Dover Corporation (NYSE:DOV), a diversified global manufacturer, reported a better-than-expected third-quarter performance for 2024, with consolidated segment margins reaching a new peak of 22.6%. The company's adjusted earnings per share (EPS) from continuing operations increased by 6% to $2.27, reflecting a robust demand in clean energy and biopharma components. Dover also highlighted its strategic focus on capital deployment and shareholder returns following the divestiture of its Environmental Solutions Group.
Key Takeaways
- Dover's Q3 consolidated segment margins hit a record 22.6%.
- Adjusted EPS from continuing operations rose 6% to $2.27.
- Organic bookings grew by 5%, driven by clean energy and biopharma sectors.
- Revenue in the Pumps & Process Solutions segment surged over 30% year-over-year.
- Dover provided a positive 2025 outlook with rebased EPS guidance of $8.60 to $8.75, and potential additional growth from organic performance.
Company Outlook
- Dover anticipates a favorable demand across growth platforms for 2025, especially in biopharma and CO2 systems.
- The company plans to focus on organic and inorganic growth, with strategic capital deployment and shareholder returns.
- A rebased 2025 EPS of $8.60 to $8.75 is projected, with the possibility of an increase of $0.55 to $0.90 due to organic growth.
- Dover aims to accelerate synergy capture from acquisitions and expects higher restructuring contributions in 2025.
Bearish Highlights
- Dover experienced a decrease in bookings for brazed plate heat exchangers due to a slowdown in European heat pumps.
- The Aerospace and Defense segment faced challenges related to shipment timing.
- The Clean Energy & Fueling segment saw a slight decline, although retail fueling bookings remained positive.
Bullish Highlights
- The Engineered Products and Imaging & Identification segments showed strong growth.
- There is a recovery in the biopharma sector with the end of the destocking phase post-COVID.
- Dover's track and trace platform is performing well, differentiating from competitors.
Misses
- Revenue guidance for the year remains uncertain, with a broad range of 1% to 3% growth expected.
- The company faces a $300 million impact due to a 4% to 5% headwind in growth from the previous year.
Q&A Highlights
- Tobin confirmed a $25 million carryover to be completed in fiscal year 2024.
- Additional restructuring costs are expected in the first half of next year.
- The biopharma segment's margins are at 29%, with aspirations to exceed 30%.
- Dover is managing capacity utilization strategically to optimize cash flow and maintain fixed cost absorption into the next year.
In summary, Dover's third-quarter earnings call underscored a solid performance and a strategic focus on growth and capital deployment. With a positive outlook for 2025, the company is poised to leverage demand in key sectors such as biopharma and CO2 systems, while also navigating the challenges in other segments and the broader economic environment.
InvestingPro Insights
Dover Corporation's strong third-quarter performance and optimistic outlook for 2025 are further supported by data from InvestingPro. The company's market capitalization stands at $26.35 billion, reflecting its significant presence in the diversified manufacturing sector.
One of the most notable InvestingPro Tips is that Dover has raised its dividend for an impressive 53 consecutive years. This remarkable track record of dividend growth aligns with the company's focus on shareholder returns, as mentioned in their earnings call. Additionally, Dover's dividend yield is currently at 1.11%, with a dividend growth rate of 1.98% over the last twelve months.
The company's financial health appears robust, with InvestingPro Data showing a gross profit margin of 37.36% and an operating income margin of 16.91% for the last twelve months. These figures support Dover's reported record consolidated segment margins of 22.6% in Q3.
Another relevant InvestingPro Tip indicates that Dover is trading at a low P/E ratio relative to near-term earnings growth. This is particularly interesting given the company's positive 2025 outlook and projected EPS growth. The current P/E ratio stands at 17.16, while the adjusted P/E ratio for the last twelve months is 22.95.
Dover's revenue for the last twelve months was $8.53 billion, with a modest growth of 0.64%. However, the quarterly revenue growth for Q2 2024 was more encouraging at 3.72%, which aligns with the company's expectations for continued growth in key sectors like biopharma and clean energy.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Dover Corporation, providing a deeper understanding of the company's financial position and market performance.
Full transcript - Dover Corporation (DOV) Q3 2024:
Operator: Good morning, and welcome to Dover's Third 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; 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 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. And I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.
Jack Dickens: Thank you, Connie. Good morning, everyone, and thank you for joining our call. An audio version of the call will be available on our website through November 14th, and a replay link of the webcast will be archived for 90 days. Our presentation today is on a continuing operations basis to exclude the impact of our divested waste tolling equipment business from historical results. Please reference the 8-K filed on October 10th for further information. 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. And with that, I will turn the call over to Rich.
