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dover Transcript072205

  1. 1. FINAL TRANSCRIPT DOV - Q2 2005 Dover Corporation Earnings Conference Call Event Date/Time: Jul. 22. 2005 / 9:00AM ET Event Duration: 49 min OVERVIEW DOV reported 2Q05 sales of $1.585b. 2Q05 earnings from continuing operations before tax were $173.8m. 2Q05 EPS from continuing operations was $0.61. YTD EPS from continuing operations was $1.09, up 17% from last year. For the full-year 2005, the Co. still expects to generate free cash flow in the range of 8-10% of revenue. Q&A Focus: Pricing, business details, and margins. streetevents@thomson.com 617.603.7900 www.streetevents.com © 2005 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. 2. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call CORPORATE PARTICIPANTS Ron Hoffman Dover Corporation - CEO, President Rob Kuhbach Dover Corporation - VP-Finance, CFO CONFERENCE CALL PARTICIPANTS Wendy Caplan Wachovia Securities - Analyst Steve Tusa JP Morgan - Analyst Ned Armstrong Friedman, Billings, Ramsey - Analyst Jack Kelly Goldman Sachs - Analyst Dan Whang Lehman Brothers - Analyst Robert McCarthy Robert W. Baird - Analyst Alex Blanton Ingalls and Snyder - Analyst Nigel Coe Deutsche Bank - Analyst George Nissan Merrill Lynch - Analyst PRESENTATION Operator Good morning and welcome to the second quarter 2005 Dover Corporation earnings conference call. With us today are Ron Hoffman, President and Chief Executive Officer of Dover Corporation, and Rob Kuhbach, Vice President of Finance, and Chief Financial Officer of Dover Corporation. [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. Ron Hoffman. Mr. Hoffman, please go ahead, sir. Ron Hoffman - Dover Corporation - CEO, President Thank you. Good morning, ladies and gentlemen. Thank you for joining our conference call this morning. Rob Kuhbach and I are pleased to share the positive progress of Dover Corporation's 2005 second quarter results with you this morning. Before we make our overview comments and open the call for questions, I want to remind everyone that our comments may contain certain forward-looking statements that are inherently subject to uncertainties. We caution everyone to be guided in our analysis of Dover Corporation by referring to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. I would also direct your attention to our internet site www.dovercorporation.com where considerably more information can be found. streetevents@thomson.com 617.603.7900 www.streetevents.com 1 © 2005 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. 3. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Last evening, Dover reported a 15% increase in second quarter 2005 earnings per share from continuing operations of $0.61, up from $0.53 in the comparable period of 2004. Year-to-date earnings per share from continuing operations is $1.09, up 17% from last year. For the quarter, earnings from continuing operations before tax were $173.8 million, up 13% from the prior year period and up 31% sequentially. Dover Resources continues to be the earnings leader, but positive earnings comparisons were posted at all subsidiaries but Technologies which had had a strong first half 2004 performance. Sequentially all six subsidiaries posted earnings gains led by 118% improvement at Dover Technologies. Strong leverage on increased sales in the back end semiconductor related companies of Circuit Assemblies and Test led the earnings gain in Technologies. New earnings records were posted at four of our six subsidiaries and Dover's operating margins improved 150 basis points sequentially as our operating companies continue their relentless effort to improve prices, reduce costs, and efficiencies. The impact of steel price increases is moderating and we are recovering a higher percentage of increased cost compared to the prior period. Second quarter sales were a new Dover record at $1.585 billion, up 16% from the prior year and up 10% sequentially. Sales were up at all six subsidiaries and double digit gains were posted at all but Technologies. Our 16.4 sales growth consisted of 7.7% organic growth, 7% from acquisitions, and 1.7% currency gain. Quarterly bookings were a record $1.614 billion, up 14% from the year ago period, and up 4% sequentially with a book to bill of 1.04. Our incoming order rate reflects continued strength in a broad range of industrial markets as well as the improvements in the technology sector. During the second quarter, Dover completed one add on acquisition totaling $17 million, C-Tech, a Canadian company, brings important continuous sucker rod technology to broaden the portfolio of Dover Resources petroleum equipment group. There are currently a number of acquisitions being evaluated against our disciplined screening process and we are optimistic of reporting significant progress over the coming months. During the quarter, we disclosed the divestiture of Hydratight Sweeney as part of our portfolio rationalization process for a net gain of $0.24 per share. Dover's new executive team is putting strong focus on metrics that will improve operating performance. Inventory turns are up from 4.6 to 5.3 year to date. Working capital as a percent of sales has improved to 21.8%, the lowest level since early 2002. The reported operating earnings and margins are up sequentially. The strong pipeline of new products across all sectors reinforces our posture as a technology leader for our customers. Overall, I was very pleased with our second quarter results and anticipate our leaders will continue to build on these improvements. I am very proud of our employees worldwide and want to thank them for their strong support, diligent efforts, and renewed focus on operational excellence. It's encouraging to see the improvements across a broad number of our businesses and their served markets. Looking at the opportunities that lie ahead with potential acquisitions, improving operating performance, and a solid flow of new products, I am very encouraged that Dover will continue to produce positive results during the second half of the year. With that ,I'll turn it over to Rob Kuhbach to discuss our operations and finance highlights in more depth with you before we open the session for questions. Rob. Rob Kuhbach - Dover Corporation - VP-Finance, CFO Thanks, Ron. Good morning, ladies and gentlemen. Since Ron has already given you a quick summary of Dover's overall performance, let me provide a brief review of the individual segment results for the second quarter of 2005. Dover Diversified had higher sales and earnings in both the industrial