Dover Corp (DOV) — Q1 2019 Earnings Call Transcript

Thank you, Laurie. Good morning and welcome to Dover's first quarter 2019 earnings call. We'll begin with comments from Rich and Brad and will then open the call for questions. This call will be available for playback through May 9th and the audio portion of this call will be archived on our website for three months. The replay telephone number is 800-585-8367. While accessing the playback, you'll need to supply the following access code 5806368. Dover provides non-GAAP information such as adjusted EPS results and guidance. Reconciliations between GAAP and adjusted measures are included in our investor supplement and presentation materials, which are available on our website dovercorporation.com. Our comments today may contain forward-looking statements that are inherently subject to uncertainties; we caution everyone to be guided in their analysis of Dover by referring to our 10-K for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements except as required by law. With that, I'd like to turn this call over to Rich.

Thanks, Andrey. Good morning everyone and thanks for joining us for this morning's conference call. Let's get started on Slide 3. Q1 organic revenue was up 8.3% for the quarter, driven by very strong performance in our fluid segment, solid trading conditions in engineering systems, and improvement in Refrigeration & Food Equipment markets with food retail business posting top line growth for the first time in six quarters. Adjusted segment earnings increased 24% to $251 million, a 230 basis point improvement over the comparable period driven by cost cash and carry forward, good performance on price realization versus input costs headwinds, and volume leverage across the portfolio. Adjusted Q1 earnings were up 29% to $182 million and adjusted EPS of $1.24 per share was up 38%. Discrete tax items added $0.06 of favorable EPS impact. As announced, we completed the divestiture of the Finder pump manufacturer, serving the upstream oil and gas industry. This asset is still reflected in our Q1 results and we recorded a loss on sale of $47 million, which reflects the write-off of intangible assets and the elimination of accumulated foreign exchange translation adjustments or CTA as required by accounting standards. Overall, we're pleased to get off to a good start in 2019. Demand remains robust across much of the portfolio. We are delivering on our cost programs, incremental margins on volumes for the most part solid, and we are pleased with the increased bookings in the Refrigeration & Food Equipment segment. There remains much to do to deliver on our full-year objectives, but it's encouraging to get out of the blocks with positive momentum. And I'll hand it over to Brad from here.

