Q3 2024 Dover Corp Earnings Call
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Speaker Change: Good morning, and welcome to Dover's third quarter 'twenty 'twenty four earnings conference call.
Speaker Change: And today are Richard J, Tobin, President and Chief Executive Officer.
Speaker Change: [noise] Sarahpac senior Vice President and Chief Financial Officer, Jack Atkins Senior director of Investor Relations. After the Speakers' remarks, there will be a question and answer period. If you would like to ask a question. During this time. Please press star and then the number one on your telephone keypad, if you would like.
Speaker Change: To withdraw your question. Please press star two.
Speaker Change: Press Star and the number two as a reminder, ladies and gentlemen. This conference is being recorded and your participation implies consent to our recording of this call.
Speaker Change: If you do not agree with these terms. Please disconnect at this time, thank you and I would now like to turn the call over to Mr. Jack Dickens. Please go ahead Sir.
Jack Dickens: Thank you Tony Good morning, everyone and thank you for joining our call.
Jack Dickens: Youll version of this call will be available on our website through November 14th and a replay link of the webcast will be archived for 90 days.
<unk> today is on a continuing operations basis to exclude the impact of our divested waste hauling equipment business from historical results.
Jack Dickens: Please reference the 8-K filed on October 10th for further information. 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 was that.
Speaker Change: I will turn the call over to rich.
Rich: Thanks, Jack and good morning, everyone, let's start with the performance highlights on page three.
Rich: Overall, the quarter was modestly better than our internal forecast, which I'll cover in the upcoming segment results slides topline performance was broad based across the portfolio.
Rich: We are especially pleased that the rotation from our longer cycle businesses to our growth platforms has continued to drive positive margin mix for the total portfolio.
Rich: We expect that to be an underlying theme as we head into 2025.
Rich: Segment margin performance for the quarter was solid at 22, 6% and represents an all time high for Dover Dover is consolidated portfolio book.
Rich: Bookings were up 5% organically in the quarter with particular strength in clean energy and thermal connector <unk> systems in Biopharma components further bolstering our positive mix outlook.
Rich: Adjusted EPS from continuing operations was up 6% to $2 27.
Rich: During the quarter, we completed the divestiture of her environment Environmental solutions group business.
Rich: Reducing our exposure to the capital goods sector.
Rich: As you can see in the bottom right of the slide the reconciliation of this impact to our full year adjusted EPS guidance from continuing operations.
Rich: As a result of this transaction, we will exit 2024 with a record capital deployment firepower, providing us with a variety of value creation opportunities going forward.
Rich: So our outlook remains constructive for the balance of the year, our third quarter performance has given us room to manage demand seasonality to drive cash flow optimization through year end by thoughtfully managing capacity utilization.
Rich: Set up for 2025 is compelling with PA.
Rich: Positive portfolio rotation into higher margin businesses, as we lap easier long cycle comps through the year.
This is further augmented by our exceptional balance sheet optionality to pursue value, creating capital deployment strategies.
Rich: Let's skip to slide five on segment performance.
Rich: Engineered products posted strong top line performance and volume growth in vehicle services and industrial Winches Aerospace and defense was lower this period due to shipment timing and a difficult comparable quarter.
Rich: Margin was down modestly because of margin mix are reduced aerospace and defense volumes clean energy and feeling was down 1% organic as positive performance in clean energy components in North American retail fueling was offset by lower volumes.
Rich: Vehicle wash and retail fueling equipment in Europe and Asia.
Rich: Bookings were positive in the quarter is below ground retail fueling volumes are inflicting positively.
Rich: Along with cryogenic components.
Rich: Margin was flat as favorable product mix.
Rich: All set by near term integration costs of our most recent acquisitions. We expect this dynamic to have a material positive margin swing.
Rich: As we complete our interact integration activities through 2025.
Rich: Imaging and identification posted an excellent quarter on solid marking and coding performance.
Rich: In the U S and Europe.
Rich: New printer shipments inflected positively during the quarter, which is a good signal for customer capital spending.
Rich: Margin margin performance was robust as management actions on cost to serve and footprint optimization continued to drive incremental margins.
Rich: Pumps and process solutions was up 2% organically on robust shipments of thermal connectors precision components.
Rich: By a farmer connectors and pumps Biopharma revenue is up mid teens year to date and over 30% versus the comparable quarter the prior year.
Rich: As forecasted polymer processing equipment was down in the period all in pumps and process solutions segment bookings were up 15% organically in the quarter as biopharma growth platforms cycles inflected positively.
Rich: Segment revenue mix drove 200 basis points of margin improvement on excellent performance production performance on volume growth in Biopharma and thermal.
Rich: Margin mix from F&B, the FW Murphy acquisition, and tight cost controls and Paula in the polymers business.
Rich: Revenue was down in the quarter and climate and sustainability technologies as solid demand in food retail systems was offset by tough comps in <unk>.
Rich: Beverage can making equipment and weak demand in the broader HVAC complex, particularly in European residential heat pumps on a brace plate heat exchanger guesses, we had hoped to see positive bookings inflection in heat exchangers in the quarter.
Rich: But that was not the case, so we have taken down our forecast for the back half of the year in that business to preserve production performance for 2025.