equipment and process equipment groups, despite acquisition related amortization. Diversified had a record backlog as bookings remained strong driven by demand in the aerospace, defense, oil and gas, and heat exchanger markets. Diversified's Industrial Equipment group sales increased 32% and earnings increased 22% due to strong sales grains in construction and commercial aerospace with acquisition costs from Avborne removing margins. Diversified's Process Equipment group sales increased 16% and earnings increased 27% as the demand from oil and gas markets remained strong which provided higher volume, pricing power, and productivity gains. Dover Electronics had increased sales and earnings with contributions from both the Components and Commercial Equipment groups. The Component group saw sales grow 31%, largely from acquisitions and had 17% better earnings despite acquisition integration costs. The Commercial Equipment group had increased sales of 12% with an earnings increase of 20% driven by streetevents@thomson.com 617.603.7900 www.streetevents.com 2 © 2005 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. 4. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call strong ATM sales and volume increases. Dover Industry sales increased for the ninth consecutive quarter driven by market strength, pricing, and strong military sales. The Mobile Equipment group sales increased 17% and earnings increased 22% driven by demand in the North American dry bulk and petroleum transport markets and in the refuse collection vehicle market. Service Equipment group sales increased 5% with earnings decreasing 3% due to commodity prices, product introduction costs, and higher sales of lower margin products. All three Dover Resources groups had record quarterly sales and earnings. Oil and Gas Equipment led the segments performance with a sales increase of 55% and an earnings increase of 67% driven by global demand for oil and natural gas and the acquisition of U.S. Synthetic in the third quarter of 2004. The Fluid Solutions group had sales and earnings increases of 17% reflecting strength in railcar, chemical processing and environmental markets, and the performance of Almatec acquired late in 2004. The Material Handling group sales increased 16% with earnings increasing 5%. The negative leverage resulted from product mix and costs related to market and geographic expansion. Dover Systems experienced strong bookings, sales, earnings and margin growth which reflected pricing improvements, productivity programs and a favorable product mix. System's Food Equipment sales increased 14% and earnings increased over 30% with the positive leverage driven by robust supermarket equipment sales with several customers who have strong capital programs. Both bookings and backlog are positive going into the third quarter. System's Packaging Group strong sales of can, necking, and trimming equipment contributed to a 30% sales and a 116% earnings increase over a relatively weak prior year quarter. Technologies decrease in earnings and margins reflects lower demand in the Circuit Assembly and Test group compared to a robust prior year period and competitive pricing in the product identification and printing group which also experienced weakness in the European market. We are encouraged by the fact that the Circuit Assembly and Test group had sales and earnings increases over the first quarter along with positive bookings trends. The Product Identification and Printing group is continuing to see acceptance of its new products and has seen positive results from the acquisition of Datamax although pricing pressures and slow European markets have impacted margins. Having covered operations, let me now comment briefly on some other corporate information. Free cash flow defined as cash from operations less capital expenditures was up substantially over last quarter improving to 9.2% of sales. The increase is primarily due to higher earnings partially offset by higher capital expenditures. For the full year 2005, we still expect to generate free cash flow in the range of 8 to 10% of revenue. Capital Expenditures were nearly $41 million. One add- on acquisition used approximately $17 million in cash and dividends paid were $32.4 million. We also completed the disposal of Hydratight Sweeney for approximately $70 million in cash. During the quarter, Dover opportunistically repurchased approximately 1.3 million shares of its stock for $46 million at an average price of $36.14 per share. Net debt for the current quarter decreased approximately $126 million resulting in a second quarter net debt to capital ratio of 18.8%, down from the first quarter ratio of 21.5% and the 2004 year end ratio of 19.1%. Dover's second quarter effective tax rate was 28.9% compared to the prior year quarter of 29.6% largely reflecting lower effective foreign tax rates. The six month rate was 27.4% down from last year's comparable period rate of 29.2% reflecting the benefit from a favorable settlement of a U.S. tax court matter. For the full year, we still anticipate an overall tax rate in the range of 28 to 30% before further discrete items and the impact of possible repatriation of foreign earnings. With that overview, let me turn this call back to Ron for questions. Ron Hoffman - Dover Corporation - CEO, President With that we will take questions. Let's try to limit questions to maybe one question and a follow up just so we can give opportunity to all the people that may be queued up on the call. streetevents@thomson.com 617.603.7900 www.streetevents.com 3 © 2005 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. 5. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call QUESTIONS AND ANSWERS Operator [OPERATOR INSTRUCTIONS] Your first question is coming from Wendy Caplan with Wachovia Securities. Ron Hoffman - Dover Corporation - CEO, President Good morning Wendy. Wendy Caplan - Wachovia Securities - Analyst Morning Ron, hi, Rob. Can you talk about pricing across the business, specifically what kind -- on a net basis relative to commodity costs, are you covering them, are you getting real pricing in some places? Ron Hoffman - Dover Corporation - CEO, President Well, we don't aggregate that number ,Wendy in total, but I would say to speak directionally to that, many of our companies certainly have been able to roll some increased costs into true pricing. In other companies, they have only been able to really just recover the true cost increase at really no markup, so there are margin differences in how we have been able to pass that on to customers. We don't have a net aggregate number to share. Wendy Caplan - Wachovia Securities - Analyst But just to clarify, you are covering all the costs higher commodity costs at this point? Ron Hoffman - Dover Corporation - CEO, President Well, I don't want to use the term all, Wendy. I think we are covering a higher percentage of it each quarter. I think we probably in the third quarter will probably have about as high a percentage covered as we might anticipate getting, but it certainly has improved quarter to quarter. Wendy Caplan - Wachovia Securities - Analyst And my follow up has to do with Wilden. Can you comment on the Wilden settlement and what the implications are for revenue over the next few years? Rob Kuhbach - Dover Corporation - VP-Finance, CFO Wendy, the Wilden settlement, frankly, reflects a period of work over probably almost two years where we finally worked through some issues on -- having to do with foreign export controls. Frankly, we don't anticipate it to have any meaningful impact on Wilden's sales and earnings opportunities. Candidly, with the Almatec acquisition we see them as having significantly better opportunities globally than they probably had a year ago and to our minds this puts behind us what has not been a pleasant experience, but has not had a huge impact on Wilden and needless to say has not had any material impact on Dover. streetevents@thomson.com 617.603.7900 www.streetevents.com 4 © 2005 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. 6. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Wendy Caplan - Wachovia Securities - Analyst Thank you. Operator Thank you. Your next question is coming from Steve Tusa with J P Morgan. Ron Hoffman - Dover Corporation - CEO, President Good morning Steve. Good morning. Steve Tusa - JP Morgan - Analyst Just a little bit of a nitpicky question here on, there's about $7 million in all other income on the P&L and also just wondering last second quarter, you're stripping out these discontinued ops and I think Hydratight is in there being stripped out on a restated basis, how much of a contribution, it's got to be less than a penny but I'm just wondering if that's the right way to think about it. Ron Hoffman - Dover Corporation - CEO, President Yes, Hydratight had effectively no impact on prior quarter performance, maybe a penny at most. Steve Tusa - JP Morgan - Analyst But as far as all other income what is that number and where is that classified in the Dover market segment results? Rob Kuhbach - Dover Corporation - VP-Finance, CFO It's basically foreign exchange is really what impacts all other. Steve Tusa - JP Morgan - Analyst Okay. So that would be across the different businesses? Rob Kuhbach - Dover Corporation - VP-Finance, CFO Yes, it would be allocated to the segments basically. Steve Tusa - JP Morgan - Analyst Okay. I mean is there a reason why it was so much bigger than -- that's just foreign exchange. Rob Kuhbach - Dover Corporation - VP-Finance, CFO It's really foreign exchange. streetevents@thomson.com 617.603.7900 www.streetevents.com 5 © 2005 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. 7. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Steve Tusa - JP Morgan - Analyst Nothing unusual. Rob Kuhbach - Dover Corporation - VP-Finance, CFO Yes, it's nothing unusual, last year we were the other way around where we were probably looking at negative impacts of foreign exchange, this year it's probably gone the other way. Steve Tusa - JP Morgan - Analyst Could you just maybe talk about your progress on your portfolio review and the potential for perhaps asset sales and portfolio pruning coming up over the next few quarters. Ron Hoffman - Dover Corporation - CEO, President This is really kind of a continuous ongoing dialogue that we're having with our subsidiary leaders as they look at their portfolios. In some cases, it's a matter of identifying those properties or those markets that maybe don't have the kind of metrics that we would like long term in Dover. But this is a process that's not going to have a defined date of being over, like, it will be over the end of the next quarter, something like that. It's going to be ongoing for a considerable period of time. We do have other processes going on, none of which we're going to announce today, but there are some other actions going on. Looking at the portfolios, that will happen in most of those cases. Some will be opportunistic and some will be planned. Steve Tusa - JP Morgan - Analyst And you would continue to opportunistically buy back your stock with that capital and reinvest in acquisitions as well, is that how we should think about it? Ron Hoffman - Dover Corporation - CEO, President Well, that is how we might think about it, but I would say that acquisition spending and internal spending relative to our company's capital needs will certainly take priority in that area. Steve Tusa - JP Morgan - Analyst Great, thank you very much. Operator Thank you. Your next question is coming from Ned Armstrong with Friedman, Billings, Ramsey. Rob Kuhbach - Dover Corporation - VP-Finance, CFO Morning Ned. streetevents@thomson.com 617.603.7900 www.streetevents.com 6 © 2005 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. 8. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corporation - CEO, President I don't know if we have Ned. Ned Armstrong - Friedman, Billings, Ramsey - Analyst Can you hear me? Ron Hoffman - Dover Corporation - CEO, President Yes, we can now Ned. Ned Armstrong - Friedman, Billings, Ramsey - Analyst Okay, great. In the Resources market, you alluded to some softness in certain industrial markets, which markets were those and do you see them as -- that as an industry issue or as a operating company specific issue? Ron Hoffman - Dover Corporation - CEO, President Well, I'd say at this point with what we can ferret out, it's more of a company specific situation, by that I would say that in the oil path we still see strong signals there across the board, certainly in the gas sector companies that we have. As we look at the Fluid Solutions Group, we have a situation there where I think if you look at some of the comps period to period we have some of the hydraulic pump companies, we have one that has strong presence in France, that region has slowed, so I think that's impacted that company slightly. I think also that we have talked about regulatory compliance with OPW having some success in upgrades of stations certainly in the West Coast area, a lot of that work has kind of been completed. There will be some ongoing, but I'd say the major thrust of that is now behind us. But in