Q3 2021 Dover Corp Earnings Call
Anyhow.
Our call today, Please press star zero.
[music].
Okay.
Good morning, and welcome to Dover's third quarter 2021 earnings Conference call speaking today are Richard J Tobin.
President and Chief Executive Officer, French Air Pack, Senior Vice President and Chief Financial Officer, and Andrea Lucca, Vice President of corporate development and Investor Relations.
After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time, Please press star and the number one.
On your telephone keypad, if you would like to withdraw your question. Please press the pound key on your telephone keypad 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.
You and I would now like to.
Turn the call over to Mr. Andre can look please go ahead sir.
Thank you and good morning, everyone and thank you for joining our call. This call will be available on our website for playback through October 26, and the audio portion will be archived for three months.
<unk> provides non-GAAP information and reconciliations between GAAP and adjusted.
Adjusted measures are included in our Investor supplement and presentation materials, which are available on our website.
Our comments today will include forward looking statements that are subject to uncertainties and risks we caution everyone to be guided in their analysis of Dover by referring to our Form 10-K, and our most recent Form 10-Q for a list of factors.
Factors that could cause our results to differ from those anticipated in any forward looking statements. We undertake no obligation to publicly update or revise any forward looking statements, except as required by law with that I will turn this call over to rich.
Thanks, Andre and good morning, everyone, Let's go to page three.
Silver Corp, and its operating companies had a solid quarter the performance stats indicate that our product strategies couple.
Coupled with our ongoing productivity initiatives continue to deliver top line growth margin accretion and attractive cash flow to our investors our revenue and bookings growth continued to outpace our pre pandemic levels.
And we exited the quarter with a record high and sequentially increased backlog, while posting top line growth of 15% over the comparable period.
<unk> strength was broad based as each segment posted year over year growth in bookings and a book to bill above one.
Revenue growth product.
Positive product mix and ongoing productivity initiatives drove comparable operating margins up resulting in a 31% increase in U S. GAAP diluted earnings per share.
Yes.
Our free cash flow performance was strong with an 18% year over year increase despite significant investments we've made in inventory.
As we begin to reap the benefits of investments and the centralization of financial processing activities.
We continue to enhance and pruning our portfolio with several acquisitions completed in the last three months and the divestiture of our commercial foodservice foodservice business announced last week.
Our organic investments in capacity expansion and productivity projects are on track, providing us the building blocks for the future top line growth and margin expansion.
As one of the first multi industrials to report each quarter and because of our wide end market exposures, we have the pleasure to.
To be the operating environment bellwether, so let's get on the front foot here by providing some color on inflationary inputs labor and supply chain challenges. So that we have time to discuss the constructive demand environment for 2022 in the Q&A.
Let me start by saying that we're particularly concerned that.
But no discernible policy changes, particularly in the U S to deal with these headwinds and in fact, many proposed policies run the risk of extending their duration.
We take no satisfaction in the fact that we've been Telegraphing. These issues all year and incorporating into that incorporating them into our forecast of the businesses that bear the brunt.
There are challenges, which I'll expand upon during the segment review.
We have taken the appropriate actions to offset these headwinds moving into 2022, and we are comforted by the fact that we've been given the opportunity to demonstrate the resilience of our business model and the strength of the breadth of our product and geographic market.
Exposure that are ultimately reflected in these quarterly results.
To be clear, we are very constructive about 2022 demand for our products and services and remain optimistic that there will be a recognition that protecting the duration of the current strong economic environment demand environment.
<unk> proactive policy decisions.
We are raising our full year EPS guidance as a result of our strong year to date performance, our updated forecasts forecasts do not incorporate any material improvement nor deterioration of the challenging operating environment in the fourth quarter.
Our priorities remain.
And the same in supporting our customers with products and services for the long term and the health and welfare of our employees I'll Skip to slide four which provides a more detailed review of our results for the third quarter.
So let's move to slide five.
Engineered products revenue was up 14% organically with a significant.
<unk> nation of the growth from pricing actions.
Vehicle services posted a strong top line quarter and market indicators remain positive with vehicle miles driven recovering and average vehicle age continuing to increase <unk>.
Industrial automation demand was up double digits with strong activity in Americas and China.
Environmental service.
<unk> group revenue was up year over year and its backlog remains strong moving into 2022 aerospace and defense posted a decline year over year, largely a result to changes in program shipment timing.
The margin performance in the quarter was unfortunately, what we expected to occur as we progress through the year our.
