Q4 2021 Dover Corp Earnings Call

January 27, 2022

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Good morning, and welcome to Dover's fourth quarter and full year 2021 earnings conference call speaking today are Richard J, Tobin, President and Chief Executive Officer, Brad Sarahpac, Senior Vice President and Chief Financial Officer, and Audric, Luke Vice President of corporate development and Investor Relations after the spin.

<unk> remarks, there will be a question and answer period. If you would like to ask a question. During this time press Star and then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.

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I would now like to turn the call over to Mr. Audric. Luke. Please go ahead Sir.

Thank you Tony Good morning, everyone and thank you for joining our call. This call will be available on our website for playback through February 17th and the audio portion will be archived.

Months.

Dover provides non-GAAP information and reconciliations between GAAP and 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 that could cause our results to differ from those anticipated in any forward looking statements.

Undertakes 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.

Thank you Andre and good morning, everyone.

Let's start on page three.

We are thankful for the extraordinary efforts of our Dover team members, which enables us to deliver strong operating results amidst challenging conditions during 2021.

We're also grateful to our customers, who trusted us with their business, while adapting their supply chains and business models to this rapidly changing and demanding environment.

The resilience and creativity of our teams and the durability of our customer relationships, where the key elements of our success this year.

And we are committed to build upon those pillars in 2022 and mobilized to deliver another strong year of performance.

Alright, let's go on to the quarterly and full year results, we delivered strong and better than expected results in fourth quarter and the full year of posting organic revenue growth of 11% and 15% respectively.

Our margin conversion for the year was strong and we delivered segment margin increase of over 200 basis points for the year driven by volume growth productivity gains and our center led enterprise capabilities.

We are satisfied with this accomplishment in the face of the well chronicled input shortages supply chain constraints.

And Covid, driven quarantines and absenteeism that became increasingly challenging during the <unk> period of Q4 as.

As we mentioned in the opening remarks, we battled through as best we could under the circumstances, but we cannot help but be very frustrated.

By the continuing guidance on mandates and deadlines. It often it seems often that we have learned very little in the past 24 months.

We complemented our strong operational execution with value, creating organic inorganic growth investments, we deployed $1 $1 billion.

And nine highly strategic bolt on acquisitions and also completed the divestiture of our noncore foodservice equipment platform on December one.

These investments in advance our deliberate strategy to expand into markets with secular growth opportunities recognizing the recent changes to our portfolio and to better reflect the nature of the markets and customers served by our businesses as well as the contributions to revenue growth and profits. We have changed the name of our fueling solutions segment to clean energy.

In fueling and our refrigeration and food equipment segment to climate and sustainability technologies.

Looking ahead to 2022, we entered the year with constructive optimism, despite the ever evolving up ever evolving operating environment and geopolitical clouds.

We believe that growth conditions are still with us, but it is critical that policies policies are enacted or not enacted to continue this trajectory.

And methodical monetary tightening as deemed necessary and I agree that it is I would urge caution on the pace of any policy decisions and the regulatory environment or taxation, if one wants to preserve GDP expansion trajectory as.

As COVID-19 and its effects subside, we desperately need policy pragmatism with a bias towards policy that foster economic growth.

Demand conditions across the majority of the portfolio remained favorable.

As evidenced by our strong sustained bookings in the fourth quarter and throughout the year with a book to bill each quarter above one even with the aforementioned double digit revenue growth.

Our backlog of $3 2 billion is up 84% versus this time last year, which allows us to better plan our capacity production in inventory a major benefit in todays constrained operating environment.

While we expect these operational challenges and supply chain and labor availability to continue into early 'twenty. Two we do not expect operating conditions, we do expect operating conditions and price material spreads to improve as the year progresses.

We believe we are well positioned to deliver robust topline growth margin expansion and EPS accretion in 2022.

We are therefore forecasting full year revenue guidance of 7% to 9% organic growth in adjusted EPS.

$8.45 to $8 65 per share.

I will skip slide four which provides more detailed.

Overview of the results so let's go on to slide five.

Engineered products revenue was up 16% organically in the quarter as demand remained favorable across all businesses.

Vehicle services posted a strong top line quarter.

And market indicators remain positive.

Environmental services group revenue was up year over year with both bookings and backlog remain robust moving into 2022 industrial automation automation demand remained high posting its strongest bookings quarter of the year deliveries.

Negatively impact by output challenges in America and Europe .

Aerospace and defense posted a solid year over year growth with good momentum behind our recent SP acquisition. The crowd the recovery of industrial Winches because continues with all end markets trending positive.

Despite the heightened demand margin performance in this segment remains negatively impacted by the combination of input cost inflation and input shortages with notable impact from Covid related absenteeism, particularly late in the quarter, where we ran at over 20% rates in some instances at the height of one micron and.

In the fourth quarter engineered products was the only segment that had a negative price cost spread largely driven by raw materials and logistics costs.

This remains our most challenged segment in the current operating environment.

We have line of sight to improve margin outlook as the price cost spread turns positive in 2022.

Incremental margin conversion expected to gain steam through the year as we cycle through inventory and we begin shipping off a strong backlog that was priced in the second half of 2021.

Clean energy and fueling was down 4% organically in the quarter against a difficult comparable from 2020, when we saw the high watermark of EMG demand. Additionally.

Additionally, volume was constrained by our customers construction labor slowdown and component shortages as well as covered absenteeism in Europe booking trends in backlog in above ground business remained constructive based on early market feedback and trajectory trajectory. We believe that we have a winning product with the anthem dispenser.

Conversely demand trends for below ground equipment are picked up in North America, and deliveries and vehicles and.

Deliveries in vehicle wash continued their upward trend, most notably and access terminal and controller business that we acquired a year ago.

Our recent clean energy acquisitions had a minimal impact on our Q4 results. However, backlogs and these businesses are strong.

Margins were down in the quarter, primarily due to the lower volumes product mix absinthium, absenteeism, driven inefficiencies and loss fixed cost absorption full year results. In this business were strong and better than we initially forecasted early in the year on robust growth productivity and favorable mix.

Sales in imaging and identification grew 3% organically the core marking and coding business was strong and comparable volume.

A shortage of components on some and some order push outs reduced volumes and printers are serialization and brand management software business continues to grow ahead of expectations.

Diligently to add additional resources here as we integrate and scale the business.

The digital textile business continues its gradual recovery it was up against a low bar comparable quarter, but it has still not recovered to pre COVID-19 levels Q.

Q4 margins in imaging and I'd improved by 40 basis points year over year is mix and price more than offset cost inflation and input availability issues full year results were strong the segment delivered 8% organic growth and 170 basis points of margin expansion, a good volumes and productivity initiatives.

Pumps and process solutions posted another strong quarter at 30% organic growth.

Revenue for our CPC business was up double digits, we completed a clean room expansion project for this business in December in anticipation of another strong growth year in 2022.

Industrial and Biopharma pumps were up on broad based and customer demand across all geographies.

We are pleased with the performance of the flow meter business within <unk>, which we acquired in 2020, it's biopharma sales have doubled in 2021.

Precision components was up as the business continues its recovering on improving demand in the broader industry exposure.

Polymer processing was up in the quarter due to strong demand for Pelletizing gear pumps as well as strong order rates in recycling equipment and consumables, particularly in the U S and China.

Margins expanded by a robust 740 basis points in the quarter and 790 basis points of the year on strong volumes fixed cost absorption favorable product mix and pricing.

Topline results in climate and sustainability technologies continued to be robust posting 13% organic growth swept our heat exchanger business capped off the year posting all time records in bookings revenue and margin and carries a strong backlog into 2020 to.

The business was strong across all geographies and end markets with particularly favorable demand in EMEA for heat pumps, driven by regulatory requirements.

We have been adding capacity additional capacity in several geographies to meet forecasted future demands.

<unk> our provider production solutions solutions for beverage packaging posted a revenue decline in the fourth quarter on difficult comparable driven by project timing as you know this business was up significantly in 2021.

Part of our multiyear secular shift towards more environment liar of mentally friendly aluminum cans.

Demand far exceeding the current installed capacity.

Demand in our food retail business remains robust with elevated bookings and backlog levels, our systems business in the U S and Europe continued its robust growth in deliveries and orders for natural Cotr refrigeration systems.

Demand for door cases remained elevated as well however, we continue to face labor constraints and sub component supply shortages that delayed shipments, which necessitated intermittent production curtailments negatively impacting margins, we've instituted a number of price increases, which we expect to positively contribute to margins and conversion.

Into 2022.

Margins were flat largely flat as the quarter has excellent operating performance and swept offset refrigeration headwinds. Despite the smaller revenue base. This segment demonstrated good progress in 2021, 22% organic growth after a very modest 3% decline in 2020 and 230 basis points.