Rich: It's a frustrating results as we were able to hold segment margins flat. Despite the lower volumes due to excellent performance in our retail refrigeration business that was augmented by exceptionally good shipments shipment rates and C O two system.
Rich: <unk> the short term challenges, we like the setup going into 25 based on increasing demand.
Rich: And where we expect bookings to inflect materially higher together with market recovery and heat exchangers, both of which are margin accretive.
Speaker Change: I'll pass it to Brad here. Thanks, Rich good morning, everyone, Let's go to slide six.
Brad: Just to remind you that our presentation today is on a continuing operations basis, excluding our divested environmental solutions group business from the historical results.
Let's go to the charts.
Brad: The top bridge shows our revenue growth the impact of acquired businesses. This year more than offset the disposition of the steak go which closed on March 31 by $21 million, while FX was basically flat.
Brad: From a geographic perspective, the U S. Our largest market was up 8% in the quarter unhealthy broad based demand.
Brad: Europe, and Asia were down, 5% and 10%, respectively, China, which represents about half our revenue base in Asia was down 17% organically in the quarter, primarily due to shipment timing within polymer processing.
Brad: On the bottom chart bookings were up 90 million organically year over year on solid broad based demand across most end markets.
Brad: Below the line items were slightly unfavorable on a year over year basis in the quarter on higher corporate costs, mostly related to acquisition deal costs.
Brad: Our cash flow statement is on slide seven.
Brad: Adjusting for taxes paid on the gain of the stay go which are non operational in nature, our free cash flow was 17% of revenue in the quarter up $48 million year over year.
Brad: Year to date cash flow on this chart is 11% of revenue.
Brad: The fourth quarter is historically, our highest cash flow quarter as we expect more favorable working capital balances over the rest of the year. We are on track to deliver our full year adjusted free cash flow guidance of 13% to 15% of revenue unchanged from prior guidance.
Speaker Change: With that let me turn it back to rich.
Rich: Thanks, Brad I'm on slide eight.
Rich: It was a busy quarter with the portfolio moves discontinued ops.
Speaker Change: And some counter cyclicality within the portfolio as a result of that we thought it prudent to lay the groundwork for 2025 earlier.
Speaker Change: To provide some hopefully helpful views.
Speaker Change: Let's start with the portfolio.
Speaker Change: We articulated throughout the year that underlying demand across many of our end markets end markets is solid and that remains the case as we look forward into 2025.
Speaker Change: With a diverse portfolio such as ours, we enter each planning cycle constructing a view of the overall macro the individual business cycles and our competitive position in.
Speaker Change: In 2024, we had a familiar challenge much like we did in the post Covid period navigating the biopharma demand cycle in 2024, we managed a downcycle in the portion of our high backlog long cycle portfolio as well as the regulatory and stocking idiosyncratic as idiots.
Speaker Change: Sees Jesus.
Speaker Change: Heat exchangers as as shown on the right side of the page.
Speaker Change: As you can see on the slide we managed to offset the significant cycle headwind with mixing up our consolidated margin on broader short cycle improvement augment augmented by our growth platforms, which we invested in both organically and inorganically as.
Speaker Change: As we complete 2024 and begin forming our view for 2025, we do not receive the same counter cyclicality in the portfolio.
Speaker Change: Bookings and customer forecasts indicate that our growth platforms are in a multi period demand cycle. We are particularly pleased with the growth rates in biopharma components thermal connectors precision components and C O two systems.
Speaker Change: All with margin accretion attributes to the portfolio, we expect heat exchangers to return to growth in 2025, and the recovery and heat pumps and large format demand district heating and demand and data center applications for which we are expanding production capacity today.
Speaker Change: Let's move to slide nine.
Speaker Change: Organic investment inorganic growth and shareholder friendly capital return main front and center to our strategy and we have done all three so far in 2024.
Speaker Change: We have been more active on portfolio pruning this year at attractive valuations as we've methodically reshape the portfolio to higher secular growth in less cyclical end market exposures as mentioned earlier, we will exit 'twenty four with significant optionality for capital deployment <unk>.
Speaker Change: <unk> return, which is reflected on the balance sheet capacity bar on the right.
Speaker Change: Let's finish up with slide 10, I've already covered the adjusted EPS guidance to accommodate the discontinued operations earlier in the deck, which are summarized on the left.
Speaker Change: At the time of the ESG announcement, we are often asked about the assumptions needed to offset the lost earnings from divestitures in 2025.
Speaker Change: We prepared the bridge on the slide to provide some direction on the moving pieces on a pro forma basis.
Speaker Change: Let's not get too excited and we will as always provide formal twenty-five guidance. After the close of the year, but I thought it would I thought, but I hope that you find it to be a reasonable pro forma view that provides clarity on the moving parts.
Speaker Change: Left to right.
Speaker Change: We start with pre disposal EPS from our previous guide, we treat retrospectively the disposals on a full year basis, we treat the cash balanced prospectively as if our held for the full year in the short term and highly liquid positions where it is presently.
Speaker Change: Which includes the retirement of commercial paper costs in 2024, and we roll forward the 2024 acquisitions earnings benefit.
Speaker Change: We get to our Rebased 2025, EPS of $8 60 to $8.75 on a base model that assumes zero organic growth in 2025.
