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dover DOV-Transcript-2006-04-28T13-00
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dover DOV-Transcript-2006-04-28T13-00

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  • 1. FINAL TRANSCRIPT DOV - Q1 2006 Dover Corporation Earnings Conference Call Event Date/Time: Apr. 28. 2006 / 9:00AM ET www.streetevents.com Contact Us © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 2. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call CORPORATE PARTICIPANTS Paul Goldberg Dover Corporation - Treasurer and Director of IR Ron Hoffman Dover Corporation - President and CEO Rob Kuhbach Dover Corporation - VP of Finance and CFO CONFERENCE CALL PARTICIPANTS Wendy Caplan Wachovia Securities - Analyst Nigel Coe Deutsche Bank - Analyst Steve Tusa JPMorgan - Analyst Robert McCarthy Robert W. Baird - Analyst Alex Blanton Ingalls & Snyder - Analyst Ajay Kerjiwal Goldman Sachs - Analyst PRESENTATION Operator Good morning and welcome to the first-quarter 2006 Dover Corporation earnings conference call. With us today are Ron Hoffman, President and Chief Executive Officer of Dover Corporation; Rob Kuhbach, Vice President of Finance and Chief Financial Officer of Dover Corporation; and Paul Goldberg, Treasurer and Director of Investor Relations of Dover Corporation. After the speakers' opening 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. Paul Goldberg. Mr. Goldberg, please go ahead, sir. Paul Goldberg - Dover Corporation - Treasurer and Director of IR Thank you, Melissa. Good morning and welcome to Dover's first-quarter earnings call. With me today are Ron Hoffman, Dover's President and Chief Executive Officer, and Rob Kuhbach, Dover's VP of Finance and CFO. Today's call will begin with some comments from Ron and Rob about Dover's operating and financial performance. We will then open the call up to questions. In the interest of time, we kindly ask that you limit your questions to one or two. Please note that our current earnings release and Form 10-Q can be found on our website, www.dovercorporation.com. This call will be available for playback through 5 PM on May 5th and the audio portion of this call will be archived on our website www.streetevents.com Contact Us 1 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 3. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call for three months. The replay telephone number is 877-519-4471. When accessing the playback, you'll need to supply the reservation code 7239803. Before we get started, I'd like to remind everyone that our comments today, which are intended to supplement your understanding of Dover, may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to Form 10-K for a list of factors that could cause our results to differ materially than those anticipated and any such forward-looking statement. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. We would also direct your attention to our Internet site, where considerably more information can be found. With that, I'd like to turn this call over to Ron. Ron Hoffman - Dover Corporation - President and CEO Thanks, Paul. Good morning, everyone. I am pleased to report that Dover produced record results with significant organic growth and strong operating leverage in the first quarter of 2006. Referring to slides 3 and 4 on our website earnings presentation, Dover posted record revenue of $1.6 billion, up 22% over last year; record orders of $1.84 billion, up 23%; and net earnings from continuing operations of $133.5 million, up 40%. As announced last evening, Dover's first-quarter EPS from continuing operations was $0.65, up 40% from last year and up 6% sequentially. Included in our 2006 results is approximately $0.025 per share related to expensing of stock options, as well as an increased tax rate of 30.3%, up from the prior-year rate of 25.2%. Net earnings for the quarter were $203.8 million or $0.99 EPS, which included the gain on the sale of the previously discontinued Tranter business and was offset by impairments of two businesses discontinued during the quarter. Segment operating earnings were up 46% over last year, and all six subsidiaries posted double-digit gains, led by Electronics, Resources and Technologies. Quarterly earnings improvements were very broad-based and increased at 11 of the 13 market groups. 24% operating leverage on increased sales improved operating margins to 13.9%, up 230 basis points over last year and up 130 basis points over last quarter. This improvement in operating margin also includes approximately 30 basis points for stock option expense. Gross margins improved to 35.3% of sales, up 120 basis points, reflecting improved operating performance, pricing initiatives and acquisition impact. Our operating company's emphasis on global sourcing efforts, lean initiatives, Dover metrics and relocating resources to lower-cost operating locations offset higher energy prices and selected material price increases. Revenue for the quarter was up 22% from last year and up 4% sequentially, with all subsidiaries and 11 of the 13 market groups posting quarterly gains. March revenue, orders and earnings were the highest of the quarter for all segments. The record quarterly orders were up 23% from last year, reflecting a strong and very broad participation from our industrial companies and continued improvement in our Electronics and Technology sectors. 12 of the 13 market groups posted gains. Book-to-bill was a healthy 1.10, with Resources and Systems setting quarterly records. Record backlog grew to $1.43 million, up 29% over last year and up 14% over last quarter. During the first quarter, Triton completed the acquisition of two ATM distributors in England to broaden their participation in downstream service and support revenue. Diversified's previously announced sale of Tranter for $150 million, $85 million net gain, was completed during the quarter. www.streetevents.com Contact Us 2 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 4. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Our balance sheet remains strong and our acquisition pipeline continues to be very active, with a number of value-creating acquisitions being pursued. We continue to make progress in our portfolio rationalization process as Electronics and Resources each discontinued a business during the period. We will not be identifying or discussing specific companies, but additional progress on our portfolio evaluation is underway and will be announced during the upcoming quarters. Referring to slide 5, our companies are solidly focused on performance counts and attainment of the five Dover metrics, and those efforts are strongly reflected in our results. Commenting on each metric, our inventory turns were up to 6.1, which is an improvement of 1.3 turns over last year. Quarterly earnings growth was up 40% over last year. Dover's operating margins climbed to 13.9%, as all subsidiaries improved margins. For the quarter, 61% of revenue was at Dover metric margins of 15% or above, and 27% of revenue was from companies operating at or above the 8 inventory turn target. Working capital declined to 19.7% of sales, an improvement of over 400 basis points compared to last year, which has effectively reduced Dover's investment by approximately $250 million. The internal ROI of our operating companies has improved to 24.4%. I am very proud of our progress in driving Dover's performance toward world-class standards and applaud the dedicated employees of our operating companies that continue to strive for sustained improvements. Let me paraphrase a statement from one of our operating companies' monthly reports. “Our efforts to improve supply chain performance and reduce cycle time is really paying off with additional sales and improved performance.” This statement is reflective of the magnitude of progress being generated throughout Dover with our quot;Performance Countsquot; program. I am also very pleased with our quarterly organic revenue growth rate of 16.3%. Growing the performance of the companies we own is solid validation of the effective strategies, market share gains and new product development programs of our operating companies. We believe that our customers are recognizing and rewarding the responsive services and valued products that Dover companies supply globally. For the first quarter, acquisitions accounted for 7.4% of revenue growth and foreign exchange decreased revenue by 1.7%. In summary, this is a great start to 2006 and I certainly want to thank our talented employees around the world for their valuable contributions to our success. With our currently strong order trends and healthy backlogs across the majority of our industrial and electronic markets, coupled with the significant internal improvement initiatives being displayed by our operating companies, I feel Dover is postured for a solid second quarter. With that, I will turn it over to Rob Kuhbach for an overview of our subsidiary performance and financial highlights before we open the call for your questions. Rob Kuhbach - Dover Corporation - VP of Finance and CFO Thanks, Ron. Good morning, ladies and gentlemen. Since Ron has already summarized Dover's overall performance, let me briefly review the individual segment results and provide some additional financial information for the first quarter of 2006. I will be going through slides 6 through 11 in my remarks on the segment results, which you can find on our website earnings presentation. Dover Diversified experienced 8% revenue growth, leveraging an 11% earnings gain and a positive margin increase when compared to the prior-year first quarter. Revenue in the industrial equipment group increased 5%, reflecting a strong commercial aerospace market, resulting in 4% higher earnings impacted by a soft power sports market. www.streetevents.com Contact Us 3 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 5. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call The process equipment group had positive leverage, with earnings up 47% on 16% higher revenue as a result of strong demand in the HVAC, boiler and oil and gas markets, along with favorable pricing and productivity gains. Dover Electronics' revenue, earnings and margin gains were all higher over the prior first-quarter results, driven by the 2005 acquisitions of Knowles and Colder. Operation improvements in the core components businesses also contributed to the earnings gains in the segment. The components group had revenue growth of 87% and earnings up over three times due to the Knowles and Colder acquisitions and margin improvements at most of the core companies. On the other hand, the commercial equipment group had decreased revenues and earnings of 5% and 50%, respectively, due to market softness in the ATM business, partially offset by improvements in the fluid dispensing business. Dover Industries' 7% revenue increase leveraged a 23% earnings improvement over last year's first quarter, primarily due to strength in the mobile equipment group that was partially offset by the service equipment group's lower performance. The mobile equipment group experienced robust demand in the commercial transportation market, resulting in a 14% increase in revenue and a 52% increase in earnings. A volume shortfall in the service equipment group due to weakness in the automotive service industry and closing costs related to a facility shutdown contributed to decreases in revenue and earnings of 5% and 13%, respectively. Dover Resources generated record revenue, earnings, margins, bookings, backlog and inventory velocity for the quarter because