DOVER Corp(DOV)Q2 2026 法說會逐字稿

Thank you for your attention. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Good morning, and welcome to Dover's Second Quarter 2026 Earnings Conference Call. Speaking today are Richard J. Tobin, President and Chief Executive Officer; Christopher Woenker, Senior Vice President and Chief Financial Officer; and Jack Dickens, Vice President, Investor Relations. After the speakers' remarks, there will be a question-and-answer period. Press star, then 1 on your telephone keypad. 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. Thank you. I would now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.

Thank you, Katie. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through August 13, 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 discussed in our SEC filings. We assume no obligation to update our forward-looking statements. With that, I will turn the call over to Richard.

Thanks, Jack. Good morning, everyone. Let's get going on Slide 3. We delivered another strong quarter with results that reflect the breadth of demand across the portfolio. Total revenue grew 7% or 5% organically with all five segments posting positive organic growth. Our top-line performance continued to be led by our secular growth-exposed markets, which now represent approximately 25% of the portfolio, complemented by broad-based constructive trading conditions across most of our other end markets. Margin performance was solid. Adjusted EBITDA margin expanded 80 basis points to 25.9% as operational execution on incremental volume more than offset input cost inflation and facility consolidation costs during the quarter. Incremental margins were 38%, up from 25% in Q1, driven by a healthy product mix from our growth platforms. Adjusted EPS was $2.74 per share, up 12% year over year, marking another quarter of double-digit earnings growth. Bookings were again the highlight in the quarter. Orders increased year over year and outpaced shipments, with book-to-bill at 1.06, extending the strong order momentum of recent quarters and improving our visibility into the second half of the year. Our balance sheet remains a competitive advantage and we continue to invest capital behind our businesses. During the quarter, we advanced capacity expansion projects to support growth as well as productivity investments to drive margin improvement across the portfolio. Industrial M&A markets have improved this year and our acquisition pipeline includes a number of interesting opportunities in attractive end markets. Given our first-half performance, the momentum in our end markets, and the visibility we have into the second half, we are raising our full-year adjusted EPS guidance. We are committed to delivering double-digit adjusted EPS growth consistent with Dover's long-term performance trajectory. Let's go to Slide 5. Engineered Products was up 2% organically. Growth was driven by strong demand in aerospace and defense components, fluid dispensing and industrial winches, along with continued stabilization in the North American vehicle aftermarket. Margins expanded 100 basis points on favorable mix and proactive cost containment actions. Clean Energy and Fueling grew 9% organically with broad-based strength across clean energy components and retail fueling equipment and software. Within clean energy, our order book has expanded meaningfully from cryogenic components used in LNG and space launch infrastructure, driving momentum in that business. Retail fueling also remained healthy with particular strength in North American dispensers, software, and below-ground equipment. Segment margin expanded 170 basis points on volume leverage and the integration benefits from recent acquisitions. Imaging and Identification grew 3% organically with growth across core marking and coding equipment, consumables, spare parts, and serialization software. Segment margin expanded 150 basis points on productivity and structural cost discipline. Pumps and Process Solutions grew slightly with strength in AI and energy infrastructure components, single-use biopharma, and industrial pumps. Precision components benefited from robust demand for bearings tied to steam and gas turbines. Polymer processing had a tough comp in the quarter, which muted the segment's top line. We expect the business to return to growth in the second half of the year. Segment margin expanded 170 basis points, a record or best-in-class result driven by a mix of products delivered and augmented by M&A activity. Climate and Sustainability Technologies grew 8% organically; it is a bit of a tale of two cities here. Heat exchange delivered their best quarter ever with particularly strong demand tied to liquid cooling. For data centers, we are actively working to double capacity for these products over the next 12 months. We also continue to see a welcome recovery in European residential heat pumps. We had a tough quarter in refrigeration. Demand was strong across all the product lines, particularly CO2 systems, which is great, but raising output proved difficult in the midst of a complex facility consolidation while simultaneously ramping labor. While we knew that there was going to be some margin pressure from running redundant facilities through the transition, we frankly did not expect to fall short on our production throughput targets. That is on me, and it cost us on the top line in the quarter, probably about 1% to 1.5% of organic growth. We will get this fixed over the balance of the year and I expect it to be reflected in the revenue growth rate and margin in the second half. Pass it over to Christopher.

