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dover JPMorgan_060308

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dover JPMorgan_060308

  1. 1. JP MORGAN BASICS & INDUSTRIAL CONFERENCE ROBERT KUHBACH / PAUL GOLDBERG NEW YORK, NY – JUNE 3, 2008
  2. 2. Forward Looking Statements We want to remind everyone that our comments may contain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in their analysis of Dover Corporation by referring to our Form 10K for a list of factors that could cause our results to differ from those anticipated in any such forward looking statements. We would also direct your attention to our internet site, www.dovercorporation.com, where considerably more information can be found. 2
  3. 3. ... . . . a $7 billion global provider of innovative equipment, specialty systems and value added services for the industrial products, fluid management, engineered systems and electronic technologies markets. . . . focuses on growing organically 5-7% over a business cycle and strategically invests in value creating acquisitions. . . . returns value to shareholders through earnings growth initiatives, annually increased dividends and strategic share repurchases. 3
  4. 4. Record Financial Results Four Segment Structure Improves Clarity Platforms For Sustained Growth Strategic Capital Allocation Outlook for 2008 4
  5. 5. Sustainable Growth Story ($000) Revenue Earnings from Continuing Operations 8,000 800 7,000 700 6,000 600 5,000 500 Revenue Earnings 4,000 400 3,000 300 2,000 200 1,000 100 0 0 2003 2004 2005 2006 2007 5-yr CAGR 17.9% 5-yr CAGR 25.3% 5
  6. 6. Balanced Growth Sales ($000) 8,000 Currency 7,000 Acquisition 6,000 Organic 45% Base 5,000 50% 4,000 3,000 2007 Growth Currency 2.2% 2,000 Acquisition 9.7% 1,000 Organic 2.3% Core Industrial 5.2% 0 2003 2006 2007 Organic Growth Rate: Target 5-7%... 5 yr. Average 8.9% 6
  7. 7. Geographic Revenue Mix (Q1 2008) Dover Growth Rate: 8% Rest Of World 10.5% 6.5% 25.5% ASIA 12.6% United States 55.4% Europe 21.5% 5.5% 6.1% First Quarter Growth Rate 7
  8. 8. Strong Free Cash Flow Free Cash Flow as a % of Revenue Source of Dover strength 12% – Consistency 10% – Outcome of metrics focus – $728 million in 2007 8% – 111% conversion rate in 6% 2007 (FCF / earnings from continuing ops) 4% Facilitates strategic 2% capital allocation 0% 2004 2005 2006 2007 8
  9. 9. New Segment Structure Earnings Sales ELECTRONIC ELECTRONIC INDUSTRIAL INDUSTRIAL Technologies Technologies Products Products 19% 17% 30% 28% FLUID FLUID Management Management 21% ENGINEERED 29% ENGINEERED Systems Systems 26% 30% 2007 9
  10. 10. New Platform Structure Mobile Electronic Equipment Technologies 17% 19% Material Fluid Handling Solutions 13% 10% Energy Engineered 11% Products Product ID 17% 13% 2007 Revenue 10
  11. 11. Dover’s Q1 2008 Performance Q/Q Q1 ‘08 Q1 ‘07 Revenue $1.9B $1.7B +8% Continuing Earnings Per Share EPS $0.76 $0.65 +16% 0.90 Segment Margins 14.1% 13.5% 60 bps 0.85 0.80 Organic Growth 2.8% 4.0% 0.75 Acquisition Growth 1.8% 12.8% 0.70 0.65 Free Cash Flow $104M $18M 5.8x 0.60 $3.22 0.55 • Business activity remains strong across the 0.50 $2.88 portfolio 0.45 0.40 •Book-to-bill was 1.06 $2.12 0.35 0.30 • Organic growth of industrial companies was 3.2% 0.25 • Energy, Fluid Solutions and Product ID platforms 0.20 performing at a high level 0.15 0.10 • Positive leverage at 3 of 4 segments 0.05 0.00 • Strong free cash flow at 5.6% of revenue Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2005 2006 2007 ‘08 • Share repurchase activities on target 11
  12. 12. Revenue Growth (Q1 2008) Industrial Engineered Fluid Electronic Total Products Systems Management Technologies Dover Organic 1.1% 2.4% 7.7% 1.0% 2.8% Acquisition 3.6% 0.0% 1.5% 2.0% 1.9% Currency 1.2% 3.8% 2.6% 6.5% 3.2% Total 5.9% 6.2% 11.8% 9.5% 7.9% 12
