels. We are forecasting continued double-digit growth in both natural refrigerant systems and heat exchanges for heat pumps. We expect some second quarter headwinds in refrigeration cases due to the aforementioned debooking impacting fixed cost absorption, but we remain constructive on the overall demand and continue to expect our multiyear journey of margin improvement for the business. Beverage can making is booked for the next several quarters, and we have some very interesting opportunities in the pipeline. We expect continued margin improvement in 2023 on volume conversion, productivity gains and mix. Go to Slide 9. Here, we show the range of new-to-market products and the status of some of our important expansion projects that allow us to sustain our competitive advantages in our marketplaces. We are very bullish on the long-term value creation opportunity for these new product launches. You'll see each of these products touch sustainability, digitization or biopharma and hygienic applications. Our growth and capacity expansion projects are progressing well, whether behind our heat exchangers, natural refrigerant systems or biopharma businesses. Each of these applications are growing in double digits. Over the long term, these will be important drivers of our underappreciated organic growth story. Our previously announced restructuring within the retail fueling segment is on track as we transform this business model. We also took some incremental footprint restructuring actions in retail fueling in Europe in the first quarter, and we have several ongoing projects across other operating companies as well. Let's wrap up on Slide 10. Dover's portfolio consists of a range of niche middle market industrial franchises with significant diversification from a product and end market exposure perspective, many of which we believe are secular growth tailwinds. Our supply chains are not overly complicated, and our manufacturing operations are lean and getting leaner. We believe our diverse end market exposure together with our flexible operating model and value-added center-led initiatives will continue to be a competitive advantage for us regardless of the macroeconomic environment. We believe that we have line of sight for our full year forecast and a range of available cost levers to ensure we deliver. With that, so -- with that, we are maintaining our full year 2023 guidance. So Jack, let's go to Q&A.

Jeff Sprague:

Rich, as Brad pointed out, if you get these inventories normalize, the cash comes through, you delever pretty quickly. I just wonder what you're seeing on the M&A side of the equation and are there things that are actionable in the pipeline in 2023 in your view? And also just wonder if you'd comment on potential interest in Carrier's refrigeration business, which [indiscernible] on us this morning.

Jeff Sprague:

And then just on this debooking, I mean, are you seeing any other signs that retailers are just wavering either on new stores or remodeling or do you think this is truly a one-off? And I think you said you expect it to actually rebook at some point later in the year.

Operator:

Thank you. Our next question comes from Steve Tusa with JPMorgan.

Richard Tobin:

Yes. I mean I think that we would have expected to build some of that product in Q2. So, that's a bit of a headwind there. But quite frankly, the bigger issue for Q2 is the last remaining quarter of bio and EMV. So to me, Q2 is always going to be, from a comp point of view, sort of like Q1 to a certain extent, but we really feel good about the back half of the year because the comps roll forward and all of the bottom below the line charges, call it that, for a lack of a better word, actually roll positive. So yes, I mean, Q2 should look a lot like Q1 relative comp to comp.

Richard Tobin:

No, I mean, I wouldn't get too hung up on trying to monetize the math on the door cancellation. It is a bit of a headwind in Q2. What I'm saying is, if you look at Q1 to Q1, Q2 is going to be similar in terms of Q2 to Q2 comp. There's a step up in volume there.

Steve Tusa:

Okay. That makes sense. And then, Rich, you've been among -- sorry, just on price cost. Any update there for the year? What are you guys seeing on those numbers?

Steve Tusa:

Okay. So you're positive, though, on a price cost spread basis?

Operator:

Thank you. Our next question comes from Andy Kaplowitz with Citigroup.

Richard Tobin:

Oh, boy. Orders in Q1 were better than we had modeled. And interestingly, just to give a little color of it, it was all in March. So it was tracking the way that we thought it was going to track. We would expect it to be below one in Q1 just because of the size of the backlog and the non need to order so far in advance, but March was very healthy. So it's early days. If that pace keeps up, that's great for our full year volume forecast, but like I said before in the comments, we don't need to be above one every quarter for the balance of the year to hit our numbers. So, it's early days. I think that overall, we're pleased with the book-to-bill of Q1 because it's a little bit better than expected. Remember, but you have to recall, remember numerator and denominator Q2 and Q3, we step up on the shipment side, right? So you need almost a greater inflection of orders to stay above one from there. So, we'll see how it goes, but will take better-than-expected book-to-bill in Q1 [indiscernible].

