Q4 2023 Dover Corp Earnings Call

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Good morning, and welcome to Dover's fourth quarter and full year 2023 earnings conference call.

Speaking today are Richard J, Tobin, President and Chief Executive Officer.

Brad <unk> senior Vice President and Chief Financial Officer, and Jack <unk> Senior director of Investor Relations.

After the Speakers' remarks, there will be a question and answer period.

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Q.

I would now like to turn the call over to Mr. Jack Atkins. Please go ahead Sir.

Thank you Angela and good morning to everyone and thank you for joining our call and audio version of this call will be available on our website through February 20, <unk> and a replay link of the webcast will be archived for 90 days.

Jack Atkins: 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.

Rich: Thanks Jack.

Start with the key messages on slide three.

Market demand conditions in the fourth quarter played out largely as we expected and as we discussed at the end of Q3, we.

We adopted a business cluster focused on managed managing down production in certain product lines, the balanced channel inventories to the detriment of fixed cost absorption.

This puts us in a good inventory position and enable us to match demand and production in 2024.

This operating costs were also drove solid operating free cash flow performance in the quarter, which positions us to play offense on the capital deployment front in 2024.

We capitalized on strong volumes in several markets and drove margin mix higher for the consolidated portfolio in the quarter.

Rich: Breadth and diversity of our end market exposures, along with proactive cost containment and pricing discipline led to another record high quarterly segment margin in Q4.

We remained active on the portfolio front, we improved our portfolio through synergistic bolt on acquisitions, including two transactions announced in January that had attractive reoccurring in software revenue streams.

Good growth exposures to our mix, we expect to close the stake sale by the end of the first quarter, which will further enhance our cash position.

We entered 2024 and a significantly better financial position than we were 12 months ago underlying demand across the majority of the portfolio of solid bookings momentum is improving and we drove the first organic bookings growth in eight quarters of note Biopharm a book to Bill was above one signifying an improving set.

And in the market.

Which is also evident in our recently announced results of some customers and channel partners, while we expect seasonality seasonality and idiosyncratic headwinds such as European heat pumps.

Can making equipment to weigh on volumes in the first half overall, we expect demand conditions to progressively improve off their fourth quarter exit rate through the year.

Rich: Our recent investments puts it puts us in a very strong position to capture secular growth across numerous end markets like C O two refrigeration.

Bio processing data center cooling electrification of heating and cooling.

Mark compressor controls.

Rich: In flight cost actions provide carryover benefits from 2024 with specific projects to be announced during the year.

Lastly, our balance sheet has ample capacity to execute against the strong acquisition pipeline.

And pursue opportunities opportunistic capital return strategies as we continue to upgrade the portfolio over time.

Rich: Go to slide four.

Rich: Consolidated organic revenue was down 3% in the quarter bookings were up 2% organically, reflecting growing order rate momentum across much of the portfolio.

<unk> margin was up 100 basis points to 22% on broad based productivity and portfolio improvements free cash flow in the quarter was was over $450 million or 22% of revenue on improved working capital efficiency and lower Capex.

Adjusted EPS was up 13% to $2.45 per share in the quarter.

Our guide for 2024 reflects a constructive outlook, we are guiding for organic revenue growth of 1% to 3% and adjusted EPS of $8 95 to $9 15 per cent per share, which represents a 5% to 7% year over year organic growth, excluding the tax reorganization benefit.

Recognized in the fourth.

Let's skip to slide five engineered products had a solid quarter, driven, particularly strong volume growth and conversion and waste handling chassis availability improves in the quarter and the business has reservations from large national waste haulers and municipalities well into 2020 for Europe, and Asia shipments were notably lower than in vehicle aftermarket.

But bookings improved during the quarter.

Margin.

Margin performance improved 200 basis, 270 basis points of positive mix benefits and volume conversion on recent productivity investments and the waste hauling business, coupled with a solid performance in aerospace and defense.

Clean energy and feeling as are most distribution leveraged segment and as such is where we have intervened aggressively on production to facilitate general channel Destocking and below ground retail fueling hanging hardware L. P G components and car wash in the quarter.

Rich: Cryogenic components continued the robust growth in our above ground fueling equipment was up on continued recovery in U S dispensers.

Rich: We believe that our proactive intervention on production in Q4 as allowed excess channel inventory to clear and we expect this business.

In this segment to return to normal booking and shipping posture in 2024 with normal seasonality levered to quarters, two and three.

Imaging and I'd posted another as projected stable quarter against a difficult comparable period with a high degree of reoccurring revenue end market and geographic diversity and.

Rich: And exposure to growing regulatory requirements for product idea and traceability of this segment remains a consistent performer with strong margins and cash flows margin performance in the quarter was exemplary.

Pumps and process solutions was up organically in the quarter on strong shipments in polymer processing and precision components. The integration of FW Murphy is off to a strong start with a good reception from our customers and notable reasonable recent wins.

Rich: Substantial reoccurring revenue contracts in remote monitoring and smart compressor technology.

Top line performance in climate and sustainability technologies was impacted by expected volume declines in beverage can making.

And as well as the recent an abrupt industry slowing in the broader HVAC complex in Europe in Asia, most notably in residential heat pumps demand the degree of which was not incorporated in our previous forecast.

Margin performance was exceptional in the quarter driven by improvement in food retail, which posted EBIT margins in excess of 15% in the fourth quarter traditionally a seasonally slower quarter on positive C O two product mix and productivity.

Food retail team deserves come commendation for their operational achievements to drive significant margin accretion in these past few years, but we still have further runway to improve largely on improved product mix.

Pass it on to Brad here.

Brad: Thanks, Rich good morning, everyone, let's go to slide seven.

The top right shows our organic revenue decline of 3%.

The acquisitions and FX translation contributed positive 1% to the topline in the quarter.

FX resulted in one sense <unk> in the fourth quarter, but remained at six cent headwind for the full year, primarily driven by intra year movements in the Euro dollar exchange rate.

Brad: From a geographic perspective, the U S. Our largest market was up 2% in the quarter, while Europe was down 16%.

Brad: And lower shipments in retail fueling and HVAC components.

All of Asia was up 5%, China, which is represents about half of our revenue base in Asia.

Was up 14% organically in the quarter.

Driven by large order timing within polymer processing.

On the bottom chart bookings were up year over year due to normalization of lead times.

Now on slide eight.

We're pleased with our full year free cash flow generation, which came in at $1 1 billion nearly double the prior year's level on working capital management and lower Capex.

We're working on the working capital front as previously discussed.

Brad: We actively work to liquidate our working capital balances in 2023 with a particular focus on inventory reduction in the back half of the year.

We believe we have further room to go on working capital improvement in 2024.

2023 capex came in lower after reaching a record level of investment in 2022.

The step down in Capex in 'twenty, three was less pronounced due to the one time due to a onetime 14 million opportunistic purchase of real estate within our heat exchanger business during 'twenty twenty-three.

We expect Capex to further step down into 'twenty four with.

With that I'm going to turn it back to rich, Okay I'm on slide nine.

This highlights the results of some recent investments behind several fast growing platform.

All right.

Few years, a few years ago. These were nascent product lines with about $50 million in combined revenue, we saw a significant growth opportunity in these markets and proactively.

Organically invested in Capex and R&D to cultivate technology technological leadership and provide a sufficient foundation for these businesses to win at scale with customers.

We are in the early innings of capitalizing on these investments and are excited about the long term prospects across these markets that we enjoy leadership positions with recognized technology and strong relationships with marquee customers.

With about 200 million in combined revenue plan for this year and a double digit long term growth trajectory. We expect these platforms to become meaningful contributors to dover's overall growth profile.

Slide 10 shows progress against our capital deployment priorities. After several years of elevated capital investments into capacity productivity and automation projects that we expect capital expenditures to be lower in 2024, we continue to we continue seeking high confidence high return on investment organic investments and we'll prioritize those.

And our capital allocation decisions Act.

Acquisitions remain part and parcel to building a better and stronger Dover, we have been actively shaping our portfolio in line with these priorities communicated to investors both through <unk> through additions and Subtractions.

As we work to reshape and enhances our portfolio towards higher growth higher return and lower cyclicality.

Our cash flow position and capital allocation Optionality are far superior.

Yes.

We expect another year of solid free cash flow generation in 'twenty four.