Richard Tobin: Thanks, Jack. Good morning, everyone. Let's start with the performance highlights on Page 3. Overall, the quarter was modestly better than our internal forecast, which I'll cover in the upcoming segment results slides. Top line performance was broad-based across the portfolio. We are especially pleased that the rotation from our longer cycle businesses to our growth platforms has continued to drive positive margin mix for the total portfolio. We expect that to be an underlying theme as we head into 2025. Segment margin performance for the quarter was solid at 22.6% and represents an all-time high for Dover's consolidated portfolio. Bookings were up 5% organically in the quarter with particular strength clean energy, thermal connectors, CO2 systems and biopharma components, further bolstering our positive mix outlook. Adjusted EPS from continuing operations was up 6% to $2.27. During the quarter, we completed the divestiture of our Environmental Solutions Group business, reducing our exposure to the capital goods sector. As you can see from the bottom right of the slide, the reconciliation of this impact to our full year adjusted EPS guidance from continuing operations. As a result of this transaction, we will exit 2024 with record capital deployment, firepower, providing us with a variety of value-creation opportunities going forward. Our outlook remains constructive for the balance of the year. Our third quarter performance has given us room to manage demand seasonality to drive cash flow optimization through year-end by thoughtfully managing capacity utilization. Our setup for 2025 is compelling with positive portfolio rotation into higher margin businesses as we lap easy and long cycle comps through the year. This is further augmented by our exceptional balance sheet, optionality to pursue value-creating capital deployment strategies. Let's skip to Slide 5 on segment performance. Engineered Products posted strong top line performance on volume growth in vehicle services and industrial winches. Aerospace and defense was lower in the period due to shipment timing and a difficult comparable quarter. Margin was down modestly, because of margin mix on reduced aerospace and defense volumes. Clean Energy & Fueling was down 1% organic as positive performance in clean energy components and North American retail fueling was offset by lower volumes in vehicle wash and retail fueling equipment in Europe and Asia. Bookings were positive in the quarter, as below-ground retail fueling volumes are inflecting positively along with cryogenic components. Margin was flat as favorable product mix was offset by near-term integration costs of our most recent acquisitions. We expect this dynamic to have a material positive margin swing, as we complete our integration activities through 2025. Imaging & Identification posted an excellent quarter on solid marketing and coating performance in the U.S. and Europe. New printer shipments inflected positively during the quarter, which is a good signal for customer capital spending. Margin performance was robust as management actions on cost to serve and footprint optimization continued to drive incremental margins. Pumps & Process Solutions was up 2% organically on robust shipments in thermal connectors precision components biopharma connectors and pumps, biopharma revenue is up mid-teens, year-to-date and over 30% versus the comparable quarter of the prior year. As forecasted, polymer processing equipment was down in the period. All in, Pumps & Process Solutions segment bookings were up 15% organically in the quarter as biopharma and growth platform cycles inflected positively. Segment revenue mix drove 200 basis points of margin improvement on excellent performance, production performance on volume growth in Biopharma and thermal margin mix from FW -- the FW Murphy acquisition and tight cost controls in -- in the Polymers business. Revenue was down in the quarter in Climate & Sustainability Technologies as solid demand in food retail systems was offset by tough comps, in beverage can making equipment and weak demand in the broader HVAC complex, particularly in European residential heat pumps, on our brazed plate heat exchanger business. We had hoped to see positive bookings inflection in heat exchangers in the quarter, but that was not the case. So we have taken down our forecast in the back half of the year in that business to preserve production performance for 2025. The frustrating results as we were able to hold segment margins flat despite the lower volumes due to excellent performance in our retail refrigeration business that was augmented by exceptionally good shipment rates in CO2 systems. Despite the short-term challenges, we like the setup going into 2025 based on increasing CO2 demand, where we expect bookings to inflect materially higher together with market recovery and heat exchanges, both of which are margin accretive. I'll pass it to Brad here.
Brad Cerepak: Thanks, Rich. Good morning, everyone. Let's go to Slide 6, just a reminder that our presentation today is on a continuing operations basis excluding our divested Environmental Solutions Group business from the historical results. Let's go to the charts. The top bridge shows our revenue growth. The impact of acquired businesses this year more than offset the disposition of DESTACO which closed on March 31 by $21 million, while FX was basically flat. From a geographic perspective, the US, our largest market, was up 8% in the quarter on healthy broad-based demand. Europe and Asia were down 5% and 10%, respectively. China, which represents about half our revenue base in Asia was down 17% organically in the quarter, primarily due to shipment timing within polymer processing. On the bottom chart, bookings were up $90 million organically year-over-year on solid broad-based demand across most end markets. Below-the-line items were slightly unfavorable on a year-over-year basis in the quarter on higher corporate costs, mostly related to acquisition deal costs. Our cash flow statement is on Slide 7. Adjusting for taxes paid on the gain of DESTACO, which are non-operational in nature, our free cash flow was 17% of revenue in the quarter, up $48 million year-over-year. Year-to-date cash flow on this chart is 11% of revenue. The fourth quarter is historically our highest cash flow quarter as we expect more favorable working capital balances over the rest of the year. We are on track to deliver our full year adjusted free cash flow guidance of 13% to 15% of revenue, unchanged from prior guidance. With that, let me turn it back to Rich.
