Q3 2019 Earnings Call
Brad Cerepak senior Vice President of cheap and Chief Financial Officer, and Andre Kelly.
Vice President of corporate development and Investor Relations.
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Thank you I would now like to turn the call over to Mr. Andre Delhi.
Mr. Guy Elliott. Please go ahead.
Thanks, Stephanie good morning, welcome to doors third quarter 2019 earnings call.
What are your portion of this call will be archived on our website for three months.
<unk> non-GAAP information and reconciliations between GAAP and adjusted measures included in our Investor supplement and presentation materials, which are available on our website.
Our comments today may contain forward looking statements, we fortune everyone to be guided in their analysis of Dover by referring to our Form 10-K .
For a list of factors that could cause our results to differ from those anticipated in any forward looking statement.
Well undertake no obligation to publicly update or revise any forward looking statements, except as required by law with that I would like to during this call over to rich.
Thank you Andrea good morning, everyone and thanks for joining us this morning's conference call, let's get started on slide three.
Q3 organic revenue was up 6% for the quarter. The growth was broad based across the portfolio. One is positively impacted by improved production performance.
Allowing us to ship product at a higher rate than Q3 last year, particularly in the fluid segment.
Bookings in the quarter was solid with 7% organic growth with fluids and engineered systems posting book to Bill above one [laughter] adjusted segment earnings increased 17% to $320 million contributing to 180 basis point improvement in operating margins over the comparable period.
These results were driven by strong revenue conversion on volume leverage and continued improvements in productivity and cost controls more than offsetting unfavorable mix and labor cost inflation.
Adjusted Q3 earnings were up 15% to $235 million, an adjusted diluted EPS of $1.60 a share was up 18% year over year.
As mentioned during our Investor meeting in September . This is a last period, which will report under the legacy segment structure. Starting in Q4, we will report using the new structure and provide full year comparative data.
Overall, we are encouraged with the results for the third quarter and first nine months for 2019, a revenue was increased organically by 5.5% year to date and our Rightsizing in operational actions are yielding robust margin improvement with resulting increase in comparative free cash flow.
We are entering the last quarter of 2019 was a solid solid order backlog across all our businesses as well as strong momentum in execution towards our margin targets and as a result, we're tightening our full year adjusted EPS guidance to the top end of our ranged from $5, an 82 cents to $5, an 85 cents per share.
I'll pass it over to Brad here, Thanks, Rich good morning, everyone.
Let's go through the details starting on slide four.
All in revenue grew 4% to 1.8 billion. It was driven by strong demand throughout our fluids and engineered systems segments.
Yeah, Cps increased 33% to $1.40.
Moving to non-GAAP results.
As mentioned, we achieved significant margin accretion in the quarter with adjusted segment EBIT of 180 basis points over the prior year, reflecting strong conversion on increased volume and continued execution of productivity initiatives.
Adjusted segment EBITDA was 385 million a margin of 21.1%.
Key adjustments for non-GAAP results this quarter were acquisition related amortization and Rightsizing and other expenses.
EPS increase was supported by four cents were 5.2 million of discrete tax benefits slightly below the five cents benefit in the prior year.
Turning to slide five.
Let's get into a little bit more detail on our revenue in booking results in the quarter.
As mentioned in her summary, organic growth was solid at 5.6% driven by fluids and engineered systems, and partially offset by refrigeration and food equipment.
As you can see foreign exchange rates negatively impacted our revenue and bookings.
FX was 1.6% or a 29 million headwind for revenue, which had a 4 million impact on earnings with the most notable impact on our businesses Levered to Europe and Asia.
We expect these FX headwinds to persist in the fourth quarter.
From an organic growth perspective, engineered systems grew 42 million or approximately 6%.
While fluids grew 68 million or 10%.
Refrigeration food equipment revenue decreased from 12 million or 3%.
Bookings increased organically, 6.7% and work and all in were negatively impacted by FX.
And engineered systems organic bookings increased 61 million or approximately 9% driven by strong order intake intake in digital printing.
And the environmental solutions group.
Bookings in fluids also increased 61 million or 8% organically with strong growth in the fueling and transport in process solutions markets.
Bookings in refrigeration and food equipment declined 8 million.
Finally, our book to Bill finished that 0.99, well backlog at the end of Q3.
Was 3% higher than this time last year, driven by engineered systems, and refrigeration and food equipment.
Well geographic perspective, the U.S., our largest market grew 7% organically driven by strong performance in engineered systems and fluids, partially offset by refrigeration and food equipment.
Europe was up 8% with all segments, posting organic growth and a particularly strong quarter from fluids, which was up nearly 20%.
All of Asia grew 6% organically, we're trying to drive into growth at 20%.