Thanks, Rich. Good morning everyone. Let's go through the details starting on Slide 4. Revenue grew 5% to $1.7 billion and as mentioned, it was driven by strong demand in Engineered Systems and Fluids and improvement in Refrigeration. GAAP EPS increased 3% to $0.72. Moving to non-GAAP results. As mentioned, adjusted EPS, adjusted EBIT, and margin all increased substantially, reflecting solid margin conversion on growth and cost actions. Adjusted segment EBITDA was $317 million or 18.4%. Key adjustments for non-GAAP results this quarter were acquisition-related amortization, loss on assets held for sale related to Finder, and restructuring and other expenses. The EPS increase was supported by $0.06 or $8.4 million of discrete tax benefits versus $0.03 in the first quarter of the prior year. Turning to Slide 5. Let's get into a little more detail on our revenue and bookings results in the quarter. As mentioned in our summary, organic growth was strong at 8.3% with all three segments experiencing positive organic top line momentum. The impact from FX was a 3.4% headwind. From a segment perspective, Engineered Systems grew $39 million or approximately 6% organically and Fluids grew $95 million or 15% organically on broad-based activity across both segments. Refrigeration & Food Equipment's revenue increased $2 million, which represents 0.7% organic growth. Organic bookings were essentially flat year-over-year. All-in bookings declined $42 million or 2% versus the first quarter of the prior year, primarily due to FX headwinds. Backlog increased 5% compared to the end of Q4, most notably in Refrigeration & Food Equipment. Organic bookings for Engineered Systems declined $33 million or approximately 4% driven by an expected reduction in new order inflow in our industrial businesses, particularly, environmental solutions group, which had a large backlog increase last quarter. Organic bookings in Fluids increased $29 million or 4% with strong order activity in pumps and process solutions, while retail fueling and transport continue to work through the backlog from last year. Bookings in Refrigeration & Food Equipment grew $6 million organically. Rich will provide additional color on performance in some of the individual businesses later. Finally, overall book-to-bill finished at 1.03, reflecting healthy orders across our segments. From a geographic perspective, the U.S., our largest market, grew 7% organically where we saw strong growth in Engineered Systems and Fluids. Europe was up 14% organically with strong performance across all segments and Asia was up 5%. Within Asia, China grew 1% organically driven by growth in our Fluid segment offset by a slight decline in Engineered Systems. The rest of Asia, which represents a revenue base about the size of China for us, grew at 9% primarily driven by Fluids. Let's go to the earnings bridge on Slide 6. Starting on the top. Engineered Systems adjusted segment EBITDA improved by 19 million, largely driven by strong conversion on broad based revenue growth across the segment, more than offsetting headwinds from FX. Fluids EBITDA growth of 32 million reflects a combination of robust growth and continued margin improvement in retail fueling as well as strong conversion on volume and other businesses. The 3 million decline at Refrigeration & Food Equipment reflects lower volume in Belvac as well as unfavorable shift in business mix. Additionally, our broad-based rightsizing initiatives have been delivering savings as expected and improved margins across all segments. Going to the bottom chart, adjusted earnings from continuing operations improved 41 million or 29%, primarily driven by higher segment earnings offset by higher taxes. Interest expense was lower in the quarter. Now going to Slide 7. Free cash flow for the quarter was a reasonably expected negative 13 million, which is an improvement over last year. The first quarter is traditionally our lowest cash flow quarter. In the quarter, strong top line growth was supported by working capital investment of 138 million, with over two-thirds of the year-over-year change driven by increased accounts receivable. Capital expenditures were 37 million. With that, I'll hand it back to Rich.

All right, thanks Brad. I'm on Slide 9. Engineered Systems had a solid broad-based quarter with top line organic growth of 5.8%. Incremental margin conversion in the quarter was very strong, driven by volume leverage, productivity improvements, and cost actions. Our Printing & ID business delivered strong organic growth with double-digit growth in digital printing. Despite the weak GDP prints in Europe, demand in the region is robust during the quarter for this platform. The industrial platform performed well, with most businesses posting mid-to high-single-digit growth rates. Our ESG business continued to deliver strong growth on unit deliveries. But more importantly, we're very pleased with the traction the business is getting in assistance and software products. TWG and MPG contributed mid-single-digit growth and margin expansion supported by constructive demands in the respective end markets. Trading conditions in our vehicle services and industrial clamps businesses are more challenging, largely as a result of input cost headwinds and exposure to European markets. Going into Q2, bookings for Engineering Systems remain solid. The segment posted a book-to-bill above one. In Fluids, the segment posted organic growth of 15% for the quarter, with the majority of the portfolio posting double-digit growth rates. Incremental margin was 43%. As volume leverage, increased productivity, and cost controls more than offset the impact of unfavorable product and geographic mix and inflation. Our pumps and process solutions business had an excellent quarter with an organic growth rate of 10%. Volume conversion was significantly accretive to platform margins as a result of good price and productivity versus cost ratio and improved mix of products and services delivered. Fueling and transport posted exceptional top line growth of 20% as demand remained robust and production performance in our operations gained traction. Margin conversion on volume improved quarter-to-quarter, and we expect that trend to continue for the balance of the year as we track towards meeting our margin objectives that we had targeted in September. Moving onto Refrigeration & Food Equipment, organic revenue was up 1%. Improved bookings in the fourth quarter translated into Q1 organic revenue growth of 1.9% in food retail, which was the first positive revenue rating in the last six quarters. Quotation and booking activity in food retail remain constructive with the book-to-bill of 1.15, particularly in the core refrigerated case product line, and was in line with expectations in the first quarter. Unified Brands faced slower demand at the beginning of the year in the institutional market, but the environment has been progressively improving and the business has posted single-digit growth in Q1. Margin performance for the quarter was negatively impacted by volume at Belvac, customer mix translation from SWEP, and transitory product redesign cost in food retail as we prepare for a large automation project. If current trends continue, we remain cautiously optimistic for improved revenue performance in 2019 for the segment in line with the expectations we've included in our annual guidance. On Slide 12, we reconcile the key components of the comparable 38% increase in adjusted EPS. As we have forecasted, key contributors are delivering on a cost program and margin conversion on growth, and to a lesser extent, it's rebasing our share count and tax benefits. As we noted, we've indicated the discrete tax impact on the EPS and consider our, that'll put us at the low end of our ETR, our expected tax rate for the full year. Reflecting solid demand conditions that we see in the markets, we have increased our organic growth guidance by 1% in Fluids and Engineering Systems, and reiterated our prior guidance for Refrigeration & Food Equipment. Despite the negative 300 basis points foreign exchange translation headwinds to revenue in the first quarter, our full year estimate is 100 to 200 basis points. Dover has delivered on a solid start for the year which allows us to reiterate our full year guidance of $5.65 to $5.85 per share. To wrap up, Dover is maintaining solid momentum as represented by our Q1 organic growth rate, solid bookings and backlogs across most of our portfolio, and margin expansion driven by volume, productivity, and cost initiatives. We continue delivering on our commitments for improved performance, reinvestment in our growth platforms, and disciplined portfolio management and capital deployment. With that, let's move on to Q&A.