Speaker Change: If we model a 3% to 5% organic growth at a 40% conversion rate next year, which includes $25 million in restructuring roll forward that has already completed or underway. This year, we get an additional 55 to 90 cents of EPS as I mentioned earlier, we are accelerating our synergy capture from recent.
<unk>, including footprint consolidation, so what I would expect the restructuring contribution to be higher in 2025.
Speaker Change: Considering what was covered in the growth platforms growth trajectory margin mix and long cycle comparable performance that we discussed on slide eight the topline and incremental margin assumptions.
Speaker Change: Seem reasonable.
Speaker Change: Now I certainly doubt that will sit on that amount of liquidity unless there is a drastic negative change in the macro and then in that case. It is nice to have an insurance policy.
Speaker Change: Clearly this model can be flexed for share repurchases and M&A, but the model timing is problematic. So this is a simplified view of the deal.
Speaker Change: Our preference is to be active on the M&A front and at present that environment is getting better we have an interesting opportunity pipeline, but rest assured we will proceed with the capital discipline that we've demonstrated in the past.
Speaker Change: With that let's go to Q&A and I won't say any of <unk> whenever that okay. Let's go.
Speaker Change: Thank you if you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question from the queue. Please press star and the number of hail.
Speaker Change: We ask that participants limit limit themselves to one question and one follow up question again Thats Star one to ask a question and we'll pause for just a moment to allow everyone an opportunity that's making up for questions.
Speaker Change: And well take our first question from Jeff Jeff Sprague.
Speaker Change: That's a vertical research partners.
Jeff Sprague: Thanks for all the tongue tied this morning.
Jeff Sprague: [laughter] good morning, Joe Hi, Jeff.
Jeff Sprague: Hey, good morning, Yeah, it's early.
Jeff Sprague: It's early but it feels like.
Jeff Sprague: Hey, just.
Speaker Change: On the comment on climate sustainability rich that you made as you were going through kind of the opening comments the comment about materially higher than 25 was that a total segment comp comment a heat pump comment can you just maybe elaborate on the moving pieces within that segment in particular.
Speaker Change: Yeah, I mean, I think there was a bookings comment more than anything else.
Speaker Change: If you recall back last quarter, we had.
Speaker Change: Said that we had hoped to have seen bookings increase in base plate heat exchangers for European heat pumps that was not the case.
Speaker Change: So we have taken down our full year estimates on that particular product line. So that's negative bookings now.
Speaker Change: We're going to take down production, just a less whatever the remaining clearing event needs to take place between now and the end of the year. So we'll cut production in Q4 also in terms of the estimates.
Speaker Change: At that point I think it's fair to say that bookings based on what we see for forecast for 25 demand and heat pumps should inflect positively going forward there and then C. O two systems based on feedback that we're getting from the market in terms of spend.
Speaker Change: We would expect a material amount of bookings inflection there.
Speaker Change: Whether we get it all in Q4, whether it splits between Q4 and Q1, we'll see but based on our market read there.
Speaker Change: We think that we're going to be materially up on C. O two systems in 2025.
Speaker Change: And then I appreciate the the bridge here, it's definitely helpful.
Speaker Change: Just thinking about that 50 cents right that's.
Speaker Change: Tied to sort of cash on hand.
Speaker Change: Obviously the deal impact can vary dependent depending on what yet what you pay for stuff into life right multiples.
Speaker Change: Do you foresee a scenario, where it's less than 50.
Speaker Change: Because you know you're more active on the M&A front, how should we think about that yeah, I mean, and I tried to cover that in the commentary Jeff you look at the end of the day the.
Speaker Change: Someone described it in the bag it would be just to sit on the liquidity and that liquidity you can just basically say that deposit rates, even with factoring in rate cuts.
Speaker Change: Would drive that kind of result.
Speaker Change: In my comments, I said, I don't foresee that actually happening.
Speaker Change: Now, whether it's M&A or share repurchases that math gets kind of funky right because you've got to start but we've done the models here and said.
Speaker Change: You know what if we if it if it is margin accretive and we paid 15 times, what does that look like and if you close it in the Q1, what does that look like if we did a share repurchase of $1 billion. What does that look like you can do those scenarios.
Speaker Change: Thought for optically.
Speaker Change: To give you a view of not only the <unk>.
Speaker Change: The.
Speaker Change: Not 2021 anymore, we're holding onto liquidity was a zero sum game because your cost of carry was neutral if not negative.
Speaker Change: Now, it's meaningful and if you go back and look at our interest costs on commercial paper in 'twenty, four and you add that back again.
Speaker Change: The gap that we have on the lost earnings is really what we're trying to show here.
Speaker Change: Is significantly reduced because of that Carey.
So I hope and I would expect.
Speaker Change: That's the.
Speaker Change: Interest income line is going to be overstated.
Speaker Change: Because I would expect us to deploy.
Speaker Change: M&A capital, but.
Just as a note that cash balance is just the proceed of the after tax proceeds of the disposals and it doesn't really factor in our Q4 cash flow. So that number is a little bit understated anyway.
Speaker Change: Sure.
Speaker Change: Right.
Speaker Change: So you got additional leverage to deploy if you want to.
