Q1 2022 Dover Corp Earnings Call
Good morning, and welcome to go first first quarter 2022 earnings Conference call.
Speaking today are Richard J, Tobin, President and Chief Executive Officer.
Brad <unk> senior Vice President and Chief Financial Officer, and jacket against senior director of Investor Relations.
After the Speakers' remarks, there will be a question and answer period.
I'd 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.
As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call.
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Thank you and it is now my pleasure to turn the call over to Mr. Jack Dickens, Sir please begin.
Okay.
Thank you Chelsea and good morning, everyone and thank you for joining our call and audio version of this call will be available on our website through May 12, and a replay link of the webcast will be archived for three 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 are.
Our comments today will include forward looking statements based on current expectations.
Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings, we make where we assume no obligation to update our forward looking statements with that I will turn the call over to rich.
Thanks, Jack and good morning, everyone I'm on slide three.
It shows the details U S GAAP and adjusted quarterly results.
So let's go to slide four and take a look at the performance highlights.
Our results in the first quarter were in line with expectations.
Our expectations as the demand for our products and service continued to be robust across the portfolio and the management teams of our operating companies did a solid job of navigating various challenges during the quarter.
Going into the quarter, we had appropriately forecasted the supply chain and input inflation headwinds, but we did not forecast significant geopolitical destabilization.
Nor the return of pandemic challenges in China, which negatively impacted some businesses in our portfolio from a demand and supply chain perspective, we were able to largely offset these unexpected headwinds the robust production performance, particularly late in the quarter on the back of our backlog strength.
Let's move to the.
Organic revenue was up 9% year over year in the quarter on strong demand across the majority of the portfolio backlogs remain at record levels up 54% year over year, and 5% sequentially with book to Bill above one in all five segments.
Operating margin performance in the quarter was below our expectation planned.
Planned volume leverage productivity and tight cost controls were able to dampen the forecasted negative impact of <unk>.
Supply chain constraints and negative price cost embedded in in older backlogs.
And older orders in the backlogs of certain businesses, but our actions were short a fully offsetting unscheduled production interruptions at <unk>.
By supply chain constraints, and several severe weather events, which negatively impacted volume and cost absorption and had an unfavorable mix effect on margins. We expect this to be recovered over the balance of the year.
During the quarter, we continued to invest organically in capacity expansion and productivity initiatives to drive revenue growth and operational success.
We recently acquired a unique intellectual property portfolio used in electric powered and hybrid waste collection vehicles, which we plan to showcase a fully electric refuse vehicle built for one of our municipal customers at waste Expo in May.
Our first quarter performance demonstrated again, the strength of our diversified portfolio of businesses and our commitment to continuous improvement and operational rigor.
Due to the dynamic environment in which we're operating quarter to quarter results will be noisy, which I'm sure we'll discuss at length during the Q&A, but keep in mind that we have a robust backlog and that the businesses that faced challenges in the back half of 2021.
Our position to drive robust performance as we get through the tougher comps of the first half of 2022.
Despite the macro headwinds, we are well positioned to deliver our full year revenue guidance of 7% to 9% organic growth and adjusted EPS.
$8 45 to.
Two $8 65 a share.
Let's go to slide five.
Engineered products revenue was up 15% organically in the quarter demand continues to be robust across much of the portfolio and we have considerable visibility as a result of backlogs are robust backlog position.
Comparable operating margin was down largely as a result of price cost and supply chain challenges, but sequentially improved as production performance ramped up and older backlog shipped we expect this dynamic to continue for the balance of these.
Clean energy and fueling was flat organically as weak as the expected roll off of via <unk> demand in North America retail fueling was offset by growth in other businesses demand was strong across the balance of the portfolio of businesses with particular strength in clean energy components vehicle wash Bill.
Low ground and fueling components.
Let me unpack the margin performance here before we make this an ANV only story and draw the wrong conclusions of the projected margin trajectory for the balance of the year.
As we previewed last quarter, we incurred roughly $20 million in new acquisition related depreciation and amortization in the quarter driven by our clean energy acquisitions in late 2021.
This represented a 400 basis point headwind to segment margins in the quarter.
The balance of the margin dilution as a result of product mix, which is ENV, driven and Q1 supply chain and production challenges.
Fortunately, we lost a week of production in March due to weather event at one of our main production facilities in Texas setting aside acquisition accounting, we expect the segment to deliver robust absolute revenue and profits for the full year.