Margin expansion, despite multiple operational challenges as the year presented with a strong backlog. We expect continued robust progress in 2022 and I'll pass it onto Brad.

Thanks, Rich and good morning, everyone.

Let's go to slide six.

On the top is the revenue bridge, our topline organic revenue increased by 11% in the quarter with all segments, except clean energy and fueling posting growth.

FX was a 1% or $12 million headwind to the top line M&A added $17 million net to the.

So the topline in the quarter.

Product of $26 million from acquisitions, partially offset by $9 million from the unified brands divestiture.

The revenue breakdown by geography reflects strong growth in North America, and Asia, and solid growth across Europe , and the rest of the world.

The U S. Our largest market posted 16% organic growth in the quarter.

Solid trading conditions in industrial Winches.

Vehicle aftermarket biopharma and polymer processing.

All of Asia was up 15% organically our growth in Biopharma industrial pumps marketing coding and heat exchangers, China, which represents approximately half of our business in Asia was up 17% organically in the quarter.

Europe grew by 7% in the quarter on strong shipments in precision components Biopharma industrial pumps natural refrigerant systems.

And heat exchangers for heat pumps, partially offset by order timing.

In sustainable beverage can make it.

Yes.

Moving to the bottom of the page bookings were up 22% organically in the quarter, reflecting continued broad based momentum across the portfolio bookings helped drive our consolidated backlog to $3 2 billion up 15% sequentially inclusive of backlog from our recent acquisitions in the quarter we saw.

Organic growth across four of the five segments.

Let's go to the earnings bridges on slide seven.

On the top chart adjusted segment EBIT was up $47 million and adjusted EBIT margin improved 60 basis points as improved volumes continued productivity initiatives and strategic pricing offset input cost inflation and production stoppages.

The bottom of the chart adjusted net earnings improved by $34 million as higher segment, EBIT more than offset higher corporate expenses and higher taxes.

Deal expenses, primarily related to a clean energy acquisitions were $11 million in the quarter representing approximately <unk>.

Adjusted EPS headwind the.

The effective tax rate, excluding discrete tax benefits and gains on the sale of businesses was approximately 21, 7% for the quarter compared to 21, 1% in the prior year.

Discrete tax benefits were $10 3 million for the quarter or $2 1 million higher than.

In 2020.

For approximately <unk> year over year EPS impact.

After tax right sizing and other costs were $22 million in the quarter reflective of our ongoing productivity and right sizing initiatives, including noncash asset charges of approximately $16 million.

Now on slide eight.

In 2021, we generated $944 million of free cash flow a slight increase over the prior year free cash flow conversion stands at 12% of revenue for the year, Despite an over $300 million investment in working capital as.

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 that.

The current demand into next year.

With that I'm going to pass it back to rich okay. Thanks, Brad I'm on slide nine which shows our progress in 2021 against the capital allocation priorities, we outlined at our Investor day in 2019.

We have a strong collection of businesses and our first priority is ensuring we can continue to win in the market through organic investments supporting growth capacity Digitization innovation and productivity.

Deployed over $170 million in capital expenditure in 2021 towards growth and productivity enhancements as well as maintenance of our asset base, notably we invested over $14 million in digital products and digital and E Commerce, which allowed us to reach our goal of over $1 billion in ecommerce revenue last year with no touch by customer service.

This represents over 10 times the volume we processed processed in 2018, and our 2020 goal is to double our 2021 volume.

Our next priority is inorganic growth last year, we deployed $1 1 billion into nine highly synergistic bolt on acquisitions, including two larger deals Acme in Regal, which we closed in December all these acquisitions enhance our portfolio by increasing our exposure to markets with structural demand growth outlook, our pipeline and.

<unk> capacity remains strong and we expect to remain active on this front in 2022.

Our third priority is to return capital to our shareholders. We again raised our dividend in 2021 as we have done for the past 66 years.

Let's move to slide 10, we provide more color on some of our organic investments I won't go into the specifics of any of these projects individually, but youll see that our investments are substantial in size and represent a broad variety of productivity improvement and digitally digitization initiatives as well as investments in capacity expansion and new.

Product development projects.

These investments provide compelling financial returns and our proactive capacity expansions have allowed us to win share in that tight supply market.

On Slide 11 includes our current view of the demand outlook and operational environment for 2022 by segment and how margin drivers are expected to trend over time and provides context of how we're thinking about our full year guidance, which I'll get to shortly.

We expect topline and engineered products to remain robust based on solid backlog and sustained high bookings across the business.

All market indicators and vehicle aftermarket continued to remain positive with miles driven having fully recovered to pre pandemic levels in used cars prices remaining.

Orders for refuse trucks and software solutions are robust with new order rates pushing well into the second half of 'twenty to momentum in industrial automation and industrial which is should continue in the back of a solid bookings quarter with all end markets contributing to growth aerospace and defense is expecting growth and positive order trends largely <unk>.

Given by Europe , we expect headwinds from negative cost to continue in the first half of the year getting sequentially better as the year progressed.

We expect this segment to be the only one with negative price cost spread in the first quarter in.

Input availability, mostly labor absenteeism friess from recent omicron surge is expected to negatively impact production efficiency in the first quarter.

But should subside for the balance of the year all in we expect margins for the segment in the first half of the year to largely mirror the second half of 2020 than to improve meaningfully for the full year driven by volume leverage and pricing.

We expect clean energy and feeling to post low single digit organic growth for the full year on solid growth in below ground vehicle wash and software solutions demand outlook and bookings of our recently acquired clean energy businesses are very robust and they are off to a good start as you know we don't adjust.

<unk> related amortization out of our adjusted segment earnings margins due to sizeable acquisition related amortization charges from our recent deals in this segment. The operating margin will be compressed in the first quarter of 2022, excluding about $40 million of incremental deal related amortization expenses in 'twenty, two we expect full year margin.

Conversion to be in line with the broader portfolio.

Demand conditions in imaging and identification are expected to continue the positive trajectory into 2022, our core marking and coding business maintained its steady GDP like growth rate.

Serialization and brand protection software should contribute positively to robotics.

On robust bookings and backlog digital textile printing is recovering and expect to take another year or two to reach pre pandemic levels as apparel producers take a cautious stance with new capital outlays, We expect margin in this segment to continue to improve in 2022.

Pumps and process solutions should see another year of solid performance demand for Biopharma applications remains robust driven by demand for COVID-19 vaccines as well as growth in <unk> cell and gene therapies and expansion of <unk> RNA technology to other applications.

We are completing the second phase of our clean room expansions and automation to ensure we can keep up with demand and we have broken ground on the construction of a new facility.

Additionally, our connector business is experiencing robust growth and new thermal applications, such as data center and supercomputing and EV charging.

Trading conditions in industrial pumps were strong driven by robust robust and customer demand plastics and polymer equipment business carries.

A solid backlog into 2020 with good market conditions, especially.

Especially in China.

The U S and recycling solutions precision components continues its upward trajectory aided by OEM, new builds and increasing activities at refineries and petrochemical plants. We expect margin performance to remain robust for the segment on volume growth operational execution and positive price cost dynamics.

And climate and sustainability technologies, we expect to post high single digit organic growth. This year driven by its large backlog and sustained elevated order rates new orders in core food retail business have been healthy across product segments and the tailwind from our leadership.

<unk> and natural refrigerant refrigerants are driving outsized growth of our Cotwo systems business.

<unk> omicron induced labor shortages abate in the first quarter, we expect volumes of door cases to recover with backlog stretching well into the second half of the year, our heat exchanger business is positioned well on strong order rates across all geographies.

<unk> packaging business continues to work through its record backlog. They are booked for 2022 and are taking orders for 2023, we expect to have our new R&D Center and full can line completed.

First half of the year.

<unk> margins to improve significantly in 2022 is.

As improved volume leverage positive price cost dynamics productivity gains from our automation initiatives and positive product and business mix should more than offset any lingering operational challenges related to component and labor shortages in the first quarter.

Alright, so before wrapping up and move into Q&A, let's try to square the square the circle here and some up all the moving parts from our 2021 exit positioned to our full year guidance at.

At the opening of this call I said, our results were better than expected that was not a reference to external consensus consensus estimates, but a comment about our operating margin performance versus our internal forecast.

Without the significant omicron production and productivity losses, which were not in our base forecast, we would have shipped more product in Q4 <unk>.

Resulting in higher sales and cash flow, but lower consolidated margin on product mix as a result of this while we do get the benefit of carrying higher backlogs into 2022.

We have not cleared as much higher cost inventory and have not realized all the benefits of past pricing actions embedded in that backlog.

This will result in the calorie origination of absolute earnings and earnings growth and especially segment operating margin being more back end loaded in a typical year as a result of this date delayed backlog clearance.