But the added benefit of sale proceeds from the stake of that should close at the end of February at the beginning of March we have ample balance sheet capacity to continue improving our portfolio through accretive acquisitions.

We're opportunistically return capital to our shareholders moving to slide 11 shows the long term financial performance of the portfolio.

Spite, the topline headwinds we experienced in 2020 three over the past five years, we have grown organic revenue at a 4% annualized rate.

Head of GDP and industrial averages our margin performance over that period was solid up 410 basis points in aggregate at a conversion margin in excess of our long term targets, we laid out and primarily driven by operational improvement and product mix.

Finally, let's go to slide 12, our topline growth in 2024, it will be driven by our secular growth exposed end markets.

Brad: Including C O two data center cooling heating electrification and cryogenic components, the near term outlook for precision components remains strong as demand for infrastructure investments tied to the energy transition is driving increased demand for our compressor components and engineered bearings, our waste handling business is effectively booked for the year.

And should continue its double digit growth trajectory is chassis shortage abates and haulers worked to republish replenish and upgrade their fleets.

Based on recent history, we have incorporated appropriate caution in our forecast for Biopharma during the year, but we are confident that we will post year on year growth in this end market and we will update our view as the year progresses full year consolidated operating margin is forecasted to improve on volume product mix and productivity actions.

We've done the hard work to get our channel inventories in balance and expect revenue to build off the fourth quarter exit rate with returned to pre COVID-19 seasonality and several businesses. Our portfolio consists of a collection of businesses that operate in an attractive and unique niche end markets. Our business model is flexible.

And we can quickly to respond to changes in market dynamics b, they beneficial or detrimental to the business, we have numerous cost control levels and capital allocation optionality at our disposal.

Deliver on our full year forecast.

Speaker Change: I'd like to thank our global teams are the efforts to deliver last year's results and we look forward to serving our customers partners and investors in the year ahead.

Jack Let's go to Q&A.

He would like to withdraw your question. Please press star two.

We ask that participants limit themselves to one question and one follow up question.

Yes.

We will take our first question from Andrew <unk> with Bank of America. Please go ahead.

Yes, good morning.

Good morning, Andrew.

Andrew: Just a question are you know bookings have turned positive I think first time in eight quarters.

How sustainable is this turn and how much visibility do you have in booking staying positive.

Oh I would expect the bookings stays positive throughout 24 based on our outlook right now I think that the channel that we've done the hard work.

On the channel inventory.

And that's where we're seeing the inflection in the bookings whether it be biopharma and that we would expect to see the same in fueling solutions. So I don't expect this trend.

Uh huh.

I don't expect to go negative unless we're gonna have or.

Unforeseen recession in 2024.

Oh that sounds good and then just a question on Biopharma.

Uh huh.

Andrew: Do you just just to clarify do you have any biopharma recovery and they are because my understanding is that some of the inventory will become obsolete sometime in the first half of the year or so what is reflected in your guidance and what's not and I know that it's been tough to call from the past 12 months. So clearly I'm just trying to degree of caution is warranted.

It's not it's not a coincidence that we.

We did this call behind some of our customers because we had been in front of them in.

And been wrong.

Well, we have very little accretion in earnings on Biopharma. Despite the fact that order rates are beginning to pick up we'd rather.

[noise] positioned ourself cautiously and if you go back and look at the transcripts that said, we're just going to update you, where we are quarter by quarter. So I think that we're going to wait and see.

What we can say is we do not expect it to be down year over year, but we have not incorporated anything any meaningful amount of of operating profit up year over year, well, we'll keep that to ourselves until we see the orders.

And am I correct in thinking that someday inventory does become obsolete because it's FDA regulated.

You are absolutely correct.

Thank you.

Andrew: Okay.

Andrew: The next question comes from Andrew Kaplowitz with Citigroup.

Hey, good morning, everyone.

Hi, Andy.

But your bad maybe you could give us some more color on how you're thinking about the 1% to 2% organic growth by segment and then how are you thinking about the cadence of growth in EPS for the year. I know you said you had returned to pre COVID-19 seasonality, which in a lot of your businesses, but is this year going to be more back end loaded given the Tam.

In short cycles happening kind of now.

I think that it will start slowly so I think that Q1 will be kind of a roll forward of what we saw in Q4 to certain extent.

But again, you've got some some difficult comps I would expect by Q2, you know the vast majority.

<unk> will occur.

Q2s, and Q and Q3, as we ramp production into that and then Q4.

Q4 was actually pretty strong for us usually and it's a run for working capital, but again like every other year, it's going to be highly dependent on production rates that we adopt for Q4.

Got it that's helpful and then but you mentioned the intervening in clean energy and that you feel good about your where your inventory is now would you say you generally feel that way across the Dover portfolio now maybe heat pumps as an excel shut the exception or heat exchangers for you guys and then back to clean energy.

Good demand in that business or is it more an easier comparisons that should drive it in 'twenty four.

Oh, well, there's a lot of moving parts of Watson and clean energy I'd like to back up for a moment I think that the.

Operating posture that we adopted at as we move through Q3 into Q4.

Was predicated upon of dropping production to flush.

Total channel inventory and I think that we've we've accomplished that across the total portfolio. As you mentioned I think what was not incorporated into our Q4 forecast was the sudden decline in demand on.

Andrew: Heat exchanges for heat pumps.

Andrew: Again like Biopharma, I think that we're going to be very cautious about that for 'twenty four until we see the market return.

Right now I think they were calling heat pumps down year over year, but I think that that may prove to be conservative I think.

My own view is it's probably going to flush in Q1 and Q2 and then we'll return.

Growth in the other side so overall outside.

Outside of extreme heat exchanges for heat pumps, I think that we're in pretty.

Pretty good shape in terms of balance.

And so what's incorporated into the one to three is basically that's the aggregate of demands that we see cell production demand should be pretty much in balance. So we will probably build some inventory in Q1 as we ramp back up for Q2 and Q3, but that's kind of the way we see it right now.

And can you grow D C S T with TD changes down rich in 'twenty four.

No right because you've got bell back rolling Rolling down.

Year over year, which we've expected for three years.

If heat exchangers.

Stays with our forecast, which is very conservative.

Oh, two revenue growth will not offset that but I you know I think that we're being.

Cautious until we see what happens when we see what our but all our customers say about heat pump demand for 2024.

Very helpful. Thank you.

Youre welcome.

Andrew: The next question comes from Scott Davis with Melius Research. Please go ahead.

Hey, guys. Good morning, Hey, Scott Hi, Thanks.

For being brief.

Brief with your prepared remarks, I really wish everybody would get that memo.

That's helpful.

Get to the ethane point as I say and get to Q&A and that's I'll move on but.

Yeah, there's a couple of things caught my eye.

One kind of the volatility geographically.

China up 14, Europe down 16.

Maybe if you could walk around the world a little bit for us for 24 and <unk>.

Andrew: <unk>, a little bit more of a normalization there or.

You know, maybe some puts and takes.

Some of the geographic moves.

I'll just stop sure sure.

Sure Yeah look I mean look I think that the China number is kind of <unk>.

First of all China as a percent of our revenue now is I don't know seven or 8%, 6% now okay, 6% so that number.

On the law of small numbers when we make when we make a big shipment into China polymer processing. It swings the number so the base business that would be the remaining base business that we have in China is a reflection of the Chinese economy is not great, but it flexed up big.

Of that.

Europe is really a couple of things well first of all the European economy is not good.

Great.

But it's been exasperated in the quarter.

I didn't shift down in demand.

Andrew: And heat exchangers are heat pumps, where we went from an operating posture of selling absolutely everything we could make to selling hardly anything at about mid September. So I think there was a market wide recognition that.

Andrew: Inventory got over their skis, a little bit so that needs to clear.

So what what's baked into our forecast next year is I don't think that we're.

Overly optimistic on Chinese demand I think the European demand in aggregate should improve year over year only because of the fact of that idiosyncratic headwind that we had but.

The vast majority of the growth that we've got baked into our forecast is North America driven.

Okay that makes a lot of sense. So should I think you started off the last couple of quarters, you've made increasingly more kind of tonality positive remarks on M&A what's.

What this may be hard to answer but kind of what does good look like it's 24 is a good year for M&A as you know is it just.

There's some sort of a range of dollar is that you'd like to put to work or some sort of a.