Our fluids business was up 6% in Asia overall, with nearly 30% growth in China on the strength of both retail fueling and process solutions businesses.
Engineered systems was up 10% in Asia, whereas refrigeration and food equipment was down mid teens, primarily due to slower demand for heat exchangers in the region.
Let's go to the earnings bridge now on slide six.
Starting on the top.
Engineered systems adjusted segment, EBITDA improved 17 million, largely driven by volume and productivity initiatives more than offsetting headwinds from FX.
Foods growth of 35 million reflects a combination of robust growth continued margin improvement in retail fueling and acquisitions.
The 7 million decline at refrigeration and food equipment reflects lower volumes for Swip heat exchangers and slower activity in food retail.
Going to the bottom chart.
Adjusted earnings from continuing operations improved 31 million or 15%, primarily driven by higher segment earnings, partially offset by higher corporate costs and taxes.
The effective tax rate, excluding discrete tax benefits is approximately 22%.
For 2019, 30 basis points higher than the prior year on a comparable basis.
Now on slide seven.
Year to date free cash flow was 447 million 863 million improvement over last year.
Our cash flow was strong in the third quarter at 16.7% of revenue versus 11.8% in the comparable prior period.
Despite strong topline growth through the year, our focus on working capital efficiencies drove a net improvement year over year.
As we turn our attention to the fourth quarter, given the uncertain macro environment, we will manage our production schedules to meet or cash flow objectives. The fourth quarter is traditionally our strongest cash flow quarter.
Capital expenditures were 137 million year to date slightly ahead of last year.
Well why we expect our capital expenditures to ramp in the fourth quarter. We do expect several of our investments planned for 2019 to carry over into 2020.
With that let me turn it back over to rich Thanks, Brad let's move to the segment slides.
Engineered systems delivered top line organic growth of 6.3% largely driven by our industrial platform. As you can see in the bridge incremental margin was strong exceeding 50% as we converted well on volume growth in digital printing and refuse trucks and continued to gain efficiency across the businesses.
Printing and I'd platform grew organically by 4% driven by activity in digital printing on the heels of a strong order pipeline coming out of the intimate trade show in June .
Overall, the platform has performed well with particular strength in Asia were increased shipments and digital printing more than offset the weaker demand environment from marking and coding in China.
The industrial platform posted 8% organic growth our waste handling business continued to deliver double digit growth as demand remains strong for both traditional equipment and software with digital solutions business growing over 50% year over year.
Vehicle service business posted 8% growth on stronger aftermarket demand in Europe , which has been slow in the past few quarters to stake or continued experienced slow demand and automotive OEM and MPG was flat for the quarter due to timing of orders for a specific defense program, but continues to carry a significant backlog.
As demand conditions in the defense sector remain constructive.
Bookings for engineered systems remained solid at all but two businesses posted book to Bill above one with particular strength in digital printing and waste handling which booked several large orders replenishing. It strong backlog overall, we enter the last quarter on solid footing for the segment largely driven by printing and I'd platform, which is accretive to consume.
Hi, David margins.
The fluid segment posted strong organic growth of nearly 10% for the quarter, which with continued strength across all businesses.
Adjusted segment margin increased 340 basis points with incremental margin in excess of 50% driven by volume leverage and improved productivity more than offsetting negative geographic and product mix adjusted EBITDA margin increased to 24.2%.
Our pumps and process solutions business had an excellent quarter posting organic growth of 9%.
Maag at a strong third quarter deliveries in the plastics and polymer markets in Europe , and Asia, which were backend loaded to Q4 in 2018.
Biopharma and thermal management markets continued to deliver double digit growth during the quarter shipments remained robust for industrial pumps and precision components business. Despite the weakening macro demand environment.
Fueling and transport posted organic growth of 11% as demand remained robust across all geographies for both underground and above ground equipment systems with particular strength in China, which is going through the final stages of its underground piping upgrade cycle.
Envy demand of the U.S. improved sequentially, but remain choppy and was not a significant attributed contributor to comparable growth.
Bookings in the segment grew 8% organically over the comparable period, the macro environment is showing signs of slowing in some end markets, but we remain constructive.
As the segment enters Q4 was a backlog roughly flat year over year, albeit more skewed towards longer term projects.
Refrigeration and food equipment organic revenue was down 3% that adjusted EBITDA margin of 13.3% margins were pressured by lower volume in frictional cost as we continue to restructuring or manufacturing footprint in this segment.
Activity in food retail remain mixed systems and services projects continue to decline year over year as new store activity remains subdued our core case door case product line food retails largest sustained double digit growth in revenue in backlog as retailers continued investing in store.
