Q1 2023 Dover Corp Earnings Call
Good morning, and welcome to Dover's first quarter 2023 earnings conference call.
Speaking today are Richard J, Tobin, President and Chief Executive Officer, Brad Sarahpac, 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 answer period.
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Thank you I would now like to turn the call over to Mr. Jack Dickens. Please go ahead Sir.
Thank you Todd good morning, everyone and thank you for joining our call and audio version of this call will be available on our website through may 17th and a replay link of the webcast will be archived for 90 days Dover.
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 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 with that I will turn the call over to rich.
Thanks, Jack and good morning, everybody.
Let's start with the performance highlights on slide three.
The quarter was solid overall, we are very pleased with our production performance to start the year.
Which allowed us to begin reducing our inventory balances towards the end of the quarter.
Consolidated organic revenue was up 3% with gross with growth across most of our businesses driven largely by the secular growth tailwind that we outlined at our most recent investor day.
The majority of our input and supply chain constraints have dissipated, resulting in production lead times largely returning to pre pandemic levels. This has led to a more normalized order patterns.
Proves shipping volumes in a gradual reduction of elevated backlogs.
New order intake was robust in the quarter with four out of five segments posting book to Bill one <unk>.
Bookings increased sequentially in the first quarter and our order backlog remains elevated compared to normal levels, providing us with good visibility for the remainder of the year during the quarter. We did book some volume from our backlog in retail refrigeration from a single customer.
But the timing of the 'twenty two 2023 capital plan under review our expectation is that we'll be rebooking the volume in the second half.
Margin performance in the quarter was strong with four out of our five segments improving margins over 100 basis points.
Driven by broad based productivity gains and positive price cost dynamics and prior period investments and cost containment actions.
Higher segment earnings performance drove our EPS growth, we had some comparable cost headwinds during the quarter from transitory inorganic activity costs higher interest expense FX and tax.
Brad will review later interest costs are set to drop progressively for the balance of the year and FX at current rates turns into a comparable tailwind in the back half.
Our recent investments in automation and productivity projects are paying off and we are in the process of completing several capacity expansions in our secular growth businesses.
The acquisition of ZIP day in our pumps and process solutions segment, which we completed in December last year is off to a great start and is a poor performing above expectations. Our strong financial position allows us to pursue a healthy pipeline of attractive bolt on acquisitions.
To Opportunistically return capital to our shareholders.
We are encouraged by the trends and performance. So far in 2023, we have a constructive but also watchful outlook for the remainder of the year overall demand conditions in our attractive industrial markets remained solid and our bookings are healthy our order backlogs, especially in our longer cycle businesses provide good visibility to.
Our forecast we are on track to deliver our full year cash flow target as we liquidate inventory in concert with the normalization of our backlog. We are mindful of the mixed macro and economic backdrop, and we're staying close to our customers to understand their plans, we have available cost control levels levers.
And operational flexibility that should enable us to deliver good results in various macroeconomic environments with that we maintained our 2023 full year guidance.
3% to 5% organic revenue growth and adjusted EPS of $8.85 to $9 five per share.
I'll Skip slide four let's move on to the segments.
Engineered products was up 3% organically in the quarter driven by positive pricing strong demand for waste handling equipment parts and related digital services.
The chassis availability issues that impacted the waste handling business coming out of the pandemic have improved and to the extent that that supply continues to be available we are well positioned to increase shipments meaningfully against strong underlying demand.
Margins were up 230 basis points year over year, primarily driven by improving supply chains positive price cost dynamics mix.
And as well as investments in productivity initiatives.
Clean energy and fueling declined by 3% on an organic basis revenue was up and clean energy components vehicle wash fuel transport and below ground retail fueling offset by the expected comparable decline in dispenser and E. N V card reader demand.
The upcoming second quarter comp is the last of the material and the volume we remain constructive on the business for the full year as order activity in March was healthy.
Despite the lower volume margins in the quarter were up 120 basis points of positive mix and price cost as well as improved comparable cost structure from previously announced cost reduction actions taken in the retail fueling business.
Imaging and I'd posted a solid quarter up 8% organically on broad based strength in our marking and coding printers spare parts and consumables. Our serialization software business continues to perform well and win new accounts FX remains a negative headwind to absolute revenue and profits in this segment given its large base of non U.