of strong market fundamentals, despite some softness in the automotive and retail fueling markets. Leading Resources' performance was the oil and gas equipment group, with increased revenue and earnings of 41% and 59%, respectively, over the prior-year first quarter, due largely to global energy demand. The fluid solutions group's revenue and earnings both increased 6%, reflecting superior market conditions in rail transportation, partially offset by softness in retail fluid fueling markets. The material handling group revenue grew 15%, with earnings up 18%. The construction, mobile crane, aerial lift and petroleum markets remain strong, partially balanced by a slow automotive market. Dover Systems' 16% revenue growth over the prior-year first quarter resulted in a 22% earnings increase, primarily due to the food equipment group. The food equipment group saw a 36% increase in earnings on a 20% increase in revenue, due to strength in the supermarket and food equipment markets. The packaging group had an 8% increase in revenue and a 5% increase in earnings when compared to the strong prior-year quarter, largely due to product mix. Technologies revenue increased 29% and earnings grew 142% over the prior-year first quarter, reflecting continued strength in the primary markets served, largely related to the test handling, solder equipment and product identification companies. The circuit assembly and test group experienced record results at the test handling and solder equipment companies, resulting in revenue and earnings increases of 43% and 366%, respectively. The product identification and printing group's earnings rose 30% on a 5% increase in revenue, due to spending controls across all companies. www.streetevents.com Contact Us 4 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 6. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Having covered quarterly segment operations, let me briefly review some other corporate information found on slide 12. Free cash flow, defined as cash from operations less capital expenditures, for the quarter was strong at 4.4% of revenue, even with capital expenditures of $39.2 million, up $13 million over the prior-year quarter. During the first quarter, Dover acquired two small add-on companies in the Electronics segment for a total of $14 million, net of cash acquired. Also during the quarter, Dover closed on the Tranter PHE sale, resulting in an after-tax gain of $85.1 million. We also discontinued two relatively small businesses, one in Electronics and one in Resources, resulting in a write-down net of tax of about $15 million. Net debt to capital decreased to 24.2% from 28.8% due to increased cash generation from operations and cash proceeds from the sale of Tranter PHE. Dover's first-quarter effective tax rate was 30.3% compared to 25.2% in the prior year due to last year's $5.5 million tax benefit related to a favorable tax court decision. We continue to expect the full-year rate in 2006 to be in the range of 28 to 30%. With that overview, let me turn this call back to Ron for questions. Ron Hoffman - Dover Corporation - President and CEO With that, we'll entertain your questions. QUESTIONS AND ANSWERS Operator (OPERATOR INSTRUCTIONS). Wendy Caplan, Wachovia Securities. Wendy Caplan - Wachovia Securities - Analyst First of all, one word that I've been hearing a lot on conference calls this week and last is ethanol, and was wondering whether there was any exposure at Dover in this hot market? Ron Hoffman - Dover Corporation - President and CEO Well, I think ethanol would impact basically our fuel-handling companies. Certainly at OPW, they would be impacted by ethanol, but in a positive way. I think as people go to more and more ethanol, let's say as E85 ethanol takes root at some point in time, that will require different nozzles, which we have available. And that will require some replacement, but I think that is a little bit out in the future yet. I think if you look at the companies we have that would handle the bulk transportation of fluids, whether that be through railcars, whether that be through tanker trucks, I think again that would provide opportunities for increases in those fleets. We'd benefit from the components that we supply to that industry. So we see it as a net positive at the end of the day in that regard. Wendy Caplan - Wachovia Securities - Analyst And if I can have one more question, you mentioned during your segment review, Rob, that Triton was an issue in the quarter, but that there was a lot of activity in March. Can you kind of help us understand where that comes from and how you view it relative to the rest of the year? www.streetevents.com Contact Us 5 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 7. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corporation - President and CEO Well, I think what we have to kind of say there is that basically Triton started slow this year, but it seemed to be an ATM market issue -- it wasn't just Triton specifically. There was no market share loss. The market just seemed to be procrastinating on decisions. So basically, what we saw in the last part of March was kind of like the dam broke and all of a sudden, the orders came flooding in, so we went from being a kind of cautious, gee, what is the next thing to ship out the door, to how are we going to get it all out the door at a very short span of time. And I would say that our outlook for the second quarter for Triton is much improved from what we displayed in the first quarter. Wendy Caplan - Wachovia Securities - Analyst And Ron, were there any other businesses that were notable in that regard in the sense that the trail from January to March was particularly weighted one way or the other? Ron Hoffman - Dover Corporation - President and CEO Well, I would say certainly