Yeah.
Sales in imaging and I'd declined 1% organically as volumes in our core marking and coding business were constrained by component shortages as well as China, Lockdowns and reduction in business in Russia more than offset growth in our serialization and brand management software businesses digital textile printing continued its gradual.
<unk>.
Q1 margins in imaging and I'd say were down to lower volumes and higher input costs.
Pumps and process solution posted another strong quarter.
At 13% organic growth.
Strong volumes across.
All businesses and geographies.
Demand remains strong in core biopharm activity, where drug R&D projects, which that were sidelined during COVID-19 came back strongly but we did see normalization in order rates for Covid, driven biopharma components as demand for COVID-19, vaccines and therapies moderate.
Margin performance.
Was solid in the quarter on strong volumes fixed cost absorption and favorable mix.
Topline results from climate and sustainability technologies continued to be robust posting 17% organic with strength across all businesses and major geographies.
Margins were up in the quarter is as robust volumes solid operating performance and improved price cost.
Offset cost inflation and input shortages.
And onto Brad from here.
Thanks, Rich good morning, everyone.
Going to slide six.
On the top is the revenue bridge FX was a 2% or 43 million headwind to the 9% organic growth, resulting in <unk> of negative EPS impact in the quarter.
Our FX forecast for remainder of the year does not assume any changes to the prevailing exchange rates, which creates a headwind for the year versus our prior guidance.
M&A contribute contributed $53 million to the topline in the quarter a product of 83 million from acquisitions, partially offset by $31 million from the unified brands divestiture.
We saw solid organic growth across all geographies with notably strong performance in Asia, and the Americas, China, which represents approximately half of our business in Asia was up 20% organically in the quarter.
Moving to the earnings bridge on slide seven.
Adjusted <unk> and adjusted segment EBIT was down $7 million in the quarter and adjusted EBIT margin declined 200 basis points as improved volumes continued product productivity initiatives and strategic pricing were more than offset by input cost inflation production stoppages as well as.
<unk> related amortization that drove a roughly 100 basis point headwind.
Adjusted net earnings improved by $13 million driven by higher segment EBIT excluding.
Excluding a DNA and a favorable tax rate.
The effective tax rate, excluding discrete tax benefits was approximately 21, 7% for the quarter same.
Same as the comparable period discrete tax benefits were $10 million in the quarter or $4 million higher than in 2021 for approximately <unk> <unk> of year over year EPS impact.
Now on our cash flow statement on slide eight.
Free cash flow declined in the first quarter and was slightly negative driven by working capital investments in inventory and heavy shipments in March driving higher receivables as well as higher compensation payments.
Capital expenditures for the quarter were principally in support of our robust growth expectations across several businesses Q1 is our season is seasonally our lowest cash flow quarter. In Q1 last year was a bit of an outlier due to post COVID-19 recovery.
With that I'm going to turn it back to rich.
I'm on slide nine.
This slide includes our current view of demand outlook operational environment and margin drivers for the remainder of 2022 basis.
We expect top line in engineered products remain robust based on solid backlogs and sustained strong bookings vehicle services continues to ship against a record high demand driven by new vehicle service facility builds.
Placement of service equipment growth in wheel liners, as well as share gains orders for refuse trucks and software solutions are robust.
New order rates, pushing well into the second half of the year.
<unk> industrial automation remained strong, particularly in China and within automotive industrial Winches continued to recover with notable strength in natural resources and energy and aerospace and defense will remain muted in Q2 on order timing, but should accelerate in the second half.
As expected price cost was negative in the first quarter in this segment, but we expect it to flip positive in the second quarter as several rounds of price increases cycled through backlogs. We have also introduced other mechanisms to dampen the impact of commodity cost volatility in our capital equipment businesses. All in we expect margins to improve sequentially.
<unk> as the year progresses.
We expect clean energy and fueling to post robust growth for the full year of solid growth and below ground fuel transport vehicle wash and software solutions, coupled with our acquisitions and clean energy and components, which are off to a strong start should more than offset the roll off of ANV demand excluding the <unk>.
<unk> $45 million of incremental deal related amortization expenses in 2022 of which approximately $20 million were incurred in Q1, we expect full year margins to improve on volume and mix.
Demand conditions in imaging an idea are expected to remain solid as component shortages and core marketing coding subside serialization and brand protection software should contribute positively to robust bookings and backlog.