Dollar revenue.
Margins in imaging and I'd say were very strong at 24%, improving 260 basis points and volume conversion pricing actions and mix.
Pumps and process solutions declined 7% organically in the quarter driven principally by the postponement transition in the Biopharma space.
New orders for Biopharma grew sequentially during the quarter as the impacts from inventory destocking begin to subside.
At the current trajectory, we expect to have one more quarter of headwinds then inflect positively in the second half of the year.
All the other businesses in the segment posted solid organic growth during the quarter with particular strength strength in precision components industrial pumps thermal connectors and polymer processing.
Operating margin was down against the peak comparable quarter in the prior year due to the mix effect from non from higher non biopharma revenue.
Topline in climate and sustainable technologies continued its double digit growth trajectory from the last two years posting 16% organic growth.
Demand trends remain particularly robust in heat exchangers and T. C O two refrigeration systems, driven by global investments in sustainability beverage can making continued shipping deliveries against its strong backlog margins came in at 16% in the quarter up 200 basis 280 basis points year over year.
Year on strong volume conversion productivity positive price cost and good mix of products delivered.
Pass it to Brad here.
Thanks, Good morning, everyone, let's go to slide six.
The top right shows organic revenue growth of 3% driven by increases in three of our five segments acquisitions contributed $19 million to the topline in the quarter.
Ex translation was a substantial headwind at two 5% or $52 million and impacted both our revenue growth and profitability.
Epic FX headwinds.
<unk> and <unk> <unk> of negative EPS impact in the quarter at todays prevailing rates. We expect these FX headwinds to subside as the year progresses against easier comps with roughly 10 cents of negative FX impact forecasted for the first half of the year in fives and five cents of favorability.
In the second half.
From a geographic perspective, the U S. Our largest market was up 3% organically in the quarter.
Europe , and Asia were flat and down 4%, respectively on timing.
Comparable shipments.
We expect organic growth in both regions for the full year.
On the bottom chart bookings were down year over year due to foreign currency translation normalization of lead times across several businesses and a $90 million order D booking related to a major retail refrigeration customers decision to temporarily pause its new store expansion program.
Now, let's move to cash flow on slide seven.
Free cash flow for the quarter came in at 90 $193 million or 9% of revenue. This represents a record first quarter free cash flow it was up over $200 million year over year.
The first quarter is historically, our lowest cash flow quarter due to seasonality of investments in working capital to support growth in the year ahead.
Discussed previously our supply chains with supply chain is improving we have been actively working to liquidate our working capital balances in 2023.
And we are beginning to see the results materialize.
We expect our working capital balances in particularly our inventories to reduce over the balance of the year and to be a significant driver of year over year cash flow.
Excluding any impacts from acquisitions, we should materially pay down commercial paper balances over the next several quarters. As a result, we would expect interest expense to decline by $10 million between the first half and second half of the year.
Our forecast for 2023 free cash flow remains on track for between 15% and 17% of revenue.
I'll turn it back to rich.
Alright, let's go to slide eight here, we show the growth and margin outlook by segment for 2020.
Three that are underpinned by our current bookings and backlog trends I make a few summary comments before I jump into the segments.
First our lead times have largely normalized across the portfolio. We highlighted the chart a good backlog levels are primarily driven by a handful of operating businesses that are either a long cycle in nature.
Or experience are experiencing secular growth, where there is a supply demand deficit or both.
Next our expectation go into the areas that order rates would normalize in an orderly fashion because it repaired supply chain has removed the rationale for customers to order far in advance.
Order rates in the first quarter was strong across most businesses.
Which is a positive indicator for our full year revenue targets, which do not require us to which do not require a book to bill is above one every quarter due to the aforementioned backlogs.
We expect growth in engineered products to remain solid driven by pricing carryover as well as pent up demand and improved chassis availability and refuse collection vehicles, we expect trading conditions in aerospace and defense.
Industrial automation and.
And winches to remain constructive following two years of excellent volume growth, we expect vehicle aftermarket to be stable.
Engineered products is set to improve margins in 2023 on solid volumes benefits from our recent.
Productivity capital investments, taking hold and positive price cost tailwind.