Remodels swept posted a flat quarter on a rebound in European demand offset by continued weakness in demand for heat exchangers in Asia.
Bookings in the segment declined 2% organically, mainly due to lower activity in refrigeration systems business. We enter Q4 with two thirds of revenue in the backlog for food retail business and a constructive outlook to book shipments against several large contracts, we signed last quarter.
Swept belvac enter Q4 with an increase in comparative backlog.
Moving to slide 12, slide 12, disaggregate the key sources of EPS accretion this quarter solid growth and operational actions continue to yield strong results driving the majority of the 18% EPS growth incremental conversion of margin for the quarter was 60%.
We are reiterating our revenue guidance for engineered systems, and tightening up where the guidance or fluids recall fluids posted 17% organic growth in Q4, 2018, setting a high watermark for comparable period for the comparable period. This year, we expect refrigeration and food equipment to post flat revenue in two.
2019, after an 8% decline in 2018 as the market stabilizes after resetting to remodel driven demand.
Overall, we are encouraged with the performance. So far this year as we continued to deliver robust organic growth and margin conversion, we are executing well on productivity and cost initiatives and are working closely with our customers to sustain growth.
Demand conditions remain constructive across most businesses, but visibility and sentiment are cautious in some sectors.
We have a lot of our plate between now and the end of year with several major capital projects underway and an interesting inorganic pipeline, but we remain focused on closing out 2019.
So to wrap up despite the uncertain macro environment, a strengthening us dollar in a challenging Q4 revenue comp we are well positioned to deliver a solid close to the year for both cash flow in earnings and as such we're tightening our full year guidance to the top end of the range.
From 582 to 585 per share and with that let's move onto the QNX.
Andre.
Definitely let's open acuity.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad that star one.
When you do ask your question please limit yourself to one question and one follow up.
Our first question comes from the line of Andrew Obin with Bank of America.
Hi, good morning rich.
Good morning, Andrew Good morning, everybody else targeting Andrew.
I love that up through the down last slide 12.
All right so tried to wake up.
Let me ask through a lot of sort of we've got questions from investors on bookings.
Those were very good and given the tough comps in Q4.
Hey, you know how much of sort of one time stuff did you have a in the third quarter.
Because it does seem that you were helped by the printing I'd I think some of the refrigeration bookings maybe happened that you've got in second quarter, helping him third quarter.
Sort of so how much of onetime stop you Havent threeq here in terms of robust bookings and can you think you can deliver positive bookings.
Q4.
Well I think that I don't want to comment on where we end up on Q4 bookings we'd like to see.
That end, but I'll give you some color right.
A lot of what we did in Q3 comparatively is as based on production performance and to a certain extent order timing. So if you remember last year, we were just coming out of.
Period in the fluid segment, where we are where our backlog was high but that was driven by the fact that we are having trouble getting product out.
At this time last year, our production performance in retail fueling was significantly better this year than it was last year, which both drove the revenue line and the margin delivery. In addition to that in the pumps and process solutions business, particularly in maag.
We delivered basically our Q4 last year in Q3, so it was great to get the product out because these are our systems related in Q3, but that makes the Q4 comp even more difficult than even we would event estimated at the beginning of year. The fact of the matter is if we got that out of production and it's ready to.
Go let's ship it.
In terms of backlog I mean, if you go back and look at the comments the backlogs great.
That sets us up well.
But the fact of the matter is if you look in.
E.S.G. our backlog a lot of that is flowing into 20 as opposed to our ability to converted into 19, and especially so in maag and in precision components also would those are longer term systems contracts, which we're happy to have because we will be ship in the next year, but I don't think.
They were going to be able to convert them in Q4 up just because the long cycle nature of.
Production.
Thank you and I've done the question on refrigeration, what's happening to labor costs.
In refrigeration and away of ties into Opex investment around the plan automation into Fourq you and.
2020, the bigger issue in refrigeration is not labor costs per se its labor availability that ends up.
Rolling into overtime, which ends up so the labor costs net net is up but it's it's the real struggle are happening is not a rate of labor cost. It's more of the availability. So we're running a bunch overtime trying to get the product out and it is negatively impacting margins, but the end of the day that is what.
We're hoping to resolve in the future by automating the process and taking a significant amount of the labor out.
So.
If you looked at the PNM labor cost would be up but it's not driven by rate, it's driven by the amount of OTI that we're running.
Oh Rich Brive you made it located this quarter. Thank you. Thanks congratulations thanks.
Your next question comes from the line of John are and where that Gordon Haskett.
Morning, everybody good morning, much more and John .
So fluids I think if I look at your guide right for organic revenues for the year it implies.