A few implications of this dynamic number one we are prudent operating margin expectations for Q1 and encourage those modeling quarterly forecast to exercise the same level of prudence.

Two it is a good sign of backlogs gradually deplete during the year as it will be driven by higher production performance is labor availability and supply chain improve.

Lastly at both these dynamics play out as forecasted we can expect inventory levels to drop supporting an increased operating cash flow in 2022.

So, let's move to slide 13, which hopefully removes the quarterly noise and gives us some view of post pandemic full year performance.

As well as healthy full year margin conversion.

And the positive impact from acquisition closed in 2021.

And so let's wrap up slide 14 to put our results and guide into a longer term perspective, our strategy has driven significant value creation for our shareholders over the last several years as evidenced by the total shareholder return driven by underappreciated topline growth cumulative margin expansion of 404.

Speaker 1: healthy cash flow generation, and capital redeployment. We believe that our playbook offers a significant runway to continue delivering attractive food cycle returns for the coming years. And with that, let us move to the Q&A. Andre?

The basis points healthy cash flow generation and capital redeployment, we believe that our that our playbook offers us significant runway to continue delivering attractive.

Over the coming years.

And with that let us move to the Q&A Andre.

Speaker 2: If you would like to ask a question, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. We ask that participants limit themselves to one question and one follow-up question. We'll go first to Scott Davis with Mellius Research. Your line is open.

If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.

Ask that participants limit themselves to one question and one follow up question. We will go first to Scott Davis with Melius Research. Your line is open.

Speaker 3: Hey, good morning, everybody. Hi, Scott. Hi, Scott.

Hey, good good morning, everybody Hi, Scott Thanks, Scott.

There was a lot of detail in there.

If I said it followed every single word.

But.

Maybe we can start.

Just a little bit more color. It seems like this absenteeism and cost issues kind of lingering.

Into <unk> here.

Is it getting are things getting any better or are they just as bad now as they were kind of into <unk>.

I guess, yes, I guess now that we've disposed with the federal mandate hopefully.

It was not helpful.

At all.

It is getting better I think that the quarantine period being half has helped.

So it's not as bad as the peak, which is probably in December but it is lingering somewhat into January but it's not as bad.

This cash flow guide is.

It's pretty solid.

That imply there's going to be some work down on working capital our working capital levels that.

Or kind of more normal I'd say normal given the supply chain out there you have some flush out.

'twenty two.

Yes.

Look.

We expected to ship that now whether it would have been caught up in receivables who's to say.

My view is we would have expected to.

Maybe have a slight increase in inventory based on the revenue.

But our expectation for 2022, if we if we get this right, which I expect to be world is that we're going to give back that build net of revenue increase for the year. So I.

I expect to do better in working capital in 2022 than we did in 'twenty one.

I would just add I think we have a modest forecast of inventory drawdown.

Depending on how the year progresses, there could be some incremental there.

Good luck guys. Thank you.

Yes.

We'll go now to Steve Tusa with Jpmorgan. Your line is open.

Hi, good morning, good morning.

You guys had changed your name to like Dover technologies or something like that in our soft actually not not not now because the growth is now selling off so maybe something different.

The change in the name is interesting now does that mean youre keeping refrigeration.

Yeah, it's in our forecast for 2022.

Look I've got at the end of the day is we can't call. It food equipment anymore. Since we disposed of the food equipment business. So by and large we had to rename it. The fact of the matter is and I don't want to get cheeky about ESG driven nomenclature here is that the fastest growing portions of that segment.

<unk> in sustainability technologies, it's swept and our <unk> systems, and <unk>, which are all driven.

We would argue by a shift to meet ESG compliance, whether thats regulatory driven or driven by other matters. So I get it looks a little bit cheeky on our part but.

It is whats growing within the portfolio.

Yes, and then you mentioned.

I think asking us to use prudence in our modeling has a lot to ask I think.

Can you be a little more specific about kind of like first quarter.

Even second quarter kind of dynamics on sales and margins.

Yes, I think that that first quarter will look.

More or less like Q4 I.

I think there'll be able move around a little bit segment by segment.

<unk>.

Imagine a little bit better than Q4, but at the end of the day some of the headwinds we had in Q4, we're going to carry into Q1, a lot of that driven by as Scott asked the lingering effects of <unk>.

Absenteeism, which we're still dealing with a little bit right now.

Logistics costs.

Come down a lot, but more importantly, because of our inability to flush.

Backlog in Q4, what we would've expected to be catching up on price cost dynamic is is a bit delayed but that's all that's on corporate that's all incorporated into our full year number.

What do you mean by that is on an absolute basis and when you are talking about yes, I mean, absolutely.

Okay, great. Thanks, a lot alright. Thanks.

The next question comes from Jeff Sprague with vertical research your line is open.

Hey, Thanks, good morning.

Hey, just back on.

The clean new clean tech segment, whether or not the refrigeration.

Wouldn't expect you to address today rich necessarily but do you actually see scope.

To do some additions in that area you have legitimately transform the fueling segment right.

With some interesting deals are there kind of logical extensions to swap our bell back or other.

Other things that are adjacent to those businesses that would be in your M&A pipeline.

There are but the beauty of those two businesses is the fact that there is so concentrated in terms of the supply base. So there's not a lot of M&A you can really do but if you look where we've been spending organic capital we've actually been deploying.

Proportionally quite a bit to swept and delve back on an organic.

Capacity expansion, so I'm not ruling M&A out.

Because there are some interesting adjacencies around it but while we've been doing is just investing behind growth and I think that.

Swept.

We'll be finishing in 2022 and expansion in all four of the geographies. They can participate in for example, and I think that we've put in <unk>.

15 Years' worth of Capex into Bell Vac over the last 18 months or so.

It's more of organic play I think.

Okay, and just on the pumps business I mean, the results really are.

Quite remarkable.

To what extent would you say there is I don't know temporary COVID-19 benefits running through Biopharma or do you just see.

More of kind of a broader wave of investment in and displacement of kind of.

Maybe non disposable technologies and other things driving that business I guess the question is really just around the sustainability of these growth rates.

While the growth rates are going to come down.

Call a spade a spade here I mean, how do you think it clocked in for what 30% for the year something like that.

So theyre going to come down over time.

We don't have that kind of growth rate.

That business embedded into our forecast for 2022, we also do not forecast any margin dilution.

Because of Covid demand roll off because we think that the fundamental demand for the.

For those products is solid and I would have.

Hope that maybe danaher could've done a better job talking about it since there are market participants.

In the same space, we believe that the growth rate will come down as Covid demand begins to roll off we don't envision it going negative in 'twenty two nor do we think that margins are going to be negatively impacted.

And maybe just last one just back on price cost so.

It sounds like the entire company should be price cost positive in Q2 is is that correct.

When you were talking about price cost.

I guess flipping.

Flipping into the into the positive or are we talking dollars margins or both.

The answer to the first question is yes, though the entire company in Q2.

And yes again in terms of.

Margin.

Enhancement, especially in engineered products.

Great. Thanks for the color. Thanks.

Our next question comes from Andrew <unk> with Bank of America. Your line is open.

Hi, yes, good morning.

Andrew.

Hey, just a question.

In terms of.

I was just focused on biopharma, and just internal organic capex opportunities versus M&A.

Just how much growth can you drive organically by expanding.

Biopharma capacity.

Thinking beyond Covid do you think there is a real opportunity there.

I hope so.

Greenfields, a new facility for it right now as we speak.

Yes look I mean, we were not able to keep up with customer demand in 'twenty, one I think that we did better.

Then some of our competitors, meaning I think that we captured growth opportunities, but even with that capture I think that we were at certain points of the year disappointing our customers with our ability to serve so that was what drove the decision.

About expanding capacity and I think.

Greenfield.

Facility up in Minneapolis in 2019.

It's sold out so that's why we're expanding there.

And our disposable pump business in Germany, we are bringing assembly operations with the expansion of clean room in the United States.

For that particular product so.

Our preferred path is inorganic investment to drive growth, because that's where our returns are the highest spot having and as we've discussed many times.

It's no secret that these these are really interesting pieces of the market and they attract very high pricing. So we're going to have to be selective on the M&A side I think we have some interesting things that we're looking at for sure, but I think that we can do this simultaneously inorganic and organic.

Gotcha, and then just a question on <unk>.

Business model.

Hey, you're growing e-commerce sales lessening over $1 billion.

<unk> getting sales efficiency.

But just a.

How far can you take this model and B G.

Generally greater structural ability to go direct to customers versus through distribution post COVID-19 .

Let me answer the second one second.

Second question first because it's easier no I don't think there is.

Our plan here is not to go around distribution our plan here.

<unk> put in e-commerce platforms is.

A couple of things right I mean, it's a cost savings issue, but I think clearly the.