You know something where you guys just have a have a go line in mine or or or or.

So that we can start to think about it.

Well I mean look I.

Yeah sure no I guess I understand the questions Guy I look up at the end of the day. The reason that we put the one slide together in terms of firepower. If it was an odd dynamic coming out of Covid, where earnings accretion was great.

But there wasn't a lot of cash flow because it was all getting hung up in supply chain and inventory and everything else. So.

What we expected going into this year was this is the year, we've got to generate a bunch of cash now we've had ample balance sheet capacity during that time period. So it's not like we haven't been doing M&A.

Andrew: Because we were waiting to build this cash position.

But on the other hand, I think our ability for M&A and capital return.

Is significantly better just on pure cash and it was 12 months ago. So you would expect us to be more active in the deployment now we've closed three acquisitions in the last one.

Five months.

We've got a decent pipeline of acquisitions that kind of look like that would be like to do something bigger sure.

But you know we've got some return hurdles that.

If we can't find something when those return hurdles then we'll we'll return the cash to shareholders. So that that's the posture. We always adopt so it's not like we gotta go find X amount of M&A every year, we need to find things that are attractive from a return point of view and if we can't it's.

It's coming back to our shareholder base.

Speaker Change: Fair enough best of luck. This year guys. Thank you. Thanks. Thanks.

The next question comes from Mark Holleran with Baird.

Good morning, everyone.

Nick.

Jay just trying everything up when you think about the year and in the idea that things get better through the year for you all.

Much of that is tied to comps destocking being behind you.

This is a fundamental thought process that the underlying demand patterns improve across the numerous businesses you have.

Uh huh.

Yeah.

I don't think that we're getting over our skis in terms of.

Demand at the end of the day.

We've got one to three and top line now.

Now taking to that one to three years.

So we've got a small amount of dilution because we sold to stake out versus what we brought into the portfolio I think from an earnings point of view that neutralizes itself, but not from a top line point of view when I take a look in the past.

We've got certain parts of the portfolio that I've, just done fantastically, which would be can making equipment and polymer processing equipment, where are cycling down. So we've known about this.

And that's why we have been investing in a variety of other portions of the portfolio to cycle up and and when you take a look that we had.

You know a couple of Footfalls last year that we don't expect to repeat so net net the underlying growth is higher than one three because we're incorporating the headwind we have on some of the cyclical portions of the portfolio, but it's not as if we.

We're baking in this return on just overall GDP growth I think that what's really baked into.

Our growth is where we have invested so like what we've tried to highlight on that page I mean, we've taken we've got a.

A significant amount of revenue growth on three platforms that really didn't exist in the group up until a year ago of any of any consequence. So.

The growth a little bit better than the highlight figure just because of the headwinds we got on the on the on the cyclical ones and it's largely driven on specific products and end markets exposure rather than a G. You know the fed is going to drop interest rates and GDP is going to expand yeah, I guess, what I would add to that is.

Unlike like we've been pretty vocal about the fact that price was pretty significant to the top line over the last two years.

But I would say, while it's not a big big set of numbers here because of the one to three guy there is positive volume.

Growth, except for the quarter as we come down on this.

This is se videos syncretic issue that we're talking about.

So I think I think it is a better setup for us this year than years past, where you can actually now think about plant absorption returned to volume.

Not just price.

Yes.

That's helpful. It makes a lot of sense and then when you think about the pumps business the industrial pumps piece.

Maybe just talk about what you're seeing underneath the hood on that side trajectory order trends et cetera, and how you're thinking about that for the year.

It's decent I read it really you know the industrial pump side never really had the kind of headwinds in terms of stocking and destocking with us that's really high value equipment. So it's more or less fundamental demand I think there was some caution in the back half of 'twenty three.

Operator: Please stand by; your program is about to begin. If you need assistance during your conference today, please press star zero.

Operator: Good morning, and welcome to Dover's fourth quarter and four-year 2023 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer, Brad Cerepak, Senior Vice President and Chief Financial Officer, and Jack Dickens, Senior Director, Investor Relations. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, press the star and then the number one on your telephone keypad.

Just because of the carryover of interest rates and everything else I think whats baked into our forecast. This year is some growth, but not anything extraordinary on the industrial side right.

Makes sense, thanks, guys I appreciate it thanks Yep.

Speaker Change: The next question comes from Steve Tusa with Jpmorgan.

Steve Tusa: Hey, good morning.

Operator: If you would like to withdraw your question, please press star 2. As a reminder, ladies and gentlemen, this conference call is being recorded, and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time.

Hi, Steve.

Steve Tusa: Where are you in the like a standoff on price and volume and what do you what do you assume for price for the year.

Price is about a point to a point and a half.

Jack Dickens: Thank you. I would now like to turn the call over to Mr. Josh Dickens. Please go ahead, sir.

Steve Tusa: And on volume I think Tuesday.

Steve Tusa: Roughly the same thing 50.

Jack Dickens: Thank you, Angela. Good morning everyone, and thank you for joining our call. An audio version of this call will be available on our website through February 22nd, and a replay link of the webcast will be archived for 90 days. 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 Ritch.

50, 50, right, so I'd point to point, a half and and so it's 50 50 on price volume.

And I think we've done the hard work because of what the argument of against price is inventory balances and I think that the.

The one way you can protect price is not get over your skis in terms of inventory and I think based on what you see in our cash flow that we've done the hard work for a good set up there. So right now all we need to do is toggled production with with orders at this point.

Richard Joseph Tobin: Thanks, Jack. Let's start with the key messages on slide three. Market demand conditions in the fourth quarter played out largely as we expected, and as we discussed at the end of Q3, we adopted a business posture focused on managing down production in certain product lines to balance channel inventories to the detriment of fixed cost absorption. This puts us in a good inventory position and will enable us to match demand and production in 2020. This operating posture also drew a solid operating free cash flow performance in the quarter, which positions us to play offense on the capital deployment front in 2025. We capitalized on strong volumes in several markets and drove margin mix higher for the consolidated portfolio in the quarter. The breadth and diversity of our end market exposures, along with proactive cost containment and pricing discipline, led to another record-high quarterly segment margin in Q4. Thank you. Thank you. Thank you.

Do you think that production take down in the quarter did that impact margins to a degree.

I mean, you can see it in.

Clean energy for sure.

Okay.

Got it and then lastly, just.

Any kind of more specific color on.

Total margins for the year, whether its basis point improvement or a hard number for margins.

Up.

For an answer.

Its so dependent on mix.

We'd like to see.

Steve Tusa: We'd like to say a quarter or two before we want to we want to put a hard number on it but I think that by and large we should mix up this year.

Sorry, one more for you.

<unk> seasonality too how do you see that kind of.

Steve Tusa: Feathering in over the course of the year, what do you expect that one and then how does that build.

Speaker Change: Right I think that that that Q1 will be more of a reflection of Q4. So don't get all worked up about the comp and then we bought we get the absorption because we ramp from there and then and then regular seasonality the vast majority of the accretion in EPS should be Q2, and Q3 and by the time, we get to the half year, we'll probably.

Richard Joseph Tobin: We remained active on the portfolio front. We improved our portfolio through synergistic bolt-on acquisitions, including two transactions announced in January that had attractive recurring and software revenue streams and good growth exposures to our mix. We expect to close the Disteco sale by the end of the first quarter, which will further enhance our cash consumption.

Have a good idea of where we stand on Q4, but.

I think that we put in and you know all the caution that we can and just in terms of the macro right. This is our fundamental forecast is basically what we think.

Richard Joseph Tobin: We entered 2024 in a significantly better financial position than we were 12 months ago, and underlying demand across the majority of the portfolio is solid. Bookings momentum is improving, and we drove the first organic bookings growth in eight quarters. Of note, Biopharma booked a bill that was above one, signifying an improving sentiment in the market, which is also evident in the recently announced results of some customers and channel partners. While we expect seasonality and idiosyncratic headwinds such as European heat pumps can making equipment to weigh on volumes in the first half.

Volume is going to be by vertical here that so we think that we can hit these numbers and if we get if we get a better macro or are we get you know biopharma or a return on.

Somebody about of HVA see then we're ready to go but we prefer.

We'd prefer rather than trying to lead that like we have over the last couple of years and speaking to those end markets.

Speaker Change: More of a show me.

It comes with <unk>.