Thank you. Your first question comes from the line of Andrew Obin of Bank of America Merrill Lynch.

One of the questions we've been getting from investors this morning is that. Very nice beat in Q1. You've raised the organic growth number for the year. Yet you kept the EPS. What are the headwinds do you have more concerns about second half, just if you could give us more color about the modeling process here for 2019?

Alright, a few points to mention. We are currently on track to achieve the upper end of our range. We are pleased with the results from Q1, and it’s encouraging to start off strong to avoid the need to chase the comparative performance from last year's fourth quarter. Our strong production performance and the successes of DFS have allowed us to get ahead compared to last year. While there are concerns about the decline in backlogs, I want to point out that our ESG sector saw an 11% growth in the first quarter. We effectively converted our chassis availability into revenue. Although backlogs in engineering systems are decreasing, we aren't worried because orders in this segment extend well into the third quarter. In DFS, we experienced challenges with output but exited Q4 with a high backlog. The production performance in DFS was outstanding, leading to a 17% growth in the first quarter as well. Consequently, backlogs will naturally decrease due to production efficiency. The good news is that our margin conversion rate for ESG was satisfactory, yet we still aim for more accretive margins in DFS. We have a plan to improve that as we proceed through the year. Overall, we are not overly concerned about backlogs; the focus is on reaching our target range of up to $5.85 per share. We hope to gain more visibility into Q4 after another quarter, and we will provide an update then.

And just a follow-up question, how has your thinking, your stock is up, everybody else's stock is up. How do you think about cash in 2019 and within your previous range? And also how do you think about cash deployments in 2019? And has your thinking evolved given that the world is changing?

We don't necessarily make decisions on share placement as it relates to cash deployment. I think that we've clearly got a bias for inorganic growth and we've got some things in the pipeline. So to the extent that we can use our available cash, we will. If we are unable to find inorganic opportunities then clearly we would average in terms of share buyback. So, overall, I think our thinking is consistent on that matter.

Your next question comes from the line of Julian Mitchell of Barclays.

In terms of, I guess, the Refrigeration & Food Equipment business, margins slightly down there despite the encouraging organic top line performance. How should we think about margins in that division for the year as a whole? And how quickly should we expect those margins to start to grow year-on-year when looking at the balance of 2019?