The core sort of down high single digit rich you went through some of that based on the timing Mag pull forward and so forth.
Is that it or is there if there's something else I personally am I right about the down high single digit corporate fluids in the fourth quarter and if there's something else.
Going on that maybe could actually boost that business versus expectations.
Okay.
Well look I mean at the end of the day I think that we've been trying to tell everybody all year that the comp in Q4 in the fluids segment was going to be tough because we grew 17% in Q4 last year.
I think it's going to be interesting when we go to the new segments, because when you look at bookings and revenue.
You've got really two different kinds of businesses and they're kind of like short cycle demand, which would be fueling systems and then you've got kind of long cycle demand and what we have going on is.
Backlog is up but it's bias towards longer term demand, which is DPC and market because of those are longer term projects. This is not to say that that the above that that fueling solutions is going to have a bad fourth quarter, but the fact of the matter is that we've known all along that shift.
A lot last year, because we had a self induced backlog of not being able to get the product out and we've done a much better job in terms of production performance. This year, which is reflected in the margin. So there's really nothing going on so to speak other than timing differences between on production performance.
Well I guess part of the issue is that we're going to have tough compares into literally for the first three quarters of next year to all else equal to that prospectively subdue growth. Similarly, Nevertheless, with some kind of onetime or is right in the fourth quarter like if I love I look at estimates for top line growth for 22.
Okay, and we haven't given out any guidance for 20, but if I look at it.
I don't think that we have an issue based on our backlog right now.
Got it, but clearly and I've read a bunch of the research reports this notion of us kind of missing Q4, it well, we just beat Q3, so the assumption as you've got a moderate Q4, and we've been pretty clear that the topline was going to be a tough comp for fluids into four.
No it's clear the our RF any segment, so I mean, it Didnt show sequential improvement so it deteriorated on the margins sequentially I think I think you've sort of explained that the question is.
I think the automation stuff, obviously picks that back do you still see a path rich to 15% to 16% margins in retail refrigeration that you outlined in.
Thank you I do.
Look we are.
No we're in the midst of consolidating.
On.
You bees platform, which is causing some consternation in terms of getting the product out in some and some transitional cost because we're going from five to three in terms of the footprint.
And we are throwing labor right now at increased volumes indoor case, and it's costing us some money to do that but I think.
We should have some good news in terms of backlog based on what I can see indoor case, leading into Q4. Despite the fact that Q4. The seasonality is usually one of the worst quarters, but I think was I think we're lining up to have some good news in terms of bookings at least.
Going into 20.
Just last given the choppy economy did you see like how did the third quarter play out for you traditionally september's very strong month right for most industrial companies, where their anomalies as you went through July August and as you ended September into October .
I think that there is.
Amount of caution that's out there.
Specially the through distribution about everybody trying to manage their inventories to the bell as it through the end of the year.
I think that we performed in the fluid segment better than we expected, especially on the underground side and that.
Because of this transition with the regulatory environment on the piping. So I think the guys did a fantastic job of getting the product out, but thats kind of pulling away from Q4, two with certain extent and we knew that that was going to slow into 20. So.
We're maximizing performance, but clearly.
The market sentiment is not as good as it was this time last year.
It's refreshing to hear a company not managing quarters, but actually just getting the getting this tough shipped a very much appreciate it. Thank you.
You're welcome.
Your next question is from Andrew Kaplowitz with Citi.
Hey, good morning, guys Norton warning.
So good margin from continuing arise when you talked at the analyst day that sealing solutions continues to be a near term opportunity for margin enhancement are you thinking at this point now through restructuring.
You got to the 15, the second thing can present margin and BFS and that you've gone through it have you found incremental margin opportunities or the strong incremental than that business really just a function of the strong growth. Thank you Todd.
Well, there's two pieces to it right I think that when we referred to the margin catch up opportunity that was on the growth the above ground portion of fueling solutions and I think if you we don't disclose that number but I can tell you that that is where a significant amount of the year over year margin accretion is come from.
So the team has done a really good job and in terms of executing on that on the below ground side.
It's just pure volume right I think that we've had arguably leading margins in the below ground side and they've been executing well and.
I believe that we've gained market share in that particular segment. So.
I don't think that Weve extracted everything that we can from the above ground portion I think that as I mentioned back in September I think that we need to improve our margins in the EMEA region.
But overall I can you know I think that we're we're reasonably pleased but we don't feel that were at the end of the runway.
Got it and then just talking regionally and by your performance. Obviously just mentioned the underground inflection instead of regulation in China, but cannot was a good Wifi last quarter, obviously very strong this quarter in Europe continues to be strong. So maybe you can talk about those particular regions and booking fee going forward did you see.
