Dover Trims FY14 Guidance, Provides 3-Year Outlook
At its investor conference in New York, Dover Corporation (DOV) initiated fiscal 2015 guidance and highlighted its growth drivers and outlook for the next three years. Shares of the company, however, went down 2.6% yesterday as the diversified global manufacturer trimmed its 2014 guidance to reflect the impact of restructuring actions taken in the fourth quarter.
For fiscal 2014, Dover now expects adjusted earnings per share to lie in the range of $4.55 to $4.62. The 18 to 20 cents reduction from the prior adjusted earnings per share guidance of $4.75-$4.80 (which excluded 4 cents of discrete tax benefits) reflects the impact of restructuring actions taken in the fourth quarter and other one-time items.
These actions, which mainly pertain to workforce reductions and efforts to consolidate its manufacturing footprint, are expected to lead to over $50 million in annualized benefits. One time charge from these actions is estimated at $45 million. Of this, approximately $40 million will impact the fourth quarter.
The company also provided a sneak peek at the fourth-quarter performance. So far in the Energy segment, core US artificial lift business is performing well, especially in key basins: Permian, Eagle Ford and Bakken, backed by solid shale activity. Drilling remains stable and compression markets are modestly improving. In the Engineered Systems segment, Dover is witnessing solid market conditions in Industrial. Printing & Identification market continues to support growth. Activity in the US has been strong and recent acquisitions are performing well.
In the Fluids segment, business remains solid across Pumps and Fluid Transfer. Improvement in pumps is driven by project activity in plastics and petrochemicals markets while Fluid Transfer is benefiting from active global retail fueling markets and regulation related to fuel transportation safety concerns. In the Refrigeration and Food Equipment segment, Dover expects to post strong year-over-year growth in the fourth quarter.
For fiscal 2015, Dover projects earnings per share in the range of $5.05 to $5.30. This will be backed by revenue growth in the range of 3% to 6%, including organic growth of 1% to 4%, acquisition growth of 3% and a 1% impact from currency translation.
Regarding its growth strategy, Dover stated that it will remain focused on expanding its business in key markets that offer significant growth potential, resulting in organic and inorganic growth at all segments. Moreover, the company strives to bring innovation to its products as per customers need and gain market share.
Dover has implemented multiple development and training programs resulting in significant talent enhancement. The company’s focus on productivity and continuous improvement, driven by Dover productivity processes, is broad-based and provides the foundation for margin expansion and growth.
Dover has set mid-term targets (2015 to 2017) of 2-5% organic growth in all of its segments in addition to growth from acquisitions. Dover aims to expand core margin by 30 to 50 basis points per year. Over this timeframe, the company expects to generate free cash flow in excess of 11% of revenue.
The company plans to grow its Energy segment by expanding in North American artificial lift markets with a highly focused basin-by-basin strategy. It aims to provide productivity solutions through ESP offering and its new Automation platform.
In the Engineered Systems segment, Dover sees opportunities to expand printing presence in developing economies. It plans to build upon its leading position in the emerging textile digital print market. Dover also intends to focus on productivity solutions for its customers.
In the Fluids segment, Dover will capitalize on emerging regulation in Fluid Transfer while increasing penetration in North America in chemicals and plastics. Dover also has plans to expand the geographic reach of pump technologies
In the Refrigeration & Food Equipment segment, Dover will continue to deliver innovative solutions that enable its customers to sell more and at lower costs. It plans to penetrate higher growth C-store and Dollar store markets. The company plans to expand market for brazed plate heat exchangers through product innovation.
Dover currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Blount International Inc. (BLT), Barnes Group Inc. (B) and EnPro Industries, Inc. (NPO). While Blount International holds a Zacks Rank #1 (Strong Buy), Barnes Group and EnPro carry a Zacks Rank #2 (Buy).
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