Digital textile printing is recovering we expect margin in this segment to be stable.
Order trends in pumps and process solutions remained robust for much of the segment.
Activity industrial pumps and polymer processing processing is solid and precision components continues its upward trajectory aided by increasing activity in refineries and petrochemical plants and and a recent uptick in orders for OEM gas compressor, new builds our biopharma business remains strong but likely lumpy.
A year from a demand perspective, as our customers transitioned from Covid.
And then or a vaccine production to alternative therapies subject to year to year shifts in mix, we expect a 30% plus margin in this segment as the new normal going forward.
We expect climate and sustainability technologies to post double digit organic growth. This year driven by its large backlog and sustained order rates new orders in core food retail businesses have been healthy across product segments. Our case business within food retail is now booking into 2023.
Our heat exchanger business is positioned well on strong order rates across all geographies and end markets and Bell Vac packaging equipment business continues to work through its record backlogs. They are also booked for 2022 and are taking orders for 2023.
Q2, and Q3 are seasonally strongest quarters for volumes and margins in the segment, we expect margins to improve significantly in 2022 on improved volume leverage positive price cost dynamics and normalizing supplier.
Okay. Here. We go this is a new slide and I'm going to attempt to provide some clarity on bookings and backlog by segment. Since this subject has been actively debated and I can see continues to be this morning.
Total backlog is up 50% year over year with double digit growth across all segments. Despite robust revenue performance in the last 12 months.
All segments also posted sequential growth in backlog during Q1.
Next our book to Bill in Q1 was $1 one with all five segments above one despite 9% revenue organic revenue growth in the quarter.
This is a very good picture topline visibility is a great thing from an operational planning perspective, and then it's important pillar of our full year guidance.
Intuitively, we would not expect these elevated order rates and advanced ordering patterns to persist.
Especially in the short cycle portion of our portfolio our supply chain improve but.
But we see two factors influencing cutter current order patterns first it's reasonable to assume that customers, who expect persistent inflation will continue to advance ordering to lock in favorable and the attempt to lock in favorable pricing and second customers expecting robust demand in 2023 will remain cautious on <unk>.
Fly chain stability want to ensure supply.
As you can imagine we spend a lot of time on this topic in the present do not have a conclusive view despite booking into 2023 and long cycle Capex driven portions of the portfolio.
So we will just have to adapt accordingly, and keep a keen eye on working capital as the year progresses I would however, caution that we need to be careful about drawing definitive conclusions on changes and comparative order rates or backlogs.
The scale of our typical operating company gives us significant flexibility to adapt to changes in the demand environment and we manage them all uniquely based on the operating model business cycle and competitive stack I'm, absolutely confident that we have the tools to maximize profitability to the upside scenario and to protected on the downside.
As we approved in 2020 and 2021.
Dover's portfolio, a significant diversification from a product and end market exposure perspective, many of which we believe is secular growth tailwind and as such despite the ongoing an ongoing macro and geopolitical challenges at present, we are continuing to invest organically behind areas of strength.
Moving to slide 11, again, we're reaffirming reaffirming full year guidance.
For the year.
Let's move on to Q&A.
If you would like to ask a question simply press Star then the number one on your telephone keypad.
I would like to withdraw your question. Please press the pound key.
Ask that participants limit themselves to one question and one follow up question.
Our first question comes from Jeff Sprague with vertical research partners.
Thank you good morning, everyone.
Thank you Lorne.
Hi.
Good.
I guess, a couple of things I mean first rich.
You sound a bit more confident on price cost over the balance of year. You also mentioned kind of older backlog working its way through the system.
I would imagine you have a pretty good handle on that but maybe you could just elaborate a little bit more on.
Kind of the residual attention on converting existing backlog in some of these steps you said you took to kind of dampen the volatility.
On cost inputs going forward.
Sure Jeff.
<unk>.
We were chasing price cost last year.
And one of the good things I mean, the good news is having a high backlog you get visibility which is helpful.
Planning, let's say the bad news is that black backlog is building in advance of input cost headwinds youre chasing it to a certain extent so as you are.
Youre basically without repricing backlog right you go negative price costs, which we saw in Q4 of last year. If you remember what we talked about at the end of the year I said the.
The disappointing performance for us in Q4 was because of the supply chain, we did not convert as much backlog as we would've liked.