Okay, Julian. Well, there are moving parts here, right? So part of the margin decline is on translation from our SWEP business, which is levered mostly towards Europe and Asia. So, you've got some translations decline there. Belvac, I think that we went through that in some details at the end of Q4. We said as part of our guidance for 2019 that we didn't have a lot of visibility for Belvac of the comps in the first half of the year. We're probably going to be poor, and we'll see what happens in the second half of the year. That view has not changed. So that is dilutive to comparable margins year-over-year. The Refrigeration business, it's a bit of a tale of two cities. We're happy with the volume being up modestly. So that's going to be helpful to us, but we are doing a lot of work on that business in preparation for a large capital project that we're going to be initiating this year. So, we had some transitory cost on product redesign to allow that transition to happen. I think that we're well beyond that. So, we're thinking that we're probably going to get margin accretion going forward in the refrigeration platform.

And then secondly, when we're thinking about the Fluids business, you did take up the organic growth guide slightly. You've got a very tough comp in the fourth quarter coming up. Maybe just talk about how you see fueling and transport playing out over the balance of the year in that context? And any updated thoughts around the EMV build-out within the U.S. specifically?

Sure. Well, I think you put your finger on it to a certain extent. We have a tough comp coming in Q4 and we have a lot of visibility into Q4. So depending on how this business develops and how EMV develops over the year, there is an opportunity for us to raise our revenue in that particular segment but we like to see some visibility there and be cautious only because the math works against us in Q4. Comments on EMV, the only thing that's been different for us so far is, we're shipping more full dispensary units than kits. So, we're getting more revenue, but that's actually dilutive to margins. So, we'll take it as it comes. I don't think the total value is about where we'd expected it to be, but I think that the mix that value is slightly different.

Your next question comes from the line of Andrew Kaplowitz of Citigroup.

Rich, Europe up 14%, I think it was up 10% last quarter. You mentioned the strength in marking and coding, digital printing in particular. How are you able to maintain the stable momentum despite the weaker backdrop? Is it just really led by stricter regulation? And from what you could tell does the growth seem sustainable here?

Yes, look, I mean, that's why I put it in the prepared remarks because that's the way that we look at it too. We're getting weak GDP prints out of Europe and we're taking that into account of our own forecast. But I think we just need to recognize that Europe is levered towards auto and machinery, and those markets are under pressure. And that is not necessarily linked in any way to marking and coding. So, to a certain extent, marking and coding is not part of the process that's giving pressure to European GDP prints. Look, we'll take it where we can get it. It ends up being a business like digital printing. All of its revenue is European, but despite the fact that shifts globally. So, it ends up being recognized as European revenue. So, it's a bit of a misnomer to a certain extent.

Okay, let me ask you the opposite question then around China. It seems like China has been decelerating to your little, Fluids up, Engineered Systems down. Can you give us some more color on marking and coding in China? Is there anything concerning going on there? I mean, do you still expect China to be up for the year for Dover on the strength in Fluids?

Look, the environment has clearly slowed. We are up when it was 1% for the quarter. Right now, I would expect it to be up for the year in consolidation whether it's slightly down in certain segments and slightly up in others. It's hard to say right now because we're working at 100 basis points. But overall, we would expect it to be up for the year. I don't really have a view on Printing & ID at this point.

Our next question comes from the line of Jeffrey Sprague of Vertical Research.

Rich, on the automation project in Refrigeration in particular. Is this something you're going live on now as we speak, I think you said the preparation is behind you? And I'm just wondering about kind of managing through that on kind of a peak season as it were for Refrigeration?

We will not be operational until the first quarter of 2020. Currently, we are adjusting the product configuration to support that change, which is part of why we've incurred some costs for this transition. If demand increases, we may be at risk, but fortunately, we have sufficient resources to begin this project, even though it's not in the same physical location where we currently produce the product. We feel reasonably confident that we can handle any shifts in demand during 2019, should they arise, so we won't be caught off guard.