Richard Tobin: Thanks, Brad. I'm on Slide 8. It was a busy quarter with the portfolio moves, discontinued ops and some counter cyclicality within the portfolio. As a result of that, we thought it prudent to lay the groundwork for 2025 earlier to provide some hopefully helpful views. Let's start with the portfolio. We articulated throughout the year that underlying demand across many of our end marks -- end markets is solid, and that remains the case as we look forward into 2025. With a diverse portfolio such as ours, we enter each planning cycle, constructing a view of the overall macro, the individual business cycles and our competitive position. In 2024, we had a familiar challenge much like we did in the post-COVID period navigating the biopharma demand cycle. In 2024, we managed a down cycle on the portion of our high long-cycle portfolio as well as the regulatory and stocking idiosyncrasies, cheeses and heat exchangers as shown on the right side of the page. As you can see on the slide, we managed to offset significant cycle headwind with mixing up our consolidated margin on broader short-cycle improvement augmented by our growth platforms, which we invested in both organically and inorganically. As we complete 2024 and begin forming our view for 2025, we do not receive the same counter cyclicality in the portfolio. Bookings and customer forecasts indicate that our growth platforms are in a multi-period demand cycle. We are particularly pleased with the growth rate and biopharma components, thermal connectors, precision components and CO2 systems, all with margin accretion attributes to the portfolio. We expect heat exchanges to return to growth in 2025 on the recovery heat pumps and large-format demand district heating and data center applications for which we are expanding production capacity today. Let's move to Slide 9. Organic investment, inorganic growth and shareholder-friendly capital return remain front and center to our strategy, and we have done all three so far in 2024. We have been more active on portfolio pruning this year at attractive valuations as we methodically reshaped the portfolio to higher secular growth and less cyclical end market exposures. As mentioned earlier, we will exit 2024 with significant optionality for capital deployment and/or capital return, which is reflected on the balance sheet capacity bar on the right. Let's finish up with Slide 10. I've already covered the adjusted EPS guidance to accommodate the discontinued operations earlier in the deck, which is summarized on the left. At the time of the ESG announcement, we are often asked about the assumptions needed to offset the lost earnings from divestitures in 2025. We prepared the bridge on the slide to provide some direction on the moving pieces on a pro forma basis. Let's not get too excited. We will, as always, provide formal 2025 guidance after the close of the year, but I thought it would -- I thought, but I hope that you find it to be a reasonable pro forma view that provides clarity on the moving parts. Left to right, we start with predisposal EPS from our previous guide. We treat retrospectively the disposals on a full year basis. We treat the cash balance prospectively as it ever held for the full year in the short-term in highly liquid positions where it is presently, which includes the retirement of commercial paper costs in 2024 and we roll forward the 2024 acquisitions earnings benefit. We get to a rebased 2025 EPS of $8.60 to $8.75 on a base model that assumes zero organic growth in 2025. If we model a 3% to 5% organic growth at a 40% conversion rate next year, which includes $25 million in restructuring roll forward that is already completed or underway this year. We get an additional $0.55 to $0.90 of EPS. As I mentioned earlier, we are accelerating our synergy capture from recent acquisitions, including footprint consolidation, so what I would expect the restructuring contribution to be higher in 2025. Considering what was covered in the growth platform's growth trajectory, margin mix and long cycle comparable performance that we discussed on Slide 8, the top line and incremental margin assumptions seem reasonable. Now, I certainly doubt that we'll sit on that amount of liquidity unless there is a drastic negative change in the macro. And then in that case, it is nice to have an insurance policy. Clearly, this model can be flexed for share repurchases and M&A, but the model timing is problematic. So this is a simple value view. Our preference is to be active on the M&A front. And at present, that environment is getting better. We have an interesting opportunity pipeline, but rest assured, we will proceed with the capital discipline that we have demonstrated in the past. With that, let's go to Q&A. And I won't say any of opacities or whatever. Okay. Let's go.
Operator: Thank you. [Operator Instructions] And we'll take our first question from Jeff Sprague, Vertical Research Partners.
Jeff Sprague: Thanks. We're all [indiscernible] this morning.
Richard Tobin: Good morning, Jeff.
Brad Cerepak: Hey, Jeff.
Jeff Sprague: Good morning. Yes. It's early. It's early, but it feels late. Just on the comment on climate sustainability, Rich, that you made as you were going through kind of the opening comments. The comment about materially higher in 2025, was that a total segment comment, a heat pump comment? Can you just maybe elaborate on the moving pieces within that segment in particular?