general I don't think there's a lot to read into the signal sequentially -- in the ,Fluid Solutions Material Handling, or petroleum equipment, they still have strong order rates and still strong performance queued up in each of those areas. Ned Armstrong - Friedman, Billings, Ramsey - Analyst Is it fair to characterize it as a correctable operating issue that's been put behind them or do you see more difficulty going forward? Ron Hoffman - Dover Corporation - CEO, President Well, as I mentioned, some of it is market related to slow down certainly in Europe. But I would say in some cases there is some moves of cost that, in the case of Warn, Warn is moving some production to Mexico, so they have had some costs that they have absorbed in a current period for that. Some of that will flow into the second quarter, but that will make them a much stronger, more productive company long term. So there's no signal we're seeing yet that says there's been a significant change in the industrial demand. Ned Armstrong - Friedman, Billings, Ramsey - Analyst Good, thank you. streetevents@thomson.com 617.603.7900 www.streetevents.com 7 © 2005 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. 9. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Operator Thank you. Your next question is coming from Jack Kelly with Goldman Sachs. Ron Hoffman - Dover Corporation - CEO, President Good morning Jack. Jack Kelly - Goldman Sachs - Analyst Good morning. Can you give us a little more color in terms of the pick up in sequential demand in CAT bookings Ron, maybe talk a bit about China because I think in the first quarter China bookings at least originally the expectations were light. Also just based on your comment that maybe replacement demand is picking up, so maybe your businesses are going a little bit different way than that whole semiconductor capital goods industry. Ron Hoffman - Dover Corporation - CEO, President Well, I don't know that we are going to run in counter cyclical, Jack. I guess I would say that certainly the thing that was the driver of the past quarter was the stellar performance of the back end semiconductor related companies. That was certainly driven by the capacity utilization rates in the industry as those rates have escalated the demand for equipment has finally come to the forefront and orders for that type of equipment have been quite strong. In fact, some of our companies inside of -- our Everett Charles group and certainly the back end semiconductor side posted record orders in the quarter. So that bodes well I think rolling into the third quarter. Historically, I think as you can relate, Jack, we have always said that as we see back end semiconductor business improve, that tends to be a barometer for the CAT business in general, certainly the assembly sector of that over time, probably with a four to six month delay, certainly we are hopeful we will see that type of performance again in this cycle, but I think it's a little too early to call that total. We have seen improved let's say quoting activity, things that guide us to believe that this cycle will be reasonably normal. Don't know the extent of it yet at this point. When you ask the question about Asia, I guess I would say even though we serve the world so to speak with all these forms of back end semiconductor and assembly machines, the market is truly more an Asia and China market at the end of the day. So I think every time we see a pick up in that marketplace you can attribute a lot of that gain to Asia and China specifically. Jack Kelly - Goldman Sachs - Analyst Okay. So if we looked at sequential bookings up 13%, what you're really saying is the Everett Charles portion was much better than that and it sounds like Universal the placement equipment is still kind of lagging. Ron Hoffman - Dover Corporation - CEO, President Well, certainly not at the same rate. Each of those areas had some increased bookings during the quarter. In fact, the CAT equipment in general was up nicely in the second quarter. Rob Kuhbach - Dover Corporation - VP-Finance, CFO To put it in context Jack, a year ago the second quarter had the strongest CAT bookings, then they have come back up. They're not at the same level as they were in the second quarter of a year ago, but they are the strongest they have been since the streetevents@thomson.com 617.603.7900 www.streetevents.com 8 © 2005 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. 10. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call second quarter across CAT. Frankly that rate basically Everett Charles had stronger rebounding over -- approaching where they were a year ago, but Universal and a number of the others actually in some cases exceeded where they -- DEK and Soltec's booking rates are higher now than they were a year ago. So actually, we are seeing a relatively broad strength across most of the CAT companies, the bigger companies over the last quarter, quarter to quarter and over a year ago. Jack Kelly - Goldman Sachs - Analyst The follow up question, this has been touched on before, with regard to margins, if I look at ,,,Diversified Electronics Industries and Resources, margins were flat to down despite pretty good sales gains. Sequentially you mentioned margins were up. I guess the question really is year-over-year based on this cost price situation, if that's really what's causing the margins to kind of lag here, can we expect the third quarter to see a positive comparison year-over-year. Again, I know it's a broad question, but this has been kind of an issue for the last several quarters with Dover. Ron Hoffman - Dover Corporation - CEO, President I appreciate that, Jack. I would say that certainly the sequential numbers are important to us. That shows us what's really going on inside of our companies and the current state of programs and implementations they have and quite candidly we were encouraged by the sequential quarter to quarter improvement in margins across the board of those industrial companies. I think it's also noteworthy to share Jack that you mentioned Dover Diversified as an example. Dover Diversified really in each of its sectors had really some very nice quarter to quarter and period to period even margin improvements on an operational basis. Companies like Crenlo that are serving the construction market are really not able to get any markup on their steel price increase, so therefore I think you are getting more dollars in there but you're not getting margin for it. Rob Kuhbach - Dover Corporation - VP-Finance, CFO I think Jack, to follow up on Ron's question, I think