Dover Corp. (DOV) reported third-quarter 2010 adjusted earnings per share (EPS) of 98 cents, beating the Zacks Consensus Estimate of 90 cents. Results recorded a 69% climb over the prior-year quarter’s EPS of 58 cents driven by solid performance across all of its segments.
EPS in the reported quarter however, excluded a tax benefit of 20 cents related to the favorable resolution of domestic and international tax positions and the recognition of a lower full-year tax rate. Including this benefit, EPS in the quarter was reported at $1.18, up 103% compared with 58 cents in the year-ago quarter.
Revenues posted an improvement of 26% year–over-year to $1.9 billion, topping the Zacks Consensus Estimate of $1.8 billion. An organic growth of 25% and a 3% increase from acquisitions, which was partially offset by a 2% unfavorable impact from foreign translation losses were instrumental in revenue growth in the quarter. Revenue increased across all of its segments, particularly led by Electronic Technologies and closely followed by Fluid Management.
Cost of goods and services increased 25% to $1.29 billion in the quarter while expressed as percentage of revenues, it dipped 50 basis points to 62.3%. Gross profit surged 27% to $711.7 million and gross margin expanded 50 basis points year-over-year to 37.7%.
Selling and administrative expenses were $414 million, a 9% climb over $378 million in the prior-year quarter. Operating income upped 65% to $297.7 million and operating margin expanded 380 basis points year-over-year to 15.8% in the quarter.
Segment Update
Industrial Products: Revenue increased 19% year over year to $471.2 million in the quarter, driven by revenue growth at Material Handling. Segment income increased 56% year over year to $59.5 million driven by volume increases and leverage on productivity initiatives.
Engineered System: Revenue increased 19% year over year to $620.4 million in the quarter, led by revenue increase at Engineered Products. Segment income increased 17% year over year to $91.4 million.
Fluid Management: Revenue increased 35% year over year to $416.4 million in the quarter driven by revenue increase both at Energy as well as Fluid Solutions. Segment income surged a whopping 68% year over year to $101.8 million.
Electronic Technologies: Revenue increased 39% year over year to $381.4 million driven by strong demand for electronic assembly equipment, MicroElectrical-Mechanical System microphones, passive components and emerging Solar equipment business. The segment posted the highest year-over-year increase of 82% to reach $69.6 million in the quarter.
Bookings and Backlog
Bookings during the quarter under review increased 27% year over year to $1.8 billion, driven by booking increases across all segments, Electronic Technologies in particular.
Backlog at the end of third quarter 2010 was $1.35 billion compared with $1.02 billion at the end of the year-ago quarter, largely due to a backlog increase at Electronic Technologies.
Cash from operating activities in the quarter was $200.8 million, higher than $246.8 million in the prior year quarter. Dover incurred capital expenditures of $43.5 million in the quarter, higher than $24.8 million incurred in the third quarter of 2009. Impacted by the increase in capital expenditure and increase in working capital to support expanding business, free cash flow went down to $157 million from $222 million in the year-ago quarter.
For fiscal 2010, the company projects capital expenditures to be around 2.5% of revenue and free cash flow at 10% of revenue.
Fiscal 2010 Guidance
Management expects revenue to grow in the range of 20%-21%, fueled by an organic revenue growth of 16.5%-17.5% and growth of 3.5% from acquisitions. Management also projects EPS in the range of $3.50 – $3.55, which however includes the third quarter tax benefit of 20 cents. Excluding this benefit, the guidance range stands at $3.30-$3.35.
Management expects corporate expense to be approximately $134 million and interest expense to be around $110 million. Full-year tax rate is slated to be in the range of 25% to 26%.
Solid performance and bookings across all segments coupled with the ability to generate strong cash flow, continued focus on margin improvement and shareholder value position Dover for posting better results in the upcoming quarters. Also, it continues to pursue strategic acquisitions to improve its product offering and complement its organic growth strategy. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
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