Real benefit of moving to E Commerce platform.

Is the SLP process gets a lot slicker.

Inventory management gets a lot better and you can centralize pricing rather than having distributed pricing around the world. So.

Yes.

A bit of cost savings, but the real benefit is as operational over time, and it's not kind of go to market platform, we expect to continue to.

The sell through distribution.

Thank you.

The next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Morning, everyone Andy.

Rich maybe you can give us a little more color into your confidence level that margin can turn more positive in D. P. Do you need your productivity projects at ESG and ESG to complete before you get the margin turn in the business. Obviously is still heavy so let's steel rolling a bit here does it give you more confidence into turn into just the lag.

Some of the businesses backlog driven.

Hum.

We were negative price cost.

For 2021, because of the catch up on the raw material versus price.

Does the cycle time.

In terms of the inventory turns.

As just more difficult to put in putting the labor issues aside so on that alone.

We've priced.

For raw materials inbound.

Through the year.

We believe roles positive in Q2 based on our forecast for.

For production performance.

And what that does all things being equal is go back to historical operating margins that you would see from ESG and <unk> back in the 2019.

Pre COVID-19 .

Period as kind of expectation number one the investments, we're making are longer term investments that should be accretive.

To that 19 kind of benchmark, but we will get that over time. So we may see some of that in 'twenty. One 'twenty two but that's that's going to take some period of time re outfitting both of the main.

Plants for those businesses.

Got it and then I'm going to ask you the old bookings question in the sense that bookings did not slow as you thought.

I think we all understand that bookings will slow, but do you see an environment at least right now and a high level of bookings you are seeing is relatively sustainable and how do we think about whether there is conservatism in your new 22 organic guide versus the backlog that's up obviously over 80% nothing like going first.

That I bet, our revenue guide does not conservative when we're all said and done here, but I'll take your question.

I think your question anyway.

Bookings are going to slow.

I mean, we've got businesses that are relatively short cycle that are booking into Q3.

Inexplicable.

To me that.

If there is any there's any even need for our customers to go beyond there at this point Ryan I think we're going to get hit and had better happen because if it doesn't happen that means that supply chain issues are not resolving ourselves in 'twenty, two and we expect that to get progressively better so.

Strangely.

It's going to be a good thing if bookings decline in 'twenty two relative to the rate that we saw in 'twenty one.

Sure.

Very helpful. Thanks.

Thanks rich thanks.

We'll go now to make <unk> with Baird. Your line is open.

Yes. Thank you just sort of sticking with this theme on supply chain I am curious as to what Youre seeing as far as your own.

Components in your own purchases in terms of mobility I would imagine that.

EP is probably the area, where you're seeing the biggest challenge, but I'm kind of curious.

One how thats changing into some of the other segments that might be experienced this as well.

I don't think that Theres any segment that's immune to it.

Just.

Yes.

If you step back and you think about the nature of the product anything Thats capital goods like <unk> got a lot of raw material exposure and it's got a lot of complexity because just the.

The size and the dimension of the product as opposed to something like a.

Our connector that's made out of of of injection molded plastic at the end of the day, that's more of a capacity constraint and maybe some logistics so.

The locus of the issue on supply chain is very much within engineered products, but it's not to say and to and refrigeration because that is.

As more refrigeration in terms of its business model is more applicable to what goes on in engineered products than anything else. So.

It's not as bad as it was.

It's and it's getting better we would have liked to see it get better in terms of logistics cost to come down and we're seeing some of that but we'd like to see that curve get better.

We are.

If you look at our working capital number we have built a bunch of inventory and the reason that we built partially the reason we built all of that inventory is to get around the <unk>.

Intermittent curtailments of production, which really cost us a lot of money. So our goal here is.

We are assuming that production curtailments are going to come down.

A lot versus 2021, and 2002, and then logistics and supply chain will gradually get better through the year those are the underlying assumptions.

Okay, but it sounds like Youre seeing some of this already it's not just aspirational, hoping for it. Some of this is getting a little bit that we can look at the futures on raw materials and steel and bar and everything else. Those are we can buy.

Those inputs at lower prices than we have them in inventory right now.

And related to that my final question here.

Do you think about pricing beyond 2022, because obviously you have raised prices because of raw material inflation does that imply that youre going to have to give pricing back in 2003 or.

We're not that's a good question.

And.

Our expectation is we did not reprice our backlog.

As it was built to the detriment of our margins.

Will we reprice our backlog the other way as input costs come down.

Alright, thank you.

Welcome.

We'll go now to Julian Mitchell with Barclays. Your line is open.

Hi, good morning.

Maybe just.

Wanted to circle back to the sort of incremental.

And so you have that 30% placeholder for the year.

From a firm wide standpoint, it sounds like understandably that start out the year at the lower end and then builds but maybe looking at it from a segment standpoint.

Should we assume that the incremental margins by division sort of tally up reasonably closely but the differing organic growth profile. This year.

Yes.

Huh.

Let me answer the best I can.

I think the businesses that had decremental margins in between.

Between.

In 'twenty, one are where we expect proportionately the biggest recovery in 'twenty two.

We.

So and I think if you go back and look at.

The granularity of the comments that I'd and that long winded explanation I gave at the beginning so.

And then we don't expect for margins to come down in some of our higher performing businesses. So the incremental margins there will be at book margin.

We don't give out growth rate by business <unk> segment. So.

Youre going to have to make some assumptions there, but we give you a backlog and everything else and we give you the full year. So.

I think it's safe to say, we expect robust incremental margins, where we suffered in Q1.

And we expect.

Book conversion on revenue growth in the businesses that.

Did well in 'twenty one.

That's helpful.

The only thing I would add to that is that going to be a little bit.

Andre and Jack could help with this there is a little bit of effort around the acquisitions impact on conversion.

So when we give a range there.

We think about that range.

Those impacts that we've disclosed in the script, we had which was $40 million for the year, depending on how youre doing your calculations that can impact conversion.

Very good point.

Thank you Brad and then maybe my second question.

Just wondering looking at sort of pricing you talked about pricing beyond 2022, but maybe stick with 2022 for now.

It was a two and a half or three point tailwind to revenue firm wide.

Last year, just wondered within that 8% organic sales growth midpoint guide for this year, how much of that roughly is price and any big sort of first half second half difference on that price tailwind.

Yes, we had a long discussion here preparing for this call. If that question was going to come and I think my answer to that is I'm not going there.

Youre asking me to predict mix into the future.

I think that we have it here at the end of the day I just don't think it's meaningful in terms of.

Putting a placeholder out there. The fact of the matter is we've got robust organic revenue growth a part of that is price, but is it really make a difference if it's 2.25% or a percent and a half at this juncture I would argue not.

And beyond 'twenty, three I know that <unk> asked the question about pricing in the future we're.

We're not prepared to have that discussion yet.

On the other hand to our forecast does not assume that we need to get price in the back half of the year.

We've been putting price in as you know and as you track in the quarterly results that we put out but.

But we're not sitting here, saying to hit this forecast, we would need to have big price increases in the back half thats not in the forecast and I think that what that means is we will be proactive on price when we need to.

That's very helpful. Maybe.

What was the price in maybe the fourth quarter, there and apologies if I missed that Julien I'm going to send you to the back office to go and deal with that I mean, we're going to start carving this into pieces here.

Fair enough. Thank you.

Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Hi, Thanks, good morning, everybody.

Joe.

So.

So rich maybe I know you guys don't typically get margin by segment, you talked about the climate and sustainability technology segment.

Seeing significant margin progress this year.

Historically, you have had that kind of mid teens.

Get out there for the for the retail part of your business I'm just curious like.

Any other color that you can kind of give us.

How much progress you think you'll make.

22, and then and then also just unified brand.

Yes, it does that would that margin dilutive to your business and now that that came out.

Coming out this year too.

It was it was margin dilutive to the consolidated business it was accretive to.

Would have been accretive to Q4 I believe if it was still in but.

Paul impact a small impact at the end of the day.

We expect to hit our margin target for the refrigeration business in 2022.

That's embedded in the forecast and.

Okay.

And we've expanded we expect robust growth out of both sweat and Belle <unk> and 'twenty, two both of which are accretive.

That all of that revenue is accretive to margins.

That's great.

So maybe just following on my phone question just staying in this segment.

I mean, the backlog that you are building in this segment.

Pretty incredible right $2 $3 billion like I don't think anybody has got any forecast or anywhere close to that.

That type of revenue number in.

In the out years I'm, just trying to understand like how to.

Think about this this segment on a multiyear basis.

From a topline perspective based on what you are building today.

Well look on the refrigeration business.

Conceivably, we're going to get to the point, where we will cap off the growth in traditional door case.

And then put all of our muscle behind <unk>.