as you know, Ron has brought a considerable amount of focus to operating margins among other things in his first six months in office as CEO. And I think -- we expect that there will be progress, it will not be linear and it will not be consistently quarter to quarter, every quarter getting better, but we do have an expectation that there's a considerably renewed focus on that effort and we think that you will begin to see those changes over a period of time, but it's not necessarily going to show up consistently the next two quarters for example. There will be some, as you know, some seasonality in our margins in any case and, there's still some issues being sorted out within each of these subsidiaries that tends to impact the sort of segment margin, because those do include depreciation and amortization on acquisitions and there are periodic expenses that we don't discuss that do have an impact on what appear to be the operating margins. Jack Kelly - Goldman Sachs - Analyst Thank you. Operator Thank you. Your next question is coming from Dan Whang with Lehman Brothers. Ron Hoffman - Dover Corporation - CEO, President Good morning, Dan. streetevents@thomson.com 617.603.7900 www.streetevents.com 9 © 2005 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. 11. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Dan Whang - Lehman Brothers - Analyst Yes, good morning. My question was regarding the Product Identification and Printing. You talked about some of the marketplace pressure on pricing, can you talk about, is that more localized in Europe or is it kind of a global phenomena? Ron Hoffman - Dover Corporation - CEO, President I think I would say first and foremost it's been more localized in Europe, and I think that's because the order rate has slowed in Europe in some of the products and that causes I think people to reach to get the orders that are out there and sometimes that's with pricing. I don't think there's been a significant, change in maybe let's say pricing mechanics of us or our competitors. It may be a reaction to right now the market signal, I don't think we're going to see that as a significant, permanent change. There has been some pricing pressure, we have reacted I think well to that. The order levels -- excuse me, the business levels at companies like Imaje and French have been impacted by slowdown in Europe, but I would say that some nice sequential progress though and quite candidly Imaje was back at historical margins in June. It's just a question of how the orders stack up and where the business is at. But I think we don't sense there's any price war type situation. Rob Kuhbach - Dover Corporation - VP-Finance, CFO I think one other thing to keep in mind is Imaje this quarter introduced two brand new products that really replaced some legacy products that they have had in the market for quite a number of years. So to some degree we were encouraged that results in June were good despite the fact that there is some interim noise when you shift from an older legacy product line to some newer products. We think that -- the newer products have been well received and we are encouraged by the fact that we think that will continue to help our margin performance over time. Dan Whang - Lehman Brothers - Analyst And my second question regarding the Food Equipment segment, and you mentioned the strong capital program, is this primarily Hill PHOENIX and is this the resumption in the capital program after some of the industry consolidations that we saw last year? Ron Hoffman - Dover Corporation - CEO, President I think it comes down to which customers are spending money on either new stores or refurbishing the stores they have. Hill PHOENIX has been very fortunate so far this year. I think they have grown at a much faster pace than the industry in general and they've leveraged that into some nice performance. Over the past few years they have done significant work inside their plants to improve the flow of products, to improve their efficiencies. That seems to be coming to bear. It's allowed them to serve their customers even better. The new products that they have out that are targeted for meeting green initiatives in terms of being energy efficient and so forth I think have been received well in the marketplace and Hill PHOENIX seems to be benefiting from those actions. Dan Whang - Lehman Brothers - Analyst Finally I think in the release you talked about some of the restructuring and integration related costs in some of the different segments. Can you talk about -- can you help quantify what that was for the Company overall and what the pace could be going forward? streetevents@thomson.com 617.603.7900 www.streetevents.com 10 © 2005 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. 12. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Rob Kuhbach - Dover Corporation - VP-Finance, CFO I would say, Dan, that as is not uncommon in Dover we have sort of a number that's in the range of $3 to $5 million a quarter, sort of a penny, maybe $0.02. It's not consistent quarter to quarter, but this year we do expect that that -- something on that order could continue for the next two quarters because we have the CFC integration at Vectron, we have some other situations, other companies that I don't want to get into in any specific detail, but between now and the end of the year we anticipate that something on that order of magnitude will probably be occurring each quarter Dan Whang - Lehman Brothers - Analyst Okay, great, thank you. Operator Thank you. Your next question is coming from Robert McCarthy with Robert W. Baird. Robert McCarthy - Robert W. Baird - Analyst Good morning guys. Ron Hoffman - Dover Corporation - CEO, President Morning Bob. Robert McCarthy - Robert W. Baird - Analyst In the -- outside of Technologies, and the Systems segment kind of stood out for the strength kind of across the board, good bookings and backlog development. Could you talk specifically about sustainability, particularly on the packaging equipment side in the second half of this year? Ron Hoffman - Dover Corporation - CEO, President I think the Package Equipment sustainability is always kind of a tough term to refer to and that's because some of the companies that are in there, due to the nature of their orders they're a little bit seasonal and then also they kind of come in big blocks depending on whether there's large can lines being procured or installed. So companies such as Belvac which tend to get large orders in blocks always put a little bit of volatility there. I think bookings have certainly been nice there