Richard Tobin: Yes. I mean I think there was a bookings comment more than anything else. If you recall back last quarter, we had said that we would hope to have seen bookings increase in brazed plate heat exchanges for European heat pumps. That was not the case. So we have taken down our full year estimates in that particular product line. So that's negative to bookings now. We're going to take down production just to let whatever the remaining clearing event needs to take place between now and the end of the year. So we'll cut production in Q4 also in terms of the estimates. At that point, I think it's fair to say that bookings based on what we see in our forecast for 2025 demand and heat pumps should inflect positively going forward there, and in CO2 systems based on feedback that we're getting from the market in terms of spend, we would expect a material amount of bookings inflection there, whether we get it all in Q4, whether it splits between Q4 and Q1, we'll see. But based on our market read there, we think that we're going to be materially up on CO2 systems in 2025.
Jeff Sprague: And then I appreciate the bridge here, it's definitely helpful. Just thinking about that $0.50, right, that's tied to cash on hand. Obviously, the deal impact can vary depending on what you pay for stuff and the right multiples. Do you foresee a scenario where it's less than $0.50, because you're more active on the M&A front. How should we think about that?
Richard Tobin: Yes. I mean, and that's -- I tried to cover that in the commentary, Jeff. Look, at the end of the day, someone described that the in the bag, it would be just to sit on the liquidity and that liquidity, you can just basically say that deposit rates even with factoring in rate cuts would drive that kind of result. In my comments, I said, I don't foresee that actually happening. Now whether it's M&A or share repurchases, that math gets funky, right? Because you got to start, but we've done the models here and said, if it's margin accretive, and we paid 15 times, what does that look what does that look like? And if you close it into Q1, what does that look like? Or if we did a share repurchase of $1 billion, like? You can do those scenarios. But we just thought that optically to give you a view of it's not only the -- not 2021 anymore, where holding on to liquidity was a zero-sum game because your cost of carry was neutral, if not negative. Now, it's meaningful. And if you go back and look at our interest cost on commercial paper in 2024 and you add that back again, the gap that we have in the lost earnings is really what we're trying to show here is significantly reduced because of that carry. So, I hope and I would expect that the interest income line is going to be overstated because I would expect us to deploy M&A capital. But just as a note, that cash balance is just the proceeds and the after-tax proceeds of the disposals and it doesn't really factor in our Q4 cash flow. So that number is a little bit understated anyway.
Jeff Sprague: Very clear. Right. And also you got additional leverage to deploy if you want to. Great. Appreciate it. Thanks. I'll leave it there.
Richard Tobin: Yes. Thanks.
Operator: And we'll take our next question from Julian Mitchell from Barclays (LON:BARC).
Julian Mitchell: Hi. Good morning. Maybe a lot of good color on the slides. Maybe one thing I wanted to touch on was just -- the overall organic growth backdrop. Your tone sounds pretty confident. I think bookings up mid-single-digit organic is sort of broadly what you expected. Just wondered sort of what your impression was of the broader environment in terms of customer activity, anything notable moving around? And tied to that, when we look at your segments, say in Q3, very, very wide spread of organic growth outcomes. One division up low double digit, one down high single-digits, when we're thinking about the 3% to 5% framework you have on Slide 10 for 2025, is the core assumption that the sort of variability across the five segments is much narrower and kind of all are contributing to growth.
Richard Tobin: Yes, Julian, I think that's what we were trying to do with the Slide 8. I mean, I think -- the $300 million headwind was like a 4% or 5% growth headwind that we carried into this year that we were able to offset by the kind of the investments in our growth exposures. So what we're saying is, here we don't see any indication on the growth platforms for that growth rate, the law small numbers, of course, is that will continue at the same pace, I guess, in terms of growth going forward. And then we'll begin to lap the headwind that we have, basically, which is a long cycle part, is beverage can making, which is completely bottomed at this point and polymer processing, which we believe has bottomed at Q4 what we're going to see in heat exchanges next year. I'd like another quarter to figure it out and see what everybody is going to say about heat exchanges. But what we can from our channel checks, we would expect that by cutting production in Q4 will probably undercut into the market and just push demand into next year. So, if I look at the core portfolio, I don't see anything else that is in cycle down in 2025. We're just getting that behind us. And that was a 3% to -- 3% to -- 4% to 5% or 4% to 5% headwind this year. So that's why I think it's reasonable to expect I think when we modeled the year was 3% to 5% and the incremental margin, if you take out the restructuring benefit is basically where we've always been at 25 to 35.
Julian Mitchell: That's very helpful. Thank you. And then just maybe one quick follow-up on one of the segments. DII doesn't often get much attention, but superlative margin performance again in that business in Q3. You've seen that in the first half also. So, maybe sort of clarify. I know there's a mix commentary as a tailwind for DII. But is that something -- I don't know, structural changing in the mix in terms of kind how you've repositioned that business or it's simply just the consumables versus equipment dynamic and that may flip around next year?