Services Weird product segment as we've discussed previously has the largest exposure to raw materials Assembly labor as a percentage of cost of goods and supply chain complexity as such is more than just a price cost issue, where even an equilibrium drive is negative margin performance. It is exasperated by numerous.
Our engine <unk> supply issues that necessitated necessitated us to intermittently curtailed production to stabilize the manufacturing system in the quarter.
Our management team is doing exactly what we would expect them to protect profitability in the short term, while managing the relationships with our strategically.
Really important customers.
Absolute confidence in the profit margin in this segment will bounce back as we move into 'twenty two as a result of actions already taken in price and as raw materials and supply chain constraints moderate as can be seen in the raw materials futures and stabilizing container shipping rates.
Fueling solutions.
<unk> was up 3% organically in the quarter on on solid demand in North America for above ground and below ground retail fueling.
We believe our production schedule and delivery time and delivery times are driving share gains, particularly in the above ground category.
Vehicle wash posted another strong quarter with some encouraging customer conversion and.
And cross selling benefits from our recent Ics acquisition Act.
Activity in China remains subdued driven by the lasting impacts of Covid and near term uncertainty related to energy supply.
Transport components were negative for the quarter, but we believe that this is.
Moving forward.
Margins.
In the segment declined 150 basis points in the quarter.
As productivity.
Headwinds from supply chain constraints and sub components of negative mix more than offset higher volumes and pricing we have taken the appropriate actions on pricing to counter these headwinds going forward.
Sales in imaging and identification grew 7%.
Organically the core marketing coding business grew well on good demand for printers and consumables.
Serialization software also grew ahead of expectations and we are working to add additional resources here as we integrate the recently acquired Blue bite.
<unk> management software into our solutions.
Digital textile printing printing business was up significantly year over year against a low bar comparable quarter and is continuing its gradual recovery.
Margins in imaging and it improved by 250 basis points as volume leverage pricing and productivity initiatives initiatives more than offset input cost inflation.
The pump.
Pumps and process solutions posted another solid quarter at 25% organic growth demand for Biopharma connectors and pumps continued to be strong we continued to expand clean room clean room capacity for our Biopharma connectors and single use pumps in the period and we are encouraged by.
Specification wins in amtech, biopharma flow meters, which we acquired last year.
Industrial pumps were up based on broad based end customer demand with particular strength in China precision components was up year over year as compression OEM and aftermarket businesses continued their recovery.
Polymer processing was down in the quarter due to a combination of shipment timing and a very strong third quarter from the prior year, though new order rates remained strong and outlook is positive moving into 2020.
Margins in the quarter expanded by a robust 630 basis points on strong volume.
<unk> fixed cost absorption.
Favorable product mix and pricing.
Top line results in refrigerator refrigeration and food equipment remained strong posting 16% organic growth.
Revenue in beverage can making equipment doubled during the quarter.
The business is booked into late 'twenty, two and is taking orders for.
'twenty three the heat exchanger business grew on robust demand in all geographies led by residential heating and industrial end markets and a recovery in the global commercial HVAC demand.
Order intake continued to exceed our ability to ship. So we are adding additional capacity in two geographies to ensure that we can meet.
Forecasted demand in 2022.
Demand in food retail remains robust with elevated bookings and backlogs across all our product lines. However, much like our engineered products business, we have a difficult time with labor constraints and in particular, some component supply which is necessitated significant.
In operational cost and logistics intermittent production curtailments and in one case of the deferment of a delivery into 2022.
Again management is straddling cost recovery actions and meeting demands of our customers, but it clearly comes with a cost.
Margins were largely flat in the quarter as excellent operating performance.
And swept <unk> offset refrigeration headwinds despite their smaller revenue base.
Pass it to Brad here.
Rich good morning, everyone.
Let's go to slide six.
On the top is the revenue bridge, our topline organic revenue increased by 13% in the quarter with all five segments posting growth.
Significant with strong demand in our engineered products pumps and process solutions and refrigeration and food equipment segments FX benefited the top line by about 1% or $21 million acquisitions added $18 million of revenue in the quarter. There was no year over year impacts from dispositions.
Growth the revenue breakdown by geography reflects strong growth in North America, and Europe, our two largest regions and modest growth across Asia and the rest of the rest of the world.
The U S. Our largest market posted 16% organic growth in the quarter on solid trading conditions in retail fueling industrial automation.
<unk> Biopharma and making.
Europe grew by 16% in the quarter on strong shipments in marketing coding biopharma and industrial pumps can making and heat exchangers all.
All of Asia was up 5% organically on growth of Biopharma, and industrial pumps and heat exchangers, partially offset by year over year declines.