Clean energy and feeling should grow low single digits organically and <unk>.
Solid demand in all businesses, except above ground dispensers that constructive booking rates and customer sentiment sentiment in the dispenser business point to improving from here with Q2 being the last quarter of negative <unk> mix impact.
For the year, we expect margin improvement in clean energy and feeling is all volume recovery improved mixed proactive restructuring actions and above ground fueling and we expect revenue in absolute earnings growth to be entirely second half weighted for this segment as ENV volume comps fade.
Imaging and Ids is expected to continue its mid single digit growth trajectory through the year, we see robot robust demand for our printers consumables and professional services.
And the outlook for our socks software offerings is also strong after some recent customer wins full year margins should remain attractive.
Yeah.
We project flat organic growth for the year in pumps and process solutions quoting activity remains strong and industrial pumps, the plastics and polymer polymers business continues to deliver against record backlog levels with particular.
Strength in the U S and in China.
ZIP they pumps acquisition provides much needed capital capacity to our Mag to our Mod business.
Demand for engineered bearings and compressor components remains robust with a notable mix and order rates towards energy transition markets, such as hydrogen LNG and carbon capture thermal connectors continues to grow well into the double digits.
In Biopharma and we expect the business to remain at current conditions in the second quarter and returned to growth in the second half of the year as order rates continue to improve.
As we discussed during the analyst day at a long term tailwind for single use components for biological drug manufacturing our robust are full.
Full year margin target for this segment is approximately 30%.
The growth outlook for climate and sustainability technologies as solid as our businesses continue to ship against strong backlog levels. We are forecasting continued double digit growth in both natural refrigerant systems and heat exchangers for heat pumps.
We expect some second quarter headwinds in refrigeration cases, due to the aforementioned deep booking impacting fixed cost absorption, but we remain constructive on the overall demand and continue to expect our multi year journey of margin improvement for the business.
Beverage can making is booked for the next several quarters and we have some very interesting opportunities in the pipeline. We expect continued margin improvement in 2023 on volume conversion productivity gains and mix.
Let's go to slide nine here, we show the range of new to market products and the status of some of our important expansion projects that allow us to sustain our competitive advantages in our marketplaces.
We are very bullish on our long term value creation opportunity for these new product launches, you'll see each of these products touch sustainability, digitization or biopharma and hygienic applications.
Our growth and capacity expansion projects are progressing well, whether behind our heat exchangers natural refrigerant systems.
Our biopharma businesses each of these applications are growing in double digits over the long term. These will be important drivers of our underappreciated organic growth story.
Our previously as previously announced restructuring within the retail fueling segment is on track as we transform this business model. We also took some incremental footprint restructuring actions in retailing at retail fueling in Europe in the first quarter and we have several ongoing projects across other operating operating companies is.
Well.
Let's wrap up on slide 10, Dover's portfolio consists of a range of niche middle market industrial franchises with significant diversification from a product and end market end market exposure perspective, many of which we believe are secular growth tailwind, so our supply chain and not overly complicated and our manufacturing operations are.
Leanne and getting leaner.
We believe our diverse end market exposure together, our flexible operating model and value added center led initiatives will continue to be a competitive advantage of advantage for us regardless of the macro economic environment.
We believe that we have line of sight for our full year forecast and range enroll in a range of available cost levers to ensure we deliver with that.
So with that we are maintaining our full year 2020.
Guidance.
So Jack let's go to Q&A.
If you would like to ask a question simply press the star and the number one on your telephone keypad.
If you would like to withdraw your question. Please press star two.
We ask that participants limit themselves to one question and one follow up.
Again, that's star one to ask a question.
Our first question comes from Jeff Sprague with vertical research partners.
Thank you good morning, everyone.
<unk>.
Hey.
Rich as Brad pointed out if you get these inventories normalize you know the cash comes through you Delever pretty quickly.
Wonder what you're seeing on the M&A side of the equation.
Are there things that are actionable.
In the pipeline in 2023 in your view and.
Also just wonder if you'd comment on potential interest in carriers refrigeration business, which.
Fortunately the final comments this morning.
I'll take the second one first.
No I think it's just a purchase.
I would say now, but I think thats early days to see what happens.