To the which would have strangely our revenue would have been up in our margin would have been down in Q4 and what we've done is we've carried some of that into Q1 and I think if you remember what we said about modeling Q1. This year was there was a safe bet to model. It against Q4 of last year and if you go do the comparisons were.
Were pretty much spot on.
But we are shipping that older backlog right. So now we're <unk>.
So we're going to squeeze price cost in Q2 significantly and then flip.
Significantly positive at least in three portions of the portfolio on the back half of the year and particular in engineered products and clean energy.
And and climate.
Where we expect to see.
Significant benefit in the back half of next year on price cost and because of the comps are significantly easier right.
Call your attention to.
Our Q2 performance last year I think it was the highest margin that Dover ever posted so the comp that we've got ahead of US is a tough one I would tell you that I guess before somebody asked again I would point to Q2 last year as a proxy for performance of Q2 this year.
Great Thanks for that.
Maybe.
Just a little bit of.
Kind of macro color for lack of a better term I guess, but obviously the world feels different to last six or eight weeks.
The backlogs and orders do look robust, but are you seeing any indication trepidation from customers about taking backlog are shifting their places in line or anything that would kind of undermine your confidence in kind of the deliverability of the backlog.
I think that.
From a top concerns point of view.
This China Covid situation is new news in the quarter that we've had to navigate here.
I have a view on where this goes I am hoping.
Based on the news this morning that we're not going to move on to Guangzhou or somewhere else, but that is not helping from a supply chain point of view.
Look at so far.
The pricing that we've passed has not been to the detriment of backlog. So we haven't had call offs in that backlog.
I think the biggest issue for US is the supply chain side of the business doesn't get better does it get worse from here.
We will see and from our customers' point of view, they again are dealing with supply chain issues.
And labor availability issues. So that's where you got a lot of push and pull of.
We're working really hard to get the product out the door.
And we're working really hard with our customers to make sure. They are ready to receive it at the same time, because they are dealing with their own call them supply chain issues. So right now we don't see it.
We don't see we don't see much of a risk in terms of shipping our backlog other than our own constraints and so as far as the customer taking it but we'll see going from here right.
Great I'll leave it there thanks for the color. Thank you. Thanks.
Thank you.
Our next question comes from Andy Kaplowitz with Citigroup.
Good morning, Mitch.
Hi, Eddie.
So dps, obviously book to Bill is still positive.
Orders did turn down on tough comps and it looks like you lowered your 'twenty two revenue forecast slightly in that segment in your call Biopharma I think lumpy could you give us some more color on what percentage of Dps has had.
Corporate related tailwind and is normalizing versus the rest of the business and ultimately how are you thinking about delivers over our overall ability to grow Dps at this point, yes, I think that we're going to go through a little bit of an air pocket here in terms of the demand function because of this transition from COVID-19 therapies to <unk>.
Non COVID-19 therapies, I think on the long run.
We believe that this is a growth market and I'd like to thank danaher for going before us because I think they explained it far better than we're going to be able to do it.
But we would expect in the middle of this year to have a reduction in order rates as that transition takes place that's accommodated into our.
Earnings forecast for the year.
I don't believe that this is this COVID-19 related issue is an air pocket, where revenues are going to drop never to be seen again, we think it's an intra year conversion and we feel really good about our position in single use.
Thanks for that rich and then could you give us more color into the improvement Youre seeing D. C. S. T. Obviously revenue growth was strong in the quarter is it possible at this point to quantify how much added growth your initiatives in that segment.
Two systems Bell that swept how much did that did they add to the business and do you still see that segment hitting your mid teens margin target for the year.
The two year CAGR.
On Bell Vac is now in the forties.
The two year CAGR on heat exchangers is in the Twenty's. So its not before we get to refrigeration. So there's you've got two big principal drivers, which are margin accretive to the segment by the way.
The two year CAGR on.
On the refrigeration business is about $16 517, and it's widespread across the portfolio.
Fastest growing portion being the systems business as we've discussed before.
We will take all the system business, where we could get and we are trying to maximize the profitability on the case business, meaning that we're trying to we're not running and taking all of the business that's out there.
So so far so good and still a lot of supply chain issues. Because these are complicated assembly processes, but.
Q2, and Q3 margins should be interesting.
I guess, we'll leave it at that thanks rich.
Thank you. Our next question comes from Steve Tusa with Jpmorgan.
Yes.
Hey, guys. Good morning, good morning.
Can you just.
You said <unk> is going to look a lot like <unk> last year.