Speaker Change: Great I appreciate it thanks, so I'll leave it there thanks.
Speaker Change: And we will take our next question is from Julian Mitchell from Barclays.
Speaker Change: Hi, good morning.
Speaker Change: Maybe.
Speaker Change:
Speaker Change: Good color on the slides, maybe one thing I wanted to touch on was just the Oh.
Speaker Change: Overall organic.
Speaker Change: Gross backdrop.
Speaker Change: Tone sounds pretty confident I think bookings up mid single digit organic as you sort of broadly what you expected.
Speaker Change: Just wanted to sort of what your impression was of the broader environment in terms of customer activity anything notable moving around and tied to that.
Speaker Change: When we look at your segments say in Q3, very very widespread of organic growth outcomes, one division up low double digit one down high single digits. When we're thinking about the 3% to 5% framework you have on slide 10 for 2025 is the core assumption that the sort of variability.
Speaker Change: Across the five segments as much narrower and kind of all are contributing to growth.
Speaker Change: Yeah Julien.
I think thats, what we were trying to do with the slide eight I mean I think the.
Speaker Change: The 300 million headwind was like a four 5% growth headwind that we carried into this year.
Speaker Change: That we were able to offset by the kind of the investments in our growth exposures. So what we're saying is here, we don't see any indication.
Speaker Change: On the growth platforms for that growth rate.
Speaker Change: Small numbers of course is that that will continue at the same pace I guess in terms of growth going forward and then we'll begin to lap the headwind that we have a basically which is a long cycle part, which is beverage can making which is completely bottomed at this point and polymer processing, which we believe has bottomed.
Speaker Change: And Q4.
Speaker Change: What we're going to see in heat exchangers next year I'd like another quarter to figure it out and see what everybody's going to say about heat exchangers, but what we can from our channel checks.
Speaker Change: We would expect.
Speaker Change: That by cutting production in Q4 will probably.
Speaker Change: Undercut.
Speaker Change: The market and just pushed demand into next year. So.
Speaker Change: If I if I look at the core portfolio I don't I don't see anything else that is in cycle down in 'twenty, five and we're just getting that behind us.
And that was a 3% to 4% to 5% a 3% to 4% to 5% headwind. This year. So that's why I think it's reasonable to expect.
Speaker Change: I think when we modeled here was three to five and the incremental margin if you're if you. If you take out the restructuring benefit is basically where we've always been at 25% to 35.
Speaker Change: That's very helpful. Thank you and then just maybe.
Speaker Change: One quick.
Speaker Change: Follow up on one of the segments D II doesn't often get much attention but.
Speaker Change: Superlative margin performance again in that business in Q3.
Speaker Change: <unk> in the first half also.
Speaker Change: So maybe you can sort of clarify you know I know, there's a mix comment tree is a tailwind for D II, but it's not something.
Speaker Change: I don't know structural changing in the mix in terms of kind of how you've repositioned that business or it's simply just the consumables versus equipment dynamic and that may flip around next year.
Speaker Change: The consumables equipment will fluctuate quarter by quarter, but if you look at it look at it over longer periods, it's not overly meaningful. So it does you hear comments quarter to quarter about it but over a 12 month cycle. It always ends up in the same spot really the margin performance here.
Speaker Change: Is that the management team of that particular business has done a excellent job.
Speaker Change: On cost to serve.
Speaker Change: This is a global business.
Speaker Change: There is synergy extraction from the cost to serve on a global basis. So I mean, that's the majority of if you go back and look over the last three to four years.
Speaker Change: Not generally been volume, it's been a business model change.
Speaker Change: So I don't think that these margins that we're posting now because I know what the pipeline is 425 and 26 I think that this is a reasonable approximation, where this business is capable of delivering.
Speaker Change: Thanks very much.
Speaker Change: Youre welcome.
Speaker Change: We will take our next question from Scott Davis from Melis Riedel research.
Scott Davis: Hey, good morning, guys.
Speaker Change: Scott.
Speaker Change:
Scott Davis: Hey, I wanted to follow up a little bit on on.
Scott Davis: On the M&A question I think it was Jeff.
Scott Davis: It seems the deals we've seen in the last couple of years that.
You know in the multiple range is the only deals that are kind of working or the ones, where there's a fair amount of synergies.
Scott Davis: Is this something when you guys look at your existing portfolio is there is there a wide enough net there to be able to buy things that bolt on to make you kind of the what I'll say the best owner of that asset or do you think or multiples come down to the level, where that's no longer the case.
Speaker Change: I think that.
Speaker Change: You go back and look at multiples paid.
Speaker Change: Here over the last four to five years I think they've been reasonable.
Speaker Change: And at the time of the announcement.
Speaker Change: On the kind of more material deals there was always a good portion of the return that was based on synergy extraction. The smaller deals theres really not a lot to do but the bigger deals.
Speaker Change: We've built basically an engine.
Speaker Change: On our existing if you think about when we went through from 18 to about 22, we had built this engine to extract synergies of out of our own core portfolio, what's driven which drove a lot of margin expansion from all of the benefit of building. Those engines. If you will is when we do an M&A. We just do the same playbook.
Speaker Change: Just because we practice on ourselves for five years, so they need to be.
Speaker Change: A decent of enough size, but I think everything that we did.