Richard Tobin: The consumables equipment will fluctuate quarter-by-quarter. But if you look at it over longer periods, it's not overly meaningful. So it does -- you hear comments quarter-to-quarter about it, but over a 12-month cycle, it always ends up in the same spot. Really, the margin performance here is that that the management team of particular business has done an excellent job on cost to serve. This is a global business. There -- it's synergy extraction from the cost to serve on a global basis. So, I mean that's the majority of -- if you go back and look over the last three years to four years, not generally been volume, it's been a business model change. So I don't think that these margins that we're posting now because I know what the pipeline is for 2025 and 2026. I think that this is a reasonable approximation where this business is capable of delivering.
Julian Mitchell: Thanks very much.
Richard Tobin: You’re welcome.
Operator: And we'll take our next question from Scott Davis from Melius Research.
Scott Davis: Hey, good morning, guys.
Richard Tobin: Hey, Scott.
Scott Davis: Hey, I wanted to follow-up a little bit on the M&A question. I think it was Jeff. It seems -- the deals we've seen in the last couple of years is that in the multiple ranges. The only deals that are kind of working are the ones where there's a fair amount of synergies. Is that -- is this something -- when you guys look at your existing portfolio, is there a wide enough net there to be able to buy things that bolt-on to make you kind of the, what I'll say, the best owner of that asset? Or do you think or multiples come down to the level where that's no longer the case?
Richard Tobin: I think that if you go back and look at multiples paid here over the last four to five years, I think they've been reasonable. And at the time of the announcement on the kind of more material deals, there was always a good portion of the return that was based on synergy extraction. The smaller deals, there's really not a lot to do. But the bigger deals, we've built basically an engine on our existing -- if you think about when we went through from 2018 to about 2022, we had built this engine to extract synergies out of our own core portfolio, which drove a lot of margin expansion, while the benefit of building those engines, if you will, is when we do an M&A, we just do the same playbook just because we practice on ourselves for five years. So, they need to be a decent of enough size, but I think everything that we did of the bigger ones recently in Clean Energy had a good amount of synergy extraction. And if you go back and look at the transcript and you look on the clean energy side, I think that we posted a 20% margin this year. It's going to take us probably three quarters of 2025 to finish up on the footprint and everything else, but we fully expect to drive those businesses up to 2025 on synergy extraction alone.
Scott Davis: Okay. That's good color. Guys, maybe a dumb question. But when you're selling these thermal connectors, who's specking in the product? Is it the cloud guys? Or is it the cooling guys? And I still get -- want back in your good go on that design.
Richard Tobin: Yes. Look, I'll answer it this way. We've been in this business for quite a while. So it's not a product that we're ramping up because of AI build-out. This product was actually built for supercomputing applications, which are the only ones that were using water cooling is relatively low volume in the past. So, it is set out and there are recommended specs, but you still need to sell to the user and/or builder. So, it's complicated, but we would -- we're the ones, I think, that we can claim to have the most product that's actually in use in the ecosystem today.
Scott Davis: Right. But the point is once it's spec-ed in, if it needs to be replaced to preventive maintenance or whatever, it's like-for-like, right?
Richard Tobin: I think that would be the assumption, yes.
Scott Davis: Okay. Fair enough. Thank you guys. Good luck.
Richard Tobin: Thank you.
Operator: And we'll take our next question from Deane Dray, RBC.
Deane Dray: Thank you. Good morning, everyone.
Richard Tobin: Good morning.
Deane Dray: On the biopharma, the recovery underway in the single-use is what are the green shoots you're looking for? We saw results that would suggest from Danaher (NYSE:DHR) in particular, so is there anything broader going on in terms of how you think, because it's been the most extended destocking period for everyone, but just any color there would be helpful?
Richard Tobin: Sure. Look, we led down because of the amount of inventory post-COVID that had put into the channel, and we're leading out, because these are consumable products, so these don't require new builds of new systems. They just need the systems that have been sold in previous periods to continue to operate. So, for a while, there was a little bit of de-linkage because we were going down early and from what our customers are saying, I think that we've been reading the reports from the market participants, and we're mostly in line now. I think we're all saying that basically the same thing in terms of the trajectory and the recovery. And I think that, that is reflected in our growth rates in terms of the consumables portion of it.
Deane Dray: Good. And now you'll have doubled the amount of imaging questions that you typically get. Your primary competitor made a lot of noise about broadening our platform, what they call from source to shelf they're more vertically integrated than you guys, but is that a broader platform that you all would be interested in participating in. Do you have aspirations there, they paid up pretty sizably for a SaaS business?
Richard Tobin: Deane, are we talking about the acquisition that they just made?