Yeah and on those two businesses, specifically, we're talking about schweppes and CPC when the volume does come they do convert right and the mixes up so you know that's the good news.

Richard Joseph Tobin: Overall, we expect demand conditions to progressively improve off their fourth-quarter exit rate through the year. Our recent investments put us in a very strong position to capture secular growth across numerous end markets, including CO2 Refrigeration, Bioprocessing, Data Center Cooling, Electrification of EV Cooling, and Smart Compressor Control.

Great. Thanks, a lot.

<unk>.

The next question comes from Joe Ritchie with Goldman Sachs.

Joe Ritchie: Hey, guys good morning.

Joe.

Hey, so rich a lot of discussion around your portfolio. These days.

Richard Joseph Tobin: In-flight cost actions provide carryover benefits in 2024, with specific projects to be announced during the year. Lastly, our balance sheet has ample capacity to execute against the strong acquisition pipeline and pursue opportunistic capital return strategies as we continue to upgrade the portfolio over time. Let's go to slides. Consolidated organic revenue is down 3% in the quarter.

Joe Ritchie: Just curious.

What you'd like to hear about you know the potential to unlock value.

By divesting some of the pieces of the portfolio any comments you'd like to share that would be great.

I mean, we're committed to managing the portfolio.

I think.

Joe Ritchie: We just we sold the stake go I think Ed you know a pretty good price in 2023, we've just we've closed three acquisitions over the last five months, where I think.

Richard Joseph Tobin: Bookings were up 2% organically, reflecting growing order rate momentum across much of the portfolio. The segment margin was up 100 basis points to 22% on broad-based productivity and portfolio improvement. The free cash flow in the quarter was over $450 million, or 22% of revenue, on approved working capital efficiency and lower capex.

Are margin accretive and more growth oriented assets. So.

I think we'll do the same thing I think that.

Bigger portfolio moves you need balance sheet, Optionality and I think that if you look at what was the knock on effect of the really good cash flow that we have this past year is our our balance sheet Optionality is.

Richard Joseph Tobin: Adjusted EPS was up 13% to $2.45 per share in the quarter. Our guide for 2024 reflects this constructive outlook. We are guiding for organic revenue growth of 1% to 3% and adjusted EPS of $8.95 to $9.15 per share, which represents a 5% to 7% year-over-year organic growth excluding the tax reorganization benefit recognized in the form. Now, let's skip to slide five.

And a really good place cell, which.

We can be more prosaic about what that means but at least you know.

The building blocks that we need to continue to shape portfolio of improved year over year, they put it that way.

Okay. That's helpful and I missed some of the initial commentary around the guide and I know that.

Richard Joseph Tobin: Engineered products had a solid quarter driven, particularly strong volume growth and conversion in waste handling. Shafty availability improved during the quarter, and the business has reservations from large national waste haulers and municipalities well into 2024. Europe and Asia shipments were notably lower in the vehicle aftermarket, but bookings improved during the quarter.

There organically.

Organically I think you guys had talked about maybe 5% to 7% EPS.

EPS growth.

But.

Just maybe kind of help me understand the low and the high end what kind of shape both of those.

Well I mean, the headline figure.

Richard Joseph Tobin: Margin performance improved 270 basis points on positive mixed benefits and volume conversion on recent productivity investments in the waste hauling business coupled with a solid performance in aerospace and defense. Clean energy and fueling is our most distribution-leveraged segment, and as such, is where we intervened aggressively on production to facilitate general-channel de-stocking in below-ground retail fueling, hanging hardware, LPG components, and car wash in the quarter. Cryogenic components continued their robust growth, and our above-ground fueling equipment was up for continued recovery from U.S. dispensers.

At 1% to three you need to take into account that we know or we have cyclical headwinds going forward right. So he is bank significant profits out of polymer processing.

And can making equipment that we knew this headwind was coming cell in that one to three we're making all of that up we've got a bit of a headwind in terms of the disposable disposal of the stake all coming out that the acquisitions I think from a profit point of view neutralizes it not from a top line point of view.

And then I think you know unlike previous years, where we've kind of led forecasting in terms of Biopharma and <unk>.

<unk> C components, because those are battlegrounds, we've taken a very cautious stance on that.

Richard Joseph Tobin: We believe that our proactive intervention on production in Q4 has allowed excess channel inventory to clear, and we expect to keep this going. In this segment, we expect to return to normal booking and shipping posture in 2024 with normal seasonality levered to quarters two and three. Imaging and ID posted another as-projected stable quarter against a difficult, comparable period with a high degree of recurring revenue, end-market and geographic diversity, and exposures to growing regulatory requirements for product ID and traceability. However, this segment remains a consistent performer with strong margins and cash flows. Margin performance in the quarter was exemplary. Pumps and Process Solutions was up organically in the quarter on strong shipments in polymer processing and precision components. The integration of F.W.

And we're going to wait to see how the market develops.

Okay. Good enough thanks, guys.

Thanks.

The next question comes from Jeff Sprague with vertical research.

Hey, Thank you good morning, everyone.

Hey, rich.

Jeffrey Todd Sprague: Back to capital deployment.

Uh huh.

If I think about what you've laid out in the guide here today.

Is there any perspective capital deployment on share repurchase or deleveraging or anything like that in the numbers.

Some right and look if you calculate the EPS accretion on.

A cautious top line that you would come we would come with an incremental margin that is pretty high right. So at the end of the day, what's incorporated in there is a little bit of capital deployment, whether that be in M&A activity or.

Richard Joseph Tobin: Murphy is off to a stark start with a good reception from our customers and notable recent wins, such as substantial reoccurring revenue contracts in remote monitoring and smart compressor technology. Top wine performance in climate and sustainability technologies was impacted by expected volume declines in beverage can making.

Share repurchase the timing of which we.

We will let you know when it happens.

And then on your slide 10, right I mean, you do have.

Richard Joseph Tobin: As well as the recent and abrupt industry slowing in the broader HVAC complex in Europe and Asia, most notably in residential heat pumps, demand, the degree of which was not incorporated in our previous forecast. Margin performance was exceptional in the quarter, driven by improvement in food retail, which posted even margins in excess of 15% in the fourth quarter, traditionally a seasonally slower quarter, on positive CO2 product mix and productivity. The food industry deserves commendation for its operational achievements to drive significant margin accretion in these past few years, but we still have a further runway to improve, largely on an improved product mix. Okay, thanks, Rich. Good morning, everyone.

Two segments that are net negative M&A.

I mean, there's no.

It's kind of been.

Arm, where we're headed.

Overtime.

Theres gems in Dcs D. Obviously.

Jeffrey Todd Sprague: But.

Jeffrey Todd Sprague: Should we take that chart at face value on where you are.

Youre thinking about reshaping the portfolio.

Well that chart actually foots to the chart that we put out in 2020 in terms of the hierarchy of capital allocation to a certain.

Think the Dps in DCF kind of flipped, but that because you can't control.

In terms of closing acquisitions.

Yeah, I mean overall, yes, I mean, if you think you know that that engineered products outside of <unk>.

Brad M. Cerepak: Let's go to slide seven. The top ridge shows our organic revenue decline of 3%. The acquisitions in FX translation contributed a positive 1% to the top line in the quarter. FX resulted in a 1-cent tailwind in the fourth quarter but remained a 6-cent headwind for the full year, primarily driven by inter-year movements in the euro-dollar exchange rate.

Defense has been an organic issue for us for some time.

And.

D C S T.

No.

Bell Vac and swept are organic and I think in refrigeration I think that what we've done with a total investment that would be an organic play also so yeah I think that the hierarchy. There they may flip around a little bit, but it's largely.

Brad M. Cerepak: From a geographic perspective, the U.S., our largest market, was up 2% in the quarter, while Europe was down 16% on lower shipments and retail fueling and HVAC components. All of Asia was up 5%. China, which represents about half of our revenue base in Asia, was up 14% organically in the quarter, driven by large order timing within homer processing. On the bottom chart, bookings were up year over year due to normalization of lead time. Now I'm slutty.

Correct.

Okay, and then just on the backlog and the orders rich that strengthen us nice orders in the quarter was that all bio or did something else, notably pick up in there.

I think it's broad based and I think it's more influenced by what do we call them.

The thermal connectors.

Alright. Thank you. Thank you very much youre welcome.