Are the factory issues related to fueling completely resolved at this point, or are there still some areas where you're looking for efficiencies? Have the major problems been mostly addressed?

Well, I think the management deserves a lot of credit in terms of being able to get the throughput out. So part of the reason that the revenue was higher than we had forecasted into one is that we were being cautious in our ability to get the throughput out of those two main principle factories and they got them out. So, that's the good news. The not so good news is the margin conversion on that volume is not entirely satisfactory. I think that we've got a plan to increase margins throughout the rest of the year. But look, we're able to get the units out and that's important. Now, we need to kind of grind down on efficiency on top of that volume leverage.

Just one last one from me. In terms of like cleaning out the closet from an asset standpoint, I mean, the Finder was a particularly bad deal legacy item obviously. But is there much more that you're kind of breaking through kind of the smaller assets?

Nothing that looks like Finder.

Your question comes from the line of Steve Tusa of JP Morgan.

Good execution so far. The free cash flow is actually better than last year seasonally. How should we think about the seasonality of that free cash in comparison to prior years with everything that's happening? Should it be roughly in line with what occurred last year? I just wanted to get some insight on how the second and third quarters are going to play out.

One would hope that we don't wait until the fourth quarter to achieve our goals like last year, and we are making steady progress. If I consider the first quarter, the change in inventory compared to last year is significantly smaller, reflecting our improved conversion rates. This improvement should continue throughout the year. Regarding accounts receivable, it depends on our revenue expectations for the year and specifically for the fourth quarter. I'm pleased with our strong first quarter performance. My concern was having to push hard to reach the upper end of our guidance with another significantly strong fourth quarter. Now that we have some flexibility, we can assess how demand and backlogs evolve over the year. Frankly, if we face challenges with receivables due to increased volumes, I would prefer to prioritize earnings over receivables. However, I believe the main area for improvement will be in inventory management.

Looking back at the strong orders in the fourth quarter, did you notice any pre-buy dynamics related to the tariffs and price increases?

Yes, it's really difficult to determine. There may be some aspect of that because we've been aiming to increase prices. As we announce these price hikes, it encourages us to act promptly. In particular, with DFS, we've been open about the challenges we faced in achieving throughput from our factories, which led to a backlog. A significant portion of that was resolved in the first quarter, effectively normalizing our backlog. It's challenging to assess the situation right now, but by the end of the next quarter, we should have a clearer understanding. For now, while we're never completely at ease, we are optimistic about the backlogs we hold across our portfolio.

Okay, one last one on EMV. Any update on kind of the trajectory there accelerating, decelerating the back part of the year? Any updates on the EMV transition?

As you listened to the comment before about dispensers versus kits, it looks like it's decelerating because the last guys in are going to be kit-only and kind of our kit-only shipments right now are relatively low. So, it seems to be stretching out further.

Your next question comes from the line of Deane Dray of RBC Capital Markets.

Rich, I was hoping you could give us the update progress report Phase 1, Phase 2, and then on the benefits we see they're lumped into corporate. How will they be spread over the segments for this quarter?

Okay, I think, I understood the first question. I'm going to need some clarification on the second one. Where we are and you're talking about footprint?

Yes, right.

We have announced Phase 1. For Phase 2, we need to invest some capital, which we are currently doing to progress to that stage. We are in a transition period, and if you review our Q4 disclosures regarding our capital investments, you will see we are preparing for future actions. That's all I can share for now until we are ready to announce something, but we are making good progress. However, some significant actions require initial capital.

So, the moves that you've made so far and the payback on those, are we seeing that today in the results today? Because it looks like it was all being carried in corporate as opposed to…

I know I've got your question. You don't see anything in Q1. That's why, that's not there. This is zero in Q1. It's come for the footprint.

Yes, SG&A is there if you were asking about the SG&A.

