Q2 2022 Dover Corp Earnings Call
Speaker 1: Please stand by. Your program is about to begin. Good morning and welcome to the Dover 2nd quarter of 2022 earnings conference call. Speaking today, Eritch Dobin, President and Chief Executive Officer, Brad CioPack, Senior Vice President and Chief Financial Officer, and Jack Dickens, Senior Director of Investor Relations. After the speakers remarks, there will be a question and their period. Please stand by.
Speaker 1: If you would like to ask a question during this time, press star 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 the recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you. And I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir. Thank you, Emma. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through August 11.
Speaker 2: The replay link of the webcast will be archived for three months.
Speaker 2: Dover provides non-GAP information, and reconciliations between GAP and adjusted measures are included in our Investors Supplement and Presentation Materials, which are available on our website. 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 assume no obligation to update our forward-looking statements.
Speaker 2: With that, I will turn the call over to Rich. Thanks, Jack. Good morning, everybody. Let's start with the performance highlights on slide 3.
Speaker 3: Our team delivered a strong second quarter performance which related to record quarterly revenue and sequential year-over-year earnings growth.
Speaker 3: Consolidated organic revenue growth of 7% in the quarter as our businesses continued to capitalize on strong backlogs and pricing actions continued to take hold. We believe our ability to execute and provide needed capacity in today's challenging environment has led to noteworthy share gains in multiple markets which is positive for our continued growth.
Speaker 3: Component shortages and COVID lockdowns in China did negatively impact shipment volumes and consequently efficiency and fixed cost absorption in several businesses during the period. Despite these difficulties, as well as FX headwinds, our absolute segment profit increased year over year and operating margin improved sequentially in the quarter driven by cost controls, good volume and meaningfully improving price cost dynamics.
Speaker 3: A strong balance sheet provides flexibility for value creating capital allocation initiatives. We are investing in capacity, expansions, and productivity improvements across many of our operating companies to capitalize on secular revenue growth opportunities, capture market share, and drive improvements in operational performance. The recently announced Malima acquisition will enhance our bio-farm of business on July 1st, and we continue our pursuit of attractive bolt-on acquisitions.
Speaker 3: We also repurchased 85 million worth of shares in second quarter will continue to proactively evaluate capital deployment alternatives through the remainder of the year. Our strong backlog, constructive demand outlook, an execution, playbook position as well to deliver growth in revenue and earnings aminced an increasingly uncertain macro economic backdrop. We are maintaining our 2022 adjusted full year guidance of $8.45 to $8.65.
Speaker 4: forward.
Speaker 3: Clean energy and fueling volumes were driven by strength and clean energy components, vehicle wash, and below ground fueling components offset by the expected roll-off of EMV related to land in North America, which peaked in the comparable quarter last year.
Speaker 3: margins in the quarter were down year-over-year on lower volumes and constrained inputs and to a certain extent mix the sequential margin improvement was significant however at 410 basis points versus last quarter driven by improving cost dynamics and product mix
Speaker 3: An imaging ID of volumes in our core marketing coding business were constrained by electronics and other input shortages as well as COVID lockdowns in China, the Jophsett growth in our serialization of brand management software businesses, FX is a material negative headwind to absolute revenue profits in the segment given its large base of international revenue. Q2 margins and imaging ID were impacted by lower volumes and production stoppages in Asia, but improved accordingly.
Speaker 3: The team has done a good job in cost containment and finding alternative suppliers to alleviate supply chain constraints and we are confident about good margin conversion in the second half.
Speaker 3: Pumps and process solutions posted a 7% organic growth. We saw strong double digit growth in our core non-COVID biopharma business, as well as robust growth in medical and thermal connectors, industrial pumps, polymer processing and precision components. Operating margin in the quarter remained robust at 31%, plus despite a mixed shift towards industrial components. Top line in climate and sustainability technologies continue to be strong.
Speaker 3: efficiencies and input shortages. As you can see, we're marching towards our mid-teens operating margin target in this segment. I'll pass it on to Brad here.
Speaker 3: All right, thanks Rich. Good morning everyone. Let's go to slide six.
Speaker 3: The top bridge shows our organic revenue growth of 7% driven by increases in three of our five segments. FX was substantial at 4% or 74 million headwind to our revenue growth.
Speaker 3: and also to our profitability, resulting in 8 cents negative EPS in the quarter.