What's the organic growth.
And <unk> I mean, it was a pretty big step up in <unk> last year. So maybe just yes.
Look I mean, I think you can calculate that right. If I say it is going to look similar at the end of the day I don't have that at the top of my head I mean, I know that from a data point, but I'd have to go.
Ask one of my colleagues here about trying to extrapolate extrapolate that into organic growth I can tell you it should be similar to Q1.
Got it okay, sorry, just trying to do less work these days.
Just a little help there.
And so that means that kind of the back half youre looking at I don't know like seven 6% to 7%.
And if that's the right number that would imply I guess somewhere in the range of.
45% to 50% incremental for the back half of the year.
Well the back half of the year, the incrementals are going to be significant because the comps with all the operational difficulties that we had last year.
We lap all of that.
We're shutting down facilities and then we had negative absorption, we had reduced volumes negative absorption and everything else.
And the beginnings of negative price cost so.
If all things being equal and the supply chain than ever in the macro doesn't get worse from here, Yeah, I mean, our incrementals in the back half of the year, particularly in engineered products.
And in clean energy and in climate should be.
Yes.
Yes, I would add to that I guess to say.
We'll see where the macro goes on commodities, but as we think about the back half and the price material implications.
I'd say our forecast now includes enacted price. So I think we feel good about that under the scenario that the backlogs cleaning itself out and we have the price increases in place. So I think thats good news for the back half so just.
Sorry, one more on that on that detail.
Can you remind us how much of those I recall, you guys, saying was like a 30% to $40 million kind of.
One time ish type of costs related to supply chain.
Then how big do you expect kind of that price cost spread to be in the second half of this those two items a little more precision there would be great well I mean, clearly it's going to be that headwind plus.
So your mop up all the headwind on a comp basis, plus you get normalized incremental margin on the volume.
Yeah, how big is that can you remind me.
I'd never told yes, so it does nothing to remind you.
Okay. Thanks, a lot I appreciate the color.
Great. Thank you.
Our next question will come from Scott Davis with Melius research.
Good morning, guys Hi.
Thanks Scott.
I was hoping you could educate us a little better maybe I should say on the Biopharma business. When you think of all of these biosimilars that are coming out and there's just a ton of them.
If I walked into one of those facilities would have similar asset intensity.
Kind of.
The predecessor.
Product.
I mean I guess question is is that are they more just as likely to use single use.
Oh boy well like.
I tried to.
Say before we listened to danaher, because we knew this was coming and I think that what they articulated was far better.
We are a sub component supplier what I would tell you is is that.
Yeah.
Skid production in Biopharma is very much a growth Avenue right. It grew because of Covid.
But now these mrna therapies.
Got a variety of different therapeutic uses and the chosen technology for production and our understanding is skin.
And as such we are a component supplier to that chosen type of production.
Okay.
Alright, that's super helpful and then.
To back up.
The electric garbage truck.
This.
And I respect you can share on it or are there is there.
Can you make money, making these things are the specs are.
A few years off from being able to actually I'm just picturing like the battery density has to be massive to be able to drive these things more than <unk>.
20 miles so any color there that you can help just to understand if that's a real market or not I don't know, maybe you and I can go down to waste Expo in May on May 5th and go take a look at it.
<unk>.
We are and I'll take a pass on that Rick.
I'll meet you there put it that way.
Yeah Yeah.
We don't have a play in here, so I can't pick you up nonetheless.
Remember we are not we're not a chassis builders. So this is a <unk>.
Basically if you think about a hybrid this is a battery pack that drives.
The compactor that sits on the back of the truck.
So the use is in theory, a full electric vehicles. So we have a full electric truck with this technology is sitting on the back but you could also have a diesel chassis with an electric so without electric compactor. The guys that run this business, they're going to hate me for trying to describe it and Youll get base.
<unk> a hybrid benefit.
So are we going to make money on it that's the intent but.
But the fact of the matter is from municipalities.
It's it's tax payer money at work here and if somebody decides they want to go into an electric fleet, they're going to go to electric fleet and as a material supplier, we've got to have a product offering.
Makes sense all right. Thank you guys I'll pass it on.
Alright, thank you.
Our next question will come from Joe Ritchie with Goldman Sachs.
Thanks, Good morning, everyone, Hey, Joe.
Hey, Rick just a quick quick clarification, just on the on the <unk> comment.
So we're talking about like for like EPS rate organic growth.