In the space any activity in this space in total.
It's interesting I'll leave it at that in terms of M&A.
Yes.
We took some some cost in Q1 around inorganic activity. So I guess, that's an indication that we're working on some things that we hope to get across the line I can tell you overall theres not a lot coming to market for all the reasons, we can understand.
But the good news is is that multiples are now converged with.
Public the public markets and the competitiveness or lack of PPE.
Participation is helpful. So.
More to come but.
I think that we're pleased with what we've got going on in the pipeline.
And then just on this side the.
The booking I mean are you seeing any other signs that.
Retailers are just wavering either on new stores or remodeling or you think this is truly a one off and I think you said you expect it to actually re book at some point later in the year.
This was more of one particular customer basically revisiting strategically what their intent is so it's our customer we expect that process to take.
You know somewhere between four to six months and at that point, we'll go back.
We could have kicked the can here and just left it in backlog, but then it becomes a problem in terms of.
Inventory in our planning process. So we just took the we just made the decision just deep book it out of backlog. It is a one off I mean right now what are hearing what we're hearing from our clients is.
Again, they are still having trouble getting the labor.
Still unhappy with the.
The inflation cost of doing their builds but they've continued to like to do the build so the demand is still strong and this one is just.
A strategic issue as opposed to kind of an overall commentary on the market.
Great. Thanks, I'll leave it there.
Okay.
Thank you. Our next question comes from Steve Tusa with J P. Morgan.
Hi, good morning.
Hey, good morning.
Can you just talk about the what you expect to see here in the second quarter. I think you made some comments in the 10-Q about some of the organic growth rates. It seems like everything is relatively stable, but then we have to take into account the.
De booking in the refrigeration business is that.
Roughly how we should think about organic growth in the second quarter I know the comps are kind of all over the place. These days, but maybe just a little color on the sequential trend there yeah, I mean I.
I think that that we had.
Would have expected to build some of that product in Q2, so that's a bit of a headwind there, but quite frankly, the bigger issue for Q2.
Is the last remaining quarter of of bio <unk>.
So to me Q2 is always going to be.
From a comp point of view.
Sort of like Q Q1 to a certain extent.
But we really feel good about the back half of the year, because the comps roll forward.
And all of the bottom below the line charges to call. It that for lack of a better word actually roll positive cell yeah, I mean Q2 should look.
A lot like Q1 relative comp to comp.
Relative comp the comp I mean absolute you usually do step up quarter to quarter like just on an absolute EPS basis, I mean are we.
Are we assuming normal lately should we take normal seasonality and to subtract the door cancellation.
But I wouldn't get too hung up on trying to monetize the math on the door cancellation. It is a bit of a headwind in Q2, what I'm, saying is if you look at Q1 to Q1.
Q2 is going to be similar in terms of Q2 to Q2 comp.
There's a step up in volume yeah. So I would say that the historical first half to second half is not.
You know applicable at this stage, it's a little bit more to the back half as we said before Steve.
Okay that makes sense and then.
Rich you've been among sorry, just on price cost any any update there for the year. What are you guys seeing on those.
In those numbers.
I think you know, we're not really taking any more meaningful price action I mean, I think in certain areas, yes, but I mean, I think we're happy to just continue to get what's already baked into the system.
Okay, So youre positive, though on a price cost spread basis.
Our expectation is to be positive for the full year for <unk>.
Okay, alright, great. Thanks, a lot.
Yes.
Yeah.
Thank you. Our next question comes from Andy Kaplowitz with Citigroup.
Hey, good morning, everyone.
Hi, Andy.
I know how much you love talking about order is then let's do that if we exclude the order reversal in climate and your book to Bill was over one in Q1.
Pace for an order number closer to $8 billion. The numbers, we discussed last quarter. I think you said that order lead times have already mostly normalize. So at this point is it looking more likely that you will not go back to that sort of more normalized backlog at least this year and then book to Bill May remain healthier than you previously thought.
Oh boy.
[laughter] orders in Q1 were better than we had modeled.
And interestingly just to give a little color of it.
It was all in March so it was tracking the way that we thought it was going to track we would expected to be below one in Q1, just because of the size of the backlog and the non.
The non need to order so far in advance but March was was very healthy so.