Richard Tobin:

Well, we're very prospective on the CO2 systems and on the heat exchanger side, which is the reason that we're expanding capacity. So that capacity is going to take basically the balance of the year to progressively come online. We probably could sell some of that capacity if it was in place now, but we think that we still in the March in terms of our capacity build versus our competitors there. So, we're bringing it online as fast as we can, but you can't sacrifice quality, and there's a variety of other things that you need to do to get it done. The swing factor will be, as I mentioned in the comments, that we have some interesting projects in Belvac, which we would expected Belvac to cycle down some in Q2, which I think we talked about at the beginning of the year. If we were able to book that, that would be a positive in terms of back-end growth. And look, at the end of the day, we expect to rebook the refrigeration business in the second half of the year. But I will tell you that, that cost structure of that business is much more flexible than it's been in the past. So even if we were to miss a little bit in terms of the top line growth there, I don't think that we're going to see the margin dilution that you would have seen historically.

Joe Ritchie:

So first question, I guess, maybe just following up on Andy's question on orders. Rich, what's the price positively in March from an order standpoint?

Joe Ritchie:

Awesome. No, that's great. And it's a good segue into biopharma, right? So, it seems like you're probably at a trough margin for the segment in 1Q, I think you're still expecting the margins for the year to be pretty much flat year-over-year versus last year. So that would imply a pretty significant improvement from here. How do you think about the cadence of that improvement over the coming quarters?

Operator:

Thank you. Our next question comes from Andrew Obin with Bank of America.

Richard Tobin:

We have not had the time to digest what Carrier put out there in terms of the marketplace. So, I'll take a pause on that. We -- but we have been participating in the growth of the European heat pump market now for several years. I think that we are proactive in terms of building out our capacity. As we mentioned, we -- our target is to increase capacity early in '24 by 50% for SWEP. So part of winning share is to have the available capacity at the right product quality at the right price point. So that's all we can do. So we would expect that we'll be, we'll receive part of whatever estimates you want to make about what the future is in terms of heat pump growth from here, but we don't think it's just a European phenomenon. We'd expect that technology to be adopted progressively over the balance of the world driven a lot by regulation and that's why we're not just expanding our capacity in Europe, we've actually expanded in Asia and the United States also.

Richard Tobin:

Yes, I can't remember the Sammy Hagar song about like one foot on the gas and one on the brake. That's the way we're trying to run it here, right. That meaning that there's a lot of macro uncertainty in the marketplace, we think that we've got some tailwinds. But we can't just be blind, of not watching our own balance sheet. And quite frankly, we've been carrying excess inventory for two years around here. So, it was natural for us to kind of liquidate. Our watch points are the businesses that we have that are subject to constriction in credit. So to pick one and not to be overtly negative here, I mean, our car wash business requires is largely driven in a certain way of entrepreneurs getting loans and building out carwash. Well, the fact of the matter is that credit is going to be tightened. Now, does that open up the door for our big retail clients to now meaningfully move into the carwash space? We'll see. So, there's a lot of moving parts here. At the end of the day, my personal view, it's going to be a consumer driven recession, and in which I think that we're going to get. I think, whether that negativity is fully offset by the amount of capital that is going into kind of the regulatory regime or reshoring or a variety of other tailwinds that we talked about during the Investor Day, our position right now is, yes, all right. But that implies really no degradation of the macro in a meaningful way from here kind of like a slow let the air out of a balloon as opposed to a shock. So, we're going to have a management meeting here as soon as this Q&A is done, and part of what we're going to do is basically go business by business and say, all right, what's your plan to meet your numbers for the year and what's your plan, if we run into trouble, right. We've got we have no choice but to run the corporation that way.

Mike Halloran:

By the way nice -- I Can't Drive 55 Sammy Hagar restaurant, anyways, maybe just following up on that last question there. How are you guys thinking about the or what are you seeing on the larger CapEx side from the what, later cycle, longer cycle type stuff? Are you seeing any change in the purchase patterns there? And obviously, that's not the climate at the booking but any real change on that side or anything notable?

Mike Halloran:

No, that makes sense. And on the flip side of that coin on the short cycle side and trends on that side been relatively stable from a seasonality perspective or any real movement there?