<unk> going to be up obviously, so margins down on a year over year basis.
Yes look I mean I know.
All these discussions about price cost and if let's ignore there is the dilutive effect on price cost even at neutrality, it's dilutive to margins.
So youre going to get that piece of it even if we were absolutely neutral across the entire portfolio.
And pricing has been robust.
That's what the math Thats the way the math works at the end of the day now our portfolio is so diverse.
A little bit all over the place in it depending on when how much commodity exposure, we have in certain businesses and everything else from an absolute profit point of view I think because Q2 was.
Peak margins for I'm going to get my years right now 21.
That's right, even with that dilutive effect and absolute profit Q2, as a proxy, but I'd be careful about the margin.
Yes.
That makes a ton of sense I guess the follow on there is really I want to kind of parse out.
The clean energy and fueling.
The margin this quarter. So clearly we know the Ada and a 400 basis points.
So.
I guess to quest.
One of.
Are we going to see the rest of the depreciation and amortization come in in Q2 is that going to be linear throughout the year and then the second question just maybe.
Maybe kind of help parse that a little bit more.
I think you guys talked about like one week production being down in that business and so.
How quickly you can kind of do that.
Ex the DNA, how quickly can margins come back yeah, I'm going to leave the a DNA question to my colleagues all deal with everything else that we can circle back on the linearity.
I mean to answer that question in the back half goes to a linear.
A linear amortization amount at roughly $7 million a quarter, so if you're thinking about.
The second quarter it is not as high as the first because of the inventory.
Rolls off into the second quarter, and we said it was $45 for the year. So you can do the math and squeeze the second quarter and that's as simple as I can make it.
Okay.
We will endeavor to remove <unk> from the segment.
The segments going forward are bad on that one nonetheless.
Look Q1 was.
Just a mess.
To go back and revisit.
Covid, but in January at our main production facilities, we werent doing much.
We rushed like Hell to pump out as much as we could and we were actually on a pretty good pace and then we lost a week of production in our main production facility above ground dispensers.
In March because of our Makena.
Which is that's life.
Should it happen in a quarter, where we werent, taking $20 million of a DNA I guess.
And our clean energy business, which no one understood and understandably no one understands the seasonality there actually lowest profit margin of the year is Q1.
We basically write orders for the balance of the year. So the backlog that we can see.
And the revenue trajectory that we can see for those business is very good.
But is actually dilutive to prior year margins because of the seasonality so from here.
Supply all things supply chain being equal.
Our below ground business, which is very profitable is booked and our clean energy is all coming and thats accretive to margins and that is.
Doing very well from a backlog point of view so.
As long as we can get the product out the door I am confident that full year absolute profit and margins.
And margin performance will be robust.
Despite DMV.
Got it Super helpful. Thanks, Thank you both thanks.
I think you.
Our next question comes from Andrew <unk> with Bank of America.
Good morning.
Hi.
Just a question on volume versus pricing.
In Q1 pricing was up six breakdown.
We're going to get better so.
Welcome to the second half.
If we look at the organic growth guidance, we paid pilot sort of pricing implies relatively flat.
Volume in the second half given how robust waters on backlog.
Wondering are you guys trying to gauge growth in the second half.
<unk> profitability right given this dynamic and priced off of uncertainty commitments. The backlog just trying to understand how we can think about very robust backlog on volume seemingly being flattish in the second half.
Yeah.
I think that one could say that pricing that you've seen in Q1 remains linear over the balance of the year.
And the margin accretion in the second half is.
Because you flip positive because of inventory valuation.
So.
If you follow me, meaning that pricing is in.
As we cycle the older inventory that is valued higher you've got.
In Q1 in Q4 and Q1, it was dilutive and gets to neutrality slightly positive and then it flips all things assuming we get all the product out the door positive from there so the growth rate.
For the full year, one could assume is.
Somewhere in the 5% to 6%.
This related and the balance being volume, but as you know.
Mix here because of the diversity of the portfolio as is.
Going to be quite different.
Gotcha.
Bob.
Second question.
European growth was surprisingly robust.
<unk>.
Sequentially.
Given all the news from Ukraine.
How has your view changed.
On Europe into the second half and also maybe broadly sort.
Banking now more north American growth enabled us Asia and European growth in 'twenty, two so Europe specific when would be the sort of mix between North America and the rest of the world. Thank you.
Yes, I mean.
The economic environment in Europe is a risk.