Two is the part that's inflicting right now.

And we'll probably have more color on that once we get into mid 'twenty two of what we think that can do going forward.

<unk> is clearly going to be a story of building the backlog. So we can just watch that as we progressed through the year and I think we will do as we go through the year, what we've done in the past and brake <unk> backlog away from the segments. So you can see it.

And then in sweat.

Look we.

We've been doing very very well in Europe on heat pump technology, we expect that technology to be brought to the U S.

And as part of that that's why we're expanding capacity today in advance of that so.

To the extent that we're deploying the capital means that we expect that business to continue its growth trajectory over time.

Got it that's super helpful. Thank you Bob.

Yes.

We will take our final question today from Brett Linzey with Mizuho. Your line is open.

Yes.

Hi, good morning, all thank you.

Good morning.

Hey, just wanted to come back to the internal manufacturing inefficiencies that took place in 'twenty. One obviously just given the environment that was expected, but can you isolate those headwinds versus the raw mats and logistics inflation that you saw I would imagine there are some non repeat there just trying to get a sense as to what the what that number looks like.

It's a meaningful number.

It's a large driver of the margin impact on engineered products.

And.

What was the RFE and I can't remember the nickname after all of this in anyway. So.

But sizing it.

I'd, maybe we can get back to you it's meaningful.

And that's part and parcel to y.

We think that we can expand profits at an absolute basis in 'twenty two as much as we can because we took a lot of hits by curtailing production, which really is outside of the price cost dynamic that's just absolute lost fixed cost absorption.

Well, it's meaningful on the top line and on the earnings line and I think Andre can could work through that with you.

Okay.

Great No I was just trying to square the 30% incremental with price cost positive, but these down in pieces. It seems like maybe some cushion in the guide.

Just back to the e-commerce .

Looking to double that I missed the timeframe, you said in which you'd like to double those sales and just given the lower cost to serve what kind of incremental margin should we be thinking about as you take that number up.

We are we did a $1 billion in 'twenty, one where our goal is to do $2 billion in 'twenty two.

And as I mentioned before it's not really cost takeout is not the advantage here the advantage is.

Across the entire complex.

Meaning inventory management, the ability to do pricing centrally.

Ability to do dynamic pricing SKU management, so youre just going to have to look at that as a portfolio move and it's part and parcel to us.

Extracting synergy across the portfolio through those initiatives rather than trying to parse it by operating company by segment.

Okay got it thanks, a lot best of luck. Thanks.

Okay.

Thank you that concludes our question and answer period until first fourth quarter and full year 2021 earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.

Okay.

[music].

Yeah.

[music].

Good morning, and welcome to Dover's fourth quarter and full year 2021 earnings conference call speaking today are Richard J, Tobin, President and Chief Executive Officer, but Sarahpac Senior Vice President and Chief Financial Officer, and I'll drink of Luke Vice President of corporate development and Investor Relations. After the Speakers' remarks there.

There will be a question and answer period, if you would like to ask a question. During this time press Star and then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.

A reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms. Please disconnect at this time. Thank you I would now like to turn the call over to Mr. Roderick look. Please go ahead Sir.

Thank you Donnie and good morning, everyone and thank you for joining our call. This call will be available on our website for playback through February 17th and the audio portion will be archived for three months.

We provide non-GAAP information and reconciliations between GAAP and adjusted measures are included in our Investor supplement and presentation materials, which are available on our website.

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.

Thank you Andre and good morning, everyone.

Let's start on page three.

We are thankful for the extraordinary efforts of our Dover team members, which enabled us to deliver strong operating results amidst challenging conditions during 2021.

We're also grateful to our customers, who trusted us with their business, while adapting their supply chains and business models to this rapidly changing and demanding environment.

The resilience and creativity of our teams and the durability of our customer relationships, where the key elements of our success this year.

And we are committed to build upon those pillars in 2022 and mobilized to deliver another strong year of performance.

We are satisfied with this accomplishment in the face of the well chronicled input shortages supply chain constraints, and Covid, driven quarantines and absenteeism that became increasingly challenging during the <unk> period of Q4 as.

As we mentioned in the opening remarks, we battle through as best we could under the circumstances, but we cannot help but be very frustrated.

By the continuing guidance on mandates and deadlines that often it seems often that we have learned very little in the past 24 months.

We complemented our strong operational execution with value, creating organic inorganic growth investments, we deployed $1 1 billion.

And nine highly strategic bolt on acquisitions and also completed the divestiture of our noncore foodservice equipment platform on December one.

In fueling and our refrigeration and food equipment segment to climate and sustainability technologies.

Looking ahead to 2022, we entered the year with constructive optimism, despite the ever evolving ever evolving operating environment and geopolitical clouds.

We believe that growth conditions are still with us, but it is critical that policies policies are enacted or not enacted to continue this trajectory.

As COVID-19 and its effects subside, we desperately need policy pragmatism with a bias towards policy that foster economic growth.

Demand conditions across the majority of the portfolio remained favorable as evidenced by our strong sustained bookings in the fourth quarter and throughout the year with a book to bill each quarter above one even with the aforementioned double digit revenue growth.

Our backlog of $3 $2 billion is up 84% versus this time last year, which allows us to better plan our capacity production in inventory a major benefit todays constrained operating environment, while we expect these operational challenges and supply chain and labor availability to continuing to.

Early 'twenty two we do not expect operating conditions, we do expect operating conditions and price material spreads to improve as the year progresses.

We believe we are well positioned to deliver robust topline growth margin expansion and EPS accretion in 2022.

We are therefore forecasting full year revenue guidance of 7% to 9% organic growth in adjusted EPS.

<unk> $8.45 to $8 65 per share.

I'll Skip slide four which provides more detailed overview of the results. So let's go onto slide five.

Engineered products revenue was up 16% organically in the quarter as demand remained favorable across all businesses.

Vehicle services posted a strong top line quarter.

And market indicators remain positive.

Environmental services group revenue was up year over year with both bookings and backlog remained robust moving into 2022 industrial automation automation demand remained high posting its strongest bookings quarter of the year, while deliveries were negatively impact by output challenges in America, and Europe Aerospace and defense.

Posted a solid year over year growth with good momentum behind our recent SP acquisition. The crowd the recovery of industrial Winches continues with all end markets trending positive.

In the fourth quarter engineered products was the only segment that had a negative price cost spread largely driven by raw materials and logistics costs.

This remains our most challenged segment in the current operating environment.

We have line of sight to improve margin outlook as the price cost spread turns positive in 2022.

Incremental margin conversion expected to gain steam through the year as we cycle through inventory and we begin shipping off a strong backlog that was priced in the second half of 2021.

Clean energy and fueling was down 4% organically in the quarter against a difficult comparable from 2020, when we saw the high watermark of EMG demand. Additionally.

Additionally, volume was constrained by our customers construction labor slowdown and component shortages as well as Covid absenteeism in Europe booking trends in backlog in the above ground business remained constructive based on early market feedback and trajectory trajectory. We believe that we have a winning product with the anthem dispenser.

Conversely demand trends for below ground equipment are picked up in North America, and deliveries and vehicles and deliveries and vehicle wash continued their upward trend, most notably and access terminal and controller business that we acquired a year ago.

Our recent clean energy acquisitions had a minimal impact on our Q4 results. However, backlogs and these businesses are strong.

Sales in imaging and identification grew 3% organically in the core marketing coating business was strong and comparable volume, though is shortage of components on some and some order push outs reduced volumes and printers are serialization and brand management software business continues to grow ahead of expectations, while we're working diligently.

To add additional resources here as we integrate and scale the business.

The digital textile business continues its gradual recovery was up against a low bar comparable quarter, but it has still not recovered to pre COVID-19 levels.

Our pumps and process solutions posted another strong quarter at 30% organic growth.

Revenue for our CPC business was up double digits, we completed a clean room expansion project for this business in December in anticipation of another strong growth year in 2022.

Industrial and Biopharma pumps were up on broad based and customer demand across all geographies.

We are pleased with the performance of the flow meter business within <unk>, which we acquired in 2020, it's biopharma sales have doubled in 2021.

Precision components was up as the business continues its recovering on improving demand in the broader industry exposure.

Polymer processing was up in the quarter due to strong demand for Pelletizing gear pumps as well as strong order rates in recycling equipment and consumables, particularly in the U S and China.

Margins expanded by a robust 740 basis points in the quarter and 790 basis points of the year on strong volumes fixed cost absorption favorable product mix and pricing.

Top line results in climate and sustainability technologies continued to be robust posting 13% organic growth swept our heat exchanger business capped off the year posting all time records in bookings revenue and margin and carries a strong backlog into 2020 to.

The business was strong across all geographies and end markets with particularly favorable demand in EMEA for heat pumps, driven by regulatory requirements, we have been adding capacity additional capacity in several geographies to meet forecasted future demands.