Operator:

Thank you. Our next question comes from Julian Mitchell with Barclays.

Richard Tobin:

The margins should go up into Q4. So you're rightly, if you go back and look at Q4 margin, we would expect Q1 margin that come down solely on production performance. So, we would expect it to come down but from a comp point of view from here, we'd expect to have accretive margins up until Q4 and then we'll see how we end the year because I think our margins are quite robust. On the vehicle, calling that market flat, right, so it's not a negative in terms of consolidated margin from the segment instead that's more of a top line comment, as opposed to a margin comment.

Richard Tobin:

I think it's more Julian of the performance in terms of revenue and margin looks, comp to comp looks similar. Now, having said that, we had an $0.08 of EPS headwind of kind of below the line segment headwinds, which we believe dissipates. So I don't want to get into EPS accretion guidance quarter to quarter, but we did it. So, it looks -- if you look at Q2, if you look at the performance, relative performance Q1 to Q1 comp and do the same for Q2 to Q2 comp, it should look similar probably without some of the headwind that we saw on the below the line items.

Scott Davis:

A lot of territories been covered here, so I don't want to beat a dead horse. But Rich, would it be fair to say, you know, you said earlier that better than expected book-to-bill in the quarter that that comment is clear, but was it also better than expected price in that book-to-bill in the quarter? I mean, piecing it together, it sounds like the answer's yes, but I haven't explicitly heard you say that.

Scott Davis:

Yes, that's clear. Okay. I'm going to keep it at that guys. You answered everything else. I appreciate it and best of luck.

Operator:

Thank you. Our next question comes from Josh Pokrzywinski with Morgan Stanley.

Richard Tobin:

Both, right. So, you had positive inflection and biopharma that we talked about. I think, retail fueling inflected positively, which is a good sign. But on the longest cycle side, plastics and polymers, which is a long cycle business booked very well. And we expect it to book very well again in Q2. So, it's both I mean, at the end of the day. So -- but we haven't even had the time to dissect it order by order. But I can tell you just in terms of it's not overly short cycle and it's an -- exclusively short cycle, because there is an element of long cycle in there, which you're going to see probably in our backlogs by the time we close Q2.

Richard Tobin:

I think everybody overestimates the margin in Belvac, which is accommodated into our forecast for the full year beginning because as we mentioned. We've been kind of transparent about what the cycle was there. We would expect to see some kind of fade there, but it's not something that we can't mop up because CO2 systems and heat exchanger margins are at minimum flat to what we get in beverage can making.

Brett Linzey:

First question just on Pumps & Process. Good to see some stabilization there in biopharma. Just curious how we should think about the mixed benefit on the other side here obviously some sequential improvement through the year, but thinking about next year, I mean, we're going to be expanding back into that 32% to 33% level?

Brett Linzey:

And then just on Slide 9, you called out the ongoing restructuring actions, I think 14 million in the first quarter. Where are you in terms of right sizing efforts? Do you think you're in a pretty good spot in terms of capacity lined with deliverables? Or is there more to do there?

Operator:

Thank you. That concludes our question-and-answer period and Dover's first quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.

Operator:

Good morning and welcome to Dover's Fourth Quarter and Full Year 2022 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Jack Dickens, Senior Director of Investor Relations. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.

Richard Tobin:

Thanks Jack. Let’s get started with the performance highlights on Slide 3. Dover delivered strong organic revenue growth of 9% and margin improvement of 150 basis points in the fourth quarter. Volume mix, price cost and prior period cost reduction actions all contributed to the positive performance. As we've been forecasting throughout 2021, the relationship between supply chain constraints and bookings has continued to play out into Q4. The majority of the labor and component availability and logistics constraints have dissipated resulting in production lead times returning to pre pandemic levels. Importantly, our 4% annualized through cycle organic bookings growth rate reflects the continued secular demand strength across our businesses. Our order backlog remains elevated compared to normal levels, and provides us with a good topline visibility going into [Indiscernible]. Our continuous efforts to improve productivity and efficiency principally enabled by advances we achieved in e-commerce adoption, back office consolidation and SKU or SKU complexity reduction, resulted in robust margin accretion in the quarter. We expect benefits from our research efforts to further accrue in 2023. We continue to deploy capital toward portfolio improvement, organic growth and production efficiency in 2022. Our capital expenditures in 2022 were the highest in recent Dover history and we continue to invest in manufacturing productivity projects and proactive capacity expansions to fuel our top line growth and margin improvement capabilities. We also completed five attractive bolt-on acquisitions in 2022 that provide exposure to high growth technologies and end markets and finally, we took the opportunity to return capital to our shareholders, including the completion of our 500 million accelerated share repurchase, which was completed in quarter four. We entered 2023 with a constructive stance. Demand trends remain healthy across a portfolio and we have a significant volume of business in backlog entering to the New Year. Expected revenue growth price actions and productivity measures from 2022 lay the foundation for margin accretion in 2023 have high confidence in Dover's end markets, flexible business model and proven execution playbook continuing to deliver earnings growth. Our strategy for robust through cycle shareholder value creation remains unchanged, to combine solid and consistent growth above GDP, strong operational execution generating meaningful margin accretion over time, and value added discipline capital deployment. As a result of this, we are forecasting for -- guided revenue guidance of 3% to 5% Organic revenue growth and adjusted EPS of $8.85 to $9.05. I'll skip slide 4, and let's move on to Slide 5. Engineered Products revenue was up 16% in the quarter continuing the trend of double-digit top line growth through the year. Revenue growth was broad based across the portfolio of particular strength in North America. Margins continued the sequential build throughout the year finishing -- 20% at 620 basis points year-over-year primarily driven by improving supply chains and price cost dynamics products mix as well as events investments and productivity initiatives. Clean Energy & Fueling finished the quarter and the year roughly flat on organic basis. Revenue performance for the quarter was up and clean energy components. Vehicle wash, fuel transport and below-ground retail fuel, offsetting the comparable declined a dispenser and EMV card readers in the period. Margins in the quarter were up 170 basis points on positive price cost and the mix impact from both organic, inorganic investments that we made in clean energy components and vehicle wash. This was augmented by further cost reduction actions initiatives in the third quarter, and the full, the full year carry over these actions will continue to accrue in 2023. In Imaging & Identification, volumes for our marking and coding printers, spare parts and consumables were strong in all geographies, with the exception of near term softness in China due to the COVID impact. Our software businesses continue to perform well with penetration of key customer brand accounts with strong growth in SaaS portion of our serialization software. FX remained negative headwind to absolute revenue and profits in the segment given its large base of non-US dollar revenue. Q4 margins in Imaging & ID were very strong at 25% improving 250 basis points on stronger volumes, pricing actions and products product mix richness. This business has delivered exemplary margin improvement in the last few year years as it utilizes our productivity tools for e-commerce back office consolidation and offshore engineering. Pumps & Process Solutions was up 4% organically for the year but posted a 4% decline in the fourth quarter driven principally by post-COVID transition in the biopharma space. The non-COVID biopharma business has continued to grow and our overall biopharma business as well above its pre-pandemic level. New orders for biopharma connectors reflected positively in the fourth quarter after several quarters of sequential declines. All other business this segment posted solid organic growth in the fourth quarter with particular strength in polymer processing equipment and precision components in the back of improved conditions in energy markets. Operating margin for the quarter was 29% is comparable revenue mix of products delivered. Top line in Climate & Sustainability technologies continued its double digit growth in the fourth quarter posted 27% organic growth across all business geographies. Demand trends remain particularly robust in heat exchangers and CO2 refrigeration systems driven by the global investments in sustainability. Our capacity expansion programs in both these businesses remain on schedule and will continue to allow us to continue to meet growing customer demand. Margins are up 450 basis points in the quarter and over 300 basis points for the full year on improved productivity in food, retail and strong volume growth and good mix of product delivered. I’ll pass it on to Brad here.