Thanks, Richard, and good morning, everyone. Let's go to our cash flow statement on Slide 6. Year-to-date free cash flow of $320 million, or 8% of revenue, was up 23% over prior year. This improvement was primarily driven by operating cash conversion on year-over-year earnings growth, which more than offset working capital investments tied to accelerating top-line growth. Consistent with historical trends, we expect cash flow generation to accelerate meaningfully in the second half, driven by seasonal working capital liquidation in the third and fourth quarters. Our full-year CapEx estimate remains $190 million to $210 million and our free cash flow guidance remains 14% to 16% of revenue. With that, let me turn it back to Richard.

I am on Slide 7. Broad-based booking momentum continued in Q2 with all five segments posting year-over-year growth. On a trailing 12-month basis, consolidated bookings are up 15% and book-to-bill is well above 1, providing further visibility and confidence in our outlook. The breadth of our order growth is important and points to continued top-line strength in the second half. We are seeing particular strength in the areas we have highlighted as secular growth priorities: aerospace and defense, components for steam and gas turbines and broader power generation infrastructure, single-use biopharma, CO2 refrigeration systems, and heat exchangers for liquid cooling of data centers, where in many cases demand is outpacing supply and extending lead times and we are actively expanding capacity in those areas. We also have seen order improvement in parts of the portfolio that have recently been pressured: refrigerated door cases and engineering services continued to recover from 20-year lows as national retailers reengage in maintenance and replacement activity. In polymer processing, a book-to-bill above 1 in the quarter is an early signal of stabilization and a better outlook for that longer-cycle business as we look toward 2027. Turning to Slide 8, we highlight the breadth of our exposure across multiple secular growth end markets. These markets, which now represent approximately 25% of our 2026 revenue, up from 20% at the end of Q1, are becoming increasingly visible across all five segments. Across the energy transition and power generation markets, natural gas remains the most viable option for scalable, reliable electricity. We participate in the natural gas ecosystem through cryogenic components such as valves and vacuum-jacketed piping for LNG infrastructure and through precision components for reciprocating compressors, engines, and steam and gas turbines—OEM lead times now extend for years. Our acquisition of Secora a year ago continues to meaningfully outperform its underwriting case, providing test and measurement equipment for high-voltage wires tied to electrification and increasingly for polymer-coated fiber-optic cables tied to data center buildout. In data centers, the density of thermal requirements of new chips is driving a shift toward liquid cooling, which directly benefits our connector and heat exchanger businesses. Through SWEP, we participate across multiple parts of the liquid-cooling ecosystem, supplying brazed plate heat exchangers in both coolant distribution units and chiller OEMs. Our OPW business is also capitalizing on this growth, supplying couplers, adapters, cryogenic cooling infrastructure, and fiberglass trench systems, which were originally designed for retail fueling and are increasingly being specified for data center applications by hyperscalers. Demand tied to data center infrastructure remains exceptional with customers securing capacity well ahead of need. In CO2 refrigeration, we hold a first-mover advantage, a fully platform product offering and a recently retrofitted plant in Georgia that gives us differentiated scale and product performance. Importantly, industry adoption is no longer driven by regulation but rather by economic payoff and the total cost of ownership versus legacy refrigerants. We are also seeing robust growth across our exposure to semiconductor and electronics manufacturing where cryogenic components, flow meters, and specialized heat exchangers position us well against a durable multiyear investment cycle. In biopharma and medical, our single-use connectors, pumps, and flow meters continue to benefit from investments behind new therapies, increasing production rates, and the secular shift toward single-use batch manufacturing. Finally, we have a growing exposure to space through our cryogenic components business, particularly vacuum-jacketed piping and valves for launch infrastructure, as well as through our microwave products group which supplies radio frequency filters, amplifiers, and switches for satellites. All in, we expect to generate $50 million in revenue tied to space this year, with order rates signaling significant momentum going forward. These are the types of markets where Dover tends to win: technically demanding applications, mission-critical components, strong customer relations, and differentiated product performance. These are the hallmarks of a Dover business and support durable competitive positions, attractive margins, and long growth runways. As a result, the majority of our acquisition capital over the past five years has been deployed in these areas and they continue to represent the most attractive opportunities in our M&A pipeline. Okay. Finally, let's go to Slide 9. Our updated full-year guidance is shown on the left and reflects the raise of our organic growth and adjusted EPS outlook. For the full year, we expect positive organic growth across all five segments, similar top-line trends that we saw in the first half of the year. The secular growth-exposed markets should continue to lead the way complemented by solid broad-based demand across most of our other end markets. The operating environment still has its share of uncertainty—geopolitics, input costs, and evolving trade and tariff background are factors that we are managing closely. That said, signals remain constructive across the portfolio, and the strength and duration of our order book gives a level of visibility that supports the guidance increase. We are staying disciplined in our operations, investing behind platforms where returns are most compelling, and maintaining balance sheet flexibility to play offense on capital deployment. That combination of operating execution, durable demand, and disciplined capital allocation is what gives us confidence in the outlook and our ability to continue creating long-term value for shareholders. With that, Jack, let's go to Q&A.