Any stability trends and can get into like get my in China or have they continued to weaken.
I think that the rate of weakening in my is relatively static two last quarter. Okay. So it didn't get any worse than that didnt get any better.
I think that the we performed well.
Better than expected in in fluids.
On the underground portfolio.
Fueling solutions.
That may be a little bit about pull forward.
In may for US as you know is always a messy number because we've got some substantial businesses there that export a lot. We do our best of trying to recognize revenue, but you've got a business like digital printing for example that had an excellent quarter as we expected.
That is 100% of that output.
Recognized in euros, but its exported and around the globe. So you know I are are you are a may a number is always it's more may than the if you follow me.
Yes.
Thanks, guys next quarter.
Thanks.
Your next question is from Jeff Sprague with vertical research partners.
Thanks, Good morning, guys.
Hey, just back on fueling rich I think you just as you get more runway there not surprised to hear that but.
The improvement that that we're seeing would you call. This still just kind of better operational execution among the business as it sits today or are we seeing.
Kind of fruits, it really trying to maybe better integrate OTE Oh PW in total time, and Wayne and just thinking about what was rolled up in prior years, and maybe wasn't really fully stitched together.
More of the former.
Right. So I think a lot of it is some of the operational issues that we had last year have been not fully but a lot of that has been rectified. So when I referenced the issue of improved production performance Q to Q, that's really what I'm talking about.
I think that they we've made a lot of initial progress in terms of the integration, but that's really a European phenomenon for the most part and really that's what we need to continue to work on I think I think that there's been a lot of work done on it and preparation.
For harmonization of platforms between Wayne and telecom in Europe , but I don't think we're really seeing the benefit of that yet that's to come.
And you said M.D. did not contribute to growth does that mean, it didnt grow or didn't grow to different growth rate than the second it grew but it did not materially impact the growth rate in Q3.
And just one last one.
Cases versus doors were you, saying just doors were up double digit I Didnt really no Ed it's like an integrated offering now almost its door case, yes, okay up double digit in the quarter well.
Thank you.
Your next question is from Nigel Coe with Wolfe research.
Thank you guys aren't as good morning.
So a great free cash flow in the in the quarter for some of the free cash as being a.
Little bit lumpy, you about strong growth, but no surprise that but.
Brad you called out the seasonality impact in Fourq. You know me talk you cash flow is higher number one do you feel comfortable he can grow free cash flow sequentially from what you Didnt three acute and therefore, we will be pushing towards the upper end of the range in terms of free cash margin guidance.
Okay.
We are quite frankly, we're pleased with the execution here in Q3, and it's I think it's the first time, we're actually calling out that we've made progress on our working capital, which was great to see we're continuing that.
Those actions into the fourth quarter.
The thing we did point out and we continue to say is that this is going to be.
More heavily invested year, which means we're set up to have a stronger capex spend in the fourth quarter, having said that I still see that we're going to execute well into the fourth quarter.
And we'll we'll be delivering strong cash again year over year. So we feel we feel confident about our cash flow for the year.
Okay I think that's good enough.
Then just I'm upbeat most of the metrics came in extremely strong if I had to be critical gross margin conversion was was it was not a great quarter. If I, if I, if I would like to dig into.
Kind of what needs to improve so maybe just maybe unpack gross margins on the 10 Bips declined I think it was year over year.
You know kind of what impacted that.
Maybe price cost mix, and then rich what improves in 2020 in terms of getting that gross margin devoted better.
I think it was mix more than anything else of we on packet between kind of input cost headwinds and labor inflation versus price were better than and tariffs were better than neutral. It's really mix at the end of the day and mix you can't control I mean, if you look at.
Let's pick one like a company that like BSG that posted an excellent top line growth, but the gross margin was down some it's all mix related but that's something overtime.
But we think that we can rectify because its specific product line, that's kind of ramping up and we're dealing with some of the cost associated with that so.
There's a lot of different initiatives that were going that are going on and we'll take some negative mix, it's not price driven up buying market share, but it's kind of some transitory issues in terms of building up new product lines and alike.
And if you look at the geographic mix of our revenue.
Let's go back to the questions are at talked about before I move pretty up front then.
That fueling solutions and May a margins are negative to consolidated margins and they had a pretty good quarter. So we'll take the revenue when we'll take the absolute earnings but it comes out as a negative as on the negative mix. So.
The mix, we can't really control I think that we're trying to.
Be disciplined in terms of pricing in a variety of other things but.
I don't want to shut off the top line trying to manage gross margin.
I've got it thanks much.
Your next question is from Julian Mitchell with Barclays.
Thanks, a lot good morning.