  13. 13. Industrial Products Revenue Operating Earnings ($ in millions) ($ in millions) Mobile Equipment $583 (14% of Dover) $551 – Revenues increase due to strong oil field, aerospace and military sales $76 – Earnings driven by volume and cost reductions – Backlogs up 15% vs. prior year, Book- $70 to-bill of 1.09 Material Handling ↑ 6% ↑ 8% (18% of Dover) – IMC acquisition by De-Sta-Co – sales integration complete – Lantec acquired by Tulsa Winch in March 2008 – integration begun – Business is mixed, strong international, infrastructure and military sales; U.S. automotive and construction remains challenged Q1 2007 Q1 2008 Q1 2007 Q1 2008 13
  14. 14. Industrial Products Winch companies will continue to grow – Military contracts – Oilfield demand Continued challenges in heavy construction – Performance enhancing initiatives underway – No market improvement expected Waste handling will be strong – Solid backlog – Class eight chassis delivery improves 14
  15. 15. Engineered SystemsRevenue Operating Earnings ($ in millions) ($ in millions) Engineered Products $522 (16% of Dover) $492 – Strong performance in refrigeration systems & cases, $64 heat exchangers – Tough comps in beverage can equipment ↑ 6% Product Identification $51 (12% of Dover) ↑ 25% – Revenue increase driven by double-digit gains in direct marking business – Earnings reflect cost savings realized from Markem•Imaje integration activities, off-setting $3M in related expense – Strong order backlog entering second quarter. Q1 2007 Q1 2008 Q1 2007 Q1 2008 15
  16. 16. Engineered Systems Significant improvements in Product ID – Markem margins up 700 bps – > 50% of revenue tied to fast moving consumer goods – Recurring revenue > 50% Food display equipment fundamentals are sound – Growth will be driven by “sustainability” factors – Well-developed plan to diversify customer base Heat exchanger business will continue to expand 16
  17. 17. Fluid Management Revenue Operating Earnings Energy ($ in millions) ($ in millions) (11% of Dover) – Results driven by growth in U.S. oil and gas drilling and $401 worldwide demand for power $85 $359 generation – Operational improvements $74 and product mix increased earnings and margins ↑ 12% ↑ 15% Fluid Solutions (10% of Dover) – General strength across most industrial markets – Backlog up 30%. – Business mix and operational focus improved earnings and margins Q1 2007 Q1 2008 Q1 2007 Q1 2008 ` 17
  18. 18. Fluid Management Continued strength in energy – Broad product engagement in downhole drilling, production and logging equipment – Positive power generation trends – Focus on globalizing revenue base Pump and dispensing businesses remain consistent – Global footprint – Expanded product offerings – Chemical, pharmaceutical and wastewater processing capex budgets drive business – Regulatory environment provides opportunity – Consistent sustainable performance 18
  19. 19. Electronic Technologies Operating Earnings Revenue ($ in millions) ($ in millions) Electronics Technology $352 $37 $36 19% of Dover $321 – Business activity is mixed across the segment with book-to-bill of 1.02 – Continued investments in new products ↑ 10% – $3M restructuring charges in the quarter (primarily severance) ↓ 2% – Impact of restructuring should result in $7 million of savings for remainder of year – Inflationary pressures in Asia (mainly China) from currency and other costs impacted margins by 100 bps Q1 2007 Q1 2008 Q1 2007 Q1 2008 19