You know it's early days if that pace keeps up that's great for our full year volume forecast, but like I said before in the comments, we don't need to be above one every quarter for the balance of the year to hit our numbers. So it's early days I think that overall we are pleased.
With the book to Bill of Q1, because it's a little bit better than expected remember, but you have to recall remember.
<unk> and denominator.
Q2, and Q3, we step up on the shipment side right. So you would need.
Just a greater inflection of orders to stay above one from there so.
We'll see how it goes but we will take better than expected book to Bill in Q1.
And that's helpful. Rich and then maybe just on <unk> again you.
We still have very high backlog coverage, you know even with the deep booking.
You know when you look at the business I know you're still forecasting mid single digit growth you talked about the Q2 issue, but you know it.
Is that mid single digit growth really more of a minimum given sort of the capacity additions you've got and the strength in heat exchangers and see the two systems and how durable is the growth you think as you go forward, even if economic conditions get a little more difficult.
Well, where we're we're very prospective on the Sidoti systems and on the heat exchanger side, which is the reason that we're expanding capacity so.
That capacity is going to take basically the balance of the year to progressively come online.
We probably could sell some of that capacity if it was in place now, but we think that we still in March in terms of our capacity build.
Versus our competitors there so.
We're bringing it online as fast as we can but you can't sacrifice quality and if there is a variety of other things that you need to do to get it done.
Sure.
As the swing factor will be as I mentioned in the comments that we have some interesting projects in Belleville, which we would expected bell back to cycle down some in Q2, which I think we talked about at the beginning of the year.
If we were able to book that that would be a positive in terms of back end growth.
And look at the end of the day, we expect to rebook.
The refrigeration business in the second half of the year.
But I will tell you that.
That cost structure of that business is much more flexible than it's been in the past. So even if we were to miss a little bit in terms of the top line growth. There I don't think that we're going to see the margin dilution that you would have seen historically.
I appreciate it.
Okay.
Thank you. Our next question comes from Joe Ritchie with Goldman Sachs.
Thanks, Good morning, guys.
Joe.
First the first question I guess, maybe just following up on Andy's Andy's question on orders rich well, what's surprised positively in March from an order standpoint.
North American dispensers, I think it was a positive surprise and we wouldn't ask we were not expecting that to inflect until the back half of the year.
Heat exchangers.
I think that's it.
If we really wanted to really wanted to go get the orders now we could basically both the balance of the year in terms of backlog.
That's been good.
Printing and I'd.
And if you look at the performance of Q1 has been excellent I mean thats business that.
I don't think anybody models, 8% growth rate there.
Some.
Really good margin. So I mean, it's broad based on the portfolio I think.
What we're most pleased with.
Guess is that biopharma inflicted right because we.
You see our customers now reporting their earnings that we.
We're kind of.
Three quarters in front of me, but in front of everybody else on the Destocking. So we feel good about basically this reflecting this in the second half of the year and I think that we've had a more.
Positive view I think on retail fueling then.
The market would expect and if March orders or a precursor, but I think we feel good about our full year estimates.
Awesome.
That's great and it's a good segue.
In Q Biopharma right. So it seems like you're probably at the trough margin for the segment in <unk>.
I think youre still expecting the margins for the year to be.
Pretty much flat year over year versus versus last year, so that would that would imply a pretty significant improvement from here.
How do you think about the cadence of that improvement over the coming quarters.
Well I mean, the the negative comp is less so in Q2 than Q1. It was pretty significant in Q1 as you can see from the margin performance.
Still negative in Q2 and it reflects positively in the second half.
The interesting part about it is.
We really never lost operating margin on the lower volume, we actually preserved margins. We just lost all of the volume in all of the gross margin associated with that volume so.
The.
More interesting thing about targeting 30% for the full year is the balance of that segment is growing very well and it's dilutive to biopharma. So.
To get to 30 it does it.
It's interesting that if those parts of the portfolio grows significantly or at least stay on the track that theyre on right now, we'd probably have a little bit of difficulty to reach 30, just because of the portfolio effect of the segment itself.
Better news is.
We've been waiting now, but biopharma looks like it turns from a headwind at the half to a tailwind going forward that we would expect that tailwind to be material in 2004.