Just wanted to ask a first question around refrigeration and food equipment demand not so much around dual versus case or dual case bookings in Q3 versus Q4 or whatever but just.
Last year as you said organic sales down eight.
Yeah, maybe flat.
Flattish, let's say.
How do you think about the overall customer spending.
Argument.
Maybe for 2020 or even for the medium term do you really think this is a floor in sales.
For that segment and why you think we are on the sort of replacement.
Cycle for customers I think that the market is transitioning.
The way that we expected admitting that it's now driven towards repair refurbishment, which is good and that's what's driving the door case portion of the volume I think the Greenfield Buildout is continued to be week. So it's a negative to systems.
So systems from here, it's hard to say I mean, it's how long is a piece of a string it's pretty damn low in terms of the demand right now because we don't see a lot of a big big box Greenfield expansion going out there but.
We are.
Getting slightly encouraged at least in terms of the door case demand, which is the bulk of the business and that's the part that were intervening on in terms of its cost structure. So.
We feel.
Based on what we can see right now and as I alluded to during earlier in the call I think that.
We should hopefully have some good news about bookings and door case close in Q4, which sets up 20.
Better than that 19 on the system side I would I would hope that work before right now.
And if you think about what that means margins I mean, this year in refrigeration and food you've got.
Got you sales.
Margins down slightly probably for the year.
If you have flattish sales in 22, we think the margin performance can be better.
I hope so I made a lot of that is going to be predicated on how we.
Execute on the start up of our automation on on inhale from the Hillphoenix side of the business. So I.
I would expect that we're going to have some hiccups in Q1 in Q2, I mean, it's a pretty big project, but I think overall.
I think that we can post increase margins that were expecting to it.
Post increased margins on the top line next year.
Thanks, and then just my second than last topic would be around capital deployment.
Buyback spent in the nine month period, I think $23 million. So very very low I think in the prepared remarks, you'd mentioned some attractive M&A opportunities, maybe just flesh out how you're thinking about that.
There are a lot of opportunities that you can still do it that 10% year three ROIC hurdle rate well, it's interesting I think that the amount of opportunities has increased significantly over the last let's say six months.
The pricing environment is still tough we lost out on one in.
Q3 that we would have liked to executed but the purchase price just got.
We got bid out.
At the end of a day that but having said that I think that we've got a better a much better pipeline that we did last year.
The remains to be seen if we can have a meeting of the mines in terms of valuation and get them done. So I think that we feel good that.
Based just on the number offer of of attractive opportunities that you'll see some increased activity there.
Great. Thank you.
Your next question is from Scott Davis with millions research.
Hey, good morning, guys, Hey, Scott.
What.
Rich has there been any real change in the M&A processes.
Kind of how you guys.
Whether the the bodies or the.
Process or the filters or anything that you're doing differently. Since you came onboard.
I guess, that's hard for me to say.
I'd spend the same for the year and a half that I've been here and I've never retrospectively looked back at the processes in the past.
But I think that.
Got a pretty robust process for it right now.
We walk away from quite a bit unfortunately, considering the pricing environment.
So we got to have the discipline like has just mentioned, we we spent a lot of time and money on one that we just lost out on do devaluation in the quarter and Thats like sometime so.
I can't speak of the past of the process I can just say that.
We are confident and the team that we have here that is objective really evaluating these these businesses.
And just to follow up on that I mean, where are the.
Lion share your opportunities come from or they are they books that are out there today.
Sponsor stuff as it is this stuff that you guys are internally cultivating a combination of all just because it's a combination of all that's a combination of law.
Okay fair enough. Thank you guys.
Scott.
Your next question is from Steve Tessa with JP Morgan.
Hi, Good morning, guys. This is actually Pat Baumann on for Steve Tusa, Thanks for taking my call.
Question and I missed the very beginning part of the call. So I apologize if this is repetitive but.
You look at the segment guidance for organic growth.
And you look at the year to date numbers. It just seems like fluids the exit rate is going to be.
At least per the guide maybe this is conservative but just curious.
It looks like it's going to trend down high single digits or so Tom in the fourth quarter.
That's just comps.
Timing like how would you kind of characterize that first of all is that the right read in terms.
It's it's correct and it's what we've been guiding all year that that we grew 17% on the topline Q4 last year.
If there was no way, we were going to do that again, because that 17th 17% growth.
The timing of shipments.
And our process solution group that some of which that we recognized in Q3, so that business grow year over year, It's just a timing issue.
And the fact of the matter and in fueling solutions, we had a.
Self induced backlog of our inability to get the product out last year, which we've done a much better job. This year. So our revenue with revenue growth has been more evenly blended so.
It's going to be a difficult comp I think the headline figure is going to be whether it is but I think that we're confident that we can increase absolute earnings quarter over quarter, despite that difficult topline comp.