Speaker Change: The bigger ones.
Speaker Change: Recently in clean energy had a good amount of synergy extraction and if you go back and look at the transcript.
Speaker Change: And you look on the clean energy side, I think that we posted a 20% margin this year.
Speaker Change: It's going to take us probably three quarters of 25 to finish up on the footprint and everything else, but we fully expect to drive those businesses up to 25.
Speaker Change: On synergy extraction alone.
Speaker Change: Okay. That's good color.
Speaker Change: Hey, guys, maybe a dumb question, but when you when you're selling these thermal connectors.
Speaker Change: Who's speaking and the product is it the cloud guys or is it the cooling guys.
Speaker Change: And I guess I just want to check.
And you're good to go on that.
Speaker Change: Yeah look I'll answer it this way.
Speaker Change: We've been in this business.
Speaker Change: For quite a while so it's not a product that we're ramping up.
Speaker Change: AI build out this product was actually built for supercomputing applications, which are the only ones that were using water cooling is relatively low volume in the past so.
Speaker Change: It is backed out and there are recommended specs, but you still need to sell to the user <unk> the builder. So it's.
Speaker Change: It's kind of complicated, but we would.
Speaker Change: We are the ones I think that we can claim to have the most product that's actually in use in the ecosystem today.
Speaker Change: Right, but the point is kind of once it specced in.
Speaker Change: To be replacing preventive maintenance or whatever it is like for like right.
Speaker Change: I think that would be the assumption yes.
Speaker Change: Okay. Okay fair enough. Thank you guys. Good luck.
Speaker Change: Thank you.
Speaker Change: And we will take our next question from Dan Dray RBC.
Speaker Change: Thank you and good morning, everyone.
Good morning.
Speaker Change: Hey on the Biopharma the recovery underway in the single use is.
Speaker Change: What are the Green shoots you you're looking for we heard we saw results that would suggest that from Dan or her.
Speaker Change: In particular.
Speaker Change: So is there anything broader going on in terms of how you think because it's been the most extended destocking theory for everyone, but just any color there would be helpful.
Speaker Change: Sure.
Speaker Change: Luckily we lead down because we were because of the amount of inventory post COVID-19 that had been put into the channel.
Speaker Change: And we're leading out right because these are consumable products. So these are don't require new builds of new systems. They just need the systems that have been sold in previous periods to continue to operate.
Speaker Change: So for a while there was a little bit of de linkage because we were going down early and from what are customers, saying I think that we've been reading the reports from from the market participants and were mostly in line now I think we're all saying that basically the same thing.
Speaker Change: In terms of the trajectory of the recovery and I think that that is reflected in our growth rates in terms of the consumables portion of it.
Speaker Change: Good and then excuse me now you'll have doubled the amount of imaging questions that you typically get.
Speaker Change: Your primary competitor made a lot of noise about a broadening.
Speaker Change: Broadening our platform what they call from source to shelf.
Speaker Change: Theyre more vertically integrated than you guys, but is that a broader platform that you all would be interested in participating and do you have aspirations there.
Speaker Change: Paid up everybody size of pay for a SaaS business.
Speaker Change: Dean and where are we talking about the acquisition that they just made.
Speaker Change: Yes.
Speaker Change: Yes, I mean, we've got.
Speaker Change: We've got a good sized track and trace platform within that business today.
Speaker Change: So.
Speaker Change: I think its nuance in terms of where you are in the chain.
Speaker Change: We're more pharma oriented.
Speaker Change: And I haven't studied it that looks like it's more <unk> oriented.
Speaker Change: No.
Speaker Change: We've got a pretty big business right now.
Speaker Change: It's actually been doing quite well over the last couple of years in that space. So we're already there.
Speaker Change: Yeah.
Speaker Change: Great. Thank you.
Speaker Change: Rock.
Speaker Change: And we will take our next question from Nigel Coe Wolfe research.
Nigel Coe: Thanks, Good morning, and.
Nigel Coe: Thanks for the 25 kind of help out that so it sounds like youre pretty sort of like the base case would be the organic range you laid out there. So you didn't know just to kind.
Nigel Coe: Kind of use that range, but what I'm kind of curious of is when we look at the look at the 2000 and fulfillment what impact did you have from the capital businesses.
Nigel Coe: You know Mark Bell back end and the swap European businesses.
Nigel Coe: If we assume that there was a bottoming at.
Nigel Coe: This year, maybe stabilize next year, what is the mechanical impact of those businesses.
Nigel Coe: Yeah.
Nigel Coe: Nigel as you go to slide eight on the presentation. We give you the absolute number and it's not going to get it wrong three years to five four to five <unk> to 5% headwind that we're taking and that is on that is on a rolling 12 month basis correct.
Nigel Coe: So Q4 of last year through Q3. This year, it's cost US 300 million Bucks of headwind and that's about four years to 5% growth.
Speaker Change: Okay, and I compete with them.
Nigel Coe: So.
Speaker Change: So again so is that then flattens out you got.
Speaker Change: Three to five it seems.
Speaker Change: I don't know.
Speaker Change: No improvement in the in the rest of the businesses is that the right way to read that.
Speaker Change: Yeah.