So, it's not like to move the footprint pennies into another block, it just zero.

Got it. And what about SG&A then?

SG&A, about beating a dead horse, we're clearly on track in delivering the objective because of the fact that we started in the second half of the year. You're going to get real good comps in Q1, Q2, then it will dilute in the second half of the year.

Next question comes from the line of Mig Dobre of Baird.

Just want to go back to price cost, I think I heard you mention good price cost in Fluids. Maybe have you comment on the other segments? And how do you think about this dynamic through the year? Your cost specifically, how do you think those are going to progress through the years?

I love it. We have Brad to correct me, but I think that in consolidation, we're slightly negative in price cost in Q1. We would expect to make progress on that through the year as price increases gain traction as we go throughout. In engineering systems specifically, we have done well on price cost. But in consolidation, it's slightly negative.

So, but you said that price cost was positive in Fluids as well. So was it a drag in basically the remaining segment here?

I think it's by platform. So, we're parsing now between individual platform was in the segments. I think the headwinds are in the industrial side, pieces of the industrial side of engineering systems, headwinds in refrigeration and food retail, doing this off the top of my head; and in fluids, I think that we're positive overall.

And then lastly. As you think about the full year, do you expect to be positive from a price cost standpoint?

That's our expectation.

It widens out a little bit to the back half.

Our next question comes from the line of John Inch of Gordon Haskett.

Hey, Rich, ESG, so it was a big slug of the organic. You said you have enough backlog to work through the third quarter and you're excited, I guess you said about systems and software. Do you expect the bookings to pick up again? Just I call it out. I realized it's a small business, but it was an outsized impact right on the booking trends this Q. So…

No, it's not that small of a business. We currently lack visibility into Q4. Even though we have reduced some of the backlog due to chassis availability and strong production performance, the numbers highlighted in the presentation reflect the entire segment due to the overall value of that business and its significance within the sector. Our backlog is solid, and in any other year, we would be very pleased with what we have. Let's get through another quarter, and we should have a clearer idea of our position for the full year, but we are currently in Q3, which is looking positive.

Yes. I'm just trying to understand. You're not expecting an extending air pocket in future bookings based on what's where…

I have no indication of that is going to happen.

No reason to believe that.

The SG&A for the year is projected to be $72 million. We initially assumed a linear change which suggested a benefit of around $0.10 this quarter, but it turned out to be 15. I don't want to get into too much detail, but did you advance some of that benefit, which isn't necessarily a bad situation to be in?

Yes, I think that estimate, you know, I think that we knew from a comp point of view, it's going to be weighted towards the first half because we had $30 plus in the second half of last year. Getting it down to the millions of dollars, I mean we'll take it as it comes to a certain extent, right.

There is a slight difference in presentation to note. The $0.15 is purely from SG&A, not including reinvestment, whereas previously we were factoring reinvestment into that number. To clarify, the $0.15 reflects the first quarter. We have about $0.02 to $0.03 of reinvestment in that quarter, and as we indicated earlier, reinvestment will increase throughout this year. Our outlook on reinvestment remains unchanged. So, the $0.15 for the quarter translates to approximately $28 million, which should be considered pre-reinvestment. That figure should align well with the second half of the year, although we need to account for year-over-year comparisons. In the third quarter last year, we had $8 million, and in the fourth quarter, $22 million. Overall, I believe we are on track to meet or slightly exceed our expectations based on the first quarter's $0.15 result.

Yes. I was going to ask, did 72, has it changed? And it sounds like it maybe got up a little bit.

Yes, slightly a little bit better.

Last question Rich. So selling Finder and we're working towards this portfolio, I guess, you're going to have a portfolio coming out partly in September. Can you talk a little bit about just your process? How you're working towards that? Like in other words, presumably there's got to be a lot of depth that occurred to then be able to say look, here is how I'm thinking about portfolio look on this cleanup. But how do you go from sort of where you've been to where we're going to be able to talk that? Because I'm really curious how you're working through this?