Thank you. Star, then 1 on your telephone keypad. If you would like to withdraw yourself from the question queue, please press 2. We ask that participants limit themselves to one question and one clarifying question. We will pause for just a moment to allow everyone the chance to queue. Our first question will come from Jeffrey Sprague with Vertical Research. Your line is open.

Hey, Richard. On the refrigeration-related throughput issues, that 1% to 1.5% you are talking about, is that on a Dover consolidated basis? And then really the bigger part of my question: has that caused a disruption in deployment at the customer? Are customers expecting deliveries and the product is not at the store, creating any competitive issues for you?

Yes, it is on a consolidated basis. We have been late on some deliveries. I think demand in certain categories is outstripping the capacity of the industry, so I do not think we have caused that many problems, but we have been late on some deliveries. We knew we were going to have margin pressure because closing one plant and fitting it into another was quite a project. We expected the redundant capacity and the workforce training would pressure margins a little, but the throughput shortfall was disappointing. We have all hands on deck to catch up in Q3 and Q4. I am not aware of us losing any market share to date, but it is clearly a situation nobody likes to go through. For the long term, it is the right thing to do, but these projects are hard.

And that other plant is now closed? The one that you referred to?

I would say three-quarters closed.

And then, just on Pumps and Process Solutions, how weak was polymer? It sounded like everything else was good except polymer, and it was enough to make the segment flat. Was there some issue there too in the quarter?

Polymer tends to be lumpy. If you remember Q4 of last year, polymer is what drove the big beat we had then. We were not expecting much this quarter; it just tends to be lumpy and it muted the top line. That said, if polymer had delivered more, it could have been detrimental to consolidated margin. Even with the revenue loss, profit came in slightly above what our expectation was. The good news is polymer is north of 1 in book-to-bill exiting Q2.

Got it. Okay. Thank you.

Thank you. Our next question will come from Scott Davis with Melius Research. Your line is open.

Good morning, guys. Richard, I have to ask: is the EPA timing for CO2 refrigeration pushing things out? Is that changing customer behavior—are customers more likely to delay or pause, or are they too far down the road now?

We were unable to meet some delivery obligations in CO2 during Q2, but I am not aware of us losing market share. Our backlog looks terrific and adoption is accelerating. Frankly, we are pleased there is not a time-based mandate; I do not think the industry could have met an immediate mandate. Now the adoption is spreading over a multiyear period, and that is actually better for us.

Understood. I am looking at the cryogenic cooling opportunity on the data center slide. It seems new—can you explain that product and the opportunity a bit?

If you think about our legacy, there are two things. We bought a number of companies in the cryogenic space that specialize in valves, connectors, and vacuum-jacketed piping. Because of the amount of cooling needed in data centers, many of those products have become viable for data center applications. We originally bought them for natural gas and LNG exposure, but we are pivoting to recognize the opportunity in data centers. It is relatively new, which is probably why we have not talked about it much before.

Sounds good. I will pass it on. Thank you, guys. Appreciate it.

Thank you. Our next question will come from Amit Mehrotra with UBS. Your line is open.

Thanks, operator. Morning, gentlemen. Richard, I wanted to ask about orders. Book-to-bill of 1.06 is great for a typical Q2, but it was down in absolute dollars sequentially. That seems at odds with ISM recovery and momentum in structural growth markets that now make up over a quarter of your business. Am I reading too much into it? Are orders still good? How do you reconcile commentary about momentum building with a sequential decline in absolute orders?

I do not want to get into the raw mathematics of book-to-bill. Remember, as revenue rises, the base gets larger, so the absolute numbers can appear to move differently. We said in Q1 that you might see book-to-bill come down as the year progresses. To us, the important point is that book-to-bill remains above 1 and it is above 1 across the entire portfolio, which historically for Dover is rare. That breadth is meaningful and supports our view of sustainable momentum.

