Dover Corporation (NYSE:DOV) Q2 2020 Earnings Conference Call - Final Transcript

Jul 22, 2020 • 09:00 am ET


Dover Corporation (NYSE:DOV) Q2 2020 Earnings Conference Call - Final Transcript


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Richard J. Tobin

and variable costs, we took further structural cost actions in the quarter as part of our business realignment activities, which will benefit us in the second half. Along with our cost actions, our proactive working capital management resulted in cash flow improvement in both absolute and conversion terms. We generated $78 million more in free cash flow than the comparable quarter last year. As a result of our first half performance and our solid order backlog, we are reinstating our annual adjusted EPS guidance to $5.00 to $5.25 per share. To be clear, even with a strong backlog and positive recent trends, we still see demand uncertainty in our markets and are not back to business as usual, but our teams have proven their ability to manage costs and operations and we are prepared to operate and achieve results in a wide variety of scenarios that may be in store for the second half.

Let's take a look at the segment performance on Slide 4. Engineered Products at a tough quarter particularly in the shortest cycle on capex-levered businesses like vehicle aftermarket, industrial automation and industrial winches. Waste hauling and aerospace & defense were more resilient shipping against their strong backlogs. Lower volumes led to margin decline versus a very strong margin that this segment posted in the comparable quarter last year, and we have taken structural cost actions in this segment, which will support its margin in the second half along with reconvering volumes.

Fueling Solutions saw continued strong activity in North America driven by demand of EMV compliance solutions. Whereas, Europe and Asia declined due to COVID related production and supply chain interruptions as well as budget cuts and deferrals in response to the decline in oil prices. Increased margin performance was commendable with 80 basis point increase on a better mix pricing and ongoing productivity actions. The sales decline in Imaging & Identification was driven predominantly a steep decline in our digital textile printing business which we expected in the significant dislocation in global apparel and fashion markets due to the pandemic.

Marking & coding -- marking & coding showed continued resilience on strong demand for consumables and fast-moving consumer goods solutions. This is our highest gross margin segment. So decremental margins are challenging and require heavy lifting on cost containment, where marking & coding business did a good job, achieving a flat margin year-over-year and we have taken proactive actions to manage the cost base in the digital printing business. As a result of these actions and a pickup in textiles consumable volumes, we expect performance to improve in the second half.

Pumps & Process Solutions demonstrated the resilience we expected. It's top line decline the least among our segments despite a challenging comparable from last year. Strong growth -- strong growth continued in biopharma and medical applications with colder products posting record growth in the quarter. This was offset by a moderate decline in industrial applications and material slowing and energy markets. Our Plastics Processing