Great very helpful. Thanks, guys.
Thank you. Our next question comes from Andrew <unk> with Bank of America.
Hey, rich how are you.
Andrew how are you good morning, Hi, Brian Hi.
No question now that you guys are are you know HVAC heat pump company.
Or can we just talk about swap a little bit I think carrier just talked about the market troubling.
For European hit pumps, you have highlighted swap capacity additions and one of the key areas for expansion.
Your company.
You highlighted what our upside in this business.
Do you guys have enough capacity to keep up with this tripling of the market and how do you see I know that you're in Alfa Laval sort of at the top of the market right now how do you see sort of incremental competition sort of coming in and screwing up this market. Thank you.
We have not had the time to digest.
But carrier put out there in terms of the marketplace. So I'll take a pause on that.
But we have been participating in the growth of the European heat pump market now for several years.
Think that we're proactive in terms of building out our capacity as we mentioned we were.
Our target is to increase capacity.
Early in 'twenty four by 50% for swept.
So part of winning share is to have the available capacity at the right product quality at the right price point.
So that's all we can do so we would expect.
That.
It will be.
We will receive part of whatever estimates you want to make about what the future is in terms of heat pump growth from here, but we don't think it's just a European phenomenon wed expect that technology to be adopted progressively over.
Over the balance of the world driven a lot by regulation and that's why we're not just expanding our capacity in Europe , we've actually expanded it in Asia and the United States also.
Thank you and then just a question you know you sort of agree with you on the impact of our water rates are supply chain normalization on water rates.
It does seem you are starting to release working capital.
Where are you just in your broader thinking about the balance between the state of economy.
Credit availability and just brought on im not asking about Dover I'm, not asking about tober water rates right, but.
Don't want to raise for industrial economy as a whole because I think you have sort of great insights over the past 24 months about the entire dynamics. Thank you.
Yes.
I can't remember that's the Sammy Hagar song about like one foot on the gas and one on the break that's the way we're trying to run it here right that meaning that there is a lot of macro uncertainty in the marketplace. We think that we've got some tailwind, but we can't just be blind.
Oh.
<unk> not watching our own balance sheet and quite frankly, we've been carrying excess inventory for two years around here. So it was natural for us to kind of liquidate.
Our watch points are.
The businesses that we have that are subject to.
Constriction in credit so.
No.
To pick one and not to be overly negative here I mean, our car wash business required.
Largely driven in a certain way of entrepreneurs getting loans and building out.
Carwash.
The fact of the matter is that credit is going to be tightened now does that open up the door for our big retail clients to now meaningfully move into the car wash space, we'll see so theres a lot of <unk>.
Moving parts here at the end of the day my personal view, it's going to be.
A consumer driven recession, which I think that we're going to get.
Whether that negativity is fully offset by the amount of capital that is going into.
Kind of the regulatory regime or re shoring or a variety of other tailwind that we talked about during the <unk>.
Investor Day, our position right now is yes.
Alright, but that implies really no degradation of the macro in a meaningful way from here kind of like a slow let the air out of the.
Out of our balloon as opposed to us.
A shock so we're.
We're going to have a management meeting here as soon as this this.
Q&A is done and part of what we're going to do is basically go business by business to say alright, What's your plan to meet your numbers for the year and what's your plan. If we run into trouble right. We've got we have no choice, but to run the corporation that way.
Thank you Scott.
Yeah.
Thank you. Our next question comes from Mike Halloran with Baird.
Good morning, everyone.
Right.
Oh by the way nice I can't drive 55, Sammy Hagar restaurants anyways.
Maybe just following up on that last question there.
How are you guys thinking about the or.
What are you seeing in the larger capex side. Some of the later cycle longer cycle type stuff are you seeing any change in the purchase patterns. There and obviously you had some decline in <unk>.
The bookings in any real change on that side or anything notable.
Well, we we would've who we are.
We modeled in a reduction in capex in beverage can making.
After go in and we are pretty good three year run of.
A lot of build out there and if you go look at what the big can makers are saying, they're kind of pausing in getting their footing together, there, but that was modeled into our forecast.
And heat pumps I think is.
Yes.
The issue does yours, so we'll leave that alone for the time being.
