DOVER Corp Q2 2025 earnings call

Thank you. Stephanie, good morning everyone and thank you for joining our call. An audio version of this call will be available on our website through August 14th and a replay link of the webcast will be archived for 90 days. Our comments today will include forward-looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties which are discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn this call over to Rich.

Thanks Jack. Let's get started on slide three. Dover's second quarter results were strong, driven by excellent production performance, positive margin mix from our growth platforms, and carry forward cost actions taken in prior periods. Top line performance accelerated in the quarter on broad based shipment growth in short cycle components and outperformance over secular growth exposed end markets. Order trends continued to be positive momentum in the quarter, up 7% year-over-year, bolstering our confidence in the second half outlook, with the majority of our third quarter revenue already in backlog. As an anecdote, July orders are tracking really well going into the back end of the third quarter. Margin performance in the quarter was exemplary, with a record adjusted segment EBITDA margins above 25% as a result of prior period portfolio actions, positive mix from the growth platforms, and our rigorous cost containment and productivity actions.

Adjusted EPS was up 16% in the quarter. Our solid operational results were complemented by ongoing capital deployment actions. We continue to invest in high ROI organic capital projects, including productivity and capacity expansion, as well as targeted footprint optimization. During the quarter, we also completed two acquisitions of attractive, fast growing assets within our high priority Pumps & Process Solutions segment. Our balance sheet strength remains an advantage that provides flexibility as we pursue value creating capital deployment to further expand our businesses in high growth, high margin areas. We are approaching the second half of the year constructively, despite some macroeconomic noise. Underlying end market demand is healthy and is supported by our sustained order rates. As a result, we are raising our full year adjusted EPS guidance to $9.35-$9.55, which is +14% for the full year at midpoint. Let's go to slide five.

Engineered Products revenue was down in the quarter on lower volumes of vehicle services. We did see improving sentiment in vehicle services as the quarter progressed, most notably in North America where book to bill was north of 1. Margin performance for the segment was up on structural cost management and productivity. Clean Energy & Fueling was up 8% in the quarter, led by strong shipments in clean energy components, fluid transport, and North American retail fueling software and equipment. Margin performance was solid in the quarter, up 80 basis points on volume leverage, higher mix of below ground fueling equipment, and restructuring benefit carry forward. Imaging & ID was stable on growth in our core marking and coating business, partially offset with timing of textiles. Margin performance remains exemplary in the segment at 28% adjusted EBITDA margin.

Management actions on cost to serve and structural cost controls continue to drive incremental margins higher. Pumps & Process Solutions was up 4% organically on double digit growth in single use biopharma components, thermal connectors for liquid cooling of data centers, and digital controls of midstream natural gas compression. Industrial pumps posted solid results as well and as forecasted the long cycle polymer processing equipment business was down year-over-year though quoting activity improved in the quarter and book-to-bill was ahead of one segment. Revenue performance including the acquisition of SIKORA and volume leverage drove margin improvement on excellent production performance. Volume and secular growth exposed end markets. Revenue was down in the quarter in climate sustainability on the comparative declines in food retail cases and engineering services which more than offset the record quarterly volumes in CO2 systems.

Heat exchangers was up sequentially and year-over-year on record quarterly shipments in North America where we are actively increasing capacity to accommodate growing demand tied to liquid cooling of data centers. Shipments of heat exchangers for installation in European heat market heat pumps was down slightly in the quarter but are expected to inflect positively in the 2nd half of the year. Despite the lower top line, the segment posted 60 basis points of margin improvement against a difficult comp period on productivity actions and a higher mix of CO2 systems. I'll pass it on to Chris here.

Thanks Rich. Good morning everyone. Let's go to our cash flow statement on Slide 6. Year-to-date, free cash flow is $261 million or 7% of revenue, up $41 million over the prior year, as year over year improvements in operating cash conversion more than offset expected increases in capital spend on growth and productivity projects. We expect cash flow generation to accelerate in the second half of the year, in line with historical trends, as seasonal working capital liquidation in the third and fourth quarters should more than offset continued investments in productivity, capacity expansion and cost structure optimization projects, which are expected to generate meaningful benefits into 2026 and beyond. Our guidance for 2025 free cash flow remains on track at 14-16% of revenue on strong conversion of operating cash flow. With that, let me turn it back. To Rich,

okay, let me try as I might on bookings. Let's give this one a whirl here. Here we provide more detail than usual, although I guess the reaction is murky. In the 2nd quarter, Q2 consolidated bookings were up 7% over the prior year. They were also up sequentially, marking a continued momentum across our business. Year-to-date, book to bill is above 1 across all five segments, with particular strength in our highest margin and secular growth markets, an encouraging sign as we move into the second half. Let's go to slide 8, slide 8, which highlights several of the end markets that are driving our consolidated growth forecast and our margin.