Clines in polymer processing below ground retail fueling and fuel transport.
China, which represents approximately half of our business in Asia was up 8% organically in the quarter.
Moving to the bottom of the page bookings were up 25% organically, reflecting the continued broad based <unk>.
Across the portfolio in the quarter, we saw organic growth across all five segments.
Let's go to the earnings bridges on slide seven.
On the top of the chart adjusted.
Adjusted segment, EBIT was up $64 million and adjusted EBIT margin improved 80.
80 basis points as improved volumes continued productivity initiatives and strategic pricing offset cost inflation and production stoppages.
Going to the bottom chart adjusted net earnings improved by $57 million as higher segment, EBIT and lower corporate expenses.
More than offset higher taxes.
<unk> expense in the quarter were $3 million.
The effective tax rate for the third quarter excluding tax.
Discrete benefits.
It was approximately 21, 8% compared to 21, 5% in the prior year.
And our effective tax rate.
<unk> estimate pre discrete for Q4 and the full year remains unchanged at 21% to 22%.
Discrete tax benefits were $8 million for the quarter or $4 million higher.
And then in 2020 for approximately three <unk>.
Year over year EPS impact.
Yeah.
Right sizing and other costs were were a $2 million reduction to adjusted earnings in the quarter as a onetime recovery related to a cancellation settlement more than offset our ongoing productivity and right sizing initiatives.
Now on slide eight.
We are pleased with the cash performance thus.
For this year with cash with free cash flow of 667 million a $104 million increase over last year free cash flow conversion stands at 11% of revenue year to date, despite a nearly $250 million investment in working capital.
As we discussed.
Last quarter, we remain focused on delivering against our customers' strong order rates and we are carrying high inventory levels to ensure we can meet current demand for the rest of the year and into next year.
Let me turn it back to rich.
Thanks, Brad I'm on slide nine which is a familiar format, we used during the Investor day.
2019 to describe our inorganic growth priorities.
I'm pleased to report that our activity. Since then has aligned well with those priorities and we remain busy adding logical logistic bolt ons that will support the long term growth of our core businesses.
As you can see that we are investing in the highest priority platforms.
With an emphasis on high growth high gross margin products and solutions.
We remain disciplined in our approach to acquisitions and despite the challenging asset prices in today's environment. We have acquired seven bolt on acquisitions year to date that meet our investment return criteria, including two in the third quarter and one that closed last week.
The most recent deals highlighted in green, where CBS and industrial three D. Visual visualization software, which we expect to grow in third party revenues and also adopt across the Dover portfolio in our journey towards digitizing the front end of our businesses lowering our transaction costs.
SP, which complements our aerospace and defense business, the software driven signal intelligence solutions, and Lee call, which is an emerging leader in LNG and hydrogen dispensing solutions.
Each transaction is modest addition to our aggregate portfolio, but we're very excited about scaling up these innovative.
<unk> and strategic technologies over time, and the positive impact to EPS as these investments mature we will.
We remain on the hunt for acquisitions and that was solid M&A pipeline aligns well with our portfolio priorities.
We also took advantage of recent market activity in the food equipment sector to sell unified brands a professional.
<unk> cooking equipment business for.
For commercial foodservice foodservice operators. The deal was announced in early October and is expected to close in the fourth quarter unified brands represents less than 2% of our overall revenue and its sale will have negligible impact on our 21 adjusted EPS.
I would like to thank the management and employees of unified brands for the many years of service in the Dover family.
As we look to the end of the year demand outlook remains favorable across the majority of the portfolio backlog backlogs and bookings remain robust and we expect to post strong organic growth in Q4.
Overall, we remain on track to deliver strong returns this year through a combination of robust growth in revenue operating profit and cash flow coupled with disciplined capital allocation.
We also look forward to closing out this year in laying the foundation for what we believe to be a positive demand environment in 2022, we.
We have clarity.
About the nature of the inflationary input and supply disruption cost that we have occurred in Q3 and expect to Q in Q4 due to the challenging operating environment and we have conviction that we can turn them into profitability <unk> as conditions improve and the calendar progresses from here.
Before wrapping up.
I think Dover for all their perseverance and accomplishments executing in today's environment and with that let's turn to the field.
Hello. My reminder, at this time, if you would like to ask a question Thats Star in one go.
We do as you please limit yourself to one question and one follow up we'll take that.
Our first question from Jeff Sprague with vertical research. Please go ahead. Your line is open.
Thank you and good morning, everyone.
Jeff Hey, Hi, great color here.
First just on inflation, Richard it sounds like supply disruptions and kind of the you know.
