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Dover (DOV) Q1 Earnings Miss, Snips View on Weak Oil & Gas

Dover Corporation DOV reported first-quarter 2016 adjusted earnings per share from continuing operations of 52 cents, which plunged around 28% year over year. Earnings also missed the Zacks Consensus Estimate of 59 cents.

Including one-time items, earnings came in at 64 cents per share, down from the prior-year figure of 72 cents.

Total revenue declined 5% year on year to $1.62 billion in the quarter. The top line, however, surpassed the Zacks Consensus Estimate of $1.58 billion. The year-over-year slump in revenues was due to a decline of 7% in organic revenues and a 1% unfavorable impact from foreign exchange, partly offset by 3% growth from acquisitions.

Dover’s results came in below expectations, due to significant reductions in activity and capital spending within the U.S. oil & gas related end-markets. These conditions primarily impacted the Energy segment.

Costs and Margins

Cost of sales declined 5% year over year to $1.03 billion in the reported quarter. Gross profit decreased 6% year over year to $589.3 million and gross margin fell 30 basis points (bps) to 36.3%.

Selling, general and administrative expenses increased to $443.4 million from $434.6 million in the prior-year quarter. Operating profit fell 24% to $145.8 million from $192.5 million in the year-ago quarter. Operating margin contracted 220 bps to 9%.

Segmental Performance

Energy revenues slumped 34% year over year to $283 million in the quarter. The segment’s net earnings decreased significantly year over year to $11 million.

Revenues in the Engineered Systems segment increased to $577 million from $573 million in the year-ago quarter. The segment’s income went up 6.3% year over year to $93.7 million.

Revenues in the Fluids segment declined 17% year over year to $399 million in the reported quarter. The segment’s income decreased 15.7% year over year to $46 million.

The Refrigeration & Food Equipment segment’s revenues decreased to $363 million from $372 million in the prior-year quarter. The segment reported an operating income of $38.2 million, up from $36.2 million a year ago.

Bookings and Backlog

Dover’s bookings at the end of the first quarter were worth $1.68 billion, down roughly 4% from $1.75 billion at the end of first-quarter 2015. Backlog also declined to $1.07 billion at the end of the reported quarter from $1.19 billion at the year-ago quarter end.

Financial Position

Dover generated free cash flow of $96.2 million at the end of the first quarter of 2016 compared with $103.4 million in the prior-year quarter. Cash flow from operations came in at $133.4 million in the reported quarter as against $131.3 million in the year-ago quarter.

Outlook

Dover narrowed its full-year 2016 earnings per share guidance range to $3.57–$3.72 (excluding one-time items) from the prior band of $3.85–$4.05. The company also expects full-year revenues to decline 2%–5%, a three-point reduction from the previous projection. Within this forecast, organic revenue is anticipated to drop 5%–8%, four points below prior expectations. Acquisition revenue, net of dispositions, is unchanged and will provide approximately 4% growth, while impact from foreign exchange has been reduced a point and is now expected to be a 1% headwind. The guidance cut was based on weak oil & gas markets.

Dover expects full-year restructuring costs to be approximately $40 million, an increase of $20 million over the prior forecast. Significant restructuring actions and costs will occur by the end of the second quarter of 2016.

Our Take

Dover intends to remain focused on expanding its business in the key markets that offer significant growth potential and lead to organic and inorganic growth at all segments. Moreover, the company strives to innovate its products as per customer needs in order to gain market share. However, unstable oil prices and foreign exchange volatility remain matters of concern for Dover.

Illinois-based Dover is an industrial conglomerate producing a wide range of specialized industrial products and manufacturing equipment. It operates under four major segments, namely Energy, Engineered Systems, Fluids and Refrigeration & Food Equipment.

Zacks Rank

Dover currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector are Luxfer Holdings PLC LXFR, Sun Hydraulics Corp. SNHY and Altra Industrial Motion Corp. AIMC. While Luxfer Holdings and Sun Hydraulics sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion carries a Zacks Rank #2 (Buy).

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DOVER CORP (DOV): Free Stock Analysis Report
 
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