Speaker 3: We expect FX to remain a headwind for the year compared to our prior expectations. In all, changes in foreign currency translations from April until today are estimated to have a full year 2022 impact of an incremental 10 cents.
Speaker 3: M&A contributed 49 million to the top line in the quarter, a product of 84 million from acquisitions, partially offset by 34 million from the unified brands and investment
Speaker 3: We saw organic growth across the U.S. and Europe . Asia was flat organically in the quarter as China was down 4% driven principally by COVID lockdowns offset by growth in other parts of the region.
Speaker 3: Our businesses in China have resumed operations and are currently seeing recovery and production and regionally sourced components.
Speaker 3: On the bottom of the chart, bookings were down year over year, primarily due to foreign exchange and a one-off, 74 million deed booking in beverage can making due to customer financing limitations.
Speaker 3: Likewise, our backlog was negatively impacted by the aforementioned debuking, as well as the negative impact from FX.
Speaker 3: Let's go to the earnings bridges on slide 7. Before I get into the charts, I want to remind everyone we now exclude the impact of acquisition amortization accounting from our segment earnings, which avoids the deal-related noise quarter to quarter and better aligns the basis of our segment earnings presentation with our consolidated adjusted EPS.
Speaker 3: This change had no impact to our gap earnings or adjusted EPS.
Speaker 3: Now to the charts.
Speaker 3: Seconded earnings were up 9 million in the quarter on improved volumes and price costs that will partially offset by supply chain constraints and foreign exchange headwinds.
Speaker 3: Segment margins were down 80 basis points.
Speaker 3: Adjusted net earnings improved by 10 million, driven by higher segment earnings and favorable corporate expenses, partially offset by higher taxes.
Speaker 3: The effective tax rate excluding discrete tax benefits was approximately 21.5% for the quarter, comparable to the prior year period.
Speaker 3: The screen text benefits were lower than the prior year at 4 million in the quarter or approximately 3 cents of EPS.
Speaker 3: This compares to discrete tax benefits of 8 cents.
Speaker 5: the second quarter of 2021.
Speaker 5: We expect our back half tax rate to be in the range of 21 to 22 percent.
Speaker 5: Our cash flow statement is on slide 8.
Speaker 5: Frecastflow declined in the first half of the year, driven by working capital investments and inventory necessitated by the high backlog, supply chain constraints and exacerbated by input shortages preventing completion of some working process inventory in the quarter. Frecastflow declined in the first half of the year, driven by working capital investments and exacerbated by the high backlog, supply chain constraints and exacerbated by the high backlog, driven by working capital investments, and exacerbated by the high backlog, you
Speaker 5: as well as higher receivable balances on growing sales.
Speaker 5: The quarter also included 43 million tax payment related to the sale of unified brands.
Speaker 5: Capital expenditures were up year over year and are principally in support. Capital expenditures were up year over year Capital expenditures were up year over year
Speaker 5: of our robust growth expectations across several businesses.
Speaker 5: Free cash flow was 6% of revenue in the quarter and would have been 8% excluding the UB tax payment. We expect cash conversion to improve in the second half of the year, more in line with typical cash conversion seasonality in our businesses, driven by earnings conversion and inventory reductions.
Speaker 5: With that I'm gonna turn it back to Rich. All right, thanks Brad. Let's go to slide nine.
Speaker 3: This slide is our current view of the demand outlook, operational environment, and margin drivers for the remainder of 22 by segment.
Speaker 3: We expect top line and engineer products to remain robust based on elevated backlogs and implemented price increases.
Speaker 3: Vehicle services continues to see a constructive demand environment across all geographies with particular strength in North America. Demand for refuse, refuse collection vehicles and parts remains very strong, and our connected collections digital business is significantly outperforming expectations.
Speaker 3: Our backlog includes fully implemented price actions that support the project of recovery and margins. We expect volume productivity and improved price cost spread to be positive driver, drivers of earnings accretion and margin improvement in the second half of the
Speaker 3: At clean energy and fueling, we expect to see robust growth in the second half of the year. After a roughly flat first half, we continue to see solid demand in North America for below-ground retail fueling, fuel transport, vehicle wash, and software solutions.
Speaker 3: Our acquisitions and clean energy components continue to outperform their year one acquisition models and we have already begun to deploy capital in these businesses to expand capacity and improve productivity.
Speaker 3: We expect margin performance to improve in the second half on stronger volumes and mix, which will drive improved full year margins in this segment.