Richard Tobin:

Okay, I'm on slide 8. I'll be brief on this slide since we've been discussing the linkages between bookings, backlog and revenue and expected trajectory of these metrics for nearly two years. First to remind everyone that in 2021 bookings of $9.4 billion driven by post-COVID demand surge, as well as constrained supply chains the required customers drew order in advance were roughly 20% higher than our revenue that year resulting in an unprecedented backlog that requires time to ship and unwind while bookings normalize. Importantly, concerns about double ordering and cancellations did not materialize. And we have been depleting the backlog in an orderly fashion as product lead times improved. If we smooth out the post pandemic surge in bookings our bookings CAGR has been 4% from 2019 to 2022. Let's go to Slide 9 here, we show the growth and margin outlook by segment for 2023. that underpin our guidance. We expect Engineered Products to remain solid. Pent-up demand and automation initiatives and waste hauling support our robust outlook. Despite high demand, our refuse collection vehicles shipments in 2022 is still has not recovered to pre-pandemic levels due to chassis availability. After an excellent performance in vehicle services group in Q4 we expect a slower start in 2023 and Engineered Products is forecast to improve margins in 2023 on solid volumes benefits from our recent productivity capital investments taking hold and positive call price cost tailwinds. Clean Energy & Fueling is expected to grow single digits organically which we expect to be second half weighted due to demand for dispensers during the year. Dispenser bookings beginning to normalize, we expect Q1 to be the trough for the business with gradual recovery through the remainder of the year. All other businesses in the segment are positioned well for growth in 2023, with particular strength in our clean energy components. For the year we expect margin improvements in Clean Energy & Fueling and volume recovery, improved mix and recently enacted restructuring actions and above ground fueling. Imaging & ID is expected to continue its trajectory steady GDP growth and attractive margins. We see robust demand for new printers and components and consumables and professional services the outlook for the bulk serialization and brand protection software is also strong. Margin as business are robust and we expect them to remain as such to 2023. We project flat organic growth in pumps and process solutions. Our industrial pumps and plastics and polymers, precision components and thermo connector businesses are all positioned for solid growth. The biopharma components business is expect to hit its bottom in volume and margin in the first quarter as customers worked through and repurpose excess inventory. We are beginning to see encouraging signs and bookings for our biopharma connectors, and our full year forecasts may prove to be conservative. The long-term tailwinds of single use components for biological drug manufacture remain compelling. And importantly, our products are specified for regulated manufacturing of therapies with attractive growth outlook. And we continue to win new specifications and an active pipeline of new biologic and cell and gene therapies. Margin performance is expected to be roughly flat for the year with a sequentially lower level in the first and second quarters on unfavorable product mix from slower biopharma and geographic mix from higher sales in China, for plastics and polymers. Growth outlook for climate and sustainability technologies remain solid as our businesses continue to ship against strong backlog levels. We are forecasting continued double-digit growth in both natural refrigerant systems and heat exchangers for heat pumps. Our beverage can making businesses booked well into 2023 and expect continued margin improvement in 2023 on volume conversion, productivity gains and mix. Move on to Slide 10. Here we show our recent performance against our capital allocation priorities, our priorities to reinvest in our business, which represents the highest return on investment. 2022 represented a recent record for CapEx with numerous capacity expansions and productivity investments completed. We will continue our efforts to add attractive bolt-on acquisitions to improve our portfolio by entering new markets with secular growth. We invested $325 million into five highly attractive acquisitions in 2022. We're carrying significant firepower in a compelling M&A pipeline into 2023. Finally, as we did in 2022, we will return excess liquidity to our shareholders through increased dividends and opportunistic. Let’s move onto Slide 11. For the wrap up, before we get into our full year guidance I’ll make a few comments on our view of the macro environment and how we believe the year may develop. First and foremost, we hope that the Fed is cautious going forward from here. We support the efforts to tackle inflation, which had had a large hand in causing but we are in the camp that believes the Fed has gone far enough and the lagged effect of the further actions can be problematic to economic growth. Market participants are likely to be cautious with the timing of their demand generating decisions as there is a recognition that manufacturing lead times and logistics constraints have been largely repaired. And as such, we expect first quarter demand to reflect this cautious stance. We expect seasonality to the year to be weighted towards quarters two and three in revenue and earnings and weighted to H1 for cash flow as our balance sheet reflects liquidation of inventory and receivables from 2022. Despite the uncertain macro, our goals remain ambitious, we will push hard to win our share of demand. We have done a lot of work to improve the performance of our products and we believe we would have the right to win. We have proactively expanded capacity to meet projected demand and areas of the portfolio with significant secular growth opportunities. So now let me put our guide in EPS performance of the longer term perspective. Our objectives delivered double-digit through cycle EPS growth for our investors through a balanced mix of healthy revenue growth, margin accretion, value creative capital deployment. We have been delivering on that equipment that had led to that commitment, and we drive will continue to drive to continue to do so. I want to thank our customers for trusting Dover businesses to deliver on their important needs. And I'm grateful to Dover teams across the world for continuing to serve our customers and execute well despite various challenges along the road. That's completes the comments. So Jack, let's go to questions.