It's a really long answer. We are looking at future projections and return on invested capital by operating company, right, and then where they're performance relative to their peers and then relative to the market structure. Clearly, Finder comes out like a bit of a sore thumb, so it needed to be actioned quickly. I don't think that there's anything in the remaining portion of our portfolio that's got remotely the same dynamics that that does. So, I mean, we're looking at it holistically, meaning that, it's not a question of portfolio purity; it's purely a question of future returns by operating company relative to their participation in the market structure. That's how I got it.

Our next question comes from the line of Nigel Coe of Wolfe Research.

We covered a lot of ground already so just a few follow-up here. Obviously, great progress on the SG&A initiatives. I'm just curious, Phase 2 is obviously more COG focused, but your SG&A is going to be relatively high compared to peers. I'm just wondering, if there's a Phase 2 in the SG&A beyond this year, Rich?

Look, nothing of the quantum that we've done, right. But understand in the background, there's a lot of what we're doing about these digital initiatives that enhance our ability to consolidate back offices. So but those are longer-running programs that were running in the background as opposed to kind of just core let's kind of revisit what we've got. So I think that there is opportunity, but I don't expect that there's a Phase 2 SG&A takeout kind of low hanging fruit. I think we're just going to have to, it's more SG&A goes into the total productivity equation now as opposed to and standalone. And to be fair, SG&A at Dover has got R&D, and I think once we split R&D out of SG&A, we're going to comp better also.

There is some uncertainty regarding the consensus setup for the first quarter, particularly concerning Fluids seasonality. I'm interested to hear if you have any insights on the second quarter, specifically how you anticipate Fluids will increase seasonally. Also, could you provide some details on how Refrigeration margins are expected to compare to the first quarter? Do you foresee them following a similar trend to what is typically expected?

Yes, I mean, I think that the two businesses we've identified both have a good dynamic in terms of their top line, which is helpful to us improving the margins of those two segments. So, I think progressively through the year, we expect to make progress in both of those particular segments.

Your next question comes from the line of Joshua Burzynski of Morgan Stanley.

I think to those the point of the last question we covered a lot of ground, but maybe just to stick with SG&A for a second. Rich, I think the initial progress there was pretty immediate, once you guys announced it. And I would imagine that, there were probably areas since then that you found maybe a bit more opportunity or perhaps on the other side where there was maybe some indiscriminate cuts. Should we see the shape of SG&A start to look a little different as you refine the program? Are you pretty satisfied with kind of the initial phasing? And how that went across the organization?

I'm satisfied with the organization's ability to undertake, which was a difficult exercise and the speed of which is done. It's never going to end, but this was a particular program that we thought was important to identify and execute on. Once we reach that program limit relative to the restructuring charges that we took, it can foresee that these EPS bridges won't have that SG&A, any other ancillary benefit will rollover into conversion at the end of the day. So at a certain point, we're just going to stop reporting on it once we've reached conclusion because then it becomes relatively discrete and it's not part of a program, right. What we said back in September is, if we take a charge for it, we're going to report back on delivery for that charge. Once we've beyond that phase, it's just going to go back into conversion.

And then, it's just a follow-up on Refrigeration. I guess similar to what you guys have talked about in Fluid. How should we think about the phasing of the year there? I think orders have been positive for a couple of years. You've built some nice backlog. Do we start to see revenue growth move closer and walk step with orders from here? Is there still going to be kind of another lag in that execution of those shipments?

I don’t know the answer to that. From what we see in the backlog, we’re doing a decent job on the production side in terms of managing it. However, we haven't yet seen that translate into margin improvement. I would prefer to wait until the end of Q2 to have a clearer picture, but it's an encouraging sign. For the first time in six quarters, the backlog is increasing and our revenue has risen. We still have a lot of work ahead to understand what this means for our margin performance in the pre-industrialization phase.