What it did in your factories was much more of a challenge.
And then getting price to overcome cost can you just address that a little bit more in where are you.
Relatively price cost neutral in the quarter.
We were not price cost neutral in the quarter.
In the segments, where.
You can see the dilution at the operating margin so it's a little bit of.
Twofold story, where we're getting the most price is where we're getting impacted the most because not only you driving with price increases driving the top line.
Even in equilibrium, that's dilutive to operating margins, so when you're in a negative position.
You get kind of the 300.
A point dilution so.
The Bad news is we are not in equilibrium in Q3 from here, we begin to squeeze that down in Q4, and if conditions don't deteriorate go positive moving into 'twenty two.
And then unrelated but the backlog.
<unk> logs and what you're kind of pointing to here in Q4, it looks like at the midpoint of your Q4 revenue was guided down about 9% sequentially, which would be more than normal and certainly seems high especially relative to the backlog. So could you just address that and give us a little more color on how you might be able to uncork. These backlogs.
Visibility and maybe what a normal backlog situation would look like.
Yes.
Think that where we're hopeful.
So that we can get out what we're projecting in our guidance clearly not in the not only in the revenue, but the ABS, we're driving towards the top end here.
But it's a normal Q.
For despite and Brad went over cash flow, we will run for cash somewhat at the end of the year, we have certain businesses that are seasonal.
That don't deliver much in December and then we lose production days, just because of Thanksgiving and Christmas So.
We're talking about double digit.
<unk> and <unk>.
Quarter over quarter into Q4, and we're going to endeavor to get it out Jeff.
Alright, thank you.
And we will take our next question from Steve Tusa with Jpmorgan. Please go ahead. Your line is open.
Hi, Good morning, Hi, Steve.
<unk> grew a clarify on that last one.
Said.
<unk> cost neutral so pricing was I think three 5% or something like that so roughly 60 million bucks of kind of favorability do you mean on kind of an absolute basis that.
You had more cost inflation than that in.
In the quarter, Yes, I mean, there's three buckets right.
Just there is raw materials.
There's logistics and supply chain and then there is business interruption costs that we incurred during the quarter. The vast majority of the negative impact is reflected in the segments that you can see.
Conservative view of.
Their cost was in the quarter is somewhere in the order of 25 to 30 million Bucks in EBIT lost.
That compresses in Q4.
On a lower revenue line.
Right. That's from the disruption you said that like kind of like disruption.
All three that's all.
That's all three.
Okay.
So then why wouldn't that be so then why wouldn't be positive price cost. If that's if that's the case.
A lot of it is still in inventory.
So you've got that role based on.
You've got the raw materials inventory and you've.
What that orders and backlog and depending on when you took the orders and when they cycle through so right to most.
Most affected businesses that we have the price cost in total, including all three categories narrows from the number that I just gave you, but it does not get positive.
Without getting granting.
<unk> got dealer here it may get positive on raw materials, but not pick up logistics.
On the logistics side from a total portfolio point of view I think that we are.
In neutrality in Q4 right.
Got it and then are these supply constraints like or is there anything that really stands out are there like onesies.
Granted these are components or is there something that really stands out and ultimately could you give any visibility on kind of.
Yeah.
The 1 million dollar question is timing of a resolution on these things I mean are we going to be going into the second quarter of next year.
Still kind of dealing with this stuff in your view.
Well look.
Look I mean, as Brad mentioned, we're carrying the inventory so we won't liquidate all of that in Q4, so to a certain extent.
Were over ordering on the component side just because of.
It's a little bit of a whack a mole it was hydraulics back in Q2 and to a certain extent the beginning of Q3 that.
Thats lightening up and now its electronic components. So it's a myriad of stuff, but unfortunately, all it takes is one missing piece here.
It seems like it's getting it's not getting worse I guess is what I'm, saying I'm a bit concerned about.
Policy decisions, making it worse I don't.
Don't have a lot of faith.
In <unk>.
Announcements about port activity, having a demonstrable impact in the short run.
Quite frankly.
But I think that because of the.
The fact that we've been over ordering to a certain extent ourselves I.
I think it should modulate, but I'm not ready to.
Diagnosticate about.
How much better it gets in Q1 other than to say that we believe that we've got positive pricing roll forward into Q1.
And based on raw materials that the forward curves are constructive.
Great. Thanks, a lot appreciate the color. Thanks.
And we'll take our next question from Andrew Kaplowitz with Citigroup. Please go ahead. Your line is open.
Good morning, guys rich nice quarter. Thanks.
Thanks Sandy.