Brad M. Cerepak: We're pleased with our full-year free cash flow generation, which came in at $1.1 billion, nearly double the prior year's level on working capital management and lower cap act. We actively work to liquidate our working capital balances in 2023 with a particular focus on inventory reduction in the back half of the year. We believe we have further room to go on working capital improvement in 2024. However, 2023 CapEx came in lower after reaching a record level of investment in 2022.

Yeah.

The next question comes from Julian Mitchell with Barclays.

Hi, Good morning. Good morning, Good morning, maybe I just wanted to start with the operating margins, so realize you're not giving us sort of firm wide number for this year will much segment color. So maybe trying to think about some of the white drivers of margin. This year. So I think there's some pause.

Volume leverage because those were up one one and a half points.

Price cost is broadly neutral M&A and divestments seems maybe neutral what you've announced so far so.

Brad M. Cerepak: The step down in CapEx in 23 was less pronounced due to a one-time $14 million opportunistic purchase of real estate within our heat exchanger business during 2023. We expect CapEx to further step down in 24. With that, I'm going to turn it back to Ritchie. Okay, I'm on flight nine.

So I'm wondering if those three assumptions, but right and then mix I guess.

Anything you'd characterize from all those moving parts sort of Biopharma stable heat pump down polymers can down maybe fueling up like in aggregate is that much of a mix impact do you think on on margins in your guide.

Richard Joseph Tobin: This highlights the recent investments behind several fast-growing platforms we've been following. A few years ago, these were nascent product lines with about $50 million in combined revenue. We saw significant growth opportunities in these markets and proactively... invested in CapEx and R&D to cultivate technological leadership and provide a sufficient foundation for these businesses to win and scale with customers. We are in the early innings and capitalizing on these investments, and we are excited about their long-term prospects. Across these markets, we enjoy leadership positions with recognized technology and strong relationships. Marquis Cuff, With about $200 million in combined revenue planned for this year and a double-digit long-term growth trajectory, we expect these platforms to become meaningful contributors to Dover's overall growth profit.

Well you touched on the wall Julian Yeah, I mean look we.

We cut production in D. C F to manage inventories so that is not just the loss products that we sell.

It's all <unk> and we did it on the underground portion of the business, which is highly margin accretive.

So we get that back and it's reflected in Q4 and it's reflected in the year over year. So we would expect as we balanced production that that that returns.

Engineered products really the bulk of the margin accretion in 'twenty three was driven by ESG, but that was more or less back half and we expect a full year of that going into two.

2024, and if you recall, we had a little bit of a hiccup with a implementation of the ERP is ESG last year, which we don't expect to reoccur again.

So that's helpful.

D a.

What are we close at 25% margins that's great. So that's more.

Richard Joseph Tobin: Slide 10 shows progress against our capital deployment priorities after several years of elevated capital investments into capacity, productivity, and automation projects, and we expect capital expenditures to be lower in 2024. We continue seeking high-confidence, high-return-on-investment, organic investments, and we'll prioritize those in our capital allocation decisions. Acquisitions remain part and parcel of building a better and stronger Dover. We have been actively shaping our portfolio in line with these priorities indicated to investors, both through additions and subtractions, as we work to reshape and enhance the portfolio towards higher growth, higher return, and lower cyclicality. Our cash flow, position, and capital allocation optionality are far superior to those of the current market.

A revenue issue for US Dps has had a biopharma headwind now for two plus years.

We're calling here as it's no longer a headwind and whenever we get on the top side, which we're not baking in a lot right now are hardly anything is going to be accretive.

And the Dcs T has got.

Right now in our forecast would be margin down on mix, because balzac, which we knew was going to come down and our cautious stance on heat pumps, if we're wrong about being cautious about heat pumps and that will flex at the.

The headwind will be less than we've got modeled into our into our forecast for the year.

That's very helpful. Thank you and.

Just wanted to follow up when you were talking about sort of some of the quarterly.

Jeffrey Todd Sprague: Earnings trends, so do we assume sort of Q1 earnings or EPS is flattish and then as you said you get into the meat of the earnings growth in Q2 and Q3.

Richard Joseph Tobin: We expect another year of solid free cash for a generation in 24, with the added benefit of sale proceeds and stakeholders that should close at the end of February or beginning of March. We have ample balance sheet capacity to continue improving our portfolio through accretive acquisitions or opportunistically return capital to our shareholders. Moving to slide 11, the long-term financial performance of the portfolio.

Yeah, I'm not going to go it's it's Q1 will be more of a reflection of the carryforward of Q4.

What will get us some amount of production ramp, but a lot of bad comps and then we accelerate right out of there.

That's great. Thank you.

Welcome.

The next question comes from Nigel Coe with Wolfe Research.

Oh, Thanks, good morning.

On the ground and and Richie you clearly don't want to give too much color on margins, but I just wanted to have another crack here clearly you know margin Leverages is a big driver of earnings. This year. So maybe just talk about.

What have you baked infrastructural cost savings I know, we've got some roll forward from some of the actions you took in in 'twenty, three but maybe just itemize any other significant cost actions you've taken driving margins in 'twenty four.

Richard Joseph Tobin: Despite the top-line headwinds we experienced in 20 and 23, over the past five years, we have grown organic revenue at a 4% annualized rate, ahead of GDP and industrial averages. Our margin performance over that period was solid, up 410 basis points in aggregate at a conversion margin in excess of our long-term targets we laid out and primarily driven by operational improvement and product mix. Finally, let's go to slide 12.

Yes.

We go back and look at the transcript Nigel we do have carryforward from actions that we took in the back half of the year, we've got some coming.

I'm not ready to calendarize, it yet because they are not fully baked, but we do have a list of.

Yes.

We do have a list of cost actions, which are more of a revenue edge. So if we if we take those actions and we're right on the demand profile those should actually be accretive to us.

Richard Joseph Tobin: Our top-line growth in 2024 will be driven by our secular growth-exposed ed markets, including CO2, data center cooling, heating, and electrification, and cryogenic components. The near-term outlook for competing components remains strong as demand for infrastructure investment tied to the energy transition is driving increased demand for our compressor components and engineered bearings. Our waste handling business is effectively booked for the year and should continue its double-digit growth trajectory as the chassis shortage abates and haulers work to replenish and upgrade their fleets.

So theyre not necessarily baked in at this point and the reason they are not baked in is because we were working on the timing in terms of the execution.

Okay, and then pricing me you've been very successful in pushing price I mean, I think I think we are building.

You know a little bit nervous about some of them more raw materials since if.

<unk> swept hill, Phoenix, and maybe parts of ESG as well, but.

Sounds like your customers are forecasting inflation on the components, especially specifically with the HVAC.

And market. So just curious what you're seeing in terms of pricing power across the portfolio and 24.

Specifically within some of these more raw material sensitive end markets.

Richard Joseph Tobin: Based on recent history, we have incorporated appropriate caution in our forecasts for biopharma during the year. But we are confident that we will keep you updated on your growth in this end market, and we will update our view as the year progresses. This whole year consolidated operating margin is forecasted to improve on volume, product mix, and productivity actions. We have done the hard work to get our channel inventories and balance and expect revenue to build off the fourth quarter exit rate, which returns to pre-COVID seasonality in several businesses. Our portfolio consists of a collection of businesses that operate in attractive and unique niches and markets. Our business model is flexible, and we can quickly respond to changes in market dynamics, be they beneficial or detrimental to the business.

Yeah, It's interesting I mean, if you go back and look at our realized pricing and I'm talking about the price the pricing that's fallen all the way to the bottom line. It has not been dramatic for us and that's a source of cod.

Jeffrey Todd Sprague: Consternation around here of Av.

What is capable in pricing. So if we look at some of our end market customers and what they've pass through on pricing.

I guess that we've been jealous for lack of better word.

Jeffrey Todd Sprague: So to us it's been we've we've.

Don't want to be negative I think we've taken some price.

I don't feel that we've got a couple of businesses that have.

Jeffrey Todd Sprague: Escalation D escalation clauses in terms of inputs.

We've been on the front foot.

In those businesses of being proactive about locking in our pricing, especially going into this year.

Richard Joseph Tobin: We have numerous cost control levels and capital allocation optionality at our disposal to deliver on a full year of work. I'd like to thank our global teams for the efforts that delivered last year's results, and we look forward to serving our customers, partners, and investors in the year ahead. And Jack, let's go to Q&A... If you would like to ask a question, simply press star and then the number 1 on your telephone keypad.

