Dover Corporation 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through November 12th, 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 Rich.

Thanks, Jack. Good morning, everyone. Let's get started on slide 3. Overall, it was a solid quarter. Organic growth accelerated to 7%, led by our secular growth markets and supported by durable demand across the majority of the portfolio. Bookings were the highlight in the quarter. Orders were up 16% year-over-year with growth in all five segments. Book-to-bill was 1.03 for the quarter. Our backlog is up 35% versus this time last year, which supports our confidence in the forecast and provides very good momentum heading into 2027. Adjusted EPS was $2.88 per share, up 10% in the quarter. We remained active on capital deployment, announcing two bolt-on acquisitions that add complementary capabilities, low-cost manufacturing, and geographic breadth to our businesses. We also repurchased over $330 million of our shares in the quarter.

We are narrowing our full-year guidance towards the upper end of the range with organic growth of 5%-6% and adjusted EPS from $10.60-$10.75 per share, representing double-digit growth consistent with our long-term algorithm. Let's go to slide 5. Our secular growth markets now represent over 25% of our total revenue, up from 18% in 2024. Across the top of the slide, we show our expected growth rates in each of these markets this year. In total, these markets are material driver of our overall revenue growth in 2026, and we expect that trend to continue in 2027. We have purposely built these platforms through R&D spending and new product development in our legacy businesses, as well as through targeted M&A. Our business model is unique.

It allows us to pursue a variety of high-growth business opportunities across a range of secular themes, with several of our businesses participating in more than one. We have been able to deliver this growth by proactively adding capacity in advance of the market, which has allowed us to capture leadership positions. This has been particularly important in energy transition and power generation, CO2 systems, data centers, and cryogenic components serving the energy and space markets. We have continued to invest in additional capacity in 2026 behind this demand strength, some of which we will detail in a subsequent slide. These organic and inorganic investments have delivered high returns on invested capital despite the proactive upfront investments as a result of high growth rates and margin profiles of these sectors. These businesses are technically demanding mission-critical applications where Dover tends to win.

The vast majority of our acquisition capital over the past five years has been deployed in these markets, and they remain our top priorities from both an organic and inorganic investment. Go to slide six. This slide underscores the breadth and duration of our order book. Trailing 12-month bookings are up 16%, well ahead of revenue growth at 8%, and trailing book-to-bill has climbed to 1.08. Every segment has grown bookings faster than revenue over the past 12 months. That sustained order momentum has underpinned the top-line acceleration we are seeing in 2026, and it gives us confidence in our outlook going forward. Importantly, our backlog is 35% higher than it was at this point last year and is up sequentially from Q2, with roughly half scheduled to ship in 2027.

That gives us a solid foundation heading into next year with revenue visibility well ahead of where we would expect to be at this point in the planning cycle. Moving to slide seven. Engineered Products was down 2% organically. Demand for aerospace and defense components remained strong, was more than offset by lower volumes in European vehicle services. Margin was stable on favorable mix and cost controls. Clean Energy & Fueling grew 12% organically, with solid shipments and new orders in clean energy components, fluid transport, and North American retail fueling, which posted its strongest quarter in years. Demand for our cryogenic components in LNG and space launch infrastructure remains healthy, with several recent high-profile project wins.

Margin was roughly flat as volume leverage was offset by production ramp in cryogenic product lines. Where demand is running ahead of capacity, we are actively expanding that capacity with additional output coming online in the first quarter of 2027. Imaging & Identification grew 2% organically, led by double-digit growth in serialization software and solid performance in core marking and coding consumables and equipment. Margins expanded 400 basis points to 33%, driven by volume leverage on largely fixed cost base and software growth in consumables, favorable geographic mix, and foreign currency translation. Pumps & Process Solutions were 1% organically with growth in AI and energy infrastructure, single-use biopharma and industrial pumps that was partially offset by lower volumes in polymer processing equipment where quoting activity is high.