Deane Dray: Yes. But then the--
Richard Tobin: Yes, I mean, we've got a good sized track and trace platform within that business today. So I think it's nuanced in terms of where you are in the chain, we're more pharma oriented. And I haven't studied it, that looks like it's more food-oriented. So we've got a pretty big business right now that's actually been doing quite well over the last couple of years in that space. So we're already there.
Deane Dray: Great. Thank you.
Richard Tobin: You’re welcome.
Operator: And we'll take our next question from Nigel Coe, Wolfe Research.
Nigel Coe: Thanks. Good morning. And thanks for the 2025 kind of help out there. So it sounds, Rich, like you're pretty -- sort of like the base case would be organic range you laid out there. So, you'd encourage us to kind of use that range. But what I'm kind of curious of is when we look at the -- look at the 2024 performance, what impact did you have from the capital businesses, MAAG, Belvac and the SWEP European businesses? If we assume that those are bottoming out this year, maybe stabilize next year, what is the mechanical impact of those businesses?
Richard Tobin: Nigel, if you go to Slide 8, on the presentation. We give you the absolute number. And it's -- I'm going to get it wrong, 3% to 5% -- 4% to 5% headwind that we're taking and that is on a rolling 12-month basis, correct? Q4 of last year through Q3 this year. It's cost us $300 million of headwinds and that's about 4% or 5% growth.
Nigel Coe: Okay. I completely missed that. So again, so if that then flattens out, your 3% to 5% seems -- I don't know, no improvement in the rest of the businesses. Is that the right way to react?
Richard Tobin: Like you may have missed the beginning here. I mean we're not giving out 2025 guidance, we just thought that it was important because of all the noise with discontinued ops and everything else to kind of let you rebase your look on 2025. I didn't want to come out to this thing and say, well, here's discontinued ops, and we'll tell you in January, what that all means. So, it's a reasonable approximation, but give us another quarter to get an understanding of the macro and everything else. And I'm not saying that those are exactly going to be the numbers that we give out for 2025 guidance, but they look reasonable based on using the growth rates that we have on our secular growth exposures and then a lapping of the headwinds that we have seems reasonable. But rest assured, we'll update them in January.
Nigel Coe: Okay. That's a good boiled plate response, Rich. And then just on -- just a quick clarification on the 4Q guide and then I'll pass it on. The 4Q -- sorry, the full year EPS the so I'm guessing there's about $0.10 of interest income coming through in the fourth quarter from the ESG divestment proceeds. So is that wrapped into the 102 -- or is that sort of within the $0.05 kind of bump up to the low end? Just any help there.
Richard Tobin: I don't know whether it's $0.10. I'd have to go back and look at deconstruct it. There is an amount of interest income that's in the bump. That helps to offset what I mentioned earlier about we're taking heat exchanger volumes down, and we're making some production cuts there. So, yes, it's all in right now. And at the end of the day, we're driving towards the top of the range as usual.
Nigel Coe: Yes, okay. Thanks, Rich.
Richard Tobin: Thanks.
Operator: And we'll take our next question from Joe O'Dea, Wells Fargo (NYSE:WFC).
Joe O'Dea: Hi, good morning. Thanks for taking my question.
Richard Tobin: Good morning.
Joe O'Dea: Just wanted to touch on fueling and the comments around below-ground fueling inflecting positively. And any sort of context or perspective in terms of the cycle trends there and what you're seeing now in terms of how early on we are in seeing some growth?
Richard Tobin: Yes, I mean that's been a headwind for us for three years, I think, right, because it suffered with inflationary inputs and the lack of ability of labor and a variety of things that if you had gone and looked at the CapEx projections, for retail operators, they never hit their numbers just because of the inflation that was going through the system. So, with labor costs and labor just availability getting better, we've seen that begin to inflect positively, which is great because it's margin accretive to that particular business. So -- and we would expect that to cycle forward from here. On the demand side of it, it's been relatively muted, so you can't see it, but that is us. We are managing this business for margin, and I think we've made some tougher decisions about business that we would take, particularly in Europe and Asia. So that has muted the top line growth because we -- because in combination with the cryogenic components, if we get this right, we can get the entire segment up to 25% EBITDA margin at kind of an exit rate 25 or at least that's the goal.
Joe O'Dea: I appreciate that. And then I just wanted to circle back on the restructuring. I think you talked about as we head into next year, $25 million of carryover, but also made some comments that there could be more. And so I just wanted to make sure I heard that correctly in terms of are there additional sort of planning efforts underway and where we could see more of that happening across the business?
Richard Tobin: Yes, I think that the $25 million is either completed or to be completed in fiscal year 2024. So that's the roll forward of what we get done this year. But we've got a lot to go. Like I mentioned previously, I think that the synergy target that we had put in the cryogenic acquisitions was about $20-ish, some of that requires footprint consolidation over time, which takes longer. So, back to my comment about driving that segment to 25%, we will be incurring costs clearly through the first two to three quarters of next year, which will require some more restructuring costs, which will pick up in kind of the further roll forward. So that number that you see in the chart, again, is incurred or to be completed in fiscal year 2024.