Speaker Change: Like you may have missed the beginning here I mean, we're not giving out 25 guidance. We just thought that it was important because of all the noise with discontinued ops and everything else to kind of let you Rebase. Your look on twenty-five I didn't want to come out of this thing.
Speaker Change: Say, well here's discontinued ops and we'll tell you in January what that all means.
Speaker Change: So it's a reasonable approximate approximation, but give us another quarter to get an understanding of the macro and everything else and I'm, not saying that that wasn't exactly going to be the numbers that we give out for 25 guidance, but they look reasonable based on using the growth rates that we have.
Speaker Change: On our secular growth exposures and then a lapping of the headwinds that we have.
Speaker Change: It seems reasonable, but all will okay. So rest assure well update them in January.
Speaker Change: Okay. That's a good point swing as rich and then just on just a quick clarification on the <unk> Guide and then I'll pass it on the full Q3, the full year EPS. The so I'm guessing that there's about 10 cents of interest income coming through in the fourth quarter from the E.
Speaker Change: S. G. Divestment proceeds so is that wrapped into the one O to hum.
Is that sort of within the <unk> kind of bump up to the low end just just any help there.
Speaker Change: I don't know whether its 10 cents I'd have to go back and look deconstructed and there is an amount of interest income that's in in the bump.
That helps to offset what I mentioned earlier about we're taking heat exchanger volumes down and we're making some production cuts there.
Speaker Change: So yes, it's all in right now and that's good.
Speaker Change: At the end of the day, we're driving towards the top of the range as usual.
Speaker Change: Yeah, Okay. Thanks rich.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: And we'll take our next question from Joe O'dea Wells Fargo.
Joe O'dea: Hi, good morning, Thanks for taking my question.
Joe O'dea: Just wanted to touch on on fueling and the comments around below ground fueling.
Speaker Change: <unk> positively and any sort of context of perspective in terms of the cycle trends, there and what youre seeing now in terms of how early on we are seeing some growth.
Speaker Change: Yeah, I mean, that's been a headwind for us for three.
Joe O'dea: Three years.
Speaker Change: I think right because it has suffered.
Speaker Change: Inflationary inputs and the lack of ability of labor and a variety of things that have you had gone and looked at the capex projections.
Speaker Change: For.
Speaker Change: Retail operators.
Speaker Change: Ever hit their numbers, just because of the inflation was going through the system, so with labor costs and labor availability.
Speaker Change: Availability.
Speaker Change: Getting better we've seen that begin to inflect positively, which is great because it's margin accretive to that particular business.
So when we would expect that to cycle forward from here.
Speaker Change: On the demand side of it.
Speaker Change: It's been relatively muted say you can't see it but that is us.
Speaker Change: We are managing this business for margin and I think we've made some tougher decisions about business that we would take particularly in Europe and Asia. So that has muted the top line growth because we.
Speaker Change: Because in combination with the cryogenic components.
Speaker Change: If we get this right we can get the entire segment up to 25% EBITDA margin at kind of exit rate 25 or at least that's the goal.
Speaker Change: I appreciate that and then just wanted to circle back on the restructuring I think you talked about as you head into next year $25 million of carryover, but also made some comments that there could be more and so just wanted to make sure I heard that correctly in terms of are there additional sort of <unk>.
Speaker Change: Planning efforts underway, and and where we could see more of that happening across the business.
Speaker Change: Yes, I think that the 25 is either completed or to be completed in fiscal year 'twenty four so thats the roll forward of what we get done this year.
Speaker Change: But we've got a lot to go.
Speaker Change: I mentioned previously.
Speaker Change: I think that the synergy target that we had put in the cryogenic acquisitions was about 20 ish.
Speaker Change: Some of that requires footprint consolidation over time, which takes longer.
Speaker Change: So back to my comment about driving that segment to 25.
Speaker Change: We will be incurring costs clearly through the first two to three quarters of next year.
Speaker Change: Which will require some more.
Speaker Change: Restructuring costs, which will pick up and kind of the further roll forward. So that number that you see in the chart again is incurred or to be completed in fiscal year 'twenty four.
Understood. Thank you.
Speaker Change: Yeah.
Speaker Change: And we'll take our next question from Steve.
Speaker Change: Paul J P Morgan.
Speaker Change: Hi, good morning.
Speaker Change: Hi, Steve.
Steve: Going to asking even dumber question and Scott.
Speaker Change: What is the what is the actual revenue kind of guidance for this year.
Like the absolute kind of rough number youre guiding to for this year.
Speaker Change: Oh I don't know I think we gave you a range and the top line rate of one to three.
No.
Speaker Change: Right, but off of like sort of like a seven 6 billion number something like that comes out too.
Speaker Change: I don't know.
Speaker Change: At the top of my head Alright got me I'm kind of I'm kind of getting yes, yes.
Speaker Change: Yes, it's not a dumb question.
Speaker Change: I am sure we can get it and you can follow up with Jack to give it to you, but I don't know what the exact baseline number that it comes off I think it's seven seven.
Speaker Change: By my math, just wanted to double check that so how bigger the headwind.
Speaker Change: This is like questions about net interest income and.
Speaker Change: And your boss address that anyway keep going yes, that's already like like like total topline absolute sales, yes, it kind of important I think they've done well.