<unk> our provider of production solutions solutions for beverage packaging posted a revenue decline in the fourth quarter on difficult comparable driven by project timing as you know this business was up significantly in 2021.

Part of our multiyear secular shift toward more environment liar mentally friendly aluminum cans with demand far exceeding the current installed capacity.

Into 2022.

Margin expansion, despite multiple operational challenges as the year presented with a strong backlog. We expect a continued robust progress in 2022 and I'll pass it on to Brad.

Thanks, Rich and good morning, everyone.

Let's go to slide six.

On the top is the revenue bridge, our topline organic revenue increased by 11% in the quarter with all segments, except clean energy and fueling posting growth.

FX was a 1% or $12 million headwind to the topline M&A added $17 million net.

To the topline in the quarter.

A product of $26 million from acquisitions, partially offset by $9 million from the unified brands divestiture.

The revenue breakdown by geography reflects strong growth in North America, and Asia, and solid growth across Europe , and the rest of the world.

The U S. Our largest market posted 16% organic growth in the quarter on solid trading conditions in industrial Winches.

Vehicle aftermarket biopharma and polymer processing.

All of Asia was up 15% organically on growth in Biopharma, and industrial pumps marketing coding and heat exchangers, China, which represents approximately half of our business in Asia was up 17% organically in the quarter.

Europe grew by 7% in the quarter on strong shipments in precision components Biopharma industrial pumps natural refrigerant systems.

And heat exchangers for heat pumps, partially offset by order timing.

In sustainable beverage can making.

In the quarter, we saw organic growth across four of the five segments.

Let's go to the earnings bridges on slide seven.

On the top chart adjusted segment EBIT was up 47 billion and adjusted EBIT margin improved 60 basis points as improved volumes continued productivity initiatives and strategic pricing offset input cost inflation and production stoppages.

On the bottom of the chart adjusted net earnings improved by $34 million as higher segment, EBIT more than offset higher corporate expenses and higher taxes.

<unk> expenses, primarily related to a clean energy acquisitions were $11 million in the quarter, representing approximately <unk> <unk>.

Adjusted EPS headwind.

The effective tax rate, excluding discrete tax benefits and gains on the sale of businesses was approximately 21, 7% for the quarter compared to 21, 1% in the prior year.

Discrete tax benefits were $10 3 million for the quarter or $2 1 million higher than.

In 2020.

For approximately <unk> year over year EPS impact.

Now on slide eight.

Yeah.

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 that.

The current demand into next year.

With that I'm going to pass it back to rich okay. Thanks, Brad I'm on slide nine which shows our progress in 2021 against the capital allocation priorities, we outlined at our Investor day in 2019.

Deployed over $170 million in capital expenditure in 2021 towards growth and productivity enhancements as well as maintenance of our asset base, notably we invested over $14 million in digital products and digital and E Commerce, which allowed us to reach our goal of over $1 billion in E. Commerce revenue last year with no touch by customer service.

This represents over 10 times the volume we processed processed in 2018, and our 2020 goal is to double our 2021 volume.

Our next priority is inorganic growth last year, we deployed $1 1 billion into nine highly synergistic bolt on acquisitions, including two larger deals Acme and <unk>, which we closed in December all these acquisitions enhance our portfolio by increasing our exposure to markets with structural demand growth outlook, our pipeline and.

<unk> capacity remains strong and we expect to remain active on this front in 2022.

Our third priority is to return capital to our shareholders. We again raised our dividend in 2021 as we have done for the past 66 years.

Let's move to slide 10, we provide more color on some of our organic investments I won't go into specifics of any of these projects individually, but youll see that our investments are substantial in size and represent a broad variety of productivity improvement and digitally digitization initiatives as well as investments in capacity expansion and new.

Product development projects.

These investments provide compelling financial returns and our proactive capacity expansions have allowed us to win share in that tight supply market.

On Slide 11 includes our current view of the demand outlook and operational environment for 2022 by segment and how margin drivers are expected to trend over time.

And provides context of how we're thinking about our full year guidance, which I'll get to shortly.

We expect topline and engineered products to remain robust based on solid backlog and sustained high bookings across the business.

All market indicators and vehicle aftermarket continued to remain positive with miles driven having fully recovered to pre pandemic levels in used cars prices remaining.

Orders for refuse trucks and software solutions are robust with new order rates pushing well into the second half of 'twenty to momentum in industrial automation and industrial which is should continue on the back of a solid bookings quarter with all end markets contributing to growth aerospace and defense is expecting growth and positive order trends largely due.

Driven by Europe .

We expect headwinds from negative cost to continue in the first half of the year getting sequentially better as the year progresses.

We expect this segment to be the only one with negative price cost spread in the first quarter in.

Input availability, mostly labor absenteeism friess from recent omicron surge is expected to negatively impact production efficiency in the first quarter.

We expect clean energy and fueling to post low single digit organic growth for the full year on solid growth in below ground vehicle wash and software solutions demand outlook and bookings of our recently acquired clean energy businesses are very robust and they are off to a good start as you know we don't adjust acquisition relate.

<unk> amortization out of our adjusted segment earnings margins due to sizeable acquisition related amortization charges from our recent deals in this segment. The operating margin will be compressed in the first quarter of 2022, excluding about $40 million of incremental deal related amortization expenses in 'twenty, two we expect full year margin conversion.

To be in line with the broader portfolio.

Demand conditions in imaging and identification are expected to continue the positive trajectory into 2022, our core marking and coding business with respect to maintained its steady GDP like growth rate <unk>.

Serialization and brand protection software should contribute positively to robotics.

On robust bookings and backlog digital textile printing is recovery and expect to take another year or two to reach.

<unk> pandemic levels as apparel producers take a cautious stance with new capital outlays, we expect margin in this segment to continue to improve in 2022.

We are completing the second phase of our clean room expansions and automation to ensure we can keep up with demand and we have broken ground on the construction of a new facility.

Additionally, our connector business is experiencing robust growth and new thermal applications, such as data center and supercomputing and EV charging.

Trading conditions in industrial pumps were strong driven by robust robust and customer demand plastics and polymer equipment business carries a.

A solid backlog into 2020 with good market conditions, including especially in China.

<unk> and natural refrigerant refrigerants are driving outsized growth of our <unk> systems business as.

As omicron induced labor shortages abate in the first quarter, we expect volumes of door cases to recover with backlog stretching well into the second half of the year, our heat exchanger business is positioned well on strong order rates across all geographies.

<unk> packaging business continues to work through its record backlog. They are booked for 2022 and are taking orders for 2023, we expect to have our new R&D Center and full can line completed.

First half of the year.

<unk> margins to improve significantly in 2022 is.

Alright, so before wrapping up and move into Q&A, let's try to square the square the circle here and some up all the moving parts from our 2021 exit positioned to our full year guidance at.

At the opening of this call I said, our results were better than expected that was not a reference to external consistent consensus estimates, but a comment about our operating margin performance versus our internal forecast.

Without the significant omicron production and productivity losses, which were not in our base forecast, we would have shipped more product in Q4, resulting in higher sales and cash flow, but lower consolidated margin on product mix as a result of this while we do get the benefit of carrying higher backlogs into 2022, we.

We have not cleared as much higher cost inventory and have not realized all the benefits of past pricing actions embedded in that backlog. This will result in the caliber of origination of absolute earnings and earnings growth and especially segment operating margin being more backend loaded than a typical year as a result of this date delayed backlog for us.

Yes.

A few implications of this dynamic number one we are prudent operating margin expectations for Q1 and encourage those modeling quarterly forecast to exercise the same level of prudence.

Number two it is a good sign of backlogs gradually deplete during the year as it will be driven by higher production performance is labor availability and supply chain improve.

Lastly at both these dynamics play out as forecasted we can expect inventory levels to drop supporting an increased operating cash flow in 2022.

So, let's move to slide 13, which hopefully removes the quarterly noise and gives us some view of post pandemic full year performance.

Here, we provide a bridge between our adjusted EPS in 2021, and 2022, we expect to generate double digit EPS growth again, this year driven by solid organic top line growth much of which is currently in backlog as well as healthy full year margin conversion and the positive impact from acquisition closed in 2021.

Yeah.

So, let's wrap up with slide 14 to put our results and guide into a longer term perspective, our strategy has driven significant value creation for our shareholders over the last several years as evidenced by the total shareholder return driven by underappreciated topline growth cumulative margin expansion of 404.

The basis points healthy cash flow generation and capital redeployment, we believe that our that our playbook offers us significant runway to continue delivering attractive full cycle returns for the coming years.

And with that let us move to the Q&A Andre.

If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key.