You ended up recording a mid 20% Incrementals in Q3 and you are projecting.
Getting something close to that in Q4, it's still kind of in your range of close to a range of that 25 to 35. So you talked about price versus cost starting to turn as you look out into 'twenty two how much confidence does give you that you can deliver incrementals at or above 25% to 35%.
Given all of the ongoing projects you have.
You know you've got productivity projects and DP you got that structural cost out you always talk about so you do you have more confidence given how well you've performed with these headwinds this quarter.
I think that we are.
I think that what we believe that is structural in.
In nature in terms of the inflation is the labor.
So if we're constructive about raw mats coming down somewhat and we are constructive about the lagging effect of price increases in inventory turns.
Yeah.
That we believe as I mentioned in my comments.
So we can bring back.
The margin profile of the biggest impacted business that we have in any given year, we expect to offset inflationary inputs at the factory level with productivity now we've got to do a little bit more of that just because of the labor inflation, but I think that that's doable.
Doable.
Got it and then maybe I can ask you specifically about Dps, we know you've been building out capacity in Biopharma and you've talked about that.
I think you've got some cyclical improvement and precision components.
But the segment is up over 20% versus 2019 with her background is up 90%.
So.
I think people. Some people are worried about D. P. B S. Eventually running into more difficult comps. So based on your own organic investments does dps stay one of your fastest growing segments and how would you say now that you can you maintain the recent margin performance that you've had.
Well, we get asked this every quarter and the answer.
<unk> is yes.
As as we talked about in the call we were expanding capacity and we wouldn't be doing that if we werent proactive about the demand environment going into 'twenty two.
Do we get a little bit of a margin fade due to mix, maybe but it is.
Is it going to be material no. So when we look at it this way.
We understand that this this has been material in terms of the year over year profitability of the group.
Would we rely on that level of profitability change moving forward from here no.
But I think that we've got.
A lot of ammunition.
Back to your other question about what we think that we can roll forward in the in the portfolio next year. So we don't need that kind of pick up next year.
Just relative to the size of the change in earnings this year.
Appreciate it rich thanks.
Got it.
And well take our next question from Scott Davis with Melius Research. Please go ahead. Your line is open.
Hey, good morning, guys and thanks for being bold and being first.
[laughter] guts.
Or stupidity, one of the two but.
I'll take the latter Scott go ahead.
Yeah.
Rich you talked a little bit about how you're kind of strategically building inventory or your customers strategically building inventory two is there a chance that some of the channels getting a little fat in certain skus.
Not in.
Inventory I mean, there's a big question look the one thing that we've been discussing all year as the backlogs are so large.
Why is that being influenced ensure it's being influenced because the supply chain constraints are becoming so difficult no. One wants to live with that next year so lead.
But they are stretching out and thats reflected in the backlog.
To a certain extent I'm not aware and based on the yelling and screaming that goes on around here about getting the product out the door that we've got any channels that are carrying.
Excess inventory.
Pretty much right now everything that we can get out the.
The door, our customers and distributors will take.
Okay.
Rich could you.
Just help understand you talked about curtailing some production.
Are you talking about I mean, logistically help us understand what that means shut something down for a week and give everybody.
Paid time.
Lead times. It is it is it just a shift here and there I mean, what what's kind of the extent of when you do a shutdown like this and are you eating.
Full.
Full labor costs and such in that in that time period or are there adjustments that are made with.
In that regard, yes, it's a mixed bag.
<unk>.
We have at a certain point you can't have half built or three quarter built units.
So just the logistics if you think about.
Refrigerate refrigeration units do you think about.
<unk> truck body as you think about vehicle lifts.
Just get to the point, where the cost of reworking those those goods.
And those last pieces of.
Of component parts as they arrive the math doesn't make sense and it gets really complicated and then you just say we need to stop sometimes you stopped for two or three days sometimes.
<unk> stopped for a shift depending on inventory deliveries and everything else, but I would tell you that.
It's a lot of it is driven by the size of the goods. If you think about it that way.
If youre thinking about it like a pump you can we've got enough warehousing space to take that you're thinking about truck bodies and youre thinking.
<unk> refrigerated refrigeration units you get to the point, where youre just better off taking the whole machine down for two or three days and when you do so.
You don't carry all of the labor, but you can't carry most of it so the negative absorption is what you'd expect.
Thinking about Mark good luck in <unk>, thanks, guys. Thanks.
And we'll take our next question is from Julian Mitchell with Barclays. Please go ahead. Your line is open.
Hi, good morning.
Maybe just wanted to circle back on.