Speaker 3: We expect volumes in imaging and ID to improve as component shortages side with China recovering from second quarter COVID shutdowns. We continue to work to identify alternative electronics providers to alleviate component bottlenecks going forward and we're beginning to see
Speaker 3: Some inquiries and approved order rates for large scale printers and digital textile printing a positive development in industry that has experienced a prolonged recovery. We expect margin to improve in the second half and better volume and cost containment while keeping a close eye on effort.
Speaker 3: In pumps and process solutions activity industrial pumps remain solid. Polymer processing has booked several large, several big projects that lay the foundation for a very strong second half and we recently received our single largest order ever for the business in early July .
Speaker 3: Precision components continues with upward trajectory in both bearings and compressor components across all geographies as investments in energy sector pickup.
Speaker 3: We expect the current below normal demand trend in bioforma to continue for the balance of the year as bioforma manufacturers finish transitioning their R&D pipelines and production systems from COVID related businesses to other growing biologic therapies
Speaker 3: Expect climate and sustainability technologies to post double-digit organic growth this year driven by large backlog and pricing initiatives. Demand remains robust across all lines in food retail while input shortages have hampered food retail shipments they are expected to improve.
Speaker 3: resulting in a catch-up of deferred shipments into the second half of the year. Our heat exchanger business has positioned well on strong order rates across all geographies and end markets in particular in the European heat pump business. Today's
Speaker 3: and Belvac Beverage.
Speaker 3: In Belvac beverage packing equipment business continues to work through its record backlog. We have already been awarded new projects in Q3 to materially offset the depoking in Q2.
Speaker 3: We expect margins to improve year over year on volume leverage and positive price cost dynamics and normalizing supply chains.
Speaker 3: over here on volume leverage and positive price cost dynamics and normalizing supply chains. Let's go to slide there.
Speaker 3: I presented this slide at a recent conference, but it bears repeating as not everyone attended the event and the topic continues to be actively debated.
Speaker 3: There is a view that booking rates of the sole predictor of demands in revenue growth the negative year of your bookings on top of a record 2021 or somehow spelling trouble.
Speaker 3: None of us know what the future holds, especially in the current environment, but let's level set on the basics here.
Speaker 3: First, if you look at our revenue and bookings, they're historically been correlated. But because of demand wave coming out of the pandemic coupled with extended lead times from supply chain issues and some change in product mix, our bookings jumped in 2021 to $9.4 billion, well ahead of our revenue last year and our guide for 22 revenue. That resulted in backlogs that are at record highs, roughly double where they have normally been on a 12 months revenue basis. That over time.
Speaker 3: should come down which is healthy because it means that lead times are coming down and global supply chains are improving.
Speaker 3: Our backlog is sufficient to feed revenue growth for a significant period and it's worth noting that our backlogs midway through the year are still higher than they were at the beginning of the year.
Speaker 3: and despite the decline in booking, as our book to Bill Ratio, so far this year, is still above one in in line with historical trends. Our current booking and backlog trends should position us to enter 2023 on solid funding. Join us prayer fleets.
Speaker 3: Let's move to slide 11. And we show historical first half versus second half margin performance. Historically, Dover has generated higher margins the second half of the year. Last year was an anomaly as input inflation and supply chain constraints and COVID shutdowns hit the second half. Our sequential margin trajectory is upward and progressing largely is expected. And we remain confident that about the positive second, second half margin dynamics.
Speaker 3: line with historical seasonality. Although I would note that Q4 will contribute more to absolute profits than normal on backlog and order timing.
Speaker 3: And as we liquidate a large work in progress balances in inventory.
Speaker 3: Make no mistake, we remain concerned with the inflation trajectory and general macro backdrop and the different demand scenarios that are possible in 2020.
Speaker 3: We have a playbook to act decisively to adapt both from a cost structure and working capital perspective, different cadet demand conditions. But sitting here today, looking at our backlogs, significant portions of our portfolio were sold out for 2022. So we would expect order rates to inflect positively as we go into the 2nd, half. We have levers that are not demand dependent. We have positive contributions from organic capital deployment and productivity initiatives and our 4 enterprise pillar efforts.
Speaker 3: will positively contribute to next year's earnings. We also have very interesting and underappreciated portions of our portfolio where secular demand growth will outperform the broader industrial market.