throughout the course of the year so far. That's been reflected in margin performance period to period. Tipper Tie typically is a little stronger in the second half of the year than the first half of the year, we would anticipate that would be the case again this year. And we're certainly doing some of the restructuring at SWF to improve the performance there in that company. Rob Kuhbach - Dover Corporation - VP-Finance, CFO I would say overall Rob, that the bookings trend in the packaging area has been relatively consistent and this quarter is at a materially higher level than it was over the prior four quarters. If bookings is any indicator, we don't anticipate any significant change in the relative rate. There is obviously a margin mix issue between volume at Belvac, which is obviously relatively high margin, Tipper Tie, which is decent margin, and SWF, which is lower margin. streetevents@thomson.com 617.603.7900 www.streetevents.com 11 © 2005 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. 13. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Robert McCarthy - Robert W. Baird - Analyst Rob, I think I hear you saying that we shouldn't count on that same level of bookings. Rob Kuhbach - Dover Corporation - VP-Finance, CFO No, what I'm saying is that even if you normalize it it's still a strong level of bookings. We have had some choppiness as you know in the packaging area. At least the third quarter looks like -- third and fourth quarter looks like they should continue at relatively the same rate as we have seen this year-to-date. Because some of the bookings, frankly, Belvac's bookings in a quarter can stretch out over six months to nine months. They tend to get -- their order rate is such that they will get a delivery, order now for December or even early next year. When you see a bookings number, particularly for them, you can't assume it's within the next quarter. Robert McCarthy - Robert W. Baird - Analyst Okay. Somewhat in contrast at least from my vantage point, Industries is having a little bit of trouble as a total group creating any momentum. Bookings were up, I realize that, but backlog has been essentially unchanged for the last six quarters. And with the strength that you're talking about in things like refuse collection, what's missing here? What's the missing element and when might it kick in? Ron Hoffman - Dover Corporation - CEO, President Well, I think again I'm going to speak about the margin change from '04 to '05 and also sequentially. We are seeing some nice progress at both of our Heil companies. I think HeilEnvironmental certainly is continuing to gain share in their refuse business and then quite candidly bringing to bear some very nice operating efficiencies inside the Company. Heil Trailer I was just at that company listening to their strategic plan in the past week, and I think they have one of the more robust strategic plans looking forward that I have heard in some time. Kind of a new team, some new members there, some focus, we saw some significant margin improvement in this period on nice increased business. So I think there are things going on inside of the mobile equipment sector of Dover Industries that on the whole are net positive. As we look at the service equipment -- our Service Equipment sector in Dover Industries, Rotary Lift has been fighting some problems on margin. I think somewhat is's a reaction to pricing with some import products. Also some of it's due to the fact they have been installing some new manufacturing methods in their plant that take time to bring to bear. But I'd say in general in each of these cases PDQ's business sometimes has a little bit of seasonality flush to it that would impact margins, but across the board nothing there that we're overly concerned about. I think we are seeing general build at least sequentially, I'm encouraged in that sector I would say. Robert McCarthy - Robert W. Baird - Analyst Okay, thank you. Operator Thank you. Your next question is coming from Alex Blanton with Ingalls and Snyder. streetevents@thomson.com 617.603.7900 www.streetevents.com 12 © 2005 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. 14. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corporation - CEO, President Good morning Alex. Alex Blanton - Ingalls and Snyder - Analyst Good morning. On the steel price and other materials cost increases, you said they were moderating. Does this mean they're dropping or just the rate of increase is moderating? Ron Hoffman - Dover Corporation - CEO, President Well, it's kind of broad based. Let me say this though. In general we have seen improvement in steel prices. However there are certain alloys that some of our companies utilize that are still receiving some price increases, maybe at a declining rate, but still seeing price increases. So it's a little bit across the board a net reduction, but there are spots of certain companies that are still fighting increases. Alex Blanton - Ingalls and Snyder - Analyst Net reduction, okay. Ron Hoffman - Dover Corporation - CEO, President Certainly in the rate. Alex Blanton - Ingalls and Snyder - Analyst Second question is on the outlook for the second half. You did better than expected by analysts in the second quarter. Do you expect that the comparisons will be better or worse in the second half than they were in the second quarter? Is your business overall strengthening to the point where you can continue to let's say outperform expectations? Ron Hoffman - Dover Corporation - CEO, President I don't know if I want to answer that relative to expectations, but I guess I would just say directionally we're in a positive cycle in the back end semiconductor that we're hopeful will transfer into the rest of CAT equipment, so I would say an upward bias in the technology sector as we had head into the second half of the year with the industrial side of the businesses, maintaining a nice solid level of business with some operating performance improvements going on inside those companies. So I think we have a net positive bias looking to the second half. Alex Blanton - Ingalls and Snyder - Analyst Okay. And also on the point you just mentioned, what are you seeing from the contracting industry including both EMS companies and also ODM companies in Taiwan and China? I mean are they buying more or the same amount as last year, what's the trend there? streetevents@thomson.com 617.603.7900 www.streetevents.com 13 © 2005 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. 15. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Ron Hoffman - Dover Corporation - CEO, President Well, I think it becomes one of utilization rate. I think as their business picks up they're eventually going to get to the point that they're going to have to either buy new more productive equipment or they will start to have some demand. I'd say that from what we know and what we see is that the book to bill rate has improved in that sector. That's always a harbinger of improved results in that sector. We tend to leverage pretty well on the upside. I can't sit here and specifically talk about ESM gains or whatever except that the utilization rate of equipment, the trends of the industries, certainly are showing uptick in all the graphs and signals that we're looking at. Alex Blanton - Ingalls and Snyder - Analyst Okay, thank you. Operator Thank you. Your next question is coming from Nigel Coe with Deutsche Bank. Nigel Coe - Deutsche Bank - Analyst Good morning. Ron Hoffman - Dover Corporation - CEO, President Good morning, Nigel. Nigel Coe - Deutsche Bank - Analyst I have a question, you mentioned earlier on the focus on improving margins and we have already seen that happen on a sequential basis. Is this going to happen primarily from maybe you selling underperforming assets or do you think it's more a case of driving more cooperation amongst subsidiaries and maybe getting synergies that way? Ron Hoffman - Dover Corporation - CEO, President It's not going to be driven by the selling of properties, that's really not what I'm speaking to when I talk about margin improvements at all. These are internal improvements inside our companies. I think the renewed focus that we've placed on metrics inside of Dover are certainly getting attention, I hear more and more discussion on it every meeting that I go to, the people take that seriously they are coming forward with what I would say are some very defined plans of what they're doing to bring this improvement to bear. It's internally generated, it's not generated through the sale of companies. Nigel Coe - Deutsche Bank - Analyst Okay. Secondly to follow-on, looks like corporate costs picked up a little bit this quarter from last quarter and the previous year, what drove that? streetevents@thomson.com 617.603.7900 www.streetevents.com 14 © 2005 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. 16. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Rob Kuhbach - Dover Corporation - VP-Finance, CFO There were really two big factors, compensation and pension expenses rose in the range of, I'm talking six months numbers now, they rose around $2 million of the $6 million delta was that, and professional fees relating to things Sarbox and other activities are up probably $2 million, and the balance is miscellaneous list of items. Nigel Coe - Deutsche Bank - Analyst Okay, thanks. Operator Thank you. Your next question is coming from George Nissan with Merrill Lynch. George Nissan - Merrill Lynch - Analyst Thanks a lot guys. Ron, you always seem to--. Ron Hoffman - Dover Corporation - CEO, President Good morning, George. George Nissan - Merrill Lynch - Analyst Great, good morning. Ron and Robert you guys always seem to amaze every quarter, always put up great numbers, congratulations. Ron Hoffman - Dover Corporation - CEO, President Thank you. George Nissan - Merrill Lynch - Analyst Couple of things for you, Ron. Over the past year a lot of your competitors have recently implemented some new strategic initiatives to reduce their raw material costs by establishing better lines of communication with their supplier base, overall reduce their supply chain cost, and improve their efficiencies. Wonder if you can provide some color as to what you guys are planning on doing from now on to establish a better line of communication with the suppliers to overall improve your total supply chain? Ron Hoffman - Dover Corporation - CEO, President Well, again, let me kind of give you how we do that inside of Dover again. Again, we do not aggregate our purchasing volume at a corporate level, we don't have a corporate entity involved there. However, we do have a purchasing counsel where our purchasing professionals from each of our companies get together and they have identified seven or eight core segments where they have aggregated their purchasing power and then took that purchasing power to the market and leveraged it into improved costs by reducing or by again leveraging their volume. We have seen that happen year to year now for the last couple of years. It's been very active, it's been very beneficial to us in cost savings. In fact, we have a meeting coming up in a month or streetevents@thomson.com 617.603.7900 www.streetevents.com 15 © 2005 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. 17. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call so with that group again. In fact, we have Ram Charan, I think queued up to help be the introductory speaker there to help again put focus on velocity in our companies and put focus on the things that we can do to continue to drive improved performance in that area. I would say that each of our companies have unique relationships with their suppliers that they work in concert with each of their suppliers to not only reduce costs but try to find ways to be for efficient for both us and our supplier. And I repeatedly hear comments to that. So I would say that we are able to aggregate, in many cases we are able to leverage ourself, in many cases even without having a central purchasing group. George Nissan - Merrill Lynch - Analyst When you say -- talking about suppliers, are they meeting with them quarterly to discuss like quality issues, are they scorecarding and based upon certain metrics that you guys are looking to achieve? Ron Hoffman - Dover Corporation - CEO, President Well, again when you have 50 different operating companies there's 50 different approaches to that. But I would say many of them do have formal programs of monitoring their cost and quality from their suppliers. They're having certainly periodic meetings whether it's monthly or quarterly, I wouldn't want to specific to specific companies, but I know I'm certainly hearing a lot of dialogue at our companies and the fact that -- it relates to the fact that they are spending time with their suppliers and also challenging their suppliers with a lot more global sourcing that makes certain that we are getting the best price on a worldly basis. George Nissan - Merrill Lynch - Analyst Steel prices have definitely been moderating over the last couple quarters, are there certain commodities that are still of concern within your different divisions? Rob Kuhbach - Dover Corporation - VP-Finance, CFO Stainless steel probably comes to mind, some other alloys that Ron mentioned earlier, that contain nickel, melithium, things like that, titanium on occasion, some of the petroleum based raw materials that are used in certain applications in various companies obviously have been impacted by the oil price increase. But I would say, in general I think, every company has within its control the ability to try to attack those kinds of issues and I think all of them work individually and where they can as a group to try to manage those cost increases. George Nissan - Merrill Lynch - Analyst Final question, what's been your supplier feedback, are they pretty interested in what you guys have to offer because I know Dover has always been on the cutting edge of technology, always one to work with their partners, their vendors, and the suppliers, what's been their feedback, are they agreeing with you, are they kind of kicking back, how are they looking at this? Ron Hoffman - Dover Corporation - CEO, President I think our companies in most cases are market share leaders, they're recognized in industries, they bring nice volumes to suppliers. So we have a relationship that I think is very honored by the suppliers and they try very hard to maintain their relationship with Dover. So I think it is a net positive. streetevents@thomson.com 617.603.7900 www.streetevents.com 16 © 2005 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. 18. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call George Nissan - Merrill Lynch - Analyst Perfect. Congratulations on a solid quarter, good luck down the road. Ron Hoffman - Dover Corporation - CEO, President Thank you. Operator Thank you. Your last question is coming from Robert McCarthy with Robert W. Baird. Robert McCarthy - Robert W. Baird - Analyst Sorry, it took me a second to find my mute button. One of the -- again this is a detail, but your prepared remarks you made reference to ongoing strength at Triton. Are you starting to gain any traction with the bank oriented product there? Ron Hoffman - Dover Corporation - CEO, President Yes, we are. The ATM business at Triton, they are putting focus on the bank financial centers business. They are having some success. Some of their focus is offshore, but I think that that and the fact they have some new products are really helping them in their thrust to broaden the business beyond just the retail sector only. They have had some success in China with one of the major banks in China as being named as a source for ATM's and we hope to see that roll out into volumes as we move forward. Robert McCarthy - Robert W. Baird - Analyst But they have not had a similar high profile win in Europe or North America. Ron Hoffman - Dover Corporation - CEO, President I'm not going to be able to cite you specifics. I do know that they're very active in Canada, they're very active in Europe and in England with some nice programs. But I can't give you specifics on those. Rob Kuhbach - Dover Corporation - VP-Finance, CFO I would say Rob they have made significant progress really to some degree below the top tier banks. Where they have been focusing much more is on the credit unions. There are like 5,000 other banks in regions and in different industries where frankly they have a very good product. They also bought some technology from Fujitsu that allows them to basically allow their ATM to link directly to the main ATM networks transparently. So they are continuing to make progress sort of a little bit below the radar screen of some the two major players who obviously continue to be pretty heavily focused on the major city banks. Ron Hoffman - Dover Corporation - CEO, President I think we're encouraged by the fact, I think Triton is being viewed more than just an ATM -- a retail ATM supplier. I think they are gaining traction at least with the new product offerings they have brought out. streetevents@thomson.com 617.603.7900 www.streetevents.com 17 © 2005 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.
  19. 19. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call Robert McCarthy - Robert W. Baird - Analyst And if I could be permitted one last follow-up. In your discussion of the Material Handling group, and I don't know whether you're talking about the consumer product or the industrial product, you made reference to geographic market expansion initiatives, what specifically are you talking about? Rob Kuhbach - Dover Corporation - VP-Finance, CFO Material Handling. Which is in Resources. Ron Hoffman - Dover Corporation - CEO, President Yes, I -- Bob, I don't know -- Warn. Robert McCarthy - Robert W. Baird - Analyst Ron, this is your old business, you ought to be on top of this. Ron Hoffman - Dover Corporation - CEO, President When you're speaking of geographic revenues I was trying to think through the companies. I mentioned I am trying to go back to preferred text, is what we were fumbling through to see what we said. We are moving some supply line side of Warn to Mexico purely as a cost reduction move, capacity move. That may be what you were hearing there. Each of these companies that are in the Material Handling sector certainly serve the domestic market first and foremost. Warn is probably one of the stake or probably the two that have the most global presence. They continue to be strong in those regions, but the automotive industry has been off, which has impacted the stake hold slightly. Robert McCarthy - Robert W. Baird - Analyst Thanks. Operator Thank you. I would like to turn the floor back over to Mr. Hoffman for any closing remarks. Ron Hoffman - Dover Corporation - CEO, President Again, I thank you all for your questions. Again, we're very pleased to have the results that we had in the second quarter and we look forward to having the third quarter conference call and hopefully building on these. Thank you very much. Operator Thank you for your participation. This does conclude today's teleconference, you may disconnect your lines at this time and have a wonderful day. streetevents@thomson.com 617.603.7900 www.streetevents.com 18 © 2005 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.
  20. 20. FINAL TRANSCRIPT Jul. 22. 2005 / 9:00AM, DOV - Q2 2005 Dover Corporation Earnings Conference Call 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. ©2005, Thomson Financial. All Rights Reserved. 1093376-2005-07-22T15:50:44.170 streetevents@thomson.com 617.603.7900 www.streetevents.com 19 © 2005 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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