Unfortunately, each of these sort of price net of cost.
Great.
Stepping back from the quarterly back and forth so for full year 'twenty one.
Is that net dollar price cost headwind is it sort of $10 million that that type of range and then when we think about next year.
Do you think Dover should benefit.
From a lag as we see those who would cost curves come down maybe thats reflected in the rail costs coming in.
What's the ability of your pricing to kind of hang in there relative to that cost normalization next year, if we see it.
Okay. Okay.
Top of the three.
Three components that we're talking about.
I want to rewind the clock here, but we started in Q4 and Q1 of last year talking about raw material.
Price cost where.
Well, we said at the time, we would be in neutrality.
Alright, then when we went from there to a labor inflationary environment and even more probably.
Biotic supply chain and logistics labor inflation.
I'm not even going to get into it it's up to us to offset that just in terms of raw productivity. So.
Where we are and I think that I gave you the number was 25% to 30 million Bucks.
Of negative.
Probably in the two segments that you see dilution in the quarter.
We expect that to compress some in Q4, which is driven by two things one is the.
The.
Revenue in Q4 relative to Q3, and the fact that you've got.
<unk> forward in a catch up.
On pricing as you work off older dated backlog so as I was at back to the question that was asked before all things being equal.
As that older dated backlog.
Prices itself because of pricing actions taken through the year.
The role that it becomes a net negative becomes a positive moving into Q1.
Under the assumption that things don't get worse from here and under the assumption that the market structure, the pricing and the market structure remains as it is today.
Which we believe it's going to by the way.
Got it.
Two next year, where you do get that spread or do you think the market is sort of to efficient to that.
Well, we're going to have to fight it out Julian.
And we've taken the pain to make deliveries to our customers.
And we've been having discussions with them that we are that we're not repricing backlog and a lot of instances. So we're taking it through the P&L.
Which also means that as future prices of metals come down we're also not replacing the repricing the backlog that we have and so.
Our backlogs are actually up sequentially. Despite the fact, having 15% growth so it's not going to be easy.
But that's kind of the way that we're managing the process.
That's very helpful and just the last one on this point so your gross margin.
Uploaded in the.
Cogs down slightly year on year in the third quarter should we assume by first quarter next year as things look today, but it's up year on year again.
Year on year again, I don't have the gross margin for Q1 of my head.
But I would assume.
The first one.
That our projections for the majority of the portfolio are to grow the top line next year I'm not aware of negative mix.
Segmental negative mix so on absorption alone we would expect that.
That's great. Thank you.
Okay.
Well take our next question from Andrew <unk> with Bank of America. Please go ahead. Your line is open.
Hi, guys good morning.
Hi, Andrew.
Just.
In terms of supply chain disruption and folks.
But could you quantify the magnitude of delayed shipments.
On third quarter revenue on a supply chain issues remain the same in fourth quarter I mean should we think about these showing up in.
2022, I mean, what happens with all of these delayed shipments.
<unk> talked about well first and foremost our guidance incorporates our view of what happens.
Going forward.
Number one number two.
Could we have shipped more in Q3.
Clearly, we could have I think that.
This argument about.
Lost revenue is is an interesting one because everybody I suppose all market participants could claim Ross lost revenue because demand is high and supply constraints are tight.
So monetizing that is lost.
Is.
A little bit of a fool's game, we could have shipped out more in Q3.
It would have reduced our backlog slightly.
My presumption and I don't believe that it would allow us to ship more in Q4 materially.
Gotcha and can you.
Touch on cadence of bookings as you went through third quarter.
And any early feel for changes here in the fourth quarter I mean, clearly the end market looks robust.
Maybe a little bit more color.
I think that the last time, we did this was August and we said that there was a.
This is always a choppy month for bookings so we'd have more clarity as we went through the quarter clearly they've got better in September and October based on the results that we were boosted by expectation.
That they will slow on a run rate basis going into.
Q4, because essentially Q4 is already in backlog for the most part.
Got you that makes sense. Thanks, a lot. Thank.
Thank you.
And we'll take our next question is from Joe Ritchie with Goldman Sachs. Please go ahead.
All these open.
Thanks, Good morning, everybody Joe.
So hey, rich just maybe going back to this just supply chain discussing for a little bit maybe bigger picture question. Here you have had some announcements from the government.
That theyre trying to ease.
The supply chain issues.
Is that going to like a 24 by seven model at the ports.
What I'm hearing from you is that like Youre, not really seeing much of an improvement at this point, but I want to make sure that like I'm getting that correctly.
Latest data point and then just very curious like what would you do if you.