On the on the retail fueling side.
It's actually.
It does.
The amount of negativity around that I think is overcooked, because we do see a lot of capex still there and we still expect a lot of of consolidation, there, which drives capex when those retail operations R. R.
You basically are taking smaller stations and building much more larger complex stations, which is good for us.
But Mike at the end of the day.
Plastics in terms of raw production of capacity expansion, particularly in Asia and North America.
Is quite good despite energy cost moving up a little bit.
So the watch points for us is more credit tightness and how that affects capex for kind of not for big.
Ms, but for kind of like the second layer, that's where we think there may be some tightness.
No that makes sense and the flip side of that coin on the short cycle side and trends on that side had been relatively stable from a seasonality perspective or any real movement there.
It's been relatively stable.
Great.
We said at the time thanks. Thanks.
Thank you. Our next question comes from Julian Mitchell with Barclays.
Thanks, Good morning.
One point I just wanted to check in on was on D. E P, which I didn't think I would go up.
Much attention yet, but you had a very good margin expansion year on year in the first quarter.
You know down sequentially, just trying to understand sort of as we think about margins for the year. They are growing I think for the year as a whole.
Is that all kind of first half loaded do you think we should see decent margin expansion as you move through the year.
And does the sort of the flattish vehicle after market guide does that have any margin impact or its just sort of similar margins to the segment.
The margins should go up into Q4, so you rightly.
If you go back and look at Q4 margin, we would expect Q1 margin to come down solely on production performance.
So we would expect it to come down but from a comp point of view from here, we would expect to have accretive margins.
Up until Q4, and then we'll see how we ended the year because I think our margins that you saw were quite robust.
On the vehicle.
Calling that market flat right.
So it's not a negative in terms of.
Consolidated margin from the segment. So that's more of a top line comment as opposed to a a.
A margin comment.
That's helpful and then just my follow up.
You tried to give some Q2.
Commentary when when prompted it in the spirit of letting no. Good deed go unpunished.
You know we've had a lot of questions on your second quarter sort of commentary. So I just wondered if you could put any fully understand you do not guide quarterly but.
I don't know if there was any any finer point you can put on that second quarter color, you're kind of saying that EPS in Q1 was up.
Low single digit year on year, and so the second quarter doesn't look too different from that year on year performance.
I think it's more Julien.
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The performance in terms of revenue and margin looks.
Comp to comp looks similar now having said that we had an eight cents of EPS headwind of kind of below the line segment headwinds, which we believe dissipates. So I don't want to get into EPS accretion guidance quarter to quarter.
[laughter], Yeah, we did.
So it looks if you look at Q2, if you look at the performance relative performance Q1 to Q1 comp.
And do the same for Q2 to Q2 comp it should look similar probably without.
Some of the headwind that we saw on the below the line items.
Perfect. Thanks, very much youre.
Youre welcome.
Thank you. Our next question comes from Scott Davis with Melius research.
Hey, good morning, guys.
Hey, Scott.
A lot of territory has been covered here. So I don't want to beat a dead horse, but rich would it be fair to say you said earlier that.
Better than expected book to Bill in the quarter at that that comment is clear, but what.
It also better than expected price in that book to bill in the quarter.
I mean piecing it together it sounds like the answer is yes, but I haven't explicitly I heard you say that.
No.
A price that we have the price that they.
The the accretion from price overall is just peanut buttered over.
What we see the sequential revenue growth isn't for the full year or so.
It's not as if we've put new pricing out there and so that book to Bill is kind of more accretive that we would have modeled.
At the end of the day I'd add I'd have to go back and take a look.
In terms of mix.
But as you can imagine around here calculating.
Calculating mix effect on many revenue streams is a bit difficult, but overall Scott. It was we knew we were carrying big backlogs into.
Into 'twenty, three and we knew and our customers knew that our lead times were coming down quite a bit. So we would expected kind of to do more of a bleed off.
Oh.
Not necessarily the backlog, but it was reflected in the lower order rates, but like I said in March we had a pretty good inflection in terms of orders, which allowed us to get above one because as I mentioned with the back what we've got modeled in for backlog depletion, we don't need to be above one this year.
And that's why we're trying to kind of coach everybody into.