Triton stands out in that regard. But all of our businesses built during the quarter -- I would say that January, I wouldn't classify it as a soft month, but I would say that we built from January each month sequentially. There's no other significant company that I would say had the dynamic change that we might have experienced at Triton. Certainly some of our businesses will have some seasonality impact. I mean, PDQ Car Washes certainly is one that has a little bit of seasonal impact. They built during the quarter also. But March was very, very strong across the board. Operator Nigel Coe, Deutsche Bank. Nigel Coe - Deutsche Bank - Analyst Great quarter. Could you give us some sense of where we are in the portfolio review? Are we still in the early phases of that review or are we in the middle of it? Just some color on where we are in that process. Ron Hoffman - Dover Corporation - President and CEO Well, let me just say this -- this is a process that will always be ongoing. But I think, as we have noted, we felt there was some upfront work with this new cadre of managers to have an opportunity to kind of look at the portfolio and glean what they thought were appropriate or where we were going to put our focuses. That process continues on. I would say that from the industrial side, we are a little more than halfway done. On the technology side, as we articulated in our last call, we have a new president there, Dave Van Loan. This is the end of his first quarter of being at the reins. He is certainly looking at his subsidiaries strongly now. I think during the course of the year and in future quarters, this will crystallize to be much clearer for you. But I would say categorically maybe we're at the halfway point. www.streetevents.com Contact Us 6 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 8. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Nigel Coe - Deutsche Bank - Analyst And secondly, organic growth of 16% is a fantastic performance. Can you just break that down by segment, organic growth by segment, please? Ron Hoffman - Dover Corporation - President and CEO Well, I don't know that I can break it down specifically by segments, but I guess I would have to say that certainly, if you look at it in terms of our major areas, Resources certainly saw nice segment growth. The oil patch companies performed quite well. I think that in our Technology group, each of our companies, whether they were supplying back end semiconductor products, or whether they were supplying products for circuit board assembly, each of those companies performed quite well. So a lot of organic growth coming out of those two particular areas. But I would say we saw organic growth really across the board, but certainly a lot of leeway there. I would also like to highlight our Electronics group, which really saw considerable improvement in our crystal business, as well as our multilayer capacity products. Nigel Coe - Deutsche Bank - Analyst Great. One final quick question -- in process equipment, you mentioned HVAC as an influence there. How much of that business is HVAC-related? Rob Kuhbach - Dover Corporation - VP of Finance and CFO Not a huge amount. You're talking about my comments about -- in Diversified? Nigel Coe - Deutsche Bank - Analyst Yes. Rob Kuhbach - Dover Corporation - VP of Finance and CFO I would say it is meaningful to that group, but HVAC as a part of Dover is not significant overall. Operator Steve Tusa, JPMorgan. Steve Tusa - JPMorgan - Analyst Just a question on Electronics. Is there some sort of seasonality involved with Knowles, or are they growing so fast that you don't really see the type of seasonality you would expect there? And also, you mentioned that there was some acquisition-related amortization there? I'm just trying to get around the -- if there's anything to kind of pull away from this quarter that was modestly disappointing, it would be the Electronics margin. I am just wondering if you could maybe provide some color around that. www.streetevents.com Contact Us 7 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 9. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corporation - President and CEO Yes, quite candidly, I think if you look at the Electronics components -- well, let me address the seasonality issue first. Because Knowles supplies components to the cell phone industry, we would typically think that with new product introductions coming out in the middle of the year and people building towards Christmas season, we might see some softening in the first quarter relative to the other quarters of the year on that side of the business. We think at this point in time, Knowles' business continues strong in the cell phone supply market, in the component market for that market. But I would say it didn't fall off as much as we might have anticipated, and they continue to book very strongly in support of that market. Actually, the components' overall margins were pretty much at Dover metrics. We think there is some upside that we will see going forward. I think we had the impact of some underperformance at one of our companies that supplies plastic injected molded components that impacted the group. And as far as the lack of performance at Triton, at least in the quarter, because it was all booked late in the quarter, they were not at traditional margins. I think we'll see that change in the second quarter. And I think you'll see appreciably better results next quarter. And also, let's keep in mind that even with the performance we've posted, that probably has about three- to four-tenths of a percent relative to stock option expenses in there compared to the comparable. Steve Tusa - JPMorgan - Analyst Got you. But you expect that to improve through the year -- the margin at Electronics? Ron Hoffman - Dover Corporation - President and CEO I do see some upside there. Steve Tusa - JPMorgan - Analyst And then the amortization acquisition [related to this] -- could you just kind of clarify what that is? Is that with regards to the Triton businesses you acquired or is that -- I'm not sure how the accounting works with Knowles. Rob Kuhbach - Dover Corporation - VP of Finance and CFO The accounting -- you are allowed to do your purchase accounting within a one-year period of acquisition. And we did an initial assessment at the end of the fourth quarter, and we adjusted that in the first quarter. Steve Tusa - JPMorgan - Analyst Which was a negative. Rob Kuhbach - Dover Corporation - VP of Finance and CFO Which was a -- which in effect moves some additional amortization into the category, which increased our [AD&A], to put it simplistically. So the AD&A will be slightly higher in the next several years until it is fully amortized. But realistically, it was not a huge adjustment in the quarter. www.streetevents.com Contact Us 8 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 10. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Steve Tusa - JPMorgan - Analyst So it is ongoing, it's not just a one-time kind of adjustment? Rob Kuhbach - Dover Corporation - VP of Finance and CFO No, we moved some goodwill into the amortizable depreciation of intangibles, so you are going to see slightly higher amortization of intangibles over the next, really, 10 years for that business. I mean, this is typical -- every business we buy has an amortization schedule. So there is nothing unusual about that. Steve Tusa - JPMorgan - Analyst And then just lastly, on the acquisition environment, how is that looking? And you sounded pretty optimistic about in your press release. Ron Hoffman - Dover Corporation - President and CEO Well, I think we continue to be very pleased with the pipeline of acquisitions we are looking at. We have a number of possibilities that we are investigating. Hopefully, we will be able to bring some of those, get some of those completed and make announcements in our future calls during the course of the second quarter. But we see the acquisition pipeline continuing to be strong, with some high-quality prospects that we are currently reviewing. Steve Tusa - JPMorgan - Analyst Sorry, one last one. Anything unusual in the Resources margin this quarter -- mix, seasonality, anything in there that -- it was much stronger than I was expecting. Ron Hoffman - Dover Corporation - President and CEO Well, I think we continue to see leverage from volume in that group, plus just continued performance improvements that are being driven by Dave Ropp, and his company is focusing on improvements in the Company in general. We have also had some capacity requirements in some of our companies that took time and energy to get up to speed, new employees that had to be trained to come up to the volume levels that we're seeing in that subsidiary. So I think some of that has clicked in quite well. But that Resources group really kind of hit on all cylinders in the first quarter. Steve Tusa - JPMorgan - Analyst Sounds pretty typical to me. Operator Robert McCarthy, Robert W. Baird. www.streetevents.com Contact Us 9 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 11. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Robert McCarthy - Robert W. Baird - Analyst First, just quickly, could you tell us what the combined annual revenue is of the acquisitions you completed in the quarter? Ron Hoffman - Dover Corporation - President and CEO Well, it is really -- you are talking about the two we did -- the ATM space with Triton. Those are actually quite small. This is kind of a foray into allowing us to play in the aftermarket side and the revenue side. I don't have the exact number to quote you, Rob, but it is quite small. It certainly would not be material at all. Robert McCarthy - Robert W. Baird - Analyst And then I was interested in looking at the three operating groups where you didn't really display any operating leverage, with an idea of understanding whether that is -- whether these are issues that are confined to the quarter or whether we might see them again in the second quarter. So for example, in industrial equipment, you identified a soft power sports market. Is that something that we think is going to be an ongoing issue? Ron Hoffman - Dover Corporation - President and CEO Well, actually, the power sports market did show some improvement during the quarter, and I think what we're seeing there is -- we have made a management change in the power sport market. We have a new President that has just entered that company. And I think we will see that start to pick up during the course of the year. But I think a lot of the issues in the industrial equipment side in the first quarter related to the aerospace market. They had some issues in their supply line and their performance that was untypical for them. We anticipate that improving in the second quarter and going forward. Robert McCarthy - Robert W. Baird - Analyst In fluid solutions, you had revenue and earnings gains that matched each other. You mentioned softness in retail fueling. Is that what held back margins there? Ron Hoffman - Dover Corporation - President and CEO Well, as you look at the comparables, I just want to recall your attention to this time last year, we were supplying an awful lot of equipment to support the new CARB regulations in California for basically for controlling of the vapor handling -- excuse me, I was sitting there struggling for a word. Sorry about that. And that buildout is somewhat behind us. We will see that spread to other states. But that was an appreciable uptick in the first quarter of last year that is not repeating this year. Basically, the infrastructure is built out. Robert McCarthy - Robert W. Baird - Analyst But that was a driver of business pretty much all year long, wasn't it? Ron Hoffman - Dover Corporation - President and CEO Certainly for the first half. It tailed off in the second half of last year. www.streetevents.com Contact Us 10 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 12. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Robert McCarthy - Robert W. Baird - Analyst That's helpful. And then in packaging and equipment, Rob identified mix. Is that just a one quarter -- could swing the other way next quarter? Ron Hoffman - Dover Corporation - President and CEO As you think about packaging and equipment, certainly Belvac is a swing in there from time to time with their can necking equipment. And they have been booking quite strongly. So it just kind of depends on when their projects are approved, bought off and shipped. Rob Kuhbach - Dover Corporation - VP of Finance and CFO Yes, the mix is -- we probably do -- we probably had more trimmers than neckers, and our margin on neckers is higher. The overall backlog is very strong. But from a quarter to quarter at Belvac, you can get some shifting based on the [multiple speakers]. Robert McCarthy - Robert W. Baird - Analyst But for the full year, my takeaway is that for the full year, you wouldn't expect to show no operating leverage in that group? Rob Kuhbach - Dover Corporation - VP of Finance and CFO No. That's correct. Operator Alex Blanton, Ingalls & Snyder. Alex Blanton - Ingalls & Snyder - Analyst I want to get some more detail on Knowles. Do you know what the penetration in the cell phone business is now relative to when you bought the company, and also relative to your expectations at this point? And also, the accretion -- how is it doing relative to what you expected? And the third thing is on the other part of the business. Is there any indication that there is any pressure on prices or could be on the hearing aid side of the business? I know you have a large market share, but there are some thoughts in that industry in that your large competitor might try to get some of that by reducing prices and that you have had to move manufacturing offshore in order to forestall that. So could you give us an update there? Ron Hoffman - Dover Corporation - President and CEO Yes. Basically, Knowles is certainly -- we are very pleased with the Knowles acquisition, the contribution that Knowles is making to Dover. The company is in general performing above our expectations. I don't have any industry statistics that I would want to quote in terms of market share at the moment. www.streetevents.com Contact Us 11 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 13. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call But I guess I would say that it is our belief that as any new cell phone is being redesigned, we believe that the MEMS microphone that we manufacture at Knowles offers a footprint advantage that gives design improvements for the people designing the circuitry of that phone. It also offers cost reductions for the people because they can mechanically place the component rather than having to solder in the leads. So there's a lot of advantage for the designer of the phone to incorporate the MEMS device. I would say in general, we feel most all new phone designs are certainly taking a strong look at that. We think the adoption rate is probably exceeding what we thought it might, meaning it is getting adopted probably even faster. Certainly, the statistics I think that have been quoted is there are going to be about 900 million cell phones manufactured this year, so the market is up and I think the penetration of MEMS is certainly up also. So it is a very positive story. I think you asked about accretion. We think accretion is still within what we projected as we did the acquisition. From a pricing pressure standpoint, certainly all companies have competitors that operate with different objectives, and pricing does become an issue from time to time. This is not new to Knowles. They have had pricing issues in their traditional markets, being the hearing aid market, or even in the microphone market. But I think speaking of that, in the microphone market, again, we think our technology is ahead of anything that's out there today. And I think we have some nice pricing protection there because of the performance we bring to bear. I think if you look at the hearing aid market, it's a little more traditional, high share. Again, we think the unique features that Knowles has -- they've been able to sustain their market share. Pricing has certainly not blunted the thrust of that business at all. I think there are competitors that from time to time might take an application on pricing alone, but being able to hold an application versus [a stake of] pricing typically are two different decisions. And I think they have been very successful in holding their market share. There's really no meaningful change in pricing arena that we would put our finger on. Alex Blanton - Ingalls & Snyder - Analyst Just a comment -- it would be helpful to get the organic growth. When you have 16%, the natural question is, where is it coming from? And so you had the segment breakdowns in a lot of detail, and it really would have been helpful to have the organic growth by segment as well. Ron Hoffman - Dover Corporation - President and CEO Just to give you a little bit of color on that, if I might, about 70% of that organic growth came from the Technologies and Resources area in the quarter. Alex Blanton - Ingalls & Snyder - Analyst Great. That is helpful. And finally, you mentioned movement to low-cost regions at the beginning in the opening remarks. Is there anything unusual going on there in addition to what you have already told us about? Ron Hoffman - Dover Corporation - President and CEO Well, I guess I would say that early on, as we were moving to low-cost regions, we were seeing our Electronics companies migrate to Asia and to China specifically. Most of that activity is pretty much in place. I think now we're seeing some of our heavier capital www.streetevents.com Contact Us 12 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 14. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call goods industries, industrial companies, not only looking at China as a sourcing opportunity, but they're moving operations to location such as Mexico, where they are getting some advantage on steel price as well as labor costs. And we're seeing more and more companies participate in that. I was in Mexico during the quarter. I hope I am not misspeaking here, but we probably have six to seven companies have now moved operations into Mexico. And we see the activity level there increasing. Alex Blanton - Ingalls & Snyder - Analyst How many? Ron Hoffman - Dover Corporation - President and CEO About six to seven of our companies have some operation in Mexico now. Operator (OPERATOR INSTRUCTIONS). Steve Tusa, JPMorgan. Steve Tusa - JPMorgan - Analyst I figured there was 20 minutes left in the hour here, so I might as well get in while I can. Just one final question, as far as Technologies is concerned. And you talked about strength really across that portfolio. Do you guys manage things from a long-term perspective on one or two quarters of positive performance? Or are you doing, when you go through your portfolio evaluation, you're really looking out to the long term, and it may help you on the pricing side of any kind of portfolio change. But I'm just wondering how you manage that process and how you judge if a recent upturn in any given market is sustainable and maybe a change from the longer-term trend? Ron Hoffman - Dover Corporation - President and CEO Well, Steve, Dover has never had a short-term focus in the management of its companies or the direction of the Company, nor do we have that today. So we are taking a long-term view of the market or our play in a market to determine what our focus will be. Certainly, we are pleased with the upturn in the circuit assembly and test sector. It is somewhat a back-end semiconductor-driven as well as circuit board-driven. I think some of the things that helps us there is companies such as Everett Charles, which has about 50% consumables, is playing in a much broader, wider band of the market than they did historically. If you go back a couple of years, they didn't play in as broad a sector. Some of the acquisitions we've announced over the last two years, certainly Harbor that we announced last year, allow them to have a broader footprint in the whole spectrum of testing. Whether it be the testing of the component, the core component, or whether it be the test of the finished board, they are playing in a lot more areas. So I think that plays well to us. I think if you look at companies like DEK and Vitronics, they are taking the benefit of what has been an improved market in circuit boards assembly. So there are companies in there, as I have always mentioned, that we like very, very well. We think they are great niche players, great market leaders, have very defensible differentiation. And I think those companies we continue to have a very positive outlook on. But we continue to, again, take a long-term view of this, Steve. We are not going to react to any one quarter as saying we take it off the table or put it on the table. www.streetevents.com Contact Us 13 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 15. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Steve Tusa - JPMorgan - Analyst But I'm sure it makes you feel a little bit more comfortable to have the wind at your back. Ron Hoffman - Dover Corporation - President and CEO Positive stories are always better than negative stories, Steve. No doubt about that. Steve Tusa - JPMorgan - Analyst Thanks for the insight. Talk to you soon. Operator Jack Kelly, Goldman Sachs. Ajay Kerjiwal - Goldman Sachs - Analyst This is Ajay Kerjiwal for Jack Kelly. Just a question on Technologies. Last quarter, it seemed that Universal was trailing Everett Charles. Could you give us some color on how Universal did versus Everett Charles in this quarter? Ron Hoffman - Dover Corporation - President and CEO Everett Charles has been one of our strongest players in the Technology sector for quite some time. As I just reiterated, they are a very broad play. They are able to play in many more sectors of the improvement in the economy of Technologies. Universal, on the other hand, as we have articulated many times, basically makes circuit board assembly equipment. So you have to have a high utilization rate to put the demand in front of the need for that equipment. So certainly, Everett Charles has outperformed Universal in the past quarter because of just where we are at in the cycle. And that has been the case now for a number of quarters. Ajay Kerjiwal - Goldman Sachs - Analyst An impressive performance on the margins there -- margins of 11.7% in the quarter. So can we expect -- or is there scope for sequential improvement in margins going forward? Ron Hoffman - Dover Corporation - President and CEO I think you are speaking there specifically of our Technology companies, and I would say our Technology companies have always displayed great upside leverage on an upturn in business. And that certainly was displayed again in this past quarter. I think that we are very pleased with the performance. They are starting to knock on the door of Dover-like margins across the board. I think they have the opportunity and ability to get there. www.streetevents.com Contact Us 14 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 16. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Ajay Kerjiwal - Goldman Sachs - Analyst Next question was on Hill PHOENIX -- impressive performance there. Are you grabbing share from competitors? Looks like you had a great quarter there, impressive revenue growth. So could you comment on what is happening in the marketplace? Ron Hoffman - Dover Corporation - President and CEO Well, again, certainly we are gaining share at Hill PHOENIX. So I guess if you look at it in total, the last industry statistics I saw, that was about a 3 to 4% grow a year market. Hill PHOENIX has been growing at about four times that rate. So they have certainly expanded quite well over the last couple of years by gaining share. I think some of the unique and new products they bring to bear have been well-recognized in the marketplace. So it sometimes comes down to a customer mix and a product mix, and I think they are performing very, very well. Also have done a wonderful job in adopting many of the lean initiatives to drive an improved performance in that marketplace. So they're not just relying on the market and volume only to improve their performance. They have really completely redefined that business. We would kind of estimate that their market share probably has gone from, over the course of the last few quarters, has gone from maybe roughly low 20s to more like mid-20s in terms of market share. Operator Robert McCarthy, Robert W. Baird. Robert McCarthy - Robert W. Baird - Analyst I just wanted to follow that up. You had good operating leverage in that segment as well. And I was wondering if you could talk a little bit about how you are managing price versus higher input costs. Seems to me your historical steel issue has been replaced maybe by a copper issue -- or maybe I think that's a bigger issues than it is. Ron Hoffman - Dover Corporation - President and CEO Are you speaking about our food equipment? Robert McCarthy - Robert W. Baird - Analyst Yes. Ron Hoffman - Dover Corporation - President and CEO Well, certainly, I think Hill PHOENIX -- I happened to be at Hill PHOENIX a few weeks ago. In fact, I was giving Hill PHOENIX the very first Dover President's Award for hitting all five Dover metrics last year. I have been going around presenting this Dover President's Award to our companies that hit all five metrics. And I was pleased to do that at Hill PHOENIX, which says they are certainly one of the great performers in Dover. But I would also say that other companies in our food equipment group, such as Unified Brands, that we used to refer to as DI Foodservice, we have new leadership in that company that came on last year that is driving some appreciable change and www.streetevents.com Contact Us 15 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 17. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call results in that group that we are very pleased with. So that group in total has seen significant performance improvement through the businesses in it. Hill PHOENIX from a raw materials standpoint -- I can't say that I have any knowledge at the moment of the impact of copper on their business. Certainly, aluminum prices have been up. We've seen a few selective steel prices increases across our companies, but not great, solid trends of any type. I don't recall hearing from Hill PHOENIX about the impact of copper on their business. Robert McCarthy - Robert W. Baird - Analyst But if I am following you correctly, part of the message is that the strong operating leverage seen in the quarter reflects in part a major recovery in the profitability of what had been a lagging part of that group? Ron Hoffman - Dover Corporation - President and CEO I think that is true, Rob. Robert McCarthy - Robert W. Baird - Analyst And then my other question was -- I assume the answer to this is no, but has the adoption of FAS 123R had any impact on any of your metrics? Ron Hoffman - Dover Corporation - President and CEO No, in terms of changing the -- Robert McCarthy - Robert W. Baird - Analyst Yes, do you still expect them to hit all that, even though they -- Ron Hoffman - Dover Corporation - President and CEO We are still expecting 15%. And I think as we exhibited, we had close to 14% operating margin. And that was with about 30 to 40 basis points of headwind. So I think we are showing that we don't need to change our metrics just because of FAS 123. Operator At this time, we would like to turn the call over to the Company for some closing remarks. Ron Hoffman - Dover Corporation - President and CEO Again, I will let Paul wrap the call up. But I would like to, again, thank everyone for their interest in Dover, and also we look forward to the future conference calls. And we are pleased that the first quarter was a positive quarter for us, and also pleased to see that the Dover metrics seem to be driving considerable performance change in Dover. www.streetevents.com Contact Us 16 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.
  • 18. FINAL TRANSCRIPT Apr. 28. 2006 / 9:00AM, DOV - Q1 2006 Dover Corporation Earnings Conference Call Paul Goldberg - Dover Corporation - Treasurer and Director of IR This concludes our conference call. We thank you for your continued interest in Dover and look forward to speaking to you again next quarter. Thanks. Operator This concludes today's Dover Corporation conference call. You may now disconnect. DISCLAIMER Thomson Financial reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes. In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized. THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. ©2006, Thomson Financial. All Rights Reserved. 1287180-2006-05-04T14:45:39.850 www.streetevents.com Contact Us 17 © 2006 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial.

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