Speaker 6: Maybe just kind of following up on the piece of the business, it's not backlog sensitive to most of your business, right? The short cycle piece. Would you expect to be just in a deslationary backdrop dollar neutral? Would you be dollar positive? I'm just trying to get essential to get the keeps some of it as we kind of progress over the next 12 months. I'm just trying to get the keeps some of it as we kind of progress over the next 12 months. I'm just trying to get the keeps some of it as we kind of progress over the next 12 months.
Speaker 3: Yeah, on the short cycle portion of the business, I wouldn't expect that there's not that dynamic of input cost.
Speaker 3: tied to market pricing. I mean, that's really the capital goods portion of the business, both us, ourselves, and our customers. That is an ongoing dialogue just because the proportionality of the input costs, and you can see what the dynamic is on the raw material side. And the short cycle portion of the business.
Speaker 3: there is not that direct link. So I mean barring the competitive environment becoming incredibly aggressive in 23 I would expect that you know it's our intention to keep the pricing that we've laid in.
Speaker 6: Got it. Now that's that's helpful. Like it just needs one more end. Just the funer and process margin finally saw some degradation. This quarter you guys been kind of calling out and make in that business the last couple quarters. Or is this kind of like the right new level? Is this like 31% type margin to expect further degradation in the coming quarters? Yeah, look, I mean, let's not get into quarter to quarter performance. You know, I think that we've been clear over the last 18.
Speaker 3: share of that marketplace is absolutely solid. Respect in, in a significant amount of our customer base. It's just as biopharma transitions.
Speaker 3: And remember, too, there's other portions of that business that are dilutive to that margin. So when we post an organic growth number, I believe it was 7%. More or less in PPS for the quarter, a lot of that growth was from the industrial component side, which is diluted to that margin.
Speaker 3: We don't try to manage segment margin. Basically, we're pushing all these companies as much as we can. So if we have delutive mix, that's not necessarily a bad thing. We want every piece of that segment to grow over time. And we're actually quite pleased with the performance of Mog, as I mentioned, that is, its backlog is going up well into 23 now, and turn around that we're seeing in precision components, which is levered to the energy sector. So we're going to be doing it. And we're going to be doing it. So we're going to be doing it.
Speaker 6: Makes sense. Thanks guys.
Speaker 7: Thanks, guys.
Speaker 1: We'll go next to Steve Joseph, JP Morgan.
Speaker 6: Hey guys, good morning. Just to be clear on kind of these price cost questions, I think Andrew was trying to ask about when you guys would see deflation given where commodity prices are today. I interpret your answer as it's not like you're seeing it in the second half, that's more a price catching up with the inflation. So at what point would you see lower steel, lower copper run through your revenue line item?
Speaker 3: you know six months nine months twelve months like i mean what's the timing on that you just clear on the answer sure it it i guess you know now we're gonna go operating company by opera i'll give you two examples i mean i think in sweat a
Speaker 3: because that is got an inflator deflator that probably rolls every 90 days or quarterly. You would begin to see that a little earlier. It's net neutral in sweat in terms of its operating margin or its performance. In the other capital good side specifically on ESG. In the other capital good side specifically on ESG.
Speaker 3: We wouldn't see that until mid next year, probably, based on backlogs.
Speaker 6: Right, so kind of blended for the cap goods businesses six months. Yeah. Okay. Yeah, yeah. So so beginning of next year, so you're not seeing that in this year is the point in that in that that's mostly price catching. I look, I think it's completely manageable. I mean, the the the issue is going to be what happens to the the competitive environment going into 23. And we'll see there depending on what demand looks like. Yeah.
Speaker 6: for the cap goods businesses six months? Yeah. Okay. Yeah. So beginning of next year, so you're not seeing that in this year is the point in that that's mostly price catching. I look, I think it's completely manageable. I mean, the the the issue is going to be what happens to the the competitive environment going into 23. And we'll see there depending on what demand looks like. And Ross,
Speaker 3: You know, I like where we stand in terms of our competitive stacks, right? The vast majority of our business have very few global competitors, and I don't expect to see, you know, if demand comes down that you've got, you know, some significant headwinds in terms of the pricing environment from a competitive point of view outside of what's happening in raw materials.
Speaker 6: Got it. And then just a question on orders, your reported orders, including that deep backlog, you know, the cancellation. So are you saying that those orders next is in the third or just the run rate for the second half that those will actually be up sequentially because of that impact of the 75 million bucks or whatever it is or what I can tell a lot of sequential orders. What I can tell you is that the bar that we had to chin
Speaker 3: for margin and operating profit and order volume was Q2.