I understand the math around book-to-bill. My point was the numerator went down sequentially. Is there anything more to read into that?

I think you're picking at issues. Our book-to-bill is solid and, again, it being above 1 across the portfolio is by definition broad-based. We are comfortable with where it stands.

Quick follow-up: the capacity increase you are doing in SWEP—can you quantify that? It seems capacity-constrained; how much capacity are you adding, when will it come on, and how should we think about translating that to revenue?

I'll speak in general terms because there's a competitive aspect to capacity. Capacity is coming on sequentially over the balance of the second half of the year into 2027.

Would your Q2 growth have been higher if that capacity had been in place? I assume yes.

Yes.

All right. Thank you. Appreciate it.

Thank you. Our next question will come from Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning, everyone. Rich, thanks for quantifying the impact of the production issues during the quarter. Is it fair to assume you are all hands on deck to restore throughput in the second half? Do you think it is realistic to expect recovery in H2, and any sense of the total margin impact of running redundant plants during the quarter?

Our expectation is throughput will increase sequentially over the balance of the year and that the improved throughput will be reflected in fixed-cost absorption directly into margins. I prefer not to quantify exact amounts, but we have given an idea of our expectations for the refrigeration business. As we increase throughput and close the remaining redundancy costs, margins will lift. We expect H2 profitability to be materially different than H1.

You beat yourself up on this one issue, but the other four segments had much better incremental margin performance than plan. Can you self-assess where you outperformed—mix, productivity, price/cost? And are you confident that with the refrigeration recovery and restructuring savings, you can get to mid-30% plus incremental margins in H2?

Start with Slide 3. Stepping back, it's green lights across the P&L to EPS. We had a missed opportunity on refrigeration top line, but overall performance was strong. Incremental margin up from 25 to 38% reflects strength across the portfolio. Remove the drag from refrigeration, and everything else is up because each part of the portfolio has a plan to deliver year-over-year earnings growth. For example, Engineered Products managed mix to maximize profitability rather than chase dilutive sales. In Clean Energy, the margin expansion reflects restructuring and integration benefits. When we catch up on refrigeration, we'll get a top-line bump that may be slightly dilutive to consolidated margins, but that is not how we run the company. Objectively, the portfolio trajectory is strong; we have things to fix, but there are no structural problems across the business.

Okay. Thanks, Richard.

Thank you. Our next question will come from Deane Dray with RBC Capital Markets. Your line is open.

Thank you. Good morning, everyone. Maybe just circling back on heat exchangers: how do you land on 2x capacity as the right number?

We have seen some peers in liquid cooling quadrupling capacity. Is 2x the right number? There are questions about brownfield versus greenfield and the margin impact as new capacity ramps, which is never at peak efficiency on day one. The business is hard to ramp, and that defensive characteristic reduces the number of entrants. We have been ramping capacity into this demand cycle over the past roughly 2.5 years, so margins have been lower than they could have been as we've added fixed costs ahead of revenue recognition. Now, the volume demand has inflected such that revenue is accelerating in excess of the capital we are deploying, leading to margin expansion.

That is really helpful. I will end it there—wishing you continued success. Thanks.

Thank you. Our next question will come from Andy Kaplowitz with Citigroup. Your line is open.

Andy here. Richard, you mentioned industrial M&A markets have improved. Can you double-click on that—do you think you can find good targets at reasonable valuations this year? Also, given your stock seems relatively inexpensive, how do you weigh share repurchases and ASR versus acquisitions?

No different than any year: assets coming to market have improved over the previous two to three years. The big question was why multiples were so high—was it a dearth of assets, corporate balance sheets, or other factors? There are more assets coming available now. Whether you can create value depends on the prevailing acquisition price. We're looking at various opportunities and will execute if we can get the appropriate price. If we cannot, we will cycle back to capital returns. Our posture has changed since the end of last year; we were more inclined toward capital return when assets were scarce and multiples were high. Now, with more assets available, we want to keep powder dry to see whether to participate.

Can you talk more about clean energy—what you are seeing between retail fueling and clean gas? You mentioned space launch already. Organic growth has stepped up—where is that concentrated? Is it space launch, retail fueling, or elsewhere? How durable is it?