It had to do like proactively.
<unk> policy decision, what would you do to try to ease some of this burden.
Sure.
Going and just announcing 24 seven operations as if you have all the employees and all of the moving parts to make that happen overnight as.
I think the intent is there.
But that if it does we don't believe that's going to be any demonstrable change in performance between now and the end of the year, It's just too complex of an ecosystem.
I'm not an economist.
We've been having if you go back and look at our comments all year long this notion of transitory inflation and blaming used car prices has been naive at best.
It's been manageable.
For corporates as corporates have priced inflation.
Nine but that is a how long is a piece of string argument.
So.
Coupled with a lot of other.
Proposed.
Agenda items that.
One conceivably could say would cause additional inflation.
And port congestion I'm not entirely sure that thats.
A strategy, that's well thought out.
Got it okay.
Super helpful.
And I guess, maybe just kind of thinking about this pricing in the backlog.
Clearly backlog is in great shape going.
<unk> next year, maybe even beyond.
I guess the concern in the market is is your your ability to make sure you can get pricing are repriced portions of the backlog to meet what the cost environment looks like.
So as you kind of look at your backlog in your portfolio are there are there any areas, where there is maybe a little bit.
In concern.
Potentially repricing the backlog or so we feel good going into 2022.
That the margin on that backlog is in good shape.
We are not repricing backlog to materially in any portion of the group who are actually doing quite the opposite were.
More can pricing in the backlog to the desert detriment of margins as we push the product out the door, because we believe that preserving our customer our strategic customer relationships and not forcing demand destruction as a more favorable equation then.
Having.
We're holding about repricing backlog when we're actually re pricing all order all new orders as we progress through the year. So.
The only negative scenario, where that ends up being a rolling credit unless one wants to make an assumption about inflationary inputs getting worse.
Fight going into 'twenty, two from where the baseline is right now.
Super helpful. Thank you.
And we will take our next question from Josh <unk> with Morgan Stanley. Please go ahead. Your line is open.
Hey, good morning, guys.
Josh.
Rich just maybe first on some of these kind of bottlenecks.
As we're seeing it.
At what point just based on what you can see in terms of what comes up next in the backlog or some sort of business mix do you think you can get past that <unk> high watermark for.
It's able to get out the door.
I imagine seasonality plays a role as well, but is that is that something that you have line of sight to right now and in the way you guys are thinking about the next couple of quarters.
Yeah.
I guess I'm allowed to make one positive comment since we're going to.
Or what has struck to all of this remember that our margins are up quarter to quarter four for many of them here.
Yeah look I mean.
At the end of the day Q3 was tough.
Four.
Yeah.
Four we still had COVID-19 delta going on at the time.
Deacon with absenteeism, driven by that which were largely behind Theres, nothing thats fundamentally changed and our ability to manage output.
It's been a little bit of a struggle I think that we were I guess, a little bit disappointed on the labor equation we.
Time projected it to get materially better in Q3, and it got a little bit better as we exited Q3, but the first couple of months were quite difficult.
So I'm not overly concerned on our ability to get to high watermarks and we've.
Got some relatively robust projections for revenue.
<unk> growth for 2022, and we've got the footprint to deliver it so again.
Unless we want to make an assumption that that that supply constraints deteriorate from here, which we don't believe then I think that were.
Positioned appropriately just by the fact that we.
We have over ordered on the inventory side at least we start off on the front foot.
Got it and then just specifically on pumps and process solutions. I mean, you guys have a mountain of backlog there it doesn't seem like the order intake is really slowing.
Just if you could get down that backlog to a normal level.
We've all normal is anymore, but it seems like that business sort of has to grow double digits next year I mean little early on 'twenty, two but like that isn't a long cycle business and you got more backlog than maybe you know what to do with like what.
What's missing in that equation.
Well I think we mentioned it before we're going to.
I don't know when to 'twenty two.
And if we're all positive about input costs and logistics and supply chain backlogs are going to drop right because lead times are going to shrink and everybody's going to panic and you shouldn't so I think that the bottom line is <unk>.
Because of these consumer.
Get into its backlog is good it gives us a lot of visibility going into the year.
And our expectation that backlog that total backlog will fade.
Ah proportionally, but that's actually a good sign I am not going to give out growth rates by segment for 'twenty two.
Constraint I mentioned in my comments I think that we've done.
Our early looks at what 'twenty, two is setting up to be and I think from a topline point of view, which is portfolio wide.
We are constructive.
Got it works for me Thanks Rich.
And we will take our next question from Nigel Coe with Wolfe Research. Please go ahead. Your line is open.