So right now.

We've actually got a little bit of room, if we had to give back pricing, but that's not my expectation.

Our our issue has always been that the way to defend pricing is not to get over your skis in inventory and that's why you know we took it into the that gets to a certain extent, it's kind of manage that position at the end of last year going into kind of the demand environment at least in the setup as we see it today I think that.

We feel good about our ability to protect price.

Great. Okay. Thanks rich.

Operator: If you would like to withdraw your question, please press star 2. We ask that participants limit themselves to one question and one follow-up question. We'll take our first question from Andrew Obin with Bank of America. Please go ahead.

You're right.

Uh huh.

Our final question comes from Deane Dray with RBC capital markets.

Thank you good morning, everyone. Thanks for fitting me in.

Thanks Dean.

Was there any comments puts or takes on how January started and just a couple of minutes ago. The I S. M January new orders came out at above 50 for the first time I think in like a year and a half so at 52.

Richard Joseph Tobin: Oh, yes, good morning. Good morning. Hi Andrew. Just a question, you know. Bookings have turned positive, I think, for the first time in eight quarters. How sustainable is this turn, and how much visibility do you have in bookings staying positive? Oh, I would expect the butching to stay positive throughout 24 based on our outlook right now. I think that's a channel where we've done the hard work on the channel inventory. And that's where we're seeing the inflection in the bookings, whether it be biopharma, and we would expect to see the same in fueling solutions. So I don't expect this trend to continue. I don't expect it to go negative unless we have an unforeseen recession in 2024. That sounds good.

0.5, but.

Puts and takes from your perspective there.

You know what I don't know.

So I would expect if it's been terrible I would have heard something usually when it's positive no. One tells me anything [laughter].

So we haven't even closed the month, yet data, so, but I'm unaware of it being worse than what we what we have baked in.

Alright, good to hear and then just a quick question data center cooling came up a couple of different times you.

Jeffrey Todd Sprague: Your heat exchangers play a key role there.

Richard Joseph Tobin: And then just a question on biopharma. Do you, just to clarify, do you have a target recovery for biopharma in the year? Because my understanding is that some of the inventory will become obsolete sometime in the first half of the year, so what is reflected in your guidance and what's not? And I know that it's been tough to call for the past 12 months, so clearly, the responsive group question is warranted. It's not a coincidence that we did this call behind some of our customers because we had been in front of them and Ben Rohr. We have had very little accretion in earnings on BioPharm.

Do you have a sense of how that is geared towards air cooling versus liquid cooling because there's a big investment cycle, starting I mean, it's more than 30% growth in liquid cooling side that you participated.

Almost exclusively levered towards liquid cooling.

Jeffrey Todd Sprague: Yeah, and you're not tied to a particular vendor you you'll be at either a component supplier to that is that correct.

Jeffrey Todd Sprague: That's correct, yeah, when we say when we say thermal we mean, we mean liquid cooling and data centers.

Richard Joseph Tobin: Despite the fact that order rates are beginning to pick up, we'd rather position ourselves cautiously. And if you go back and look at the transcript, it said we're just going to update you where we are quarter by quarter. So I think that we're going to wait and see.

That's great.

Speaker Change: We supply everybody. Thank you it's not just it's not just heat exchangers its connectors too.

Understood.

Yep.

Speaker Change: Got it.

Thank you that concludes our question and answer period, Andover, <unk> fourth quarter and full year 2023 earnings conference call.

Richard Joseph Tobin: What we can say is we do not expect it to be down year over year, but we have not incorporated anything, any meaningful amounts of operating profit up year over year. We'll keep that to ourselves until we see the numbers. And am I correct in thinking that some of the inventory does become obsolete because it's FDA regulated? You are absolutely correct.

Speaker Change: You may now disconnect. Your line at this time and have a wonderful day.

Yeah.

Just.

Hum.

[music].

Andrew Kaplowitz: Thank you. The next question comes from Andrew Kaplowitz with Citigroup. Good morning, everyone. Hi Andy.

Hum.

Uh huh.

Oh.

[music].

Richard Joseph Tobin: Richard, Brad, maybe you can give us some more color on how you're thinking about the 1-3% organic growth by second. And then how are you thinking about the cadence of growth in EPS for the year? I know you said you would return to pre-COVID season now, and you're reaching a lot of businesses, but is this year going to be more back-end loaded given, you know, the turn and short cycle is happening kind of now? I think that it will start slowly, so I think that Q1 will be kind of a roll forward of what we saw in Q4 to a certain extent, but again, you've got some difficult comp

Speaker Change: Okay.

Speaker Change: Hum.

[music].

Richard Joseph Tobin: I would expect by Q2, you know, the vast majority of the increase will occur in Q2 and Q3 as we ramp production into that, and that Q4 was actually pretty strong for us. Obviously, it's a run for working capital, but again, like every other year, it's going to be highly dependent on production rates that we adopt for Q4. God, that's helpful.

Richard Joseph Tobin: And then, Ritchie mentioned the intervening clean energy and that you feel good about where your inventory is now. Would you say you generally feel that way across the Dover portfolio? You know, maybe heat pumps are an exception, or heat exchangers for you guys.

Richard Joseph Tobin: And then, back to clean energy, do you see good demand for that business, or is it more about easier comparisons that should drive it in terms of what? Well, there's a lot of moving parts to what's in clean energy. To back up for a moment, I think that the operating postures that we adopted as we moved through Q3 into Q4 were predicated upon dropping production to flush total channel inventory, and I think that we've accomplished that across the total portfolio. As you mentioned, I think what was not incorporated into our Q4 forecast was the sudden decline in demand for heat exchanges for heat pumps. Again, like biopharma, I think that we're going to be very cautious about that for 24 months until we see the market return. So right now, I think that we're calling heat pumps down year over year, but I think that that may prove to be conservative.

Richard Joseph Tobin: My own view is that it's probably going to flush out in Q1 and Q2, and then we'll return to growth on the other side. So overall, outside of heat exchangers for heat pumps, I think that we're in pretty good shape in terms of balance. And so what's incorporated into the one to three is basically the aggregate of demand that we see. So production demand should be pretty much in balance. So we will probably build some inventory in Q1 as we ramp back up for Q2 and Q3, but that's kind of the way we see it. Can you grow DCSP with TV changes on Rich and 24?

Richard Joseph Tobin: Uh, no, right, because you've got Belvac rolling down year over year, which we've expected for three years. If heat exchangers... Dave, with our forecast, which is very conservative. The CO2 revenue growth will not offset that, but I think that we're being cautious until we see what happens and we see what all our customers say about heat pump demand for 2024. Very helpful.

Scott Reed Davis: Thank you. The next question comes from Scott Davis with Mellius Research; please go ahead. Hey, guys. Good morning.

Scott Reed Davis: Hey, Scott. Hi. Thanks for being brief with your prepared remarks. I really wish everybody would get that memo.

Scott Reed Davis: Get to the tapping point, as they say, and get to Q&A, and let's all move on. There are a couple of things that caught my eye, you know, one, kind of the volatility geographically. China. Europe Downs. Maybe if you could walk around the world a little bit for us for 24 hours.

Richard Joseph Tobin: I'm expecting a little bit more of a normalization there, so I'll put some things in. First of all, China is a percent of our revenue now. I don't know, 7% or 8%? 6% now? Okay, 6%. So that number on the wall is more numbers.

Richard Joseph Tobin: When we make a big shipment into China for polymer processing, it swings the numbers. So the base business, the remaining base business that we have in China, is a reflection of the Chinese economy. It's not great, but it's flexed up because of that. Europe is really a couple of things.

Richard Joseph Tobin: Well, first of all, the European economy isn't, Nick White, but it's been exasperated in the quarter by the sudden shift down in demand for heat exchanges for heat pumps where we went from an operating posture of selling absolutely everything we could make through selling hardly anything at about mid-September. So, I think there was a market-wide recognition that... Inventory got over their skis a little bit, so that needs to clear.

Richard Joseph Tobin: So what was baked into our forecast next year is I don't think that we're overly optimistic about Chinese demand. I think European demand in aggregate should improve year over year only because of the fact that we have that idiosyncratic headwind that we had. But the vast majority of the growth that we've got baked into our forecast is North America. I think you started off, and in the last couple quarters, you've made increasingly more tonality positive remarks on M&A. This may be hard to answer, but what does good look like?