Your next question comes from the line of Scott Graham of BMO Capital Markets.

I have a follow-up question for Brad regarding the organic ES bookings. If we exclude the ESG, what would that number look like, considering the minus 32?

When I think we can give you that is a follow-up, we haven't calculated it. We can give you that one offline.

Okay. Secondly, on price cost, I know there was a question asked earlier, but kind of where you stand today with some price, some commodity prices going down and your pricing in? Would you expect at December 31 to be on a full year basis price plus neutral or sort of at December 31, price plus neutral?

I think that we will work our way there. We are slightly negative now. It is highly dependent on price realization. Our expectation is to be positive. I can't give you the quantum at the end of Q1.

That's fair. Last question is related to the Refrigeration business. I know that there is only so much you can say about that, but all of your customers have set their budgets for '19. Is there anything there that they're telling you that is of concern, moving towards more digital spending? It doesn't sound like it or are you just maybe a little bit guarded on saying anything right now or are they seeing anything negative about spending on your product on merchandising?

No, not negative. I think which is reflective in the backlog. I just think that we're cautious on, they've got a 1% growth embedded in our forecasts would be like to take that off based on backlog. Yes, but I think they were cautious because we don't have a lot of visibility into the second half.

Your next question comes from the line of Joe Ritchie of Goldman Sachs.

So just focused on the Refrigeration business for a second and the full commentary around price cost, I saw that pricing this quarter was pretty de minimis and you guys put the recent price last year effectively. I'm just wondering like. Are you expecting to get more price in that business this year? And then specifically on margins, is your expectation at this point that margins in the business will be up year-over-year?

I think that we're cautious about price realization in this business and our expectation is for margins to increase in the Refrigeration segments of the business. In the segment, I think that we're going to have to wait and see because of Belvac's ability to swing margins.

And then I guess just my one follow-up and just again, just kind of focused on margins for a second in the Fluids segment. Can you give us an update on Wayne specifically and how that business is doing? And what impact at all that's having potentially on margins as we saw pretty much flat this past quarter?

Wayne, North America is doing very well in terms of production performance and margin.

So, Wayne, North America, okay, international, not as good?

We have been clear that the margin performance between our North American and European operations is quite different. A key focus for us in meeting our goals in that segment is addressing the relatively lower margins in Europe.

Rich, are you starting to see any of that turn at all? Or is this like a longer process and just maybe any color around that would be helpful?

I think, to their credit that the European operations have fixed their throughput challenges. So, that's a big step in getting there, but we got a long way to go.

Your next question comes from the line of Charley Brady of SunTrust Robinson Humphrey.

On Refrigeration & Fluid Equipment on a transitory cost, can you quantify what the margin impact is on them in the quarter end? And if I heard you correctly, it sounds like those are essentially done, so that pressure isn't on the remainder of the year. Is that correct?

No, I can, but I won't quantify them. Our expectation is that their impact going forward will be less than it had been in Q1.

And on the pumps business, obviously, pretty strong growth and bookings there. Can you just give a little more granularity on we're seeing that? I think in the queue you talk about large in the OEMs, just what's driving that strong growth in pumps?

It is across the platform. So, it's not any particular business out of the few that are in there. I think that it's just across the entire platform. I think that market demand remains robust and I think that that our businesses are winning in the marketplace also.

Last one for me just on labor and freight costs. It is common what you're seeing there trend-wise. Is freight getting any better? Are you seeing a tick down some of the rates? Or is it still tough sledding?

I think we would have expected it to come down, but it's been offset by fuel surcharges. Now, the fuel has gone back up to four bucks a gallon of diesel, so net neutral.

Thank you. That concludes our question-and-answer period. I would now like to turn the call back over to Mr. Galiuk for closing remarks. Thank you. This concludes our conference call. Thank you for your interest in Dover and look forward to speaking with you next quarter.