Thanks, Good morning, everyone.
Nigel Hey.
So obviously the.
But the backlogs.
Not as much tobacco as the book to Bill ratios have been off the scale, so I understand the.
And that was impacting backlogs, but book to Bill has been very strong for the last three or four quarters.
I really want you to address the question of what's changed and what's different about this recovery versus the last couple of it just being pretty anemic. So what do you think is driving such strength here and then.
Maybe just address you talked about how.
Now your preordering or maybe buffering some of the components to what extent do you think your customers doing the same thing as well.
Okay, Nigel I think I've answered the question before that we do channel checks.
Right now and we are not aware of inventory of our products.
Lead time being elevated in any of our end markets.
Clearly.
Order rates are a reflection of backlog build.
And Thats why order rates continue to be elevated in backlog has not come down. Despite the fact that the topline growth has been good.
It will.
Or the backlog will fade over time, I don't want to repeat myself over and over again here. So.
Whats driving the recovery I think a couple of things from a Dover point of view.
I think that the portfolio is a lot different than it was in the past.
Thank.
Matt.
Clearly it looks like were moving into a capex cycle.
And a lot of our end markets, we would discuss refrigeration before but that seems where.
We are getting quite proactive about the energy complex for example.
And I think that we've got.
That could exposures with the Biopharma platform that we've had in the past that you.
Can't compare so overall I think it's a combination of we've expanded.
<unk> capacity.
In markets that are growing so we've got available product and the profile of the end markets.
Got some art over.
Changed meaningfully over the last five years right.
Alright, but the Capex cycle is what I'm trying to get at you sound pretty confident we are in a capex cycle. That's that's great.
And then the portfolio slide which was really helpful. Because your M&A has been maybe each deal flies below the radar a little bit.
So if you add them together.
So I mean are you.
Are you happy to maintain this kind of cadence with smaller bolt on type deals, but additive and I would get so do you think that could be one or two larger opportunities down the road.
We look at larger opportunities all the time.
Some with larger.
But when opportunities the bigger the opportunity the more it attracts in terms of interest because of just scale.
And so pricing becomes.
Difficult.
If we look at where value has been created for Dover historically, it's these bolt ons.
Larger that use the network effect of adult Dover that have been.
High value Returners. So I don't think we will ever stop doing the small ones because I think that we've got a lot of conviction behind that process, but what we'd like to do some bigger ones.
Sure we would.
We just need to find the appropriate.
<unk>.
Deals out there.
That's great. Thanks rich.
Okay.
And our last question will come from Deane Dray with RBC capital markets. Please go ahead. Your line is now open.
Thank you and good morning, everyone.
Hi, Deane good morning, Hey, maybe we stick with.
Pricing, but on the divestiture side.
And if you just put in context, the unified brand divestiture.
Is it truly a one off opportunistic dive.
Divestiture or might it be the start of a pivot away from selectively in refrigeration and food equipment.
And we evaluate annually market structure participation by all of our operating companies. The fact of the matter is over the last three years to four years the market structure.
In foodservice equipment.
Has changed for a variety of reasons.
And we just did not believe that unified brands within the Dover family.
Was going to be able to extract the value.
And then it was more appropriately owned by someone that has the scale.
<unk> participated that structure.
That's helpful could maybe you're not going to give specifics I understand but just how.
How does that pipeline of potential divestitures, the pruning that youre doing.
Where does that stand.
Theres not a lot right like I said, we evaluated.
Annually, we have got a view of the value creation.
Asian, that's embedded in each piece of the portfolio.
But as a multi industrial.
If we were to get an inbound request, where the value paid is in excess or equal to the value that we think that we could create then we'd have to take a look at it but right now.
Payables that were actively looking at.
Got it and then just last one to go back on pricing.
And Richard talked about this during the quarter that you felt.
That a fourth price increase.
Could actually start to result in some.
Pushback demand destruction.
You answered the question not repricing backlog, but just you know broadly within the businesses are you seeing that sort of price elasticity coming through where our fourth price increase might be problematic.
It.
And as Dean.
We have not been aggressive.
On replacing a backlog because we take seriously our commitment when we accept in order that we accept to deliver against those commercial terms.
But having said that.
We have been sequentially.
Moving on price.
Primarily because of the raw materials, not so much due to labor and supply chain.
That's helpful. Thank you and welcome.
Thank.
That concludes our question and answer period Endeavour's third quarter 2021 earnings conference call.
Now disconnect. Your line at this time and have a wonderful day.
Okay.
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Thank you.
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