Scott Reed Davis: If 24 is a good year for M&A, is it a good year for you? Some sort of a range of dollars that you'd like to put to work or some sort of a, you know, something where you guys should have a, you know, have a goal line in mind or, or, or, or, or, that we can start to think about. No, I mean, look, I sure know, I understand the question

Richard Joseph Tobin: Look, I mean, at the end of the day, the reason that we put the one slide together in terms of firepower is that it was an odd dynamic coming out of COVID where earnings accretion was great. Um, but there wasn't a lot of cash flow because it was all getting hung up in the supply chain and inventory and everything else, so... You know, what we expected going into this year was that this was the year we'd have to generate a bunch of cash. Now, we've had ample balance sheet capacity during that time period, so it's not like we haven't been doing M&A because we were waiting to build this cash position. But on the other hand, I think our ability to do M&A and capital return is significantly better with pure cash than it was 12 months ago. So you would expect us to be more active in the deployment. Now we've closed three acquisitions in the last, what, five months? We've got a decent pipeline of acquisitions that kind of looks like this. Would we like to do something bigger?

Scott Reed Davis: Sure. But, you know, we've got some return hurdles that... If we can't find something with those return hurdles, then we'll return the cash to shareholders. That's the posture we always adopt, so it's not like we have to find X amount of M&A every year. We need to find things that are attractive from a return point of view, and if we can't, we will come back here to our show. Fair enough. Best of luck this year, guys.

Michael Halloran: Thank you. Thank you. The next question comes from Michael Halloran with Baird. Good morning, everyone.

Richard Joseph Tobin: Dave, to sum up, when you think about the year and the idea that things get better for you through the year, how much of that is tied to comps and destocking being behind you versus a fundamental thought process that the underlying demand patterns improve across the numerous businesses you have? I don't think that we're getting over our skis in terms of demand at the end of the day. We've got one to three in the top.

Richard Joseph Tobin: Now taking the back one to three. We got a small amount of dilution because we sold the stakeout versus what we brought into the portfolio. I think from an earnings point of view, that neutralized itself, but not from a top line, but I take a look at that. We've got certain parts of the portfolio that have just done fantastically, which would be can making equipment and polymer processing equipment, which are cycling down. So we've known about this for a while.

Richard Joseph Tobin: And that's why we've been investing in a variety of other portions of the portfolio to cycle up and take a look at that we had, you know, a couple of falls last year that we don't expect to repeat. So, net-net, the underlying growth is higher than 1.3 because we're incorporating the headwind that we have on some of the cyclical portions of the portfolio, but it's not as if... We're baking in this return on just overall GDP growth. I think that's what's really baked into it. Our group is where we've invested. So, like, we'll just try to highlight some things on that page.

Michael Halloran: I mean, we've taken, we've got a significant amount of revenue growth on three platforms that really didn't exist in the group up until a year ago of any consequence. The growth's a little bit better than the highlight figure just because of the headwinds we got on the cyclical ones, and it's largely driven by specific products and market exposure rather than, hey, gee, you know, the Fed's going to drop interest rates and GDP's going to expand. Yeah, I guess what I would add to that is...

Michael Halloran: Unlikely, we've been pretty vocal about the fact that, you know, price was pretty significant to the top line over the last two years. I would say, while it's not a big, big set of numbers here because of the one-to-three guide, there is positive volume. Gross, except for the quarter as we come down on this, this idiosyncratic issue that we're talking about. So I think it is a better setup for us this year than in years past, where you can actually now think about plant absorption, and return to volume, not just price. Thank you. Thank you. So helpful; it makes a lot of sense.

Steve Tusa: And then when you think about the pumps business, the industrial pumps piece, maybe just talk about what you're seeing underneath the hood on that side, trajectory, order trends, etc. And how you're thinking about that for the year. I mean, it's decent.

Richard Joseph Tobin: It really, you know, the industrial pump side never really had the kind of headwind in terms of stocking and destocking, and that's really high-value equipment. So it's, it's more or less fundamental demands. I think there was some caution in the back half of 23.

Richard Joseph Tobin: Just because of, you know, the carryover of interest rates and everything else, I think what's baked into our forecast this year is some growth, but not anything extraordinary on the industrial side. Thanks, guys. The next question comes from Steve Tusa with J.P. Morgan. Take it away.

Steve Tusa: Hi. Where are you in the standoff on price and volume, and what do you assume for price for the year? Price is about a point to a point and a half. And on volume, I think, roughly the same thing, so 50-50, right?

Richard Joseph Tobin: Yeah, point to point and a half, and so it's 50-50 on price-volume. And I think that we've done the hard work because of what... The argument against price is inventory balances, and I think that's... The one way you can protect life is not getting over your skis in terms of inventory, and I think, based on what you see in our cash flow, that we've done the hard work for a good setup there, so right now, all we need to do is toggle production with orders. That is, how much do you think that production will take down in the quarter? Did that impact margins to a degree? Yeah, I mean, you can see it in clean energy, for sure. I got it.

Richard Joseph Tobin: And then lastly, any kind of more specific color on, you know, total margins for the year, whether it's, you know, basic point improvement or a hard number for margin? Thank you for listening. I know, it's so dependent on the mix, you know, we'd like to see a quarter or two before we want to, you know, we want to put a hard number on it, but I think that, by and large, we should mix it up. Sorry, one more for you. EPS Seasonality 2, how do you see that kind of feathering in over the course of the year? What do you expect it to run through, and how does that build?

Richard Joseph Tobin: Right, I think that Q1 will be more of a reflection of Q4, so don't get all worked up about the comp, and then we bought, we get the absorption because we ramped from there, and then, with regular seasonality, the vast majority of the accretion in the EPS should be in Q2 and Q3, and by the time we get to the half year, we'll probably have a good idea of where we stand I think that we should put in, you know, all the caution that we can just in terms of the macro, right? This is our fundamental forecast. It is basically what we think. Volume's going to be bi-vertical here, so we think that we can hit these numbers. And if we get a better macro, or we get, you know, buy a farmer, or return on some amount of the HVAC, then we're ready to go. But we prefer, rather than trying to lead that, like we have over the last couple years, and speaking to those end markets, you know, it's more of a show-me.

Richard Joseph Tobin: If it comes, we'll, we'll... Yeah, and on those two businesses specifically, we're talking about Schwepp and CPC, when the volume does come, they do convert, and the mix is up. So, you know, that's the good news. Great, thanks a lot.

Joe Ritchie: Right. The next question comes from Joe Ritchie with Goldman Sachs. Hey guys, good morning.

Richard Joseph Tobin: Joe, Hey, so Rich, a lot of discussion around the portfolio these days. Just curious, you know, what you'd like to share about, you know, the potential for some loss of value, you know, by divesting some of the pieces of the portfolio. Any comments you'd like to share there would be great. I mean, we're committed to managing the portfolio. I think we sold the Seiko, I think, at, you know, a pretty good price. In 2023, we've closed three acquisitions over the last five months, which I think are margin-creative and more growth-oriented assets, so..., will do the same thing. I think that's because bigger portfolio moves, you need balance sheet optionality.

Joe Ritchie: And I think that if you look at the knock-on effect of the really good cash flow that we had this past year, our balance sheet optionality is in a really good place, so, be more prosaic about what that means, but at least, you know, the building blocks that we need. We continue to shape our portfolio of improved year-over-year, let me put it that way. Okay, that's helpful. And I missed some of the initial commentary around the guide.

Richard Joseph Tobin: And I know that, organically, I think you guys are talking about maybe 5 to 7% EPS growth, but just maybe kind of help me understand the lower end, the high end, and what kind of shapes both of those. Well, in the headline figure, at one to three, you need to take into account that we know where we have cyclical headwinds going forward, right, so we've banked significant profits on polymer processing and can making equipment, that we knew this headwind was coming, so in that one to three, we're making all that up. We've got a bit of a headwind in terms of the disposal of the stakeout coming out And then I think that we've, you know, unlike previous years where we've kind of led forecasting in terms of biopharma and HVAC components because those are Babel grounds. We've taken a very cautious stance on that, and we're going to wait to see how the market develops. Okay, good enough.