Joe O'Dea: Understood. Thank you.
Operator: And we'll take our next question from Steve Tusa, JPMorgan (NYSE:JPM).
Steve Tusa: Hi. Good morning.
Richard Tobin: Hi, Steve.
Steve Tusa: I'm going to ask an even dumber question than Scott. What is the actual revenue kind of guidance for this year, like the absolute kind of rough number you're guiding to for this year?
Richard Tobin: I don't know. I think we gave you a range in the top line, right, of one to three. So--
Steve Tusa: Right. But off of like -- is it like a $7.6 billion number, something like that comes out to?
Richard Tobin: I don't know off the top of my head. Got me.
Steve Tusa: I'm kind of -- I guess it's not a dumb question.
Richard Tobin: I'm sure we can get it, and you can follow up with Jack to give it to you, but I don't know what the exact baseline number that it comes off.
Steve Tusa: I think it's 77, by my math, just wanted to double check that. So how big are the headwinds...
Richard Tobin: This is like questions about net interest income and your boss address that. Anyway, keep going.
Steve Tusa: Sorry, like total top line absolute sales
Richard Tobin: Yes.
Steve Tusa: Kind of important, I think. Don't you think?
Richard Tobin: Well, I think that you'd be able to model that. But go ahead.
Steve Tusa: Like don't people ask you like cocktail parties, like how big the company is you run and you kind of throw out $8 billion and stuff like you should know that, right?
Richard Tobin: I'm not a curtail party guy, but anyway, keep going.
Steve Tusa: The headwind businesses, as we'll call them, how big are those this year? Are those about like $3 billion in total?
Richard Tobin: No, no, no.
Steve Tusa: $1 billion. Something like that?
Richard Tobin: I'd have to do the math in my head. I mean, what are we talking on a 2024 full year basis?
Steve Tusa: Yes. I mean just like what were -- like the $300 million was off of like what base, like--
Richard Tobin: Yes like $1 billion -- I'm doing it in the back of my head, it's like $1 billion.
Steve Tusa: Yes. Okay, got it. And as far as like your outlook next year for pricing, is it a little more normal? Is it anywhere that you're seeing any kind of price pressure? Or is it kind of modestly positive or maybe even like a point or something like that for next year?
Richard Tobin: Modestly -- modest -- more mix than anything else, but modestly positive on pricing. And to that end, we've been taking advantage of going long into 2025 because input pricing on commodity metals is pretty favorable. So we've been going actually going -- actually gone out of the 2025 to help that out.
Steve Tusa: Okay. And then just one last one for you. For the other businesses, kind of the mixed bag businesses outside of DII, of course, any of those in there that are kind of like on watch for like declines next year? And any that worry you out of the other -- not the secular growth, not DII and not the headwind businesses like the other business?
Richard Tobin: Try to cover in the commentary. We knew about Belvac. We knew about MAAG. We kind of knew but got it wrong on heat exchangers. There's not another business in the portfolio with that kind of quantum headwind as we look into 2025. So the only kind of worry that we would have would be about the macro, and then we'll see.
Steve Tusa: Right. Okay. That’s all I got. Thanks a lot.
Richard Tobin: Great.
Operator: And we’ll take our next question from Joe Ritchie, Goldman Sachs (NYSE:GS).
Joe Ritchie: Hi, good morning, guys.
Richard Tobin: Hi, Joe.
Joe Ritchie: Tough act to follow there. The -- so I'm going to ask Steve's question may be slightly more positively or class have full. If I -- we're getting to, hopefully, election certainty sometime in the next month or so. Project financing arguably hopefully getting better because of interest rates. You've had one of your competitors call out the fact that, that's really impacted their carwash business as you kind of think through like that macro element, which is both election and interest rates, like where could you potentially see a benefit to your business? And how do you see that kind of playing out in 2025? And know that you don't have a crystal ball, so your best guess at this point.
Richard Tobin: Yes, I mean I think we would have hoped that interest rates would have had a bigger impact in the second half of 2024 on volume. But I think because of election uncertainty and a variety of other things, you can feel a little bit of caution out there. It's not bad, but it's not the amount -- if we take a look at the amount of quoting that we do for project-based business versus the time that it takes for those quotes to turn into actual orders, you can -- and this notion of things being pushed that you'll hear a lot about, that's not a fail, right? So, -- to the extent that cost of capital stays down and that we get some kind of certainty going into 2025, I would expect -- if we take a look at some of our businesses that you could call kind of like more project related that we would expect that to inflect positively.