Speaker Change: That you'd be able to model that but go ahead.
Speaker Change: People ask you would like cocktail parties like how big the company as you run and you kind of throw at 8 billion and stuff I mean like you should know that right I'm not a cocktail party guy, but anyway keep going.
Speaker Change: The headwind business is as we will call them, how big how big are those this year that was about like $3 billion in total.
Speaker Change: No no.
Speaker Change: Oh no no no no.
Speaker Change: No 1 billion.
Speaker Change: Something like that I would have to do the math in my head what are we talking on a 24 full year basis, Yeah. Yeah. I mean, just like like like what we're at like the 300 million was off of what base.
Speaker Change: I'm doing it in the back of my head, it's like $1 billion.
Speaker Change: Yeah, Okay got it.
Speaker Change: And as far as like your outlook next year for pricing.
Speaker Change: Is it a little more normal is there anywhere that you are seeing any kind of price pressure or is it.
Speaker Change: Modestly positive or maybe even like a point or something like that for next year modestly modest modest more mix than anything else, but modestly positive on pricing and to that end, we've been taking advantage of going long into 'twenty five.
Speaker Change: Because input pricing on commodity metals is pretty favorable.
Speaker Change: So we've been going along actually.
Speaker Change: It actually gone out into 'twenty five to help that out Okay. And then just one last one for you for the other businesses kind of the the mixed bag business is outside of <unk> of course are any of those in there that you are that are kind of like on watch for like declines next year.
Speaker Change: And any any that were you out of the other bids not the secular growth not DIY and not the headwind businesses.
Speaker Change: The other business.
Speaker Change: I did cover in the commentary we knew about <unk>, we knew about maag.
Speaker Change: Kind of new but got it wrong on heat exchangers.
Speaker Change: Not another business in our portfolio.
Speaker Change: That kind of quantum headwind.
Speaker Change: As we look into 'twenty five so the only kind of worry then we would have would be about the macro and then we will see.
Speaker Change: Right.
Speaker Change: Okay. That's all I got thanks, a lot.
Speaker Change: Right.
Speaker Change: And well take our next question from Joe Ritchie Goldman Sachs.
Speaker Change: Yeah.
Joe Ritchie: Hey, good morning, guys.
Joe Ritchie: That's a tough act to follow there.
Speaker Change: So I'm going to I'm going to.
Joe Ritchie: I'm going to ask.
Joe Ritchie: Ask the question, maybe slightly more positive later glass half full.
Joe Ritchie: If I were getting to hopefully election uncertainty sometime in the next month or so.
Joe Ritchie: Project financing.
Joe Ritchie: Arguably hopefully getting better because of interest rates you've had one of your competitors.
Joe Ritchie: Fallout.
Joe Ritchie: The fact that that's really impacted their car wash business.
Joe Ritchie: Kind of think through like that that macro element, which is both election in interest rates like yes.
Joe Ritchie: Potentially see a benefit to your business and how do you see that kind of playing out in 2025 and now that you don't have a crystal ball.
Joe Ritchie: Best guess at this point.
Joe Ritchie: Yes, I mean I think.
Joe Ritchie: We would have hoped.
Joe Ritchie: <unk>.
Joe Ritchie: Interest rates would have had a bigger impact in the second half of 'twenty four.
Joe Ritchie: On volume.
Joe Ritchie: But I think <unk>.
Cause of election uncertainty and a variety of other things.
Joe Ritchie: You can feel a little bit of caution out there.
Joe Ritchie: It's not bad but it's not.
Joe Ritchie: The amount of if we take a look at the amount of quoting that we do project cafes business versus the time that it takes for those quotes to turn into actual orders.
Joe Ritchie: And is this notion of things being pushed that youll hear a lot about that's not.
Joe Ritchie: That's not it's not a fact right so to the extent that cost of capital is stays down and then we get some kind of certainty going into 25 I would expect if we can.
Joe Ritchie: Take a look at some of our businesses that you could call kind of like more project related.
Joe Ritchie: That we would expect that to inflect positively.
Joe Ritchie: Okay.
Speaker Change: Fair enough and then and then we talked a little bit about the recovery in Biopharma, which is which is awesome to see.
Joe Ritchie: The.
Joe Ritchie: The next logical question is like when can we get the margins back up to that 30 plus range.
I know that you are feeling good about the recovery of that business into 2025, and so just kind of any thoughts around getting back to 30% next year.
Speaker Change: Well it was 29 in the quarter.
Speaker Change: And that's taking into account still yeah, its still taking into account.
Speaker Change: Mark.
Speaker Change: Probably it's bottoming now and by the way I do.
Speaker Change: Mortgage credit despite the top line headwinds there or ability to two to preserve margins during that period was excellent.
Speaker Change: So it to.
Speaker Change: To me, it's more of what is going to be the growth rate in biopharma and thermal and single use pumps.
Speaker Change: Everything that we've got in that particular segment to the extent that it stays on the track that it is it's all incremental margin positive to the 29, we just posted.
Speaker Change: Good to hear great. Thanks, guys.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: And we will take our next question from Andy Kaplowitz from Citigroup.
Andy Kaplowitz: Good morning, everyone.
Speaker Change: Hi, Andy.