Retail fueling has been in the portfolio for some time and the demand is broad-based. Management has done a lot of work optimizing the portfolio, and they've been rewarded during the down cycle. For the part of the portfolio made up of more recent acquisitions, we've done heavy lifting on facility consolidation—these are multi-year efforts and not easy. We are seeing the end-market demand inflect the way we expected, and margins that were depressed during transitions are beginning to recover. So both product demand and margin dynamics are improving.

Helpful color, Richard. Thanks.

Thank you. Our next question will come from Andrew Obin with Bank of America. Your line is open.

Hey. Good morning. Can we talk a little bit about biopharma orders in the second quarter? How are you different than Danaher and other capital equipment providers in that space?

We get that question often and we do work with many of those OEMs—we can even be their customer in some cases. From our perspective, management teams across our biopharma businesses have done a good job with new product introductions. The vast majority of our revenue stream is consumables—replacement parts and consumables for systems that are running in the field—so as long as systems are operating, they consume our products. OEMs report that their consumable businesses are good, which benefits us. Additionally, we've introduced several new products into the space recently that have been successful.

Thank you. One more: given your year-over-year bookings growth, why isn't there more torque in revenue growth? How do you think about converting orders into revenue?

We have to be careful doing simple math on backlog to imply immediate revenue. Some of our businesses are short cycle and some are longer cycle; you can get quarter-to-quarter volatility for many reasons. Our guidance reflects what we believe is achievable. If we get to the end of Q3 and orders continue at the current pace, we will revisit guidance, but we do not want to get ahead of ourselves by assuming immediate conversion of backlog without regard to manufacturing capacity and customer timing.

How is July on orders?

I do not have July closed yet, so hard to say.

Thank you. Our next question will come from Mike Halloran with Baird. Your line is open.

Two questions. First, how are you seeing lead times—how aggressively are those extending across the portfolio? That relates to your visibility for the second half and next year. Second, how are you thinking about the durability of the cycle? What gives you confidence the strength continues beyond H2?

Our lead times overall are in balance except where we've had execution problems, such as the refrigeration throughput issue. In some areas, like long-cycle portions of the portfolio, you are beginning to see orders stretch into 2027, but it's not material to total backlog. For products like heat exchangers, customers are securing supply in advance, so lead times in the market can extend due to demand outstripping supply. Regarding durability, the cycles we participate in have visibility into 2027. I do not see businesses that look short-cycle and likely to go negative into 2027. We'll finalize strategic plans in August and September, and if order velocity continues, we will revisit outlook then, but overall we see durable demand.

Thanks, Richard. Appreciate it.

Thank you. Our next question will come from Joe Ritchie with Goldman Sachs. Your line is open.

Joe here. Similar to what others asked on order conversion: is there any reason to believe the conversion of orders into revenue won't translate into faster earnings growth or organic growth, assuming trends remain consistent?

On a 12-month rolling basis, conversion should meet expected trajectories, but you can get quarter-to-quarter volatility. We have to be careful when taking backlog math and assuming immediate conversion—there are timing differences, manufacturing constraints, and customer delivery preferences. If orders keep coming in at this pace, and we can convert them through our manufacturing base, we'll revisit guidance. But short-term quarter math can be misleading.

Given the refrigeration issues you've discussed, how concerned are you about the SWEP capacity ramp?

We are always concerned with capacity ramps, but less so for SWEP. SWEP is the most automated business we have, and the refrigeration issues were largely driven by labor ramp, not automation.

Thanks, Richard.

Thank you. Our next question will come from Christopher Snyder with Morgan Stanley. Your line is open.

You mentioned in Q1 that customers started placing orders for brazed plate heat exchangers further into the future than in 2025. Did that continue into Q2? Can you talk about plans to add capacity there—the timeline and whether you expect lead times to come in as that capacity comes on over the next 12 months?

Hello? Please hold on the line. We have now moved to the backup. Please connect. We have moved to the backup.

Yes, that continued into Q2. Capacity will come on sequentially over the back half of 2026 into 2027.

If I could squeeze in a follow-up on Q3: is it fair to assume something like low-double-digit EPS growth similar to the full year? And is Q3 organic growth likely to be better than Q4 given the tougher comp in Q4?

We do not give quarterly guidance, so I am going to pass on that question.

Fair enough. Thank you.

Thank you. This concludes our Q&A period and Dover's Second Quarter 2026 earnings conference call. You may now disconnect the line and have a wonderful day.