Joe Ritchie: Okay, fair enough. And then we talked a little bit about the recovery in biopharma, which is awesome to see. The next kind of logical question is like when can we get the margins back up to that 30-plus range. And I know that you're feeling good about the recovery of that business into 2025, and so just kind of any thoughts around getting back to 30% next year?
Richard Tobin: Well, it was 29% in the quarter. And that's taking into account still -- still taking into account that MAAG is probably is bottoming now. And by the way, to MAAG's credit despite the top line headwinds, their ability to preserve margins during that period was excellent. So, to me, it's more of what is going to be the growth rate in biopharma and thermal and single-use pumps, everything that we've got in that particular segment to the extent that it stays on the track that it is, it's all incremental margin positive to the 29% we just posted.
Joe Ritchie: Good to hear. Great. Thanks guys.
Richard Tobin: Thanks.
Operator: And we'll take our next question from Andy Kaplowitz from Citigroup.
Andy Kaplowitz: Good morning, everyone.
Richard Tobin: Good morning.
Brad Cerepak: Hi, Andy.
Andy Kaplowitz: Rich, with the understanding that you aren't giving out 2025 guidance, as you just said, you did say that do 40% incrementals with some restructuring tailwind and mix benefits. And as you know, you've talked about 25% to 35% long-term incremental. So, should we get more excited at this point that with accelerated portfolio transformation, Dover is really making that transition to a higher incremental margin capable company? Or is that a bit premature?
Richard Tobin: No, I don't think it's premature at all at the end of the day. I mean, we love ESG, but the fact of the matter is, it was a high-growth business that had decremental margins to the greater portfolio. And that's -- other than end market cyclicality and blah, blah, blah part of the reason that we took the action that we took. So -- and I don't want to keep repeating myself, but if you go back to Slide 8, Slide 8 is what we talked about back at the last Investor Day, this is where we're investing in organically and inorganically. And hopefully, we should be doing that in businesses that have higher growth rates and higher margin profiles to them. I mean you saw it -- you saw it yourself an action when you went down to DFR and Conyers, I mean that CO2 systems business is a high-growth, high incremental margin to the segment business. So it's -- we've got all the irons in the fire, whether it's portfolio construction or organic investment or inorganic investment, it's all part and parcel to driving the consolidated segment margin to 2025, right? And we're going to get there by hook or by crook.
Andy Kaplowitz: Love it. Okay. And then just another question you love around bookings. Just one clarification, like was DCST really the heat exchanger stuff, the big difference in what you thought versus that book-to-bill of one. I know you mentioned macro is maybe still holding some projects back. As you look at Q4, do you see book-to-bill getting closer to one if CST does begin to show some life on the heat exchanger side?
Richard Tobin: It depends on what the order intake is going to be in CO2 systems because we're basically taking bookings assumptions down for heat pumps. So what we had originally forecast for heat pumps is worse going into Q4 which is accommodated into our forecast. Whether we can -- we know -- maybe I should be that definitive. We expect that we will inflect materially higher in bookings on CO2 systems. It's just a question of whether we can get them from forecasting to orders in Q4 or not.
Andy Kaplowitz: Got it. But it's coming in the next couple of quarters, just a question of when.
Richard Tobin: Yes.
Andy Kaplowitz: Helpful. Thanks, Rich.
Richard Tobin: Thanks.
Operator: And our final question comes from Mike Halloran from Baird.
Mike Halloran: Good morning, everyone.
Richard Tobin: Good morning.
Mike Halloran: So, of couple quick -- couple of quick ones. Just on the comment of managing capacity utilization, I don't think this is of the scale that you would have talked about fourth quarter last year. Is this just tied to the heat exchanger piece? Or is there anything broader? and any comments on inventory levels in the channel?
Richard Tobin: Yes. Overall, we'd like to maximize cash flow in Q4. And then depending on how we are in terms of backlog and the delivery assumptions that backlog, if we believe can push production performance in January out of Q4, it's prudent to do so at the end of the day, right, because it flexes up cash flow and it preserves fixed cost absorption into next year. So, we'll do that in select businesses in Q4, and that's why we're kind of happy about the results in Q3 because it buys us the room to do that because we don't want to be like trying to protect margin in Q4 by building inventory, right? So it's not nearly what it was back in the beginning of the destocking days where we consciously made a decision to do that across the wider portfolio. This is a more selective comment.
Mike Halloran: Makes sense. And not beating a dead horse here. I just want to make sure I understand. The 25% margin comments for DCF, that was applicable to the whole segment, not just the gas piece or something more insular exiting 2025?
Richard Tobin: The whole segment.
Mike Halloran: Quite a gem. Thank you. Appreciate it.
Richard Tobin: Great. Thanks. Thank you.
Operator: Thank you. That concludes our question-and-answer period and Dover's third quarter 2024 earnings conference call. You may now disconnect your line at this time, and have a wonderful day.
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