Understood and then in the context of what looks like a tough comps start next year. There would you expect to kind of next year is start out slower then ultimately ends.
You know just given those.
I want to get into look we haven't given that guidance for next year and im not going to give out [laughter] sequential guidance for next year. So let's wait until we close the year. We can we can deal with seasonality of 2020.
Okay makes sense and then just my second follow up would be.
Just in terms of the incremental cost savings expected for 2020.
Could you remind us what the total number is the incremental cost saves number.
I wouldn't think that that's changed but just remind us what that is and then you mean the I mean these payments the famous 50 I knew in finally got a question congratulations Pat.
Yeah, that's 50.
So 50 million and then shoot like I know you don't want to guide for next year, but you gave that numbers I'm. Just curious if we should be thinking about that weighted to one half of the year versus the other.
Stop yourself with the seasonality Ken.
50 is only again.
Thanks.
[laughter] thanks, guys.
Yes.
Your next question comes from Josh Postcode boat show Winski with Morgan Stanley .
Hi, good morning, guys internationally.
Just a follow up on kind of the core margin conversion this quarter rich I think it's some of the past quarters, you've tried to isolate what was what was the self help what was kind of the core conversion earlier in the year. I think you would have said core conversion could have been better obviously the 60 is a very good all in number just wondering how.
How you'd kind of grade those different pieces in the quarter.
It's better and it continues to get better as we've gone through their mix aside in a variety of just take the noise out of the numbers.
It's getting better.
And a lot of that is based on improved production performance year over year.
Now the reason that we stopped disaggregating. It is because we said that we were going to do free for a year and the SGN a line, especially because of FX movement is now getting really messy.
Right, because you've got headwinds on profit translation, which is offset by kind of core costs.
On on currency, which positively impacts our in our case the DNA lines. So it looks like we're over cooking SGN eight now we knew this was coming wise, we watched FX developed through the year. So overall look we're never completely satisfied I think that we've been open about where we need to improve next year, but.
Overall, I think the gross margin conversion or the operating conversion.
We feel good about.
Got it that's that's helpful. And then I know you've been mentioned to it a few times on some of the various moving pieces on revenue timing anyway to kind of size. The totality of the revenue that might have been pulled forward for the fourth quarter I'd just for the sake of confusion. So no one kind of gets that gets that number wrong, yes, we knew.
Two.
You can imagine as we are closing this quarter and we knew they were going to be explaining this Q4 squeeze win.
We actually beat our own internal estimates for Q3 revenue in.
Fluids.
And only became the made the problem harder.
The fact of the matter is.
Especially as it relates to process solutions to the extent that the product is ready and we can ship it where we'd be crazy not to get it out the door and try to to manage the Q4 number so it's pumps and processes solution, especially maag had an excellent Q4 last year, we recognize that in Q3 and.
Think that weve beaten this whole.
Fluids issue between the bad comp that was self induced last year on the above ground and the fact that we performed very well in Q3 in China in Q3, and we would not expect that to do that again in Q4 on the underground side.
Got it Thats helpful. Then just one minor one anything that you saw on more of the pumps side of fluids that matched some of this kind of macro agita out there it doesn't really seem like it but given that it's longer cycle, maybe it's not something its apparent in the numbers, yes, I think that the the longer side.
Cool systems business continued to book well for US I think on the pumps business. We saw some weakening at the into Q3 going into Q4.
Got it appreciate the color good quarter guys. Thanks.
Your next question is from Joe Ritchie with Goldman Sachs.
Thanks, Good morning, guys.
So I'm so we've talked about the Fourq you guide to some extent on the fluid implied fourq you organic for fluid, maybe just thinking about refrigeration and food equipment. It seems like that flattish guide for the year implies about mid single digit growth in Fourq, you and so I'm just curious how much of that you already have.
And your backlog versus needing short cycle, they get better in order to hit that number.
I would think that we've got the majority of it in backlog.
Okay, Alright, good enough and then and I guess, maybe maybe kind of thinking about next year and clearly on the feeling and transport side. You guys have you guys have done great.
Regionally, but very specifically in China, you mentioned and upgrade cycle coming to an end I guess, how do you think about the growth rate in China on the fueling side of the business next year and.
You know as there is there is there a headwind that we should give we should be aware of as we're thinking about our on planning for 2020, Yes. We think the dipped below ground portion has got a headwind specifically in China because of the run off of the of the regulatory environment.
We're working on plans to make it up another regions at the end of the day, but clearly on the underground side, we would expect that to be a headwind going into next year.
Is your expectation at this point the China overall on the feeling side still growth next year.