David Ridley-Lane:

Good morning, this is David Ridley-Lane on for Andrew. And so there are different reasons, reasons for each segment. But the guidance assumes better second half growth in three of the five segments. What's kind of the underlying demand assumption? Are you assuming things are fairly stable? Or do you embed kind of a deterioration in underlying demand given you're seeing better second half growth in several segments?

David Ridley-Lane:

Got it. And then a quick one on China, I heard you that you'd seen some demand disruptions, given the COVID resurgence. Any concern about labor related disruptions of your operations, were -- are suppliers showing up later this year?

David Ridley-Lane:

Thank you very much.

Operator:

The next question comes from Jeff Sprague from Vertical Research.

Richard Tobin:

Well, a lot of that depends on the macro, Jeff at the end of the day. But yes, I mean, yes, we would expect to go back there. I would call your attention to the slide that we had at the end of Q3 that showed normal backlogs by segment. We would expect to go back there. If 19 is normal. Let's say, I think that's what the comparison, comparative number there is. We would expect it to go back there.

Richard Tobin:

But it may flex over time. And well, again, I'll leave it at that. It will go back to I would call your attention to that slide. And that's where we're going to end up.

Richard Tobin:

Yes, we've been pretty disciplined in terms of not repricing our backlog. For sure. So I don't expect any issues there that are not manageable. I think that what we can expect at the beginning of this year is everybody having a view -- we're not and this includes us when we deal with our own suppliers that inflation is coming down. And if I, if I spend some time in Q1 renegotiating maybe I can force the issue to a certain extent. So in our estimates, we don't have any unannounced pricing that's not out in the marketplace, meaning that’s not baked into our numbers, another price increase in the June time period. But it's going to be it's, it's going to be interesting to see how it develops over time. I think it's going to be reflected more in a delay in terms of the order rates, until we get into a position of back and forth of do you -- when do you need the product and when do you have to stop negotiating the price?

Richard Tobin:

Yes. Yes. Our estimates are price cost positive for the year based on roll forward, what basically what you see in Q4.

Richard Tobin:

You’re welcome.

Steve Tusa:

Hey, guys, good morning.

Steve Tusa:

So it just if you have these backlogs, right, and expect them to expect to work them down over the course of the year. Why wouldn't that mean that, assuming that those lead times I mean, they are extended, but I wouldn't think too extended given the nature of your business. Why wouldn't that, liquidation of backlog help kind of the normal seasonality, assuming that you -- your the trend line is what it is, but you're delivering at a backlog which should help sales in the near term. Why are customers not taking this stuff earlier?

Steve Tusa:

Got it. And then how much price are you, are you assuming this year in the organic?

Steve Tusa:

Okay, and then one last one for you just on orders. I think to get to that level of backlog at the end of the year looks like it's roughly I don't know, like a $2 billion backlog assuming a mid-single digit growth rate, which would imply roughly 6 billion of orders. Is that does that feel about right?

Steve Tusa:

Okay. And…

Steve Tusa:

Yes. Okay. That, and those would be the toughest comps in the first half.

Steve Tusa:

Yes. Okay. Great. Thanks.

Operator:

The next question comes from Joe Ritchie from Goldman Sachs.

Richard Tobin:

Hey Joe.

Richard Tobin:

Joe, I don't have Excel open here in front of me. I'd like to just -- look at the end of the day this is just a general statement about the feedback that we're getting from the marketplace, right. Everybody's concerned about recession. And so there's a bias towards being very careful with inventory also included. So we just think that the take off is back to the question that Steve asked before is that the backlog is there, but the take rate on that backlog should start out slowly, right, until everybody gets in place where we can, a lot of what we deliver goes right to the project site. And a lot of cases least the businesses that are tethered to distribution. So I'm, I'm not calling for a collapse in Q1 by any stretch of the margin. But, but we don't want to do it, the only reason that we're calling it out is we're coming out of periods where we had very strong Q1s in the seasonality versus the past got a little bit out of whack. So we're just telling you to just be careful with Q1, the full year is the full year. And we're confident in that. But I think they just we have to be, we have to recognize that is an amount of caution in the marketplace. And everybody's going to be very careful about how much inventory they lay in until they can see what's going on with kind of the macro, per se.