Speaker 3: Right, so we've been guiding for a year now that this can't go on forever and orders are gonna come down. But if you noticed, I'm sure you did, that our backlog didn't deplete at all. And I think that Brad was trying to call out, you gotta be really careful going forward here because FX has an impact not only on revenue and profit translation, but on balance sheets also. So.
Speaker 3: and we'll rather take care of that over time. Again, I'm not worried about our orders. I mean, we've got a significant portion of the portfolio that sold out for the year.
Speaker 6: Right, so can book to bill be above one on a reported basis for the next couple quarters? Can it be? Or, if you want it, feel free to ask them.
Speaker 3: Okay, is that in your forecast? Anything can happen here. To be perfectly frank, we don't measure projected book to bill.
Speaker 3: Right? We've got revenue forecasts and earnings forecasts, but you know, no one's running around trying to count orders into the future. Except us. Thank you. Yeah, well, we had a discussion around here about...
Speaker 3: book to bill orders and backlog whether that's too much is too much but at the end of the day look You know this notion that order rates coming down is somehow a precursor of of 23 demand I think I'd be very careful about that I think I'd be very careful about that
Speaker 6: Great, thanks. You're welcome.
Speaker 1: We'll go next and you're covered with the city group.
Speaker 8: Morning, guys. Anyway. Rich, move just a thought on that. Can you give us a little more color into puts and takes of your revenue guidance for the year? I know we just talked about currency and length, but you actually raised your organic growth guide for the year, despite lowering expectations a little bit in the DII and DPPS, does your higher organic growth work has come from more momentum specific businesses, in a DEP, DCEF, or is it more confidence in supply chain easing? It has now turned off major methods...
Speaker 3: Well, let's see.
Speaker 3: Number one, the back half is actually an easier comp. I'm gonna repeat myself again. Q2 was the comp that we had to chin and we actually grew over Q2. So if you take, if you look at the growth that we posted for Q2, which was the highest bar that we had to chin, if you take a look at what happened in the second half of last year, right? In terms of absolute growth, we're pretty good shape there.
Speaker 3: You know Brad went through what our estimates are on FX and we're going to be like everybody else. We're just going to have to watch that as it progresses through the year.
Speaker 3: And look, if you take a look at our cash flow, which is negatively impacted by largely inventory, we've got a significant amount of...
Speaker 3: of not so much finished goods but a lot of raw materials and whip. And our intention is to convert a significant portion of that.
Speaker 3: which means selling it at the end of the day against our backlog, which drives the top line and we are going to run like crazy between now and the end of the year to liquidate that inventory position, which would be really good for the cash flow going forward. I mean, you know, the one watch point is going to be how much we ship in December and whether that gets hung up in receivables or not. But you know what, that's irrelevant. Quite frankly, it's a timing difference.
Speaker 3: We're looking at the one that we're driving at the most is we've got to clear that whip out of inventory which would have the knock on effect of clearing the raw material position that we have. Soon after Solid Wolven
Speaker 8: And then Rich or Brad, maybe I can follow up on the cash flow. Obviously, you had your initial cash flow guide out there, 13%, 15% of sales. I know cash flow improves sequentially, but as you were just talking about, Rich, it seems pretty back-end loaded. Any update on sort of that original guidance or how to think about cash flow conversion over the next couple quarters?
Speaker 3: I look at, Andy, it's basically what I said, right? There's nothing changed here about the cash flow dynamic. Our earnings are going up for the year. That's a positive. We have brought in more inventory because of all these supply chain issues. I'm not worried about it because our inventory position proportionally against the backlog that we have is fine. We're going to flush a significant portion of the inventory in the second half of the year. What happens in payables or receivables based on timing and everything else? I think the only watch point would be,
Speaker 1: and some just as Vince Gifford and Stanley.
Speaker 5: Take him on, you guys. Good job, Rick.
Speaker 6: Richie, you mentioned there, I apologize, jumped on the call a couple minutes late. Watching Europe maybe a little bit more closely than kind of worrying about the macro at large. Anything in terms of progression through the quarter order rates, mix of business, I know there's a couple particularly economically sensitive businesses there, I would think the retail fueling when you have a dollar gallon gas maybe isn't feeling awesome, but in anything there that you guys should be feeling need to point out.