Between end market data and our customer forecasts and our own booking rates, we are encouraged by the outlook in the broader industrial gas complex with cleaner energy components and precision clean energy components, single-use biopharma components, CO2 refrigeration systems, and inputs into liquid cooling applications of data centers, which includes our large heat exchanger business. We have made significant organic and inorganic investments behind these markets, and they remain one of our highest priority areas for investment going forward, which we'll talk about in a minute. In aggregate, these markets now account for 20% of our portfolio and drive attractive margin accretion and expected double-digit growth, which I think we're on track as of the close of Q2. Let's go to 9. Our organic investments remain our highest priority of capital deployment. We are moving forward and in fact accelerating a number of organic investments despite the near-term uncertainty.

The macro sentiment, here we show some of our most meaningful and high ROI capital projects that we're undertaking in 2025. You'll see a healthy balance between growth capacity expansions behind some of our highest priority platforms as well as productivity and automation investments, including rooftop consolidations. We put in the press release that we are tallying up these savings and will provide an update in our next quarterly call as to the absolute quantum of the savings roll forward benefit into 2026. Suffice to say that given the scale of the projects, we expect the savings to be meaningful. This is in line with our goal each year to drive non-revenue profit generation through fixed cost reduction programs.

So.

We're kind of midstream. Let's deal with the footprint projects and the reshoring. We're in good shape in terms of the timing as Chris mentioned, that is going to be reflected in our cash flow or our CapEx projections for the year. The timing of it and some of these projects are quite complex. When we talk about going from eliminating six rooftops for example, by the time we get to Q3, we'll have an idea of the timing of the roll forward of these benefits that are not, you know, will we catch a bit of it in Q4? Maybe, but the vast majority of it will be the non-revenue profit of these restructuring. What you're going to see between now and the end of the year is the CapEx inflect up and the restructuring charges come as we start to take down some of these operations.

What was the total roll forward this year?

About $30 million.

$30 million of savings are reflected in this year's accounts. That is why you see with at least year-to-date, not a lot of revenue growth. I think we have got easier comps in the second half of the year. You see the margin accretion and meaningful contributor to some of those margins is last year's roll forward. I would expect that next year would be the same, if not better. The biggest single project that we have is one of the rooftop ones. We will probably catch that in the latter half of next year. Let us go to slide. When we take a look at what we have taken every year in terms of margin expansion, it is close to 100 basis points a year. A good portion of that is revenue mix.

A variety of things that we are doing in the portfolio, but a meaningful portion of that is, let us call it productivity. If our business model continues in its current trajectory of improving the portfolio, upgrading the mix within individual segments, we also look and put goals on the businesses of meaningful productivity of which a lot of it is things like rooftop consolidation and the reduction of fixed costs. I cannot give it to you now because I do not want to give you a number that is incorrect, but we think that at minimum the benefit in 2026 is going to be the same. Excuse me, the minimum that we are seeing in 2025 will be 2026, but the total quantum is going to be larger. That is what is in the pipe. It is just a question of do we realize it in 2026 or 2027.

Okay, now I got myself off the script. Sure, that is upsetting to everybody. You know what, I will take slide 11. The bottom line is if you look at the margin accretion here, it is upgraded mix. I am talking about 2025 productivity, all the things I just talked about. There is the look for the back half of the year. We are not calling for any margin dilution, but you can see in terms of what our organic growth rate is the year, the back half, largely because of the acceleration on our growth platforms and easier comps that we had to the back half of last year. That is why you see the organic growth estimate for the last year. We can go to Q and A in a second whether there is anything more meaningful there. Oh, I am sure.

What do we use for the back half for dollar or dollar-euro in the back half?

Yeah, we have a range of outcomes, but one of them was carrying forward current rates.

Right. So look, we back tested the volatility of the 1st half of the year and then used that for the 2nd half of the year. I find that I can't predict FX. Using prevailing spot rates for the whole back of the year based on the volatility we saw at the beginning there, I think is a bit ambitious. If FX rates, at least dollar euro, stays the same, then that's good for translation and maybe gives us 100 basis points of increased revenue in the back half. I'm sure we can beat that to death in the Q and A. Why don't we go to Q and A, Jack?