Richard Tobin:

I think all of the $0.23 was not in clean energy. I think $0.19 of the $0.23 if I remember correctly, more or less is in there. Yes.

Richard Tobin:

And some of that was in the fourth quarter also because we actually took the cost actions in Q3 But everything is on track. What you do as you get -- you get a bad comp in that business because it was still delivering pretty heavily in Q1, but we expect that to be offset by clean energy components and below ground and car wash, which are margin accretive. So you get basically over the year, a positive inflection of mix on the portfolio, but I think you just have to be a little bit careful in Q1 just because the above ground is a bad comp.

Richard Tobin:

Thanks.

Andrew Kaplowitz:

Rich, could you give us a little more color regarding your expectations for DPPS in 2023. What's your conviction level in terms of biopharma connectors destock ending in Q1? I know you mentioned book is inflected sequentially. And then you're -- just in terms of margin, I know you're forecasting flattish for the year in this segment. Given where Q4 2022 left off, it's not that easy to get there. So maybe you could elaborate on your cost controls and productivity actions in that segment that gets you back to those 2022 levels?

Andrew Kaplowitz:

Great. And then, Rich, I know you don't want to tell us all about your Investor Day in March. But maybe in terms of -- you've talked about portfolio management a little more frequently lately, so maybe update us on that. And then obviously, you talked at the beginning of your prepared comments around SKU management. We know you've been really focused on costs. So in terms of longer-term margin targets, anything to sort of talk about their preview there? I assume margins can rise pretty significantly from where they ended in 2022?

Andrew Kaplowitz:

Do you expect to give a specific target around organic growth? Or is it like GDP plus?

Andrew Kaplowitz:

Fair enough. Thanks Rich.

Scott Davis:

Hey good morning guys.

Scott Davis:

The -- I probably asked this a couple of quarters ago, but the M&A markets, Richard, they come down to kind of more realistic levels for you guys and expect to be a little bit more active in 2023?

Scott Davis:

Okay. And I don't like the traffic of minutia [ph], but is there such a thing as a can-making cycle? I mean what -- it seems like we've had pretty high demand year for several years in a row. What -- what's in the other side of it? Is there a big investment cycle now and that it's just kind of air pockets after that? Or is there some new dynamic involved in that world?

Scott Davis:

All right. Good luck guys in 2023.

Operator:

Our next question comes from Josh Pokrzywinski from Morgan Stanley.

Richard Tobin:

Good morning.

Richard Tobin:

Yes. I wouldn't expect to run into the logistics constraints that we've seen. I think that was a one-off. I mean, you had just such a collapse of the macro and then a restart and then add a lot of the energy markets went haywire which drove the logistics market say, well, I don't expect that to happen. I mean I think that capacity was brought on. And if you look at logistics costs and the forward curves there, I don't expect that to repeat under any reasonable macro scenario from here. I think there is a lot of liquidity that's being taken from the general market. I think that lending is very low right now. It's very difficult to get loans and secure loans -- secure liquidity to run businesses out there. I'm not making it a Dover comment. I'm talking in total. So I'm concerned about that. And if that's the case, and there's the only way that if you're a private company, the only way you can generate liquidity in order to continue to fund yourself is to draw down inventory balances to extremely low levels, and that's negative to orders and revenue going forward. So that's our overall concern of -- I don't see the point of bringing out another 50 basis points only to turn around and give the 50 basis points back into Q4. Why bother? Why can't we just sit where we're standing right here because liquidity in the market is incredibly tight right now. So that's the fear. At the end of the day is that you have a delayed CapEx cycle, which we ascribe to the fact that there is a CapEx need out there because of productivity to offset higher labor costs, and then you've got all the stimulus money out there. But fact of the matter is there's no liquidity to accompany that I think that you have a delay effect that could be problematic.

Richard Tobin:

No, that's exactly what we think, and we think it's going to continue through Q1. And then from there, we expect based on our view of the demand cycle that it will inflect positively from there. But I think you're going to get another quarter of exactly how you described it, right? I know I can get the product. I have enough inventory to carry me through the quarter. I'm going to take the chance of depleting it because I know you can deliver into Q2.