Let's not panic, if we don't do above one we don't need to be above one to to hit our numbers.
That's clear, okay, I'm going to keep it at that guys you answered everything else I appreciate it and best of luck.
Thanks.
Yeah.
Thank you. Our next question comes from Josh Pups, Yavlinskiy with Morgan Stanley .
Yeah.
Hey, good morning, guys.
Okay.
Rich just on.
That comment on March in terms of the booking rates being better can you put that in context of these lead time improvements and what you would expect it to be kind of in the opposite direction was that surprise really in these longer cycle or longer lead time businesses, where maybe folks were kind of waiting to see what they wanted.
To do or waiting to see what that supply chain impact was and then came back or was it more like shorter cycle economically sensitive stuff.
Both.
Right. So you had a positive inflection in biopharma that we've talked about I.
Think retail fueling.
Inflected positively which is a good sign.
But on the longer cycle side.
Plastics, and polymers, which is a long cycle business booked very well and we expect it to book very well again in Q2.
So.
It's both I mean.
At the end of the day so.
But we haven't even had the time to dissect it order by order, but I can tell you just in terms of them, it's not overly short cycle and but.
Our exclusively short cycle, because there is an element of a long cycle in there, which youre going to see probably in our backlogs by the time, we close Q2.
Got it that's helpful. And then just on climate and sustainability I think there's some decent mix within mix there and maybe just to avoid you know something like what happened in pumps and process is there a quarter that you could see coming or a period of time, where you would expect some outsized mix effect.
Two to.
To show up or should we just see kind of the steady progression we've seen thus far.
Everybody overestimates the margin in Bell Vac, which is accommodated into our forecast for the full year.
Because as we mentioned.
Kind of transparent about what the cycle was there and we would expect to see some kind of fade there, but it's not something that we can mop up because C. O two systems and heat exchanger margins are at minimum flat to what we get in beverage can make it.
Got it I'll leave it there.
Yeah.
Thank you our final question will come from Brett Linzey with Mizuho Americas.
Hey, good morning, all.
Good morning.
First question just on pumps and process good to see some stabilization there in Biopharma just curious how we should think about the mix benefit on the other side here.
Obviously, some sequential improvement through the year, but thinking about next year I mean are we going to be expanding back into that 32% to 33% level.
Oh, that's pretty aggressive.
Look at the end of the day as I mentioned, when you actually did not give up margin.
Margin going down we just gave up the mix effect of that reduced volume on the segment itself.
All I can tell you is we would expect on the way back up that from a margin mix point of view, it's clearly positive and Thats why I think they were sitting as I mentioned in my opening comments were.
We're trying our best to get to 30 for the full year, which implies some amount of positive you know when we know we have the comp positivity, but it implies some amount of growth in the second half of the year its unhealthy biopharma margin.
But more importantly for Nick.
But more importantly.
As we went through in the Investor day, if we strip out the Covid. The core business is growing 20%. So if we get some growth in the back end, it's margin accretive and as we roll into 'twenty four if we can keep on that trajectory then it becomes meaningful in terms of absolute profits and margin, but what I don't want to do is to talk down the growth rates.
Of the rest of the segment from a mix point of view, because if they grow significantly themselves and youre going to have a little bit of a margin mix drag but.
In absolute profits will take it.
Makes it makes sense and then just on slide nine you called out the ongoing restructuring actions I think $14 million in the first quarter.
Where are you in terms of right sizing efforts do you think you are in a pretty good spot in terms of capacity.
Aligned with deliverables or is there more to do there.
And fueling solutions.
I think that we're probably 90% there I mean, we've taken a bunch of cost out last year and then we took some further actions. This year. So the management team is doing a real good job of kind of.
Getting their arms around positioning the cost structure of that business based on what we believe the demand is in the business model is going to be going from here.
Having said that the balance of the portfolio is opportunity in it and I think if you go back and read.
The comments I think I rode into the fact that we would expect.
Some further footprint actions to go on.
And I think you'll begin to see some of that this year.
Alright, great ill leave it there thanks.
<unk>.
Yes.
Thank you that concludes our question and answer period, and Dover's first quarter 2023 earnings conference call.
You may disconnect. Your line at this time and have a wonderful day.
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