That participants limit themselves to one question and one follow up question. We will go first to Scott Davis with Melius Research. Your line is open.

Hey, good good morning, everybody Hi, Scott Thanks, Scott.

There was a lot of detail in there I'd be lying if I said it followed every single word.

And maybe we can start with just a little bit more color. It seems like this absenteeism and cost issues kind of lingering.

<unk> here.

Is it getting are things getting any better or are they just as bad now as they were.

And then <unk>.

Well I guess, yes, I guess now that we've disposed with the federal mandate hopefully I mean that was not helpful.

At all.

It is getting better I think that the quarantine period being half has helped.

So it's not as bad as the peak, which is probably in December but it is lingering somewhat into January but it's not as bad.

This cash flow guide is.

It's pretty solid does that imply there's going to be some work down on working capital are you at working capital levels that.

Or kind of more normal I would say a new normal given the supply chain that's been out there you'll have some flush out.

<unk> 22.

Yes.

Look.

We expected to ship that now whether it would have been caught up in receivables who is to say.

My view is we would have expected too.

Maybe have a slight increase in inventory based on the revenue.

But our expectation for 2022, if we if we get this right, which I expect to be world is that we're going to give back.

That build net of revenue increase for the year. So.

Expect to do better in working capital in 2022 than we did in 'twenty one.

I would just add I think we have a modest forecast of inventory drawdown.

Pending on how the year progresses, there could be some incremental there.

Good luck guys. Thank you. Thanks.

We'll go now to Steve Tusa with Jpmorgan. Your line is open.

Hi, good morning, good morning.

You guys had changed your name to like Dover technologies, or something like that and our soft actually not not not now because of the growth is now selling off so maybe something different.

The change in the name is interesting now does that mean youre keeping refrigeration.

It's in our forecast for 2022.

Look I've got at the end of the day is we can't call. It food equipment anymore. Since we disposed of the food equipment business, so by and large we had to rename it.

The matter is and I don't want to get cheeky about ESG driven nomenclature here is that the fastest growing portions of that segment are in sustainability technologies.

Swept and our <unk> systems, and Bell <unk>, which are all driven.

We would argue by a shift to meet ESG compliance, whether thats regulatory driven or driven by other matters. So I get it looks a little bit cheeky on our part but.

It is whats growing within the portfolio.

And then you mentioned.

I think asking us to use prudence in our modeling has a lot to ask I think.

Can you be a little more specific about kind of like first quarter.

<unk> second quarter kind of dynamics on sales and margins.

Yes, I think that that first quarter will look.

More or less like Q4 I.

I think there'll be able to move around a little bit segment by segment.

And I would imagine a little bit better than Q4, but at the end of the day some of the headwinds we had in Q4, we're going to carry into Q1.

A lot of that driven by as Scott asked the lingering effects of.

Absenteeism, which we're still dealing with a little bit right now.

Logistics costs.

Come down a lot, but more importantly, because of our inability to flush.

Backlog in Q4, what we would've expected to be catching up on price cost dynamic is is a bit delayed but that's all that's on corporate that's all incorporated into our full year number yes, what do you mean by that is on an absolute basis and when you are talking about yes, I mean, absolutely.

Okay, great. Thanks, a lot alright. Thanks.

The next question comes from Jeff Sprague with vertical research your line is open.

Hey, Thanks, good morning.

Hey, just back on.

The clean new clean tech segment, whether or not the refrigeration.

Wouldn't expect you to address today rich necessarily but do you actually see scope.

To do some additions in that area you have legitimately transformed the fueling segment right.

With some interesting deals are there kind of logical extensions to swap our bell back or other.

Other things that are adjacent to those businesses that would be in your M&A pipeline.

There are but the beauty of those two businesses is the fact that they are so concentrated in terms of the supply base. So there's not a lot of M&A you can really do but if you look where we've been spending organic capital we've actually been deploying.

Proportionally quite a bit to swap and <unk>.

<unk> organic capacity.

Capacity expansion, so im not ruling M&A out.

Because there are some interesting adjacencies around it but what we've been doing is just investing behind growth and I think that.

Swept.

We'll be finishing in 2022 and expansion in all four of the geographies. They can participate in for example, and I think that we've put in.

<unk> Years' worth of Capex into <unk> over the last 18 months or so so it's more of organic play I think.

Okay.

Just on the pumps business I mean, the results really are.

Quite remarkable.

To what extent would you say there is I don't know temporary COVID-19 benefits running through Biopharma or do you just see.

More of kind of a broader wave of investment in and displacement of kind of.

Maybe non disposable technologies and other things driving that business I guess the question is really just around the sustainability of these growth rates.

While the growth rates are going to come down I mean, let's.

Call a spade a spade here I mean, how do you think it clocked in for what 30% for the year something like that so.

So theyre going to come down over time.

We don't have that kind of growth rate.

That business embedded into our forecast for 2022, we also do not forecast any margin dilution.

Because of Covid demand roll off because we think that the fundamental demand for the.

For those products is solid and I would have hoped that maybe danaher could've done a better job talking about it since there are market participants.

And maybe just last one just back on price cost so.

It sounds like the entire company should be price cost positive in Q2 is is that correct.

When you were talking about price cost.

I guess flipping.

Flipping into the into the positive or are we talking dollars margins or both.

The answer to the first question is yes until the entire company in Q2.

And yes again in terms of.

Margin.

Enhancement, especially in engineered products.

Alright, thanks for the color. Thanks.

Our next question comes from Andrew <unk> with Bank of America. Your line is open.

Hi, yes, good morning.

Andrew.

Hey, just a question.

In terms of.

I was just focused on biopharma, and just internal organic capex opportunities versus M&A.

Just how much growth can you drive organically by expanding.

Biopharma capacity.

Thinking beyond Covid do you think there is a real opportunity there.

I hope so.

Green fielding a new facility for it right now as we speak.

Yes look I mean, we were not able to keep up with customer demand in 'twenty, one I think that we did better.

About expanding capacity and I think.

We'd greenfield.

Facility up in Minneapolis in 2019.

It's sold out so that's why we're expanding there.

And our disposable pump business in Germany, we are bringing assembly operations with the expansion of clean room in the United States.

For that particular product so.

Our preferred path is inorganic investment to drive growth because thats, where our returns are the highest spot having and as we've discussed many times.

Simultaneously inorganic and organic.

Gotcha, and then just a question on Europe .

<unk> business model.

You're growing e-commerce channels opening over $1 billion.

Imagine you getting sales efficiency.

But just a hull.

How far can you take this model and be implemented.

Generally greater structural ability to go directly to customers versus through distribution post COVID-19 . Thank you.

Let me answer the second one second.

Second question first because it's easier no I don't think there is.

Our plan here is not to go around distribution our plan here.

To put in e-commerce platforms is.

A couple of things right I mean, it's a cost savings issue, but I think clearly the.

Real benefit of moving to E Commerce platform.

Is the SLP process gets a lot slicker.

Inventory management gets a lot better and you can centralize pricing rather than having distributed pricing around the world. So.

Yes.

A bit of cost savings, but the real benefit is as operational over time, and it's not kind of go to market platform, we expect to continue.

The sell through distribution.

Thank you.

The next question comes from Andy Kaplowitz with Citigroup. Your line is open.

Good morning, everyone Andy.

Rich maybe you can give us a little more color into your confidence level that margin can turn more positive in D. P. Do you need your productivity projects in ESG and ESG to complete before you get the margin turn and then the business. Obviously is still heavy so steel rolling a bit here does it give you more confidence into turn into just the lag.

Some of the businesses backlog driven.

Hum.

We were negative price cost.

For 2021, because of the catch up on the raw material versus price because the cycle time.

In terms of the inventory turns.

Just more difficult to really put in putting the labor issues aside so on that alone.

We've priced.

For raw materials inbound.

Through the year.

We believe roles positive in Q2 based on our forecast for.

For production performance.

And what that does all things being equal is go back to historical operating margins that you would see from ESG and <unk> back in the 2019.

Pre COVID-19 .

Period as kind of expectation number one the investments, we're making are longer term investments that should be accretive to that 19 kind of benchmark, but we will get that over time. So we may see some of that in 'twenty, one 'twenty two but that's that's going to take some period of time.

The re outfitting bulk of the main.

Plants for those businesses.

Got it and then I'm going to ask you the old bookings question in the sense that bookings did not slow as you thought.

I think we all understand that bookings will slow, but do you see an environment at least right now and the high level of bookings you are seeing is relatively sustainable and how do we think about whether there is conservatism in your new 22 organic guide versus the backlog that's up obviously over 80% nothing like going first.

I bet, our revenue guide does not conservative when we're all said and done here, but I'll take your question.

Your question anyway.

I was look bookings are going to slow.

I mean, we've got businesses that are relatively short cycle that a bit booking into Q3.