Margin expanded 770 basis points to 34% on solid conversion in industrial pumps and precision components and a higher mix of biopharma revenue. Climate & Sustainability Technologies accelerated to 18% organic growth in the quarter. Shipments and order rates in brazed plate heat exchangers remain robust across all geographies and major end markets, with notable strength in liquid cooling for data centers, which is initially concentrated in the U.S., but we are now seeing meaningful acceleration in Europe and Asia. Lead times remain extended, and we are actively investing to double our global capacity for large heat exchangers through 2027. CO2 systems posted record quarterly revenue, with September reaching its highest output of the year. In refrigerated door cases, the investments that we have added in Richmond, Virginia facility are ramping up. Line rates exiting third quarter were 15% higher than the second quarter.

We expect another sequential increase in line rates and output in the fourth quarter. We also completed the consolidation of the door frame production in Sylmar, California, at the end of the quarter. Segment margin was 18%. Margins in heat exchangers were robust as volumes outrun the significant investments in capacity build. With direct labor less than 10% of its cost basis, this business converts incremental volume exceptionally well. Those gains in heat exchangers were offset by cost of ramping production simultaneously across CO2 systems, specialty cases, and refrigerated door cases ahead of higher demand and shipment rates in 2027, which is reflected in our backlog. Heat exchangers should continue to benefit from volume leverage in 2027 with a good portion of Q1 revenue already in backlog.

In food retail, we have absorbed roughly $40 million of costs year to date from investments in extra labor costs associated with the production ramp, along with duplicate fixed costs of running two facilities for the throughput of one. As line rates continue to ramp and as the roll-off of fixed costs accelerates through the balance of the year, margins in Climate & Sustainability Technologies are poised to improve meaningfully in 2027. Pass it over to Chris.

Thanks, Rich, and good morning, everyone. Let's go to our cash flow statement on slide 8. Year to date, free cash flow was $703 million or 11% of revenue, up $72 million over the prior year, driven primarily by increased operating cash conversion, which more than offset working capital investments to support accelerating top-line growth. Third quarter free cash flow was $383 million or 17% of revenue. We've taken up our full-year CapEx guide for the year to reflect the organic investments we're making behind demand strength. Free cash flow accelerated in the third quarter, consistent with historical trends, and we expect a further increase in the fourth quarter, which is historically our highest cash-generating quarter. Our full-year free cash flow guidance remains on track at 14%-16% of revenue. With that, let me turn it back to Rich.

Okay. I'm on slide nine. Organic investment remains our highest return use of capital. On the left are our most meaningful projects. in support of our organic revenue trajectory, we have greenfield expansions underway in below-ground retail fueling, cryogenic components, flow meters in the U.S., and single-use biopharma components in Asia, along with capacity investments in radio frequency equipment for space, printer ink production, and specialty cases in CO2 systems and large heat exchangers. Many of these projects will be online by the end of the first quarter of 2027. On the productivity side, we are optimizing our vehicle services footprint, extracting synergies from our polymer processing acquisition, and have now completed the footprint consolidation in food retail. These actions generate substantial carryover restructuring benefits, which we will quantify when we provide full-year guidance in January.

On the right side of the slide are the bolt-on acquisitions we announced in the quarter. Cloeren, which we closed in August, adds extrusion dies and feed blocks to our MAAG polymer processing platform, along with more than 300,000 sq ft of U.S. manufacturing capacity close to the U.S. petrochemical and space launch infrastructure. Leistung, which we signed and expect to close in the fourth quarter, gives our Clean Energy & Fueling segment a low-cost, state-of-the-art cryogenics components manufacturing presence in India. Both businesses carry excess capacity that other Dover operating companies will leverage as manufacturing hubs in highly strategic locations. Moving to slide 10. Our balance sheet remains a competitive advantage and our capital allocation priorities are unchanged. Organic investment generates our highest returns, and we are guiding full-year CapEx of $200 million-$220 million, with the capacity and productivity projects I just covered delivering attractive returns into next year.