I hope so, but I think it's a little too early to tell whether what the quantum of the underground side versus the catch up on the above ground side. So let's.
We don't know, yet, but thats kind of our planet.
Got it okay. Thanks, guys. Thanks.
Your next question is from Deane Dray with RBC capital markets.
Thank you good morning, everyone. Good morning.
Hey, Rich you views. This term improved production performance multiple times over this call and I would love to hear more specifically around that what are you doing differently, especially in fluids now versus last year. No is it automation you've added did you take out bought.
We'll next streamline SK use just give us some color like what changed that in totality is this.
Characterization is improved production performance I think that arguably.
Year to date 2019 that the fluids.
Our fluid solutions group has done the best year over year improvement in operations, meaning I think that were pretty upfront last year that we were struggling with the plant consolidation in Europe that need to be rectified and to a certain extent were struggling I'm not struggling but we thought we had room to improve.
With our North American operations, and both have improved year over year.
So that's where that is it's so it's one that theres no frictional costs not a lot of overtime, we're basically it's manifesting itself and reductions in working capital turns.
A variety of different ways that we measure the performance. So it's helped us it's part and parcel to the year over year revenue growth because we had the same backlogs last year, we're just getting it out in a more sustained fashion this year and not squeezing it into Q4 of which happens.
So it's that more than pull Replatforming I think that the group is doing a lot of good work on replatforming, but thats a benefit I would expect that we see in the future.
That's great and then just as a follow up on the geographies.
I'm trying to figure out which is more impressive. The fact that you had all segments growing in Europe , considering some of the anxiety, we've seen and and slowing there are China being up 20% is just start with Europe .
The balance of the segment growth there.
And in terms of recent weakness that we've seen and then those geographies.
As I mentioned earlier.
We continue to perform well in Europe .
And almost inexplicably on anything I wrote that into our comments, despite the bad macros and everything else, but remember too that it is it a may a comment it's not necessarily.
No.
A what we would consider the old Western Europe , right and there are headwinds there we've run through headwinds in both.
The state go into a certain extent vs. G on our auto OEM European Auto OEM volume that we've offset and we've made a lot of that up on printing. It I'd that are shipping into greater EMEA.
So it's not like that a lot of that product is being shipped into Germany per say a lot of it is is being shipped into the middle Eastern Africa. So overall I think there's some timing differences on vs. G. I think that Europe was actually up off of two previous down quarters.
And the balance of it is mostly in the printing I'd segment and on the pumps on the bio pharma side.
Mhm.
And then China no sign of trade friction fall out there's all kinds of signs of trade friction fallout for sure.
But at the end of the day I think that the fluids group.
And.
Digital printing offset weakness in.
Pumps, I think and EMI and market much.
Very helpful. Thank you welcome.
Your final question comes from make debris with Baird.
Thank you good morning, just wanted to follow up on.
China fluids discussion.
Can you help size, maybe the benefit that you've had from this pre buy I don't know I don't off the call it.
Regulatory changes.
No I can just tell you that our estimates for the Q3 for Q3, we did better.
And we would have thought in terms of timing.
Whether we can squeeze out some more growth in Q4 remains to be seeing but we we consider it to be a headwind going into 20, just because of the the end of the transition.
But I can't sizes.
I mean world wondering about the materiality of that specific business to the segment overall.
I guess and it's the good news for US is is that we've got a variety of different first of all once we go to the new segment structure, you're going to be able to unpack the long cycle portions of fluids with the short cycle side. So we'll give you a lot more transparency there. So before you start taking the entire larger old second.
Okay, and putting a total headwind on that have some percentage basis I would caution you wanted to wait to Q4, and then you're going to see the split between the long cycle in the short cycle.
Okay.
Then lastly on Oh Gee.
We see.
Pretty good.
In the volatility throughout the year.
I think orders were down quite a bit in the first half obviously you made up for it in the third quarter, what's sort of going on here.
In terms of timing is there some specific product rollout is that just lumpiness from large customers.
And what kind of the setup going forward.
It's the latter.
Right. So we recognized in that particular business that there are large high value kind of blanket orders that come in from large customers.
That you've got to deal with the timing of the runoff. So part of the part of the backlog positivity that we add this quarter is the fact that he SG is is beginning to bring in orders for 2020, and that's reflected in their backlog.
Okay. Thanks.
Thank you. This concludes our question and answer period, I would like to turn the call back over to Mr. gallium for closing remarks.
Thank you. This concludes our conference call. We thank you for either sent over and look forward to speaking do next quarter.
Have a good day.
Thank you. This concludes today's third quarter 2019, Dover earnings Conference call. You May now disconnect. Your lines at this time and have a wonderful day.