Speaker 3: No, nothing, it was just a comment on a watch item, I think the question was more...
Speaker 3: Are we more worried about FX FX is what it is at the end of the day? I don't think it changes the dynamic where we think it's a headwind of our our ability to compete in the Eurozone because of some you know that we're shipping dollarized products into Europe . We don't.
Speaker 3: Clearly, Europe , from a macro point of view, is a watch item, we're not naive here. We don't see it yet, but we're paying very close attention to it. And then we run a variety of scenarios depending on what we think could happen to demand, what we do to our cost structure. And that was the comments I made in the presentation of, you know, we've got a playbook here that says, you know, when things start moving, how quickly we can move, and we believe that we can move faster than the macro moves. So, thank you.
Speaker 6: God, that was helpful. And then I just maybe zoom you out a little bit more strategically.
Speaker 6: You've been talking about near-shoring or kind of broader supply chain investment by the industrial world for a while now. At the same time, you're seeing some of that, I guess, start to improve. Anything that you think with improvement, people sort of forget about or move on from, how are you guys thinking about this transition maybe from like triage mode to how you want to address some of these supply chain issues on a longer term basis.
Speaker 3: Yeah, look, I mean, we've been the recipient, unfortunately, and the first half of the year of our own suppliers going through that transition, which has led to some of the headwinds that we've seen. So I think from a longer term perspective, it's healthy. So you see quite a bit of capital investment going in. So you see quite a bit of capital investment going in.
Speaker 3: Let's call into NAFTA for lack of better word, but these are industrial products, and they're not easy to move around, and we're all kind of going through that transition. Interestingly,
Speaker 3: From a CapEx point of view, our CapEx-related businesses are very strong. Our CapEx-related businesses are very strong. Our CapEx-related businesses are very strong.
Speaker 3: So the order rates that we're seeing in...
Speaker 3: Belvac and MOG and what's going on in precision components.
Speaker 3: what's going on in refrigeration. Those are all what's called them capex related businesses and from a backlog perspective and a demand perspective I mean they're so all sold out for the balance of the year and we're actually booking into 23.
Speaker 3: So I know there's a big debate going on out there between consumer recession versus industrial recession.
Speaker 3: You know, the CAPEX sitting here today, you know, I think that we're more positive than negative in terms of CAPEX demands or CAPEX-related demands going into 23.
Speaker 9: Thanks. Okay, thanks. Thanks. Thanks.
Speaker 1: Next question comes from Dean Dre with RBC Capital Markets.
Speaker 10: Thank you. Good morning, everyone. Good morning. Hey, maybe we'll just stay on that same cat-back steam. Any change in your thoughts regarding cat-backs spending expectations for the year?
Speaker 3: for you guys? Our own. No, no I think that what we have modeled in for ourselves through the year is we're all done so I mean I don't think we could we can't we can't spend what we've got in the plan now so no I don't think barring you know a customer showing up and saying I want X which clearly we would invest behind right now I think that we're done in terms of commitments whether and you'll see it reflected in the cash flow
Speaker 10: we go through the balance here. Got it and yep in reference to the early discussion about counting orders can you talk a bit more about that single largest order you said it was in pump and process what the application is how competitive and how might the margins shake out versus the segment normalized average? It's polymer processing where the order came from it's
Speaker 3: in Asia and it's slightly dilutive to the consolidated margin but still very good margin.
Speaker 10: Got it. Now competitive with that.
Speaker 3: It's they're all competitive. Having said that, it's better to be competing with against two other people versus ten people. And by and large, the vast majority of portfolio is competing against two or three people. So it's competitive but not crazy.
Speaker 10: That's helpful. Just last one, if I could. Last quarter, when we talked about pricing, Rich, you said you might be pressing more along the lines of search charges. How was that played out?
Speaker 3: Um, I, you know what, I don't, I think that because of the dynamics of raw materials we haven't had to do search charges, since then, I think it was an option that we, that we were,
Speaker 3: We're basically, I think that when we had the discussion last time, as we've done a significant a lot of pricing here, that's all modeled in the roll forward for the balance of the year, so kind of like our pricing was done assuming what we have in our EPS forecast.
Speaker 3: And that, I think the response to the question is, well, what if we see input costs go up again, what are you going to do? And the answer was, at this juncture, we'd probably take a look at doing surcharging. We've done some but very little because of the fact that we haven't seen a degradation. We actually, it's more about tailwind going forward input costs than it's been a headwind over the past year.