But we can only look.
The good news is our backlogs in Europe .
Are not as high as they are in North America, but they still remain good.
And our expectation is that we would ship off that but clearly we're going to watch order rates from.
From here, if one adopts a scenario of.
The demand function in Europe .
Getting worse from here.
Look Andrew I mean, we can think of 100 gig.
So it kind of tapped down expectations for this year whether that be.
What's going to happen with Covid in Asia, what's going to happen with the Russia, Ukraine in Europe .
We're making we're not assuming.
Continued strength in the dollar versus some of our other trading currencies.
But I think it's that would be a cop out and it's too early to tell here. The good news, we're looking to challenge for US is to get the product shipped.
Profitably from here and that is up to us on the productivity side and it's up to us to work the supply chain things.
Like Crazy, but as I said in my prepared comments, we do this business by business.
And we're honest right in terms of.
Tearing apart order rates and making sure that we don't get over our skis from a working capital perspective or anything else I know and we will see how it goes right now we believe that we can meet or we can meet our forecast for the year.
Wow.
Appreciate it I also boosted the burden.
Orlando earnings Thanks, a lot. Thanks.
Alright, thank you.
Our next question will come from Julian Mitchell with Barclays.
Hi, good morning.
Maybe.
Just wanted to start off with imaging an idea is there anything that division has been touched on much yet.
You took down the sales guy slightly but had very good order growth actually in Q1.
Other businesses.
So maybe help us understand when that revenue outlook. How much is just that soft start to the year on sales.
Also that seem to be more conversation in your prepared remarks around component shortages in VII than perhaps what <unk>.
Three to six months ago.
So any color around that and how do we think about the margins kind of flipping around.
Sure.
Well I'll take the last one first I think we said the margins are going to be stable on the full year.
Look we did have a circuit board shortages in Q1 bad on us and that was.
Partially due by the fact that we source those from Asia. So the Asia Lockdowns and we had to shut our production factory in Shanghai, which is in Shanghai during.
During the quarter so.
We will pick up as much as we can out of there too.
To a certain extent the geographical mix on that business is more levered towards consumer production in Europe . So we're being a bit cautious in the demand function and again I don't want to bring up this translation issue again, but that's part of it also so overall I mean this is a business that grows.
Low to mid single digits at pretty much constant margins, although I'll give the management team a lot of credit over the last couple of years, they've driven margins up nicely. Our expectation is there for this year, probably that kind of performance low single digit growth at healthy margins and excellent cash flow, but it's going to be a little.
Choppy based on macro and supply chain.
That's helpful. Thank you and then maybe a question on.
Inventories.
One more for Brad and one for you rich, but I guess, yes, it does its own inventory.
Had the big working capital headwind and free cash flow was very soft in Q1, how quickly does that.
And then maybe for rich what we often hear from a lot of multi industry companies is around inventories are sky high.
Distributor inventories of rock bottom.
Maybe help us understand how you see that delta today regarding Dover.
Okay, you want me to take it first.
Alright.
We don't.
As a portfolio comment we do not believe that our inventories are reflective of our distribution network inventories, meaning pretty much what we ship out the door kind of passes through amongst their distributions our inventories are high clearly.
But so is our backlog right. So the way that we look at those inventories is before im just talking about physical inventory before we get into working capital Thats something else.
But to the extent that we ship off that we shipped that backlog, which we have every intention of doing that those inventories will moderate.
And you also need to take into account that inflation has an impact on absolute dollar value of inventories right. So it's very nice to where everybody is talking about raising prices in and everything else, but that needs to be taken into account. When you look at year over year change in inventory because the absolute dollar value of that inventory is has gone up significantly.
Hey.
And I think the only thing I would add is the.
The the sequencing of cash flow is more like it's been in years past, which is <unk>.
Fourth quarter being our highest quarter of cash flow and we will progressively.
Pace through the year, where we'll see free cash flow.
Increased from from Q2 into Q4, but again I think as rich said.
And we said in our prepared comments the balance sheet, we will have some liquidation to it in the sense of we had very high receivables because of the high shipments in March coming off of a low January so just time wise the collection period falls into the second quarter and then you also have.
Inventory, which will continue I think to come down over the course of the years, we should cross the backlog.
That's perfect. Thank you.
<unk>.
Yes.
Thank you. Our next question will come from Josh <unk> with Morgan Stanley .
Hey, good morning, guys. Good morning, Hi.