  20. 20. Electronic Technologies Cell phone market continues to grow 10% annually – Customer mix was improved – Dominance in MEMS technology continues New product applications in military, telecom and audio result in broader markets Revenues related to fabrication and testing of semiconductors and boards are flat – Adjustments being made to reflect current business environment – Margin improvement is a focus 20
  21. 21. PERFORMANCECOUNTS Target Q1 2008 Q1 2007 Inventory Turns * 8 6.6 6.4 Earnings Growth 10% 8.8% 5.0% Operating Margins 15% 14.1% 13.5% WC as a % of Revenue 20% 19.1% 19.2% ROI (Operating) 25% 25.8% 25.9% * Dover has improved inventory turns four consecutive years 21
  22. 22. Value Creation Continues 2005 - 2007 Going Forward New Management Team Four Segment Structure Portfolio Transformation Platform Development PERFORMANCECOUNTS PERFORMANCECOUNTS Refocus Acquisitions Capturing SYNERGY Recurring Revenue Theme Minimize Volatility Globalization Management Development Capital Allocation Focus Strategic Capital Allocation Best Financial Results in Continue Improvement in Dover’s History Financial Performance 22
  23. 23. Strategic Capital Allocation Acquisitions – Strategic add-ons to bolster existing platforms – High pricing expected to gradually moderate – 2008 should favor strategic buyers Share Repurchase – Two programs announced in 2007 totaling approximately $1 billion • First program completed in 2007 (10 million shares) • Second program underway, $200 million remaining Long history of increasing dividend each year – Increased 8% in 2007; 28% - 32% of net earnings We have the capacity to do all three 23
  24. 24. Seeking Synergy Overhead cost structure Expanding role of Supply Chain Council Shared facilities 4% - 6% Business system Earnings consolidations Improvement Examples: – Energy Platform – Product ID – Pump Group – Others Emphasis on Tangible Value Creation 24
  25. 25. First Quarter 2008 Overview Net Debt to Capital Ratio – 28.0%: up 60 bps over 2007 year-end, reflective of higher total debt level to fund share repurchase program Free Cash Flow – $103.7 million; 5.6% of revenue • Historically high for the 1st quarter Effective Tax Rate – 29.5%, up 120 bps • Prior year benefited from discrete event and extension of R&D credit. Acquisitions – One add-on by Tulsa Winch (Lantec Winch and Gear Inc.) for $22 million, net of cash acquired. – Two acquisitions done subsequent to quarter close (Brady Bit & Neptune). – Total year-to-date acquisition spend: ≈ $100M. Share Repurchase Program – Repurchased 3.6 million shares for $150 million. 25
  26. 26. Recent Fluid Management Road Trip 17 buy-side and sell-side analysts visited US Synthetics (Orem, UT) & Wilden Pumps (Grand Terrace, CA) in early May. Full Fluid Management overview Emergent Themes: – Healthy & sustainable end-markets • Emerging global infrastructure • Strong global demand for energy • Innovative products – Keen focus on manufacturing excellence • Lean techniques widely employed • Vigorous pursuit of synergy – Highly motivated and dedicated management teams • Entrepreneurial spirit intact • Deep pools of management talent 26
  27. 27. 2008 Outlook – Full Year Organic growth: mid single digits Margin improvement: Full year up 50 – 75 bps Capital expenditures: $150 – $175 million Interest expense: $88 - $92 million Full-year tax rate: 27% – 28% (quarterly variance) Free cash flow for full year: 10% of revenue Corporate expenses: $95 - $100 million Share repurchases remaining: <$200 million 27
  28. 28. … A Solid Growth Story with Record Financial Results Metrics are Driving Improved Results … New Organization Structure Driving Change Growth Platforms Emerging, Operating Style Evolving, Clarity is Improving, Focus on Synergy … Strategic Capital Allocation Discipline Balancing Growth and Shareholder Return … Time Honored Value System Intact 28

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