Speaker 10: That's real helpful. Thank you.
Speaker 9: You're welcome.
Speaker 1: Our next question comes from Bratlin Z with Miss O'Megas.
Speaker 2: Hey, good morning all. Good morning. Yeah, I wanted to come back to capital deployment. You made a comment about proactively evaluating other various alternatives. Could you just put a finer point on that? Is it buyback, special dividend, what's all under consideration? And then if it is the buyback, would you consider levering up or was this just a balance between bolt-on buyback with the free cash flow?
Speaker 3: I think that the capital markets would have to get pretty grim before we lever it up to do it. We need more on deployable cash flow.
Speaker 3: Meaning that if we were, if our pipeline from an inorganic point of view was low, that we would not sit on our projected cash flow balances for a prolonged period of time.
Speaker 3: And so then we have optionality for cap of returns to shareholders. Our bias there is share repurchase over doing a special dividend. As we sit here today. As we sit here today.
Speaker 3: But that's always a discussion with the Board of Directors.
Speaker 3: Okay, great. And then just shifting to the European pump business there, how large is that on a run rate basis currently? And I know the order rates have been pretty good there, but could you just speak to the scope of further opportunity in that business and then specifically how Dov is competitively positioned for the opportunity? Yeah, we don't really get into giving out revenues by segment because that's a slippery slope that...
Speaker 3: These conference calls the last 1,000 years. It's a good material to the full year revenue.
Speaker 3: I think the reason that we called it out was the scale of the particular purchase order as a proxy for
Speaker 3: kind of capex demand going forward. So it's a good order proportional to the revenue. That business is sold out for the year. So it's all 23 that we're booking for now. So it's a precursor for the solidity of that particular business's revenue stream going into 23.
Speaker 9: Got it. Thanks. I'll pass it along. All right. Thanks.
Speaker 1: Our final question comes from Nagelco with a free search.
Speaker 11: Good morning. Thanks for the question. Just I thought it would be useful to go back to the guide. Maybe Brad this is for you. So ten cents from FX, the headwinds of current, you know, kind of current plan rates. Sounds like that's offset by a point better organic growth. Is there anything else in the plan that's moving around? Ok...
Speaker 11: like taxes coming in a bit better but anything on corporate etc we should bear in mind.
Speaker 5: No, I don't think so. I think corporate was a little bit favorable in the quarter for reasons of, you know.
Speaker 5: booking a cool rate and things of that nature, but corporate kind of gets back to a normal pace in the back half of the year. As I said, the headwinds is 10 cents versus our last expectation. That's built into our guide, same as it is on the revenue side. So revenue and earnings are reflective of what we said was our current thinking about FX rates. You know, the organic increase, you know, another way to think about that is we chin the bar in Q2. You know, we had a good Q2. We see that helps us for the full year as well.
Speaker 11: How can send to you by, you know, CrossFit gas rationing, energy inflation? And are you seeing anything sort of unusual in terms of behavior from customers in Europe right now? Nothing unusual. I mean, completely no.
Speaker 3: Europe is probably more leveraged for export than NAFTA is for us, so it's not.
Speaker 3: The proportionality of Europe for Europe is actually lower than it is for NAFTA which proportionally is Very high so there is a bit of a buffer there So I mentioned before with MOG having a single biggest biggest order
Speaker 3: to European company that's shipping into into great erasure and that business remains strong I look it's it's hard to tell right now we don't see a lot of negative Negativity we don't see any cancellations and orders that we have a backlog in Europe right now so it's just more of a...
Speaker 3: When we talk to our customers and we talk to our employees of this isn't good at what's going to happen here, but right now we don't see anything where these are rolling over, but clearly we are running scenarios of a variety of them. If Europe was to...
Speaker 3: to run into some problems, you know, what are we going to do? Like I mentioned before, I think that we've got a playbook that allows us to protect operating margins under a variety of demands and arrows, and I think we proved that in 2020. We would just run that same playbook back again, but I wish I could be more specific. Right now, everybody's...
Speaker 3: concerned of what's going on in the macro in Europe , but we don't see it rolling to a situation where it's overtly negative yet.
Speaker 9: That's great. Thanks Rich. You're welcome.
Speaker 1: Thank you. That concludes our question and for period in Dover's Psychic Order 2022 earnings conference call. You may now disconnect your line and have a wonderful day.
Speaker 12: Lo about.
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