Jeffrey Todd Sprague: Thanks, guys. The next question comes from Jeff Sprague with Vertical Research. Hey, thank you. Good morning, everyone.

Jeffrey Todd Sprague: Hey, let's just go back to capital deployment. If I think about what you've laid out in the guide here today, is there any prospective capital deployment on share repurchase or deleveraging or anything like that in the numbers? Some right now, if you calculate the EPS accretion on a cautious top line, you would come up with an incremental margin that is pretty high, right? So at the end of the day, what's incorporated in there is a little bit of capital deployment, whether that be in M&A activity or share repurchase, the timing of which we'll let you know when it happens. And then on your slide 10, right?

Richard Joseph Tobin: I mean, you do have two segments that are net negative M&A. Does this kind of inform where we're headed over time? You know, there's GEMS and DCSP, obviously with CO2, but, you know, should we take that chart at face value on where you're thinking about reshaping the portfolio? Well, that chart actually flips to the chart that we put out in 2020 in terms of the hierarchy of capital allocation to certain, well, I think the PPPS and DCF kind of flipped, but that, because you can't control in terms of closing Um, yeah, I mean, overall, yes. I mean, if you think, you know, that engineered product outside of defense has been an organic issue for us for some time, um, and D.C.S.T. Hill.

Richard Joseph Tobin: Belvac and Swepp are organic, and I think in refrigeration, I think that what we've done with the total investment would be an organic play also. So yeah, I think that the hierarchy there may flip around a little bit, but it's largely correct. Okay, and just on the back of the orders, Rich, that strength in the process orders in the quarter, was that all bio, or did something else notably pick up there? I think it's broad-based, and I think it's more influenced by, what do we call it, the thermal connection.

Jeffrey Todd Sprague: Great. Thank you. Thank you very much.

Julian Mitchell: You're welcome. The next question comes from Julian Mitchell with Barclays. Hi, good morning. Good morning. Good morning. Maybe I just wanted to start with the operating margins, so realize we're not giving a sort of firm-wide number for this year or much segment color, so maybe trying to think about some of the firm-wide drivers of margin this year, so I think there's some positive volume leverage because those are up one, one-and-a-half point, price-cost is broadly neutral, M&A and divestment seems maybe neutral, what you've announced so far, so I wondered if those three assumptions were right, and then mix, I guess, you know, anything you'd characterize from all those moving parts, sort of biopharma stable, heat pump down, polymer and can down, maybe fueling up, like in aggregate, is there much of a mix impact, do you think, on margins in your guide? Um, well, you touched on them all, Julian.

Richard Joseph Tobin: Um, yeah, I mean, look, we cut production in DCF to manage inventory. So that is not just the lost products that we sell. It's also, and we did it on the underground portion of the business, which is highly marginalized.

Richard Joseph Tobin: So we get that back, and it's reflected in Q4 and it's reflected in year over year, so we would expect as we balance production that that will return. Engineered products really the bulk of the margin accretion in 23 was driven by ESG, but that was more or less the back half, and we expect a full year of that going into 2024. And if you recall, we had a little bit of a hiccup with the implementation of ERP and VSG last year, which we don't expect to reoccur again. So that's helpful.

Richard Joseph Tobin: DII, when we close that 25% margin, that's great. So that's more of a revenue issue for us. DPPS has had a biopharma headwind now for two plus years.

Richard Joseph Tobin: What we're calling here is it's no longer a headwind, and whatever we get on the top side, which we're not baking in a lot right now, or hardly anything is going to be accretive. And the DCST has got. Right now, in our forecast, we'd be margined down on mix because of Belvac, which we knew was going to come down, and our cautious stance on heat pumps. If we're wrong about being cautious about heat pumps, then that will reflect that the headroom will be less than we've got modeled.

Julian Mitchell: And I just wanted to follow up on some of those quarterly earnings trends. So do we assume sort of Q1 earnings or EPS is, you know, flattish, and then, as you said, you get into the meat of earnings growth in Q2 and Q3?

Julian Mitchell: Yeah, I'm not going to go... Q1 will be more of a reflection of the carry forward of Q4, um, What we'll get is some amount of production rants, but a lot of bad comps, and then we accelerate right up. That's great. Thank you. Welcome. The next question comes from Nigel Coe with Wolf Research. Thanks, good morning.

Nigel Coe: We've covered a lot of ground, and Ritchie, you clearly don't want to give too much away on margins, but I just wanted to have another crack here. Clearly, you know, margin leverage is a big driver of earnings this year, so maybe talk about, you know, what do you take in for structural cost savings? I know we've got some roll forward from some of the actions you took in 2003, but maybe just itemize any other significant cost actions you took driving margins in 2004. Yeah, if you go back and look at the transcript, Nigel, we did carry forward some actions that we took in the back half of the year. We've got some coming soon.

Richard Joseph Tobin: I'm not ready to calendarize it yet because we're not fully banked, but we do have a list of... We do have a list of cost actions, which are more of a revenue edge. So if we take those actions, and we're right on the demand profile, those should actually be accretive to us. So they're not necessarily baked in at this point, and the reason they're not baked in is because we're working on the timing in terms of execution.

Nigel Coe: Okay. And then on pricing, you've been very successful in pushing prices. I mean, I think we've all been.

Richard Joseph Tobin: You know, a little bit nervous about some of the more raw material offensive businesses, you know, businesses like Sweat, Pillow Phoenix, and maybe parts of ESG as well, but sounds like your customers are forecasting, you know, inflation on their components, especially specifically within the HVAC end markets, so just curious, you know, what you've seen in terms of pricing power across the portfolio in 24, specifically within some of these more raw material offensive end markets. Yeah, it's interesting. I mean, if you go back and look at our realized pricing, and I'm talking about the portion of the pricing that's fallen all the way to the bottom. It has not been easy.

Richard Joseph Tobin: And of course, consternation around here about what is possible in pricing. So if we look at some of our end market customers and what they've passed through our pricing, I guess that we've been jealous for lack of better words. So, to us, it's been, we've, you know, I don't want to be negative, I think we've paid a price. Um, I don't feel that we've got a couple businesses that have escalation and de-escalation clauses in terms of inputs.

Richard Joseph Tobin: I think we've been on the front foot in those businesses of being proactive about locking in our pricing, especially going into this year. So right now.

Richard Joseph Tobin: We've actually got a little bit of room if we had to give back pricing, but that's not my expectation. Our issue has always been that the way to defend pricing is not to get over your skis and inventory, and that's why, you know, we took it to a certain extent to kind of manage that position at the end of last year. Going into kind of the demand environment, at least the setup as we see it today, I think that we feel good about our ability to protect that. Right, okay? Thank you. Thank you, guys. Our final question comes from Deane Dray with RBC Capital Markets. Thank you. Good morning, everyone.

Deane Dray: Thanks for fitting me in. Thanks. Hey, was there any comments, puts, or takes on how January started? And just a couple minutes ago, the ISM January new orders came out at above 50 for the first time, I think in like a year and a half, so at 52.

Richard Joseph Tobin: And you put some takes from your perspective there. You know what? I don't know. So, I would expect if it was terrible, I would have heard something. Usually, when it's positive, no one tells me anything.

Richard Joseph Tobin: But we haven't even... So, we haven't even closed the month yet, Deane, so... But I'm unaware of it being worse than we would think.

Richard Joseph Tobin: All right, good to hear. And then just a quick question, data center cooling came up a couple different times. Your heat exchangers play a key role there. Do you have a sense of how that is geared towards air cooling versus liquid cooling? Because there's a big investment cycle starting, and there's more than 30% growth in the liquid cooling side. Will you participate in that? It's almost exclusively leveraged towards liquid cooling.

Richard Joseph Tobin: Yeah, and you're not tied to a particular vendor; you will be a component supplier to that. Is that correct? That's correct. Yeah, when we say thermal, we mean liquid cooling and data centers.

Richard Joseph Tobin: That's great. Yeah. Simple ways to fly, everybody. Thank you. It's not just heat exchangers.

Richard Joseph Tobin: It's connectors, too. I'm just, uh... Thank you. Is that it?

Operator: Thank you. That concludes our question and answer period and Dover's fourth quarter and full year 2023 earnings conference call. You may now disconnect your line at this time and have a wonderful day.

Operator: ... THE END, ... ... ... ... ... ... .., of Iowa. Thank you for listening.