Just inexplicable.

To me that.

If there is any there is any even need for our customers to go beyond there at this point Ryan I think we're going to get here and had better happen because if it doesn't happen that means that supply chain issues are not resolving ourselves in 'twenty, two and we expect that to get progressively better so.

Strangely.

It's going to be a good thing if bookings decline in 'twenty two relative to the rate that we saw in 'twenty one.

Sure.

Very helpful. Thanks.

Thanks rich thanks.

We'll go now to make <unk> with Baird. Your line is open.

Yes. Thank you just sort of sticking with this theme on supply chain I am curious as to what Youre seeing as far as your own.

Components in your own purchases in terms of mobility I would imagine that.

EP is probably the area, where you've seen the biggest challenge, but I'm kind of curious.

One how that's changing into some of the other segments that might be experienced this as well.

I don't think Theres any segment that's immune to it.

Just.

Yes.

Sure.

If you step back and you think about the nature of the product anything Thats capital goods like <unk> got a lot of raw material exposure and it's got a lot of complexity because just the.

The size and the dimension of the product as opposed to something like a.

Our connector that's made out of of of injection molded plastic at the end of the day, that's more of a capacity constraint and maybe some logistics so.

The locus of the issue on supply chain is very much within engineered products, but it's not to say and to and refrigeration because that is.

As more refrigeration in terms of its business model is more applicable to what goes on in engineered products than anything else. So.

It's not as bad as it was.

<unk>.

It's and it's getting better we would have liked to see it get better in terms of logistics cost to come down and we're seeing some of that but we'd like to see that curve get better.

We are.

If you look at our working capital number we have built a bunch of inventory and the reason we built partially the reason we built all of that inventory is to get around the <unk>.

Intermittent curtailments of production, which really cost us a lot of money. So our goal here is.

We are assuming that production curtailments are going to come down.

A lot versus 2021, and 2002, and then logistics and supply chain will gradually get better through the year those are the underlying assumptions.

Those inputs at lower prices than we have them in inventory right now.

And related to that my final question here.

Do you think about pricing beyond 2022, because obviously you have raised prices because of raw material inflation does that imply that youre going to have to give pricing back in 2003.

We're not that's a good question.

And.

Our expectation is we did not reprice our backlog.

As it was built to the detriment of our margins.

Will we reprice our backlog the other way as input costs come down.

Alright, thank you.

Welcome.

We'll go now to Julian Mitchell with Barclays. Your line is open.

Hi, good morning.

Maybe just.

I wanted to circle back to the sort of incremental.

And so you have that 30% placeholder for the year.

From a firm wide standpoint, it sounds like understandably that starts out the year at the lower end and then builds but maybe looking at it from a segment standpoint.

Should we assume that the incremental margins by division sort of tally up reasonably closely but the differing organic growth profile. This year.

Yes.

Huh.

Let me answer the best I can.

I think the businesses that had decremental margins in between.

Between.

In 'twenty one.

There, we expect proportionately the biggest recovery in 'twenty two.

We.

So and I think if you go back and look at.

Granularity that comments that.

Long winded explanation I gave at the beginning so.

And then we don't expect for margins to come down in some of our higher performing businesses. So the incremental margins there will be at book margin.

We don't give out growth rate by business <unk> segment. So.

Youre going to have to make some assumptions there, but we'd give you backlog and everything else and we give you the full year. So.

It's safe to say, we expect robust incremental margins, where we suffered in 'twenty one.

And we expect.

Book conversion on revenue growth in the businesses that.

Did well in 'twenty one.

Okay. That's helpful.

The only thing I would add to that is that going to be a little bit.

Andre and Jack could help with this there is a little bit of effort around the acquisitions impact on conversion.

So when we give a range there.

Think about that range pre those impacts that we've disclosed in the script, we had which was $40 million for the year, depending on how youre doing your calculations that can impact conversion.

Very good point.

Thank you Brad and then maybe my second question.

Just when we're looking at.

The pricing you talked about pricing beyond 2022, but maybe stick with 2022 for now.

I suppose it was two and a half or three point tailwind to revenue firm wide.

Last year.

Just wondered within that 8% organic sales growth midpoint guide for this year, how much of that roughly is price and any big sort of first half second half difference on that price tailwind.

Yes, we had a long discussion here preparing for this call that that question was going to come and I think my answer to that is I'm not going there.

Youre asking me to predict mix into the future.

I think that we have it here at the end of the day I just don't think it's meaningful in terms of.

And beyond 'twenty, three I know that <unk> asked the question about pricing in the future we're.

We're not prepared.

To have that discussion yet.

On the other hand to our forecast does not assume that we need to get price in the back half of the year.

We've been putting price in as you know and as you track in the quarterly results that we put out but.

But we're not sitting here, saying to hit this forecast we need to have big price increases in the back half that's not in the forecast and I think that what that means is we'll be proactive on price when we need to.

That's very helpful. Maybe.

What was the price in maybe the fourth quarter, there and apologies if I missed that Julien I'm going to send it to the back office to go and deal with that I mean, we're going to start carving this into pieces here.

Fair enough. Thank you.

Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Okay.

Hi, Thanks, Good morning, everybody Hey, Joe.

So.

So rich maybe I know you guys don't typically give margin by segment you talked about the climate and sustainability technology segment.

<unk> seen significant margin progress this year.

Historically, you have had that kind of mid teens.

Get out there for the for the retail part of your business I'm just curious like.

Any other color that you can kind of give us.

How much progress do you think you'll make.

22, and then and then also just unified brands.

Does that does that margin dilutive to your business and now that that came out.

It's coming out this year too.

Was it was margin dilutive to the consolidated business it was accretive to.

Would have been accretive to Q4 I believe if it was still in but.

All impact a small impact at the end of the day.

We expect to hit our margin target for the refrigeration business in 2022.

That's embedded in the forecast.

Okay.

And we've expanded we expect robust growth out of both sweat and <unk> in 22, both of which are accretive.

That all of that revenue was accretive to margins.

That's great.

So maybe just following on my own question staying in this segment.

I mean, the backlog that you are building in this segment.

It's pretty incredible range of $2 $3 billion like I don't think anybody has got any forecast or anywhere close to that.

That type of revenue number in.

In the out years I'm, just trying to understand like how to.

Think about this this segment on a multiyear basis.

From a topline perspective based on what you are building today.

Well look on the refrigeration business.

Conceivably, we're going to get to the point, where we will cap off the growth in traditional door case.

And then put all of our muscle behind <unk> Sidoti.

Two is the part that's inflicting right now.

And we'll probably have more color on that once we get it to mid 'twenty two of what we think that can do going forward.

And then in sweat.

Look we.

We've been doing very very well in Europe on heat pump technology, we expect that technology to be brought to the U S.

And as part of that that's why we're expanding capacity today in advance of that so.

To the extent that we're deploying the capital means that we expect that business to continue its growth trajectory over time.

Got it Super helpful. Thank you Bob.

Yes.

We will take our final question today from Brett Linzey with Mizuho. Your line is open.

Yeah.

Hi, good morning, all thank you.

Good morning.

Hey, just wanted to come back to the internal manufacturing inefficiencies that took place in 'twenty. One obviously, just given the environment those expected, but can you isolate those headwinds versus the raw mats and logistics inflation that you saw I would imagine there is some non repeat there just trying to get a sense as to what the.

That number looks like yes. It is.

A meaningful number.

It's a large driver of the margin impact on engineered products.

And.

What was the RFE and I can't remember the name after all of this in anyway. So.

But sizing it.

Maybe we can get back to you it's meaningful.

And that's part and parcel to y.

We think that we can expand profits.

Absolute basis in 'twenty, two as much as we can because we took a lot of hits by curtailing production, which really is outside of the price cost dynamic that's just absolute lost fixed cost absorption that.

Well, it's meaningful on the top line and on the earnings line and I think Andre can could work through that with you.

Okay great.

Great No I was just trying to square the 30% incremental with price cost positive with these non peaks and it seems like maybe some cushion in the guide.

Just back to the e-commerce .

Looking to double that I missed the timeframe, you said and what you'd like to double those sales and just given the lower cost to serve what kind of incremental margin should we be thinking about as you take that number up.

We are we did a $1 billion in 'twenty, one where our goal is to do $2 billion in 'twenty two.

And as I mentioned before it's not really cost takeout is not the advantage here the advantage is.

Across the entire complex, meaning inventory management, the ability to do pricing centrally the ability to do dynamic pricing SKU management. So youre just going to have to look at that as a portfolio move and it's part and parcel to us.

Extracting synergy across the portfolio through those initiatives rather than trying to parse it by operating company segment.

Okay got it thanks, a lot best of luck. Thanks.

Q4 2021 Dover Corp Earnings Call

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