Rich do you think will need any more price. This year I know there's been some lumpiness in some of the input costs, particularly things like bulk freight over the past 90 days, but maybe like height surcharges side.
You guys, where you need to be on price.
Yeah.
Yes.
And you should hear the yelling and screaming that goes on about pricing sometimes around here.
I will send to the employee.
I don't I don't I don't think so.
I think that any pricing from here.
Especially on the capital good side is going to be surcharge and not absolute price.
But we'll see.
I mean, it's a deal.
Tell me what the trajectory of inflation is going to be over the balance of the year. I mean, that's one of the watch points I mean, I think what <unk>.
Good news Bad news on inflation is the way that we look at it is inflation looks to be moderating.
Except the fact that we've got a trillion plus of infrastructure.
And.
American rescue plan.
Coming our way and what does that mean.
It's hard to say right now.
I think it's the good news is does that.
Is that good from the demand point of view in certain business as far as yes. It is right because that's where we've got a big portion of our portfolio that's tied to capex.
What does that mean from an inflation point of view.
That's a rough there so.
It's an interesting dynamic I don't so I guess to answer. Your question is I think that we're going to be very selective from here.
And if it's commodity price driven it's likely to be surcharge based.
Got it Super helpful and then some nuance on the margin.
Kind of expectations from here, especially with the traffic light commentary in the slide deck.
Relative to where we were kind of coming out of fourth quarter.
Any change to how you see either the full year the cadence in <unk>.
D P or GPS.
Well I mean, I think that was in the Dps.
Biopharma demand is probably intra year going to be a bit light. So I think that nobody should fall out of the chairs of order rates go down there some the balance of that portfolio.
Is actually order rates are picking up quite nicely now that's slightly dilutive to biopharma, but not to the extent where.
People, saying that we're over earning and we're going to go back to historical margins. So I think if you go back and take a look at the transcript I would say that 30% plus is the new normal here. So we will be able to absorb it.
We're we're looking and all.
We're looking for and it just makes sense when you go back and take a look at the calendar as Asian of earnings last year. We're looking for absolute profit performance 22 versus <unk> 21 is an engineered products clean energy and to enter the climate side of the business, we're not looking for a lot of.
Year over year incremental profit from the other two segments there is going to be some but that's not going to be the principal driver because quite frankly, those two businesses.
More or less sailed through 'twenty one.
Got it okay. Thanks.
Thanks.
Alright, thank you.
Final question comes from Nigel Coe with Wolfe Research.
Thanks, Good morning, everyone.
Sorry, I dropped off 10 minutes.
I apologize if I repeat.
Any questions here, but.
Consideration margins sorry.
The clean come under the new name of the segment.
Margins in Monkey margins.
2017, So curious can you maybe just talk to that.
Significant margin expansion. This year in that segment. Just wondering do you think we're going to be in the mid teen zone for that.
Yes.
Segment sure.
Yes, Okay and then.
That's not a quick answer there and then.
Turning back to the.
<unk>.
And sorry, I should know by now should remember the clean.
Clean.
And I know Youre talking about.
You called out mix.
Nick.
As a significant headwind then I don't think the weather impact on the on the Dr.
Dr. Timothy.
Given the acquisitions of <unk> and Acme.
We like low 20% EBITDA margins rich. So just wondering is there any seasonality to those businesses with the mixed impact elsewhere more than offsetting contribution from from this acquisition.
Acquisition.
You answered the question, yes, there is seasonality in the acquired businesses Q1 is actually the lowest margin quarter.
So supply chain and COVID-19 issues aside in Q1.
What we expect is.
We roll out of <unk> demand in Q2, which is probably the peak for ANV demand last year, which is margin accretive, but we basically offset that.
Over the balance of the year and then some through the acquired revenue and profits and the fact that our underground business and vehicle wash and everything else.
Chart shipping.
Significantly through the year and Thats against a comp in the second half of last year, where it was weak.
Okay.
And then maybe just one more question again, a fair amount.
The group U S capex.
Maybe just a question for Brian .
Within your Capex budget are you shifting more capex into the U S relative to elsewhere.
No not not not significantly although capex is.
In our growth oriented businesses. If you think about the ones. We're talking about that have the higher growth profiles thats, where the capex is.
Okay.
Alright, thank you.
This concludes our question and answer period ended Dover's first quarter 2022 earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.
Thanks.
Okay.
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