Andy Kaplowitz: With the understanding that you aren't giving out 25 guidance as you. Just said you did say that you could do 40% incrementals with some restructuring tailwind and mixed benefits and as you know you've talked about 25% to 35% long term incrementals. So should we get more excited at this point that with accelerated portfolio transformation, dover's really making that transition to a <unk>.
Speaker Change: Higher incremental margin cable company or is that a bit premature.
Speaker Change #100: No I don't think its premature at all at the end of the day I mean, we lumped ESG, but the fact of the matter is it was a high growth business that had decremental margins to the greater portfolio.
Speaker Change #100: Other than end market cyclicality and blah Blah Blah is part of the reason that we took the action that we took so and if I don't want to keep repeating myself, but if you go back to slide eight slide eight is what we talked about back at the last Investor Day. This is where we're investing organically and inorganically.
Speaker Change #100: And hopefully we should be doing that in businesses that have.
Speaker Change #100: Higher growth rates and higher margin profiles to them I mean, you saw it yourself in action when you went down too.
Speaker Change #100: Two <unk> in Congress.
Speaker Change #100: That's C O two systems business is a high growth high incremental margins in the segment business. So.
Speaker Change #100: It's.
Speaker Change #100: We've got all the irons in the fire, whether it's portfolio construction organic investments or inorganic investment, it's all part and parcel to driving the consolidated segment margins of 25, right and we're going to get there.
Speaker Change #100: By Hooker why crooke.
Speaker Change #101: Love It Okay and then just another question you love around bookings just one clarification, Mike So with Dcs T really the hit send your stuff the big difference in what you thought versus that book to Bill of one I know you mentioned macro is maybe still holding some projects back as you look at Q4.
Speaker Change #101: Do you see book to Bill getting closer to one if D. CST does begin to show some life on the heat exchanger.
Speaker Change #102: It depends on what the order intake is going to be in C. O two systems.
Speaker Change #103: We've basically taken bookings assumptions down for heat pumps. So what we had originally forecast for heat pumps.
Speaker Change #103: Is worse going into Q4.
Speaker Change #103: Which is accommodated into our forecast.
Speaker Change #103:
Speaker Change #103: Whether we can we know.
Speaker Change #103: Maybe I should be that definitive.
Speaker Change #103: Expect that that we will inflect materially higher in bookings on C. O. Two systems, just a question of weather.
Speaker Change #103: We can get them from forecasting to orders.
Speaker Change #103: In Q4 or not.
Speaker Change #104: Got it but it is coming in the next couple of quarters, just a question of when.
Speaker Change #103: Yes.
Speaker Change #105: Helpful. Thanks Rich.
Speaker Change #103: Thanks.
Speaker Change #106: And our final question comes from Mike Halloran from Baird.
Hey, good morning, everyone.
Speaker Change #107: Good morning. So a couple of quick couple of quick ones just on the comment of managing capacity utilization.
Mike Halloran: I don't think this is a the scale that you would have talked about fourth quarter last year is this just tied to the heat exchanger piece or is there anything broader and any comments.
Speaker Change #107: Comments on inventory levels in the channel.
Mike Halloran: Yeah.
Mike Halloran: Overall.
Speaker Change #109: We'd like to maximize cash flow in Q4.
Speaker Change #109: And then depending on where you are or in terms of backlog and the delivery assumptions of that backlog if.
Speaker Change #109: If we believe we can push production performance January out of Q4, it's prudent to do so at the end of the day right because it flexes up cash flow and then at Purdue and preserves fixed cost absorption into next year.
Speaker Change #109: So we will do that in select businesses in Q4, and that's why we're kind of happy about.
Speaker Change #109: The results in Q3, because it buys us the room to do that because we don't want to be like trying to protect margin in Q4 by building inventory right. So it's not nearly what it was back in the beginning of the Destocking days, where we consciously made a decision to do that across the wider portfolio. This is a more select.
Speaker Change #109: <unk> comment.
Speaker Change #110: It makes sense I'm not beating a dead horse here I just want to make sure I understand.
Speaker Change #111: 25% margin comments or D. C. F. DCF that was applicable to the whole segment, not just the gas piece or something more insular.
Speaker Change #112: Likewise, the whole segment right.
Speaker Change #112: Quite to Jonathan Thank you I appreciate it great. Thanks. Thank you.
Speaker Change #112: Yeah.
Speaker Change #113: Thank you that concludes our question and answer period, and Dover's third quarter 2024 earnings Conference call. You May now disconnect. Your line at this time and have a wonderful day.
Speaker Change #113: Yeah.
Speaker Change #113: Okay.
Speaker Change #113: Yeah.
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113: Yeah.
Speaker Change #113: Yeah.
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113: Okay.
Speaker Change #113:
Speaker Change #113: Yeah.
Speaker Change #113: Okay.
Speaker Change #113: Hum.
Speaker Change #113: Yeah.
Speaker Change #113: [music].
Speaker Change #113: Hum.
Speaker Change #113: Hum.
Speaker Change #113:
Speaker Change #113: Uh huh.
Speaker Change #113: Hum.
Speaker Change #113: [music].
Speaker Change #113: Okay.
Speaker Change #113: [music].
Speaker Change #113: Hum.